Health Exchange 1.0: Winners And Losers, So Far...

OK, so it's over...

I've been hunkered down in my little foxhole for the past several weeks as the first Obamacare open enrollment period wound down. The propaganda flack was flying so thick and heavy between partisans on both sides of the debate that A Humble Seeker After Truth like yours truly was at significant risk of getting fragged.

But finally, we've had our first face-full of Health Exchange 1.0. And now that we've lived through it and The World As We Know It has not ended, it's time to look at some results, see what we might learn from them, and look ahead to Health Exchange 2.0, which (I hope) will build on those learnings and improve the process.

Robert Pear wrote in The New York Times wrote that, with the end of open enrollment, Obamacare looks less like a monolithic national program and more like a patchwork of experiments in the policy laboratories which are the states. Some have succeeded. Some have not, and for a great many people, the future remains quite uncertain.

Let's take a look at the box scores thus far:

Winners

Millions and Millions Of Americans: The numbers are still squishy, but we've come a long way, very quickly, from insurers' initial belief that nobody would ever shop for health insurance on-line. By White House accounts, about eight million Americans withstood the rolling disaster of the Healthcare.gov roll-out, and persisted through a wonky process on the still-glitchy public exchange platform, to enroll in health coverage through the federal exchange.

An additional three million Americans benefited from Medicaid expansion in states which adopted the Obama Administration's Medicaid expansion program.

And a bonus: research by The Rand Corporation suggested that almost as many Americans (somewhere between six and eight million) signed up for private health coverage directly with insurers or through their employers..

So...Do the numbers suggest a pent-up demand for health coverage? Maybe. About a third of the folks signing up for coverage via Healthcare.gov were apparently uninsured previously. But the majority had coverage elsewhere before they went shopping.

Certainly, enrollment suggested the effectiveness of subsidies as an incentive to enroll. Medicaid expansion enabled millions of poor people to obtain coverage. And about three-quarters of Healthcare.gov enrollees received at least some level of federal subsidy. We don't yet know the total cost of those subsidies, but there's no doubt that many folks came to the state and federal marketplaces in search of a better deal. The number of "off-exchange" individuals with non-group coverage dropped from 9.4 million to 7.8 million people, the majority of whom found coverage elsewhere.

But the number of individuals who enrolled in private, employer-sponsored plans off the exchanges is a pleasant surprise. In general, these folks did not receive subsidies. And during the open enrollment period, more than three times as many people went from zero coverage to employer-sponsored coverage than those who may have lost their coverage, either because their employers discontinued their plans or because the plans didn't meet Obamacare standards for plan design.

There is certainly reason to take these numbers with a grain of salt. It's estimated that as many as a third of Healthcare.gov enrollees had not yet paid their premiums by enrollment deadline. The Rand research was based on a wide-ranging survey of a representative sample of Americans. And many skeptics believe that many of the folks who withstood The Trials Of The Wonky Website did so because their health conditions were so serious that the prospect of subsidized coverage would enable them to exploit the health care system at taxpayer expense.

But that final thought discounts the notion that, prior to enactment of the insurance reforms enacted in PPACA, insurers' medical underwriting standards were so restrictive that a little hypertension or a little high cholesterol could result either in "rate-ups" which made the cost of obtaining coverage prohibitive, or even in denial of coverage.

Inescapable conclusion: The rate of uninsured Americans has reportedly dropped from 20.5 percent of the population to 15.8 percent. So, at least for now, close to twenty million Americans have demonstrated that significant demand exists out there, and both public and private health plans have seen a significant increase in enrollment. For those folks and those families, this is a big win. And it happened in six months; that is an amazing achievement.

Wellpoint/Anthem: This company is one of a very small number of insurers which decided that the exchange business represented a significant business opportunity, and enthusiastically participated in Healthcare.gov and state exchanges in every state in which the company has a presence. They were rewarded  with over a million new customers. It's very unusual for an insurer to take that sort of risk as a leader; in most cases, as in this one, the race is usually to be second, once the leader has taken the initial hits. I suspect that Anthem's early success in building enrollment via the exchanges will encourage other insurers which have been hanging back to increase their commitment to this potentially powerful marketing channel.

Losers

Hawaii, Maryland, Massachusetts, Minnesota, and Oregon: Actually, in addition to this five-way tie, throw in American taxpayers as losers, as well. These five states, having pocketed over a billion dollars in development grants, built state exchange platforms which didn't work. In Hawaii, recipient of $205 million to build their state exchange, managed to sign up a whopping 7600 people. Now, math is not my strong suit, but I think that boils down to about $27,000 per enrollment. The remainder of the states continued to be so dysfunctional that the vast majority of their enrollments were on paper...the old fashioned way.

Maryland has already agreed to scrap its own exchange platform and adopt the technology platform developed by The State Of Connecticut. And last week the Oregon legislature, having determined that fixing their monstrosity would cost at least an additional $30-40 million, opted to shut down their exchange and join Healthcare.gov.

This is just the first round of shake-out from the chaos of development which ran parallel to the government's rush to create the regulations outlining how exchanges should operate. States like California, Colorado, Connecticut, Kentucky and California, which have had far greater success with their exchange platforms, could become licensors of their technology.

