Health Care Co-operatives: The Senate Finance Committee's reform plan allocates $6 billion ($300 million per state) to establish statewide non-profit health insurance purchasing co-operatives by 2013. To qualify for federal start-up funds, the co-operatives must meet fairly stringent criteria. The organizations applying for the funds cannot be in the insurance business, or be related to insurance companies (this will be a disappointment to mutual insurance companies). They also must not be organizations currently offering insurance, though it's not clear whether that would include Chambers of Commerce or trade or professional associations currently offering health insurance coverage to members. Co-ops must be in the primary business of providing access to health care services to their members, and any excess revenue generated by the co-ops would have to be returned to its members, or invested in other health care-related activity. The would also be self-insured, and would be expected to stand on their own within one year of being established.
The co-op idea is meant to be a more politically palatable alternative to a "public option" health plan. It's certainly a less disruptive concept than a public health plan, and so much more palatable to the insurance industry. But as one who's had a good deal of experience in the health insurance co-operative business, I'm not sure that's the best idea.
Even with a compelling value proposition (substantial savings for participating companies and individuals), it takes considerable time to build sufficient critical mass within a co-op to enable it to be competitive with private insurers already in the marketplace. And co-ops will have to expend a lot of resources on marketing, sales and underwriting, just like their commercial brethren. Nonetheless, a well-run co-op could produce some economies of administrative scale, and if run solely for the benefit of their members, could be a player in the marketplace over time.
Both co-ops and exchanges will also be encouraged to enter into interstate "compacts" for the purposes of purchasing services more efficiently. This is a back-door entryway into a national market for health care coverage, a necessary innovation to enable true competition to develop in the health insurance market, where large insurers have the ability to use their economies of scale nationwide.
Elements of this part of the bill are bound to change significantly. I'd certainly expect to see some sort of "trigger" introduced to the bill providing that, after a substantial time had occurred to permit insurance reforms to work and co-ops and exchanges to be established, a public health plan could still be introduced if all these reforms had NOT resulted in better access and more controllable costs for group and individual consumers.
Legislators will be counting on the threat of the introduction of a public plan to be sufficient motivation to persuade insurers to play fair.
Don't panic just yet; should such a "trigger" be pulled, it wouldn't be till 2018 at the earliest.
Mandates: Beginning in 2013, every American would be required to have health insurance coverage, whether through an employer or through an exchange. Tax credits would be available to individuals who might need help in obtaining coverage, up to 300% of the federal poverty line.
Companies with 200 or more employees would be required to enroll all their qualified employees in a health plan. Companies with more than 50 employees would have to enroll their employees or pay a fairly modest penalty for those employees who must purchase coverage on the individual market. Companies with fewer than 50 employees would be exempt from any mandate.
Seems to me that, no matter what you call it, the bill imposes mandates on employers and individuals to provide or purchase health coverage under most circumstances. As I've written before, if the voluntary market can be demonstrated to be working as well as it can, and everyone who wishes to purchase coverage can do so at a reasonable cost, it might make sense to enact a mandate to cover thee outliers who have refused to purchase coverage, even when it's available.
We're by no means there yet. And I fear that, in the face of a looming mandate, insurers will merely bide their time and do fairly little, because the clock will be ticking toward a date when everyone will be required to buy their product, no matter what the price.
Showing posts with label purchasing co-operatives. Show all posts
Showing posts with label purchasing co-operatives. Show all posts
Thursday, September 24, 2009
Tuesday, September 15, 2009
"Do Insurance Companies Deserve All The Crap They're Getting?"
A blogger's dream...I finally received an actual question from an actual reader (thanks for both, by the way), and it happens to be an important question, at that.
First, "deserve" has almost nothing to do with it. As the past several months of debate have made clear, health care reform is a complex exercise, because of the many powerful entities...hospitals, physicians, pharmaceutical manufacturers, medical equipment makers,...who, together with insurers, are both contributors to the current mess we're in, and beneficiaries of the status quo.
But no matter how complex, the standard public relations strategy for shaping discussion of an issue is the old game of "villains and victims." Every story needs a good guy and a bad guy. So in this debate as well as any other, you're either one or the other.
We know the pharmaceuticals industry and the hospital industry have already pledged their support for the President's efforts in exchange for a pledge that the resulting reforms will mitigate their downside (whether all these pledges hold up through the legislative process remains to be seen).
We also know that most people's views of the health care system are seen through the lens of their health plans. If a claim is denied, if a treatment isn't authorized, if the newest prescription drug isn't on the "approved" list, people tend to blame their insurance companies. If patients are surprised by big co-pays or out-of-network penalties, they tend to blame their health plans, And rightly or wrongly, those other big players tend to see insurers as curbs to their ability to generate as much revenue as they believe they deserve.
