I just have to leave it to the Big Brains in Washington to prognosticate on the future of health care reform legislation. I have nothing to add to the white noise.
But here are a couple thoughts that small business people and their friends might find a tad illuminating.
In his final speech to America in 1961, President Eisenhower warned against "the potential for a disastrous rise of misplaced power" among the then-recently-organized relationship between the U.S. Armed Forces and a new industry of private armaments dealers...the "Military Industrial Complex." Because of its economic and political power and pervasiveness into so many sectors of American life, Eisenhower saw how easily this network of military leaders and defense contractors could have outsized influence on politics and policy.
Flash forward to 2010:
The budget for the "military industrial complex" is $782 billion for the fiscal year.
That comprises 23% of budgeted federal spending, and 4.7% of Gross Domestic Product (GDP) for the year. The Federal government spends another $1-1.2 trillion on defense-related activities (the Veterans Administration, Homeland Security, nuclear weapons research) which are financed through other budgetary departments.
Total economic power of the military-industrial complex: $1.982 trillion.
This year, federal spending on Medicare and Medicaid alone are a projected $676 billion. That's 19% of federal expenditures and 4.06% of GDP. Those government expenditures are matched by another $1.99 trillion in private money...from health insurance and Medicare Part B premiums to what we spend on aspirin.
So, the total economic power of the nation's "health care industrial complex:" $2.6 trillion.
How come nobody's warned us about the spectacular rise in economic and political power which has arisen among that health care industrial complex since the mid-1960's? How come we're not all a lot more skeptical of "the potential for a disastrous rise in misplaced power" of the parties involved in the health care debate?
It's not just about the insurance companies. It's about all those providers of products and services who make their livings in the health care sector. As the campaign has illuminated so clearly, those interests have great power to shape events in ways that favor them...and none of it has anything to do with getting paid less...
And another thing...
It's interesting how easy it is, even for experts, to miss the real point.
There has been a lot of (well-earned) outrage directed at big insurers who seem to be taking advantage of the uncertainty in the individual health insurance market by issuing big rate increases to their customers...with the biggest rate increases for those who are actually using their health plans.
Insurers cite many factors to justify their rate increases: the non-group pool is shrinking, they say, as economically hard-pressed individuals decide to go without coverage. That leaves a higher percentage of unhealthy people in the pool, and their utilization rates are higher, thus rates must rise higher, etc.
Okay, but...
For individuals purchasing non-group coverage, somewhere between 30 and 40% of their health insurance premiums relate not to health costs, but to administrative costs. And in general, when they're calculated at all, those costs are calculated as a percentage of premiums.
So when an individual's premiums rise by, say, 25%, the portion of premiums allocated to administration rises 25% as well. In effect, the insurer is giving itself a 25% increase in its compensation, for doing no more work.
As long as we're seeking ways to reduce health care costs without adversely affecting the cost of care, how about focusing on that little bogey: the 25-27% of small group premiums, and the 30-40% of non-group premiums, which insurers pass along as administrative costs?
These are, after all, the same companies which administer the federal employees' health plan for 4-5% of claims costs, and administer self-insured companies' health plans for 5-6% of claims costs...and manage to make money.
There is no doubt that the costs of marketing, selling, enrolling, and underwriting small group and individual coverage is more expensive than for the big guys. But six or seven times as high? Really?
Tuesday, March 16, 2010
Sunday, March 7, 2010
Health Insurance, Small Businesses, And Jobs...Why The Geniuses In DC Better Hope They Get It Right
Politicians like to deal with issues in isolation. It makes it somewhat easier to ignore the potential downstream consequences of their actions. So when advocates attempt to tie the cost of health care to job creation, politicians like to dismiss such concerns as "muddying the waters."
Of course, they're not alone. During the years I served as COSE's Executive Durector (waaay back when the membership was growing by an average of 1000 companies per year, net of losses...which hasn't occurred since...well, since I left), some corporate godfather would ask, during a meeting of the Chamber's Board. "What does helping small businesses get discounts on health insurance have to do with economic development?"
Here's an answer, for politicians and corporate oligarchs alike.
It's by now an article of faith that nearly 80% of the new jobs created in our economy over any given period are created by small businesses. As Cleveland emerged from the recession of the mid-1980's, independent research showed that nearly all the jobs being created in the local economy were produced by small companies.
A survey of Greater Cleveland's economy versus those of a few "competitor cities," showed that, while Cleveland's economy was competitive with these other cities from a wage standpoint, Cleveland was at a labor cost disadvantage compared to those other cities. The reasons were non-wage labor costs...particularly the costs of health insurance and workers compensation.
So, our thinking went, if small businesses are creating the vast majority of new jobs, and they're at a labor cost disadvantage because health care and workers comp costs were high, then working hard to reduce health insurance and workers compensation costs would reduce the cost of creating new jobs
That's what led to a COSE health plan which reduced members' costs by 30%, and to our campaign to create an association-based workers comp program which reduced members' costs by as much as 80 percent.
Reduce the cost of labor, and you reduce an important barrier to job creation among small businesses, collectively, the country's job-generating machine.
Why is this important today?
Well, in the white noise surrounding the health care reform debate, a critical piece of research from the Bureau Of Labor Statistics showed that, between 1999 and 2009, the U.S. economy created virtually NO new jobs...almost zero...even as the U.S. population grew by 21 million people.
Net new population growth of 21 million, net new job growth of zero...this is a recipe for economic catastrophe.
Tax credits for job creation will not work if the cost of creating a new job is increasing every year, both from direct taxation (like payroll taxes) and indirect taxation, such as increases in health insurance premiums.
This is something I guarantee Our Friends In Congress are NOT thinking seriously about as they consider health insurance reform.
Despite public pronouncements, I still see nothing in the massive reform bill bumping and stumbling its way along the legislative process which even suggests reductions in the rapid increases in health insurance premiums for small businesses; in fact, most elements of health insurance reform seem destined to ADD to the hyperinflation of health insurance premiums.
