Could Emerging "Private Exchanges" Foretell The End Of The Line For Brokers?

Entrepreneurship will almost always trump government regulation in this great country of ours. Somebody smart will almost always find a way to make a buck anticipating changes in government policy and practice. And if they're especially creative, they'll use the government's own policies as a jumping-off point.

While most insurers and agents are still sweating PPACA's mandate to create public health insurance exchanges in every state, a few private organizations are launching private efforts to create entities which THEY call "exchanges," but which may or may not embody the fundamentals of the exchange strategy laid out in PPACA.

A Minneapolis-based company, Bloom Health, scored major headlines in late September. Bloom has launched an "exchange"-type platform and process to administer defined-contribution benefits arrangements for employer groups. According to Bloom's propaganda,the company's pilot involved working with about 50 companies, with collective enrollment of about 25,000 employees. Employees were offered a variety of plan options, based on a fixed employer contribution, and given the chance to select one which made most financial sense to them. he Bloom system handled the enrollment and administration (not clear what happened at renewal time).

The process must have worked pretty well, since the company announced in late September that some 80% of its equity was being purchased by Wellpoint/Anthem, Blue Cross & Blue Shield of Michigan, and the holding company which owns the Texas Blues.

The acquiring companies will be tweaking the Bloom Health model, of course. They have no interest in a neutral marketplace. They intend to use the model to sell their own products in their own markets. So, as I understand it, in Michigan, the Bloom Health platform will be BCBSM's private fishing hole. Groups will be able to offer a variety of plan designs, but they'll all be offered by BCBSM.

In Western New York, Liazon has made a big splash with its Bright Choices benefits portal, through which companies with "1-2,500 employees (Liazon's propaganda)" can use a defined contribution strategy to "find a way out" of the problem of escalating employer health costs. Back in April, the company raised $12.5 million in capital to expand its marketing presence. Liazon has used Chambers of Commerce in New York and Maryland as vehicles to expand its reach. It would appear that the company's primary insurer is UnitedHealthcare, but they claim to offer coverage through a variety of other carriers as well. It's hard to find out how many companies have actually signed up, but the company's YouTube tutorials have experienced a couple hundred hits. My guess is that if enrollment was through the roof, we'd know about it.

And the consulting and brokerage giant Aon/Hewitt has made a big splash with its plans to launch a defined contribution "exchange" for giant employers which have agreed to use their proprietary platform to make a variety of Medicare Advantage plans available to retirees. Again, employers will provide retirees with a fixed monthly contribution, and retirees will be expected to select a Medicare Advantage plan from among those offered, and pay the difference between the employer contribution and the plans' costs themselves.

Here are some thoughts on these so-called "exchanges," just for the purpose of creative discussion:

1) One of the oft-expressed concerns of a lot of health care experts was that the development of exchanges under PPACA would lead to a mass exodus of small employers from the small group market. That may yet happen...but not for the reasons one might expect. These early pilots, driven by entrepreneurs who are interested in making a buck, suggest that smart people in the market are chasing self-insured employers, which are a) large, b) closer to their actual health care expenditures, since they pay them directly, and c) technologically sophisticated enough to roll out a defined contribution model quickly and efficiently.

2) The defined contribution model will certainly have the effect of enabling employers to control their health coverage expenditures...but will that's about the extent of their cost-containment ambitions. Just as was the case with the shift in pensions from defined benefit to defined contribution plans, these early experiments will demonstrate their efficiency at shifting downside financial risk from employers to individuals. There is some rhetoric which suggests that such a shift will create a new generation of "empowered" consumers, who will shop aggressively for cost-effective service providers. The rhetoric is mostly that. It is just as likely that large employers, having contained their own downside risk, will go about their businesses and leave their employees and retirees with hyper-inflating, undefined contributions in the face of hyper-inflating health care costs. I'm anxious to see evidence to the contrary...good luck finding any.

3) If there's any interesting benefit to be seen from these pilots, it will be in the havoc they wreak on the traditional distribution channels. Bloom and Liazon clearly have the potential to displace brokers from the health care coverage sales and service transaction, replacing them with technology and call center personnel. These companies are plainly seeking to disintermediate agents and brokers, and the costs they represent. Bloom claims that the company generates revenue from fees charged directly to employers. Liazon's revenue stream is a little less clear to outsiders, but even if the company generates revenues from sales commissions, I suspect the company can do quite well at a rate of compensation which is half, or less, of what insurers must pay their welter of retailers and wholesalers.

4) It's not clear how any of these pilots actually sell coverage. If I look at their processes, it seems they are based on the assumption that someone else has actually sold the product; their emphasis seems to be assisting employers in setting up their defined contribution plans, "educating" employees, and administering the allocation and collection of contributions on the back end.

5) This is what gives me pause about the implications of these pilots for small businesses. A potential downside of state exchanges for small employers and individuals (at least as they're conceived via PPACA) is that they will be,at best, passive tools available to those who seek them out. It seems to me that a private small group health exchange would have an advantage in its ability to market actively to small employers and self-employed individuals. Yet the focus of these pilots seems to be largely on administering post-sale transactions: enrollment, renewal, billing, collection and allocation of premiums from employers and employees.
Given that most insurers already have robust and powerful back-end applications to support large employers, the early focus of these experiments seems to be on how better to serve their largest and most profitable clients.

I stated in an earlier entry here (http://polkiananalysis.blogspot.com/2011/08/so-much-angstover-market-no-one-really.html) that, despite all the wailing and gnashing of teeth regarding emerging health exchanges, nobody seems to care too much about how the small group market is served. It seems to me that private small group exchanges will need to combine a mix of multiple carriers offering standardized plans on a common platform, aggressive marketing, good customer service, and a back end well-suited to bring the administration of both defined contribution and defined benefit plans down to groups of 50 or fewer employees. But with insurers, brokers, and consulting firms scrambling to find ways to serve their largest clients better, there's a strong possibility that the small group market will continue to be an afterthought, and that state exchanges will evolve quickly into a dumping ground for small groups and individuals.

If there are experimental models out there which can give me hope, I'd sure like to see them. If not, somebody's going to have to build one, or half the employees in our country will soon be even more dependent on the voluntary brilliance and largesse of insurance companies ever more reluctant to do business with them at all...which is, after all, how we got to this problem in the first place.

The Economics...And The Ethics...Of "Just Being Sure" And "Doing Something"...

The past few weeks have been a little intense for our family.

Our brilliant, beautiful, athletic 19-year-old daughter found a lump where there certainly shouldn't have been one and, naturally, promptly freaked out.

She's the scientific type, so we started with a little literature research, and found that for women her age, 99% of those lumps are nothing significant to worry about. But there's still that one percent.

So over four weeks, she went from her doctor to a specialist to a surgeon, and from X-ray to ultrasound to MRI. At every step along the way, she would be assured by the physician that the likelihood that the lump was anything to worry about was very small. Still, we went up the ladder of protocol. And after three physicians had seen her, and a radiologist reviewed all her tests, we found...nothing to be worried about.

So our daughter had a little scare...but no harm done.

Her EOB's for her various tests have just finished coming back. The assurance of "just making sure" set our health plan back about $10,000. I think we paid about $150 out of pocket.

It goes without saying in the health care racket that "unnecessary health care costs" are generally those incurred by the OTHER guy's daughter. Still, the episode left me thinking:

If we'd had no health insurance coverage, how far would our providers have gone "just to make sure?"

If we'd had a high-deductible health plan, with, say, a $6000 family deductible, how much would WE have been able to spend out of pocket, "just to be sure?" There's ample evidence indicating that subscribers to HDHP's tend to put off potentially costly medical procedures because of the out-of-pocket costs involved. Would we have just assured our daughter that "it's probably nothing," and urged her to be watchful in case there was any change?

It's cases like this which re-inforce to me the ludicrousness of the prevailing notion (among some circles) that "empowering individuals" is somehow the key to reducing health care costs. A scared 19-year-old kid with a mysterious lump is not inclined to be a discriminating shopper...even if there were reliable efficacy/cost/outcomes data out there...which, of course, there isn't.

And it also caused me to think about how many times a day similar scenarios play out. How many dollars are incurred on procedures which are initiated "just to be sure?" How many of these procedures are necessary? And how many cause more anxiety or lead to cascading medical interventions which make things worse?

