The past few weeks have been a little intense for our family.
Our brilliant, beautiful, athletic 19-year-old daughter found a lump where there certainly shouldn't have been one and, naturally, promptly freaked out.
She's the scientific type, so we started with a little literature research, and found that for women her age, 99% of those lumps are nothing significant to worry about. But there's still that one percent.
So over four weeks, she went from her doctor to a specialist to a surgeon, and from X-ray to ultrasound to MRI. At every step along the way, she would be assured by the physician that the likelihood that the lump was anything to worry about was very small. Still, we went up the ladder of protocol. And after three physicians had seen her, and a radiologist reviewed all her tests, we found...nothing to be worried about.
So our daughter had a little scare...but no harm done.
Her EOB's for her various tests have just finished coming back. The assurance of "just making sure" set our health plan back about $10,000. I think we paid about $150 out of pocket.
It goes without saying in the health care racket that "unnecessary health care costs" are generally those incurred by the OTHER guy's daughter. Still, the episode left me thinking:
If we'd had no health insurance coverage, how far would our providers have gone "just to make sure?"
If we'd had a high-deductible health plan, with, say, a $6000 family deductible, how much would WE have been able to spend out of pocket, "just to be sure?" There's ample evidence indicating that subscribers to HDHP's tend to put off potentially costly medical procedures because of the out-of-pocket costs involved. Would we have just assured our daughter that "it's probably nothing," and urged her to be watchful in case there was any change?
It's cases like this which re-inforce to me the ludicrousness of the prevailing notion (among some circles) that "empowering individuals" is somehow the key to reducing health care costs. A scared 19-year-old kid with a mysterious lump is not inclined to be a discriminating shopper...even if there were reliable efficacy/cost/outcomes data out there...which, of course, there isn't.
And it also caused me to think about how many times a day similar scenarios play out. How many dollars are incurred on procedures which are initiated "just to be sure?" How many of these procedures are necessary? And how many cause more anxiety or lead to cascading medical interventions which make things worse?
Recent news contained a few answers which ought to give us pause:
Last week the U.S. Preventive Care Task Force, which raised a firestorm in 2009 when it questioned the efficacy of annual mammograms for healthy women, recommended that routine PSA screening should be restricted, especially for younger men with no signs or history of disease. A member of the panel said that, especially in younger men, “The harms studies showed that significant numbers of men — on the order of 20 to 30 percent — have very significant harms," in the form of anxiety, unnecessary surgery, or other procedures;
Researchers at Mt. Sinai Medical Center in New York conducted a study which concluded that more than $6.7 billion in unnecessary tests and procedures were conducted at the primary care level last year, of which an astonishing 86% were attributable to the prescription of name-brand statin drugs to treat high cholesterol.
"Led by Minal Kale, MD, a postdoctoral fellow in the Division of Internal Medicine in the Department of Medicine at Mount Sinai School of Medicine, the research team reviewed findings from a study published in the May 2011 issue of Archives of Internal Medicine, which identified the top five most overused clinical activities in each of three primary care specialties: pediatrics, internal medicine, and family medicine. With this information, they performed a cross-sectional analysis of separate data that were pulled from the National Ambulatory Medical Care Survey and the National Hospital Ambulatory Medical Care Survey. They found more than $6.7 billion was spent in excess healthcare spending in the primary care setting in 2009. Eighty-six percent, or more than $5.8 billion of the unnecessary spending, resulted from the prescribing of brand-name statins rather than generic versions.
“Our analysis shows astronomical costs associated with prescribing of brand name statins when effective, generic alternatives were available. Efforts to encourage prescribing of generics clearly have not gone far enough,” said Dr. Kale. “Additionally, millions are spent on unnecessary blood work, scans, and antibiotic prescriptions. Significant efforts to reduce this spending are required in order to stem these exorbitant activities.”
And to raise the stakes further, an article in The Lancet rocked the establishment with a review of 1.8 million Medicare recipients over 65 who died in 2008. The study found that a third of those beneficiaries underwent surgery in the year before their death. One out of eight had had surgery in the month before their death, and one out of ten had undergone surgery in the week before their death.
While this makes sense on the surface...older people with health problems do undergo surgery, and many will die afterward...the study concluded that much of the surgery performed did not affect the patient's outcome.
More disturbingly, even physicians interviewed for the study suggested that the surgery wasn't necessary, but was instead performed to appease patients and their families, as an alternative to having "the discussion" about how the patient wished to spend what remained of his/her life. Surgeons, especially, often have the temptation to "do something" to help a patient, even if the procedure will have little or no clinical value.
And finally,The Agency For Health Care Research And Quality released numbers which indicated that treatment for septicemia, a blood infection featuring bacteria such as e coli and MRSA, was the single most expensive cost to U. S. hospitals in 2009, with a total cost of $15.4 billion. Septicemia cases, which are almost always the result of hospitalizations, increased from 337,000 in 2000 to 836,000 in 2009, making septicemia the sixth most common principal reason for hospitalization in 2009. Death rates from septicemia were also estimated at 16% in 2009...eight times higher than death rates from other causes...which demonstrates once again that, given rates of hospital-borne infections (always underreported by hospitals), hospitals are crummy places for sick people.
And besides, Medicare pays.
There are questions to be raised from these and all such studies; after all, when you don't agree with the outcome of a study, it pays to question the methodology. And all these studies admit variations in practice patterns (Medicare patients were three times as likely to have surgery in Muncie, Indiana than in Honolulu), but the facts remain:
Spending on tests and medical procedures, including surgery which, at the very least, do little clinical good and often can cause needless harm, add billions and billions and billions of dollars to American health care spending;
Among hospitals and physicians, especially as it relates to Medicare, there is a lot of conflicting pressure between clinical efficacy and the need to generate revenue;
Medicare is essentially a blank check;
Health plans aren't doing their jobs on behalf of their customers as a population;
And as the pressures on health expenditures rise, political and clinical leaders are going to have to confront the reality of "blank check" medicine. And because at least half of all health care expenditures are incurred by people in their last month of life, we're going to have to get over all this nonsense about "death panels" and begin an honest discussion of how we place limits on medical and surgical interventions at the end of life.
If cost containment were really a priority, these discussions would be happening now. But as long as hospitals, especially, are in the business of generating revenue from needless human suffering, those conversations are going to have to start somewhere else.
Thursday, October 13, 2011
Monday, August 22, 2011
So Much Angst...Over The Market No One (Really) Wants...
An awful lot of bureaucratic process has created an AWFUL lot of drama among health insurance professionals over the last couple of weeks:
The 11th Circuit Court Of Appeals issued a fairly narrow ruling regarding PPACA, stating that the individual mandate provision of the law is an unconstitutional expansion of Congress' right to regulate interstate commerce. Opponents of PPACA were crowing, even though the Appeals Court concluded that the mandate could be invalidated without throwing out the whole law.
(I think the mandate issue is a GIANT red herring, for reasons I reviewed in a previous posting here: http://polkiananalysis.blogspot.com/2011/01/what-difference-does-mandate-make.html).
The Department of Health and Human Services published its first round of rulemaking on the formation of state health insurance exchanges, which over half the states are trying to ignore in hopes that their lawsuit seeking to repeal PPACA will prevail (though, it turns out, most states HAVE accepted $1 million planning grants to get the process started).
HHS also discussed the process of forming a federal exchange to provide services to people in states which choose not to operate their own health exchanges...even though reports suggest that, in enacting the law enabling the formation of a federal exchange, Our Friends In Government neglected to appropriate any money to set one up and operate it (though it looks as though the good folks at eHealth may be trying to jump in and help).
And McKinsey and Company released a controversial study which suggested that as many as 30% of U.S. employers might drop their employer-sponsored health plans to leap on health exchanges once they've started up.
Setting aside for a moment that expectations seem fairly high for organizations which haven't even been built yet, the news seems to be alarming many in the employee benefits who are decrying everything from the prospective End Times for group health coverage to the elimination of brokers from the market. And everybody seems focused on the loss of marketing opportunities which might result from the rise of easy-to-use health exchanges.
Really?...
I thought I'd take a minute to review the private health insurance market, to see where the opportunities might be lost. My conclusion is that the greatest potential for disruption is in the segment of the market which neither insurers nor brokers seem to care about very much: companies with fewer than 10 employees.
Let's look at some numbers, shall we?
It has been my experience for many years that the most competitive market segment, from both an insurer and a broker perspective, is companies with more than 100 employees.
That's understandable. Even though such companies comprise less than two percent of business entities in America (about 127,000 firms), they employ about 65% of all private-sector workers (78.7 million employees).
While these companies certainly face challenges in re-designing health plans due to some of the changes proposed in PPACA, they're not much affected at all by the formation of health exchanges.