This is an issue that small businesses and the people who supposedly advocate for them should be discussing at every opportunity. There is a correlation between the cost of creating jobs and job creation. Reduce the cost of job creation and, as if, by magic, jobs will grow. Increase labor costs, and job creation stops...or goes backward...among the primary job-growth engine, the country's small companies.
I'd really, really like to hear some acknowledgment on the part of Our Friends In Congress and The White House that they really get this idea. But I haven't. Because they don't.
Of course, they're not alone. During the years I served as COSE's Executive Durector (waaay back when the membership was growing by an average of 1000 companies per year, net of losses...which hasn't occurred since...well, since I left), some corporate godfather would ask, during a meeting of the Chamber's Board. "What does helping small businesses get discounts on health insurance have to do with economic development?"
Here's an answer, for politicians and corporate oligarchs alike.
It's by now an article of faith that nearly 80% of the new jobs created in our economy over any given period are created by small businesses. As Cleveland emerged from the recession of the mid-1980's, independent research showed that nearly all the jobs being created in the local economy were produced by small companies.
A survey of Greater Cleveland's economy versus those of a few "competitor cities," showed that, while Cleveland's economy was competitive with these other cities from a wage standpoint, Cleveland was at a labor cost disadvantage compared to those other cities. The reasons were non-wage labor costs...particularly the costs of health insurance and workers compensation.
So, our thinking went, if small businesses are creating the vast majority of new jobs, and they're at a labor cost disadvantage because health care and workers comp costs were high, then working hard to reduce health insurance and workers compensation costs would reduce the cost of creating new jobs
That's what led to a COSE health plan which reduced members' costs by 30%, and to our campaign to create an association-based workers comp program which reduced members' costs by as much as 80 percent.
Reduce the cost of labor, and you reduce an important barrier to job creation among small businesses, collectively, the country's job-generating machine.
Why is this important today?
Well, in the white noise surrounding the health care reform debate, a critical piece of research from the Bureau Of Labor Statistics showed that, between 1999 and 2009, the U.S. economy created virtually NO new jobs...almost zero...even as the U.S. population grew by 21 million people.
Net new population growth of 21 million, net new job growth of zero...this is a recipe for economic catastrophe.
Tax credits for job creation will not work if the cost of creating a new job is increasing every year, both from direct taxation (like payroll taxes) and indirect taxation, such as increases in health insurance premiums.
This is something I guarantee Our Friends In Congress are NOT thinking seriously about as they consider health insurance reform.
Despite public pronouncements, I still see nothing in the massive reform bill bumping and stumbling its way along the legislative process which even suggests reductions in the rapid increases in health insurance premiums for small businesses; in fact, most elements of health insurance reform seem destined to ADD to the hyperinflation of health insurance premiums.
This is an issue that small businesses and the people who supposedly advocate for them should be discussing at every opportunity. There is a correlation between the cost of creating jobs and job creation. Reduce the cost of job creation and, as if, by magic, jobs will grow. Increase labor costs, and job creation stops...or goes backward...among the primary job-growth engine, the country's small companies.
I'd really, really like to hear some acknowledgment on the part of Our Friends In Congress and The White House that they really get this idea. But I haven't. Because they don't.
Friday, February 19, 2010
Using Facts To Distort The Truth
Getting one's arms around objective reality in the health care reform debate can be a big challenge because the issues are so complex that one's view of the issues will almost always be affected by the part of the prism you're looking through. Here's an example:
A local Chamber of Commerce holds a half-day session on health reform for its members, which are both large and small businesses. In one break-out session, a senior executive with a big health insurer puts a graphic up on the wall. It's a dollar bill divided up five ways. "Here's the problem," he says. "Health care costs make up 65% of the health care dollar. Prescription drugs make up 10%. Our sales costs make up 10%. Administration is another 10%, and all other expenses, including our profits, make up 5%. You can't really expect health care reform to work unless it successfully addresses the rise in health care costs."
The big business guys harrumph in agreement. For their health plans, 95% of costs relate to health care services. Their insurers administer their self-insured plans for 5% of the cost of claims, and makes plenty of money.
In another room, a senior hospital executive is making a presentation. On the wall is exactly the same graphic. But the hospital executive is saying, "For many people, only 65% of what they're paying for health insurance goes to coverage of health care services; the rest is insurer overhead: drug benefits, marketing, sales, administration, and their profits. The cost of health care is going to continue to escalate until we can get those insurance costs under control, so a greater proportion of their health care dollar is actually paying for health care services."
The small business owners stand up and cheer. They know that for their companies, and for self-employed professionals, between 25% and 40% of their health insurance premiums gets allocated off the top to their insurers before a claim even gets paid. That's if they can obtain coverage at all at a reasonable rate.
Both presenters are right, of course. Just as both points of view have their constituencies in business. That's why the business community is sort of at odds with itself over the goals for health care reform.
But both presenters are also sort of fibbing. They're using the obvious shortcomings of their counterparts to distract attention from their own issues.
Think about the Anthem California case that's got everybody talking. There's no doubt that the state's economy is facing a crisis, that unemployment is rising, and that the pool of those with private health coverage is shrinking due to those market forces.
And pressure on public plans, on a grand scale, places pressure on private health insurance rates due to cost-shifting and creative expense allocation on the provider side. This will drive up health cost trends.
And because health costs NEVER go down, it's understandable that a component of a health insurance premium renewal is due to increasing health cost trends. By all accounts, the rising cost of health care accounts for 9-10 percent of premiums.
Now, the insurer says its pool is shrinking, and that's due to young, healthy people leaving their plans because their costs have gone up, leaving only older, sicker people enrolled. This, they say, is why health insurance coverage should be mandatory for everybody, so we can confidently spread the costs across a known risk pool.
Well, maybe, but...
About half of the group we call "the uninsured" are without coverage for 69-90 days in a given year. So they're folks between jobs, on layoffs, but usually not chronically without coverage. This suggests that the hard-core uninsured consists of about 24 million people.
How many of THOSE folks are uninsured by choice because they're young and invincible: Half? 12 million?
