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When Star Ratings Backfire: How CMS Could Better Support Health In Medicare Advantage

By EMMANUEL ANIMASHAUN

The Centers for Medicare & Medicaid Services (CMS) Star Ratings system represents a cornerstone of quality assessment in Medicare Advantage (MA), designed to empower consumers with transparent information while rewarding plans that deliver superior care. Yet recent developments, particularly the seismic downgrading of Humana’s ratings reveal an unintended consequence: a system created to measure and incentivize quality may now be actively undermining it.

The Humana Case: Symptom of a Broader Problem

In 2025, Humana’s Medicare Advantage star ratings collapsed, with only 25% of members remaining in four-star or higher plans, down from 94%. This wasn’t due to declining clinical performance but resulted from CMS’s “Tukey outlier deletion” statistical adjustment implemented with minimal industry consultation. The change raised performance thresholds, causing Humana to lose billions in Quality Bonus Payments and $4 billion in market value. Humana’s legal challenge, arguing that CMS violated the Administrative Procedure Act through non-transparent processes, was denied. Other insurers including UnitedHealthcare and Centene also share concerns about methodological rigidity and that the rating system may have diverged from its purpose of improving patient care.

Perhaps more striking are the cases of Elevance and SCAN, which further illustrate how rigid metrics can distort assessments of actual care quality. In March 2023, both insurers were penalized after allegedly missing a single CMS “secret shopper” phone call, a call they claim was never received. The downgrade cost them tens of millions in Quality Bonus Payments and triggered legal challenges. As SCAN’s CEO wrote, the sanction came despite strong clinical performance and patient outcomes. A federal judge later ruled in favor of SCAN in June 2024, prompting CMS to recalculate the Star Ratings across all Medicare Advantage plans. This episode underscores a key concern: when measurement hinges on unverifiable administrative moments, it may end up punishing rather than promoting quality.

How Quality Measurement Can Undermine Actual Quality

The Star Ratings system aggregates over 40 metrics across preventive care, medication adherence, member experience, and customer service. However, it disproportionately rewards process compliance and documentation over health outcomes. Plans can excel by optimizing coding, maximizing documentation, or boosting survey participation without delivering better care. This misalignment diverts resources from genuine health innovations. Research from an NBER working paper even found that better-rated plans aren’t statistically better at keeping patients alive than lower-rated ones, raising fundamental questions about whether the system measures what truly matters for patient health.

Even more concerning is that MA contracts with higher proportions of dually eligible, disabled, or racially diverse members consistently score lower, not because they provide inferior care, but because the scoring system inadequately adjusts for social risk factors. A JAMA Health Forum study highlighted how plans serving more Black beneficiaries had lower star ratings even when controlling for other factors. This structural bias effectively penalizes plans doing the challenging work of serving populations with complex needs, creating a perverse disincentive to focus on health equity.

The uncertainty from frequent changes in star rating computation could also pose severe implications for strategic planning for companies. When a company like Humana loses billions due to a technical recalibration, it sends a troubling message: long-term investments in quality improvement may not yield returns if measurement methodologies change unpredictably. This volatility makes strategic planning difficult and discourages sustained investment in quality initiatives.

The Real-World Impact on Patients

These methodological shortcomings do not just affect health plans’ bottom lines; they have tangible consequences for Medicare beneficiaries. When plans lose Quality Bonus Payments (QBPs), they often must scale back valuable supplemental benefits like transportation assistance, dental coverage, or in-home support services, or increase plan premiums, as Avalere Health suggests. McKinsey estimates CMS rating changes could cost plans over $800 million in bonuses, reducing resources available for such benefits.

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Aneesh Chopra talks Medicare Advantage

Aneesh Chopra (these days at Arcadia) and Matthew Holt got into a discussion of how Medicare Advantage is doing. Working with APG (America’s Physician Groups), his company Arcadia found that Medicare Advantage companies who paid capitation got better outcomes than those who were paying FFS for different patients to the SAME doctors. We got into what is really saving money (Humana says there is little cost differential), what this means for the policy, what is really happening with risk adjustment–Aneesh thinks we should put those home visits in the medical record to benchmark VBC based payments. 

