Private Health Insurance Exchanges––Will They Save Money? Will the Idea Grow?

Private health insurance exchanges will save employers money but not make health insurance cheaper.

Because private health insurance will save employers money, they will grow.

Will Private Insurance Exchanges Reduce Health Insurance Costs?

There's lots of buzz these days about private insurance exchanges. The idea is to give employees more choice in purchasing their own individual coverage from a big menu of insurance companies and plan alternatives, and as a result, create more robust competition and thereby help control costs.

But I think private insurance exchanges will have just the opposite effect on the price of large employer health insurance plans.

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 Medicaid Controversy––The Republican Governors Should Put Up or Shut Up

Indiana, New Mexico, and Wisconsin are asking the federal government to exempt people making between 100% and 133% of the poverty level from the upcoming Medicaid expansion.

These Republican governors need to put up or shut up.

Ever since the passage of the Affordable Care Act (ACA), Republican governors have been clamoring for block granting Medicaid.

The Supreme Court ruled that a state doesn't have to accept the new Medicaid expansion money under the ACA.

Many Republican governors––all of them actually––were saying before the Court ruling that the Medicaid expansion was yet another unfunded federal mandate they could not afford. Now the Court has told them they don't have to do it.

Be careful what you wish for.

Romney Intends to Repeal “Obamacare” in 2013—Has He Thought Through the Unintended Consequences If He Does?

Romney says he will repeal “Obamacare” if he is elected. Given that this has been part of his platform from the beginning of the campaign he is entitled to do that if he wins.

I did not support passage of the Affordable Care Act (ACA) in 2010 because I saw it as an unaffordable entitlement expansion with no real hope of containing costs.

But the practical reality of killing the Affordable Care Act in 2013 is a different matter.

Obama vs. Romney: A Detailed Analysis of Mitt Romney’s Health Care Reform Plan

Let’s take a look at Mitt Romney’s Health Care plan using his own outline ("Mitt’s Plan") on his website.

Romney's approach to health care reform summarized:

• "Kill Obamacare" - There seems to be no chance Romney would try to fix the Affordable Care Act––he would repeal all of it.
• No new federal health insurance reform law - There is no indication from his policy outline that he would try to replace the health care reform law for those under age-65 ("Obamacare") with a new federal law--his emphasis would be on making it easier for the states to tackle the issue as he did in Massachusetts.
• Small incremental steps - His approach for health insurance reform for those under age-65 relies on relatively small incremental market ideas when compared to the Democrats big Affordable Care Act--tort reform, association purchasing pools, insurance portability, more information technology, greater tax deductibility of insurance, purchasing insurance across state lines, more HSA flexibility.
• Getting the federal government out of the Medicaid program - He would fundamentally change Medicaid by putting the states entirely in control of it and capping the annual federal contribution--"block-granting."
• Big changes for Medicare - Romney offers a fundamental reform for Medicare beginning for those who retire in ten years by creating a more robust private Medicare market and giving seniors a defined contribution premium support to pay for it.

Romney vs. Obama--Romney Would Kill "Obamacare"

“On his first day in office, Mitt Romney will issue an executive order that paves the way for the federal government to issue Obamacare waivers to all fifty states. He will then work with Congress to repeal the full legislation as quickly as possible.”

Romney vs. Obama: The Romney-Ryan Medicare Plan Compared to the Obama Medicare Plan—Who’s Telling the Truth on Medicare?

They both are and they both aren’t.

I’ve never seen a week in health care policy like last week. The media reports have to be in the thousands, all trying to make sense of the furious debate between Obama and Romney over Medicare.

As someone who has studied this issue for more than 20 years, it has also been more than exasperating for me to watch each side trade claims and for the press to try to make sense of it.

This blog post is quite long because the subject matter is complicated. If you want to cut to the chase, see my conclusion and summary at the end of this post.

Wyden and Ryan—One is Up and the Other is Down—and They Are Both Telling the Truth

Republican Vice Presidential pick Paul Ryan isn’t the only one Democrats are piling on this week. The knives have come out for Senator Ron Wyden, the Oregon Democrat.

I guess that isn’t a surprise. If Ron Wyden is right on Medicare then so are Paul Ryan and Mitt Romney.

