The Cost to Launch the California Health Insurance Exchange is $910 million––Does That Sound Like a Lot to You?

So far California has received $910 million in federal grants to launch its new health insurance exchange under the Affordable Care Act ("Obamacare").

The California exchange, "Covered California," has so far awarded a $183 million contract to Accenture to build the website, enrollment, and eligibility system and another $174 million to operate the exchange for four years.

The state will also spend $250 million on a two-year marketing campaign. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.

Conservative States: Do a Partnership Exchange? Expand Medicaid?

Should states build their own health insurance exchanges under the Affordable Care Act (ACA) ("Obamacare")?

Should states expand their Medicaid programs under the ACA?

These are the tough questions many, particularly conservative, states are now wrestling with. While it is too late for a state to now decide to build an exchange before the fast approaching launch date, it is still possible to build an exchange in partnership with the feds.

Will Many of the Smallest Employers Circumvent the Affordable Care Act by Using Self-Insurance?

Not surprisingly, only about 10% of firms with fewer than 200 workers take advantage of self-insurance––and almost no very small groups (fewer than 50 workers) use the product. It just isn't worth it for these small employer groups to take the risk that they will either have too many claims or very big claims from their workers––that is what insurance companies are for.

Already, 96% of workers in firms with more than 5,000 employees are in self-insured health plans. For firms between 1,000 and 5,000 workers, 79% are in self-insured plans. For employers with 200 to 1,000 workers, the self-insured rate is 50%.

But with the bulk of the implementation of the Affordable Care Act (ACA) to begin in 2014, that may be about to change.

The Republicans Had Better Get Organized on Health Care

If the past week is any indication, the Republicans will have real trouble come 2012 trying to convince voters they have a plan to fix the American health care system.

Last weekend, President Obama endorsed the Wyden-Brown bill that would give the states the opportunity, in 2014, to take their share of the almost $1 trillion the new health law collects and use it to craft an alternative health care plan to their liking.

With Republicans now controlling the “trifecta” in 16 states—the governorships as well as the state legislatures—it is a very interesting offer.

I found an editorial this week in the Wall Street Journal criticizing the offer puzzling.

In an editorial titled, “Obama’s Health Waiver Gambit—the White House offers the mirage of state flexibility," they wrote:

Mr. Obama's new faith in federalism is trailed by his customary rhetorical asterisk. Any state that the Administration decided deserved a waiver would still need to cover the same number of uninsured, and its coverage would still need to include the same comprehensive benefits and be as "affordable" as the Administration says it should be. That is, it must be as heavily subsidized.

So perhaps states could opt out of some consumer or employer mandates, which is a minor release valve. But they would still need to find other mechanisms to achieve the same liberal priorities, which in practice leaves little room to innovate—especially for a straight tax deduction or credit to purchase individual coverage or alternative insurance designs like high-deductible or value-based plans.

Say what? Getting rid of the individual mandate—the thing Conservatives are focusing their Constitutionality challenges on—is only an offer to jettison “a minor release valve?”

It looks to me like the WSJ is saying conservatives would not be able to cover as many people as well as the Democrats are on their way to doing under the Affordability Act.

First, let me remind you that the CBO has estimated that the new law would only cover about two-thirds of the uninsured. And, that the standard of coverage demanded by the new law sets the “Silver Plan” as the standard—essentially a typical comprehensive major medical plan with a $1,000 deductible. And, let’s not forget that the Affordability Act would require a family of four making $65,000 a year to pay $6,175 in out-of-pocket annual premiums net of any federal subsidy—hardly what the WSJ called, “heavily subsidized” premiums.

The WSJ laments that there isn’t enough “room to innovate” with tax credits and high deductible plans.

Why not? Why can’t a Republican tax credit plan be devised using the Democrats money pot? I see no reason an actuarially equal conservative high deductible plan that gave any excess Democratic cash to consumers in the form of deposits to Health Savings Accounts can’t be crafted that is financed with tax credits. And, all of those Republican governors’ complaints about Medicaid? Here is the block grant of all block grant offers!

Could a Democratic HHS Secretary play games and deny a state an actuarially sound conservative alternative? Sure but after the offer the President put on the table this week, suffer lots of political consequences doing it.