And he tells us why what we have done so far in Medicare Advantage and explains that it doesn’t work because we haven’t got the clinical data easily available via API. (Those in the know knew he was going to say that!). He also thinks that commercial payers may yet be the saviors of ACOs and Medicare Advantage by buying bundled care from providers and making it necessary for them to access the data across the board, and then change overall behavior. And Aneesh is quite optimistic about the new Admin and its MAHA stance. Matthew Holt

What would a rational DOG(gi)E do(o)?

By MATTHEW HOLT

DOGE, or Doggie as Kara Swisher has been calling it, has gone from being a meme about Shiba Inus to a crypto scam to a group tearing the Federal government apart.So I thought I would use the title of this piece to make a joke. Like Musk’s humor it’s puerile and not funny. What’s also not funny is what Musk’s team has done to small government agencies, like USAID & CFPB that really help people, not to mention the irrational firing of thousands of government employees that appear to be screwing up the NIH, the National Parks, the FAA and much more. But it’s all got me thinking, what in health care should an effort to quickly rationalize government spending do?

Now I’m not proposing that there’s anything OK with the way Musk and his team have been blundering around the Federal government, telling lies about what it does and indiscriminately firing the people who have the most important responsibilities and then desperately trying to get them to come back. This has been pure ignorance theater, and it would be hilarious if it wasn’t so damaging. Equally importantly the places DOG(gi)E has started are stupid because they don’t spend much money. But the government spends a lot on health care –between two and three trillion dollars, depending on how you count it.

So if you wanted to save some money and potentially change the system, what would you do? First you’d take a deep breath and get some real data, and improve your understanding about what is actually happening. There are some areas in health care where the issues are well understood and the data is clear and there are others where it’s less obvious.

Let’s start with a relatively small one–spending on Federal Employees health benefits. Chris Deacon’s Linkedin posts are a constant source of fun and games, and she has been highlighting screwups in the FEHBP administration for a long time. Essentially the government via the OPM pays lots of different insurance companies to manage Federal employees’ health care. There is very poor oversight of what happens in those programs and when the OPM’s OIG points that out, not much happens. The plans (including Horizon Blues in NJ and BCBSNC and many others) have been caught being sloppy or fraudulent but not much has happened. All DOG(gi)E needs to do is read the report on the audits, or look at what GOA said about $1bn being spent on ineligible members in 2022 and apply their recommendations.

Next let’s get into something that requires a little more investigation. In America we buy (and sell) drugs in a mind-bogglingly complex way.

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Medicare’s Hidden Information Hurts People & Policy

By MICHAEL MILLENSON

Open enrollment season for Medicare, which began Oct. 15 and ends Dec. 7, triggers a deluge of information about various options. Since I’m a health care consultant and researcher as well as a Medicare beneficiary, I’ve looked critically at what we’re told and what we’re not. Unfortunately, information crucial both for the individual and for the broader policy goal of moving toward a “value-based” care system is often difficult to find or not available at all.

The most glaring example involves Medicare Advantage, the increasingly popular insurer-run plans that are an alternative to traditional fee-for-service Medicare. Plans receive a quality grade from one to five stars from the Centers for Medicare & Medicaid Services. Those grades are designed to incentivize providing the highest quality care for the money ­— the very definition of “value.” A high grade triggers both a boost in payment from Medicare and a boost in enrollment. Not surprisingly, almost three-quarters of people chose a plan with a 4-, 4.5- or 5-star rating, according to CMS.

