I've read a number of reports in recent days gushing over the progress Covered California is making leading the nation in signing up people for Obamacare.
But, I am having trouble understanding how the numbers should make anyone gush with enthusiasm.
Showing posts with label California Health Reform. Show all posts
Showing posts with label California Health Reform. Show all posts
Monday, November 25, 2013
Tuesday, May 28, 2013
Rate Shock in California!––The New Health Insurance Exchange Plans––Comparing Apples to Oranges to Grapefruit
I have to say I was surprised with the press reports last week that there wasn't "rate shock" in California when the California exchange offered preliminary information about their new plans and rates.
At least one prominent health actuarial group had predicted a 30% baseline increase in costs for California's new health insurance exchange plans under the Affordable Care Act (ObamaCare").
As the director of the California exchange put it, "These rates are way below the worst-case gloom-and-doom scenarios we have heard."
But a few days later there is lots more information coming out and it would appear we have a case of apples to oranges to grapefruit. And, we have a pretty good case of rate shock.
At least one prominent health actuarial group had predicted a 30% baseline increase in costs for California's new health insurance exchange plans under the Affordable Care Act (ObamaCare").
As the director of the California exchange put it, "These rates are way below the worst-case gloom-and-doom scenarios we have heard."
But a few days later there is lots more information coming out and it would appear we have a case of apples to oranges to grapefruit. And, we have a pretty good case of rate shock.
Sunday, July 6, 2008
State of California "Fearful" of Enforcing $1 Million Fine Against Wellpoint/Anthem Blue Cross for "Illegal" Health Insurance Policy Rescissions
Crazy as it sounds an AP story on Thursday reported that the California Department of Managed Care "didn't even try to enforce a million-dollar fine against health insurer Anthem Blue Cross because they feared they would be outgunned in court."
Last year the department announced that it would fine the insurer for improperly rescinding individual heath insurance policies in the midst of the California rescission controversy. Since then, most insurers have announced policy changes in the way they rescind coverage.
From the AP story:
If California can't protect consumers, who can?
Last year the department announced that it would fine the insurer for improperly rescinding individual heath insurance policies in the midst of the California rescission controversy. Since then, most insurers have announced policy changes in the way they rescind coverage.
From the AP story:
The department's director, Cindy Ehnes, told The Associated Press on Thursday that the agency has had success in forcing smaller insurers to reinstate illegally canceled policies and pay fines, but Blue Cross is too powerful to take on.It's not like this issue hasn't already been decided in favor of consumers. Last December, a California appeals court decided that California insurers can't cancel a health policy unless the applicant "willfully" misrepresented their health status: California Insurers Lose a Big Court Case In the Health Insurance Policy Rescission Controversy
"In each and every one of those rescissions, (Blue Cross has) the right to contest each, and that could tie us up in court forever," Ehnes said of the approximately 1,770 Blue Cross rescissions between Jan. 1, 2004, and now.
If California can't protect consumers, who can?
Tuesday, June 3, 2008
Comprehensive Health Care Reform and Massachusetts--Are We On Our Way To a Very Different Debate?
The Massachusetts health care reform law appears on its way to:
Massachusetts was a bold and very difficult piece of legislation to accomplish. It has often been described as an experiment. The greatest contribution experiments make is to tell us a lot about what works and what doesn't so we can move on successfully from there.
Massachusetts policymakers will now work to improve the plan. But without a major cost containment effort--way beyond anything they are even talking about now--they won't make much progress.
Whatever happens next in Massachusetts, this plan's results, a plan that closely parallels Barack Obama and Hillary Clinton's national health reform plans, will likely now undermine both state and federal attempts to copy it. Neither the Congress or any state legislature is going to embark on a plan whose costs have quickly become so problematic for such an incomplete result.
Now before all my readers in the Bay State quickly complain I'm deriding the Massachusetts plan again, let me be clear that this is not a bad outcome. If there has been one primary frustration in the health care debate since the 1960s it's that we too often just debate things, never try anything, and never build on our successes and failures.
The Massachusetts health reform law is valuable because it tells us so much.
My primary takeaway from the Massachusetts health reform law is that attempts to incrementally deal with access first, while avoiding a major restructuring of the system to simultaneously deal with costs, will only lead to an incomplete result in improving access and costs that cannot be sustained.
What Massachusetts has accomplished in passing this law is the most any state or Congress could have done--or ever did. As I have said many times on this blog, the political leverage just hasn't been available to do the job in full. That was true in 2006 when this law was passed and it's true even today.
But in the coming months, results from the Massachusetts health care experiment are going to become well known.
While many will say, "Look at that cost mess let's forget major health care reform," I would hope more people would say it is clear we are going to have to take a more fundamental look at real health care reform that cuts across both the access and cost containment lines.
Even bolder plans, that everyone says are politically impossible today, just may take on a new life because it will be clear the Massachusetts outline isn't going to do much more than bust the budget for an incomplete result. Moving the debate to a more viable place would be a very worthwhile contribution for Massachusetts to make.
A few weeks ago, I said watch the Wyden-Bennett health care plan. It combines many of the things conservatives want--a decoupling from the employer-based system using an individual defined contribution model--with many of the things liberals want--adequate premium support for consumers and open access for everyone. The fact that the CBO rated Wyden-Bennett revenue neutral early in the game also looks pretty good in light of what's happening in Mass.
Other fresh ideas are on the table. Ezekiel Emanuel's health plan, for example, that also decouples health care from the employer, puts private health insurance in the hands of the consumer, and substitutes the many ways we pay for health care today with a single VAT tax that automatically creates a national budget for health care expenditures, has also gained lots of attention.
The National Leadership Coalition on Health has had a comprehensive plan on the table for sometime. Its bipartisan approach and many supporters from a broad cross section of the stakeholders also makes it a serious proposal that could now get more attention.
To me progress is a matter of keeping the debate moving forward toward a successful outcome by building on valuable experiences.
That, I will suggest, is what the Massachusetts experiment can now become. It is not something to be dismissed--nor is it something to defend for the sake of just defending it.
