Robert Pear has been writing about health care policy and politics for The New York Times for a couple decades, and is surely one of the most respected voices in mainstream media on the subject of health care and insurance reform.
But this article in last week's Times (http://www.nytimes.com/2010/07/15/health/policy/15health.html?th&emc=th)contains a real whopper...or at least, a cynical oversimplification of an important issue.
The article begins with a dramatic statement:"The White House today issued new rules requiring health insurance companies to provide free coverage for dozens of screenings, laboratory tests and other forms of preventive care."
What?...
The body of the article clarifies the issue somewhat: effective September 23rd, many health plans, both for groups and individuals, will be required to provide their customers with access to a pretty wide range of diagnostic and preventive services at no out-of-pocket cost; that is, not subject to deductibles and co-pays.
But that ain't "free."
Now, there are some pretty good policy reasons to impose such a condition on health plans. Americans in general use diagnostic and screening services at about half the rate of other countries. And since the introduction of high-deductible health plans, there has been ample evidence that patients in such plans avoid "non-emergency" services because of high deductibles, often at risk of their own health. And the earlier illnesses such as heart disease, cancer, and diabetes are diagnosed, the easier they are to be treated successfully.
Still, Mr. Pear's reporting reflects a dangerous half-truth: treatment which is not subjected to deductibles and co-pays is not "free;" instead of being paid for directly by the patient, the cost is covered indirectly through the health plan, which leads to higher overall premiums.
And, of course, should a screening lead to a diagnosis, treatment for the health condition will still be subject to deductibles and co-pays. So you might find out you have cancer based on a "free" test, but seeking treatment will remain expensive.
It's easy to beat up on insurance companies; sometimes it's even fun. But, as is the case with so many provisions of the new health insurance reform law, it's a disservice to consumers to trumpet the introduction of "free" services on the one hand, then express shock and dismay when insurance premiums continue to rise faster than inflation. This one ain't the insurers' fault; this one's on the politicians.
Friday, July 23, 2010
Monday, June 21, 2010
As Insurers And The Government Dicker, Who's Speaking For Purchasers?
WOW!...Time flies...After a few weeks of triumph (our baby daughter's high school graduation) and my Mom's death, time to check back in for a view from the grass roots of America...
I spent some time in Ohio's state capital (Columbus, for the geographically challenged) talking with officials of the state's Department of Insurance about the implementation of federal health care reforms at the state level, where most of the really heavy lifting and ongoing work of actually covering people will be done.
They're a little busy. The first order of business is to implement the federally-mandated and (partially and temporarily) funded high-risk pool for hard-to-insure Ohioans. Ohio has had some experience with such a risk pool, and most of it has been unpleasant: largely because of very high premium rates, Ohio's current risk pool covers fewer than 1500 Ohioans. A temporary federal subsidy may make rates a little more affordable for some folks for awhile. The high-risk pool is supposed to be in place by July 1st.
By September 1st, all employer plans will be required to extend family coverage to dependents under the age of 26. While large, self-insured employers have till September to take that action, most Ohio insurers have already implemented that change for fully-insured customers (read: small groups and individuals) effective July 1st. The cost? We'll see...but it ain't free...
The REAL action, though, is going to revolve around the establishment of a statewide health insurance exchange by January 1st, 2014. Through the exchanges, individuals and companies with fewer than 50 employees are supposed to be able to shop for, compare, purchase and manage their health plans on-line. Larger employers will supposedly have the option a couple years later. And ultimately, the high-risk pool will be absorbed into the exchanges.
The exchanges are going to have a lot of work to do. In addition to packaging, marketing and managing health plans for participating insurers, they'll be tasked with means-testing applicants to determine whether they will qualify for an expanded Medicaid program (again, temporarily subsidized by Federal funds) or for a private insurance subsidy (ditto) for participation in a private health plan.
How's all this going to work? No one knows. The Federal government has yet to produce regulations which will guide the states' implementation of the exchanges.
This is, of course, a practical problem. I have a little experience with developing large-scale health plans and the infrastructure needed to support them. And three and a half years is NOT a lot of time.
Beyond logistics, though, there are policy issues to be agreed to between the Fed and the industry. Those negotiations are very likely to involve a lot of chicanery. In general, insurers are not happy at all at the prospect of having to do business in a new environment of transparency and efficiency. Here are just a few of the issues to be determined:
What incentives will be created to encourage administrative efficiency? This is a really big deal for small businesses and individuals, where between 25 and 40 percent of premiums go to cover administrative costs. The new Federal law requires insurers to hold their administrative costs to 20 percent or less of premiums for small groups, and 25 percent or less for individuals. Currently, insurers' efforts are focused on attempts to re-classify what have long been considered as administrative costs as clinical costs, including many marketing and community outreach costs.