Those ratings, however, should come with a large asterisk attached. It’s not just that the methodology can be controversial, particularly when a lower grade is meted out. It’s that the star ratings aren’t anchored in geography, as one would naturally expect; i.e., the rating is for the plan offered in my area. What is colloquially called a “five-star plan” is actually a plan that’s part of a five-star Medicare contract ­­— and those two typically are not the same thing.

For instance, one large insurer contract that I tracked included at least 17 plans scattered across the country. It defies common sense to believe that care quality is identical among plans in, say, Rhode Island, Mississippi, Illinois, Colorado, and California just because they all share the same government contract number.

If you’re wondering who benefits from this not-very-transparent transparency, some insurers have been known to improve the rating of a low-performing plan with a small number of members by merging it into a contract with more members and a higher rating.

In 2024, nearly 33 million people, or 54% of Medicare beneficiaries, were enrolled in an MA plan, according to KFF (formerly the Kaiser Family Foundation). KFF expects that number to increase to nearly 36 million in 2025. It’s a long-accepted truism that “All health care is local.” Medicare beneficiaries deserve local plan information.

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Fake News from MedPac on Medicare Advantage Needs to Be Corrected, Part 2

By GEORGE HALVORSON

Special Needs Plans Change Lives for The Lowest Income and Highest Need Patients

The people who benefit the most from Medicare Advantage are clearly the very low-income and high health-need people who are eligible for both Medicare and Medicaid as programs and who enroll as members in the Medicare Advantage Special Needs Plan programs.

There clearly aren’t any other programs existing in our country that do more good for large numbers of needing people than the Medicare Advantage Special Needs Plans do for those members.

Those people with that dual eligibility are in major need for care.

We have millions of retirees who are eligible for both programs who have gone through years of inequities, inadequacies, and deficiencies relative to our care systems for a number of reasons, and who are now in need of care and support at multiple levels in their lives.

The plans do extremely good things for those high-need patients.

Medicare Advantage Special Needs Plan programs now help and provide services to millions of people who’ve actually never had good or adequate care in their entire lives.

The Special Needs Plan programs for Medicare Advantage reach into people’s homes and provide layers of service and support that are life changing, badly needed, and the Special Needs Plans are much appreciated, with very high satisfaction levels from the patients they serve for that better care and far better life support levels.

We tend, as a country, to abandon and under serve people in too many settings and communities who are old and who have no money and who are in significant need of care. The Medicare Advantage programs do wonderful and badly needed things for many of those patients that we need to understand, appreciate, and then protect as we look at Medicare Advantage plans and the overall Medicare Advantage programs and approaches.

The people at MedPac who are trying so hard to reduce the benefit levels for Medicare Advantage members and who do shamelessly inaccurate, distorted, and clearly intentionally fake news pieces on the cost of Medicare Advantage plans are trying to undermine and weaken the Special Needs Plan program in order to somehow create a level playing field with higher income patients for Medicare for the patients who get the most benefits from those programs.

That’s a very bad practice, and protecting those high-income people is a very wrong functional priority for MedPac to have. But they have it year after year in uncaring, insensitive, and cold ways relative to those patients and they seem impervious to data and information from all of the plans about those patients and that care, and their need for those benefits and services in their lives.

We need MedPac to clean up their act relative to their lowest income people, and we need them to start telling the truth about the actual relative cost of Medicare Advantage.

And we very much need them to understand how much the lowest income members need those benefits.

We need them to stop saying that the plans are overpaid when they know better from having more than 6 million people enrolled as Special Needs Plan members and benefit levels, and when they know that two out of three of the lowest income Members are in plans, and it should be painfully obvious to even the most cold-hearted observer, that those people clearly need the care and benefits that they get there from the plans.

The Medicare Advantage attacks from MedPac in their current report now say that the total cost of Medicare Advantage is 22% higher than those members would have cost as normal Medicare members.

They actually say in their most recent report that if all of the Medicare Advantage enrollees were now actually enrolled in fee-for-service Medicare, those enrollees who are currently in the plans would cost 22% less money for the overall Medicare program.