Could the Democrats rig the game by demanding things like too rich a definition of the standard benefits? Sure. But a Republican governor could also put a more reasonable plan on the table and dare a Democratic HHS Secretary to reject it.

Just how would a Democratic HHS Secretary deny a state any reasonable health care alternative experiment that had just passed both houses of the state legislature and had been signed by the governor?

It is notable that more liberal states like Vermont and Oregon look like they are ready to take up this challenge by crafting even more liberal health plans for their states. You have to give the liberals credit--at least they walk their talk.

By embracing Wyden-Brown, President Obama has offered the Republicans a put up or shut up political challenge: Show me how you can cover as many people as well as we did.

The Republicans are afraid of this challenge? The Republicans don’t think they know how to cover two-thirds of the uninsured for the same money the Democrats are spending? The don’t think they can craft a consumer-driven plan with a health savings account for the same money it will take to provide the “Silver Plan?” They think telling a family of four making $65,000 a year that still has to pay $6,175 for a plan with a $1,000 deductible that they are still too “heavily subsidized”?

If I had been advising the Republicans this week I would have told them that focusing on criticizing the benefit side of the new health care law, as they all did, was the wrong strategy.

Where they could have been critical of the President’s challenge, and still been consistent with their past arguments and objections to the new law, would have been to point out that the $1 trillion Democratic money pot they would have to use to fund their alternative comes from the new law’s tax increases and Medicare cuts they opposed last year. In essence, they could have pointed out that they still oppose having to fund their version of health care with the “fruit from an objectionable tree.”

I still think it’s tantamount to immoral to raise $500 billion over ten years in taxes to pay for this, and not go after the real problem of cost, when about everyone believes there will be many trillions of dollars of waste in our health care system over those same ten years.

But for one Republican after another to admit that they couldn’t take their state’s share of a trillion dollars and use it to craft a health care system that covered their portion of the 32 million more people, using the new law’s modest “Silver Plan” as the standard of coverage, and still leaving big gaps in premium support for the middle class, that was startling to watch.

They better have a health care plan they believe in come 2012.

They also had better be able to explain it.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Minnesota Risk Pool--Facts and Figures

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?

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:

“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

Romney Wants to Reform State Health Insurance Regulation--Just What Does He Mean by That?

Republican presidential candidate Mitt Romney is calling for the cutting of state health insurance regulations to make policies more affordable. He blames the over-regulation of health insurance at the state level as one of the primary reasons health insurance costs so much.

Of course the reason that health insurance costs so much is that health care costs so much, but we’ve discussed that one plenty of times before.

Romney’s proposal comes straight from the conservative Republican playbook on health care. The thinking goes that state regulation has made health insurance expensive—just let the market set its own standards and costs will come down as people buy the policies they need.

To a point, these advocates are on to something. There are too many rules making costs higher from one state to another. Kentucky virtually blew its market up in the mid-1990s with excessive regulation, as one example. The new Massachusetts health insurance law (that Romney signed) refuses to recognize tens of thousands of existing health insurance policies because they don't meet minimum benefit requirements--particularly when the policy has a high deductible.

In fact, you can argue that the minimum health policy standards Massachusetts now has, because of the new law Romney signed, makes it the most regulated health insurance market in the union.

It would also be helpful if we had one regulator in the health insurance space rather than more than 50 and policies that could be sold on a national scale.

But those who advocate a “free market” for health insurance also need to heed recent history.

In the 1980s and early 1990s we had a virtual free market. Health insurers could cover whomever they wanted, drop people when they became sick or give them a whopping rate increase to drive them off. The vaunted “association health plans” many conservatives would like to bring back were in their glory—and largely made money “cherry picking” the best risks.

Most of the state health insurance regulation we live with today came out of the “cherry picking” controversy of the late 1980s and early 1990s.

There is plenty of regulation that is counterproductive and adds unnecessary waste.

But, most of it—the rules that add the biggest costs—were the direct result of some pretty bad free market experiences.

Is Romney looking to trim bureaucratic waste from the health insurance market?

Or, is he calling for turning the calendar back to 1990?

Just where is the health insurance regulatory waste he wants to eliminate? The voters deserve the details on this one.