The biggest potential for change in behavior is among the 5.3 million small employer groups in the country which employ fewer than 20 people.
Of that segment, the nearly 4.6 million small groups which employ fewer than 10 employees is the most problematic. These companies employ a total of 12.9 million people; half that workforce is in units of four employees or fewer.
A survey of small employers conducted by the National Federation of Independent Businesses (NFIB) Foundation using 2009 data showed that, for the first time, fewer than 50 percent of firms with fewer than ten employees provided employer-sponsored health coverage to their workers. That means over 6.8 million of the 12.8 million workers do not have access to employer-sponsored health plans today.
Why not?
A big chunk of that uninsured cohort consists of self-employed individuals running their own businesses, who don't qualify for group coverage. Very few states permit self-employed companies to qualify for group insurance coverage. For these businesses, the only availability is heavily-underwritten health plans in the non-group market. And we know from extensive studies of the non-group market that fewer than ten percent of those applying for non-group coverage actually buy it. The reason for the low "take-up rate" is that the majority of non-group applicants either have their applications denied for medical reasons, or the combination of age and health conditions of those applicants and their families make coverage, if it's available at all, too expensive to purchase and maintain.
In fact, nearly 70 percent of respondents to the NFIB survey who didn't provide coverage to their workers cited the cost and complexity of purchasing and maintaining coverage as a key reason they chose not to buy it.
Insurers don't like these very small groups; they are volatile and very driven by price. Most large insurers do not market actively to groups with fewer than ten employees.
Agents and brokers don't like these groups because they don't have professional HR or benefits people on-board, they require a lot of hand-holding, and they're not very profitable...especially given insurers' new zeal for ratcheting down sales compensation as a part of their mandate to bring down administrative costs.
So where do these groups go? Traditionally, they're covered mostly by local Blue Cross & Blue Shield plans...part of those plans' residual roles as "insurers of last resort" in their local communities.
These groups are also strongly represented among health plans sponsored by Chambers of Commerce or membership associations. For my COSE alma mater, half of the companies participating in COSE's health plan covered one or two workers; the average size of plan participant companies was six employees. For other large Chambers, the average group size is between three and four workers.
And as we know, when coverage IS available to these small groups, it's very costly. Companies with fewer than ten employees pay between 18 and 20 percent more for coverage than larger groups do for similar coverage. That's because administrative costs...the costs of marketing, selling, and underwriting small groups, have traditionally comprised 25-27 percent of premium.
But insurers are cutting back on commissions. Agents are cutting off smaller groups. Where are groups like this to go?
I suspect that the first significant group of businesses to take advantage of health exchanges will be those self-employed folks and very small groups who aren't currently covered. Where health and affordability are issues, the community-rated, guaranteed-issue coverage, together with co-ordination with Medicaid and the availability of direct subsidies and tax credits will have significant value.
But these are companies which insurers and agents already don't have; so nobody's losing anything.
As to the rest, the only real experience to draw any instruction from would be the Massachusetts Connector, the health exchange in that state which is touted as the national model.
After five years in business, three-quarters of the 150,000 individuals enrolled through the Connector were individuals receiving subsidies, and the Connector's penetration into the small group market was less than five percent. And this is in an expensive state where coverage is already mandatory.
While many bureaucrats are wasting a lot of breath either promoting exchanges as The Next Big Thing or opposing them as Armageddon, the truth is that exchanges, if they work, will be attractive primarily to segments of the market which currently have few practical alternatives to obtaining coverage at ANY cost.
I DO think that, in fairly short order, the technology platforms being developed to support public exchanges will migrate very quickly into the private market, so that (fewer, but smarter) insurers and brokers will figure out how to use them to consolidate the 90% of the market which will never buy through an exchange.
The best thing to come from exchanges would be to wake up the rest of the industry to the fact that administrative efficiencies and economies of scale could make coverage more available, and more affordable, in the private sector.
Which, it strikes me, is a better use of one's time than wishing PPACA would just go away...
The 11th Circuit Court Of Appeals issued a fairly narrow ruling regarding PPACA, stating that the individual mandate provision of the law is an unconstitutional expansion of Congress' right to regulate interstate commerce. Opponents of PPACA were crowing, even though the Appeals Court concluded that the mandate could be invalidated without throwing out the whole law.
(I think the mandate issue is a GIANT red herring, for reasons I reviewed in a previous posting here: http://polkiananalysis.blogspot.com/2011/01/what-difference-does-mandate-make.html).
The Department of Health and Human Services published its first round of rulemaking on the formation of state health insurance exchanges, which over half the states are trying to ignore in hopes that their lawsuit seeking to repeal PPACA will prevail (though, it turns out, most states HAVE accepted $1 million planning grants to get the process started).
HHS also discussed the process of forming a federal exchange to provide services to people in states which choose not to operate their own health exchanges...even though reports suggest that, in enacting the law enabling the formation of a federal exchange, Our Friends In Government neglected to appropriate any money to set one up and operate it (though it looks as though the good folks at eHealth may be trying to jump in and help).
And McKinsey and Company released a controversial study which suggested that as many as 30% of U.S. employers might drop their employer-sponsored health plans to leap on health exchanges once they've started up.
Setting aside for a moment that expectations seem fairly high for organizations which haven't even been built yet, the news seems to be alarming many in the employee benefits who are decrying everything from the prospective End Times for group health coverage to the elimination of brokers from the market. And everybody seems focused on the loss of marketing opportunities which might result from the rise of easy-to-use health exchanges.
Really?...
I thought I'd take a minute to review the private health insurance market, to see where the opportunities might be lost. My conclusion is that the greatest potential for disruption is in the segment of the market which neither insurers nor brokers seem to care about very much: companies with fewer than 10 employees.
Let's look at some numbers, shall we?
It has been my experience for many years that the most competitive market segment, from both an insurer and a broker perspective, is companies with more than 100 employees.
That's understandable. Even though such companies comprise less than two percent of business entities in America (about 127,000 firms), they employ about 65% of all private-sector workers (78.7 million employees).
While these companies certainly face challenges in re-designing health plans due to some of the changes proposed in PPACA, they're not much affected at all by the formation of health exchanges.
The biggest potential for change in behavior is among the 5.3 million small employer groups in the country which employ fewer than 20 people.
Of that segment, the nearly 4.6 million small groups which employ fewer than 10 employees is the most problematic. These companies employ a total of 12.9 million people; half that workforce is in units of four employees or fewer.
A survey of small employers conducted by the National Federation of Independent Businesses (NFIB) Foundation using 2009 data showed that, for the first time, fewer than 50 percent of firms with fewer than ten employees provided employer-sponsored health coverage to their workers. That means over 6.8 million of the 12.8 million workers do not have access to employer-sponsored health plans today.
Why not?
A big chunk of that uninsured cohort consists of self-employed individuals running their own businesses, who don't qualify for group coverage. Very few states permit self-employed companies to qualify for group insurance coverage. For these businesses, the only availability is heavily-underwritten health plans in the non-group market. And we know from extensive studies of the non-group market that fewer than ten percent of those applying for non-group coverage actually buy it. The reason for the low "take-up rate" is that the majority of non-group applicants either have their applications denied for medical reasons, or the combination of age and health conditions of those applicants and their families make coverage, if it's available at all, too expensive to purchase and maintain.
In fact, nearly 70 percent of respondents to the NFIB survey who didn't provide coverage to their workers cited the cost and complexity of purchasing and maintaining coverage as a key reason they chose not to buy it.
Insurers don't like these very small groups; they are volatile and very driven by price. Most large insurers do not market actively to groups with fewer than ten employees.
Agents and brokers don't like these groups because they don't have professional HR or benefits people on-board, they require a lot of hand-holding, and they're not very profitable...especially given insurers' new zeal for ratcheting down sales compensation as a part of their mandate to bring down administrative costs.
So where do these groups go? Traditionally, they're covered mostly by local Blue Cross & Blue Shield plans...part of those plans' residual roles as "insurers of last resort" in their local communities.
These groups are also strongly represented among health plans sponsored by Chambers of Commerce or membership associations. For my COSE alma mater, half of the companies participating in COSE's health plan covered one or two workers; the average size of plan participant companies was six employees. For other large Chambers, the average group size is between three and four workers.
And as we know, when coverage IS available to these small groups, it's very costly. Companies with fewer than ten employees pay between 18 and 20 percent more for coverage than larger groups do for similar coverage. That's because administrative costs...the costs of marketing, selling, and underwriting small groups, have traditionally comprised 25-27 percent of premium.
But insurers are cutting back on commissions. Agents are cutting off smaller groups. Where are groups like this to go?