That’s obviously impossible and it’s a complete fabrication that they do not support in their document with even a wisp of data.

They use that false information, and they use a very skillful and intentional fake news context to attack the plans with that information.

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Fake News from MedPac on Medicare Advantage Needs to Be Corrected, Pt 1

By GEORGE HALVORSON

MedPac has just released a report on Medicare Advantage that’s incorrect on multiple key points that need to be corrected.

Medicare Advantage currently enrolls the majority of Medicare members in the country, and it’s now the new basic plan for the Medicare program because of that majority enrollment level.

That’s very good news for Medicare because the average cost for those members is significantly less than those members would’ve cost under fee-for-service Medicare — and we can be comfortable and know that the lower cost is permanent because of the way we pay for the program.

The plans are paid a capitation for each member, and they’re not paid a fee for each piece of care that’s delivered to Medicare patients.

The capitation is an excellent purchasing approach for the program because it limits the amount paid for the enrollees, and when that amount, paid in capitation, is lower than the average cost of care for the traditional Medicare members, it guarantees that those lower costs will be paid for those members for the Medicare program, and that those costs will continue to be lower for Medicare.

The program that’s used to set the bids for the plans annually calculates the average cost of the traditional Medicare program in every county, and then lets the plans bid for the amount they will be paid for their members for the next year.

Those average costs for Medicare members are accurately calculated, and they’re based on consistent information that Medicare records, computes, and then reports on actual spending in every county by fee-for-service Medicare for the members every year.

The plans look at the information from the fee-for-service Medicare program in every county each year and then they each bid a capitation that’s always lower than that average cost, because those average Medicare costs are actually higher than the Plans need to provide the full set of required care for their members.

That bidding process guarantees that the plans will cost less than fee-for-service Medicare because it’s legitimately, appropriately and accurately based on the actual costs of that program in every county as the starting points for the bids each year.

We know that’s how much Medicare costs in every county using those numbers — and when the plans submit bids that are lower than that average cost, we know that the lower amount in those bids represents actual savings to the Medicare program.

In the world of insurance, having a bid that sets and determines the payment level for the coverage from every plan is a competent, appropriate, intellectually sound, financially legitimate, accurate, and fully functional payment approach and price for Medicare to spend on that coverage as a buyer.

Medicare is a buyer for Medicare Advantage and not just a payer as it is for the rest of the fee-for-service Medicare program.

Once the bid is set, all of the concerns, worries, risks, and uncertainties of the payment process that people used to have about the payments disappear, because that bid amount is exactly how much the plans will be paid for their members and it can’t be modified or changed in any way by the plans.

There are no possible upcoding approaches or risk pool manipulation processes or any possible subsequent plan fudging on the right cost for payments based on the risk levels of the patients that can happen for those payments because the capitation payment is the only one that Medicare will give to the plans, and that locks the cost in place.

That protection against future up coding problems is clear and true because the bids are the final payment to the plans, and there’s no way of doing any kind of risk-pool manipulation after the fact to create any level of overpayment after that capitation payment is made to each plan.

CMS Uses Good Encounter Data to Get that Risk-Level Information

CMS now has very good information about the actual risk levels of the members because they competently, appropriately, effectively and completely eliminated all of the old coding systems that were using estimates from the plans that they previously used to get the patient risk-level information to create the payments.

They replaced that old data flow from the plans with actual encounter data from the care delivered to each patient with information about each actual encounter, and that encounter data at the point of care ties back to the actual medical records that exist and that are used in the care settings for each patient.

The risk levels of the members in the plans are now determined and set by an extremely accurate process that uses the actual care encounter reports for each patient that are filed with the Medicare program to get each diagnosis for each piece of care.

There were some earlier systems for paying the plans that were built on plans filing data about the risk levels of the members, and there were some instances where some plans did filings in ways that upcoded and increased their payment levels, but CMS has actually completely eliminated and cancelled those old processes and reports, and now gets the needed diagnosis data for the payment system from the actual encounters that are filed by the providers for each piece of care.