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

New Tool Kit: Massachusetts Health Reform

Ed Howard and his team at the non-partisan Alliance for Health Reform here in Washington have done another of their great jobs in putting together a resource for anyone interested in the Massachusetts health reform plan.

From their overview:

"Starting July 1, every adult in Massachusetts is required to have health coverage (except for 60,000 people exempted by the state). To help you understand the state's pace-setting near-universal coverage plan and its implications, the Alliance for Health Reform has compiled a toolkit with links to representative articles and documents from across the ideological spectrum."

You can download it from their site.

Another Victory Declared in Massachusetts--The Connector Exempts 20% of Uninsured State Residents From the Requirement to Buy a Health Plan

The only place there are more victories being declared than in Iraq these days is in Massachusetts.

The Massachusetts Health Plan regulator, "The Commonwealth Connector," has issued new rules that will exempt an estimated 20% of the uninsured from a state legal requirement to purchase health insurance.

Since the health plan bids came in last month, it has been clear the prices would not make it possible for Massachusetts to be able to implement its mandate that all citizens have health insurance or pay a penalty.

Given what they are required to work with, the "The Commonwealth Health Insurance Connector Authority" has come up with a rational way to implement the mandate--such as it is.

Fundamentally, the problem they are dealing with is one of cost. Health insurance just costs too much in Massachusetts and everywhere else in our country.

Good for the "Connector" in that they have done as much as anyone could have.

Massachusetts is also being successful in expanding the number of people who will receive a full subsidy for a health insurance plan:

• "The income threshold for an individual who receives a full subsidy and does not have to pay monthly premiums for the Commonwealth Care health insurance program would increase from 100 percent of the federal poverty level ($10,210) to 150 percent ($15,315).
• "For those earning between 151 and 200 percent of the federal poverty level ($20,420), the monthly premiums for Commonwealth Care would be reduced from $40 to $35."

With these changes, Massachusetts has effectively solved the uninsured problem for people below 200% of poverty--no small accomplishment.

But let's not have any false celebrations here. The Massachusetts experience tells us that closing the uninsured gap, and covering everyone, is something that has a cost no state can afford on its own. While this is a practical solution, it is not an elegant one--or a comprehensive one.

Under the program, a family of three earning $50,000 per year will have a health insurance plan available to them but it will cost about $7,000--and that plan has a $2,000 per person deductible. Before the Connector's ruling on exemptions, that was mandatory. Now, a family making $50,000 is exempted from the mandate if it can't find a plan for less than $3,840 per year. Based upon the "Connector's" health insurance rates, they won't find one.

They are exempted from the mandate. Problem solved.

Well, not exactly. That family still doesn't have insurance and it won't. If that family could find the money, it would pay $7,000 and get a plan with a $2,000 individual deductible ($4,000 family). The plan does have some limited first dollar office visits.

A $7,000 cost for a plan with a huge upfront deductible is no great deal for this family. It is no better deal to have the state now say, "Never mind."

It's worse for older citizens in this age-rated program. A 56-year-old would pay $351 to $505 in eastern Mass for the $2,000 deductible plan. The exemption doesn't help them get insurance.

It's not always rosy for people who still find themselves under the requirement to buy a health insurance plan. For example, a couple making $41,000 a year would be expected to pay $270 per month or $3,240 per year for a plan with a $2,000 deductible--if they can find one for that price. Not a lot for health insurance but a great deal to be expected of a couple making $41,000 a year.

The lesson from Massachusetts is not that they have found a practical way to do comprehensive health care reform.

The lesson is that a state cannot do it all by themselves.

In Massachusetts, the good news is that the glass is half full--a lot of people will have coverage who didn't before particularly between 100% and 200% of the federal poverty level.

The bad news is that the glass is half empty--lot's of people have been "exempted" from the new universal health care coverage mandate but still can't afford it. And on this point, Massachusetts has hit one big brick wall--and they don't have the means to go further.

That isn't trash talking. It is the reality we all need to face when trying to understand what the Massachusetts health care reform law means to the rest of us.

You can get the full exemption scale at the Connector Website.

