Monday, January 29, 2007

Medicare Advantage Payments to Insurers Will Be Cut

The State Children's Health Insurance Program (S-CHIP) needs to be reauthorized by the Congress. That will cost $13 to $15 billion over the next five years--something I detailed in an earlier post.

Compounding the S-CHIP budget dilemma, Medicare physicians are scheduled to have their fee payments cut by 10% on January 1, 2008.

When the last Congress reversed the scheduled 5% fee cut for 2007, in their last minute December budget vote, they actually deferred it for only one year. Another automatic 5% fee cut is required for 2008 under the “Sustainable” Medicare fee schedule rules that remain in effect.

That produces a total of 10% in Medicare physician fee cuts that will be required on January 1, 2008––unless the Congress can find the money to fix the problem once again.

The Congress will fix the problem again--just as it has done for many years in a row. Both Democrats and Republicans don't want to offend the doctor lobby.

All of this is courtesy of the then outgoing Republican Ways and Means Chair Bill Thomas, who retired at the end of the last Congress. It seems the Democrats’ longtime nemesis, by deferring the 2007 cut for only one year, got them yet one more time by leaving them this "time bomb" worth about $3 billion.

Fixing this “double whammy” 10% Medicare physician fee cut set for January 1, 2008 is probably worth $6 billion in the upcoming 2008 budget. And again, Democrats have pledged not to spend more money unless they either cut something else or raise taxes.

So we have two big Medicare and Medicaid bills coming due this year—about $6 billion for the one-year Medicare physician fee fix and $13 billion to $15 billion for five-year S-CHIP reauthorization.

Where will the Democratic Congress get it?

As I have been warning since the November election, a big target will be the private Medicare Advantage plan payments.

In the last moments of the Republican Congress, Republicans cut $7 billion from the $10 billion Medicare Advantage stabilization fund to pay for last year’s one-year Medicare physician fee cut fix and other Medicare payments.

I have no doubt that Democrats will take the other $3 billion as soon as they can and then they are going to start to cut into the bone of the 2003 Medicare Modernization Act to pay all of these new bills.

As the new House Ways and Means Health Subcommittee Chair, Pete Stark (D-CA) put it this month, “There are precious few areas we can save money. Medicare Advantage is a prime target to pick up a few dollars.” He pointed out that the “extra” Medicare Advantage payments are worth about $5 billion annually for what has been estimated to be Medicare Advantage payments that are 10% to 11% greater than those standard Medicare gets for the same seniors.

The Dems need lots of money just to keep just the current S-CHIP and Medicare programs going and Medicare Advantage is “Target Number One.”

The Individual Health Insurance Market Isn't Ready for Primetime

Julie Appleby has an article on the front page of Monday's USAToday covering an issue I dealt with in an earlier post--insurers using post-claim underwriting to rescind people's health insurance policies.

President Bush's health plan proposal would encourage consumers to buy their own health insurance. The President, and many others, believe that giving individuals more control over their health benefits is a good way to get consumers to more efficiently buy and use their health insurance.

That philosophy has some logic.

However, the individual health insurance market is nowhere near the place it needs to be to carry a major portion of the market:
  • Individual health insurance tends to be more expensive than group insurance because the cost of selling one policy at a time is more expensive than group health insurance.
  • People who are sick often can't get insurance. Most group health insurance is "guarantee issue" while individual programs need to protect themselves from consumers who delay buying insurance after they become sick.
  • Group health insurance charges one rate for all of the group's participants irrespective of a person's age. Individual health insurance charges relatively low rates for younger consumers and very high rates for older people.
On top of all of these challenges, the USAToday article reports that a number of individual health insurers have apparently become overly aggressive in administering their anti-fraud provisions.

The Bush health plan would be a big help to the individual health insurance market.

But, if these individual insurance companies don't clean up their act when it comes to "post-claim underwriting," no one is going to be able to help them.

Sunday, January 28, 2007

It's the Cost of Health Care Stupid!!!

We have seen a number of new health care proposals--many I recently cited in a post.

My old friend and health care policy mentor, Henry Simmons, who is President of the National Coalition on Health Care, recently released a statement on President Bush's health care proposal.

One of the key points he made is that any health reform proposal must be comprehensive and able to slow the growth in health care costs, "What America needs is a comprehensive approach to health care reform--a package of policies to assure health coverage to all Americans, slow the rate of increase in costs, and improve the quality and safety to care."

None of the health reform proposals currently on the table--not just the President's--deal in any substantive way with making the actual cost of health care more affordable.

That problem was brought home this past week when the new Massachusetts health plan regulator announced that the individual cost of the mandated base plan would average $380 per person per month. It was originally estimated to cost $200 per person per month when the bill passed the legislature last year.