I suspect that the first significant group of businesses to take advantage of health exchanges will be those self-employed folks and very small groups who aren't currently covered. Where health and affordability are issues, the community-rated, guaranteed-issue coverage, together with co-ordination with Medicaid and the availability of direct subsidies and tax credits will have significant value.
But these are companies which insurers and agents already don't have; so nobody's losing anything.
As to the rest, the only real experience to draw any instruction from would be the Massachusetts Connector, the health exchange in that state which is touted as the national model.
After five years in business, three-quarters of the 150,000 individuals enrolled through the Connector were individuals receiving subsidies, and the Connector's penetration into the small group market was less than five percent. And this is in an expensive state where coverage is already mandatory.
While many bureaucrats are wasting a lot of breath either promoting exchanges as The Next Big Thing or opposing them as Armageddon, the truth is that exchanges, if they work, will be attractive primarily to segments of the market which currently have few practical alternatives to obtaining coverage at ANY cost.
I DO think that, in fairly short order, the technology platforms being developed to support public exchanges will migrate very quickly into the private market, so that (fewer, but smarter) insurers and brokers will figure out how to use them to consolidate the 90% of the market which will never buy through an exchange.
The best thing to come from exchanges would be to wake up the rest of the industry to the fact that administrative efficiencies and economies of scale could make coverage more available, and more affordable, in the private sector.
Which, it strikes me, is a better use of one's time than wishing PPACA would just go away...
Sunday, July 10, 2011
Health Insurance, Small Business And Jobs Redux
The recent news of the economy's extremely anemic jobs picture, augmented by a recent report in U.S. News here http://news.yahoo.com/why-small-businesses-arent-fueling-job-creation-recovery-143335096.html, sounding the alarm regarding small business's inability to play its traditional role in generating the vast majority of new jobs powering the economy, reminded me of this blog entry of mine from over a year ago.
You can't have "economic recovery," or "economic development," without a small business recovery.
Health Insurance, Small Businesses, And Jobs...Why The Geniuses In DC Better Hope They Get It Right
Politicians like to deal with issues in isolation. It makes it somewhat easier to ignore the potential downstream consequences of their actions. So when advocates attempt to tie the cost of health care to job creation, politicians like to dismiss such concerns as "muddying the waters."
Of course, they're not alone. During the years I served as COSE's Executive Director (waaay back when the membership was growing by an average of 1000 companies per year, net of losses...which hasn't occurred since...well, since I left), some corporate godfather would ask, during a meeting of the Chamber's Board, "What does helping small businesses get discounts on health insurance have to do with economic development?"
Here's an answer, for politicians and corporate oligarchs alike.
It's by now an article of faith that nearly 80% of the new jobs created in our economy over any given period are created by small businesses. As Cleveland emerged from the recession of the mid-1980's, independent research showed that nearly all the jobs being created in the local economy were produced by small companies.
A survey of Greater Cleveland's economy versus those of a few "competitor cities," showed that, while Cleveland's economy was competitive with these other cities from a wage standpoint, Cleveland was at a labor cost disadvantage compared to those other cities. The reasons were non-wage labor costs...particularly the costs of health insurance and workers compensation.
So, our thinking went, if small businesses are creating the vast majority of new jobs, and they're at a labor cost disadvantage because health care and workers comp costs were high, then working hard to reduce health insurance and workers compensation costs would reduce the cost of creating new jobs
That's what led to a COSE health plan which reduced members' costs by 30%, and to our campaign to create an association-based workers comp program which reduced members' costs by as much as 80 percent.
Reduce the cost of labor, and you reduce an important barrier to job creation among small businesses, collectively, the country's job-generating machine.
Why is this important today?
Well, in the white noise surrounding the health care reform debate, a critical piece of research from the Bureau Of Labor Statistics showed that, between 1999 and 2009, the U.S. economy created virtually NO new jobs...almost zero...even as the U.S. population grew by 21 million people.
Net new population growth of 21 million, net new job growth of zero...this is a recipe for economic catastrophe.
Tax credits for job creation will not work if the cost of creating a new job is increasing every year, both from direct taxation (like payroll taxes) and indirect taxation, such as increases in health insurance premiums.
This is something I guarantee Our Friends In Congress are NOT thinking seriously about as they consider health insurance reform.
Despite public pronouncements, I still see nothing in the massive reform bill bumping and stumbling its way along the legislative process which even suggests reductions in the rapid increases in health insurance premiums for small businesses; in fact, most elements of health insurance reform seem destined to ADD to the hyperinflation of health insurance premiums.
This is an issue that small businesses and the people who supposedly advocate for them should be discussing at every opportunity. There is a correlation between the cost of creating jobs and job creation. Reduce the cost of job creation and, as if, by magic, jobs will grow. Increase labor costs, and job creation stops...or goes backward...among the primary job-growth engine, the country's small companies.
I'd really, really like to hear some acknowledgment on the part of Our Friends In Congress and The White House that they really get this idea. But I haven't. Because they don't.
You can't have "economic recovery," or "economic development," without a small business recovery.
Health Insurance, Small Businesses, And Jobs...Why The Geniuses In DC Better Hope They Get It Right
Politicians like to deal with issues in isolation. It makes it somewhat easier to ignore the potential downstream consequences of their actions. So when advocates attempt to tie the cost of health care to job creation, politicians like to dismiss such concerns as "muddying the waters."
Of course, they're not alone. During the years I served as COSE's Executive Director (waaay back when the membership was growing by an average of 1000 companies per year, net of losses...which hasn't occurred since...well, since I left), some corporate godfather would ask, during a meeting of the Chamber's Board, "What does helping small businesses get discounts on health insurance have to do with economic development?"
Here's an answer, for politicians and corporate oligarchs alike.
It's by now an article of faith that nearly 80% of the new jobs created in our economy over any given period are created by small businesses. As Cleveland emerged from the recession of the mid-1980's, independent research showed that nearly all the jobs being created in the local economy were produced by small companies.
A survey of Greater Cleveland's economy versus those of a few "competitor cities," showed that, while Cleveland's economy was competitive with these other cities from a wage standpoint, Cleveland was at a labor cost disadvantage compared to those other cities. The reasons were non-wage labor costs...particularly the costs of health insurance and workers compensation.
So, our thinking went, if small businesses are creating the vast majority of new jobs, and they're at a labor cost disadvantage because health care and workers comp costs were high, then working hard to reduce health insurance and workers compensation costs would reduce the cost of creating new jobs
That's what led to a COSE health plan which reduced members' costs by 30%, and to our campaign to create an association-based workers comp program which reduced members' costs by as much as 80 percent.
Reduce the cost of labor, and you reduce an important barrier to job creation among small businesses, collectively, the country's job-generating machine.
Why is this important today?
Well, in the white noise surrounding the health care reform debate, a critical piece of research from the Bureau Of Labor Statistics showed that, between 1999 and 2009, the U.S. economy created virtually NO new jobs...almost zero...even as the U.S. population grew by 21 million people.
Net new population growth of 21 million, net new job growth of zero...this is a recipe for economic catastrophe.
Tax credits for job creation will not work if the cost of creating a new job is increasing every year, both from direct taxation (like payroll taxes) and indirect taxation, such as increases in health insurance premiums.
This is something I guarantee Our Friends In Congress are NOT thinking seriously about as they consider health insurance reform.
Despite public pronouncements, I still see nothing in the massive reform bill bumping and stumbling its way along the legislative process which even suggests reductions in the rapid increases in health insurance premiums for small businesses; in fact, most elements of health insurance reform seem destined to ADD to the hyperinflation of health insurance premiums.
This is an issue that small businesses and the people who supposedly advocate for them should be discussing at every opportunity. There is a correlation between the cost of creating jobs and job creation. Reduce the cost of job creation and, as if, by magic, jobs will grow. Increase labor costs, and job creation stops...or goes backward...among the primary job-growth engine, the country's small companies.
I'd really, really like to hear some acknowledgment on the part of Our Friends In Congress and The White House that they really get this idea. But I haven't. Because they don't.
Saturday, June 18, 2011
A Promise To My Dad, A Successful Crusade, And What Happens When The Greedy People Win
This entry is for my Dad.
I haven't actually seen him for quite awhile. Our 26-year-old son was three months old when we learned my Dad's doctors found cancer in one of his kidneys.
As with most families, first we panicked, then we cried, then we went to work, helped by the assurance that Dad would do everything in his power to fight his disease.
This was in my COSE days. We ran a pretty big health plan even then, so I was on good terms with the CEO of Dad's insurance company, and also knew the head of the Cleveland Clinic. We got him the best of care. And after his surgery, he enrolled in an early clinical trial focused on immunotherapy as a weapon against cancer. The researchers injected a vaccine made from his tumor into his body, in hopes that the procedure would kick his immune system into overdrive and fight the spread of his disease.
