Tag: Insurance

How Will the Senate Bill Impact the Insurance Companies and Their Customers?

How will the Senate bill impact health insurance companies and their customers?

Even better, how will it impact a not-for-profit health plan–one with a reputation for being a “good guy” that continually wins the country’s top awards for member services and with historic profits of less than 1% of premium? And, one that is operating in Massachusetts–a market that has already been through much of this?

I will suggest that, in combination, these are three intriguing questions.

That is why I thought that the Harvard Pilgrim’s CEO’s recent post on their website was important. It is short, direct, and to the point. And, from everything I know, it is bang-on.

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Improving the Harvest: Farming and Health Care

I love Atul Gawande’s writings on health care.

He has a rare talent for describing technical details of health care, insurance and finances in terms that most people can understand. His recent article in the New Yorker discussed the current health reform bills’ approach to curbing costs, using the agricultural industry as a potential model.

One of his basic points is similar to one I have made before. He describes two kinds of problems: “those which are amenable to a technical solution and those which are not. Universal health care coverage belongs to the first category . . . Problems of the second kind [referring to rising health care costs], by contrast, are never solved, exactly; they are managed.”

I would frame it somewhat differently. The two basic kinds of problems are those, which are amenable to a government solution, and those which are best addressed using decentralized market forces.

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Convergence and the Death of the Public Option

Tim-greaneySo maybe the two parties are coming together on health reform after all. Last night we learned that after days of “secret talks” among the “gang of ten” the Democrats have reached agreement to restructure their health care proposal. The changes are significant:

– ditch the already-watered-down public option plan;

– create a new insurance exchange “option” for individuals and small groups consisting of a nonprofit plan as negotiated by the Office of Personnel Management;

– expand Medicare eligibility to cover uninsured individuals aged 55-64.

What does the Democrats’ “public option ultralight” compromise have in common with Republicans’ alternative universe? Well, consider the latter’s proposal to open interstate competition for all health insurers–a move they promise will immediately lower health care costs. Besides being shameless attempts to offer simple solutions to complex problems, the two proposals are guilty of the same fundamental misunderstanding of health insurance. Simply put, they both ignore a critical economic truth of health insurance today: insurers require a provider network of hospitals and doctors or must have market leverage in order to negotiate for lower provider prices and for controls on excessive volume.

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Death by a Thousand Cuts

The Congressional Budget Office (CBO) issued a report today saying that if the Reid bill becomes law, the price of non group policies would be about 10 percent to 13 percent higher in 2016 than it would be under current law. The CBO projects that small group and large group premiums would be about the same in 2016 as they would have been anyway as the benefits of the bill would offset some of its new costs.

But what is likely to happen to health insurance rates in 2010, 2011, 2012, and 2013 before any of the bill’s benefits occur for both the insurance markets and consumers?

I would suggest Democrats not overlook the potential for political fallout in those years.

By delaying the start of most health insurance reform benefits—including insurance subsidies and underwriting reforms—until January 1, 2014 the Reid health care bill creates a real risk of unintended political consequences for the Democrats.

Or, maybe I should have said almost certain consequences that Reid may not have thought of.

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Good Intentions Aren’t Enough with Health Care Reform

Sarah-palinFormer Alaska Governor Sarah Palin’s widely publicized comments on death panels and  rationing this August were among the opening shots of an unprecedented national fight over health care reform. At the time, few sober analysts would have predicted that Palin’s criticisms would gain traction. Yet, they found a receptive audience among conservative opponents of the Obama administration’s health care reform plans, triggering an ugly battle between supporters of reform and right wing opponents.This weekend, Gov. Palin returned to the healthcare debate with another post to her official Facebook page that touches on the talking points you’re likely to hear in the months to come from Republican critics of the Obama administration’s health care reform efforts.  In the spirit of debate we are republishing the post in its entirety. — John Irvine

Now that the Senate Finance Committee has approved its health care bill, it’s a good time to step back and  take a look at the long term consequences should its provisions be enacted into law.

The bill prohibits insurance companies from refusing coverage to people with pre-existing conditions and from charging sick people higher premiums. [1] It attempts to offset the costs this will impose on insurance companies by requiring everyone to purchase coverage, which in theory would expand the pool of paying policy holders.Continue reading…

Silly Season: Monty Python Policy Making

Editor’s Note: Ian Morrison today makes his first contribution to THCB. Ian was President of Institute for the Future where I learned my health care consulting trade in the 1990s. A more amusing boss one couldn’t have hoped to have and he never minded me (or half of health care) shamelessly stealing his jokes–although his Scottish brogue always gave them a zing none of us can quite match. Ian’s now a full time speaker/writer/futurist and he gave THCB his view of the health care debate, interpreted logically through the lens of Monty Python’s Flying Circus–Matthew Holt

Now we are down to the really fun part of healthcare reform, when they actually write the final bill and figure out ways to pay for it.  And to honor the 40th Anniversary of Monty Python’s Flying Circus’s debut, Congress and the Administration have entered the silly season where final policy is turned into law.

