Vermont Passes Single-Payer: The Potential of State Innovation

May 11, 2011 § Leave a comment

One of the better parts of last year’s health reform bill (PPACA) is a provision allowing states to opt out of many parts of the bill as long as they meet its coverage requirements. This may seem counter intuitive at first – how could the bill be strengthened by not implementing it? – but by acknowledging that there may be better ways to solve the problem of soaring health care costs while setting a floor for the care all citizens must receive, the bill allows states to experiment with alternative and potentially superior delivery systems. One of the first states moving to take advantage of this provision is Vermont, which last week passed a bill to implement a state-wide single-payer health system. The bill calls for relatively radical changes in Vermont’s health care system and, while many of its specifics remain to be fleshed out, it offers a number of promising ideas for solving our country’s health care crisis.

The Vermont plan is to combine all of the individual payers in the market into a single, unified payment system. Under this system – referred to as Green Mountain Care – individuals, small groups, federal and state governments, employers and insurers will all pay in, and the State will administer the plan. Vermont will set reimbursement rates, equalizing payments in the private and public sectors and reducing dramatically the amount of administrative paper work that must be done, but purchasers of private insurance will still be able to choose between different benefits packages.

This will be most easily accomplished with the individual and small-group markets that Vermont is given authority to regulate under PPACA, and with state and local level employees. These individuals will be able to choose between different plans on an insurance exchange, allowing them to compare different plans side-by-side. Vermont has also asked the Obama administration for a waiver for Medicaid and, in an unprecedented move, for Medicare as well. This would allow Vermont to receive the federal funds for both of these programs and funnel them through its Green Mountain Care plan.

The most difficult group to bring in to the system will be the large employers who currently provide coverage for their employees. For these employers, Vermont plans to levy an across the board tax, with the hope that employers will choose to place their employees into Green Mountain Care because they are paying part of the price regardless. This could, of course, be problematic: if some employers choose to leave the state instead of paying the increased taxes, the plan will have a negative effect on revenues, making providing care to everyone more difficult. Given significant buy-in, however, the bill contains a number of provisions to help contain costs.

Chief among these is the creation of the Green Mountain Care Board (GMCB), a much stronger version of the federal Independent Payments Advisory Board created by PPACA. The GMCB is given broad authority to implement cost containing measures including rate setting, alternative payment and delivery systems, and oversight of insurance companies (including premium increases) and hospital budgets. Importantly, providers are not beyond the scope of GMCB’s powers as they are in the federal IPAB, and GMCB would have power to negotiate drug prices, a power that many – including President Obama in his latest budget – have proposed for IPAB.

Another major source of savings will be the unified administrative system. As I noted last week, administrative overhead on the individual insurance market typically runs about 40 percent of total costs. For the small group market this is around 25 percent, and for large employers around 10 percent. In comparison, the federal government only spends around 3 percent of Medicare and Medicaid dollars on administrative costs. If Vermont is able to realize a significant fraction of these potential savings, they would be able to reduce costs across the board, reducing premiums for those still purchasing insurance on the private market, and allowing Vermont to reduce the tax it levies on employers.

There are, however, significant challenges that still remain. The bill includes no concrete financing mechanisms – a study group is currently examining different options – and this has been a frequent target of criticism. This is less problematic than it appears, though, because costs will ramp up relatively slowly, giving the legislature plenty of time to implement the study group’s recommendations. Additionally, if Vermont receives Medicare and Medicaid waivers, a significant portion of the required revenue will come directly from the federal government. Another issue will be overcoming the resistance of the pharmaceutical industry to reduced profits and maintaining access in the face of reduced provider revenues.

If Vermont is able to successfully implement this plan they will provide an example that can be followed by other states. Canada, in its path towards single-payer took a similar route: it was first implemented in a single province before spreading and evolving into a national program. Obviously, successful implementation is far from guaranteed, and there may be plans better suited to America given the system we have today. But the point is that by allowing state level innovation, PPACA provides for the kind of localized solutions that both conservatives and liberals should be able to support and which will, hopefully, end up saving the entire country money in the long run.

The Progressive Budget and The Public Option

May 6, 2011 § 1 Comment

Over the last few weeks I have weighed the advantages and disadvantages of the health care proposals contained in the budget proposals of Rep. Paul Ryan (R-WI) and President Obama. I concluded that President Obama’s health care proposal was superior, not only because it provided a more realistic target for health care spending growth, but because it provided concrete proposals to reach these targets. In contrast, the Ryan plan provides no credible mechanism to reduce health care spending, instead reducing government spending by pushing increasing costs onto Medicare and Medicaid beneficiaries.

