Tag: Insurers

What Good are Health Insurers?

Sep 9, 2010• 12

By BILL KRAMER

As the health reform effort moves into the final stages, everyone seems to be taking a whack at health insurers. Some of the insurers’ wounds are self-inflicted, such as WellPoint’s announcement of 39% premium increase for individual policies in California. Some of the attacks are calculated to build public support for health reform, since every good crusade needs a good enemy. Some of the criticism has even suggested that we don’t need private health insurers. Michael Hiltzik asked the question in a recent column “What do we need health insurers for anyway?” James Surowiecki – usually a careful and thoughtful observer of business and economic issues – said the following in a recent article in the New Yorker:

Congress [in its health reform bills] is effectively making private insurers unnecessary, yet continuing to insist that we can’t do without them. The truth is that we could do just fine without them: an insurance system with community rating and universal access has no need of private insurers.

Surowiecki goes on to comment on what the world would look like without private health insurers:

In fact, the U.S. already has such a system: it’s known as Medicare. In most areas, it’s true, private companies do a better job of managing costs and providing services than the government does. But not when it comes to health care: over the past decade, Medicare’s spending has risen more slowly than that of private insurers. A single-payer system also has the advantage of spreading risk across the biggest patient pool possible. So if you want to make health insurance available to everyone, regardless of risk, the most sensible solution would be to expand Medicare to everyone.

Not so fast. I would feel more optimistic that this would work if we had a different political system. One of the limitations of this approach is that Medicare’s spending is ultimately determined through the political process. The U.S. political system – for better or worse — allows the health care industry (or any other well-funded interest group) to use its financial resources and lobbying power to increase the flow of government funds into the health sector. The idea that Medicare has a “hammer” to force providers to accept lower payment rates is largely an illusion. In the current system, Medicare can do this only because there is a safety valve, i.e., a large private insurance segment that pays much higher rates to providers. If Medicare gets larger or replaces private insurance altogether, there will be less opportunity to use the safety valve, so providers will step up their efforts to use political pressure to increase payment rates in Medicare. I simply don’t see a strong countervailing political force that would exert sufficient political pressure to hold down costs.Continue reading…

The Laboratory of Democracy

Apr 9, 2010• 39

By PAUL LEVY

People from other states would be wise to watch the sequence of events happening here in Massachusetts with regard to health insurance rates. As I described below:

Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned downproposed rate increases, the state’s insurers appealed to the courts, and now they can’t write policies.

Now, Rob Weisman at the Boston Globe reports on yesterday’s hearing in Suffolk Superior Court. The insurers argue that the action by the Insurance Commissioner is arbitrary and capricious, the traditional standard used to overturn a decision by a regulatory agency. The Division of Insurance argues, in part, that the insurers have not used up their administrative remedies before the agency, another traditional argument. A ruling is expected on Monday.Continue reading…

Watch Insurance Premiums Soar

Apr 8, 2010• 22

By DONALD JOHNSON

Enactment of ObamaCare will open the floodgates for new federal mandates that insurers cover expensive wellness and alternative care services and send health insurance premiums soaring. While the New England Journal of Medicine says 50% of physicians will leave medicine because of ObamaCare, it’s more likely that the number of practicing physicians will shrink by 10% to 15% over the next five years. This will force Congress to boost payments to physicians to keep them in Medicine and to get them to accept more Medicaid and Medicare benefiaries. So taxes and Medicare premiums will rise even faster. ObamaCare encourages more people and employers to drop health insurance and game the system. Therefore, we’ll see as many uninsured Americans citizens who aren’t covered by various government programs as we see now. But they may be the higher-income folks who are smart enough to game the system.

Meanwhile, the hospitals who think that they will be the biggest winners because there will be fewer uninsured and few patients whose bills won’t be covered by the government will wind up the big losers. State and federal legislators will tax the not-for-profits and cut margins for the investor-owned hospitals to the bone. Long-run, they’ll lose physicians and money. Same for drug companies. Now that politicians control health insurance companies and markets more than ever, they’ll use the insurers and various forms of price and utilization controls to make the pharmas unprofitable.

Democrats who lose their seats in November will become rich lobbyists until Republicans take power and put them out of business.

People Who Are Smart About Money Won’t Buy Health Insurance Until They Get Sick

ObamaCare will give working Americans who are smart about money strong financial incentives to become and stay uninsured until they need catastrophically expensive health care. If they recover and no longer need insurance, they’ll drop it until the next time. The number of people who can afford to buy health insurance today but don’t is about 15 million. In five years, it could be several multiples of that.

Economists are just figuring it out here and here. Even liberal bloggers are getting it.