I guess this is where I stop following along with those Anthem folks.
First of all, a good Commonwealth Fund study concluded that fewer than 1 in 10 people who apply for individual health coverage through an insurance company actually end up buying it. Expense is certainly a factor, but an even more significant factor is that applicants reported having health conditions which resulted in either significant "rate-ups" in their premiums or in outright denial of coverage.
What I think all this means is that in general, Anthem's, or any insurer's individual insurance pool consists at the outset largely of younger and healthier people; the older and sicker don't get in in the first place. And that the definition of "sicker" means merely that an individual has one or more conditions, or potential conditions, that make them an unattractive risk.
But let's not focus on the one-third of Anthem customers getting rate increases in the 30-39% range. Let's focus on the two-thirds whose increases will average "only" 25%.
Medical trend is 9-10%. "All other" constitutes the other 15%, I guess.
Except, here's the biggest distortion: Anthem (or any other insurer) just gave ITSELF a 25% raise on this business.
How?...Think back to that dollar bill. For individual health coverage, over 30% of premiums are allocated to administrative costs. So when they raise premiums, they also raise the administrative cost component of those premiums.
How will Anthem justify that, in the face of state laws which restrict their administrative costs to not more than 30% of premiums? Well, when you add the 30%-plus they charge individuals, plus the 25% they charge for small groups, PLUS the five percent they charge large groups, and divide by three, you get an "average" administrative cost ratio of 20%, from which Anthem will subtract sales costs, and say with a perfectly straight corporate face that their administrative costs average at or around 10% of premiums.
And that's how, eventually, insurers get pretty much what they want. Based on the facts. They just happen not to be telling the truth.
A local Chamber of Commerce holds a half-day session on health reform for its members, which are both large and small businesses. In one break-out session, a senior executive with a big health insurer puts a graphic up on the wall. It's a dollar bill divided up five ways. "Here's the problem," he says. "Health care costs make up 65% of the health care dollar. Prescription drugs make up 10%. Our sales costs make up 10%. Administration is another 10%, and all other expenses, including our profits, make up 5%. You can't really expect health care reform to work unless it successfully addresses the rise in health care costs."
The big business guys harrumph in agreement. For their health plans, 95% of costs relate to health care services. Their insurers administer their self-insured plans for 5% of the cost of claims, and makes plenty of money.
In another room, a senior hospital executive is making a presentation. On the wall is exactly the same graphic. But the hospital executive is saying, "For many people, only 65% of what they're paying for health insurance goes to coverage of health care services; the rest is insurer overhead: drug benefits, marketing, sales, administration, and their profits. The cost of health care is going to continue to escalate until we can get those insurance costs under control, so a greater proportion of their health care dollar is actually paying for health care services."
The small business owners stand up and cheer. They know that for their companies, and for self-employed professionals, between 25% and 40% of their health insurance premiums gets allocated off the top to their insurers before a claim even gets paid. That's if they can obtain coverage at all at a reasonable rate.
Both presenters are right, of course. Just as both points of view have their constituencies in business. That's why the business community is sort of at odds with itself over the goals for health care reform.
But both presenters are also sort of fibbing. They're using the obvious shortcomings of their counterparts to distract attention from their own issues.
Think about the Anthem California case that's got everybody talking. There's no doubt that the state's economy is facing a crisis, that unemployment is rising, and that the pool of those with private health coverage is shrinking due to those market forces.
And pressure on public plans, on a grand scale, places pressure on private health insurance rates due to cost-shifting and creative expense allocation on the provider side. This will drive up health cost trends.
And because health costs NEVER go down, it's understandable that a component of a health insurance premium renewal is due to increasing health cost trends. By all accounts, the rising cost of health care accounts for 9-10 percent of premiums.
Now, the insurer says its pool is shrinking, and that's due to young, healthy people leaving their plans because their costs have gone up, leaving only older, sicker people enrolled. This, they say, is why health insurance coverage should be mandatory for everybody, so we can confidently spread the costs across a known risk pool.
Well, maybe, but...
About half of the group we call "the uninsured" are without coverage for 69-90 days in a given year. So they're folks between jobs, on layoffs, but usually not chronically without coverage. This suggests that the hard-core uninsured consists of about 24 million people.
How many of THOSE folks are uninsured by choice because they're young and invincible: Half? 12 million?
I guess this is where I stop following along with those Anthem folks.
First of all, a good Commonwealth Fund study concluded that fewer than 1 in 10 people who apply for individual health coverage through an insurance company actually end up buying it. Expense is certainly a factor, but an even more significant factor is that applicants reported having health conditions which resulted in either significant "rate-ups" in their premiums or in outright denial of coverage.
What I think all this means is that in general, Anthem's, or any insurer's individual insurance pool consists at the outset largely of younger and healthier people; the older and sicker don't get in in the first place. And that the definition of "sicker" means merely that an individual has one or more conditions, or potential conditions, that make them an unattractive risk.
But let's not focus on the one-third of Anthem customers getting rate increases in the 30-39% range. Let's focus on the two-thirds whose increases will average "only" 25%.
Medical trend is 9-10%. "All other" constitutes the other 15%, I guess.
Except, here's the biggest distortion: Anthem (or any other insurer) just gave ITSELF a 25% raise on this business.
How?...Think back to that dollar bill. For individual health coverage, over 30% of premiums are allocated to administrative costs. So when they raise premiums, they also raise the administrative cost component of those premiums.
How will Anthem justify that, in the face of state laws which restrict their administrative costs to not more than 30% of premiums? Well, when you add the 30%-plus they charge individuals, plus the 25% they charge for small groups, PLUS the five percent they charge large groups, and divide by three, you get an "average" administrative cost ratio of 20%, from which Anthem will subtract sales costs, and say with a perfectly straight corporate face that their administrative costs average at or around 10% of premiums.
And that's how, eventually, insurers get pretty much what they want. Based on the facts. They just happen not to be telling the truth.