Recent news contained a few answers which ought to give us pause:

Last week the U.S. Preventive Care Task Force, which raised a firestorm in 2009 when it questioned the efficacy of annual mammograms for healthy women, recommended that routine PSA screening should be restricted, especially for younger men with no signs or history of disease. A member of the panel said that, especially in younger men, “The harms studies showed that significant numbers of men — on the order of 20 to 30 percent — have very significant harms," in the form of anxiety, unnecessary surgery, or other procedures;

Researchers at Mt. Sinai Medical Center in New York conducted a study which concluded that more than $6.7 billion in unnecessary tests and procedures were conducted at the primary care level last year, of which an astonishing 86% were attributable to the prescription of name-brand statin drugs to treat high cholesterol.

"Led by Minal Kale, MD, a postdoctoral fellow in the Division of Internal Medicine in the Department of Medicine at Mount Sinai School of Medicine, the research team reviewed findings from a study published in the May 2011 issue of Archives of Internal Medicine, which identified the top five most overused clinical activities in each of three primary care specialties: pediatrics, internal medicine, and family medicine. With this information, they performed a cross-sectional analysis of separate data that were pulled from the National Ambulatory Medical Care Survey and the National Hospital Ambulatory Medical Care Survey. They found more than $6.7 billion was spent in excess healthcare spending in the primary care setting in 2009. Eighty-six percent, or more than $5.8 billion of the unnecessary spending, resulted from the prescribing of brand-name statins rather than generic versions.

“Our analysis shows astronomical costs associated with prescribing of brand name statins when effective, generic alternatives were available. Efforts to encourage prescribing of generics clearly have not gone far enough,” said Dr. Kale. “Additionally, millions are spent on unnecessary blood work, scans, and antibiotic prescriptions. Significant efforts to reduce this spending are required in order to stem these exorbitant activities.”

And to raise the stakes further, an article in The Lancet rocked the establishment with a review of 1.8 million Medicare recipients over 65 who died in 2008. The study found that a third of those beneficiaries underwent surgery in the year before their death. One out of eight had had surgery in the month before their death, and one out of ten had undergone surgery in the week before their death.

While this makes sense on the surface...older people with health problems do undergo surgery, and many will die afterward...the study concluded that much of the surgery performed did not affect the patient's outcome.

More disturbingly, even physicians interviewed for the study suggested that the surgery wasn't necessary, but was instead performed to appease patients and their families, as an alternative to having "the discussion" about how the patient wished to spend what remained of his/her life. Surgeons, especially, often have the temptation to "do something" to help a patient, even if the procedure will have little or no clinical value.

And finally,The Agency For Health Care Research And Quality released numbers which indicated that treatment for septicemia, a blood infection featuring bacteria such as e coli and MRSA, was the single most expensive cost to U. S. hospitals in 2009, with a total cost of $15.4 billion. Septicemia cases, which are almost always the result of hospitalizations, increased from 337,000 in 2000 to 836,000 in 2009, making septicemia the sixth most common principal reason for hospitalization in 2009. Death rates from septicemia were also estimated at 16% in 2009...eight times higher than death rates from other causes...which demonstrates once again that, given rates of hospital-borne infections (always underreported by hospitals), hospitals are crummy places for sick people.

And besides, Medicare pays.

There are questions to be raised from these and all such studies; after all, when you don't agree with the outcome of a study, it pays to question the methodology. And all these studies admit variations in practice patterns (Medicare patients were three times as likely to have surgery in Muncie, Indiana than in Honolulu), but the facts remain:

Spending on tests and medical procedures, including surgery which, at the very least, do little clinical good and often can cause needless harm, add billions and billions and billions of dollars to American health care spending;

Among hospitals and physicians, especially as it relates to Medicare, there is a lot of conflicting pressure between clinical efficacy and the need to generate revenue;

Medicare is essentially a blank check;

Health plans aren't doing their jobs on behalf of their customers as a population;

And as the pressures on health expenditures rise, political and clinical leaders are going to have to confront the reality of "blank check" medicine. And because at least half of all health care expenditures are incurred by people in their last month of life, we're going to have to get over all this nonsense about "death panels" and begin an honest discussion of how we place limits on medical and surgical interventions at the end of life.

If cost containment were really a priority, these discussions would be happening now. But as long as hospitals, especially, are in the business of generating revenue from needless human suffering, those conversations are going to have to start somewhere else.

So Much Angst...Over The Market No One (Really) Wants...

An awful lot of bureaucratic process has created an AWFUL lot of drama among health insurance professionals over the last couple of weeks:

The 11th Circuit Court Of Appeals issued a fairly narrow ruling regarding PPACA, stating that the individual mandate provision of the law is an unconstitutional expansion of Congress' right to regulate interstate commerce. Opponents of PPACA were crowing, even though the Appeals Court concluded that the mandate could be invalidated without throwing out the whole law.

(I think the mandate issue is a GIANT red herring, for reasons I reviewed in a previous posting here: http://polkiananalysis.blogspot.com/2011/01/what-difference-does-mandate-make.html).

The Department of Health and Human Services published its first round of rulemaking on the formation of state health insurance exchanges, which over half the states are trying to ignore in hopes that their lawsuit seeking to repeal PPACA will prevail (though, it turns out, most states HAVE accepted $1 million planning grants to get the process started).

HHS also discussed the process of forming a federal exchange to provide services to people in states which choose not to operate their own health exchanges...even though reports suggest that, in enacting the law enabling the formation of a federal exchange, Our Friends In Government neglected to appropriate any money to set one up and operate it (though it looks as though the good folks at eHealth may be trying to jump in and help).

And McKinsey and Company released a controversial study which suggested that as many as 30% of U.S. employers might drop their employer-sponsored health plans to leap on health exchanges once they've started up.

Setting aside for a moment that expectations seem fairly high for organizations which haven't even been built yet, the news seems to be alarming many in the employee benefits who are decrying everything from the prospective End Times for group health coverage to the elimination of brokers from the market. And everybody seems focused on the loss of marketing opportunities which might result from the rise of easy-to-use health exchanges.

Really?...

I thought I'd take a minute to review the private health insurance market, to see where the opportunities might be lost. My conclusion is that the greatest potential for disruption is in the segment of the market which neither insurers nor brokers seem to care about very much: companies with fewer than 10 employees.

Let's look at some numbers, shall we?

It has been my experience for many years that the most competitive market segment, from both an insurer and a broker perspective, is companies with more than 100 employees.

That's understandable. Even though such companies comprise less than two percent of business entities in America (about 127,000 firms), they employ about 65% of all private-sector workers (78.7 million employees).

While these companies certainly face challenges in re-designing health plans due to some of the changes proposed in PPACA, they're not much affected at all by the formation of health exchanges.

The biggest potential for change in behavior is among the 5.3 million small employer groups in the country which employ fewer than 20 people.

Of that segment, the nearly 4.6 million small groups which employ fewer than 10 employees is the most problematic. These companies employ a total of 12.9 million people; half that workforce is in units of four employees or fewer.

A survey of small employers conducted by the National Federation of Independent Businesses (NFIB) Foundation using 2009 data showed that, for the first time, fewer than 50 percent of firms with fewer than ten employees provided employer-sponsored health coverage to their workers. That means over 6.8 million of the 12.8 million workers do not have access to employer-sponsored health plans today.

Why not?

A big chunk of that uninsured cohort consists of self-employed individuals running their own businesses, who don't qualify for group coverage. Very few states permit self-employed companies to qualify for group insurance coverage. For these businesses, the only availability is heavily-underwritten health plans in the non-group market. And we know from extensive studies of the non-group market that fewer than ten percent of those applying for non-group coverage actually buy it. The reason for the low "take-up rate" is that the majority of non-group applicants either have their applications denied for medical reasons, or the combination of age and health conditions of those applicants and their families make coverage, if it's available at all, too expensive to purchase and maintain.

In fact, nearly 70 percent of respondents to the NFIB survey who didn't provide coverage to their workers cited the cost and complexity of purchasing and maintaining coverage as a key reason they chose not to buy it.

Insurers don't like these very small groups; they are volatile and very driven by price. Most large insurers do not market actively to groups with fewer than ten employees.

Agents and brokers don't like these groups because they don't have professional HR or benefits people on-board, they require a lot of hand-holding, and they're not very profitable...especially given insurers' new zeal for ratcheting down sales compensation as a part of their mandate to bring down administrative costs.

So where do these groups go? Traditionally, they're covered mostly by local Blue Cross & Blue Shield plans...part of those plans' residual roles as "insurers of last resort" in their local communities.