Lost amid this debate however, is the fact that the President’s budget is, at best, a center-left plan, and that many Democrats would prefer a more robust proposal. The Progressive Caucus’ budget is such a proposal – with its more equitable mix of tax increases and spending cuts – and it seeks to restrain health care spending in many of the same ways as Obama’s budget, with one important difference: the creation of a public option.

The progressive plan envisions the creation of a government run health insurance plan which could compete with private plans on the individual market in order to hold down costs. Their proposal would utilize the health insurance exchanges created under last year’s health care reform bill to allow consumers buying insurance on the individual market to compare the benefits and cost of the government run plan side by side with private plans. This approach would not only reduce costs, it would create a route for health care delivery innovation and provide a benchmark against which private plans could be measured.

The public option reduces costs in a number of ways. First, it can drastically reduce administrative overhead. Medicare’s overheard costs are about 3% of total expenses – drastically lower than the 40% share consumed by administrative costs on the individual insurance market. While other sectors of the insurance market do better on administrative costs – the small group market spends around 25% – none approach the efficiency of the government plan. Of course, there is no guarantee that a newly created public plan will do as well as Medicare, but proposals to create a public plan by allowing those under 65 to buy into Medicare could ameliorate this concern and, in any case, reducing administrative costs to 5 or 10 percent in the individual insurance market would provide significant cost gains.

The other major route available to the government to hold down costs is the utilization of its bargaining power to negotiate lower prices for drugs and services. Medicare currently utilizes this leverage to negotiate compensation rates for physicians that are 81% of those paid by private insurance companies. These cost savings could be passed on to consumers, making the public plan more competitive . However, Medicare cannot currently negotiate for drug prices in the same way that private insurance companies can, but the Progressive budget, as well as Obama’s plan, would do away with this restriction. Presumably, any newly created public plan would also be free of this restriction.

The creation of a public plan could also result in benefits not related to cost. The Veterans Health Administration has pioneered the use of new quality measures, increased information technology usage and research-based coverage decisions among them. Medicare, too, has led the way in quality improvements – medicare patients report greater access to physicians for routine care, for example – and innovations in both programs have filtered into the private market.

By doing all of these things, the public option will act as a standard against which we can measure private insurance. By holding down costs and competing in an open market, the public option will force private insurers to follow suit. Similarly, improvements in the delivery system and in quality of care will force private insurers to provide the same level of care or else lose customers. Thus, the public option will not only help to reduce the amount of money the government spends on health care, it will reduce costs in the market as a whole. When combined with the provisions in last year’s health care reform bill, and the additional reforms in President Obama’s budget, the Progressive plan for reducing the nation’s health care burden is a credible path forward – one that would go above and beyond any other proposals in reducing costs, increasing quality, and expanding access.

Health Care Reform: Two Visions for the Future

April 28, 2011 § Leave a comment

In my last two posts, I discussed the differences between the deficit reduction plans of Representative Paul Ryan (R-WI) and President Obama. I criticized Ryan’s plan for mandating an unsustainable growth rate for Medicare and Medicaid and proposing few measures to restrain the growth in health care costs, thereby pushing costs onto the beneficiaries of these programs. Obama’s plan, in contrast, doubles down on many of the cost containment measures enacted in the Patient Protection and Affordable Care Act (PPACA) in order to restrain health care spending growth. These two plans offer two competing visions of the health care market of the future: one tightly regulated, with specific government incentives and programs to hold down costs, and the other mostly devoid of government involvement, with Medicare and Medicaid recipients increasingly responsible for rising costs.

To get at the differences between these two visions, it is important to examine the specific provisions of PPACA, as well as how these provisions fit into the broader framework of our health care delivery system. PPACA attempts to change our health care system in three major ways: utilizing the government’s purchasing power to change how medicine is practiced, regulating insurance companies to make it easier to obtain and keep health insurance, and encouraging new methods of health care delivery.