So no one likes insurance companies, which makes them a convenient choice to play the villains in this debate.
The many talking heads who have bemoaned the fact that the current debate seems to be focused primarily on health insurance reform, rather than on reform to the overall delivery system, are all right...but they all miss the point. The President has made very little headway selling systemic reform as necessary because of the complexity of the message. Simplifying the message to focus on a villain is helping to sell the public on the need for reform; everybody has a horror story about how they or someone they know have been "screwed by an insurance company." And in the politics of this debate, it's less important to actually fix the entire health care system than it is to be able to take credit for having done something good. And beating up on insurance companies is an activity which many people find satisfying.
Is this to say that insurance companies have been unfairly singled out for abuse?...That they're innocent victims? Hardly. Health insurers have made out pretty well over the past 15 to 20 years, largely on the basis of a big push they made both in Congress and in state legislatures across the country which established many of the pricing, underwriting and administrative rules under which they currently operate.
It was the health insurance lobby which defined "small group health insurance" as coverage for companies with between 2 and 50 workers...thus creating a lucrative and exclusive market for individual health insurance coverage.
It was the insurance lobby which made sure that those individual health plans would not be subject to the same government regulations as group coverage...thus enabling the pricing, underwriting, and recission issues that we hear about so often.
It was the insurance industry which has created high-deductible health plans, and sold families on $10,000 family deductibles as a smart financial decision...even when those families might earn $40,000 a year or less, and the deductible would ruin them.
It's health insurers who created short-term health coverage, and limited benefit plans, and sold them to often ill-informed customers who had no idea how useless those "products" are when a serious illness or injury occurs.
But as unacceptable as many of those practices seem, it's important to recognize that they are all perfectly legal. And within the industry, there are reasons for them.
The health insurance industry is not monolithic. There are nearly 2,000 licensed life and health companies out there. Much of the outrageous behavior we see in the marketplace has resulted from efforts by small, "niche" insurers to use the legislative and regulatory process to undermine the market power of the few gigantic mega-plans which dominate local and regional health care markets. In over 70 percent of local communities, three or fewer insurers hold 75% combined market share or more.
The small guys find it hard to compete under those conditions. So they've gamed the system a little to create opportunities for themselves.
An excellent example of these curbs on more open competition is regulation which impedes large insurers from forming association-type "pools," which can reduce administration costs and bring down prices for participating companies. Smaller insurers won rules which prohibit insurers from discounting administrative costs or taking any other steps which might enable them to make use of the laws of large numbers to offer lower rates to some small groups than for others.
The combination of the promotion of heavily-underwritten individual health coverage and curbs on efficiencies in the small group market have been major factors in the devolution of the risk pool, requiring insurers to rate each small group and individual application as if it were a universe of one, two, or three people. This strategy of risk-based selection has been a bonanza for small specialty insurers, and has undermined incentives for large insurers to find ways to reduce their costs and create a more competitive local market.
Interestingly, it's these same insurers who have objected to the formation of large non-profit purchasing co-ops, on the outrageous assertion that the formation of a bunch of co-ops would "fragment the risk pool." Actually, their fears are just the opposite: that the formation of co-operatives would mobilize groups of purchasers into economic units which might be able to negotiate aggressively on behalf of their participating members. Insurers hate negotiating in the small group and individual markets; they vastly prefer their "take it or leave it" approach.
Keep in mind that it's easy to talk just as broadly about outrageous behavior on the part of hospitals, doctors, drug and equipment makers...even individual Americans whose risky behavior drives up costs throughout the system...as it is about perfectly legal "abuses" by the insurance industry. We're all contributors to our health care crisis.
But changing some of the more egregious practices within the insurance industry, enabling the formation of large risk pools through co-operative purchasing, opening the group market up to self-employed individuals...these steps really could help a lot of people, stabilize rates, and expand coverage in the private voluntary market.
First, "deserve" has almost nothing to do with it. As the past several months of debate have made clear, health care reform is a complex exercise, because of the many powerful entities...hospitals, physicians, pharmaceutical manufacturers, medical equipment makers,...who, together with insurers, are both contributors to the current mess we're in, and beneficiaries of the status quo.
But no matter how complex, the standard public relations strategy for shaping discussion of an issue is the old game of "villains and victims." Every story needs a good guy and a bad guy. So in this debate as well as any other, you're either one or the other.
We know the pharmaceuticals industry and the hospital industry have already pledged their support for the President's efforts in exchange for a pledge that the resulting reforms will mitigate their downside (whether all these pledges hold up through the legislative process remains to be seen).
