Tuesday, June 30, 2009

Grandpa Harry and Grandma Louise

Word from all those town hall meetings members of Congress are having back home this week is that lots of seniors are showing up scared that all the talk of health care reform in Washington, DC might just hurt them.

The seniors’ reasoning goes that Congress is getting ready to cut Medicare in order to pay for the uninsured grandkids' newfound access to a health insurance policy of their own.

Watch for the senior effect on efforts to pay for health insurance legislation once the members of Congress return next week from the recess.

Apparently, it’s not just doctors and hospitals complaining about Medicare cuts.

Or, maybe its doctors and hospitals giving their senior patients an ear full.

Monday, June 29, 2009

Will Eliminating Medical Underwriting and Merging the Small Group and Individual Market Into a New Insurance Exchange Work? Lessons From Massachusetts

Creating a universal system of health insurance is everyone’s objective. But even if we pass an expensive health care bill in 2009 we won’t achieve it. We just don’t have enough money to cover everyone. Maybe, in the most expensive proposals, we would make it possible for 90% to be covered. In others, far less.

The problem is that without an absolutely seamless system there will still be people outside the system and able to game it.

So, how do you balance the goal of giving everyone access to the health insurance system without letting others game it?

Massachusetts has merged the small group and individual health insurance markets and eliminated medical underwriting—people can buy insurance when they want to even though a good number, albeit far fewer than before, of the state’s citizens continue to be uninsured.

So what can we learn from their experience—particularly because most insurance exchange proposals here in Washington, DC look a lot like the Mass health care law?

Harvard Pilgrim’s CEO Charlie Baker has a very important post on his blog. When you read it, remember that Harvard Pilgrim, based in Massachusetts, is undoubtedly one of the really good guys in the American health care system. Their plans continue to score at the very top in service and quality among all the leading surveys and they are one of those community-based health plans that make less than 1% profit.

Here is a portion of his post:
Now here’s the costly wrinkle. When the merger occurred, the state told the health plans in Massachusetts that we could no longer apply a pre-ex exclusion or waiting period to individual purchasers unless we applied it to all purchasers in the merged market (including all small businesses). No one was willing to impose such a condition across the entire merged market - primarily because it would be unfair to small businesses to impose such a requirement. In the end, we all hoped that the new state requirement on individuals to have health insurance - or pay a tax penalty - would encourage healthy individuals to purchase insurance every year, and offset this now wide open front door for individual coverage.

Long story short, I don’t think it’s working. A few months ago, brokers started posting comments on this blog site that implied that people - and some brokers and employers - were gaming that wide open front door - purchasing health insurance for a few months at a time, using a lot of services, and then dropping their coverage. The penalty for not having coverage isn’t all that steep - about $900 - and while a few months of coverage might cost $2-3,000 in premiums - that’s peanuts compared to the cost of many medical services, which can run into thousands of dollars in a matter of days.

After about the fifth broker comment, I asked our finance people to check and see if individuals purchasing insurance from us either directly or through the state’s Connector web site were buying for a few months at a time, and using a lot of services. The results were astonishing. Between April of 2008 and March of 2009, about 40% of the people who purchased individual insurance from Harvard Pilgrim stayed covered by us for less than 5 months. Even more amazing, they incurred, on average, about $2,400 per person in monthly medical expenses - roughly 600% higher than what we would have expected. It wouldn’t surprise me if other health plans have the same problem.

This is a problem. It is raising the prices paid by individuals and small businesses who are doing the right thing by purchasing twelve months of health insurance, and it’s turning the whole notion of shared responsibility on its ear. It’s also created a new way for people who don’t want to play by the rules to avoid them. The state needs to reconsider its policy to eliminate waiting periods and/or pre-ex exemptions for individuals purchasing health insurance in the merged market. That would be the simplest and easiest way to protect individuals and small businesses who are playing by the rules - and limit the very costly impact of this wrinkle in health care reform.

You can read the entire post here.

Sunday, June 28, 2009

Wyden-Bennett Touted as an Alternative

I have to say I was a bit surprised watching Meet the Press this morning to hear the pundits on both sides of the political spectrum discussing the Wyden-Bennett Healthy Americans Act as an alternative to the more partisan Democratic health care reform bills already on the table in the House and Senate HELP Committee.

The Republican spin seemed to be that, "We've always been for Wyden-Bennett, it's real reform."

The Democratic spin was something like, "Suddenly you're for Wyden-Bennett, where have you been all this time?"

To me the good news is that the debate may finally be getting to the question of what real health care reform is. As I have posted on this blog before, I am concerned that we are really on our way to a massive entitlement expansion without actually changing the health care system in a way that will make it affordable.

Wyden-Bennett is a serious health care reform proposal.

Hopefully, finally bringing Wyden-Bennett into the mainstream of the debate means we are about to have a serious discussion about systemic health care reform.

I hope it isn't just Republicans, far too many of whom have been sitting on their hands for months, grasping at something to make them look like they have a credible alternative.

But if they are just grasping for something to believe in they at least have found something credible.

All previous posts on Wyden-Bennett "Healthy Americans Act"

Unions May Get a Pass on Health Care Benefits Tax

There is a major bipartisan effort going on in the Senate Finance Committee to reform the health care system.

Reportedly, one of the elements of that effort may be a tax on "gold plated" health insurance benefits above a certain threshold--$17,000 for family coverage is one option being discussed. The new tax could raise close to $300 billion over ten years to help pay for a health care bill.

However, the word also is that a new benefits tax would not apply to current union contracts for at least five years.

This from a Bloomberg story on Friday:

Gerald Shea, an AFL-CIO official lobbying for health-care reform, said grandfathering benefits negotiated in a collective bargaining agreement is a “common thing when there is a big change in federal law.”

‘Expectations Are Set’

“Once a collective bargaining agreement is set, employer’s budgets are set, workers expectations are set. It doesn’t make sense to go back in the middle of the contract and change it,” he said.

Union groups and workers said Congress shouldn’t target contractually negotiated benefits.

Anna Burger, secretary-treasurer of the Service Employees International Union, said in an interview that workers have often traded salary increases for better benefits in agreements.

Taxes “shouldn’t be taken from the backs of workers who have bargained away wages and other things for their benefits over the years,” Burger said.

Sandra Carter, a retired Pacific Bell Telephone Co. technician from Stockton, California, said her health benefits, worth about $12,000 per year, were negotiated by the Communications Workers of America. She is unmarried with no children, meaning her individual coverage exceeds benefits paid to federal workers by about $7,800. If that amount were taxed at the 15 percent marginal rate, she would owe $1,170.

“I can’t afford the taxes I pay now,” said Carter, who said she suffers from diabetes. “Why should I get taxed on a benefit that keeps me a functioning person?”

Carving unions out of any deal to tax health insurance benefits would be outrageous.

First, such a new tax would not alter any collective bargaining agreements--it would only change how those earnings would be taxed.

Second, since when have unions become a special class? Every new tax increase I've ever been subject to was on something--my income, my house, my property--that was either set or owned well before the new tax was passed.

This is tantamount to a smoker telling us the new tobacco tax to pay for the childrens' health plan shouldn't apply to him because he developed his addiction to cigarettes before the tax was passed.

I now think I understand how the Chrysler and GM bondholders felt when they were forced to give up their priority bankruptcy claims in favor of the Unions' retiree health care fund.

Tuesday, June 23, 2009

The Co-op Version of the Public Plan—It’s a Camel!

I am sure you have heard the story about the committee that was charged with designing a horse but, because of the bureaucratic ways of the committee process, instead ended up creating a camel.

We will not see a Medicare-like public health plan as part of any health care reform bill in 2009. I know proponents don’t want to hear that but it is crystal clear to me there simply are not the Democratic votes in either house of Congress for it.

But proponents are bound and determined to get something with the moniker “public plan” attached to it before they will sign-on to a bill. In an effort to compromise, North Dakota Senator Kent Conrad has suggested a defanged public plan in the form of a not-for-profit health care cooperative. I have been critical of that suggestion on this blog because his proposals look to me to be no different than the dozens of not-for-profit community-based health plans already operating—not the least of which is North Dakota Blue Cross.

When the day is done, what would Senator Conrad’s co-op proposal accomplish that is any different than the not-for-profit community-based health plans, that already have 50% of the market share in the under-age-65 market, have achieved?

But let’s take it a bit further.

At the thirty thousand foot level the notion of a public health plan cooperative doesn’t sound like a bad one.

But when you dig into it and actually explore how such a thing would work, it looks more and more like a camel to me.

First, the stated objective of a public plan cooperative would be to step up market competition to lower costs—to negotiate lower prices and more efficient provider treatment protocols. The argument goes that the existing plans aren’t trying hard enough.

OK, let’s start with the notion that a co-op can do a better job of negotiating prices and protocols. But wait, on day one how many members does the co-op have. Well it has no members on day one. So, the co-op's provider relations guy goes to the doctor and hospital administrator and demands better prices and protocols. My guess is the provider’s response would go something like this, “So you are here because your stated objective is to screw my reimbursement down more than it is, you have no members now, and if I give you the rates to take members away from the existing health plans you are going to make life even more difficult for me than those existing health plans have?" My guess is that when the provider stops laughing…

Next, the co-op has to hire people to staff its management and operations ranks. Who are they going to hire? Out-of-work realtors? Obviously, the co-op will have to hire experienced health plan people. First, for those of you in the business, just think of all the competition for your services if 50 new health plans suddenly get lots of capital to start-up. But secondly, if the co-ops hire the same people as are running today’s health plans—particularly people in not-for-profit plans now—why would the end result be any different?

And, how will the co-op compete for these new hires? Why would the best talent want to go to work for a quasi government agency paying government pay scales whose future is in doubt? Will the co-op pay more than existing health plans to lure talent away? If so, how will their administrative costs be any lower? After all, payroll is at least half of total overhead costs.

Just how will the government decide how to capitalize these new plans? In the 90s we spent $75 million to $100 million to capitalize a health plan in each of the major markets. How much capital will each co-op get? In the market, that question was answered through the creation of a business plan. Any private not-for-profit health plan that did not ultimately meet minimum scale or reserve requirements was scuttled. Just how much, and over how many years, will the government dump capital into these plans and who will make the decision that the limit has been reached? Will co-ops have an unlimited access to government capital without accountability? No matter how ineffective they are will the government just keep subsidizing their losses?

