If Medicare Advantage Rates Are Going to Be Cut, Why Have the Big Medicare HMO Stock Prices Been Up Since the Election?

That question came from Matt Holt today over at his blog: The Health Care Blog.

Good question.

As any regular reader of this blog knows, I have been arguing that the Democratic Congress is going to cut Medicare Advantage payments to HMOs as soon as they get their hands on the federal budget.

If that is a good bet, why wouldn't Medicare HMO stocks be reflecting that risk? Instead, they have generally been up nicely in value since the election.

It is also notable that Wall Street analysts have estimated that Medicare Advantage HMOs will receive a 3% to 4% payment increase in 2008--based upon the payment policies instituted by the Republican Congress.

In fact, a number of key managed care analysts just reaffirmed their confidence in the Medicare HMOs. Matt Perry of Wachovia recently wrote, "We view 3% as a reasonable increase that will sustain membership growth and margins for most plans in 2008." Carl McDonald of CIBC wrote that some Medicare Advantage plans might have to reduce benefits a bit because health care inflation will likely be more than 3% to 4%, "which means products will not be as attractive as they are this year." Matt Borsch of Goldman wrote, "It appears likely that the 2008 MA rate increases will lag medical-cost trend, implying a modest level of benefit reductions and/or member-paid premium increases will be needed to maintain profit margins." However, "We continue to believe that the [Medicare Advantage] program will provide strong growth for managed care companies in 2007 and 2008." (Source: Kaisernetwork.org 2/22)

So, Wall Street would appear very confident that Medicare HMO payments will continue at minimal, but adequate, levels in 2007 and 2008. Based on the fantastic Medicare Advantage profits reported by the Medicare HMO players in 2006, they apparently feel confident the Medicare Advantage growth and margins will remain strong through 2008.

However, all of this is based on CMS continuing to pay the HMOs from the Republican payment base.

Apparently, these analysts don't think the Democrats will be able to cut Medicare Advantage payments presumably because they think the number of seniors enjoying these plans constitute a powerful political force and because George Bush will still wield a powerful Presidential veto until January 2009.

I will counter that they don't know Pete Stark, John Dingell, Charlie Rangel, and Ted Kennedy very well. They also don't understand the power committee chairmen have in the Congress--particularly late in the budget process. They also don't seem to understand how badly the Democratic Congress needs the Medicare Advantage "over payments."

The CBO report yesterday, estimating these "over payments" to be worth $65 billion over five years, just put the icing on the Democratic cake.

Wall Street needs to do a better job of factoring in the political risk to Medicare Advantage plans:

• A Bush veto will do the MA plans no good --an earlier post.
• Why the Democrats Hate Medicare Advantage Plans--an earlier post.
• Why the Democrats need the MA money--an earlier post.

The Democratic Congress certainly won't be able to impact 2007 Medicare Advantage payments making the next few quarters almost certain to look good for the Medicare HMOs. It may also be that the Congress won't be able to impact 2008 payments since that process will pretty much be put to bed by this summer. But maybe not--the Congress makes the rules and the Congress can change the rules. And, then there will be 2009--maybe the first real Democratic budget year for the HMOs.

Whey are the HMO stocks doing so well in the face of these Medicare Advantage political risks?

Short-term versus long-term.

Since when did Wall Street care about the long-term?

CBO Pours Gasoline on the Democratic Plans to Cut Medicare Advantage Payments to HMOs

Told you so.

For some time I have been warning that the Medicare Advantage payments to HMOs are going to be "target number one" when it comes time for Democrats to reshuffle the federal health care spending priorities after 12 years of Republican Congressional rule.

For the last year, a number of estimates have put the "over payments" to HMOs when compared to the traditional Medicare plan at around 10%.

Now the Congressional Budget Office has made it all official. The CBO says that $64.8 billion could be saved between 2008 and 2012 by equalizing payments to Medicare Advantage plans and the traditional Medicare program (see summary of CBO report) .

The CBO also suggests that eliminating Medicare Advantage subsidies to underserved rural areas could save $3.5 billion. In an earlier post I said that the rural members of Congress will likely be more protective of these payments than other things.

But the bottom line is that the CBO has given the Dems the numbers they needed--the Democratic Congress is coming after Medicare Advantage plans.

A Bush veto will do the MA plans no good --an earlier post.
Why the Democrats Hate Medicare Advantage Plans--an earlier post.
Why the Democrats need the MA money--an earlier post.

There is a Health Care Reform Plan That Doesn't Duck the Big Issues--and More Than 100 Heavyweight Stakeholders Support It!

Without an effective cost containment strategy to go along with it, reforming the health care system would be like piling millions of more people back onto a system whose costs are unsustainable. It would be like trying to re-board the Titanic!

As I have said before, many of these new health reform plans ignore the real issue--the cost of health care.

But there is one health care proposal that doesn't duck the tough issue.

Health care costs are the problem. The 47 million that are uninsured are just a symptom. Here's a real blast of wisdom for you--47 million people don't have health insurance because their family can't afford it, or their employer can't afford it, or their government can't afford it, or some combination.

So, why do all the health reform plans just try to pile millions of more people back on board a system we can't afford to keep afloat?

Massachusetts is struggling to launch their new health reform plan because the cost of the mandated policy is too high (recent post). In the end, all of the new health reform plans will struggle with the same cost issues if they don't face them head-on. In Massachusetts, getting their costs down to $250 per person per month (they are above that now) would develop a $9,000 mandated health insurance policy for a family of three. Over $48,000 per year (three times the poverty level), that family would have to pay the full cost of this mandated policy.

Does it sound to you like Massachusetts is going to actually launch its new universal health reform plan????

Taxpayers are going to launch the Massachusetts legislature if they try to implement that mandate.