The lesson is simple--you can mandate universal coverage but what difference does it make to do that if consumers and their government can't afford the price?

It may be that America is ready to take only an incremental step in health reform by expanding current public and private health plans.

But any of those expansions will only set up an imperative to finally find a way to deal with health care cost--and the related issues of quality.

Incremental reform will end up forcing comprehensive reform in the years that follow it because the lesson of Massachusetts will only repeat itself.

Doing comprehensive reform in the first place may the right way to do it.

But politically, incremental reform targeted on expanding access, that later creates the unavoidable imperative to deal with the cost of care, may be the only practical route.

Saturday, January 27, 2007

Is the Bush Health Plan Tilted Too Far In Favor of Health Savings Accounts (HSAs?)

Chris Lee has an article in today's Washington Post that raises an important question.

Has President Bush gone too far in tilting his new health care proposal in favor of health savings accounts (HSAs)?

The President would level the health insurance tax preference playing field for consumers whether they get their health insurance at their place of employment or buy it in the individual market.

But because both individuals and employees also get another tax break for their contributions to HSA accounts, some are arguing HSAs get a whole lot more in tax incentives for taking advantage of that kind of health plan.

For example, if an individual has a health plan under the Bush proposal, they would get an automatic tax exemption of $15,000 for family coverage. They would also get another tax deduction if they made a $5,000 contribution to a health savings account. Someone with a conventional plan would get only the first $15,000 in tax benefits under the President's new plan.

Someone in an employer plan today is not taxed on the value of the employer-based plan--no matter how much it costs and whether the employer made an additional contribution to an HSA (to HSA limits). Any additional HSA contributions by the employee, up to the federal limit, would be tax deductible.

Under current rules, it is possible for a person to take advantage of both the unlimited exemption on employer-provided health insurance and the specific HSA tax benefits.

However, under the President's new plan, the federal tax preference for an insurance plan would be capped at the limits and HSA contributions would not come under the $7,500/$15,000 cap on health benefit tax exemptions.

Does this tilt the Bush Plan too far in favor of HSAs?

Wednesday, January 24, 2007

Health Savings Accounts (HSAs) and The Massachusetts Plan--Two Great Experiments

In the wake of the President Bush's new health plan, much has been said about whether we should move to reform the health care system by building upon the traditional employer-based system (preferred by most Dems) or move to a system more controlled by individuals (preferred by most Republicans and the President).

Democrats claim the President's plan would wreck the employer-based system--something that has worked fairly well for the majority of people who have health insurance there.

Republicans claim that the employer-based system simply insulates consumers from the true cost of health care with its rich benefits and that consumers need to be more in control of what is spent for them so that they are better consumers. HSAs are the answer many of these people look to.

The President might have had a chance of getting his plan through Congress in the Republican heyday three or four years ago but this Democratic Congress is not going to give him the time of day on his recent proposal. Nor will Democrats likely be able to move anything major with their slim majorities and a Republican presidential veto at hand.

But let's look at the bright side.

We have two great health care experiments underway:
  • Recent HSA legislation that enables us to assess these Republican ideas.
  • The Massachusetts universal health plan that mirrors much of what the Dems are talking about in terms of building a more universal system on existing public and employer-based programs.
Supporters of the Mass approach took a hit this week when the program administrator announced that the average premium for the basic health plan would cost an average of $380 per person per month (and many insurer bids were much higher)! The original estimate, when the bill was passed, called for an average cost per person of $200 per month--and there was a later estimate of $260 per month.

Clearly, the Mass program is a work in progress.

If Mass doesn't fix this problem this grand experiment is going to be dead before it even begins.

One can argue we even have a third experiment in the new Medicare Part D drug plan and Medicare Advantage program testing the notion that government can create and fund a benefit but let the private sector run it.

So, we won't see any great legislation in the last two "lame duck" years of the Bush administration.

But let's not miss the great opportunity we now have to test these competing ideas!

My sense is that once we elect a new President and Congress, with health care a major issue, in 2008 we will be as ripe for health care change in 2009 as we were in 1993.

All of this experimentation and debate is going to take us to a very promising and interesting place beyond the next presidential election!!!

The Bush Health Care Plan and U.S. Health Care Reform

It’s a new day in the health care debate.

Reform is breaking out everywhere.