I love the American healthcare system, not because it is the best in the world, but it is the funniest. The laughs keep coming.  Here are a couple of my latest favorites.

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What’s Next? Follow the Money


With the passage of the Senate Finance bill the health care effort now moves to a critical stage with the Senate Majority Leader and the House Speaker now clearly in charge. The more important effort will be Reid’s. Pelosi’s final product will be more predictable (very liberal) but Reid’s will have to be more practical. Every inch Reid moves away from the more moderate Baucus bill will cause problems.

The big issue is going to be money—just whose taxes are going to get raised to the tune of $500 billion to pay for it.

The Senate Finance bill has the $211 billion “Cadillac” benefits tax. Dead on arrival. No way the party that put the unions ahead of the Chrysler bondholders is going to cross their traditional allies on this one. The $40 billion tax on medical device makers is also under pressure and likely to at least shrink.Continue reading…

Five Truths About Health Insurance: Public, Private, or Cooperative


In the debate over whether health reform legislation should include a public plan or cooperative, too much has been said about the general objectives of such an approach – expanded choice, level playing field, benchmark for competition, etc. – and too little has been said about the specific objectives of such an approach – affordable premiums, high quality care, accountability.  Here are five specific truths about any insurance plan, private, public, or cooperative.  The reform debate must reconcile itself to these truths.

First, health plans succeed when they attract and retain members.  People join a health insurance plan because it meets their needs for cost, quality, access, and satisfaction.  Is the premium affordable, and are the copayments manageable?  Does the plan have a high-quality network of providers?  Will I have to wait to see a specialist? Will I be subject to a number of complicated rules and requirements?   Ultimately, a public plan or cooperative will succeed or fail based on consumers’ perception of the plan’s value proposition.

Second, to make the premiums affordable, the cost of medical care needs to be affordable.  All health plans must find a way to manage medical spending, and there are only three ways to manage spending:  reduce the amount paid to providers; reduce the volume of services through utilization controls or provider payments that encourage efficiency; or contract only with efficient providers who deliver high-quality, low-cost care.  A public plan or cooperative will need to decide how it manages payment levels, volume, and contracted providers.

Third, any health insurance plan needs to establish a payment strategy for providers.  Most private plans negotiate individual rates for each hospital and physician, with some beginning to experiment with bundles of services and episodes of care.  Medicare and Medicaid set payment levels through legislation and regulation.  A public plan or cooperative faces a critical choice:  reliance on negotiation or base payments on some fraction or multiple of existing Medicare rates.  Under the former strategy, a public plan or cooperative would face significant operational challenges in contracting successfully with adequate numbers of willing providers; under the latter, the public plan or cooperative faces significant resistance from physicians and hospitals, many of whom may decline to participate at payment levels they deem inadequate.

Fourth, health plans struggle to manage the volume of services provided to consumers.  Because total spending equals price multiplied by quantity, managing volume is critical to affordable premiums.  Medicare has never managed volume, instead relying on payment levels alone to control overall cost.  Private plans employ a mix of strategies to manage volume, including explicit controls using nurses to approve or deny requested services, as well as implicit controls, such as paying capitated rates, which require providers to manage to a fixed budget.  A public plan or cooperative will either embrace the private sector’s volume control strategies or limit itself to managing cost using only price levers.

Fifth, insurance plans that attract high-quality, highly efficient hospitals and physicians tend to offer lower premiums than those that contract with all providers.  Many private plans seek to steer patients to the high-quality, lower- cost providers in their networks.  A public plan or cooperative will need either to limit its network to high-quality, efficient providers or open its doors to all comers.  Either choice is challenging:  contracting with some but not all providers implies a degree of selectivity that would create a number of due process issues for a public plan; contracting with everyone makes it more difficult for the public plan to offer affordable premiums.

Expanding access to an additional 50 million Americans requires affordable insurance options, which requires managing medical costs.  These costs are determined by the interaction of the payment for a given service, the number of those services provided, and the quality and efficiency of the providers delivering care.  Private plan proponents, public plan proponents, and those advocating for a cooperative plan approach alike must answer three fundamental questions:

  1. Will the plan set payment levels for providers via negotiation or fiat?
  2. How will the plan influence the volume of services provided?
  3. How does the plan contract with efficient providers?

Answered, these three questions have the potential to clarify the debate and discussion over what kinds of health plans should be offered to Americans; unasked and unanswered, we will continue to talk past one another as the clock ticks.