Tuesday, February 16, 2010
The Anthem Fiasco: Who's Negotiating For The Small Purchaser?
Ample ink has been spilled covering the attempt by Anthem Blue Cross Blue Shield to hike premiums on its non-group customers in California by up to 39 percent. Everyone is outraged, and parties all throughout the health insurance reform debate have interpreted the case as evidence for their own versions of reform.
But while the numbers in this case are particularly attention-getting, the case itself represents merely a variation on business as usual, and points up an important issue: left to themselves, small businesses and individuals seeking health care coverage at an affordable cost can expect no help from anyone.
It's particularly telling that California's Insurance Commissioner, in a state whose insurance department is considered particularly activist (and which has been a political platform for several commissioners, including the current one, to run for higher office), is essentially powerless to deny Anthem, or any insurer, a rate increase which might be deemed excessive. The State's role is limited to determining whether an insurer's requested increase would increase the insurer's administrative costs above 30 percent of premiums.
In the vast majority of states, insurance departments' regulatory activities are limited to assuring the solvency of insurers doing business in their states.
One of the "unintended consequences" of insurance "reforms" which swept through the states in the early 90's, and culminated in the enactment of HIPAA in the mid-90's, was that insurers became much freer to raise rates for small groups and individuals without the need to provide any information, either to the states or to their customers, to justify the increase. The idea was that the "pooling of risk" made insurers treat all their small group and individual customers in the same way, so it was unnecessary to explain to customers what specific factors may have led to the rate increase being imposed on them.
The idea hasn't worked very well...unless you're an insurer.
Here in Ohio, insurers may splinter the risk pool for small businesses and individuals into as many as 36 classifications, based on age, risk, utilization, geography, industry, and a host of other considerations. Based on these factors, insurers have the right to adjust rates any way they want. For small groups, the only consideration is that the rates in the highest "tier" can't be more than 80% higher than the rates in the lowest tier. No such limitations exist for non-group coverage; it's not unusual for rates for the costliest coverage to be three times higher than the least costly coverage.
So when insurers raise rates, they do so based upon their own criteria, and upon their own "proprietary" utilization data and actuarial assumptions, which are always the most conservative (read: insurer-friendly) scenarios conceivable.
)And consider also that a 30% increase in insurance premiums ALSO means that the insurer generally pays itself a 30% raise in its administrative costs; when the rates go up, the 25-40% of premiums attributable to administrative costs goes up, too.
How about that? A 30% raise for doing no additional work, Nice work if you can get it...)
So the Anthem's assertion that the dip in its customer base was due to younger, healthier people opting out of coverage is very likely not based on documentation, but on actuarial assumptions, which may or may not be accurate, but certainly are irrefutable by anybody who matters. The rates are based on these assumptions, and if you buy the assumptions, you have to buy the rates. And since no one has any data with which to refute the assumptions...the insurers win.
So more than 700,000 insureds get their letters a state-mandated minimum of 30 days in advance of a rate increase, and their choice is to accept the rate increase or go elsewhere...if they can.
Then insurance industry is using this case as a reason to justify its call for an individual mandate. If everybody were required to purchase coverage, the line goes, then younger people participating in our health plans would expand our risk pools and stabilize our costs. Public policy experts seem to buy this idea, as well.
But what if they're wrong (as I think they are)? What if, instead, Anthem, or other insurers, decided it was necessary to increase EVERYBODY'S rates by 30%, and you had no choice but to pay the price?
What's REALLY needed is a means to consolidate the purchasing power of small businesses and individuals into groups which have the knowledge, and the mission, to push back against those proposed rate increases. The only way to establish more of a market for health insurance coverage is to enable the formation of a genuine purchasing dynamic, so that negotiations can evolve from "take it or leave it" to "let's talk."
Because today, nobody...not government, certainly not the industry...is watching the store.
Let's get a bunch of insurance exchanges launched, shall we?
But while the numbers in this case are particularly attention-getting, the case itself represents merely a variation on business as usual, and points up an important issue: left to themselves, small businesses and individuals seeking health care coverage at an affordable cost can expect no help from anyone.
It's particularly telling that California's Insurance Commissioner, in a state whose insurance department is considered particularly activist (and which has been a political platform for several commissioners, including the current one, to run for higher office), is essentially powerless to deny Anthem, or any insurer, a rate increase which might be deemed excessive. The State's role is limited to determining whether an insurer's requested increase would increase the insurer's administrative costs above 30 percent of premiums.
In the vast majority of states, insurance departments' regulatory activities are limited to assuring the solvency of insurers doing business in their states.
One of the "unintended consequences" of insurance "reforms" which swept through the states in the early 90's, and culminated in the enactment of HIPAA in the mid-90's, was that insurers became much freer to raise rates for small groups and individuals without the need to provide any information, either to the states or to their customers, to justify the increase. The idea was that the "pooling of risk" made insurers treat all their small group and individual customers in the same way, so it was unnecessary to explain to customers what specific factors may have led to the rate increase being imposed on them.
The idea hasn't worked very well...unless you're an insurer.
Here in Ohio, insurers may splinter the risk pool for small businesses and individuals into as many as 36 classifications, based on age, risk, utilization, geography, industry, and a host of other considerations. Based on these factors, insurers have the right to adjust rates any way they want. For small groups, the only consideration is that the rates in the highest "tier" can't be more than 80% higher than the rates in the lowest tier. No such limitations exist for non-group coverage; it's not unusual for rates for the costliest coverage to be three times higher than the least costly coverage.
So when insurers raise rates, they do so based upon their own criteria, and upon their own "proprietary" utilization data and actuarial assumptions, which are always the most conservative (read: insurer-friendly) scenarios conceivable.
)And consider also that a 30% increase in insurance premiums ALSO means that the insurer generally pays itself a 30% raise in its administrative costs; when the rates go up, the 25-40% of premiums attributable to administrative costs goes up, too.
How about that? A 30% raise for doing no additional work, Nice work if you can get it...)