We also know that most people's views of the health care system are seen through the lens of their health plans. If a claim is denied, if a treatment isn't authorized, if the newest prescription drug isn't on the "approved" list, people tend to blame their insurance companies. If patients are surprised by big co-pays or out-of-network penalties, they tend to blame their health plans, And rightly or wrongly, those other big players tend to see insurers as curbs to their ability to generate as much revenue as they believe they deserve.
So no one likes insurance companies, which makes them a convenient choice to play the villains in this debate.
The many talking heads who have bemoaned the fact that the current debate seems to be focused primarily on health insurance reform, rather than on reform to the overall delivery system, are all right...but they all miss the point. The President has made very little headway selling systemic reform as necessary because of the complexity of the message. Simplifying the message to focus on a villain is helping to sell the public on the need for reform; everybody has a horror story about how they or someone they know have been "screwed by an insurance company." And in the politics of this debate, it's less important to actually fix the entire health care system than it is to be able to take credit for having done something good. And beating up on insurance companies is an activity which many people find satisfying.
Is this to say that insurance companies have been unfairly singled out for abuse?...That they're innocent victims? Hardly. Health insurers have made out pretty well over the past 15 to 20 years, largely on the basis of a big push they made both in Congress and in state legislatures across the country which established many of the pricing, underwriting and administrative rules under which they currently operate.
It was the health insurance lobby which defined "small group health insurance" as coverage for companies with between 2 and 50 workers...thus creating a lucrative and exclusive market for individual health insurance coverage.
It was the insurance lobby which made sure that those individual health plans would not be subject to the same government regulations as group coverage...thus enabling the pricing, underwriting, and recission issues that we hear about so often.
It was the insurance industry which has created high-deductible health plans, and sold families on $10,000 family deductibles as a smart financial decision...even when those families might earn $40,000 a year or less, and the deductible would ruin them.
It's health insurers who created short-term health coverage, and limited benefit plans, and sold them to often ill-informed customers who had no idea how useless those "products" are when a serious illness or injury occurs.
But as unacceptable as many of those practices seem, it's important to recognize that they are all perfectly legal. And within the industry, there are reasons for them.
The health insurance industry is not monolithic. There are nearly 2,000 licensed life and health companies out there. Much of the outrageous behavior we see in the marketplace has resulted from efforts by small, "niche" insurers to use the legislative and regulatory process to undermine the market power of the few gigantic mega-plans which dominate local and regional health care markets. In over 70 percent of local communities, three or fewer insurers hold 75% combined market share or more.
The small guys find it hard to compete under those conditions. So they've gamed the system a little to create opportunities for themselves.
An excellent example of these curbs on more open competition is regulation which impedes large insurers from forming association-type "pools," which can reduce administration costs and bring down prices for participating companies. Smaller insurers won rules which prohibit insurers from discounting administrative costs or taking any other steps which might enable them to make use of the laws of large numbers to offer lower rates to some small groups than for others.
The combination of the promotion of heavily-underwritten individual health coverage and curbs on efficiencies in the small group market have been major factors in the devolution of the risk pool, requiring insurers to rate each small group and individual application as if it were a universe of one, two, or three people. This strategy of risk-based selection has been a bonanza for small specialty insurers, and has undermined incentives for large insurers to find ways to reduce their costs and create a more competitive local market.
Interestingly, it's these same insurers who have objected to the formation of large non-profit purchasing co-ops, on the outrageous assertion that the formation of a bunch of co-ops would "fragment the risk pool." Actually, their fears are just the opposite: that the formation of co-operatives would mobilize groups of purchasers into economic units which might be able to negotiate aggressively on behalf of their participating members. Insurers hate negotiating in the small group and individual markets; they vastly prefer their "take it or leave it" approach.
Keep in mind that it's easy to talk just as broadly about outrageous behavior on the part of hospitals, doctors, drug and equipment makers...even individual Americans whose risky behavior drives up costs throughout the system...as it is about perfectly legal "abuses" by the insurance industry. We're all contributors to our health care crisis.
But changing some of the more egregious practices within the insurance industry, enabling the formation of large risk pools through co-operative purchasing, opening the group market up to self-employed individuals...these steps really could help a lot of people, stabilize rates, and expand coverage in the private voluntary market.
Wednesday, September 9, 2009
Co-Ops, Triggers, Mandates...Where Will Health Reform Legislation End Up?
Several weeks ago, I wrote about a few elements of health care reform legislation which, if enacted, might actually help small business owners and self-employed individuals get and maintain access to health care coverage at a more affordable cost. Those elements are:
-undoing federal and state regulations which impede the formation of large purchasing groups, or co-operatives, which would enable small businesses and the self-employed to combine their purchasing power for lower costs and a greater variety of choices in health coverage;
-expressly making it clear that self-employed individuals purchasing coverage through such co-ops will be able to obtain group coverage at group rates (since the "group" would be the co-operative, not the individual companies which are members);
-establishing a series of pilot projects or demonstration projects aimed at using information technology to make it easier and more cost-effective to shop for and purchase health coverage, and;
-establishing a five-year window for these initiatives to take effect, and for the insurance industry to demonstrate that they "get it," before considering the enactment of either a "public option" health plan, or a mandate of any kind.
