Might "co-operatives" be a tool for increasing access to more affordable health coverage for small businesses and individuals?
That's a relatively new component of the health care reform debate, particularly as ideas regarding a "public option" health plan have begun to lose their luster due to fears of enhanced government involvement and the threat of significant costs.
Keeping in mind once again that very few details regarding any element of health insurance reform legislation are at all clear, here's what we know about the deliberations regarding co-operatives.
Essentially, proponents see co-ops as non-profit, member-owned organizations which would self-insure for the health coverage provided to members, and which would have the ability to negotiate reimbursement rates directly with providers. The government would somehow assist start-up co-ops with some initial capital to enable them to establish necessary reserves. After that, they'd supposedly be required to satnd on their own through their premium income.
Opponents say that co-ops would be highly unlikely to make much of a difference in reducing or controlling health care costs for many years. It would take a long time for co-ops to develop the market power to be able to negotiate with providers from a position of strength, unless they're able to offer reimbursement rates roughly equivalent to Medicare (and idea hospitals and doctors hate). And unless they're exempted from many of the regulations which make small group and individual health insurance inefficient and costly to administer (an idea insurers hate), they'd have to operate just as inefficiently as insurance companies do, so they'd probably be unable to compete based on administrative efficiency.
There are also concerns that there aren't many good examples of successful health care co-ops to serve as role models of good performance over the long haul.
At the same time, organizations ranging from mutual insurance companies to chambers of commerce to health systems are jockeying for definitions of what a co-op is that will suit their current operations, and enable them to conduct business as usual.
What should a co-op look like? Let's take a look back to s simpler time...
Health insurance companies didn't exist in any form till the 1930's, when the first Blue Cross Blue Shield plans were established. Before then, most people's "health coverage" was either paid for directly, or was covered through "benevolent organizations." These groups were organized around affinity groups: whether by church groups, ethnic organizations, or community service organizations, they were membership organizations consisting of people with some degree of common interest. Every member would pay a small amount of money in monthly assessments, and the societies would help to cover the health expenses of any members, should they require help.
Blue Cross Blue Shield plans had their roots in such organizations. They consolidated these efforts by providing administrative services to individuals and employers who wished to establish a "pool" of funds to help pay the hospital and physician bills of their members, and often operated as not-for-profit "mutuals," owned by their members, who voted to elect the plans' leadership and make other important decisions.
For quite awhile, my COSE alma mater was one of the largest and most successful health insurance purchasing co-operatives in the country. At one time it covered over 200,000 small business owners, employees, and family members throughout Northern Ohio. The COSE health plan was run by an independent Board, made up of members, which negotiated directly with insurers to develop plans which would operate in the members' best interests. COSE accepted no revenue from its insurers; costs were paid through member dues, and through fees paid by members who participated in the health plans. Because the group was so large, the fees charged to members were extremely modest: $12 per company and $1 per employee per month.
Our results over many years were impressive. For 15 years straight, participation in COSE grew by a net of 1000 member companies (6000 employees) per year. Members participating in the COSE health plan saved an average of 30% on their health insurance premiums. And for more than 10 consecutive years, members rates of increase in health premiums were less than 10% per year; in some years, members' rates didn't increase at all.
And this was in the small group and individual market. The average COSE member company had 6 employees, and many groups had 2 employees or fewer.
Unfortunately, COSE's recent history hasn't been so rosy. Bad management and governance is one reason. Another is that the organization decided a number of years ago to use the health plan as a source of revenue, which removed any incentive to keep prices low for members.
But another reason for the COSE health plan's failure to grow, or contain costs, is that, in the last round of federal health insurance reform legislation, insurers were successful in developing regulations which severely undercut the ability of membership organizations to negotiate volume discounts on rates or administrative costs with insurers. In addition, many states codified rules which established "group coverage" as applying only to employer groups, not to large purchasing groups. These same rules specifically disqualified sole proprietorships from eligibility for group coverage.
Properly designed, co-ops can be a powerful tool in increasing the availability of affordable health coverage, AND in increasing competition among health insurers. But it'd have to be done right. Here's what Congress would need to do:
1)Specifically state that the formation of group purchasing arrangements is a matter of public interest;
2)Permit the formation of purchasing groups by non-profit affinity groups a) formed for purposes other than that of purchasing health coverage,and b) consisting of at least 5,000 insured lives (though 10,000 would be better, for the purposes of actuarial credibility);
3) Require that such groups' health plans be governed by a separate fiduciary Board of Trustees, not as a revenue source for the sponsoring organization;
4) Specifically enable co-ops to negotiate volume discounts on rates and administrative costs with insurers and providers on behalf of their members;
5) Specifically prohibit the formation of co-ops by insurers or by provider organizations, and;
6) Support the creation of a limited number of pilot projects at the federal, state and local levels to demonstrate how such groups might use the combination of large numbers, administrative efficiencies, and negotiating power to control the rise of health insurance premiums.
Developing co-ops could be a relatively simple matter, if Congress would remove the obstacles to the formation of such groups which it itself has imposed, with the encouragement of the insurance industry.
This would keep health insurance reform in the private sector, but give purchaser the ability to consolidate purchasing power as a response to the consolidation of power which has taken place among insurers and providers over the past decade.
Monday, August 24, 2009
Thursday, August 20, 2009
NFIB Nails Small Group Health Reform Priorities In Short Words And Simple Sentences
The National Federation Of Independent Business (NFIB) is the nation's largest small business advocacy organization, with over 600,000 member companies throughout the U.S.
The organization's politics has usually run toward the conservative side. NFIB was one of the organizations often prominently mentioned when talking about the failure of the Clinton Administration's health reform plan.
But this year, NFIB deserves recognition for the clearest and most actionable small group market reform agenda out there in the political process. And the organization has taken to the Net to spread its gospel.
Here's a link to their cover page:http://nfib.matrixgroup.net/tabid/565/Default.aspx?cmsid=49240&v=1 (If the link doesn't work, please copy and paste in to your browser)
NFIB is selling their agenda under three important principles. They're the 3 C's: Cost, Choice and Competition. Here's a summary:
"Cost...We must bring down the cost of health insurance for small businesses and their employees. Currently, they pay 18% more for health care than big businesses. Creating an equal playing field starts with improving the small group insurance markets.
"Choice...Small business owners and employees need more choice when shopping for insurance plans. Health care reform needs to expand the number of providers and affordable plans available to small businesses and their employees.
"Competition...Lack of competition makes it easy for providers and insurers to raise their prices. In many states, small business owners have only one or two choices of insurance providers. A recent study shows that in most states the five largest insurers control 90 percent of the market. We need more competition in the marketplace and access to larger purchasing pools to help lower the cost of insurance for small businesses."
This is a reform agenda to salute. It's concise, well-documented, and recommends action steps which, if enacted, would actually help small businesses control their health care costs. Contrast it to the fuzzy, murky rhetoric coming from other national groups, like the US Chamber of Commerce, The National Small Business Association, and even my COSE alma mater.
But NFIB is in for a fight.