Already, there is talk in the Congress about allocating $10 billion to build these things.

This whole debate gets back to the simple question I have not heard any of the co-op proponents answer: Just how will a co-op turn out to be any different than North Dakota Blue Cross with its profit percentage of less than 1% and its board a cross section of the provider, business, and consumer community?

Or for that matter, any one of the dozens of other similar Blues plans and not-for-profit community-based HMOs in just about every county in America?

But when you are grasping for a compromise—and putting the urgency for compromise ahead of good policy—it sure is easy to come up with a camel.

Related posts:

Here's an Example of a Cooperative Not-For-Profit Health Plan--North Dakota Blue Cross

Health Care Cooperatives--An Old New Idea--So What's a Blue Cross Plan?

A Public Health Plan That Looks Just Like a Big HMO---Why?

Thursday, June 18, 2009

Time to Take Another Look at the Wyden-Bennett Healthy Americans Act?

This from today's Kaiser Health News:
"A bipartisan proposal from Sen. Ron Wyden, D-Ore., to replace the tax exclusion for employer-based health benefits with a standard deduction would do more to contain healthcare spending than Senate Finance Chairman Max Baucus' plan to cap the exclusion, according to a recent assessment by the Joint Committee on Taxation,' Congress Daily reports. 'The revelation is lending a boost to Wyden as he attempts to sell Finance members on the key idea of his signature Healthy Americans Act.' The bill, which the CBO has scored the bill as deficit neutral, "has 13 co-sponsors, including Sens. Debbie Stabenow, D-Mich.; Bill Nelson, D-Fla.; and Mike Crapo, R-Idaho, who all sit on the Finance Committee" (Edney and Cohn, 6/18).
The Congress is stuck in the mud on health care reform.

The Congressional Budget Office (CBO) continues to demand real health care reform and not the cost containment “lite” stuff they’ve largely been asked to score so far.

The recent letter from CBO Director Doug Elmendorf to Senate Budget Chair Kent Conrad is a very important document. Really, Elmendorf has laid out a detailed roadmap all but saying—“Here’s how I can give you what you are looking for.”

The message to the Congress is clear—stop playing around the edges and get serious about real health care reform:
In the absence of significant changes in policy, rising costs for health care will cause federal spending to grow much faster than the economy, putting the federal budget on an unsustainable path. This letter responds to your request for information about the features of reform proposals that would affect federal spending on health care over the long term.

As you noted, many experts believe that a substantial share of spending on health care contributes little if anything to the overall health of the nation. Therefore, changes in government policy have the potential to yield large reductions in both national health expenditures and federal health care spending without harming health. Moreover, many experts agree on some general directions in which the government’s health policies should move—typically involving changes in the information and incentives that doctors and patients have when making decisions about health care.

However, large reductions in spending will not actually be achieved without fundamental changes in the financing and delivery of health care. The government can spur those changes by transforming payment policies in federal health care programs and by significantly limiting the current tax subsidy for health insurance. Those approaches could directly lower federal spending on health care and indirectly lower private spending on it as well. Yet, many of the specific changes that might ultimately prove most important cannot be foreseen today and could be developed only over time through experimentation and learning. Modest versions of such efforts—which would have the desirable effect of allowing policymakers to gauge their impact—would probably yield only modest results in the short term.

Therefore, one broad long-range approach for reform that has drawn interest recently would combine specific policy actions—to generate near-term savings and provide experience that would lay the groundwork for future savings—with a mechanism or framework to impose ongoing pressure for achieving efficiencies in the delivery of health care. The effectiveness of that path would depend ultimately on the willingness of federal policy to maintain significant and systematic pressure over time and would require tough choices to be made. Without meaningful reforms, the substantial costs of many current proposals to expand federal subsidies for health insurance would be much more likely to worsen the long-run budget outlook than to improve it.
On the cost containment side, Elmendorf’s letter is very specific in suggesting some things that will work—many of them taking the power out of the Congressional hands and putting it into that of a third party to keep the pressure up over time. No more SGR back peddling.

Then there are taxes. Readers of this blog know that I have been critical of using old-fashioned tax increases just to raise cash to pay for health care entitlement expansion. Why would we ever want to chase something--health care--that has been growing almost four times faster than the wage rate with taxes?

But that is different from using tax policy to encourage efficiency in the marketplace. From Elmendorf’s letter:
CBO’s Budget Options volume discusses a number of such changes. One option would replace the current tax exclusion with a refundable but more limited tax credit. Another option would limit the amount of health insurance premiums that could be excluded from income and payroll taxes to specific dollar amounts that represented the 75th percentile of premiums paid by or through employers. These approaches would change workers’ incentives about how much insurance to purchase and how much care to demand, and they would increase federal revenues by several hundred billion dollars over 10 years.
The Wyden-Bennett Healthy Americans Act is a health care reform proposal that would creatively used the tax system to change the incentives—in this case replacing the tax exclusion with a tax credit as Elmendorf has suggested.

Some have been critical of Wyden-Bennett because the first version would have ended the employer-based system of health insurance, as we know it. But I was pleased to see Senator Wyden amend the bill to enable employers to continue their benefit plans.

Some have suggested that my enthusiasm for Wyden-Bennett is inconsistent with my being so hawkish on cost containment.

For sure, Wyden-Bennett needs to have its cost containment effort expanded. Don’t be surprised to see some movement on that score.

But right now both of the Senate health care committees are stuck in the mud. They have health plans that are pricing way north of what we can afford—the Finance Committee at $1.6 trillion—and they don’t have much more than $300 billion to $400 billion in scoreable savings to offset that cost.

It’s time to take another look at the bipartisan work Wyden-Bennett has accomplished in order to get the process unstuck. Elmendorf seems to be all but begging Senators to take another look at some of the key elements of the bill.

Since the CBO has already scored the Wyden-Bennett Healthy Americans Act as deficit neutral, let me suggest that should come in handy to Senators who can’t seem to make any progress with the CBO.

Wednesday, June 17, 2009

Senate Finance Scrambling to Find a Way to Pay for Health Care Reform While CBO Warns That the Congress Needs to Get Serious About Cost Containment


As I have been posting, it has been my observation that the Democrats were headed for a health care bill that had a little cost containment window dressing, would take a little off the top in provider payments, and use lots of new taxes to pay for at least half of it. I also argued that would not be health care reform but just entitlement expansion.

Apparently the CBO (God bless’em) agrees with me. This from today’s Washington Post:
"President Obama's plan to expand health coverage to the uninsured is likely to dig the nation deeper into debt unless policymakers adopt politically painful controls on spending, such as sharp reductions in payments to doctors, hospitals and other providers, congressional budget analysts said yesterday.

"While popular measures such as increasing preventive care, expanding the use of electronic medical records and rewarding doctors for choosing more effective treatments have the potential to lower costs, 'little reliable evidence exists about exactly how to implement those types of changes,' Congressional Budget Office Director Douglas W. Elmendorf said in a letter to Senate budget leaders.

"Without meaningful reforms, the substantial costs of many current proposals . . . would be much more likely to worsen the long-run budget outlook than to improve it, he said."
Word is that the latest Senate Finance draft hit $1.6 trillion in projected costs while the CBO is holding firm on demanding scoreable savings.

Well, they can now raise taxes even more or they could take a look at what real health care reform might do to the score.

The Dumbest Thing I have Ever Seen a Health Insurance Company Do––And Three of Them Took Their Turn Doing It in Front of the United States Congress

And, I’ve been in the business for 37 years.

First, let me stipulate we really need a system of universal care where everyone gets to have insurance. But we don’t yet so certain rules are unavoidable until we do.

Here are a few separate clips from today's Los Angeles Times article, "Health Insurers Refuse to Limit Rescission of Coverage:"
"Executives of three of the nation's largest health insurers told federal lawmakers in Washington on Tuesday that they would continue canceling medical coverage for some sick policyholders, despite withering criticism from Republican and Democratic members of Congress who decried the practice as unfair and abusive.

"The hearing on the controversial action known as rescission, which has left thousands of Americans burdened with costly medical bills despite paying insurance premiums, began a day after President Obama outlined his proposals for revamping the nation's healthcare system."

"But they would not commit to limiting rescissions to only policyholders who intentionally lie or commit fraud to obtain coverage, a refusal that met with dismay from legislators on both sides of the political aisle."

"The executives -- Richard A. Collins, chief executive of UnitedHealth's Golden Rule Insurance Co.; Don Hamm, chief executive of Assurant Health and Brian Sassi, president of consumer business for WellPoint Inc., parent of Blue Cross of California -- were courteous and matter-of-fact in their testimony."

"The industry has tried very hard in this current effort not to be the bad guy, not to wear the black hat,' Begala said. 'The trouble is all that hard work and goodwill is at risk if in fact they are pursuing' such practices."

"But rescission victims testified that their policies were canceled for inadvertent omissions or honest mistakes about medical history on their applications. Rescission, they said, was about improving corporate profits rather than rooting out fraud."

"Late in the hearing, Stupak, the committee chairman, put the executives on the spot. Stupak asked each of them whether he would at least commit his company to immediately stop rescissions except where they could show 'intentional fraud."

"The answer from all three executives: 'No."
For those of you not versed in the details of medical underwriting, let me explain a few things.

Lying on your health insurance application is fraud and you can lose your insurance when you intentionally do it to gain coverage. That is good policy and basic to contract law. An example would be someone who went to the doctor because of severe headaches, didn’t disclose it when applying for insurance, and a short time after getting coverage was diagnosed with a brain tumor. Common sense would tell you not to withhold such information—particularly when the application makes you attest that you have revealed all.

But sometimes people forget to put things down. Let’s say you went to the doctor for a back problem onetime five years ago, didn’t put it down, and were diagnosed with diabetes a few months after your health insurance became effective.

It would be an inadvertent and non-material misstatement to sign your health insurance application having promised you told all but left something, that in the end did not matter, off of it. It is always important to be thorough and honest in filling out a health insurance application but sometimes we forget things.

In all the years I worked for an insurer—from underwriter to COO—we never penalized anyone for an inadvertent and immaterial misstatement. I never knew of a competitor who did either.

Why would you? How could you sleep at night knowing you retroactively canceled (or rescinded) a sick person’s health insurance because of something that really didn’t matter?

Fast forward to the California rescission controversy. A number of health insurers have been doing just that. More, they continue to defend it even in the face of California Insurance Department fines and plenty of lawsuits.