Don Johnson blogs at The Business Word Inc. Between 1976 and 1986 he was editor of Modern Healthcare magazine. As its top editor, Don helped build Modern Healthcare, a Crain Communications Inc. publication, into the hospital industry’s leading business magazine and one of the top magazines in the country.

It’s Easier to Beat Up the Insurers

Apr 7, 2010• 42

By PAUL LEVY

Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned down proposed rate increases, the state’s insurers appealed to the courts, and now they can’t write policies.

Meanwhile, policy-makers ignore the underlying causes of the problem:

Just a few weeks ago, the Attorney General issued a report, after months of study, that explained that insurance price increases in the state were the result of two factors, the underlying increase in health care costs and a disparity of reimbursement rates that paid some providers substantially more than other providers.

As noted by my colleague Ellen Zane, in remarks consistent with the findings of the AG, “The funneling of dollars disproportionately among hospital and provider groups serves to warp the overall system balance.”

Taking a page from the debate on national health care, local officials seem to have decided that it is easier to beat up on the unpopular insurance companies rather than address the root cause of the problems. Here, though, the insurers are non-profits. If they are forced to charge prices below those that are based on actuarial determinants, there are no shareholders to absorb the losses. The most direct result is a reduction in capital reserves, a key metric the Division of Insurance is statutorily charged to protect.

Myths and Facts About Health Reform

Apr 6, 2010• 79

By MAGGIE MAHAR

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

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

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

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

Getting Over The New Normal

Apr 2, 2010• 17

By MICHAEL TURPIN

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Charles Darwin

In her 1969 Book, On Death and Dying, Dr Elisabeth Kübler-Ross describes the five stages of grief. Over a 27 year career marked by mergers, acquisitions, and perpetual change, I have come to accept these five stages as necessary rites of passage that humans must endure as they navigate the inevitable shoals of change. It seems we all must endure denial, anger, bargaining and depression before we finally break through to acceptance.

While we all intellectually agree that our healthcare system is broken and is in profound need of change, most preferred that all the heavy lifting required to reduce healthcare costs as a percentage of US GDP, occurred on someone else’s watch. As Woody Allen once quipped, “ I don’t mind dying. I just don’t want to be there when it happens.”Continue reading…

What Happens Next in MA?

Mar 9, 2010• 7

By PAUL LEVY

What happens next in Massachusetts with insurance reimbursement rates now that many of the facts and figures have been made public?

Here’s what I see. The dominant parties in the state on whose watch the disparities in the marketplace have taken place — Blue Cross Blue Shield and Partners Healthcare System — face financial and political problems, respectively. The PHS rates that are so much higher than others’ cause a major financial drain for BCBS. They do so in the short run just by the degree of current utilization. The effect is compounded over the long run, though, as PHS has a competitive advantage vis-à-vis other systems in recruiting community-based doctors and thereby brings more and more referrals into its hospitals. That these differentials have now been made public by the state creates a political embarrassment for PHS, which has often asserted that its creation brought about substantial economies of scale through integration of care.

I suspect that these factors will lead to a negotiated agreement between BCBS and PHS, where PHS takes a bit of a haircut in its current reimbursement contracts. Not so much that it dramatically affects the PHS bottom line, but enough so that both parties can say that they have cooperatively acted to slow down the rate of health care spending in the state. Will the new rates be anywhere near the statewide average? No way. Will they do anything to offset the competitive advantage that PHS has had or will continue to have? No.

Antitrust Warfare

Mar 2, 2010• 32

By Daniel Palestrant, MD

Not since the days of monopoly busting and Standard Oil has anti-trust been such a contentious topic in American politics. Today, Teddy Roosevelt has been replaced by Nancy Pelosi and the oil barons have been replaced by……doctors? The healthcare debate is quickly turning into a dog fight about monopolies and price controls, and in doing so, unveiling some of the dark truths about how the money really flows in this country’s largest industry.

Turns out antitrust law has become so contorted and subverted that it now serves the interests of those it was meant to regulate far more than those it was meant to protect. This past week, the FTC announced a consent decree with Roaring Fork IPA, a physician network in Colorado ( click here). Of course, this is less than a week after the Speaker of the House announced that she will pin her party’s hopes of resurrecting healthcare reform on repeal of the 1945 McCarran-Ferguson Act, a little known antitrust exemption that benefits the insurance industry ( click here).

So why has antitrust become all-the-rage-all-of-a-sudden? The Sherman Antitrust laws were originally intended to prevent monopoly behaviors, however, it has become a key tool in keeping physicians as indentured servants in our healthcare system. As Medicare continues to reduce payment rates, more and more providers are choosing to opt-out rather than contract to deliver services at a loss. Most notably, the Mayo Clinic chose to do this a few weeks back ( click here). What is fascinating, however, is that the FTC is claiming that the Roaring Fork’s decision (unlike Mayo’s) constitutes an anti-trust violation so egregious that it is worthy of an investigation and the consent decree. With 65 physicians, Roaring Fork represents well less than 1% of the physicians in Colorado, so why the anti-trust concern?

