Tim Layton
Appearances
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
So loads of people prefer Medicare. private plans and we want to support that decision. But we also want that private option to be budget neutral, to not cost any more than if folks had chosen the traditional public plan. And so how do we set payments to these plans to support choice and budget neutrality?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Well, we wouldn't really want the government to simply reimburse every expense that the insurers incur. plus some fee for administering the plan, that would mean that no party in that case, not the doctors, not the insurer, have any incentive to control costs. And that would lead to the second situation that you described, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
In your example, where the doctor prescribes a ton of unnecessary stuff, five blood tests, an MRI scan, CT scan, et cetera. And in that type of case, like costs can spiral out of control in this private option. As enrollees, they want stuff, right? And the best way for insurers to get enrollees is to just give them more stuff.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And insurers will just keep on giving and giving and giving because they don't have to foot the bill because the government's just going to reimburse them. Right. And so this is essentially the incentive structure that doctors face in the traditional fee-for-service part of Medicare. And one of the reasons why we started this private option in the first place.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And so instead, what you want to do is just pay the insurer a fixed amount. for each month, for each person that they enroll. We often call this capitation. And in that world, if an insurer reigns in costs by negotiating lower prices with doctors and hospitals, by directing patients to more efficient care, or even by straight up rationing and saying no,
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
for stuff, then they can profit off of part of the cost savings they generate. And hopefully they take a portion of those savings and pass them through to the patients in the form of additional benefits like vision and dental and things they wouldn't get in Medicare. There's some evidence that they do that. But now, more importantly, there is an incentive to restrain spending, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
To prevent costs from spiraling out of control and to maintain that budget neutrality, make it so this private option doesn't end up costing a ton more. But a major problem with this kind of fixed payment per person setup is that plans will vastly prefer to enroll some patients versus others in that case. Say an average patient costs $5,000 a year.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And so we set the payment to plans around that level, about $5,000 per year. But say a patient with cancer costs $20,000 per year. And say ultra-endurance bike packers like my in-laws cost like $1,000 a year. They're super healthy. They don't need a lot of healthcare. And so insurers are going to do everything they can in that case to avoid the cancer patient and to attract those cyclists, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
So basically, you'd expect... private plans that always exclude oncologists and cancer clinics from their networks, that exclude or put really high copays on blockbuster cancer drugs, that generally makes sick patients' lives miserable with kind of layer upon layer of prior authorization rules, you know, super narrow provider networks, constant denials.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And their hope is that if they do this, these folks will opt for a different plan. or more likely for the public system instead. And you'd expect insurers to offer my in-laws subsidies for purchasing a new bike, maybe provide really good coverage for physical therapy, free gym memberships, things like that.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Or maybe they advertise in places where people are healthier, or it's widely known that like Hispanic Medicare beneficiaries are much cheaper than others. So maybe they advertise aggressively on your favorite Bad Bunny radio station or something like that, right? And so this is a system that we don't exactly want.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
We don't want a system where the plans are trying to avoid the sick patients and attract the healthy patients. And equally importantly, if the government is paying a private insurer $5,000 per year for someone who would cost $1,000 in the public program, like my in-laws, government costs are going to spike, right? And remember...
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
We want this private option to be budget neutral, but now it's definitely not, right? That private option is enrolling all the cyclists, none of the cancer patients, and the cyclists cost the government $1,000 in the traditional public program, but $5,000 in the private plan. And this can lead to this type of runaway government spending, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
All right. So Derek, it looks like you're doing pretty well for your age. Your blood tests suggest you're right on the edge of having diabetes, right? And you appear to have some mild memory loss, which could be a sign of dementia down the road. So we should keep an eye on that. But overall, not bad, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
I'll prescribe some meds to help kind of tame that diabetes and definitely come back next year so we can see how things are looking. Let's be sure to set up that appointment right now. Okay, now after the appointment, okay, when Derek's not with me, I'll record my notes that Derek has some evidence of diabetes and memory loss that could maybe be evidence of dementia.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And then I'll send a bill to the insurer for an office visit. Okay, just a regular annual physical. I'll call in prescriptions to the pharmacy that I want Derek to be taking. And maybe I don't put the diabetes and dementia codes on the bill because they weren't full blown yet. And this is just an annual physical.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
So I don't need those diagnoses to justify this visit, to justify getting paid because I'm not treating him for those things necessarily. I'm just checking him out. Okay. So I take that bill and I pass it on to Mike. Okay, so this is super important.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Absolutely. The way that Mike described this, you know, under a lot of settings, under like that fee-for-service type of system, if I'm just, you know, submitting these claims to Medicare, I have no reason to submit these diagnoses for any of these conditions because I get paid either way. There's no incentive for me to do this. And so I'm not going to do that.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
But under alternative arrangements, sometimes the Medicare Advantage plans will set up contracts with clients physicians like me, right? Not really a physician, but a pretend physician like me, where I'm incentivized to diagnose these directly.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And the ways that that can occur is like, it could be just subtle pressure where every year when I'm renegotiating my contract with the insurer, they may say, We noticed that there are a lot of cases where you weren't marking down diagnoses that we think you should be marking down. If you want to stay in our network, we'd really appreciate it if you started to do that.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Alternatively, they can make the incentives much more explicit, right? Like the insurers are being paid more for enrolling sicker patients, the insurers can pay doctors more for treating sicker patients, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