In the past few weeks we have seen a number of key health care stakeholders come together, sometimes in surprising combinations, to support health care reform. Sometimes they've been some pretty strange bedfellows.

But none of them are dealing with that big fat elephant in the room--the cost of health care--any more than Massachusetts is.

But what if I were to tell you that more than 100 REALLY BIG and diverse stakeholders have already come together in support of a far-reaching health care reform proposal that doesn't duck any of the issues--the uninsured, cost, or quality.

The organizations and individuals are a "Who's Who" of those that use health care services, pay for it, insure it, deliver it, think about it, advocate for it, and pray on it.

Just take a look at this list:

AARP

Actors' Equity Association

AFL-CIO

Ahold U.S.A., Inc.

Alliance of Motion Picture and Television Producers

American Academy of Family Physicians

American Academy of Pediatrics

American Association of Community Colleges

American Association of State Colleges and Universities

American Cancer Society

American College of Nurse Midwives

American Council on Education

American Dental Education Association

American Federation of State, County, and Municipal Employees (AFSCME), AFL-CIO

American Federation of Television and Radio Artists

American Federation of Teachers,AFL-CIO

American Fiber & Finishing S.C., Inc.

American Water

Association of American Universities

Blue Shield of California

California Medical Association

California Public Employees' Retirement System (CalPERS)

California State Teachers' Retirement System (CalSTRS)

Catholic Charities, USA

CodeBlueNow!

Colorado Public Employee Retirement Association

Communications Workers of America

Duke Energy

Duke University Medical Center

The Episcopal Church

Exelon Corporation

General Electric

Giant Food, Inc.

Gross Electric, Inc.

Group Health Cooperative

Illinois Municipal Retirement Fund

International Brotherhood of Electrical Workers, AFL-CIO

International Brotherhood of Teamsters Union, AFL-CIO

International Federation of Professional & Technical Engineers, AFL-CIO

International Foundation for Employee Benefit Plans

Iowa Farm Bureau

Kaiser Permanente

Kellogg Company

Michigan BlueCross BlueShield

Maternity Center Association

Motion Picture Association of America

Motion Picture and Television Fund

National Association of Chain Drug Stores

National Association of Childbearing Centers

National Association of Independent Colleges and Universities

National Conference on Public Employee Retirement Systems

National Consumers League

National Coordinating Committee for Multi-Employer Plans

National Council of Churches of Christ in the U.S.A.

National Council on Teacher Retirement

National Education Association

New York State Common Retirement Fund

New York State Teachers' Retirement System

Presbyterian Church (U.S.A.)

Principal Financial Group

Public Employees Retirement System of Ohio

Qwest Communications

Religious Action Center of Reform Judaism

Salvation Army

Sheet Metal Workers International Union

Southern California Gas Company

State Teachers Retirement System of Ohio

Stop & Shop, Inc.

Union of American Hebrew Congregations

United Food and Commercial Workers International Union, AFL-CIO

UnitedHealth Group

United Methodist Church - General Board of Church and Society

United States Conference of Catholic Bishops

United Steelworkers of America, AFL-CIO

Utility Workers Union of America, AFL-CIO

Visteon Corporation

Former President George Bush

Former President Jimmy Carter

Former President Gerald R. Ford

The Honorable Frank Carlucci
Chairman Emeritus
The Carlyle Group
Former Undersecretary, HEW
Former Secretary of Defense

The Honorable Thomas Daschle
Former Majority Leader of the United States Senate

The Honorable Robert Dole
Former Majority Leader of the United States Senate

The Honorable Robert Michel
Former Minority Leader of the United States House of Representatives

The Honorable George Mitchell
Former Majority Leader of the United States Senate

The Honorable Paul H. O'Neill
Former U.S. Secretary of the Treasury
Former Chairman
ALCOA

The Honorable Louis W. Sullivan, M.D.
President
Morehouse School of Medicine
Former Secretary, HHS

The Honorable Harris Wofford
Former Senator from Pennsylvania

Henry J. Aaron, Ph.D.
Senior Scholar
The Brookings Institution

Stuart Altman, Ph.D.
Professor of National Health Policy
Heller School
Brandeis University
Former Chairman, ProPAC

Marcia Angell, M.D.
Editor-in-Chief Emeritus
The New England Journal of Medicine

Donald M. Berwick, M.D., M.P.P.
President and CEO
Institute for Healthcare Improvement

Roger J. Bulger, M.D.
President and CEO
Association of Academic Health Centers

Charles C. Edwards, M.D.
Former President
Scripps Clinic & Research Institute
Former Commissioner, FDA
Former Assistant Secretary of Health Education and Welfare

Harvey V. Fineberg, M.D., Ph.D.
President, Institute of Medicine - National Academy of Science
Former Provost, Harvard University
Former Dean, Harvard School of Public Health

Rev. Theodore M. Hesburgh, C.S.C.
President Emeritus
University of Notre Dame

Michael E. Johns, M.D.
Executive Vice President for Health Affairs
Emory University Health Care System

John D. McArthur
Dean Emeritus
Harvard Business School

John Mendelsohn, M.D.
President
Univesity of Texas, M.D. Anderson Cancer Center

James J. Mongan, M.D.
President and CEO
Partners HealthCare System, Inc.

William Novelli
CEO
AARP

Uwe E. Reinhardt, Ph.D.
James Madison Professor of Economics and Public Affairs
Princeton University

Arnold S. Relman
Editor in Chief Emeritus
New England Journal of Medicine
Professor of Medicine Emeritus
Harvard Medical School

William C. Richardson, Ph.D.
Former President and CEO
W.K. Kellogg Foundation
President Emeritus
John Hopkins University

Steven A. Schroeder, M.D.
Distinguished Professor of Health and Health Care
University of California -- San Francisco
President Emeritus
Robert Wood Johnson Foundation

Graham B. Spanier
President
The Pennsylvania State University

John Sweeney
President
AFL-CIO

Samuel Thier, M.D.
Professor of Medicine and Proffessor of
Health Care Policy
Harvard Medical School
Former CEO
Partners HealthCare System, Inc.
Former President
Institute of Medicine
(Source: NCHC website)

Each of these individuals and organizations are part of something called the National Coalition on Health Care.