These groups are also strongly represented among health plans sponsored by Chambers of Commerce or membership associations. For my COSE alma mater, half of the companies participating in COSE's health plan covered one or two workers; the average size of plan participant companies was six employees. For other large Chambers, the average group size is between three and four workers.

And as we know, when coverage IS available to these small groups, it's very costly. Companies with fewer than ten employees pay between 18 and 20 percent more for coverage than larger groups do for similar coverage. That's because administrative costs...the costs of marketing, selling, and underwriting small groups, have traditionally comprised 25-27 percent of premium.

But insurers are cutting back on commissions. Agents are cutting off smaller groups. Where are groups like this to go?

I suspect that the first significant group of businesses to take advantage of health exchanges will be those self-employed folks and very small groups who aren't currently covered. Where health and affordability are issues, the community-rated, guaranteed-issue coverage, together with co-ordination with Medicaid and the availability of direct subsidies and tax credits will have significant value.

But these are companies which insurers and agents already don't have; so nobody's losing anything.

As to the rest, the only real experience to draw any instruction from would be the Massachusetts Connector, the health exchange in that state which is touted as the national model.

After five years in business, three-quarters of the 150,000 individuals enrolled through the Connector were individuals receiving subsidies, and the Connector's penetration into the small group market was less than five percent. And this is in an expensive state where coverage is already mandatory.

While many bureaucrats are wasting a lot of breath either promoting exchanges as The Next Big Thing or opposing them as Armageddon, the truth is that exchanges, if they work, will be attractive primarily to segments of the market which currently have few practical alternatives to obtaining coverage at ANY cost.

I DO think that, in fairly short order, the technology platforms being developed to support public exchanges will migrate very quickly into the private market, so that (fewer, but smarter) insurers and brokers will figure out how to use them to consolidate the 90% of the market which will never buy through an exchange.

The best thing to come from exchanges would be to wake up the rest of the industry to the fact that administrative efficiencies and economies of scale could make coverage more available, and more affordable, in the private sector.

Which, it strikes me, is a better use of one's time than wishing PPACA would just go away...

Health Insurance, Small Business And Jobs Redux

The recent news of the economy's extremely anemic jobs picture, augmented by a recent report in U.S. News here http://news.yahoo.com/why-small-businesses-arent-fueling-job-creation-recovery-143335096.html, sounding the alarm regarding small business's inability to play its traditional role in generating the vast majority of new jobs powering the economy, reminded me of this blog entry of mine from over a year ago.

You can't have "economic recovery," or "economic development," without a small business recovery.


Health Insurance, Small Businesses, And Jobs...Why The Geniuses In DC Better Hope They Get It Right


Politicians like to deal with issues in isolation. It makes it somewhat easier to ignore the potential downstream consequences of their actions. So when advocates attempt to tie the cost of health care to job creation, politicians like to dismiss such concerns as "muddying the waters."

Of course, they're not alone. During the years I served as COSE's Executive Director (waaay back when the membership was growing by an average of 1000 companies per year, net of losses...which hasn't occurred since...well, since I left), some corporate godfather would ask, during a meeting of the Chamber's Board, "What does helping small businesses get discounts on health insurance have to do with economic development?"

Here's an answer, for politicians and corporate oligarchs alike.

It's by now an article of faith that nearly 80% of the new jobs created in our economy over any given period are created by small businesses. As Cleveland emerged from the recession of the mid-1980's, independent research showed that nearly all the jobs being created in the local economy were produced by small companies.

A survey of Greater Cleveland's economy versus those of a few "competitor cities," showed that, while Cleveland's economy was competitive with these other cities from a wage standpoint, Cleveland was at a labor cost disadvantage compared to those other cities. The reasons were non-wage labor costs...particularly the costs of health insurance and workers compensation.

So, our thinking went, if small businesses are creating the vast majority of new jobs, and they're at a labor cost disadvantage because health care and workers comp costs were high, then working hard to reduce health insurance and workers compensation costs would reduce the cost of creating new jobs

That's what led to a COSE health plan which reduced members' costs by 30%, and to our campaign to create an association-based workers comp program which reduced members' costs by as much as 80 percent.

Reduce the cost of labor, and you reduce an important barrier to job creation among small businesses, collectively, the country's job-generating machine.

Why is this important today?

Well, in the white noise surrounding the health care reform debate, a critical piece of research from the Bureau Of Labor Statistics showed that, between 1999 and 2009, the U.S. economy created virtually NO new jobs...almost zero...even as the U.S. population grew by 21 million people.

Net new population growth of 21 million, net new job growth of zero...this is a recipe for economic catastrophe.

Tax credits for job creation will not work if the cost of creating a new job is increasing every year, both from direct taxation (like payroll taxes) and indirect taxation, such as increases in health insurance premiums.

This is something I guarantee Our Friends In Congress are NOT thinking seriously about as they consider health insurance reform.

Despite public pronouncements, I still see nothing in the massive reform bill bumping and stumbling its way along the legislative process which even suggests reductions in the rapid increases in health insurance premiums for small businesses; in fact, most elements of health insurance reform seem destined to ADD to the hyperinflation of health insurance premiums.

This is an issue that small businesses and the people who supposedly advocate for them should be discussing at every opportunity. There is a correlation between the cost of creating jobs and job creation. Reduce the cost of job creation and, as if, by magic, jobs will grow. Increase labor costs, and job creation stops...or goes backward...among the primary job-growth engine, the country's small companies.

I'd really, really like to hear some acknowledgment on the part of Our Friends In Congress and The White House that they really get this idea. But I haven't. Because they don't.

A Promise To My Dad, A Successful Crusade, And What Happens When The Greedy People Win

This entry is for my Dad.

I haven't actually seen him for quite awhile. Our 26-year-old son was three months old when we learned my Dad's doctors found cancer in one of his kidneys.

As with most families, first we panicked, then we cried, then we went to work, helped by the assurance that Dad would do everything in his power to fight his disease.

This was in my COSE days. We ran a pretty big health plan even then, so I was on good terms with the CEO of Dad's insurance company, and also knew the head of the Cleveland Clinic. We got him the best of care. And after his surgery, he enrolled in an early clinical trial focused on immunotherapy as a weapon against cancer. The researchers injected a vaccine made from his tumor into his body, in hopes that the procedure would kick his immune system into overdrive and fight the spread of his disease.

He had a couple pretty good years. But then he began to have trouble remembering things, and once experienced a terrifying August afternoon at a family reunion, when for a few hours, he had no idea where he was or who his family members were.

An exam a couple days later confirmed that the cancer had spread to his brain. He was scheduled for radiation therapy the next week. It was Labor Day weekend, and he was to receive his first treatment the Tuesday after Labor Day.

Our entire family...Mom and Dad, their seven kids (a couple of whom were still teenagers) plus spouses and grandchildren...got together as we always did, at my sister's country cabin, for a Labor Day clambake. Spirits were high, if a little forced. And that day, I had my last conversation with my Dad.

We found ourselves sitting quietly on the front porch. I wanted to make sure he was okay; we knew his prognosis wasn't good. But that wasn't what he wanted to talk about. He wanted to talk about me. It was brief, but it was the single most powerful conversation I've had in my life.

My Dad said, "I've been thinking I've been pretty lucky with my medical treatment. The Clinic certainly bought me more time than somebody with my kind of cancer has any right to expect.

"But in the last couple weeks I've been thinking about what happens to those poor S.O.B's who get sick and DON'T have a son in the health care business, the people who don't have special knowledge, special connections, or a special family. Who fights for THEM?

"Either I'll get better or I won't. That's not in my hands. And I know my kids will take care of their mother, and vice versa. What I hope is that you'll keep those folks in mind. Somebody has to stand up for the people who need the kind of help you've given to me. Remember, Jesus said, 'Whatever you do for these, the least of my brethren, you do for me'."

What was I supposed to say, except what I always said to my Dad?

"Yes, sir. I'll do my best."

Three days later, during his radiation treatment, the cancer exploded in his brain. When he came home to hospice, he was conscious but found it very hard to communicate. Six weeks later, he was gone.

My mission at COSE had always been to provide our members with a good deal on health insurance coverage. But after that conversation, I had a broader mission: to fight for access to affordable health coverage for people who need it.