2007 is shaping up to be the “Year of the Possible” with notable health care reform proposals coming from a number of places almost at once:
  • The new Democratic Congress is setting an ambitious health care agenda as they look to first reauthorize the very successful Medicaid State Children’s Health Insurance Program (S-CHIP) and go beyond that to get more Americans health insurance. Some of these efforts will be bipartisan.
  • Some of the most conservative business groups and the most liberal advocacy groups are coming together with other stakeholders (16 total) over their own proposal to reduce the number of those uninsured by first expanding Medicaid and later creating tax incentives and credits for the middle class.
  • California Governor Schwarzenegger wants to build on the success of legislation last year in Massachusetts to create a comprehensive universal health reform package for his state.
  • President Bush has now launched a major health care reform effort of his own to increase the number of those covered with some new ideas he offered in his State of the Union Address (see next two posts below).
Suddenly, key stakeholders and politicians who have been reluctant, if not resistant, to change have discovered America’s health care problems and look ready to move forward.

While it is instructive to look at each of these very different initiatives, they really spring from the same basic thinking:
  • We cannot avoid dealing with America’s health care dilemma much longer—either politically or economically.
  • Politicians, political parties, and special interest groups cannot afford to just play defense forever—either join the debate with a comprehensive and constructive proposal or prepare to be passed by in what will be a major national debate.
  • We need to focus on the possible instead of the perfect—most new proposals are focused on incremental expansion of existing programs attempting to reduce the number of those uninsured as their first priority--such as expanding Medicaid for those under 300% of the poverty level and income-based assistance for the middle class.
With the exception of the imperative for Congress and the President to reauthorize the S-CHP program this year, none of these proposals are likely to become law in 2007 or 2008. It is no more likely that any of these will ever be enacted exactly as they have been proposed.

However, all are likely to make a measurable contribution to a debate, that over the next two or three years, will result in the country taking a substantial, if only incremental, step forward.

It is likely the next presidential election will be a major part of that national debate--really another catalyst for it.

It's a new day in health care reform.

A train has left the station. Exactly how long it will take to get to the ultimate destination, and just what it will look like upon arrival, is not entirely clear.

But I doubt we are going to go backward from here.

Monday, January 22, 2007

More on the Bush Health Plan

My good friend Bill Boyles of Health Market Survey offers these comments regarding the President's upcoming health proposal (my own post is below this one):

New Bush Proposal Takes Intriguing Approach

After six years of offering the same old thing, President Bush Tuesday will propose a creative new health reform that is drawing support from both sides of the political spectrum and could be taken seriously on Capitol Hill. Enactment of the plan is probably not doable before 2008, but it could be a serious contender in policy circles.

The problem with all these new proposals to cover the uninsured is they target the low-income children population first, not the low-income chronically ill who need it more. The new Bush plan would also target the low-income chronically-ill first with a new tax subsidy, which is better for the system, better for hospitals and physicians, and better for insurers.

The Bush plan (a regrettable label) is based on an old and generally discredited idea: the old health insurance “tax cap” proposed by Alain Enthoven circa 1979. But instead of merely a cap, the new plan will also give a standard tax deduction to everybody – employer or individual coverage – based on how much they are paying for health insurance. This cap might phase out quickly, but in the short run it seems a good idea.

The plan would basically give 80% of all current taxpayers a small new tax deduction for having health insurance that is not excessive. If their family coverage were the average of an estimated $13,000 in 2007, they would get a $2,000 deduction (the amount is based on a dollar benchmark of $15,000, minus the actual premium of the taxpayer).

By the same token, those whose premiums are excessive (over $15,000) would pay income taxes on the amount over the benchmark. The plan would thus be tax-neutral – the increased taxes on expensive plans would be offset by the new deduction.

If somebody has no insurance they get a full $15,000 tax deduction/credit.

Politically, this is a major shift that might work. Since 80% of taxpayers would get a new tax break for doing nothing, and those who would be taxed have the option of simply changing to a lower-cost plan, the political equation is tremendously more favorable than simply taxing excess health insurance. Lots of Democrats are likely to support it.

There will be a lot more analysis in the next few days, so we’ll give the bottom line:

-- The impact on health plan profitability is probably neutral in the first few years. The increased demand caused by giving the uninsured purchasing power is the key, and might offset the fact that marginal benefits are being taxed on a small percentage of existing enrollees. It looks at first blush like a good deal.

-- The big Enchilada in the details might be adjusting the benchmark. Some will argue it should be regional, by income, by health status, and on and on and on.

-- Because it is indexed to inflation and not average premium increase, within a couple years this would apparently cause the tax deduction to phase out, leaving only a tax cap.

-- We like the idea in general because it was designed by a small private group of market- savvy economists versus the White House eggheads.

-- There would no doubt be a new tax form for all individuals based on plan data. That sounds like a paperwork/admin cost increase but maybe not. For example, when HSAs kicked in banks did not see a big increase in costs despite added tax form reporting.

Stay tuned.

Saturday, January 20, 2007

New Bush Health Plan Proposal to Be Announced in State of the Union Address

President Bush is about to announce an interesting health care proposal that would cap the tax benefits on the most generous health benefit plans––often held by higher paid executives and some labor unions and use the revenue to cut the number of uninsured.