My rationale for those initiatives were first, that mandating either employers or individuals to purchase health care coverage makes sense only if the marketplace is working as well as it can, and that coverage is generally available at reasonable prices to anybody who wants to buy it (today, that's not the case); and second, that the establishment of co-operative purchasing groups makes sense only if they are not subject to the same crippling, anti-consumer pricing and underwriting practices which have made health insurance more expensive and harder to obtain for small businesses and the self-employed.
As the President prepares to speak to the nation this evening, and as Congress re-convenes and begins efforts to "re-boot" health care reform legislation, I'm more confident than ever that these elements will be a part of the outcome of whatever health care reform legislation emerges from the Congressional sausage-maker. Here's why:
1) There's already broad consensus that the individual health insurance market needs to get fixed. It's a very safe bet that, at the very least, the legislation will prohibit insurers from rejecting applications from individuals with health conditions, and curb some of the industry's more egregious practices, such as recision (the practice of canceling coverage for individuals who develop health conditions after purchasing coverage), or dramatically increasing premium rates for individuals who are less than perfectly healthy;
2) Whether they're called exchanges, co-operatives, or something else, there's broad agreement that cost and access relief for the small group and individual markets will come from creating larger "risk pools," taking advantage of the actuarial laws of large numbers, as well as collective purchasing power, to enable participating companies to negotiate more effectively on pricing, and reducing the cost of administration, which can be six times higher for small businesses than for large ones;
3) The bill being reported out of the Senate Finance Committee will, at the very least, enable states to experiment with various mechanisms for pooling risks, whether via state-sponsored "public options" or co-operatives, and providing some Federal resources to encourage such experimentation.
That leaves the debate over the so-called public option. The House leadership has made it quite clear that House members probably can't pass without the inclusion of a public option. The Senate leadership says that a bill which contains a public option won't muster the votes necessary to pass, and the Senate Finance Committee does not contain a public option, settling for a "trigger" for a possible public option if, after three years, the insurance industry hasn't gotten its act together.
I expect that House members will get what they want: a bill which contains some sort of public option provision. But the Senate bill will not contain a public option, and MAY include a provision for some sort of medical malpractice reform as an olive branch to win some wavering Republiicans.
In conference committee, where the House and Senate bills will be reconciled, the parties will agree to hold off on a public option for three to (probably) five years, giving private market reforms a chance to work.
This would give the House the chance to say they supported a public option, and the President to say that a public option is a part of the bill. It would also give the market time to adjust to whatever regulations come out of the legislative process after the legislation passes (the regulatory process itself could take a couple years), and put the insurance industry on notice that, unless it plays a major role in reducing the number of uninsured people and reducing administrative costs, it could face competition with a robust public option.
And by the way, it would also give the geniuses in Washington the chance to decide exactly what a public option might look like, and how it might work. Because, as I've said several times in the past, currently there's almost NOTHING about the health care reform plan which has been specifically spelled out in legislation. So until that happens, both proponents and opponents are contending with shadows.
-undoing federal and state regulations which impede the formation of large purchasing groups, or co-operatives, which would enable small businesses and the self-employed to combine their purchasing power for lower costs and a greater variety of choices in health coverage;
-expressly making it clear that self-employed individuals purchasing coverage through such co-ops will be able to obtain group coverage at group rates (since the "group" would be the co-operative, not the individual companies which are members);
-establishing a series of pilot projects or demonstration projects aimed at using information technology to make it easier and more cost-effective to shop for and purchase health coverage, and;
-establishing a five-year window for these initiatives to take effect, and for the insurance industry to demonstrate that they "get it," before considering the enactment of either a "public option" health plan, or a mandate of any kind.
My rationale for those initiatives were first, that mandating either employers or individuals to purchase health care coverage makes sense only if the marketplace is working as well as it can, and that coverage is generally available at reasonable prices to anybody who wants to buy it (today, that's not the case); and second, that the establishment of co-operative purchasing groups makes sense only if they are not subject to the same crippling, anti-consumer pricing and underwriting practices which have made health insurance more expensive and harder to obtain for small businesses and the self-employed.
