I've been perversely amused at the writing and speculation which has appeared in both popular and industry publications about the potential changes in health premium rates which will occur come January 1, 2014, when the bulk of PPACA-mandated market changes are scheduled to take place. Most of what appears is, of course, propaganda generated by partisans.
The rates for California's exchange will be lower than expected, the California experts say. Nonsense! Apples and oranges and cantaloupes, industry partisans say. There will be "rate shock" for younger insureds.
Prepare for 80% increases in premiums in Ohio, political hack (and technical dim-bulb...and proud of it) Mary Taylor, Ohio's Lieutenant Governor and Insurance Commissioner, warns Ohioans. Beware Obamacare-induced "rate shock." Nonsense! says the Kaiser Foundation, in this article in The Cleveland Plain Dealer (which, unfortunately for the public, gave up on "plain dealing" long ago)...http://www.cleveland.com/open/index.ssf/2013/06/obamacare_to_make_rates_soar_s.html#incart_river.
Clearly, the industry and its apologists have decided to use the term "rate shock" to inflame and confuse the public. Their p.r. people are certain that if they just go around shouting "Rate shock! Rate shock! RATE SHOCK! RATE SHOCK!!! often enough and loudly enough, it'll scare people and make headlines. And also, they hope, divert the public's attention that the "rate shock" they'd like to blame on PPACA is actually the un-doing of practices in which the health industry generally has been engaged in for decades which have not only been unsuccessful in keeping premium rates and health costs under control, but also kept millions of people out of the health insurance system...to the benefit of insurers' bottom lines.
It also shows the importance of, and the slipperiness of, language in the debate over health insurance reform.
Insurers scream "rate shock" to re-inforce the perception of PPACA as a boogeyman. If insurers were engaged in the same practice, some bland-looking p.r. people would be describing the phenomenon as "re-calibration of our rating formulas."
Because that's what the phenomenon really is: a process to re-align premium rates in response not just to new federal regulations, but also to re-inforce the policy objective of turning health insurance coverage from an exclusive thing available to some, to an inclusive process available to everybody.
Let's look at a few of the phenomena that this "re-calibration" seeks to un-do:
-The erosion of health insurance as a "community" good and responsibility: When group health plans were initially established, their rating processes were based on "community rating," the idea that everybody in the pool would pay the same amount for the same coverage. In the 1970's, the rise of self-insurance took a big chunk of the working population...those who worked for big companies...out of the community pool. And as commercial insurers began to encroach upon then-mostly-not-for-profit Blue Cross & Blue Shield plans to compete for group business, they introduced the concept of medical underwriting; that is, using the health of group members to set rates and rules for participation in their plans.
When it became clear that this tactic was robbing community pools of groups which were younger and healthier, and leaving behind groups which didn't qualify (setting up a cycle of "adverse selection" against those community insurers), BCBS plans were forced to utilize health underwriting to defend themselves. This led to:
-The exclusion of groups and individuals which represented potential health risks: The health underwriting "arms race," when carried to its extreme, meant that some groups, even those with relatively good risk profiles, could be excluded from coverage. In a continuing effort to keep prices under some control, and keep group coverage profitable, insurers further undermined the notion of "community rating" by applying their risk-avoidance strategies more and more stringently to smaller and smaller groups, thus creating an increasingly large pool of "uninsureds:" people, and groups, whose health status in insurers' eyes rendered them too risky to cover.
And with the "community" being diluted further and further by perceived health risk, there were fewer large purchasing entities which had the market presence and technical know-how to call "bullshit" on these practices and push back on insurers. This led to accelerated risk segmentation, especially among small groups and individuals. And all this led to:
-HIPAA and the "ghettoization" of small groups and individuals: After the failure of the Clinton Administration's own health care reform strategy, the Democrat President and a Republican Congress moved to "fix" problems in the small group and individual insurance markets by enacting the Health Insurance Portability and Accountability Act (HIPAA), which established a complex web of "rating corridors" and other rules for small group health coverage. It also famously forbade insurers from excluding any small groups which applied for coverage based on the group's health condition. Insurers were required to provide coverage to any group which applied.
An "unintended consequence" of those "guaranteed issue" rules (largely crafted by the insurance industry's lobby
itself) was that, while the "guaranteed issue" rules wouldn't let insurers refuse coverage to any group for health reasons, the rules didn't stop health underwriting. So health underwriting became not a gateway for coverage but a factor in pricing. So the differences in costs for similarly-sized groups could differ by as much as 80%, based on the health of the groups' applicants. So, indirectly, health underwriting led to group exclusion based on price. So the owner of a 10-employee business wanting to cover his/her employees could face a cost ranging from $100,000-180,000 for doing so, based solely on the ages and health conditions of the group's members...something over which the business owner has little control, and which it's illegal for him/her to do anything about, since discriminating in employment based on an employee's health is against the law...
Worse, HIPAA specifically excluded individuals (including self-employed professionals) from participating in group coverage. This led to a non-group insurance industry which made a lot of money by selling coverage primarily to young, healthy individuals who would be less likely to use it than their older, less healthy counterparts. Insurers were free to apply any sort uf medical underwriting screens to individual insureds, which meant that they could engage in a conscious strategy to develop rates and rules which would favor young, healthy insureds and exclude individuals with a wide range of health conditions of even modest severity, such as high blood pressure or cholesterol. In addition, there were no limits set on rates for these individuals, so the difference in rates between those charged to young, healthy people and older, less-healthy folks , if they qualified for coverage at all were virtually unchecked...again, using price to screen out undesirable risks. This created the "crisis" in individyal coverage which was a major impetus for PPACA, and to still greater numbers of those for whom coverage was not available. As insurers rushed to make a lot of money in this segment, there was a "race to the bottom" in the ratings wars, which led to:
-Tithing on the altar of the health insurance industrial complex: One of the "geniuses" behind HIPAA was a guy named Patrick Rooney, who was Chairman and CEO of Golden Rule Insurance Company, and a big contributor to the Republican Party. He was also one of the nation's foremost advocates for "Consumer-Directed Health Plans (now more popularly...and accurately...known as "High-Deductible Health Plans (HDHP's)." The purpose of these plans (which are insanely profitable) is to reduce premiums by shifting an increasing amount of financial risk to the insured. A HDHP with a $10,000 family deductible is relatively inexpensive to buy, but a an Ohio family with a median $42,000 annual income could be exposed to a deductible which is the equivalent of nearly 25 percent of its annual income...a "double tithe" to the health insurance system.
Lieutenant Governor/Insurance Commissioner Taylor in Ohio approved an HDHP design which incorporated a $25,000 family deductible. And it was against such plans that she compared the new rating structures to be established for use after 1/1/2014. Of course premiums for PPACA mandated health plans will be more expensive than a $25,000-deductible HDHP...They'll actually cover something...
So let's sum up, shall we? The rates for new PPACA-based health plans must accommodate:
-a return to something more closely resembling community rating (my 25-year-old son will pay more for his health coverage, and I'll pay a little less, but over time he'll benefit from this "subsidy" at his own son's "expense");
-a guarantee that any individual or group will be able to purchase coverage at a cost comparable to any other individual's or group's cost;
-a restoration of sanity to the cost of individual health coverage, and;
-a re-design of HDHP's to include no more than a $4,000 annual family deductible.
And that's to overlook the premium subsidy program designed to make coverage more affordable for young people, and lower-paid individuals and families.
One can certainly expect a short-term spike in total "community" costs, as those who've been excluded from health insurance coverage because of often-minor health conditions seek treatment they've been forced to put off. But over time, utilization will even out.
But it would be helpful to the continuing health insurance reform debate to recognize that nearly forty years of insurance industry practices have contributed to the mess which exists in our health insurance system, that virtually every "cost containment" strategy employed by the industry has been employed not to control premiums (which, even if it were true, would have to be acknowledged as utter failures), but to enable insurers to retain profits through increasingly egregious risk-avoidance practices, and that any "shock" to the health insurance system relates directly to the correction of insurers' behavior.
This makes it...disingenuous...on the part of insurers, and their political enablers...suddenly to act as if they were victims...or as if their carefully-rehearsed outrage has anything to do with their concern for consumers.
I've said many times that I'm no fan of Obamacare. The insurance reforms necessary to move the market back to inclusiveness and some sense of community could have been enacted without a lot of the other nonsense contained in the law. And an unfortunately critical component of its eventual success is dependent on the effective operation of these mythical creatures called exchanges/marketplaces, which still exist mostly in the imagination of their architects and the code of a bunch of very-highly-paid consultants.
But if the President were really the socialist many of his detractors would like to characterize him as, he'd have said to the insurance industry, "All this effort is necessary to correct forty years' worth of highjinks which you've foisted on the marketplace to boost your profitability. You've made lots of money doing it. Now. you're going to fix those problems, and you're going to eat the cost."
Then, insurers' wailing and gnashing of teeth would, at least, have been genuine...
Thursday, June 13, 2013
Monday, April 15, 2013
Call 'Em Exchanges, Call 'Em Marketplaces, Whatever...Just Don't Call 'Em Ready For Prime Time...Is This a Bad Thing?...
One of the central elements of PPACA...the electronic platforms and processes which began imaginary life as "health exchanges," morphed recently by the Obama Administration into "marketplaces" (though largely still imaginary), have been the objects of a steady drip-drip-drip of bad news coming from Washington.
