Thursday, July 31, 2008

Will the Lobbyists Make Meaningful Health Care Reform Impossible?

Maggie Mahar joins us today. She responds to a recent post here by Brian Klepper. Brian argued that health care reform will be a very difficult thing to do in the near term. At the top of Brian's concerns is the the impact lobbying money has on the ability of the Congress to achieve real reform.

While Maggie agrees that special interest money is a big factor, she argues there are other reasons to be more optimistic.

Will the Lobbyists Make Meaningful Health Care Reform Impossible?
by Maggie Mahar

In a post originally published on The Health Care Blog and reprinted here, health care analyst Brian Klepper asks: “Is Meaningful Health Care (Or Any Other Kind Of) Reform Possible?”

His answer: “I’d be surprised. Delighted! But surprised.”

Klepper believes that the lobbyists are just too strong. Always incisive, he pulls no punches: “In a policy-making environment that is so clearly and openly influenced by money,” it’s just not likely that “Congress will be able to achieve health care reforms that are in the public interest.”

I disagree. I believe economic pressures are pushing us toward a political turning point. (If you want to understand what is happening in history or in politics, follow the money.) The Bush administration has been thoroughly discredited. Americans are ready for change. Healthcare reform will not happen tomorrow; it will require a bare-knuckled political fight. But it will happen, and this is why: Although lobbyists are powerful, so are voters. And they realize that we are approaching a flashpoint: middle-class Americans are being priced out of our healthcare system.

But let’s begin with the lobbyists. Klepper asks readers to examine a review of lobbyist spending, which appeared in an April 15th report published by OpenSecrets

The numbers are, indeed, daunting. Last year, health care lobbyists spent nearly a half-billion dollars wooing Congress– “an average of about $832,000 for each Senator and Representative.” Though as Klepper points out, “Of course there’s nothing new here. For decades the health care industry has leveraged its money and influence, shaping policy to its own ends.”

And what are the industry’s “ends?” Growth. Like any business, health care businesses want to grow. Their aim: ever-rising sales and profits.

But as former NEJM editor Marcia Angell has pointed out: from society’s point of view, we do not want to see health care spending continue to spiral faster than GDP. Americans cannot keep up with runaway health care inflation. There is an inherent conflict between the lobbyists’ goals and society’s need to make healthcare affordable.

Meanwhile, the players in the health care industry who are bent on growth are always selling—and selling hard. Yet, too often, their products and services provide no health benefit. “There is broad expert consensus that one-third to one-half of all health care expenditure is waste,” says Klepper. “Talk privately with most health care professionals - physicians, hospital execs, health plan administrators, benefits managers, supply chain execs and there is reasonable agreement” on what is needed.

Put simply, we need to squeeze the waste out of the system. “Such changes could drive tremendous savings for individual, corporate and governmental purchasers,” Klepper writes, “but at significant cost to health care firms and professionals. Revenues and profitability would plummet.”

He then turns to the possibility of finding a solution: “What will it take for Congress to mount serious, public interest efforts that focus on serious issues?”

“As far as I can tell, there are two - and only two - solutions here,” says Klepper. “Both are highly improbable.”

One is for “America's largest corporations, the organizations that drive national policy through lobbying now, to galvanize to preserve the common interest. . . . What's needed is a national business coalition that collaboratively focuses on what's good public policy for the country - what's in our common short- and long-term interest. This is tough.”

Tough indeed. Klepper is suggesting that the very corporations that have persuaded Congress to ignore “the common interest in favor of special interests now” get together to advise Congress on the public good.

His second proposal is, as he acknowledges, equally improbable. “It would require a new Congress, under new leadership, to resolve to rid itself of its lobbying cancer, and to do so in a way that is highly visible and publicized. There would be ferocious opposition from industry. Hence the need for visible, articulate leadership from key political and business leaders.”

Once again, Klepper turns to “business leaders” to lobby for “the public good.”

But this is not their job. Nor is it their area of expertise. This is why we have government. By law, a corporation’s first obligation is to make a profit for its shareholders. It is expected to reach for the highest profit possible. Government is assigned the task of overseeing and, when necessary, regulating businesses when they over-reach, to ensure that their efforts do not interfere with our rights as citizens.

Particularly when we are talking about necessities—such as heat, electricity, or healthcare—government is supposed to represent the interests of customers or patients, pushing back when the corporate “me-over-we, money-over-people” philosophy threatens the rest of us.

Corporate America was not always so obsessed with profits. But sometime in the 1980s, CEO’s became hooked on growth, and for more than two decades, their mantra has not changed. Plenty is never enough.

I have written in the past about how, when it comes to health care, more is not always better: excess capacity in the form of too many hospital beds, too many MRI units, and too many specialists. Over two decades of work done by researchers at Dartmouth shows that in regions of the U.S. where patients receive more aggressive, intensive and expensive care, outcomes are not better. Often they are worse.

One cannot expect the lobbyists for a growth industry to be enthusiastic about containing costs. But this does not mean that reform is impossible.

A Turning Point

I agree with Klepper that, for decades, corporate interests have been shaping public policy. During nearly thirty years of conservative rule—interrupted by eight years of initially liberal, but ultimately centrist government—lobbyists have accumulated more and more power.

But American history is a story of pendulum swings. Today, I believe we have come to a turning point, not unlike the inflection point we reached in 1980 when Ronald Reagan was elected president.

One piece of evidence: the vote, earlier this month, on the Medicare bill, which surprised many observers. On this blog, Bob Laszewski called the landslide House vote, which went against the insurance industry, “the most amazing turn of events I have seen in 20 years of following health care policy in Washington, DC.”

When legislators saw powerful lobbyists representing for-profit insurers lined up on one side, and seniors and the AARP on the other side, they knew who to fear: the seniors.