We fought with insurance companies, to make them work more efficiently, hold them accountable, and qualify sole proprietors for group coverage through COSE. We fought with hospitals to force them to be more transparent and keep their costs under control. We fought in the marketplace. We fought in the state legislature for the right to bring managed care plans to small businesses, and to keep special interests from enacting benefits mandates which would raise the cost of our members' health coverage. And we fought in Washington, to keep Congress and regulatory agencies from messing with small businesses' health coverage.

I figured we couldn't help everybody. But small business owners, and the people who work for them, were among those to whom health coverage was generally not available at affordable prices, and many of those who work but don't have health coverage work in small businesses which couldn't buy coverage.

We experienced some pretty good results. For seven years straight, we were able to keep our members' rate increases below ten percent per year; in a couple years, rates increased by less than five percent.

Because we offered an unbelievably good deal, COSE enjoyed phenomenal membership growth. Year after year, COSE membership and participation in our health plans grew by 1000 companies and 6000 employees per year, net of losses.

And in the early '90's, a regional research organization conducted a study of the working uninsured in Ohio. They concluded that, despite having the highest health care costs in the state, the percentage per capita of working people in Cleveland who lacked health coverage was half that of other metropolitan areas. The reason? Empirical researchers couldn't say conclusively, but the existence of the COSE health plan was certainly a factor.

So I felt that I was doing my best to keep the promise I made to my Dad.

When a few COSE representatives were invited to The White House to brief the first President Bush on how Cleveland was succeeding where other communities were not, I knew my Dad was there with us. And when the President came to Cleveland to tell the country about COSE's success (my Mom was in the audience), I knew my Dad would have been proud.

And when we were invited to the Clinton White House to talk with Hillary and Ira Magaziner about health care reform, and they blithely accused us about not caring about helping people get insurance, we had the data to suggest otherwise, and told them our objections to HillaryCare weren't based on politics, but on our knowledge that their approach couldn't possibly work. My Dad, who loved a good fact-based argument, was patting me on the back.

Of course, a story this good couldn't possibly end happily. COSE's parent organization got a new CEO, who thought our aggressive advocacy on behalf of small businesses was "disruptive" to the corporate agenda. COSE's lead insurer got a new CEO, a CPA, who decided that, despite the fact that COSE was their most profitable customer in real dollars, the insurer's profit margin per group wasn't high enough. Some of the community's larger employers got all huffy because COSE, with its 12,000 companies and 80,000 employees in the health plan, was getting a better deal on health coverage for small businesses than they could get for their employees. And some area hospitals (including our friends at the Cleveland Clinic) began to be concerned that COSE was getting big enough that we could begin to have an effect on their pricing.

So I was shown the door, in favor of a new staff leadership who looked at the health plan not as a responsibility we owed our members, but as an opportunity to generate a lot of revenue without doing a lot of work. They made a new deal, which traded the organization's role as an aggressive negotiator on behalf of its members for the best possible prices for an agency role, selling plans on behalf of its insurer in exchange for a piece of the action...about 2 percent of collective premium (1.8 percent actually, in case the COSE folks decide to call me a liar). COSE no longer says how big the health plan is, but it was closing in on $500 million in 2004, and premiums have reportedly doubled since then. So by making the transition from members' advocate to marketing channel, COSE's picking up quite a chunk of its members' money.

Membership has declined. Participation in the health plans has stagnated, but COSE's doing just fine...and the Executive Director is making about $400,000 a year and driving a new Jaguar.

I was reminded of all this yesterday, when I had a business meeting with a friend and long-time COSE member, who has a small law practice. He showed me his COSE renewal letter. His rates are scheduled to increase 26%...to over $1500 per month per employee, despite very little utilization. He told me that his premiums have more than doubled in the past five years, and he's not sure how he can afford to continue to cover the cost. COSE tried to sell him a HDHP, but he thinks they're a scam (I tend to agree), and a HSA plan, but, he said "If I could afford the HSA contribution, I'd just pay the frickin' premium for my current health plan."

The guy wants to continue to do right by his family and his employees, and he asked me, "What should I do?"

I didn't have a good answer. Because I'm still working on an alternative. I owe it to all those small companies out there who need somebody to stand up for them.

And I owe it to my Dad...

Anybody out there feel like helping?...

How Health Insurance Reform Is Like A Soap Opera: Meditations On A Price Point

My 26-year-old son got good news from his health insurer recently. His non-group health plan will not be increasing in price this year: he'll continue to pay about $155 a month for a pretty decent individual health plan. (It helps that he's in excellent health; a little utilization would have kicked up his rates significantly.)

He maintains this coverage, even though he works for an employer that offers group coverage, because for a guy his age, his employer's plan provides less generous coverage at a MUCH higher price.

Before we started celebrating as if he'd won the lottery, his news got me thinking about how much has changed...and how much hasn't changed...in the health insurance market over the past couple decades.

I'm so old that the first group health plan I was exposed to was a guaranteed-issue, community-rated UCR health plan that cost (no joke) six dollars a month for an individual employee and fourteen dollars a month for a family. Over three years, the cost of that plan increased 140 percent...to $14.50 for a single employee and $33 per family.

In the 1970's, commercial insurers began to "compete" with regional Blue Cross/Blue Shield plans for business. Mostly, these companies were life insurance companies, which sold heavily-underwritten health coverage to groups as a "loss leader" in order to obtain a company's group life business, which was much more profitable.

BCBS plans responded to commercial insurers' "cherry-picking" by introducing health underwriting, which undercut their credibility as community insurers. Their theory: they didn't want to become "dumping grounds" for customers in bad health who couldn't qualify for "good" coverage elsewhere.

This created a bad deal for groups with less-than-perfect health conditions, but provided some security to groups which qualified. So we all kept our mouths shut.

Consider all the changes which have been attempted over the last 25 years in an attempt to control the rising cost of health coverage, from managed care to "managed competition" to "integrated delivery systems" to HIPAA to PPACA.

The results: coverage for my 26-year-old son in excellent health is nearly 2600 percent higher than it would have been waaay back then.

For an old guy like me, the cost could be 10,000 percent higher...IF I qualified for the coverage in the first place, which I probably wouldn't since I have a little high blood pressure (treated with medication costing $1.99 a month) and a little asthma (treated with an inhaler that costs $35 dollars every three-four months).

So...how have all these machinations, strategies, policy changes, regulations, and legislative initiatives contributed to containing the cost of health coverage?...Not much, that I can see...

Now...Supposedly, come 2014, insurance rating schemes will revert back to modified community rating. That will probably double my son's rates, to roughly what they'd be in New York or other community-rating states. There are those who'd say that my son is getting screwed. I don't agree, of course. Because, theoretically, he and all his friends will be paying higher rates to offset the rates charged to old guys like me; that should reduce my premiums a little. And when HE gets to be an old guy, his premiums will be partially subsidized by those younger than he is.

This is the essence of "community rating:" allocating the cost of health coverage more fairly across populations. It's how health insurance started eighty years ago.

For nearly two decades, insurers have gotten fat off the strategy of selling non-group coverage only to the young and healthy who don't particularly need it, and violating the principles of community rating in the name of "cost containment." How has it worked? Last time I did the numbers, the cost of small group health insurance has grown by 150% in the past decade alone; the cost of non-group coverage, sold only to younger, healthier people, has grown faster than that.

Not that there isn't plenty of blame to go around. My son's renewal letter blames the "unholy trinity" of health care cost inflation: an aging population; increasing provider costs due to improving technology; and higher utilization of services. If you read a rate renewal letter back in 1980, it would have said the same thing.

And it's largely true: the largest portion of insurance rates is attributable to insatiable provider costs.

But in general, there's little evidence to suggest that insurers have been particularly tough with providers. Insurers see themselves as facilitators and transaction processors, not as consumer advocates.

And insurers' administrative costs have continued to hyper-inflate, in real dollar terms, just as fast as provider costs. Pretend for a moment that administrative costs really do average ten percent of premiums. In 1980, when insurers were doing minimal underwriting, and claims were paid largely manually, that ten percent would have averaged 60 cents per contract per month, or $7.20 per year. Given all the innovation in IT systems, the "economies of scale" that are supposed to come from insurer consolidation, and other "aggressive" cost control measures, the average cost of employee benefits is a little over $10,000 per employee per year; so at 10% of premiums, insurers' administrative retention has increased to $1000 per employee per year...about a 14,000 percent raise.

The core problem is that, in our cockeyed health system, no-one...not hospitals, not insurers, not physicians...have any incentive to bring the cost of health care...and therefore, the cost of insurance...down to some more reasonable level. All their incentives run in the opposite direction.