As the President prepares to speak to the nation this evening, and as Congress re-convenes and begins efforts to "re-boot" health care reform legislation, I'm more confident than ever that these elements will be a part of the outcome of whatever health care reform legislation emerges from the Congressional sausage-maker. Here's why:
1) There's already broad consensus that the individual health insurance market needs to get fixed. It's a very safe bet that, at the very least, the legislation will prohibit insurers from rejecting applications from individuals with health conditions, and curb some of the industry's more egregious practices, such as recision (the practice of canceling coverage for individuals who develop health conditions after purchasing coverage), or dramatically increasing premium rates for individuals who are less than perfectly healthy;
2) Whether they're called exchanges, co-operatives, or something else, there's broad agreement that cost and access relief for the small group and individual markets will come from creating larger "risk pools," taking advantage of the actuarial laws of large numbers, as well as collective purchasing power, to enable participating companies to negotiate more effectively on pricing, and reducing the cost of administration, which can be six times higher for small businesses than for large ones;
3) The bill being reported out of the Senate Finance Committee will, at the very least, enable states to experiment with various mechanisms for pooling risks, whether via state-sponsored "public options" or co-operatives, and providing some Federal resources to encourage such experimentation.
That leaves the debate over the so-called public option. The House leadership has made it quite clear that House members probably can't pass without the inclusion of a public option. The Senate leadership says that a bill which contains a public option won't muster the votes necessary to pass, and the Senate Finance Committee does not contain a public option, settling for a "trigger" for a possible public option if, after three years, the insurance industry hasn't gotten its act together.
I expect that House members will get what they want: a bill which contains some sort of public option provision. But the Senate bill will not contain a public option, and MAY include a provision for some sort of medical malpractice reform as an olive branch to win some wavering Republiicans.
In conference committee, where the House and Senate bills will be reconciled, the parties will agree to hold off on a public option for three to (probably) five years, giving private market reforms a chance to work.
This would give the House the chance to say they supported a public option, and the President to say that a public option is a part of the bill. It would also give the market time to adjust to whatever regulations come out of the legislative process after the legislation passes (the regulatory process itself could take a couple years), and put the insurance industry on notice that, unless it plays a major role in reducing the number of uninsured people and reducing administrative costs, it could face competition with a robust public option.
And by the way, it would also give the geniuses in Washington the chance to decide exactly what a public option might look like, and how it might work. Because, as I've said several times in the past, currently there's almost NOTHING about the health care reform plan which has been specifically spelled out in legislation. So until that happens, both proponents and opponents are contending with shadows.
Monday, August 24, 2009
Let A Thousand Co-ops Bloom...With A Little Careful Congressional Cultivation
Might "co-operatives" be a tool for increasing access to more affordable health coverage for small businesses and individuals?
That's a relatively new component of the health care reform debate, particularly as ideas regarding a "public option" health plan have begun to lose their luster due to fears of enhanced government involvement and the threat of significant costs.
Keeping in mind once again that very few details regarding any element of health insurance reform legislation are at all clear, here's what we know about the deliberations regarding co-operatives.
Essentially, proponents see co-ops as non-profit, member-owned organizations which would self-insure for the health coverage provided to members, and which would have the ability to negotiate reimbursement rates directly with providers. The government would somehow assist start-up co-ops with some initial capital to enable them to establish necessary reserves. After that, they'd supposedly be required to satnd on their own through their premium income.
Opponents say that co-ops would be highly unlikely to make much of a difference in reducing or controlling health care costs for many years. It would take a long time for co-ops to develop the market power to be able to negotiate with providers from a position of strength, unless they're able to offer reimbursement rates roughly equivalent to Medicare (and idea hospitals and doctors hate). And unless they're exempted from many of the regulations which make small group and individual health insurance inefficient and costly to administer (an idea insurers hate), they'd have to operate just as inefficiently as insurance companies do, so they'd probably be unable to compete based on administrative efficiency.
There are also concerns that there aren't many good examples of successful health care co-ops to serve as role models of good performance over the long haul.
At the same time, organizations ranging from mutual insurance companies to chambers of commerce to health systems are jockeying for definitions of what a co-op is that will suit their current operations, and enable them to conduct business as usual.
What should a co-op look like? Let's take a look back to s simpler time...
Health insurance companies didn't exist in any form till the 1930's, when the first Blue Cross Blue Shield plans were established. Before then, most people's "health coverage" was either paid for directly, or was covered through "benevolent organizations." These groups were organized around affinity groups: whether by church groups, ethnic organizations, or community service organizations, they were membership organizations consisting of people with some degree of common interest. Every member would pay a small amount of money in monthly assessments, and the societies would help to cover the health expenses of any members, should they require help.
Blue Cross Blue Shield plans had their roots in such organizations. They consolidated these efforts by providing administrative services to individuals and employers who wished to establish a "pool" of funds to help pay the hospital and physician bills of their members, and often operated as not-for-profit "mutuals," owned by their members, who voted to elect the plans' leadership and make other important decisions.