For several years, NFIB has been thinking about the evolution of health insurance toward a national market. They're making a big bet that with their 600,000 member companies, they would be an early favorite to meet the criteria to form a non-profit health insurance exchange or co-operative that could cast a big shadow in the marketplace, and easily move their membership past the one million mark. The organization has developed a health plan for small employers administered by a big broker specializing in association health plans.
The principal impediments: Big local or regional health plan, like Blue Cross Blue Shield plans, who are already the largest insurers of small groups at the local level; and local or statewide Chambers of Commerce and other associations which have used exclusive relationships with these insurers to build their memberships and generate a ton of revenue from sales commissions and other fees.
These groups fear the emergence of national competitors, especially big ones which could negotiate very favorable rates with insurers and providers.
That's why you'll hear them say that, if such co-ops are to be formed, they should be subject to the same rules as insurers, including rules that protect insurers from having to negotiate with associations as big customers on behalf of their members. In effect, they'll demand that any national co-op should be required to be as inefficient as they are.
And that's why I'm cheering for NFIB to win.
The organization's politics has usually run toward the conservative side. NFIB was one of the organizations often prominently mentioned when talking about the failure of the Clinton Administration's health reform plan.
But this year, NFIB deserves recognition for the clearest and most actionable small group market reform agenda out there in the political process. And the organization has taken to the Net to spread its gospel.
Here's a link to their cover page:http://nfib.matrixgroup.net/tabid/565/Default.aspx?cmsid=49240&v=1 (If the link doesn't work, please copy and paste in to your browser)
NFIB is selling their agenda under three important principles. They're the 3 C's: Cost, Choice and Competition. Here's a summary:
"Cost...We must bring down the cost of health insurance for small businesses and their employees. Currently, they pay 18% more for health care than big businesses. Creating an equal playing field starts with improving the small group insurance markets.
"Choice...Small business owners and employees need more choice when shopping for insurance plans. Health care reform needs to expand the number of providers and affordable plans available to small businesses and their employees.
"Competition...Lack of competition makes it easy for providers and insurers to raise their prices. In many states, small business owners have only one or two choices of insurance providers. A recent study shows that in most states the five largest insurers control 90 percent of the market. We need more competition in the marketplace and access to larger purchasing pools to help lower the cost of insurance for small businesses."
This is a reform agenda to salute. It's concise, well-documented, and recommends action steps which, if enacted, would actually help small businesses control their health care costs. Contrast it to the fuzzy, murky rhetoric coming from other national groups, like the US Chamber of Commerce, The National Small Business Association, and even my COSE alma mater.
But NFIB is in for a fight.
For several years, NFIB has been thinking about the evolution of health insurance toward a national market. They're making a big bet that with their 600,000 member companies, they would be an early favorite to meet the criteria to form a non-profit health insurance exchange or co-operative that could cast a big shadow in the marketplace, and easily move their membership past the one million mark. The organization has developed a health plan for small employers administered by a big broker specializing in association health plans.
The principal impediments: Big local or regional health plan, like Blue Cross Blue Shield plans, who are already the largest insurers of small groups at the local level; and local or statewide Chambers of Commerce and other associations which have used exclusive relationships with these insurers to build their memberships and generate a ton of revenue from sales commissions and other fees.
These groups fear the emergence of national competitors, especially big ones which could negotiate very favorable rates with insurers and providers.
That's why you'll hear them say that, if such co-ops are to be formed, they should be subject to the same rules as insurers, including rules that protect insurers from having to negotiate with associations as big customers on behalf of their members. In effect, they'll demand that any national co-op should be required to be as inefficient as they are.
And that's why I'm cheering for NFIB to win.
Tuesday, August 18, 2009
What Does Health Care Cost?
In an attempt to change the subject from the excesses of its own behavior, the insurance industry has actually shed a little light on one of the most fundamental, and complex, questions in the health care reform debate: what does health care cost?
Last week, America's Health Insurance Plans (AHIP), the insurance industry's lobbying group, released a survey of its members which was meant to reveal the variations between what hospitals and physicians bill for services and what Medicare and insurers pay for them. You can read the New York Times article on the subject here.http://www.nytimes.com/2009/08/12/health/policy/12insure.html?emc=tnt&tntemail1=y
It's not a scientific survey. In fact, its purpose was to point out the most excessive billing behaviors on the part of health care providers. And the anecdotes do, in fact, illustrate absurd variations: an Illinois patient billed over $12,000 for cataract surgery for which Medicare pays $675; a California patient billed $20,000 for knee surgery for which Medicare pays $584; a patient in New Jersey whose bill for spinal fusion surgery totaled $72,000, while Medicare pays only $1629 for the procedure. And there are plenty of other anecdotes highlighting the difference between billed charges and insurer or provider reimbursement.
While the particular cases are meant to be particularly outrageous, they highlight an issue which is played out tens of thousands of times a day in communities across the country in smaller ways.
A patient sees a specialist for a medical problem. The physician bills $350 for a 20-minute office visit. The patient later receives a statement from his/her insurance company stating that, while billed charges were $350, the physician has agreed to take $125 as payment in full for the office call.
What does the doctor's visit cost?
In the real world, a patient without insurance coverage would be expected to pay the $350, or whatever lower number he might negotiate with the doctor's office. For the insured patient, the physician gets $125...or whatever amount the doctor has agreed to accept from whatever insurance carrier the patient subscribes to. The physician may be reimbursed at dozens of different levels for the same service, depending on the patient's health plan.
Throw in co-pays, out-of-network fees or penalties, and the picture gets even fuzzier.
But what does it have to do with the doctor's cost of doing business?
Here's the nasty part: in general, doctors and hospitals have no idea what their costs are; unlike every other element of business, pricing doesn't start with calculating the cost of providing a service, with mark-ups or discounts from "retail" based on volume. All they know is what Medicare, Medicaid, or insurance companies will pay them.
Again, in general, Medicare reimbursement sets the "floor" for paying providers. Insurance companies generally set their reimbursement rates as a function of Medicare: that is, 1.25 or 1.4 times Medicare rates.
But that still doesn't address the question of what those services cost. When hospitals or physicians state that Medicare reimbursement pays them below their costs, that usually means,"we're not getting paid enough."
The one thing which IS true, is that a provider writing off a charge for "uncompensated care" is charging off the highest possible billed charge.
When the President promises to "bend the curve" on health care spending to reduce costs, it'd be helpful to know exactly what that means. Frankly, I'd settle for some means to create more transparency and uniformity in billing for services...and actually, providers would benefit from that, too...
Last week, America's Health Insurance Plans (AHIP), the insurance industry's lobbying group, released a survey of its members which was meant to reveal the variations between what hospitals and physicians bill for services and what Medicare and insurers pay for them. You can read the New York Times article on the subject here.http://www.nytimes.com/2009/08/12/health/policy/12insure.html?emc=tnt&tntemail1=y
It's not a scientific survey. In fact, its purpose was to point out the most excessive billing behaviors on the part of health care providers. And the anecdotes do, in fact, illustrate absurd variations: an Illinois patient billed over $12,000 for cataract surgery for which Medicare pays $675; a California patient billed $20,000 for knee surgery for which Medicare pays $584; a patient in New Jersey whose bill for spinal fusion surgery totaled $72,000, while Medicare pays only $1629 for the procedure. And there are plenty of other anecdotes highlighting the difference between billed charges and insurer or provider reimbursement.
