After a little bit of modest extortion, the Georgia insurance commissioner came into line for a mere $126m, mostly to be spent on upgrading hospitals and a little for telemedicine. So hey presto, WellPoint is now the nation’s new largest health insurer. Actually it’s Anthem that really took over Wellpoint, but they decided to keep the Wellpoint name.  Georgia actually did alright, as once Garamendi set the price in California at $250m, it was clear to everyone that a deal could be done, and Georgia seems to be the only one that got to renegotiate up!

Notably that a deal could be beneficial was clear to Wellpoint management and stockholders, who have seen the share price go up 30% since Garamendi gave his approval, and seen it rise from $85 to $125 in the little over a year since the deal was announced. (Perhaps the insurance commissioners had gone long before the deal!) In effect though the new company is really just an amalgamation of all the Blues that have been bought by the two companies over the last decade. It’s hard to see how beyond shedding some overhead in southern California (and it will be expensive overhead to shed given the buy-out clauses in place) there are actually any real economies of scale to be gained by putting all these Blues together. Add to that the fact that the underwriting cycle will get tougher from here on out, I wouldn’t be a buyer at these levels.  On the other hand I’ve been saying that for a year now and if I’d been short, well as the British traders say, I’d be having my arse handed to me on a plate.

By the way, if you spellcheck "Wellpoint" using Blogger’s spellchecker it comes back as "elephant"!

Possibly also to be headlined, Dotcom survives and makes good! For a mere $300m UnitedHealth Group has bought CDHP player Definity Health which gives United a platform into the self-directed consumer plan world. Hard to tell exactly how much cash Definity has gone through, although they raised some $45m by the end of 2001 and their web site says that they’ve had $70m invested. So it’s not a terrible return if that’s all that went in. Apparently they have some $100m a year in revenues, although whether that is just ASO fees or includes premium revenue is unclear (I’d hazard a guess at the former).

Either way United is not just buying revenue, they must believe that they’re getting a platform which would take too long for them to build themselves. Definity for its part has obviously decided that waiting for more organic growth in the big group HSA/CDHP market is going to take too long for them to go the IPO route and a bird in the hand…

But this is at least one vote for the self-directed plan having a future. And if it’s a total bust…..well at a mere $300m it’s not Aetna-US Healthcare all over again.

Suneel Rattan, Health Hero Network

In the new political climate post election, it looks like John Garamendi (California Insurance Commisioner) has taken the latest bribe Wellpoint has put on the table and given his go ahead to its merger with Anthem. There’ll be a press conference later today to confirm the details, but Wellpoint stock is up heavily on the news. Wall Street hasn’t really noticed that a few other states including Georgia have since withdrawn their approval of the merger, but presumably those state officials can be similarly mollified.

It does make you wonder if the bigger California agency that approved the merger earlier, the Dept of Managed Health Care, got all it could for the state’s consumers and taxpayers.

UPDATE: So the final bribe total (excruciating details here) is just another $150m. Reuters says:

Insurance Commissioner John Garamendi said in a statement he had agreed to drop objections to the deal after Anthem said it would pay $35 million to fund California clinics, $15 million for nurse training and to raise its investment in the state’s “Healthy California” program to $200 million from $100 million.

At least the other insurance commissioners across the nation now know that they can hold out for double the money. But this is all small beer. Wellpoint’s market cap today rose 9% or over $1.5 billion. Presumably Garamendi thought he was going to lose in court. Here’s his version of reality.

It seems like only yesterday I was posting about how much money health plans were making, and that only I and Don Johnson thought they were overvalued. Well not for any reason that I or Don gave, but all the big ones are down 6-8% on news that Eliot Spitzer has included Cigna in his investigation of the insurance business.

By the way, yes the headline is (meant to be) a joke.

Just in case you thought I only publicized the potential problems with HSAs, there are some people in America happy to see them. Destiny Health, which is now offering its consumer services via other health plans has put together a survey quoting several health plan CEOs as saying that CDHPs will be the savior for their clients, and (not that they mentioned it) give them something else to sell that essentially allows their customers to offer worse benefits to their employees. In this context CDHP stands for “consultant-driven-health plan”.

However, the rah-rah approach is a little derailed by Destiny’s CEO:

Scott Spiker, CEO of Destiny Health, the company that conducted the survey, commenting on new study that revealed that Americans’ interest in Health Savings Accounts (HSAs), a key component of the recently passed Medicare bill, is strong, but knowledge of the accounts is surprisingly low. “However, it’s clear that consumer education is vital for their full power to be reached because HSAs alone cannot change consumer behavior when it comes to healthcare spending,” he said.

True words indeed. I await the backlash from consumers when they find out what consumer-directed really means in terms of benefits from their employers, and how ready the provider side of the industry is with its soon-to-be-transparent pricing.

Of course single payer lunatic (well they all are, aren’t they?) Don McCanne explains why HSAs can’t work on a macro-scale in this post. Ten years after I first heard this notion I still await an HSA advocate to explain to me why McCanne’s logic is wrong.

You’ll recall that the Commonwealth Fund has been featured on THCB as a bastion of opposition to the idea that CDHPs will lead to nirvana, and that people who join them may skip out on needed services. Well now a couple of health plans are disputing this saying that behavior changes are being seen amongst those who sign up for CDHPs. There isn’t much more to say other than this will play out in the coming years and we’ll see who’s right. However, there’s no inherent contradiction in saying that people who choose CDHPs will use more preventative services while still being healthier than those who stay in traditional plans.