We now have very current data about the patients, and the reporting process is extremely accurate in its information flow.

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Medicare Advantage Has Saved Medicare

By GEORGE HALVORSON

The Program has also Helped Millions of Low-Income Retirees with Better Retirement Benefits and Needed Support Services

Medicare Advantage (MA) has saved Medicare. Half of those in Medicare are in MA and their care costs less on average. This means the Medicare Trust Fund is protected against future deterioration because MA’s cost increases continuously run below the average increase in Medicare Trust Fund revenue each year.

The capitation paid to MA plans for each member is based each year on the actual average cost of fee-for-service Medicare in every county. Payments to the plans are now running about 11% below that average cost.

The plans bid capitation levels that are below the average cost of fee-for-service Medicare every year because the plans deliver much better care. The functional truth that most policy people do not know or understand is that better care costs less money, when you design the system and the processes to achieve that result.

Fee-for-service Medicare is expensive and too often is poorly delivered. The fee-based payment model pays more for bad and failed care because when the caregivers are paid only by the piece, they have more pieces to deliver when care fails. They deliver and bill for even more pieces when the health of a member deteriorates. When inferior care creates complications and mishaps more pieces of care are needed for that patient.

Diabetic Blindness Reduced By 60% With Blood Sugar Control

MA plans bid capitation levels every year based on the financial opportunity created by that bad care in FFS. The plans know that diabetic blindness can be reduced by 60% or more if the patients have their blood sugar controlled. The plans set their capitation levels knowing that the average cost of care in every county includes the high level of blindness that happens when FFS providers do not help their patients achieve their blood sugar control goals and thus incur extra expenses for those patients.

The Medicare Advantage program has blood sugar control as a key focus point. That is important and relevant, because the plans can collect the capitation money that was created by no blood sugar controls, and then can and do reduce blindness significantly by achieving that goal. They spend significantly less money on those patients.

The MA payment program is set up to have the plans create financial surpluses from better care and then to have the plans use those surpluses to improve the benefits of their members. The plans create those surpluses and use them to pay for additional benefits–so the Medicare Advantage members have vision benefits, dental benefits, hearing benefits, and various social support benefits that do not exist in the traditional Medicare benefit package.

Those expanded benefits do not increase the cost of Medicare because they are created by the capitation cash flow that runs about 11%–17% below the actual average cost for fee-for-service Medicare in each county. That is a far better use of the Medicare dollar and it is not an additional expense for the program.

The plans identify which patients have congestive heart failure or asthma and then they work with those patients to significantly reduce their crisis levels and improve care for those patients. The MA members with those conditions have much better lives and they have less physical pain, stress, anxiety and damage because they avoid those crises. The better care results in 40% fewer days in the hospital for both of those conditions. Plans save money by having significantly better care for those patients.

Amputation Five-Year Mortality Rate is Over 40%

A major expense for the Medicare program is amputations. We have some of the highest amputation rates in the world for our lower income patients.

MA plans know that 90% of amputations are caused by foot ulcers. You can reduce foot ulcers by more than 60% just by having dry feet and clean socks. So the plans save billions of dollars that create surpluses in their capitation cash flow and they significantly improve the life expectancy of those patients just by providing those services consistently and intentionally to their diabetic members.

The five-year mortality rate for the people who have amputations ranges from 40%–80%. In their attacks on the program MA’s critics never mention those amputation numbers and those important and real death rates .

Special Needs Plans Now Serve Over 6 Million People

MA Special Needs Plans (SNP) just had their enrollment grow to 6.5 million members in January of this year. SNP enrollees are eligible for both Medicare coverage and Medicaid coverage. They have some of the highest health care needs in the country and too often have some of the lowest levels of resources to deal with basic aspects of their lives and their care.