CGI:  Hey!...Anybody thinking of building or re-modeling their exchange platforms and processes, DO NOT HIRE THIS COMPANY!...At least in America, CGI has a reputation for being far more highly-skilled at navigating the government procurement process than at actually doing the work, either on time or on-budget. That attribute became all too clear as the exchange open enrollment date loomed, and everybody watching (except, apparently, then HHS Secretary Kathleen Sibelius and the entire White House staff) could see that Healthcare.gov was not going to be ready for prime time.

Under normal circumstances, the combination of CGI's "expertise" and the lax and highly-politicized oversight of their government "clients" passes unnoticed by the public...But in those cases, there's rarely a deadline, and the technology they develop doesn't touch the lives of millions of people directly. But in this case, CGI Federal could not, no matter how they spun, avoid the fall-out from their botched attempt to build the Healthcare.gov website and supporting processes. Between what it cost taxpayers to let CGI Federal  do...whatever it was they were doing...and the cost of bringing Accenture in to fix it, and the cost of building out the "back end" applications required to manage the exchange (still nowhere near ready), the project will easily exceed another billion dollars. So I guess, as in the previous category, the taxpayers are also losers...and Accenture is a winner by default.

(Oh, and in case you think the CGI choke-a-thon was restricted to wild and wacky D.C., consider that CGI also built the non-performing platform in Massachusetts).

Red State Residents; Just as whether one sees Obamacare as a success or a disaster largely depends on one's party affiliation and where you get your news, exchange enrollment by state currently seems to be highly dependent on the political leadership in each state. In general, exchange enrollment has been highest in states with Democrat leaders, and lower in states with Republican leaders. Much of the disparity comes from those states' refusal to co-operate with the federal government's Medicaid expansion. But political leadership (or lack of it) also contributes to how vigorously the public exchange is promoted.

Next time around, I'll talk a little about some of the big remaining exchange questions, about the upcoming 2014 open enrollment (which is hard upon us), and what's in all this for small businesses (Hint: not much).

LOTSA Work To Do On Health Exchanges...And Some BIG Roadblocks To Doing It

Thus far, the Mayans have been proven wrong...and so (thus far) have Republicans. Both their professed fears of doom and universal collapse have failed to come to pass. December 21st came and went, and the sun came up the next day (which DID cause me to rush my Christmas shopping, since I'd put it off, just in case), and Barack Obama was re-elected serve a second term, and the sun came up after Election Day.

Those who had been living in political denial for the past couple years woke up after the election to find that The Affordable Care Act, which they'd been hoping Mitt Romney would make go away, was going to have to be implemented, after all. And among the biggest challenges entailed in implementing the law is developing and rolling out the electronic marketplaces called health exchanges in time to meet a federally-imposed deadline of January 1st, 2014...which, you might notice, is now less than a year away.

Doing that, it would seem, will be a tad more difficult than the experts might have expected.

First, as of December, 2012, only 19 states have introduced or passed legislation authorizing the formation of state-run exchanges. Only seven of these states have elected to develop an "active purchaser" model, whereby the exchange will negotiate with insurers to develop and market plans through the exchange itself (this type of exchange is modeled after the Connector in Massachusetts,which was the model for the exchange language built into PPACA). Six will serve as a clearinghouse, merely providing information and referrals on plans available to consumers, and another half dozen don't know WHAT they're going to do.

Seven states have elected to go with an as-yet-undefined "partnership exchange" with the federal government, whereby the feds will be doing...some things...and the states will be doing...some other things.

The remaining states have essentially punted to the feds, declining to develop their own exchanges and defaulting to whatever exchange the federal government eventually develops.

(A complete listing of which state is doing what is available from the Kaiser Family Foundation here:http://statehealthfacts.kff.org/comparemaptable.jsp?ind=962&cat=17)

It's no surprise that the majority of states which have chosen not to go forward with health exchanges of their own are headed by Republican governors. And many observers have noted the irony of "small government, state's rights" Republicans opting to default their right to operate and control health insurance regulation in their states (traditionally the states' purview) to the federal government.

But there might be a few good reasons a smart politician might drag his/her feet in setting up an exchange.

First, exchanges would seem to be quite costly to build and maintain. The fed has distributed tens of millions of dollars in grants to states wishing to establish their own exchanges, but has essentially left the cost of operating and maintaining exchanges to the states. In Massachusetts,the annual operating costs for operating the connector would appear to be about $30 million.

Beyond the operating costs, states have a legitimate fear of being stuck with some pretty hefty costs related to subsidizing the extension of coverage for the working poor. PPACA'a proposed subsidies for low-wage participants, and its small business tax credits, are scheduled to expire by 2017. The legislation is silent on what happens after that.

This is a big deal. Consider that the Massachusetts Connector, the only operating prototype, covers about 225,000 people after six years of operation....in a state with a total population of 6.6 million people. Of that number, over 190,000 participants are receiving subsidized coverage. Only 40,000 plan participants are purchasing non-subsidized health plans...and only about 2,500 of those participants are employees of small businesses...in a state with about 139,000 small businesses, which employ 2.7 million people.

