CVS to Buy Aetna for $69 Billion in a Deal That May Reshape the Health Industry

By Michael J. de la Merced and Reed Abelson

CVS Health said on Sunday that it had agreed to buy Aetna for about $69 billion in a deal that would combine the drugstore giant with one of the biggest health insurers in the United States and has the potential to reshape the nation’s health care industry.

The transaction, one of the largest of the year, reflects the increasingly blurred lines between the traditionally separate spheres of a rapidly changing industry. It represents an effort to make both companies more appealing to consumers as health care that was once delivered in a doctor’s office more often reaches consumers over the phone, at a retail clinic or via an app.

The merger comes at a time of turbulent transformation in health care. Insurers, hospitals and pharmacy companies are bracing for a possible disruption in government programs like Medicare as a result of the Republicans’ plan to cut taxes. Congress remains at an impasse over the future of the Affordable Care Act, while employers and consumers are struggling under the weight of rising medical costs, including the soaring price of prescription drugs. And rapid changes in technology have raised the specter of new competitors — most notably Amazon.

A combined CVS-Aetna could position itself as a formidable figure in this changing landscape. Together, the companies touch most of the basic health services that people regularly use, providing an opportunity to benefit consumers. CVS operates a chain of pharmacies and retail clinics that could be used by Aetna to provide care directly to patients, while the merged company could be better able to offer employers one-stop shopping for health insurance for their workers.

But critics worry that customers could also find their choices sharply limited. The deal risks leaving patients with less choice of where to get care or fill a prescription if those with Aetna insurance are forced to go to CVS for much of their care.

On Sunday, the two companies emphasized their ability to transform CVS’s 10,000 pharmacy and clinic locations into community-based sites of care that would be far less expensive for patients.

“We think of it as creating a new front door to health care in America,” CVS Health’s chief executive, Larry J. Merlo, said in an interview.

The merger would establish a new way of delivering care, with nurses, pharmacists and others available to counsel people about their diabetes or do the lab work necessary to diagnose a condition, Mr. Merlo said. “We know we can make health care more affordable and less expensive.”

Mark T. Bertolini, Aetna’s chief executive, said that by using CVS’s locations, the company can provide people with a better way of accessing medical care.

CVS operates 10,000 pharmacy and clinic locations, which Aetna could use to provide care directly to customers. CreditMario Anzuoni/Reuters

“It’s in their community. It’s in their home,” he said. He added, “CVS has the draw. People trust their pharmacist.”

It is the development of community-based clinics — capable of delivering care with the technology and health information available from both parties — that could prove to be the biggest change brought about the deal.

The hope would be that consumers would not only be able to see savings by going to a retail store to treat a sore throat but also have better oversight of a chronic illness, such as diabetes or heart disease. They could get advice on how to lose weight, or undergo tests to monitor their health.

“If they can drive the adoption of the care delivery model, that’s a big deal,” said Ana Gupte, a senior health care analyst for Leerink Partners.

The merger agreement came as another factor weighs on the minds of all in the health care industry: Amazon, which has been rumored to be preparingfor an entry into the pharmacy business. Jeff Bezos, the Amazon chief executive, and his e-commerce juggernaut have already overturned many industries: book buying, retail shopping, groceries and Hollywood, using fierce customer loyalty and enormous reach as cudgels against incumbent players.

But CVS and Aetna have had a business partnership dating back seven years, and have steadily converged into similar visions of how the health care industry was evolving. Conversations about a deeper bond eventually crystallized into deal talks within the last two months, according to a person with direct knowledge of the discussions.

Although neither chief executive mentioned Amazon by name, both said that what they were creating was a compelling opportunity in and of itself.

“Chasing our competitors has never been a solution,” Mr. Bertolini said. He added, “Our competitors will do what they do.”

Many companies are seeking shelter in the arms of their former adversaries, with well-known medical groups like the Cleveland Clinic joining with Oscar Health, an insurer. With federal officials blocking traditional mergers — like the megadeal that featured Anthem and Cigna, the nation’s largest insurers, and one involving Aetna and its rival Humana — companies are looking at combinations that take them beyond their traditional lines of business.

Many analysts view the combination of CVS and Aetna as a defensive move by the companies. CVS Health, which also recently signed an agreement with Anthem to help the insurer start its own internal pharmacy benefit manager, is looking to protect its business with Aetna as it fends off rivals like UnitedHealth Group’s OptumRx and others. Aetna, foiled in its attempt to buy Humana, is searching for new ways to expand its business.

CVS and Aetna have had a business partnership dating back seven years, and have steadily converged into similar visions of how the health care industry was evolving. CreditBill Sikes/Associated Press

The merger could also fundamentally reshape the business of overseeing drug coverage for insurers, an industry that is dominated by three large players and that has increasingly come under scrutiny over the past year as public anger over high drug prices has expanded beyond the usual culprits — most notably the pharmaceutical industry — to lesser-known players like pharmacy benefit managers.

Under the terms of the deal, CVS will pay about $207 a share, based on Friday’s closing prices. Roughly $145 a share of that would be in cash, with the remainder in newly issued CVS stock. The deal is expected to close in the second half of next year, subject to approval by shareholders of both companies as well as regulators.

Antitrust approval has become an interesting question in the Trump administration, which bankers and lawyers had thought would be more tolerant of consolidation than its predecessor.

A combination of a drugstore company and an insurer is considered less problematic than a merger of two players in the same business, which could reduce competition and hurt consumers. Such concerns ultimately sank Aetna’s efforts to buy Humana, and Anthem’s push to buy Cigna, when the Obama administration signaled its opposition to such consolidation.

CVS’s proposed takeover of Aetna is a so-called vertical merger, combining companies in two different industries. But while such deals have traditionally met little opposition in Washington, the Justice Department has sued to block AT&T’s $85.4 billion takeover of Time Warner on the grounds that it would create too powerful of a content company.

Both CVS and Aetna played down the prospects of regulators moving to block their deal. The breakup fee for the transaction is not especially large, reflecting that belief.

Mr. Bertolini asserted that the companies would not raise prices for consumers. “It doesn’t make sense for us to charge people more when we want more people in the store,” he said.