The fundamental problem here is that the Democrats have decided that their best path to victory in the November elections is to say that the Republicans want to destroy Medicare as we know it and that the Democrats can preserve it.

The truth is that no one can preserve Medicare as we know it. There isn’t a prayer that your father’s Medicare will be around in 10 years. There is a legitimate policy debate going on about the direction we will have to go with it.

The Game’s Not Over, and It May Not Even Be The Real Game

by Brian Klepper

Like most health law watchers, I was surprised by the recent Supreme Court decision. I'm sure that on this issue, as with everything else, zealous responses rationalize the result and split the country down the middle.

Do You Have Any Idea How Close the Affordable Care Act Came to Being Toast?

I expected Supreme Court Justice Anthony Kennedy to vote to toss the individual mandate. I had no doubt the other three conservative justices would want the whole of the Affordable Care Act thrown out.

I also expected the four liberal justices to support both the individual mandate as well as the entire law.

About everyone expected Roberts and Kennedy to vote alike.

If Roberts had gone with Kennedy, that would have been a majority of votes (5-4) to void all 2,900 pages of the Affordable Health Care Act. Not just kill the mandate, but the whole thing. Apparently, just killing the mandate was never an option for this Court--something most of us believed was the most likely outcome!

But Roberts had an opinion of his own. In his mind, like the other conservative justices, the mandate was inconsistent with the Commerce Clause of the Constitution. But, unlike the other conservatives, Roberts believed failure to comply with it triggers a tax. Which it is what it looks like to any regular person outside the Beltway for that matter.

So the law stands.

Four justices to kill it, four justices to keep it, and one justice who saw things dramatically differently than all the rest.

To all my liberal and progressive friends: No more complaining about Citizens United and the "politicized" Supreme Court. Did you notice that the justice your guy did not vote to confirm also sided with liberals to invalidate much of the Arizona immigration law on Monday?

To my conservative friends: Pay the tax or buy insurance and stop your whining. To the extent this is a mandate, it's a pretty tepid one.

This was a hard decision for John Roberts. I like people who think all of this is hard. We need more people who see more than black and white and understand just how hard to solve health care reform--or any of the other of the big problems facing our country--is.

This was an agonizing decision for John Roberts and I think of him as a better person for it.

Except next time, could the Court just skip all the summer falderal making us try to guess which day they were going to grace us with their decision and just tell us which day to be paying close attention?

The Supreme Court Ruling on Health Care, Its Impact on Medicaid, and 29 Republican Governors--Be Careful You Might Get What You Wish For

Conservatives wanted the Supreme Court to do the work of killing the Affordable Care Act (ACA) for them. They didn’t get their wish but the Court may have put conservatives into a political corner they will find very uncomfortable.

Under the new health law, the Medicaid program will be substantially expanded. Those making up to 133% of the federal poverty level (about $30,000 in annual income for a family of four) will be eligible for Medicaid benefits. Many conservative governors—there are 29 Republican governors—were angry that the federal government would force even more Medicaid spending on them at a time their current Medicaid programs have become a major burden on their state budgets. Originally, under the ACA, if the state didn’t agree to expand their Medicaid program, they would lose all Medicaid funding.

The Supreme Court has now said that if a state doesn’t want to expand their Medicaid programs they don’t have to and they will not lose their current Medicaid funding from the federal government.

Now, conservative governors who said they wanted no part of a Medicaid expansion shoved down their throats from Washington have the ability to opt out of it without a penalty. That puts those conservative governors and their legislatures on one big hot seat. Whether or not their state gets a Medicaid expansion is now entirely up to them. It’s put up or shut up time for conservative governors and state legislators who said the ACA was an onerous expansion of federal powers over their states.

If some states do reject the Medicaid expansion, consumers between 100% of poverty and 133% of poverty would become eligible for the private federally subsidized insurance in the exchanges since the subsidies start at 100% of poverty. That would mean more business for those offering private insurance in the exchanges.

It also means that the federal government’s cost of covering these people would increase—covering them under Medicaid would be cheaper than under the private plans in the exchanges.

