So I was sent an appeal by a grandmother upset that her grand-son was denied surgery by his insurer for what looks to be a pretty unpleasant condition, called Pectus Excavatum.  She has taken the campaign to the web.  I can’t comment on this particular case or the surgery in general, other than to say that if it was my kid, I’d want the surgery done too.  But this is a wave of things to come.

As you may or may not have noticed, in a (mostly failing) attempt to see whether I can make any money back off this blog, I’ve been running Google Adsense down on the left column. A certain commenter, let’s call him Ron, suggested to me that this is an attempt for me to build my own insurance empire. While that may betray Ron’s misunderstanding of how Adsense works (and look here for an amusing version of the same), one of the ads that ended up on THCB was for a very dodgy insurance company that wasn’t so nice.  Take a look and of course caveat emptor.

UPDATE: Meanwhile, Health Affairs today has a Commonwealth Fund study that estimates the number of underinsured at 16 million. By my very casual glance at the Press release it seems that they may only be talking about those with inadequate insurance who actually needed it. My guess is that overall underinsurance (e.g. not having enough to pay the bills in the case of a bad trauma) is much greater.  But then again, it’s the flow of people through un- and under- insurance that’s such a big issue, with more than 80m uninsured for at least 3 months in a 4 year period.

My commenter Ron deserves to have this post promoted from yesterday’s open thread. I oppose HSAs (and for that matter employment-based health insurance) as a policy because they are diametrically opposite to being the overall solution to universal health insurance, although I’m pretty much indifferent to whether we go with a tax-based single payer system or a strictly-regulated, compulsory, community-rated (non-underwritten) individual or group insurance system as the preferred outcome.  However, in real life we’re not getting to any of those politically any time soon, and as a solo operative with some of my own health problems it appears to me that a high deductible plan with an associated HSA is my best option.  So I’ve got one.

Ron explains in this example why that might be a good option for others….of course he doesn’t get to the community-rating/risk pool division issue, but that’s for another post.  Here’s Ron’s example:

A 30 Year Old Nurse Who Is A Single Mother
Pick Any Des Moines Hospital
Annual Income:  $50,000

A single parent mother making $50,000 a year is not rich. Many
employers will pay $400 a month for single coverage but the employee
must pay the additional $400 a month to add on their child, out of
their paycheck. Now the Mother has deductibles and co-pays on both her
and the child. Probably, knowing health insurance like I do, the
employee insurance has switched from co-pays on RX to co-insurance
($10 co-pay for Generics and $25 co-pay on Brand Name PLUS Co-Insurance
of 50% on Brand Name). Remember, some people when they get sick have RX
bills of $1,500 a month, ask Montel Williams. So if the mother or the
child got sick we have no idea what will be the out of pocket annual
expense for just RX. PLUS, If the mother got ovarian cancer and could
not work, a requirement for keeping her insurance, she would be put to
COBRA for insurance termination. Everybody, including people who sell
group insurance, say they can’t comprehend why that makes even the
slightest difference in the world. To me it’s simple, I would prefer a
contract that can’t be singled out for termination because of my
relationship to some employer.

The HSA Individual Option

The Mother pays the total family premium of $78.68 per month. Now
she saves $400 a month coming out of her paycheck that she can save or
spend on her baby. The $400 a month, that the employer is currently
spending on the Mother’s single insurance, is redirected to the bank,
in the Mother’s Tax Free Health Savings Account or HSA. The bank must
be FDIC insured, it’s the law.

Annual Deposit From Employer: $4,800
Maximum Annual Out-Of-Pocket (OOP) for the family:  $5,200

So the maximum annual OOP expense for this Mother and child is
capped at $400 a year and she is currently paying $400 a month, out of
her check, with no idea how much she could owe with co-pays and
co-insurances.

No FICA Tax on HSA deposits. The FICA tax is 15.3% and is split
between employer and employee. Now the hospital won’t pay 7.65% on
every dollar the mother earns. Employers love the HSA when they figure
it out.

The Hospital is depositing $4,800 a year in the mother’s HSA. She or
her employer may maximize her HSA annual deposit and save on taxes,
another $400 or a maximum of $5,200 may be deposited each year.