The first of these avenues is illustrated by PPACA’s approach to hospital acquired infections. These infections afflict nearly 2 million patients every year, costing our system an estimated $10 billion dollars, and they are almost entirely preventable. Measures as simple as convincing doctors and nurses to wash their hands enough are effective in controlling the spread of these diseases. To address this problem, PPACA uses incentives in both Medicare and Medicaid payments. For Medicare, PPACA would reduce allpayments to a hospital to 99% of the otherwise applicable rate if they are in the top 25% in hospital acquired infections. For Medicaid, PPACA would simply prohibit reimbursement for treatment related to hospital acquired infections – with the caveat that they would have to review this policy to ensure it does not impede access for Medicaid patients. Together, these two initiatives would exert pressure on hospitals to improve their practices, and the benefits would be reaped by all patients – not just those on Medicare and Medicaid.

PPACA also imposes a raft of new regulations on private insurance. Among them are prohibitions on refusing coverage to those with pre-existing conditions, limitations on the length of the waiting period, and the usage of community rating in determining premium amounts. The last of these would disallow varying premiums based on health factors – ensuring that those with pre-existing conditions can continue to obtain affordable insurance. These factors, together with the creation of health insurance exchanges to bring competition to the insurance market and the provision of subsidies to purchase insurance, will ensure that every American has access to affordable health insurance.

Finally, the bill encourages delivery system reform, demonstrated in its provisions relating to Accountable Care Organizations (ACOs). A major problem with our current system of health care delivery is our fee for service model of care, in which providers are paid for each procedure they perform, giving them no incentive to hold down costs and, in fact, encouraging unnecessary procedures. One way in which PPACA attempts to remedy this is through encouraging the creation of ACOs, organizations which would integrate insurers and providers into one entity. By paying these organizations more when they save money, and less when they do not, PPACA would encourage them to hold down costs and reward well-run organizations with extra profits.

These provisions are, obviously, only a small subset of those contained in the bill, meant to demonstrate its major thrusts: by leveraging the Government’s power over the market, PPACA attempts to change a health care system which has failed for decades to hold down costs, thereby reducing the Government’s own health care obligations; by regulating the insurance market, PPACA attempts to make health care affordable and accessible for all American; and by encouraging new delivery systems, PPACA attempts to change the perverse incentives which contribute to our runaway health care costs.

All of these approaches are conspicuously absent from Rep. Ryan’s plan. By forfeiting the Government’s role in health reform, Ryan sacrifices any ability we have to restrain the growth in health care costs. While relying on market forces alone is the party line for Republicans today, there was a time when their vision of health care reform included a measured role for government. Returning to this vision would allow Republicans to present a credible alternative to PPACA, and allow us to have a debate about how the government can best restrain health care costs and improve access, rather than whether it should do so at all.

This Article was originally posted at nextgenjournal.com

Terrorist trials in military courts

April 7, 2011 § Leave a comment

This week the Obama Administration announced it would back down from its decision to try Guantanamo Bay detainees in civilian courts, and would instead revert to the Bush Administration’s policy of using military trials. Supporters of the Bush Administration’s policy, like Texas Representative and chairman of the House Judiciary Committee Lamar Smith (R), argue that Obama is making the right choice. In Representative Smith’s words, “It’s unfortunate that it took the Obama administration more than two years to figure out what the majority of Americans already know: that 9/11 conspirator Khalid Sheikh Mohammed is not a common criminal, he’s a war criminal.” Alternatively, opponents of military trials are dismayed, arguing that America’s judicial system should be adequate for any crime, and that trying terrorists in military courts undermines the rule of law. The Obama administration’s decision, and the drama unfolding around it, represent the legal ambiguity of not only the detainees at Guantanamo, but of executive powers of war in an era of terrorism and violence sponsored by non-governmental organizations.

In response to the terrorist attacks on September 11th, President Bush not only began a war, but began what would be a decade long (and counting) debate on the legal status of citizen combatants, or terrorists. These individuals, labeled “enemy combatants” by the Bush Administration, have complicated the traditional laws of war. Prior to September 11th, individuals involved in combat would have a clear legal status as the combatants of a nation or state. If those individuals broke the law, they would be in violation of whatever international laws of war their state had agreed to through treaty (such as the Geneva Conventions). In Bush’s War on Terror, however, “enemy combatants”  are members of non-governmental organizations, Al Qaeda or the Taliban primarily, and because neither of these organizations are clearly states it is uncertain as to whether international laws of war apply to them (there is some debate as to the status of the Taliban, see here).