For those between 100% of poverty and 133% of poverty, it would be a mixed bag. Instead of a Medicaid plan, they would get a mainstream private insurance plan from the exchange that could gain them access to the health care system beyond only the providers who accept Medicaid patients. But they would have to pay 2% of their income in premiums—$600 a year if they make $30,000 a year. And, unlike Medicaid, they would be subject to standard deductibles and copays—perhaps an upfront $1,000 deductible per person. The cheapest plan, the bronze plan, is intended to only cover about 60% of health care costs.

Governors even end up having an incentive to dump Medicaid people onto the exchange—the state has to pay 10% of any Medicaid extension starting in 2017 but none of the cost of subsidies in the private exchanges.

And, some states don't now provide Medicaid coverage for some poor people making less than 100% of the poverty level--leaving them caught in a gap before federal coverage starts at 100%.

So, it’s not an open and shut case for the states on what they should do.

And, can you even imagine the pressure these governors and legislators are going to come under from providers? Hospitals, for example, will suffer cuts under the new health care law--cuts they agreed to in order to increase the number of people coming to them with Medicaid cards in hand. If the states don't take the Medicaid money, the hospitals will be left with the cuts but not get the benefit of more patients gaining coverage.

Many of these conservative governors and state legislators will have lots of options--options they will have to vet openly in front of all of their voters. And no one is shoving anything down their throats--it's all up to them.

The Supreme Court's Decision on the Affordable Care Act

In the immortal words of Rosane Rosana Dana, "Never mind."

From the SCOTUS blog live in the court room: "Chief Justice Roberts' vote saved the ACA."

On to the elections.

What Would Health Insurance Cost if the Supreme Court Overturns the Individual Mandate But Leaves the Insurance Reforms in Place?

That will be the big question on Thursday if the Court throws out the mandate and the parallel insurance reforms that would require health plans to take all comers without regard to their health status and require insurers to cover pre-existing conditions.

But before we get to that scenario, let’s look at another possibility.

The Court Overturns Both the Individual Mandate and the Insurance Reforms
First, if the mandate were to be thrown out, and with it the insurance reforms, the impact on the health insurance companies would only be positive—there would be no “adverse selection” from only the sickest buying insurance. Insurance companies could continue to underwrite--decide who and who not to cover--but would have the federal government spending $50 billion a year under the surviving parts of the Affordable Care Act (ACA) giving consumers subsidies with which to purchase their insurance plans.

On the surface, that would be a great thing for the health insurance business. It might even mean lower prices than those we have today, as millions of healthy people would be subsidized to enter the insurance pool.

However, these subsides would not be available until January 1, 2014. In the meantime, Democrats would do all they could to reinstate the insurance reforms and try to implement one of the alternatives to the individual mandate.

Republicans would do all in their power to “repeal and replace” the rest of the Affordable Care Act in the wake of what they hope will be an election victory this November. With control of the House, a minimum of 51 votes in the Senate, and Romney in the White House, Republicans would at least gut the remainder of the ACA, irrespective of what they might do to “replace” it. The insurance premium subsides would be the easiest thing to get rid of under Senate budget rules.

The only way I see insurance companies benefiting from a Supreme Court ruling that would toss the mandate, as well as the insurance reforms, is if the Congress later couldn’t agree on how to fix or repeal the ACA and the circumstance neither side supported continued indefinitely.

The Court Overturns the Individual Mandate and Keeps the Insurance Reforms in Place
The most problematic outcome would be if the Court only struck the mandate but allowed the insurance reforms to continue in place. In this case, insurance companies would be required to cover everyone—both the sick and the healthy. While there would likely be some administrative limits on when people could buy health insurance, consumers could generally wait until they were sick to get covered.

In a recent study, Larry Levitt and Gary Claxton at the Kaiser Family Foundation said, “It’s pretty clear that in a system like that, sicker people would be more likely to buy insurance, and premiums would rise as a result.”

But the authors went on to argue that, “It is by no means inevitable that the individual market will enter a death spiral.” They rightly point out that the ACA, unlike past state efforts to reform the insurance market, will grant subsidies to millions of people making coverage affordable for them.

As I have said on this blog a number of times before, a mandate is not needed if affordable health insurance is available. There is currently no mandate that employees buy insurance when it is offered at work yet we have an excellent cross section of risk in the employer health insurance market. The same is true in the Medicare Part D drug program where seniors have the option of buying the drug plan.