Voters still have tremendous power. And as we head toward Medicare reform --and eventually toward national health reform—legislators are going to have to weigh the power of the vote against the power of the lobbyists’ dollar.

Voters are tired of being gouged by drug-makers, device-makers, and some health care providers. Taxpayers, who pick up more than half of the nation’s health care bill can no longer afford levitating medical expenses.

Moreover, there is no reason why health care costs need to continue to climb year after year, faster than GDP. As I have written here aging boomers are not pushing prices higher. The median age in the U.S. will rise just three years, to 39, over the next quarter century--- and only then will the aging of America begin to accelerate. (Even then, boomers will age just as they were born, over a period of decades.)

There is nothing inevitable about soaring health care prices. We have models in other developed countries where health care inflation is not nearly the problem that it is here. Indeed, even at home, there are regions where Medicare’s costs are not spiraling. And, as noted, outcomes are just as good, often better.

Klepper is right: money is power. But so are votes. Legislators know that no amount of campaign contributions will save then if voters decide that they are putting corporate interests ahead of their healthcare.

Next year, Congress will once again be forced to revisit the question of reining in Medicare spending. Four years ago, Medicare’s hospital trust fund began to spend more than it takes in. In 11 years, it will no longer be able to meet its full obligations. Medicare needs to become more efficient, which means eliminating the waste.

In the vote earlier this month, legislators made it very clear that they do not want to take an ax to the fees that Medicare pays physicians with an across-the board cut. There are easier ways to put Medicare on a firm financial footing. And I predict that Congress will find some of the money Medicare needs by repealing the two most costly elements of the Medicare Modernization Act of 2003 (MMA). .

First, that law agreed to pay for-profit insurers who agreed to offer Medicare Advantage a bonus of 13 percent to 17 percent over what it cost Medicare to offer the same benefits directly. Since then, complaints that Medicare Advantage is not delivering value for Medicare’s dollars have been mounting, and they’re coming both from seniors and from the Government Accounting Office.. I predict that Advantage insurers are about to lose that windfall. (Indeed, just last week, Bob explained that even UnitedHealth realizes that “the days of higher Medicare Advantage payments are limited..”

Secondly the Medicare Modernization Act specifically prohibits Medicare from using its size and leverage to negotiate for discounts on prescription drugs. The Veterans’ Administration—which is allowed to bargain—pays 50 percent less for ten of the twenty drugs that are most popular among Medicare beneficiaries. My guess is that next year, Congress may well decide to let Medicare begin to use its clout.

It’s worth remembering that the MMA was not a popular bill. Indeed, the bill was pushed through Congress, under the cover of darkness, amid charges that one Congressman was offered a bribe to vote for the bill. (This was later confirmed by the House Ethics Committee).

Presidential candidate John McCain did not vote for the bill—which suggests that whoever wins the White House, the MMA is vulnerable.

If my predictions prove true, and Congress stands up to both insurers and drug-makers, this will, I think, set a precedent for meaningful national healthcare reform. The lobbyists do not own our government.

Maggie Mahar publishes her own blog, "Health Beat."

Monday, July 28, 2008

State High Risk Pools For the Uninsured--Who Would Want To Be In Them?

What do we do with people who are uninsurable because they have a pre-existing medical condition?

That is a particularly important question as both McCain and Obama propose reforming American health care by building on the private health insurance system.

One of the solutions being discussed--by McCain among others--is to use state-based risk pools. Under McCain's plan heavily dependent on an individual platform, people who don't have employer-based coverage and healthy enough to qualify for individual health insurance could get a private mainstream plan and people who do not qualify for a standard individual plan could buy into a state-run high risk pool for the uninsurable.

In today's market, these state-run pools can be lifesavers for those who can't otherwise get coverage. But of 47 million uninsured, only about 200,000 people are in these pools nationwide. Sometimes the pools are prohibitively expensive, sometimes they are full and taking no new members, sometimes their coverage is hardly worth it.

One of the states that proponents point to as doing a good job with their risk pool is Minnesota.

Minnesota does have one of the better pools for those who are uninsurable. It offers a wide range of plans with a maximum cost of 125% of comparable market plans that medically underwrite. A family of four can get an HSA-style plan for about $9,000 a year (parents age 35-39). A couple age-60 can get a $2,000 deductible, 80/20 plan for about $12,500 a year. Pre-existing conditions are excluded for six months if you do not have prior creditable coverage.

If you are uninsurable in Minnesota--and can afford those premiums--you are likely facing some pretty high medical costs to make it worth your while. These plans tend to be anti-selection magnets in our voluntary system.

In 2006, there were about 30,000 enrollees in the Minnesota high risk pool (out of 465,000 uninsured in the state). Minnesota had a total program cost of $236 million that year. Of that, $124 million--more than half the funding--came from state subsidies collected by an assessment on insurer premiums. The per enrollee subsidy coming from state government was $4,265. That family of four had a state subsidy of over $16,000 that was added to the $9,000 premium they paid.

So, how does a state-based risk pool work?

In Minnesota, if you are uninsurable you qualify only for the limited state plans, at a cost that is up to 25% more than in the mainstream market, and the state government has to come up with a subsidy of more than $4,000 per participant to make it work--and it still costs you a lot.

If the federal government were to pass a health care reform bill that required the states to set these pools up, as McCain proposes, wouldn't that just be another unfunded state mandate?

I can't figure out why John McCain wants to go to voters with the unappealing notion that those with pre-existing conditions are going to be shipped off to a risk pool like Minnesota's when we could accomplish something better by putting them in mainstream health plans using proven market-based reinsurance principles and underwriting rules.

If assessing insurers for the cost of high risk consumers, as they do in MN, is a good idea why not do it through the front door and promise those with pre-existing conditions they can get into regular coverage? See also: John McCain's Health Care Plan and the Uninsurable--There Are Better Fixes Than the Ones He's Proposed.