Individuals, whether they got their health insurance from work or paid for it themselves, would get a standard deduction of $7,500 for an individual and $15,000 for a family. The new plan would also give this new standard tax deduction to everybody – employer or individual coverage – no matter how much they are paying for health insurance.

About 80% of taxpayers have health insurance that costs less than $7,500/$15,000 and would therefore get an extra windfall tax deduction for the amount their insurance cost is less than the maximum deduction. For example, if their family health insurance costs were average, an estimated $13,000 in 2007, they would get an extra $2,000 deduction (the amount is based on a dollar benchmark of $15,000, minus the actual premium of the taxpayer).

The proposal is expected to be revenue neutral over a ten year period.

He would take any new tax revenue collected from those with generous plans and use it to provide tax credits or deductions that would assist lower-income individuals in getting health insurance. That help could be in the form of federal assistance to state coverage pools, small business assistance, or direct subsidies to low-income people.

This is not an entirely new idea. Various permutations of completely or partially ending the tax preference on health insurance for employers or individuals, or both, and in turn using that money to subsidize individuals as a way to reduce the number of uninsured have been around for a good 20 years.

It is also an extension of his earlier ideas that have pushed the health care system toward one run by individuals rather than employers.

With the Democratic House this year adopting “pay-as-you-go” rules that require any new spending programs also have identified a revenue source (new taxes or spending cuts) it is notable that the President is thinking about targeting the “Cadillac” health care plans as a source of revenue to help pay for new low-income health insurance subsidies.

This is almost a Democratic idea!!

Using the notion of a more progressive tax system should resonate with the new Democratic Congress. Having said that, I doubt it will be popular with the old-line labor unions that have some of the most generous plans. Already, Democrats sound skeptical about the idea complaining it will undermine the employer-based heath insurance system even more.

That Democratic criticism rings hollow, however. Why waste tax preference money on these rich plans when some people have no health insurance?

But Democrats also worry that this is just another attempt to end the employer-based system in favor of one driven by individuals and heavily dependent upon the Republican-favored health savings account (HSA) approach.

I see two other problems.

the individual health insurance market is problematic. Getting individual coverage is much more expensive than group coverage and a person has to be healthy to get it. To make this really work we will need to solve that problem.

Second, health insurance premiums have been rising about 8% per year in recent years. Basic inflation has been about 3%. If that kind of gap continues, it won't be long before the average person has a "gold plated" health plan that is on the losing end of things.

Even with the concerns, this is a very constructive way for President Bush to begin working with the new Congress on the health care dilemma.

Let’s see if the Dems really want to make the effort to work with this President on health care.

This could be the first test of just how much both sides really want to work together!

Friday, January 19, 2007

SCHIP Reauthorization--Will Medicare HMOs Pay for Some of It????

In the post below, I reviewed the need to reauthorize the very successful State Children's Health Insurance Program (S-CHIP).

The Congress will have a real challenge coming up with the needed money--$13 billion to $15 billion. Finding the money will be hard because of the House Democrat's pledge to fully fund any spending--their "pay-as-you-go" policy.

Where will the money come from?

First, the Congress will be looking for President Bush to make the first move in his upcoming budget message.

It is possible a final deal will rework the existing state formula. The current formula leaves a lot of money in state accounts that is unused. That money could be freed up and reallocated to the states that need it. But, that won't come close to paying the whole bill.

Then there is the $3 billion still sitting in the Medicare Advantage stabilization fund. You will recall that the last Congress took $7 billion out in December to fund the Medicare physician fees and avoiding the automatic cut they were facing.

That last $3 billion is there for the plucking and I will bet you it's going to get plucked!!!

Wednesday, January 17, 2007

Back to "Regular Order"--The House Medicare Part D Drug Bill and SCHIP Reauthorization

The debate over the House Medicare drug negotiation bill is now moving over to the Senate.

My post from last Friday (next post below) still reflects what I am seeing on this issue. The Senate will move a drug bill on "regular order" which means we will see the standard committee hearings and process that could lead to floor action later in the spring or summer. The House Medicare Part D drug negotiation bill––all three pages of it--will go nowhere. It is possible a bill focused on the most expensive drugs with no competitor in its class has a chance. See Friday's post for those details.

The other health care issue that will be getting both House and Senate time (lots of it) will be the reauthorization of SCHIP (State Children's Health Insurance Program). This is the existing Medicaid plan that covers uninsured children who are part of families not otherwise eligible for Medicaid benefits.

SCHIP was a 1997 bipartisan product of the Clinton Administration that both Democrats and Republicans will tell you has been a success. As the number of working uninsured has grown, the only thing that has kept the overall number of the uninsured from going up even further is SCHIP.