Recently, for example, the CEO of the Ohio Association of Health Plans suggested that insurers be "incentivized" to encourage hospitals and physicians to adopt universal electronic medical records by classifying the associated costs as related to patient care, rather than administrative costs. Expect to hear much more highfalutin' rhetoric from insurers about their focus on patient care as a result of games like these.
What will happen to underwriting costs?No one knows for sure what percentage of insurers' administrative costs are attributed to the health screening imposed on every individual and small group application, but it wouldn't be unreasonable to estimate the costs at 6-7 percent of premiums. By 2014, those underwriting practices...and theoretically, their attendant costs, will be going away. Presumably, a portion of those underwriting costs will have to be re-allocated to enable exchanges to do the means testing work they'll be required to do. How will we know whether that happens?
What will happen to marketing, advertising and sales costs?Marketing, advertising and sales costs make up easily 10-12 percent of small group and individual administration costs. Insurers say that these costs are high because the process of selling small group and individual coverage is very inefficient. Theoretically, the exchanges should bring a high degree of simplicity, standardization, and administrative efficiency to the process. In Massachusetts, for example, it appears that groups using the Massachusetts Connector for their coverage pay lower premium rates when they access the Connector directly than when they do so using an agent or broker. But in most states, including Ohio, there are literally laws against rewarding marketing and administrative efficiency with lower rates. A well-run exchange has the potential to reduce marketing and sales costs by as much as half. Who'll make sure that happens?
While much ink is being spilled over the Obama health plan's relatively weak efforts to rein in medical costs, insufficient public discussion is occurring around these matters which...well, matter...so critically to the prices which small businesses and individuals pay for their health coverage. Given the ability to do so, exchanges could reduce the administrative costs portion of their health plans by as much as half.
But right now, those conversations are taking place largely in the dark, between newly-hired federal bureaucrats and seasoned and cynical insurance industry lobbyists. Which ought to make us all just a tad uncomfortable...and skeptical...that these important new vehicles really will have the flexibility to change the small group and individual insurance markets. Usually, if you take a bunch of broken stuff and jam it all together, you just get one big, REALLY broken thing.
Hope our self-styled small business advocates are paying attention to the right things...
I spent some time in Ohio's state capital (Columbus, for the geographically challenged) talking with officials of the state's Department of Insurance about the implementation of federal health care reforms at the state level, where most of the really heavy lifting and ongoing work of actually covering people will be done.
They're a little busy. The first order of business is to implement the federally-mandated and (partially and temporarily) funded high-risk pool for hard-to-insure Ohioans. Ohio has had some experience with such a risk pool, and most of it has been unpleasant: largely because of very high premium rates, Ohio's current risk pool covers fewer than 1500 Ohioans. A temporary federal subsidy may make rates a little more affordable for some folks for awhile. The high-risk pool is supposed to be in place by July 1st.
By September 1st, all employer plans will be required to extend family coverage to dependents under the age of 26. While large, self-insured employers have till September to take that action, most Ohio insurers have already implemented that change for fully-insured customers (read: small groups and individuals) effective July 1st. The cost? We'll see...but it ain't free...
The REAL action, though, is going to revolve around the establishment of a statewide health insurance exchange by January 1st, 2014. Through the exchanges, individuals and companies with fewer than 50 employees are supposed to be able to shop for, compare, purchase and manage their health plans on-line. Larger employers will supposedly have the option a couple years later. And ultimately, the high-risk pool will be absorbed into the exchanges.
The exchanges are going to have a lot of work to do. In addition to packaging, marketing and managing health plans for participating insurers, they'll be tasked with means-testing applicants to determine whether they will qualify for an expanded Medicaid program (again, temporarily subsidized by Federal funds) or for a private insurance subsidy (ditto) for participation in a private health plan.
How's all this going to work? No one knows. The Federal government has yet to produce regulations which will guide the states' implementation of the exchanges.
This is, of course, a practical problem. I have a little experience with developing large-scale health plans and the infrastructure needed to support them. And three and a half years is NOT a lot of time.