Finally, last week, The Administration made public what most folks following the unfolding exchange strategy had come to expect: the massive Federal "exchange/marketplace" which the Administration needs to build to support the 33 states which have chosen not to build their own, will offer only very limited functionality to customers by the time it's rolled out on October 1st, for January, 2014, coverage effective dates.
Administration spokespeople say that, while the marketplace will be on-line in October, it will offer small employer groups the chance to purchase only one health plan per group, rather than the broad employee choice the law anticipated. The "choice" elements won't be in place till 2015, at least.
The response to the news has been predictable. Congressional Republicans, who have fought the new law, joined with the U.S. Chamber of Commerce and the National Federation of Independent Businesses, which was a major party in the anti-Obamacare lawsuit decided by the U.S. Supreme Court last June, to express their deep disappointment that the Administration won't meet its self-imposed deadline, and that small businesses will be denied the benefits of these as-yet-mythical constructs. The irony of their positions is apparently lost on them.
The health insurance industry, along with the agents' and brokers' associations which have waged a major passive-aggressive attack on the exchanges (not because they won't work, but because they might, have been similarly (and predictably) jubilant about the setback.
Now comes news that The President's budget predicts that the cost of building exchanges could reach $5.7 billion by 2014...nearly twice what the Administration had projected back in 2010.
The reason? As stated so succinctly by former Congressional Budget Office Douglas Holtz-Eakin, is, "when you get behind, the way you solve problems is to write checks."
This delay should come as no surprise to anyone who looks at a calendar (in fact, I predicted this would happen back last August in a post here: http://www.blogger.com/blogger.g?blogID=5437368107821218921#editor/target=post;postID=3869781356730550188;onPublishedMenu=audiencestats;onClosedMenu=audiencestats;postNum=3;src=postname).
The fact is that, as enacted, the law requires exchanges to be up and running by October 1, 2013, for a coverage effective date of January 1, 2014. That's less than six months from now. And with new regulations regarding exchange-based health plans still being promulgated, and with fairly widespread opposition to state-based public exchanges among Republican governors, the current development environment in a mess.
But the OTHER salient fact is that it's not just the Federal government which is not exchange-ready; almost NOBODY in at least 33 of the 50 states, is ready.
In the 17 states which have begun progress on exchange development, tens of millions of dollars are being spent with big consulting houses to build exchange platforms. Frankly, no one knows whether they'll work or not. All that IS certain is that, in those states, exchange development has been a cash cow for consulting firms. My favorite example of programmatic excess is the State of California, which will spend nearly a half-billion dollars to build a statewide exchange, and expects to spend nearly ANOTHER half-billion dollars operating one for the first two years...on an application that we're not sure will even work.
The insurance industry isn't ready, either. Most of their efforts have focused on creating exchange-type platforms for marketing their own products on-line. Insurers strongly oppose the notion of "community exchanges," which would enable consumers fairly conveniently to shop for coverage and compare offerings among insurers.
Even the big guys in the health field are stumbling out of the gates: Wellpoint/Anthem, which ponied up an undisclosed amount to buy a majority interest in Bloom Health (together with two other big BC/BS plans), attempted to launch an exchange-type initiative for employers with 50 or more workers...and had to pull it back when it didn't work as miraculously as Bloom's propaganda had suggested.
And that's just the big guys. I'm aware of a couple regional health insurers which, having spent six months deciding upon vendors for their exchange-type applications, have been praying to finalize agreements with their vendors so that they'd have six months build and launch something. And with the ability to substitute big checks for time and brainpower, they'll very likely to be able to launch SOMETHING.
Those few "private exchanges" which ARE operating at scale have focused their efforts on providing administrative services to large self-insured employers and retiree groups. Essentially, they've gussied up their existing enrollment programs, added a "defined contribution" functionality, and are busy selling old wine in new bottles.
What does all this chaos mean for small businesses?
Well, for the next year and a half or so, not too much. Those small companies which offer health coverage to their workers generally offer only one plan to all their employees. It will mean another year of shopping via traditional distribution and sales channels.
In general, however hopeful they might be that exchanges might possibly make shopping for coverage more convenient, less painful, and less costly, most small business owners I know expected very little short-term benefit from exchanges. Most will continue to struggle to find ways to continue to offer coverage to their workers (and their own families). Some won't be able to. So nothing much will change.
At least one benefit of waiting an additional year to launch more fully-developed exchanges is that the Big Brains might actually have some time to figure out how to SELL something on-line to small businesses and individuals. Thus far, there is almost NO evidence that the folks developing these marketplaces have any idea how small businesses behave in the health insurance marketplace.
I continue to point to the Massachusetts Connector as a model of marketing inefficiency. After more than six years of operation, in a state where these IS a mandate upon individuals and businesses to purchase health coverage, and with operating expenses averaging about $30 million per year, the Connector reported that, out of the 2.7 million employees of Massachusetts businesses with fewer that 500 employees, and over 300,000 self-employed individuals, The Connector currently covers about 2,500 small business workers.
Here's what's gonna happen in 2014: public exchanges will roll out with much sound and fury, and will dramatically under-perform in the marketplace. Health insurers will roll out their own exchange-type applications, and won't see any significant increase in sales...mostly because insurers' exchange-type applications really aren't INTENDED to sell more; they are being developed as defensive strategies, to protect their existing books of business and make it harder for small groups to shop around. At THAT, they'll succeed.
And hopefully, a couple entrepreneurial sorts will sit around a table over a couple beers, and start drawing on a napkin the basic architecture of a marketplace that can really work. And it won't start with a multi-million dollar contract; it'll start with the question: "How would we use the Web to make it easier for just one small business, with, say 25 employees, to sort through all the white noise out there and buy health coverage more efficiently?"
Because that appears to be the ONE question that NOBODY's asked...
"And if we can sell one group, how do we scale up to sell to 100 groups? Then 1,000?"
If there's one thought most small business owners hold regardless of partisan affiliation, it is that government policy almost ALWAYS screws the small business owner. This is just the latest chapter.
There will be an answer, somewhere out there in the private sector. It won't come form big consulting houses. It won't come from insurers or brokers. It certainly won't come from government. It'll come from an entrepreneur who thinks like an entrepreneur, and starts with the practical challenge of solving a problem for his/her peers.
Perhaps it's just entrepreneurial naivete', but if such a solution could bubble up from the marketplace, with a relentless focus on THE CUSTOMER, waiting for another year for a truly successful exchange to launch would be worth the wait.
Anybody want to have a beer and chat?...
Finally, last week, The Administration made public what most folks following the unfolding exchange strategy had come to expect: the massive Federal "exchange/marketplace" which the Administration needs to build to support the 33 states which have chosen not to build their own, will offer only very limited functionality to customers by the time it's rolled out on October 1st, for January, 2014, coverage effective dates.
Administration spokespeople say that, while the marketplace will be on-line in October, it will offer small employer groups the chance to purchase only one health plan per group, rather than the broad employee choice the law anticipated. The "choice" elements won't be in place till 2015, at least.
The response to the news has been predictable. Congressional Republicans, who have fought the new law, joined with the U.S. Chamber of Commerce and the National Federation of Independent Businesses, which was a major party in the anti-Obamacare lawsuit decided by the U.S. Supreme Court last June, to express their deep disappointment that the Administration won't meet its self-imposed deadline, and that small businesses will be denied the benefits of these as-yet-mythical constructs. The irony of their positions is apparently lost on them.
The health insurance industry, along with the agents' and brokers' associations which have waged a major passive-aggressive attack on the exchanges (not because they won't work, but because they might, have been similarly (and predictably) jubilant about the setback.
Now comes news that The President's budget predicts that the cost of building exchanges could reach $5.7 billion by 2014...nearly twice what the Administration had projected back in 2010.
The reason? As stated so succinctly by former Congressional Budget Office Douglas Holtz-Eakin, is, "when you get behind, the way you solve problems is to write checks."
This delay should come as no surprise to anyone who looks at a calendar (in fact, I predicted this would happen back last August in a post here: http://www.blogger.com/blogger.g?blogID=5437368107821218921#editor/target=post;postID=3869781356730550188;onPublishedMenu=audiencestats;onClosedMenu=audiencestats;postNum=3;src=postname).
The fact is that, as enacted, the law requires exchanges to be up and running by October 1, 2013, for a coverage effective date of January 1, 2014. That's less than six months from now. And with new regulations regarding exchange-based health plans still being promulgated, and with fairly widespread opposition to state-based public exchanges among Republican governors, the current development environment in a mess.
But the OTHER salient fact is that it's not just the Federal government which is not exchange-ready; almost NOBODY in at least 33 of the 50 states, is ready.
In the 17 states which have begun progress on exchange development, tens of millions of dollars are being spent with big consulting houses to build exchange platforms. Frankly, no one knows whether they'll work or not. All that IS certain is that, in those states, exchange development has been a cash cow for consulting firms. My favorite example of programmatic excess is the State of California, which will spend nearly a half-billion dollars to build a statewide exchange, and expects to spend nearly ANOTHER half-billion dollars operating one for the first two years...on an application that we're not sure will even work.
