Interesting Competition in Health Care

Southwestern Pennsylvania, the Pittsburgh region, is experiencing some interesting competition in health care -- see here for one of many articles..  University of Pittsburg Medical Center, UPMC, is the dominant hospital system in the area.  The dominant health insurer is Highmark, doing business as Highmark Blue Cross Blue Shield.  Highmark recently acquired several hospitals in the region to form its own supplier system, known as Allegheny Health Network.

Highmark seems to have plans to switch some of its insured population from UPMC to its own integrated network.  I suspect what will happen here is that UPMC will all of a sudden be "out of network" for many of the Highmark customers.  Maybe there will be tiers of insurance offered by Highmark, with only some tiers (lower priced ones) closing out UPMC.  That would seem to make sense.

At any rate, UPMC is somewhat miffed at losing possibly tens of thousands of customers.

So the two entities are locked in a contract battle over what UPMC will receive from Highmark for the Highmark covered patients who go to UPMC -- presumably UPMC will still be in-network for some, and the question is what UPMC will get for those patients.  UPMC has upped the ante by refusing to renew the contract at all.

These are not unusual contract disputes between hospitals and insurers.  What is different here is that the insurer had an alternative -- and even more unusual that the alternative was the insurer's own vertically integrated supplier network.

Fascinating developments.  Competition in health care is showing some signs of life.

Update on Federal Spending

Back in December of 2012, I wrote this post on Federal outlays, expressing my fear that the stimulus spending of 2008-09 had become permanent.

Below is a chart with the data updated to 2013 (projected); data from the White House site (outlays are in nominal dollars). Without getting too fancy with statistics, I would propose that it is now looking as if a good part of the stimulus was temporary.  There have been two years when nominal spending has now declined -- in Dec. 2012, it was not yet clear that actual spending for fiscal 2012 would decline.  It did.  Particularly as a percent of GDP, outlays have declined and while they are not back to pre-2009 levels, it appears to me that they are not far off now from what they would be following a trend line beginning in 2000.

The CAGR for nominal outlays from 1996-2007 is 5.48% and from 2008-2013 is 4.32%.  So there too, there has been a slowing of the growth rate even including the stimulus spending (which really hit in 2009).

Not sure who can take credit (update:  or blame, if you believe more spending is good) for this.

Poetic Justice

Ah, you have to love this.  So the only health plans the Federal Government can make available to members of Congress and its staff are plans offered through an Exchange.

But for Members, their income will place them outside the range where subsidies are available.  Even for lower paid staff, the subsidy is unlikely to be as generous as the subsidy currently implicit in their health care coverage.

Even more ironic are the attempts to say that this is a "drafting error"  -- as Ezra Klein says:

This isn’t, in other words, an effort to flee Obamacare. It’s an effort to fix a drafting error that prevents the federal government from paying into insurance exchanges on behalf of congressional staffers who got caught up in a political controversy.

Well, there are a lot of businesses and individuals in the individual insurance market who when they see the cost of their coverage under Obamacare are going to hope that they are only suffering from a drafting error too.

My guess is that the Office of Personnel Management will make a ruling that lets the members and their staffs avoid any pain.  How nice.

Confusion in Europe over Failed Banks

Yesterday, there was much consternation over the comments of Jeroen Dijsselbloem, Dutch finance minister and the chairman of the Eurogroup.  What did Mr. Dijsselbloem say?

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'," he said.

"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders."

See this Telegraph article for more details.

Here is the Federal Deposit Insurance Corporation's (FDIC) statement of how it resolves an insolvent bank in the US:

VIII.  Priority of Claims

In accordance with Federal law, allowed claims will be paid, after administrative expenses, in the following order of priority: Depositors General Unsecured Creditors Subordinated Debt Stockholders

Mr. Dijsselbloem's comments seem to be a pretty straightforward statement of the FDIC policy.  How can anyone object to that?  Well, I guess if the understanding had been that general creditors and stockholders had a higher priority in the capital structure than the general taxpayer then Mr. Dijsselbloem's statement is a change of policy.  Why anyone with economic efficiency in mind would want bondholders and stockholders of banks, or even uninsured depositors, to have a higher priority than the general taxpayer is beyond me.  Seems like a recipe for moral hazard.