Beyond logistics, though, there are policy issues to be agreed to between the Fed and the industry. Those negotiations are very likely to involve a lot of chicanery. In general, insurers are not happy at all at the prospect of having to do business in a new environment of transparency and efficiency. Here are just a few of the issues to be determined:
What incentives will be created to encourage administrative efficiency? This is a really big deal for small businesses and individuals, where between 25 and 40 percent of premiums go to cover administrative costs. The new Federal law requires insurers to hold their administrative costs to 20 percent or less of premiums for small groups, and 25 percent or less for individuals. Currently, insurers' efforts are focused on attempts to re-classify what have long been considered as administrative costs as clinical costs, including many marketing and community outreach costs.
Recently, for example, the CEO of the Ohio Association of Health Plans suggested that insurers be "incentivized" to encourage hospitals and physicians to adopt universal electronic medical records by classifying the associated costs as related to patient care, rather than administrative costs. Expect to hear much more highfalutin' rhetoric from insurers about their focus on patient care as a result of games like these.
What will happen to underwriting costs?No one knows for sure what percentage of insurers' administrative costs are attributed to the health screening imposed on every individual and small group application, but it wouldn't be unreasonable to estimate the costs at 6-7 percent of premiums. By 2014, those underwriting practices...and theoretically, their attendant costs, will be going away. Presumably, a portion of those underwriting costs will have to be re-allocated to enable exchanges to do the means testing work they'll be required to do. How will we know whether that happens?
What will happen to marketing, advertising and sales costs?Marketing, advertising and sales costs make up easily 10-12 percent of small group and individual administration costs. Insurers say that these costs are high because the process of selling small group and individual coverage is very inefficient. Theoretically, the exchanges should bring a high degree of simplicity, standardization, and administrative efficiency to the process. In Massachusetts, for example, it appears that groups using the Massachusetts Connector for their coverage pay lower premium rates when they access the Connector directly than when they do so using an agent or broker. But in most states, including Ohio, there are literally laws against rewarding marketing and administrative efficiency with lower rates. A well-run exchange has the potential to reduce marketing and sales costs by as much as half. Who'll make sure that happens?
While much ink is being spilled over the Obama health plan's relatively weak efforts to rein in medical costs, insufficient public discussion is occurring around these matters which...well, matter...so critically to the prices which small businesses and individuals pay for their health coverage. Given the ability to do so, exchanges could reduce the administrative costs portion of their health plans by as much as half.
But right now, those conversations are taking place largely in the dark, between newly-hired federal bureaucrats and seasoned and cynical insurance industry lobbyists. Which ought to make us all just a tad uncomfortable...and skeptical...that these important new vehicles really will have the flexibility to change the small group and individual insurance markets. Usually, if you take a bunch of broken stuff and jam it all together, you just get one big, REALLY broken thing.
Hope our self-styled small business advocates are paying attention to the right things...
Thursday, May 6, 2010
The End Of Rescission: The Perils Of Regulation By Anecdote
Last week the national media triumphantly announced that, well in advance of the legislatively-imposed deadline of September 1st, the insurance industry had agreed to end the process of rescission: that is, canceling coverage for insured customers who developed medical conditions after having purchased individual health coverage.
Accounts suggested that big insurers such as Wellpoint had run individuals' claims through a computer model to determine whether customers who had developed, for example, breast cancer after having purchased their health plan might have known about their health conditions prior to buying coverage, and therefore may have misrepresented their health conditions on their applications.
(Interestingly, I haven't seen any accounts indicating what percentage of applicants screened in this way might actually have lied on their applications).
The year-long debate over health insurance reform was predicated largely on the need to curb such behavior on the part of the insurance industry; one was left with the impression that rescission was rampant across the country.
But, setting aside the notion that such behavior can easily be seen as reprehensible, the numbers tell a slightly different story.
In its editorial on the subject, the New York Times reported that three big insurers had rescinded coverage for 20,000 individuals nationwide since 2005. The National Association Of Insurance Commissioners issued a report concluding that some 27,000 policies had been rescinded over an overlapping period.
For those who faced rescission, the effect is undoubtedly catastrophic; having had their coverage abruptly canceled, and having been accused of misrepresentation by their insurers, those individuals (who all had health conditions) would have been unable to find coverage anywhere at all in the private market.
But...
Even if those two studies measured parallel universes, over a five-year period, rescission occurred among fewer than two-tenths of one percent (.0019) of the 24.7 million individuals who are privately insured (the 176.3 million people covered by group plans aren't subject to rescission, unless it can be proved that an insured lied on his/her application).