(This means that the Connector, after 6 years of operation, has gained a whopping 3.4% total market share, and a market share of about 1/10th of one percent of small business employees...in a state in which purchasing health coverage has been mandatory since 2006...Just sayin'...)

The strong implication is that,when subsidies go away, states will be required either to pick up a gigantic tab, or may be forced to move people off the exchange's rolls and put them...where?

In that light, it might make practical political sense for state leaders to leave the potential downsides to the federal government...even if doing so results in laying the groundwork for a federal "takeover" of the nation's health insurance system, as some fear.

The Massachusetts experience also suggests that an exchange does not solve a lot of problems for small businesses. Absent a meaningful subsidy of some sort, there has been little sign that small businesses can get a better deal on small group coverage through the exchange than they can get in the general marketplace. That is unalloyed bad news, since exchanges will need a LOT of small group participation to grow and maintain any sort of rating integrity.

It'll arguably take a little more than 1/10th of one percent market share to enable that to happen. And of course, the inference is that 99.9% of Massachusetts small businesses are getting a better deal somewhere else.

I think there are a couple other, very important reasons for the difficulty facing the development of working health exchanges. One is that, to be frank, nobody's built a really good one yet. Massachusetts has made enormous (subsidized) investments in technology, infrastructure, and management bureaucracy, which has amounted to hundreds of millions of dollars, AND has had the benefit of national publicity for its efforts...and after all that, has acquired a 3.4% market share. The Connector's annual report is loaded with process metrics, but doesn't even mention that small fact.

And consider that, despite its fairly anemic showing, Massachusetts' experience is a thunderous success compared to the other operating public exchange, in Utah, where the exchange has been utilized by about 2,200 people.

It's hard to be a pathfinder. And for those who follow, it's nice to be able to look to a successful case study to illustrate what you'd like to be when you grow up.

Nonetheless, the feds have committed hundreds of millions of dollars into exchange development. What does success look like? I guess beyond adherence to federal regulations, the feds will know success when they see it.

But the BIG reason we haven't seen more focus on health exchanges is not strictly political: the big health insurers HATE the idea...

Market-leading health insurers are hard at work developing "private exchanges," which are essentially exercises in co-opting the language of health exchanges as they struggle to create software-based platforms and processes for "private label" exchange-type marketing channels.

This is why three big Blue Cross & Blue Shield plans bought a majority stake in Minneapolis-based Bloom Health. It was their intent 1) to keep anybody ELSE fro utilizing the Bloom platform, and 2)to use the Bloom platform/process as their own private fishin' holes....selling their products in their markets, so they could SAY that they were in the exchange business without actually becoming more efficient or transparent, or without risking that their products might be shown in comparison with other health plans.

The fact that Wellpoint/Anthem, which unveiled its Bloom Health portfolio to great fanfare in the fall, only to find that they weren't ready for prime time, ought to give entrepreneurs in the exchange business some comfort. The fact that Anthem struck a deal with the other high-profile "exchange operator," Liazon, creates opportunities for some outside-the-box innovation.

The market leaders won't play a real exchange game until they're forced into it. They have no incentive to do so.

One ought to ask: Who would benefit from a genuine health exchange? Consumers, for one. Health insurers which are not market leaders, for another. And health systems which might benefit from enhanced insurer competition (and a key differentiator against their own health system competition) would be a third.

Let's build a health exchange, okay?...

First He Was For It, Then He Was Against It, Now He's...Sorta Stuck...

Poor Mitt Romney has had enough trouble these last couple weeks without my help, so I thought I'd hold off for awhile before looking more closely at his latest tap dance around the question of health care reform before sounding off about his disingenuousness. But it's a slow day today, so here goes.

 As everyone paying even a LITTLE attention knows, one of the elephants in the room of the Romney campaign has been the little dichotomy between his denunciation of "Obamacare" and the fact that one of his key achievements as Governor of Massachusetts was the development of a health insurance reform plan...which served as the conceptual (if not the political) foundation of many of the insurance reforms found in PPACA. Even though the question of "How can you oppose something you took credit for creating in Massachusetts?" has dogged him since the campaign began, he never had a particularly clear answer.

Then last week, he got himself a little MORE twisted up when he suggested that, eve though he still thinks Obamacare is horrible, and needs to be repealed, there are a few parts of the law he sorta likes. They happen to be the provisions which have already been implemented in the marketplace, most notably the elimination of lifetime maximums on health policies and the extension of family health coverage to dependent kids under age 26 (for which, by the bye, our 23-year-old son is quite grateful).

He was not quite so glib about another PPACA provision: the elimination of pre-existing conditions exclusions. Apparently Governor Romney fully supports the elimination of those exclusions for those who already have health coverage, but not for those whose pre-existing coverage have thus far kept them out of the insurance pool.

Huh?...

Now The Tonight Show's Jay Leno is no investigative journalist. But during Romney's recent appearance of the show, Leno asked the obvious question: "A lot of guys I know, comedians, mechanics, waiters, who don't have health insurance now can't get it because they have some sort of pre-existing health condition. Don't we want to get them coverage?"