By declaring “war” on terrorism generally speaking, Bush acquired all the traditional executive powers of war, which, it turns out, are quite far-reaching and flexible. However, because “terrorism” is not a state, as would be the typical target in a war, the extent of executive power in this conflict, and the length of time in which it can be used, is uncertain. Because terrorism is more of a tactic or idea than it is a definable entity, it is unclear as to what victory in the War on Terror would be.

All of this uncertainty has fueled executive overreach throughout the War on Terror. Bush, and now by extension Obama, have been able to break the law or exercise power in areas traditionally under the purview of the judiciary or legislature. For example, the Bush Administration’s warrantless surveillance program in 2005 violated the 1978 Foreign Intelligence Surveillance Act. Additionally,the newly reimplemented military trials constitute a breach of the Geneva Conventions: the Conventions allow for military trials, but also guarantee the right to appeal to a civilian court (Article 106), “essential guarantees of independence and impartiality” (Article 84), the right to call witnesses (Article 105), and the right to confer with an attorney in private (Article 105) (The Geneva Conventions, 1949), none of which are allowed under the current military trials. By violating the Conventions, Bush undermined laws that constitute  basic principles of the rights of the accused in all democracies, and were meant to protect not only America’s enemies in war, but American soldiers in a time of war as well.

Proponents of military trials argue that using civilian courts to bring Guantanamo detainees to trial would risk the potential release of highly dangerous criminals, such as Khalid Shaikh Mohammed, who is accused of orchestrating the September 11th attacks. However, what would be the result of using a civilian court in this case? Either Mohammed would be found guilty and given due punishment as accorded by federal law, or he would be found not guilty and would be freed of indefinite detention at Guantanamo. Saying that Mohammed cannot be given legitimate civilian determination of his guilt because he is “too dangerous” is tantamount to declaring his guilt before a trial even occurs. Furthermore, allowing our executive branch to make this decision, even if it is at the insistence of certain members of Congress, is a violation of the balance of powers among the branches of our government. In the War on Terror, we have allowed our executive to declare war on what is essentially a military tactic and to unilaterally prosecute any individual who could be accused of association with that tactic. Obama, by caving in to political pressures and extending the Bush Administration’s legal tactics of the War on Terror, has exacerbated the situation rather than ending a decade of legal ambiguity and executive overreach.

Ryan’s “Path to Prosperity” Falls Short

April 6, 2011 § 4 Comments

This article was originally posted at nextgenjournal.com

On Tuesday, Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee, released his budget proposal for the 2012 fiscal year. Dubbed the “Path to Prosperity”, it is a wide-ranging set of proposals with the objective of reducing and eliminating America’s debt. Ryan’s plan accomplishes this goal, in large part, by privatizing Medicare, shifting Medicaid to a system of block grants to states, and capping federal government expenditures on both. These reforms are problematic, not only because privatization is unlikely to reduce cost absent fundamental delivery system reforms, but also because the caps Ryan puts in place would not keep pace with the growth in health care costs, forcing an ever reducing level of benefits on recipients.

Beginning in 2022, Ryan’s plan would convert Medicare into a system of subsidies which beneficiaries could apply towards purchasing insurance from a list of coverage options. These subsidies would be larger for the poor and smaller for the wealthy, and they would be allowed to grow at a rate no greater than inflation + 1%. Similarly, Medicaid would become a system of block grants for states without the federal coverage requirements in place now, and these grants would be indexed for inflation and population growth.

To be clear, absent these caps, neither of these proposals are necessarily a bad idea. While private insurance has consistently been more costly than public plans, Ryan’s Medicare privatization plan bears a striking resemblance to the system of subsidies and private insurance exchanges contained in the health care reform bill (PPACA) passed last year. By forcing plans to compete in an open marketplace, with transparency about costs and benefits provided, it is possible Ryan’s plan will have some effect on costs. Allowing State’s greater flexibility in Medicaid implementation could have a similar effect.

Ryan’s reforms, however, lack much of what makes PPACA effective: reforming our health care delivery system in order to bend the cost curve. In fact, Ryan’s plan goes further: it proposes repealing PPACA without suggesting new reforms to take their place. This means that, because his plan would allow federal expenditures to increase at a rate of about 3% a year for both programs, and actual health care costs increase at a rate closer to 6%, it would pay for a smaller percentage of beneficiary’s costs over time. What his plan accomplishes, then, is the reduction of the deficit by foisting future increases in health care costs onto the poor, eldery, and disabled who benefit from these programs.