So of all the 200-+ million people with private insurance in America, this new regulation has benefited about two-thousandth of one percent of the insured population.
The health reform debate has almost always relied on individual stories to make it real for voters and legislators. And this is an excellent example of how such stories can be a tad...distorted...in the political context.
There's little doubt that, for those who are or might have been affected by rescission, the new health reform law will be a real benefit. But it does beg a few other questions, such as:
1) Given how extremely rare such cases have actually been, why did it take a new federal law to prohibit it? Are insurers simply that arrogant, or that ignorant, that they couldn't have stopped the practice voluntarily themselves?
2) Relative to the cost of building those computer models, what was the actual cost savings to insurers (and, by their own implication, their customers) from rescinding this microscopic percentage of individual policies, and what will be the actual cost of discontinuing the practice (this will be important when insurers begin crying the blues over the premium increases they'll attribute to covering people with existing health conditions)?
3) How might that cost compare with the everyday outrage that, for small businesses and individuals...every single small group and every single individual in America with private coverage...between 25 and 40 percent of their health insurance premiums cover not medical expenses, but administrative costs? Compared to the inefficiency and bureaucracy which result in those costs, the actual cost of rescission is absurdly inconsequential (though it did have clear political benefits).
Just brings to mind what a former Congressman friend used to say about campaign financing: Everybody knows what should be against the law; it's what's legal that'd make you cry...
Accounts suggested that big insurers such as Wellpoint had run individuals' claims through a computer model to determine whether customers who had developed, for example, breast cancer after having purchased their health plan might have known about their health conditions prior to buying coverage, and therefore may have misrepresented their health conditions on their applications.
(Interestingly, I haven't seen any accounts indicating what percentage of applicants screened in this way might actually have lied on their applications).
The year-long debate over health insurance reform was predicated largely on the need to curb such behavior on the part of the insurance industry; one was left with the impression that rescission was rampant across the country.
But, setting aside the notion that such behavior can easily be seen as reprehensible, the numbers tell a slightly different story.
In its editorial on the subject, the New York Times reported that three big insurers had rescinded coverage for 20,000 individuals nationwide since 2005. The National Association Of Insurance Commissioners issued a report concluding that some 27,000 policies had been rescinded over an overlapping period.
For those who faced rescission, the effect is undoubtedly catastrophic; having had their coverage abruptly canceled, and having been accused of misrepresentation by their insurers, those individuals (who all had health conditions) would have been unable to find coverage anywhere at all in the private market.
But...
Even if those two studies measured parallel universes, over a five-year period, rescission occurred among fewer than two-tenths of one percent (.0019) of the 24.7 million individuals who are privately insured (the 176.3 million people covered by group plans aren't subject to rescission, unless it can be proved that an insured lied on his/her application).
So of all the 200-+ million people with private insurance in America, this new regulation has benefited about two-thousandth of one percent of the insured population.
The health reform debate has almost always relied on individual stories to make it real for voters and legislators. And this is an excellent example of how such stories can be a tad...distorted...in the political context.
There's little doubt that, for those who are or might have been affected by rescission, the new health reform law will be a real benefit. But it does beg a few other questions, such as:
1) Given how extremely rare such cases have actually been, why did it take a new federal law to prohibit it? Are insurers simply that arrogant, or that ignorant, that they couldn't have stopped the practice voluntarily themselves?
2) Relative to the cost of building those computer models, what was the actual cost savings to insurers (and, by their own implication, their customers) from rescinding this microscopic percentage of individual policies, and what will be the actual cost of discontinuing the practice (this will be important when insurers begin crying the blues over the premium increases they'll attribute to covering people with existing health conditions)?
3) How might that cost compare with the everyday outrage that, for small businesses and individuals...every single small group and every single individual in America with private coverage...between 25 and 40 percent of their health insurance premiums cover not medical expenses, but administrative costs? Compared to the inefficiency and bureaucracy which result in those costs, the actual cost of rescission is absurdly inconsequential (though it did have clear political benefits).
Just brings to mind what a former Congressman friend used to say about campaign financing: Everybody knows what should be against the law; it's what's legal that'd make you cry...
Thursday, April 22, 2010
"Don't Blame The Wolf For Being a Wolf:" The Need For Insurance Industry Oversight.
I'm reminded of the Russian proverb above when I hear people moralize about the "outrageous behavior" of the health insurance industry.