If nothing else, the market ought to tell the McCain health care planners something--out of 465,000 uninsured in Minnesota, only 30,000 are buying the product.

I don't think the voters are going to buy it either.

The Minnesota Risk Pool--Facts and Figures

Saturday, July 26, 2008

Required Reading for Health Care Analysts and Coventry Health's "Sort of" Informative Conference Call

Joe Paduda, writing over at Managed Care Matters, has a post any health plan investor should read.

He laments that the analysts just weren't asking the right questions and weren't tough enough during last week's Coventry Health earnings call.

With my 35 years in the health insurance business, I have to agree with him. He's dead on.

Beyond Joe's comments, I noted that management used the precise term "sort of," as in "we are still sort of really in the cycle that this sort of... it's about sort of forward-looking into the fourth quarter," "sort of coded, billed and reimbursed," "sort of hurt their revenue cycle," "sort of going on last year," "sort of the statistical fluctuation of a severity spike," "sort of where we have the coordinated care networks," and other precise actuarial references using the term "sort of" literally dozens of times (63 by my computer's count of the transcript)--and the analysts just said, "thank you," for all this "sort of" detailed explanation.

"Thank you?" For what? Talk about an easy audience!

No investor should have been surprised by the recent turn in HMO earnings--and that has nothing to do with the notion that there is some kind of underwriting cycle out there. Things are a lot more complicated than that.

Here are the first few paragraphs from Joe's post:
Coventry earnings call - the analysts blew it

I think I've figured out why analysts have been unable to accurately forecast health plan financials - they don't know what questions to ask.

That's the only conclusion I can draw after listening to the latest earnings call from Coventry Health. The mid-tier health plan company is still reeling a bit from last month's announcement that it had been surprised by a sharp increase in medical costs, an increase that evidently had caught management by surprise.

Folks, this is a health plan company - one that claims "We deliver exceptional value every day, driving solutions that help people enjoy optimal health."

One might think that a health plan company makes money by managing medical care for hundreds of thousands of Americans. Near as I can tell, Coventry isn't a health plan, it is a transaction processor that makes money by pricing its insurance far enough above medical costs to administer the plans and make a bit of margin.

And from the questions that were asked, and the ones that weren't, it is pretty obvious Wall Street analysts think Coventry is a transaction processor as well. Out of the twenty or so questions after the management presentation, there was one - yes, one, that got anywhere close to actually inquiring about medical management. That questioner asked what Coventry could do or had done to deliver care to Medicare enrollees through an HMO at lower cost than thru the standard Medicare plan. Coventry Chairman Dale Wolf responded by noting that hospital days per 1000 members among Medicare HMO plans could be in the 900-1300 range, compared to standard Medicare rates of around 3000 days/1000.

That was it. No follow up question as to how they could do that, what the long term implications were, how that affected pricing, what the techniques were that delivered such a great result and could those techniques be used for commercial members.

You can read the rest of his post that includes a pretty good list of the questions that should have been asked.

Recent post on this blog: Underwriting Cycle or Medical Trend Rate Cycle?

Friday, July 25, 2008

If McCain Picks Romney He Will Never Again Be Able to Criticize Obama's Health Plan

Mitt Romney seems to be at the top of the list when it comes to speculation over who John McCain will pick for his vice presidential running mate. I am not sure if that is what John McCain is thinking as much as the Romney people, trying to boost their guy, want us to think.

But if McCain picks Romney, it will make for an interesting health care debate this fall.

The Obama Health Plan is a virtual clone of the Massachusetts health law. Romney signed it and continues to support it--most recently a couple of weeks ago in an enthusiastic Wall Street Journal Op-Ed.

With Romney on the Republican ticket, how would McCain ever be able to criticize Obama's proposal as just another Democratic government-run tax and spend health plan?

Mitt Romney's Health Plan--A Foot in Each Canoe

A Detailed Analysis of Barack Obama's Health Care Reform Plan

An Detailed Analysis of Senator John McCain's Health Care Reform Plan

Tuesday, July 22, 2008

The End of Medicare Private Fee-For-Service--the Questions to Ask the Health Plans During Earnings Season

Now that we know private fee-for-service (PFFS) is dead on January 1, 2011 in all but the most rural markets, how will the health plans who have significant PFFS business respond?

UnitedHealth is the first health plan to report earnings this quarter and I thought they had the right answer. From their earnings call transcript (Ovations CEO commenting):
We have had a strategy of deliberately positioning ourselves in favor of network based Medicare Advantage rather than private fee-for-service over the years, because we think we can unleash more value from Medicare that way and because of what we perceive to be a slow burn risk, if not a risk that is now crystallized, in the new law.

So the direct impact on us is minimal, because only around 7% of our Medicare Advantage membership is in private fee-for-service and all those 100,000 or so members 3/4 live in areas either unaffected by the law or where we already have network based alternatives. [The growth opportunities are great for us] because obviously the end of deeming will mean that perhaps 80% of the private fee-for-service market will now over the next two years have to migrate to a network -based product and that’s something that we’ve been critically positioning ourselves for.

Potentially 1.7 million private fee-for-service members are going to be triggered into shopping and as the largest operator of network based Medicare Advantage...we hope to be able to capitalize on that opportunity.

It is also notable that UnitedHealth sees the entire Medicare Advantage program as a "slow burn risk." Presumably, they mean that it is clear to them that the days of higher Medicare Advantage payments are limited and the only defense is being able to manage the program more efficiently than government-run Medicare.