He had a couple pretty good years. But then he began to have trouble remembering things, and once experienced a terrifying August afternoon at a family reunion, when for a few hours, he had no idea where he was or who his family members were.
An exam a couple days later confirmed that the cancer had spread to his brain. He was scheduled for radiation therapy the next week. It was Labor Day weekend, and he was to receive his first treatment the Tuesday after Labor Day.
Our entire family...Mom and Dad, their seven kids (a couple of whom were still teenagers) plus spouses and grandchildren...got together as we always did, at my sister's country cabin, for a Labor Day clambake. Spirits were high, if a little forced. And that day, I had my last conversation with my Dad.
We found ourselves sitting quietly on the front porch. I wanted to make sure he was okay; we knew his prognosis wasn't good. But that wasn't what he wanted to talk about. He wanted to talk about me. It was brief, but it was the single most powerful conversation I've had in my life.
My Dad said, "I've been thinking I've been pretty lucky with my medical treatment. The Clinic certainly bought me more time than somebody with my kind of cancer has any right to expect.
"But in the last couple weeks I've been thinking about what happens to those poor S.O.B's who get sick and DON'T have a son in the health care business, the people who don't have special knowledge, special connections, or a special family. Who fights for THEM?
"Either I'll get better or I won't. That's not in my hands. And I know my kids will take care of their mother, and vice versa. What I hope is that you'll keep those folks in mind. Somebody has to stand up for the people who need the kind of help you've given to me. Remember, Jesus said, 'Whatever you do for these, the least of my brethren, you do for me'."
What was I supposed to say, except what I always said to my Dad?
"Yes, sir. I'll do my best."
Three days later, during his radiation treatment, the cancer exploded in his brain. When he came home to hospice, he was conscious but found it very hard to communicate. Six weeks later, he was gone.
My mission at COSE had always been to provide our members with a good deal on health insurance coverage. But after that conversation, I had a broader mission: to fight for access to affordable health coverage for people who need it.
We fought with insurance companies, to make them work more efficiently, hold them accountable, and qualify sole proprietors for group coverage through COSE. We fought with hospitals to force them to be more transparent and keep their costs under control. We fought in the marketplace. We fought in the state legislature for the right to bring managed care plans to small businesses, and to keep special interests from enacting benefits mandates which would raise the cost of our members' health coverage. And we fought in Washington, to keep Congress and regulatory agencies from messing with small businesses' health coverage.
I figured we couldn't help everybody. But small business owners, and the people who work for them, were among those to whom health coverage was generally not available at affordable prices, and many of those who work but don't have health coverage work in small businesses which couldn't buy coverage.
We experienced some pretty good results. For seven years straight, we were able to keep our members' rate increases below ten percent per year; in a couple years, rates increased by less than five percent.
Because we offered an unbelievably good deal, COSE enjoyed phenomenal membership growth. Year after year, COSE membership and participation in our health plans grew by 1000 companies and 6000 employees per year, net of losses.
And in the early '90's, a regional research organization conducted a study of the working uninsured in Ohio. They concluded that, despite having the highest health care costs in the state, the percentage per capita of working people in Cleveland who lacked health coverage was half that of other metropolitan areas. The reason? Empirical researchers couldn't say conclusively, but the existence of the COSE health plan was certainly a factor.
So I felt that I was doing my best to keep the promise I made to my Dad.
When a few COSE representatives were invited to The White House to brief the first President Bush on how Cleveland was succeeding where other communities were not, I knew my Dad was there with us. And when the President came to Cleveland to tell the country about COSE's success (my Mom was in the audience), I knew my Dad would have been proud.
And when we were invited to the Clinton White House to talk with Hillary and Ira Magaziner about health care reform, and they blithely accused us about not caring about helping people get insurance, we had the data to suggest otherwise, and told them our objections to HillaryCare weren't based on politics, but on our knowledge that their approach couldn't possibly work. My Dad, who loved a good fact-based argument, was patting me on the back.
Of course, a story this good couldn't possibly end happily. COSE's parent organization got a new CEO, who thought our aggressive advocacy on behalf of small businesses was "disruptive" to the corporate agenda. COSE's lead insurer got a new CEO, a CPA, who decided that, despite the fact that COSE was their most profitable customer in real dollars, the insurer's profit margin per group wasn't high enough. Some of the community's larger employers got all huffy because COSE, with its 12,000 companies and 80,000 employees in the health plan, was getting a better deal on health coverage for small businesses than they could get for their employees. And some area hospitals (including our friends at the Cleveland Clinic) began to be concerned that COSE was getting big enough that we could begin to have an effect on their pricing.
So I was shown the door, in favor of a new staff leadership who looked at the health plan not as a responsibility we owed our members, but as an opportunity to generate a lot of revenue without doing a lot of work. They made a new deal, which traded the organization's role as an aggressive negotiator on behalf of its members for the best possible prices for an agency role, selling plans on behalf of its insurer in exchange for a piece of the action...about 2 percent of collective premium (1.8 percent actually, in case the COSE folks decide to call me a liar). COSE no longer says how big the health plan is, but it was closing in on $500 million in 2004, and premiums have reportedly doubled since then. So by making the transition from members' advocate to marketing channel, COSE's picking up quite a chunk of its members' money.
Membership has declined. Participation in the health plans has stagnated, but COSE's doing just fine...and the Executive Director is making about $400,000 a year and driving a new Jaguar.
I was reminded of all this yesterday, when I had a business meeting with a friend and long-time COSE member, who has a small law practice. He showed me his COSE renewal letter. His rates are scheduled to increase 26%...to over $1500 per month per employee, despite very little utilization. He told me that his premiums have more than doubled in the past five years, and he's not sure how he can afford to continue to cover the cost. COSE tried to sell him a HDHP, but he thinks they're a scam (I tend to agree), and a HSA plan, but, he said "If I could afford the HSA contribution, I'd just pay the frickin' premium for my current health plan."
The guy wants to continue to do right by his family and his employees, and he asked me, "What should I do?"
I didn't have a good answer. Because I'm still working on an alternative. I owe it to all those small companies out there who need somebody to stand up for them.
And I owe it to my Dad...
Anybody out there feel like helping?...
I haven't actually seen him for quite awhile. Our 26-year-old son was three months old when we learned my Dad's doctors found cancer in one of his kidneys.
As with most families, first we panicked, then we cried, then we went to work, helped by the assurance that Dad would do everything in his power to fight his disease.
This was in my COSE days. We ran a pretty big health plan even then, so I was on good terms with the CEO of Dad's insurance company, and also knew the head of the Cleveland Clinic. We got him the best of care. And after his surgery, he enrolled in an early clinical trial focused on immunotherapy as a weapon against cancer. The researchers injected a vaccine made from his tumor into his body, in hopes that the procedure would kick his immune system into overdrive and fight the spread of his disease.
He had a couple pretty good years. But then he began to have trouble remembering things, and once experienced a terrifying August afternoon at a family reunion, when for a few hours, he had no idea where he was or who his family members were.
An exam a couple days later confirmed that the cancer had spread to his brain. He was scheduled for radiation therapy the next week. It was Labor Day weekend, and he was to receive his first treatment the Tuesday after Labor Day.
Our entire family...Mom and Dad, their seven kids (a couple of whom were still teenagers) plus spouses and grandchildren...got together as we always did, at my sister's country cabin, for a Labor Day clambake. Spirits were high, if a little forced. And that day, I had my last conversation with my Dad.
We found ourselves sitting quietly on the front porch. I wanted to make sure he was okay; we knew his prognosis wasn't good. But that wasn't what he wanted to talk about. He wanted to talk about me. It was brief, but it was the single most powerful conversation I've had in my life.
My Dad said, "I've been thinking I've been pretty lucky with my medical treatment. The Clinic certainly bought me more time than somebody with my kind of cancer has any right to expect.
"But in the last couple weeks I've been thinking about what happens to those poor S.O.B's who get sick and DON'T have a son in the health care business, the people who don't have special knowledge, special connections, or a special family. Who fights for THEM?
"Either I'll get better or I won't. That's not in my hands. And I know my kids will take care of their mother, and vice versa. What I hope is that you'll keep those folks in mind. Somebody has to stand up for the people who need the kind of help you've given to me. Remember, Jesus said, 'Whatever you do for these, the least of my brethren, you do for me'."
What was I supposed to say, except what I always said to my Dad?
"Yes, sir. I'll do my best."