It is estimated that if the program were to end as many as 6 million kids would become uninsured.

The problem is that the program needs to be reauthorized--and soon or it will die. Even at current funding levels the program will face big deficits perhaps leading to 1.5 million kids losing coverage.

To keep the program going and fix the funding gap over the next five years would cost between $13 billion and $15 billion.

The Democrats have boxed themselves into a bit of a corner because the new House has put the Congress on a pay-as-you-go basis with their new budget rules--they say no more big deficits like the Republicans piled up. You don't spend money unless you find a spending offset or you raise taxes to pay for it.

So, Republicans and Democrats think SCHIP is a great plan--a bipartisan success. Both sides want to reauthorize it and nobody wants to see more kids uninsured.

But there isn't any money obviously available.

Right now, every one in Congress is waiting for the President to make the first move in his budget message and the upcoming State of the Union Address.

So, no "100 hours" quick fixes for SCHIP. It's also "regular order" for this challenge.

SCHIP isn't a sexy political issue but it is an important one.

And, SCHIP is the first real test of the Democrats ability to lead and keep their promise to be fiscally responsible.

When it comes to health care, SCHIP and a Part D Senate bill are the two big issues everyone in Washington will be focused on for the next few weeks.

Friday, January 12, 2007

Grassley and Baucus Key to Any Drug Negotiation Compromise

In earlier posts, I have made the point that the House bill to require the federal government to negotiate Part D prescription drug prices will not pass the Senate.

Developments in recent days have confirmed that opinion for me. The ranking Republican on the Senate Finance committee, Chuck Grassley, has said he would lead a filibuster of the House bill on the Senate floor and has said he is confident he can keep the Dems from getting the necessary 60-votes.

President Bush yesterday issued a statement formally telling us what we already knew—that he would veto the bill if it passes both houses.

Democrats are now scrambling to find a compromise that can get through the Senate.

In recent posts, I pointed out that any bill that is just three pages long wasn’t a serious proposal anyway—I called the House bill a hollow political charade.

The fact that the Senate is looking at options for what is a far more complex issue just tells us that this is where the serious work will be done.

Senate Finance Chair Baucus, with his friend Chuck Grassley, will be pivotal in any possible compromise.

Baucus has said that he will not support the House bill—put a nail in that coffin.

What is interesting is that Baucus has said that he is interested in looking at a more targeted bill. For example, looking at price negotiation for drugs that have no competition—where the drug company has a monopoly in a drug class or their particular compound is unique. Often, these will be the “blockbusters” that typically have the very high prices. It looks like he would leave the rest of the market alone and let the Part D plans continue to make competition work.

Senators Snowe (R-ME) and Wyden (D-OR), have proposed a similar structure when there is only one drug in the class or when a drug was developed with substantial assistance from the government.

This might make some sense. However, to work the feds would have to either ban the drug if the drug company didn’t negotiate in good faith—not a great solution for people who need the new drug—or be able to unilaterally set an “appropriate” price. The latter would be a kind of “eminent domain” taking of the product for a price the government deemed fair.

Just giving the government the ability to negotiate for a smaller number of drugs would do nothing unless the feds had leverage to make the drug company come to the table. That is what is lacking from the current House bill and if it is lacking from a Senate compromise any new proposal will be just as hollow.

If Baucus can bring Republican Grassley and a handful of his colleagues onside with such a compromise, something Grassley has not ruled out, we could have a bill.

Such a compromise would really put the President’s threat to veto a drug negotiation bill on the line—but this “lame duck” is stubborn enough to do it!

But we have a long way to go.

Both Grassley and Baucus have said they do not want to harm the market and the success Part D has had so far—and I believe both of them on that score. Finding a compromise that lowers prices, because it has teeth, and does not “harm” the market is a tall order.

We have a long way to go and the Senate is going to take its time.

And, big pharma is going to really turn up the heat! The House bill wasn't going to harm them. A compromise like this would be a whole new ballgame.

Big pharma didn't oppose the House bill because they were afraid of it. They opposed it because they were afraid it would turn into this!!!!

Thursday, January 11, 2007

The House Part D Drug Negoatiation Debate is Heating Up!

I was quoted in the Washington Post today reiterating my concern that the House Part D drug negoatiation bill is a hollow political charade on the part of the Dems:

"The federal government can get lower prices, but only if it's willing to exclude a certain number of drugs from the formulary," said Robert Laszewski, a nonpartisan health policy consultant in Washington. "And that's a huge political leap that I would be very surprised if this Congress took. I don't think they are going to give CMS any teeth."