But, while there is no mandate in employer-based coverage, if a worker declines the coverage they and their dependents would be subject to a pre-existing condition limitation if they later choose to buy (both a protection for the insurance company and a penalty for the consumer)—not the case under the ACA. In Medicare Part D, late enrollees are penalized by paying higher premiums, something also not a part of the ACA.

The bigger problem is that while the ACA’s subsidies are very good for low-income people, they are far from adequate for the middle class—particularly families.

As the Kaiser study pointed out, the Congressional Budget Office (CBO) has estimated that about half those in the individual market will be eligible for a subsidy under the ACA.

I will suggest that what is critically important here is that those not getting a subsidy, or at least a big subsidy, are the ones the mandate was directed at in the first place.

Families making $20,000, $30,000, $40,000, or even $50,000 a year were always going to get a big percentage of their health insurance paid for under the ACA. For example, a family of four making $55,000 a year would pay about $400 a month for their insurance—close to what most families in employer plans now pay. Families making less would have much better subsidies—a family at 150% of poverty would only pay 4% of their income for health insurance under the ACA.

But families making 300% to 400% of the federal poverty level would have to pay 9.5% of their incomes for health insurance—a $60,000 family would have to find $5,700 in their already tight annual budget. Families making more than 400% of the poverty level would have to pay the entire cost of health insurance—which today averages $14,000 a year in employer plans.

There is another wild card—the ACA caps the premium older people would pay at three times the premium the youngest people would pay—it is often 5:1 today. The Kaiser study argued that this would help the younger and healthier buy coverage. That is true--presuming this insurance reform doesn't get tossed by the Court with the other insurance reforms. But I will also suggest the younger are more often the lower income people and that the tighter age bands in the ACA will make it even more expensive for older people to be able to afford coverage—more often the sicker part of the population that would gain from entering and exiting the market when it would be most convenient for them to do so.

There are a number of estimates that say without a mandate individual health insurance would cost 10% to 40% more.

The CBO has said that without a mandate 16 million fewer people would be covered and premiums would be 15% to 20% higher.

That looks to me to be the best case.

In practical terms, that could be $1,500 to $2,000 more each year in higher premiums for a young family and $3,000 to $4,500 a year more for older people.

Having a health insurance market that provides guaranteed health insurance at these costs is hardly a sustainable situation. And if history is the guide, high insurance rates the first year only get higher each subsequent year as fewer and fewer healthy people see the value in coverage.

I would also suggest there is another wild card, presuming the Republicans don't repeal the ACA, that could impact either of these Supreme Court scenarios—the states.

“Blue States”—those having a Democratic governor and legislature—could well fill the vacuum created by any Supreme Court ruling. With $50 billion in annual federal health insurance subsidies in the market starting in 2014, a state could enact a mandate as well as insurance reforms in the wake of a Supreme Court ruling against the law.

Ironically, most states have not been able to do health care reform largely because they don’t have the money. But if the bulk of the law, and particularly if the subsidies remain, they would have the money and the legislative power to pass an individual mandate, or more likely one of the alternatives to the mandate, and reform the individual and small group health insurance market.

That could be a very potent combination for those largely “Blue States” that are building insurance exchanges.

But in the end, what would health insurance cost if the Supreme Court overturns the individual mandate but leaves the insurance reforms in place?

A lot more than most people, who didn't have plenty of government assistance, could afford.

But you know what? The Supreme Court ruling, whatever it is, will likely be small potatoes compared to what the November elections could do to kill or preserve the Democrats' Affordable Care Act well before January 1, 2014.

The Medical Loss Ratio (MLR) Report—Just Fiddling While Rome is Burning

Today’s headline was, “Millions Expected To Receive Insurance Rebates Totaling $1.3 Billion.”

The Kaiser Family Foundation estimates that 3.4 million people in the individual market will receive $426 million in consumer rebates because of the Affordable Care Act's new MLR rules. In the small group market 4.9 million enrollees will see $377 million in rebates, and 7.5 million people will get $540 million in the large group market.

Wow!

But take a closer look at the report. Only 19% of those in the large group market will be getting a rebate and that rebate will average $72.31 per person. In the small group market 28% of those enrolled in these plans will get a rebate averaging $76.37. And, in the individual market 31% of consumers who have these plans will get a rebate averaging $126.81.