The wolf is the product of its evolution and its environment. Its behavior reflects those elements.
In much the same way, the health insurance industry is the product of the regulatory environment in which it has grown over the last 75 years or so, since the emergence of the first Blue Cross and Blue Shield plans, and the subsequent entry of commercial life insurance companies into the health insurance business.
(Recall that, until relatively recently, life insurance companies sold health insurance coverage as sort of a loss leader: a product which it was necessary to sell to get group customers to buy group life products, which were much more profitable. The emergence of mega-health companies is a product of the last thirty years or so.)
In general, companies selling fully-insured products, whether to groups or individuals, are strongly influenced by state regulations. And since the regulatory process is very closely monitored and managed by insurers, some states have very special and industry-friendly regulatory standards. In Ohio, for example, insurers operate under a special set of accounting rules which enable them not to report investment income on their balance sheets.
And since most states' regulators have as their primary mission the protection of the solvency of insurers doing business in their states, instead of advocacy for the consumer, how insurers account for their costs of doing business tends not to receive too much skeptical oversight.
As the federal government begins to take up a much broader role in industry oversight, some of the cracks in the existing state regulatory structure are going to become increasingly apparent...as will the magnitude of the challenge which federal regulators will begin to confront as they attempt to exercise more control over insurers' behavior.
Late last week media accounts pointed our (rather shrilly) a perfect case study in regulatory inconsistency and the role of the federal government as overseer. Ostensibly in the face of the new federal requirement that health insurers reduce maintain an administrative cost ratio which must not exceed an average of fifteen percent of premiums, accountants at Wellpoint reportedly have reclassified some 500 million dollars in administrative expenses as patient care expenses. Community outreach programs, brochures created for distribution at health fairs, material promoting nurse-on-call programs...the company apparently sought to dump any expense they could possibly justify as patient care into the medical claims cost bucket, in an effort to reduce their administrative cost ratio in advance of the new law's taking effect.
Needless to say, this is not what Our Friends In Congress had in mind. Their focus is on the 25-27 percent of small group premiums, and the 30-40 percent of individual health insurance premiums, which insurers keep as administrative costs. And their intention is that insurers find ways to become more efficient. The combination of the enhanced use of technology and simplified underwriting provide insurers with opportunities actually to reduce their spending.
But of course, the new law doesn't say precisely HOW insurers are to bring their administrative cost ratios down. So Wellpoint just did what insurers typically do: play accounting games to create the appearance of compliance with the law without actually changing their behavior.
The next two or three years will produce dozens and dozens of similar stories. Federal regulators are going to have their hands full trying to bring the wolves to heel.
The wolf is the product of its evolution and its environment. Its behavior reflects those elements.
In much the same way, the health insurance industry is the product of the regulatory environment in which it has grown over the last 75 years or so, since the emergence of the first Blue Cross and Blue Shield plans, and the subsequent entry of commercial life insurance companies into the health insurance business.
(Recall that, until relatively recently, life insurance companies sold health insurance coverage as sort of a loss leader: a product which it was necessary to sell to get group customers to buy group life products, which were much more profitable. The emergence of mega-health companies is a product of the last thirty years or so.)
In general, companies selling fully-insured products, whether to groups or individuals, are strongly influenced by state regulations. And since the regulatory process is very closely monitored and managed by insurers, some states have very special and industry-friendly regulatory standards. In Ohio, for example, insurers operate under a special set of accounting rules which enable them not to report investment income on their balance sheets.
And since most states' regulators have as their primary mission the protection of the solvency of insurers doing business in their states, instead of advocacy for the consumer, how insurers account for their costs of doing business tends not to receive too much skeptical oversight.
As the federal government begins to take up a much broader role in industry oversight, some of the cracks in the existing state regulatory structure are going to become increasingly apparent...as will the magnitude of the challenge which federal regulators will begin to confront as they attempt to exercise more control over insurers' behavior.
Late last week media accounts pointed our (rather shrilly) a perfect case study in regulatory inconsistency and the role of the federal government as overseer. Ostensibly in the face of the new federal requirement that health insurers reduce maintain an administrative cost ratio which must not exceed an average of fifteen percent of premiums, accountants at Wellpoint reportedly have reclassified some 500 million dollars in administrative expenses as patient care expenses. Community outreach programs, brochures created for distribution at health fairs, material promoting nurse-on-call programs...the company apparently sought to dump any expense they could possibly justify as patient care into the medical claims cost bucket, in an effort to reduce their administrative cost ratio in advance of the new law's taking effect.