While the particular cases are meant to be particularly outrageous, they highlight an issue which is played out tens of thousands of times a day in communities across the country in smaller ways.
A patient sees a specialist for a medical problem. The physician bills $350 for a 20-minute office visit. The patient later receives a statement from his/her insurance company stating that, while billed charges were $350, the physician has agreed to take $125 as payment in full for the office call.
What does the doctor's visit cost?
In the real world, a patient without insurance coverage would be expected to pay the $350, or whatever lower number he might negotiate with the doctor's office. For the insured patient, the physician gets $125...or whatever amount the doctor has agreed to accept from whatever insurance carrier the patient subscribes to. The physician may be reimbursed at dozens of different levels for the same service, depending on the patient's health plan.
Throw in co-pays, out-of-network fees or penalties, and the picture gets even fuzzier.
But what does it have to do with the doctor's cost of doing business?
Here's the nasty part: in general, doctors and hospitals have no idea what their costs are; unlike every other element of business, pricing doesn't start with calculating the cost of providing a service, with mark-ups or discounts from "retail" based on volume. All they know is what Medicare, Medicaid, or insurance companies will pay them.
Again, in general, Medicare reimbursement sets the "floor" for paying providers. Insurance companies generally set their reimbursement rates as a function of Medicare: that is, 1.25 or 1.4 times Medicare rates.
But that still doesn't address the question of what those services cost. When hospitals or physicians state that Medicare reimbursement pays them below their costs, that usually means,"we're not getting paid enough."
The one thing which IS true, is that a provider writing off a charge for "uncompensated care" is charging off the highest possible billed charge.
When the President promises to "bend the curve" on health care spending to reduce costs, it'd be helpful to know exactly what that means. Frankly, I'd settle for some means to create more transparency and uniformity in billing for services...and actually, providers would benefit from that, too...
Friday, August 14, 2009
Insurer Consolidation Pressures Providers And Consumers, Limits Competition
An interesting study by the American Medical Association looks at the effects of consolidation in the health insurance industry. It's principal focus is on consolidation's effects on physicians, but the study has interesting implications for health insurance purchasers, as well. You can download the study by clicking here...http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf
The past decade has seen a huge wave of consolidation within the health insurance industry, which has given rise to a limited number of giant companies with considerable market presence. In 2000, the two largest insurers in the country, Aetna and UnitedHealthcare, had a total membership of 32 million insured lives. By 2007, following a wave of mergers, the two largest health insurers, Wellpoint and UnitedHealthcare, had 34 million and 32 million members each, respectively. Together, the two insurers "own" 36% of the national health insurance market.
Down to the local level, the effects of consolidation are even more dramatic. In 96% (295) of the MSA's surveyed, one insurer owns at least 30% of the combined HMO and PPO market. In 64% (200) MSA's, one insurer owns at least 50% market share. in 24% (74) MSA's one insurer has at least 70% market share. And in 5% (15) of MSA's one insurer has at least 90% market share.
Because the study was done by the AMA, the obvious focus of the study was to raise concerns about the effect that consolidation might have on the huge health plans' ability to contract with providers. The big guys have a lot of leverage in negotiating reimbursement rates, and in highly-concentrated markets, and in potentially failing to reach an agreement with these mega-insurers...on their terms...physicians fear that insurers can exercise their "monopsony power"...their purchasing power...to destroy a physician's practice.
This has led AMA to wonder why, of over 400 insurance company mergers since 1995, the U.S. Department of Justice has questioned only two.
That's certainly a legitimate concern, but it also raises another question: with giant insurers with huge market share exercising such power over provider contracting, why have consumers not benefited?
The presence of one or two very large insurers in a local community has had the effect of reducing competition among insurers for market share; in effect, a very small number of insurers in every town are passing business back and forth among themselves. Their purchasing power has in many cases given these insurers discounts on provider services which smaller competitors can't match.
The rise of these mega-plans has limited consumers' choices by limiting competition. Consolidation has enabled these plans to become very aggressive in negotiating with providers, but there's no evidence that this aggressiveness has created any benefits for purchasers. But there's plenty of evidence suggesting that the insurers, having squeezed hospitals and physicians, are enjoying significant profits for themselves and their shareholders.
If you look over the landscape...hospitals and health systems, physicians, pharmaceutical companies...the only segment of the health care system which has not undergone consolidation, or benefited from it, are the people who buy health coverage. In fact, federal and state legislation in the mid-90's actually reduced the ability of purchasers to consolidate into larger purchasing groups which might exercise a little counter-pressure on health plans to share the benefits of their purchasing power with their customers.
The inability of small businesses to form large group purchasing arrangements which could negotiate with insurers on behalf of their members appears to be one of the elements behind current legislative proposals to create large, non-profit "co-ops," which would have the charter to negotiate with insurers to push back against the rising cost of health insurance.
If it did nothing else, legislative action to reduce regulatory barriers to the formation of large health insurance purchasing co-operatives for small businesses and individuals would have great potential, over time, to re-introduce a measure of competition and administrative and marketing efficiency into the small group and individual health insurance markets. Without such measures, it's not likely that insurers will change their behavior.
The past decade has seen a huge wave of consolidation within the health insurance industry, which has given rise to a limited number of giant companies with considerable market presence. In 2000, the two largest insurers in the country, Aetna and UnitedHealthcare, had a total membership of 32 million insured lives. By 2007, following a wave of mergers, the two largest health insurers, Wellpoint and UnitedHealthcare, had 34 million and 32 million members each, respectively. Together, the two insurers "own" 36% of the national health insurance market.
Down to the local level, the effects of consolidation are even more dramatic. In 96% (295) of the MSA's surveyed, one insurer owns at least 30% of the combined HMO and PPO market. In 64% (200) MSA's, one insurer owns at least 50% market share. in 24% (74) MSA's one insurer has at least 70% market share. And in 5% (15) of MSA's one insurer has at least 90% market share.
Because the study was done by the AMA, the obvious focus of the study was to raise concerns about the effect that consolidation might have on the huge health plans' ability to contract with providers. The big guys have a lot of leverage in negotiating reimbursement rates, and in highly-concentrated markets, and in potentially failing to reach an agreement with these mega-insurers...on their terms...physicians fear that insurers can exercise their "monopsony power"...their purchasing power...to destroy a physician's practice.
This has led AMA to wonder why, of over 400 insurance company mergers since 1995, the U.S. Department of Justice has questioned only two.
That's certainly a legitimate concern, but it also raises another question: with giant insurers with huge market share exercising such power over provider contracting, why have consumers not benefited?
The presence of one or two very large insurers in a local community has had the effect of reducing competition among insurers for market share; in effect, a very small number of insurers in every town are passing business back and forth among themselves. Their purchasing power has in many cases given these insurers discounts on provider services which smaller competitors can't match.
