THCB

Health Insurers & the Affordable Care Act: Extinction or Reinvention?

Now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act (PPACA), health insurers are scrambling to reinvent themselves for a new era.  In an earlier post, I quoted Aetna CEO Mark Bertolini as saying he wants to create a business model that makes sense under the new rules and regulations.  In a recent speech Bertolini  explained, “We need to move the system from underwriting risk to managing populations.  We want to have a different relationship with the providers, physicians and hospitals we do business with.”

Starting with Aetna, this analysis will examine the ways that insurance companies are trying to reinvent themselves for a reformed health care delivery system that often wonders why we need health insurers at all.

Early this year, Aetna decided to evolve “’from an insurance carrier to a health solutions company.” ”The head of brand and consumer marketing at Aetna stated, “’More and more, the end consumer is who we need to focus on.’” Aetna has developed Care Pass Platform, an agnostic tool that all consumers can use to aggregate and organize their fitness, medical, insurance and nutrition data. Aetna is also partnering with Medicity to provide smartphone apps for providers and iTriage to provide apps for consumers.
Aetna has conducted 57 pilot programs to test ways to decrease per-capita cost and increase the quality of the health care they deliver; the company is participating in 10 accountable care organizations (ACO) and has plans for 17 more ACO experiments.  One successful diabetes pilot in Pennsylvania resulted in acute sick days dropping by 31% with the use of case managers. 

Aetna also spent $1.6 billion in 2011 to buy health care companies, including Medicity, Prodigy Health Group, Genworth Financial’s Medicare supplement business, and PayFlex Holdings.
Aetna’s partnership with Northern Virginia’s Inova Health System to create a health plan where both partners will share costs and profits is perhaps the company’s most innovative experiment.  The partnership will provide incentives to encourage physicians to not over utilize tests and procedures and will also measure and reward quality of care.  Companies will get a rebate if the cost of the care of their employees is lower than expected.
 

A different innovative approach to responding to health care reform is Highmark’s merger with West Penn Allegheny Health System (WPAHS).  When first announced in June 2011, the idea inspired Hoover’s health care industry team to create the following headline:  “Bizarre Pittsburgh proposal:  will Highmark – West Penn merger work?” ()  A year later in June 2012 Moody’s rating service cited dropping patient volumes and continued operating losses at WPAHS in reaching the conclusion that the $475 million infusion of Highmark funds will not be enough to save the struggling health care system; Moody’s still rates $737 million of WPAHS debt as junk bonds.

The Highmark WPAHS merger is complicated by Highmark’s unsuccessful attempt to merge with Independence Blue Cross and failed contract negotiations between Highmark and University of Pittsburg Medical Center (UPMC), the major health system in the Western Pennsylvania market that has its own insurance plan that competes with Highmark.  As if dueling advertising campaigns and lawsuits were not enough excitement, the plot thickened when Highmark fired its CEO Dr. Kenneth Melani, the architect of the merger, after he fought with his Highmark employee girl friend’s husband.  Assault charges were dropped against Melani after he successfully completed an anger management program. 

One wonders if new Highmark CEO William Winkenwereder, Jr., MD will continue to support the merger plans.

The Highmark WPAHS merger is an attempt to create “what health-care thought leader, Clayton Christensen, in The Innovator’s Prescription, describes as an integrated, fixed-fee provider system. As such, Highmark and West Penn Allegheny are undertaking a tremendous change agenda.” ()  Other observers are watching the merger with interest because such vertical mergers have not been extensively studied or investigated.  The Western Pennsylvania region clearly needs to try something new because the status quo is not working: the largest hospitals and health insurers are engaged in a legal battle; WPAHS, the second largest hospital system, is on the brink of failure; and health care costs in Pittsburgh are substantially higher than in similar markets, relative to the quality of care. 

Wellpoint, which covers about one third of the nearly 100 million Americans who receive their insurance from a Blue Cross plan has been investigated by Congress for canceling policies retroactively in order to achieve at least a $128 million profit. Wellpoint has also been criticized for having 39 executives who each make more $1 million a year and for spending $27 million on staff retreats at resorts in 2007 and 2008

Reform advocates point out that such overhead costs contribute to the $400 billion a year in administrative costs that would largely disappear under a single payer system.  Wellpoint’s response to health care reform has been to spend $100 million on technology upgrades and to buy Medicaid provider Amerigroup for $4.46 billion and CareMore for $800 million.  Angela Braly, Wellpoint’s CEO said, “First and foremost there are significant growth opportunities ahead in the Medicaid marketplace resulting from economics, demographics, budgetary issues, as well as healthcare reform. We expect Medicaid spending under managed care programs to increase by nearly $100 billion by the end of 2014.”

At least one critic has wondered about the wisdom of this purchase , based on two future possibilities: 1) if Romney becomes president and the GOP takes control of the Senate, then the Medicaid expansion in the PPACA might be overturned and 2) the Supreme Court ruling left the door open for GOP governors to refuse to participate in the Medicaid expansion.

Braly, of course, is the health insurance executive who stubbornly defended proposed 2010 premium increases in California that President Obama attacked during the debate over the passage of the PPACA. Anthem Blue Cross, a unit of WellPoint, attempted to increase premiums for individual insurance policies in California by an average of 25 percent, with some rates going up as much as 39 percent.

CIGNA has developed a new ad campaign “Go You” that focuses on consumers for the first time. The chief communications officer at CIGNA states, “’It is a shift, it’s an important shift.’”  In the past insurers addressed their advertising campaigns at wholesale business accounts, not individual consumers. To bolster this consumer strategy, CIGNA bought Kronos Optimal Health to obtain their health coaches, health education programs, and lifestyle management systems

CIGNA also spent $3.8 billion in cash to buy HealthSpring and its 340,000 Medicare Advantage participants in 11 states and its 800,000 member Medicare prescription division. The company is also expanding their Medicare Advantage position in Texas and Arkansas.

Humana, like Aetna and CIGNA, is concentrating on the individual health care consumer with television ads showing “a family reunion at a summer home, complete with giggling children, cooing grandparents, bonfires, and swimming at the lake.” 

In addition to the consumer oriented ad campaigns, Humana has a new program that rewards members for losing weight or quitting smoking with points that can be redeemed for hotel reservations, electronics and clothing.

