Continued fears that the NHS might be opened up to profit-grasping US health corporations in a post-Brexit trade deal have only been reinforced by repeated unconvincing denials from PM Johnson and trade secretary Liz Truss. So it’s a good time to check out on how the world’s most costly and inefficient health care system is working in the US. John Lister picks up on three recent published research papers.

Whose ‘Medical Loss’?

One of the most telling jargon terms that gives a real insight into the insurance industry-led system created by Obama’s Affordable Care Act (ACA) is “Medical Loss Ratio”. Its topsy-turvy logic from the point of view of the patient or insurance policy holder is summed up neatly by the campaigning doctors of Physicians for a National Health Program (PNHP):

“Paying for health care is a loss for insurers. They get to keep for their administrative costs and profits whatever they do not spend on health care.” 

Insurance companies have always resented paying out: and it seemed to Obama’ team drafting up the ACA that it could score political points by appearing to limit the scope of insurers to scoop profits from premium payments. As the PNHP puts it:

“In crafting the Affordable Care Act our legislators surmised that they could limit the administrative waste and excess profits by requiring that at least 80 percent of premiums be used for health care for individual plans and 85 percent for small group plans – the medical loss ratio.”

No cap on profit levels

But as another paper  points out the cap applies to insurer profit margins, but not levels: in other words the way around the limitation is simply to expand the total amount of spending (and premium income collected), with the guarantee that the insurers can make 15-20% margin on any larger sum.

“If you were an insurer, think of the opportunity this offers,” argues PNHP. Instead of trying to rein in costs, the new objective is to increase them to raise the global sum – and all the while getting subscribers to fork out the increased cost:

“How do you pay out more in health benefits? Simple. Negotiate higher prices with physicians and hospitals. Maximize benefits covered. Authorize more care …. Avoid adjusting claims and avoid claim denials. Do not investigate over-utilization or frank health care fraud.”

Once the global cost has been inflated “Then have your actuaries calculate the premiums to include 15 to 20 percent over the inflated health care spending. Make that a little bit over 15 to 20 percent which will then have to be refunded but will ensure that the full padded margin is received.”

No impact on spending

This was swiftly demonstrated as the ACA took effect. In 2015 researchers noted that “the ACA had no impact on insurance industry overhead spending”. 

Two years later another team pointed out the nonsense of the ACA approach: an insurer making an additional 1% of surplus above the permitted level has to bear the full administrative cost of keeping expenditures below 80%, but reaps none of the rewards. As a result, “minimum MLR requirements encourage higher costs, not lower.”

More recent figures show the extent to which this cynical policy is being implemented by the big insurers, who have over-inflated their costs to the extent of owing £1.37 billion to nearly 9 million policy holders from 2018-19: more than half of this is in the market for individual insurance, where 3.7 million Americans are owed refunds of £769m. These are the highest rebates since the ACA was put in place.

A large share of this ($217m) is down to Centene, one of the US insurers to show some interest in the NHS, and which has focused on lower income subscribers. At the top end, Sentara/Optima, which had the highest individual premiums in the US, owes each subscriber more than $1,200.

But don’t cry for the insurers: after they suffered a brief period of losses in 2016 the larger rebates are the result of the most profitable year  for individual insurers since the ACA was introduced in 2010.

Mean-spirited nonprofits

For many who remain uninsured or under-insured while the insurers laugh all the way to the bank, the answer can often be seeking treatment in one of the USA’s 2,508 “non-profit” hospitals, including 56% of community hospitals.

These are exempted from paying most taxes and allowed to float tax-free bonds – in exchange for giving free or discounted care to patients who can’t afford to pay. 

The IRS leaves it up to each hospital to decide the qualifying criteria; between them non-profit hospitals provide roughly $14 billion of charity care a year – about 2% of their operating costs.

Now Kaiser Health News has highlighted widespread abuse of this status by “non-profit” hospitals that dodge their commitments. 

One of them, St Joseph Medical Centre in Tacoma, Washington recently settled a lawsuit from the state attorney general alleging they erected barriers to charity care, and agreed to pay up more than $27m in refunds and debt forgiveness. 

Documents disclosed in the lawsuit included advice to heath workers on how best to pressurise patients to pay up, while patients were not offered application forms for assistance.

KHN reports nearly half (45%) of all nonprofit organisations (running 1,651 hospitals) are “routinely sending medical bills to patients whose incomes are low enough to qualify for charity care, with an estimated total of $2.7 billion in bills to patients who would have qualified for assistance if they had filled out application forms.

Over half the bad debts being written off by nonprofit hospitals in St Louis, Pennsylvania, Virginia and Memphis are owed by patients who should have received free or subsidised care. 

Bad debts are absorbed into hospital running costs and eventually increase the rates charged to private insurers. 

The only losers in the process are the patients, forking out insurance premiums or fleeced for charges they should not have to pay.

Measuring US wasted spending

The excess costs passed on to insurers falls into the general category of “wasted” spending, which has been widely seen as costing as much as a third of the already inflated level of US health spending. 

Now a new study has attempted to update these 2012 estimates and to assess what compensating  steps are being taken to contain or eliminate waste.

It focuses on the 6 waste domains previously identified by the Institute of Medicine and the 2012 paper: failure of care delivery, failure of care coordination, overtreatment or low-value care, pricing failure, fraud and abuse, and administrative complexity.

Up to $935bn of waste

It now estimates annual wastage of resources on services other than paediatric care (for which there are no data available) to be between $760bn and $935bn, equivalent to around 25% of the $3.7 trillion spent on health: this might appear to be a step forward from the previous higher estimates, but they are still only estimates, and the sums of money involved are eye-watering:

Annual savings (with no schemes identified to address the problem of administrative complexity) are estimated to yield potential totals between $191bn and $282bn annually – equivalent to around 25% of the actual wasted money.

It’s not clear how much of the “potential” savings are realistically likely to be achieved, or over what time frame: the system is so fragmented with so many perverse incentives it is hard to implement any coherent policy and – as we have seen above – there is little incentive for insurers to do so.

But even if they were achieved, it would still leave the US medical industrial complex squandering well over half a trillion dollars each year, and up to £653bn, in wasted spending.

Administrative complexity alone swallows up the equivalent of £205 billion – more than the entire NHS and social care budget each year – but delivering no benefit to anyone but corporate fat cats.

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John Lister
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