But analysts and other merger experts warn that the deal could be blocked by federal antitrust officials who worry that it could lessen competition. One area of focus may be Medicare; both companies are significant players in offering prescription drug plans to Medicare beneficiaries.

While the companies said they want to lower costs, CVS also makes money on rebates from drug makers and on filling prescriptions through its pharmacies.

David A. Balto, an antitrust lawyer who has been sharply critical of combinations among insurers and pharmacy benefit managers, said that he was wary of having retailers in charge of people’s health. He argued that doctors may be in a better position to treat illness than retail executives.

“Who do you want to run the health care system?” he said.

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Healthcare Coverage Has 1 Powerful New Trick

By: Ted Bauman

Earlier this year I wrote a couple of articles about the state of healthcare in the U.S. They generated a lot of responses — so many, in fact, that it took me over a day to read them all.

Somewhat to my surprise, the clear majority of the responses went something like this:

The U.S. healthcare and health insurance systems have serious problems at many levels. The problem needs to be addressed holistically, not piecemeal. No matter what one thinks of Obamacare, it would be wrong to undo it without a fully worked-out replacement.

Well, we’ve seen nine months of attempts to do just that. And all have failed — because it was clear to a majority of the U.S. Senate that they didn’t actually solve any problems, much less do so holistically.

So, we are back to the piecemeal approach, as embodied by President Donald Trump’s executive order to cut $7 billion in cost-sharing payments to insurance companies participating in the Obamacare system.

If there’s still time in your financial life, you need to start thinking of an alternative … and I know just the thing.

Skyrocketing Premiums

The $7 billion in question are the payments the government makes to health insurance companies to offset the discounts on copayments that low-income consumers have received under Obamacare.

White House Press Secretary Sarah Huckabee Sanders said: “The bailout of insurance companies through these unlawful payments is yet another example of how the previous administration abused taxpayer dollars and skirted the law to prop up a broken system.”

There’s just one problem: The money wasn’t a subsidy to insurance companies.

It was a subsidy to low-income Americans … nearly 6 million of them, or 57% of the people who get their insurance via Obamacare.

The insurance companies are simply a passthrough for the money that Trump has cut off. The money just compensates the companies for reducing high copays and deductibles for families unable to afford them. It’s not a source of additional profit for insurers.

By ending the payments, the administration has ensured that many Americans will see their premiums skyrocket. 20% to 25% is the figure being bandied about.

Unfortunately for many insurance companies, their rates for 2018 are already set. They can’t change them. They’ll just have to eat the losses … or become stingier about what treatments they’ll pay for.

But they have other options, too.

All of Us in the Crosshairs

Two groups of people that are especially vulnerable to the Trump action on the payments: early retirees who aren’t yet eligible for Medicare and self-employed people. Those are the two groups most vulnerable to changes in the individual insurance marketplace.

That’s because, without the funding, insurance plans will flee individual insurance exchanges in droves. That will force early retirees — and anyone else without employer-provided health coverage but an income higher than the premium subsidy cutoff — to pay full unsubsidized rates for insurance directly from the insurance companies. The same goes for copays and deductibles, which will soar.

But there will be an impact on the rest of us too … including those of us who get our insurance from our employers. Here’s how and why…

As I’ve noted, Trump’s withdrawal of the payments will force the insurance companies to eat those costs in 2018. They’ll have to make up for that loss somewhere.

They’ll do so by raising the premiums the rest of us pay, spreading out the losses across all their plans. But there’s more.

In addition to the payment cuts, the president also signed an executive order calling for new regulations to encourage cheap, loosely regulated health plans. Once those are up and running, millions of younger people will move to them.

That will leave existing insurers with a smaller pool of riskier people to insure. Elementary insurance theory tells us this will result in even more premium increases.

No Savings

To make matters worse, Trump’s move will actually cost the federal government an estimated $7.2 billion next year because it will have to shell out more in premium subsidies to cover these higher rates.

Individuals with annual incomes between $12,000 and $48,000 qualify for subsidies that offset the cost of their monthly insurance premiums. Trump’s action doesn’t touch that, so those subsidy payments will have to go up to cover higher premium costs.

Over 10 years, the additional cost would be almost $200 billion. So, there will be no budgetary savings at all … the opposite, in fact.

Playing Politics With Your Healthcare

The president and other administration officials have described Trump’s move as a way to put pressure on Congress to come up with a bipartisan fix. It’s unlikely that Trump would have done this if he thought he couldn’t get Congress to agree on an alternative fix — and fast.

Yeah, right.

Under these circumstances, if you still have time to put aside money for your retirement healthcare needs, you need to find out as much as you can about what I call the “(H)IRA” as soon as possible. It’s a special trick that can save you current tax, ensure your healthcare and help you have more to spend in retirement.

Because I have a powerful feeling you’re going to need all the help you can get.

Kind regards,

Ted Bauman
Editor, The Bauman Letter


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Victory for Health Freedom | Defeat for Obamacare

HHS Announces Cost-Sharing Reduction Subsidies Will Cease ‘Immediately’; Citizens’ Council for Health Freedom Applauds Move That Will Begin to Unravel the ‘Unaffordable’ Care Act for Good

ST. PAUL, Minn.—The Trump administration announced late last night that cost-sharing reduction (CSR) payments, currently propping up the Affordable Care Act, will be “discontinued immediately based on a legal opinion from the Attorney General.”

Citizens’ Council for Health Freedom (CCHF, has been calling for the end of the unconstitutional CSR subsidies for many months and applauds the decision as a step in the right direction toward restoring health freedom for all Americans.

“We’re pleased that President Trump and his administration are taking action to follow the rule of law, as written in the U.S. Constitution,” said CCHF president and co-founder Twila Brase. “Not one dime has been appropriated by Congress for the cost-sharing reduction subsidies. The taxpayer already hit with high premiums is facing higher taxes as a result of the billions in CSR subsidies that should never have been paid to the health plans.

“With inaction by Congress, President Trump is wisely using his executive authority to unravel the Affordable Care Act,” she continued. “We support the end of unconstitutional bailouts for health plans. If health plans choose to exit from the Obamacare exchanges as a result, state legislatures should use this opportunity to reassert their 10th Amendment states’ rights authority and restore access to the affordable catastrophic indemnity health insurance and high-risk pools that the Affordable Care Act prohibited.”