For quite awhile, my COSE alma mater was one of the largest and most successful health insurance purchasing co-operatives in the country. At one time it covered over 200,000 small business owners, employees, and family members throughout Northern Ohio. The COSE health plan was run by an independent Board, made up of members, which negotiated directly with insurers to develop plans which would operate in the members' best interests. COSE accepted no revenue from its insurers; costs were paid through member dues, and through fees paid by members who participated in the health plans. Because the group was so large, the fees charged to members were extremely modest: $12 per company and $1 per employee per month.
Our results over many years were impressive. For 15 years straight, participation in COSE grew by a net of 1000 member companies (6000 employees) per year. Members participating in the COSE health plan saved an average of 30% on their health insurance premiums. And for more than 10 consecutive years, members rates of increase in health premiums were less than 10% per year; in some years, members' rates didn't increase at all.
And this was in the small group and individual market. The average COSE member company had 6 employees, and many groups had 2 employees or fewer.
Unfortunately, COSE's recent history hasn't been so rosy. Bad management and governance is one reason. Another is that the organization decided a number of years ago to use the health plan as a source of revenue, which removed any incentive to keep prices low for members.
But another reason for the COSE health plan's failure to grow, or contain costs, is that, in the last round of federal health insurance reform legislation, insurers were successful in developing regulations which severely undercut the ability of membership organizations to negotiate volume discounts on rates or administrative costs with insurers. In addition, many states codified rules which established "group coverage" as applying only to employer groups, not to large purchasing groups. These same rules specifically disqualified sole proprietorships from eligibility for group coverage.
Properly designed, co-ops can be a powerful tool in increasing the availability of affordable health coverage, AND in increasing competition among health insurers. But it'd have to be done right. Here's what Congress would need to do:
1)Specifically state that the formation of group purchasing arrangements is a matter of public interest;
2)Permit the formation of purchasing groups by non-profit affinity groups a) formed for purposes other than that of purchasing health coverage,and b) consisting of at least 5,000 insured lives (though 10,000 would be better, for the purposes of actuarial credibility);
3) Require that such groups' health plans be governed by a separate fiduciary Board of Trustees, not as a revenue source for the sponsoring organization;
4) Specifically enable co-ops to negotiate volume discounts on rates and administrative costs with insurers and providers on behalf of their members;
5) Specifically prohibit the formation of co-ops by insurers or by provider organizations, and;
6) Support the creation of a limited number of pilot projects at the federal, state and local levels to demonstrate how such groups might use the combination of large numbers, administrative efficiencies, and negotiating power to control the rise of health insurance premiums.
Developing co-ops could be a relatively simple matter, if Congress would remove the obstacles to the formation of such groups which it itself has imposed, with the encouragement of the insurance industry.
This would keep health insurance reform in the private sector, but give purchaser the ability to consolidate purchasing power as a response to the consolidation of power which has taken place among insurers and providers over the past decade.
That's a relatively new component of the health care reform debate, particularly as ideas regarding a "public option" health plan have begun to lose their luster due to fears of enhanced government involvement and the threat of significant costs.
Keeping in mind once again that very few details regarding any element of health insurance reform legislation are at all clear, here's what we know about the deliberations regarding co-operatives.
Essentially, proponents see co-ops as non-profit, member-owned organizations which would self-insure for the health coverage provided to members, and which would have the ability to negotiate reimbursement rates directly with providers. The government would somehow assist start-up co-ops with some initial capital to enable them to establish necessary reserves. After that, they'd supposedly be required to satnd on their own through their premium income.
Opponents say that co-ops would be highly unlikely to make much of a difference in reducing or controlling health care costs for many years. It would take a long time for co-ops to develop the market power to be able to negotiate with providers from a position of strength, unless they're able to offer reimbursement rates roughly equivalent to Medicare (and idea hospitals and doctors hate). And unless they're exempted from many of the regulations which make small group and individual health insurance inefficient and costly to administer (an idea insurers hate), they'd have to operate just as inefficiently as insurance companies do, so they'd probably be unable to compete based on administrative efficiency.
There are also concerns that there aren't many good examples of successful health care co-ops to serve as role models of good performance over the long haul.
At the same time, organizations ranging from mutual insurance companies to chambers of commerce to health systems are jockeying for definitions of what a co-op is that will suit their current operations, and enable them to conduct business as usual.
What should a co-op look like? Let's take a look back to s simpler time...
Health insurance companies didn't exist in any form till the 1930's, when the first Blue Cross Blue Shield plans were established. Before then, most people's "health coverage" was either paid for directly, or was covered through "benevolent organizations." These groups were organized around affinity groups: whether by church groups, ethnic organizations, or community service organizations, they were membership organizations consisting of people with some degree of common interest. Every member would pay a small amount of money in monthly assessments, and the societies would help to cover the health expenses of any members, should they require help.