Pushing costs onto beneficiaries isn’t the only problem with Ryan’s capped growth models. Because Medicaid enrollment, along with the associated costs, increases during times of economic downturn, States would be left with more people in need at the same time their revenues plunge. Since States are prohibited from running a deficit, they would be left with a difficult choice: raising taxes during a recession, deep cuts to other services, or letting millions go without health insurance.

For Medicare, Ryan’s plan would bring fundamental changes to the social compact which underlies our country’s safety net. Young people today are paying into a system in order to support the health care of retirees on the premise that when they retire, they will be entitled to a similar level of support. In contrast, Ryan’s cost caps force each generation to accept a drastically lower level of benefits than those they helped provide to the generation preceding them. Additionally, at some point the gap between subsidies and the actual cost of adequate health insurance will become too large for most retirees to afford, forcing them to go without.

Many have lauded the courageousness of Ryan’s proposals. Indeed, his plan contains some of the most expansive attempts to rein in the federal deficit ever proposed by a member of Congress. Courage in support of bad ideas is no asset, however. While it is commendable that Ryan has begun the conversation, his ideas for addressing our social safety net miss the mark. Rather than draconian caps on expenditures, Ryan should be proposing market reforms similar to, but more expansive than, those contained in PPACA so that we can control costs, expand access, and preserve Medicare and Medicaid. Instead, Ryan’s “Path to Prosperity” repeals PPACA and tells the poor, elderly and disabled that rising health care costs are not the government’s problem.

UPDATE: Corrected Medicare growth rate in Ryan’s plan as well as a few other numbers.


Political Power and State Bill 5 in Ohio

April 5, 2011 § Leave a comment

Last week, Ohio Governor John Kasich signed Ohio State Bill 5 into law. The bill, along with similar bills in Indiana and Wisconsin, is part of a recent push by Republicans to strictly limit the collective bargaining rights of public employee unions. These restrictions have been sold by Kasich and other governors as a necessary step to close state budget shortfalls and resolve the state’s long term pension crisis. Despite these claims, the bill is less about fiscal issues than it is about furthering the long term erosion of union political power and, by extension, the power of the lower and middle classes they fight for.

Collective bargaining, the process by which employees band together to negotiate with employers for wages, benefits, and working conditions, is a central component of union power because it allows the union to act as a counterweight to more powerful employers. S.B. 5 weakens public employee unions by significantly eroding collective bargaining: while it would allow them to continue to bargain for wages, it would eliminate their ability to collectively bargain for benefits. Other restrictions in the bill would negate even these limited rights, resulting in the elimination of collective bargaining in practice, if not in fact.

Normally, when contract negotiations stall, the dispute can be referred to a neutral third party who can judge the facts of the case and make a final decision through a process called binding arbitration. S.B. 5 would eliminate this process, replacing it by first referring the case to the legislature – who can impose either side’s last best offer – and subsequently, if the legislature fails to act, simply implementing managements last offer. This change, combined with S.B. 5’s ban on public employee strikes, allows management to impose whatever contract they wish on union members, essentially nullifying the major source of union bargaining power and leaving unfairly treated public employees with no recourse.

Obviously, these changes will save the State of Ohio some money. If S.B. 5 had been in place for 2010, The Dispatch estimates the state would have saved $216.9 million, but $76 million of this is in pay freezes that Unions had already agreed to. Adjusting for these pay freezes, the total savings is closer to $140 million. Additionally, $1.12 billion would be saved by local governments. However, these governments have differing levels of fiscal health and can easily negotiate new contracts without state government interference. In fact, some did so before S.B. 5 ever passed.

State budget shortfalls are largely temporary, having been brought on by an economic downturn following a financial crisis largely caused by wealthy investors on Wall Street. These individuals, far from paying the price for the crisis that they caused are being taxed at the lowest rate in over half a century. Instead of shifting this mostly temporary burden to those most able to bear it, Kasich is closing revenue shortfalls by implementing what will amount to a permanent tax (in the form of reduced wages) on middle class public workers. He has even gone so far as to suggest a tax break for wealthy investors in Ohio. Clearly, Kasich has made a deliberate choice to squeeze the middle class while sparing the wealthy.

The other reason often given to restrict collective bargaining rights is to allow the State to close its pension shortfall. Indeed, Ohio has among the largest pension shortfalls in the country at upwards of sixty billion dollars. However, as Dean Baker demonstrated recently, these shortfalls are almost entirely caused by the financial crisis and the ensuing drop in the stock market. And, given a return to normal rates of return, these shortfalls will be almost entirely solved. It is clear, then, that S.B. 5 would have minimal budgetary impacts and that the strength of its Republican support rests more firmly on the impact it would have on Union political power.