Romney's answer was typically maladroit: "Well, of course we want to get as many people covered as possible, but if one day a person shows up with cancer or a heart condition wanting to buy health coverage because they're sick, we want to be able to say, 'We don't play that game here.'"

Game?...

I only have three thoughts to share regarding this latest gaffe by the Republican candidate:

1) In expressing his support for the provisions he did, Romney joins the ranks of those faux-magnanimous insurance companies which pledged, even before the Supreme Court upheld PPACA, that they would not roll back the elimination of lifetime limits and the under-26 dependent provision.

In the insurers' case, it was meant to sound like a concession to the marketplace. It wasn't. The fact is that insurers have already baked the cost of these provisions into their products, and have found that those provisions haven't affected their profitability at all, and MAY have generated more cash for them. I've never known an insurer willingly to give up cash it's already collecting to reduce benefits.


Besides, lifetime limits have always been sort of bogus, and somewhere near six million generally healthy young adults who hadn't previously had health coverage have it now because of that new law...and this is PRECISELY the group which insurers want to cover, because they tend not to use health services very much; they're the "young invincibles" which insurers have wanted in their pools. They have them now, and they ain't giving them up.

For Romney, the concern is political. These are provisions of the law that have proved to be popular. And for all his rhetoric, he knows better than to be seen attacking a benefit which is already helping working families;

2) The arbitrary exclusion of some individuals from health coverage because of pre-existing conditions is one of the key reasons for our perceived health crisis. The use of health conditions to set prices in the small group and individual markets has always been a gimmick designed to benefit insurers.

I've written several times before about my case, which is typical: when my insurer found out from my medical questionnaire that I had a little hypertension (controlled with a medication which costs $3/month), a little gout (controlled with a medication which costs $4/month), and a borderline cholesterol count (also controlled with a $3/month prescription), my premiums TRIPLED over the initial quoted rate, from $600 to $1800/month. There's no excuse for that, except greed.

To be effective, health reform must reach out not just to the young and healthy, but must also provide access to coverage for those who've been excluded, AND provide some rate relief to those who are just getting screwed.

I'm not a big Obama fan. I think PPACA is a case of massive government overreach in many ways. But these insurance reforms represent good policy. Thus far, they've proven not to be costly; in fact, health costs for the last two years have risen only about a third as quickly as in the previous ten (as much a function of a recovering stock market, from which insurers get most of their profits when times are good, so they need to rely less on rates).

And insurers have had many years to see the light and enact some of these common-sense reforms voluntarily, and chose not to do so. Without the new law, it never would have happened.

3) As is the case with so many of his latest gaffes, this is an example of a presidential candidate who, whatever his core beliefs, has abandoned them for the sake of appeasing his rockhead conservative base. Most of the time, I'm guessing even HE doesn't believe what he's saying; he's just saying what his advisers brief him on. Whether on foreign policy, on health care, or on his "47%" gaffe, he's not speaking from his beliefs...he's talking back points he's heard from the people who surround him.

He's getting VERY bad advice. So when his answers sound cagey, or disingenuous, or just eye-poppingly inappropriate ("We don't play that game here"), he's only repeating what's been drilled into him by others. Sad...and scary...

What If The Health Care Cost Curve Doesn't (You Should Pardon The Expression) Get Bent?...And A Couple Other Questions

If I were a health care policymaker, I'd probably spend a whole lot more time than most of them do talking with real people who have real, "micro-world" questions which can illuminate the "macro-world" questions which the deep thinkers...well, think about.

Last week I spent a few hours over beers with a few friends who are pretty knowledgeable small business owners. Practical guys, with practical questions. The biggest one was this: Irrespective of the politics of Obamacare, what is the likelihood that some kind of regulatory or market force will actually bend the cost curve down?

Keep in mind that for most small business owners, annual premium increases of 15-25 percent per year have been the norm, not the exception. Even for fairly large small companies, premiums are doubling every five to six years.

I had to tell them the bad news: there's really nothing in the Affordable Care Act which has any concrete potential to reduce the rapidly-escalating price of health coverage, at least in the short to intermediate term.

That's because the Affordable Care Act essentially ignores the principal driver of health care cost increases: provider costs, especially on the hospital side.

Over eighty percent of health costs relate directly to payments to hospitals, physicians, drug and equipment companies, and other providers. And despite the potential promise of some of PPACA's experiments with delivery system reform, the likelihood is that those costs will continue to hyper-accelerate.

There is certainly a tempting target for cost containment: the estimated 210 billion dollars being spent on over-testing and over-treatment.

I wrote a little something about this phenomenon last year (http://polkiananalysis.blogspot.com/2011/10/economicsand-ethicsof-just-being-sure.html). And a recent column in The New York Times (http://well.blogs.nytimes.com/2012/08/27/overtreatment-is-taking-a-harmful-toll/?ref=health&wpisrc=nl_wonk ) expands on the theme.

Twenty to thirty percent of what we spend on health care can be retrospectively labelled as unnecessary. Let's pretend for a moment that, since one person's unnecessary treatment is another person's "do what it takes to help my Mom," only half that percentage is truly wasteful.

Would it/ should it be worth our time to figure out how to cut $100 billion or so per year out of our health expenditures? A reasonable person would say so.