See my earlier posts on the Massachusetts Universal Health Plan

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

The California Department of Managed Health Care has fined Wellpoint $1 million because it says Wellpoint "routinely" violated state law when it canceled (or rescinded) individual health insurance policies after the policyholders filed claims. The state said that Wellpoint made no attempt to determine whether the policyholders merited such "harsh" treatment when it canceled the policies.

From a recent LA Times story:
"The state investigation found that Blue Cross used computer programs and a dedicated department to systematically investigate and cancel the policies of pregnant women and the chronically ill regardless of whether they intentionally lied on their applications to cover up preexisting medical conditions — a standard required by state law for canceling individual policies.

"Regulators examined 90 randomly selected cases of policy cancellations — out of about 1,000 a year in California — and found violations in each one."

The standard provisions in health insurance policies, that enable an insurer to cancel a policy when the applicant is untruthful during the enrollment process about prior health history, are appropriate. No one has a right to commit fraud in filling out an insurance application.

But how many of us remember every single doctor appointment or minor illness we have had in the last five years?

California clearly believes Wellpoint has gone too far by canceling policies irregardless of whether the omission on the application was intentional or not.

But did Wellpoint go too far in the way it has rescinded these policies?

Wellpoint responded that they have not rescinded any individual health insurance policies just because the policyholder inadvertently overlooked prior health information:
"California law is clear that rescission generally does not require a showing of intent to deceive or willful misrepresentation," WellPoint spokeswoman Shannon Troughton said. "All that is required for misrepresentation to be 'intentional' is that the true facts be known to the applicant. If the applicant had no present knowledge of the facts sought or failed to appreciate the significance of information, an incorrect or incomplete response would not constitute grounds for rescission."

It's that last sentence that matters: "If the applicant had no present knowledge of the facts sought or failed to appreciate the significance of information, an incorrect or incomplete response would not constitute grounds for rescission."

If Wellpoint indeed did what it has said in their response, they were fair in their application of the policy provision. If Wellpoint has been canceling policies even when the applicant did not intentionally lie on the application, as the state charges, then shame on them.

Looking at both sides and trying to figure out the difference between "intentionally lied" and having "no present knowledge...or failed to appreciate the significance of information" is more than I can understand with what is on the table.

The California Department of Managed Health Care and Wellpoint will now battle this out.

But in the end, Wellpoint has a duty to be fair to its policyholders and not use this otherwise fair fraud provision to cancel people's policies who acted in good faith in filling out the application and now find themselves very sick--and without coverage.

Rescission of a health insurance policy--particularly when someone is going through the trauma and expense of a serious illness--is a harsh punishment even when it is justified by a fraudulent act.

If Wellpoint did what the state said they did it would also be very stupid--just as the country is about to enter a major debate over how we will deliver health care to our people and the place the private sector insurers have in that future.

When the fine points of these positions are sorted out, I hope we find that Wellpoint was as fair as they said they were.

The Massachusets Health Plan's Inability to Offer Affordable Health Insurance Premiums Will Stall-Out Other State's Efforts in Health Reform

Now that we know Massachusetts is not going to be able to offer affordable health insurance to the middle class, we can expect to see other similar state health reform efforts stall-out.

Both California and Pennsylvania have already started down the Massachusetts health care reform road. But when state legislators find that families making $50,000 or $60,000 a year would be mandated under state law to spend $6,000 to $8,000 out of their own pockets, for plans that require a $2,000 deducible for all but a few services, they will be hard pressed to force their voters into a mandated system.

We haven't had this kind of excitement about health care reform in 15 years.

It will be a shame if Massachusetts now pours a cold bucket of water over it.

My earlier post on the high premiums in Mass: The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

The Massachusetts Health Plan Will Turn Out to Be Little More Than a Fancy Expansion of Medicaid--Bids Come In At $250 Per Person Per Month

For weeks we have been warning that the Massachusetts health reform plan is at a critical point. The second round of health plan bids came out no better than the first. That did nothing to alleviate concerns that Massachusetts will not be able to mandate that its citizens buy the costly coverage.

The first health plan bids averaged $380 per person per month. A family of three would have to pay about $13,000 per year at those rates and would receive no subsidy assistance if their household income exceeded $48,000 per year. That would clearly be a non-starter.

