Myths and Facts About Health Reform

This is the first in a series of posts that will try to pierce the myths and reveal the facts about the reform legislation. This first post focuses on the impact that reform will have on the private insurance industry–and on the industry’s customers.

MYTH # 1: Health Care Reform represents a “boon” for private insurers.

FACT It is true that, beginning in 2014, virtually all Americans will be required to buy insurance, or pay a fine. But while insurers will pick up a boatload of new customers, many will be refugees who have been battered by a health care system that rationed care according to ability to pay. Think of the boat as a life raft. These could be very expensive customers.

Moreover, between now and 2014, insurers will face some serious financial hits. These new rules will  make our health care system fairer and more affordable  But the rules also suggest that for-profit health insurance may not be a viable business unless insurers learn far more about what is best for patients.

Consider what will happen in the next three years:

1). This year, Washington sliced funding for private insurers who offer Medicare (a.k.a. Medicare Advantage) by 5%. Next year, payments will be frozen. In 2012, the serious cutting begins. Over ten years, Medicare will slash overpayments to Medicare Advantage insurers by $132 billion.

When the Medicare Advantage bill was passed in 2003, Congress agreed to pay Advantage insurers 12 percent more, per beneficiary, than it would cost Medicare to cover those patients itself.

Most agree that this is corporate welfare that our health care system cannot afford.

In recent years, insurers have become increasingly dependent on the windfall payments from Medicare Advantage. As unemployment rises, insurers have been losing customers in the employer-based insurance market, and Advantage has come to represent a larger share of their profits. Humana, for example, has been receiving 60% of its operating income from Medicare Advantage.

Meanwhile, insurers selling plans in the private sector have been scrambling to ratchet up premiums fast enough to keep up with the spiraling cost of healthcare.   For ten years private insurers’ payouts to doctors, hospitals and patients have been climbing by roughly 8% a year. Rising prices plus volume have driven reimbursements skyward. Each year, Americans are taking more medications and undergoing more surgeries and tests.And every year, virtually every product and service in our healthcare system costs more.

This is why, according to Morningstar Investment Research, the health insurance industry showed an average profit margin of just 3.4% in 2009, This  means that,  in terms of profitability, it ranked 87th out of 215 US industries.

As Henry Aaron, a highly-respected progressive reformer and senior fellow at the Brookings Institution observed last fall. Insurance company profits in the larger picture have very little to do with the overall rising cost of health care

Given the skimpy profits that the industry has seen in recent years, generous subsidies from Medicare Advantage have remained what  Carl McDonald, an analyst with CIBC World Markets in New York calls; a “bright spot” for companies such as industry leader UnitedHealth Group.

But under the reform legislation these fat Advantage subsidies will disappear, as they must, and Advantage insurers such as United Health Group will face tighter regulations. By 2014, insurance companies will be expected to pay out 85% of Advantage premiums for medical care, keeping no more than 15% of premiums to cover overhead and profits. Today, United Health Group keeps 19%. This is not unusual. The majority of Medicare Advantage plans pocket more than 15% of premiums according to a recent report released by the House Committee on Energy and Commerce.

Good-bye “bright spot.” Only those insurers that can show that they are providing excellent value for Medicare dollars will continue to receive Medicare payments, and their subsidies will be much lower. Most likely,many insurers will simply give up on the once-lucrative Advantage business.

2) Next year, the new rules regarding pay-outs will apply to private sector plans. Insurers selling in the individual and small group market will be required to spend 80 percent of premium dollars on medical services, and plans in the large group market will have to spend 85 percent. >Insurers that do not meet these pay-out thresholds will have to provide rebates to policyholders.

3) The new pay-outs rules will make premium hikes far less profitable for insurers. Even if an insurer raises its premiums by 10%–for example, lifting a $14,000 annual premium for a family plan to $15,400–the insurer must pay out 85% of the $1,400 increase, or an additional $1,190 to hospitals doctors and patients, keeping only $210  of the $1,400  to cover overhead and profits.Meanwhile, it will lose market share. It’s not clear that it will be worth it.

(4) Another new cost for insurers: beginning in 6 months, all new group health plans as well as new plans in the individual market will have to provide coverage for preventive services at no charge strong. Co-pays and deductibles will not apply to recommended services.

(5) Beginning this year, if you become seriously ill,  insurers won’t be able to drop your coverage on the grounds that you forgot some detail of your medical history when you applied for insurance. They will be able to rescind your policy only if they can prove fraud, or that you intentionally set out to deceive them. This won’t be easy.

6) In 2011, insurers will no longer be allowed to cap how much they pay out to an individual over the course of his or her life. If a customer suffers from a serious illness that requires multiple hospitalizations and high-tech treatments over many years, the insurer faces an open-ended bill. Starting in 2014 , insurers will no longer be able to limit how much they pay out annually.

Make no mistake: patients need this protection. Parents should not have to worry that the insurance covering a child suffering from cancer is going to “run out” if her care costs too much in any one year—or if she survives too long. But while the new rule is welcome, it will make the insurance business riskier: Actuaries will have a hard time guesstimating just how high those bills could mount, especially over 10 or 15 years. This is another reason why reform is far from a sweetheart deal for insurers.

(7) In 2011 it will become more difficult to raise premiums. Given falling Advantage reimbursements, coupled with rising expenses, one might assume that insurers would simply lift premiums to make up the difference. But it won’t be quite that easy. Reform legislation helps states insist that insurance companies submit justification for requested premium increases. Any company with excessive or unjustified premium increases may not be able to participate in the new health insurance exchanges. /

Already, some state regulators are getting tougher. In March, the Providence Journal reported that Rhode Island’s state health insurance commissioner slashed proposed premiums increases, keeping rate increases in the single digits, while calling Blue Cross’s proposed 14.6-percent hike “just not affordable.

And in April the Massachusetts insurance commissioner rejected nearly 9 out of 10 rate increases—ranging from 7% to 34%–that  the state’s health insurers had requested for individual and small group plans.

Still, many argue that long-term, insurers will emerge as big winners.

MYTH #2 In 2014 , when the mandate requiring that everyone must purchase  insurance kicks in, insurers will capture millions of new customers, government subsidies in hand, and their profits will, at last, soar.

FACT: In 2014, insurers will find that many of those new customers will be coming from low-income households. These are families who are not poor enough to qualify for Medicaid, but too poor to purchase insurance without the government subsidies that will become available in 2014.

Today about one-third, or nearly 15 million of the 47 million uninsured live in households earning between $25,000 and $50,000. These are the families who will be receiving good subsidies—and they are likely to sign up for insurance.

But they will be expensive customers. According to a 2009 report issued by the Kaiser Family Foundation, the uninsured are twice as likely as those with private insurance to be in “fair “or “poor” health.  About half of all uninsured adults suffer from a chronic condition.  About 75% have gone with insurance for more than one year; 55% have not had insurance for more than 3 years. Some haven’t seen a doctor in a great may years. Others have seen doctors, but have not been able to afford the medications doctors prescribe. These patients are likely to need more tests, treatments and surgeries than the average customer.

Keep in mind that, under the new reform law, insurance companies will not be able to charge these new customers more than they charge others in their community,. Moreover, insurers will have to offer all patients comprehensive insurance that meets a high bar defining basic benefits. No more “Swiss cheese” policies filled with holes. This is all fair. But it does mean that insurers will be operating in an unfamiliar marketplace— a market that aims to put patients first.

Of course, not all of today’s uninsured are poor:  9.7 million live in households earning over $75,000 a year. Why don’t they have insurance? Some suffer from pre-existing conditions that have made it impossible for them  to secure insurance. Most likely, they will join the new insurance pool, adding to the number of sick patents in their insurers’ pool.

Many others in this income bracket are healthy, and haven’t bought insurance because they just don’t think it’s a good value. Under reform rules, most earn too much to receive government subsidies. Unless premiums are significantly lower than they are today, many may well decide to pay the penalty rather than buy insurance.

In addition roughly 40% or about 19 million of the 47 million uninsured are 18-to-34-years old. Most in this group are healthy and just don’t believe that they need protection. Under the reform legislation, some under the age of 26 will sign up for their parents’ insurance– though their parents will have to pay a higher premium to cover them. But many of these invincible youngsters are likely to shrug their shoulders, and pay the puny penalty.

As a result, analysts at Fitch, the bond rating agency, observe: It is not unreasonable to envision that too many new sick customers will overwhelm the individual segment of the market, driving many health plans from it altogether.” In other words, these Fitch analysts are suggesting that a fair number oy insurers may not even try to compete for the new but unprofitable  business in the Exchange.

“This could become most acute under a scenario in which healthy, younger individuals decide to pay the penalty as opposed to purchasing coverage,” the Fitch analysts write, “and older individuals let policies lapse during periods when they do not need medical services, and purchase coverage only when they face a pending medical need, such as a surgery or expensive sets of tests or treatments.”

I agree. This is why I predict that sometime between now and 2014, Congress will recognize that the penalties are too weak and amend reform legislation to strengthen them. We need young, healthy people in the pool or insurance will become unaffordable for everyone. But, even so, I doubt the penalties will be draconian.

Make no mistake, there  are many unknowns. We don’t yet know whether premiums will be high enough to guarantee that insurers will recover the dollars they spend on new customers. But industry analysts predict that rate increases will be held in check by the new rules on [the percentage  of premiums’ that insurers must pay out, and by heightened competition for customers, who will have more choice of plans than they currently do in the individual market. Insurers “will be free to price themselves into oblivion if they choose to do so,” Sheryl Skolnick, an industry analyst with CRT Capital Group, told the Washington Post.