So the Anthem's assertion that the dip in its customer base was due to younger, healthier people opting out of coverage is very likely not based on documentation, but on actuarial assumptions, which may or may not be accurate, but certainly are irrefutable by anybody who matters. The rates are based on these assumptions, and if you buy the assumptions, you have to buy the rates. And since no one has any data with which to refute the assumptions...the insurers win.
So more than 700,000 insureds get their letters a state-mandated minimum of 30 days in advance of a rate increase, and their choice is to accept the rate increase or go elsewhere...if they can.
Then insurance industry is using this case as a reason to justify its call for an individual mandate. If everybody were required to purchase coverage, the line goes, then younger people participating in our health plans would expand our risk pools and stabilize our costs. Public policy experts seem to buy this idea, as well.
But what if they're wrong (as I think they are)? What if, instead, Anthem, or other insurers, decided it was necessary to increase EVERYBODY'S rates by 30%, and you had no choice but to pay the price?
What's REALLY needed is a means to consolidate the purchasing power of small businesses and individuals into groups which have the knowledge, and the mission, to push back against those proposed rate increases. The only way to establish more of a market for health insurance coverage is to enable the formation of a genuine purchasing dynamic, so that negotiations can evolve from "take it or leave it" to "let's talk."
Because today, nobody...not government, certainly not the industry...is watching the store.
Let's get a bunch of insurance exchanges launched, shall we?
Sunday, January 24, 2010
The (Latest) Health Care Reform Debacle: What Went Wrong, And What to Do Next
I've been following the politics of health care reform for nearly 30 years, and I have never seen anything so bizarre as what has unfolded in DC since Tuesday's special election in Massachusetts.
There has been so much dithering about what Senator #41 means to the future of health care reform in this Congress and forward, that I can't find anything new to say about it.
Except this:
By my own crude sense of measurement, I've participated in six attempts to reform the health insurance system at the local, state, and national levels (modesty and post-traumatic stress disorder prevent me from listing the specifics, but buy me a couple of beers and I'll spill everything). Most of them not only failed miserably, but did so in a way which rendered the environment "toxic" for years to come.
Most of the failures had a few things in common. One was hubris on the part of the principals, the type which says, "we know so much more about the issues than you do; trust us, and when we solve your problems you'll be so grateful."
The second was a kind of tone-deafness which comes from sharing the same foxhole with a few other embattled souls in a nasty fight. I recall listening to a pitch from a very senior corporate executive extolling the virtues of a certain merger. I asked him after his presentation if his company was prepared for the severe public backlash that would result from his proposal becoming public. His answer: "The only people we need to persuade are in the state capitol; we don't care whether the media like us or not."
The third was an attempt to use the complexity of the issue to fog up the real questions, and try to divert the public from the simple, basic question which any reform proposal must answer: What does this mean for my health plan?
I think this is an essential element of the latest meltdown: the proponents of "reform" have, for the past six months or so, walked a very thin and fragile line of credibility, and completely forgot that most people in America already have health coverage, and like what they have, though they are concerned about what might happen in the future. So when regular people with health insurance see big expansion of government programs, subsidies for a bunch of people who already have coverage, a bunch of new bureaucratic and regulatory structures, and truly craven deals with both industry groups and individual lawmakers, they asked themselves, "What does all this matter to my health plan?" And by and large, the answer was either straightforwardly "your costs will go up," or a much more common, and much less honest, "we're pretty sure your costs might not go up quite as fast as in the past, but of course we can't be sure."
People aren't dumb.
Conversely, the reform strategies which succeeded best were those which were best equipped to answer the "What's in it for me?" question. If you can keep people's focus on the benefit to them, and talk straight to them, it's possible to sell common-sense reforms.
I hope Our Friends In Congress and the White House take this to heart as they consider how to re-package and sell a more highly-targeted health insurance reform strategy. The strategy should be based on using existing structures and programs to solve some of the real problems in the private insurance market and in our public health plans.
There's plenty both parties agree upon. Curbing the most egregious practices of the health insurance industry is a natural place to start; it was the first chapter in both the House and Senate bills. And it's hard to envision even the most flint-hearted conservative objecting to the idea of prohibiting insurers from denying or cutting off health coverage for people who are sick. Most of the House and Senate insurance reforms make sense; only insurers will object to them. Without a mandate that everyone purchase their product, there's nothing in it for them. Too bad...
It's also become common knowledge that the small group and individual health insurance markets are highly dysfunctional: highly-concentrated, inefficient and expensive. Small businesses pay 18-20 percent more for health coverage than larger companies do for the same benefits. Most of that excess cost is attributable to the costs of marketing, selling, and underwriting small group business. 25 to 27 percent of small group health premiums consist of administrative costs; for self-employed individuals, up to 40 percent of premium costs are administrative.
The small group market would benefit from a push for administrative efficiency in the health insurance market, especially through strategies which enable small businesses and self-employed individuals to take advantage of the laws of large numbers in shopping for and purchasing health coverage. Both the House and Senate agree on the potential value of insurance exchanges to encourage competition and administrative efficiency in the small group and individual health markets. There is disagreement only over whether an exchange strategy should be national or state-by-state in its scope.
In the spirit of practicality, I'd suggest we start with a series of federal grants to states which wish to establish either public or private non-profit insurance exchanges. They can be set up quickly, within three years, and have a reasonably good chance of impacting markets at the regional and local levels. Let them collaborate, share services, and merge if they want to. The most important thing is to use consolidated marketing, selling, purchasing and administration to put just a little more power into the small group customers' hands.
It's also generally agreed upon that the best way to reach the truly most vulnerable Americans is through an expansion of Medicaid. The House and Senate versions disagree merely as to the matter of degree of the expansion.
Finally, a wild card: giving Medicare the right to negotiate with pharmaceutical companies would probably enable Medicare to fill in a lot of the "doughnut hole" without a massive new subsidy.
All these measures would enable proponents to say quite clearly how health care reform will benefit them. All are based on expansions or refinements of ideas on which there is broad agreement.
The results wouldn't be perfect, but they should help our admittedly imperfect health care system to operate a little better, and make health care coverage a little more accessible and affordable.