The insurance industry isn't ready, either. Most of their efforts have focused on creating exchange-type platforms for marketing their own products on-line. Insurers strongly oppose the notion of "community exchanges," which would enable consumers fairly conveniently to shop for coverage and compare offerings among insurers.
Even the big guys in the health field are stumbling out of the gates: Wellpoint/Anthem, which ponied up an undisclosed amount to buy a majority interest in Bloom Health (together with two other big BC/BS plans), attempted to launch an exchange-type initiative for employers with 50 or more workers...and had to pull it back when it didn't work as miraculously as Bloom's propaganda had suggested.
And that's just the big guys. I'm aware of a couple regional health insurers which, having spent six months deciding upon vendors for their exchange-type applications, have been praying to finalize agreements with their vendors so that they'd have six months build and launch something. And with the ability to substitute big checks for time and brainpower, they'll very likely to be able to launch SOMETHING.
Those few "private exchanges" which ARE operating at scale have focused their efforts on providing administrative services to large self-insured employers and retiree groups. Essentially, they've gussied up their existing enrollment programs, added a "defined contribution" functionality, and are busy selling old wine in new bottles.
What does all this chaos mean for small businesses?
Well, for the next year and a half or so, not too much. Those small companies which offer health coverage to their workers generally offer only one plan to all their employees. It will mean another year of shopping via traditional distribution and sales channels.
In general, however hopeful they might be that exchanges might possibly make shopping for coverage more convenient, less painful, and less costly, most small business owners I know expected very little short-term benefit from exchanges. Most will continue to struggle to find ways to continue to offer coverage to their workers (and their own families). Some won't be able to. So nothing much will change.
At least one benefit of waiting an additional year to launch more fully-developed exchanges is that the Big Brains might actually have some time to figure out how to SELL something on-line to small businesses and individuals. Thus far, there is almost NO evidence that the folks developing these marketplaces have any idea how small businesses behave in the health insurance marketplace.
I continue to point to the Massachusetts Connector as a model of marketing inefficiency. After more than six years of operation, in a state where these IS a mandate upon individuals and businesses to purchase health coverage, and with operating expenses averaging about $30 million per year, the Connector reported that, out of the 2.7 million employees of Massachusetts businesses with fewer that 500 employees, and over 300,000 self-employed individuals, The Connector currently covers about 2,500 small business workers.
Here's what's gonna happen in 2014: public exchanges will roll out with much sound and fury, and will dramatically under-perform in the marketplace. Health insurers will roll out their own exchange-type applications, and won't see any significant increase in sales...mostly because insurers' exchange-type applications really aren't INTENDED to sell more; they are being developed as defensive strategies, to protect their existing books of business and make it harder for small groups to shop around. At THAT, they'll succeed.
And hopefully, a couple entrepreneurial sorts will sit around a table over a couple beers, and start drawing on a napkin the basic architecture of a marketplace that can really work. And it won't start with a multi-million dollar contract; it'll start with the question: "How would we use the Web to make it easier for just one small business, with, say 25 employees, to sort through all the white noise out there and buy health coverage more efficiently?"
Because that appears to be the ONE question that NOBODY's asked...
"And if we can sell one group, how do we scale up to sell to 100 groups? Then 1,000?"
If there's one thought most small business owners hold regardless of partisan affiliation, it is that government policy almost ALWAYS screws the small business owner. This is just the latest chapter.
There will be an answer, somewhere out there in the private sector. It won't come form big consulting houses. It won't come from insurers or brokers. It certainly won't come from government. It'll come from an entrepreneur who thinks like an entrepreneur, and starts with the practical challenge of solving a problem for his/her peers.
Perhaps it's just entrepreneurial naivete', but if such a solution could bubble up from the marketplace, with a relentless focus on THE CUSTOMER, waiting for another year for a truly successful exchange to launch would be worth the wait.
Anybody want to have a beer and chat?...
Friday, January 4, 2013
LOTSA Work To Do On Health Exchanges...And Some BIG Roadblocks To Doing It
Thus far, the Mayans have been proven wrong...and so (thus far) have Republicans. Both their professed fears of doom and universal collapse have failed to come to pass. December 21st came and went, and the sun came up the next day (which DID cause me to rush my Christmas shopping, since I'd put it off, just in case), and Barack Obama was re-elected serve a second term, and the sun came up after Election Day.
Those who had been living in political denial for the past couple years woke up after the election to find that The Affordable Care Act, which they'd been hoping Mitt Romney would make go away, was going to have to be implemented, after all. And among the biggest challenges entailed in implementing the law is developing and rolling out the electronic marketplaces called health exchanges in time to meet a federally-imposed deadline of January 1st, 2014...which, you might notice, is now less than a year away.
Doing that, it would seem, will be a tad more difficult than the experts might have expected.
First, as of December, 2012, only 19 states have introduced or passed legislation authorizing the formation of state-run exchanges. Only seven of these states have elected to develop an "active purchaser" model, whereby the exchange will negotiate with insurers to develop and market plans through the exchange itself (this type of exchange is modeled after the Connector in Massachusetts,which was the model for the exchange language built into PPACA). Six will serve as a clearinghouse, merely providing information and referrals on plans available to consumers, and another half dozen don't know WHAT they're going to do.
Seven states have elected to go with an as-yet-undefined "partnership exchange" with the federal government, whereby the feds will be doing...some things...and the states will be doing...some other things.
The remaining states have essentially punted to the feds, declining to develop their own exchanges and defaulting to whatever exchange the federal government eventually develops.
(A complete listing of which state is doing what is available from the Kaiser Family Foundation here:http://statehealthfacts.kff.org/comparemaptable.jsp?ind=962&cat=17)
It's no surprise that the majority of states which have chosen not to go forward with health exchanges of their own are headed by Republican governors. And many observers have noted the irony of "small government, state's rights" Republicans opting to default their right to operate and control health insurance regulation in their states (traditionally the states' purview) to the federal government.
But there might be a few good reasons a smart politician might drag his/her feet in setting up an exchange.
First, exchanges would seem to be quite costly to build and maintain. The fed has distributed tens of millions of dollars in grants to states wishing to establish their own exchanges, but has essentially left the cost of operating and maintaining exchanges to the states. In Massachusetts,the annual operating costs for operating the connector would appear to be about $30 million.
Beyond the operating costs, states have a legitimate fear of being stuck with some pretty hefty costs related to subsidizing the extension of coverage for the working poor. PPACA'a proposed subsidies for low-wage participants, and its small business tax credits, are scheduled to expire by 2017. The legislation is silent on what happens after that.
This is a big deal. Consider that the Massachusetts Connector, the only operating prototype, covers about 225,000 people after six years of operation....in a state with a total population of 6.6 million people. Of that number, over 190,000 participants are receiving subsidized coverage. Only 40,000 plan participants are purchasing non-subsidized health plans...and only about 2,500 of those participants are employees of small businesses...in a state with about 139,000 small businesses, which employ 2.7 million people.
(This means that the Connector, after 6 years of operation, has gained a whopping 3.4% total market share, and a market share of about 1/10th of one percent of small business employees...in a state in which purchasing health coverage has been mandatory since 2006...Just sayin'...)
The strong implication is that,when subsidies go away, states will be required either to pick up a gigantic tab, or may be forced to move people off the exchange's rolls and put them...where?
In that light, it might make practical political sense for state leaders to leave the potential downsides to the federal government...even if doing so results in laying the groundwork for a federal "takeover" of the nation's health insurance system, as some fear.
The Massachusetts experience also suggests that an exchange does not solve a lot of problems for small businesses. Absent a meaningful subsidy of some sort, there has been little sign that small businesses can get a better deal on small group coverage through the exchange than they can get in the general marketplace. That is unalloyed bad news, since exchanges will need a LOT of small group participation to grow and maintain any sort of rating integrity.
It'll arguably take a little more than 1/10th of one percent market share to enable that to happen. And of course, the inference is that 99.9% of Massachusetts small businesses are getting a better deal somewhere else.
I think there are a couple other, very important reasons for the difficulty facing the development of working health exchanges. One is that, to be frank, nobody's built a really good one yet. Massachusetts has made enormous (subsidized) investments in technology, infrastructure, and management bureaucracy, which has amounted to hundreds of millions of dollars, AND has had the benefit of national publicity for its efforts...and after all that, has acquired a 3.4% market share. The Connector's annual report is loaded with process metrics, but doesn't even mention that small fact.
And consider that, despite its fairly anemic showing, Massachusetts' experience is a thunderous success compared to the other operating public exchange, in Utah, where the exchange has been utilized by about 2,200 people.
It's hard to be a pathfinder. And for those who follow, it's nice to be able to look to a successful case study to illustrate what you'd like to be when you grow up.
Nonetheless, the feds have committed hundreds of millions of dollars into exchange development. What does success look like? I guess beyond adherence to federal regulations, the feds will know success when they see it.
But the BIG reason we haven't seen more focus on health exchanges is not strictly political: the big health insurers HATE the idea...
Market-leading health insurers are hard at work developing "private exchanges," which are essentially exercises in co-opting the language of health exchanges as they struggle to create software-based platforms and processes for "private label" exchange-type marketing channels.