Then, they do it right in the middle of a national health care debate the day after the President of the United States flew to Chicago and told the American Medical Association private health insurers should have to compete with a public health plan that could well run them out of the business if it ever passed.

So here they sat in front of a Congressional Committee and were asked if they would stop retroactively canceling sick people’s health insurance—not for real fraud but—for inadvertent non-material reasons.

Representatives of the three companies each took their turn and said, “No.”

Two things.

I’ve brought a lot of good folks into this industry over the years. People who still need this to work so they can pay for their kids’ college education and fund their retirement plans.

This is the kind of corporate leadership they have to rely upon so that this industry can continue?

The current health care debate turns on who can best make our system work. My sense is that it will take the genius of individual creativity to separate the 70% of this health care system that is the best in the world from the 30% that is waste. Who can do the best job on that? Government? The private sector?

I believe the private sector.

And, this is the leadership I have to defend?

July 2008 post:State of California "Fearful" of Enforcing $1 Million Fine Against Wellpoint/Anthem Blue Cross for "Illegal" Health Insurance Policy Rescissions

February 2008 post: Health Insurance Industry "Racing to Defuse a Growing Furor Over Retroactive Policy Cancellations"

December 2007 post: California Insurers Lose a Big Court Case In the Health Insurance Policy Rescission Controversy

November 2007 post: Report: "Health Insurer Tied Bonuses to Dropping Sick Policyholders"

March 2007 post: California Fines Wellpoint $1 Million for "Unfairly" Rescinding Health Insurance Polices--Was Wellpoint Fair or Not?

Monday, June 15, 2009

Just Which $2 Trillion Were They Talking About?

Just two weeks after putting $2 trillion in health care cost reductions on the table, the response to President Obama's plan to cut the health care providers by a total of $618 billion over the next ten years ($305 billion in his original budget and another $313 billion this week) is startling--if not in the final analysis predictable.

Given that, at present trends, we are on our way to spending $35 trillion on health care services during the next ten years you wouldn't think $618 billion (two percent of $35 trillion) would be so hard for the health care providers to contribute to the effort--especially after they told us cutting $2 trillion was something they knew how to do.

First, the American Medical Association (AMA) made it clear to the President he'd better not cut their payments by imposing a Medicare-like public plan, complete with much lower reimbursement rates, on them.

And at today's speech by the President to the AMA, did you also notice how quiet the audience was when he also suggested that an independent body of experts, MedPAC, rest control of Medicare reimbursement from the Congress as a means to further control costs?

But it isn't just the AMA that suddenly can't find any savings to put into the health care pot. It's all of the other $2 trillion health care providers as well--hospitals, drug companies, and medical device companies.

This from Monday's Wall Street Journal:

"The sharp response from the hospital industry, which under the proposal faces reductions in subsidies exceeding $100 billion over 10 years, illustrates the administration's challenge in winning the deep concessions from industry needed to pay for the overhaul. After agreeing in May to contribute to a $2 trillion reduction in health spending over 10 years, the hospital industry is now bristling at the prospect of more givebacks -- this time, cuts that would be set in law.

'We're certainly disappointed,' said Rich Umbdenstock, chief executive of the American Hospital Association, an industry group. 'It will be very, very difficult for hospitals to live with cuts of that magnitude.' He said what concerns the group is that the cuts were being laid out before lawmakers have agreed on concrete proposals for reducing the number of uninsured...

"The pharmaceutical industry recently has been negotiating with the White House and Congress over how much it would contribute to the cuts, said several people familiar with the negotiations. Drug companies were initially asked to contribute $100 billion over the next decade, but pressed for their contribution to be closer to $60 billion, they said. The industry argued that giving up too much in payments would cut into spending to develop new drugs.

"Otherwise we might all just become generic drug companies,' said one industry official familiar with the talks. The White House on Saturday said it would save $75 billion over 10 years by paying better prices for drugs under the Medicare Part D prescription drug plan.

"The Access to Medical Imaging Coalition, which represents makers of medical-imaging equipment, said the administration's proposed cuts 'will impair access to diagnostic imaging services and result in patients' delaying or forgoing life-and-cost savings imaging procedures."

It’s NOT the Prices Stupid!

Out here on Kent Island, the federal government says that I like to watch the Baltimore TV stations and therefore forbids my satellite provider to give me access to the local DC channels. (We’re about an hour from both Baltimore and DC.)

There is reason number one never to put the government in charge of any more than absolutely necessary.

While my new digital converter box had been working just fine for months, enabling me to switch over and get my favorite weatherman from DC, on Friday that signal was lost. Losing Doug alone is a reason to become a libertarian.

But fiddling with the converter box Friday night (there is a health care story here), I came across an interview between former Clinton Labor Secretary Robert Reich and Bill Moyers.

Reich was arguing that it's necessary to have a public plan as part of a health care reform bill because only then will government have the ability to pool enough people together to negotiate for lower prices. And, lower prices are the route to a sustainable health care system:
"Well, there's a very simple test. And that is the public option big enough and is it going to have bargaining leverage to get drug prices down and keep private insurers on their toes, forcing them to cut prices.

"There's nothing actually pushing the system unless you have a public option that gives the insurers and the pharmaceutical industry and the hospitals a real run for their money"

Setting aside concerns that government ever negotiates anything, Reich’s focus on prices is just plain wrong.

Medicare now pays doctors and hospitals prices that are 20% to 30% lower than what commercial insurers and HMOs pay them.

So, if we follow Reich’s logic, the current Medicare plan, paying much lower prices, should have health care under control. Of course, Medicare is as unsustainable as the private health care system.

Uwe Reinhardt has done lots of great research finding that America’s health care prices are higher than those in the rest of the western industrialized world.

But the more immediate problem here is utilization—the often-made Dartmouth Atlas argument. The very same argument the President very properly made in Green Bay last week.

The first things we have to tackle are the structural over-utilization problems that have evolved for decades. If we just go and start cutting prices 20% or 30%, we'd create a chaotic situation. Can you imagine the cost shifting that would ensue from even more underpaid providers in the form of even higher utilization rates?

Sustainable health care reform has to be about incentives that will fundamentally change practice patterns.

Reich, and the other public plan proponents, need to explain why, if getting lower prices through a public plan is the solution, isn't Medicare already a model of health care efficiency?

Friday, June 12, 2009

Here's an Example of a Cooperative Not-For-Profit Health Plan--North Dakota Blue Cross

North Dakota Senator Kent Conrad has proposed establishing not-for-profit cooperative health plans as an alternative to the Medicare-like public health plan President Obama supports.

I will suggest Senator Conrad take a look at this one:

North Dakota Blue Cross Blue Shield

From their website:

"More than 65 years ago, Blue Cross Blue Shield of North Dakota (BCBSND) began as two separate pre-paid health care plans for hospital and physician services. The two companies merged in 1986 and, in 1998, converted to a not-for-profit mutual insurance company."

A Stable Company:
  • "Systems and processes essential to assisting health care providers are strengthening the ties between providers and BCBSND
  • "BCBSND follows sound underwriting principles
  • "Working to maintain adequate reserve levels to ensure funds are available to pay for member claims and administrative expenses"
In 2008, Blue Cross of North Dakota insured 475,000 people. The company had $1.3 billion in revenue and had a (miserly) net income of seven-tenths of one percent ($8.8 million).

In addition, the plan is overseen by a community Board of Directors representing doctors, hospitals, businesses, and consumers--all North Dakotans.

Senator Conrad, is this what you had in mind?

Earlier post: Health Care Cooperatives--An Old New Idea--So What's a Blue Cross Plan?

Health Care Cooperatives--An Old New Idea--So What's a Blue Cross Plan?

As opposition to a Medicare-like public health plan option grows, there has been a lot of talk about the compromise idea of creating not-for-profit health insurance cooperatives that would compete on a level playing field with existing private insurers. The reasoning goes they would keep the existing insurers "honest" by introducing a new element of competition.

That's a great idea.

And it was a great idea 60 years ago when the first Blue Cross plans were established. See also: Here's an Example of a Cooperative Not-For-Profit Health Plan--North Dakota Blue Cross

What's the difference between a not-for-profit health insurance cooperative and all of the existing not-for-profit Blue Cross plans?

In April, I discussed the notion that such not-for-profit state driven plans already exist in other forms and haven't accomplished a lot in a post: A Public Health Plan That Looks Just Like a Big HMO---Why?

Proponents of this compromise co-op idea often point to health plans run by states for their workers as an example of the government already running efficient health insurance programs. I noted that 30 states already have a similar health plan model combining medical self-insurance with commercial networks—usually Blue Cross networks—to operate a publicly-run health plan for their state workers.

I also discussed similar models set up by states to provide state-run workers' compensation programs in direct competition with the private workers' compensation insurance companies. Here is an excerpt from that April post:
I don’t know of any of these state self-insured plans that are generally getting better results than the typical large private employer’s self-insured plan—or any commercial health plan. And why would they—they are just large self-insured employers using the same commercial networks the ERISA market uses. CalPERS, the biggest for example, has a partnership with California Blue Shield and the last time I looked their costs weren't anything to write home about compared to the typical Fortune 100 employer.

Just which state employee plan is a model for reducing health care costs, ridding the system of unnecessary services, and measurably reducing the "premiums" it charges its sponsors and employees?

But, you might argue, these state plans have expense ratios far less than the existing individual and small group market. Sure they do--just like a typical large employer. Now add the cost of servicing individuals and small groups and why would they be any less expensive than a private plan offered in the same "Insurance Exchange." They don't have to make a profit, one might argue. Really? A public plan would have to develop the same stabilization reserves any existing not-for-profit health plan has to build for in the down years.

There actually are plenty of examples of government going into the insurance business on a level playing field basis with the private sector. There have been a number of state workers’ compensation funds over the years as well as state sponsored physician medical malpractice funds—usually built at a time when the private sector was not creating adequate market capacity for even average risks. [I am not pointing to high-risk pools here but state sponsored insurers aimed at the mainstream market.] All of the ones I know about ended up looking exactly like the private players. The fact that none of them ever dominated the market is testament to just how similar, or ineffectual, they turned out to be compared to their private market cousins.

As an example, I would point you to the California State Compensation Insurance Fund. Founded in 1914 by the state legislature, it is a workers' comp insurer. In the mainstream market the Fund looks, acts, and underwrites just like the private players. California has always been a problematic workers' comp market--can't say having the Fund for 95 years has solved any systemic work comp problems there.