Three days later, during his radiation treatment, the cancer exploded in his brain. When he came home to hospice, he was conscious but found it very hard to communicate. Six weeks later, he was gone.
My mission at COSE had always been to provide our members with a good deal on health insurance coverage. But after that conversation, I had a broader mission: to fight for access to affordable health coverage for people who need it.
We fought with insurance companies, to make them work more efficiently, hold them accountable, and qualify sole proprietors for group coverage through COSE. We fought with hospitals to force them to be more transparent and keep their costs under control. We fought in the marketplace. We fought in the state legislature for the right to bring managed care plans to small businesses, and to keep special interests from enacting benefits mandates which would raise the cost of our members' health coverage. And we fought in Washington, to keep Congress and regulatory agencies from messing with small businesses' health coverage.
I figured we couldn't help everybody. But small business owners, and the people who work for them, were among those to whom health coverage was generally not available at affordable prices, and many of those who work but don't have health coverage work in small businesses which couldn't buy coverage.
We experienced some pretty good results. For seven years straight, we were able to keep our members' rate increases below ten percent per year; in a couple years, rates increased by less than five percent.
Because we offered an unbelievably good deal, COSE enjoyed phenomenal membership growth. Year after year, COSE membership and participation in our health plans grew by 1000 companies and 6000 employees per year, net of losses.
And in the early '90's, a regional research organization conducted a study of the working uninsured in Ohio. They concluded that, despite having the highest health care costs in the state, the percentage per capita of working people in Cleveland who lacked health coverage was half that of other metropolitan areas. The reason? Empirical researchers couldn't say conclusively, but the existence of the COSE health plan was certainly a factor.
So I felt that I was doing my best to keep the promise I made to my Dad.
When a few COSE representatives were invited to The White House to brief the first President Bush on how Cleveland was succeeding where other communities were not, I knew my Dad was there with us. And when the President came to Cleveland to tell the country about COSE's success (my Mom was in the audience), I knew my Dad would have been proud.
And when we were invited to the Clinton White House to talk with Hillary and Ira Magaziner about health care reform, and they blithely accused us about not caring about helping people get insurance, we had the data to suggest otherwise, and told them our objections to HillaryCare weren't based on politics, but on our knowledge that their approach couldn't possibly work. My Dad, who loved a good fact-based argument, was patting me on the back.
Of course, a story this good couldn't possibly end happily. COSE's parent organization got a new CEO, who thought our aggressive advocacy on behalf of small businesses was "disruptive" to the corporate agenda. COSE's lead insurer got a new CEO, a CPA, who decided that, despite the fact that COSE was their most profitable customer in real dollars, the insurer's profit margin per group wasn't high enough. Some of the community's larger employers got all huffy because COSE, with its 12,000 companies and 80,000 employees in the health plan, was getting a better deal on health coverage for small businesses than they could get for their employees. And some area hospitals (including our friends at the Cleveland Clinic) began to be concerned that COSE was getting big enough that we could begin to have an effect on their pricing.
So I was shown the door, in favor of a new staff leadership who looked at the health plan not as a responsibility we owed our members, but as an opportunity to generate a lot of revenue without doing a lot of work. They made a new deal, which traded the organization's role as an aggressive negotiator on behalf of its members for the best possible prices for an agency role, selling plans on behalf of its insurer in exchange for a piece of the action...about 2 percent of collective premium (1.8 percent actually, in case the COSE folks decide to call me a liar). COSE no longer says how big the health plan is, but it was closing in on $500 million in 2004, and premiums have reportedly doubled since then. So by making the transition from members' advocate to marketing channel, COSE's picking up quite a chunk of its members' money.
Membership has declined. Participation in the health plans has stagnated, but COSE's doing just fine...and the Executive Director is making about $400,000 a year and driving a new Jaguar.
I was reminded of all this yesterday, when I had a business meeting with a friend and long-time COSE member, who has a small law practice. He showed me his COSE renewal letter. His rates are scheduled to increase 26%...to over $1500 per month per employee, despite very little utilization. He told me that his premiums have more than doubled in the past five years, and he's not sure how he can afford to continue to cover the cost. COSE tried to sell him a HDHP, but he thinks they're a scam (I tend to agree), and a HSA plan, but, he said "If I could afford the HSA contribution, I'd just pay the frickin' premium for my current health plan."
The guy wants to continue to do right by his family and his employees, and he asked me, "What should I do?"
I didn't have a good answer. Because I'm still working on an alternative. I owe it to all those small companies out there who need somebody to stand up for them.
And I owe it to my Dad...
Anybody out there feel like helping?...
Tuesday, May 31, 2011
How Health Insurance Reform Is Like A Soap Opera: Meditations On A Price Point
My 26-year-old son got good news from his health insurer recently. His non-group health plan will not be increasing in price this year: he'll continue to pay about $155 a month for a pretty decent individual health plan. (It helps that he's in excellent health; a little utilization would have kicked up his rates significantly.)
He maintains this coverage, even though he works for an employer that offers group coverage, because for a guy his age, his employer's plan provides less generous coverage at a MUCH higher price.
Before we started celebrating as if he'd won the lottery, his news got me thinking about how much has changed...and how much hasn't changed...in the health insurance market over the past couple decades.
I'm so old that the first group health plan I was exposed to was a guaranteed-issue, community-rated UCR health plan that cost (no joke) six dollars a month for an individual employee and fourteen dollars a month for a family. Over three years, the cost of that plan increased 140 percent...to $14.50 for a single employee and $33 per family.
In the 1970's, commercial insurers began to "compete" with regional Blue Cross/Blue Shield plans for business. Mostly, these companies were life insurance companies, which sold heavily-underwritten health coverage to groups as a "loss leader" in order to obtain a company's group life business, which was much more profitable.
BCBS plans responded to commercial insurers' "cherry-picking" by introducing health underwriting, which undercut their credibility as community insurers. Their theory: they didn't want to become "dumping grounds" for customers in bad health who couldn't qualify for "good" coverage elsewhere.
This created a bad deal for groups with less-than-perfect health conditions, but provided some security to groups which qualified. So we all kept our mouths shut.
Consider all the changes which have been attempted over the last 25 years in an attempt to control the rising cost of health coverage, from managed care to "managed competition" to "integrated delivery systems" to HIPAA to PPACA.
The results: coverage for my 26-year-old son in excellent health is nearly 2600 percent higher than it would have been waaay back then.
For an old guy like me, the cost could be 10,000 percent higher...IF I qualified for the coverage in the first place, which I probably wouldn't since I have a little high blood pressure (treated with medication costing $1.99 a month) and a little asthma (treated with an inhaler that costs $35 dollars every three-four months).
So...how have all these machinations, strategies, policy changes, regulations, and legislative initiatives contributed to containing the cost of health coverage?...Not much, that I can see...
Now...Supposedly, come 2014, insurance rating schemes will revert back to modified community rating. That will probably double my son's rates, to roughly what they'd be in New York or other community-rating states. There are those who'd say that my son is getting screwed. I don't agree, of course. Because, theoretically, he and all his friends will be paying higher rates to offset the rates charged to old guys like me; that should reduce my premiums a little. And when HE gets to be an old guy, his premiums will be partially subsidized by those younger than he is.
This is the essence of "community rating:" allocating the cost of health coverage more fairly across populations. It's how health insurance started eighty years ago.
For nearly two decades, insurers have gotten fat off the strategy of selling non-group coverage only to the young and healthy who don't particularly need it, and violating the principles of community rating in the name of "cost containment." How has it worked? Last time I did the numbers, the cost of small group health insurance has grown by 150% in the past decade alone; the cost of non-group coverage, sold only to younger, healthier people, has grown faster than that.
Not that there isn't plenty of blame to go around. My son's renewal letter blames the "unholy trinity" of health care cost inflation: an aging population; increasing provider costs due to improving technology; and higher utilization of services. If you read a rate renewal letter back in 1980, it would have said the same thing.
And it's largely true: the largest portion of insurance rates is attributable to insatiable provider costs.
But in general, there's little evidence to suggest that insurers have been particularly tough with providers. Insurers see themselves as facilitators and transaction processors, not as consumer advocates.
And insurers' administrative costs have continued to hyper-inflate, in real dollar terms, just as fast as provider costs. Pretend for a moment that administrative costs really do average ten percent of premiums. In 1980, when insurers were doing minimal underwriting, and claims were paid largely manually, that ten percent would have averaged 60 cents per contract per month, or $7.20 per year. Given all the innovation in IT systems, the "economies of scale" that are supposed to come from insurer consolidation, and other "aggressive" cost control measures, the average cost of employee benefits is a little over $10,000 per employee per year; so at 10% of premiums, insurers' administrative retention has increased to $1000 per employee per year...about a 14,000 percent raise.