Related posts:
First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy
John McCain's Health Care Plan and the Uninsurable--There Are Better Fixes Than the Ones He's Proposed
- Covering two-thirds of those who did not have health insurance on the day it was enacted--about 400,000 people by the end of 2009.
- Covering most of those who were uninsured in households with incomes below 300% of the federal poverty level--below which the plan pays all or most health insurance premiums.
- Offering health insurance plans to middle-income people that are still largely unaffordable for those families making less than $110,000 a year––people for whom the state has generally canceled the individual mandate that they must buy coverage.
- Racking up costs well above what was first estimated. The plan looks to be coming in 38% higher than originally estimated for its first year and the Governor is now estimating second year costs 50% higher than the original estimate––from $725 million to $1.1 billion for the 2008-2009 fiscal year.
- Developing an annual cost trend for the program's insurance programs, Commonwealth Care and Commonwealth Choice, in the 10% to 15% range.
Massachusetts was a bold and very difficult piece of legislation to accomplish. It has often been described as an experiment. The greatest contribution experiments make is to tell us a lot about what works and what doesn't so we can move on successfully from there.
Massachusetts policymakers will now work to improve the plan. But without a major cost containment effort--way beyond anything they are even talking about now--they won't make much progress.
Whatever happens next in Massachusetts, this plan's results, a plan that closely parallels Barack Obama and Hillary Clinton's national health reform plans, will likely now undermine both state and federal attempts to copy it. Neither the Congress or any state legislature is going to embark on a plan whose costs have quickly become so problematic for such an incomplete result.
Now before all my readers in the Bay State quickly complain I'm deriding the Massachusetts plan again, let me be clear that this is not a bad outcome. If there has been one primary frustration in the health care debate since the 1960s it's that we too often just debate things, never try anything, and never build on our successes and failures.
The Massachusetts health reform law is valuable because it tells us so much.
My primary takeaway from the Massachusetts health reform law is that attempts to incrementally deal with access first, while avoiding a major restructuring of the system to simultaneously deal with costs, will only lead to an incomplete result in improving access and costs that cannot be sustained.
What Massachusetts has accomplished in passing this law is the most any state or Congress could have done--or ever did. As I have said many times on this blog, the political leverage just hasn't been available to do the job in full. That was true in 2006 when this law was passed and it's true even today.
But in the coming months, results from the Massachusetts health care experiment are going to become well known.
While many will say, "Look at that cost mess let's forget major health care reform," I would hope more people would say it is clear we are going to have to take a more fundamental look at real health care reform that cuts across both the access and cost containment lines.
Even bolder plans, that everyone says are politically impossible today, just may take on a new life because it will be clear the Massachusetts outline isn't going to do much more than bust the budget for an incomplete result. Moving the debate to a more viable place would be a very worthwhile contribution for Massachusetts to make.
A few weeks ago, I said watch the Wyden-Bennett health care plan. It combines many of the things conservatives want--a decoupling from the employer-based system using an individual defined contribution model--with many of the things liberals want--adequate premium support for consumers and open access for everyone. The fact that the CBO rated Wyden-Bennett revenue neutral early in the game also looks pretty good in light of what's happening in Mass.
Other fresh ideas are on the table. Ezekiel Emanuel's health plan, for example, that also decouples health care from the employer, puts private health insurance in the hands of the consumer, and substitutes the many ways we pay for health care today with a single VAT tax that automatically creates a national budget for health care expenditures, has also gained lots of attention.
The National Leadership Coalition on Health has had a comprehensive plan on the table for sometime. Its bipartisan approach and many supporters from a broad cross section of the stakeholders also makes it a serious proposal that could now get more attention.
To me progress is a matter of keeping the debate moving forward toward a successful outcome by building on valuable experiences.
That, I will suggest, is what the Massachusetts experiment can now become. It is not something to be dismissed--nor is it something to defend for the sake of just defending it.
Related posts:
First Year Results in Massachusetts' Health Care Reform Undercut Barack Obama's Health Care Reform Strategy
John McCain's Health Care Plan and the Uninsurable--There Are Better Fixes Than the Ones He's Proposed
Wednesday, January 30, 2008
California Health Reform Effort Fails--What Does It Mean?
With news that a California State Senate committee rejected Governor Schwarzenegger's plan by a vote of 7-1, efforts to achieve health care reform this year have all but ended in our biggest state.
Governor Schwarzenegger and Assembly Speaker Nunez almost accomplished the impossible with a complexly balanced compromise that would have gone a long way toward solving that state's uninsured problem.
But the bottom line problem was cost. A late to the party cost estimate found that the bill would not have been self-supporting even with all of the new tax and revenue opportunities. Facing a $14 billion budget deficit in California, legislators ran, not walked, to the exits.
The Governor and Speaker say they aren't going to give up but in fact it is over.
If the bill had passed the state legislature, it would have meant a state-wide ballot measure in November and a major referendum on the kind of health care reform plan the Democratic nominee for President would have been pushing. That would have been a critical vote on health care reform for the whole country--and fun to watch.
But in the end, cost killed what was almost entirely an access proposal.
In my mind there are two messages here:
Governor Schwarzenegger and Assembly Speaker Nunez almost accomplished the impossible with a complexly balanced compromise that would have gone a long way toward solving that state's uninsured problem.
But the bottom line problem was cost. A late to the party cost estimate found that the bill would not have been self-supporting even with all of the new tax and revenue opportunities. Facing a $14 billion budget deficit in California, legislators ran, not walked, to the exits.
The Governor and Speaker say they aren't going to give up but in fact it is over.
If the bill had passed the state legislature, it would have meant a state-wide ballot measure in November and a major referendum on the kind of health care reform plan the Democratic nominee for President would have been pushing. That would have been a critical vote on health care reform for the whole country--and fun to watch.
But in the end, cost killed what was almost entirely an access proposal.
In my mind there are two messages here:
- Health care reform that focuses on cost and sidesteps dealing with fundamentally managing cost ultimately shows itself to be a non-starter.
- Only the federal government has the tools necessary to accomplish real reform--the tax code and the ability to manage costs.