The rise of these mega-plans has limited consumers' choices by limiting competition. Consolidation has enabled these plans to become very aggressive in negotiating with providers, but there's no evidence that this aggressiveness has created any benefits for purchasers. But there's plenty of evidence suggesting that the insurers, having squeezed hospitals and physicians, are enjoying significant profits for themselves and their shareholders.
If you look over the landscape...hospitals and health systems, physicians, pharmaceutical companies...the only segment of the health care system which has not undergone consolidation, or benefited from it, are the people who buy health coverage. In fact, federal and state legislation in the mid-90's actually reduced the ability of purchasers to consolidate into larger purchasing groups which might exercise a little counter-pressure on health plans to share the benefits of their purchasing power with their customers.
The inability of small businesses to form large group purchasing arrangements which could negotiate with insurers on behalf of their members appears to be one of the elements behind current legislative proposals to create large, non-profit "co-ops," which would have the charter to negotiate with insurers to push back against the rising cost of health insurance.
If it did nothing else, legislative action to reduce regulatory barriers to the formation of large health insurance purchasing co-operatives for small businesses and individuals would have great potential, over time, to re-introduce a measure of competition and administrative and marketing efficiency into the small group and individual health insurance markets. Without such measures, it's not likely that insurers will change their behavior.
Thursday, August 13, 2009
More On Young Invincibles...And A Hidden Message
It was published a couple years ago, but New York Magazine produced a terrific article which focused on New York's "young invincibles"...young adults 19-29 years old who choose not to purchase health insurance coverage. A link to the article is here...http://nymag.com/news/features/29723/
NYC is a tough town, and one of the most expensive cities in America in which to get sick. It tends to attract large numbers of young people who try their hands at free-lancing and jobs in the arts. But the stories themselves are typical of young folks everywhere; an estimated one-third of uninsured Americans are reportedly between the ages of 19-29, and working in low-wage jobs which don't provide access to group health coverage. They decide to do without coverage because of its costs, even though they know that they are one serious injury or illness away from financial catastrophe.
But the article also hints at another significant issue: the pricing of health insurance coverage, and how insurance costs are spread across New York's "risk pool."
New York is a "community rating" state, which means that everybody buying a particular health plan pays about the same as anybody else, with no regard to age, gender, geography or other factors.
It's also a "guaranteed issue" state, which means applicants cannot be denied coverage due to pre-existing health conditions. The combination of those two factors makes health insurance premiums in New York among the highest in the country.
So for a "young invincible," health insurance premiums can run as high as $300-500 per month for a decent health plan. But a 50-year-old buying the same plan would pay exactly the same rate. And no one applying for the same health plan will be denied coverage.
Most states, including Ohio, use factors like age, gender, residential zip codes, and other factors to set premium rates, which can vary considerably from the mathematical average rate for a policy. Typically, the variation is plus- or-minus 25% from the average; Ohio permits group plans to vary plus- or minus-50% for group plans, which means that coverage for older employees with health conditions can be twice as high as for younger, healthier employees. Ohio also has no limit on the amount insurers can charge for individual policies (shopping casually, I was offered a rate on an individual policy which was TRIPLE the initial quote), permits insurers to deny coverage for applicants with health conditions.
Ohio insurers have set regulations like this in an effort to make their products more attractive to younger, healthier people, who are extremely profitable to insure because, in general, they use fewer health care services. Young folks in Ohio can buy a decent policy for $125 a month (if they qualify for coverage), but those 50-year-olds can pay a lot more. And anybody applying for group coverage can have their application denied for health reasons.
So average insurance premiums in Ohio tend to LOOK a little lower. But that's because Ohio insurers don't cover everybody. And outside of the Cleveland area, the cost of health care in Ohio is significantly lower than in New York.
Why is this important to the health care debate? Because while New York's average premium rates are higher than the national average (8th-highest in the country, according to America's Health Insurance Plans, the industry's trade group, versus Ohio's rates, which rank 35th in the country), the rates in New York are spread out much more equitably than in Ohio. Young New Yorkers pay a higher-than-average rate for coverage, but benefit from that same subsidy as the get older. This is how insurance is supposed to work.
And at the same time, a MUCH lower percentage of New York health premium goes to cover administrative costs, since New York insurers accept all applicants for any given plan at the same rate, irrespective of health or other factors. This is simply much more efficient than having an army of underwriters evaluating every single application received by the insurer, assessing an underwriting "score" based on a bunch of factors, and setting specific prices based on a complicated formula.
New York's approach also gives folks with insurance the assurance that using their plan won't result in dramatically higher rates, or cancellation of their coverage. Folks with health conditions pay the same as everybody else.
Insurance rates in New York are higher, but everybody qualifies for coverage, irrespective of their health. And a higher percentage of New York premiums goes to cover the cost of health care, and a lower percentage to cover insurer administrative costs.
It should be a foregone conclusion that guaranteeing coverage to everyone will raise the cost of health insurance premiums. That's what the evidence shows. But a community rating process would allocate those costs more equitably throughout the system.
There is very little evidence that complex administrative processes and creative health underwriting benefit the health care system at all. The simpler the process, the higher percentage of premium which is devoted to the cost of care, versus the cost of insurer administration
NYC is a tough town, and one of the most expensive cities in America in which to get sick. It tends to attract large numbers of young people who try their hands at free-lancing and jobs in the arts. But the stories themselves are typical of young folks everywhere; an estimated one-third of uninsured Americans are reportedly between the ages of 19-29, and working in low-wage jobs which don't provide access to group health coverage. They decide to do without coverage because of its costs, even though they know that they are one serious injury or illness away from financial catastrophe.
But the article also hints at another significant issue: the pricing of health insurance coverage, and how insurance costs are spread across New York's "risk pool."
New York is a "community rating" state, which means that everybody buying a particular health plan pays about the same as anybody else, with no regard to age, gender, geography or other factors.
It's also a "guaranteed issue" state, which means applicants cannot be denied coverage due to pre-existing health conditions. The combination of those two factors makes health insurance premiums in New York among the highest in the country.
So for a "young invincible," health insurance premiums can run as high as $300-500 per month for a decent health plan. But a 50-year-old buying the same plan would pay exactly the same rate. And no one applying for the same health plan will be denied coverage.
Most states, including Ohio, use factors like age, gender, residential zip codes, and other factors to set premium rates, which can vary considerably from the mathematical average rate for a policy. Typically, the variation is plus- or-minus 25% from the average; Ohio permits group plans to vary plus- or minus-50% for group plans, which means that coverage for older employees with health conditions can be twice as high as for younger, healthier employees. Ohio also has no limit on the amount insurers can charge for individual policies (shopping casually, I was offered a rate on an individual policy which was TRIPLE the initial quote), permits insurers to deny coverage for applicants with health conditions.
Ohio insurers have set regulations like this in an effort to make their products more attractive to younger, healthier people, who are extremely profitable to insure because, in general, they use fewer health care services. Young folks in Ohio can buy a decent policy for $125 a month (if they qualify for coverage), but those 50-year-olds can pay a lot more. And anybody applying for group coverage can have their application denied for health reasons.