The Wall Street Journal, citing a Goldman analysis, is reporting that Aetna will be paying out $177 million in rebates. But Aetna has $11 billion in premium so that’s only a 1.6% rebate. UnitedHealth will be paying out $307 million but that is only 1% of its $28.8 billion in premium. Wellpoint will pay out $94 million in rebates but that is only .28% of its premium for the year.

The average cost of employer-provided family health insurance is now about $13,000 per year. A family rebate of perhaps $200 will amount to only about 1.5% of premium for the relatively few people who will even get one.

I am surprised that the rebates are so low given how closely health plans have to calculate their pricing margins and with claim costs coming in less than expected during 2011.

The politicians can celebrate $1.6 billion in premium rebates that will not be going into the health insurers’ pockets as profits. That is true but their first quarter profits didn't appear to be suffering either.

But does a $200 rebate on a $13,000 premium make health insurance any more affordable?

This week, amid their first quarter earnings reports, health insurers said that their health insurance prices are expected to rise by an average of 6% to 6.5% during the next year—well above inflation and well above wage rates. And, typically, individual and small group price increases significantly exceed a company’s average cost increases.

So, just what impact has the first year’s MLR experience had on making health insurance any more affordable?

In the past, I have called the Medical Loss Ratio rules the jumbo insurance company full employment act. These MLR rules only serve to push competitors out of the market and accomplish little.

In order to comply with the new MLR rules most insurers simply cut insurance agent/broker commissions—which then caused the insurance agents to pass their cost of doing business directly onto their customers in direct fees outside normal insurance premiums.

I’d like to see a calculation for how much all health insurance policyholders have had to pay in higher agent/broker fees because of the MLR rules compared to the small percentage that will receive a rebate.

The Affordable Care Act saves consumers $1.3 billion!!!!

And, health insurance costs keep going up just like they did last year, and the year before that, and the year before that.

What Would Individual Health Insurance Cost if the Court Strikes the Mandate Down and Still Requires Insurers to Cover Everyone?

With the Supreme Court justices sounding like they might strike the mandate down, this is a question I've been getting a lot lately.

I have pointed to New Jersey as a real life example of what can happen when insurance reforms take place but there is no incentive for consumers to buy it until the day they need it.

In 1992, New Jersey passed health insurance reform that required insurance carriers to either offer individual health insurance on a guaranteed issue basis or pay an assessment to carriers that did. Other elements of the legislation were:

• Guaranteed coverage and renewability for all eligible people regardless of their health status. A pre-existing condition exclusion does allow insurers to limit coverage during the first 12 months (a limitation which is not contained in the Affordable Care Act).
• Guaranteed renewal of policies, provided (1) the insured does not become eligible for coverage under a group plan; (2) premiums are paid in a timely fashion; and (3) no fraud is committed by the insured.
• Community rating of the premiums, with variation allowed only for family status (single, adult plus child, husband and wife, and family). (The Affordable Care Act allows rate variations of up to three times from young to old.)
• Standardized insurance plans, referred to as Plans A, B, C, and D (indemnity options) and a single HMO plan.

New Jersey does not have a individual mandate or any other means to encourage participation in the health insurance pool.

What does the health insurance market look like today in New Jersey?

First, there are relatively few insurance plans participating in the New Jersey insurance market. According to the New Jersey Department of Banking and Insurance, if you want to buy a two adult plan with a $2,500 deductible and 80% coinsurance for example, there are only three carriers offering it. Aetna at $4,913 per month, Celtic at $12,322 a month, and Horizon a $6,127.78 per month. These rates do not vary by age.

You can buy a $2,500 deductible, 80-20 coinsurance plan for a family. Only one health plan, Oxford, offers it and it is age rated. If you are age 25, it will cost $2,498.20 a month, at age 40 it will cost $2,978.75 per month, and at age 60 $4,054.97 per month.

The cheapest family plan I found on the state site is a Horizon plan with a $10,000 deductible that costs $1,434.72 a month--$17,217 a year. The cheapest HMO plan was a Horizon plan for $1,546.08 a month--$18,500 per year. Although, the state does also offer very limited and scheduled benefit plans that cost as little as about $600 per month.

You can see the complete chart of rates at the New Jersey state website by clicking on the icon: "See Monthly Rates for All Standard Plans."