When all is said and done,it strikes me that the cuts and regs that go into effect in  the next four years could easily lead to an industry shake-out. My guess is that some for-profit insurance companies won’t make it to 2014

On Wall Street , analysts vary in how they assess the net effect of reform legislation on insurers, but no one is jubilant. Keep in mind that Wall Street analysts would prefer to be optimistic. Most of their companies are in the business of selling stocks. It is not good for business to be gloomy.

But everyone on the Street knows that while insurers will have more customers, profit margins are likely to be even lower than they are now. At best, this could prove to be a wash.

Offering a moderate assessment of the damge, Ana Gupte, an analyst with Sanford Bernstein, suggests that “insurers come out a net negative, but not severely net negative.”

What Will This Mean For You?

If for-profit insurers are going to survive and thrive, they will be compelled to be more creative and efficient than they are today. Competing in the Exchanges where they will be offering comparable policies that promise  the same essential benefits with few hidden holes, they will  be far more transparent, making it much; easier for customers to make head-to-head comparisons. This should mean that if you are buying your own insurance, or work for a small company, you will find insurers are offering products which provide better value for your health-care dollars.

This will not mean that premiums for employer-based insurance will climb. If insurance companies selling to large corporations try to jack up premiums, many corporations will simply switch to another insurance company. In the new, more regulated  environment, buyers will have more leverage.

Meanwhile, the best of not-for-profit insurers are likely to do well in a regulated market. Some already have pioneered using comparative effectiveness research to learn how to keep customers well. Kaiser Permanente, for example has been honored for its work in preventing heart disease.

Some for-profits also have been trying to create provider networks that do a better job of managing chronic disease. But too many-profit companies have relied on various gimmicks to stay in the black: cherry-picking, Swiss cheese policies, canceling policies when patients become ill, and caps on annual and lifetime pay-outs . . . Others have stayed afloat thanks to floated forward on Medicare Advantage’s generosity.

Now, they are going to find themselves operating in a very different environment. Some of these companies just don’t know how to make money unless they are able to do it the old-fashioned, predatory way. I suspect that more than a few will go under.

Finally, if for-profit insures have difficulty designing affordable plans that meet the new rules, my guess is that Congress will revive the public option.

So readers, my advice: – Buy the Insurance, but stay away from the  stocks.

Maggie Mahar is an award winning journalist and author. A frequent contributor to THCB, her work has appeared in the New York Times, Barron’s and Institutional Investor. She is the author of “Money-Driven Medicine: The Real Reason Why Healthcare Costs So Much,” an examination of the economic forces driving the health care system. A fellow at the Century Foundation, Maggie is also the author the increasingly influential HealthBeat blog, one of our favorite health care reads, where this piece first appeared.

79 replies »

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  2. short-term medical insurance plans are designed to protect against sudden accidents or illnesses and
    sicknesses. This is great option for the new employees or waiting on another health insurance coverage to
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  3. Peter Orzag pandered to Carlyle co-founder at the Economic Club of Washington last week. On paying for quality, Orszag said the would throw a bunch of stuff against the wall to see what sticks.
    Carlyle has two cost management divisions, MulitPlan and Viant (just acquired from Welsh, Carson, Anderson & Stowe). The Economic Club is yet to post the video, but one newspaper noted Orzag’s pandering to Rubenstein on capital gains.

  4. Private equity underwriters (PEU’s) clearly expect a boon, 30% annual returns on their healthcare investments.
    Catholic heatlh system Caritas Christi was the first to fall post-Obama signing. Two years of improved coverage under Massachusetts health reform could not save Caritas.
    They will sell their six nonprofit community hospitals and 13,000 employees to Cerberus Capital Management, the firm that drove Chrysler into the ground with poor quality and a lack of innovation. Six new taxpaying for-profit hospitals are on order. Is that the number of heads on the Cerberus monster?

  5. Peter you know better then to speak for me and what I support. I have long advocated against the pricing structure of Pharma in the US, unlike most of you I actually do something about it. Debate works much better when you make your argument and leave me to make mine.
    R&D requires profit, where they make that profit and in which manner is up to debate. I have no problem paying so pharma can invest in new drugs. Paying hot chicks 6 figure salaries so doctors can get laid I do take issue with, doctors can afford to buy it themselves. They could leave their R&D budgest alone, cut marketing, and push other in efficiencies out to make their shareholder bucks.

    “The Canadian government puts a cap, or ceiling, on the amount that drug companies can charge pharmacies and other distributors of drugs.”
    Second time — Canada, Europe and Asia are FREE-LOADING off USA pharm-research. USA taxpayers are SUBSIDIZING their FREE-LOADING.
    What the heck has MESS-iah done about that?
    NOTHING! He’s too busy, bowing-down to dictators! A weakling!

  7. “The reason that prescription medications are cheaper in Canada is complex and there are several factors that contribute to the lower costs.
    The Canadian government puts a cap, or ceiling, on the amount that drug companies can charge pharmacies and other distributors of drugs. This reduces the wholesale cost of medication for most organizations throughout Canada by about five percent. The prices are determined by Canada’s Patented Medicine Prices Review Board. Since drugstores pay less for many medications, they can sell them for less.
    Each of the Canadian provinces, like Quebec and Ontario, has a drug formulary that puts restrictions on the use of new and expensive medications. Since the provinces provide the bulk of drugs to higher users of medication, (seniors), they have the power to negotiate directly with pharmaceutical companies to lower prices for a medication to get on the formulary. In Ontario, for example, the formulary includes less than 35 percent of new medications.”
    So why do you think Walmart can sell them for less? Nate, aren’t you undercutting the profit system in the U.S. that supposedly brings us all these drugs through research and which you support? Or is cozying up to socialists ok when it’ll save you a buck?

    Anyone who knows anything about pharm research knows, the USA pays at least 50% of GLOBAL pharm-research costs.
    In other words — Canada, Europe and Asia FREE-LOAD off the USA’s efforts.
    WHY DOESN’T OBAMA tell them, PAY UP?
    Why do USA taxpayers have to?
    Sick, ridiculous, and capable of causing regime change.

  9. “You mean that “socialist” system that Republicans ajnd you love to bash?”
    We don’t order Rx from socialist we order from Wal Mart and other companies. These companies have no ties to the government and aren’t part of any government program.

  10. “I just saved one of my clients $38,000 a year by sending one of their employees to Canada for Rebif.”
    You mean that “socialist” system that Republicans ajnd you love to bash? I’d say that’s cheating Nate, one the one hand spitting venom on government then using a “liberal” government with single-pay to off load your healthcare costs. You might want to duck as those words of hatred you spit out for liberals come back at you.

  11. I don’t know about others but I don’t jump in the fray because Nate’s doing just fine on his own. Scoring a lot of credibility points on this thread, Nate.
    But wait, I have no credibility because my entire state hates poor people.
    Does anybody know if the Berwick nomination has been “officially” announced? Or is it still officially still a rumor? Do we know if Berwick will accept?
    Re: Facts and Myths on HC reform, bottom line is I don’t think anybody knows fact from myth and we’ll be chasing a moving target with healthcare for years.

  12. Never had it happen, nor should it happen. We have had people reach their annual max but never a lifetime max. If you manage the plan properly 1 million should be more then enough. The important thing is to not allow the hospital to think they have 1 million to spend.
    If you let hospitals spend thousands as they please then they start to spend tens of thousands and hundreds of thousands with no regard for cost. Soon blowing a million here or there is no big deal.
    If you look at hospitals cost to deliver care as reported to the government I don’t think it is possible to receive a million in care, it is very possible to spend that much but that means your overpaying.
    That Oregon case is the reality people need to accept. If your poor, choose to smoke, and get cancer your not entitled to unlimited funding of your treatment. You made bad decisions and need to accept the consiquences not the public.
    Little aside here, notice the $4000 monthly tab, $48,000 a year, if she was in my health plan we would be ordering that from Candada for $968-$3200 per month depending on dosage. I just saved one of my clients $38,000 a year by sending one of their employees to Canada for Rebif. Million dollars is a lot of money when you don’t waste it.

  13. http://www.dailymail.co.uk/health/article-1080864/Three-NHS-trusts-sued-cancer-sufferers-pay-life-saving-drugs.html
    “They raised £80,000, but Adam, who lived in Twickenham, took the drug for two months before he died in December last year.”
    So, is it good financial stewardship of public (or any other) money to pay 160k to extend one person’s life 2 months?
    And here in the U.S. there seems to be a similar discussion.
    Nate, when your insureds reach their max, who pays from then on?

  14. In our current market further insurer consolidation would be bad for everyone. When you only have 1-3 insurers in a market instead of gaining strength you lose it. When you have a number of carriers competing they will actually put more pressure on providers becuase they try to get a leg up on the others. If the carrier isn’t fighting for its life it has no motivation to be aggressive. If your top dog why get in a bruising fight with hospitals, even if you win your not going to get more business or revenue.
    Size of the insurer has no relation to their ability to negiotate with providers once they hit a decent size. If your hospital has a monopoly in an area who cares how big the insurer is they can’t leave you anyways. Only thing they could do would be to open their own hospital and most states wouldn’t allow that.