Blue Cross Blue Shield plans had their roots in such organizations. They consolidated these efforts by providing administrative services to individuals and employers who wished to establish a "pool" of funds to help pay the hospital and physician bills of their members, and often operated as not-for-profit "mutuals," owned by their members, who voted to elect the plans' leadership and make other important decisions.
For quite awhile, my COSE alma mater was one of the largest and most successful health insurance purchasing co-operatives in the country. At one time it covered over 200,000 small business owners, employees, and family members throughout Northern Ohio. The COSE health plan was run by an independent Board, made up of members, which negotiated directly with insurers to develop plans which would operate in the members' best interests. COSE accepted no revenue from its insurers; costs were paid through member dues, and through fees paid by members who participated in the health plans. Because the group was so large, the fees charged to members were extremely modest: $12 per company and $1 per employee per month.
Our results over many years were impressive. For 15 years straight, participation in COSE grew by a net of 1000 member companies (6000 employees) per year. Members participating in the COSE health plan saved an average of 30% on their health insurance premiums. And for more than 10 consecutive years, members rates of increase in health premiums were less than 10% per year; in some years, members' rates didn't increase at all.
And this was in the small group and individual market. The average COSE member company had 6 employees, and many groups had 2 employees or fewer.
Unfortunately, COSE's recent history hasn't been so rosy. Bad management and governance is one reason. Another is that the organization decided a number of years ago to use the health plan as a source of revenue, which removed any incentive to keep prices low for members.
But another reason for the COSE health plan's failure to grow, or contain costs, is that, in the last round of federal health insurance reform legislation, insurers were successful in developing regulations which severely undercut the ability of membership organizations to negotiate volume discounts on rates or administrative costs with insurers. In addition, many states codified rules which established "group coverage" as applying only to employer groups, not to large purchasing groups. These same rules specifically disqualified sole proprietorships from eligibility for group coverage.
Properly designed, co-ops can be a powerful tool in increasing the availability of affordable health coverage, AND in increasing competition among health insurers. But it'd have to be done right. Here's what Congress would need to do:
1)Specifically state that the formation of group purchasing arrangements is a matter of public interest;
2)Permit the formation of purchasing groups by non-profit affinity groups a) formed for purposes other than that of purchasing health coverage,and b) consisting of at least 5,000 insured lives (though 10,000 would be better, for the purposes of actuarial credibility);
3) Require that such groups' health plans be governed by a separate fiduciary Board of Trustees, not as a revenue source for the sponsoring organization;
4) Specifically enable co-ops to negotiate volume discounts on rates and administrative costs with insurers and providers on behalf of their members;
5) Specifically prohibit the formation of co-ops by insurers or by provider organizations, and;
6) Support the creation of a limited number of pilot projects at the federal, state and local levels to demonstrate how such groups might use the combination of large numbers, administrative efficiencies, and negotiating power to control the rise of health insurance premiums.
Developing co-ops could be a relatively simple matter, if Congress would remove the obstacles to the formation of such groups which it itself has imposed, with the encouragement of the insurance industry.
This would keep health insurance reform in the private sector, but give purchaser the ability to consolidate purchasing power as a response to the consolidation of power which has taken place among insurers and providers over the past decade.
Friday, August 14, 2009
Insurer Consolidation Pressures Providers And Consumers, Limits Competition
An interesting study by the American Medical Association looks at the effects of consolidation in the health insurance industry. It's principal focus is on consolidation's effects on physicians, but the study has interesting implications for health insurance purchasers, as well. You can download the study by clicking here...http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf
The past decade has seen a huge wave of consolidation within the health insurance industry, which has given rise to a limited number of giant companies with considerable market presence. In 2000, the two largest insurers in the country, Aetna and UnitedHealthcare, had a total membership of 32 million insured lives. By 2007, following a wave of mergers, the two largest health insurers, Wellpoint and UnitedHealthcare, had 34 million and 32 million members each, respectively. Together, the two insurers "own" 36% of the national health insurance market.
Down to the local level, the effects of consolidation are even more dramatic. In 96% (295) of the MSA's surveyed, one insurer owns at least 30% of the combined HMO and PPO market. In 64% (200) MSA's, one insurer owns at least 50% market share. in 24% (74) MSA's one insurer has at least 70% market share. And in 5% (15) of MSA's one insurer has at least 90% market share.
Because the study was done by the AMA, the obvious focus of the study was to raise concerns about the effect that consolidation might have on the huge health plans' ability to contract with providers. The big guys have a lot of leverage in negotiating reimbursement rates, and in highly-concentrated markets, and in potentially failing to reach an agreement with these mega-insurers...on their terms...physicians fear that insurers can exercise their "monopsony power"...their purchasing power...to destroy a physician's practice.