So average insurance premiums in Ohio tend to LOOK a little lower. But that's because Ohio insurers don't cover everybody. And outside of the Cleveland area, the cost of health care in Ohio is significantly lower than in New York.
Why is this important to the health care debate? Because while New York's average premium rates are higher than the national average (8th-highest in the country, according to America's Health Insurance Plans, the industry's trade group, versus Ohio's rates, which rank 35th in the country), the rates in New York are spread out much more equitably than in Ohio. Young New Yorkers pay a higher-than-average rate for coverage, but benefit from that same subsidy as the get older. This is how insurance is supposed to work.
And at the same time, a MUCH lower percentage of New York health premium goes to cover administrative costs, since New York insurers accept all applicants for any given plan at the same rate, irrespective of health or other factors. This is simply much more efficient than having an army of underwriters evaluating every single application received by the insurer, assessing an underwriting "score" based on a bunch of factors, and setting specific prices based on a complicated formula.
New York's approach also gives folks with insurance the assurance that using their plan won't result in dramatically higher rates, or cancellation of their coverage. Folks with health conditions pay the same as everybody else.
Insurance rates in New York are higher, but everybody qualifies for coverage, irrespective of their health. And a higher percentage of New York premiums goes to cover the cost of health care, and a lower percentage to cover insurer administrative costs.
It should be a foregone conclusion that guaranteeing coverage to everyone will raise the cost of health insurance premiums. That's what the evidence shows. But a community rating process would allocate those costs more equitably throughout the system.
There is very little evidence that complex administrative processes and creative health underwriting benefit the health care system at all. The simpler the process, the higher percentage of premium which is devoted to the cost of care, versus the cost of insurer administration
Monday, August 10, 2009
A "Young Invincible" Worries About Health Insurance
Insurance people often talk about a group of the uninsured they call "the young invincibles"...young, healthy people, usually in their early- to mid-20's, who don't buy health insurance because they don't believe they need it. The insurers' pitch is that forcing all these young, healthy people to purchase health insurance coverage will solve the health insurance crisis.
The reasons, they say, are twofold: first, these young folks (mainly young men, the legends have it) are leading candidates to wrap their cars or motorcycles around a tree, fall off a hang-glider or bungee-jump into a canyon and bust their skulls on a rock, thus requiring extensive treatment for trauma for which they don't now have coverage; more prosaically, they tend to pay more in premiums than they use in benefits, and therefore are very profitable for the insurers, and so (the pitch goes) they add cash to the "risk pool," which somehow helps keep costs down for everybody else.
Set aside for the moment that, as usual, there's almost no objective third-party research which would indicate that any of this is particularly true or likely, except that young males are slightly more prone than average to experience an auto accident.
The fact is that young people who HAVE their own health insurance are far from worry-free, for the same reasons their elders worry about their own non-group health insurance.
When our son "aged out" of our group health plan, we helped him find his own individual health insurance coverage. He was 23 and in good shape, healthy lifestyle, the ideal young insurance customer. We found him a decent plan for about $125 a month. He was a college student, and now works only part-time, but he keeps up with his premium payments.
Except he's afraid to use his plan.
He's very concerned that while he may be healthy now, he could develop a chronic health condition, like his cousin. When he was diagnosed with a chronic
gastrointestinal disorder, his cousin's health insurance premiums quadrupled because, unlike with group coverage, there are no limits on how much insurers can raise the rates of individual customers based on their health.
And when his cousin tried shopping for coverage elsewhere, he found that his health condition rendered him "uninsurable" by any other insurer. So he bought a cheaper plan which featured a $5,000 annual deductible and which didn't pay out a dime in benefits till the deductible had been reached. And instead of paying $400 per month out of pocket for prescription coverage, he bought his medication on-line in Mexico for $55.
Ultimately, facing cancellation of his coverage, his cousin changed jobs so he could be covered by a large company's group health plan.
The advocates of "consumer-directed health plans (whatever they are)" like to say that high deductibles and co-pays make consumers less likely to "abuse" their health plans. But the best research shows that such individual health plans generally produce short-term savings for insurers when their customers put off necessary treatment or medication is too expensive to pay for on lower-wage jobs.
Our son looks at his current health insurance policy as a "placeholder" till he can find a job with group health insurance coverage.
Insurers, especially those who sell a lot of non-group health plans, like to tout the contention that "individual responsibility," which for them means dividing the world into actuarial universes of one, and selling each person a "custom-tailored" and individually-rated health policy, will somehow reduce net spending on health care services.
The reality is that in general, non-group coverage costs more, covers less, and is much less stable and reliable than any sort of group plan. And anybody covered by one knows he or she is just one illness or accident away from either dramatic increases in premium or outright cancellation of their health plans.
They are, however, extremely profitable for insurers, because until they experience that illness or injury, these "young invincibles" pay in far more in premiums than they take out in claims. Which means that insurers can either a) use the surplus to subsidize health coverage for everybody else, or b) keep the money.
Want to bet what really happens?
The reasons, they say, are twofold: first, these young folks (mainly young men, the legends have it) are leading candidates to wrap their cars or motorcycles around a tree, fall off a hang-glider or bungee-jump into a canyon and bust their skulls on a rock, thus requiring extensive treatment for trauma for which they don't now have coverage; more prosaically, they tend to pay more in premiums than they use in benefits, and therefore are very profitable for the insurers, and so (the pitch goes) they add cash to the "risk pool," which somehow helps keep costs down for everybody else.
Set aside for the moment that, as usual, there's almost no objective third-party research which would indicate that any of this is particularly true or likely, except that young males are slightly more prone than average to experience an auto accident.
The fact is that young people who HAVE their own health insurance are far from worry-free, for the same reasons their elders worry about their own non-group health insurance.
When our son "aged out" of our group health plan, we helped him find his own individual health insurance coverage. He was 23 and in good shape, healthy lifestyle, the ideal young insurance customer. We found him a decent plan for about $125 a month. He was a college student, and now works only part-time, but he keeps up with his premium payments.
Except he's afraid to use his plan.
He's very concerned that while he may be healthy now, he could develop a chronic health condition, like his cousin. When he was diagnosed with a chronic
gastrointestinal disorder, his cousin's health insurance premiums quadrupled because, unlike with group coverage, there are no limits on how much insurers can raise the rates of individual customers based on their health.
And when his cousin tried shopping for coverage elsewhere, he found that his health condition rendered him "uninsurable" by any other insurer. So he bought a cheaper plan which featured a $5,000 annual deductible and which didn't pay out a dime in benefits till the deductible had been reached. And instead of paying $400 per month out of pocket for prescription coverage, he bought his medication on-line in Mexico for $55.
Ultimately, facing cancellation of his coverage, his cousin changed jobs so he could be covered by a large company's group health plan.
The advocates of "consumer-directed health plans (whatever they are)" like to say that high deductibles and co-pays make consumers less likely to "abuse" their health plans. But the best research shows that such individual health plans generally produce short-term savings for insurers when their customers put off necessary treatment or medication is too expensive to pay for on lower-wage jobs.