So the Massachusetts regulator––the "Connector"--appealed to Massachusetts insurers to come back with better rates.

The result was that most insurers bid between $222 and $288 per person per month (at the average age of 37) for a health plan in eastern Mass. They got the rates down by adding a whopping annual individual deductible of $2,000 ($4,000 for a family). At $250 per month, that would cost the same family of three about $8,000. Over $48,000 per year in family income, there would be no subsidy.

Since adopting a $2,000 deductible would cause the rates to drop by about 20% to 30% anyway, the reduction in the average monthly premium from $380 to $250 is really not a much better deal for Massachusetts consumers than the first bids.

One plan, the Neighborhood Health Plan, bid $156 for a plan without first dollar drug coverage and $175 per person per month with drug coverage--both have a $2,000 individual deductible. However, Neighborhood is primarily a Medicaid provider serving its clients out of a limited number of community health clinic sites that provide very limited coverage in the state. To get one of the mainstream insurers providing access to a broad range of medical providers, plan on spending the $250 monthly premium if you are the average of 37 years old. If you are over age 56, plan on spending $350 to $461 per person per month for one of the mainstream Mass health plans.

Massachusetts will not be able to implement its mandate that all citizens have health insurance at these prices.

Can you imagine going to a middle class family of three making about $50,000 a year and telling them they have to spend $8,000, or even $6000 for the Neighborhood plan, out of their already taxed budget? To boot, the plan you are requiring them to buy has an annual deducible of $2,000 per person.

Between 100% and 300% of the poverty level, a family will receive premium assistance. However, how will a family making $35,000 per year be able to pay even half of these monthly premiums toward the cost of health insurance--and still have to pay a big deductible before getting any meaningful coverage?

The short answer is that Massachusetts can not force their people to buy a health insurance plan they cannot afford and likely will not want.

In fact, I traveled to Boston yesterday for a meeting. As I was driving down the Mass Pike the local news radio station, WBZ, led a report on the new rates and big deductibles with the line, "In the Commonwealth, a health care curve ball."

That about sums up the reaction the Massachusetts political leaders can expect to get from the people this thing is intended to help.

What are the politicians going to do?

For now, they will let the new health plan go forward. There aren't any big penalties for being uninsured in the first year. So there is no downside to just let it begin and hope for a miracle.

As the more meaningful penalties appear in the second year, they either won't be enforced or they will be repealed.

Massachusetts politicians will eventually declare victory and lift the health insurance mandate on the middle class.

They will point to the Massachusetts Health Plan's success in providing access to "affordable" health insurance plans and simply encourage people to buy it. But even that could be a problem if Massachusetts leaves the new health plans "guarantee issue" and doesn't require everyone to join the pool. The participating insurers could get the worst combination of guarantee issue health insurance and adverse selection if consumers have the option of buying.

The local health plans who have been cooperating with the "Connector" could be walking into an untenable underwriting outcome if the mandate is not enforced and a smaller pool of sick people is the outcome.

When the day is done, Massachusetts will likely have only succeeded in expanding coverage for those near 100% of the poverty line--those who will receive the most comprehensive subsides.

By making it possible for more people to have insurance, Massachusetts will have made some important progress. However, the Mass plan will not be the template for national health care reform its authors had hoped for.

Instead of being a grand plan to insure virtually everyone through a more efficient market and a set of mandates, all the Massachusetts plan will turn out to be is a fancy, but modest, expansion of Medicaid.

In the end, it's all about the cost of health care.

The Massachusetts "Connector" wasn't able to get a cheaper price for health insurance because there isn't a cheaper price for health insurance.

The number of those uninsured is the symptom--and cost is the problem.

Every other health reform plan that pretends the problem is just one of access doesn't know the difference between a symptom and a problem.

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

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

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

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

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

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

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

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

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

Sound familiar?

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

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

The uninsured are just the biggest symptom.

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

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

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

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

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

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

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

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

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

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

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

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

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

Yep, it's Part D.

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

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

Who would have thought!!!

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

10 Bipartisan Senators Offer a Health Care Reform Outline

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

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

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

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

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

There isn't a lot of detail here.

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

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

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

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

Health reform is breaking out all over!!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Uninsured Need Consumer Choice First

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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