Shifts in political power are a long term phenomenon, made evident by the highest levels of income inequality in decades, with far reaching consequences. As the top income earners take an ever larger share of the national income, they provide a greater share of funding for political campaigns and thereby gain more power over the political process. It is well known, for example, that Unions generally provide financial support for Democratic candidates. Less well known, however, is that in recent years neither party has been terribly receptive to the concerns of the middle and lower classes for which Unions advocate. A recent Larry Bartels study on political representation had the following chart comparing Democrats and Republicans:

So, while Democrats are slightly more responsive to the concerns of the lower class, and slightly less to the middle class, both parties (and Republicans in particular) are incredibly responsive to the upper class. That this group also provides the lion’s share of campaign funds is surely no coincidence.

It wasn’t always this way. Increases in income inequality and disparities in political power have increased at the same time as declining Union membership and influence on the political process. This is not to say that the decline of Unions alone can explain these deep problems, but unions have always served as a center of political power for the middle and lower classes. Unions are an organizing base through which these groups can exert some influence on the political process. They have fought for laws that benefit all workers – the minimum wage, an end to child labor, and innumerable health and safety protections – and their presence in the market alone raises wages for non-Union workers.

That income inequality is rising and taxes on the wealthy are falling amid the worst economic downturn since the Great Depression is no accident.  It is, instead, the result of a long term campaign to crowd out the voices of the middle and lower classes from the political debate, leaving our government responsive only to those with the means to fund multi-million dollar campaigns. Republican attempts to pass anti-Union bills in Ohio, Wisconsin, Indiana and other states is best understood as a continuation of this campaign. If our political system is going to address the needs of all Americans, rather than just the few at the very top, nothing less than a systemic reorganization will be required. Repealing S.B. 5 and bills like it would make a good start, but we cannot imagine that the struggle will end there.

Accountable Care Organizations: An Introduction

March 16, 2011 § 2 Comments

Among the most important drivers of cost in the American health care system is our fee-for-service model of care. Under this model, doctors and hospitals are paid not for outcomes, but for each procedure they perform. As a result, they have little incentive to provide efficient care and, instead, have every incentive to perform unnecessary services. This bias for increasingly expensive procedures affects many aspects of America’s health care system, making us, for example, the world leader in number of CT scans and MRIs administered per capita.

The health care reform bill (PPACA) doesn’t attempt to solve the problems in our system with a single approach. Instead, it launches a wide variety of pilot programs and delivery reforms coupled with mechanisms for evaluating what works. A number of these provisions are targeted at encouraging Accountable Care Organizations (ACOs) in the hope that we can reduce costs by changing incentives. In this, the first part of a 3 part series, I am going to explain what an Accountable Care Organization is and how it functions to reduce costs. In later posts I will describe the incentives PPACA provides, both for ACO formation and for cost reduction, and the challenges facing ACOs as these incentives take effect.

At its simplest an Accountable Care Organization is a group of providers who organize together to take responsibility for a patient population across the entire continuum of care. This means that they work together to distribute payments, coordinate the care the patient receives, and reward quality care by implementing performance measures and payment structure reforms. In practice, most ACOs will come to resemble something like Kaiser Permanente – an integrated delivery system in which one organization acts as both insurer and care provider. Under the Kaiser Permanente model, health plan members pay into the non-profit Kaiser Permanent Health Plan which provides investment and infrastructure development for Kaiser hospitals, and directs payments to physician-owned Permanente medical groups. At the end of each year, doctors and hospitals split the excess revenue provided by the health plan.

In an ideal implementation, the distinction between health plan and medical group would be blurred further, essentially combining the two into a single entity. This model has numerous advantages from a cost perspective. Since the insurers and care providers are part of a unified organization, all premiums not spent on care can go towards profit and the lowering of premiums. This incentivizes, for example, providing primary care early in order to prevent costly health problems later on. Furthermore, integration can eliminate many of the overhead costs associated with providers billing insurance companies and with insurance companies deciding whether these bills ought to be paid. This model can also improve quality by allowing doctors to more easily coordinate care among different specialties.

In part two, I will discuss the incentives PPACA provides for the creation of these ACOs and how it envisions ensuring quality, affordable care.

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