The National Coalition on Health Care has been unambiguous in calling for a systematic approach to a systemic set of problems:

• Health Care Coverage for All--They call for mandatory coverage and could live with a number of ways to accomplish this including schemes that involve the use of employer and individual mandates, Medicaid and S-CHIP expansion, individual subsidies, and a number of related ideas as part of a multifaceted approach.
• Cost Management - While everyone else with these health reform plans either ignores the real problem in the U.S. health care system, or fritters around on the edges with it, these folks hit it head-on. They cover the usual list of things like better information and patient incentives, BUT MOST IMPORTANTLY, they also take things to the next step--"An independent board, chartered and overseen by Congress, should be responsible for establishing and administering...measures for calibrating rates and limitations that keep costs and premiums in alignment with defined annual targets."
• Improvement of Health Care Quality and Safety - Their federal board would lead the development of, and coordinate, a national effort to improve quality and set common treatment standards and as well as oversee protocols for patient records, prescription ordering, billing standards, and privacy standards. Finally, a referee to get us on with this.
  
• Equitable Financing - The plan could be funded from a wide variety of sources including general revenues, earmarked taxes and fees, employer contributions, individual contributions, and co-payments. Sliding scale assistance would be provided to lower-income citizens.
• Simplified Administration - A core benefit package would create a consistent set of ground rules for patients, payers, and providers. The creation of a national information technology structure for health care would decrease costs and errors.

Their Complete Plan Document

The National Coalition on Health Care reform plan is very similar to many of the plans that have recently come on the scene from Massachusetts to California--with one HUGE exception. They have a cost containment plan that has teeth. Big, ugly, tough, teeth that will upset a lot of very powerful players in the health care system.

But wait! They are a lot of the big powerful players in the health care system!

The feds told us last week that we are well on the way to 20% of our GDP being wrapped up in health care in just ten years (from 16% today).

It's time--well past time actually--to have a serious national debate not just about how to get more people into the health care system but about how we do it in a way that we can afford it long-term. That means talking about big, ugly, tough ways to actually control our costs with something that has teeth.

That does not mean we should all favor a Canadian-style system. Government and the private sector can easily coexist in the health care world (and do). This group of corporations, unions, providers, politicians, and preachers have a plan that can do it. But let's quit kidding ourselves that the market is going to do it all by itself--any minute now.

For all you folks out there now screaming, "Government controls," let me ask you just one question? What do you think of Ben Bernanke and Alan Greespan? You know, the guys from that independent federal board that artificially controls the U.S. money supply? That wonderful capitalist institution of mega government managment.

If the U.S. health care system needs one thing it is the management of its money supply and the Federal Reserve, with its political independence, is a good model to follow.

Does anyone else want to join these guys on the reality side of the debate?

Health Care Policy and Marketplace Blog: http://healthpolicyandmarket.blogspot.com/

Deja Vu in Massachusetts--We've Been Down this Road Before--The Massachusetts Health Care Plan and Health Care Costs

The good news is that the health policy world is full of new and exciting health care reform proposals.

The bad news is that while these plans focus on the all important access problems (the uninsured) they almost ignore the underlying problem that makes so many people uninsured in the first place--health care costs.

With the federal government (The National Health Statistics Group at CMS) projecting that we will spend 20% of GDP on health care by 2016 (from 16% today) it is clear cost is something we can not ignore.

Cost is the big elephant in the room none of these reformers seems to be ready to hit head-on. That came home last month when the Massachusetts Health Plan regulator announced that the average bids for its new plan came in at $380 per member per month—much higher than the original $200 estimate.

Even if the regulator can get the cost of their mandated plan down to $250 per month, that would mean a family of three would be expected to pay $9,000 per year. In Massachusetts, a family of three making more than three times the poverty level ($48,000 per year) is expected to pay the full cost of coverage. It is going to be very hard to implement this plan by forcing a family like this to pay almost 20% of its pre-tax income for health insurance. The regulator can get the price down by cutting benefits—but how do you help this family by putting a big deductible on the program, or otherwise cutting what they get, for their $9,000 per year?

There is this story about a Governor from Massachusetts who runs for president touting his role in passing a state universal health reform bill, when reform was stymied at the federal level. He boasts that his reform legislation will eliminate almost all of the uninsured in his state because it mandates coverage for everyone and is therefore a model for other states and the Congress to follow.

No, I am not thinking of Mitt Romney, I’m thinking about Michael Dukakis, circa 1988.

Just after Dukakis lost the presidency to George H.W. Bush, Massachusetts repealed the universal health care bill because mandating expensive health insurance coverage payers couldn’t afford made the whole system go tilt.

Sound familiar?

If Massachusetts doesn’t solve their affordability problem they are going to dump a big bucket of cold water on all of this new health care reform enthusiasm.

They will also remind us of what the cause of America's health care crisis is--it is cost.

The uninsured are just the biggest symptom.

Barack Obama is a Rookie on Health Care Policy Reform

Barack Obama was recently quoted as saying he would institute a system of universal health care by the end of his first term. He provided no other details for what would be the Obama Health Care Reform Plan.

He is apparently new at this--health care reform policy and fixing America's health care problems.

Apparently, he doesn't understand it is the details that matter when it comes to health care reform. Or maybe he thinks people are so enamored of him that they aren't going to worry about his being able to deliver the rest in any kind of detail. We just need his leadership, optimism, and fresh ideas (whatever they are) to lick this most frustrating of domestic issues.