The answer lies in the cozy relationship between the insurance industry and the FTC. Insurers are determined to make sure that physicians are kept from having any leverage nor allowing market forces to create a balanced supply-demand between physicians and patients. The net goal of both is keeping physician payment artificially low, while maximizing insurance company profits. For physicians, Roaring Fork should be a wake up call to accelerate their efforts to decrease their dependence on third party payers and their adoption of technologies and services that can even the playing field.

Today we are witnessing a Kafka-esque sequence of events. Teddy Roosevelt, the original trust buster, would literally bust out laughing if he could see the incumbent political party pinning their hopes for their highest profile political effort on repeal of an anti-trust exemption, while the government chases after……..doctors, for ostensibly violating this same law. Only in America.

Daniel Palestrant is the CEO of Sermo, the social networking site for physicians. He is a regular contributor to THCB.

Wellpoint: just incompetent?

Feb 20, 2010• 84

By MATTHEW HOLT

I’m viewing the latest rumblings in the US health care debate from the confines of a clear but cold Britain, where the big news is that the country is joining the PIGS in entering economic meltdown—or at least being a lot more broke than it thought it was. (PIGS are Portugal, Greece, Ireland & Spain, not farm animals). And yet it appears that health reform is making if not a comeback then at least vigorous palpitations. The reason for this seems to be the strength that the Anthem Blue Cross/Wellpoint premium rises have imbued into the Administration.

Those of you reading THCB over the years will know that I think the individual insurance market is doomed to fail and should be replaced. It has its apologists; for example Cato’s Michael Cannon here criticizes Paul Krugman who explained last Friday why the individual market goes into a death spiral. Michael claims that Mark Pauly’s research shows that the individual market works. What Pauly’s work (and I despair at having to read it again, so this is from memory) tends to show is that insurers are incompetent at charging sick people to the full extent that they cost them, but do charge them roughly three times what they charge healthy people. Pauly also said in Health Affairs that the individual market works pretty well for 80% of the people in it, but he seems to think that screwing the remaining 20% is OK. Coming from a tenured Ivy league professor who’s probably never had to buy health insurance in his life, that was pretty rich. But apparently Wellpoint’s latest performance shows that it’s not OK for much of the other 80% either—hence their dropping out, leading to Krugman’s death spiral.Continue reading…

A Look Inside: The Massachusetts Health Reform Law

Feb 17, 2010• 12

By DAVID HARLOW

The Massachusetts health reform law Part II, enacted in 2008 – laid the groundwork for cost control and quality improvement, as a follow-on to the initial legislation’s emphasis on achieving near-universal coverage. The legislation authorized several studies — including a report published a few months back on global payment strategies — and set the stage for hearings on health care cost containment to be held before the state Division of Health Care Finance and Policy (DHCFP), which are scheduled to begin March 16, 2010.

In anticipation of these hearings, and as required by the law, the Attorney General’s office released a report on health care cost trends and cost drivers on January 29.

While the names of providers and payors are not included in this report, it provides a fascinating level of detail regarding what we already knew, or at least suspected: some providers are paid as much as twice as much as others for the same services, with no correlation to improved quality or outcomes.

The AG’s summary conclusions in full:

[O]ur preliminary review has revealed serious system-wide failings in the commercial health care marketplace which, if unaddressed, imperil access to affordable, quality health care. In brief, our investigation has shown:

A. Prices paid by health insurance companies to hospitals and physician groups vary significantly within the same geographic area and amongst providers offering similar levels of service.

B. Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility. Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.

C. Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.

D. Variation in total medical expenses on a per member per month basis is not correlated to the methodology used to pay for health care, with total medical expenses sometimes higher for globally paid providers than for providers paid on a fee-for-service basis.

E. Price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.

F. The commercial health care marketplace has been distorted by contracting practices that reinforce and perpetuate disparities in pricing.

This report is well worth reading, and it is well-illustrated with clear charts. While the detail is welcome, many have criticized the AG’s office for leaving out identifying information, and for coming to the party a year after the Boston Globe reported on some of the same issues.