Humana’s Patient Centered Medical Home Partnership with WellStar Health System has seen decreased inpatient and emergency room expenses by 12% and 17%, respectively, and a decrease in emergency room visits by15% 

On the mergers and acquisitions front, Humana has acquired Concentra, for $790 million in cash. Concentra provides occupational medicine, urgent care, physical therapy and wellness services at more than 300 medical centers in 42 states

The insurer has also completed the acquisition of Arcadian Management Services, a Medicare Advantage health maintenance organization

UnitedHealth Group was one of the earliest converts to evolving from a health insurance company to a health care data mining company.  As early as 2007 their subsidiary Ingenix bought The Lewin Group, a respected health policy think tank in Northern Virginia. A Lewin report in 2009 claimed to show that a public option would force 119 million Americans out of their private health plans and into the government sponsored plan. Although the Lewin report was shown to be faulty, the GOP used it to great advantage in excluding the public option from the final PPACA bill.
UnitedHealth Group has also been active in exploring private sector payment and delivery system pilots. Their Patient Centered Medical Home model provides primary care providers a prospective care management fee as well as a performance incentive payment.  Their ACO pilot with Tucson Medical Center includes a spending target based on three years experience by each physician group or hospital and shared savings and bonuses are given to those that meet their goals. United Healthcare is also experimenting with bundled payment programs with oncologists in Georgia, Missouri, Ohio, Tennessee, and Texas.
Whether these branding and advertising campaigns and payment and delivery system pilots will be successful is an open question.  An Edelman global survey about trust found insurers, banks, and financial service companies at the bottom of a ranking of 16 industries.  They found that corporate reputations were determined by high quality products, transparent and honest business practices, and how companies treat their employees.  They also discovered that when a company is distrusted, 57% of people will believe negative information when they hear it once or twice and only 15% of people will believe <a href=”(http://www.edelman.com/trust/2011/)”>positive information. Of all the players in health care, insurers routinely rank last in terms of consumer trust.
“They are among the most disliked industries in the United States.  The nature of the business is that they really <a href=”(http://www.nytimes.com/2012/06/22/us/politics/insurance-companies-are-trying-to-soften-their-image.html?pagewanted=all)

“>are not that eager to O.K. every expense,” said Professor Regina Herzlinger of Harvard Business School.

Another expert, Fred Karutz of Silverlink Communications, thinks that health care insurance companies have a long way to go because they are new to the retail environment. “As people become consumers, they seek out value. In the group space, health plans could never hear the consumer scream, but <a href=”(http://www.nytimes.com/2012/06/22/us/politics/insurance-companies-are-trying-to-soften-their-image.html?pagewanted=all)

“>in the retail space everybody can hear the consumer scream.”

The PPACA and the health care reform movement offer tremendous retail opportunities for health insurance companies.  There may be as many 30 million Americans seeking insurance through the exchanges.  There will be about 15 million Baby Boomers who will eligible to sign up for their preferred plan, Medicare Advantage.  The Medicaid expansion could cover as many as 17 million citizens, despite the reservations of many governors.
Whether health insurance companies can overcome the mistrust that many consumers feel and whether they can truly add value to a reformed system remains to be seen.  They might want to listen to Dr. Elliott S. Fisher, the ACO guru at Dartmouth:

“Their future is going to depend on their ability to demonstrate value to patients and to employers. No one any longer questions the fact that health care is unaffordable and that <a href=”(http://www.nytimes.com/2012/06/22/us/politics/insurance-companies-are-trying-to-soften-their-image.html?pagewanted=all)”>the current way we are doing business isn’t working.”

Kent Bottles, MD, is past-Vice President and Chief Medical Officer of Iowa Health System (a $2 billionhealth care organization with 23 hospitals). He was responsible for the day-to-day operations of a large education and research organization in Michigan prior to his work with in Iowa with IHS. Kent posts frequently at his blog, Kent Bottles Private Views.

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  9. I just wanted to revisit this great post on one point. I have been curious about how excessive transfer pricing disparities by service subsidiaries of a health plan would be reflected in their minimum medical loss ratio figures. I am just not quite sure about the accounting involved. In meeting their MLR threshold regulatory requirements, would be they be able to skirt the issue by clever corporate structuring? For instance, UHG has Optum. Would Optum, as a service subsidiary, be able to have a very large margin on its services which it “sells” to the larger UHG corporate umbrella and not have those high margins incorporated into the MLR calculation? Would they have to account for potentially large margins of external suppliers in the same way for their MLR?

  10. DealBook: Investors in Health Care Seem to Bet on Incumbent nyti.ms/NYQUvf
    Aetna’s decision to buy Coventry Health Care is interpreted as meaning that Mark T. Bertolini thinks President Obama will get re-elected and that the ACA will not be repealed.

  11. Exactly Pat. But get ready! Does everyone remember the attack on HMO’s in the late 90’s The HMO Hell cover story in Newsweek in 1999 and the classic line from the 1997 movie “As Good as It Gets” that I can’t quote since it would be rejected!

    We are spoiled as consumers of traditional health care – want everything, at a low price.

  12. Wrong takeaways completely. Those aren’t “values” articulated by LBJ. That was the literal embodiment of the political corruption, cronyism, and corrupt secret back room dealings that have dragged us to the depths we are drowning in at the moment. Suppressing or fiddling with arm’s length budget projections (whether Medicare or PPACA) even if it might be for something generally thought of as good (like quality healthcare) is completely corrupt. Only in government, or private sector goons with the help of politicians, could someone possibly get away with a chicanery of that magnitude.

  13. Gary O –

    I finally had a chance to read the two JAMA articles you linked to. The article on the formation of ACO’s, to me, reinforces the importance of the culture of the organization providing care and the critical need for physician buy-in. Since the health plans are neither beloved nor trusted by much of the public, there will probably be a lot of negative sentiment among patients if the insurers visibly take the lead in establishing ACO’s. I think hospitals would be in a better position to lead this effort given their management infrastructure, access to capital and ability to afford the investment in electronic record systems. If they get paid on a risk adjusted capitation basis instead of fee for service, it shouldn’t be that hard for management to move away from its historical mindset of filling beds. The challenge will be to figure out how to pay providers who are not employees and to reward them for helping to deliver high quality cost-effective care.

    To the extent that hospitals experience declines in admissions and inpatient bed days and see reductions in imaging and lab services, they should be able to accommodate more patients within the same physical plant which implies substantial savings in future capital investment that would otherwise be needed for expansion.

    As for culture, even successful organizations like Kaiser Permanente in CA, Geisinger in PA, Mayo in MN and Inter-Mountain in UT find it very difficult to fully replicate their care models outside of their home areas.

    One approach I would like to see the U.S. copy from Taiwan is to give every patient a smart card that would keep track of his or her utilization of services including their cumulative cost and how much of that cost was paid by the insurance plan and how much was paid out-of-pocket by the member. Monthly statements and annual summaries could be provided that break down costs into logical groupings like hospital inpatient and outpatient care, physician services, prescription drugs and other non-hospital based services.

    These annual summaries are routinely provided by credit card companies. There is no reason why health insurers couldn’t do the same thing. For the highest utilizers, if the information were also made available to the PCP in charge of coordinating care, they would be in a better position to identify where savings might be achieved and where NP’s and other case managers need to focus their efforts.

  14. Let me add two things.

    First, the problems you allude to for small business are all too true. There is a great deal written about the impact of modern mega-businesses on the prosperity and quality of life of their employees, but very little about the impact on the ability of small businesses to function. In addition to driving many businesses broke by direct competition, they also severely impact the ability of small businesses that provide services and supplies to them to continue to succeed by ruthlessly driving down profits by forcing “take it or leave it” contracts on small companies that they cannot live with. I personally know of several businesses that were driven broke by contracts with large corporate customers that were impossible to live with.