What the Fund has been though is a doormat for the private market and political regulators--carriers move into and out of California when workers comp regulation becomes intolerable for them and back in when the regulatory climate is tolerable. But the Fund has to stay no matter what and its revenue and financial stability have varied widely as a result. When the carriers are interested in being in California, they pretty much take market share away from the Fund at will.

When the day is done, it seems to me the authors are arguing they can create something that looks just like the existing private health plan market...


Looks to me that in an effort to create a level playing field and overcome the objections to a public health plan the authors have succeeded.

But they have also just come full circle and toward what end?

About half the private health insurance market in the U.S. is in not-for-profit health plans and networks (Blues, Kaiser, etc.). Just how would a "modest" public health plan provide something materially different?

Wednesday, June 10, 2009

Raising Taxes to Pay for a Health Care Bill--Apparently the Congress Wouldn't Be Able to Find a John Deere in a Hay Stack

Why Do We Need to Raise Taxes to Pay For a Health Care Bill in a System That Has $10 Trillion in Waste?

White House Budget Director Peter Orszag has promised in the next few days to detail just how the administration would like to see health care reform paid for.

There are some people who question whether he will play it straight or play games with those numbers—will the list really be scoreable?

He will play it straight. You only need look at the comprehensive and highly regarded December Congressional Budget Office (CBO) report he put his signature on, as the then CBO director, that detailed 115 health care reform options to know that.

But the White House list of health care reform pay-fors will undoubtedly also have a number of new taxes to pay for as much as half the cost of a health care bill. Because the Congress has been unable to do much toward getting the waste out of the system, and therefore needs billions more, there will be lots of tax increases on the list.

Let me be clear, using the tax system to drive people to more efficient health plans could be good policy. But most of the tax increases on the list are just plain tax increases.

So, as we await word on just which new taxes the White House and Congress will propose to pay for a health care bill, consider this.

The Centers for Medicare and Medicaid (CMS) has said that our health care system will cost $2.5 trillion in 2009. CMS has also projected that we will pay $4.3 trillion at current trends in 2018. A little simple math says that we will pay out about $35 trillion over the next ten years.

About half of that—or $17 trillion—will be paid by government under existing programs.

Most experts estimate that the final health care bill will cost at least $1.2 trillion over those same ten years. It looks like the Democrats are getting ready to propose paying for half the cost of a health care bill with new taxes.

So, out of that $35 trillion we can’t find a little more than a trillion dollars in savings to pay the full cost of a health care bill?

Just taking the $17 billion that government will pay over the next ten years, we can’t find a trillion dollars there either?

Most experts agree that our system costs so much because we waste something like 30% of what we now spend.

At 30% in waste, that would mean that of the $35 trillion we will spend on health care over the next ten years there is more than $10 trillion in waste. Just in the $17 trillion government will spend on health care there would be more than $5 trillion in waste.

Just think about the logic of that for a moment.

It appears we are on our way to a $600 billion to $800 billion tax increase for a health care bill because we can’t find that amount of money in a system that will waste $10 trillion over the same period.

I don’t think these guys could find a John Deere in a hay stack.

The Health Industry's Achilles Heel


"You never want a serious crisis to go to waste." - Rahm Emanuel, White House Chief of Staff.

Timing matters. The health industry has demonstrated steadfast resistance to reforms, but its recently diminished fortunes offer the Obama Administration an unprecedented opportunity to achieve meaningful change. The stakes are high, though. The Administration's health team must not miscalculate the industry's goals, or waver from goals that are in the nation's interest. The two are very different.

Aligning the forces of reform will be the first challenge. The White House and Congressional Democrats appear to be collaborating to develop a unified reform design. Even so, the effort is hardly pure. Lawmakers have been receptive to industry influence. The non-partisan Center for Responsive Politics reports that, in 2009, health care interests have already spent $128 million on Congressional lobbying contributions, more than any other sector. The tide now turned, most of that largess has gone to Democrats.

All reform discussions acknowledge the twin goals of universal (or expanded) coverage and controlling cost. But as the state initiatives in Massachusetts and California have shown, expanded coverage is easier. Coverage pays for care, so the industry is delighted to oblige. Cost reductions, though, are harder. The mechanisms that undergird health care's excesses are embedded in its operations, and waste is responsible for much of its profitability.

The Obama health team already has firsthand experience with the industry's maneuvering. First it saw the health IT vendors' association, HIMSS, hijack the well-intentioned $19 billion HITECH allocations for electronic health records by capturing control of the agency that specifies the certification criteria for product subsidies. Now those funds will probably favor outdated, non-interoperable, client-server technologies from a small number of legacy IT companies. Newer, more effective, less costly web-based tools from hundreds of innovative firms will likely have to base their success on market appeal, without the government's help.

And then there was the May 14 cost backpedaling by six major health industry associations. After apparently agreeing to voluntary cost reductions with President Obama, they reversed, insisting they had offered to only "ramp up savings" over an unspecified time frame. At least one health plan is already preparing an anti-reform campaign, similar to the Harry and Louise ads that helped turn public sentiment against the Clinton health reform effort.

These developments confirm the industry's focus on the status quo, backed by cash and lobbying strength. The question is whether it can again stave off reform, sealing another win at the American people's expense.

But the industry has an Achilles heel. Its fundamentals have eroded, potentially easing the way for operational restructuring. Consider the evidence that commercial health plan enrollment is in freefall, as mainstream purchasers - employers and individuals - are priced out of the coverage market.

· AIS and Kaiser Family Foundation data show that, after reaching 180 million enrollees in 2005, commercial health plan enrollment has plummeted by more than 20 million lives (11.3%).

· In recent discussions, health plan executives have acknowledged that the multiplier to estimate total covered lives from employee lives has fallen from 2.2 to 1.8. This 18 percent change mostly reflects kids whose parents' employers have stopped subsidizing dependent coverage. It could represent twelve million new uninsureds, previously unaccounted for, and another nine million new Medicaid lives.

· Last month the Wall Street Journal cited Wellpoint's loss of 500,000 lives since December 2008, and United's loss of 900,000 in the last year. Similar enrollment declines have been reported at health plans throughout the country, the result of a decade of premium growth at four times general inflation, exacerbated by a severely downturned economy.

· The Congressional Budget Office estimates that, in 2009, seven million Americans currently enrolled in commercial health plans will avail themselves of the COBRA subsidy that was part of the American Recovery and Reinvestment Act. Unless the economy rebounds or Congress extends the program, many of those enrollees will lose coverage as well.

Premium pays for nearly all health care products and services - from office visits to stents - so decreasing enrollments have stressed the industry more than at any time in memory. Ancillary issues, like drops in investment income and anticipated payment reductions to Medicare Advantage health plans, are also reverberating throughout the industry, compounding its financial troubles.

But even in the face of hemorrhaging enrollments, the health plan sector has not visibly changed its medical management approaches. Instead, most organizations seem to be waiting, presumably for the new revenues associated with universal coverage. It seems likely that the health industry will campaign for Massachusetts-type reform that forces concessions from purchasers rather than in the ways health care is financed, delivered and supplied.

To be meaningful, though, reform must fix the three deep structural flaws that enable the excesses that have benefited the health industry and created the cost crisis. A specialty- rather than primary care-dominated system promotes more expensive downstream care at the expense of less costly upstream care. The lack of an interoperable information technology infrastructure has created barriers to quality/cost transparency, transactional streamlining, and science-driven decision support. And a fee-for-service reimbursement system has encouraged more care, independent of appropriateness, rather than the right care. Industry groups fight hard to preserve these approaches and the excesses they produce, and to block the most obvious remedies to overspending.

Health care could be far more affordable. Experts agree that at least one-third of all health care cost is inappropriate care or administrative waste. As a recent White House meeting showcased, many health care managers have attained consistent, significant savings through innovations ranging from primary care clinics, data analytics, and Web-based management tools to health literacy and incentive programs.

As health care financing pressures intensify, the Administration must leverage the industry's discomfort by making the achievement of expanded coverage contingent on key operational reforms: re-empowered primary care, a national technology framework for outcomes management and payment tied to results. These are pragmatic goals that, when implemented elsewhere, have been shown to improve quality and drive down cost. Carefully explained, they will make sense to most Americans.

Finally, being effective with this immensely important issue will demand that the Obama team reach out and recruit the active leadership and support of the nation's non-health care business leaders, the one group collectively more powerful than the health care lobby.

If the Administration can get the backing of influential leaders outside health care, and if it is willing to hold out on expanded coverage until the industry accepts changes that can right-size cost, then we'll have a chance to establish affordability and sustainability in American health care.

Brian Klepper is a health care analyst, consulting with the industry. David C. Kibbe is a Family Physician, Senior Advisor to the American Academy of Family Physicians and a technology consultant. Their collaborative columns are collected here.

Tuesday, June 9, 2009

The House Tri-Committee Bill—The Playing Field Just Moved Back to the Middle

Just when people were getting ready to write-off the Baucus bipartisan approach to a health bill the debate has swung back to the middle on a number of critical issues.

For a longtime I have been telling you two things:
  • The final health bill will be more moderate than liberal—for example, no Medicare-like public plan, only a soft individual mandate, but including insurance exchanges and underwriting reform.
  • A health care bill will go nowhere without a politically viable way to pay for it and no one has yet to put that on the table.
The Democratic caucus from the three House Committees working on a health care bill just released their outline.

It is clear that the House Blue Dog Democrats and other moderates have had a big impact upon it. Those who thought the House would come up with an unrealistically liberal proposal need to think again.

First, there is a public plan proposal. But it is the neutered variety—“The public health insurance option is self-sustaining and competes on ‘level field’ with private insurers.” This is a clear response to the Blue Dogs and other moderates saying “no way” to the Medicare-like public plan.

The House version of the insurance exchange idea only applies to the individual and small group market.

There would be a “pay or play” employer mandate accompanied by benefit standards—something I continue to believe will not survive to the finals out of opposition by the employer community to taking their ERISA plan design flexibility away. The individual mandate is the soft version--applying only to those who can truly afford it.

But on the spending side, it doesn’t look like the fiscal conservatives have had a lot of impact. The House bill also promises to subsidize individuals and families with incomes up to 400% of poverty. For physicians, it promises to get rid of the Sustainable Growth Rate formula and give primary care physicians a raise. It also promises to improve low-income Medicare subsidies, and eliminate cost sharing for all preventive Medicare services.