  15. How good is it to hire 14,000 more IRS agents?
    Capable of spilling your medical records into the public domain?
    Government, incompetence is thy name.
    I can see how insurer consolidation can counteract hospital and physician group consolidation, but is it really good for consumers, or is it just two wrongs making a right?

  16. “insurer consolidation (good — take a look at comparative costs in Honolulu and Miami to see the implications of fewer insurers)”
    I can see how insurer consolidation can counteract hospital and physician group consolidation, but is it really good for consumers, or is it just two wrongs making a right?

  17. “EVIDENCE?”
    MESS-iah claimed “global warming” was proven science.
    OOPS! LYING e-mails found! OOPS!
    When you have NON-SCIENTISTS WITHOUT KNOWLEDGE of STATISTICS BLATHERING about “evidence” — start praying to God. You are in trouble.

  18. Still do not understand how a person who only makes 700 a month and has 2 children can afford health insurance. When there are no jobs in their area to find

  19. “Also, there need to be more effective provisions to discourage insurer cherry picking among small groups.”
    Roger in what states can they Cherry pick? Every state I work in if a group applies for coverage and are under 50 lives the carrier muct take them. You can argue 70%, 55% or 10% is to much of a rate up for a sick group but where is the cherry picking?

  20. “Another part of the odd, obsessive focus on me (I’m just not that important) may be misogyny.”
    Never would have expected to see this coming from a liberal. It has nothing to do with your liberal bias, making things up, or attacks on conservatives it must be because you’re a women. What does my misogyny make Peter and Matt, both of them have got my attention far worse then you. When you can’t answer for your lies and misinformation then ignore him he’s a misogynist, see how long that keeps working for you.
    “ignorant personal attacks.”
    it all depends on how confident the man is
    not so much about his intelligence, but about other things.
    “I blog because I enjoy providing information”
    Lies and propaganda and illustrated by the three corrections so far today.

  21. Maggie —
    Blaming insurers for trying to maximize their profits is like blaming hyenas for eating meat.
    I’m more inclined to blame the government regulators who — for the past fifty years — have allowed for-profit insurers to cherry pick and selectively rate groups and individuals. (We had a pretty good health insurance system dominated by non-profit community rating Blues Plans, until the for-profits moved in.)
    I’m also inclined to blame the hospitals and physician groups who use their reputations to dictate their prices to insurers. (Hmmm, maybe some of these fall in the hyena category, too.)
    In any case, we’re stuck with our present insurance structure, so the questions are (1) What will be the impact of reform on insurers? (2) What changes are needed to reform to make it more effective?
    The original THCB piece addressed the first question. The present reform legislation is likely to result in higher premiums in the small group and individual markets (bad); insurer consolidation (good — take a look at comparative costs in Honolulu and Miami to see the implications of fewer insurers); Medicare Advantage cost reduction (good, except for insurers who will lose part of their current 6.6 percent MA profit, and the CBO who got conned into counting this as a reform saving rather than a lengthening of the time until the Medicare trust funds run out of money).
    On the second question (making reform more effective), it’s clear that the individual mandate penalty provision will have to changed. Also, there need to be more effective provisions to discourage insurer cherry picking among small groups. Finally, there need to be disincentives for overutilization — which may mean giving insurers more legal power to limit their networks.

  22. “At the same time, no one pulls the plug on them or tells them, “sorry, no more treament.” Palliative care teams give them choices.”
    Outright lie number three
    “The audit also found that in only 72 percent of cases was the pathway – that is, the withdrawal of life-supporting treatment – explained to carers and relatives. In only 68 percent of cases did relatives express an understanding of what was about to be done.”
    Contrary to your claim a study showed they did in fact pull the plug 28% of the time without telling them. In 32% of the cases family didn’t know what they were doing. My facts come from a study where do yours come from?

  23. “Their citizens understand that if medical evidence says that a test or treatment is not effective, they won’t get it.”
    More outright lies from Maggie, this one took all of three seconds on google to disprove, isn’t that what you told readers to do Maggie, look online and see who is telling the truth?
    A nurse with breast cancer prepares to sue the NHS for refusing to prescribe her a life-saving drug.
    Cancer sufferers forced to buy their own drugs are planning to sue the NHS for compensation
    hundreds of these. Just another clear example of outright lies from you. You don’t even pretend to be honest anymore, you just make up what ever you need to support your argument.

  24. “Barry– Do you understand that insuers refuse to cover newborns who are born sick because they have a “pre-existing condition?”
    Maggie how can you be sol clueless? Your past just getting your facts wrong to just outright making things up. Every single group health plan sold in America will cover a new born from the moment of conception as long as the parents add them within 30 days after birth. Most polices don’t even require that if you already have dependent coverage. And the reason you are required to fill out a form us IRS requires employees to approve money being taken from their paychecks. An employer can’t just add a dependent to your policy and charge you for it. Your complete dishonesty is disgusting.

  25. The truth hurts, doesn’t Wendell? Yesterday, three more states joined the 14 others taking this to SCOTUS — duh. See you in court.
    And playing the sexism card. When the reality of accounting and finance undermines the theory of Socialist Utopia. Just like on NPR. Lame and obvious.
    Thanks to the most-inexperienced president in U.S. history, medical research has slowed for the last year. (And the U.S. job market, which is another story.)
    Now — what is Europe and Asia going to do for medical research? Given they have been free-loading off USA medical research for decades? Given the USA has the majority of Nobels in medicine? Who can they steal from?
    More than 40% of USA medical costs are due to SMOKING, dope, booze, over-eating and “extreme living.”
    That would pay for 10 (ten) ‘reforms.’ Self-inflicted problems.
    All those “victims of capitalism” going to stop smoking, dope, booze, gorging, and unsafe sex? Sure — and Obama is qualified to be president.
    And how does the accidental president lead on the smoking issue?
    By smoking. Of course.
    That is what is wrong with the USA — no leadership.
    Keep playing the victims of sexism and racism. It might actually work in today’s mentally-limp USA.
    Until the USA goes bankrupt, like L.A. and the state of California.

  26. Barry ,Margait,, Wendell & Everyone–
    Barry- For-profit insurers have added very little value to our health care system (compared to the cost they have added) and, as Margait says, they have done many things for which they deserve to be hated.
    In some ways the worst thing they did was to fail to do their job and serve as honest middle-men, trying to keep costs down while ensuring that all medically needed care is covered. Instead they got into bed with drug-makers and made deals: “we’ll cover your over-priced and perhaps dangerous new block-buster drug as long as you give as a dealon these other drugs so that we can afford to way over-pay for the block-buster and take market share from a competitor by offering the block-buster.”
    They acceded to the demands for over-payment by brand-name hospitals and physicians–becaue they wanted larger market share.
    For-profit insurers destroyed managed care. Manage care was supposed to mean that insurers would compete on quality-not price. That was Ellwood’s vision. And many non-profit HMOS were trying to do just that–until for-profits took over the business. At about the same time, Wall Street became increasingly short-sighted: investors wanted earnings growth NOW–quarter after quarter. CEOs who tried to plan long term were punished.
    In the 1990s, for-profit insurerers began refusing to cover care if it was expensive–whether or not it was evidence-based or needed. The backlash was inevitable.
    If for-profits had not abdicated their responsibilites–if they had tried to act as honest brokers– they could have afforded to cover children with pre-existing conditions.
    Barry– Do you understand that insuers refuse to cover newborns who are born sick because they have a “pre-existing condition?” (They are not “insured” until after they are born.)
    Compared to that type of immorality, what the administration has done is small potatoes: they let the American public continue to believe what it wants to believe because,in fact, there was no way to get through to the majority of Americans with facts or ratoinal argument.
    We refuse to properly fund public education. We accept classes of 28 children, underpay teachers and expect that we will be able to attract talented, well-educated teachers willing to work in buildings infested with mice, cock-roaches and some rats where the windows don’t open (haven’t opened for years) and there is no air-conditioner in the room.
    And then we wonder why so many Americans are incapable of responding to facts and rational argument.
    Compare public education k-12 in the U.S. to public education in other developed countries. (Canada, France, Germany . . . )
    This is not about the ends justifying the means or win at any cost, or “we know best.” It is simply about allowing the public to think that “it knows best”– because there was no way to persaude Americans that the problem lies with their health care providers who are over-treating them and with hospitals that are running up costs by ignoring patient safety.
    Over a period of years, I hope that reformers will get through to the public . But we don’t have years: we have to address health care inflation now, or watch it wreck the economy. I think you agree about this, Barry.
    Exactly how do you think the administration could have built public support for cutting back on health care spending–by telling the public that their hospitals and doctors are putting them at risk by overtreating them?
    My response to everyone who questions whether we can afford covering all Americans without caps on annual or lifetime payouts.
    Countries in Europe cover everyone without caps on annual or lifetime payouts. And many of them don’t have the wealth that we have.
    How do they do it? They refuse to over-pay for services and products. Their hospitals do not spend hundreds of millions on “amentiites.’ Their hospital CEOs are not paid outrageous salaries. Their hospitals do not try to look like luxury resorts.
    Their citizens understand that if medical evidence says that a test or treatment is not effective, they won’t get it. Their citizens don’t expect a private room when they go to the hospital, unless it is medically necessary. Their citizens understand that if they want an organ transplant they may have to go to a large hospital that specializes in organ transplants and is located some distance from home to get it. They don’t expect an organ transplant to be available within a 30- mile radius of their home. Their citizens understand that, at some point, we all die–and that many diseases are not curable. Many are not terrified of dying (as so many Ameircans are.) When their time comes, they accept death.
    At the same time, no one pulls the plug on them or tells them, “sorry, no more treament.” Palliative care teams give them choices. Their doctors and nurses believe that all patients deserve death with dignity–which means having a say in how end-of-life treatment is handled–and as little pain as possible. They do not worry about dying patients becoming “addicted” to a drug.
    Their specialists don’t expect to make $400,000 a year–or more. Their doctors understand that it is in the patient’s interest to follow evidence-based guidelines most of the time.
    They do not see medicine as a for-profit enterprise designed to enrich GE and its shareholders (more diagnosic tests and equipment), Pharma and device-makers (these days often one and the same), for-profit hospitals or entrepreneurial docs chasing profits.
    They understand that we don’t want healthcare to be a “growth” industry and that it is simply unacceptable for anyone to hope to make large profits on the suffering of others.
    As a result, these countries are able to provide all medically necessary and effective treatments to all patients–without annual or lifetime caps–while spending far less than we do.
    If they can do it, we can too. Don Berwick, who is about to become head of Medicare, understands this–as do a great many other physicians, health care professionals, public health experts and reform leaders. This is why I have great faith that we can reform the system.
    Wendell & Everyone– I am sorry that a few people on this thread spend so much time obsessing about me. Part of this seems to stem from conservative rage that conservatives have lost power, and that progressives are beginning to take the country in a different direction.
    Wendell– thank you very much for your support. It’s not fun to be the object of these attacks, and always good to be reminded that THCB has many intelligent civilized readers. When a thread turns ugly, I suspect that they are silent because they don’t want to get involved in the fray. There seems so little point . .They are not going to change the minds of attackers.
    Another part of the odd, obsessive focus on me (I’m just not that important) may be misogyny.(I almost never run into women who get so worked up when they disagree with me.
    Intelligent women do get some men riled up. Other men really like intelligent women. In my experience, it all depends on how confident the man is –not so much about his intelligence, but about other things.
    I think it’s fine that Matthew welcomes diverse opinions on the blog –even if that means allowing a certain number of very rude and ignorant personal attacks. (Free speech and all)
    But that doesn’t mean that I have to spend my time going toe to toe with every attacker.
    I don’t blog because I get off on fighting with people. I blog because I enjoy providing information and stimulating thought. I’m a teacher.
    Some people will find my posts and comments useful; some won’t.