This is why three big Blue Cross & Blue Shield plans bought a majority stake in Minneapolis-based Bloom Health. It was their intent 1) to keep anybody ELSE fro utilizing the Bloom platform, and 2)to use the Bloom platform/process as their own private fishin' holes....selling their products in their markets, so they could SAY that they were in the exchange business without actually becoming more efficient or transparent, or without risking that their products might be shown in comparison with other health plans.
The fact that Wellpoint/Anthem, which unveiled its Bloom Health portfolio to great fanfare in the fall, only to find that they weren't ready for prime time, ought to give entrepreneurs in the exchange business some comfort. The fact that Anthem struck a deal with the other high-profile "exchange operator," Liazon, creates opportunities for some outside-the-box innovation.
The market leaders won't play a real exchange game until they're forced into it. They have no incentive to do so.
One ought to ask: Who would benefit from a genuine health exchange? Consumers, for one. Health insurers which are not market leaders, for another. And health systems which might benefit from enhanced insurer competition (and a key differentiator against their own health system competition) would be a third.
Let's build a health exchange, okay?...
Those who had been living in political denial for the past couple years woke up after the election to find that The Affordable Care Act, which they'd been hoping Mitt Romney would make go away, was going to have to be implemented, after all. And among the biggest challenges entailed in implementing the law is developing and rolling out the electronic marketplaces called health exchanges in time to meet a federally-imposed deadline of January 1st, 2014...which, you might notice, is now less than a year away.
Doing that, it would seem, will be a tad more difficult than the experts might have expected.
First, as of December, 2012, only 19 states have introduced or passed legislation authorizing the formation of state-run exchanges. Only seven of these states have elected to develop an "active purchaser" model, whereby the exchange will negotiate with insurers to develop and market plans through the exchange itself (this type of exchange is modeled after the Connector in Massachusetts,which was the model for the exchange language built into PPACA). Six will serve as a clearinghouse, merely providing information and referrals on plans available to consumers, and another half dozen don't know WHAT they're going to do.
Seven states have elected to go with an as-yet-undefined "partnership exchange" with the federal government, whereby the feds will be doing...some things...and the states will be doing...some other things.
The remaining states have essentially punted to the feds, declining to develop their own exchanges and defaulting to whatever exchange the federal government eventually develops.
(A complete listing of which state is doing what is available from the Kaiser Family Foundation here:http://statehealthfacts.kff.org/comparemaptable.jsp?ind=962&cat=17)
It's no surprise that the majority of states which have chosen not to go forward with health exchanges of their own are headed by Republican governors. And many observers have noted the irony of "small government, state's rights" Republicans opting to default their right to operate and control health insurance regulation in their states (traditionally the states' purview) to the federal government.
But there might be a few good reasons a smart politician might drag his/her feet in setting up an exchange.
First, exchanges would seem to be quite costly to build and maintain. The fed has distributed tens of millions of dollars in grants to states wishing to establish their own exchanges, but has essentially left the cost of operating and maintaining exchanges to the states. In Massachusetts,the annual operating costs for operating the connector would appear to be about $30 million.
Beyond the operating costs, states have a legitimate fear of being stuck with some pretty hefty costs related to subsidizing the extension of coverage for the working poor. PPACA'a proposed subsidies for low-wage participants, and its small business tax credits, are scheduled to expire by 2017. The legislation is silent on what happens after that.
This is a big deal. Consider that the Massachusetts Connector, the only operating prototype, covers about 225,000 people after six years of operation....in a state with a total population of 6.6 million people. Of that number, over 190,000 participants are receiving subsidized coverage. Only 40,000 plan participants are purchasing non-subsidized health plans...and only about 2,500 of those participants are employees of small businesses...in a state with about 139,000 small businesses, which employ 2.7 million people.
(This means that the Connector, after 6 years of operation, has gained a whopping 3.4% total market share, and a market share of about 1/10th of one percent of small business employees...in a state in which purchasing health coverage has been mandatory since 2006...Just sayin'...)
The strong implication is that,when subsidies go away, states will be required either to pick up a gigantic tab, or may be forced to move people off the exchange's rolls and put them...where?
In that light, it might make practical political sense for state leaders to leave the potential downsides to the federal government...even if doing so results in laying the groundwork for a federal "takeover" of the nation's health insurance system, as some fear.
The Massachusetts experience also suggests that an exchange does not solve a lot of problems for small businesses. Absent a meaningful subsidy of some sort, there has been little sign that small businesses can get a better deal on small group coverage through the exchange than they can get in the general marketplace. That is unalloyed bad news, since exchanges will need a LOT of small group participation to grow and maintain any sort of rating integrity.
It'll arguably take a little more than 1/10th of one percent market share to enable that to happen. And of course, the inference is that 99.9% of Massachusetts small businesses are getting a better deal somewhere else.
I think there are a couple other, very important reasons for the difficulty facing the development of working health exchanges. One is that, to be frank, nobody's built a really good one yet. Massachusetts has made enormous (subsidized) investments in technology, infrastructure, and management bureaucracy, which has amounted to hundreds of millions of dollars, AND has had the benefit of national publicity for its efforts...and after all that, has acquired a 3.4% market share. The Connector's annual report is loaded with process metrics, but doesn't even mention that small fact.
And consider that, despite its fairly anemic showing, Massachusetts' experience is a thunderous success compared to the other operating public exchange, in Utah, where the exchange has been utilized by about 2,200 people.
It's hard to be a pathfinder. And for those who follow, it's nice to be able to look to a successful case study to illustrate what you'd like to be when you grow up.
Nonetheless, the feds have committed hundreds of millions of dollars into exchange development. What does success look like? I guess beyond adherence to federal regulations, the feds will know success when they see it.
But the BIG reason we haven't seen more focus on health exchanges is not strictly political: the big health insurers HATE the idea...
Market-leading health insurers are hard at work developing "private exchanges," which are essentially exercises in co-opting the language of health exchanges as they struggle to create software-based platforms and processes for "private label" exchange-type marketing channels.
This is why three big Blue Cross & Blue Shield plans bought a majority stake in Minneapolis-based Bloom Health. It was their intent 1) to keep anybody ELSE fro utilizing the Bloom platform, and 2)to use the Bloom platform/process as their own private fishin' holes....selling their products in their markets, so they could SAY that they were in the exchange business without actually becoming more efficient or transparent, or without risking that their products might be shown in comparison with other health plans.
The fact that Wellpoint/Anthem, which unveiled its Bloom Health portfolio to great fanfare in the fall, only to find that they weren't ready for prime time, ought to give entrepreneurs in the exchange business some comfort. The fact that Anthem struck a deal with the other high-profile "exchange operator," Liazon, creates opportunities for some outside-the-box innovation.
The market leaders won't play a real exchange game until they're forced into it. They have no incentive to do so.
One ought to ask: Who would benefit from a genuine health exchange? Consumers, for one. Health insurers which are not market leaders, for another. And health systems which might benefit from enhanced insurer competition (and a key differentiator against their own health system competition) would be a third.
Let's build a health exchange, okay?...
Thursday, September 20, 2012
First He Was For It, Then He Was Against It, Now He's...Sorta Stuck...
Poor Mitt Romney has had enough trouble these last couple weeks without my help, so I thought I'd hold off for awhile before looking more closely at his latest tap dance around the question of health care reform before sounding off about his disingenuousness. But it's a slow day today, so here goes.
As everyone paying even a LITTLE attention knows, one of the elephants in the room of the Romney campaign has been the little dichotomy between his denunciation of "Obamacare" and the fact that one of his key achievements as Governor of Massachusetts was the development of a health insurance reform plan...which served as the conceptual (if not the political) foundation of many of the insurance reforms found in PPACA. Even though the question of "How can you oppose something you took credit for creating in Massachusetts?" has dogged him since the campaign began, he never had a particularly clear answer.
Then last week, he got himself a little MORE twisted up when he suggested that, eve though he still thinks Obamacare is horrible, and needs to be repealed, there are a few parts of the law he sorta likes. They happen to be the provisions which have already been implemented in the marketplace, most notably the elimination of lifetime maximums on health policies and the extension of family health coverage to dependent kids under age 26 (for which, by the bye, our 23-year-old son is quite grateful).
He was not quite so glib about another PPACA provision: the elimination of pre-existing conditions exclusions. Apparently Governor Romney fully supports the elimination of those exclusions for those who already have health coverage, but not for those whose pre-existing coverage have thus far kept them out of the insurance pool.
Huh?...
Now The Tonight Show's Jay Leno is no investigative journalist. But during Romney's recent appearance of the show, Leno asked the obvious question: "A lot of guys I know, comedians, mechanics, waiters, who don't have health insurance now can't get it because they have some sort of pre-existing health condition. Don't we want to get them coverage?"
Romney's answer was typically maladroit: "Well, of course we want to get as many people covered as possible, but if one day a person shows up with cancer or a heart condition wanting to buy health coverage because they're sick, we want to be able to say, 'We don't play that game here.'"
Game?...
I only have three thoughts to share regarding this latest gaffe by the Republican candidate:
1) In expressing his support for the provisions he did, Romney joins the ranks of those faux-magnanimous insurance companies which pledged, even before the Supreme Court upheld PPACA, that they would not roll back the elimination of lifetime limits and the under-26 dependent provision.
In the insurers' case, it was meant to sound like a concession to the marketplace. It wasn't. The fact is that insurers have already baked the cost of these provisions into their products, and have found that those provisions haven't affected their profitability at all, and MAY have generated more cash for them. I've never known an insurer willingly to give up cash it's already collecting to reduce benefits.