Give these reforms five years to work. Once we can be assured that just about everyone who wants to obtain health coverage is able to do so, we may need new policy, such as a national mandate or a nationwide exchange, to fill in remaining market gaps.
I think this sort of package also has the benefit of being able to attract either enough bi-partisan support to pass easily, or enough ire toward Republicans who would be seen as obstructing the enactment of even a modest package of common-sense reforms, that it would give the White House the victory it needs.
But I'm not a Washington insider; I'm just a guy from the grass roots of America.
There has been so much dithering about what Senator #41 means to the future of health care reform in this Congress and forward, that I can't find anything new to say about it.
Except this:
By my own crude sense of measurement, I've participated in six attempts to reform the health insurance system at the local, state, and national levels (modesty and post-traumatic stress disorder prevent me from listing the specifics, but buy me a couple of beers and I'll spill everything). Most of them not only failed miserably, but did so in a way which rendered the environment "toxic" for years to come.
Most of the failures had a few things in common. One was hubris on the part of the principals, the type which says, "we know so much more about the issues than you do; trust us, and when we solve your problems you'll be so grateful."
The second was a kind of tone-deafness which comes from sharing the same foxhole with a few other embattled souls in a nasty fight. I recall listening to a pitch from a very senior corporate executive extolling the virtues of a certain merger. I asked him after his presentation if his company was prepared for the severe public backlash that would result from his proposal becoming public. His answer: "The only people we need to persuade are in the state capitol; we don't care whether the media like us or not."
The third was an attempt to use the complexity of the issue to fog up the real questions, and try to divert the public from the simple, basic question which any reform proposal must answer: What does this mean for my health plan?
I think this is an essential element of the latest meltdown: the proponents of "reform" have, for the past six months or so, walked a very thin and fragile line of credibility, and completely forgot that most people in America already have health coverage, and like what they have, though they are concerned about what might happen in the future. So when regular people with health insurance see big expansion of government programs, subsidies for a bunch of people who already have coverage, a bunch of new bureaucratic and regulatory structures, and truly craven deals with both industry groups and individual lawmakers, they asked themselves, "What does all this matter to my health plan?" And by and large, the answer was either straightforwardly "your costs will go up," or a much more common, and much less honest, "we're pretty sure your costs might not go up quite as fast as in the past, but of course we can't be sure."
People aren't dumb.
Conversely, the reform strategies which succeeded best were those which were best equipped to answer the "What's in it for me?" question. If you can keep people's focus on the benefit to them, and talk straight to them, it's possible to sell common-sense reforms.
I hope Our Friends In Congress and the White House take this to heart as they consider how to re-package and sell a more highly-targeted health insurance reform strategy. The strategy should be based on using existing structures and programs to solve some of the real problems in the private insurance market and in our public health plans.
There's plenty both parties agree upon. Curbing the most egregious practices of the health insurance industry is a natural place to start; it was the first chapter in both the House and Senate bills. And it's hard to envision even the most flint-hearted conservative objecting to the idea of prohibiting insurers from denying or cutting off health coverage for people who are sick. Most of the House and Senate insurance reforms make sense; only insurers will object to them. Without a mandate that everyone purchase their product, there's nothing in it for them. Too bad...
It's also become common knowledge that the small group and individual health insurance markets are highly dysfunctional: highly-concentrated, inefficient and expensive. Small businesses pay 18-20 percent more for health coverage than larger companies do for the same benefits. Most of that excess cost is attributable to the costs of marketing, selling, and underwriting small group business. 25 to 27 percent of small group health premiums consist of administrative costs; for self-employed individuals, up to 40 percent of premium costs are administrative.
The small group market would benefit from a push for administrative efficiency in the health insurance market, especially through strategies which enable small businesses and self-employed individuals to take advantage of the laws of large numbers in shopping for and purchasing health coverage. Both the House and Senate agree on the potential value of insurance exchanges to encourage competition and administrative efficiency in the small group and individual health markets. There is disagreement only over whether an exchange strategy should be national or state-by-state in its scope.
In the spirit of practicality, I'd suggest we start with a series of federal grants to states which wish to establish either public or private non-profit insurance exchanges. They can be set up quickly, within three years, and have a reasonably good chance of impacting markets at the regional and local levels. Let them collaborate, share services, and merge if they want to. The most important thing is to use consolidated marketing, selling, purchasing and administration to put just a little more power into the small group customers' hands.
It's also generally agreed upon that the best way to reach the truly most vulnerable Americans is through an expansion of Medicaid. The House and Senate versions disagree merely as to the matter of degree of the expansion.
Finally, a wild card: giving Medicare the right to negotiate with pharmaceutical companies would probably enable Medicare to fill in a lot of the "doughnut hole" without a massive new subsidy.
All these measures would enable proponents to say quite clearly how health care reform will benefit them. All are based on expansions or refinements of ideas on which there is broad agreement.
The results wouldn't be perfect, but they should help our admittedly imperfect health care system to operate a little better, and make health care coverage a little more accessible and affordable.
Give these reforms five years to work. Once we can be assured that just about everyone who wants to obtain health coverage is able to do so, we may need new policy, such as a national mandate or a nationwide exchange, to fill in remaining market gaps.
I think this sort of package also has the benefit of being able to attract either enough bi-partisan support to pass easily, or enough ire toward Republicans who would be seen as obstructing the enactment of even a modest package of common-sense reforms, that it would give the White House the victory it needs.
But I'm not a Washington insider; I'm just a guy from the grass roots of America.
Monday, January 18, 2010
With The Deal Struck On "Cadillac Tax," Small Business, Like The Cheese, Stands Alone
You may have read it here first. As predicted, Congress and the Obama Administration have sought to blunt organized labor's opposition to the proposed 40% excise tax on "Cadillac" health plans by exempting health plans under negotiated labor agreements from the tax until 2018...five years after it's to take effect for everybody else.
And yet, the tax won't fall on everybody else.