At the end of last week, DHCFP released a series of three reports on health care cost trends as well. The DHCFP reports are summarized here; they really serve to describe the baseline facts on the ground and explore trends form 2006 through 2008. Here’s the summary of key findings:

The Commonwealth’s health care system is a key employer and driver of economic growth for the region. However, personal health spending per capita is higher in Massachusetts relative to the nation and continues to rise.
Some characteristics of the Massachusetts health care marketplace that may be contributing to the high levels of cost growth, include:
- Most of a health insurance premium goes toward spending on health care services as opposed to administrative and other non-medical services. On average, in Massachusetts more than 88% of premiums are spent on health care expenses (compared to less than 84% nationally).
- Average monthly health insurance premiums increased 12% from 2006 to 2008. If employers and individuals had purchased comparable benefits each year, the growth in premiums would have been larger.
- Premium trends, benefit levels, and trends in health care spending vary across different-sized employer groups. Small group premiums were higher and grew faster on average than mid-size and large group premiums, when adjusted for differences in benefits, demographics and location.
Health care spending in the Commonwealth increased 7.5% per year from 2006 through 2008, a growth rate that is higher than the nation. The increased spending can be attributed to several factors:
- Price was an important factor contributing to rising health care spending across all service types.
- One area of particular concern (and opportunity) is the variation in prices, which was typically greater for facility charges than professional charges.
- In addition to price increases, care is being provided in more expensive settings over time—more inpatient care is being provided in academic medical centers and there is a decline in the provision of care at stand-alone outpatient facilities. Much of the growth in outpatient hospital care occurred at academic medical centers located in the metro Boston area.
- High concentration of physicians (especially specialists);
- Greater availability and use of academic medical centers for both inpatient and outpatient hospital based-services, and use of outpatient hospital-based facilities for some services that could be provided in less costly settings;
- Richer health insurance benefits compared to the nation; and
- Use of payment methods that are not designed to incentivize efficiency and coordination of medical care.

Again: no surprise here — Massachusetts health care costs are higher than national averages, and are growing at an unsustainable rate.The challenge before Massachusetts policymakers is clear: They need to put together these puzzle pieces of data, learn from the past, model potential solutions, and plan for the future. Even the national mainstream media acknowledges that, in the face of health reform meltdown, doing nothing is not an option. (Where were they six months ago?)

In the midst of this challenge, Governor Deval Patrick seems to be distracted by health reform’s implications for his political future. Instead of waiting for a reasoned outcome of the deliberative process set in motion two years ago (well, as reasoned as possible, given the heavy-duty political and economic interests at stake here), he has leapt into the fray with what looks like an ill-conceived bit of political grandstanding: a bill that would give the state insurance commissioner the authority to cap health care price increases.

The Boston Globe reports:

Rates hospitals and other health providers charge insurers would be “presumptively disapproved as excessive’’ if they increased faster than the level of medical inflation, and they could be rejected after a public hearing.

Similarly, for health insurance plans sold to employers with 50 or fewer workers, premium increases that exceed one and a half times the level of medical inflation would be considered excessive and could be turned down.

The legislation would also impose a two-year moratorium on lawmakers’ mandating any new health benefits that must be covered by insurance plans, a practice that employers have said drives up their health insurance premiums. Small businesses have been hit with double-digit rate increases in recent years.

This proposal brings us back to the future here in Massachusetts:

Twenty years ago, Patrick’s presumptive GOP challenger in the fall, Charlie Baker (who, thanks to some of his views being out of step with GOP orthodoxy, will likely draw many of the significant number of independent voters in Massachusetts, as well as some Democrats), was largely responsible for the dismantling of the Massachusetts health care rate setting system during his tenure in budget and health policy roles in the Weld administration. (In fact, some of us who have been around long enough still refer to DHCFP as “the agency formerly known as Rate Setting.”) (As a second aside: For those of you tuning in from afar, Baker’s most recent position was CEO of Harvard Pilgrim Health Care, one of the three dominant payors in the Commonwealth.) Is Patrick trying to stake out a position in opposition to Baker’s legacy? What constituency is going to buy into this vision of the future? Other local observers have also questioned the wisdom of this approach, including fellow health policy bloggers Evan Falchuck and Paul Levy. (Taking a cue from Paul’s musings on blogger disclosure in connection with this issue, I’ll just say that as a life-long registered Democrat, I have voted for a Republican maybe just once.)

Deregulation was successful twenty years ago because we were collectively convinced that payors could do a better job of holding providers’ feet to the fire. We later framed this in terms of holding providers accountable, and have employed a variety of tools over time to try and make this private-sector arrangement work: capitation, discounted fee-for-service payments, quality incentives, global payments, etc., etc. Patrick’s proposal is one version of the general acknowledgment that the market approach has essentially failed.

Instead of going back to the future, Governor Patrick ought to let the health reform process play out. The legislature should hold the Governor’s bill pending the DHCFP hearings and the subsequent deliberations that will — we hope — yield a more data-driven and sustainable approach to the problem of health care costs and quality.

And who knows? The national debate may continue to be informed by what comes out of Massachusetts.

David Harlow blogs at the HealthBlawg.