Besides, lifetime limits have always been sort of bogus, and somewhere near six million generally healthy young adults who hadn't previously had health coverage have it now because of that new law...and this is PRECISELY the group which insurers want to cover, because they tend not to use health services very much; they're the "young invincibles" which insurers have wanted in their pools. They have them now, and they ain't giving them up.
For Romney, the concern is political. These are provisions of the law that have proved to be popular. And for all his rhetoric, he knows better than to be seen attacking a benefit which is already helping working families;
2) The arbitrary exclusion of some individuals from health coverage because of pre-existing conditions is one of the key reasons for our perceived health crisis. The use of health conditions to set prices in the small group and individual markets has always been a gimmick designed to benefit insurers.
I've written several times before about my case, which is typical: when my insurer found out from my medical questionnaire that I had a little hypertension (controlled with a medication which costs $3/month), a little gout (controlled with a medication which costs $4/month), and a borderline cholesterol count (also controlled with a $3/month prescription), my premiums TRIPLED over the initial quoted rate, from $600 to $1800/month. There's no excuse for that, except greed.
To be effective, health reform must reach out not just to the young and healthy, but must also provide access to coverage for those who've been excluded, AND provide some rate relief to those who are just getting screwed.
I'm not a big Obama fan. I think PPACA is a case of massive government overreach in many ways. But these insurance reforms represent good policy. Thus far, they've proven not to be costly; in fact, health costs for the last two years have risen only about a third as quickly as in the previous ten (as much a function of a recovering stock market, from which insurers get most of their profits when times are good, so they need to rely less on rates).
And insurers have had many years to see the light and enact some of these common-sense reforms voluntarily, and chose not to do so. Without the new law, it never would have happened.
3) As is the case with so many of his latest gaffes, this is an example of a presidential candidate who, whatever his core beliefs, has abandoned them for the sake of appeasing his rockhead conservative base. Most of the time, I'm guessing even HE doesn't believe what he's saying; he's just saying what his advisers brief him on. Whether on foreign policy, on health care, or on his "47%" gaffe, he's not speaking from his beliefs...he's talking back points he's heard from the people who surround him.
He's getting VERY bad advice. So when his answers sound cagey, or disingenuous, or just eye-poppingly inappropriate ("We don't play that game here"), he's only repeating what's been drilled into him by others. Sad...and scary...
As everyone paying even a LITTLE attention knows, one of the elephants in the room of the Romney campaign has been the little dichotomy between his denunciation of "Obamacare" and the fact that one of his key achievements as Governor of Massachusetts was the development of a health insurance reform plan...which served as the conceptual (if not the political) foundation of many of the insurance reforms found in PPACA. Even though the question of "How can you oppose something you took credit for creating in Massachusetts?" has dogged him since the campaign began, he never had a particularly clear answer.
Then last week, he got himself a little MORE twisted up when he suggested that, eve though he still thinks Obamacare is horrible, and needs to be repealed, there are a few parts of the law he sorta likes. They happen to be the provisions which have already been implemented in the marketplace, most notably the elimination of lifetime maximums on health policies and the extension of family health coverage to dependent kids under age 26 (for which, by the bye, our 23-year-old son is quite grateful).
He was not quite so glib about another PPACA provision: the elimination of pre-existing conditions exclusions. Apparently Governor Romney fully supports the elimination of those exclusions for those who already have health coverage, but not for those whose pre-existing coverage have thus far kept them out of the insurance pool.
Huh?...
Now The Tonight Show's Jay Leno is no investigative journalist. But during Romney's recent appearance of the show, Leno asked the obvious question: "A lot of guys I know, comedians, mechanics, waiters, who don't have health insurance now can't get it because they have some sort of pre-existing health condition. Don't we want to get them coverage?"
Romney's answer was typically maladroit: "Well, of course we want to get as many people covered as possible, but if one day a person shows up with cancer or a heart condition wanting to buy health coverage because they're sick, we want to be able to say, 'We don't play that game here.'"
Game?...
I only have three thoughts to share regarding this latest gaffe by the Republican candidate:
1) In expressing his support for the provisions he did, Romney joins the ranks of those faux-magnanimous insurance companies which pledged, even before the Supreme Court upheld PPACA, that they would not roll back the elimination of lifetime limits and the under-26 dependent provision.
In the insurers' case, it was meant to sound like a concession to the marketplace. It wasn't. The fact is that insurers have already baked the cost of these provisions into their products, and have found that those provisions haven't affected their profitability at all, and MAY have generated more cash for them. I've never known an insurer willingly to give up cash it's already collecting to reduce benefits.
Besides, lifetime limits have always been sort of bogus, and somewhere near six million generally healthy young adults who hadn't previously had health coverage have it now because of that new law...and this is PRECISELY the group which insurers want to cover, because they tend not to use health services very much; they're the "young invincibles" which insurers have wanted in their pools. They have them now, and they ain't giving them up.
For Romney, the concern is political. These are provisions of the law that have proved to be popular. And for all his rhetoric, he knows better than to be seen attacking a benefit which is already helping working families;
2) The arbitrary exclusion of some individuals from health coverage because of pre-existing conditions is one of the key reasons for our perceived health crisis. The use of health conditions to set prices in the small group and individual markets has always been a gimmick designed to benefit insurers.
I've written several times before about my case, which is typical: when my insurer found out from my medical questionnaire that I had a little hypertension (controlled with a medication which costs $3/month), a little gout (controlled with a medication which costs $4/month), and a borderline cholesterol count (also controlled with a $3/month prescription), my premiums TRIPLED over the initial quoted rate, from $600 to $1800/month. There's no excuse for that, except greed.
To be effective, health reform must reach out not just to the young and healthy, but must also provide access to coverage for those who've been excluded, AND provide some rate relief to those who are just getting screwed.
I'm not a big Obama fan. I think PPACA is a case of massive government overreach in many ways. But these insurance reforms represent good policy. Thus far, they've proven not to be costly; in fact, health costs for the last two years have risen only about a third as quickly as in the previous ten (as much a function of a recovering stock market, from which insurers get most of their profits when times are good, so they need to rely less on rates).
And insurers have had many years to see the light and enact some of these common-sense reforms voluntarily, and chose not to do so. Without the new law, it never would have happened.
3) As is the case with so many of his latest gaffes, this is an example of a presidential candidate who, whatever his core beliefs, has abandoned them for the sake of appeasing his rockhead conservative base. Most of the time, I'm guessing even HE doesn't believe what he's saying; he's just saying what his advisers brief him on. Whether on foreign policy, on health care, or on his "47%" gaffe, he's not speaking from his beliefs...he's talking back points he's heard from the people who surround him.
He's getting VERY bad advice. So when his answers sound cagey, or disingenuous, or just eye-poppingly inappropriate ("We don't play that game here"), he's only repeating what's been drilled into him by others. Sad...and scary...
Tuesday, August 28, 2012
What If The Health Care Cost Curve Doesn't (You Should Pardon The Expression) Get Bent?...And A Couple Other Questions
If I were a health care policymaker, I'd probably spend a whole lot more time than most of them do talking with real people who have real, "micro-world" questions which can illuminate the "macro-world" questions which the deep thinkers...well, think about.
Last week I spent a few hours over beers with a few friends who are pretty knowledgeable small business owners. Practical guys, with practical questions. The biggest one was this: Irrespective of the politics of Obamacare, what is the likelihood that some kind of regulatory or market force will actually bend the cost curve down?
Keep in mind that for most small business owners, annual premium increases of 15-25 percent per year have been the norm, not the exception. Even for fairly large small companies, premiums are doubling every five to six years.
I had to tell them the bad news: there's really nothing in the Affordable Care Act which has any concrete potential to reduce the rapidly-escalating price of health coverage, at least in the short to intermediate term.
That's because the Affordable Care Act essentially ignores the principal driver of health care cost increases: provider costs, especially on the hospital side.
Over eighty percent of health costs relate directly to payments to hospitals, physicians, drug and equipment companies, and other providers. And despite the potential promise of some of PPACA's experiments with delivery system reform, the likelihood is that those costs will continue to hyper-accelerate.
There is certainly a tempting target for cost containment: the estimated 210 billion dollars being spent on over-testing and over-treatment.
I wrote a little something about this phenomenon last year (http://polkiananalysis.blogspot.com/2011/10/economicsand-ethicsof-just-being-sure.html). And a recent column in The New York Times (http://well.blogs.nytimes.com/2012/08/27/overtreatment-is-taking-a-harmful-toll/?ref=health&wpisrc=nl_wonk ) expands on the theme.
Twenty to thirty percent of what we spend on health care can be retrospectively labelled as unnecessary. Let's pretend for a moment that, since one person's unnecessary treatment is another person's "do what it takes to help my Mom," only half that percentage is truly wasteful.
Would it/ should it be worth our time to figure out how to cut $100 billion or so per year out of our health expenditures? A reasonable person would say so.
But doctors get paid for how much they do. And while hospitals' primary business is treating disease, they are also in the business of maximizing revenue.
Unless there's a revolutionary (and counter-intuitive, for those revenue-conscious providers) trend toward awarding clinical efficacy versus the volume and intensity of services rendered, the cost curve isn't gonna bend appreciably over the next ten years or so. And until we can get to these root costs, we can expect to see health premiums double or triple over the same period.