Even former CMS head, Mark McClellan, no enemy of the drug industry, sees it falling way short of what the Veterans Administration is able to do to control their drug costs:

"It's apples to oranges," former CMS administrator Mark B. McClellan said of the comparison. "The VA is a closed health-care system relying on mail order and a tighter formulary than Medicare beneficiaries have shown they prefer."

You can see the full story--which is very well done and balanced--in today's Washington Post (link at top of post).

I also had two more comprenhensive posts on the issue that you can read below (January 8th).

Tuesday, January 9, 2007

Health Care Trend Falling

According to a CMS report published in the latest issue of Health Affairs, health care spending increased 6.9% in 2005--the third consecutive year it has fallen.

Given that medical cost trend, as reported by the health plan industry, fell again in 2006, I fully expect CMS to report a 2006 trend rate of around 6.5% when they do their calculation again next year. And, given that trend looks to be falling still further in 2007, I expect we will see five straight years of lower trend right around 6% by the time the 2007 numbers are in.

There are differences between overall health spending as reported by CMS and health plan trend rates used to calculate the new insurance rates--but these two numbers are close together and tend to move in tandem.

Will medical trend rats fall even further. What is driving this? What does this mean for the long-term public policy debate?

I dealt with these issues in two recent posts:

Whey is Health Care Cost Trend So Low?

How Low Will Health Care Cost Trend Go?

Good for the Governor of California!!!!

Governor Schwarzenegger’s new health plan proposal is full of controversy.

It puts a provider tax on doctors and hospitals (which the docs have predictably already attacked), it hits HMO profits by putting a 15% cap on expenses and profits (WellPoint is currently operating on about a 20% expense and profit margin), and it mandates that both individuals, and employers with more than 10 employees, pay for health insurance coverage or be penalized.

Any one of those things right there have doomed lots of other comprehensive health care proposals.

I am not here to tell you this bill should pass as it is. If it ever does pass, it won’t pass as it is.

Too often in the health policy debate it’s easy to by cynical—to point out everything that is wrong and quickly predict yet another health policy political train wreck.

But when does the cynicism stop and the country get on the road to fixing its long broken health care system?

Give the Governor of California a hand for putting a credible proposal forward—and telling everyone, “Everything is on the table.”

This may not be perfect health policy but it surely is leadership!!

Now, if the stakeholders (who are so quick to selfishly criticize from their narrow viewpoint) and the state legislature can show the same kind of leadership and vision we could just have us a workable piece of legislation that will do what legislation is supposed to do—help people.

There are more than six million in California that need that help right now and any other working age citizen of California who isn’t uninsured is just a layoff away from being uninsured.

The Governor's plan.

Monday, January 8, 2007

More on the Democratic Part D Drug Negotiation Debate

A friend in big pharma responded to my earlier post on Part D disagreeing with me that the Democratic proposal is not a threat to the drug industry.

He made two points:
  • The Dem bill does not prevent the government from requiring each and every plan to prior authorize a medicine for which it is unable to negotiate an "acceptable" price. They see such restrictions as possible because this would not be a formulary.
  • They worry that CMS might, by regulation, decide that to participate a PDP must follow a price schedule. They see this as possible because the Dem bill eliminates the prohibition against a price schedule.
My sense is that the three page Dem bill says nothing about any of this and it might be possible for a future Democratic administration to be expansive in the way it interprets any of this. And maybe not.

However, I still maintain that the real threat to pharma is from the big market share HMOs that do have the market clout and can establish a formulary as well as a co-payment structure that should scare pharma a whole lot more than what a future Democrat CMS administrator might dream up. Any interpretation of this bill falls short of what the HMOs can now do without asking.

In the end, my sense is that pharma is scared, and should be, because of the "camel's nose under the tent" this bill creates more than any short-term risk it creates.

But, pharma should be a lot more afraid of what the big HMOs can already do like the rate of generic take-up that private plans, including PDPs, have been effective in steering.

This three page House Democratic bill is little more than a hollow political proposal. If it were serious, it would be more than three pages long! I can't remember the last time I saw a three page bill (the ones that name a post office are longer).

The House will pass this, the Dems will celebrate, it will go to the Senate, and it will die. If the Dems are really lucky (and the Republicans are stupid) a Republican senator will put a "hold" on the bill and the Democrats can blame the Republicans for siding with the big drug companies and against grandma.

Sunday, January 7, 2007

HMO Stocks Fall on Medicare Advantage Worries---What Took So Long?

HMOs that play in the Medicare Advantage world fell on Wall Street last week on worries that the Democrat Congress has the power to end the industry's generous payments.

Well, what took so long?

Of course the Medicare Advantage payments are going to fall when the Democrats get around to the budget this fall.

For the complete story on why you can see my earlier post on this.