    Also, the program you describe for providing more routine care for your employees is great. It amounts to a form of self-insurance, and would certainly be allowed under the ACA as a way of dealing with insurance requirements, although the law may require some paperwork to make the program official. As to the willingness of people to get “routine physicals,” the difference in response based on education and economic level is well described, but is again different from what I am talking about. What I am addressing is not routine physicals, but obtaining care for more mild stages of illness, obtaining vaccinations and care for children and pregnancies, and monitoring care of existing illnesses. Many employers, including many small ones, find it worthwhile to push hard on these services — providing flu shots at the workplace, signing up for nursing services to monitor people with diabetes and high blood pressure, pushing people to take time to get sore throats and respiratory illnesses checked, and so on, because they find that it pays them back in savings from avoiding sick time and disability for workers as well as having lower health insurance premiums.

  15. I am not talking about “preventative care” in the sense of obesity, smoking, etc. I am talking about immunizations, timely treatment of infections, treatment of high blood pressure, management of diabetes, and so on.

    While you are correct that efforts to deal with obesity have not worked well, and that smoking was dealt with primarily through political, not medical, approaches, you are not correct about the impact of management of known illnesses by inexpensive outpatient means instead of by hospitalization and ICU treatment when they become crises. A two dollar dose of generic antibiotics can cure an early pneumonia and save hundreds of thousands of dollars in care for respiratory failure if the patient chooses to stay away from the doctor to avoid out of pocket expenses. Childhood immunizations and flu shots can save billions of dollars in medical expenses for management of serious problems that could have been avoided completely.

    Personal experience as a worker and employer is actually much less meaningful than serious scientific data, since we often make the mistake of judging that certain experiences are typical. In fact, the people who know the most about this are the national health care programs in other countries and the HMO’s in ours. They have data that shows them that increasing personal expenses for basic care actually costs money in the long run. That is why they are always very careful to make sure that there are no barriers to access for routine care, including pre-natal care, well child care, immunizations, routine checks for sore throats, sore ears, and respiratory infections. It saves money in the long run. In our country many private insurers already provide the same sort of coverage. My insurer sends me reminders to get a flu shot, and has a nurse call me to make sure I am managing my medications correctly.

    National health programs, HMO’s, and insurers are motivated to do these things because they can save billions of dollars by doing them. Driving people away from more routine care by increasing out of pocket costs is penny wise and pound foolish.

    As far as “continuity of care” clauses in insurance, they are common in enlightened states like Maryland and Connecticut and others, but much less common in the very same states that are the opponents of the ACA, where insurance laws are much less progressive. That of course is what advocates of selling health insurance across state lines are aiming at — allowing programs with lower actuarial value to compete in states that now have regulations that protect consumers.

  16. To your 3 points

    1. About preventative care, (my slice of reality is quite different from yours):

    Studies regarding preventative care support conflicting conclusions. We can all choose the study which support our cause.

    We have a tremendous problem with obeisity in this country. Has preventative care reduce this concern? No. So should I, (a premium payer, and tax payer) pay for endless remedies require by treating endless obeisity related problems. Obiesity is a life style choice, Responsibility is an individuals choice!

    As an employer, I share the cost of medical with our employees (50/50). The cost of family health care is now $9.00 per hour and my employees can not afford $4.50 per hour, hence they take the individual coverage and their families seek state assistance.

    We need to remember that greater than 50% of our work force is not highly educated. 25% don’t graduate highschool, The people who particapte in these blogs are educated and are going to take make smart decisions regard their personal health with or with out free preventive care.

    As an employer, I encourage all of our shop employees to get a bi-annual physical, (at no expense to the employee), In brief the management gets the physicals and the shop people don’t. The shop will only go it we specifically pay the to go to the doctor.

    Hence, my slice of reality is quite different from yours. Your slice doesn’t need somebody else to pay for their preventative care and mine benefit from it. So who are you trying to help?

    This program does more for the medical industry than any socio economic group.

    2.About Pre-ex: (changing jobs with breast cancer)

    Insurance laws vary from state to state and maybe your state does not have continuity of care provisions. In most states there is a continuity of care provision amongst commercial carriers. Which says” if you switch insurance companies, and can show no time gap in coverage that the new insurance provider must waive the pre-ex clause”. In some state this provision applies to group changes, and in other state this provision applies to individual participant on commercial plans. This continuity of care provision needs to be adopted nationwide to both commercial and individual policies.

    Hence , the woman who decides upon being diagnose with breast cancer, that it is now time to get health insurance should have a pre-ex clause.

    We agree that insurance needs to be affordable, we agree about pre-ex. We disagree on how to get there.

    3. About this being a backward step for 98% of the country.

    I disagree completely. By removing the insurance company from routine care we have basically returned to a hospitalization concept, coupled with a striped definition of major med. The new definition should exclude all routine service with the exception of condition such as multiple sclerosis, cerebral palsy, etc.

    I have 15 years experience as an insurance broker working with 150 Small Business who are “Blue Collar Employers”. For the past 15 years I have been a business owner who employees blue collar workers.

    I believe that our economy is a trickle up economy, not trickle down and therefore I believe that if we want a healthy economy that we should start looking at what is happening or not happening on the lower level.

    Thank for you comments!

  17. Your list of potential solutions is a little short, since it completely ignores the approach used by everyone else in the developed world — control of costs by scientific measure of effectiveness elimination of ineffective care. That makes their care considerably better than ours and saves at least 30% of costs.

    It also ignores that excluding routine care from insurance coverage results — in study after study — in people skipping routine care, to the detriment of their health and often to the long term detriment of cost control as some people end up in hospital or ICU (not to mention dead or disabled) as a result of that skipping of routine care.

    Your suggestions regarding pre-existing conditions ignore the reality of modern job markets, where the volatility of employment puts many many people in positions where they need to change insurance providers, either due to change of employers or having to enter the individual market. Under your plan, a woman with treated breast cancer would have to spend 3 years uninsured if she (or her husband) had to change jobs through no fault of her own, while other employees would end up permanently trapped without the ability to either seek better jobs at other companies or to leave bad situations.

    These proposals are a good plan for people who have millions of dollars saved and can pay for their own care, but is a substantial step backward for at least 98% of the country.

    I am a little bit mystified by what you mean about physicians returning to “private practice.” I am guessing that you mean not being part of large multi specialty groups and other organizations. This ignores that fact that study after study has shown that those large organizations actually provide markedly improved care at lower cost than more fragmented practices. As a physician, I believe that attempting to push US medical care that direction would be a very great mistake.

  18. While a bit overstated, what you say is fundamentally correct. Private insurers are capable of cost control based on effectiveness and quality of care. When they made a serious and basically successful effort in the 90’s they were assaulted by serious pushback, some of it legislative and political, but most of it in the media and the courts, and a lot of it from competition in their own industry where the boast that “we will let you get that MR” became a selling point. The attack was aided by some mistakes by insurers as well, with some decisions not really justified, but most of the effort was in fact good, the movie “As Good as It Gets” notwithstanding.