  27. The nonsense from Karl above is of course beyond the Pale and all too typical of his ilk. I always wonder where such people come from and why they even bother writing this. A waste of precious electrons on the hard-disk that stores commentary for this weblog.

  28. “You accuse Nate of the very thing that you do”
    Sorry, but Nate repeats the same nonsense over and over and over in this weblog. At that in barely grammatical English and almost exclusively in tirade-ese that is the only writing style that semi-literate right-wingers seem to be capable of.
    Margalit appears to be the only regular commenter here who seems to think that there is hope that Nate will make sense at some point.

    Madam, if you have so much knowledge about money and pharms —
    Why haven’t YOU created a great pharm firm that creates great products and does not screw the public?
    Answer: because, like Elizabeth Warren — you have NEVER actually produced a product, served customers directly, or taken a customer complaint.
    You and Elizabeth Warren think you know everything.
    You just have NOT actually produced products. Like Obama.
    All theory — no action.
    This is going to the U.S. Supreme Court. Years in litigation. Excellent use of public resources (sarcasm). What a mess, built on LIES —
    And on Nov. 2, if the Tax Lovers’ Party (TM) loses 25+ seats in the U.S. House — this farce will get $1.00 of funding.
    And on Nov. 6, 2012, the economically sane of the USA will decide to be PC or avoid bankruptcy.

  30. “So why did the administration villify insurers? It’s not ignorance.”
    Barry, because voters can’t stand to hear the truth and because I think the administration knows what I have been saying, insurance is an impediment to reform not a vehicle to achieve it. And what would reform look like if the administration attacked providers – it would look like price controls, yea, that would have gone well.

  31. Oh no!! Insurers were vilified because they are indeed evil in this context. The ink hasn’t dried on the pre-existing exclusions for children legislation and, hell yes, they will continue to exclude sick kids because they found a loophole. One would wonder why would they look for such loophole. If this is not sheer evil, I have no idea what it is.
    As to net profit margins, UHC has slightly higher margins than Walmart. Is anybody suggesting that Walmart is doing poorly? Net margins are just one, heavily manipulated, aspect of a company’s financial condition.
    Insurers are not absolved of evil just because other “players” in the healthcare “industry” are fleecing the public more efficiently than insurers. There can be more than one villain in any given situation and health care seems to have an unusual abundance of unregulated, unscrupulous robbers in attendance.

  32. First, there are no enforceable fines or taxes in the bill for not purchasing health insurance. The bill prohibits the IRS from imposing any penalty or levy for not paying the tax; it prohibits criminal prosecution; it prohibits any liens or garnishment. Effectively there is not an individual mandate in the bill. You can simply ignore paying the penalty.
    Second, all group health insurance plans must charge a single common premium to all employees regardless of age. This was made clear in HIPAA. A large age rated differential is what makes individual insurance unaffordable for may in their 50’s and 60’s if they are lucky enough to be approved.
    Third, the problem of runaway costs is the third payment system. Consumers do not feel any impetus to ask what services cost or what the alternatives are. The providers never take costs into account since they do not know the cost in most instances and want to perform services that maximizes the revenue. The insurers have no incentives to control cost except cosmetically. The are in a cost plus business. As long as they face the same price structure as their competitors, everything is alright.
    As the bill is currently written, the experience of the Dirigo plan in Maine will likely be the experience of the health reform bill. With no real penalties for not purchasing health insurance, the least healthy will join the pools: other will wait till they need medical services.

  33. Myths and lack of facts about Maggie Mahar…
    “The 85/15 rule will not mean a loss of customer service.”
    Even a public high school teacher of english composition would grade the entire post as an “F” for this ridiculous assertion with no supporting basis. May have been more convincimg just to say “I know you are but what am I? or, Because I say so”.
    “One might say that it was terribly unfair to demonize insurers. But as I point out in the post, for-profit insurers have been doing many things to justify pubic hatred: shunning the sick, cherry-picking, recission, knowingly over-paying hospitlas and drug-makers and passing the cost along in the form of higher premiums without really trying to negotiate–and without “outing” the hospitals and drug makers that over-charge.”
    One might say that it was terribly unfair to demonize Maggie Mahar. But as I point out in the post, for-government tax increasing, hack “journalists”have been doing many things to justify rational distrust from the informed: shunning the facts, cherry-picking unrealistic senarios, recission of facts, knowingly over-praising legislators and no account politicians and passing the tripe along in the form of higher premiums and taxes on the productive without really trying to take any responsibility or accountability–and without “outing”*** the administration and the government that over-taxes.
    ***Exception: she did mention the administration demonized the insurer because in was jusitified to get the job done and everybody hates them already. Sounds like Ms. Mahar is engaged in bigoted corporatism.
    Thanks for listening. LD

  34. “So why did the administration villify insurers? It’s not ignorance. People in the admintration like Peter ORszag and Zeke Emanuel (his advisor on healthcare) completely understand that insurers are not driving health care inflation. This means the president understands this too.
    So why did they demonize the insurers? Because they realized that they Must pass this legislation.”
    So, I guess this means:
    1. The end justifies the means.
    2. Win at any cost
    3. Trust us, we know best.
    In other words, if we can’t win the debate honestly, we’ll win it dishonestly if that’s what it takes. It’s no wonder that politicians’ approval ratings are as low as they are.

  35. Matt and the rest of THCB deserve much respect for the fact they don’t censor decent, they leave it up to their readers to decide who is accurate and who is spinning propoganda.