The core problem is that, in our cockeyed health system, no-one...not hospitals, not insurers, not physicians...have any incentive to bring the cost of health care...and therefore, the cost of insurance...down to some more reasonable level. All their incentives run in the opposite direction.
The only people really being squeezed are those who pay the tab: employers, large and small, and individuals...who have no power in the political process.
This is the reason that my long career of health insurance reform activism seems so much like a soap opera: the players may change, the specifics of the situation may be different, but the themes, and the plot likes, are always the same. Looking back over many years, it's depressing how often we've heard the same players saying different things, and cloaking their machinations in different rhetoric...even though their actions have produced the same results: more pain for the folks who really pay the bill.
He maintains this coverage, even though he works for an employer that offers group coverage, because for a guy his age, his employer's plan provides less generous coverage at a MUCH higher price.
Before we started celebrating as if he'd won the lottery, his news got me thinking about how much has changed...and how much hasn't changed...in the health insurance market over the past couple decades.
I'm so old that the first group health plan I was exposed to was a guaranteed-issue, community-rated UCR health plan that cost (no joke) six dollars a month for an individual employee and fourteen dollars a month for a family. Over three years, the cost of that plan increased 140 percent...to $14.50 for a single employee and $33 per family.
In the 1970's, commercial insurers began to "compete" with regional Blue Cross/Blue Shield plans for business. Mostly, these companies were life insurance companies, which sold heavily-underwritten health coverage to groups as a "loss leader" in order to obtain a company's group life business, which was much more profitable.
BCBS plans responded to commercial insurers' "cherry-picking" by introducing health underwriting, which undercut their credibility as community insurers. Their theory: they didn't want to become "dumping grounds" for customers in bad health who couldn't qualify for "good" coverage elsewhere.
This created a bad deal for groups with less-than-perfect health conditions, but provided some security to groups which qualified. So we all kept our mouths shut.
Consider all the changes which have been attempted over the last 25 years in an attempt to control the rising cost of health coverage, from managed care to "managed competition" to "integrated delivery systems" to HIPAA to PPACA.
The results: coverage for my 26-year-old son in excellent health is nearly 2600 percent higher than it would have been waaay back then.
For an old guy like me, the cost could be 10,000 percent higher...IF I qualified for the coverage in the first place, which I probably wouldn't since I have a little high blood pressure (treated with medication costing $1.99 a month) and a little asthma (treated with an inhaler that costs $35 dollars every three-four months).
So...how have all these machinations, strategies, policy changes, regulations, and legislative initiatives contributed to containing the cost of health coverage?...Not much, that I can see...
Now...Supposedly, come 2014, insurance rating schemes will revert back to modified community rating. That will probably double my son's rates, to roughly what they'd be in New York or other community-rating states. There are those who'd say that my son is getting screwed. I don't agree, of course. Because, theoretically, he and all his friends will be paying higher rates to offset the rates charged to old guys like me; that should reduce my premiums a little. And when HE gets to be an old guy, his premiums will be partially subsidized by those younger than he is.
This is the essence of "community rating:" allocating the cost of health coverage more fairly across populations. It's how health insurance started eighty years ago.
For nearly two decades, insurers have gotten fat off the strategy of selling non-group coverage only to the young and healthy who don't particularly need it, and violating the principles of community rating in the name of "cost containment." How has it worked? Last time I did the numbers, the cost of small group health insurance has grown by 150% in the past decade alone; the cost of non-group coverage, sold only to younger, healthier people, has grown faster than that.
Not that there isn't plenty of blame to go around. My son's renewal letter blames the "unholy trinity" of health care cost inflation: an aging population; increasing provider costs due to improving technology; and higher utilization of services. If you read a rate renewal letter back in 1980, it would have said the same thing.
And it's largely true: the largest portion of insurance rates is attributable to insatiable provider costs.
But in general, there's little evidence to suggest that insurers have been particularly tough with providers. Insurers see themselves as facilitators and transaction processors, not as consumer advocates.
And insurers' administrative costs have continued to hyper-inflate, in real dollar terms, just as fast as provider costs. Pretend for a moment that administrative costs really do average ten percent of premiums. In 1980, when insurers were doing minimal underwriting, and claims were paid largely manually, that ten percent would have averaged 60 cents per contract per month, or $7.20 per year. Given all the innovation in IT systems, the "economies of scale" that are supposed to come from insurer consolidation, and other "aggressive" cost control measures, the average cost of employee benefits is a little over $10,000 per employee per year; so at 10% of premiums, insurers' administrative retention has increased to $1000 per employee per year...about a 14,000 percent raise.
The core problem is that, in our cockeyed health system, no-one...not hospitals, not insurers, not physicians...have any incentive to bring the cost of health care...and therefore, the cost of insurance...down to some more reasonable level. All their incentives run in the opposite direction.
The only people really being squeezed are those who pay the tab: employers, large and small, and individuals...who have no power in the political process.
This is the reason that my long career of health insurance reform activism seems so much like a soap opera: the players may change, the specifics of the situation may be different, but the themes, and the plot likes, are always the same. Looking back over many years, it's depressing how often we've heard the same players saying different things, and cloaking their machinations in different rhetoric...even though their actions have produced the same results: more pain for the folks who really pay the bill.
Monday, April 25, 2011
Chamber, Association Health Plans Worry About Insurance Reform: Is The Gravy Train Grinding To A Halt?
One of the potential casualties of health insurance reform, and of the development of state health insurance exchanges, will be the health plans sponsored by chambers of commerce, trade associations, and professional groups. The inefficiencies, greed, and laziness of these plans and their sponsors make them particularly vulnerable as states experiment with the implementation of electronic marketplaces which might operate more efficiently than the traditional ways of marketing and selling health plans. Some of these groups see the change coming, and are trying to adapt. Most have their heads...in the sand...and pray daily that things will turn out all right. Things probably won't...not for the associations, and not for their members.
I got some interesting feedback from my last entry, in which I wrote about the head of a prominent Chamber of Commerce health plan, who has a conflict of interest because of his participation on the panel crafting regulations for Ohio's health insurance exchange.
I raised the conflict because the Chamber receives about $15 million in commissions and other fees from the insurer whose products the Chamber endorses. My point was that the organization's financial dependency on those fees (which comprise about 75% of its budget) made it unlikely that the Director's decision-making would be focused on the best interests of his organization's members.
I also observed that, rather than freeing the Ohio exchange to become more cost-effective and efficient to help reduce the cost of small group health insurance, his incentive would be to preserve his organization's income stream by assuring that the exchange could NOT operate in a way which might reduce costs (and therefore prices) for exchange participants.
Sure enough, that task force produced a recommendation that premium rates for small businesses both inside and outside the exchanges HAD to be the same. So I asked: if the people who are supposed to be representing the interests of small businesses at such tables have sold out, who WILL speak for small business?
I received some calls and e-mails from people who recognized the guy I was talking about. The correspondents all assured me that he was a splendid fellow, and very smart, and that his FIRST thought was for his members.
But nobody suggested that my key point was wrong: while the Chamber positions itself as a small business advocate, it is completely dependent on its insurer relationship for the vast majority of its income. I'm not an economist, but I understand a few things about the "ecology" of Chamber health plans, and one of them is, you work for who pays you. If members' collective dues are $3 million, and your insurance company is paying you another $15 million of your members' money...you work for your insurer.
And if there's a potential for conflict, you're five times as likely to see things your insurer's way as you are to see them your members' way.
Lots of chambers of commerce, trade and professional associations, and other groups are going to be facing a day of reckoning as health insurance reforms are implemented at the state level. Many of these groups sponsor health plans, largely as revenue-generators for the organizations themselves. There are a lot of tricks. Some permit only agents which are organization members to sell the sponsored plans. Most receive hefty marketing and/or sponsorship fees from their sponsoring insurers, which can add up to hundreds of thousands of dollars. Most such plans are not professionally managed by the organizations' staffs.
The result of all these arrangements is all too often that members are being sold a bill of goods, and are seduced into believing that "their" organizations are providing them with good deals, when in reality, their members are being fleeced.
The Chamber I referenced above keeps all information regarding its health plans a secret (and such secrets are rarely in their members' interests). Nobody really knows how many people participate in the plan, what annual premium volume is, what the Chamber's "take" is...and their lawyers will almost certainly pay me a visit if I use their name. So I'll make my point by telling another story.
A few years ago I did a consulting gig for a pretty good-sized regional business organization. The group had about 4,500 member companies; about 2,400 of them participated in the health plans. But the plans weren't growing, and the leadership wanted to know why, and what they could do to improve the plan's performance.