But doctors get paid for how much they do. And while hospitals' primary business is treating disease, they are also in the business of maximizing revenue.

Unless there's a revolutionary (and counter-intuitive, for those revenue-conscious providers) trend toward awarding clinical efficacy versus the volume and intensity of services rendered, the cost curve isn't gonna bend appreciably over the next ten years or so. And until we can get to these root costs, we can expect to see health premiums double or triple over the same period.

What about defined contribution? Won't that have an effect on health costs?

A switch to a defined contribution will certainly do a lot to reduce small employers' cost exposure. But only by shifting the cost burden to employees, and making hyper-inflation their problem.

The myth of defined contribution is that employers will pass along a portion of the savings they experience by capping their own expenditures with their employees in the form of higher wages, which employees might use to pay for their share of health premiums. By and large, this won't happen.

The best example of why not is the proliferation of high-deductible health plans. The myth of HDHP's is that employers would establish partially-employer-funded Health Savings Accounts to enable their workers to cover their deductibles. Only about ten percent of small employers did this; the rest just saved the money.

And while defined contribution models are fine for large, self-insured employers...whose costs are lower to start with, and whose relationships with employees is largely...statistical...small employers tend to have personal relationships with their workers. Most (not all) understand that their employees are only a medical disaster from financial ruin. They see just unloading their problem on their workers not just as worrisome, but as an idea that can jump up and bite them, especially if their employees under-insure or, worse, take the employer contribution and pocket it.

Most small employers will not be subject to the mandate, but most suspect that, in the face of trouble, their employees, or their employees' lawyers, or, worse yet, the IRS, will be calling the business owner first.

My small business owner friends saw defined contribution as a short-term band-aid that simply sets the table for trouble down the road.

Won't health exchanges do something to reduce health costs?

I've written before that, properly organized and operated, health exchanges could do a lot to empower purchasers by aggregating demand and increasing purchasing power through effective administration and negotiation.

Haven't seen too many "active purchaser" exchange models yet. The Massachusetts Connector has certainly improved access for folks in that state, but hasn't had an appreciable effect on price increases.

And as of today, the vast majority of states have yet to begin seriously organizing their health exchanges; in fact, about 26 states have basically refused, for political and budgetary reasons, to consider getting into the exchange business. Most of these "hell, no, we won't go" states have Republican governors and legislatures.

It does strike me, a non-politician, as odd that these state leaders, proclaiming so loudly against federal interference in their health care systems, would default on the development of their own exchanges and create the scenario for a massive federal takeover of their health systems through the formation of a gigantic federal health exchange.

Maybe they're all expecting a Romney victory in November to make this issue go away.

But what if they guess wrong?

That's a damned fine question.

If they guess wrong, and President Obama is re-elected, I expect we'll see the Administration issuing waivers to states to give them more time to build their own exchange plans. So the "drop-dead date" for the formation of health exchanges will slip from January, 2014 to 2015 or later.

None of this should leave small business owners hopeful for long-term price relief any time soon. And yet, despite the confusion, the health insurance environment for small businesses hasn't really changed all that much. After all, if you've been swallowing 15-25 percent per year increases for the last 15 years, can it really get worse?

Will CO-OPs Bring A Sense Of "Community" Back To Health Care?

Okay, so...

The Supreme Court has upheld the constitutionality of PPACA. And the sun came up the next day.

I don't expect that the Court's decision changed anybody's mind about Obamacare. People who hated it still hate it, and are adjusting their political strategies accordingly. And those who hailed the law still like it.

But only in Washington does passing (or sustaining) a law mean the same thing as solving a problem. With the constitutionality of the law settled (for now, at least), the next focus should be on execution...implementation of some parts of the law that could have a positive impact on the availability of affordable health coverage in a more transparent and competitive market.

And one element of Obamacare which may have the potential to change a few markets is, in effect, an experiment to turn back the clock to a simpler (and vastly less expensive) time, when the health of a community was in the hands of community members themselves.

These experiments are called "Consumer Operated And Oriented Plans," or "co-ops."

Before there was employer-sponsored health coverage, before there were insurance companies, health care was often a community responsibility. The "communities" were church groups, ethnic organizations, or "benevolent societies," self-selecting communities through which members cared for one another. Everybody pitched in a little money, and if any member became ill, the "community" would assist the family in meeting medical expenses.

Those societies began to be replaced in the 1930's by Blue Cross and Blue Shield plans, larger, non-profit mutual insurance companies with Boards selected from among the members. These plans became the vehicles through which, especially after World War II, large employers began to provide health coverage to their workers, with the premiums covered as a substitute for wages, which were frozen for a time after the War.

Relatively few of these not-for-profit entities remain in the market today. The Cross and Shield plans began consolidating in the '90's into corporate giants. The Boards of a number of once-prominent non-profit health plans decided around the same time that their members' interests would be best served by being acquired by larger companies, the proceeds of the sale being used to set up foundations to maintain a sense of "community purpose."

Each step in the evolution of non-profit benevolent societies into corporate giants has moved health plans an additional step or two away from the interests of the member/customer/patient. With few exceptions, health plans are very large, very corporate, and their leaders are very dependent upon meeting the expectations of Wall Street, rather than of "Main Street."