Friday, December 28, 2007
California Insurers Lose a Big Court Case In the Health Insurance Policy Rescission Controversy
Here's one for a Harvard Business School case study: A few months before voters in the state are going to decide the future of your industry get into a losing battle about retroactively canceling sick peoples' health insurance policies.
A unanimous California Appeals Court decision has decided that California health insurers have a responsibility to check the accuracy of applications for health insurance coverage before issuing policies at the time coverage is purchased and cannot cancel a policy unless the applicant "willfully misrepresented" their health status.
For the past year, California has had a simmering health policy rescission controversy as many of the state's insurers have argued that they can cancel a health insurance policy if there is any misstatement of fact--even if it is unintentional or immaterial to a claim that is later filed.
The court ruling is a big win for state regulators that have been trying to change insurance company policy and for consumers and their trial lawyers that have been going after them.
As I have commented before, the insurance companies behavior on this issue makes no sense to me and couldn't have been anything other than a big losing issue at a time when health care reform is at the top of the voter's agenda--especially in California.
Certainly, a policy should be voided by fraud. But that was never the issue--it was whether a policy could be voided even if the misstatement was unintentional or immaterial.
The particular case has to do with a Blue Shield policy that was issued for a family who later had a major health claim. Information about the claimants weight and an emergency room visit was allegedly incorrect.
The court went on, "These facts raise the specter that Blue Shield does not immediately rescind health care contracts upon learning of potential grounds for rescission, but waits until after the claims submitted under that contract exceed the monthly premiums being collected."
A health plan, "may not adopt a 'wait and see' attitude after learning of facts justifying rescission." The court said health insurers cannot continue to "collect premiums while keeping open its rescission option if the subscriber later experiences a serious accident or illness that generates large medical expenses."
The issue will now go to trial over whether the family intended to deceive the insurer and whether the insurer acted in bad faith by "blindly" accepting their application and taking their premiums until the claimants medical bills got too high.
Because of this ruling in California, these disputes can go to court on terms more favorable to the claimants.
Nice going California health insurance industry.
LA Times: "Court curbs insurers' ability to rescind medical policies"
Earlier posts:
Report: "Health Insurer Tied Bonuses to Dropping Sick Policyholders"
California Policy Cancellation Scandal Heats Up As Republican Candidates Propose Health Reform Based On An Individual Health Insurance System
A unanimous California Appeals Court decision has decided that California health insurers have a responsibility to check the accuracy of applications for health insurance coverage before issuing policies at the time coverage is purchased and cannot cancel a policy unless the applicant "willfully misrepresented" their health status.
For the past year, California has had a simmering health policy rescission controversy as many of the state's insurers have argued that they can cancel a health insurance policy if there is any misstatement of fact--even if it is unintentional or immaterial to a claim that is later filed.
The court ruling is a big win for state regulators that have been trying to change insurance company policy and for consumers and their trial lawyers that have been going after them.
As I have commented before, the insurance companies behavior on this issue makes no sense to me and couldn't have been anything other than a big losing issue at a time when health care reform is at the top of the voter's agenda--especially in California.
Certainly, a policy should be voided by fraud. But that was never the issue--it was whether a policy could be voided even if the misstatement was unintentional or immaterial.
The particular case has to do with a Blue Shield policy that was issued for a family who later had a major health claim. Information about the claimants weight and an emergency room visit was allegedly incorrect.
The court went on, "These facts raise the specter that Blue Shield does not immediately rescind health care contracts upon learning of potential grounds for rescission, but waits until after the claims submitted under that contract exceed the monthly premiums being collected."
A health plan, "may not adopt a 'wait and see' attitude after learning of facts justifying rescission." The court said health insurers cannot continue to "collect premiums while keeping open its rescission option if the subscriber later experiences a serious accident or illness that generates large medical expenses."
The issue will now go to trial over whether the family intended to deceive the insurer and whether the insurer acted in bad faith by "blindly" accepting their application and taking their premiums until the claimants medical bills got too high.
Because of this ruling in California, these disputes can go to court on terms more favorable to the claimants.
Nice going California health insurance industry.
LA Times: "Court curbs insurers' ability to rescind medical policies"
Earlier posts:
Report: "Health Insurer Tied Bonuses to Dropping Sick Policyholders"
California Policy Cancellation Scandal Heats Up As Republican Candidates Propose Health Reform Based On An Individual Health Insurance System
Thursday, December 27, 2007
A November Ballot Initiative Over California Health Reform Would Be The Biggest Thing Ever To Happen In The Debate
With news that California Governor Arnold Schwarzenegger (R) and the Democratic controlled General Assembly have agreed on a health reform proposal we may be on the cusp of a huge referendum on the Democratic version of health care reform.
The next step is for the State Senate to approve the plan. The Assembly approved it earlier this month on a party-line vote with Republicans in opposition. The Democratic-controlled Senate is also likely to approve the bill but that vote will be held at about the time as the state's presidential primary in early February.
Technically, the November ballot initiative would be about approving the new taxes necessary to implement the plan.
All of the Republican presidential candidates oppose this generally Democratic brand of health care reform. You can expect the Republican candidates to be railing against the $14 billion plan that mandates that both individuals and businesses buy health insurance and has lots of tax increases to pay for it.
All of the leading Democratic presidential contenders have proposed a health care reform plan very similar to the already enacted Massachusetts health reform law.
Now, California seems poised to take a very similar health reform program to state voters next November.
If this ballot initiative passes in our largest state next November, it would provide enormous energy for any incoming Democratic president to accomplish the same thing at the federal level.
If a Republican wins the presidency, it would give Democrats in the new Congress a great deal of momentum in their health care dealings with a new Republican president.
If the ballot initiative were to fail in so strong a Democratic state, it would likely scare the Congress far from any similar national program. Just like the failed Clinton health plan of 1993 left Democrats too scared to touch major health care reform for almost fifteen years, a California defeat would have a catastrophic impact. Democratic efforts for their preferred Massachusetts-like style of health care reform would be dead in their tracks and Dems would be forced to take another look at the more incremental market-based proposals offered by Republicans.
A California referendum on health care reform could well be the whole ballgame for Democrats and an enormous opportunity for Republicans to turn the tide in the health care reform battle.