Analysts worried about the impact of the new Medicare law on PFFS players need to be asking for specific information:
  1. How much of your PFFS business is in rural markets that was not eliminated by the new law?
  2. Of your PFFS business, how much of it is in market concentrations that enable you to develop a Medicare network--likely at least 10,000 members in an SMSA--or where you already have a Medicare network?
  3. What do you intend to do with your PFFS business where you cannot build a network?
  4. How do these changes impact your pro forma going forward?
  5. When Congress finishes the job of equalizing public and private Medicare payments how can you be sure your business model will be viable?
  6. How much lower are your Medicare costs today, including overhead, than the public Medicare program?
Some of the first comments by some PFFS players exuding a confidence there is a plan in place just don't cut it. Either they will have enough members in a market to build a network, then be able to build a network (capital and expertise), or they will have to try to sell off the members to someone who can.

In 30 months about all of the PFFS income stream goes away without some pretty significant capital and labor intensive efforts.

As the UnitedHealth management said, 1.7 million members are on the block.

The days of people arbitraging the Medicare payment system are now clearly numbered.

Analysts need to ask some tough questions about the strategy going forward.

Monday, July 21, 2008

Is Meaningful Health Care (Or Any Other Kind Of) Reform Possible?

Our good friend Brian Klepper joins us after a bit of a summer break. This time he examines the dynamics of health care reform and questions just how optimistic we should be that progress will be made.

Is Meaningful Health Care (Or Any Other Kind Of) Reform Possible?

By Brian Klepper

Those who wait, ever hopefully, for real health reform might want to take a deep breath and take stock of a few realities.

First, think about the fact that when the Democrats retook Congress, they tweaked but did not fundamentally change the lobbying rules that trade money for influence over policy. In fact, most contributors have now adjusted their contributions to favor the current, rather than the past, majority party. As it turns out, Democrats, like Republicans, are only too eager to allow special interests to trump the common interest, so long as the transactions fetch a good price.

Take a long hard look at the chart below, taken from an April 15th report published by OpenSecrets, which tracks the impacts money has on politics and policy, put together by the Center for Responsive Politics. In 2007, the health care industry spent $445 million lobbying Congress, providing 16 percent of the total $2.8 billion spent to sway Congressional actions, more than any other economic sector for two years running.

Read the rest of Brian's post which includes some fascinating data...

Wednesday, July 16, 2008

Health Insurance Industry Stupidity—It’s a Rout From Here On Out

Why the health insurance industry allowed itself to be put in the place they were put by the Democrats yesterday is beyond me.

With the Senate voting 70-26, and the House 383-41, to override President Bush’s veto of the bill to erase the 10.6% Medicare physician fee cut and pay for it with changes that will end the Medicare private fee-for-service program in 2011, the health insurance industry’s political stock has never been so low.

Democrats are no longer afraid of the health insurance industry and they know that most Republicans, having to choose between provider payments and HMOs, aren’t going to support the HMOs. Look for Republicans to use that strategy over and over.

This first whack at the private Medicare program is just the beginning of a rout that will take place after the elections when there will be an even bigger Democratic Congressional majority and a president that isn’t going to fall on his sword to protect the health insurance industryMcCain or Obama.

The only real political leverage the health insurance industry had going for it this year was the threat of a Bush veto of any changes to private Medicare.

The smart play would have been to cut the best comprehensive long-term deal they could this year for private Medicare while they had the Bush leverage. Instead the industry chose an all or nothing bet that pitted them against all the provider groups and AARP that, when they lost, only exposed just how little their support really is. It also did them little good not to have much of a policy defense—just why was it that private plans should permanently be paid more than traditional Medicare?

The insurance industry’s blood is in the water.

What in the hell were they thinking?

Tuesday, July 15, 2008

The National Coalition On Benefits' Oppostion to the Wyden-Bennett "Healthy Americans Act"--Maybe They Like It After All?

The National Coalition on Benefits is a group of more than 150 of America's biggest corporations as well as the U.S. Chamber of Commerce and the Business Roundtable.

They wrote a letter to Senators Ron Wyden (D-OR) and Bob Bennett (R-UT), cosponsors of the bipartisan "Healthy Americans Act," telling them that their bill was a non-starter because it dared to mess with ERISA. The Wyden-Bennett bill has 16 bipartisan Senate sponsors and 23 House sponsors.

The Coalition objected to Wyden-Bennett because of its emphasis on the individual health insurance platform over the traditional employer-based system of health insurance:
In summary, we believe that a sensible, consensus approach to health reform should build on our voluntary employer-based health care system and not undermine the essential role of employers in our health care system. Central to this is the current ERISA standard which provides a single, uniform federal framework and makes it possible for employers to offer health benefits to millions of employees, which they highly value and depend on.
Upon reading the letter, I was frankly puzzled that many of America's largest companies, the U.S. Chamber, and the Roundtable would be so against what is also the core principle in the presumptive Republican presidential nominee's health plan. John McCain shares the same basic approach to individual responsibility in health care the Wyden-Bennett bill uses--including the elimination of the employee tax exemption on employer-provided health insurance in favor of individual incentives for coverage.

Apparently, things are not all that happy over at the National Coalition on Benefits because a significant number of its corporate members were more than surprised to find out they were against the Wyden-Bennett Health Plan when the letter came out. I am hearing there has been at least one conference call between leadership and some unhappy companies who found their name on that letter.

That the letter could also be interpreted as a denunciation of the core individual responsibility section of the McCain Health Plan and supportive of the Obama approach, that would build on the existing employer-based system, didn't help things. Xerox also chairs the coalition and the Xerox CEO has been a strong supporter first of Senator Clinton and now Senator Obama.

ERISA may well be the most successful thing we have in our not so successful health care financing system. The vast majority of employers have been incredibly responsible in providing almost 200 million people valued health insurance despite all the challenges they face in doing so.

None of the Coalition members want to see ERISA eroded--just as the mission statement of the National Coalition on Benefits asserts. But I also expect that what most of those Coalition members meant by that is that they do not want to see ERISA changed in the context of the current health care financing system.