    For that reason, since that time private insurers — this obviously excepts the big closed panel HMO’s like Kaiser and others — have depended almost entirely on Medicare to do the heavy lifting on cost control and effectiveness. This post documents that the ACA is beginning to give them added cover, and some are taking advantage of it.

    BTW — foreign insurers, many non-profit but many for profit, are very effective at this in countries like Germany, Switzerland, the Netherlands, and so on. However, they are given very serious cover by governmental or pseudo-governmental agencies and commissions that allow stakeholders, including patients and practitioners, input as well, but where the trumps are all held by the commission and by government agencies assigned to monitor issues of cost and effectiveness.

  19. President Obama would do well to remind the country of these underlying values in contrast with what other political leaders are advocating for.

  20. Absolutely, private insurance could do a MUCH better job of curbing costs, just like they did in the 90s. And remember what happened then? the villagers took up their pitchforks and surrounded the state legislatures, insisting they pass mandates for whatever care they wanted that insurers said did not add value or was not proven.

    The problem is, insurers are not allowed – by doctors, patients and politicians – to use what they know about the useless treatment that bloats the budget. And provider consolidation – another outcome of the 90s – means there’s a lot more leverage on the other side of the table than people realize.

    In rural areas especially, specialist groups have insurers by the (ahem). When do you see headlines about hospitals and specialists hiking their prices in doublel-digits to pay for fancy new toys and digs? You don’t. It’s insurers – the bearers of bad news – in the crosshairs.

  21. Barry –
    Take a look at two recent JAMA articles: E. Emanuel, Why Accountable Care Organizations Are Not 1990s Managed Care Redux (June 6, 2012, http://jama.jamanetwork.com/article.aspx?articleid=1172051 ) and V. Fuchs, If Accountable Care Organizations Are the Answer, Who Should Create Them? (June 6, 2012, http://jama.jamanetwork.com/article.aspx?articleid=1172053). After reading them, you might not be so skeptical.

    Emanuel describes how insurance companies and care providers have already begun to team up “to deploy significant resources on an [sic] outpatient services for chronically ill patients to keep them out of emergency departments, reduce their hospitalization rates, and preempt visits to examine specialists.” Factors giving optimism for success are (1) better knowledge of how to reduce costs with existing models of care, (2) more data, guidelines and quality metrics, and (3) understanding that collaboration and physician control is required.

    Fuchs points out that of the major players – employers, physicians, hospitals and insurance companies – only the insurance companies (by process of elimination) have stepped forward to create and manage organizations with both medical and insurance functions to provide “quality care to large, self-defined populations (through prospective annual enrollment) for a risk-adjusted capitation payment.” Emanuel believes that all the major players have a strong incentive for success, because failure might well trigger reductions in Medicare rates and concomitant pressure on insurance companies for higher reimbursements for non-Medicare patients.

  22. What about reducing the roll of the insurance company, rather than expanding if? What happen to affordability for the individual vs. profitability of the health care industrues

    About Health Care:

    There are only three options available.

    1. Obama-Care: Bigger government and expand health care and health care benefits. This is best described as the diet where you eat more and weigh less.
    2. Do nothing and allow this nightmare call health care to continue.
    3. Reduce the role of insurance companies by excluding routine care from being eligible for insurance reimbursement (in some way the opposite of Obama-care).

    The reason health care providers continue to discriminate against the unhealthy is simply because that if a single company was to take that step alone, then that company will fail. Hence, the insurance industry will tell you that they need a mandate to institute a change of this nature amongst all healthcare providers simultaneously! This change (by itself) would have an extremely minor impact on the cost of health care coverage.

    A pre-ex clause states that where a pre-existing condition exists the insurance company can exclude coverage for a specified period of time (or for a specified medical condition often this period of time can be forever). This is most common with individual policies and uncommon in business policies. A pre-ex clause is necessary. With out a pre-ex clause, everyone would wait for a “cancer like” disaster before securing health care coverage.

    Take over provision: Take over provisions states that if a person has insurance coverage and switches policies that the new insurance carrier will waive any and all pre-existing condition clauses.

    The solution: A mandate requiring all carriers to cover pre-existing conditions subject to the following age schedule:
    1. Minors (children under the age of 18 and/or teen age attending high school), Minors should be excluded for any pre-ex clause of any type
    2. Young adults, (18 to age 21): should be subject to a one year pre-ex clause.
    3. Adults: should be subject a three year pre-ex clause.

    The subject of insurability is a separate subject from affordability. These two different health care concerns need to be view separately because the solutions are completely different.

    Co-mingling these two issues has simply provide a smokescreen rather than transparency.

    With a reduction of the role that insurance companies have in our lives
    physicians will be able to return to private practice, making accessibility to medical care easier. With more physicians returning to private practice and with the elimination of insurance company involvement in out patient services, we will see physicians establishing office visit rates at a price consumers can afford.

    http://www.mikeplan.net

  23. I would just add that pay for performance and shared savings approaches within a fee for service payment model are OK. I’m just not sure how much money they will save. While anything is better than nothing, I don’t view either of those as game changers.

  24. Gary O –

    I’m skeptical that virtual integration will succeed because of doctors’ refusal to change. Kaiser’s success stems from its control of the entire continuum of care including the hospitals, the payer (insurer) is on the same team, and the doctors embrace a culture of teamwork and collegiality. Doctors who are not comfortable working in such an environment either don’t get hired or don’t apply for a job with Kaiser in the first place.

    In the NYC metro area where I live, there are thousands of doctors who practice solo or in small groups. They treasure their independence and autonomy and they don’t like others looking over their shoulder or telling them how to practice. If they become employees of hospital led ACO’s instead of independent contractors with hospital admitting and practice privileges, the hospital would have more power to force care coordination.

    Many of the sickest patients have four or more co-morbidities and may see eight or more different specialists in addition to a PCP. At the least, interoperable electronic records would be critical if all these doctors are to be aware of what the others are doing so duplicate testing and adverse drug interactions can be minimized.

    The vision of more coordinated care referred to by both Bertolini and Halvorson are fine as far as they go. However, if Aetna tried to pay providers based on a global budget, who would they make the payment to and how would it be allocated to individual hospitals and doctors if they are not part of the same organization or have not agreed to payment terms in advance? I don’t know very much about this particular issue. Maybe it’s not as hard as I think it is. I know it’s not hard for Kaiser but I think it will be hard for Aetna to figure this out unless it’s dealing with an established ACO that can negotiate terms on behalf of doctors who agree in advance to practice in a certain way and agree to a specific compensation scheme.

    Finally, I also agree with the potential of the PCP led approach described by Michael Turpin to reduce costs by 400-600 basis points, but there are likely to be a lot of patients who want broader provider choice even if it costs somewhat more. They should have access to that choice but they should know ahead of time precisely how much more it will cost them.

  25. Barry –
    You stated, “I’m personally skeptical about the concept of virtual integration if the doctors operate within practices that have different cultures and approaches to medical practice and decision making.”
    Do you mean you are skeptical that virtual integration will improve outcomes and drive down the cost trend or skeptical that virtual integration will succeed because of doctors’ refusal to change?