What about defined contribution? Won't that have an effect on health costs?
A switch to a defined contribution will certainly do a lot to reduce small employers' cost exposure. But only by shifting the cost burden to employees, and making hyper-inflation their problem.
The myth of defined contribution is that employers will pass along a portion of the savings they experience by capping their own expenditures with their employees in the form of higher wages, which employees might use to pay for their share of health premiums. By and large, this won't happen.
The best example of why not is the proliferation of high-deductible health plans. The myth of HDHP's is that employers would establish partially-employer-funded Health Savings Accounts to enable their workers to cover their deductibles. Only about ten percent of small employers did this; the rest just saved the money.
And while defined contribution models are fine for large, self-insured employers...whose costs are lower to start with, and whose relationships with employees is largely...statistical...small employers tend to have personal relationships with their workers. Most (not all) understand that their employees are only a medical disaster from financial ruin. They see just unloading their problem on their workers not just as worrisome, but as an idea that can jump up and bite them, especially if their employees under-insure or, worse, take the employer contribution and pocket it.
Most small employers will not be subject to the mandate, but most suspect that, in the face of trouble, their employees, or their employees' lawyers, or, worse yet, the IRS, will be calling the business owner first.
My small business owner friends saw defined contribution as a short-term band-aid that simply sets the table for trouble down the road.
Won't health exchanges do something to reduce health costs?
I've written before that, properly organized and operated, health exchanges could do a lot to empower purchasers by aggregating demand and increasing purchasing power through effective administration and negotiation.
Haven't seen too many "active purchaser" exchange models yet. The Massachusetts Connector has certainly improved access for folks in that state, but hasn't had an appreciable effect on price increases.
And as of today, the vast majority of states have yet to begin seriously organizing their health exchanges; in fact, about 26 states have basically refused, for political and budgetary reasons, to consider getting into the exchange business. Most of these "hell, no, we won't go" states have Republican governors and legislatures.
It does strike me, a non-politician, as odd that these state leaders, proclaiming so loudly against federal interference in their health care systems, would default on the development of their own exchanges and create the scenario for a massive federal takeover of their health systems through the formation of a gigantic federal health exchange.
Maybe they're all expecting a Romney victory in November to make this issue go away.
But what if they guess wrong?
That's a damned fine question.
If they guess wrong, and President Obama is re-elected, I expect we'll see the Administration issuing waivers to states to give them more time to build their own exchange plans. So the "drop-dead date" for the formation of health exchanges will slip from January, 2014 to 2015 or later.
None of this should leave small business owners hopeful for long-term price relief any time soon. And yet, despite the confusion, the health insurance environment for small businesses hasn't really changed all that much. After all, if you've been swallowing 15-25 percent per year increases for the last 15 years, can it really get worse?
Last week I spent a few hours over beers with a few friends who are pretty knowledgeable small business owners. Practical guys, with practical questions. The biggest one was this: Irrespective of the politics of Obamacare, what is the likelihood that some kind of regulatory or market force will actually bend the cost curve down?
Keep in mind that for most small business owners, annual premium increases of 15-25 percent per year have been the norm, not the exception. Even for fairly large small companies, premiums are doubling every five to six years.
I had to tell them the bad news: there's really nothing in the Affordable Care Act which has any concrete potential to reduce the rapidly-escalating price of health coverage, at least in the short to intermediate term.
That's because the Affordable Care Act essentially ignores the principal driver of health care cost increases: provider costs, especially on the hospital side.
Over eighty percent of health costs relate directly to payments to hospitals, physicians, drug and equipment companies, and other providers. And despite the potential promise of some of PPACA's experiments with delivery system reform, the likelihood is that those costs will continue to hyper-accelerate.
There is certainly a tempting target for cost containment: the estimated 210 billion dollars being spent on over-testing and over-treatment.
I wrote a little something about this phenomenon last year (http://polkiananalysis.blogspot.com/2011/10/economicsand-ethicsof-just-being-sure.html). And a recent column in The New York Times (http://well.blogs.nytimes.com/2012/08/27/overtreatment-is-taking-a-harmful-toll/?ref=health&wpisrc=nl_wonk ) expands on the theme.
Twenty to thirty percent of what we spend on health care can be retrospectively labelled as unnecessary. Let's pretend for a moment that, since one person's unnecessary treatment is another person's "do what it takes to help my Mom," only half that percentage is truly wasteful.
Would it/ should it be worth our time to figure out how to cut $100 billion or so per year out of our health expenditures? A reasonable person would say so.
But doctors get paid for how much they do. And while hospitals' primary business is treating disease, they are also in the business of maximizing revenue.
Unless there's a revolutionary (and counter-intuitive, for those revenue-conscious providers) trend toward awarding clinical efficacy versus the volume and intensity of services rendered, the cost curve isn't gonna bend appreciably over the next ten years or so. And until we can get to these root costs, we can expect to see health premiums double or triple over the same period.
What about defined contribution? Won't that have an effect on health costs?
A switch to a defined contribution will certainly do a lot to reduce small employers' cost exposure. But only by shifting the cost burden to employees, and making hyper-inflation their problem.
The myth of defined contribution is that employers will pass along a portion of the savings they experience by capping their own expenditures with their employees in the form of higher wages, which employees might use to pay for their share of health premiums. By and large, this won't happen.
The best example of why not is the proliferation of high-deductible health plans. The myth of HDHP's is that employers would establish partially-employer-funded Health Savings Accounts to enable their workers to cover their deductibles. Only about ten percent of small employers did this; the rest just saved the money.
And while defined contribution models are fine for large, self-insured employers...whose costs are lower to start with, and whose relationships with employees is largely...statistical...small employers tend to have personal relationships with their workers. Most (not all) understand that their employees are only a medical disaster from financial ruin. They see just unloading their problem on their workers not just as worrisome, but as an idea that can jump up and bite them, especially if their employees under-insure or, worse, take the employer contribution and pocket it.
Most small employers will not be subject to the mandate, but most suspect that, in the face of trouble, their employees, or their employees' lawyers, or, worse yet, the IRS, will be calling the business owner first.
My small business owner friends saw defined contribution as a short-term band-aid that simply sets the table for trouble down the road.
Won't health exchanges do something to reduce health costs?
I've written before that, properly organized and operated, health exchanges could do a lot to empower purchasers by aggregating demand and increasing purchasing power through effective administration and negotiation.
Haven't seen too many "active purchaser" exchange models yet. The Massachusetts Connector has certainly improved access for folks in that state, but hasn't had an appreciable effect on price increases.
And as of today, the vast majority of states have yet to begin seriously organizing their health exchanges; in fact, about 26 states have basically refused, for political and budgetary reasons, to consider getting into the exchange business. Most of these "hell, no, we won't go" states have Republican governors and legislatures.
It does strike me, a non-politician, as odd that these state leaders, proclaiming so loudly against federal interference in their health care systems, would default on the development of their own exchanges and create the scenario for a massive federal takeover of their health systems through the formation of a gigantic federal health exchange.
Maybe they're all expecting a Romney victory in November to make this issue go away.
But what if they guess wrong?
That's a damned fine question.
If they guess wrong, and President Obama is re-elected, I expect we'll see the Administration issuing waivers to states to give them more time to build their own exchange plans. So the "drop-dead date" for the formation of health exchanges will slip from January, 2014 to 2015 or later.
None of this should leave small business owners hopeful for long-term price relief any time soon. And yet, despite the confusion, the health insurance environment for small businesses hasn't really changed all that much. After all, if you've been swallowing 15-25 percent per year increases for the last 15 years, can it really get worse?
Wednesday, June 6, 2012
Will CO-OPs Bring A Sense Of "Community" Back To Health Care?
Okay, so...
The Supreme Court has upheld the constitutionality of PPACA. And the sun came up the next day.
I don't expect that the Court's decision changed anybody's mind about Obamacare. People who hated it still hate it, and are adjusting their political strategies accordingly. And those who hailed the law still like it.
But only in Washington does passing (or sustaining) a law mean the same thing as solving a problem. With the constitutionality of the law settled (for now, at least), the next focus should be on execution...implementation of some parts of the law that could have a positive impact on the availability of affordable health coverage in a more transparent and competitive market.
And one element of Obamacare which may have the potential to change a few markets is, in effect, an experiment to turn back the clock to a simpler (and vastly less expensive) time, when the health of a community was in the hands of community members themselves.
These experiments are called "Consumer Operated And Oriented Plans," or "co-ops."
Before there was employer-sponsored health coverage, before there were insurance companies, health care was often a community responsibility. The "communities" were church groups, ethnic organizations, or "benevolent societies," self-selecting communities through which members cared for one another. Everybody pitched in a little money, and if any member became ill, the "community" would assist the family in meeting medical expenses.
Those societies began to be replaced in the 1930's by Blue Cross and Blue Shield plans, larger, non-profit mutual insurance companies with Boards selected from among the members. These plans became the vehicles through which, especially after World War II, large employers began to provide health coverage to their workers, with the premiums covered as a substitute for wages, which were frozen for a time after the War.