If anyone has Anthony Kennedy's email address I'd appreciate your sending this over.

If the Supreme Court Overturns the Individual Mandate

First, trying to predict how the Court will rule is at best just speculation. I know what Justice Kennedy said both today and yesterday and it certainly doesn’t look good for the Obama administration and upholding at least the mandate.

But I will remind everyone, based upon oral arguments, most Court watchers expected a ruling in favor of the biotech industry on a recent case involving health care patents. “Surprisingly,” the Court ruled against the industry.

Whatever the justices are now thinking, there isn’t a lot anyone could do differently until we actually get a ruling and know exactly what gets thrown out, if anything, in the 2,800-page law.

But if the mandate is overthrown, then what?

First, exactly how the Court rules on severability will be critical. What could go out with the mandate?

The Obama administration has smartly tried to build a firewall around the rest of the Affordable Care Act (ACA) by arguing before the Court that only the insurance reform elements of the bill should fall if the mandate goes down—that the mandate is the only quid pro quo for the insurance industry in exchange for taking all comers. That looks to me like the most logical outcome for overturning the mandate—but my perspective is one of an insurance veteran not a Court expert.

The Obama firewall strategy is a smart strategy for two reasons. First, it leaves the rest of the health law standing. Second, losing the most popular part of the new law, the insurance reforms, leaves the administration with lots of political leverage later on to fix the bill. Ironically, the Court, in accepting the Obama arguments, would be overturning both the most unpopular element of the law as well as the most popular.

From a policy perspective, I would see fixing the law in the wake of losing just the the mandate an easy thing to do. In place of the individual mandate, I would suggest a provision that:

• Has no mandate for any individual to buy insurance.
• Allow individuals and families to be able to buy insurance at any time.
• Upon purchase, everyone in the family would be covered under any of the plans available.
• But, if the insurance were not purchased at any time the individual was newly eligible, any preexisting condition would not be covered for two years.

Such a solution would provide guaranteed insurability if the insurance was purchased when first offered, no mandate to buy, people could purchase at any time and be covered, other family members would not be penalized, and the insurance pool would be protected.

The policy fix is easy.

But politically, in the current hyperpartisan environment, the Republicans have no interest in helping the administration fix the Affordable Care Act. Until both sides are willing to work together on a comprehensive compromise on health reform, there will be no fixes.

What happens if the mandate falls, the Court leaves the insurance reforms in place, and the political paralysis continues?

New Jersey. That state has had insurance reform and no mandate for a number of years and it’s a mess—even more unaffordable rates and enormous anti-selection in the insurance market.

The lack of a mandate won’t hurt the larger already efficient employer market and it won’t help the already problematic small group market. The employer mandate for those with more than 50 employees would continue.

In the exchanges, where the ACA would provide good subsidies for the poor and near poor, there would likely be adequate spread of risk among these lower income groups in a completely voluntary market because the insurance is affordable. But higher insurance rates will mean the CBO’s estimates for the cost of the subsidies will be way off. Remember, the ACA’s subsidy system caps the cost for health insurance based upon income—higher insurance premiums mean higher federal costs.

Without a mandate and with the insurance reforms still in effect, the anti-selection would be most pronounced in the middleclass where the subsidies were always insufficient anyway.

What happens if the Court throws out the mandate as well as the insurance reforms? The insurance industry would get the benefit of many more customers because the subsidies would still be in place. But they would be healthy because the insurance underwriting and pre-existing condition provisions would remain. While the insurance industry would do well, the providers would still suffer the ACA's payment cuts and not have as many patients coming in with insurance cards as they expected—particularly the most sick and costly for them.

If the Court throws out the individual mandate, as well as perhaps the insurance reforms, the law would have to be fixed.

But the political environment would have to change markedly before Republicans and Democrats could come together on a comprehensive fix to the new law.

Will the Pace of Innovative Change Overtake the Financial Imperative to Slash Spending?

I thought it was worth passing along the comments by Jim Tallon, president of New York's United Hospital Fund, in a recent post.