Needless to say, this is not what Our Friends In Congress had in mind. Their focus is on the 25-27 percent of small group premiums, and the 30-40 percent of individual health insurance premiums, which insurers keep as administrative costs. And their intention is that insurers find ways to become more efficient. The combination of the enhanced use of technology and simplified underwriting provide insurers with opportunities actually to reduce their spending.
But of course, the new law doesn't say precisely HOW insurers are to bring their administrative cost ratios down. So Wellpoint just did what insurers typically do: play accounting games to create the appearance of compliance with the law without actually changing their behavior.
The next two or three years will produce dozens and dozens of similar stories. Federal regulators are going to have their hands full trying to bring the wolves to heel.
Monday, March 29, 2010
The Massachusetts Connector: Public And Private Lessons About Insurance Exchanges
The Massachusetts Connector, the state's 4-year-old health insurance exchange, is the conceptual model for the kind of electronic marketplace incorporated into the new health insurance reform law.
Through the Connector, individuals and small businesses have the opportunity to shop for, compare, and purchase health coverage from among a number of health insurers. So if you want to see what a public health insurance exchange might look like, go to http://www.mahealth connector.org/portal/site/connector.
I thought I'd take a little tour of the site myself, and here are a few things I found:
1) As is the case with many quoting sites, the Connector's portal contains a few "front doors:"one for individuals and families, one for employers, and one for brokers. There's even a neat little electronic process enabling small business owners to compare plans and enroll without the need for paper forms;
2) State government has clearly established the criteria for the content of plans available through the Connector. They fall into Bronze, Silver, and Gold categories based on plan features. Each category has low, medium, and high options, featuring lower deductibles and co-pays as one moves from low to high option. The plans are standardized, which makes apples-to-apples comparisons easy;
3) For the ZIP code I entered as my business' location, I was able to receive quotes from three health insurers. Don't know how many insurers overall participate in the Connector, but comparisons of standardized plans from among three insurers seemed to give me enough variety without being confusing;
4) With Massachusetts' emphasis on community rating and guaranteed issue coverage, underwriting issues are dramatically simplified, which must have a significant effect on insurer administrative costs through the Connector. And it would appear that individuals and small businesses who apply directly via the connector pay somewhat lower rates, since there are no brokers involved in the transaction;
5) The downside of community rating and guaranteed issue is that the rates available through the Connector seem high relative to other markets. I'd estimate the premiums are 20-25% higher than is the case in Ohio, for example. On the other hand, these rates probably reflect the absorption of previously-uninsured (and uninsurable) individuals into the Massachusetts risk pool. There's no easy way to compare rates within the Connector against rates available outside the Connector, but I'd guess state law keeps the rates comparable.
So on the one hand, the Connector seems pretty easy to use. There seems to be a decent selection of standardized plans at standardized rates, and the presentation is simple enough for a non-insurance guy to understand. So at least publicly, the Connector seems to be a good model for how to use technology to achieve greater transparency in plan design and rating, and in reducing other barriers to access. And state subsidies help to offset some premium costs for lower-income people.
On the other hand, as the politicians touting the Connector have been less willing to discuss, the Connector is hemorrhaging money...
After my little self-guided tour on Friday, I was intrigued to see this article in Saturday's New York Times
http://www.nytimes.com/2010/03/27/health/policy/27massgov.html?emc=tnt&tntemail1=y. The article summarized Massachusetts' dilemma this way:
"...Four years ago, when Massachusetts enacted a health insurance plan that became a national template, state leaders deferred any serious discussion about controlling health care costs, with predictable results. While the law succeeded in covering nearly all residents, the State had to raise taxes and trim benefits to preserve its essential contours." Sound familiar?...
The Connector's future has become a bellwether issue in the Massachusetts governor's race. The Democrat incumbent, Deval Patrick, has taken on the extraordinary power of directing his insurance commissioner to deny any premium increases which the State deems "excessive" starting April 1st. This has the insurance, hospital, and physicians' industries in an uproar...and has been a fundraising boon to Mr. Patrick's chief Republican rival, who happens to have spent the last ten years as CEO of Massachusetts' Harvard Pilgrim Health Plan.
The current governor maintains that price controls are a temporary measure, until a state commission's recommendations regarding how to reduce and control health care costs can be implemented...over a five-year period.