    The opening paragraph of this post by Kent Bottles, quotes Aetna CEO Mark Bertolini: “We need to move the system from underwriting risk to managing populations,” he said. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.”

    The article quoted by Bottles had more comments from Bertolini: “Indeed, Bertolini says this new arrangement makes great sense from the perspective of the customer. The lack of coordination inherent in the current system stems largely from the various stakeholders acting rationally in their own self-interest. ‘For the patient it’s a nightmare. Think of a hockey game where everybody has their own puck.’ …A new business model for insurers predicated on partnering with providers coupled with skillful use of technology can turn the focus back on the customer, he said. ‘We can use technology to make it easier for the consumer. Convenience is the new word for quality.’”

    These comments by Bertolini are consistent with those of Halvorson in the video, where he stated that health care delivery change will come from the payers, not the providers. Halvorson went on to opine, “If Medicare and Medicaid both paid for care by the package and not the piece, the entire care system would re-engineer very quickly and would start delivering care by the package.”

    Asked what the exchanges should do, Halvorson responded: “Exchanges should set rules that basically require the participants in the exchange do team care, coordinate care, …that the product models are not based on cost avoidance and deductibles and getting away from paying for care, but are based on delivering the right models of care in the right way; and, I think there needs to be a lot of transparency about the care delivery model.”

    I agree with Michael Turpin’s thoughtful analysis and his similar sentiments regarding the potential role of PCPs in health care reform: “Incentives to keep populations well and to deliver integrated medicine through PCP based systems will result in trend moderating (even with no fundamental personal behavior changes ) in an order of magnitude of 400bps – 600bps against open access, PPO plans. Just shaving 400bps off the combined national spend of $2.2T yields close to $100B a year in hard savings.” According to Halvorson, this is the same cost trend differential experienced by Kaiser Permanente. In any case, Halvorson has always been clear that “virtual integration” is not the same as “vertical integration.” Rather, it is about coordinated care, which is not only better care, but in the long run cheaper.

  26. George Halvorson also noted that Kaiser’s medical cost trend is running in the low single digits vs. high single digits and even low double digits for other competitors. He implied, but didn’t actually say, that this difference is due to the more coordinated care that Kaiser provides. Actually, a significant piece of it, and maybe even most, is due to the cost shifting that other insurers have to absorb, especially from powerful hospital systems. Wellpoint, for example, projected its cost trend at 7% this year plus or minus 50 basis points while United estimated its trend at 6% plus or minus 50 basis points. Wellpoint noted that virtually all of its current inpatient trend is due to higher unit costs (prices). Its outpatient trend is 75% unit cost driven and 25% due to higher utilization of services. The physician trend is also 75% unit costs and 25% utilization. Finally, the drug trend is 90% unit cost driven and only 10% from higher utilization.

    For Kaiser, the provider and the insurer are on the same team so cost shifting is not an issue. This is a very big deal, in my opinion. Even Medicare’s cost trend would probably be higher than it is now if there were no private insurers to shift costs to.

    .

  27. Gary O. –

    Thanks for the link. My two takeaways from Halvorson’s talk are that (1) we need to move away from the fee for service payment model and (2) widespread availability and use of electronic medical records and medical databases would be very helpful with respect to both healthcare cost and care quality.

    It’s interesting that Kaiser hasn’t been more successful in replicating its model outside of CA though it does have operations in a few other states. It failed in Ohio and earlier efforts in the eastern U.S. to contract with doctors and hospitals under the Kaiser brand name were not successful either. I’m personally skeptical about the concept of virtual integration if the doctors operate within practices that have different cultures and approaches to medical practice and decision making. Finally, when Halvorson suggested that a premium 10%-20% below competitors is as good as it needs to be does not necessarily mean they could charge even less if they felt they had to. That would only be the case if its current profit margins were well above industry norms which I don’t believe they are.

    The two biggest impediments to moving away from the fee for service payment model, I think, are (1) it will be a challenge for doctors and hospitals to accurately estimate their costs a year in advance which will make them reluctant to take on the financial risk inherent in capitated and bundled payments and (2) the majority of patients will likely remain resistant to getting all of their care from within a narrow network of providers especially if they need sophisticated treatment like cancer care or an organ transplant. Even Kaiser badly bungled kidney transplants a few years ago.

    The challenge related to electronic records is the cost of development, implementation and training. Kaiser’s experience was bumpy and very expensive before it finally was able to implement a system that works for them. To be of value nationally, all electronic systems will have to be interoperable which will be an additional challenge on top of the high up front costs to get these systems up and running.

  28. Barry –
    You asked why Kaiser Permanente’s cost advantage vs. other insurers isn’t larger and about the difference in premiums with competitors. George Halvorson, KP CEO, answered this question at a May 4, 2012 appearance at a Bay Area Council function, which can be viewed in its entirety at http://www.youtube.com/watch?v=M9dPlkg_LCs. The questions and answers about cost start at about 18:30 into the video clip.

    Excerpts: “We actually have a cost trend lower than the industry – typically by a couple of percent. Our costs… if you look at the small group marketplace where we all have about the same product, we tend to be 10 to 20 percent lower than the other small group products. …We’re running low single-digit cost trends and everybody else is running high single-digit or low double-digit cost trends, AND [his emphasis] we have fewer people with heart attacks, …losing kidneys, [or]…with broken bones.” (As evidence that KP delivers better care at a lower price, he went on to say that Medicare recently rated 459 health plans based on 53 quality criteria and that five of the nine top rated plans in the country went to different KP regional plans.)

    The fact that KP spent five or six billion dollars for its Health Connect system might have had something to do with its inability to lower premiums more; however, when asked whether a 10 to 20 percent premium reduction was “the best we can do,” his response was enigmatic, “That’s as well as we need to do now.” Perhaps he was saying that KP could reduce premiums further (with or without major structural changes or wage concessions), but no incentive exists to do so. I have heard Halvorson say on another occasion that because of the difficulty in geographically expanding the Kaiser fully integrated model, it would probably only expand one adjoining county at a time. In the video clip he again stated that health care delivery reform does not depend on replicating the Kaiser model, that “virtual integration” is possible with electronic connectivity.

  29. As usual, thoughtful work Kent.

    Perhaps the Highmark/West Penn Allegheny Health System merger as it implodes of its own weight, will shift the focus to a better understanding of the strategic ‘secret sauce’ that enables a fully integrated delivery system to emerge from our silo-ed medicine culture.

    As written many times before, and oft tweeted to the world at large (or at least those who listen) on this subject, it’s about physician culture with a mission oriented group practice DNA at it’s core. Nothing less, can succeed.

    We tried this in the 80s (with the 2.0 version extended into the 90s) when Maxicare migrated the network IPA model from Southern California to the nation at large. Grafting various iterations of a risk contracting paradigm onto a loosely tethered fee for service medical communities, was and remains a train wreck in the making.