  36. “So Congress passed what it could pass now. Intelligent legislators realize that as we get closer to 2004, and the numbers become clearer, we will have to re-visit penalties.”
    We should all note how well this logic worked with Social Security and Medicare. Even as Intelligent legislators, assuming you believe in such things, will all say we need to reform SS and Medicare because they are 100 trillion upside down, not a single one has actually done anything to accomplish it. An intelligent electorate wouldn’t stand by and foolishly believe they will do anything about it when they have failed to do so in the past. An intelligent electorate would also notice that these intelligent legislators will all be out of office by the time the bills come due collecting their fat pensions and federal healthcare, exempt and protected from the problems about to befall said intelligent electorate.
    “But the legislation would never have passed if the penalties were realistic.”
    This comment sums up liberal ideology perfectly. A sustainable system would never pass so we knowingly pass an unsustainable system and pretend the future will magically solve the objections. Brilliant what could possibly go wrong with this.
    “This is the way it works in every other developed country in the world. In most of those countries younger people accept the idea”
    Apparently Maggie has never heard the unemployment rates for the young in most countries. I believe 20-25% is the norm, so in fact a large percent of the young are not subsiding the old and sick. Pesky little facts.
    “there is far more respect for age, and far less ageism.”
    Not turning over your wealth to an older person that wants it, they don’t need it as they are far wealthier as an age band already, is now ageism. Not much you can say about that, just know that is how people think and view your freedom. Great argument style as well, brand your enemy ageist, sexist, racist or what ever to distract from your unpopular beliefs.
    “The analysts I talk to”
    But never an insurance company, it’s like talking to a journalist then thinking you know how the public feels about something. Are these the same analysts that have buy ratings on 80% of stocks?
    “And Barry, premiums will not, by and large, rise faster than they are rising now.”
    Ufd***BS***jks. A certain mid level insurance carrier has increased their trend from 15% to 20% solely because of healthcare reform. Another carrier increased their renewal offers 15% if you push back your effective date 1 month from April to May. I know reality has no place in a healthcare reform debate or in making policy but your still full of it. Maybe this passes for journalism but try passing this crap in a blog and your going to get it handed to you. Anthem renewals for 6/1 and after are horrendous, far worst then last year. They blame it on ARRA COBRA and state continuation but that doesn’t cover the full cost, their trend has to be higher then it was.
    Barry if you want the truth premiums will rise considerably higher then they otherwise would have. We can remove the will and tell you they are as we have the renewals to prove it. Don’t expect the press to report this to you but it’s already happening. The requirement to add sick 26 year olds alone is worth a couple percent. What the left doesn’t grasp is healthy 26 year olds don’t enroll in their parent’s plans, they buy much cheaper individual policies. Only unhealthy 26 year olds that can’t get accepted for individual take advantage of it. They call it adverse selection and its going to hand you your ass minus the wallet.
    “Under Berwick, Medicare will be reining in those underlying costs”
    Don’t worry Margalit assures us nothing like LCP will come out of this, it’s not possible because, well it’s just not.
    “The only way that they can survive under the new rules (85/15, Advantage windfall slashed, etc.) is if they pay less for care.”
    Another failure of basic math. The only way they can survive since they pocket 15% at most is to increase how much care they pay for. This is what created rich benefits, 15% of a $0 deductible plan is a lot more then 15% of a $1500 deductible plan. Which do you think they will be pushing? Where do you think Congress will set the maximum deductible?
    “have begun to learn how to deal with population growth by having two or even three people share every job.”
    “It was quite fascinating and very practical.”
    They either make 1/3 the wage or the price is 3 times as much, neither of which is practical. I’ll go next store where one person does one person’s work.
    “I know a great deal about global pharma. Wrote about it many times at Barron’s,”
    Journalist ego. I write a lot about women, wouldn’t claim I know the first thing. Writing about something doesn’t even begin to mean you know anything. Look at how much Ezra Klien writes about healthcare and he doesn’t even know how HSAs handle preventive or Medicare works, and that’s in articles about HSAs and Medicare.
    “Nate & Everyone– I long ago stopped responding to Nate’s comments. Life is just too short; he is too angry, and I have too much to do.”
    I use to post at maggie’s blog, thing is when you correct maggie she doesn’t like it so she deletes the comment. It doesn’t matter how nice you are about it she would delete any correction of her posting. You could nicely say please see this report that documents premiums increased when you say they didn’t, have a lovely day and she would delete it. Maggie stopped responding because Maggie is wrong. Maggie would never respond to the fact carriers already are increaseing rates more then without reform becuase she has nothing to respond with except admitting she is wrong. If she is wrong on that and everything else I point out then her entire narritive is wrong. If her narritive is wrong why listen to her or buy her book? Maggie’s only hope is to ignore the comments, try to dismiss them and hope her readers follow suit. If readers actually research anything I dispute with her then they stop believing her.
    Maggie has never held a job in insurance or healthcare, she only knows what she reads or is told. Have a biased base and you will have bias opinions. When I say insurance premiums are increasing more that is becuase I have the renewal in my hand and am looking at it. How could she possibly respond to this?
    “but much of what he says is factually untrue.”
    Don’t actually compare what we say people just believe her when she tells you and move on. Please do google everything we disagree on and see who is right. Most of it doesn’t even requiring googling. We all know congress hasn’t taken action on SS and Medicare. We all know how bad youth unemployement is in Europe, unless they secertly work for auto companies burning cars to spur new car slaes.
    Set up a scorecard lets see who you can really beleive, Maggie the journalist or Nate that deals with insurers every day.

  37. “I have to agree with you, Barry about the mandates and the not stiff enough penalties.”
    “Barry& Margait: I agree penalties are not stiff enough. We need something like the three-year rule that Barry and many others have talked about.”
    Yes, we don’t have an overly expensive system, we just don’t have high enough penalties for not buying insurance. Don’t you all think that if everyone were forced to purchase insurance at these rates it would do nothing to bring down the cost of healthcare, it would just mean there would be more money in the system for providers to tap and tap they would. I think we should be mandated to buy a new car every 5 years, god knows the auto industry is suffering, and if more people bought more new cars the prices would come down.

  38. Maggie,
    You accuse Nate of the very thing that you do—you are so desperate to try to prove that you are right and this leads to distortions and hyperbole.
    Why don’t you look in the mirror. When you point a finger at someone else you have three coming back at you.

  39. I would also like to point out that strong insurer would benefit from demise of sham insurers who provide false safety net.
    However, that said, the idea of limitless coverage is crazy from actuarial perspective just as pointed out by Nate. It will take tons of money to cover infinite risk. Though I also do recognize the need of many chronically sick for the feeling of safety that they will not be abondoned. If there is any compromise solution, I would say that, beyond a certain point of expenditure the individual becomes ‘state dependent’ and the state decides most cost effective way of treating, including treatment overseas. It’s a very bitter pill, but one can’t have it both ways- limitless rope with nothing to yield.
    Good debate overall. Probably everyone is scratching their head on how to run a insurance business that doesn’t make loss. Nate had a theory about poorly educated consumers and the HSA products. ‘Just throw them in and they will figure it out’. My guess is ‘fine print’ will be first line of attack to be followed up by any serious attempts to figure it out.

  40. C. Williams, Andrew, Nate and EVERYOME
    C. Williams–Yes, Penalties will have to be stiffened.
    See my response to Barry & Margait about ten minutes ago.
    Andrew– A good question.
    First, I have been trying to explain that insurers are not responsible for health care inflation for a couple of years. (Barry Carroll, a long-time readers of HealthBeat who has thanked me for my efforts in this area, can vouch for this.
    Each time, single-payer advocates in particular, would reply, absolutely outraged that I was insisting that insurance companies were not responsible for the high cost of care in the U.s.
    I dont’ think the administration is villifying insurers because they want to put them out of business so that we can have single-payer. They recognize that trying to suddenly switch to single-payer would be impractical. They really wanted the hybrid plan- a public option competing with private sector insurers. In the end, I think we may end up with something like that. Under reform, some for-profit insufers will find that they can’t make money and they will disappear. The best non-profits will be okay. And we may find we need a public option to really bring prices down in the Exchanges.
    So why did the administration villify insurers? It’s not ignorance. People in the admintration like Peter ORszag and Zeke Emanuel (his advisor on healthcare) completely understand that insurers are not driving health care inflation. This means the president understands this too.
    So why did they demonize the insurers? Because they realized that they Must pass this legislation. Health care inflation is out of control, more and more people are losing insurance (or can’t afford to use it) Medicare is heading for a wall– and skyrocketing health care costs are, as Peter Orszag has said “the single greatest threat to the U.S. economy.”
    The public hates insurance companies. The public is not ready to acknowledge that many of us are overtreated or that healthcare providers are over-charging for many tests and treatments that we don’t need. People like their doctors. They like to think that their hospital is the best in the world. (Until they spend 2 or more weeks there as an in-patient.)
    So the administration decided to use that hatred of insurers to fuel support for the bill. (The huge premium increase in California was a gift from the industry))
    One might say that it was terribly unfair to demonize insurers. But as I point out in the post, for-profit insurers have been doing many things to justify pubic hatred: shunning the sick, cherry-picking, recission, knowingly over-paying hospitlas and drug-makers and passing the cost along in the form of higher premiums without really trying to negotiate–and without “outing” the hospitals and drug makers that over-charge.
    For-profit insurers have knowingly continued to pay for drugs that hurt people because they didn’t want to lose market-share. (Meanwhile, Kaiser, Mayo and the VA all took Vioxx out of their formularies a year before Merck was forced to take it off the market.)
    In general, insurers have put profits ahead of patients.
    Ironically, the one thing they didn’t do is what everyone assumes they did– drive health care costs sky-ward. They were just passing along the costs. .
    Nate & Everyone– I long ago stopped responding to Nate’s comments. Life is just too short; he is too angry, and I have too much to do.
    I’m sorry. But I just want to warn everyone that his comments are typically filled with misinformation. Some of what he says is true; some of what he says is simply a conservative interpretation of the facts (and he has every right to interpret facts differently) but much of what he says is factually untrue. He’s desperate to try to prove that he is right and this leads to distortions and hyperbole. Google whatever he’s talking about and you’ll find facts.