Obama better be careful with his health care policy naivete. It just may be that health care will be the issue that gives him a taste of political reality!

See if you can find the plan (sort of like finding Waldo): The Obama speech to the Families USA Conference 1/07.

Does the Massachusetts Health Plan Make Mit Romney Vulnerable Among Conservatives?

Former Massachusetts Governor Mitt Romney is working hard to boost his popularity among conservative Republicans. He seems to be saying all the right things for conservatives. That, plus the longstanding suspicion conservative Republicans have had for both Rudy Giuliani and John McCane have given Romney a shot at the party's powerful conservative wing.

Romney has a certain amount of health care reform credibility in the run up to the 2008 elections because he signed the Massachusetts Universal Health Bill. That legislation was a major bipartisan accomplishment when no one at either the state or federal level has been able to accomplish much toward solving the problem of the uninsured.

But that accomplishment could turn into a real political problem for Romney among those same conservatives if the program isn't able to get past a very serious threat to its success. As we have posted before, the average insurance company bids for the mandated health plan averaged $380 per person per month--or $13,680 per year for a family of three. When the legislation was passed, it was estimated the average per person monthly cost would be $200.

The Mass regulator is now in the midst of trying to solve that problem by looking at more limited plan designs and pressuring insurers to bid more aggressively. But that will be very hard because a comprehensive health plan insurance plan just plain costs that much in Massachusetts.

The regulator can add deductibles and big copays to get the cost down. However, what good does it do to give a poor person a health insurance plan with a $2,000 deductible?

The Mass regulator has a choice--pay the real cost of a health insurance policy or offer some stripped down coverage that does a low income person little good.

The middle class would fare no better. A family of three making more than three times the poverty level ($48,000 per year) would be expected to pay the full cost of a family policy--$13,680 per year at the $380 average premium. Even if the regulator gets the premium down to $300 per person the annual cost for a family of three would be $10,800 per year--23% of a $48,000 before tax income. And, that policy might have a $2,000 front-end deductible.

What kind of reaction do you think conservatives are going to have if they hear Romney is taking credit for a health insurance bill that requires all Mass families to buy a health insurance policy at those prices?

Conservatives seem to be getting more and more interested in a Romney candidacy.

But if the Massachusetts health plan looks like just another fiscally irresponsible foray into health care policy, Mitt Romney's conservative honeymoon many be over.

Congressman Waxman Ought to Ask AARP How Much Money It's Making on Medicare Part D

House Oversight and Government Reform Committee Chair Henry Waxman recently sent a letter to the CEOs of the 12 largest Part D insurers. In it, he asked them to provide the Committee with information on their Part D profit, drug discounts, rebates, and administrative costs.

Two of these insurers--Kaiser Permanente and Highmark--are "not-for-profit" insurers.

I am more curious about another "not-for-profit" that has had a lot to do with Part D--AARP.

The 2003 Medicare Modernization Act, that established the latest version of Medicare Advantage and created the new Medicare Part D drug benefit, would not have become law without AARP's last minute intervention in that Congressional debate. You might recall that the bill passed the House only after the then Republican leadership kept the vote open until 4 am. Part D almost died a couple of days later in the Senate when a cloture vote, that allowed the Senate to move on the bill, barely carried.

Part D was headed for defeat when, at the last moment, AARP jumped in and tilted a very close vote in favor of creating the new drug benefit.

AARP is one of the biggest winners in the Part D business. At year-end, almost 3.2 million seniors bought the AARP Part D drug plan.

AARP isn't telling us how much money they are making off the product--in commissions, administrative fees, and advertising in its periodicals.

Why not? It is a transparent not-for-profit organization that exists solely to serve its members isn't it? Why the big secret?

If the average Part D premium for the AARP program is just $1,200 per senior, those 3.2 million purchasers of the AARP Part D plan are developing $3.8 billion in revenue for the insurer.

Public Citizen says their overall "royalties" have historically been 2.9% of insurance premium. That would mean $3.2 billion in Part D premiums would get them more than $90 million a year in payments.

Now, I don't know what AARP is collecting on Part D--because they aren't saying. They did say in their 2005 financial report that they collected $379 million in "royalties" including those from all of their insurance programs. They also collected another $23 million in investment income on the "premium float." That was the year before Part D went into effect.

I know of someone who should be asking them--Henry Waxman.

Mr. Chairman, if it's OK to ask two "not-for-profit" health insurers how much they are making on Part D, why can't you ask the non-profit who had the huge hand in creating Part D in the first place--AARP?

Don't be fooled by the "not-for-profit" moniker. The world is full of non-profit institutions that perpetuate themselves and take care of their own narrow special interests (universities, hospitals, insurance companies...). AARP's net assets (or retained profits) at the end of 2005 were $339 million. You just have to wonder what kind of boost Part D will give that number when their 2006 results are published.

There is even a report that the insurer and AARP lost money on the Part D program in the first year because of start-up marketing costs. If that is true, so what? That's why they are called "start-up costs." Now that 3.2 million people have purchased the coverage their marketing costs have plummeted.

Conflict of interest is usually a big deal in Washington, DC. These days they are sending Congressmen to jail who get their day job too mixed up with their side business ventures.

Why should AARP get a free pass?

This sounds like just the sort of question Henry Waxman does a good job of asking.

President Bush Has a Proven Strategy to Fix the Individual Health Insurance System!!!

The Bush administration has already implemented an individual health insurance system that is voluntary, community rated, and excludes no one--no matter what their age or health status.

President Bush's recent proposal to reform the health insurance system (see post) is based upon greater use of the individual health insurance system. He would eliminate the employee tax exemption on employer-provided health care and substitute a standard deduction of $7,500 for individuals and $15,000 for families.