That could begin to change...Maybe...

Thus far, 16 non-profit groups in 16 states have received nearly $1.25 billion in loans to establish non-profit health plans whose governing bodies will be selected from among their members, and whose surplus earnings (if there are any) will be re-invested in the development of improvements to the plans themselves, rather than distributed among stockholders. A complete list of the groups which have received funding is here: http://www.healthcare.gov/news/factsheets/2012/02/coops02212012a.html.

With the issue of PPACA's constitutionality settled, these groups should begin receiving funds to get themselves organized, and to achieve the killer deadline of bringing new, non-profit health plans into their markets by December, 2013, with coverage effective dates of January 1, 2014.

Most of these erstwhile co-ops have already announced their plans to offer plans in co-operation with their states' insurance exchanges...even in states which have yet to act to get into the exchange business.

The non-profits sponsoring these co-ops have considerable expertise, and some presence, in their states' health care and insurance markets, often as Medicare and Medicaid managed care plans. Some have a particular affinity for groups within their states, i.e., targeted markets to serve; the biggest winner is New York's Freelancers Union, which has won $340 million in loans to create plans for self-employed professionals in New York, New Jersey, and Oregon.

All of these groups have pledged to be "not just another insurance company." In many cases, that translates into pay for co-op leaders which is not "excessive." Other than that, plus the composition of their Boards (presumably volunteers), and their pledge to re-invest their surplus earnings, I'm hard-pressed to see what important differentiations will separate them from all those other insurance companies.

Co-ops must still enter into agreements with hospitals, physicians, and other providers, at some cost. Some co-ops are sponsored by existing managed care plans, which see branching out into the private market as a way to augment patient volume. Will those providers expect their privately-insured customers to be treated at about the same rates as their Medicare and Medicaid recipients, or will they expect a higher rate of payment, thus leading to the cost shifts typical of most provider networks?

How will they distribute and sell their products? Will they try to develop networks of agents, and pay them accordingly, or will they take the risk of experimenting with more cost-effective, technology-oriented marketing solutions?

While they may be technically non-profit, presumably the co-ops will still be subject to state premium taxes. They will have to maintain state-mandated reserves. The plans will need to comply with all coverage mandates required by their states.

My sense is that, whatever they may SAY, in real life, co-ops will need to operate very much like real insurance companies in order to compete and succeed in the marketplace. They're going to have to pay providers, sell products to customers, pay claims, and market themselves in states which are already dominated by huge competitors with very deep pockets. A very tall order.

The way for these groups to succeed will be 1) to get some sort of preferential pricing from providers (good luck), 2) keep their administrative ratios under 15%, 3) sell direct via the Web, and 4) use whatever short-term advantages they can produce to create enough critical mass (customers) to strengthen their hands in their continuing dealings with providers who want to get paid.

Co-ops will work best if their Boards see themselves as advocates for their members, and are in a position to negotiate in a constructive, but adversarial way with their providers. AND if their product and pricing mix is attractive enough that their markets view the co-ops as THEIR health plans, working for them. Part of that will be marketing, but a LOT will be execution, for the long term.

A famously aggressive Cleveland hospital CEO once responded to being cut out of a regional PPO network by starting up her health system's own health plan. To attract providers, the plan offered higher levels of reimbursement than the big PPO did. To attract distribution, the plan offered higher commissions. Employees of the health system were required to obtain coverage through the system's own health plan. At first, there was a lot of fanfare, including the CEO's own pronouncement that "any fool can run a health plan." The company soon went bust. Turns out the CEO was right: Any fool CAN run a health plan. But it takes a very special kind of fool to run a health plan right...and for the right reasons: to benefit the members collectively, for the long term...

"The Uninsured" Aren't "Them"...They're Us...

A report by the Commonwealth Fund should serve as a reminder that "the uninsured" are not a single population, but instead a diverse group of individuals who, for many different reasons, share one thing in common: for some period of time, they lack health coverage. And when that happens, they're often on their own...not in the "rugged individualist" or "free rider" context often suggested by their critics, but because they're essentially frozen out of the market by current "pre-PPACA" industry practices.

More information on the complete study is available here:http://www.commonwealthfund.org/Publications/Issue-Briefs/2012/Apr/Gaps-in-Health-Insurance.aspx

Commonwealth's study of over 2,300 individuals found that twenty-six percent of Americans went without health insurance for some period of time in 2011. And for the most part,those without coverage lost it because they'd lost their jobs.

Seven out of ten of those who lost their employment-based coverage were uninsured for more than a year. There are a number of reasons.

Because the continuation of coverage provisions under COBRA are mandatory only for companies with more than 20 workers (and often COBRA administrative services aren't available to groups with fewer than 20 employees), one reason for the coverage gap is that a continuation of employer-sponsored coverage isn't available to them at any price.

And even for COBRA-eligible employees, the cost of continuing coverage under COBRA, at the employer's cost plus two percent, makes it too expensive for families whose earning power has already been undermined by a layoff.