These are all good things—but they are also very expensive. This is where it gets a lot more problematic. Spending money for all of these things could well take this bill to a cost well north of $1.5 trillion depending upon the details.

The House bill puts no new revenue ideas on the table—they don’t even begin to talk about how to pay for it in any detail.

Because of the influence of the moderate and conservative Democrats the House outline is not so far away from the kind of bipartisan compromise that can be had—in terms of a plan outline.

But on the cost of the bill, and how it will be paid for, there is little to make us believe the “Blue Dogs” have had much influence.

This pushes my health care reform meter past $1.5 trillion on the cost side for this particular bill with still only about $300 billion in the tank.

Word on just whose hide the money will come out of has to come out soon. The Blue Dogs will be successful in continuing to demand full pay-fors.

That is when the “fun” will begin.

"The Tri-Committee Health Reform Draft Proposal"

Public Plan Option: Sustainable Growth Rate Formula On Steroids?

Everyone in the health care debate seems to agree that the biggest problem is costs and that the best way to control costs is to get at the waste in the system. To raise the money needed to cover everyone and to make the system sustainable, goes the argument, we need to convert the upwards of 30% in excess costs now in the system to savings.

I think that’s right.

Many of my friends in the health care debate say the way to do that is with a robust public-plan option. The reasoning goes that a Medicare-like public plan that can drive down reimbursement rates for providers will create strong competition for the traditional insurers and health maintenance organizations (HMOs) so they finally have to tackle the problem of costs and waste.

I agree with their premise that we need to have unambiguous incentives for the stakeholders to get the job done and finally drive the waste out of the system.

But I question whether a Medicare-like public plan option can do it by creating a new competitive landscape based upon provider underpayment: today most private health plans pay doctors about 20% more than Medicare and pay hospitals about 30% more.

Read the rest of this post at Health Affairs.

Monday, June 8, 2009

Beware of Tax Increases Disguised as Good Health Policy

Many believe we need to use the tax system as a way of reforming the health care system.

The idea is to use tax policy to encourage more efficient benefit plans. It seems to me such proposals make a great deal of sense as part of a more comprehensive reform.

However, I am worried that the Congress will simply raise taxes to pay for health care reform--perhaps as much as half the cost of a new program.

The legitimate policy discussion over using tax policy to encourage more efficient benefit plan designs typically involves taxing "Cadillac" health plans by the amount they exceed a standard offering. Other cutting edge proposals have even gone further by putting the tax benefits of health insurance in the hands of consumers--the Wyden-Bennett Healthy Americans Act for example.

But the tax we appear to be headed for is just a tax on high-income people. That scheme calls for phasing-out the longstanding tax exemption for health benefits--perhaps single people earning more than $80,000 a year and families making $160,000.

That is not a new tax policy designed to encourage a more efficient health care system--it's just a tax increase. It would begin on the "rich" but it wouldn't be long before bracket creep captured more and more middle income families just as the alternative minimum tax (AMT), originally designed to tax the rich more, has made its way to the middle class.

Today, the Kaiser Health News (KHN) published a column by me dealing with this concern titled, "Health Care Reform or Just Expensive Entitlement Expansion."

Here are a couple of my points:

Consider this, during the last 10 years worker earnings have grown 34 percent, general inflation was up 29 percent, but health insurance premiums were up 117 percent.

How would you like your taxes tied to health insurance premium increases? That is what could happen if the Congress backs the leading proposal by paying for almost half of a health bill with income tax increases—specifically by capping the longstanding tax exclusion on health care benefits for higher income tax payers.

I expect to see a health care bill emerge with a little cost-containment window dressing, a modest shaving of what providers get paid today, and lots of tax increases which would have nothing to do with changing incentives toward making the system more efficient.

You can read the entire column here.

Friday, June 5, 2009

$2 Trillion Sure Doesn't Buy You a Lot These Days

I know that we talk in terms of trillions and not billions in Washington these days but even by that new standard the way the Democrats are dissing the "$2 trillion stakeholders" is amazing.

Not two days after the big stakeholder trade associations offered their "$2 trillion in health care savings," President Obama called on Congress to pass a health care reform bill that included the dreaded public plan. More, he called on the Congress to find another $200 billion in provider savings and suggested he'd go along with MedPAC, and not the historically easy touch Congress, setting provider reimbursement rates.

About all the "$2 trillion stakeholders" seem to have achieved is to go on record that there are tons of waste in the system and they know where to find it and get rid of it. Which will be convenient for liberals who will now use that assertion to drive cuts and more government regulation down their throats.

What were they thinking?

But given the games they were playing--they deserve what they get!

Earlier post: Stakeholders Provide 28 Pages of Detail on How to Save $2 Trillion Dollars--And They Did it With a Straight Face!

Thursday, June 4, 2009

The Health Care Reform Meter--Do the Dems Have the Money to Pay for It?

If I knew anything about computer graphics I'd post this really neat picture of a meter--sort of like a your car's gas gauge.

The full point would represent the cost of a health care bill--somewhere in the $1.2 trillion to $1.5 trillion range.

Each time someone put up scoreable savings I'd post it toward achieving the ultimate objective.

So, you will have to imagine my meter.

Here's where I think we stand today.

First, the President's original budget proposing to cut $309 billion over ten years from providers--including a lot from Medicare HMOs and elder care providers--looks to me to be on track to end up in any final bill and scoreable.

So, I feel pretty confident about posting $309 billion on my health care reform meter--the tank is about a quarter full.

The President's proposed tax increases, as part of his health care "down payment," that would affect charitable and home deductions for high income folks are dead--can't post that one.

Then there is the $2 trillion in "savings" identified by the stakeholders this week. Nothing but empty boxes because none of the stakeholders are willing to take any risk they will happen (put their money where their mouths are). That one has already been lost in the shuffle here in Washington--doesn't budge the meter.

The big one everyone is talking about is the proposal to limit the tax exemption for health insurance benefits--either "Cadillac" plans in excess of a standard plan or just phasing out the exemption for high-income earners. The most likely method would be hitting the high earners out of a Democratic fear of taking the unions on (just ask the Chrysler and GM bond holders about that one). The latter version would be worth about $550 billion over ten years.

Being able to post this one would push the meter way up to almost three-quarters of a tank.

The President, in a letter to Democratic committee chairmen this week, was non-committal on the benefit tax but all the signs are he'd sign a bill with such a tax for high income earners in it despite his sharp criticism of John McCain last fall for another version of health benefit tax changes. Just so long as it looks like the Congress made him do it.

However, I am also told that such a tax is not a slam-dunk among all Democrats. After all, the loss of the health insurance exemption for a family would probably mean $3,500 - $4,000 in new taxes. That will not be popular in many high-income states--New York for example.

It's too early to post this one to the meter but if a health care bill is to be had this is the type of thing it will take.

It is important to note that the White House has been talking about "evenly" paying for health care from both cuts to the system and new taxes. The tax on high-income earners' health benefits gets the job done almost all by itself.

There is also talk about tax increases not directly related to the health care system--a tax on sugary soda and alcohol for example, that would provide some modest additional money. These aren't automatic either--their powerful lobbies are in high gear.

In the President's letter it is also important to note that he called for $200 billion to $300 billion in additional Medicare and Medicaid provider cuts. The President specifically said he would be "open" to Jay Rockefeller's idea of putting MedPAC in charge of Medicare and Medicaid provider reimbursement--the Congress would have to overrule their decisions under a base closing-like model. That would definitely provide the scoreable savings they need but it would also be very contentious--I am not sure Congress is willing to give up that power and I know the providers would fight it to the death given the easy touch Congress has been on the doctor cuts in recent years. It smacks of the "cost board" so many oppose.

The President's interest in it may only be a negotiating tactic--"Give me something scoreable or you get MedPAC."

Well, $309 billion in already announced cuts, plus $550 billion in taxes from limiting the health care exemption, and $300 billion more in Medicare and Medicaid cuts would take us to $1.16 trillion. That about hits the "full" mark on my meter.

Does that mean we will have health care reform?

Neither the $550 billion tax increase nor the $200 billion to $300 billion in additional provider cuts are in the bank yet or on my meter.

There are also a number of non-financial issues that could wreck health care reform.

The big one is the fight over a public plan.

As I have told you before, I do not see a Medicare-like public plan option making it to the finals. Too many moderate Democrats are worried about the "unintended consequences" and even the providers have come to understand it wouldn't be just the insurance companies that would take it on the chin from a Medicare-like public plan. Proposals to require a public plan to pay 10% more than Medicare won't be enough to placate those concerns.

The fact that less than half of the Senate Democratic caucus signed a letter supporting a public plan last week says it all.

Yes, I know the President has once again endorsed the idea and it looks like Baucus will even include it in the Senate Finance draft. But that will likely endanger a health care bill because it will attract widespread stakeholder opposition. It is hard to see how the Democrats can force something as big as health care reform through all by themselves.

I also thought the President's support, in the letter to the Chairmen, for an individual mandate so long as it did not create a hardship on consumers was important. As I have posted before, I do not expect an individual mandate to survive but a soft mandate--mandating only those who can truly afford coverage or are eligible for an employer plan--might make it.

I do not see an employer mandate surviving--there is too much opposition from employers worried about losing the benefits of ERISA for that one to make a final bill.

But, all of these issues are what the debate is about.

Getting a health care bill will require navigating one giant minefield--and we haven't even entered it yet.

But soon.

Recent post: Too few reductions in health care spending and too many taxes, We Are On Our Way To Confusing Entitlement Expansion With Health Care Reform

How to Use Comparative Research to Manage Health Care Costs

Recent proposals from the American Medical Association (AMA) to voluntarily use comparative research information ring hollow without their having any teeth to assure the information is in fact used.

I thought Gail Wilensky had some thoughtful comments on the issue of using comparative research to control health care costs in today's Kaiser Health News.

An excerpt from her interview with Christopher Weaver:
Q: Last summer, you wrote… that it's "vitally important to keep comparative clinical effectiveness analysis and cost-effectiveness analysis separate from each other." Can you tell us a little more about what that means?

I believe that the information from comparative clinical effectiveness needs to be paired with financial incentives to encourage their more appropriate use... What that means is that when there is good clinical evidence… for treating a particular type of cardiac disease or orthopedic disease or whatever, you ought to have the lowest copayments… and higher copayments when the likelihood (of a positive outcome) is very uncertain or very low.