Today, the polls say 65% of the voters support the plan. But in California, these ballot measures often look lopsided in the beginning before opponents spend millions in counter advertising. Given the importance of this vote, every health care stakeholder with something to lose will be pulling out all of the stops and the outcome of the contest, that would fundamentally change how peoples' health care would be paid for and delivered in California, can in no way be predicted this far out.
Plan supporters believe it would cover more than 70% of the state's almost 7 million uninsured.
Under the California health reform bill:
The California health reform plan also looks like everything the Republican candidates say they are against--mandated coverage, more taxes, and bigger government.
But if the California Senate approves this and sends it on to voters next November, we are going to have an unavoidable showdown on health care policy right at the time of the national election.
The outcome of the California vote on health care reform would have enormous life and death policy implications.
The next step is for the State Senate to approve the plan. The Assembly approved it earlier this month on a party-line vote with Republicans in opposition. The Democratic-controlled Senate is also likely to approve the bill but that vote will be held at about the time as the state's presidential primary in early February.
Technically, the November ballot initiative would be about approving the new taxes necessary to implement the plan.
All of the Republican presidential candidates oppose this generally Democratic brand of health care reform. You can expect the Republican candidates to be railing against the $14 billion plan that mandates that both individuals and businesses buy health insurance and has lots of tax increases to pay for it.
All of the leading Democratic presidential contenders have proposed a health care reform plan very similar to the already enacted Massachusetts health reform law.
Now, California seems poised to take a very similar health reform program to state voters next November.
If this ballot initiative passes in our largest state next November, it would provide enormous energy for any incoming Democratic president to accomplish the same thing at the federal level.
If a Republican wins the presidency, it would give Democrats in the new Congress a great deal of momentum in their health care dealings with a new Republican president.
If the ballot initiative were to fail in so strong a Democratic state, it would likely scare the Congress far from any similar national program. Just like the failed Clinton health plan of 1993 left Democrats too scared to touch major health care reform for almost fifteen years, a California defeat would have a catastrophic impact. Democratic efforts for their preferred Massachusetts-like style of health care reform would be dead in their tracks and Dems would be forced to take another look at the more incremental market-based proposals offered by Republicans.
A California referendum on health care reform could well be the whole ballgame for Democrats and an enormous opportunity for Republicans to turn the tide in the health care reform battle.
Today, the polls say 65% of the voters support the plan. But in California, these ballot measures often look lopsided in the beginning before opponents spend millions in counter advertising. Given the importance of this vote, every health care stakeholder with something to lose will be pulling out all of the stops and the outcome of the contest, that would fundamentally change how peoples' health care would be paid for and delivered in California, can in no way be predicted this far out.
Plan supporters believe it would cover more than 70% of the state's almost 7 million uninsured.
Under the California health reform bill:
- Those with under 250% of the federal poverty level would get state subsidies for coverage while those up to 400% of the poverty level would get tax credits aimed at keeping their health insurance premiums below 5.5% of their incomes.
- While there is an individual mandate to buy coverage, residents are exempt if they are required to spend more than 5% of their income to buy a basic policy.
- There would be an employer mandate to "pay or play" by requiring those who do not cover their employees to pay a tax.
- Insurers would be prohibited from denying coverage to residents because of pre-existing medical conditions.
- Insurers would be required to spend at least 85% of their premiums on medical care--the leading for-profit health plans currently spend about 82% on medical care.
- To fund the program new taxes would be created thereby requiring voters to approve the plan in a November referendum. These taxes would include an increase of between $1.50 and $2 over the current $.87 per pack cigarette tax, a 4% tax on hospital revenues, and the employer mandate that would require any employer not providing coverage to pay a tax of between 1% and 6.5% based on the size of the business. The program would also count on $4.5 billion in federal matching funds. Proponents say the program is revenue neutral--it will pay for itself.
The California health reform plan also looks like everything the Republican candidates say they are against--mandated coverage, more taxes, and bigger government.
But if the California Senate approves this and sends it on to voters next November, we are going to have an unavoidable showdown on health care policy right at the time of the national election.
The outcome of the California vote on health care reform would have enormous life and death policy implications.
Friday, September 14, 2007
The UAW's Negotiations With the "Big Three" Automakers Over Retiree Health Benefits and Why They are Important to California Health Reform
The health care reform debate in California has come down to whether there should be an individual mandate to purchase health insurance and whether a big chunk of the cost of the program should be put on the employer community in the form of a 7.5% payroll tax for businesses that don't provide their workers with coverage.
Organized labor is firmly behind the Democratic legislature's efforts to deny Governor Schwarzenegger his individual mandate and to lay much of the program's incremental costs on the employer community.
Labor does not want a reversal in the long-term tradition of the employer being responsible for providing and paying for the biggest share of private health care in America.
That is understandable.
It is also shortsighted.
We only need look to the tough negotiations going on today in Detroit between the United Auto Workers (UAW) and "The Big Three" automakers over the unfunded cost of retiree health benefits.
GM, Ford, and Chrysler simply couldn't be in worse financial shape. The market cap for the biggest, General Motors the people who make all of those Chevy's and Cadillacs, is $17 billion. Compare that with the market cap for United Healthcare at $65 billion––one of the smaller health plans, Coventry Health Care, has a market cap of $9 billion.
What does it say when our biggest health care insurer has a market cap almost four times the icon of American industry?
A big reason (and surely not the only reason) our auto companies can't compete in the world is the burden of their health care costs. A big reason their market cap is so low is because of the enormous unfunded liabilities they carry to provide health care benefits to retirees--about $90 billion--that comes right off the top of their net worth.
If the auto companies can't do a deal with the UAW to get rid of a lot of this, the companies may go broke and the retired auto workers might get far less or nothing--just like the steel and airline workers did when those industries restructured through the bankruptcy courts.
Right now, negotiations are going on between the auto industry and the union to create a Voluntary Employee Beneficiary Association (VEBA). The companies would transfer all of these retiree health care liabilities into the VEBA and off their books. The auto companies would have no more long-term liability for these costs and their ability to survive and compete would be greatly enhanced.
In exchange for getting rid of $90 billion in liability, the companies would transfer assets (maybe including company stock) equal to only 60% to 70% of the liability.