The only people really being squeezed are those who pay the tab: employers, large and small, and individuals...who have no power in the political process.

This is the reason that my long career of health insurance reform activism seems so much like a soap opera: the players may change, the specifics of the situation may be different, but the themes, and the plot likes, are always the same. Looking back over many years, it's depressing how often we've heard the same players saying different things, and cloaking their machinations in different rhetoric...even though their actions have produced the same results: more pain for the folks who really pay the bill.

Chamber, Association Health Plans Worry About Insurance Reform: Is The Gravy Train Grinding To A Halt?

One of the potential casualties of health insurance reform, and of the development of state health insurance exchanges, will be the health plans sponsored by chambers of commerce, trade associations, and professional groups. The inefficiencies, greed, and laziness of these plans and their sponsors make them particularly vulnerable as states experiment with the implementation of electronic marketplaces which might operate more efficiently than the traditional ways of marketing and selling health plans. Some of these groups see the change coming, and are trying to adapt. Most have their heads...in the sand...and pray daily that things will turn out all right. Things probably won't...not for the associations, and not for their members.

I got some interesting feedback from my last entry, in which I wrote about the head of a prominent Chamber of Commerce health plan, who has a conflict of interest because of his participation on the panel crafting regulations for Ohio's health insurance exchange.

I raised the conflict because the Chamber receives about $15 million in commissions and other fees from the insurer whose products the Chamber endorses. My point was that the organization's financial dependency on those fees (which comprise about 75% of its budget) made it unlikely that the Director's decision-making would be focused on the best interests of his organization's members.

I also observed that, rather than freeing the Ohio exchange to become more cost-effective and efficient to help reduce the cost of small group health insurance, his incentive would be to preserve his organization's income stream by assuring that the exchange could NOT operate in a way which might reduce costs (and therefore prices) for exchange participants.

Sure enough, that task force produced a recommendation that premium rates for small businesses both inside and outside the exchanges HAD to be the same. So I asked: if the people who are supposed to be representing the interests of small businesses at such tables have sold out, who WILL speak for small business?

I received some calls and e-mails from people who recognized the guy I was talking about. The correspondents all assured me that he was a splendid fellow, and very smart, and that his FIRST thought was for his members.

But nobody suggested that my key point was wrong: while the Chamber positions itself as a small business advocate, it is completely dependent on its insurer relationship for the vast majority of its income. I'm not an economist, but I understand a few things about the "ecology" of Chamber health plans, and one of them is, you work for who pays you. If members' collective dues are $3 million, and your insurance company is paying you another $15 million of your members' money...you work for your insurer.

And if there's a potential for conflict, you're five times as likely to see things your insurer's way as you are to see them your members' way.

Lots of chambers of commerce, trade and professional associations, and other groups are going to be facing a day of reckoning as health insurance reforms are implemented at the state level. Many of these groups sponsor health plans, largely as revenue-generators for the organizations themselves. There are a lot of tricks. Some permit only agents which are organization members to sell the sponsored plans. Most receive hefty marketing and/or sponsorship fees from their sponsoring insurers, which can add up to hundreds of thousands of dollars. Most such plans are not professionally managed by the organizations' staffs.

The result of all these arrangements is all too often that members are being sold a bill of goods, and are seduced into believing that "their" organizations are providing them with good deals, when in reality, their members are being fleeced.

The Chamber I referenced above keeps all information regarding its health plans a secret (and such secrets are rarely in their members' interests). Nobody really knows how many people participate in the plan, what annual premium volume is, what the Chamber's "take" is...and their lawyers will almost certainly pay me a visit if I use their name. So I'll make my point by telling another story.

A few years ago I did a consulting gig for a pretty good-sized regional business organization. The group had about 4,500 member companies; about 2,400 of them participated in the health plans. But the plans weren't growing, and the leadership wanted to know why, and what they could do to improve the plan's performance.

Discovery was a pain. The insurers (there were three) were not co-operative, nor was the broker who ran the plan. But I've been around a little, so I was able to piece the puzzle together.

In every case, when we added up everything coming out of the health plans... commissions, management fees, overrides, and six-figure "sponsorship payments" to the organization...the administrative cost ratio was up to almost 25% of premium before a claim ever got paid. So total administrative costs were in the 30-31% of premium range.

As a consequence, the cost to members of participating in the association's plans was HIGHER than if they'd signed up directly. So members would join, sign up for the health plan for a year, and come renewal time, their agents would move them out of the association's plans at "street rates," which were lower.

When I presented my report to the organization's Board, they were horrified...for the wrong reasons. They were terrified that their members would find out. But they were so dependent on the income they received from the insurers that they couldn't risk "offending them" by actually negotiating with them. So they shelved the report.

Within three years, membership in that association dropped by 40%...and the income it had been receiving from the insurers disappeared as participation in the health plans declined to almost nothing.

A lot of membership groups are in exactly the same boat. They've been jiving their members in order to get paid by their insurers. But with the pressure on insurers to reduce administration costs, those groups are under a lot of pressure to demonstrate, both to their members and to their insurers, how they add value to the equation. Most of them can't.

So they face a Hobson's choice: either they can WAKE UP and recognize the business they're in, have some unpleasant conversations with their members and their insurers, and rebuild their plans, or they can do nothing, and watch their memberships and related income plummet. And in the association business, doing nothing is almost always the strategic choice. So within 3-5 years, they'll be looking at MUCH smaller memberships and MUCH less revenue, and wondering what happened.

Think about YOUR chamber or association. Which choice do you think THEY'LL make?...

It Ain't Over Even After It's Over: Gaming Health Insurance Reform And Sticking Consumers With The Tab

For all the rhetoric, the relationship many insurers and brokers have with their small group and individual customers seems to be the same as my relationship with my ATM...a means of obtaining cash. It's why being a small business advocate in the health insurance market requires a strong ability to suppress one's gag reflex and fight on behalf of a BIG segment of the market which is virtually unrepresented in the political process of implementing health insurance reform. Here are two current outrages:

First, The National Association of Insurance Commissioners (NAIC) is reportedly considering adding its name to the list of supporters of a bill, drafted by the insurance broker lobby, which would exempt sales commissions from the calculation of insurers' medical loss ratios (MLR's).

You'll recall that PPACA contains a requirement which places limits on insurer administrative costs; insurers whose administrative cost ratios exceed 20% 0f premiums in the small group market and 25% of premiums in the individual market will be required to provide their customers with year-end rebates.

The new rule went into effect January 1st, and threatens to lead to some fairly significant reductions in agent compensation in these market segments. This is especially significant in the non-group market, where administrative costs can account for 30-40 percent of premiums...and up to half of that "retention" is agent commissions.

(The administrative cost share of small group premiums is about 25-27% for small groups. Total commissions there are 10-12 percent of premiums).

Exactly what does NAIC have invested in this debate? First, the lead for the NAIC on this issue is Florida's Insurance Commissioner, who is a vocal opponent of PPACA. So this is just another battle on the ideological front. Second, while most people mistakenly believe that state insurance commissions have a strong consumer advocacy role to play in insurance regulation, very few actually do. Their primary responsibility is to assure the continuing solvency of the insurers operating in their markets.

So, the twisted logic goes, if a new federal rule might in any way affect the financial health of insurers, it's NAIC's role to fight that rule. Consumers be damned.

Let's start with the most obvious issue: if sales commissions aren't administrative costs, what are they? Neither NAIC nor the broker lobby are saying; they just want commissions exempted from the MLR calculation. To do so, of course, would mean that insurers would have no incentive(however draconian) to seek ways to produce marketing and administrative efficiencies. It would also mean that insurers whose non-medical costs are more than 20-25 percent of premiums would pay no penalty for their inefficiency. Andit means that, once these costs have been exempted from the MLR calculation, insurers would be free to raise premiums by any amount, at any time, at will...pretty much like they do now.

So I guess this is the NAIC saying, in effect, "Rules which might require insurers to become more efficient and cost-effective in their operations threaten the financial viability of our insurers, so, irrespective of the possible long-term benefit to consumers, these rules are bad."

For anyone who wonders why it seems that state regulators have been asleep while insurers run roughshod over the small group and individual markets, this just goes to prove how wrong you are. They're not asleep. They just don't work for you. They work for the insurers they regulate...and whose premium taxes (based on volume) fund their operations. So anything which might reduce the increase in premium volume might affect the financial viability of the regulatory bureaucracy, too.