You've already seen people who are raising the flag of rationing, (saying the research is) just a backdoor way to deny effective care because you don't want to pay for it. I don't want to arm those critics.

Q: What about the suggestion by Sen. Jon Kyl, R-Ariz., that this research could "deny or delay health care for Americans"?

A: Many things could deny and delay health care for Americans if they're enacted inappropriately. In a country where your likelihood of getting what's clinically appropriate is 53 percent, it's not a very useful threat.
Read the entire interview here.

Recent post: Stakeholders Provide 28 Pages of Detail on How to Save $2 Trillion Dollars--And They Did it With a Straight Face!

Monday, June 1, 2009

The Health Care Affordability Model—A Plan That Will Control Costs and Improve Quality

The Health Care Affordability Model

Health plan networks made up of insurers and providers would be required to first begin to stabilize and then control their costs. Failure to do so would mean the loss of their federal tax qualification. Premiums for a non-qualified health plan would no longer be tax deductible for individuals or plan sponsors who used these unqualified plans.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control. The Health Care Affordability Model creates unavoidable incentives for health plans and their provider network partners to maintain their tax qualification:
  • The health plan would be placed at a substantial competitive disadvantage without it.
  • Doctors, hospitals, and other providers who were not in a tax qualified health care network would lose patients to networks that did control costs.
  • Employers and consumers would almost certainly purchase their health benefits only from qualified plans.
And, unlike most health care reform proposals, the Affordability Model would simultaneously reduce both public and private health care costs.

The Health Care Affordability Model is not a standalone health care reform proposal. It could be attached to virtually any health care reform plan now on the table.

The Assumptions Behind the Affordability Model

We have not fashioned an affordable and effective health care system in America because we have not had to.

We either know how to do it, or can fairly quickly figure it out from what we do know.

Not until we have no other choice will we be willing to make the hard decisions and take the tough steps.

A government-run health plan, such as the Medicare-like Public Health Plan being debated, could quickly cut our costs by paying less money out. But central planning could not make the discreet decisions necessary to distinguish between expensive care and necessary care that providers and patients, looking at the specific patient situation, and driven by the proper incentives, could.

A Medicare-like Public Health Plan option would simply lead to successive rounds of fee discounting—not rooting out the 30% of the system that is waste.

The Affordability Model gives consumers, providers, and payers (health plans and self-insured employers) unavoidable and unambiguous reasons to finally first slow and then control health care costs while simultaneously improving quality.

The Affordability Model makes the tax preferences payers and consumers would demand of a health plan network dependent upon that networks payers and providers finally coming to grips with making America’s health care system effective for an affordable cost.

For almost 70 years, the federal tax system has been used to encourage the spread of health insurance. Now, it should be used to encourage a transition to a health care system that meets our cost and quality objectives.

In creating the affordability model nine things were presumed:
  1. Reform Means Finding the Waste - In great part, America’s health care system is too costly and unsustainable because of wasteful and unnecessary treatments and procedures, poor quality of care, because there is substantial care that could be avoided if we were to live healthier lifestyles and more often practice good prevention, and because there is far too much administrative cost.
  2. We Have to Work Together – If payers (including health plans and self-insured employer plans), providers, and consumers more cooperatively and intently engage in systems designed to dramatically reduce unnecessary treatments, procedures, and administrative waste, as well as effectively encourage and reward healthy lifestyles to avoid costly care, we could first slow then control our health care costs at affordable levels.
  3. We Have the Tools or Can Create Them – These systems should take better advantage of a number of tools such as comparative effectiveness research, health information technology, results oriented payment systems, and prevention and wellness programs—all aimed at better costs and better quality.
  4. We Know Where The Waste Is – Payers and providers generally know, or can determine, where the waste and excess costs are in the system and can be far more effective in delivering preventive and wellness programs to impact avoidable care and costs.
  5. We Really Haven’t Had to Solve the Problem – But, consumers, and particularly payers and providers, have not adequately engaged in implementing these tools to eliminate the waste, minimize avoidable care and unnecessary costs, and improve quality because they have not had powerful reasons to do so. During the last decade quality has slipped and health care costs have doubled. At the same time, health insurer profits have never been higher, most health care providers have done relatively well, and insured consumers have continued to enjoy comprehensive tax-preferenced benefit plans.
  6. There Can No Longer Be a Choice – What must change is that all of the stakeholders must have no choice but to either make, or cooperate in making, the health care system change.
  7. America Was Built Not on Central Planning But on Individual Ingenuity – Patient-centered solutions cannot occur in a system driven by central planning—the solution needs to be about expert health care providers using their ingenuity in literally a million places every day toward better cost/quality results.
  8. The Solutions Will Come Nearer the Problems – No health care reform legislation should presume to layout the details of a reformed system. First, that objective will continually change over time as stakeholder learn and evolve. Most importantly, that task should be accomplished in face-to-face work, by those who represent competing interests, on the ground in every part of the country, and driven by unambiguous reasons to get the job done.
  9. A Solution Isn’t a Solution If It Is Not “Scoreable” – The health care debate is full of simplistic ideas that never accomplish meaningful results. If a plan does not have “teeth” it will not have results.
As part of this model employer-based health care would not be adversely affected. Employers to continue to design, offer, and administer their own health plans—including those under ERISA.

The Health Care Affordability Model can first begin to slow, and then moderate, and even reduce the climb in America’s health care costs.

The Health Care Affordability Model would not impose government controls over insurance or provider prices. Employers and insurers would be able to offer any benefit plan they choose—including HSA and HRA programs.

Insurers and providers would be able to contract with whomever they choose at what rates and under what protocols they independently agree to.

We Can and Must Do a Lot Better Than Simply a Deficit Neutral Health Care Reform Bill

Today, efforts to reform our system are stuck in the mud over how to control costs and thereby produce the savings we need to pay for any reform plan as well as control our long-term costs.

Really, we have three choices:
  1. Price controls on health care providers.
  2. Price controls on insurers.
  3. A system of incentives that forces insurers and providers to ferret out and eliminate the wasteful administrative and health care delivery costs in the system using such tools as health information technology, comparative effectiveness research, pay-for-performance, prevention, risk sharing models, and the like.
We have these tools to one extent or another today. However, we don’t use them and we don’t further develop them.

For example, the Dartmouth Atlas work, long considered the standard in examining variations in health care spending and utilization, has been around for more than twenty years telling us just where we are doing too much.

The health care “tool box” has long included prevention, wellness, health information technology, comparative effectiveness research, coordinated care models, provider risk-taking structures, pay-for-performance, and the like.

The Congressional Budget Office (CBO) in their December report on health reform options has estimated that none of these tools will make much difference in the present system without compelling reasons for people to use them. We can know about comparative research but we have a history of doing nothing about it—because we don’t have a compelling reason to.

In fact, insurers and providers have had compelling reasons not to make the health care system cost effective—providers and insurers get paid more not to.

Everyone in the debate generally agrees that the third option—making the system more cost and quality effective—is the best one.

Simply lopping off the fees either providers or insurers receive (as the Public Plan Option would do) would do little to create a sustainable system over the long-term. Cutting provider reimbursement across the board using a Medicare-like imposed fee system would reduce costs at least in the short-term. But like the difference between a laser-guided bomb and a smart bomb, while arbitrary fee cuts may be somewhat effective they would be inelegant—efficient providers of health care would suffer the same reduction in payments as inefficient and wasteful providers. And, the longtime health policy frustration would undoubtedly occur again, “push it in here and it pops out there”—health care providers would respond by simply increasing the frequency of services to offset the payment cuts.

Regulating health insurance rates would put the insurers on the spot but they do not control the delivery of medical services—health care providers do. Price controls on insurers might be effective in the short-term but offer no long-term improvement in how health care services would be delivered.

Providers, insurers, health plan sponsors, and patients must be accountable toward the same objective at the same time in order for them to finally pull together.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control.

The Affordability Model would create an unambiguous reason for each of the stakeholders to finally work together to get America’s health care system under control. No stakeholder would want to see their network lose its tax preferences:
  • The health plan would be placed at a substantial competitive disadvantage.
  • If doctors, hospitals, and other providers were not in a tax qualified health care network they would lose patients to networks that did control costs.
  • Employers and consumers would almost certainly purchase their health benefits only from qualified plans.
The challenge that both policymakers and those in the health care market have faced is just how do we get rid of all of the waste in America’s health care system. For thirty years—since the advent of managed care—America has attempted to eliminate the waste that makes our health care system the most expensive in the world.

While we have been able to measure the extent of wasteful or ineffective treatments and procedures, to agree that it exists, and to list example after example, we have hardly blunted it.

Managed care has failed in this regard. So have government-run health care programs—Medicare and Medicaid.

We have failed because no one in the system—payers, providers, and beneficiaries had any compelling reason to really make changes. Really, the give and take between sellers and buyers in America’s health care system resembles a kind of phony war—payers and providers pitted against each other in theory but having learned to live with one-another—albeit often uneasily—while dividing up the loot.

Between 2001 and 2008, private health insurance costs increased between 6% and 14% each year—multiples of inflation and growth in the overall economy—while health insurers, drug companies, and device companies booked record profits, and most hospitals and doctors did well.

There is a way to quickly change the focus that those in the market and in government face—to dramatically reorder the incentives in America’s health care system toward affordable cost and quality.

Instead of the untargeted government instrument of controls on prices and procedures, it is the ingenuity of those in the system that must be targeted toward already known waste and inefficiency in ways well beyond any before.

But in the past the big stakeholders in America’s health care system haven’t had to get serious. Under the Affordability Model they would have to.

The Health Care Affordability Model is Not About Arbitrary Price or Service Controls or Global Budgets

America has been the leader in developing the world’s present day health care system whose scientific and technological capabilities could have hardly been fathomed decades ago. That same unbridled ingenuity now needs to be focused on making it sustainable.

An unambiguous and measurable system of unavoidable incentives can accomplish that.

But such a system does not have to introduce onerous government controls.

This can be accomplished without:
  • Government price controls or global budgets on either insurers or providers of health care.
  • Doing away with private health insurance or employer-based ERISA plans.
  • Limitations on what providers of health care can prescribe for their patients.
  • Requirements that a provider participate in any network or government-run plan.
  • Major cuts to the benefits patients/insureds receive.
  • A government cost containment agency or board that dictates prices and treatment protocols.
This can be accomplished in a way that policymakers can be confident the savings will accrue—that the legislative scoring process can identify the hundreds of billions of dollars that will be needed to both create a deficit neutral universal health care program and, more, accomplish the ultimate goal of first stabilizing and then reducing the share of America’s GDP health care consumes.