The Senate Budget Does Not Cut Spending

I heard on the radio this morning about how the (Democratic) Senate budget (first one passed in 4 years, and by a 50-49 margin) "cuts spending."

Let's be very careful here -- see this from The Hill:

The Murray budget contains $975 billion in spending cuts, including $275 billion in new cuts to Medicare and Medicaid spending. But it also turns off $1.2 trillion in automatic cuts scheduled over nine years. Factoring that in, the budget does not constitute a net spending cut.

The Arkansas Compromise: New life for Medicaid Expansion

No, that is not a mistake in the title, although if you google Arkansas Compromise many of the results have to do with the Missouri Compromise.

The Arkansas compromise on the Medicaid expansion under Obamacare (happy 3rd birthday by the way) is discussed here.  What a neat idea -- my hat off to Gov. Mike Beebe of Arkansas.  Most state Medicaid programs are run by the state, and you can imagine how efficient and consumer-friendly that is.  Even more important, most state Medicaid programs pay suppliers much lower than private insurers and Medicare.  The Arkansas compromise will allow the state to expand its Medicaid program by simply pushing low income people onto the Arkansas health exchanges and subsidizing their purchase of insurance.  This is precisely how non-Medicaid individuals will buy health insurance once the exchanges get going in all states.  What could be easier?

The winners from this compromise are several --if it were to expand to other states.  The insurance companies gain, as they have more customers for their exchange-based products.  This might be offset a bit by the loss of business from states who were subcontracting their Medicaid business directly to one insurer.  Hospitals and other health care suppliers are huge beneficiaries, as the insurers' reimbursement for exchange-based insurance will generally be much higher than states' Medicaid reimbursement rates. For hospitals this is very important.  Medicaid beneficiaries most likely gain, as exchange-based insurance is almost certain to be better than Medicaid, with perhaps the exception that there could be some copays and deductibles with exchange insurance (unless Federal rules will prohibit that).  And more providers will be willing to accept Medicaid patients under this compromise.

So who loses?

The general taxpayer, of course.  The higher reimbursements to providers will definitely increase the cost of expanding Medicaid.  If this takes off, the Congressional Budget Office will have to redo its budget forecasts...

A Tale of Two Trends

I find it interesting to see how scientists and pundits are playing two different trends, one of global temperature and the other of US health spending.

The trend in each of these is important.  For global temperature, there are of course models that would indicate global temperature should be increasing with atmospheric CO2 concentrations; with health spending, the underlying theory is less developed, but the implications of changes in health care costs for US government spending and deficits are immense.

For each issue -- global temperature and health spending -- the most recent data observations give rise to speculation on changes in the underlying trend.  For instance, here is a headline on health spending, from this Bloomberg story:

And here is a chart from the Altarum Institute showing the data:

Meanwhile on the global temperature issue, we have all kinds of headlines on whether global warming has "stopped" in the last 15 or so years.  Here is one example of a headline, from the Guardian in the UK:

And here is just one diagram with some relevant global temperature data.  The source for this is the Real Climate blog:  Note the colored lines are different measures of actual temperature, while the black line is a forecast from a certain set of models.

Of course, the key point in all of this is that we have to consider the background variation in the time series in question before we can conclude anything meaningful about a statistically significant change.  The Real Climate chart makes some headway on that front, with confidence intervals around their model forecast.  I won't agree immediately that that method clears up the issue completely, but at least it recognizes the important fact of variability.  As to health care spending, there is also a lot of background variation, and I have seen very little on any statistical inference about changes.

However, I will go out on some ice and make an observation:  The liberal media has been all over the "marked slowdown" in health care costs as if it is for-sure a real change, while they are all over the "slowdown in global climate change" as either an artifact of starting point or as statistically insignificant.

I think the truth on both is closer to "it's too early to tell."

Why are Cyprus Banks in Trouble?

In all the talk about the Cyprus situation, very little is mentioned about why the banks are in such trouble.  Sure, they have a huge amount of deposits relative to GDP...but where were those deposits invested?  There must have been (recent) losses to cause the insolvency of the country's banking system.

What is the source of the losses?

Hmmm....who wants to bet the losses are based on the haircuts that non-government owners of Greek bonds had to take back in 2012 as part of the second Greek rescue package.

So we are still seeing the follow-on effects of the Greek crisis.  Question is if the knock-on effects are weakening or strengthening.