Friday, January 5, 2007

Bravo Kaiser Permanente!--As the Insurance Industry Defends Screwing its Customers

I have always had the greatest respect for Kaiser Permanente (KP) and the way it has always conducted itself--in its operations and in the policy debate.

That confidence was reaffirmed this week when KP announced that it is working with the California Insurance Commissioner to craft new guidelines for an insurer's ability to cancel, or rescind, insurance coverage when the applicant made misstatements on their original application for coverage.

Traditionally, an insurer can cancel coverage (and refuse to cover a medical claim) when the insured misrepresented their medical history on their original application. The provision is designed to prevent someone from signing up for insurance after they learn they have a serious illness. This applies most often to individual policies and is a fair provision.

There has been a mini-scandal in California recently when it was learned that insurers are aggressively using that provision against people who had some sort of minor medical incident that later turned out to be the precursor of a serious illness but didn't mention that more minor problem on their application. The application generally calls for the insured to list everything with an open-ended request for any kind of medical attention over a period of years.

Most insurers in California are now arguing they can cancel (or rescind) a policy for any omission in the original application even if it was inadvertent (Can you remember absolutely every doctor visit you have had in the last five years?)

This practice is generally known as "post claim underwriting." In my experience it has historically been practiced by the less respected marginal carriers––not the cream of the industry.

The health insurance industry's position is sleazy!

The point of this very appropriate policy provision is to catch material omissions--people trying to cheat and get coverage after they find out they have a problem and lie about their preexisting condition on the application. It was never intended to catch the guy who went to the doctor two years ago with headaches, the doctor gave him a clean bill of health, and then a year after getting coverage finds out he has a brain tumor. But that's what most insurers in California are arguing.

Shame on them!!!!!

Kaiser is now suggesting that more of an examination of the situation is necessary to see if the omission was intentional or merely an over site because, for example, the insured appropriately didn't see the earlier visit as important and therefore overlooked it in a later application for insurance.

The right policy should be about what is material--not finding some detail to retroactively rescind coverage when a person acting in good faith becomes ill months or even years later.

Granted, KP did get themselves in trouble with the insurance commissioner on one of these issues and did pay a $100,000 fine.

But at least Kaiser Permanente has the smarts to know they need to change a bad policy instead of foolishly defending it like the rest of the insurance industry (now scoring astronomical profits) in California!

The same claim management garbage has also been going on in the disability insurance industry in recent years. You can read an earlier post on that.

What is going on in the executive suites in this industry? Have some people become so focused on their stock options that they need to figure out how to screw their customers??????

All this behavior ultimately produces is big fines, an embarrassing reversal in policy, and political ammunition for ambitious office seekers.

You there in the corner office, Wake Up!!!!!!!

A background piece on this issue.

The Democrats' Hollow Part D Proposal

The House Democrats have announced the form their Part D prescription drug legislation will take.

Throughout the 2006 campaign, they had pledged to lower senior prescription drug prices by requiring the federal government to negotiate directly with the drug companies--something the 2003 Medicare Act specifically prohibited. The Democrats went further saying that these negotiations would make it possible to close the "donut hole," or coverage "gap," that now exists in the senior drug program.

That all had a great ring to it on the campaign trail. But guess what? The Democrats won the election and now they have to follow through on the pledge.

The problem is that when they got back to Washington they couldn't figure out a way to make their pledge work! It became clear that there weren't the savings in drug negotiation they had hoped for--so forget eliminating the gap.

More, they found out that the way you get real savings from negotiation is that you tell the drug companies if they don't give the Part D plans a great price they will be excluded from being offered--they won't be on the formulary.

All last year Democrats were critical of the Republican Part D plan for limiting benefits in one way or another. Now Democrats find out that if you really want to cut costs you have to limit benefits to do it. Yikes!!!

So what do the Democrats propose for their "first 100 hours" approach to limiting drug costs?

They propose something hollow and nothing more than a political charade.

The Democrats propose to require the Department of Health and Human Services (HHS) to negotiate drug prices with the drug companies (tough language there). BUT, they don't give the feds any leverage to get a lower price.

The Democrats would require the negotiations but they put HHS in the position of having to tell the other side that they also have no leverage--negotiate with us but you are going to get offered in all the health plans anyway.

The Democrat proposal also says that the Part D drug plans (the PDPs) are free to negotiate better prices than the government gets.

So, where are we at the end of the day?

The PDPs will do what they do now. The big guys, who have the market clout, can exclude drug companies from their formulary, and give incentives to use generic drugs, will have more clout than the the feds who have none because they can't exclude anybody.

So, the Democrats pass their hollow and meaningless Part D negotiation law in the "first 100 hours," likely watch it die in the Senate (if not incur a Bush veto), declare a political victory, and move on.

The market keeps doing what it has and the Democratic proposal, if it were to become law, wouldn't make any difference.