Relatively few of these not-for-profit entities remain in the market today. The Cross and Shield plans began consolidating in the '90's into corporate giants. The Boards of a number of once-prominent non-profit health plans decided around the same time that their members' interests would be best served by being acquired by larger companies, the proceeds of the sale being used to set up foundations to maintain a sense of "community purpose."
Each step in the evolution of non-profit benevolent societies into corporate giants has moved health plans an additional step or two away from the interests of the member/customer/patient. With few exceptions, health plans are very large, very corporate, and their leaders are very dependent upon meeting the expectations of Wall Street, rather than of "Main Street."
That could begin to change...Maybe...
Thus far, 16 non-profit groups in 16 states have received nearly $1.25 billion in loans to establish non-profit health plans whose governing bodies will be selected from among their members, and whose surplus earnings (if there are any) will be re-invested in the development of improvements to the plans themselves, rather than distributed among stockholders. A complete list of the groups which have received funding is here: http://www.healthcare.gov/news/factsheets/2012/02/coops02212012a.html.
With the issue of PPACA's constitutionality settled, these groups should begin receiving funds to get themselves organized, and to achieve the killer deadline of bringing new, non-profit health plans into their markets by December, 2013, with coverage effective dates of January 1, 2014.
Most of these erstwhile co-ops have already announced their plans to offer plans in co-operation with their states' insurance exchanges...even in states which have yet to act to get into the exchange business.
The non-profits sponsoring these co-ops have considerable expertise, and some presence, in their states' health care and insurance markets, often as Medicare and Medicaid managed care plans. Some have a particular affinity for groups within their states, i.e., targeted markets to serve; the biggest winner is New York's Freelancers Union, which has won $340 million in loans to create plans for self-employed professionals in New York, New Jersey, and Oregon.
All of these groups have pledged to be "not just another insurance company." In many cases, that translates into pay for co-op leaders which is not "excessive." Other than that, plus the composition of their Boards (presumably volunteers), and their pledge to re-invest their surplus earnings, I'm hard-pressed to see what important differentiations will separate them from all those other insurance companies.
Co-ops must still enter into agreements with hospitals, physicians, and other providers, at some cost. Some co-ops are sponsored by existing managed care plans, which see branching out into the private market as a way to augment patient volume. Will those providers expect their privately-insured customers to be treated at about the same rates as their Medicare and Medicaid recipients, or will they expect a higher rate of payment, thus leading to the cost shifts typical of most provider networks?
How will they distribute and sell their products? Will they try to develop networks of agents, and pay them accordingly, or will they take the risk of experimenting with more cost-effective, technology-oriented marketing solutions?
While they may be technically non-profit, presumably the co-ops will still be subject to state premium taxes. They will have to maintain state-mandated reserves. The plans will need to comply with all coverage mandates required by their states.
My sense is that, whatever they may SAY, in real life, co-ops will need to operate very much like real insurance companies in order to compete and succeed in the marketplace. They're going to have to pay providers, sell products to customers, pay claims, and market themselves in states which are already dominated by huge competitors with very deep pockets. A very tall order.
The way for these groups to succeed will be 1) to get some sort of preferential pricing from providers (good luck), 2) keep their administrative ratios under 15%, 3) sell direct via the Web, and 4) use whatever short-term advantages they can produce to create enough critical mass (customers) to strengthen their hands in their continuing dealings with providers who want to get paid.
Co-ops will work best if their Boards see themselves as advocates for their members, and are in a position to negotiate in a constructive, but adversarial way with their providers. AND if their product and pricing mix is attractive enough that their markets view the co-ops as THEIR health plans, working for them. Part of that will be marketing, but a LOT will be execution, for the long term.
A famously aggressive Cleveland hospital CEO once responded to being cut out of a regional PPO network by starting up her health system's own health plan. To attract providers, the plan offered higher levels of reimbursement than the big PPO did. To attract distribution, the plan offered higher commissions. Employees of the health system were required to obtain coverage through the system's own health plan. At first, there was a lot of fanfare, including the CEO's own pronouncement that "any fool can run a health plan." The company soon went bust. Turns out the CEO was right: Any fool CAN run a health plan. But it takes a very special kind of fool to run a health plan right...and for the right reasons: to benefit the members collectively, for the long term...
The Supreme Court has upheld the constitutionality of PPACA. And the sun came up the next day.
I don't expect that the Court's decision changed anybody's mind about Obamacare. People who hated it still hate it, and are adjusting their political strategies accordingly. And those who hailed the law still like it.
But only in Washington does passing (or sustaining) a law mean the same thing as solving a problem. With the constitutionality of the law settled (for now, at least), the next focus should be on execution...implementation of some parts of the law that could have a positive impact on the availability of affordable health coverage in a more transparent and competitive market.
And one element of Obamacare which may have the potential to change a few markets is, in effect, an experiment to turn back the clock to a simpler (and vastly less expensive) time, when the health of a community was in the hands of community members themselves.
These experiments are called "Consumer Operated And Oriented Plans," or "co-ops."
Before there was employer-sponsored health coverage, before there were insurance companies, health care was often a community responsibility. The "communities" were church groups, ethnic organizations, or "benevolent societies," self-selecting communities through which members cared for one another. Everybody pitched in a little money, and if any member became ill, the "community" would assist the family in meeting medical expenses.
Those societies began to be replaced in the 1930's by Blue Cross and Blue Shield plans, larger, non-profit mutual insurance companies with Boards selected from among the members. These plans became the vehicles through which, especially after World War II, large employers began to provide health coverage to their workers, with the premiums covered as a substitute for wages, which were frozen for a time after the War.
Relatively few of these not-for-profit entities remain in the market today. The Cross and Shield plans began consolidating in the '90's into corporate giants. The Boards of a number of once-prominent non-profit health plans decided around the same time that their members' interests would be best served by being acquired by larger companies, the proceeds of the sale being used to set up foundations to maintain a sense of "community purpose."
Each step in the evolution of non-profit benevolent societies into corporate giants has moved health plans an additional step or two away from the interests of the member/customer/patient. With few exceptions, health plans are very large, very corporate, and their leaders are very dependent upon meeting the expectations of Wall Street, rather than of "Main Street."
That could begin to change...Maybe...
Thus far, 16 non-profit groups in 16 states have received nearly $1.25 billion in loans to establish non-profit health plans whose governing bodies will be selected from among their members, and whose surplus earnings (if there are any) will be re-invested in the development of improvements to the plans themselves, rather than distributed among stockholders. A complete list of the groups which have received funding is here: http://www.healthcare.gov/news/factsheets/2012/02/coops02212012a.html.
With the issue of PPACA's constitutionality settled, these groups should begin receiving funds to get themselves organized, and to achieve the killer deadline of bringing new, non-profit health plans into their markets by December, 2013, with coverage effective dates of January 1, 2014.
Most of these erstwhile co-ops have already announced their plans to offer plans in co-operation with their states' insurance exchanges...even in states which have yet to act to get into the exchange business.
The non-profits sponsoring these co-ops have considerable expertise, and some presence, in their states' health care and insurance markets, often as Medicare and Medicaid managed care plans. Some have a particular affinity for groups within their states, i.e., targeted markets to serve; the biggest winner is New York's Freelancers Union, which has won $340 million in loans to create plans for self-employed professionals in New York, New Jersey, and Oregon.
All of these groups have pledged to be "not just another insurance company." In many cases, that translates into pay for co-op leaders which is not "excessive." Other than that, plus the composition of their Boards (presumably volunteers), and their pledge to re-invest their surplus earnings, I'm hard-pressed to see what important differentiations will separate them from all those other insurance companies.
Co-ops must still enter into agreements with hospitals, physicians, and other providers, at some cost. Some co-ops are sponsored by existing managed care plans, which see branching out into the private market as a way to augment patient volume. Will those providers expect their privately-insured customers to be treated at about the same rates as their Medicare and Medicaid recipients, or will they expect a higher rate of payment, thus leading to the cost shifts typical of most provider networks?
How will they distribute and sell their products? Will they try to develop networks of agents, and pay them accordingly, or will they take the risk of experimenting with more cost-effective, technology-oriented marketing solutions?
While they may be technically non-profit, presumably the co-ops will still be subject to state premium taxes. They will have to maintain state-mandated reserves. The plans will need to comply with all coverage mandates required by their states.
My sense is that, whatever they may SAY, in real life, co-ops will need to operate very much like real insurance companies in order to compete and succeed in the marketplace. They're going to have to pay providers, sell products to customers, pay claims, and market themselves in states which are already dominated by huge competitors with very deep pockets. A very tall order.
The way for these groups to succeed will be 1) to get some sort of preferential pricing from providers (good luck), 2) keep their administrative ratios under 15%, 3) sell direct via the Web, and 4) use whatever short-term advantages they can produce to create enough critical mass (customers) to strengthen their hands in their continuing dealings with providers who want to get paid.
Co-ops will work best if their Boards see themselves as advocates for their members, and are in a position to negotiate in a constructive, but adversarial way with their providers. AND if their product and pricing mix is attractive enough that their markets view the co-ops as THEIR health plans, working for them. Part of that will be marketing, but a LOT will be execution, for the long term.