Late Thursday, U.S. Health and Human Services Acting Secretary Eric Hargan and Centers for Medicare & Medicaid Services Administrator Seema Verma released the following statement:

“It has been clear for many years that Obamacare is bad policy. It is also bad law. The Obama Administration unfortunately went ahead and made CSR payments to insurance companies after requesting—but never ultimately receiving—an appropriation from Congress as required by law. In 2014, the House of Representatives was forced to sue the previous Administration to stop this unconstitutional executive action. In 2016, a federal court ruled that the Administration had circumvented the appropriations process, and was unlawfully using unappropriated money to fund reimbursements due to insurers. After a thorough legal review by HHS, Treasury, OMB, and an opinion from the Attorney General, we believe that the last Administration overstepped the legal boundaries drawn by our Constitution. Congress has not appropriated money for CSRs, and we will discontinue these payments immediately.”

Just yesterday, President Trump signed an executive order that, according to the White House, seeks to “improve access, increase choices and lower costs for health care.”

Brase said, however, that the EO lacked the strong language necessary to make real changes in today’s health care landscape, with six instances of “potentially” and three instances of “consider” in the order, rather actual directives.

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Americans show support for Obamacare despite Trump’s repeal attempts

By Joanna Walters

Millions of Americans remain committed to Barack Obama’s landmark healthcare legislation despite the Trump administration’s attempts to overturn it.

In a series of developments that fly in the face of Republicans’ repeated avowals to destroy the Affordable Care Act (ACA), widely known as Obamacare, record numbers of people signed up this week for government-backed health insurance plans, and voters in conservative-controlled Maine elected to expand the government’s healthcare scheme for low-income Americans.

The news comes after the Trump administration cut federal funding for ACA outreach and marketing, drawing concerns that sign-up numbers would plummet.

Across the country, more than twice as many people signed up for individual healthcare plans provided through the government-backed insurance exchanges created by the ACA on the first day of annual enrollment than signed up at the same time last year.

Last Wednesday, the first day of open enrollment for individual health plans, more than 200,000 people selected an ‘Obamacare plan’ to cover their healthcare in 2018. That is double the number that signed up on the first day of enrollment for 2017 plans, and also more than in previous years, according to a report in The Hill.

The surge, and a rise in online visitors to the government’s healthcare website, came despite cuts in grants under the Trump administration to outside groups that help people navigate the insurance system and sign up for the ACA.

At the same time, a poll this week showed only 26% of Americans believe Trump is handling the issue of healthcare effectively – down from the 44% in January who at that time believed that the new administration would manage it well.

Trump still enjoys majority support among Republican voters on healthcare, but their support has dropped from 87% in January to 59% this week, according to the Washington Post and ABC.

Approval of the job the Trump administration is doing overall has fallen to 37%, according to the poll, the lowest level for a first-term president in 70 years of such surveys.

Despite these signals from the public – and Republicans in Congress repeatedly failing in attempts to repeal the ACA – the administration is determined to do what it can to dismantle vital provisions.

The vice-president, Mike Pence, and the House speaker, Paul Ryan, are floatingcontroversial tax reform legislation as an alternative route for ending the individual health insurance mandate, a rule that was a central principle of the ACA, requiring all Americans to have health insurance or pay a fine, and which Pence calls a tax.

“I know it’s under active consideration and you know the president’s determination to repeal Obamacare. We came close. We’re determined to come back to that issue next year. But the president and I are both interested in seeing the House and Senate consider the possibility of repealing the individual mandate tax as a part of this tax reform bill,” Pence told Fox News on Tuesday.

Meanwhile, in local elections this week, voters in Maine answering a referendum question overwhelmingly decided to expand the federal Medicaid scheme for low-income Americans in order to give tens of thousands more people in the state access to health insurance.

Many states with Republican governors or legislatures accepted extra Medicaid money provided under the ACA to help states subsidize insurance for the poor, but some conservative states refused it on principle, including Maine, where it was blocked by the Republican governor Paul LePage.

On Wednesday, after Maine became the first state to sanction Medicaid expansion via the ballot box, LePage pledged to try to block the move, which could leave him open to a lawsuit.

Frederick Isasi, executive director of Families USA, a not-for-profit healthcare advocacy group, said: “Maine has proven that ballot initiatives are a powerful way for Americans to stand up for their families, cut through political gamesmanship and spin, and send a clear message to lawmakers that the people want affordable, quality healthcare.”

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About 600,000 sign up for ObamaCare in first four days

By Peter Sullivan

About 600,000 people signed up for ObamaCare plans in the first four days of enrollment, the Trump administration announced Thursday.

Sign-ups are running at a faster pace than at this time last year. In fact, about twice as many people signed up on the first day, Nov. 1, this year compared to last year.

There were about 150,000 sign-ups per day on average for the first four days this year, compared to 84,000 sign-ups per day for the first 12 days last year. There is no data for just the first four days of last year.

Still, the results have energized Democrats, who have been worried about low enrollment due to Trump administration cutbacks in outreach.

About 130,000 people were new customers this year, while about 460,000 were returning customers.

ObamaCare numbers analyst Charles Gaba wrote on Twitter that the sign-ups are “more than I expected.”

The final sign-up picture will not be clear until the enrollment period ends Dec. 15, which is about half as much time to sign up as last year. Many analysts have predicted a drop in enrollment due to uncertainty over ObamaCare plans and less outreach educating people when and how to sign up.

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Health insurance is good not just for individuals but for democracy

By Emily Nacol

For the past seven months, Americans have watched and weighed in as Congress considered the continued existence of the Affordable Care Act (ACA). Last Thursday, the Trump administration announced that the government would stop subsidizing insurers for making premiums and deductibles more affordable for low-income customers. Most of the discussion to date has been about whether these plans are good for families, and if so, which ones. But what if insurance had another value, beyond protecting individuals from financial and health risks? What if it was good for democracy?

Here’s how we’ve talked about insurance up to now

This year’s debates about health-care reform have produced some memorable sound bites. In March, House Speaker Paul D. Ryan (R-Wis.) said: “The fatal conceit of Obamacare is that ‘we’re just going to make everybody buy our health insurance at the federal government level.’ … The people who are healthy pay for the people who are sick. It’s not working, and that’s why it’s in a death spiral.” In September, Trump economic adviser Stephen Moore told CNBC’s John Harwood that “people want insurance for their own families, not other people’s.”