The Senate version of the health insurance reform bill already exempts large employer health plans (which are usually self-insured) from any of the bill's reform requirements.
It's a blanket exemption, from plan design requirements, taxes...pretty much everything.
So, labor union plans get a pass. Large employer plans get a pass. So who's left?
Small businesses, that's who...
I wrote a couple weeks ago about how easily a health plan with even a large deductible ($1,500 for one person, $3,000 per family) can cost like a Cadillac plan, even if it doesn't look or feel like one. Because small businesses are generally denied the benefit of the laws of large numbers, they pay 18-20 percent more for their health insurance coverage than big companies do. So based on price alone, and with Congress jacked up to generate revenue, small business is once again the pigeon at the poker table.
Small business groups have won the amazing victory of exempting vision and dental plans from the Cadillac Tax computation. But the tax is still looming quite large.
Media accounts suggest that the tax will be on insurance companies, not on individuals or businesses, which is factually true but practically fatuous; the same outlets suggest that taxpayers seeking to avoid the tax would undoubtedly face either higher premiums or reduced benefits.
But the "reduced benefits" part is an illusion, too, since both House and Senate bills would cap deductibles at $2,000 for one person and $4,000 per family per year.
Of course, all this may be just so much speculation if the Republican candidate wins the special election to replace Massachusetts Senator Ted Kennedy.
But for now, estimates are that exempting labor union health plans will reduce the impact of the Cadillac Tax from $150 billion to $97 billion over ten years. Which means that, in addition to paying higher insurance premiums to insurance companies, small businesses have been set up to pay an additional $97 billion in taxes.
Remember when health care reform was about reducing the pace of runaway health care inflation, and making coverage more affordable for small businesses?
Seems like a lonnng time ago...
And yet, the tax won't fall on everybody else.
The Senate version of the health insurance reform bill already exempts large employer health plans (which are usually self-insured) from any of the bill's reform requirements.
It's a blanket exemption, from plan design requirements, taxes...pretty much everything.
So, labor union plans get a pass. Large employer plans get a pass. So who's left?
Small businesses, that's who...
I wrote a couple weeks ago about how easily a health plan with even a large deductible ($1,500 for one person, $3,000 per family) can cost like a Cadillac plan, even if it doesn't look or feel like one. Because small businesses are generally denied the benefit of the laws of large numbers, they pay 18-20 percent more for their health insurance coverage than big companies do. So based on price alone, and with Congress jacked up to generate revenue, small business is once again the pigeon at the poker table.
Small business groups have won the amazing victory of exempting vision and dental plans from the Cadillac Tax computation. But the tax is still looming quite large.
Media accounts suggest that the tax will be on insurance companies, not on individuals or businesses, which is factually true but practically fatuous; the same outlets suggest that taxpayers seeking to avoid the tax would undoubtedly face either higher premiums or reduced benefits.
But the "reduced benefits" part is an illusion, too, since both House and Senate bills would cap deductibles at $2,000 for one person and $4,000 per family per year.
Of course, all this may be just so much speculation if the Republican candidate wins the special election to replace Massachusetts Senator Ted Kennedy.
But for now, estimates are that exempting labor union health plans will reduce the impact of the Cadillac Tax from $150 billion to $97 billion over ten years. Which means that, in addition to paying higher insurance premiums to insurance companies, small businesses have been set up to pay an additional $97 billion in taxes.
Remember when health care reform was about reducing the pace of runaway health care inflation, and making coverage more affordable for small businesses?
Seems like a lonnng time ago...
Wednesday, January 6, 2010
Is Your Health Plan A "Cadillac?" Proposed Tax Is A Clunker For Small Business
I wrote last week that the proposed 40% excise tax on"Cadillac" health plans could be a "stealth tax" imposed on small businesses whose health plans certainly don't FEEL luxurious. And a couple readers added to my concerns by contributing their own viewpoints, supported by their own reviews of the legislation.
You'll recall that the Senate's health insurance reform measure would extend a tax on the "excess value" of health plans costing more than $8500 per year for individuals and $23,500 per year for families. And I used my own experience in shopping for small group health coverage to show how even a plan with a $3,000 family deductible could generate a tax liability of over $5,000 come 2013. Largely, that's because small groups and individuals pay between 18 and 20% more for health coverage than do their big company counterparts.
Turns out the proposal is even more onerous than meets the eye. Because there are components of the "Cadillac tax" that I didn't even include in the calculation. All I counted was the monthly premiums for health coverage. A reader included some additional surprises.
Does your employer's health plan cover dental insurance? Gotta add that in, too.
Vision care? Ditto.
Does your employer contribute to a Health Savings Account to help offset the impact of that High-Deductible Health Plan? Do you contribute pre-tax dollars to a HSA? Turns out those contributions count toward the "Cadillac tax" calculation.
Does your plan include a Flexible Spending Account, which lets you use pre-tax contributions to offset co-pays and pay for other services? Toss that in, too.
Health care and dental and vision coverage. HSA contributions. Flexible Spending Accounts. These are all elements of a responsible employer-sponsored health plan, and several components are put in place by some employers to help their workers offset the cost of health care. Taxing dental and vision benefits and HSA and FSA contributions could add thousands of dollars to the potential tax liability for employers trying to do the right thing for their workers.
How are employers likely to respond? I'd suggested that employers' first step would include settling for health plans with much higher deductibles.
But another reader suggested that won't be an option. Apparently both the House and Senate bills contain provisions which will limit health plan deductibles to $2000 per year for individuals and $4000 per family.
In general, I'm a fan of limiting deductibles. With insurers marketing plans with $5000/10,000 deductibles currently, and with most employers NOT contributing to HSA's, even families with $60,000-65,000 in annual income could find themselves exposed to considerable up-front expenses before their health benefits kick in.
But if the option of increasing deductibles is off the table, employers would have no choice but to start slashing benefits. Dropping dental and vision coverage. Eliminating HSA contributions. Closing down FSA's. Or else paying a LOT of tax.