Being in the opposition was a lot easier than governing!

January 7 LA Times Related Story

January 7 Washington Post Related Story

Thursday, January 4, 2007

More Trouble for Humana's Part D Program

Boston's mayor has been sharply critical of Humana for raising his city's Part D premiums by 130%. Get in line Mr. Mayor, they've done it to millions of seniors who bought their plans!

Joe Paduda, in his Blog "Managed Care Matters" has a post today that hits the nail right on the head.

You can read more about how Humana got itself into this position in an earlier post I did on the subject of Part D industry profits.

Tuesday, January 2, 2007

The New Congress––Sniping or Civility?

Jerry Ford's funeral took place in our capital city today. I will admit to always being a fan.

He gets an unfair rap for not doing a lot during his administration. But just getting our country back on track in the wake of Watergate was a major accomplishment in itself. Let's also not forget that he was the President who signed ERISA into law--something that was a major bipartisan accomplishment.

More than anything he was the model of civility––a model those giving the eulogies (in both parties) tell us we all ought to follow. But "Air Force One" was still on the taxi way at Andrews when the partisan sniping in the new Congress was already at a high pitch.

Much attention is being given to the new House Democrat leaders and their agenda for the "first 100 hours" they are in session (which is really scheduled to take place over a two week period).

That agenda includes a promise to pass legislation directing the federal government to negotiate pharmaceutical prices for the new Part D drug benefit. It also includes important ethics reforms, a higher minimum wage, expanding stem cell research, cutting the student loan interest rate, and other issues.

The effort to get the feds to negotiate Part D drug prices isn't about to go anywhere––the Senate will be reluctant to go along and Bush would veto it anyway.

Most notable is the partisan sniping already going on. Republicans claim they are being frozen out of the House Democrat legislative agenda for the first "100 hours" and Democrats counter the Republicans just want to throw a wrench in things.

The Republicans ought to stop sniping at the Democrats who made a promise regarding that "first 100 hours." How could they not put these items to the vote they promised voters in November anymore than Republicans would have been expected to put the "Contract With America" aside in 1995?

But Democrats need to realize that the kind of one-sided government we had under the House Republicans has to end. The 2003 Medicare Act (and Part D) was strong-armed through the House in the middle of the night with no input from Democrats. Such an enormous addition to entitlements deserved a great deal more thought and care.

The partisanship in Washington, and attendant lack of civility, won't end unless the House Democrats take the first step toward treating their House Republican colleagues with the kind of respect we saw these last few years among many Republican and Democrat Senators. On the health care issue, the example to follow is in the Senate Finance Committee where outgoing Republican Chair Chuck Grassley always treated the new incoming Chair Max Baucus with nothing but the greatest respect. Because of it, we can expect Grassley to get that same respect from his "friend" now that he is the "ranking member."

Constructive progress on health care is possible. But only if Democrats in the House are willing to "turn the other cheek" after the humiliation they suffered at the hands of House Republican leaders in recent years and use the Grassley/Baucus example as their template.

2006 Congressional Health Care Agenda

Monday, January 1, 2007

Health Care Middlemen––Don't Forget Value!

Friday's Wall Street Journal ran the last of a series on health care "middlemen."

The theme was about people taking big money out of the already incredibly expensive health care system but questioning whether they leave a commensurate value.

The series included:
  • "As Patients, Doctors Feel the Pinch, Insurer's CEO Makes a Billion," April 18.
  • "Selling Generic Drugs by Mail Turns Into Lucrative Business," May 9.
  • "Health Care Consultants Reap Fees From Those They Evaluate," September 18.
  • "How Quiet Moves by a Publisher Sway Billions in Drug Spending," October 6.
  • "In Medicaid, Private HMOs Take a and Big Lucrative Role," November 15.
  • "In Nursing Homes, a Drug Middleman Finds Big Profits," December 23.
  • "As Health Care Middlemen Thrive, Employers Try to Bypass Them," December 29.

As managed care has grown, health care costs have continued to explode.

When managed care firms really did make a major attempt to rein in costs in the 1990s, it either blew up (capitation of physicians) or caused a major backlash (the patient and provider rebellion).

The result was that the managed care industry seemed to revert to this decade's version of the old indemnity health insurance model. Add to that lots of new "middlemen" ventures bringing big profits and questionable value.

The good news is that medical trend rates have been falling (note December 26 post below). Hopefully, this is evidence that the efforts of managed care are beginning to pay off.

Whether that is true or not, the Wall Street Journal series is a reminder that when the day is done, private sector success in health care will not be measured in how wealthy those of us in this business get but in how effective we are in solving the problem of unsustainable health care costs.

Health care trend at 7% is an improvement, but it is not sustainable!


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