Ryan and Moore’s harshest critics suggested that neither of them understand how health insurance works. But their comments reveal something else: Their baseline assumption is that individuals evaluate the worth of health insurance based on self-interest and personal economic calculus.

It’s true. People do want health insurance to protect themselves and their families, and oftentimes we articulate this in financial terms. Congressional Democrats have appealed to this idea in opposing ACA repeal. Their refrain is that families shouldn’t go bankrupt if someone becomes sick and that no one should die because they cannot afford medical coverage. They argue that keeping the ACA, or making it more inclusive through reforms, will protect individuals and families medically and financially.

These are important considerations, as any person who has ever lived on a budget and needed to go to the hospital knows. But they’re not the only ones.

There’s also an argument for the broad value of insurance for democracy

Daniel Defoe — a 17th- and 18th-century businessman and writer best known for his novel “Robinson Crusoe” — argued that insurance is a public good.

In An Essay Upon Projects (1679), Defoe evaluates (among other ideas) “friendly societies,” mutual aid associations formed by ordinary people. In these voluntary organizations, members paid fees to create a pool of assistance that would be available to any member who needed it. Friendly societies provided, in a word, insurance — fire insurance, livestock insurance, life insurance and health insurance.

Defoe generally approves. He argues that friendly societies have outsized potential to help protect members from the “miseries … and distresses” the future might hold — and to make life better for everyone. He even suggests these insurance pools may even harbor the potential for world peace.

Why such a bold claim?

Defoe’s argument for the positive potential of friendly societies depends on two values they embody: solidarity and equity.

Friendly societies promote solidarity because they encourage interdependence among individuals. Members regularly paid dues and fees into a common pool, with no knowledge of whether they would ever draw on them as individuals, on the off-chance they would need help themselves one day.

Defoe focuses on the larger picture, though. He stresses that these societies were a social project, one that offered security to the group (or to use his word, “mankind”) through solidarity. The political value of friendly societies is that they bonded people together against a risky future.

Defoe also identifies equity as a core principle of the friendly society, although a challenging one to achieve. He worries about whether friendly societies were organized fairly and shares ideas for promoting equity within them. He suggests, for example, that people in high-risk professions form their own insurance pools instead of banding together with people in lower-risk jobs.

But Defoe still praises friendly societies for at least trying to live up to the principle of equity. He says, “To argue against the lawfulness of [friendly societies] would be to cry down common equity as well as charity: for it is kind that my neighbor should relieve me if I fall into distress or decay, so it is but equal he should do so if I agreed to have done the same for him.” When we make such solidaristic commitments to our fellow citizens, we commit to treating them equitably. Defoe saw social insurance as one way to inject more equity into society.

Of course, “friendly societies” are a far cry from vast insurance companies

Defoe’s ideas about friendly societies might seem out of step with the concerns of 21st-century Americans. He was talking about small voluntary groups, and most Americans today buy insurance from large, for-profit corporations. Even those who turn to social welfare programs like Medicare and Medicaid interact with large bureaucracies. Is his defense of insurance as a relationship of solidarity and equity still applicable to us?

In a mass democracy like the United States, solidarity and equity are hard values to realize, but they are ones we still hold. We can see that, for example, in what Tennessean Jessi Bohon said when she stood up in a town hall in February and argued for the ACA’s individual mandate: “As a Christian, my whole philosophy in life is to pull up the unfortunate. So the individual mandate, that’s what it does. The healthy people pull up the sick.” She supported her position using the value of solidarity. (As an aside, Bohon’s link between the mandate and Christian charity would have made sense to Defoe, too.)

We’ve also seen appeals to equity. For example, when Planned Parenthood supported passage of the ACA, they did so based on the principle of fairness, arguing that by subsidizing birth control and mammograms it corrected a gender imbalance in health care costs. Similarly, when Sen. Lindsay O. Graham (R-S.C.) reflected on why the ACA should be replaced, he said that it didn’t recognize that different states have very different needs. He argued it isn’t equitable.

These scattered comments point us toward a conversation about the social value of insurance. Although politicians and policymakers will continue to appeal to individual self-interest as they try to gain support for their reforms, they might also wish to explain how their plans embody democracy’s social goods: solidarity, equity and fairness.


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The problem is the prices

Opaque and sky high bills are breaking Americans — and our health care system.


On September 28, 2016, a 3-year-old girl named Elodie Fowler slid into an MRI machine at Lucile Packard Children’s Hospital in Palo Alto, California. Doctors wanted to better understand a rare genetic condition that was causing swelling along the right side of her body and problems processing regular food.

The scan took about 30 minutes. The hospital’s doctors used the results to start Elodie on an experimental new drug regimen.

Fowler’s parents knew the scan might cost them a few thousand dollars, based on their research into typical pediatric MRI scans. Even though they had one of the most generous Obamacare exchange plans available in California, they decided to go out of network to a clinic that specialized in their daughter’s rare genetic condition. That meant their plan would cover half of a “fair price” MRI.

They were shocked a few months later when a bill arrived with a startling price tag: $25,000. The bill included $4,016 for the anesthesia, $2,703 for a recovery room, and $16,632 for the scan itself plus doctor fees. The insurance picked up only $1,547.23, leaving the family responsible for the difference: $23,795.47.

“I honestly thought it was a mistake,” Elodie’s mother, Annie Nilsson, says of receiving the bill. “There is no possible way anyone could be charged that much for one scan that took 30 minutes.”

Nilsson’s instinct — that these scans should cost a couple thousand dollars — was right. The cost of the same image at other California hospitals is significantly lower. And there was a huge gulf between what the insurance company thought was a “fair price” and what the hospital thought was a “fair price.”

Lucille Packard Children’s Hospital in Palo Alto, CA billed a family $25,000 for an MRI scan
Johnny Harris/Vox

“Elodie has had CT scans, colonoscopies, lots of ultrasounds, so we had assumed the price would be roughly the same,” Nilsson says. “We broadly researched what an MRI should cost, and we thought it would be a couple of thousand dollars. Nowhere in our long back-and-forth with the hospital was there any hint from the people scheduling it that we could possibly see a price like this.”