    It’s unreasonable, perhaps even foolish, to assume a health plan even with local market share, scale and administrative capabilities such as HighMark can immediately assimilate a private medical community, associated hospital culture and operations, via a rollup strategy seasoned with some ‘fairy dust’ on the aggregate enterprise and expect something other than business as usual via a failing financing and delivery paradigm. The Kaiser (Mayo, etc.) IDN model developed over an extended period of time and forged relationship alchemy, not by acquisition in a single accounting year. So much more is required to retool our bloated healthcare bureaucracies. It amazes me how often these strategic gaffs seem to replay over and over again by our so-called healthcare leadership, despite experience which shows otherwise.

    BTW, we’re reporting on the (re)birth of the ACO and integration industry at ACOwatch.com.

  30. Michael –

    Thanks for your helpful and informative response. It sounds like there is a lot of potential to mitigate cost growth in front of us. I think sensible tort reform, especially safe harbor protection from failure to diagnose lawsuits when evidence based guidelines are followed, would be helpful. I like the all payer concept for hospitals as well. My own preference would be to give insurers an anti-trust exemption so they could negotiate with doctors, hospitals and other providers as a group in each region like they do in Germany and Switzerland.

    I have no problem with the Kaiser model though I think broad open access networks should be available for those who want them and can afford them. My question about Kaiser is why isn’t their cost advantage vs. other insurers larger than it is, especially in Northern CA where it is well accepted and has a large market share? I would be curious to know what the difference is in the premium in CA for comparable HMO coverage between Kaiser, PacifiCare (United), Anthem (Wellpoint), and Blue Shield of CA (a non-profit) as well as how much more broad network PPO coverage would cost. Perhaps Kaiser somehow winds up with a sicker than average population but I don’t know.

  31. Michael Turpin —

    “Insurers do a much better job of policing fraud”

    According to the insurance industry group “Coalition Against Insurance Fraud,” 65% of health insurance fraud occurs in the private insurance. If you have actual hard data that contradicts this I would be interested in seeing it, but generally the private insurance industry does not publish fraud data. Medicare is required to publish fraud data and is also required to prosecute fraud when detected, and uses the full resources of the federal government up to and including the FBI to investigate and prosecute it. Consequently, there is a lot better grasp of Medicare fraud than of private insurance fraud, but that does not mean that private insurance is more effective in policing or preventing fraud. Lack of publicity does not mean a problem does not exist, especially since private insurers can and do keep their data private.

    “85% of Medicare is unmanaged and as a result it suffers $ 100B of fraud and over treatment each year.”

    Excuse me? 26% of Medicare enrollees are now enrolled in Medicare Advantage and as such are “managed” entirely by the same private companies that write private insurance. Of the remaining 74%, most programs are in fact “managed” by private companies as well, under contract from Medicare. In the area of the country that I practice in, our Medicare management company is a division of United Health Care, the same private insurance company you used to work for. Again, if you can cite actual data from reputable studies about this I would be interested in seeing it.

    As far as management of over treatment, Medicare has always been much more aggressive than private insurance in eliminating inappropriate care. That is one of the reasons that increases in in costs for Medicare are consistently anywhere from 50% to 80% of the rate of cost increase under private insurance. Again, from personal experience — and again UHS is one of the largest private insurers in my practice, private insurers tended to copy, after some lag time, the restrictions implemented by Medicare. The only thing that private insurers do that Medicare does not is require a lot more paperwork. However, that does not cause any decrease in procedures etc., just much higher overhead costs for providers in billing. For example, the major private insurers in my state once again instituted “pre-approval” for many non-emergency procedures about 6 years ago. However, this merely required phoning a “nurse manager” to get a case approval, certainly a pain in the butt, but not an effective cost containment measure since I have literally never experienced or heard of a single case of rejection of approval. My guess is that there is some hope that doctors, faced by the annoyance of calling in a case, would have second thoughts, but it does not seem to be the case, since there has been no decrease in numbers of procedures in the areas of practice covered by the requirement.

    Let me close by again saying that private insurance is certainly capable of doing a much better job — even better than Medicare — of management for cost control if they were to choose to do so. The fact that they did choose to do so in the 90’s and were successful at it is proof. Unfortunately, bad publicity and competitive pressures led to abandonment of most of those efforts. A return would be welcome, and it may well be that in the environment created by the ACA and other changes they will do so.

  32. Barry, for starters, I am a big fan of the Kaiser model and as such, see nothing wrong with staff model plans compensated based on their abilities to effectively manage the health of their covered populations.

    Most nationalized healthcare systems are PCP based IPAs with managed access and private care opt outs if you can afford it. What’s different about ACOs and managed capitated care than the days of 1990’s “managed care” and a call for a patients bill of rights is we now have a lot more data and can measure quality as a function of cost and efficiency – not just based on lowest unit cost. Also we measure the outcomes over an entire episode of care.

    Incentives to keep populations well and to deliver integrated medicine through PCP based systems will result in trend moderating ( even with no fundamental personal behavior changes ) in an order of magnitude of 400bps – 600bps against open access, PPO plans. Just shaving 400bps off the combined national spend of $2.2T yields close to $100B a year in hard savings.

    And we are just getting started. Introduce healthy workplace legislation to mandate all workplaces to offer biometric testing and create OSHA-like requirements around health engagement, drive all-payer legislation to moderate non ACO hospital unit cost variability, create incentives to practice primary care by underwriting the cost of tuition and liability, legislate claims experience transparency for employer sponsored health plans down to 50 lives and allow for some wellness credits in community rating to reward engagement and you can begin to drive meaningful savings and consumer engagement.

    The days of self referral into specialty care and deciding to go to the ER for an upper respiratory infection because you don’t have a PCP are over. It’s back to the future with scores of ACOs competing for a slice of employer sponsored insurance and competing directly in public exchanges. Some may align with insurers early because they do not know how or where to begin to retain risk or distribute their product. Others like Norton Health in Louisville are already engaging employers to contract to use their hospitals and providers as their exclusive medical home. It;’s a start toward arresting over treatment, fraud and abuse and shifting incentives to keeping people well.

  33. Michael –

    Even if hospital led ACO’s bought the technical services needed to allow them to take on the insurance function directly, I’m not sure I understand what their competitive advantage vs. insurers would be in the individual and small group markets. Wouldn’t the product, by definition, be a narrow network offering? Kaiser, Geisinger and even UPMC are already doing this, but they don’t appear to be growing their market share to any significant extent.

    There are few economies of scale in the hospital business aside from buying supplies and better access to capital and the health insurance business always had low profit margins especially given the size of the so-called non-profit (mostly Blues) market segment. Are we likely to see more hospitals and insurers teaming up within the same corporate entity to look more like Kaiser and, if so, is that a good or a bad thing from a healthcare system cost standpoint?

  34. @Scott Briggs, here are a few of the incentives I can think of off the top of my head. Some are more nuanced and less discussed than others.

    Insurers:

    Traditionally they are happy to make the same administrative percentage off of an ever growing pie. Their only major cost containment pressures are really margin in the micro sense (at least they have that!), particularly for for-profits who will be flogged by shareholders for missing their targets. However, barring pressure from large employer groups, there have been no intrinsic macro-level cost containment priorities from private commercial insurers in general. Managed care was brought about by a combination of forces of which the insurers themselves were only a part.