His proposal is a non-starter in the Democratic Congress as it is.

But, now 10 Republican and Democratic Senators are signaling they are willing to work with the White House on a reform plan (see post) that puts the employer health care tax preference on the table. As a result, there may be some long-term hope for the many conservatives who would like to rebuild the U.S. health care system in a way that transfers the ownership of coverage to the individual.

Proponents of an individual-based health insurance system argue that the employer system has too often sheltered consumers from the real cost of health care and that has had a great part in driving costs up.

Others, often Democrats, want to build on the existing employer-based health insurance system and believe the most efficient way to provide care is through the largest risk pools that employers--and existing government programs--generally provide.

Both sides make good points and my own opinion is that both an employer-based system and an individual-based system can work. They can even work together.

However, one of the most legitimate complaints regarding the individual-based system--and the Bush proposal--is that the individual health insurance market is nowhere near where it needs to be to offer affordable coverage (see post).

In the individual market today, a healthy 20-year-old can get coverage for less than $1,000 per year. But a 60-year-old might pay $5,000 per year. If that 60-year-old is sick, they probably wouldn't be able to get coverage at all. These, and other issues endemic to the individual market, make it unusable in its current form as any kind of platform to deal with the large number of uninsured we have.

But, George Bush knows how to fix the individual health insurance market.

In fact, he's been incredibly successful at showing us a model in the individual market that insures more than 10 million Americans.

His administration has successfully launched individual health coverage that charges the same price no matter how old you are--there are people in his system that are a good 30 years apart in age--and the price doesn't vary based upon their health status. In his system, everybody gets coverage no matter how sick they are--as long as they sign up when they are eligible. And, they don't have to buy the coverage--it's completely voluntary and about 10% of the people haven't bought it. It's also an incredibly (and to me surprisingly) competitive market with insurers tripping over each other to participate. In fact, the price for coverage is lower than most of us thought it would be. And, those that have low incomes get direct premium support so they can afford it.

Yep, it's Part D.

In Part D, we have 65-year-olds and we have 95-year-olds--a 30 year spread. We have healthy people who don't take any drugs and we have the sickest and most expensive patients in the country in Part D--all paying the same price for the same policy. We have more insurers than we need all competing on product and price and the number of those offering Part D increased this year.

The individual market can work---------and George Bush knows how to do it!!

Who would have thought!!!

Now if he would just take his tax proposal and fill in the rest of the details.

Rural Health Care and Medicare Advantage Plans--A Sacred Cow for Both Republicans and Democrats?

If you have been reading this site for any time you know that I believe the Democrats are going to cut Medicare Advantage payments to the HMOs the first time they get their hands on the federal budget (see earlier post).

But I also think there may be an exception to what will generally happen to Medicare Advantage (MA) HMOs--payments to plans operating in "rural" areas.

The original Medicare Modernization Act of 2003 (that created MA plans and Part D) passed in great part because of the support of "rural" Senators--both Democrats and Republicans. Right at the top of that list is Charles Grassley (R-IA) who chaired the Senate Finance Committee at the time. A key Democratic Senator from a rural state who made passage possible was Max Baucus (D-MT). Baucus worked closely with his good friend and partner Grassley on the Medicare bill. Now, Baucus is running the all-important Senate Finance Committee.

These "rural" Senators were brought onside, in part, because of the payment levels MA plans and Part D plans were going to get in the rural areas. The rural Senators wanted assurance that coverage would be provided to their constituents just as it would be in the larger markets. A longtime complaint among this group had been the lack of access to private Medicare plans in the rural areas under the old funding arrangements.

If you need any evidence for how rural Senators work together to safeguard rural health care you only need look at a group of seven Democratic Senators, led by Senate Majority Leader Harry Reid (D-NV), who are criticizing the Bush budget for the cuts it would make to some of their favorite rural health care programs.

The group of seven Democratic Senators also includes Lincoln (AR), Dorgan (ND), Conrad (ND), Klobuchar (MN), and Salazar (CO).

I do believe that Medicare Advantage payments to HMOs will be cut in the next year--in great part because of what the powerful House Committee Chairs, all big city guys who hate Medicare Advantage, will do.

I also believe that the rural Senators--Democrats and Republicans--will work to mitigate those cuts in the rural areas to protect the gains they finally got for their constituents under the Medicare Act in 2003.

Payment differentials for rural areas are not new. Prior to the 2003 Act, payments for Medicare PPOs were better in the rural areas then they were in the big cities because of the influence of the rural Senators.

The longterm outlook for Medicare Advantage may be better in the rural areas then it will be in the rest of the country.

10 Bipartisan Senators Offer a Health Care Reform Outline

Just a few weeks ago I wrote a post that began, it's a new day in the health care debate. Health care reform is breaking out all over.

My point was that I haven't seen such enthusiasm for reform since the early 90's and the resulting Clinton Health Plan effort. Everyone seems to have a plan--not the least of which are offered by some very powerful bedfellows.

That trend continued this week when five Republican Senators and five Democrats sent President Bush a letter arguing it's time to move forward. They outlined only broad points that included:

• Universal coverage done in a way that protects Medicare and Medicaid.
• Agreeing with Bush that the current tax treatment of employer health benefits needs to be on the table. The value of that tax benefit is almost $200 billion a year--money that can be shifted to pay for new coverage.

These concepts cover the things that many Democrats want--reform built upon existing programs--and something many Republicans favor--moving away from the employer-based system toward one more oriented to individual responsibility.

There isn't a lot of detail here.

What there is--and this is huge--is a bipartisan agreement that we need to find common ground and begin to solve this problem. They are saying the possible is more important than the perfect because this problem just can't continue for the good of our people and our global competitiveness.

The initial White House reaction, to what was merely an invitation to begin a process, was positive.