In a statement, Lucile Packard Children’s Hospital defended the charges.

“Even services that seem routine, like MRIs, can vary dramatically in cost when those services are being provided to sick children,” the statement read. “To make sure we provide the best possible experience and care to our patients, Stanford Children’s employs highly-trained specialists in pediatric imaging.”

It continued: “While we cannot speak to what technology other California children’s hospitals employ or their costs, we know that costs can also vary regionally based on local market demands for labor, supplies, real estate and other essential components of health care delivery. All of these factors impact our pricing, and underlie the amounts we charge for the care we provide.”

Nilsson negotiated the bill down to $16,000, which she now pays in monthly $700 installments. This has made the family budget tight; they already pay $800 each month for a special food formula that Elodie eats, which the insurance plan doesn’t cover at all.

“Every month, I hope they’ll maybe take pity and not send the bill, but of course they do,” Nilsson says. “Sometimes I’m late paying. My biggest issue is, how could the insurance say a fair price is $1,000 and the hospital say $25,000? How could there possibly be such a gap between those?”

Health care prices in America are high — and they are secret

Elodie’s story is common. Americans pay exorbitant prices for all kinds of care. As a health care reporter, I find myself writing about $25,000 MRIs, $629 Band-Aids — even a $39.95fee just to hold one’s own baby after delivery. People send me these types of bills quite regularly via email.

The health care prices in the United States are, in a word, outlandish. On average, an MRI in the United States costs $1,119. That same scan costs $503 in Switzerland and $215 in Australia.

These are uniquely American stories, and they are the key to understanding our dysfunctional health care system. High prices are hurting American families. Most Americans who get insurance at work now have a deductible over $1,000. High prices are why medical debt remains a leading cause of bankruptcy in the United States, and nowhere else.

As Elodie’s case shows, health care prices in the United States are both high and unpredictable. We rarely know what our bill will be when we enter a doctor’s office, or even when we leave. The prices aren’t listed on the wall or a website as they would be in most other places where consumers spend money.

Today, I am launching a project inspired by these reader emails. My colleagues and I at Vox are asking readers to submit hospital bills through our secure system so we can start getting a nationwide picture of one particular hospital fee, called an emergency facility fee. The reason we’ve selected this fee is because nearly all hospitals charge one for seeking emergency room care, but the price varies enormously and is typically kept secret.

We plan to report back on our findings both here at Vox and in my new podcast, The Impact, a reported series that explores the big challenges in American health care through the lives of people who experience it. If you’d like to participate, there are more details for you here.

As that project launches, I wanted to spell out why these prices are such a problem for the American health care system. Obamacare didn’t tackle America’s high health care prices; neither did the Republican plans to repeal the Affordable Care Act.

Our health care prices explain why reform efforts continue to vex each political party. When you’re paying the highest prices in the world for basic services, for scans and drugs, it will undoubtedly be a struggle to provide all citizens with health care.

This is true for a Republican plan to replace the Affordable Care Act — and a plan backed by 17 Democrats to create a single-payer health care system. The problem is the prices — but right now, there is little political will to fix it.

“It’s the prices, stupid”

In 2003, a team of influential economists published a paper pointing out that prices are the key problem in American health care. It came with the title: “It’s the Prices, Stupid.”

The takeaway was absolutely clear. “Higher health spending but lower use of health services adds up to much higher prices in the United States than in any other OECD country,” the paper concluded.

Johns Hopkins’s Gerard Anderson was the lead author of that report. I called him a few weeks ago to ask if he thought the conclusions of his 14-year-old report still stood.

“The Affordable Care Act reduced the price to consumers, but it didn’t reduce the actual, unit price,” says Anderson. “It essentially made everything affordable to people, but the prices actually accelerated in growth post-ACA.”

But this is not always the story told about American health care. Instead, it often goes like this: We are going to the doctor way too much, and that makes our system expensive. Rampant overuse, unnecessary care, and waste are at the heart of our spending problem.

One poll of 627 doctors, published in the Annals of Internal Medicine, found that 42 percent of physicians thought their own patients were receiving too much medical care. “You’re getting too much health care,” a headline in the Atlantic bluntly declared.

In this narrative, American health care is outlandishly expensive because we take advantage of every new scan, drug, or treatment.

Intuitively, this theory makes a lot of sense to me or to anyone who has become a regular consumer of health care. I’ve had a doctor order an MRI to look at an ongoing issue in my foot, only to forget about the scan completely until I reminded him it existed and asked him to review the results.

But when you start to dive into the actual data, there is scant evidence to back up this theory. If anything, it actually turns out that we go to the doctor relatively infrequently.

Data from the nonprofit Commonwealth Fund shows that on average, Americans go to the doctor four times each year.

Dutch people go to the doctor, on average, eight times each year. Germans make 9.9 annual doctor trips. Japanese residents clock in an impressive 12.8 doctor visits each year — more than three times the frequency of their American counterparts.

“This is really counterintuitive,” says Robin Osborn, who directs the Commonwealth Fund’s international health policy program. “With all the specialists and everything, you’d think we use twice as much health care as everyone. But it’s actually just not the case.”

When Americans do go to the doctor, we tend to have less face time or interaction with our providers. The average hospital stay, for example, is 5.4 days in the United States. This puts us roughly in line with New Zealand and Norway (5.2- and 5.8-day averages, respectively) and with much shorter stays than Canadians (7.5 days) or Germans (7.8 days).

The real culprit in the United States is not that we go to the doctor too much. The culprit is that whenever we do go to the doctor, we pay an extraordinary amount.

“It just feels really crazy”

One way you see hospitals flexing this muscle quite clearly is when you look at a common charge: an emergency room facility fee. I recently produced an episode of my new podcast, The Impactdevoted to this specific health care fee — and you can listen to it here.

This is the price that most hospitals charge for using any sort of service in the emergency room, a base fee for seeing a provider. Hospitals argue that these fees are the cost of keeping their lights on and doors open 24 hours each day, seven days a week.

“We have to prepare for the sickest of the sick,” says Ryan Stanton, an emergency room doctor in Lexington, Kentucky, and a spokesperson for the American College of Emergency Physicians. “So if you come in with a stubbed toe, I still have to be prepared and staffed for the acute heart attack or the gunshot wound, or whatever is coming in.”