  41. Roger, Margait & Barry, Bev M.D. Karl
    Roger– Exactly. Some insurers do already operate under an 85/15 ratio. The stronger, more efficient insuers will survive. Some insurers will continue to offer Advantage without needing excessive over-payment. MedPAC recently wrote a report on Advantage saying that a few well-established Advantage HMOS (not PPOs) are offering good value and don’t need the over-payment. (Under reform, they’ll get a slight margin.)
    And yes, Medicare Advantage does offer some benefits. But A) when Medicare Advantage beneficiares were surveyed and asked how much these benefits were worth to them (in $$$ if they had to pay higher premiums) they were worth about 1/5 (if memory serves) of the amount Medicare was paying for them. And when I say “Medicare” I mean Medicare beneficiaries on regular Medicare. They have been paying higher co-pays and deductibles to fund the Advantage windfall.
    (I wrote a post about this– can’t find it easily.)
    B– Many of the “extras” that Advantage offers are not health benefits–and/or we have no evidence that they improve health. A discount on a gym is nice–but is the older person getting a health benefit? Or is he just sitting in a sauna talking to other older people? (Nice, but other medicare beneficiaries can’t afford to pay for this.)
    I see the fact that insurers can charge older people up to 3 times as much as younger people as a major problem.
    I think this will have to be amended between now and 2014.
    In other developed countries you don’t see that kind of age discrimination in the health care system.
    But the 3:1 ratio is like the absurdly low penalties for those who don’t buy insurance– someone Congress will have to address as 2014 draws closer (See my response to Barry & Margait below)
    Barry& Margait: I agree penalties are not stiff enough. We need something like the three-year rule that Barry and many others have talked about.
    But the legislation would never have passed if the penalties were realistic. Too many people resent the idea of having to pay for insurance unless they are sick. They don’t want to help pay for other people–or pool the risk.
    So Congress passed what it could pass now. Intelligent legislators realize that as we get closer to 2004, and the numbers become clearer, we will have to re-visit penalties. By then everyone will be expecting reform– and will have begun adapting. Once you tell 30 million people that they will have insurance and subsidies, you cannot go back on that. At that point, Congress will have to deal realistically with the penalties. Relatively affluent young people (individual earnings over $43,000) who don’t qualify for subsidies won’t be happy about this, but it will happen because it must.
    Those who decide not to sign up for insurance will have to pay a stiffer fine and, I predict, sign a document saying that they understand that they are not eligible to buy insurance for 3 years. They take the risk that during those 3 years they wind up in an accident or fall sick, are wiped out financially spending out of pocket for their care and wind up paying off their medical debts for years. Bankruptcy laws amended so that if you chose to be a free rider you can’t declare bankruptcy due to medical bills.
    Yes, younger healthier people will have to subsidize older sicker people–otherwise healthcare is unaffordable. This is the way it works in every other developed country in the world. In most of those countries younger people accept the idea– there is far more respect for age, and far less ageism.
    Barry–reform will be a net-negative for insurers. The analysts I talk to are sure of that. The only question is: “how negative” See the piece I posted on healthbeatblog yesterday about insurers. (My advice: buy the insurance; stay away from the stocks. They may look cheap but a fair number of these companies will be going under. The best of the big non-profits should be okay– they know how to make money on Advantage without a windfall. Peugot Sound Cooperative, for instance, never shut down its original private sector Medicare. They know how to control the cost of care, providing better quality care for less.
    And Barry, premiums will not, by and large, rise faster than they are rising now. Probably they will level off Insurers will not be able to hike premiums without justifying the increase to state regulators. State regulators are already cracking down.
    (See my post “Myths & Facts About Reform” posted yesterday on http://www.healthbeatblog.org. It explains that reform is NOT a boon for insurers, and what the effect of reform will be for insurers’ customers.
    As I explain in the post– insurers are not responsible for the high cost of care–they’re just passing on underlying growth in the cost of care– growing volume of products and services used, and higher prices for everything from drugs and devices to hospital procedures.
    Under Berwick, Medicare will be reining in those underlying costs–penalizing hospitals for an excessive number of preventable readmissions, forcing them to disclose infection rates (which will motivate them to get serious about infections, bundling payments in ways that will increase efficiency and collaboration . .
    Also,brand-name hospitals in the private sector that are over-charging insurers will be “outed”–you see that happening in Massachusetts quite now. (See Paul Levy’s post on this blog).
    Finally, Medicare is already beginning to trim payments to some speciaists for some services. The cardiologists are trying to sue, but they are not getting anywhere.
    We’ll see much less diagnostic testing.
    Private insures will follow Medicare’s lead. The only way that they can survive under the new rules (85/15, Advantage windfall slashed, etc.) is if they pay less for care. They will no longer be able to over-pay some hospitals by 15% and pass the cost along in the form of higher premiums.
    The 85/15 rule will not mean a loss of customer service. As for cost controls–much of the money that most for-profit private insurers spend on cost controls is often wasted as they pay for-profit 3rd party consultants to show them how to control costs–without great success. Again, Medicare can lead the way (without charging insurers for sharing what Berwick and IHI have learned about controlling costs.) The best non-profit insurers can also serve as models for cost-control. Intermountain, Geisinger etc. are willing to share their knowledge with Medicare–at no charge.
    Bev MD— People don’t talk about zero pop growth these days because pop growth has slowed in developed countries. Most folks are no longer having 3-5 children.
    So when you talk about restraining population growth, you’re talking about non-white populations, and the idea of telling non-white or non-Western people that they should have fewer or no children strikes many people as racist.
    Meanwhile, some over-populated countries (particularly India) have begun to learn how to deal with population growth by having two or even three people share every job. If you’re in a good hotel in India, two young men come in to make the bed. Two people (usually young women) come to take your luggage when you are leaving. Order a bottle of wine: the waiter takes the order. He passes it on to someone who goes to the wine cellar to get the wine. That person then hands the bottle off to a third person who opens it. That person gives the bottle to the waiter who brings it to your table. When I was in India, I saw this job-sharing over and over. It was quite fascinating and very practical. People in these jobs are not well-paid, but they earn enough to appear healthy, well-fed, neatly dressed–and you see them going to work on their bicycles. . . India does have a growing middle class (by our standards a lower-middle class) of service workers as well as young technocrats . . .
    Karl–First, the lawsuits against state insurance regulators are going nowhere. They already have the right to regulate–just haven’t been doing it very well in the past. Now, they must.
    Secondly I know a great deal about global pharma. Wrote about it many times at Barron’s, have interviewed analysts in London (often better-educated on int’l corporations than the average analyst in NY)wrote about it in Money-Driven Medicine. I know institutional investors who invest in global pharama– and short-sellers who short it. (
    The United States Government (i.e. taxpayers) Subsidize
    Global Pharam by taking all of the risk in doing break-through research Big Pharma takes very, very little risk these days. It only puts $$ into research when NIH or someone else (a small drug company) has demonstrated that there is a viable product to be developed. For-profit large drug-companies have been ripping off tax-payers for years. See books by Dr. Jerry Avorn and Marcia Angell.

  42. Your health care costs are like a game of chance. It is ludicrous to expect to be able to make a bet after you see your hand. This notion of buying “insurance” when you need it will drive premiums up so high everyone will drpo coverage. The government will be the only remaining payor, but the burden of all this socialism will kill the revenue cow by stifling private sector activity.
    Abortion is not pregnancy reform. This is not healthcare reform.

  43. I have to agree with you, Barry about the mandates and the not stiff enough penalties. I like the idea of having people be liable for past premiums.
    But anyway you look at this, it is messy, both legally and operationally. It is probably the Achilles heel of this legislation.
    I wish somebody had the guts to make this a tax. It will remove all age related disparities and all notions of gaming the system.

  44. I don’t know whether health reform will turn out to be a net positive or net negative for insurers. What I find troubling is the lack of balance in the debate during the legislative process.
    Reformers keep extolling the benefits of prohibiting insurers from imposing lifetime or annual benefit caps and pre-existing condition restrictions but there has been little discussion of the fact that premium costs will go up for everyone except the very sick and previously uninsurable. If insurers cannot charge older people more than three times what a younger person pays, younger people who can pass underwriting will pay much more for insurance than they do now. Regarding minimum medical cost ratio rules, as Nate said, it will reduce the incentive to develop cost control strategies ranging from better fraud mitigation analytics to weeding out high cost, low or mediocre quality providers. Even Maggie notes that the profitability of the health insurance sector is quite low by corporate standards and there is a very large non-profit insurance sector as well. It looks like competition is more than adequate on the insurance side.
    I’m also troubled by the opportunities for gaming as we are seeing now in Massachusetts. With a relatively low fine for not buying insurance, a lot of people have been signing up for insurance when they have an expensive procedure coming up like a knee replacement or an IVF treatment and then they drop the insurance after they receive their care and the bills are paid. There should be one or, at most two, open enrollment period per year and people should be required to commit to health insurance for a year at a time. They can cancel if they acquire insurance through an employer or a spouse’s employer or if they lose their job and qualify for a financial hardship exemption but not for any other reason. If it were up to me, people who pay the fine rather than buy insurance but then want insurance later when they get sick should at least be liable for up to three years of premiums that they should have paid when they declined to buy but could have.
    One long term non-financial benefit that insurers will see from reform, I think, is that it will be clear to all that health insurance is expensive because health CARE is expensive and not because they are making huge profits or paying executives big bonuses. A little more honesty and balance in the debate and a lot less vilification of insurers (and drug companies) would be helpful.

  45. “Why do you subsidize the old, who can afford it then still penalize the young?”
    I actually agree with Nate on this one. Unlike future health status, the future age of a person is not an unknown. Additional expenses associated with age should not be funded via insurance.
    My point is that while there is some injustice against young people with the maximum 3:1 age rating ratio (or 1:1 ratio for ERISA plans), it pales in comparison to the injustice of a government system that provides complete health-care security to some segments of society and none whatsoever to the rest.

  46. Wow, now that Nate has moderated his discourse and is teaching us actual facts, we have his original avatar’s replacement – Karl! Welcome!
    As to Exhausted MD, I don’t know how old you are, but when I was younger in the 60’s the big mantra was all about controlling population growth. Somehow that has completely dropped off the radar, I won’t speculate why, and here is the result. If you read any of Jared Diamond’s books, he discusses the effect this will eventually have as societies compete, increasingly violently, for scarce resources. Perhaps to the extinction of us all. Then maybe you won’t be exhausted anymore.