I'm surprised NAIC hasn't offered the helpful suggestion to remove premium taxes from the MLR calculation, too. Maybe that's Act 2.

Here's another variation on the same strategy. In states across the country, groups have begun to organize themselves to establish the rules under which they will operate the health insurance exchanges called for by PPACA.

I found this Operating Principle tucked away in the record of Ohio's Health Insurance Exchange Task Force: The Task Force recommends that, for insurance products available both inside and outside Ohio's exchange, prices should be identical.

Come again?...A key element of the insurance exchange strategy is to give exchanges freedom to experiment with various forms of administrative efficiency, in marketing, sales and distribution. And a key (theoretical) element of this strategy is that the development of a "carrier-neutral" electronic marketplace, together with IT-enabled business processes, should produce administrative cost efficiencies, which should lead to lower rates for exchange customers (I said it's a theory; like much of the exchange strategy generally, there's no real proof yet).

So, theoretically, if exchanges do a good job of streamlining marketing, sales, enrollment and underwriting for small groups and individuals, those efficiencies should result in lower prices for exchange customers, right?

Apparently, not if Ohio's Task Force has anything to say about it.

The health insurance industry and the broker lobby have done a very good job, over many years, of keeping health insurance for small businesses and individuals out of The Information Revolution by using statute and regulation to remove block incentives for insurers to experiment with more efficient ways to market and sell coverage.

The anti-managed care movement of the mid-'90's was not really a consumer-driven movement. It was fueled and funded by (a now vanishing breed)independent insurers who found it increasingly difficult to sell in the marketplace, given the cost advantages and increasing market share of local and regional managed care plans. Rather than find ways to become better at business themselves, the insurance industry collaborated with The Clinton Administration (then hurting after the collapse of ClintonCare) and a Republican Congress to enact HIPAA which, among other things, created a bunch of disincentives for the development of large group purchasing organizations, whose administrative efficiencies were producing price advantages for members of large groups...and laid the foundation for dramatic expansion of (extremely profitable) non-group and "consumer-directed" health plans.

And states followed, by enacting rules which prohibited insurers in their states from "discounting" administrative costs even for their largest purchasing group customers. So even if purchasing groups had the juice to negotiate aggressively with insurers on their members' behalf, insurers had a handy tool for ignoring them: "We're really sorry, but the government says we can't offer you a better price."

What's particularly ironic in Ohio's case is that a member of the Task Force is the president of Ohio's largest local small business group, which operates one of the country's largest small business health plans. What skin does he have in the game? His organization's health plan will earn about about $15 million in fees from its health insurer this year. That income is based on premium volume, too...so the lower his members' premiums are, the less the organization's income is. And the better and more efficiently an Ohio exchange might operate, the greater the chance that the organization's revenues will be affected.

His choice? Become more efficient and cost-effective...or pass a law that will keep anybody from doing better than his organization can.

When even the people who are supposed to be standing up for small business are on the take, what chance do small business consumers have in the continuing politics of health insurance reform?

Health Insurance Exchanges...How Will/Can The Private Sector Compete?

Much of the large-scale implementation of Obamacare's insurance reform plan rests with organizations which, by and large, are the stuff of myth: state health insurance exchanges. This should give us pause.

Any health care nerd you know can tell you what a health insurance exchange is supposed to do: exchanges are statewide electronic marketplaces which will enable small businesses and individuals to shop for, purchase, and manage health plans in a secure on-line environment. The exchange will handle marketing, at least some sales, and presumably renewals, as well as administer whatever tax credits or subsidies each eligible exchange customer will receive. And it will perform other administrative duties as may be required.

Tall order. Good thing the exchange model is based on a solid foundation of experience and good results produced by "role model" organizations.

Except that's not true, either. While there are a few large Chamber or association health plans which have done a good job for their members, these plans (which have problems of their own) generally offer a variety of plans from a single health insurer, not a...tasteful buffet...of plans from multiple carriers.

The only real working example is the Massachusetts Connector, the exchange established by state government leaders in that state (proposed, you may recall, by Republican Governor Mitt Romney). So I thought I'd take a quick look at The Connector, to see how such mythical beasts might affect the small group market in the world post-2014.

The Massachusetts Connector was established in 2007, and its start-up subsidized at the level of over $40 million, according to independent sources. Its operation is financed by a "fee" charged to insurers that look for all the world like commissions.

A key to the establishment of the Connector was an individual mandate; individuals have to purchase insurance or pay a modest fine. Subsidies are available to underwrite premium costs for the working poor.

By the end of 2010, the Connector had enrolled just shy of 200,000 Massachusetts residents. An estimated 150,000 of them are individuals whose coverage is subsidized in some way. The remainder...the unsubsidized participants, are employees of small businesses, or are self-employed. The state estimates that the Connector currently covers less than five percent of the small group and individual market in Massachusetts.

From a systems standpoint, the Connector seems pretty transparent and easy to use. Individuals and/or small business owners are guided through a pretty easy process of shopping for and comparing among plans, which are organized simply as "bronze," "silver," and "gold" plans. Because Massachusetts is a community-rating state, premiums are higher for young people, and still pretty high for the 50+ age group. But with no significant health underwriting, application and enrollment look pretty easy

So far, so good.

But what the wonks generally don't talk about is that the cost of operating the Connector, and of maintaining the current level of subsidies, at a consistent level of coverage for everyone, is very expensive . There have already been attempts to reduce or eliminate Connector coverage for certain groups (like illegal immigrants). And because 4 out of 5 Connector participants are receiving come level of subsidy for their premiums, their coverage is highly dependent on the willingness of their fellow citizens to tax themselves to maintain those subsidies for a growing population of exchange participants.

So...flash forward to 2018...Health exchanges will be in operation in every state, and will have three years of track record. Four out of five participants in those exchanges are receiving subsidized care, but the federal subsidies, which are assured for the first three years, are set to expire, leaving a big unfunded mandate on state governments. We can have those discussions, right along with the ones about freedom and liberty.

But my point is to think about market penetration, and its implications. Because it is a relatively compact, relatively homogeneous state with a liberal political tradition, one can assume that the "take-up rate" there might be higher than average. But let's assume that they're right on target, and after three years of operation, exchanges cover about five percent of the small group and individual markets.

It's still a huge number. Collectively, it could represent $120 billion in premiums; the administrative cost portion, even if it's half the federally-mandated loss ratio (because there are supposed to be some efficiencies in operating exchanges on a large scale) could run $12 billion or more per year.

But it's still five percent of the market. And not a particularly attractive piece of it.

So who's going to be taking care of the other ninety-five percent?...

I've been giving some thought to what tools and capabilities will be necessary for brokers, insurers, small business owners, and self-employed individuals to compete with these mythical beasts. I'll share some in an upcoming post.

Meantime, we've had some...lively conversation...in the past on the politics of health insurance reform. How about a conversation about business strategy? Instead of being afraid of how insurance reform, and especially health exchanges, might threaten your business, let's think about what stakeholders are going to need to do for their piece of the other 90-95% of the market...

Repeal Or Invalidation Of Obamacare: Beyond The Crowing, Where Are The Better Ideas?

I don't know that I have much to add to the commentary regarding the recent decision by a Federal judge in Florida which ruled last year's PPACA unconstitutional...Except this:

I think the crowing among other stakeholders regarding the court decision is a little unseemly. It takes some effort to separate the majority of comments...which seem to emanate from partisan haters...from substantive criticisms of the law's constitutionality.

There are plenty of flaws in the legislation, beginning with the partisan arrogance which characterized much of the debate leading up to the law's passage. But I don't recall much credible debate from the then-minority Republicans regarding the merits or demerits of the bill, beyond a lot of posturing about liberty.

I've already written about the mandate issue. I think it's politically foolish for both proponents and opponents to state and restate positions which cannot be substantiated with real numbers. I think the proponents' argument that the mandate is a lynchpin of the entire strategy, and that without a mandate the entire house of cards falls apart, is a recipe for political disaster. Most of the substantive information regarding the effect of mandates on health insurance coverage seems to support the assertion that mandates lead to increased costs and negligible effects on quality.

But the opponents have not made this argument. They'd prefer to harp about individual freedom and liberty, which scores points with their base but doesn't advance the discussion. It's much easier to say "no" over and over than to advance a constructive counter-argument...ask any 2-year-old.