As I have said before, major health reform will not occur until after the next election and we elect a new President and Congress--in great part based upon what they say about health care reform. This debate needs a great deal more progress beyond the conceptual level it is at.

But the process is under way----for real.

Health reform is breaking out all over!!

Mitt Romney Looking for Support Among Conservative Republicans--A Health Care Achilles Heel?

Former Massachusetts Governor Mitt Romney is working hard to boost his popularity among conservative Republicans. He seems to be saying all the right things for conservatives. That, plus the longstanding suspicion conservative Republicans have had for both Rudy Giuliani and John McCane have given Romney a shot at the party's powerful conservative wing.

Romney has a certain amount of health care reform credibility in the run up to the 2008 elections because he signed the Massachusetts Universal Health Bill. That legislation was a major bipartisan accomplishment when no one at either the state or federal level has been able to accomplish much toward solving the problem of the uninsured.

But that accomplishment could turn into a real political problem for Romney among those same conservatives if the program isn't able to get past a very serious threat to its success. As we have posted before, the average insurance company bids for the mandated health plan averaged $380 per person per month--or $13,680 per year for a family of three. When the legislation was passed, it was estimated the average per person monthly cost would be $200.

The Mass regulator is now in the midst of trying to solve that problem by looking at more limited plan designs and pressuring insurers to bid more aggressively. But that will be very hard because a comprehensive health plan insurance plan just plain costs that much in Massachusetts.

The regulator can add deductibles and big copays to get the cost down. However, what good does it do to give a poor person a health insurance plan with a $2,000 deductible?

The Mass regulator has a choice--pay the real cost of a health insurance policy or offer some stripped down coverage that does a low income person little good.

The middle class would fare no better. A family of three making more than three times the poverty level ($48,000 per year) would be expected to pay the full cost of a family policy--$13,680 per year at the $380 average premium. Even if the regulator gets the premium down to $300 per person the annual cost for a family of three would be $10,800 per year--23% of a $48,000 before tax income. And, that policy might have a $2,000 front-end deductible.

What kind of reaction do you think conservatives are going to have if they hear Romney is taking credit for a health insurance bill that requires all Mass families to buy a health insurance policy at those prices?

Conservatives seem to be getting more and more interested in a Romney candidacy.

But if the Massachusetts health plan looks like just another fiscally irresponsible foray into health care policy, Mitt Romney's conservative honeymoon many be over.

Waxman Investigates Part D Medicare Drug Plans

When the Democrats took over the Congress I pointed out that not only would they launch a health care legislative agenda of their own but they would also focus on the oversight of existing health care policy.

Their greatest interest was always going to be the new Medicare Advantage plans and the Part D Medicare drug benefit. While the Democrats don't have the votes to repeal either of these popular programs, they do have the ability to impact them in the budget process and in their oversight activities. The House Democratic chairmen (Dingell, Rangel, Stark, and Waxman) tend to be more liberal then many of their Democratic colleagues--particularly the recently elected Dems--and have a far more cynical view of the Republican policy that has given the private markets a substantial stake in the Medicare program (see an earlier post on why the Democrats hate Medicare Advantage).

So it wasn't at all surprising when House Oversight and Government Reform Chair, Henry Waxman, held a hearing looking into the operation of the Part D Medicare Drug plan last Friday.

His specific focus was whether Part D private insurers are passing on the savings from drug price negotiations or whether too much of those savings are being taken in profit. He heard testimony arguing that if the government were in charge of negotiating drug prices it would be clear just how much of the benefit of lower drug prices was being passed on to seniors.

The subject of his first set of Medicare oversight hearings is somewhat surprising since by all accounts the cost of Part D to both the government and to consumers has been less than anyone originally thought it would be.

What will make this interesting is Waxman's promise to ask the HMOs just how profitable their Part D drug plans are.

But as I have said before, this is not so much about the details of the private market in Medicare as it is a deep philosophical concern on the part of these powerful Democratic chairmen that the privatization of Medicare is the wrong way to go.

This will be the first of many attacks on the privatization of Medicare in preparation for an even more direct assault on what was a centerpiece of Republican health care policy--using the private market to "modernize" Medicare.

Don't Forget Consumer Choice in Reforming the Health Care System!

Bill Boyles is the publisher of Consumer Driven Market Report and Health Market Survey. He is one of the most effective spokesmen for the consumer driven movement and the effectiveness of the market in managing the cost and quality of care.

Today, he reminds us that those offering the new reform proposals shouldn't forget consumer choice:

The Uninsured Need Consumer Choice First

The only humane way to help the uninsured is to let them choose how much they can afford out-of-pocket and then enroll in that plan. Dozens of studies show why: the vast majority of people lacking insurance simply cannot afford it. Offering them unaffordable options is not only unworkable, it’s cruel.

Allowing people to choose high deductibles is never mentioned by all the Wal-Marts and coalitions and pious employer alliances. That’s too much detail. Once the cameras are packed up the job is over and the pious groups are delighted by headlines saying the issue is reaching new heights.

The worst example of this cruelty is the Massachusetts plan and its progeny in other states. They give the uninsured no choice at all under the guise of allowing them to choose their plan in brightly-colored brochures. The victim then finds out they cannot choose a low-premium plan which matches how much they can afford in out-of-pocket costs for their own family. It’s a false promise – hiding under the guise of “we know how much you need and we won’t offer you a cheaper plan because it’s not good enough.”

Surprise. You can’t force Americans to buy health insurance they can’t afford -- even if it is what they need. Even if it is what’s best for “the system.”

The irony here is that a better solution is endorsed by both Sen. Kennedy on the left and conservative health economists on the right. The new Kennedy plan offers all families a choice of plans via the federal employees program model, including varying deductibles, copays and premiums. The same distribution model is endorsed by the Heritage Foundation and others.