When the mother goes to the doctor everything is the same. The
doctor’s bill is $80 for example. The first thing is the charge is run
it through the PPO, exactly like they are doing it now, and the charge
is sent to the insurance company. The insurance company then sends an
Explanation Of Benefits (EOB) that says, your $80 charge has been
diminished to (example) $50. Do you want to pay the $50 with personal
funds or would you prefer to have it deducted from your HSA? Once
covered charges hit the deductible they are paid at 100%.

If the mother put the max in her HSA and didn’t use any HSA funds,
which some people do, at 65 years of age she would have over $400,000
at 4% interest. If she uses average $1,300 a year she will have over
$300,000. If she uses $2,600 a year she will have over $200,000 at 65
years of age. Also she has the freedom to place her HSA balance in
mutual funds for the possibility of a higher return.

I tell clients to max out their HSAs because 30 years of retirement
health care expenses will be expensive. HSA funds dedicated to
retirement health care expenses are never taxed and money that is never
taxed will last longer in retirement.

Next month retirement will be high lighted when the House throws it’s retirement bill on the table.

Who thinks this Mother should keep her present employer’s insurance at $400 a month out of her check?

Brief today (as I’m on dial up!) but go take a look at this article called tiers may have unintended side effects. Interesting that the Blues in Minnesota are trying the tiered approach, which hasn’t gone too great shakes in Claifornia, and some big names (like Mayo) are worried. One to watch.

So yesterday the NY Times has an article suggesting that the good times are over for health insurers. In the last five years they’ve seen huge growth and profits while they’ve retreated from active care management and trying to push provider prices down and instead have returned to their roots as underwriting, financial machines that simply pass on the costs of the system to their clients (i.e. us). Well that’s not exactly what the article says they’ve been doing, but it is what they have been doing. I tend to agree with the NY Times, as I don’t think that the profit growth of the Uniteds and Aetnas is sustainable over the next few years. However, no one bothered to mention this to Wellpoint which this morning announced earnings that blew the doors off expectations and sent the Wellpoint stock price up 6%.

And of course the way the health care business works — remember that 85% of the costs are with 15% of the people — even if your overall enrollment isn’t going up very fast, you just need to get better at avoiding a few expensive enrollees to be very profitable. If you can figure out some way to at least start to manage the care of the sick people you do enroll better — and to be fair Sam Nussbaum at Wellpoint does seem to be trying to do this with diabetics — then you may still make some decent profits so long as you get your pricing right. So there’s your reason why shorting Wellpoint may be a bad, even if very tempting, idea. It of course may not be enough to stop me from being stupid and doing it anyway.

Here’s some totally self-serving propaganda from the Blues about how terrible AHPs are and how Federal AHPs would raise costs, create more uninsurance and (although they don’t mention it) be a likely venue of huge amounts of fraud — as were the AHP’s predecessors the MEWPs. The only issue I have with this propaganda is that it’s basically true!

Now the Blues have much to feel guilty about, in that they have beefed up their profits while being much more aggressive about their underwriting, and have managed to flail around politically when they could ensure themselves a decent future in a universal insurance system — although that would take some leadership which is yet to be apparent.  Plus they are obviously not a united movement.  How can Anthem identify with a tiny independent non-profit Blues of Lesser Bupkiss? 

But in this instance, they are on the sides of the righteous policy wonks.

The LA Times had an article this weekend about how patients were leaving HMOs to go PPOs which were essentially high deductible plans. The article claims that the new trend is leaving HMOs in an Unstable Condition: as Members Bolt to Other Plans.

Ignoring the fact that it’s the same corporate parents who provide both types of insurance product, so the HMOs per se (with the possible exception of the still highly profitable Kaiser) are not exactly becoming "unstable", there are two connected but somewhat obscured issues here. The total cost of treating an HMO patient is still somewhat cheaper than treating a comparable PPO patient, but much more of that cost is now pushed onto the consumer/employee so the premiums are cheaper for the employer/payer. Where Blue Cross’ new high deductible plan called Tonik and other low price (but not low cost!) plans come in is that they are an attempt by one insurer or another to favorably  slant their overall risk profile — as insuring healthy people is a much easier way to make money than taking proper care of sick ones. This is not new. Prior to its sale to Aetna in 1996 US Healthcare was expert at paying off brokers to find them better risk groups in the early 1990s. Aetna forgot to use that technique when they bought them, but certainly has rediscovered how to improve their risk profile in the last five years. All plans have been playing this game forever, this is just a new variant. Look for the coda at the end of this article for more information about brokers being paid off by plans. (In the case of Aon, the pay-offs were allegedly at the insistence of the broker but you can imagine that they weren’t being paid bribes to deliver the groups with the worst risk profiles! Eliot Spitzer for one has noticed).