ERISA was passed by the Congress and signed into law in 1974 by President Gerald Ford. It is 1974 health care thinking. It is at the center of a system that is not working.

These big companies know that and, while they understandably are not about to give up the protections they have under ERISA in the current system, the notion that they could never support building an entirely new system on a different foundation is hardly the same thing. I can't believe two of its members in particular--Chrysler and GM--would disagree with that statement.

To fix the American health care financing system we have will require lots of new thinking. The kind of thinking offered by John McCain and the Wyden-Bennett bill, among many other ideas liberal and conservative, need to be part of the mix.

While the McCain Health Plan and the Wyden-Bennett Health Plan are similar in that they would both build on a system of individual responsibility by moving away from America's traditional reliance on the employer-based system, the two plans are very different in other critical areas. Wyden-Bennett goes well past the McCain Health Plan in assuring virtually universal access to health insurance. In fact, one could see Wyden-Bennett as a hybrid of both the McCain and Obama health plans because it couples the individual responsibility concepts conservatives like (and the National Coalition on Benefits objects to) with the liberal notion that we need to get everyone covered sooner rather than later.

For America's largest corporations to enter the debate at this early stage and demand that the Wyden-Bennett bill--and the McCain Health Plan by not so subtle inference--come off the table because they would build a health care system on a platform different than the one devised in 1974 was outrageous on the face of it.

It is hopeful to hear that this might not be where corporate America stands after all.

Earlier posts:

Watch the Wyden-Bennett "Healthy Americans Act"--It Could Be the Place Health Care Reform Compromise Takes Place in 2009

So I Guess the HMOs, U.S. Chamber of Commerce, Business Round Table, and Over 150 Big Corporations Are Opposed to McCain's Health Plan?

Monday, July 14, 2008

Underwriting Cycle or Medical Trend Rate Cycle?

Analysts trying to predict the future of the health plan business who are looking for an underwriting cycle will miss the real turns in the market.

Recent health plan earnings issues
have once again raised the question, do we still have an underwriting cycle, and are we entering one?

In my mind, anyone trying to understand the profitability of the health plan business who concentrates on whether or not there is an underwriting cycle underway misses the larger picture.

In the modern health plan era—a time of unprecedented consolidation, financial controls, focused capacity, and prospective provider contracts—I don’t see as much an underwriting cycle as I do a medical trend cycle.

The chart above details the increases in health insurance premiums compared to worker earnings and overall inflation and comes from the Kaiser Family Foundation Survey of Employer-Sponsored Health Benefit Plans from 1988 to 2007.

To me, the most recent 15 years of this 20-year view of health insurance premium increases demonstrates more a health care cost trend cycle than an underwriting cycle.

In the 1970s and 1980s, we clearly had underwriting cycles. (I have the scars to prove it!). But that era was far different from the current one. The health insurance business had a relatively low barrier to enter and lots of marginal players did--often fueled by readily available underwriting capacity from life insurance companies looking to diversify and excess reinsurance capacity--often from offshore. A TPA could quickly enter the business backed by lots of reinsurance capacity and distort local markets in both the small and large case market, for example. That sort of thing is far less common now with the health reinsurance capacity players more often being large and more sophisticated domestic players.

Today we have a consolidated health insurance business dominated by the "adults." While they make mistakes they do not intentionally go on business buying sprees.

I recently attended a Blues sales conference. Often, we hear that there are local non-profit Blues plans out there buying business. I have yet to find one. What I heard at that conference is that this market is just like the markets of recent years--there is always someone who will bid a lower price but that level of competition has always been there. If there is a change today it is that there are so many specialty vendors--disease management, PBM, wellness, trying to pick-off parts of a program.

Saying someone is out there buying business has become too common an excuse for publicly traded plans that would like to deflect attention away from internal problems of their own whether they be customer service or pricing mistakes. I'd like to see some of these "victims" name some names.

One big plan in particular has been claiming their business retention problem can be blamed on the underwriting cycle but that they are so disciplined they refuse to chase lower rates when in fact it is that their service has gone to the dogs and they are creating their own issues business retention issues.

Are there still capacity issues impacting pricing? Yes. But to nowhere near the level we saw them 15 years ago.

The health insurance trend cycle has a lot more to do with whether payers and providers are in equilibrium—whether both sides are getting what they need to make their profit goals—than it does the vagaries of health plan pricing.

Looking back to the 1990s, health care trend fell to near zero not because the health insurance industry figured out how to fundamentally manage health care but because health plans were able to get the upper hand on providers. You might recall physician fee schedules as low as 75% of the Medicare schedule in the late 1990s.

Providers pushed into the corner, reacted. We had the patients’ rights rebellion that might have been better termed the provider rights rebellion. Doctors and hospitals pushed back, employers didn’t back the health plans up, health plans backed down, the lid came off, and medical trend skyrocketed to 13.9% in 2003 as the providers began to catch-up for years of underpayments.

Once things began to build in the providers favor toward equilibrium between payers and providers (beginning in 2003) the medical trend rate began to decelerate. As trend decelerated, profitability was a lot easier for the health plans as they benefited from a trend windfall that covered up a lot of operational “warts.”

Now that we have hit a health care trend bottom, health plan earnings growth has slowed (or even reversed) and the operational warts—the usually small things that get missed when profits are growing at a great clip—begin to show themselves.

It has been a combination of these relatively minor things that Wall Street overreacted to in recent months as health plan stock prices fell on revised earnings guidance. Wall Street’s problem is that it became addicted to the notion that health plans could always report 15% growth and 15% earnings gains.

In terms of real growth, the commercial market has been flat for years.