It's going to be a challenge for health insurance reform proponents to continue to point to the Massachusetts Connector as a national model without also acknowledging that the sword cuts both ways: administrative standardization and simplicity on one hand, and rapidly-escalating costs on the other hand. But interested observers should stay tuned. Because as Massachusetts goes, so will the nation.
Through the Connector, individuals and small businesses have the opportunity to shop for, compare, and purchase health coverage from among a number of health insurers. So if you want to see what a public health insurance exchange might look like, go to http://www.mahealth connector.org/portal/site/connector.
I thought I'd take a little tour of the site myself, and here are a few things I found:
1) As is the case with many quoting sites, the Connector's portal contains a few "front doors:"one for individuals and families, one for employers, and one for brokers. There's even a neat little electronic process enabling small business owners to compare plans and enroll without the need for paper forms;
2) State government has clearly established the criteria for the content of plans available through the Connector. They fall into Bronze, Silver, and Gold categories based on plan features. Each category has low, medium, and high options, featuring lower deductibles and co-pays as one moves from low to high option. The plans are standardized, which makes apples-to-apples comparisons easy;
3) For the ZIP code I entered as my business' location, I was able to receive quotes from three health insurers. Don't know how many insurers overall participate in the Connector, but comparisons of standardized plans from among three insurers seemed to give me enough variety without being confusing;
4) With Massachusetts' emphasis on community rating and guaranteed issue coverage, underwriting issues are dramatically simplified, which must have a significant effect on insurer administrative costs through the Connector. And it would appear that individuals and small businesses who apply directly via the connector pay somewhat lower rates, since there are no brokers involved in the transaction;
5) The downside of community rating and guaranteed issue is that the rates available through the Connector seem high relative to other markets. I'd estimate the premiums are 20-25% higher than is the case in Ohio, for example. On the other hand, these rates probably reflect the absorption of previously-uninsured (and uninsurable) individuals into the Massachusetts risk pool. There's no easy way to compare rates within the Connector against rates available outside the Connector, but I'd guess state law keeps the rates comparable.
So on the one hand, the Connector seems pretty easy to use. There seems to be a decent selection of standardized plans at standardized rates, and the presentation is simple enough for a non-insurance guy to understand. So at least publicly, the Connector seems to be a good model for how to use technology to achieve greater transparency in plan design and rating, and in reducing other barriers to access. And state subsidies help to offset some premium costs for lower-income people.
On the other hand, as the politicians touting the Connector have been less willing to discuss, the Connector is hemorrhaging money...
After my little self-guided tour on Friday, I was intrigued to see this article in Saturday's New York Times
http://www.nytimes.com/2010/03/27/health/policy/27massgov.html?emc=tnt&tntemail1=y. The article summarized Massachusetts' dilemma this way:
"...Four years ago, when Massachusetts enacted a health insurance plan that became a national template, state leaders deferred any serious discussion about controlling health care costs, with predictable results. While the law succeeded in covering nearly all residents, the State had to raise taxes and trim benefits to preserve its essential contours." Sound familiar?...
The Connector's future has become a bellwether issue in the Massachusetts governor's race. The Democrat incumbent, Deval Patrick, has taken on the extraordinary power of directing his insurance commissioner to deny any premium increases which the State deems "excessive" starting April 1st. This has the insurance, hospital, and physicians' industries in an uproar...and has been a fundraising boon to Mr. Patrick's chief Republican rival, who happens to have spent the last ten years as CEO of Massachusetts' Harvard Pilgrim Health Plan.
The current governor maintains that price controls are a temporary measure, until a state commission's recommendations regarding how to reduce and control health care costs can be implemented...over a five-year period.
It's going to be a challenge for health insurance reform proponents to continue to point to the Massachusetts Connector as a national model without also acknowledging that the sword cuts both ways: administrative standardization and simplicity on one hand, and rapidly-escalating costs on the other hand. But interested observers should stay tuned. Because as Massachusetts goes, so will the nation.
Monday, March 22, 2010
Passing Laws Vs. Solving Problems
It's hard to recall a vote in the House of Representatives which has been as closely watched or widely discussed and debated as Sunday's vote on health insurance reform legislation.
But it's not hard to be a little concerned that the legislation once again will highlight the confusion Members of Congress and the Administration regularly experience on big issues: the notion that passing a law is the same as solving a problem.
Because from where I sit here in the grass roots of America, the problems with implementation of this new law (assuming it passes in the Senate and is actually permitted to take effect) are just beginning...and they're huge.