Tallon reflected on an international meeting he attended with health care leaders from a number of industrial nations--"nations whose health care systems, indeed underlying philosophies, ranged from market orientation through hybrids to government authority:"

"Across the industrialized world, people are coming up with fresh ideas and vital approaches to the profound, central challenge that health care constitutes—new ideas on organization, financing, and care, on far greater use of real-time information technology, and on patients’ greater engagement in their health…

"What were these leaders’ 'keeps me awake at night' concerns? Their answer, almost uniformly, was that the pace of innovative change would not overtake the financial imperative to slash spending.

"The challenge within the challenge, then, is how to take individual ideas and models to scale. With considerable consensus on the problems, and individual projects being implemented—whether generated in local communities or institutions or stimulated by government or private-sector support—we are now at a critical juncture: can the ideas that are being tested ultimately alter economic and societal trends, in which health care plays a major role? How do individual ideas, even the sum of those individual ideas, expand into systemic change that ultimately can get us the health care system we need, accessible for all, of the highest quality, and—the biggest challenge—actively altering the constant upward movement of the cost curve?"

We are 30 years into what could generally be described as managed care—all of the attempts to create an affordable quality health care system. But 30 years in, we may have done little more than to blunt our escalating health care costs.

Time is running out. And, not just in the U.S. And, not just in market-based systems.

Tallon’s full comments on the United Hospital Fund website.

"Five Myths About Medicare"

I recommend you read John Rother's recent op-ed in the Washington Post, "Five Myths About Medicare."

John argues that each of these statements is a myth:

1. Medicare is inefficient and fails to control costs--the CBO has projected that per capita spending will grow only 1% more than inflation over the next decade.
2. The well-off don't pay enough for their Medicare benefits--working age premiums as well as Part B premiums already vary considerably by income.
3. Medicare benefits are overly generous--in 2007 Medicare paid an average of only half of the $18,000 the average beneficiary spent.
4. Cutting Medicare is the only way to save it--changing incentives to providers offers more promise.
5. Medicare needs fundamental restructuring--"Even the most well-run and efficient program cannot nearly double its enrollment without a matching increase in money."

And this conclusion:

"Containing health-care cost growth is critical for Medicare’s survival, but it’s impossible to do that for Medicare alone. Payment restraints and incentives that improve value must be applied to the entire health-care system to be effective."

Read "Five Myths About Medicare"

ICD-10 To Be Delayed Indefinitely--Never Mind!

After years of telling us they are serious this time and everyone in the health care system had better be ready on time to implement the new disease coding system, CMS said today the whole project is going to be delayed indefinitely.

The new ICD-10 system requires payers and providers to convert from the old system of 13,000 codes to the new system of 68,000 codes.

All payers and providers were supposed to be ready by October 1, 2013. The acting CMS Administrator said, "There is a concern that folks cannot get their work done around meaningful use [of information technology], ICD-10 implementation, and be ready for [insurance] exchanges. So we decided to listen and be responsive."

Apparently, a new timeline will be developed through a "rule making process."

Fine, but that has not been the message for months now and lots of people have spent lots of money for apparently no good reason.

The concerns that particularly physicians would not be ready on time have not been minor. CMS conducted a survey between January and March of 2011 that clearly showed there were big problems ahead. But in the year since that survey, they continued to tell stakeholders to keep going ahead full speed, spending big money to be ready.

But in the last few weeks, the American Medical Association has been sounding the alarm--their people wouldn't be ready.

Sounds like the lowest common denominator in the health care system wins out.

Here are the results from a survey CMS conducted from January to March of 2011 by type of industry participant. AHIP is the insurance industry trade association, HBMA and AAPC are associations of industry coding and billing providers, ACP is the American College of Physicians and the AMA is the American Medical Association. The survey also measured readiness for the Version 5100 standards for electronic health transactions that were effective in January 2012, but for which enforcement has been delayed until March 31, 2012.


It was obvious a year ago that the docs (ACP and AMA) weren't going to be ready yet CMS kept telling everyone to keep spending big money on all of this.

There is No Free Lunch and There is No Free Contraception

The otherworldy Obama Administration solution to the contraception firestorm might work politically but it makes no sense in the real world.

The President, hoping to quell a growing political firestorm, today announced a new policy that no longer requires religiously affiliated organizations to provide employees with contraception coverage in health-insurance plans.