So the UAW has a tough choice. Refuse to let the companies off the hook for 60 - 70 cents on the dollar and risk the companies going broke leading to more layoffs for current workers and maybe getting nothing for their retirees--or take the deal.
Not a great spot for anyone.
But finally, the health care rubber is finally hitting the road. It happened first in the steel industry, then airlines, and now auto.
This was inevitable. And, one way or another, the UAW has to get the best deal they can.
So in light of what's going on in Detroit, how can the California labor unions think the best long-term answer to funding California health reform can be found with the employer community?
Organized labor is firmly behind the Democratic legislature's efforts to deny Governor Schwarzenegger his individual mandate and to lay much of the program's incremental costs on the employer community.
Labor does not want a reversal in the long-term tradition of the employer being responsible for providing and paying for the biggest share of private health care in America.
That is understandable.
It is also shortsighted.
We only need look to the tough negotiations going on today in Detroit between the United Auto Workers (UAW) and "The Big Three" automakers over the unfunded cost of retiree health benefits.
GM, Ford, and Chrysler simply couldn't be in worse financial shape. The market cap for the biggest, General Motors the people who make all of those Chevy's and Cadillacs, is $17 billion. Compare that with the market cap for United Healthcare at $65 billion––one of the smaller health plans, Coventry Health Care, has a market cap of $9 billion.
What does it say when our biggest health care insurer has a market cap almost four times the icon of American industry?
A big reason (and surely not the only reason) our auto companies can't compete in the world is the burden of their health care costs. A big reason their market cap is so low is because of the enormous unfunded liabilities they carry to provide health care benefits to retirees--about $90 billion--that comes right off the top of their net worth.
If the auto companies can't do a deal with the UAW to get rid of a lot of this, the companies may go broke and the retired auto workers might get far less or nothing--just like the steel and airline workers did when those industries restructured through the bankruptcy courts.
Right now, negotiations are going on between the auto industry and the union to create a Voluntary Employee Beneficiary Association (VEBA). The companies would transfer all of these retiree health care liabilities into the VEBA and off their books. The auto companies would have no more long-term liability for these costs and their ability to survive and compete would be greatly enhanced.
In exchange for getting rid of $90 billion in liability, the companies would transfer assets (maybe including company stock) equal to only 60% to 70% of the liability.
So the UAW has a tough choice. Refuse to let the companies off the hook for 60 - 70 cents on the dollar and risk the companies going broke leading to more layoffs for current workers and maybe getting nothing for their retirees--or take the deal.
Not a great spot for anyone.
But finally, the health care rubber is finally hitting the road. It happened first in the steel industry, then airlines, and now auto.
This was inevitable. And, one way or another, the UAW has to get the best deal they can.
So in light of what's going on in Detroit, how can the California labor unions think the best long-term answer to funding California health reform can be found with the employer community?
Wednesday, September 12, 2007
Schwarzenegger is Right––You Can't Achieve Universal Coverage on the Backs of the Employer Community Alone
The California legislature has passed a major health care reform proposal but Republican Governor Schwarzenegger says it isn't good enough and he will veto it and bring the legislature back to do it over again in a special session.
Give the California governor and legislature credit for hitting the problem of health care head-on. If the biggest state can make headway, it could well open up the health care reform logjam for everyone and change the dynamics of this debate.
The proposals by both the California governor and the legislature have serious problems--most notably they are creating a system that is still going to be unaffordable.
But just maybe the only way we are finally going to deal with costs is to shove ourselves into an unsustainable system that later forces everyone's hand on the issue of affordability. Not statesmanship but perhaps the only way we can make progress (see earlier post below).
Governor Schwarzenegger says he is going to veto the Democratic led assembly health care bill because it places a big part of the cost burden on California's employers (with a 7.5% payroll tax for those who don't offer coverage) and because it does not contain an individual mandate.
Good for him.
While I don't necessarily agree that the governor needs an individual mandate for his program to work (see post below), the legislature is taking the easy way out and making doctors and hospitals happy by relieving them of any share of the cost they might have. I can't say that I have been proud of my doc and hospital friends in California over this one. Schwarzenegger made a very reasonable proposal for paying for a health reform plan by spreading the funding burden over the broader health care economy. The docs and hospital execs made an incredibly shortsighted decision to oppose that leading to the Democratic bill.
Apparently, in the past few days the hospitals have said they will agree to a hospital contribution and that will be helpful in future negotiations between the legislature and the governor.
The docs and the hospitals only have to pass their share onto the broader payer community in a rational and more affordable way. Instead, they lobbied to force the cost burden onto the employer. Most employers who don't offer health insurance don't do it because they are bad guys, the don't offer because they can't afford it. Too often these are start-up businesses working on a shoe string. It is just dumb economic policy to shift so many social welfare costs onto the one segment of the economy we count on for new jobs and economic growth.
And, just how was it we came to the conclusion that the employer community has the social responsibility for fixing America's health care problems?
The legislature also appears to have caved in to organized labor. Labor doesn't want health care to ever look like an individual responsibility because that would undermine so many of the benefit gains they have made--they want it to stay in the employer space. That may be understandable but it is shortsighted economic policy.
When corporate America is overburdened by health care costs we get something that looks like the "Big Three" automakers--companies that can't compete in the world economy. That leads to job loss and eventually, as we are seeing in Detroit today, negotiations to push the health care costs back onto the workers. Labor would be far better off seeing America's health care costs spread more broadly than the employer community.
The good news is that the California legislature and the governor have agreed on just about all of the other key elements of a health care bill.
Let's hope that Californian physicians, hospitals, and labor do their share to step-up and work with a California governor intent on doing something of great significance!
Why an individual mandate can't be enforced in California:
California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance
Both California health care plans on the table will only deal with access and not cost: Deja Vu in Massachusetts--We've Been Down this Road Before--The Massachusetts Health Care Plan and Health Care Costs
But dealing with access first and affordability second may be the only practical way to do health care reform: The “Realistic” Way to Do Health Care Reform
Give the California governor and legislature credit for hitting the problem of health care head-on. If the biggest state can make headway, it could well open up the health care reform logjam for everyone and change the dynamics of this debate.