This has led AMA to wonder why, of over 400 insurance company mergers since 1995, the U.S. Department of Justice has questioned only two.
That's certainly a legitimate concern, but it also raises another question: with giant insurers with huge market share exercising such power over provider contracting, why have consumers not benefited?
The presence of one or two very large insurers in a local community has had the effect of reducing competition among insurers for market share; in effect, a very small number of insurers in every town are passing business back and forth among themselves. Their purchasing power has in many cases given these insurers discounts on provider services which smaller competitors can't match.
The rise of these mega-plans has limited consumers' choices by limiting competition. Consolidation has enabled these plans to become very aggressive in negotiating with providers, but there's no evidence that this aggressiveness has created any benefits for purchasers. But there's plenty of evidence suggesting that the insurers, having squeezed hospitals and physicians, are enjoying significant profits for themselves and their shareholders.
If you look over the landscape...hospitals and health systems, physicians, pharmaceutical companies...the only segment of the health care system which has not undergone consolidation, or benefited from it, are the people who buy health coverage. In fact, federal and state legislation in the mid-90's actually reduced the ability of purchasers to consolidate into larger purchasing groups which might exercise a little counter-pressure on health plans to share the benefits of their purchasing power with their customers.
The inability of small businesses to form large group purchasing arrangements which could negotiate with insurers on behalf of their members appears to be one of the elements behind current legislative proposals to create large, non-profit "co-ops," which would have the charter to negotiate with insurers to push back against the rising cost of health insurance.
If it did nothing else, legislative action to reduce regulatory barriers to the formation of large health insurance purchasing co-operatives for small businesses and individuals would have great potential, over time, to re-introduce a measure of competition and administrative and marketing efficiency into the small group and individual health insurance markets. Without such measures, it's not likely that insurers will change their behavior.
The past decade has seen a huge wave of consolidation within the health insurance industry, which has given rise to a limited number of giant companies with considerable market presence. In 2000, the two largest insurers in the country, Aetna and UnitedHealthcare, had a total membership of 32 million insured lives. By 2007, following a wave of mergers, the two largest health insurers, Wellpoint and UnitedHealthcare, had 34 million and 32 million members each, respectively. Together, the two insurers "own" 36% of the national health insurance market.
Down to the local level, the effects of consolidation are even more dramatic. In 96% (295) of the MSA's surveyed, one insurer owns at least 30% of the combined HMO and PPO market. In 64% (200) MSA's, one insurer owns at least 50% market share. in 24% (74) MSA's one insurer has at least 70% market share. And in 5% (15) of MSA's one insurer has at least 90% market share.
Because the study was done by the AMA, the obvious focus of the study was to raise concerns about the effect that consolidation might have on the huge health plans' ability to contract with providers. The big guys have a lot of leverage in negotiating reimbursement rates, and in highly-concentrated markets, and in potentially failing to reach an agreement with these mega-insurers...on their terms...physicians fear that insurers can exercise their "monopsony power"...their purchasing power...to destroy a physician's practice.
This has led AMA to wonder why, of over 400 insurance company mergers since 1995, the U.S. Department of Justice has questioned only two.
That's certainly a legitimate concern, but it also raises another question: with giant insurers with huge market share exercising such power over provider contracting, why have consumers not benefited?
The presence of one or two very large insurers in a local community has had the effect of reducing competition among insurers for market share; in effect, a very small number of insurers in every town are passing business back and forth among themselves. Their purchasing power has in many cases given these insurers discounts on provider services which smaller competitors can't match.
The rise of these mega-plans has limited consumers' choices by limiting competition. Consolidation has enabled these plans to become very aggressive in negotiating with providers, but there's no evidence that this aggressiveness has created any benefits for purchasers. But there's plenty of evidence suggesting that the insurers, having squeezed hospitals and physicians, are enjoying significant profits for themselves and their shareholders.
If you look over the landscape...hospitals and health systems, physicians, pharmaceutical companies...the only segment of the health care system which has not undergone consolidation, or benefited from it, are the people who buy health coverage. In fact, federal and state legislation in the mid-90's actually reduced the ability of purchasers to consolidate into larger purchasing groups which might exercise a little counter-pressure on health plans to share the benefits of their purchasing power with their customers.
The inability of small businesses to form large group purchasing arrangements which could negotiate with insurers on behalf of their members appears to be one of the elements behind current legislative proposals to create large, non-profit "co-ops," which would have the charter to negotiate with insurers to push back against the rising cost of health insurance.
If it did nothing else, legislative action to reduce regulatory barriers to the formation of large health insurance purchasing co-operatives for small businesses and individuals would have great potential, over time, to re-introduce a measure of competition and administrative and marketing efficiency into the small group and individual health insurance markets. Without such measures, it's not likely that insurers will change their behavior.
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