  47. Oh, and Maggie can teach at Harvard Law, too. She never lets reality get in the way, too.
    Like the Harvard Law degree, an Ivy PhD degree in English exempt one from needing the ability to use a calculator accurately. Spending madly is enough, as is ignoring 9/11 and Saddam.
    Congratulations on being ignorant of facts and research methods.
    You can now teach at Harvard Law School, with Elizabeth Warren, MESS-iah, and Harry Reid.

  48. R, thanks for proving you know nothing about global pharms.
    Obviously, you have no idea how much the USA subsidizes global pharm research. Absolutely no idea, whatsoever.
    Congratulations on being ignorant of facts and research methods.
    You can now teach at Harvard Law School, with Elizabeth Warren, MESS-iah, and Harry Reid.

  49. Karl,
    not sure whether you are serious with “R, if you knew anything, you’d know, the USA has been subsidizing global research (50%) for decades.” I don’t want to even start with pharmaceutical companies abroad and their budget, me too drugs etc. because you should know all that. In any case, I do LOVE the number 50% that you put in parentheses. If you want to suggest that this is a real, scientifically measured/calculated number, why not go for, say, 47.7%? That would show even more authority …

  50. Dr. Exhausted,
    I missed you… 🙂
    Didn’t Darwin write volumes about this? And another unfortunate result of modern medicine is the lack of plagues to reduce the burden on the planet periodically. Maybe some cataclysmic wars can substitute, but wars were never as good at wiping out the unfit, unless accompanied by famine. Maybe the forecasted climate changes will do the trick….

  51. “I bet the additional benefit comes mighty close to 12%…”
    12% of what? If the added 12% accounts for extra benefits, where are the plan profits and where are the payments to contracted physicians for doing a good job and managing those pesky HCCs judiciously?

  52. This site has become irrelevant for me, as you folks will debate the merits of this health care deform until the earth splits apart (which it seems to be doing with the increased frequency these last few weeks), but in the end, the real discussion, which no one of guts and honesty wants to touch, is there are just too many humans on this planet, much less this country alone.
    And that is why, simply and purely, the intent of these failed politicians won’t be realized until the masses see and experience those who were meant not to live for decades in fact do, and clamor for a life span not intended. It is just pathetic and unrealistic no one of pure and harsh realism won’t admit it. I do, and can, because I see people almost every day who in other cultures, other societies, wouldn’t be kept alive as it would just drain the resources needed for those who have more options and opportunity.
    And just watch and read those who will attack this comment as cruel, insensitive, and unrealistic. And I just ask the unbiased and objective readers to then ask the defenders of keeping everyone alive what they do to sacrifice and provide for these unfortunate souls. If you dig deep, you will see the hypocrisy and real foolishness to champion for health care for all, when all do not and cannot deserve it.
    Sometimes painful but true things need said and considered. Your politicians have failed you in ways you will not realize until the realities not only affect you, but drain and deplete you and your surroundings. See this as pessimism and cynicism.
    I see it as harsh reality. Good luck with this blog. It will take more than luck to succeed at reality.
    Cheers and good health to those who responsibly pursue it.

  53. Roger Collier writes:
    > “overpayments,” […] do indeed include SOME
    > additional benefits (although typically not 12
    > percent’s worth).
    Really? Don’t Medigap policies run ~$150/month at least? What is the (imputed) PMPM for Medicare excluding Advantage? I bet the additional benefit comes mighty close to 12%…

  54. R, if you knew anything, you’d know, the USA has been subsidizing global research (50%) for decades.
    Why don’t you get Obama to fix that problem? Get Europe and Asia to pay their fair share? Or would that require actual experience and hard work?

    ” .. A half-dozen health insurers yesterday filed a lawsuit against [Massachusetts] seeking to reverse last week’s decision by the [state] insurance commissioner to block double-digit premium increases–a ruling they say could leave them with hundreds of millions in losses this year. . . .
    ” .. The insurers’ complaint alleges that the state Division of Insurance acted illegally in three ways: by imposing a “rate cap” that is arbitrary and capricious; by attempting to peg rates to a measure–the medical consumer price index–that does not predict future costs; and by violating a requirement to enable insurers to charge adequate rates based on their projected costs in covering medical care.”
    Told you so, Matthew.
    Everyone, get a lawyer — thanks to the Tax-Lovers’ Party (TM).

  56. Paola young workers didn’t see the cost shift as employers pay most or all of single coverage. If we should have 1:1 or even 1:3 ratio for health insurance why not auto? Just as a young driver is more likly to have an accident old people are more likly to have health claims. Why do you subsidize the old, who can afford it then still penalize the young? Good think our constituion doesn’t say anything about eqaul protection and not singling people out for excessive taxation based on something they can’t control like age. When it is convienent throw out all underwriting logic then when you feel the need apply it. This is why people have problems with politics like this.
    What corporate welfare rbar? Your not referring to part D tax credit I hope. I’ll wait to here your responce before jumping on that though.
    To your other comment, why should someone who works 10 hours a week because they are lazy pay a lower percent of their income in taxes then someone who works 100 hours per week? Afluent’s taxes should be lowered since they are the only ones paying them.
    Medicare Part D was terrible, last thing we need is more entitlement programs. TARP terrible, war should have been fought better, tons of things were wrong, two that weren’t were tax cuts and what ever welfare your talking about unless it is something besides D.
    Roger anytime you want to discuss the finer points of MC bidding lets talk. While we are on the subject anther fact Maggie forgot to mention is MA delivers medicare benefits at 97% of the cost Medicare does.
    The additional benefits or premium rebates where close to the additional MA payment and the HMOs made their profits on the more efficient delivery of MA and MB benefits as they could keep those 100%. This doesn’t apply to the newer PPO and Indemnity plans.
    I would disagree with the comment about non medical cost below 15%, maybe in some small states but look at your major population centers and none of the major carriers are below 15%. You can find some small C level carriers with no market share or niche products but no one with any size.
    At a certain point being left with 1-2 strong carriers would be far worse then 5-10 slightly less efficient but competitive carrierrs. The phrase to big to fail comes to mind. Would congress let one of only three health insurers in the country fail and 60 million people lose their insurance?

  57. SORRY
    Only if you use ILLEGALS and outsource to Mumbai.
    The tax-lovers are so dense and turgid, they forgot to ensure that only USA citizens will get the work.
    Plus, the plutocrats will try again to give ILLEGALS an easy trip to AMNESTY. Have a good time, trying to make a living.
    ” .. NOW, We must used some of the Stimulus Funds, to Build Smart Infrastructure Services for: Healthcare IT, Broadband, smart Transportation Systems, and Smart Grids ..”

  58. WHY?
    R, why do you tax-lovers believe you have the right to make those earning more than $67,000 should pay 87% of federal income taxes?
    What give you that right?
    Answer: no one. Except Marx and Stalin.
    You convinced me. I’m going to retire early, and let you and Obama pay my bills. You earned that right.
    Congratulations, and get to work. I’m going get some dope from illegals in Cabrini-Green, booze it up, have unsafe sex, and then stick you with the medical bills.
    BIG GOVERNMENT – BIG BUSINESS – BIG UNIONS — love that Socialism!
    ” .. where were you when GWB lowered taxes for the affluent ..”

  59. Like many other industries have already experienced, the health insurance industry could stand to be consolidated such that larger companies with a bigger pool of policy holders are created. Playing within the regulatory requirements, some companies will learn how to make money, but will have to do so by contributing toward greater efficiency in the health care system that includes the use of patient prevention incentives to reduce costs. Companies that restructure to operate in this way will provide greater value for policy holders both by the services provided and the costs.

  60. The 85/15 rules will simply squeeze out:
    1) Customer service
    2) Fiscally responsible reserving
    3) Any actual management of care
    So what you get is Medicare/Medicaid like cost increases,lack of customer service, and virtually no management of costs except at a 15% margin (at least to begin with)with the added benefit of no where to cost shift.
    If you want to see the future, study Maine and the Dirgo debacle. All but 2 carriers left the individual market with their community rating and guaranteed issue. Premiums doubled in about three years. The subsidized Dirgo program got about 10% of the expected takers and more people where uninsured after than before and average individual premiums approach $600 per member. Enjoy. LD
    or with out

  61. I don’t think it’s worth arguing with some of you guys (e.g. Maobama, actuary), but where were you when GWB lowered taxes for the affluent and increased HC spending that included corporate wellfare, and that’s only part of his impressive deficit build up program?

  62. “Also, it is crazy that all these rules apply to those that self-insure.”
    Most companies who self-insure have always provided a 1:1 age rating ratio (and the sky did not fall on their young employees). A maximum 1:3 ratio would not matter to them.
    When I was 26, I did not resent having to subsidize the health care costs of older company employees, nor did I resent having to subsidize the health care costs of seniors on Medicare. The only thing I found unfair was that the system guarantees health-care security for some, and not for others. I never understood why a wealthy 65-year-old is more worthy of the government’s safety net than a 26-year-old who can’t afford his cancer treatment.
    It is not an accident that 26-year-olds support the new law more than any other demographic group.