Meanwhile the AMA’s wet dream of an HSA with the consumer paying (a price of the doctors choosing!) at the point of service is plain wrong. I’ve been hearing this fantasy from physicians in focus groups since 1994! But the truth is that, even with the high deductible plans, payment will still go through the insurer and all the rigmarole that they put the providers through to get paid will still exist. It’s just for the high deductible plans the money will now come out of the consumer’s bank account.  In fact it’ll be harder for the provider to collect from those consumers without an HSA linked directly to their health plan’s account (which my guess is over 90% of HSA holders presently).

I know. I have one of these plans and when I had surgery last year I made all my providers wait several months until after my plan finished totally messing up my deductible calculations and finally got the amounts right before I paid out a penny! The providers still had to send in all the medical notes, I still got (mostly wrong) EOBs, I still had to spend hours and hours on the phone with confused and beleaguered customer service reps, etc, etc. The only difference was that when all was said and done the providers had to come after me for a big share of the money. Luckily I had the money set aside. How many Tonik members — supposedly young and relatively poor extreme-sports types — will be able to say the same?

Funnily enough I’m not even sure that the games pay off that well for the plans. In 2003 I was offered an underwritten PPO that was originally quoted at $63 a month for a $2000 deductible/$3,000 max out of pocket.  When they found out about my previous knee surgery the premium quote went up to nearly $400 a month! Instead I bought a short term plan (from a subsidiary of the same company!) for about $70 a month. And then when, as their underwriters had guessed correctly, I needed more surgery it all eventually cost (in terms of actual money paid out to providers) about $7000.  That would have been roughly the same as my original premium payments ($4,500) plus my maximum out of pocket ($3,000).  In other words for the original plan a $7,500 patient would have been one on which they’d have broken-even  but as I went with the non-underwritten plan that I assume is similar to Tonik, which didn’t quite cover so many conditions (e.g. no pregnancy coverage, and excluded diabetics, cancer patients, etc up front) , I paid about $3000 less in premiums.  So they lost money on me!  Were there no "bare-bones" short term plan available, aimed primarily at younger healthier people, I’d have probably ended up paying up for the more expensive version.  (Luckily I’m in a buying group now that gets me the $400 premium plan for closer to $200!)

Of course if all the health plans get this right then, while the risk pool will continue to fragment overall, more consumers will end up holding the bag. But it’ll eventually be a zero sum game for the insurers as they all have to figure out how play the risk-avoiding game as well as their competition, which will end up with all their risk profiles the same. Then they’ll have to think of the next bright idea to get a competitive edge! I smell consulting dollars….

CODA: Meanwhile if you want to know a little more about the games played by health plans to get the better risks, or perhaps to make sure that they don’t get stuck with the worst ones, take a look at this article that I swiped from Managed Care Week. (They don’t put out an online version but they sometimes reprint articles in AIS Health Business News.

Complaints filed by five state agencies against one of the nation’s largest insurance brokers offers a behind-the-scenes look at how insurers allegedly compensate brokers for steering insurance business.
Connecticut Attorney General Richard Blumenthal (D), Illinois Attorney General Lisa Madigan (D) and New York Attorney General Eliot Spitzer (D), along with state insurance commissioners in New York and Illinois, on March 4 said they reached a $190 million settlement with Aon Corp. for "soliciting and accepting kickbacks to steer business to favored insurers." The complaints outlined alleged payments made by health insurers including Aetna, Inc. and WellPoint, Inc. subsidiary Anthem Blue Cross and Blue Shield of Connecticut to Aon Corp. in order to win business from Aon’s clients.
The case never went to trial, and Aon said it admitted no wrongdoing or liability in the settlement.