The proposals by both the California governor and the legislature have serious problems--most notably they are creating a system that is still going to be unaffordable.
But just maybe the only way we are finally going to deal with costs is to shove ourselves into an unsustainable system that later forces everyone's hand on the issue of affordability. Not statesmanship but perhaps the only way we can make progress (see earlier post below).
Governor Schwarzenegger says he is going to veto the Democratic led assembly health care bill because it places a big part of the cost burden on California's employers (with a 7.5% payroll tax for those who don't offer coverage) and because it does not contain an individual mandate.
Good for him.
While I don't necessarily agree that the governor needs an individual mandate for his program to work (see post below), the legislature is taking the easy way out and making doctors and hospitals happy by relieving them of any share of the cost they might have. I can't say that I have been proud of my doc and hospital friends in California over this one. Schwarzenegger made a very reasonable proposal for paying for a health reform plan by spreading the funding burden over the broader health care economy. The docs and hospital execs made an incredibly shortsighted decision to oppose that leading to the Democratic bill.
Apparently, in the past few days the hospitals have said they will agree to a hospital contribution and that will be helpful in future negotiations between the legislature and the governor.
The docs and the hospitals only have to pass their share onto the broader payer community in a rational and more affordable way. Instead, they lobbied to force the cost burden onto the employer. Most employers who don't offer health insurance don't do it because they are bad guys, the don't offer because they can't afford it. Too often these are start-up businesses working on a shoe string. It is just dumb economic policy to shift so many social welfare costs onto the one segment of the economy we count on for new jobs and economic growth.
And, just how was it we came to the conclusion that the employer community has the social responsibility for fixing America's health care problems?
The legislature also appears to have caved in to organized labor. Labor doesn't want health care to ever look like an individual responsibility because that would undermine so many of the benefit gains they have made--they want it to stay in the employer space. That may be understandable but it is shortsighted economic policy.
When corporate America is overburdened by health care costs we get something that looks like the "Big Three" automakers--companies that can't compete in the world economy. That leads to job loss and eventually, as we are seeing in Detroit today, negotiations to push the health care costs back onto the workers. Labor would be far better off seeing America's health care costs spread more broadly than the employer community.
The good news is that the California legislature and the governor have agreed on just about all of the other key elements of a health care bill.
Let's hope that Californian physicians, hospitals, and labor do their share to step-up and work with a California governor intent on doing something of great significance!
Why an individual mandate can't be enforced in California:
California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance
Both California health care plans on the table will only deal with access and not cost: Deja Vu in Massachusetts--We've Been Down this Road Before--The Massachusetts Health Care Plan and Health Care Costs
But dealing with access first and affordability second may be the only practical way to do health care reform: The “Realistic” Way to Do Health Care Reform
Friday, September 7, 2007
People Who Say Insurance Regulation Creates More Uninsured Are Missing the Forest for the Trees
The health insurance trade association, AHIP, just released a new study on the impact of state health insurance reforms on the market and argues that the "unintended consequences" of these reforms hasn't been good.
Here is an excerpt from their release:
As far as it goes the authors are right. Before health insurance reform in the mid-1990s, it was the carriers that were "selecting against" consumers. That is, "cherry picking" the best risks and discouraging everyone else through underwriting limitations or pricing.
After the reforms, the insurers had to basically take all comers under terms that vary by state but are generally good for the consumer.
So, with underwriting reforms, the balance of power in the market shifted--from the insurer to the consumer. As a result, consumers often wait to buy health insurance until they need it--now it was the insurer that's on the bad side of the deal. The authors are right to point out that has been problematic for the individual insurance market.
So, what should we do? Go back to the old days of carriers "cherry-picking"?
More often, health policy reformers are suggesting that we now need to mandate that everyone be in the pool. That way neither the insurer or the consumer has a chance to "select against" the other or "cherry pick."
That has a logic to it and it has become the big issue in California where the governor and the legislature are trying to find common ground on a major state reform. It also led to the individual mandate in the new Massachusetts health insurance law.
However, I will suggest that in our focus on the individual health insurance market we are missing the obvious in the parallel employer market. The employer market is an insurance system that is voluntary, community rated, and has little or no adverse selection.
Every worker is an individual that has the option of joining the pool or not. Every employer group is a mini health insurance market impacted by the same variables that impact the individual health insurance market.
No employer I know of mandates that everyone participate--employer systems are voluntary. Everyone pays the same price (very few plans have any age rating), and "adverse selection" and "cherry picking" are terms we never hear.
Why?
Cost.
Employers typically pay 75% of the cost of health insurance. When a consumer is presented with a good health plan that costs them a relatively small contribution, more then enough of them buy it giving the plan a good "spread of risk" and that makes each employer pool work very well.
Here is the employer lesson: Make the cost affordable and adverse selection isn't an issue.
If the employee doesn't take the low cost employer insurance when it is offered, they have to pass "evidence of insurability" if they want coverage later.
This focus on the "unintended consequences" of state insurance regulation, and whether we need an individual mandate (which is not working in Massachusetts because the coverage is still unaffordable), misses the real problem--people don't buy if they can't afford it.
No health reform proposal will work--in Massachusetts or California or advanced by the libertarian notion that insurance market deregulation is the way to go--unless the insurance package has a price working families can reasonably afford!
The forest--cost. Not the trees--underwriting rules!
Earlier post: California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance
Here is an excerpt from their release:
“This report offers important lessons. It demonstrates that insurance reforms without universal access drives up health care costs for consumers and encourages individuals who have health insurance to drop insurance and take the financial risk of being uninsured,' said Karen Ignagni, President and CEO of AHIP.
"Guarantee issue requires insurers to sell an individual health insurance policy without regard to a person’s health and community rating requires that all consumers pay the same or similar premiums without regard to age or gender. According to the report, these initiatives have the potential to cause individuals to wait until they have health problems to buy insurance. This could cause premiums to increase for all policyholders, increasing the likelihood that lower-risk individuals leave the market, which could lead to further rate increases. If this continues, the pool or market could essentially collapse or shrink to include only the high risk population.