The individual market is no solution in most states. Individual policies tend to cost more, and cover less, than do group plans. And because most states still permit insurers to deny applicants for individual coverage due to health concerns, forty-five percent of those who applied for non-group coverage couldn't find any at an affordable cost.

For those who have the money, but are shut out of the market due to health, high-risk insurance pools can be a partial solution. Some states, and the federal government, operate plans to provide subsidized coverage for those with pre-existing conditions which make them ineligible for commercial coverage. The Federal government recently reported that over 50,000 Americans had enrolled in its temporary Pre-Existing Conditions Insurance Plan (PCIP) in its first 18 months of operations.

Participants in the PCIP rang up some $1.45 billion in health costs, largely for big-ticket items such as cancer and COPD. The plan's participants' costs averaged nearly $29,000 per person, and required a direct federal subsidy of some $600 million to augment what they'd paid in in premiums.

Looked at in another way, given that the current average per-employee cost of health coverage is about $13,000 per year, each participant in the PCIP requires at least one premium-paying adult to utilize nothing in order to create a subsidy for one PCIP participant.

In an earlier article (http://polkiananalysis.blogspot.com/2012/02/one-percent-most-of-us-are-headed-for.html), I pointed out that it takes six people paying premiums and using zero coverage to subsidize the costs on each member of the country's one percent of highest utilizers of health services. And it takes three healthy Americans to subsidize the costs of the next highest four percent of utilizers.

In "the olden days," health care coverage was sold on a "community-rated" basis, with an explicit understanding that those who didn't use a lot of health coverage would be paying a little more for their coverage so that those who really needed it could pay a little less.

The market has "evolved" to a point at which sharp dealers in the insurance business have convinced us that the insurance market is an "everyone for himself" market, in which we should pay for what our own coverage costs, with no sense of responsibility for the "community" in which we live and work. And, of course, many insurers have made a tidy buck by finding ways to avoid covering individuals whose needs would require more of a subsidy than their own premiums could cover. This sort of "precision..." dividing up the underwriting world into universes of one...has neither moderated health premiums for everyone nor made coverage more accessible to those who need it.

Instead we've created "ghettos" in which these "high-risk" individuals either receive crappy coverage at high costs, or are forced to do without.

And we demonize "the uninsured" as freeloaders who take advantage of "us..." a classic gambit of "blame the victim."

But increasingly, the uninsured aren't "them." They're us...our neighbors, our family members, our friends...and their families.

I can't speak for the big thinkers, but Ive had the experience of being without work, and of being expected to find $1800 a month for health coverage which my insurer initially offered me for $600 a month, till they found out I had a little high blood pressure and asthma.

It was agonizing to go without, but the monthly premiums were the equivalent of a monthly mortgage payment. We prayed every day that we'd remain healthy, and that our kids wouldn't break a leg playing soccer.

I didn't feel like a freeloader. I was terrified for my family. We were very close to the edge, and a single significant health problem would have driven us into the 40% of Americans whose bankruptcy filings are due to health care expenses. But our insurer's position was, "It costs what it costs. Take it or leave it."

We were lucky to find a job with employer-sponsored benefits eight months later.

I'll never forget that terrible time. But for most of The Deep Thinkers, with their comfy jobs and generous health benefits, that'll probably never be a worry. That makes it easier for them to think of the uninsured as "them."

Maybe a year or two without health coverage for all members of Congress would remind them that they're one of us.

President Obama DARES Supreme Court To Throw Out PPACA...Who's Advising This Guy?...

I've long believed that if we held conversations only about what we knew, and not what we thought, those conversations would be a lot shorter.

So I was going to keep my big trap shut rather than join the chorus of talking heads and partisans of both persuasions about the possible outcome of the Supreme Court's review of PPACA's constitutionality.

But then The President goes and does something really, really dumb...

In remarks yesterday, President Obama declared that for the Justices to overturn PPACA on constitutional grounds would be a new high water mark for judicial activism. And that nine unelected judges shouldn't be permitted to overturn a law which had been enacted by a duly-elected Congress.

THEN he said that, since the linchpin of PPACA is the individual mandate, invalidating the mandate would essentially invalidate the law.

Set aside for a moment that, as my Mom would often comment, "What do you EXPECT the guy to say?". He is, after all, defending what he sees as the hallmark of his term.

But I'm astonished at the politically maladroit nature of his speech, and what those remarks imply about the nature and quality of the advice Obama is receiving from his handlers.

First, while the First Sports Fan is undoubtedly familiar with the term "a win is a win is a win," it's very clear to those of us at the grass roots that the passage of PPACA was a narrow partisan exercise. The law passed by one vote...hardly (you should pardon the expression)a mandate.

Second, there's growing evidence that, even though many Americans (seniors, dependent children and young adults, those with pre-existing health conditions whose coverage might otherwise be discontinued) have benefited significantly from the early enactment of provisions of the law, PPACA remains quite unpopular with voters. Perhaps because there hasn't been any REAL debate on the law's merits. The Administration has done a lousy job of making its case in the court of public opinion, instead banking on the smug position that once people understand how great the law is, they'll support it. I don't see that happening, do you?...At least not in the two years since its passage.