Anyway, here’s the article, which gives you a good intro to the subject if you haven’t read THCB’s earlier reports (like this one).

THCB is pleased to welcome a new contributor, writing under the nom de plume Langdon Alger. Langdon works for the Feds, and THCB duly notes that Langdon has expressed the usual disclaimer of government employees who speak their own minds, namely that “the views in this [post] do not necessarily represent those of my organization.” So just to really stick in certain of THCB’s contributors’ craws, today we turn over the mike to someone who thinks HSAs will be modest in their impact (as does THCB) but that what impact they will have will be good (not something you hear much on this station, where the prevailing tune is far more like this!) Here’s Langdon’s piece:

Much has been said on the issue of Health Savings Accounts (HSAs) and despite all the criticism–much of which I agree with–I still find HSAs an attractive option. As a young, healthy, and well-informed healthcare consumer, a High Deductible Health Plan (HDHP) with an HSA is obviously a good deal for me, but I still believe it will provide a net benefit to our healthcare system.

First, I fundamentally believe that healthcare and health insurance should be two separate entities. Doctors and hospitals provide healthcare; employers, the government, and the market provide health insurance. If people prefer managed care, they’ll make that choice, but I should have the option to choose insurance coverage that matches my needs. No other insurance industry provides such ridiculously low deductibles for such expensive coverage without exorbitant cost to the individual. Avoiding the “adverse selection death spiral” is entirely up to the health insurance industry providing value to its customers.

Two of the major criticisms of the HSA model are that it simply splits the risk pool and it shifts costs from employers to employees. I concede that both points are obviously true, but I think that both the magnitude and the significance of each effect are not as dire as critics would have us believe. Concerns over splitting the risk pool really lie in the fundamental issue of who should pay for what in healthcare. How much should we subsidize the heavy users of healthcare? A couple of thousand dollars per year less than we do now. That’s all HDHPs change in the world of health insurance. Insurance ends up being less expensive and a few more people get coverage. Are overall healthcare costs reduced? Absolutely, but maybe not by any significant margin. HDHPs and HSAs aren’t designed to address top dollar spending in healthcare, but that certainly doesn’t mean they don’t add value to the system. As far as shifting more healthcare costs from the employer to employee goes, this is an inevitable trend as long as healthcare costs rise faster than salaries and the health insurance industry continues to be dominated by the employer-sponsored model. HSAs don’t change a thing here.

One concern raised in this Blog is whether employers would want to adopt this system since they have to contribute to the HSA account in addition to the insurance premium; individuals with low healthcare costs might actually increase their spending on healthcare, given that they have a cash account to pay the costs. This should hardly be an issue since, from the employer’s perspective, the cost of HDHP including an HSA contribution is usually lower than traditional insurance or a managed care product (i.e. the employer cost shifting.) And it can still be a good option for employees since having an account actually makes preventive care even more likely (lowering long term costs), while the roll-over provision of the HSA eliminates the incentive to overspend each year.

One critical area of rising healthcare costs that HSAs do have the potential to reduce is prescription drugs. My employer spends upwards of 30% of total premiums on prescription drugs so there is obviously room for significant savings. Consumer choice and market price pressure are a great threat to the prescription drug industry if people begin to realize they can get drugs to cover their needs at a fraction of the price (often hidden in premiums) they pay now. How many people take name-brand heartburn, blood pressure, pain, allergy, cholesterol, or antidepressant medications and countless others that have inexpensive alternatives? Consumers have no concept of price transparency and value in the prescription drug market.

And finally, are HSAs just another tax break for the affluent? Hardly. Given that the maximum annual deposits are currently $2600 a person, the accounts are really aimed more at the middle class.

While GSK apparently isn’t bending to my whim, the same may not be true in Oakland. The correspondent who cajoled me into writing about the Kaiser Thrive campaign points out that:

If you need some quick affirmation of your own visibility, it looks like Kaiser finally took down the Northern California Systems Diagrams from the Tripod site. I gripe about for a month: nothing. You blog on it, and two days later the problem is addressed. This of course means the link in your log entry is broken. If you still want to link to the Systems Diagrams, I have a mirror of them (I’m one of at least three people who mirrored the site, actually)

I’m not actually going to repost that link, as part of what I was interested in doing was hoping that Kaiser would tidy up its links. If you’re that keen to find the wiring diagram (and other anti-Kaiser stuff), go over to my correspondent’s site.

Meanwhile I’m going to go and lie down as all the power and influence I’m wielding is making me feel giddy….

As if you didn’t know it, 2003 was a very good year for health plans. Weiss Ratings has published a table showing that several, including non-profits Kaiser & Group Health Cooperative of Puget Sound had excellent years. (Although Kaiser’s looked better than it actually was due to an accounting change) Overall HMOs posted profits of $10.2 Billion in 2003, nearly doubling their 2002 numbers. The dark days of 1998 look long gone.

Except that there remains this nasty thing called the underwriting cycle, and we are already seeing premium rates start to slowly fall (down to the 7-8% increase level). It’s a little early to be crying wolf just yet, but I still maintain that this is as good as it’s going to get for insurers, and that their stock prices are overvalued. Of course, whatever you think about them you can’t sell Kaiser or Group Health short!