But the 2003-2007 period was unique. Even though the commercial market was flat, the privatization of Medicare created an enormous growth engine in its place. Now, the low hanging fruit from that new market is gone and Medicare growth looks to be normalizing.

With last week's Senate vote killing private fee-for-service plans by 2011, it is also clear that the tide has shifted in Washington for private Medicare. The next few years will undoubtedly see the payments between private and public Medicare equalized.

During the 2003-2007 period, earnings growth was robust as health care trend decelerated resulting in the extra windfall earnings as plans regularly sold renewal rates closer to the prior year’s trend rate than the prospective trend rate. In addition, the plans benefited from attractive margins on the new Medicare opportunities.

So are we now entering a new underwriting cycle where health plan earnings suffer because of chronic self-imposed health plan underpricing?

No. Throughout my market travels I find no evidence that health plans are deliberately, or even unintentionally, underpricing one another on a consistent basis to gain market share. Such claims from health plan executives lately trying to explain their own earnings problems just don’t pan out.

We are at the end of one phase in the medical cost trend cycle, as the deceleration ends, and entering another phase, as trend is in the early stages of accelerating again. When this happens, health plans face an earnings head wind instead of the nice tail wind they benefited from in the 2003-2007 period.

Analysts trying to predict the future looking for an underwriting cycle that doesn't exist will miss the real turns in the market.

Health care trend just can’t go any lower given the current environment. In the wake of providers getting their catch-up pricing, starting in 2003, and needing progressively less in subsequent years as they completed the catch-up, we had a four-year health care trend “soft landing,” or trend deceleration, that ended in 2007.

Now, the pressure on health care trend has at least a slight upward bias driven this year by a bigger than typical flu season and an uptick in catastrophic claims largely driven in part by more claims for things like serious infections and premature infants.

For medical cost trend to take off in a big way, two are things necessary—higher inflation pressuring providers and/or provider cost shifting driven by government underpayments—haven’t asserted themselves, at least not yet.

People who wonder if there is still any such thing as the underwriting cycle are asking the wrong question.

For at least the last 15 years we haven’t had so much an underwriting cycle, we’ve more had a medical cost trend cycle.

An underwriting cycle is when the health insurance industry cuts its own throat with self-imposed under pricing. In this consolidated and more sophisticated financial environment for the business, little if any of this has gone on—at lease intentionally.

The medical cost underwriting cycle we are now living with has more to do with whether or not payers and providers are in equilibrium—each getting what they need to get to make their own internal profit objectives.

Today, we are as close to that uneasy balance or equilibrium between payers and providers as we ever are. But after four years of trend deceleration and inflation heating up and government looking to make cuts to the entitlement programs, that equilibrium isn’t likely to last long.

We just hit the bottom after coming down the trend curve. The soft landing phase we’ve been going through since 2003 has been the good side—maybe the best period in the history of the health insurance business.

The tail wind is gone and the headwind is growing!

Video of a discussion I had last week with Wall Street analysts discussing the current health plan environment: "Wall Street Comes to Washington"

Friday, July 11, 2008

"Wall Street Comes to Washington"

The event I look forward to every year is "Wall Street Comes to Washington," Paul Ginsburg's (Center for Studying Health System Change) annual merging of Wall Street and policymakers in a lively discussion of health care from both perspectives.

The last few years I have gotten to participate on the health insurance market panel. The session also had a panel concentrating on hospital, physician, and pharmaceutical trends.

Other panelists include leading health care analysts from Morgan Stanley, Goldman Sachs, Lehman Brothers, and Dreyfus. It's sort of an east meets west discussion of the health care system. The prognosis for earnings, bringing costs under control, the latest fads in health care, and prospects for reform are all discussed.

You can see both a transcript and video of the meeting on the Kaiser Family Foundation site.

Thursday, July 10, 2008

The Next Medicare Physician Fee Cut--17 Months, 20 Days, and 13 Hours to Go

The "Medical Home"--A real Solution?

Now that this year's fight over Medicare physician fees is all but over, it is important to turn to real solutions.

The recent Senate and House vote to kill the 10.6% physician fee cut only defers the problem for 18 months.

On January 1, 2010, the Medicare physicians are slated to get an automatic 21% fee cut!

More importantly, the Medicare physician fee structure is grossly out of whack with primary care docs starving under the current fee system.

In a recent post, I asked just what is the solution to this problem? I got a record number of replies from docs all along the lines that they are fed up with being underpaid by Medicare and they aren't going to take it anymore. If they have to go to a cash relationship with patients for the fees they deserve, or balance bill, so be it.

While their frustration is understandable, these aren't solutions. Collecting $350 upfront from a senior, as one doc suggested for a comprehensive visit, isn't progress.

So, we have 18 months to just keep heading toward the next cliff (this one twice as big at 21%), let the system degenerate (cash, balance bill, or a crisis in access as docs stop taking patients), or actually start taking some constructive steps forward.

It strikes me that the growing discussion over the "Medical Home" is a constructive one that we need to continue developing. The "Medical Home" isn't a new fee schedule, it's a new patient relationship structure that could be the foundation for real physician payment reform. Because the current fragmentation in the system is at the heart of the problem, I will suggest that it is structure that is more important than just fees toward the objective of better cost and quality.

In a recent post, I said it was the doctors that have to take the lead in the development in a new payment system for Medicare--and therefore the entire system since private pay is generally based on the Medicare structure. The politicians aren't going to do it until they get permission from the doctor lobby for a specific plan. As the recent House and Senate votes showed, the politicians are afraid of the docs--but not so afraid that they have been forced to come up with a real solution. The private payers aren't going to do it because they aren't going to unilaterally develop something the doctors will accept.

It is notable that the leading primary care physician organizations--Family Physicians, American College, and Osteopaths-- have gotten out front on this idea.