As part of the agreement, Aon CEO Patrick Ryan apologized and acknowledged that some Aon staff members engaged in improper conduct. But he also said he did not agree with several allegations in the complaints.
The settlement was unveiled five months after Spitzer filed lawsuits against a major broker and four insurers in the property and casualty industry. That suit kicked off a nationwide probe into how brokers are compensated for steering business to one insurer over another.
According to Blumenthal’s complaint, employers paid Aon a fee to select "the best insurance coverage for the best price." But Aon made it clear to Aetna, Anthem and other insurers that their products would not be selected unless the insurers made additional "back-door" payments that "were folded into the overall premiums paid," the filing said.
These payments — which Blumenthal derided as "kickbacks," — "have the potential to compromise Aon’s objectivity and improperly influence its brokerage and consulting decisions by directing business to insurers that pay overrides and withholding business from those that do not," the complaint asserted.
The complaint also charged that Aon did not report the commissions, overrides and other payments to clients, and pressured insurers to omit such payments from their reports to employers on Internal Revenue Service Form 5500 and other documents.

Blumenthal’s complaint offered the example of Manchester, Conn., which paid Aon an annual fee of $14,350 to help it select health insurance for employees. The town’s request for proposals "specifically insisted that the winning broker only accept a commission from the town." Meanwhile, according to the complaint, Anthem was paying Aon over $1 million per year in various commissions, overrides and other payments. The complaint charged that "the steering evidently worked for, interestingly, Manchester, and every other Connecticut municipality that retained Aon Consulting for its health coverage, ended up with insurance from Anthem Blue Cross Blue Shield."
Aetna initially resisted paying override commissions to Aon, the complaint alleged. It quoted several internal Aetna e-mails and company managers. One e-mail said, "[Aon] made it clear that the lack of an override puts us at a severe disadvantage. That is evidenced by the fact that we haven’t written a case with them in several years." Another described a meeting in which one broker told the Aetna staff member, "You guys just don’t get [it], price and ease of administration is not the issue…it’s my compensation."
According to the complaint, Aon brokers said the solution was simple: Aetna should "load the rates for additional comp[ensation] and you’ll start to get the business. If the comp is right, they will sell the rates," according to an Aetna manager quoted in the Blumenthal complaint. "He told us to load our rates 5-10% (give him 1/2) and we’d get all his business."

Such arrangements were successful, the complaint alleged. "As one Aetna executive put it, overrides have the potential to ‘take away the objectivity consultants are so protective of.’"
Blumenthal’s complaint indicated that Aetna eventually "began to adapt," developing payment structures that allowed the insurer to pay Aon commissions that were not reported to employers.
Brokers Allegedly Wanted Payments Hidden
The Connecticut complaint asserted that brokers continued to insist on concealed arrangements even as regulators stepped up scrutiny into commission payments. The filing quoted an e-mail sent by a broker to Aetna. "As the discussion around disclosure of override contracts heats up we want to position these as arrangements as profit sharing of the overall book and not tied to a specific account."
Spitzer’s complaint outlined similar experiences in New York. Herkimer County, N.Y., which purchases benefits for 1,000 employees, paid Aon more than $78,153 over a five-year period to help it buy "stop-loss" coverage for protection from catastrophic health claims.
"In 2001, the lowest bidder for the Herkimer business would have been [Excellus] BlueCross BlueShield," Spitzer’s complaint said. "But since the coverage offered by Blue Cross would not have generated a 15% commission for Aon Consulting, it never gave Blue Cross the chance to bid." When Herkimer eventually demanded that the Blues plan be permitted to bid on business, "Aon altered it [i.e., the Blue Cross bid] by adding the 15% commission without disclosing the change to Herkimer," it alleged.

As part of its settlement, Aon agreed to create a $190 million fund to compensate eligible U.S. clients with policies begun or renewed between Jan. 1, 2001, and Dec. 31, 2004. It also promised to commit to "new business practices that include heightened disclosure of remuneration and the elimination of practices that may have posed conflicts of interest."
Anthem spokesperson James Kappel said he could not comment on the suits since Anthem was not a target. But, he added, "As a company, we do not engage in the practice of bid rigging or any other improper bidding practices. Any bonuses that are paid to brokers are based on persistency [the percentage of clients that renew coverage] and the growth of their overall book of business."
"Aetna firmly believes that disclosure of compensation arrangements with brokers is in the best interest of our customers, the broker community and the insurance marketplace," the insurer said. "In 2004, we began requiring brokers to inform their customers about compensation agreements, and we have recently published our expectations regarding disclosure of compensation on our Web site."
(Reprinted from the March 21, 2005, issue of MANAGED CARE WEEK)