  63. Maggie has produced a generally excellent survey. A few comments on the piece itself and on Nate’s diatribe:
    1. While Nate clearly doesn’t understand the Medicare Advantage bidding and rate-setting process, he is at least partly right in challenging Maggie’s use of the word “overpayments,” since these do indeed include SOME additional benefits (although typically not 12 percent’s worth). The hit that MA insurers will take under reform will be reduced to the extent that they can eliminate these extra benefits.
    2. Nate is also partly right in noting that the 15 percent limit on non-medical costs COULD undercut some UR efforts, and in turn result in premium increases. However, given that in virtually every market there are insurers with non-medical costs substantially below 15 percent, only the least efficient carriers (especially those dependent on the small group and non-group sectors) will be affected.
    3. An important issue not mentioned by Maggie or Nate is the 3 to 1 limit on premium variations by age. Although some states already impose such a limit, insurers elsewhere will be forced to increase premiums for younger enrollees, potentially pushing those willing to take the penalty option out of the market.
    Overall, the effect of reform on the insurance industry may well prove to be positive: the strong (and efficient) get stronger and the weak get eliminated–not necessarily a bad result.

  64. Maggie, you forgot the arbitrary and capricious federal premium tax that hits insurers in 2014.
    Let’s not forget the ridiculous 3:1 rating restriction for age which WILL raise rates for younger folks (less than 35). Don’t you baby boomers give me that BS about how they will be old someday too — because when you were young you benefited from the proper age rating (unless you lived in NY or NJ).
    Message to the young: here is your Multi-Trillion $ deficit and oh, by the way, here is your 80% rate increase (when you turn 26, assuming you were on your parents coverage until then).
    Q: How do you know you are listening to someone who has no idea how health care (or health insurance) work?
    A: If you here them say this is a “boon” to insurers.
    Also, it is crazy that all these rules apply to those that self-insure.(Nate, any thoughts?)

  65. Thank God for Nate. Keeps Maggie honest. She has a tendency to distort the facts everytime she opens her mouth.

  66. In view of all the action we are seeing today, I sometimes ponder the question of “will we end up with single payer by default”.
    With transparency today we as citizens see everything that has been behind the scenes for years and a lot of this is in corporate structures in healthcare.
    In some states what happens if there is not a “non profit” alternative for consumers to purchase insurance? Are they forced to contribute and pay premiums to companies that are sold and traded on the exchange for profit in order to get healthcare?
    I look at the lawsuits challenging some of the healthcare provisions and their reason, which I don’t agree with, but again my question is the legality of penalizing a citizen for not having insurance if the only choice is to contribute money to a system to where stockholders and dividend interests come first?
    As mergers and acquisitions continue, the pool of “available” carriers will get smaller too. I just ponder the solution here and ask is this where sick people need to send their money to create more profits for the companies who are bought and sold on Wall Street in the wagering and gambling environment that is present today, which is a far cry from what it used to be.

  67. nice to see some people like Yana get it. What will really be an interesting test is if Insurance comapnies are allowed to exisit. Every State has solvancy laws, carriers must have assets equal to a % of their liability. How do you reserve infinity. Long before people actually had million dollar claims there has been lifetime limits. The reason was in order to meet all the finacial requirements you had to first determine how much risk you were assuming. I seem to remember a recent problem when banks and insurance companies were taking on untold risk.

  68. These list would be slightly useful if they weren’t so overtly partisan. Instead of educating the reader your just making one more attempt to indoctrinate them.
    “many will be refugees who have been battered by a health care system that rationed care according to ability to pay.”
    More accurately it rationed by employment. If you worked for a very small company or self employed then it was very hard to get affordable insurance. If you worked for a business with more then a couple employees you were fine. Raising this point might lead some to question why we reformed the system for employment based coverage that was working and ignored the very small group, and those already in government plans, the people actually having problems and the 2 plans that were insolvent.
    “These new rules will make our health care system fairer and more affordable “
    Not true at all. EVERYONE says cost will increase more then if no reform had passed so more affordable is just a lie. Next up fairer, while subjective and leaving lots of room ignores people will not be allowed to wait till they get sick to buy insurance forcing honest people to pay their bills, hardly fairer.
    “Medicare will slash overpayments to Medicare Advantage insurers by $132 billion.”
    Unless you created your own definition of overpayment what you should have said is the government will stop paying for additional benefits not covered by Medicare, i.e. dental, vision, lower premium. It never was an overpayment it was enhanced benefits. Being so partisan it sounds better to eliminate overpayments then cut peoples’ benefits, which is the truth.
    “When the Medicare Advantage bill was passed in 2003, Congress agreed to pay Advantage insurers 12 percent more, per beneficiary, than it would cost Medicare to cover those patients itself. “
    Good thing your not a journalist with dishonest writing like this. Not a single mention that the increased payment is required by law to go to the member in the form of increased benefits or reduced cost. Did you not know or are you hiding the facts? Either way reflects poorly on you.
    “virtually every product and service in our healthcare system costs more.”
    Again this is wrong, A 99213 office visit doesn’t cost more every year. Maybe you missed the small issue of underpaid primary care in this country? Generics get cheaper every year. Old surgery techniques get cheaper, have you compared the price of organ transplants to what they use to be. You can get a knee replacement for a fraction of what it use to cost. Nothing accurate about this statement.
    “according to Morningstar Investment Research, the health insurance industry showed an average profit margin of just 3.4% in 2009,”
    Meaningless and distracting stat. Any good business writer wouldn’t look at this figure, just like they wouldn’t compare Medicare administrative cost to private insurance as a % of expenditures. Easy test for everyone. Would you rather make 10% of 1 million or 3.4% of 10 billion? If a $3000 annual premium goes up 8% that is $240. Postage might go up .01 cents a mailing, paper has stayed flat, salaries are only rising slightly but offset by technology. Profit margin should decrease every year their income increases exponentially higher then expenses. Basic business here.
    “generous subsidies from Medicare Advantage”
    Now that the subsidies are being cut so will the added benefits, senior citizens who have very limited ability to increase their income will now see a significiant increase in cost. What is your plan to pay for this cost or are the seniors on their own to make it up? Funny this part of reality never gets mentioned.
    “The majority of Medicare Advantage plans pocket more than 15% of premiums”
    Interesting choice of words, not at all accurate but pushes your agenda non the less. Have you tried calling Medicare vs calling an Advantage plan? What about all those extra wellness programs, websites, customer service staff, etc etc. This is the same logic that argues medical is better because their per claim cost is lower, ignoring for every couple cents they save they lose a $1. Just read your prior paragraph, if they “pocket” 19% how are their profit margins only 3.4%? That is the important discussion to have, where is that other 15.6% going and it worth paying for. It is entirely possible some should be reduced but you completely ignore the important discussion for the shallow politics of it.
    Item number 2 is why liberals are terrible business people. This is the adverse incentive they just created. If I am an insurance company CEO I could spend $5 on fraud prevention and save $15 in premium. That would count against by 85% margin though forcing me to reduce profits or available funding for elsewhere. On the other hand I can save the $5, allow fraud to cost my customers an extra $15 and pocket 15% of that increase. The liberals just created an incentive for me to allow cost to increase and a huge disincentive to control cost. And people wonder why everything they manage goes broke….
    Item three you have no idea how business works. You actually clearly point out why it is a bad idea then try to save it at the end with a magical solution delivered by Unicorns, if their premium increases they lose market share, won’t all carriers be faced with the same dilemma, wouldn’t it be very easy for them all to let cost rise? The new bill makes it very hard for a new carrier to enter a market, if carriers already have 50-80% market share who do you expect them to lose business to? You might want to also study how exchanges work, funny thing happens when you require all the competitors in a market to sit around a table and work together.
    “all new group health plans as well as new plans in the individual market will have to provide coverage for preventive services at no charge”
    ? Liberals have been telling us for years preventive care will reduce cost how does it now all of a sudden increase cost? FYI most plans already do this.
    “insurers will find that many of those new customers will be coming from low-income households.”
    Actually if you read the current make up of the uninsured you will find 20 million or so healthy poor that never enrolled in current programs because they where healthy and didn’t need it. You will find 12 million or so healthy middle class that can afford coverage but are healthy and didn’t want to buy it. 10 million illegals who supposedly wont be covered, don’t hold your breath. Finally around 5 million sick people that couldn’t afford coverage. 32 million for 5 milion unhealthy plus government subsidies, I’d take that all day.

  69. “…the insurer faces an open-ended bill. Starting in 2014 , insurers will no longer be able to limit how much they pay out annually.”
    This is what makes me shudder. Prices of medical care must be strictly regulated to make any reform that includes the existence of health insurance companies possible. That open-ended bill is about open-ended costs for medical care, the kind that threaten the financial security of every citizen. Former insurance company limits of, for example, $100,000 annually or $2 million lifetime were fine – except that medical care has been allowed to rise without limit. Very sick.

  70. The president has been villifying the insurance companies as the CAUSE of skyrocketing health care costs (if only they didn’t make such obscene profits…). Just curious. In your opinion, how much of that is simply political posturing, how much is a desire to kill private insurors so we can have a single payor, and how much is ignorance? I may have missed it, but I don’t recall you correcting this misconception prior to the vote.

  71. I agree with several of your points. One of the big question marks in the long-term health of the insurance industry is how much will the government enforce the penalty for NOT buying insurance? The penalty as of now is $750 or 2.5% of income, whichever is greater. Monthly premiums will vary from state to state, but safe to say that for a fair number of people, it will be cheaper to pay the penalty. If insurers are “too big to fail,” ultimately either states or Federal government will garnish premiums from wages.