Some level of fee to cover these operating costs seems reasonable. But one thing I’ve learned looking at emergency room facility fees is they seem to be set with little rhyme or reason, reflecting American hospitals’ ability to essentially pick their prices.

Take, for the example, a bill I was sent last year: a $629 fee charged for an emergency room visit where a Band-Aid was placed on a 1-year-old’s finger. The bill included a $7 fee for the Band-Aid — and a $622 facility fee.

“I see both sides,” says Renee Hsia, a professor at University of California San Francisco who studies emergency billing and helped me analyze that bill. “I think there are going to be facility charges regardless of the actual service that will always be part of ER care. But where this father has a reasonable point is that when you look at the cost of the Band-Aid and the proportional overhead, it just feels really crazy.”

A few weeks ago, I asked listeners of my roundtable podcast, The Weeds, to send me facility charges they’ve received. The bills range from a low of $533 to a high of $3,170, the facility fee Erika Siegel was charged after a visit to the emergency room at San Francisco General Hospital.

She estimates she spent less than a half hour there, after she flew over her handlebars in a bad bike accident. Her wedding ring had smashed her finger, leaving it badly bruised.

“I mean, what on earth could possibly have cost them $3,170?” Siegel says. “I was so shocked.”

She tried to call up the billing department to get an explanation.

“The guy on the phone said, ‘Well, you know, that information is designated by people who have degrees in medical billing,’” she recounted. “He asked, ‘Do you have a degree in medical billing?’ I was like, ‘Well, you got me there, I sure don’t.’”

Erika Siegel’s $4,338.20 bill for an emergency room visit, including a $3,170 facility fee charge.
 Courtesy of Erika Seigel

Siegel wasn’t thinking about a facility fee when she went to the emergency room. She had a smashed finger that looked bruised, and a police officer directed her to go to the emergency room.

Two things stand out in Siegel’s story and in many others — the first being that the bills are incredibly high. The cheapest option I’ve seen so far, $533, would still put a strain on many family budgets.

Second, they are all over the place. Emergency rooms don’t make these fees public, so it’s difficult to predict what you might have to pay.

This is why we’re launching our project at Vox to track these fees nationwide. To understand what’s going wrong in the American health care system, we first need to know what’s happening.

What about Obamacare?

The Affordable Care Act did many things. It extended coverage to millions of Americans and created a more equitable health insurance market that treated healthy and sick patients equally.

But that law did not tackle the unit price of health care in the United States.

“The ACA didn’t change the trajectory at all,” Hopkins’ Anderson put it bluntly.

The ACA made health care more affordable in the sense that more Americans have someone else (Medicaid or a private insurance company) paying the majority of those medical bills.

But the medical bills themselves didn’t actually shrink — and that will vex any effort at reducing the cost of American health care going forward.

Building a single-payer system in the United States, for example, would be a massively more expensive endeavor than anywhere else in the world because of our high prices. When you pay exceptionally high prices for each health service, it quite obviously becomes a lot harder to provide those services to all citizens.

Anderson argues there is little constituency for lower prices in the United States.

“We all say we want lower prices, but we’re not willing to give up anything to get them,” he says. “If you are a major corporation, let’s say General Electric, you want price controls except for the MRI machines you build. If you’re a labor union, you want to control health care prices, except for the salaries of your health care workers. And if you’re a patient, you want lower prices except when you’re sick — in which case, you want everything possible done for you.”

Health care prices are unlikely to fall without some level of government intervention. They may be nudged a little with transparency; Elodie’s family says they almost certainly would have had their daughter’s scan elsewhere if they knew it would cost as much as it did at Packard.

But the cheapest price I could find at a children’s hospital for her scans was still $7,758 — and that’s before additional charges for anesthesia, recovery, and lab work. But only 37 percentof Americans say they have enough savings to cover a surprise $500 to $1,000 medical bill.

President Trump initially showed some interest in regulating health care prices, particularly in allowing Medicare to negotiate drug prices, but so far he has not followed through.

Republicans ultimately put together bills that would reduce government spending on health care but not reduce prices. Instead, it would just shift a greater share of those prices onto patients (the opposite of the Affordable Care Act, which shifted the burden for high prices more to the government).

Our health care legislation in the United States focuses on the question of who pays for health care. In order to have real progress, however, we’re going to tackle a new question: How much do we pay? Until we do, we’re likely to continue living in a world of $25,000 MRIs and $629 Band-Aids that families struggle to pay for.


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Critics see Trump sabotage on ObamaCare

By Peter Sullivan and Rachel Roubein

The Trump administration is taking a hatchet to ObamaCare after failing to pass legislation through Congress repealing President Obama’s signature law.

The administration has cut funding for advertising and outreach by 90 percent, raising the odds that fewer people will join the health-care exchanges during the fall enrollment period.

It has slashed funds by 41 percent for outside groups that help reach and enroll likely ObamaCare consumers.

The enrollment period has also been chopped in half, and the administration announced plans to take down the website for maintenance for hours at a time on several days during the sign-up period, two other steps likely to cut into enrollment.

All of these steps could lead fewer people to sign up for the law, which in turn might lead to higher premiums that could force others off the exchanges.

Healthy people are the most likely to drop coverage because of a lack of outreach, leaving a sicker group of enrollees that drives up costs for everyone else.

“One has to assume at this point that enrollment will be lower as a result of the administration’s actions and that will lead to fewer healthier people signing up,” said Larry Levitt, a health policy expert at the Kaiser Family Foundation.

The Trump attacks go beyond enrollment, too.

President Trump has threatened to cut off key ObamaCare payments to insurers in a bid to make the law “implode.”

And on Friday, his administration took a new step to roll back the law, limiting the requirement for employers and insurance plans to cover birth control.

Andy Slavitt, a former top health-care official in the Obama administration, warned on Twitter Thursday that the administration’s “sabotage” of the law added up to what he called “synthetic repeal,” meaning a range of small steps that add up to repealing ObamaCare even if Congress doesn’t act.

The administration counters that ObamaCare is a failing law that should not be propped up.