with that payment based on the diagnoses. And there's nothing really wrong with that. Doctors maybe should get paid more for treating more complicated, sicker patients. But now you see how there can be a direct financial incentive for the doctor, him or herself, to record those diagnoses on the claims. And then the insurer doesn't have to go through all of this process, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And the doctor actually wants this coding to take place.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
That's exactly right. I think it's important to recognize that these diagnosis codes from claims were never intended to be used in this way. The reason we have diagnosis codes is for doctors to essentially justify what they're billing. They weren't initially for this type of risk adjustment to plans, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And so they're set up in such a way that a lot of times doctors face very limited incentive to mark these diagnoses down. Sometimes they have strong incentives. If they want to get paid, they need to have them down. But in a lot of other cases, the incentive is quite weak. And so in those cases, you would expect the diagnoses on claims to be incomplete. And to be clear, like
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
For a long time, that was never really a concern because nobody really used these diagnoses from claims to determine how sick someone was. They were just billing kind of things that were there as part of the billing system, but they weren't what doctors used to figure out like how sick this person was.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
But now that we're using them in this way, the completeness matters, but not so much for the patient's health. Instead, it matters for the size of the payments. So you're absolutely right that probably the bulk of what is going on here is undercoding in the kind of traditional fee-for-service system, and a lot of what the Medicare Advantage plans are doing is being accurate and complete.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
It's just that that costs a lot of money because the government is paying them as though they're coding in the same way as the undercoded kind of public fee-for-service system. And I think an important piece of evidence about this is that estimates of how much this overpayment amounts to range from 50 billion to tens of billions of dollars.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Whereas if you look at all of the DOJ's cases against these large insurers, the biggest one, I think, is against United, And that's for like $2 billion total across several years. Whereas like, you know, we're estimating that this costs the government on the order of like tens of billions of dollars every year, right? So the fraud piece that is being alleged
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
is kind of small potatoes relative to the waste piece, you know, where it's legally justifiable in a lot of ways because CMS has decided to be very permissive, but is much more money than it would cost to insure all these people in the public program.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Yeah, that's a good question. I think a lot of people have been really interested in this question. So I actually have some new work that's under review right now with another economist, Paul Jacobs, where we try to investigate this question. So basically what we do is we follow people's in Medicare who switch from the public program to the private program.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
And it turns out that people who switched back in like 2013, 2014, after four years in compared to people who didn't switch, their scores go up by like 15, 16%. But people who switched in 2017, 2018, which is kind of how far our data lets us go, by the time they were four years in, their scores had increased by about 23 to 24%. So I think it's getting worse. And this problem is growing.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
It's not clear that it will grow forever because there are also things happening in the public program that might improve coding there and such. But But I think it has gotten worse since we studied this and continues to get worse from one year to the next.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Yeah, that's a good question. I think, you know, to take a step back, there are a variety of other health insurance systems in other countries. Some of these countries like the Netherlands, Germany, Israel, use systems that look a lot like the Medicare Advantage program, right?
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Like people choose between competing private insurers and they all have aggressive risk adjustment systems that look in a lot of ways, a lot like ours. The biggest difference between us and all of those countries is that they don't have a public option. They only have these private plans competing with each other
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
You'll note that these overpayments come in because we pay these private plans according to what we think they would cost in the public system. If there were no public system, then you wouldn't have this overpayment problem. You just decide how much you're willing to pay plans and you distribute the money amongst the insurers according to how sick each of their patient mixes are.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
But you don't have to worry about this kind of overpayment system. Now, there are other problems with having only private plans. But because of that, we're kind of unique in the world in operating these parallel public-private systems that people have choice over. And that's kind of where these problems come from, because that is a more complicated market to regulate and to design.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Yeah, I think, you know, when it comes to cutting government spending, cutting costs, you want to find fat instead of bone to the extent that you can, right? And a lot of times folks are very reticent to go into the kind of sacred areas categories of Medicare and Social Security and such.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
But within Medicare, there's likely a lot that can be done without having enormous effects on seniors' lives, right? And the primary place that I would go to do that is to these payments to the Medicare Advantage plans. As we've alluded to There are going to be trade-offs. If you cut spending, you cut the payments to the plans.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
In the past, we found that every dollar going to the plans, about half of that, about 50 cents goes to beneficiaries in one form or another. But at this point, the overpayments are so large that I think we're kind of in flat of the curve range here, right? Where the the things that they're giving to seniors are not things that seniors value a ton because they're just out of stuff to give them.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
They've run out of things that they can do to get the seniors to enroll in the plans. And so I do think that this is a place where you can cut without huge trade-offs. As you alluded to, there's always trade-offs, but I think here the trade-offs may be smaller than in a lot of other places. And as I think about
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
what you know doge and these folks are doing out there it seems like you know a lot of us what we should probably be doing is helping them to identify these places where you can cut stuff without having real big impacts on people's lives because otherwise we may worry that they're going to cut stuff that will have major impacts on people's lives and and so those of us who who know kind of
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
who have ideas about what these things might be, should probably be trying to get those ideas in front of these folks.
Plain English with Derek Thompson
The Trump-Musk Doctrine: F-ck Around and Find Out
Yeah, I think your example is perfect here. I think first you need to understand that the government has essentially decided that if people want to, they should be able to choose to enroll with a private insurer in most of the public health insurance programs. And today, over 50% of Medicare beneficiaries are in a private plan. That number is over 70% in Medicaid.