Discovery was a pain. The insurers (there were three) were not co-operative, nor was the broker who ran the plan. But I've been around a little, so I was able to piece the puzzle together.
In every case, when we added up everything coming out of the health plans... commissions, management fees, overrides, and six-figure "sponsorship payments" to the organization...the administrative cost ratio was up to almost 25% of premium before a claim ever got paid. So total administrative costs were in the 30-31% of premium range.
As a consequence, the cost to members of participating in the association's plans was HIGHER than if they'd signed up directly. So members would join, sign up for the health plan for a year, and come renewal time, their agents would move them out of the association's plans at "street rates," which were lower.
When I presented my report to the organization's Board, they were horrified...for the wrong reasons. They were terrified that their members would find out. But they were so dependent on the income they received from the insurers that they couldn't risk "offending them" by actually negotiating with them. So they shelved the report.
Within three years, membership in that association dropped by 40%...and the income it had been receiving from the insurers disappeared as participation in the health plans declined to almost nothing.
A lot of membership groups are in exactly the same boat. They've been jiving their members in order to get paid by their insurers. But with the pressure on insurers to reduce administration costs, those groups are under a lot of pressure to demonstrate, both to their members and to their insurers, how they add value to the equation. Most of them can't.
So they face a Hobson's choice: either they can WAKE UP and recognize the business they're in, have some unpleasant conversations with their members and their insurers, and rebuild their plans, or they can do nothing, and watch their memberships and related income plummet. And in the association business, doing nothing is almost always the strategic choice. So within 3-5 years, they'll be looking at MUCH smaller memberships and MUCH less revenue, and wondering what happened.
Think about YOUR chamber or association. Which choice do you think THEY'LL make?...
I got some interesting feedback from my last entry, in which I wrote about the head of a prominent Chamber of Commerce health plan, who has a conflict of interest because of his participation on the panel crafting regulations for Ohio's health insurance exchange.
I raised the conflict because the Chamber receives about $15 million in commissions and other fees from the insurer whose products the Chamber endorses. My point was that the organization's financial dependency on those fees (which comprise about 75% of its budget) made it unlikely that the Director's decision-making would be focused on the best interests of his organization's members.
I also observed that, rather than freeing the Ohio exchange to become more cost-effective and efficient to help reduce the cost of small group health insurance, his incentive would be to preserve his organization's income stream by assuring that the exchange could NOT operate in a way which might reduce costs (and therefore prices) for exchange participants.
Sure enough, that task force produced a recommendation that premium rates for small businesses both inside and outside the exchanges HAD to be the same. So I asked: if the people who are supposed to be representing the interests of small businesses at such tables have sold out, who WILL speak for small business?
I received some calls and e-mails from people who recognized the guy I was talking about. The correspondents all assured me that he was a splendid fellow, and very smart, and that his FIRST thought was for his members.
But nobody suggested that my key point was wrong: while the Chamber positions itself as a small business advocate, it is completely dependent on its insurer relationship for the vast majority of its income. I'm not an economist, but I understand a few things about the "ecology" of Chamber health plans, and one of them is, you work for who pays you. If members' collective dues are $3 million, and your insurance company is paying you another $15 million of your members' money...you work for your insurer.
And if there's a potential for conflict, you're five times as likely to see things your insurer's way as you are to see them your members' way.
Lots of chambers of commerce, trade and professional associations, and other groups are going to be facing a day of reckoning as health insurance reforms are implemented at the state level. Many of these groups sponsor health plans, largely as revenue-generators for the organizations themselves. There are a lot of tricks. Some permit only agents which are organization members to sell the sponsored plans. Most receive hefty marketing and/or sponsorship fees from their sponsoring insurers, which can add up to hundreds of thousands of dollars. Most such plans are not professionally managed by the organizations' staffs.
The result of all these arrangements is all too often that members are being sold a bill of goods, and are seduced into believing that "their" organizations are providing them with good deals, when in reality, their members are being fleeced.
The Chamber I referenced above keeps all information regarding its health plans a secret (and such secrets are rarely in their members' interests). Nobody really knows how many people participate in the plan, what annual premium volume is, what the Chamber's "take" is...and their lawyers will almost certainly pay me a visit if I use their name. So I'll make my point by telling another story.
A few years ago I did a consulting gig for a pretty good-sized regional business organization. The group had about 4,500 member companies; about 2,400 of them participated in the health plans. But the plans weren't growing, and the leadership wanted to know why, and what they could do to improve the plan's performance.
Discovery was a pain. The insurers (there were three) were not co-operative, nor was the broker who ran the plan. But I've been around a little, so I was able to piece the puzzle together.
In every case, when we added up everything coming out of the health plans... commissions, management fees, overrides, and six-figure "sponsorship payments" to the organization...the administrative cost ratio was up to almost 25% of premium before a claim ever got paid. So total administrative costs were in the 30-31% of premium range.
As a consequence, the cost to members of participating in the association's plans was HIGHER than if they'd signed up directly. So members would join, sign up for the health plan for a year, and come renewal time, their agents would move them out of the association's plans at "street rates," which were lower.
When I presented my report to the organization's Board, they were horrified...for the wrong reasons. They were terrified that their members would find out. But they were so dependent on the income they received from the insurers that they couldn't risk "offending them" by actually negotiating with them. So they shelved the report.
Within three years, membership in that association dropped by 40%...and the income it had been receiving from the insurers disappeared as participation in the health plans declined to almost nothing.
A lot of membership groups are in exactly the same boat. They've been jiving their members in order to get paid by their insurers. But with the pressure on insurers to reduce administration costs, those groups are under a lot of pressure to demonstrate, both to their members and to their insurers, how they add value to the equation. Most of them can't.
So they face a Hobson's choice: either they can WAKE UP and recognize the business they're in, have some unpleasant conversations with their members and their insurers, and rebuild their plans, or they can do nothing, and watch their memberships and related income plummet. And in the association business, doing nothing is almost always the strategic choice. So within 3-5 years, they'll be looking at MUCH smaller memberships and MUCH less revenue, and wondering what happened.
Think about YOUR chamber or association. Which choice do you think THEY'LL make?...
Friday, April 1, 2011
It Ain't Over Even After It's Over: Gaming Health Insurance Reform And Sticking Consumers With The Tab
For all the rhetoric, the relationship many insurers and brokers have with their small group and individual customers seems to be the same as my relationship with my ATM...a means of obtaining cash. It's why being a small business advocate in the health insurance market requires a strong ability to suppress one's gag reflex and fight on behalf of a BIG segment of the market which is virtually unrepresented in the political process of implementing health insurance reform. Here are two current outrages:
First, The National Association of Insurance Commissioners (NAIC) is reportedly considering adding its name to the list of supporters of a bill, drafted by the insurance broker lobby, which would exempt sales commissions from the calculation of insurers' medical loss ratios (MLR's).
You'll recall that PPACA contains a requirement which places limits on insurer administrative costs; insurers whose administrative cost ratios exceed 20% 0f premiums in the small group market and 25% of premiums in the individual market will be required to provide their customers with year-end rebates.
The new rule went into effect January 1st, and threatens to lead to some fairly significant reductions in agent compensation in these market segments. This is especially significant in the non-group market, where administrative costs can account for 30-40 percent of premiums...and up to half of that "retention" is agent commissions.
(The administrative cost share of small group premiums is about 25-27% for small groups. Total commissions there are 10-12 percent of premiums).
Exactly what does NAIC have invested in this debate? First, the lead for the NAIC on this issue is Florida's Insurance Commissioner, who is a vocal opponent of PPACA. So this is just another battle on the ideological front. Second, while most people mistakenly believe that state insurance commissions have a strong consumer advocacy role to play in insurance regulation, very few actually do. Their primary responsibility is to assure the continuing solvency of the insurers operating in their markets.
So, the twisted logic goes, if a new federal rule might in any way affect the financial health of insurers, it's NAIC's role to fight that rule. Consumers be damned.
Let's start with the most obvious issue: if sales commissions aren't administrative costs, what are they? Neither NAIC nor the broker lobby are saying; they just want commissions exempted from the MLR calculation. To do so, of course, would mean that insurers would have no incentive(however draconian) to seek ways to produce marketing and administrative efficiencies. It would also mean that insurers whose non-medical costs are more than 20-25 percent of premiums would pay no penalty for their inefficiency. Andit means that, once these costs have been exempted from the MLR calculation, insurers would be free to raise premiums by any amount, at any time, at will...pretty much like they do now.
So I guess this is the NAIC saying, in effect, "Rules which might require insurers to become more efficient and cost-effective in their operations threaten the financial viability of our insurers, so, irrespective of the possible long-term benefit to consumers, these rules are bad."