“Obamacare has never lived up to enrollment expectations despite the previous administration’s best efforts,” a Department of Health and Human Services spokesperson wrote in an emailed statement. “The American people know a bad deal when they see one and many won’t be convinced to sign up for ‘Washington-knows-best’ health coverage that they can’t afford.”

The cuts are having real world consequences already.

Reducing the outreach budget has forced local organizations known as navigators to dramatically scale back their operations.

Shelli Quenga, director of programs at the Palmetto Project, a navigator group in South Carolina, said her organization has had to cut staff from 62 people to 30 after its funding was reduced by around 50 percent.

“You want to talk about designed to fail?” she said. “This is the playbook for how to build something to make sure it fails.”

Quenga said that she only found out about the cut to her organization’s funding after the administration publicly made an announcement about the navigator cuts and she was called by a reporter for reaction.

She said the career officials she works with at the Centers for Medicare and Medicaid Services (CMS) were not aware of or involved in the decision to cut the funding, saying the decision was made at higher levels of the administration.

Navigators across the country had to scramble to craft new plans ahead of the open enrollment period beginning on Nov. 1.

“I’m just feeling very anxious about the fact that we have a whole lot less time to gear up then we should have had,” said Jodi Ray, director of Florida Covering Kids and Families, which is affiliated with the University of South Florida.

“We had a very well thought out plan, and we definitely had to go back and revise that plan, except we didn’t plan on having 3.5 weeks to put it together,” said Ray, whose group will receive $900,000 less, a 15 percent reduction.

A group of former Obama administration officials this week announced plans to launch their own enrollment effort, called Get America Covered, to try to fill the gap left by the cuts.

Insurers and ObamaCare supporters are also on edge about an executive order from Trump that could come as soon as next week loosening rules to allow businesses and other groups to band together to purchase health insurance. The problem is that these special insurance plans are not subject to the same ObamaCare rules and pre-existing condition protections, which could suck the healthy enrollees out of ObamaCare plans and damage the market.

The administration has also resisted efforts by some states, even conservative ones, to make changes aimed at stabilizing ObamaCare.

Iowa submitted an innovation waiver, which lets states alter ObamaCare as long as the law’s basic protections are retained. Part of the proposal included conservative reforms to the Affordable Care Act, yet President Trump reportedly wasn’t on board.

Trump saw a story about the waiver in The Wall Street Journal, and asked CMS to deny it, according to The Washington Post.

The application has not been formally rejected, at least not yet. It is in the midst of a 30-day public comment period, and is still pending, an Iowa Insurance Division spokesman confirmed to The Hill.

But without it, Iowa’s Insurance Commissioner Doug Ommen has warned the impact “on many Iowa families would be catastrophic.”

The deep-red state of Oklahoma had sought a waiver to help stabilize its markets, but withdrew it at the end of September because it hadn’t received approval from the administration in time.

The withdrawal came even after “months of development, negotiation and near daily communication over the past six weeks” between the state and the administration, Oklahoma wrote in a letter complaining to the administration about the lack of action.

“While we appreciate the work of your staff, the lack of timely waiver approval will prevent thousands of Oklahomans from realizing the benefits of significantly lower insurance premiums in 2018,” wrote Terry Cline, Oklahoma’s Commissioner of Health.


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Are You Sure You Want Single Payer?

By Olga Khazan

“Medicare for all” is a popular idea, but for Americans, transitioning to such a system would be difficult, to say the least.

French women supposedly don’t get fat, and in the minds of many Americans, they also don’t get stuck with très gros medical bills. There’s long been a dream among some American progressives to truly live as the “Europeans1” do and have single-payer health care.Republicans’ failure—so far—to repeal and replace Obamacare has breathed new life into the single-payer dream. In June, the majority of Americans told Pew that the government has the responsibility to ensure health coverage for everyone, and 33 percent say this should take the form of a single government program. The majority of Democrats, in that poll, supported single payer. A June poll from the Kaiser Family Foundation even found that a slim majority of all Americansfavor single payer.

Liberal politicians are hearing them loud and clear. Vermont Senator Bernie Sanders reportedly plans to introduce a single-payer bill once Congress comes back from recess—even though no Senate Democrats voted for a single-payer amendment last month. Massachusetts Senator Elizabeth Warren has also said“the next step is single payer” when it comes to the Democrats’ health-care ambitions.

But should it be? It’s true that the current American health-care system suffers from serious problems. It’s too expensive, millions are still uninsured, and even insured people sometimes can’t afford to go to the doctor.Single payer might be one way to fix that. But it could also bring with it some downsides—especially in the early years—that Americans who support the idea might not be fully aware of. And they are potentially big downsides.

First, it’s important to define what we mean by “single payer.” It could mean total socialized medicine, in that medical care is financed by—and doctors work for—the federal government. But there are also shades of gray, like a “Medicaid for all” system, where a single, national insurance program is available to all Americans, but care is rationed somewhat—not every drug and device is covered, and you have to jump through hoops to get experimental or pricier treatments. Or it could be “Medicare for all,” in which there’s still a single, national plan, but it’s more like an all-you-can-eat buffet. Like Medicare, this type of single-payer system would strain the federal budget, but it wouldn’t restrict the treatments people can get. Because it’s the term most often used in single-payer discussions, I’ll use that here.

The biggest problem with Medicare for all, according to Bob Laszewski, an insurance-industry analyst, is that Medicare pays doctors and hospitals substantially less than employer-based plans do.

“Now, call a hospital administrator and tell him that his reimbursement for all the employer-based insurance he gets now is going to be cut by 50 percent, and ask him what’s going to happen,” he said. “I think you can imagine—he’d go broke.” (As it happens, the American Hospital Association did not return a request for comment.)

The reason other countries have functional single-payer systems and we don’t, he says, is that they created them decades ago. Strict government controls have kept their health-care costs low since then, while we’ve allowed generous private insurance plans to drive up our health-care costs. The United Kingdom can insure everyone for relatively cheap because British providers just don’t charge as much for drugs and procedures.

Laszewski compares trying to rein in health-care costs by dramatically cutting payment rates to seeing a truck going 75 miles an hour suddenly slam on the brakes. The first 10 to 20 years after single payer, he predicts, “would be ugly as hell.” Hospitals would shut down, and waits for major procedures would extend from a few weeks to several months.