Under the new policy, insurance companies will be required to offer free contraception for their employees and dependents. The administration’s idea is to shift the onus for the coverage from the employer to the insurer. Catholic leaders, and lots of other people, had objected to the requirement, which exempted churches but not hospitals, charities and universities with religious affiliations.

So, let’s just play a game here. The religious organization just pretends that it has nothing to do with it but the insurance company pays for it anyway. Hey, the insurance companies are rich.

Of course there is a cost. Today, contraception is almost universally covered in health insurance policies. The argument that forcing insurers to pay for it, without deductibles and copays, saves money because it avoids pregnancy costs is just plain silly. If insurers saved money handing out contraception for free in the first place, they would have started to hand it out for free years ago. Add to that the insurance company must absorb a not insignificant administrative cost for adding a person-by-person "rider" for free contraception.

In addition, we have the unique situation where a business (insurance companies) will be required to provide a product to a specific market (religious organizations not wanting to provide the coverage) but prohibited from charging for it--apparently because the government has done the cost calculation for them and in their sole discretion has decided they don't have to.

The administration is arguing that offering contraception actually lowers costs and therefore forcing insurers to waive copays won't mean higher costs. If this were 1970, when modern contraception was first offered, that might be true. But now plan sponsors are expected to waive copays and deductibles on something that is already virtually universally available. There will be an incremental cost.

If the program is self-insured, the insurer will not get any of the benefits from lower pregnancy cost--it will all go to the plan sponsor--but the self-insured administrator will be expected to cover the entire cost of the contraceptive services.

This is simply an attempt by the administration to backpedal from a firestorm of controversy they should have never been in in the first place. They are caught between the left that is not about to back down over what they see as a critical women’s health issue and the right that is not about to countenance the government ever telling a church what to do.

But insurers will likely just shut up and go along with it. They have no intention of getting into the middle of this political mess—but they will quietly pass the costs along. In fact, for any large religious organization that is self-insured, they won’t have much choice but to pass the costs on to the employer. But that won’t be a problem so long as everyone just agrees to pretend.

This is a clumsy attempt on the part of the Obama Administration to be on both sides of a thorny issue.

The problem is that there is no free lunch and there is no free contraception.

Dismantling the Affordable Care Act: The Obama Supreme Court Argument + 51 Republican Senators

I have no idea which way the Supreme Court will rule this year on the Affordable Care Act. Let me go out on a limb and predict a 5-4 vote on the question of whether the individual mandate is Constitutional. Just don’t ask me which way the vote goes.

I found the recent Obama administration brief submitted to the Court on the mandate question somewhat ironic. Not surprisingly, the Obama Justice Department argued that a finding by the Court that the individual mandate is unconstitutional should not jeopardize the vast majority of the new health law.

But the Obama Justice Department did concede that there are two provisions of the Affordable Care Act that should also be declared invalid if the Court rules the individual mandate is unconstitutional—the health insurance guaranteed issue and community rating provisions.

Now, I know there are lots of other people, many of them filing briefs with the Court, that disagree arguing that the whole law needs to be found invalid because the mandate is the lynchpin for all of it. But I will suggest it is significant that the administration would appear to be building a firewall for the rest of the law as they concede these points.

But consider this potential scenario.

First, if the Republicans win the Senate come November—not a certainty but very possible—they will do it with only one, two, or three seats to spare. That would be way short of the 60 votes necessary to get rid of the entire law. You will recall it took 60 votes to pass the entire law in the first place. I fully expect Republicans will hold their House majority and a Republican House would be only too willing to support whatever the Senate could accomplish in repealing the Affordable Care Act.

Many Republican legislative strategists have already concluded they can get rid of all of the new health law having to do with the budget—with a House majority and only 51 Senate votes. The insurance subsidies are the biggest part of the law and they are budget related. Of all of the non-budget items needing 60 votes, the biggest are the insurance reforms—the guaranteed issue and community rating provisions.

The Obama Justice Department, in conceding these insurance reform provisions would have to go if the mandate falls, may have just potentially paved the way for getting rid of effectively the entire law should the Court throw out the individual mandate: The Court knocks out the mandate and with it the insurance reform provisions and a 2013 bare Republican majority gets rid of almost all of the rest of the law.

That just leaves one detail. Will it be a Republican President or President Obama that would have to sign any Republican repeal legislation?