I'm neither a political leader nor an academic health care economist, but this does not strike me as "creating incentives to purchase more cost-effective health plans." It seems a LOT like penalizing employers who are struggling to do the right thing.
Here are a few related observations:
White House and Congressional leaders have sold the "Cadillac tax" as a tax on insurance companies. Really? As I understand it, the job of calculating potential tax liability would rest with employers.
This is being sold as a tad on the rich, and their generous health benefits. But the real impact would most likely be on small businesses, who pay more for insurance coverage to begin with, and on union health plans.
The larger the employer group, the lower and more uniform the per capita health care costs tend to be. For companies with 50 or fewer employees, rates are set based on the ages of the employees in the group. Even in a "community rating" environment, rates may vary significantly, with younger employees' rates which are half those of older employees. This would mean that within a company, some employees' plans could be subject to taxation and others not.
It's quite surprising that small business advocacy groups aren't SCREAMING about this expensive and counter-productive measure, which runs absolutely to the contrary of what the Administration says its health care reform goals are. Of course, these groups tend to talk mostly with Republicans, who have shut themselves out of the process, and those who ARE "at the table" tend not to want to ruffle feathers by actually being advocates; that might get them uninvited.
With the House, Senate and White House apparently agreeing to the unprecedented step of sidestepping the conference committee process in favor of private negotiations, opportunities to have any real input to the reconciliation of House and Senate bills will be pretty limited. Insider indications are that the House may accept the "Cadillac tax" provision, if its impact on some constituencies can be limited. Look for an exemption for union health benefits.
Absent some decisive leadership, public scrutiny, and/or aggressive advocacy, this tax is poised to do incalculable damage to small businesses, one of the very groups whose problems with finding affordable health coverage gave the Administration its pretext for reform.
The question remains: is this a potential "unintended consequence" of which legislative and Administration leaders are not aware, or are they intentionally misrepresenting the tax to the small business community...aided and abetted by small business advocacy groups for whom "being a player" is more important that winning the game?
You'll recall that the Senate's health insurance reform measure would extend a tax on the "excess value" of health plans costing more than $8500 per year for individuals and $23,500 per year for families. And I used my own experience in shopping for small group health coverage to show how even a plan with a $3,000 family deductible could generate a tax liability of over $5,000 come 2013. Largely, that's because small groups and individuals pay between 18 and 20% more for health coverage than do their big company counterparts.
Turns out the proposal is even more onerous than meets the eye. Because there are components of the "Cadillac tax" that I didn't even include in the calculation. All I counted was the monthly premiums for health coverage. A reader included some additional surprises.
Does your employer's health plan cover dental insurance? Gotta add that in, too.
Vision care? Ditto.
Does your employer contribute to a Health Savings Account to help offset the impact of that High-Deductible Health Plan? Do you contribute pre-tax dollars to a HSA? Turns out those contributions count toward the "Cadillac tax" calculation.
Does your plan include a Flexible Spending Account, which lets you use pre-tax contributions to offset co-pays and pay for other services? Toss that in, too.
Health care and dental and vision coverage. HSA contributions. Flexible Spending Accounts. These are all elements of a responsible employer-sponsored health plan, and several components are put in place by some employers to help their workers offset the cost of health care. Taxing dental and vision benefits and HSA and FSA contributions could add thousands of dollars to the potential tax liability for employers trying to do the right thing for their workers.
How are employers likely to respond? I'd suggested that employers' first step would include settling for health plans with much higher deductibles.
But another reader suggested that won't be an option. Apparently both the House and Senate bills contain provisions which will limit health plan deductibles to $2000 per year for individuals and $4000 per family.
In general, I'm a fan of limiting deductibles. With insurers marketing plans with $5000/10,000 deductibles currently, and with most employers NOT contributing to HSA's, even families with $60,000-65,000 in annual income could find themselves exposed to considerable up-front expenses before their health benefits kick in.
But if the option of increasing deductibles is off the table, employers would have no choice but to start slashing benefits. Dropping dental and vision coverage. Eliminating HSA contributions. Closing down FSA's. Or else paying a LOT of tax.
I'm neither a political leader nor an academic health care economist, but this does not strike me as "creating incentives to purchase more cost-effective health plans." It seems a LOT like penalizing employers who are struggling to do the right thing.
Here are a few related observations:
White House and Congressional leaders have sold the "Cadillac tax" as a tax on insurance companies. Really? As I understand it, the job of calculating potential tax liability would rest with employers.
This is being sold as a tad on the rich, and their generous health benefits. But the real impact would most likely be on small businesses, who pay more for insurance coverage to begin with, and on union health plans.
The larger the employer group, the lower and more uniform the per capita health care costs tend to be. For companies with 50 or fewer employees, rates are set based on the ages of the employees in the group. Even in a "community rating" environment, rates may vary significantly, with younger employees' rates which are half those of older employees. This would mean that within a company, some employees' plans could be subject to taxation and others not.
It's quite surprising that small business advocacy groups aren't SCREAMING about this expensive and counter-productive measure, which runs absolutely to the contrary of what the Administration says its health care reform goals are. Of course, these groups tend to talk mostly with Republicans, who have shut themselves out of the process, and those who ARE "at the table" tend not to want to ruffle feathers by actually being advocates; that might get them uninvited.
With the House, Senate and White House apparently agreeing to the unprecedented step of sidestepping the conference committee process in favor of private negotiations, opportunities to have any real input to the reconciliation of House and Senate bills will be pretty limited. Insider indications are that the House may accept the "Cadillac tax" provision, if its impact on some constituencies can be limited. Look for an exemption for union health benefits.
Absent some decisive leadership, public scrutiny, and/or aggressive advocacy, this tax is poised to do incalculable damage to small businesses, one of the very groups whose problems with finding affordable health coverage gave the Administration its pretext for reform.
The question remains: is this a potential "unintended consequence" of which legislative and Administration leaders are not aware, or are they intentionally misrepresenting the tax to the small business community...aided and abetted by small business advocacy groups for whom "being a player" is more important that winning the game?
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