    Employers:

    In effect, we have a circumstance that is even worse than the problems presented by third party payment-with the employer so actively in the mix it is more like a 4th party payer system! Also, employers undercut the bargaining power of insurers in many cases by wanting the inclusion of certain “must have” facilities in network. Additionally, at least in the past, when the economy starts roaring, employers have reduced their cost containment priorities due to increasingly competitive labor markets where health benefits are part of the that picture (I don’t want no stinking HMO!).

    The tax treatment of healthcare has been solidified by the unlikely bedfellows of big business and big labor (both see preferential treatment of employer-based health insurance as a competitive advantage). Seriously, can you imagine if small businesses could access affordable, quality health insurance how many new small insurgent ventures would be formed with talented workers giving the finger to their old bosses? It will remain to be seen if the yet larger subsidies in the exchanges will be enough to have employers jettison their employees to the exchanges by giving them slightly higher cash wages which I think was always the real plan.

    Providers:

    Unlike other societies where physicians were explicitly considered to provide a public accommodation and that licensure in their elite guild came with the dual responsibility to also serve society at large, American medicine has had a decidedly “entrepreneurial” bent and not frequently in the positive sense. I would argue that while the technological and clinical gains in American healthcare have been enormous and unprecedented; the cost of these longevity and quality of life improvements has been far from proportional. I can’t go into all the details, but it is no small coincidence that we currently pay nearly twice as much for healthcare as the OECD average and that our physicians make nearly twice as much as their counterparts. The constant and unrelenting gaming of reimbursement systems is another issue. We need innovation in healthcare; however, like education and defense, it is not a worthwhile enterprise in and of itself for generating value for a society, so it demands a different type of entrepreneurial bent. Health is one of the essential building blocks that creates the firmament to allow genuine value to be generated in other productive sectors. Unfortunately, in this country we have turned an otherwise good and noble thing into a monster that is blowing budgets and hampering our competitiveness at this point.

    Government:

    This has been a particularly egregious sector. The amount of graft and corruption related to healthcare has just been unbelievable basically since the beginning. HHS is filled with patronage jobs and sloshes around grant money to the favored organizations of their political masters. The reimbursement system has been driven by special interest lobbying (PHARMA and Medicare Part D, case in point). The amount of useless red tape and bureaucratic meddling has been enormous. This whole game was never meant to be sustainable and as a young person myself I am set to get royally screwed. The original Medicare economic projections were suppressed by LBJ and the program was never meant to be financially viable-you were the luckiest person if you were the first in line and it has been a pay it forward scheme ever since. When Medicare switched to PPS from the prior usual and customary charge system due to budget hemorrhaging and then Congress subsequently passed EMTALA in the 80s, it set the stage for the cost inflation inducing distortions between the public and private systems which have not been reconciled since (including PPACA). The government makes, enforces, and interprets the laws which create the economic incentives and while there is plenty of blame to go around the crux of it falls here.

    Patients:

    We, on the whole, live more insane, mentally unbalanced, self-abusive, marginalized, and socially isolated lives than most other advanced societies and we really pay for it in this particular sector.

  35. Dr Bottles has fairly summed up the proverbial fork in the road facing insurers. One of the biggest risks to insurers would be the formation of ACOs who buy technology support services from the health services side of the insurer and in doing so, become risk bearing institutions and begin to contract directly with employers and other aggregators. Insurers may end up like Marx’s proverbial last capitalist, the fool selling the rope to the person who intends to hang them.

    There is an embedded conflict of interest that will arise if insurers drift too much into the heath services side of the business. We already see insurers referring business to wholly owned subsidiaries and often times the pricing of these services within premiums is highly opaque. Cases in point might be pharmacy and behavioral health services where pricing is not unbundled to adequately determine profit margins and/or hidden margins within the scope of a capitation charge. When one side of the company is selling services to another side ( and often the health insurance side is captive to the insurers health services group to buy services ) there is risk of excessive transfer pricing that would not be defensible in the open market. If an employer is retaining an insurer to pay claims and police affordability and 30% of the services being rendered are delivered through the payer’s owned subsidiaries managing RX, behavioral health, medical management, disease management and perhaps in the future, primary care, the conflicts of interest become too great.

    My prediction is the insurers build these health services subsidiaries and remain in the risk bearing and claims paying business as well until someone cries foul. Perhaps then, they IPO the health services group at a deserving higher multiple (10X-12X) and accept the multiple that is likely to follow ta low margin utility ( 4X – 6X ). The insurers will have plenty of runway to reinvent themselves as ACA does not really pose a threat at this point. MLRs are running well below the required minimum 80/85 levels and the dollars that are rumored to be accumulating to be paid for future rebates will be used now to buy down employer renewals, give premium holidays and buy new business by offering one time premium credits for wellness.

    2013 will not be a repeat of 2102 where $ 1.4B in rebates are paid. An underwriter allowing excess premiums to be rebated will most likely have some explaining to do to their superiors. Health services utilization is tracking well below historical consumption levels due to the economy, cost shifting and changes in consumer behavior. The only threat to insurers in the near term will be regulatory food fights in certain states if public exchanges run poor and rate increases are required beyond what politicians feel is optically tolerable. We could see a state exercise their ” prior approval” rate authority to force an insurer into operating with lower margins but my guess is each insurer has their line in the sand at which point, they will withdraw from that market — reducing competition and moving that state closer to a single payer.

    If public exchanges and those insurers that participate are able to keep costs under 10%, inflation and consumption will keep increasing costs and carriers, who continue to get paid a percentage of premium will see real dollars of operating profit continue to rise. It does not matter whether employers sponsor insurance or people are dumped into exchanges as long as their is no public option to compete with private plans.

    The only risk is a single payer. I do not agree with Pat S comment above that that “Medicare is, according to private insurance anti-fraud groups, more effective in control of fraud as well.” It is patently false. Insurers do a much better job of policing fraud” and overtreatmemt. 85% of Medicare is unmanaged and as a result it suffers $ 100B of fraud and over treatment each year. Assuming a $1T spend for Medicare and Medicaid, we can add 2% admin costs and 10% fraud/overtreatment and voila – we suddenly have SG&A costs that are remarkably similar to commercial insurance. Medicare and CMS have a long way to go to demonstrate that they hold the high ground as an effective and efficient payer. Medicare is $ 38T underfunded ( that’s 2.5X our GDP folks ) in part because the cost projections assume continued consumption at current rates. Medicare controls costs by rationing reimbursement to facilities and physicians, Pat. If you are not careful and you keep cutting Medicare reimbursement to providers, Medicare will be the ultimate Diner’s Club card — great benefits and no restaurant willing to accept it.

    Complicated stuff with lots of gray area issues. SCOTUS has told us that they will not legislate personal responsibility. I have yet to see a cogent debate about reform that at some point does not touch upon the need for Americans to better manage their personal health status. The public sector is not going to drive this. The private sector has a better shot but to this point, employers have been passive and uninformed, employees have been unengaged, insurers have been indifferent, intermediaries have been ineffective and I have yet, to meet a provider who feels they are overpaid.