“While these reform goals were laudable, they frequently had unintended consequences that disrupted the individual marketplace,' said Leigh Wachenheim, FSA, MAAA, Principal and Consulting Actuary at Milliman, Inc.
"Overall, the report found that states that implemented guarantee issue and community rating saw a rise in insurance premiums, a reduction of individual insurance enrollment, and an exodus of health insurers from the individual insurance market. In addition, the report found no significant decrease in the uninsured population in states that implemented these initiatives, often a stated goal of legislators."
The report is very thorough and worth a read.
But I have to say I think it misses the forest for the trees.As far as it goes the authors are right. Before health insurance reform in the mid-1990s, it was the carriers that were "selecting against" consumers. That is, "cherry picking" the best risks and discouraging everyone else through underwriting limitations or pricing.
After the reforms, the insurers had to basically take all comers under terms that vary by state but are generally good for the consumer.
So, with underwriting reforms, the balance of power in the market shifted--from the insurer to the consumer. As a result, consumers often wait to buy health insurance until they need it--now it was the insurer that's on the bad side of the deal. The authors are right to point out that has been problematic for the individual insurance market.
So, what should we do? Go back to the old days of carriers "cherry-picking"?
More often, health policy reformers are suggesting that we now need to mandate that everyone be in the pool. That way neither the insurer or the consumer has a chance to "select against" the other or "cherry pick."
That has a logic to it and it has become the big issue in California where the governor and the legislature are trying to find common ground on a major state reform. It also led to the individual mandate in the new Massachusetts health insurance law.
However, I will suggest that in our focus on the individual health insurance market we are missing the obvious in the parallel employer market. The employer market is an insurance system that is voluntary, community rated, and has little or no adverse selection.
Every worker is an individual that has the option of joining the pool or not. Every employer group is a mini health insurance market impacted by the same variables that impact the individual health insurance market.
No employer I know of mandates that everyone participate--employer systems are voluntary. Everyone pays the same price (very few plans have any age rating), and "adverse selection" and "cherry picking" are terms we never hear.
Why?
Cost.
Employers typically pay 75% of the cost of health insurance. When a consumer is presented with a good health plan that costs them a relatively small contribution, more then enough of them buy it giving the plan a good "spread of risk" and that makes each employer pool work very well.
Here is the employer lesson: Make the cost affordable and adverse selection isn't an issue.
If the employee doesn't take the low cost employer insurance when it is offered, they have to pass "evidence of insurability" if they want coverage later.
This focus on the "unintended consequences" of state insurance regulation, and whether we need an individual mandate (which is not working in Massachusetts because the coverage is still unaffordable), misses the real problem--people don't buy if they can't afford it.
No health reform proposal will work--in Massachusetts or California or advanced by the libertarian notion that insurance market deregulation is the way to go--unless the insurance package has a price working families can reasonably afford!
The forest--cost. Not the trees--underwriting rules!
Earlier post: California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance
Wednesday, July 18, 2007
"Government Subsidies That halve Premiums Would Cut Number of Uninsured by 3%"--No Surprise There But it Was the Wrong Question
That's the headline on a story regarding a Rand study that says giving people subsidies won't do much to decrease the number of those uninsured.
But here's the problem with that study: Paying for half the cost of health insurance that averages more than $11,000 for a family in the U.S. still makes health insurance prohibitively expensive for all but the well off.
As I posted yesterday, voluntary health plans that are successful, like employer plans, Medicare Part D, and Medicare Part B pay 75% of the cost of coverage bringing the cost into line with what people can afford and get great participation.
Asking people if they can afford half of something like $11,000 was a dumb premise for a study in the first place.
All the folks at Rand needed to do was to go look at their own company health plan. My bet is that Rand pays about 75% of the costs for its employees and has more than 75% of its workers enrolled--and probably 95% of its workers that don't have coverage through a spouse.
But here's the problem with that study: Paying for half the cost of health insurance that averages more than $11,000 for a family in the U.S. still makes health insurance prohibitively expensive for all but the well off.
As I posted yesterday, voluntary health plans that are successful, like employer plans, Medicare Part D, and Medicare Part B pay 75% of the cost of coverage bringing the cost into line with what people can afford and get great participation.
Asking people if they can afford half of something like $11,000 was a dumb premise for a study in the first place.
All the folks at Rand needed to do was to go look at their own company health plan. My bet is that Rand pays about 75% of the costs for its employees and has more than 75% of its workers enrolled--and probably 95% of its workers that don't have coverage through a spouse.
Tuesday, July 17, 2007
California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance
California is entering the final weeks of a major effort to reform the state’s health insurance system.
Good for them and in particular good for Governor Schwarzenegger who is willing to tackle this most prickly of domestic policy issues!
The Governor and the legislature will need to get a deal done by the end of September if it is going to happen in this session—or maybe for a long time to come.
As we have learned in Massachusetts, health care reform is hard and inevitably has uneven results. But the alternative, doing nothing, gets us nowhere.
In health care reform, no pain—no gain.
The big issue in California is whether to have an individual mandate or not.
Governor Schwarzenegger believes an individual mandate is necessary to get everyone covered and spread the risk across the largest pool—therefore providing the most efficient cost.
Democratic leaders, who control the legislature, oppose a mandate in part because of opposition from labor groups trying to avoid the direct cost of expensive health insurance on workers. They would rather concentrate the burden on the employer community proposing a 7.5% minimum payroll contribution.
Hospitals and doctors are also objecting to a provider tax.
It seems that worker groups, health plans, hospitals, and doctors all have in common the notion that California should have universal coverage but only the employer should have to pay for it.
That’s the subject of another post.
While most of the California debate’s focus is today on whether there should be an individual mandate, or an employer mandate, or both, let me suggest that is not the big question for California policymakers.
As we have learned in Massachusetts, a mandate is a moot point if individuals, or employers, can’t afford the cost of insurance.
In Massachusetts, a health insurance plan with a $2,000 individual/$5,000 family deductible costs around $200 per month per person at an average age of 37. For a 55-year-old the cost is around $500 per person per month.