Jon Glaudemans, Senior Vice President at Avalere Health, is an expert on a wide array of Medicare, Medicaid, and hospital/plan issues. Jon has more than 25 years of senior leadership experience in health insurance, managed care, policy issues management, and public affairs.  In his various professional engagements, Jon has worked closely with boards of directors, hospital chief executive officers, and key corporate and public sector leaders to develop and implement business strategies and public policy reforms designed to improve healthcare delivery and financing at the national, state, and local levels. Jon holds a B.A. in Political Science from M.I.T. and a M.P.A. in Economics from Princeton University.

Workers Ungrateful for Empowerment to Pay More

6a00d8341c909d53ef0115702ff0f9970b-pi American workers sure are ungrateful.A new report by the National Business Group on Health (NBGH) says that 27 percent of insured workers are skipping health care treatments to avoid co-payments, 20 percent of employees are not taking their prescriptions as advised by their doctors, and 17 percent of employees are cutting their pills in half to make them last longer.Yet rather than expressing gratitude for the opportunity to express their consumer-driven preferences, and rather than praising the benefits consultants and conservative think-tank talkers who have given them the chance to have “skin in the game,” 58 percent of those surveyed said they “continue to be surprised” at their out-of-pocket costs. Obviously, they haven’t been attending conferences of HR execs, or they’d know that one man’s “cost shifting” is another man’s “empowerment of my employees.”It turns out that shopping for health care is not like shopping for a refrigerator and that changing co-pays and deductibles has to be undertaken with a great deal of care. Workers, hard-pressed financially by a deep recession, workers are not craftily eliminating unnecessary and non-evidence-based care. Instead, they’re pill splitting or skipping the pills entirely. This is precisely what the landmark RAND Health Insurance Experiment research on copayments and deductibles predicted more than two decades ago, which would be no surprise had the study consistently been quoted honestly by all proponents of the so-called consumer-driven health plans.

Of course, what goes around, comes around. Since 68 percent of employees say that having access to health benefits is a key reason for staying with their employer, it will be that same employer who picks up the tab for the consumer-driven diabetic who has to drive her consumer self to the emergency room because she couldn’t afford her medication. However, the good news is that a majority of workers polled said financial incentives from their employers have motivated them to try to lead a healthier lifestyle.In fact, about half of workers now agree that fat people and smokers ought to pay higher premiums. That’s only fair. And I think guys who have personal trainers and executive physicals should pay less, too, don’t you? Oh, wait. That wasn’t on the questionnaire.Why not just eliminate health insurance altogether and instead give every worker a shiny apple a day? (To keep the doctor away, of course.) If any HR execs, benefits consultants or conservative policy wonks out there would like to adopt this proposal, you can call it One More Fruity Idea for Health Care.

Consumer-Driven Health Care: Promise and Performance

I am always struck by the difference between the salesmanship of health plans offering consumer-driven health products and the reality of the data.

James Robinson and Paul Ginsburg have an article in the January 27th edition of Health Affairs with an objective review of the consumer-driven movement of recent years.

Here is the central point of the article:

The performance of consumer-driven health care has fallen short of both the aspirations of its proponents and the fears of its critics. Growth of the favored organizational forms, including HDHPs and individually purchased insurance, has been anemic. The forms of insurance and sponsorship originally embodied in the consumer-driven vision have mutated into forms far from those originally envisaged. This process is not unique to consumerism, but one well known to managed care, where the original group-/staff-model HMO was diluted into the loosely structured independent practice association (IPA)-model plan and the sponsorship framework of managed competition into the “total replacement” purchasing format of self-insured employers.

They also point out that:

  • Enrollment in HDHP/HSA plans grew from 400,000 in September 2004 to 6.1 million in January 2008–“a large absolute increase but still small in relation to overall enrollment in private insurance.” By comparison, HMOs continue to hold 20 percent of the employer market and POS plans 12 percent.
  • “The consumer-driven health care movement has been obliged to dilute its principles in light of the overuse of inappropriate services and underuse of appropriate services in the real world. HDHPs now incorporate elements of disease management for enrollees with chronic conditions; case management for enrollees with complex or comorbid conditions; and utilization management for patients using particularly costly drugs, devices, or procedures. Most of these medical management programs are obtained from the same diversified insurers that offer HMO and PPO products. Indeed, the potential for integration with claims databases is leading insurers to acquire many formerly independent medical management vendors.”
  • “The blind spot in the consumer-driven analysis of market performance concerns the importance of coordination in insurance, delivery, and sponsorship. The obdurate insistence on á la carte choice and retail purchasing pushed the theorists of consumerism into positing organizational and market dynamics that have not been observed in the real world.”

Consumer-driven principles have clearly impacted the design of mainstream health insurance plans for the better.

But consumer-driven principles have not changed the fundamental dynamics of our health insurance system nor have they turned out to be a silver-bullet solution.

In my mind, the fundamental fault with the logic that they would be was the belief that consumers could do what insurance companies, employer benefit managers, and even providers could not.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at Health Policy and Marketplace Blog, where this post first appeared.


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