The state plans do not even have to go that far. They could offer the uninsured a choice of five plans with five levels of out-of-pocket costs and five levels of premium. These plans can easily be mandated to have low-cost prevention coverage too. No government-developed standardized benefits package can outguess the personal selection of a health plan when family income is so low that comprehensive coverage is out of the question.

For 30 years Americans have been told they cannot be offered things like high deductibles with low premiums because it’s bad for them and the system. It’s time for all of these companies and coalitions and Wal-Marts to stop the self-righteous talk and give the people a choice of what they can afford.

Mental Health Parity Legislation--This May Be the Year

Federal legislation that would require health plans to cover mental illnesses in the same way they cover other illnesses has been on the Congressional health care agenda for years.

The late Democratic Senator Paul Wellstone of Minnesota, along with his Republican colleague Pete Domenici of New Mexico, have been the longtime bipartisan champions of eliminating what are common limitations on coverage for mental illness. After Wellstone's untimely death in a plane crash, the issue picked up even more supporters--not the least of which was President Bush in 2002.

It has been clear for sometime that, even in the Republican Congress, there have been enough votes in both the House and the Senate to pass bipartisan mental parity legislation and that the President would sign it.

Employer groups and health insurers have lobbied against mental health parity legislation concerned that we not start a along list of federal benefit mandates.

Year after year, mental health parity legislation has languished in the Congress because then House Speaker Dennis Hastert would not let it come to a vote.

I don't think I am going out on a limb to predict that the current Speaker, Nancy Pelosi, is likely to take a different position.

This legislation will now follow "regular order" which means it will go through the appropriate committees before coming to either floor. Senator Kennedy has already predicted the legislation will pass his Senate Health, Education, and Labor Committee.

Mental health parity legislation appears to be an issue whose time has come in 2007.

Joe Paduda Reflects on Today's Great Times in the Casualty Insruance Business

Joe Paduda may well be the smartest observer of the casualty insurance business--particularly the workers compensation sector.

He recently had the following post on his bog, Managed Care Matters:

Happy Days are Here Again

Seventy years. That's how long its been since the P&C insurance industry enjoyed profit levels like today's. The Dust Bowl was in full blow, there was no TV, half the people worked on farms, and Roosevelt II was just getting started.

The good old days are back.

Here are the numbers. The combined ratio for 2006 is projected to come in at 93.2, a 23 point improvement since the dark days of 2001; a striking turnaround. The combined ratio results make this one of those unusual periods when the return on investment in the P&C sector rivals other industries, an event that does not happen very often.

While profits are at record levels, premium growth is stagnant, with many lines of coverage seeing flat-to-declining renewal rates. That is an inevitable response to the favorable market conditions, as insurers are seeing relatively low losses and solid investment returns, making the insurance business a great place to invest excess funds. When, not if, but when claims results turn negative, expect to see the fair-weather funds fly off to greener pastures. If they're not gone, swept away by a catastrophic weather event or other disaster.

The problem with the insurance industry at times like these is the very short memory, nee ignorance, exhibited by recent entrants. The folks who are just jumping into the market see the returns and the tax and other advantages, and don't pay near enough attention to the reason they are getting those great returns - their capital is pledged to rebuild and repair.

But for now, enjoy!

The Edwards Health Plan--Where Are the Other Plans?

Democratic presidential candidate John Edwards has proposed a comprehensive health care reform plan. (See the entire plan on his site).

Good for him!

It is going to be very easy for all of us to point to all the things we don't like about it.

But I will suggest there is something more important for all of us to do--ask where all the other candidates, Democrat and Republican, are with their plans.

It is conventional political wisdom in this town to keep your own health reform agenda as vague as possible and hope the other candidates will shoot themselves in the foot with a detailed comprehensive health care plan.

The Clinton Health plan fiasco of 1993 and 1994 taught politicians to stay as far away from health care reform details as they possibly can. I used to say about the Clinton Plan that it was 1362 pages of which every man, woman, and child in American could find 300 pages to strongly disagree with--it's just that everyone had a different 300 pages to hate.

Health care is one of those issues that if you put any kind of detailed plan on the table you are going to gore a lot of very powerful oxen.

John Edwards has gored his share with this plan.

But, if the American public (and the health policy establishment) now does what all the other candidates want them to do--hoot it down hard--we will get what we have had in the past. The other candidates--Democrats and Republicans--will only confirm their fear of being too forthcoming with health care reform details and not tackle this issue. They will give us just vague platitudes about health care costs, quality, and the uninsured. But they will not tell us about the important parts of what they would do--which oxen they would gore and how.

Don't take this as an endorsement for Edwards or his plan. Just his willingness to put the plan out there, gore some oxen (and not gore some he should have), and his courage in doing it. Sure, he's a distant third in the Dem polls and a dark horse with nothing to lose and a lot to gain. But at least he did the right thing in putting his plan (really a 7 page outline) out there.

If we all do what the other candidates expect us to and give Edwards the usual cynical reaction then the remaining first tier presidential candidates get exactly what they want and we get exactly what we don't want.

Wouldn't it be great to suspend our health care policy cynicism for a few months and let the hooting be focused at the front runners who haven't put their detailed proposals (oxen and all) on the table?

If Clinton, Obama, McCain, Giuliani, Romney, and the rest, all gave us their details, then we'd have something really productive to talk about!

The Bush Budget--It's One Thing for People to Call You a "Lame Duck" and Another to Act Like It!

On health care, this Bush budget just tells me this President has given up.

To start with, he would let scheduled Medicare physician fee cuts simply take place. Those cuts, now estimated to be 8.5% on January 1, 2008, will under no circumstances take place at anywhere near that level (if at all) and everyone in Washington, DC knows that.