Here's a better counterargument: aside from the obvious effect that mandating coverage creates...making cost containment irrelevant...it's based on the notion that people are dumb and, given the opportunity, will not act in their self-interest.

I'm sure there are rugged individualists out there who simply do not believe in health insurance, and probably even some who are unprincipled enough to avoid purchasing coverage till they get sick and need it. But it's been my experience over many years that most people recognize the value of health care coverage, and want to buy it, voluntarily, if they can afford the cost.

The problem is that marketplace factors, especially the aggressive and exclusionary underwriting practices in the individual health insurance market, preclude people with even minor health conditions from finding affordable coverage.

Last time I applied for individual health coverage as an experiment, the underwritten rate for the coverage I was seeking tripled from the original age-adjusted rate I was quoted. The reason? I have three very minor health conditions. I've had no trouble from any of them in the last ten years, and my monthly medication tab for all three is less than $20 per month.

For folks with any sort of serious health concern, coverage outside the group market is impossible to get at any price. And even in the group environment. older workers, or those with health conditions, are often the objects of unstated discrimination if their employment might raise their (usually small) employer's health insurance bill substantially.

I don't see how invalidating PPACA takes any steps toward addressing those issues. Just takes us back to the status quo ante, which for too many people is an impossible situation.

It seems to me that before we get all exercised about mandates, we could agree to take steps necessary to assure that everyone who'd like to purchase health coverage in the voluntary marketplace is able to do so. And certainly the Republicans had more than a decade of political majority in which to take some steps to reform the market. Don't recall any more than half-hearted measures to do it, though...

Beyond the individual mandate, opponents may have a good argument that Obamacare foists a huge mandate upon taxpayers at the state level with its significant expansion of Medicaid eligibility. With state governments across the country facing budgetary crises, the prospect of seeing their Medicaid matching fund requirements raised 25-30% in a few years is a frightening prospect..especially as many states are wrestling with how to maintain Medicaid at today's levels in the face of multi-billion dollar deficits.

It's one thing to provide states with an incentive, in the form of additional federal matching funds, to states which want to expand their Medicaid plans. It's quite another to require that states expand their Medicaid eligibility standards, and leave the problem of how to raise matching funds to them.

It's also another gesture of political arrogance and disingenuousness to "handle" that issue by providing a short-term subsidy to states (out of Federal taxpayer dollars), and push the actual day of reckoning off into the future...when the current crop of elected officials is long gone.

I'm not a Barack Obama fan; I think he's a charismatic and articulate empty suit. I certainly didn't vote for him.

I do believe that PPACA is a political document first. The law is maddeningly complex...and it's my experience that complex initiatives are generally complex for a reason...usually because someone has something to hide.

It did not address the health care cost part of the equation, by political calculation; The White House made deals with hospitals, physicians, pharmaceuticals manufacturers, and others to keep that from happening.

The law did seek to address some of the more egregious behavior of insurers in the private markets...changes that the industry could have made voluntarily, but chose not to.

But a finding that the law is unconstitutional, while it might satisfy ideological opponents, does nothing to address the problems existing in the marketplace which led to the enactment of the law in the first place.

And we have yet to hear what the counterproposal is.

I'm not sure that trying to make an admittedly imperfect law work is worse that maintaining an environment of continuing uncertainty which leaves all stakeholders wondering what's going to happen next.

If I were a smart insurer, or a brilliant broker, I'd be using the time to develop more effective means to compete in the marketplace, to make health coverage more efficient and less expensive for everyone who wants to buy it.

Instead, my fear for many millions of small employers, and the self-employed, is that they will continue to face dramatically escalating costs and difficulties in obtaining coverage, from insurers who are perfectly comfortable...and making a lot of money...hiding behind that status quo.

Because absent any outside political pressure to change their behavior, that's just what they're going to do. And I don't see how that helps the people who pay...or would like to pay...the bill.

"Repeal And Replace" With...What?...

Okay, The New Majority has had its fun...

In a largely partisan vote, members of The New Majority in the U.S. House have kept faith with the people who elected them by passing the "Repeal The Job-Killing Health Care Law" Act (in a gesture of The New Civility, House Speaker Boehner referred to the bill as the "Repeal the Job-Destroying Health Care Law" Act...a nicety perhaps too subtle for us here in the grass roots of America).

There will be no action on the bill in the Senate, where Democrats hold a narrow majority.

So...NOW what happens?...

The New Majority has set itself on a course to block key funding provisions related to Obamacare...but that, too, faces the prospect of a pesky Senate .

In reality, the stage is set for establishing "Reforming Health Reform" as a plank in the Republican platform for 2012.

Now, I'm not a Washington insider, but it would seem to me that the Republican strategy would have a little more...intellectual and political heft...if they were a little more forthcoming about what they're FOR.

It's not like we haven't been here before. Republican Congresses have been responsible for the last two quixotic attempts at "health reform:" The enactment of HIPAA in the mid '90's was supposed to increase access to health coverage for small businesses and individuals, as well as reduce the rapid rise in health insurance costs; it did neither, largely because the law and attendant regulations were written by insurers. And of course, there was that exercise in fiscal irresponsibility known as Medicare Part D.

So let's stipulate for the moment that the republican party has not recently demonstrated either much fiscal restraint of any particular expertise in health system reform.

And let's pretend that there really IS a desire on the part of The New Majority to do something constructive...to fix parts of the new law which are broken(or easily breakable) while not messing about quite so much in the private market...and creating incentives for people voluntarily to sign up for health insurance.

First, let's recognize a fact: In Medicare, Medicaid, The Veterans Administration and other programs, government is the biggest purchaser of health care services in our country. If I were advising The New Majority, I'd place priority #1 on improving the clinical and administrative efficiencies produced by the health plans currently under the direct oversight of the Congress.

Second, let's recognize that the private health insurance market is currently four markets: the market for large, self-insured employers (which have been quite aggressive in seeking exemptions from some of the plan design provisions of the new law, primarily to enable them to continue offering high-deductible health plans to their employees); and within the fully-insured market, companies with more than 50 employees; companies with 2-50 employees, and individuals and the self-employed, who are currently precluded by federal law (and most state laws) from obtaining group coverage.

Because large self-insured employers' health plans are currently regulated by the federal government under ERISA, it's appropriate for Congress to reinforce its oversight of these plans.

For the rest, Congress needs to own up to the fact that federal "assistance" in the fully-insured market has largely exacerbated problems faced by small employers and individuals in obtaining affordable coverage (there are a few exceptions, in my opinion...although many of the "consumer protections" being touted in the new law are actually statutory attempts to UNdo some the provisions under HIPAA which have created problems in the non-group market). So here, perhaps the key for Republicans is to do less, not more.

A key element of the Republicans' health reform platform for many years has been to repeal all tax preferences for the purchase of health coverage. That ain't going to happen. Instead, let's go the other way, and make sure that the tax preference follows whoever the purchaser is. Make health insurance premiums fully deductible for both companies and individuals.

There seems to be agreement that even Republican leaders are reluctant to do away with the health insurance exchanges incorporated into the new law. But there are some legitimate concerns that exchanges could adversely affect competition in the small group and individual markets. That's largely due to the fact that the new law tied new subsidies for premium costs exclusively to participation in the new exchanges.

So once again, let's go the other way, and create incentives for the formation of private Small Business Health Plans. This would enable small employers and individuals to band together in the private sector, in the voluntary marketplace, to purchase health coverage jointly. Give these private entities access to the same subsidies as are available through the exchanges, encourage them to use IT and other tools to increase administrative efficiencies, and create powerful private entities, governed by purchasers, to compete with public exchanges.

And put the mandate off till way, way in the future. Only two constituencies support a mandate: health policy wonks who believe, but can't prove, that mandating the purchase of health coverage will somehow subsidize the cost of coverage for those currently excluded for health reasons; and insurers, who both see the opportunity to capture a few million new customers, and know that once a mandate is enacted, there won't be any further need to worry about cost controls, because you'll have to buy coverage, no matter what it costs.

Throw in some tort reform, and you've got yourself a "replacement" for Obamacare.

Both the benefit and the problem with this approach is that many of these ideas have been part of the Republican playbook for a couple of decades, and even when they held firm majorities in Congress and control of The White House, the ideas have gone nowhere.

This is why it's highly unlikely you'll see a real "replacement" bill introduced in this Congress. Because for a couple of decades, Republicans have proved themselves unwilling to take much of a lead in health reform. It'll be much more fun to holler about liberty, obstruct the proceedings, and wait till 2012...