I take very little issue with the intentions of the bill: especially in the face of our current economic downturn, with high unemployment and great uncertainty about the future, literally millions of families are seeing their health security...if they ever had it..evaporate. And the market for individual health coverage (created by the enactment of HIPAA in the mid-1990's, by a Republican Congress) had plenty of built-in dysfunction which fairly cried out for regulation. Generally, premiums for both small businesses and individuals have more than doubled in the past decade, and the escalating costs have created anxiety among many Americans.
But it takes the naivete of young idealists or the statutory cluelessness of the Congressional Budget Office to see how this bill will have any prayer of "bending the curve" of increasing health costs for the next decade.
I'm not even considering the "process improvements" and pilot projects incorporated into the bill.
I'm thinking about how we will actually pay for the cost of subsidizing access to health insurance for every American family earning below four times the poverty rate...beginning in 2014.
The vast majority of the financing for those subsidies are assumed cuts in the growth of Medicare reimbursements, which have never been enacted in the prior history of Medicare. Those cuts are typically threatened in any given year and restored before the year is over. Do we really think Congress will find the courage to do something which it has yet to find the courage to do in the 45 years since Medicare was introduced?
The other big source of financing is the so-called "Cadillac plan tax" on high-cost health plans. Originally scheduled to take effect in 2014, the House kicked that can down the road till 2018, by which time the cost of even a low-benefit health plan will probably qualify for an excise tax.
Proponents of the reform legislation like to point out the potential benefits to consumers which might materialize in the out-years after the bill takes effect. And there are some real benefits.
But even considering those benefits, it's hard to see many provisions of this legislation which will control health insurance costs for small businesses and the self-employed, and plenty of provisions which could lead us to real fiscal calamity. Once again the Congress has attempted to craft legislation creating a gigantic new entitlement without having the courage to pay for it (or, more specifically, to require US to pay for it).
And that's the embodiment of their confusion over the difference between passing a law and solving a problem.
But it's not hard to be a little concerned that the legislation once again will highlight the confusion Members of Congress and the Administration regularly experience on big issues: the notion that passing a law is the same as solving a problem.
Because from where I sit here in the grass roots of America, the problems with implementation of this new law (assuming it passes in the Senate and is actually permitted to take effect) are just beginning...and they're huge.
I take very little issue with the intentions of the bill: especially in the face of our current economic downturn, with high unemployment and great uncertainty about the future, literally millions of families are seeing their health security...if they ever had it..evaporate. And the market for individual health coverage (created by the enactment of HIPAA in the mid-1990's, by a Republican Congress) had plenty of built-in dysfunction which fairly cried out for regulation. Generally, premiums for both small businesses and individuals have more than doubled in the past decade, and the escalating costs have created anxiety among many Americans.
But it takes the naivete of young idealists or the statutory cluelessness of the Congressional Budget Office to see how this bill will have any prayer of "bending the curve" of increasing health costs for the next decade.
I'm not even considering the "process improvements" and pilot projects incorporated into the bill.
I'm thinking about how we will actually pay for the cost of subsidizing access to health insurance for every American family earning below four times the poverty rate...beginning in 2014.
The vast majority of the financing for those subsidies are assumed cuts in the growth of Medicare reimbursements, which have never been enacted in the prior history of Medicare. Those cuts are typically threatened in any given year and restored before the year is over. Do we really think Congress will find the courage to do something which it has yet to find the courage to do in the 45 years since Medicare was introduced?
The other big source of financing is the so-called "Cadillac plan tax" on high-cost health plans. Originally scheduled to take effect in 2014, the House kicked that can down the road till 2018, by which time the cost of even a low-benefit health plan will probably qualify for an excise tax.
Proponents of the reform legislation like to point out the potential benefits to consumers which might materialize in the out-years after the bill takes effect. And there are some real benefits.
But even considering those benefits, it's hard to see many provisions of this legislation which will control health insurance costs for small businesses and the self-employed, and plenty of provisions which could lead us to real fiscal calamity. Once again the Congress has attempted to craft legislation creating a gigantic new entitlement without having the courage to pay for it (or, more specifically, to require US to pay for it).
And that's the embodiment of their confusion over the difference between passing a law and solving a problem.
Tuesday, March 16, 2010
The Health Care Industrial Complex, And "Why Don't You Give Yourself A Nice Raise?"
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?
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?
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