Our son looks at his current health insurance policy as a "placeholder" till he can find a job with group health insurance coverage.
Insurers, especially those who sell a lot of non-group health plans, like to tout the contention that "individual responsibility," which for them means dividing the world into actuarial universes of one, and selling each person a "custom-tailored" and individually-rated health policy, will somehow reduce net spending on health care services.
The reality is that in general, non-group coverage costs more, covers less, and is much less stable and reliable than any sort of group plan. And anybody covered by one knows he or she is just one illness or accident away from either dramatic increases in premium or outright cancellation of their health plans.
They are, however, extremely profitable for insurers, because until they experience that illness or injury, these "young invincibles" pay in far more in premiums than they take out in claims. Which means that insurers can either a) use the surplus to subsidize health coverage for everybody else, or b) keep the money.
Want to bet what really happens?
Sunday, August 9, 2009
Health Insurers Fear "Public Option," Blame Everybody Else For Health Insurance Crisis
Health insurers are wigging out over the prospect that Congressional health care reform legislation might include a "public option," a government-run program through which individuals and small businesses might purchase coverage as an alternative to the private health insurance market.
An article in Cleveland's weekly business publication, Crain's Cleveland Business (published by the same family firm which produces Business Insurance), featured commentary by a number of industry executives and lobbyists who express concern about the possibility of competing with an entity that "doesn't need to turn a profit, and can negotiate lower payment rates to medical providers because of its huge client base."
The article reports that insurers are lobbying furiously, even encouraging their employees and customers to oppose the development of a public health plan.
And, as usual, the insurer spokesmen blame everybody else in the health care game for runaway costs, high premiums, and underwriting rules which result in limited availability of health care coverage for small businesses (which buy most health insurance products) and individuals, especially those with health problems.
A spokesman for insurance giant Aetna, Inc. blames lack of attention to "the actual cost drivers in health care and the need for quality improvement and payment for quality of care and not the quantity of care being delivered" as the culprit. In other words, it's the fault of hospitals and physicians.
A spokesman for the Cleveland region's largest health plan, Medical Mutual Of Ohio, blames young people who don't buy insurance coverage, and suggests that lawmakers impose high penalties on these "young invincibles" to make them behave (that is, to buy Medical Mutual's products). He goes even further in blaming people for unhealthy lifestyles, and suggests that those people should be charged higher premiums than those who strive to be healthier.
What none of these spokesmen are ready to acknowledge is that the behavior of players in their industry might just bear a teensy bit of responsibility for the fact that most Americans hate insurance companies.
For small businesses and individuals (who make up roughly half the private insurance market), the prices they pay for health insurance is only indirectly related to the cost of health care. Between 25 and 40% of what they pay in health premiums covers the administrative costs entailed in the insurers' management of antiquated and tremendously inefficient marketing, sales, and underwriting processes. These costs are up to six times higher than the cost of administration for the big business market.
As we've pointed out before, the vast majority of those processes are wasted effort. More than 90% of applications for new business in the small group and individual markets do not result in new business for insurers.
The reason the rejection rates are so high? Because the underwriting practices of insurers result in more than 90% of applications being rejected for health reasons, or "written up" because of because of applicants' health conditions to a point where coverage is not affordable.
(This, Medical Mutual Guy, is the penalty people with health conditions pay...either rejection for coverage or significantly higher prices than younger, healthier people. So looks like you got your wish.)
Irrespective of the outcome of the "public option" discussion, there are real opportunities for insurers to look at their current business processes to reduce administrative costs dramatically. The smart ones who do will be much more competitive in the future. One would like to imagine that a few industry thought leaders are trying to figure that out. Because if they can, a public option won't be necessary. And if they can't, a public option will be inevitable.
Unfortunately, the industry's negotiating position will more likely be an effort to make certain that, if such a public option becomes available, it will be required to be just as inefficient as they are. And one can easily envision the Obama Administration accepting that position as a step in getting compromise legislation passed. After all, the President has already assured pharmaceuticals manufacturers that he'll limit their downsides. Whatever the public rhetoric, one can easily imagine the President privately assuring insurers that they'll have nothing to fear from a public option.
An article in Cleveland's weekly business publication, Crain's Cleveland Business (published by the same family firm which produces Business Insurance), featured commentary by a number of industry executives and lobbyists who express concern about the possibility of competing with an entity that "doesn't need to turn a profit, and can negotiate lower payment rates to medical providers because of its huge client base."
The article reports that insurers are lobbying furiously, even encouraging their employees and customers to oppose the development of a public health plan.
And, as usual, the insurer spokesmen blame everybody else in the health care game for runaway costs, high premiums, and underwriting rules which result in limited availability of health care coverage for small businesses (which buy most health insurance products) and individuals, especially those with health problems.
A spokesman for insurance giant Aetna, Inc. blames lack of attention to "the actual cost drivers in health care and the need for quality improvement and payment for quality of care and not the quantity of care being delivered" as the culprit. In other words, it's the fault of hospitals and physicians.
A spokesman for the Cleveland region's largest health plan, Medical Mutual Of Ohio, blames young people who don't buy insurance coverage, and suggests that lawmakers impose high penalties on these "young invincibles" to make them behave (that is, to buy Medical Mutual's products). He goes even further in blaming people for unhealthy lifestyles, and suggests that those people should be charged higher premiums than those who strive to be healthier.
What none of these spokesmen are ready to acknowledge is that the behavior of players in their industry might just bear a teensy bit of responsibility for the fact that most Americans hate insurance companies.
For small businesses and individuals (who make up roughly half the private insurance market), the prices they pay for health insurance is only indirectly related to the cost of health care. Between 25 and 40% of what they pay in health premiums covers the administrative costs entailed in the insurers' management of antiquated and tremendously inefficient marketing, sales, and underwriting processes. These costs are up to six times higher than the cost of administration for the big business market.
As we've pointed out before, the vast majority of those processes are wasted effort. More than 90% of applications for new business in the small group and individual markets do not result in new business for insurers.
The reason the rejection rates are so high? Because the underwriting practices of insurers result in more than 90% of applications being rejected for health reasons, or "written up" because of because of applicants' health conditions to a point where coverage is not affordable.
(This, Medical Mutual Guy, is the penalty people with health conditions pay...either rejection for coverage or significantly higher prices than younger, healthier people. So looks like you got your wish.)
Irrespective of the outcome of the "public option" discussion, there are real opportunities for insurers to look at their current business processes to reduce administrative costs dramatically. The smart ones who do will be much more competitive in the future. One would like to imagine that a few industry thought leaders are trying to figure that out. Because if they can, a public option won't be necessary. And if they can't, a public option will be inevitable.
Unfortunately, the industry's negotiating position will more likely be an effort to make certain that, if such a public option becomes available, it will be required to be just as inefficient as they are. And one can easily envision the Obama Administration accepting that position as a step in getting compromise legislation passed. After all, the President has already assured pharmaceuticals manufacturers that he'll limit their downsides. Whatever the public rhetoric, one can easily imagine the President privately assuring insurers that they'll have nothing to fear from a public option.