The good news is that Massachusetts looks like it has already covered about 150,000 people that didn’t have health insurance before the new law. But there are somewhere between 200,000 and 400,000 more who still do not have coverage.
When all the Massachusetts data is in, my bet is that we are going to see the very low income (under 200% of poverty), who get almost 100% subsidies, fairly well covered and those with little or no subsidy help still unable, or unwilling, to buy the coverage.
Those between 200% of the poverty level and 400% of the poverty level are going to be particularly pained to buy coverage because they make too much for assistance and too little to pay for it on their own.
In an earlier post, I argued that you don’t need an individual or employer mandate to make a health insurance reform plan workable.
My training as a health insurance underwriter many years ago taught me that to have an efficient “spread of risk” you only need to get 70% to 80% of those offered coverage to sign up.
Employer plans do not require their workers to sign up and they almost always get an efficient spread of risk. The Part D Medicare drug plan is voluntary and has achieved a very efficient pool, as has the Part B portion of Medicare, which is also voluntary.
Employer plans, Medicare Part D, and Medicare Part B all have in common the fact that they are affordable because either the employer, or Medicare, pays most of the cost so the remainder is affordable for employees and seniors. Medicare pays 75% of these costs and employers also typically pay 75% of the cost of health insurance.
California, just like Massachusetts before it, is focusing on the wrong thing—making people buy insurance and whether to do it through an individual or employer mandate.
Don’t get me wrong. The most equitable form of health reform is one everyone is a part of. Freeloaders don’t help health reform efforts. But I would not let health care reform fail over the issue of whether there should or shouldn't be a mandate.
This whole debate over whether to mandate or not misses the critical point: Have we made the cost of health insurance affordable for individuals and employers?
It’s also hard for me to see how health care reform can have any chance of being affordable unless the burden is spread across the greatest number of stakeholders—individuals, employers, health plans, doctors, hospitals, and taxpayers.
Give credit where credit is due in Massachusetts. But I hope California doesn’t make the same mistake Massachusetts made in focusing too much on mandates and too little on how to offer a health insurance policy people can afford.
Related post: The Mandate Myth--Health Reform Plans Don't Have to Mandate Coverage to Work But They Do Have Be Affordable
But maybe we won't have a practical choice other than just getting everyone covered and let the resulting out-of-control costs drive the rest of the solution: The “Realistic” Way to Do Health Care Reform
Good for them and in particular good for Governor Schwarzenegger who is willing to tackle this most prickly of domestic policy issues!
The Governor and the legislature will need to get a deal done by the end of September if it is going to happen in this session—or maybe for a long time to come.
As we have learned in Massachusetts, health care reform is hard and inevitably has uneven results. But the alternative, doing nothing, gets us nowhere.
In health care reform, no pain—no gain.
The big issue in California is whether to have an individual mandate or not.
Governor Schwarzenegger believes an individual mandate is necessary to get everyone covered and spread the risk across the largest pool—therefore providing the most efficient cost.
Democratic leaders, who control the legislature, oppose a mandate in part because of opposition from labor groups trying to avoid the direct cost of expensive health insurance on workers. They would rather concentrate the burden on the employer community proposing a 7.5% minimum payroll contribution.
Hospitals and doctors are also objecting to a provider tax.
It seems that worker groups, health plans, hospitals, and doctors all have in common the notion that California should have universal coverage but only the employer should have to pay for it.
That’s the subject of another post.
While most of the California debate’s focus is today on whether there should be an individual mandate, or an employer mandate, or both, let me suggest that is not the big question for California policymakers.
As we have learned in Massachusetts, a mandate is a moot point if individuals, or employers, can’t afford the cost of insurance.
In Massachusetts, a health insurance plan with a $2,000 individual/$5,000 family deductible costs around $200 per month per person at an average age of 37. For a 55-year-old the cost is around $500 per person per month.
The good news is that Massachusetts looks like it has already covered about 150,000 people that didn’t have health insurance before the new law. But there are somewhere between 200,000 and 400,000 more who still do not have coverage.
When all the Massachusetts data is in, my bet is that we are going to see the very low income (under 200% of poverty), who get almost 100% subsidies, fairly well covered and those with little or no subsidy help still unable, or unwilling, to buy the coverage.
Those between 200% of the poverty level and 400% of the poverty level are going to be particularly pained to buy coverage because they make too much for assistance and too little to pay for it on their own.
In an earlier post, I argued that you don’t need an individual or employer mandate to make a health insurance reform plan workable.
My training as a health insurance underwriter many years ago taught me that to have an efficient “spread of risk” you only need to get 70% to 80% of those offered coverage to sign up.
Employer plans do not require their workers to sign up and they almost always get an efficient spread of risk. The Part D Medicare drug plan is voluntary and has achieved a very efficient pool, as has the Part B portion of Medicare, which is also voluntary.
Employer plans, Medicare Part D, and Medicare Part B all have in common the fact that they are affordable because either the employer, or Medicare, pays most of the cost so the remainder is affordable for employees and seniors. Medicare pays 75% of these costs and employers also typically pay 75% of the cost of health insurance.
California, just like Massachusetts before it, is focusing on the wrong thing—making people buy insurance and whether to do it through an individual or employer mandate.
Don’t get me wrong. The most equitable form of health reform is one everyone is a part of. Freeloaders don’t help health reform efforts. But I would not let health care reform fail over the issue of whether there should or shouldn't be a mandate.
This whole debate over whether to mandate or not misses the critical point: Have we made the cost of health insurance affordable for individuals and employers?
It’s also hard for me to see how health care reform can have any chance of being affordable unless the burden is spread across the greatest number of stakeholders—individuals, employers, health plans, doctors, hospitals, and taxpayers.
Give credit where credit is due in Massachusetts. But I hope California doesn’t make the same mistake Massachusetts made in focusing too much on mandates and too little on how to offer a health insurance policy people can afford.
Related post: The Mandate Myth--Health Reform Plans Don't Have to Mandate Coverage to Work But They Do Have Be Affordable
But maybe we won't have a practical choice other than just getting everyone covered and let the resulting out-of-control costs drive the rest of the solution: The “Realistic” Way to Do Health Care Reform
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