What Difference Does A Mandate Make, Really? The Numbers Don't Add Up...

Opponents of "Obamacare" were popping champagne corks just before Christmas, when a federal judge in Virginia rules that the individual mandate, a central element of the legislation, exceeded the regulatory authority granted to Congress under the Commerce Clause.

Supporters of the plan were predictably dismissive, though they warned that, absent a mandate, an insufficient number of new, young, healthy people would be brought into the insurance system, there could be little prospect for keeping insurance costs under control in the Brave New World.

I have preached against the imposition of mandates for many years, but not out of any cockeyed notion of individual liberty. I believe that a mandate would not achieve the stated policy goal of the plan's advocates, and would, in the long run, have the opposite effect, leading to acceleration of health insurance costs and even less emphasis on quality than is the case in the current morass we call a system.

Because I don't think the numbers add up. I'm not an actuary, so maybe somebody out there smarter than I am will correct my mere layman's understanding.

Let's assume for a moment that the total number of Americans lacking health care coverage is about 50 million (an increase of about 30% from the "37 million uninsured" which led to the enactment of HIPAA, which was supposed to "fix" the markets for small group and individual insurance...And how did THAT work out?...).

For about half that group, "uninsuredness" is not a permanent state. For about 25 million uninsured Americans, the condition is transitory, lasting six months or less, because they're between jobs. So they have some short-term exposure, but the market will take care of them.

That leaves 25 million.

It's estimated that a third of that group consists of "young invincibles," workers under age 30 who have not purchased coverage, either because they think they don't need it or because they can't afford coverage; often they can't afford coverage because pre-existing health conditions have made coverage for them very expensive, if they can get it at all. Theoretically, these are the people whom policymakers want in the system, on the notion that, in general, they'll use less in medical services that they'll pay for in premiums.

Getting them into the health insurance system might easily be accomplished through health insurance exchanges, with subsidies to make coverage more affordable (Note: community rating has a big effect on these young folks' premiums. In Ohio, a healthy 25-year old can purchase coverage for about $150 per month, because of age-based underwriting. In New York the cost is about triple that).


That leaves 16-17 million people.

About half that number represents working families who currently earn too much to qualify for coverage under Medicaid, but not enough to afford insurance premiums. I think that expansion of children's health coverage, and the institution of premium subsidies, help these families get into the system.

That leaves 8-9 million people who currently can't obtain coverage at any price because of pre-existing health conditions. They've had a helluva time finding coverage, but it's not as if they're not trying. A study by the Commonwealth Fund concluded that only about nine percent of those applying for health coverage in the individual market are able to obtain it, because their health conditions either render them uninsurable, or because they rates they're offered are out of reach.

Aren't we making pre-existing conditions go away, and extending premium subsidies to these individuals through exchanges, as well?

Most of the folks I know in this category are either desperate to acquire coverage, or struggling to obtain it.

So who's left? Where are the millions of slackers who refuse to purchase coverage, even when it's available to them at a relatively affordable price?

Is it reasonable to expect that premiums generated by bringing in the "young invincibles" will come anywhere near offsetting the cost of bringing in the 7-8 million older, sicker people who now can't purchase coverage at any price?

Then there's the matter of price...or more precisely, the contention that mandating participation by everyone has the long-term effect of bringing costs down for everyone. I think this contention is nonsense. There's no evidence to support it, and in the few instances where evidence exists, it would seem to support the contrary position.

Many years ago, I had the chance to debate The Lion Of The Senate, Ted Kennedy, on the subject of making health coverage mandatory. As we discussed the issue, I asked him, "Pretend for a moment that everyone in America was required to purchase a Cadillac Sedan DeVille? Not just a car, but a big old Cadillac with all the options. What do you think would happen to the price of Cadillacs?"

The Senator answered that he thought the price would go down, because there would be so many more of them.

I suggested the contrary: not only would the price not go down, but there'd be no limit on the price of Cadillacs, because regardless of price, the government said you had to have one. And it wouldn't matter how well your Cadillac worked; the government didn't say your Cadillac had to work great, only that you had to buy one. Oh, and by the way, other carmakers? Competition in the car market? It would cease to exist.

That's the last time we spoke personally.

There is one state, Hawaii, which mandates that all citizens have health coverage. It's essentially a holdover from Hawaii's plantation days. In the early '70's, state government required that all health plans offer chiropractic services. In the ten years following enactment of the mandate, the number of chiropractors in Hawaii doubled, and the cost of chiropractic services tripled.

Think heath care costs are accelerating in hyper-drive now?...Wait till you have no choice but to buy a standard health plan, courtesy of Our Friends In Government.

I'm perfectly happy to be proved wrong. It just ain't happened yet...

End-Of-Life Counseling and Health Care Rationing: Enough With The "Death Panels" Lie

The Obama Administration announced just before Christmas that it would use its Executive Order authority to enact regulations allowing physicians to be reimbursed for providing end-of-life counseling to patients and their families.

Predictably, conservative talking heads once again took up the cry of government interference in life-or-death decisions via the formation of "death panels", and of the slippery slope toward rationing of health care services.

Puh-leez...

It was a mark of the President's relative inexperience with hard-ball politics which led him to lose control of the debate over end-of-life counseling in the spring of 2010. And his unwillingness to engage with his opponents over the issue led to one of the key mistakes committed by novice politicians: letting your opponent define the terms of the debate.

It would seem the President and his minions are a little better prepared to pick up that fight again. And it would be good for the country if he succeeds. Here's why.

First, the new rule simply enables physicians to be paid for what most of them and their clinical and nursing staffs already do: assist patients and their families in weighing the pros and cons of treatment or palliative care options toward the end of life...whether it be the life of an aged and infirm relative, a traumatically injured younger person, or even a severely ill premature infant.

If you've ever been in a position to make such a decision, you know how difficult it is. Rarely are even the best-educated individuals capable of thinking straight when someone they love is teetering on the brink of death. And for many, clinical efficacy (whether or not a treatment will cure the patient) is rarely the first consideration.

And that leads to the most important reason that end-of-life counseling makes sense: it can lead to dramatic reductions in hospital and physician costs.

Over half...by some accounts, as much of 70%...of hospital costs are directed toward individuals in their last three months of life. Much of those costs come from providing high-technology supportive services to patients who have no hope of surviving. Many physicians will say privately that, when facing a hopeless clinical situation, they will often accede to family members' demands to spare no expense, or to try anything, to extend their suffering loved one's life, even if such efforts are obviously futile, to avoid possible legal action.

The ability to educate patients and families about the possible benefits of hospice, for example, could have a dramatic effect on health care expenditures for private insurance, and especially for Medicare. So to the extent that health care spending reductions, and deficit reduction, are supposedly objectives of meaningful health care reform, such a policy makes sense.

Where are the "death panels?" Nowhere. Nowhere is it even suggested that anyone's going to insist that "the plug be pulled on Grandma." That's just a rather spurious lie, as anyone who's read the rule, or even the original legislative language, can tell you for certain. I know many of the Republican members of Congress who've taken up this banner. They're smart. They KNOW they're perpetuating a Big Lie. It's apparently in their political self-interest to do so. They should be ashamed of themselves...if they're capable of feeling shame.

Does such a rule lead inevitably to "rationing" health care services? Depends on your definition of rationing. At its foundation, "rationing" is all about the rational allocation of unlimited resources, whether food or, in this case, money (in the form of services). So literally, one can NOT engage in rationing only if resources are unlimited.

Up till now, for most patients, end-of-life care is "rationed" based on the lifetime maximum of their health insurance policies. Providers have often thrown a bunch of technology at patients until they reach their lifetime max; then they're sent home, or into hospice care.

With the elimination of lifetime maximums on most fully-insured health plans, that form of rationing goes out the window. Absent more patient involvement in critical decision-making, hospitals will no longer have even THAT incentive to shut down their treatments for critically- or terminally-ill patients.

One would think that those advocates for "patient empowerment" out there would celebrate this rule as a potential benefit to patients, their families, and the overall system of care. One can only assume that the REAL opposition to the imposition of such a rule would be hospitals, whose revenues could suffer if more patients and families actually begin making educated choices.

And that may be what's REALLY at the root of this furor. As is usually the case with insurers, it's also true for hospitals that an uninformed patient is often their best (and most profitable) customer.