And to the health plans, you need to be encouraging real solutions because, as the recent votes made clear, the next 21% is going to come out of your hides if a real solution isn't found!

This from Wikipedia on the Medical Home:
Central to the Medical Home approach is the premise that patient-centered care requires a fundamental shift in the relationship between patients and their primary care physicians. There must be a higher degree of personalized care coordination, access beyond the acute care episode, and identification of key medical and community resources to meet the patients’ needs. However, the widespread adoption of information technology for care management and quality improvement along with adequate payment methods are essential. In the long run, the Medical Home is likely to result in savings to patients, employers, and health plans. Increasing the emphasis on primary care could produce large dividends throughout the health care system.

The concept of the Medical Home has evolved since its introduction by the American Academy of Pediatrics in 1967. It has gone from a specific place to receive care for children with chronic disease, to an entire system of providing care for all Americans. This concept shifts the paradigm from episodic acute care to a continuous comprehensive model.

The basic premise of the medical home concept is care that is managed and coordinated by a personal physician with the right tools will lead to better outcomes.

In 2007, the American Academy of Family Physicians, American Academy of Pediatrics, American College of Physicians, and American Osteopathic Association—the leading primary care physician organizations—released the Joint Principles of the Patient-Centered Medical Home. In this document they state the characteristics of the Patient Centered Medical Home:

  • Personal Relationship: Each Patient has an ongoing relationship with a personal physician trained to provide first contact, continuous and comprehensive care.
  • Team Approach: The Personal Physician leads a team of individuals at the practice level who collectively take responsibility for the ongoing patient care.
  • Comprehensive: The personal physician is responsible for providing for all the patient’s health care needs at all stages of life or taking responsibility for appropriately arranging care with other qualified professionals.
  • Coordination: Care is coordinated and integrated across all domains of the health care system, facilitated by registries, information technology, health information exchange and other means to assure that patient get the indicated care when and where they want it.
  • Quality and Safety: Quality and Safety are hallmarks of the medical home. This includes using electronic medical records and technology to provide decision-support for evidence-based treatments and patient and physician involvement in continuous quality improvement.
  • Expanded Access: Enhanced access to care is available through systems such as open scheduling, expanded hours, and new options for communication between patients, physicians, and practice staff.
  • Added Value: Payment that appropriately recognizes the added value provided to patients who have a Patient-Centered Medical Home.
I don't pretend to be an expert in this area but Vince Kuraitis over at the e-CareManagement blog, who first pointed me in this direction, is and he has done a large number of posts on the issue. I encourage you to take a look.

But here is what I am arguably an expert on: Docs, you have 17 months, 20 days, and 13 hours until you get hit with an automatic 21% fee cut. You can throw all the tantrums you want and you will again almost certainly get the the politicians to put off the next cut. But you will still be stuck in the mud with the same out of whack fee structure.

Recent post: There Won't Be Any Health Care Reform Without Physician Payment Reform and There Won't Be Any Physician Payment Reform Unless the Docs Lead The Way

Wednesday, July 9, 2008

Senate Votes 69-30 To Rescind Medicare Physician Fee Cuts and Cut Medicare Advantage to Pay For It

Ted Kennedy came to the Senate floor and led Senate Democrats to an amazing victory in their first real attempt to rein-in private Medicare spending and rescind the 10.6% physician fee cuts.

The veto-proof margin puts President Bush's threat to veto the Senate bill, that was approved by the House on another veto-proof 354-59 vote just before the holiday, in doubt. Why bother?

I was not surprised to see Senator Kennedy on the floor.

This vote was not about the doc cuts. It was about Medicare and its future. The doc cut was just the leverage Democrats were using to get at the private Medicare program.

Medicare is part of not only the Democratic legacy--it is at the core of the Kennedy legacy.

Private Medicare is seen by Democrats as an attack on the universality of the program. Many believe the privatization of Medicare will lead to a two-tiered system. If that were to happen, the reasoning goes, the program would be undermined as wealthier people abandoned it. Without everyone, including the powerful, in the system, there would not be the broad-based support to continue it.

Republicans, on the other hand, believe that the big entitlement costs can't be reined in without the market.

It was this clash--market versus government and the future direction of Medicare--that was the real issue on the Senate floor today.

The Democrats have won their first big battle over Medicare since the Republicans won control of the Congress in 1994.

Oh, by the way, the one Senator who did not come to the floor and vote? John McCain. Maybe Senator Kennedy should have offered him a ride.

A comprehensive background on today's battle: Run For the Hills, the Doctors Are Coming, the Doctors Are Coming!!!!

From December 19th, 2006: The Democrats Will Change MedicareAdvantage

So I Guess the HMOs, U.S. Chamber of Commerce, Business Round Table, and Over 150 Big Corporations Are Opposed to McCain's Health Plan?

That's the only conclusion I can come to after having read the letter the National Coalition on Benefits has written to the authors of the Wyden-Bennett Healthy Americans Act.

Wyden-Bennett is a comprehensive health care reform proposal that would largely replace the existing employer-based system of health insurance with one based on individual responsibility and individuals purchasing coverage. It has 15 bipartisan Senate co-sponsors and has been scored as revenue neutral by the CBO.

Here's what the coalition letter says:
[Any health care system] change must not erode those parts of the health care system that are working. The core provisions of the Healthy Americans Act would cause large scale disruption in the source, financing, and regulation of the employer-sponsored health coverage that now serves most Americans. This disruption for the majority of Americans who have coverage today through their employer will make it more difficult to achieve our common goal of addressing the needs of the 47 million Americans who lack health insurance coverage entirely.