A famously aggressive Cleveland hospital CEO once responded to being cut out of a regional PPO network by starting up her health system's own health plan. To attract providers, the plan offered higher levels of reimbursement than the big PPO did. To attract distribution, the plan offered higher commissions. Employees of the health system were required to obtain coverage through the system's own health plan. At first, there was a lot of fanfare, including the CEO's own pronouncement that "any fool can run a health plan." The company soon went bust. Turns out the CEO was right: Any fool CAN run a health plan. But it takes a very special kind of fool to run a health plan right...and for the right reasons: to benefit the members collectively, for the long term...
Tuesday, May 1, 2012
"The Uninsured" Aren't "Them"...They're Us...
A report by the Commonwealth Fund should serve as a reminder that "the uninsured" are not a single population, but instead a diverse group of individuals who, for many different reasons, share one thing in common: for some period of time, they lack health coverage. And when that happens, they're often on their own...not in the "rugged individualist" or "free rider" context often suggested by their critics, but because they're essentially frozen out of the market by current "pre-PPACA" industry practices.
More information on the complete study is available here:http://www.commonwealthfund.org/Publications/Issue-Briefs/2012/Apr/Gaps-in-Health-Insurance.aspx
Commonwealth's study of over 2,300 individuals found that twenty-six percent of Americans went without health insurance for some period of time in 2011. And for the most part,those without coverage lost it because they'd lost their jobs.
Seven out of ten of those who lost their employment-based coverage were uninsured for more than a year. There are a number of reasons.
Because the continuation of coverage provisions under COBRA are mandatory only for companies with more than 20 workers (and often COBRA administrative services aren't available to groups with fewer than 20 employees), one reason for the coverage gap is that a continuation of employer-sponsored coverage isn't available to them at any price.
And even for COBRA-eligible employees, the cost of continuing coverage under COBRA, at the employer's cost plus two percent, makes it too expensive for families whose earning power has already been undermined by a layoff.
The individual market is no solution in most states. Individual policies tend to cost more, and cover less, than do group plans. And because most states still permit insurers to deny applicants for individual coverage due to health concerns, forty-five percent of those who applied for non-group coverage couldn't find any at an affordable cost.
For those who have the money, but are shut out of the market due to health, high-risk insurance pools can be a partial solution. Some states, and the federal government, operate plans to provide subsidized coverage for those with pre-existing conditions which make them ineligible for commercial coverage. The Federal government recently reported that over 50,000 Americans had enrolled in its temporary Pre-Existing Conditions Insurance Plan (PCIP) in its first 18 months of operations.
Participants in the PCIP rang up some $1.45 billion in health costs, largely for big-ticket items such as cancer and COPD. The plan's participants' costs averaged nearly $29,000 per person, and required a direct federal subsidy of some $600 million to augment what they'd paid in in premiums.
Looked at in another way, given that the current average per-employee cost of health coverage is about $13,000 per year, each participant in the PCIP requires at least one premium-paying adult to utilize nothing in order to create a subsidy for one PCIP participant.
In an earlier article (http://polkiananalysis.blogspot.com/2012/02/one-percent-most-of-us-are-headed-for.html), I pointed out that it takes six people paying premiums and using zero coverage to subsidize the costs on each member of the country's one percent of highest utilizers of health services. And it takes three healthy Americans to subsidize the costs of the next highest four percent of utilizers.
In "the olden days," health care coverage was sold on a "community-rated" basis, with an explicit understanding that those who didn't use a lot of health coverage would be paying a little more for their coverage so that those who really needed it could pay a little less.
The market has "evolved" to a point at which sharp dealers in the insurance business have convinced us that the insurance market is an "everyone for himself" market, in which we should pay for what our own coverage costs, with no sense of responsibility for the "community" in which we live and work. And, of course, many insurers have made a tidy buck by finding ways to avoid covering individuals whose needs would require more of a subsidy than their own premiums could cover. This sort of "precision..." dividing up the underwriting world into universes of one...has neither moderated health premiums for everyone nor made coverage more accessible to those who need it.
Instead we've created "ghettos" in which these "high-risk" individuals either receive crappy coverage at high costs, or are forced to do without.
And we demonize "the uninsured" as freeloaders who take advantage of "us..." a classic gambit of "blame the victim."
But increasingly, the uninsured aren't "them." They're us...our neighbors, our family members, our friends...and their families.
I can't speak for the big thinkers, but Ive had the experience of being without work, and of being expected to find $1800 a month for health coverage which my insurer initially offered me for $600 a month, till they found out I had a little high blood pressure and asthma.
It was agonizing to go without, but the monthly premiums were the equivalent of a monthly mortgage payment. We prayed every day that we'd remain healthy, and that our kids wouldn't break a leg playing soccer.
I didn't feel like a freeloader. I was terrified for my family. We were very close to the edge, and a single significant health problem would have driven us into the 40% of Americans whose bankruptcy filings are due to health care expenses. But our insurer's position was, "It costs what it costs. Take it or leave it."
We were lucky to find a job with employer-sponsored benefits eight months later.
I'll never forget that terrible time. But for most of The Deep Thinkers, with their comfy jobs and generous health benefits, that'll probably never be a worry. That makes it easier for them to think of the uninsured as "them."
Maybe a year or two without health coverage for all members of Congress would remind them that they're one of us.
More information on the complete study is available here:http://www.commonwealthfund.org/Publications/Issue-Briefs/2012/Apr/Gaps-in-Health-Insurance.aspx
Commonwealth's study of over 2,300 individuals found that twenty-six percent of Americans went without health insurance for some period of time in 2011. And for the most part,those without coverage lost it because they'd lost their jobs.
Seven out of ten of those who lost their employment-based coverage were uninsured for more than a year. There are a number of reasons.
Because the continuation of coverage provisions under COBRA are mandatory only for companies with more than 20 workers (and often COBRA administrative services aren't available to groups with fewer than 20 employees), one reason for the coverage gap is that a continuation of employer-sponsored coverage isn't available to them at any price.
And even for COBRA-eligible employees, the cost of continuing coverage under COBRA, at the employer's cost plus two percent, makes it too expensive for families whose earning power has already been undermined by a layoff.
The individual market is no solution in most states. Individual policies tend to cost more, and cover less, than do group plans. And because most states still permit insurers to deny applicants for individual coverage due to health concerns, forty-five percent of those who applied for non-group coverage couldn't find any at an affordable cost.
For those who have the money, but are shut out of the market due to health, high-risk insurance pools can be a partial solution. Some states, and the federal government, operate plans to provide subsidized coverage for those with pre-existing conditions which make them ineligible for commercial coverage. The Federal government recently reported that over 50,000 Americans had enrolled in its temporary Pre-Existing Conditions Insurance Plan (PCIP) in its first 18 months of operations.
Participants in the PCIP rang up some $1.45 billion in health costs, largely for big-ticket items such as cancer and COPD. The plan's participants' costs averaged nearly $29,000 per person, and required a direct federal subsidy of some $600 million to augment what they'd paid in in premiums.
Looked at in another way, given that the current average per-employee cost of health coverage is about $13,000 per year, each participant in the PCIP requires at least one premium-paying adult to utilize nothing in order to create a subsidy for one PCIP participant.
In an earlier article (http://polkiananalysis.blogspot.com/2012/02/one-percent-most-of-us-are-headed-for.html), I pointed out that it takes six people paying premiums and using zero coverage to subsidize the costs on each member of the country's one percent of highest utilizers of health services. And it takes three healthy Americans to subsidize the costs of the next highest four percent of utilizers.
In "the olden days," health care coverage was sold on a "community-rated" basis, with an explicit understanding that those who didn't use a lot of health coverage would be paying a little more for their coverage so that those who really needed it could pay a little less.
The market has "evolved" to a point at which sharp dealers in the insurance business have convinced us that the insurance market is an "everyone for himself" market, in which we should pay for what our own coverage costs, with no sense of responsibility for the "community" in which we live and work. And, of course, many insurers have made a tidy buck by finding ways to avoid covering individuals whose needs would require more of a subsidy than their own premiums could cover. This sort of "precision..." dividing up the underwriting world into universes of one...has neither moderated health premiums for everyone nor made coverage more accessible to those who need it.
Instead we've created "ghettos" in which these "high-risk" individuals either receive crappy coverage at high costs, or are forced to do without.
And we demonize "the uninsured" as freeloaders who take advantage of "us..." a classic gambit of "blame the victim."
But increasingly, the uninsured aren't "them." They're us...our neighbors, our family members, our friends...and their families.
I can't speak for the big thinkers, but Ive had the experience of being without work, and of being expected to find $1800 a month for health coverage which my insurer initially offered me for $600 a month, till they found out I had a little high blood pressure and asthma.
It was agonizing to go without, but the monthly premiums were the equivalent of a monthly mortgage payment. We prayed every day that we'd remain healthy, and that our kids wouldn't break a leg playing soccer.
I didn't feel like a freeloader. I was terrified for my family. We were very close to the edge, and a single significant health problem would have driven us into the 40% of Americans whose bankruptcy filings are due to health care expenses. But our insurer's position was, "It costs what it costs. Take it or leave it."
We were lucky to find a job with employer-sponsored benefits eight months later.
I'll never forget that terrible time. But for most of The Deep Thinkers, with their comfy jobs and generous health benefits, that'll probably never be a worry. That makes it easier for them to think of the uninsured as "them."
Maybe a year or two without health coverage for all members of Congress would remind them that they're one of us.
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