Then, to substance: Irrespective of whether the individual mandate was initially a trope of conservatives, it is just that: a trope, a commonly-stated idea which has been adopted as truth, despite there being little evidence to support it.

The mandate was a political tool, a sop to liberals who were seeking a "public option" for health coverage. Despite its being lionized on the left and vilified on the right, I've seen nothing from a credible third party which suggests that the economics of a mandate would lead to lower utilization of services or less cost-shifting from the uninsured to the insured. I've written about this before, here: http://polkiananalysis.blogspot.com/2011/01/what-difference-does-mandate-make.htmlt

My objection to the mandate has nothing to do with liberty. It's that the mandate will not achieve the economic goal it's been enacted to achieve, and that the enactment of the mandate will blow the lid off premiums, since the cost of coverage will no longer matter; the government says you have to have coverage, not that coverage needs to be affordable.

Finally, there's the issue of "severability." Virtually every piece of legislation incorporates a provision which states that parts of the law might be changed without invalidating the rest of the law.

What GENIUS in the Administration decided to leave severability language out of PPACA? I hope he or she is no longer employed. I'm sure it sounded like a swell idea at the time; "This way, if anybody decides to attack a component of the law they don't like, we can get right up in their faces and say, 'Oh yeah?...Well, just TRY to toss that provision out. You can't do that without throwing out the whole thing'."

And what GENIUS said, "That seems like a GREAT idea!"?

Even with all that, The President KNOWS the Supreme Court has essentially three options: they can maintain the entire law as constitutional; they can throw out the mandate and a couple related provisions and let the rest of the law stand; or they can toss the whole thing out.

Seems to me The President has DARED the Court to throw the whole law out the window, by making the political (not the economic) case that without the mandate the rest of the law can't stand.

And they might just accommodate him, and use his own words against him.

What do I THINK is going to happen? I think the Court will toss out the mandate, plus guaranteed issue and community rating, preserve those elements of the insurance reforms which have already taken effect (since, theoretically, the associated costs have already been baked into their rates, and say it's too early to make judgments on the rest of the law, since most of the provisions have yet to be enacted.

What do YOU think is going to happen, and what facts do you use to support your position?

The One Percent Most Of Us Are Headed For Eventually

A recent Federal study makes perfectly clear the massive subsidies baked into our public and private insurance systems resulting from an inescapable fact: demographics.
Most people know this stuff, but it's good to be reminded (I found it interesting, anyway).

The Agency For Healthcare Research And Quality got some headlines recently regarding its review of national health care expenditures distributed by demographic group (if you's like the whole thing, go here:http://meps.ahrq.gov/mepsweb/data_files/publications/st354/stat354.shtml). The major findings:

---In 2009, the top one percent of those utilizing health care services consumed nearly 22% of the value of health care services (20.2%) in 2008, for a mean expenditure of $90,061;

---In 2008 and 2009, the top five percent of utilizers consumed 49% of the value of services, with mean expenditures of $35,829;

---The top 10 percent of utilizers incurred 63.6% of costs in 2008, and;

---The bottom FIFTY PERCENT of utilizers incurred about THREE PERCENT of expenditures in the same period.

---The people most likely to be in the top ten percent are over 45, and covered by some form of public or private insurance. And once you're in, there's nearly a 50% chance you'll be a top ten percenter for a long time...nearly a 60% chance if you're a woman.

These findings are relatively consistent with research conducted annually since 2002. So the distribution is pretty constant. If you're interested in more detail and subtlety than I'm capable of here, you should look at the whole briefing.

The thing I find interesting is that the curve hasn't changed much for as long as I can remember.

And the data suggest that, for all the talk about consumer education and empowerment, incentives, wellness, whatever...No matter what we do, about ten percent of our population are going to consume over sixty percent of our health care dollars. Most of them will be older. And those old folks are going to be in the queue for a long time. AND those in the top ten percent are receiving a massive subsidy from the vast majority of health plan participants who are younger and healthier.

I don't use the term "subsidy" as conservative screed. It's a fact of demographics.

The old, sick folks who are receiving significant services today (and, really, at a mean expenditure of $90,000, the number IS significant, but not outrageous) were once, and for a long time, among the younger and healthier cohort. For a generation or more, they were the susidizers. Now they're the subsidized.

At a macro level, this all makes perfect sense. It's perfectly reflective of the notion of shared risk which is (or used to be, at least) the essence of group health coverage.

But I wonder what the implications are for the uninsured population (I think we're back to 47 million). About 6 million dependent kids got absorbed into the system thanks to SCHIP expansions and the new federal mandate on group health plans for kids under 26. About a third of the uninsured are uninsured for 60 days or less; they're in transition. Supposedly about a third are "young invincibles," who don't buy coverage because they consider it expensive or unnecessary.

But the remaining third are problematic. I suspect that a disproportionate share of the remaining population are people with enough health problems that they're either extremely expensive or impossible to insure. With a mean expenditure among the top 5% of users is $35,000, you probably don't need to be THAT sick to qualify for the top ten percent.

It will take more than 20 invincibles paying $350 per month in premiums, and using nothing, to subsidize one member of the top one percent. Even with a mandate, is there that big a group out there?...The numbers don't make sense to me.

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...

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...