    Healthcare is a right and privilege Like freedom, we should understand it is a bilateral contract — we enjoy it but we must be prepared to do something if called upon to defend it. Yes, insurers need to change but so do we.

  36. “Most of our complaints about the healthcare system in this country are just symptoms of deeper, more nuanced perverse incentives that frequently escape the attention of even the most thoughtful policy leader.”

    I’m curious to know what incentives you are alluding to here.

  37. “it remains to be seen if cost control will have a prayer of being effective particularly for the Medicare/Medicaid train wreck”

    As you undoubtedly know, Medicare has been much more effective in cost control than private insurance in any period of its history except for the managed care era of the mid-90’s, and in particular has been more effective than private insurance in the new millennium. Medicare costs more per enrollee because it covers the elderly and the disabled, who intrinsically require more care. However, its rate of growth in cost per patient is substantially less, and it is almost always the leader in control of costs for specific procedures and treatments.

    Medicare is, according to private insurance anti-fraud groups, more effective in control of fraud as well.

    The main components of the on-rushing crisis in Medicare are the increase in the number of enrollees related to the aging population and the on-going increase in health care costs. I certainly agree that cost control, and its close relation quality and effectiveness improvement, is very important. However, it is extremely important that this come through real cost control and real quality improvement, not through merely shifting costs to enrollees and, inevitably, subjecting many of them to rationing and loss of access due to that increased cost.

    The notion that the ACA is inspiring insurance companies to once again join the fight for cost control and effectiveness rather than deal with costs by passing them on to enrollees is very welcome. An end to political efforts to shift Medicare costs to enrollees would be welcome as well, especially in a country where the median senior income is less than $16,000 a year and the median retirement savings of retirees less than $30,000.

  38. I think a great deal will remain to be seen if health insurers will see the upside of PPACA or if it will become part of their eventual downfall. They will be looking at new customers with fat federal subsidies, but it remains to be seen if cost control will have a prayer of being effective particularly for the Medicare/Medicaid trainwreck. Still, I would argue that there is no good reason to think that single payer is the only viable option left. The self proclaimed health policy intelligensia usually point to Canada and the UK as “the” model systems, whereas I have always thought that the Swiss or German mixed systems would be a better match for the U.S. and much of Obamacare’s insurance market reforms are more along these lines. Most of our complaints about the healthcare system in this country are just symptoms of deeper, more nuanced perverse incentives that frequently escape the attention of even the most thoughtful policy leader. Still, if the public-private divide is not at least somewhat closed through quality-based reimbursement systems, the cost shifting will continue unabated until the private insurers are driven into the ground by the public system. But anyway, let us just remember the stunningly crass level of discourse and graft that got us into this mess to begin with…

    http://www.nytimes.com/2009/09/20/weekinreview/20word.html?pagewanted=all

    In a phone conversation with Senator Edward M. Kennedy, Mr. Johnson said he was furious with his Bureau of the Budget:

    “A health program yesterday runs $300 million, but the fools had to go projecting it down the road five or six years. And when you project it, the first year it runs $900 million. Now I don’t know whether I would approve $900 million second year or not. I might approved 450 or 500. But the first thing, Dick Russell [a Democrat senator from Georgia] comes running in saying, ‘My God, you’ve got a one billion-dollar program for next year on health; therefore I’m against any of it now.’ Do you follow me?”

    At one point, Wilbur Mills, the powerful chairman of the House Ways and Means Committee, expressed concern to Mr. Johnson about the cost of expanding the Medicare proposal. The president told him not to worry.

    “I’ll take care of [the money]. I’ll do that … We had an old judge in Texas one time … we called him Al Caldy … old Al Caldy Roberts, and he said, when they talked to him one time that he might’ve abused the Constitution and he said, ‘what’s the Constitution between friends?’ And I say…, that 400 million’s not going to separate us friends when it’s for health. …

    “Don’t ever argue with me [about health]. I’ll go a hundred million or billion on health or education. I don’t argue about that any more than I argue about Lady Bird [Mrs. Johnson] buying flour. You got to have flour and coffee in your house. Education and health. I’ll spend the goddamn money. I may cut back some tanks. But not on health.”

    -Lyndon B. Johnson, 1965

    And here we are now…

  39. Thank you, Dr. Bottles. Excellent roundup of a confusing and chaotic field of change. These are the nuts and bolts of exactly the kind of large-scale shifts in the fundamental nature of healthcare that I outline in my book Healthcare Beyond Reform.

    For decades I have spoken of health insurers as potentially the key revolutionaries in healthcare change, since the flow of money is the foundation on which everything is built. Most of the time that sentiment has seemed so fanciful as to be nearly laughable. Now when demographics, economics, and the ACA have forced them to the brink, health insurers are finally giving great energy, attention, and capital to exploring those revolutionary possibilities.

  40. Is there any definitive recommendations or directories for families vs individuals to cross examine healthcare plans and coverages from different providers? How can people of different incomes and lifestyles get the medical care they need in the areas they live? Just looking for a direction.

  41. So, some in the health care system don’t know why they need insurers at all?

    Here’s one key reason: as aggregator of the trillions of dollars that pay for their robotic surgery suites, the $93k medication that MIGHT extend life a few months, the multitudes of joint replacements and organ transplants, not to mention the bread-and-butter revenue stream of medical imaging.

    Do you really think health costs would be what they are if people paid for this out of their own pockets? Do you really think medical practice would be the same if every doctor had to discuss costs with every patient about every treatment option?

    I’m thinking no. And doctors can thank insurers to the extent they have had the luxury of NOT considering whether the care they prescribe is actually affordable and delivering value for the money.

  42. The ACA and the accompanying consumerism trend in health care are truly a transformational change. This is as true for health insurance companies as it is for doctors and hospitals. Those who cannot demonstrate with hard data that they add value and deliver value will lose out.

  43. Porter and Teisburg’s book “Redefining Health Care”, although dense, envisions a similar role of patient advocate and quality adviser for the third party payors, rather than the adversarial role now extant. There are multiple possibilities for such a role including perhaps flat fee arrangements, incentives for good health behavior, etc. I have long thought the mindset of typical insurance executives viewing any payout as a loss, does not fit in with the concept of heatlh care. Time to rethink the paradigm.

  44. Re-entry of major private insurers into the area of control of quality of care and health care effectiveness is a welcome development. Following the initial success of the managed care movement of the 80’s and 90’s insurers experienced severe pushback and considerable competitive pressure that led to abandonment of issues of quality, effectiveness, and waste by private insurers. This in turn was a likely major factor in the runaway growth of health care costs in the last decade, as insurance company efforts to control their own costs focused on increased deductibles, co-pays, and other efforts to transfer cost to clients without any attention to effectiveness.

    If the Aetna CEO is right that this change is an effect of the ACA, it justifies the passage of the law all by itself, with the known major impact of the ACA on access to health care becoming a sideshow to potential very positive impact on cost and quality of American health care.

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