Moreover, widespread and sudden disruption in employer-sponsored health coverage is likely to harm employer-employee relations because most employees have a longstanding expectation that their employer will be their primary source for health coverage.
I would presume the Coalition is in the process of sending a similar letter over to Senator John McCain since his health care reform proposal would end the tax preference for employer-provided health insurance and replace it with a $2,500 individual, and $5,000 family, tax credit. While McCain would also not outlaw employer-provided health insurance, ending its longstanding tax exclusion and shifting those tax benefits to the individual is clearly designed to give the market a big push in the direction of individual responsibility that McCain favors. I guess that would all qualify as a "widespread and sudden disruption in employer-sponsored coverage."

In fact on the subject of eliminating the tax exclusion for employer-provided health benefits, something the Wyden-Bennett bill and the McCain plan have in common, the coalition had this to say:
The [Wyden-Bennett bill] also ends the income exclusion for employees as it applies today. This directly penalizes employer-sponsored coverage and would cause most employers to cease sponsoring health plans.
Senator Obama, on the other hand, supports reforming the health care system by building on the existing employer-based system. I can also see Senator Obama already preparing TV ads pointing out that corporate America doesn't want anyone "disrupting" the employer-based health insurance system--like McCain would do by ending all of the longstanding tax preferences workers now get for their employer health insurance.

It is surprising that so many of the biggest names in corporate America would pick this time to undercut the core part of the presumptive Republican nominee's health care plan--moving away from third-party pay toward a system of individual responsibility.

Guess they're closet Obama supporters.

A Detailed Analysis of Barack Obama's Health Care Reform Plan

An Detailed Analysis of Senator John McCain's Health Care Reform Plan

Sunday, July 6, 2008

State of California "Fearful" of Enforcing $1 Million Fine Against Wellpoint/Anthem Blue Cross for "Illegal" Health Insurance Policy Rescissions

Crazy as it sounds an AP story on Thursday reported that the California Department of Managed Care "didn't even try to enforce a million-dollar fine against health insurer Anthem Blue Cross because they feared they would be outgunned in court."

Last year the department announced that it would fine the insurer for improperly rescinding individual heath insurance policies in the midst of the California rescission controversy. Since then, most insurers have announced policy changes in the way they rescind coverage.

From the AP story:
The department's director, Cindy Ehnes, told The Associated Press on Thursday that the agency has had success in forcing smaller insurers to reinstate illegally canceled policies and pay fines, but Blue Cross is too powerful to take on.

"In each and every one of those rescissions, (Blue Cross has) the right to contest each, and that could tie us up in court forever," Ehnes said of the approximately 1,770 Blue Cross rescissions between Jan. 1, 2004, and now.
It's not like this issue hasn't already been decided in favor of consumers. Last December, a California appeals court decided that California insurers can't cancel a health policy unless the applicant "willfully" misrepresented their health status: California Insurers Lose a Big Court Case In the Health Insurance Policy Rescission Controversy

If California can't protect consumers, who can?

Wednesday, July 2, 2008

What Do We Need to Do to Fix the Medicare Physician Payment Problem?

Whenever the subject of Medicare physician fee payments comes up on this blog, the reaction from physicians, particularly primary care docs, is predictable: "You can't cut us, we haven't had a Medicare raise in years, we are already dramatically underpaid, and if Medicare cuts our payments we are going to stop taking Medicare patients."

There is no doubt that doctors have a point--particularly the primary care folks. A huge problem is that the payment balance between primary care and specialty care has gotten way out of whack as both private and public payers have tended to lump the two categories of physicians together. This has been going on for so long that it is also leading to a growing shortage of primary care physicians.

There is also no doubt that Medicare is financially unsustainable on its present track and that applies to all categories of health plans--public and private.

The Sustainable Growth Rate (SGR) formula is obviously not working--just the fact that the Congress keeps overriding it speaks for itself. But in concept, it did have a legitimate objective.

Congress created the SGR in 1997 as it became clear Medicare costs could not be sustained. The idea was to set an "affordable" physician cost trend and when real costs exceeded that level Medicare would compensate for it by cutting future fees.

The SGR message to doctors was simple: If you spend too much the Medicare program will compensate by cutting your fees in the future to balance things out. The objective was to give physicians a reason to control their costs.

As we now know, the Congress did a "never mind" every time a cut was required under the formula.

Maybe the SGR was too broadly targeted. Maybe the target should haven been broken down with a focus on primary versus specialty, or even by each specialty. Maybe it was an unrealistic idea in the first place. Maybe the fact that it was never enforced spoiled its intent. Maybe it was unrealistic to think the docs really had any control in the first place. Maybe we should just give the docs a blank check.

What is happening to Medicare and physicians also can't be seen in a narrow context--the same issues plague Medicaid, SCHIP, and the commercial market. Costs for hospitals, drugs, durable medical equipment, and everything else is also on the same unsustainable track.

But to all the physicians who post on this blog with the general message "you can't cut us," there may be a lot of truth to that but of course it's a lot more complicated than that. Medicare--and every other program--is simply unsustainable in its current form.

While it is true that everyone else in the system carries guilt--like insurance company overhead, cost insensitive patients, drug company behavior, and on and on, pointing the finger at the other guy doesn't count for the sake of this conversation--those are all legitimate issues but also provide a pass for physicians not dealing with their own issues here.

So, what is the answer?

"If you touch me I will abandon my senior patients," is not an answer. That's just a threat--and an unrealistic one at that. Even with a deal this month to defer the cuts, the SGR already has an automatic 21% cut set to occur on January 1, 2010--the problem is literally growing at an exponential rate. Stalemate on all of this just means physicians have to live with the current mess indefinitely.

Where does the physician payment problem go from here?

This month's fight over Medicare physician fees: Run For the Hills, the Doctors Are Coming, the Doctors Are Coming!!!!

Earlier post: There Won't Be Any Health Care Reform Without Physician Payment Reform and There Won't Be Any Physician Payment Reform Unless the Docs Lead The Way


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