The Health Care Affordability Model and Quality

Improving affordability at the expense of quality care would be a hollow victory.

Today, the term quality is often confused with a lack of limits on access to care and unlimited spending. Quality has too often been a rationalization for promoting the waste that makes our system more expensive than any in the world with arguably no better outcomes than other industrialized societies.

Today, health plans compete over quality. But the word quality has little to do with whether the patient had access to the most appropriate treatment path. They really compete over the perception of quality—generally having the best-regarded doctors and hospitals in their networks.

As health plans had to become more cost efficient to meet the affordability standards, they would likely be on the defensive with both providers and patients over the issue of quality.

That would be good because it would finally ignite a three-way conversation (payer, provider and patient) over just what care is the right care—quality care.

Under the Affordability Model there would be less money available than what would have been in the relatively unfettered system with costs exploding as they are today.

That would clearly drive the three-way conversation to a place it rarely is today—what is the best way to spend a more reasonable amount to get the patient well.

Most people would agree that giving patients, payers, and providers the incentives to make science-based decisions about the most effective way to treat a patient is the best way to spend wisely.

With private plans competing with more limited resources the incentives will be built in a direction that has the stakeholders more often driven toward a very specific conversation about the most rationale way to spend the money for the best outcome.

Most people also agree that costs cannot be improved without effectively implementing such tools as health information technology systems, prevention programs, and wellness systems. To meet the Affordability standards health plans and providers finally would have to aggressively implement these tools. The effective implementation of these kinds of programs can only create a better quality system.

Each of these things—a more direct conversation about quality and aggressively implementing systems that support quality—would be a major improvement in the name of quality.

The Health Care Affordability Model

This model presumes employers would be able to continue to offer their own health insurance plans—including under ERISA—and that a new system of insurance exchanges would be created for the individual and small group health insurance market.

How the Affordability Model would work:
  • Health plans (insurers) could offer any health benefit plan they chose to.
  • Benefit programs could be customized for any employer or multi-employer group.
  • Health plans could contract with any health care providers they choose to on any terms.
  • Health care providers would be able to contract with any health plan they chose to on any terms.
  • No government agency would require providers or insurers to follow any treatment protocols.
  • Insurance exchanges under uniform federal rules would be established in each state—states would continue to regulate insurer solvency and consumer protections.
  • Health insurers would be required to offer at least the standard option benefit plan in each state in which they operate through the insurance exchange. Through competitive bidding each plan would establish its baseline costs in the first year.
  • Employers (including multi-employer plans) could purchase health benefit plans from the insurance exchange, directly from the insurance company or may self-insure their own program.
  • Self-insured plans would be required to provide an actuarial certification attesting to the relationship its overall plan costs had compared to what they would have been had the plan offered the standard plan option to all employees (including age and severity adjustments). In the first year, that cost would become the baseline for future year costs.
  • Employers could continue to provide their own health benefit plans (insured or self-insured). An employer who chose to terminate their health plans in favor of their employees purchasing benefits through the insurance exchange would be required to “cash-out” their benefits.
  • Insurers would be allowed to market their health plans outside the insurance exchange to individuals and small groups under uniform reformed underwriting and marketing rules.
  • Consumers, employers, and associations would be able to purchase any health plan design they choose to. If an HSA or HRA style plan is chosen, any savings in cost compared to the standard option accomplished by purchasing such a plan must be contributed to the employee’s health account. The standard option plan exists only as a reference point for measuring a plan’s ability to meet affordability goals.
  • Legislation would set national health care affordability goals expressed as a percentage of growth in the nation’s GDP—as defined and measured by the Department of Commerce.
  • These goals would at first slow, then stabilize, and then potentially could reduce national health care expenditures as a percentage of GDP.
  • A Health Care Actuarial Certification Board would administer the goals. The Secretary of Health and Human Services would appoint its members and its budget would be funded by an insignificant assessment on insurance exchange premiums the rate limited by statute.
  • The Health Care Actuarial Certification Board would be empowered to establish the regulations by which the Board would be able to hold health plans accountable for compliance with the “actuarial equivalency” standards (taking into consideration age, salary differences by area, and severity differences) of the Affordability Model. The Board could not allow for treatment differences by geography—ultimately all parts of the country would have the incentives to move toward the most efficient models.
  • The board would not have the power to set goals (these would be set in the legislation), set or regulate insurance rates or provider fees and prices, require the use of treatment protocols, rule on the efficacy of any treatment or device, or require or deny the use of any technology. In short the board could not interfere in the relationship between payers, providers, or patients.
  • The Board would act as a referee in monitoring compliance with the Act, ruling on the actuarial equivalency of any plan of benefits, determining if a plan is meeting the affordability goals. Disagreements with any Board ruling could be appealed to the federal courts over the issue of good faith enforcement of the Act.
  • Sub-Boards would be created in each state operating under the policy direction of the national Board in order that detailed actuarial health plan oversight be effective.
  • To measure compliance, each health plan (insurer) operating in a state would be required to offer the standard option plan in the insurance exchange during the first year the legislation is effective. Health plans could also offer any other plan of benefits they chose to—better or worse.
  • Health plans, plan sponsors, and providers would have until the first calendar year two years after the legislation becomes law to organize for cost containment compliance.
  • After the first two calendar years, the legislation would create a five-year (years three - seven after enactment) phase-in of the first affordability goals and objectives. Affordability goals for year eight and beyond would be set by subsequent legislation. However, the Act would freeze the affordability goal indefinitely at the year seven level if the Congress did not act to change it.
  • Any health plan offered by an insurer or self-insured employer which did not meet affordability standards by the end of third, or subsequent, year would be in jeopardy of being declared non-compliant and would be given one-year in which to comply with both that non-compliant year’s standard as well as the following year’s requirements.
  • A plan subsequently determined to be non-compliant could continue to be marketed, provided by its employer sponsor, or purchased by individuals but any costs would not be tax deductible to an employer. Further, the cost of the plan afforded to the consumer, by a plan sponsor or through the insurance exchange, would no longer qualify the individual for the health tax deduction.
  • If at any time the Health Care Actuarial Certification Board determines that 100% of the residents of a state do not have access to a compliant health plan, the board would be required to request the Secretary of Health and Human Services offer a public health insurance plan similar to Medicare in its operating structure as a competing plan in the state—the plan could unilaterally set reimbursement rates and treatment protocols as Medicare now does. The Medicare plan’s budget would be limited to the increase in the GDP. The plan would be tax deductible for employers and individuals. The Secretary would be required to comply with the request within two years.
In short, health plans could continue to offer any benefit program they wish and individuals and employers may buy them. Self-insured employers could choose any network to operate their plans.

The employer could continue to deduct the cost of any plan it offered so long as it was a qualified plan.

Health plans could contract with any providers they chose to on any terms they could negotiate. Providers could contract with any health plan or employer self-insured group (likely through insurer networks) they chose to on any basis they chose to agree to.

But if the arrangement between payers and providers did not meet certain affordability standards beginning in the third full calendar year of the Act, the health plan under which the providers and payers operated would ultimately lose its tax preference for both sponsors and consumers if it was not able to comply.

Controlling Medicare Costs

Securing fiscal sustainability for America is not possible without bringing Medicare’s costs under control.

Today the private Medicare industry competes with the traditional Medicare program under a complex structure that has done nothing to bring Medicare costs under control.

Instead of the value of competition bringing market forces to bear in order to control Medicare costs, we have an artificial means by which private Medicare reimbursement is set and plans doing nothing more than figuring out how to profitably operate at those levels.

The Affordability Model would apply to the private portion of the Medicare program and therefore drive private competitors to either produce meaningful results or get out of the business.

The government-provided traditional Medicare program would continue in its present form. However, policymakers would be encouraged to adapt its payment structure to follow any private sector success in controlling costs. This would include using the “tool box” composed of such things as health information technology, comparative effectiveness research, pay-for-performance, prevention, risk sharing models, and the like.

But to gain the full value of any success the private market achieves on the cost and quality front under the Affordability Model, the Medicare Advantage program would be significantly upgraded:
  • Medicare Advantage insurers would establish a baseline cost for providing the statutory Medicare benefits through a competitive bidding process in the first full calendar year the Act is effective.
  • Private Medicare rates would be set via the bidding process on a county-by-county basis that capped payments at the level traditional Medicare pays in that county for a similar risk pool.
  • Private Medicare providers could offer any benefits they chose to beyond the traditional plan’s baseline but would have to charge seniors an actuarially appropriate premium for these additional benefits.
  • Private Medicare insurers would be required to contract with health care providers to provide services to seniors making clear their networks and how their benefits vary from the baseline standard benefit package in senior marketing materials.
  • Employers could utilize private Medicare plans to provide retiree or active worker benefits.
  • Legislation would set national health care affordability goals expressed as a percentage of growth in the nation’s GDP—as defined and measured by the Department of Commerce (the same goals for both Medicare and the under-age-65 market).
  • These goals would at first slow, then stabilize, and then potentially could reduce private plan Medicare health care expenditures as a percentage of GDP.
  • A Health Care Actuarial Certification Board would administer the goals. The Secretary of Health and Human Services would appoint its members and its budget would be funded by an insignificant assessment on Medicare Advantage premiums the rate limited by statute.
  • The Health Care Actuarial Certification Board would be empowered to establish the regulations by which the Board would be able to hold health plans accountable for compliance with the “actuarial equivalency” standards of the Affordability Model—including adjustments for severity and differences in wage rates—but not geographic differences in treatments.
  • The board would not have the power to set cost goals (these would be set in the legislation), set or regulate insurance rates or provider fees and prices, require the use of treatment protocols, rule on the efficacy of any treatment or device, or require or deny the use of any technology. In short the board could not interfere in the relationship between payers, providers, or patients.
  • The board would act as a referee in monitoring compliance with the Act, ruling on the actuarial equivalency of any plan of benefits, determining if a plan is meeting the affordability goals; and therefore whether the Medicare Advantage plan could continue to be offered to seniors.
  • Private Medicare plans, plan sponsors, and providers would have until the first calendar year two years after the legislation becomes law to organize for compliance.
  • After the first two calendar years, the legislation would create a five-year (years three – seven after enactment) phase-in of the first affordability goals and objectives. Affordability goals for year eight and beyond would be set by subsequent legislation. However, the Act would indefinitely freeze the affordability goal at the year seven level if the Congress did not act to change it.
  • Any health plan offered by an insurer or self-insured employer which did not meet affordability standards on a statewide basis by the end of third, or subsequent, year would be in jeopardy of being declared non-compliant and would be given one-year in which to comply with both that year’s standard as well as the following year’s requirements.
  • After the one-year warning period, if the plan were still not compliant with the affordability goals, it would be removed from the list of approved private Medicare plans in that state and its members would be offered a seamless transfer to the traditional Medicare plan or another private plan of their choosing.