Craig Garthwaite, a professor at the Kellogg School of Management at Northwestern University, says “we would see a degradation in the customer-service side of health care.” People might have to wait longer to see a specialist, for example. He describes the luxurious-sounding hospital where his kids were born, a beautiful place with art in the lobby and private rooms. “That’s not what a single-payer hospital is going to look like,” he said. “But I think my kid could have been just as healthily born without wood paneling, probably.”

He cautions people to think about both the costs and benefits of single payer; it’s not a panacea. “There aren’t going to be free $100 bills on the sidewalk if we move to single payer,” he said.He also predicts that, if single payer did bring drug costs down, there might be less venture-capital money chasing drug development, which might mean fewer blockbuster cures down the line. And yes, he added, “you would lose some hospitals for sure.”

Amitabh Chandra, the director of health-policy research at Harvard University, doesn’t think it would be so bad if hospitals shut down—as long as they’re little-used, underperforming hospitals. Things like telemedicine or ambulatory surgical centers might replace hospital stays, he suspects. And longer waits might not, from an economist’s perspective, be the worst thing, either. That would be a way of rationing care, and we’re going to desperately need some sort of rationing. Otherwise “Medicare for all” would be very expensive and would probably necessitate a large tax increase. (A few years ago, Vermont’s plan for single payerfell apart because it was too costly.)

If the United States decided not to go that route, Chandra says, we would be looking at something more like “Medicaid for all.” Medicaid, the health-insurance program for the poor, is a much leaner program than Medicare. Not all doctors take it, and it limits the drugs and treatments its beneficiaries can get. This could work, in Chandra’s view, but many Americans would find it stingy compared to their employers’ ultra-luxe PPO plans. “Americans would say, ‘I like my super-generous, employer-provided insurance. Why did you take it away from me?’” he said.

Indeed, that’s the real hurdle to setting up single payer, says Tim Jost, emeritus professor at the Washington and Lee University School of Law. Between “80 to 85 percent of Americans are already covered by health insurance, and most of them are happy with what they’ve got.” It’s true that single payer would help extend coverage to those who are currently uninsured. But policy makers could already do that by simply expanding Medicaid or providing larger subsidies to low-income Americans.

Under single payer, employers would stop covering part of their employees’ insurance premiums, as they do now, and people would likely see their taxes rise. “As people started to see it, they would get scared,” Jost said. And that’s before you factor in how negatively Republican groups would likely paint single payer in TV ads and Congressional hearings. (Remember death panels?) It would just be a very hard sell to the American public.

“As someone who is very supportive of the Democratic party,” Jost said, “I hope the Democrats don’t decide to jump off the cliff of embracing single payer.”

  1. Common misconception: Not all European countries have single payer.


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Employer Plans Join Obamacare In Narrowing Doctor Networks For 2018

By Bruce Japsen

Health plans beyond just Obamacare are paring lists of doctor and hospital choices for 2018 as they struggle to contain rising medical care costs by guiding patients to quality choices, insurers and health benefits consultancies say.

Up to half of the nation’s large employers are looking at or already implementing narrow network strategies, benefits’ analysts say, even as insurers like Centene, Molina Healthcare, Oscar Health and Blue Cross and Blue Shield plans introduce more narrow network plans to maintain individual coverage offered on public exchanges under the Affordable Care Act for 2018.

Protesters join together in front of the office of Rep. Carlos Curbelo (R-FL) on August 3, 2017 in Miami, Florida. The protesters are asking for Rep. Curbelo to explain his vote on the Affordable Care Act and to take a stand against what they say is ‘President Donald Trump’s budget that slashes Medicaid by more than $800 billion and weakens the social safety net for more than 113,000 residents in Rep. Curbelo’s district who rely on Medicaid. ‘ (Photo by Joe Raedle/Getty Images)

“We are remediating high-cost provider contracts and building around high-quality, cost-effective networks,” Molina CEO Joseph White told analysts earlier this month on the company’s second-quarter earnings call. “This initiative will take time and will likely not show meaningful benefits until 2018.”

But health insurers say these moves to rein in costs don’t mean their customers will be forced to see doctors and hospitals that lack quality. Instead, Molina executives say they are focused on “driving” more health plan enrollees to providers with “strong quality records.”

Take Oscar Health, which has partnered with the Cleveland Clinic to offer individual coverage in Ohio on the ACA’s public exchange.

“This is a rare opportunity to work with Cleveland Clinic to deliver the simpler, better and affordable health care experience that consumers want,” Mario Schlosser, Oscar Health’s CEO said when the partnership was announced.  “By linking Oscar’s member engagement platform to a world-renowned, physician-led health system like the Cleveland Clinic, we can align incentives and focus on the things that matter most: keeping members healthy.”

Insurers and employers would prefer to the words “high performance” be subbed in for “narrow” when talking about their networking strategies. Health benefits analysts say it’s not necessarily a bad thing if health plans and employers cull from their lists of doctors and hospitals those that aren’t achieving whatever quality metrics have been established.

Half of U.S. employers are considering “condition-specific high performance networks over the next three-to-five years ,” the human resources and benefits consulting giant Aon said last week.

“As employers continue to look for ways to improve health and manage cost within their health benefits program, one area of focus is consistently considered – provider network optimization,” Jim Winkler, senior vice president of Health & Benefits at Aon. “Beyond cost and quality considerations, employers have increasingly turned to narrower provider panels to provide simplicity of choice and consistency of care for plan members.”

Winkler said the trend is akin to a move by employers to suggest choices for their retirement plans.

“The increased interest in narrow networks is similar to the trends we see in 401K plans,” Winkler said. “Employers are increasingly offering smart “default choices” and not relying on wide-ranging menus that are often difficult for people to navigate.”

National Business Group on Health said 19% of employers in its survey will use “high-performance networks” next year though that is down from 26% this year, according to its 2018 health benefits report. 

But the dip in narrow networks is likely only a temporary phenomenon, NBGH’s CEO Brian Marcotte says.

“There is is significant interest in both performance networks and ACOs for 2019 and 2020,” NBGH ‘s Marcotte said. “I think employers are trying to make sure that these networks are truly quality and efficiency networks and not just a deeper discount with a limited group of providers.  Employers have been down that road in the past and want to make sure that these networks are moving towards value-based arrangements.”