Friday, August 7, 2009
Nancy Pelosi To President Obama: "You're Not The Boss of Me!"
Today's New York Times contains a story in which House Speaker Nancy Pelosi and Energy And Commerce Committee Chair Henry Waxman make it clear that Congress need not agree to any assurances the White House may have given to pharmaceuticals manufacturers in exchange for their support of the Administration's health care reform plan.
Word leaked out earlier this week that President Obama had assured drugmakers that their downside from any reform effort wouldn't exceed $80 billion over ten years. When Waxman's Committee reported out a bill which would give Medicare the authority to negotiate prices with the industry, the industry's lobbying group forced the White House to admit that it had, indeed, made such a deal with Big Pharma.
Pelosi and Waxman aren't buying it."The minute the drug companies settled for $80 billion, we knew it was $160 billion," Pelosi said. "The President made the deals he made. And maybe we'll be limited by that...But maybe not."
"PhRMA (the drugmakers lobbying group) would like to see if they can get a bargain," Waxman said. "I think that PhRMA should contribute more that PhRMA wants to contribute."
The story also says that Ohio Senator Sherrod Brown, who has been an advocate for giving Medicare the right to negotiate, called Jim Messina, the White House Deputy Chief Of Staff on the issue, to get some clarification. He says he was assured that the White House's agreement did not preclude further negotiations with the industry.
It's only sensible to give Medicare, the nation's largest health care "customer," the right to use its purchasing power to negotiate the best deals possible for Medicare recipients. This will be a test of Congressional power and White House credibility.
Word leaked out earlier this week that President Obama had assured drugmakers that their downside from any reform effort wouldn't exceed $80 billion over ten years. When Waxman's Committee reported out a bill which would give Medicare the authority to negotiate prices with the industry, the industry's lobbying group forced the White House to admit that it had, indeed, made such a deal with Big Pharma.
Pelosi and Waxman aren't buying it."The minute the drug companies settled for $80 billion, we knew it was $160 billion," Pelosi said. "The President made the deals he made. And maybe we'll be limited by that...But maybe not."
"PhRMA (the drugmakers lobbying group) would like to see if they can get a bargain," Waxman said. "I think that PhRMA should contribute more that PhRMA wants to contribute."
The story also says that Ohio Senator Sherrod Brown, who has been an advocate for giving Medicare the right to negotiate, called Jim Messina, the White House Deputy Chief Of Staff on the issue, to get some clarification. He says he was assured that the White House's agreement did not preclude further negotiations with the industry.
It's only sensible to give Medicare, the nation's largest health care "customer," the right to use its purchasing power to negotiate the best deals possible for Medicare recipients. This will be a test of Congressional power and White House credibility.
Thursday, August 6, 2009
Back Room Health Care Reform Deals?...We're Shocked!...
Here's a newsy tidbit from the New York Times:
"Pressed by industry lobbyists, White House officials on Wednesday assured drug makers that the Administration stood by a behind-the-scenes deal to block any Congressional effort to extract cost savings from them beyond an agreed-upon $80 billion.
"Drug industry lobbyists reacted with alarm this week to a House health care overhaul measure that would allow government to negotiate drug prices and demand additional rebates from drug manufacturers.
In response, the industry successfully demanded that the White House explicitly acknowledge for the first time that it had committed to protect drug makers from bearing further costs in the overhaul. The Obama Administration had never spelled out the details of the agreement."
The Administration apparently made the deal in order to get one of the major stakeholders in the health care reform debate (in addition to hospitals, physicians, insurance companies and, well, us) to the negotiating table. The other groups have continued to talk, but (supposedly) haven't made any specific offers or received any special consideration.
That we know of. Yet...
The provision of the Bush Administration's Medicare Part D prescription drug legislation which prohibited Medicare from negotiating prices with pharmaceutical makers essentially requires Medicare (the largest single "customer" in American health care) to pay retail prices for all prescription drugs.
It made no sense at the time. Insurers negotiate discounts with drug makers. So do big companies, through the pharmacy benefits managers that work for them. Prohibiting Medicare from acting like a customer was just a straight-up taxpayer subsidy to drug makers.
And given that prescription costs comprise about 12 percent of health care spending, freeing Medicare and other government agencies to negotiate volume discounts on prescription drugs would seem to be a sensible step in "bending the curve" in health care spending.
The White House's agreement in egregious in three ways: it deliberately undercuts legislative efforts to curb Federal health spending sufficiently to make a difference in costs (Congressional leaders were apparently unaware of the deal); it suggests that there's a LOT more fat in prescription drug prices which could be trimmed, but Big Pharma's White House deal ostensibly limits the industry's downside to a fraction of what could be achieved through tough negotiations; and it leaves one wondering what OTHER deals might have been struck which will make the Administration's health care reform efforts less effective.
After all, we don't know who else has been assured of a walk, even with all the sturm und drang the White House has unleashed in the country about the need for an open and inclusive health care reform strategy.
We know insurers haven't agreed to make any specific concessions. Is that why the President and Congress have amped up the volume of their criticisms of the industry?
"Pressed by industry lobbyists, White House officials on Wednesday assured drug makers that the Administration stood by a behind-the-scenes deal to block any Congressional effort to extract cost savings from them beyond an agreed-upon $80 billion.
"Drug industry lobbyists reacted with alarm this week to a House health care overhaul measure that would allow government to negotiate drug prices and demand additional rebates from drug manufacturers.
In response, the industry successfully demanded that the White House explicitly acknowledge for the first time that it had committed to protect drug makers from bearing further costs in the overhaul. The Obama Administration had never spelled out the details of the agreement."
The Administration apparently made the deal in order to get one of the major stakeholders in the health care reform debate (in addition to hospitals, physicians, insurance companies and, well, us) to the negotiating table. The other groups have continued to talk, but (supposedly) haven't made any specific offers or received any special consideration.
That we know of. Yet...
The provision of the Bush Administration's Medicare Part D prescription drug legislation which prohibited Medicare from negotiating prices with pharmaceutical makers essentially requires Medicare (the largest single "customer" in American health care) to pay retail prices for all prescription drugs.
It made no sense at the time. Insurers negotiate discounts with drug makers. So do big companies, through the pharmacy benefits managers that work for them. Prohibiting Medicare from acting like a customer was just a straight-up taxpayer subsidy to drug makers.
And given that prescription costs comprise about 12 percent of health care spending, freeing Medicare and other government agencies to negotiate volume discounts on prescription drugs would seem to be a sensible step in "bending the curve" in health care spending.
The White House's agreement in egregious in three ways: it deliberately undercuts legislative efforts to curb Federal health spending sufficiently to make a difference in costs (Congressional leaders were apparently unaware of the deal); it suggests that there's a LOT more fat in prescription drug prices which could be trimmed, but Big Pharma's White House deal ostensibly limits the industry's downside to a fraction of what could be achieved through tough negotiations; and it leaves one wondering what OTHER deals might have been struck which will make the Administration's health care reform efforts less effective.