The Affordability Goals

The actual affordability goals could be set at any number of levels from aggressive to modest. The policy question is just how serious and aggressive we would want to be about controlling our health care costs. Should we simply bend the curve and allow costs as a percentage of GDP to continue growing? Should we cap costs at the current level. Or, perhaps more appropriately, should we first stabilize costs and then begin to reduce them to more affordable levels as a percentage of our GDP?

Once that policy is determined the goals would be inserted into the model.

For illustrative purposes, I have inserted goals that would first slow then stabilize then reduce costs as a percentage of GDP.

Years One and Two the Act is In Effect – No Affordability goal set. Time used to set baseline costs and organize to meet cost containment goals.

Year Three – The Affordability goal is set at 175% of GDP. The GDP goal comes from the Commerce Department determination of GDP for the 12 months ended June 30 of the prior year. If GDP were to have increased by 4% the prior year, for example, health care plan costs would be limited to an increase of 7% in the third year of the act (4% x 1.75=7%).

Year Four – 150% of GDP

Year Five – 125% of GDP

Year Six – 100% of GDP

Year Seven – 100% of GDP

By the seventh year, in this illustrative option, private health care costs and private Medicare costs in qualified plans would have their cost increases slowed to the rate that GDP is increasing.


I don't agree with many of the policy choices you have made in your explanation of how the Affordability Model would work such as whether a standard option plan should be set as the minimum, your preserving all of the current health insurance benefits tax preferences, your allowing individual and small group policies to be sold outside the insurance exchange, and a number of other policy secondary choices you have made.

Please remember that the Affordability Model is primarily about cost management and changing the incentives for insurers and providers. It can be attached to virtually any of the current health plan proposals and the detailed policy choices they have made.

Won’t insurers just game the system by establishing an artificially high baseline cost in the first two years?

Insurers are only required to have their standard option plan offered in the Insurance Exchange comply with affordability goals. Why can’t they just game the standard option offering and charge whatever they wish for the rest of their non-Medicare business?

Whatever price the health plan bid in the insurance exchange becomes the basis for any other price it charges for any other customer. The plan would have an obligation to demonstrate an actuarial equivalency in each of the states relative to the rest of its non-Medicare business. In the health insurance business this is often referred to as the “manual rate” from which the insurer builds the rest of its health insurance products.

If it bids an artificially high price for the insurance exchange, it will have effectively priced itself out of the market for the rest of the business it has in the state market—fully insured or those self-insured plans it administers.

It would be the full-time job of the Health Care Actuarial Certification Board to police this compliance.

What if the standard option plan changed over the years? How would an insurer’s or self-insured employer’s compliance with the original baseline and the annual cost targets be administered in later years?

The standard option plan of benefits can change each year. For actuarial certification purposes the system would continue to use the original plan design as the baseline from which any standard plan option or other plan offered in the private market is evaluated.

What if GDP grows only by 1% or 2% leading up to the third year? That would mean a health plan’s health care costs would be limited to 1.75% or 3.5%.

Yes it would.

First, remember that a health plan has two years to become organized for compliance. A year or more out, the fact that GDP is lagging would be clear and the plan would have time to organize for it.

Second, not only would the health plan have two years to organize, but, if it did not make the third-year goal it would have an additional one-year grace period to comply. That means a health plan really has the first four years the Model is effective to bring its costs under control.

Some health plans and provider organizations are already operating far more efficiently than most. Yet, they would be subject to the same objectives. Wouldn’t this be unfair?

Yes. The solution would be to enable the Actuarial Certification Board to recognize delivery systems that are already doing a better job of managing care and adjust their goals accordingly.

I think your growth goals (as a percentage of GDP) are unrealistic.

The Model will work with any goals chosen--the more aggressive the greater the savings. The less aggressive the smaller the savings.

But at the end of the day, what is a "sustainable" or "affordable" health care system? At some point we need to decide that question or we will simply be kidding ourselves that what we are calling health care reform will get us to an "affordable" or "sustainable" place.

For example, the key health care stakeholders representing insurers, doctors, hospitals, drug companies, and medical device makers have said they know how to save $2 trillion over the next ten years. The Affordability Model could be pegged directly to that level of savings.

You are penalizing only the health plans by potentially taking away their tax deductibility.

Nothing could be further from the truth. Yes, the operable mechanism is the tax deductibility of the health plan. But in the end, every doctor, hospital, and other health care provider would need to provide their services and products through a qualified plan or their patients and consumers would have to buy their services in before tax dollars.

You are penalizing consumers and employers.

No. The Affordability Model provides unambiguous incentives for consumers and employers to choose only health plans that are affordable. When the day is done, all of the players must "have their incentives aligned" in order for us to truly reform the American health care system. Have you ever seen a plan that did a more complete job of that?

And, don't forget, every consumer is guaranteed access to a qualified affordable health plan. If one is not available, then the federal government would have to make a Medicare-like public health plan available to them.

The means for measuring a health plan's growth by using the actuarial board sounds overly complex and unenforceable.

It is very doable. In the health insurance industry we have always used a concept called "manual rates." The idea is to set a baseline pricing standard against which all insured business is measured. In effect, I have set the standard option plan inside the insurance exchange as the baseline manual rate against which all health insurance plans offered inside and outside the exchange in any given state would be measured. The trend rate for that insurer's book of business in a given state can then be compared to the affordability goals and measured. The same principle can be applied to a self-insured employer's health plan compared to the insurance exchange's standard option. The process can work even as an employer or insurer or insurance exchange offerings vary from year to year--one can always calculate the actuarial equivalency. The cost for a standalone employer plan to be certified each year would be nominal as a percentage of the plan's overall costs.

But to be sure, I ran this component by a number of senior health actuaries. While I received a number of technical suggestions too detailed for this overview, the concept was reaffirmed.

Won't the Congress lose its political resolve and just back-off the affordability goals if the markets don't respond by bringing our costs under control?


First, I haven't figured a away out to reform the political process--I'm just making a health care policy suggestion.

But that issue does cut both ways. What if we in fact set too aggressive a standard and were on our way to blowing the system up. Unintended consequences happen in Washington. The Congress would have the ability to amend the goals--perhaps phasing them in over a longer period--if the result was becoming counterproductive.
In all likelihood fixing America's health care system won't be done in one bold stroke. It will likely be an iterative process with adjustments over many years to come--and it will be at least partly a political process. I will suggest that an advantage of the Affordability Model is that it can be adjusted through the years.

This is nothing more than a global budget.

Absolutely not and the difference is very important to understand.

A global budget would hit all players--insurers, providers, and consumers equally. In health care that is unacceptable. If the global budget cut reimbursement 10% in a given year to control costs, everyone would be cut--the "good guys" and the "bad guys." Efficient and effective doctors would operate under the same limits as inefficient and ineffective doctors, for example. The same with health plans and all other providers. Consumers would all suffer because all treatments would be limited without an efficient way to separate the waste from the important.

In fact, under a global budget there is no incentive to be efficient when the most productive participants aren't rewarded differently than the least efficient. With lower reimbursement rates the incentive would be to just figure out how to game the system.

Under the Affordability Model health plans, providers, and consumers who aggregated into networks that got the job done separating the 70% of this system that is the best in the world from the 30% that is waste would benefit from it. Under a global budget that would not be possible--everyone is in the same boat.

Under the Affordability Model those who succeeded at managing the system would--through the tax incentives created--be separated from those who were not successful. Competition would ultimately force the inefficient to become efficient.

The Affordability Model would only penalizes insurers, providers, and consumers who insisted on being unproductive players in the system. It would reward those who are willing to work together--including consumers through their purchase of more efficient plans--to separate the value from the waste.

Only the Affordability Model has the potential to use the waste in the system to reduce our costs while keeping the 70% of the system that is the best in the world.

I am in the health insurance business and I think this will put the private health insurance market out of business.

Do you believe in what you do? I do.

In my mind, if we finally enact a health care bill similar to the bills now on the table it will not contain costs and we will be headed for an even bigger cost explosion in just a few years.

Much of the existing health care reform proposals on the table in Congress, and the likely outcome of the debate, would be great for health insurance industry profits--millions of new customers and little in the way of onerous regulation. It would be a great few years to come.

But, when Phase II of health care reform inevitably happened, in the wake of that explosion, the chances are good the kind of government-driven health care reform plan the health insurance industry would then face would be far more onerous to the health insurance industry than this.

I believe it would be shortsighted for the health insurance industry to sign-on to a health care reform bill everyone knows is just delaying the explosion by a few years and declare victory because of the short-term benefits.

The best thing that can happen to the insurance industry is for it to be able to prove its real value by participating in a system that is sustainable.

Do you think most insurers, doctors, hospitals, and other providers will support this?

No. We appear to be on our way to a bill that would shave a little off on reimbursement, create lots of new customers for everyone, and not otherwise demand a lot of real change. That will be more attractive. Actually being held accountable in a measurable and verifiable way for making the system work is pretty scary.

But then, we haven't actually passed a "no pain only gain" health bill yet.

Your proposal does little to ensure quality. In fact, I am concerned that health networks would concentrate on cost over quality.

Let me again say this again as emphatically as I can, THE AFFORDABILITY MODEL IS NOT A COMPREHENSIVE HEALTH CARE REFORM PROPOSAL. It is a cost containment proposal that can be adapted to any of the health care reform proposals now on the table. Quality, comparative effectiveness research, HIT, subsidies for the uninsured, prevention, the details of the insurance exchange, and all the rest are the other elements.

That said, I would agree that it would be important for a focus on quality to be part of any overall reform plan to offset the tendency to focus on cost more than quality.


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