For anyone who wonders why it seems that state regulators have been asleep while insurers run roughshod over the small group and individual markets, this just goes to prove how wrong you are. They're not asleep. They just don't work for you. They work for the insurers they regulate...and whose premium taxes (based on volume) fund their operations. So anything which might reduce the increase in premium volume might affect the financial viability of the regulatory bureaucracy, too.
I'm surprised NAIC hasn't offered the helpful suggestion to remove premium taxes from the MLR calculation, too. Maybe that's Act 2.
Here's another variation on the same strategy. In states across the country, groups have begun to organize themselves to establish the rules under which they will operate the health insurance exchanges called for by PPACA.
I found this Operating Principle tucked away in the record of Ohio's Health Insurance Exchange Task Force: The Task Force recommends that, for insurance products available both inside and outside Ohio's exchange, prices should be identical.
Come again?...A key element of the insurance exchange strategy is to give exchanges freedom to experiment with various forms of administrative efficiency, in marketing, sales and distribution. And a key (theoretical) element of this strategy is that the development of a "carrier-neutral" electronic marketplace, together with IT-enabled business processes, should produce administrative cost efficiencies, which should lead to lower rates for exchange customers (I said it's a theory; like much of the exchange strategy generally, there's no real proof yet).
So, theoretically, if exchanges do a good job of streamlining marketing, sales, enrollment and underwriting for small groups and individuals, those efficiencies should result in lower prices for exchange customers, right?
Apparently, not if Ohio's Task Force has anything to say about it.
The health insurance industry and the broker lobby have done a very good job, over many years, of keeping health insurance for small businesses and individuals out of The Information Revolution by using statute and regulation to remove block incentives for insurers to experiment with more efficient ways to market and sell coverage.
The anti-managed care movement of the mid-'90's was not really a consumer-driven movement. It was fueled and funded by (a now vanishing breed)independent insurers who found it increasingly difficult to sell in the marketplace, given the cost advantages and increasing market share of local and regional managed care plans. Rather than find ways to become better at business themselves, the insurance industry collaborated with The Clinton Administration (then hurting after the collapse of ClintonCare) and a Republican Congress to enact HIPAA which, among other things, created a bunch of disincentives for the development of large group purchasing organizations, whose administrative efficiencies were producing price advantages for members of large groups...and laid the foundation for dramatic expansion of (extremely profitable) non-group and "consumer-directed" health plans.
And states followed, by enacting rules which prohibited insurers in their states from "discounting" administrative costs even for their largest purchasing group customers. So even if purchasing groups had the juice to negotiate aggressively with insurers on their members' behalf, insurers had a handy tool for ignoring them: "We're really sorry, but the government says we can't offer you a better price."
What's particularly ironic in Ohio's case is that a member of the Task Force is the president of Ohio's largest local small business group, which operates one of the country's largest small business health plans. What skin does he have in the game? His organization's health plan will earn about about $15 million in fees from its health insurer this year. That income is based on premium volume, too...so the lower his members' premiums are, the less the organization's income is. And the better and more efficiently an Ohio exchange might operate, the greater the chance that the organization's revenues will be affected.
His choice? Become more efficient and cost-effective...or pass a law that will keep anybody from doing better than his organization can.
When even the people who are supposed to be standing up for small business are on the take, what chance do small business consumers have in the continuing politics of health insurance reform?
First, The National Association of Insurance Commissioners (NAIC) is reportedly considering adding its name to the list of supporters of a bill, drafted by the insurance broker lobby, which would exempt sales commissions from the calculation of insurers' medical loss ratios (MLR's).
You'll recall that PPACA contains a requirement which places limits on insurer administrative costs; insurers whose administrative cost ratios exceed 20% 0f premiums in the small group market and 25% of premiums in the individual market will be required to provide their customers with year-end rebates.
The new rule went into effect January 1st, and threatens to lead to some fairly significant reductions in agent compensation in these market segments. This is especially significant in the non-group market, where administrative costs can account for 30-40 percent of premiums...and up to half of that "retention" is agent commissions.
(The administrative cost share of small group premiums is about 25-27% for small groups. Total commissions there are 10-12 percent of premiums).
Exactly what does NAIC have invested in this debate? First, the lead for the NAIC on this issue is Florida's Insurance Commissioner, who is a vocal opponent of PPACA. So this is just another battle on the ideological front. Second, while most people mistakenly believe that state insurance commissions have a strong consumer advocacy role to play in insurance regulation, very few actually do. Their primary responsibility is to assure the continuing solvency of the insurers operating in their markets.
So, the twisted logic goes, if a new federal rule might in any way affect the financial health of insurers, it's NAIC's role to fight that rule. Consumers be damned.
Let's start with the most obvious issue: if sales commissions aren't administrative costs, what are they? Neither NAIC nor the broker lobby are saying; they just want commissions exempted from the MLR calculation. To do so, of course, would mean that insurers would have no incentive(however draconian) to seek ways to produce marketing and administrative efficiencies. It would also mean that insurers whose non-medical costs are more than 20-25 percent of premiums would pay no penalty for their inefficiency. Andit means that, once these costs have been exempted from the MLR calculation, insurers would be free to raise premiums by any amount, at any time, at will...pretty much like they do now.
So I guess this is the NAIC saying, in effect, "Rules which might require insurers to become more efficient and cost-effective in their operations threaten the financial viability of our insurers, so, irrespective of the possible long-term benefit to consumers, these rules are bad."
For anyone who wonders why it seems that state regulators have been asleep while insurers run roughshod over the small group and individual markets, this just goes to prove how wrong you are. They're not asleep. They just don't work for you. They work for the insurers they regulate...and whose premium taxes (based on volume) fund their operations. So anything which might reduce the increase in premium volume might affect the financial viability of the regulatory bureaucracy, too.
I'm surprised NAIC hasn't offered the helpful suggestion to remove premium taxes from the MLR calculation, too. Maybe that's Act 2.
Here's another variation on the same strategy. In states across the country, groups have begun to organize themselves to establish the rules under which they will operate the health insurance exchanges called for by PPACA.
I found this Operating Principle tucked away in the record of Ohio's Health Insurance Exchange Task Force: The Task Force recommends that, for insurance products available both inside and outside Ohio's exchange, prices should be identical.
Come again?...A key element of the insurance exchange strategy is to give exchanges freedom to experiment with various forms of administrative efficiency, in marketing, sales and distribution. And a key (theoretical) element of this strategy is that the development of a "carrier-neutral" electronic marketplace, together with IT-enabled business processes, should produce administrative cost efficiencies, which should lead to lower rates for exchange customers (I said it's a theory; like much of the exchange strategy generally, there's no real proof yet).
So, theoretically, if exchanges do a good job of streamlining marketing, sales, enrollment and underwriting for small groups and individuals, those efficiencies should result in lower prices for exchange customers, right?
Apparently, not if Ohio's Task Force has anything to say about it.
The health insurance industry and the broker lobby have done a very good job, over many years, of keeping health insurance for small businesses and individuals out of The Information Revolution by using statute and regulation to remove block incentives for insurers to experiment with more efficient ways to market and sell coverage.
The anti-managed care movement of the mid-'90's was not really a consumer-driven movement. It was fueled and funded by (a now vanishing breed)independent insurers who found it increasingly difficult to sell in the marketplace, given the cost advantages and increasing market share of local and regional managed care plans. Rather than find ways to become better at business themselves, the insurance industry collaborated with The Clinton Administration (then hurting after the collapse of ClintonCare) and a Republican Congress to enact HIPAA which, among other things, created a bunch of disincentives for the development of large group purchasing organizations, whose administrative efficiencies were producing price advantages for members of large groups...and laid the foundation for dramatic expansion of (extremely profitable) non-group and "consumer-directed" health plans.
And states followed, by enacting rules which prohibited insurers in their states from "discounting" administrative costs even for their largest purchasing group customers. So even if purchasing groups had the juice to negotiate aggressively with insurers on their members' behalf, insurers had a handy tool for ignoring them: "We're really sorry, but the government says we can't offer you a better price."
What's particularly ironic in Ohio's case is that a member of the Task Force is the president of Ohio's largest local small business group, which operates one of the country's largest small business health plans. What skin does he have in the game? His organization's health plan will earn about about $15 million in fees from its health insurer this year. That income is based on premium volume, too...so the lower his members' premiums are, the less the organization's income is. And the better and more efficiently an Ohio exchange might operate, the greater the chance that the organization's revenues will be affected.
His choice? Become more efficient and cost-effective...or pass a law that will keep anybody from doing better than his organization can.
When even the people who are supposed to be standing up for small business are on the take, what chance do small business consumers have in the continuing politics of health insurance reform?
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