So why include this in your budget.

The Bush budget calls for more than $101 billion in five-year Medicare and Medicaid savings from not only doctors but also hospitals and nursing homes. His proposals would make a number of provider payment reductions permanent and would never pay providers a full inflation update--meaning they would fall further and further behind. Even members of his own administration are admitting the Democratic Congress is not going to even consider these ideas.

So, why include this in your budget?

The State Children's Health Insurance Program (S-CHIP) is seen as a huge bipartisan success for the 6.5 million kids it covers. What did the President propose? He would fund only part of it going forward--in fact a 4% decrease from 2007 funding. Both Republicans and Democrats in the Congress are not going to go along with that.

So, why include this in your budget?

My sense is that the President has given up on doing anything important on health reform. He is simply giving us a budget proposal that meets the overall objective of leaving office with the budget deficits falling. By creating this make-believe budget he can set overall spending and revenue targets--that contemplate his tax cuts remaining untouched--and say he laid out a workable budget plan.

So he can now sit back and say he hit the broader targets. Later when the Congress does what everyone knows they will do with health care spending he can say it was the "spendthrift" Congress--particularly the Democrats--that pushed the budget off his track toward a balanced budget.

Bush is just really giving up and sending all of these problems over to the Democratic Congress to make the real decisions.

The President is right when he says in his budget that both Medicare and Medicaid can not be sustained at these levels and are really going to be in trouble as the "baby boomers" start to retire in just a few years.

He also told House Democrats, at their retreat this weekend, that he wants to work with them on these hard health care issues before he leaves office.

Then why doesn't he?

You know, it's one thing for people to call you a "lame duck," it's another thing to act like it!

Bush Defends Medicare Advantage Plans--That and Five Bucks Will Get You a Six Pack

President Bush will shortly release his new budget. He will cut $70 billion from Medicare--largely from providers--and leave Medicare Advantage payments unchanged.

President Bush's budget is about as close to irrelevant as it can be. The Democratic Congress will start from scratch.

Doctors and hospitals have enormous clout on the Hill. Just as doctors have been able to protect their Medicare fees from the regular 5% "Sustainable Growth Rate" cuts so many years in a row, they will do so again. Democrats are just as close to the provider lobby as were the Republicans. If Republicans couldn't make these hard Medicare provider choices on the budget how does anyone expect the Dems to do so????

One of the more laughable contentions circulating in Washington today is that the Bush veto is going to protect Medicare Advantage plans from payment cuts. All you have to do is look at how the year-end "omnibus reconciliation" process works to know his veto will do no good once the Dems figure out just how much money they need from Medicare Advantage.

Last December, the Republican Congress wrote one giant "omnibus reconciliation" bill that combined 19 tax cut extensions, three trade bills (Andes, Vietnam, and Sub-Saharan Africa) and I don't know how many hundreds of other items. They also dropped a $7 billion cut to the Medicare Advantage stabilization fund into the final budget bill to override the "Sustainable Growth Formula" 5% cut to Medicare physician doctor fees for one year.

Congressional chairmen have enormous power to decide what is going to be in this last budget reconciliation bill. There were many things in last December's bill that never passed either house of Congress--like the health savings account (HSA) enhancements that became law in this bill.

Last year it was Republican chairman that drove the process. This year it is all Democratic chairman--and some very liberal Medicare Advantage haters at that (Dingell, Rangel, Stark, Kennedy).

My point is that if the Dems want to cut Medicare Advantage "over payments"--and they do--they can get them in the final "omnibus" package. If Bush wants to veto this year's package with this year's tax cuts, trade agreements, and the rest, he can. But the Dems will be smart enough to lard it up with things he has to have in order to protect the things they want.

Would Bush veto the whole final budget bill over Medicare Advantage payments and force a government shutdown-style show-down just to protect the extra Medicare Advantage payments? Dream on.

Get over it, Medicare Advantage payments are going to be cut!!!!

Don't bother to even read the Bush budget. This "lame duck" President is finished.

My post on why the Dems will change Medicare Advantage.
My post on how Medicare Advantage cuts will be used to fund the budget.
My post on why the Bush tax credit proposal will not be enacted anytime soon.

Medicare Drug Negotiation Legislation and a Drug Reimportation Bill––Will They Be Merged?

Legislation to give pharmacies and drug wholesalers the ability to take advantage of lower drug prices in places like Canada, where government controls produce much lower prices, has been introduced in the new Congress.

Unlike bills that would only give consumers this ability to import drugs—something lots of people are doing anyway—this would turn the market upside-down by letting the big U.S. pharmacy companies and drug wholesalers do it.

That means that health plans and large, self-insured employer groups could directly benefit from a drug reimportation scheme.

In the last Republican Congress, the votes were likely there to pass a drug reimportation bill but Republican leaders in both houses blocked it.

Now, with both houses led by Democrats, it is very possible we will see a drug reimportation bill make it through this Congress.

A new bill introduced by Senator Byron Dorgan (D-ND) and Olympia Snowe (R-ME), as well as Representative Rahm Emanuel (D-IL) and Jo Ann Emerson (R-MO) in the House, would establish the framework for wholesalers and retailers to purchase FDA-approved drugs from FDA-approved manufacturing facilities in foreign nations. In addition, the bill would require the FDA to regulate the shipments of prescription drugs reimported (originally manufactured in the U.S.) back into the U.S for personal or commercial use.

President Bush has said he will veto such a bill.

The question is not whether there are enough votes to pass such a bill in both houses, but whether there are the two-thirds votes necessary to override a veto.

It wouldn’t surprise me to see this bill eventually merged with a compromise drug negotiation bill that focuses on the one-of-a-kind drugs the Snowe/Wyden bill is targeted on.

Earlier posts on the Medicare Part D drug negotiation issue.