After all, we don't know who else has been assured of a walk, even with all the sturm und drang the White House has unleashed in the country about the need for an open and inclusive health care reform strategy.
We know insurers haven't agreed to make any specific concessions. Is that why the President and Congress have amped up the volume of their criticisms of the industry?
Monday, August 3, 2009
Some Numbers Worth Keeping In Mind
As Congress adjourns for summer recess, and members of Congress return home to face the folks and talk about health care reform, here are a few numbers to keep in mind, together with their sources:
-The National Federation Of Independent Business says that for the first time in 2008, fewer than half of companies with fewer than 10 employees offer health care coverage to their workers. Insurance premiums for small businesses have more than doubled since 1999. Small Businesses on the average pay 18 percent more for health insurance than their counterparts in large companies pay for comparable plans. And of the estimated 47 million Americans who went without health insurance for at least part of the year in 2008, 26 million were workers in small companies.
-The Commonwealth Fund estimates that over 90% of individuals applying for non-group health coverage end up not buying it, either because their applications are rejected by insurers due to health conditions, or because health conditions caused "write-ups" which raised prices beyond what the applicants could afford. As result, those "consumer-directed" health plans you hear so much about cover only about 11 percent of the eligible population.
-A Small Business Administration study showed that insurer administrative costs for small group health plans can be as much as six times higher than for large group health plans. Large self-insured plans administered by insurers carry an administrative "load" of 5-10 percent of claims costs; for small businesses, the administrative "load" is 33-37 percent of claims costs, which translates to 25-27 percent of premium (quite a load, indeed).
-The Center For American Progress has estimated that administrative costs for individual (non-group) health plans run between 30 and 40 percent of premium.
Unless your Congressman or Senator can tell you exactly how his or her favorite health care reform plan will address these problems in the small business and individual markets, tell your representatives they haven't done their jobs.
-The National Federation Of Independent Business says that for the first time in 2008, fewer than half of companies with fewer than 10 employees offer health care coverage to their workers. Insurance premiums for small businesses have more than doubled since 1999. Small Businesses on the average pay 18 percent more for health insurance than their counterparts in large companies pay for comparable plans. And of the estimated 47 million Americans who went without health insurance for at least part of the year in 2008, 26 million were workers in small companies.
-The Commonwealth Fund estimates that over 90% of individuals applying for non-group health coverage end up not buying it, either because their applications are rejected by insurers due to health conditions, or because health conditions caused "write-ups" which raised prices beyond what the applicants could afford. As result, those "consumer-directed" health plans you hear so much about cover only about 11 percent of the eligible population.
-A Small Business Administration study showed that insurer administrative costs for small group health plans can be as much as six times higher than for large group health plans. Large self-insured plans administered by insurers carry an administrative "load" of 5-10 percent of claims costs; for small businesses, the administrative "load" is 33-37 percent of claims costs, which translates to 25-27 percent of premium (quite a load, indeed).
-The Center For American Progress has estimated that administrative costs for individual (non-group) health plans run between 30 and 40 percent of premium.
Unless your Congressman or Senator can tell you exactly how his or her favorite health care reform plan will address these problems in the small business and individual markets, tell your representatives they haven't done their jobs.
Sunday, August 2, 2009
"Exempting" Small Businesses From Health Insurance Reform?
One of the cheesier tactics in the legislative process over the past twenty years has been the "small business exemption." Essentially, to overcome small business' opposition to various legislative mandates and regulations, legislatures exempt companies with fewer than, say, 25 employees, from compliance with the new law. This way, sort of by reduction, the Congress can take credit for tough new sanctions on business, while at the same time giving over 80% of American companies a get-out-of-jail free card.
We'll put off till another day the question of the value of enacting regulations which most companies don't need to follow.
Apparently part of the House leadership's deal with Congressional "Blue Dog" Democrats, who were dragging their feet on the bill eventually reported out by the Energy And Commerce Committee, is a provision which would exempt companies of a certain size (whether either fewer than ten employees or fewer than 25) from either a mandate on employers to provide coverage to their workers or from any tax or penalty which might be imposed on employers which don't offer coverage to their employees.
In general, small business owners are happy enough to avoid more government regulation, but in this case, there's a reason to wonder whether exempting small business from health care reform is such a great idea.
Even in the current marketplace, fewer than half of companies with fewer than ten employees offer health care coverage to their workers. This is a big reason that a reported 26 million of the 47 million Americans without health insurance work in very small companies.
For those small employers which DO offer health coverage, the cost of premiums is an average of 18 percent higher than large employers would pay for comparable coverage.
That's because administrative costs for small group health care coverage can be as much as six times higher for small businesses than for big ones; administrative costs typically run 25-27% of premiums for small businesses, and can be as high as 40% of premiums for self-employed individuals.
A health care reform plan which merely exempts small employers from compliance, without fixing some of the problems which result in high prices and limited availability of health coverage for small businesses, wouldn't be much health care reform at all.
Not fixing those problems would absolutely result in small employers migrating in large numbers to a public health plan option which, at the very least, would be expected to operate on smaller administrative margins than private insurers.
Or, it could just lead to the end of the small group market, as employers drop their group health plans in favor of helping their employees shop for individual health plans...with those 30-40 percent administrative cost margins.
Either way, exempting small business as a substitute for helping solve their problems would be a wimpy reform strategy guaranteed to undermine the private market and raise costs for everyone.
We'll put off till another day the question of the value of enacting regulations which most companies don't need to follow.
Apparently part of the House leadership's deal with Congressional "Blue Dog" Democrats, who were dragging their feet on the bill eventually reported out by the Energy And Commerce Committee, is a provision which would exempt companies of a certain size (whether either fewer than ten employees or fewer than 25) from either a mandate on employers to provide coverage to their workers or from any tax or penalty which might be imposed on employers which don't offer coverage to their employees.
In general, small business owners are happy enough to avoid more government regulation, but in this case, there's a reason to wonder whether exempting small business from health care reform is such a great idea.
Even in the current marketplace, fewer than half of companies with fewer than ten employees offer health care coverage to their workers. This is a big reason that a reported 26 million of the 47 million Americans without health insurance work in very small companies.
For those small employers which DO offer health coverage, the cost of premiums is an average of 18 percent higher than large employers would pay for comparable coverage.
That's because administrative costs for small group health care coverage can be as much as six times higher for small businesses than for big ones; administrative costs typically run 25-27% of premiums for small businesses, and can be as high as 40% of premiums for self-employed individuals.
A health care reform plan which merely exempts small employers from compliance, without fixing some of the problems which result in high prices and limited availability of health coverage for small businesses, wouldn't be much health care reform at all.
Not fixing those problems would absolutely result in small employers migrating in large numbers to a public health plan option which, at the very least, would be expected to operate on smaller administrative margins than private insurers.
Or, it could just lead to the end of the small group market, as employers drop their group health plans in favor of helping their employees shop for individual health plans...with those 30-40 percent administrative cost margins.
Either way, exempting small business as a substitute for helping solve their problems would be a wimpy reform strategy guaranteed to undermine the private market and raise costs for everyone.
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