The critics also don’t mention that the SNPs do life changing and extremely beneficial work for the lowest-income and highest-need people in the Medicare program.

Millions of people enrolled in SMP plans have been badly impacted by various social determinants of health issues, as well as by care delivery failures for their entire lives. SNPs are often the first organized care related support that millions of those patients have had for their personal care.

People With Weak Retirement Plans Need the Additional Benefits

Those who look at the Medicare program need to understand and appreciate the fact that the expanded benefit package from the plans is often extremely important and directly relevant to the daily lives of millions of people. They are retired but have few assets and low levels of financial support for their retirement years.

We are no longer at the point where retirees in America can rely on a pension plan and basic retirement benefits after they retire. Fewer than half of retirees today have a pension payment or a deferred compensation plan of any kind. Most retirees have a low cash reserves to use to purchase needed services and benefits in their retirement years.

There is a solid set of reasons why almost 90% of our lowest income Medicare beneficiaries are now enrolled in MA plans. There are also obvious reasons why those numbers include more than 70% of African-Americans and more than 80% of Hispanics. Additionally, MA has language competency requirements for Hispanic enrollees that do not exist for fee-for-service Medicare.

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What Walmart said & What Walmart Did: Not the same thing

Walmart surprised us all and changed its mind about primary care yesterday. It’s out.

Because so few people have seen it I want to show what Walmart‘s head of health care said just 18 months ago (Nov 2022). Today they are finally killing off the 6th different strategy they’ve had (maybe it was 4). I guess (unlike CVS & Walgreens) they don’t have to write down investment in Oak Street or VillageCare, but they never worked out that primary care is only profitable if it’s 1) very low overhead 2) a loss leader for more expensive services (as most hospitals run it) or 3) getting a cut of the $$ for stopping more expensive services (Oak Street, Chenmed, Kaiser).

At HLTH 18 months ago I interviewed Cheryl Pegus who was then running Walmart and I asked why anyone should trust them, given how often they changed. Sachin H. Jain, MD, MBA Jain answered for her and said, “because they have Cheryl!” — Cheryl then said, “at Walmart the commitment to delivering health care is bigger than anywhere I have ever worked”. “Right now I have 35 centers in 3 years I’ll have 100s”  see 11.00 onwards in the video below, although the whole thing is worth a look

Cheryl though left Walmart THE NEXT WEEK!

Medicare Is Now Profitable as a Total Program Because of Medicare Advantage

By GEORGE HALVORSON

Medicare made $83.4 billion very real dollars in 2022. The 17% discounts below the average cost of fee-for-service Medicare, that happen in every county for Medicare Advantage, have been very real and extremely successful in paying for Medicare coverage — in a way that now makes the program a profit center for the US Government.

You can see the actual financial report page from the 2023 Medicare trustee report below. It shows that the Medicare trust fund grew in 2022 for the first time in decades. More than half of the Medicare members are now enrolled in Medicare Advantage plans. Those members cost significantly less than their equivalent fee-for-service Medicare patients.

These are the actual numbers from the trustee report.

The Medicare trustee report says that the total Medicare program grows per member by 6.7% every year. They project in that report that they expect that rate of increase to be consistent over the next decade. The enrollees in the Medicare Part A and Part B programs have expenses that increase slightly above that number every year. That’s been true for a couple of decades.

Medicare loses money on every Part A and Part B member when expenses for those programs are higher than the 6.7% average.

Medicare Advantage costs for Medicare Part C are increasing at a lower rate than that number. That means that Medicare makes money and creates a surplus with the Medicare Advantage patients.

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Too much fawning over Len Schaeffer?

By MATTHEW HOLT

There’s a lot of strum & dangst about the uptick in system utilization that has boosted hospital profits and hit Humana and United’s bottom line (But not so much Elevance’s). Kevin O’ Leary over at Health Tech Nerds brought this up today and I was reminded of this piece I wrote in 2006. And a big issue was, how much understanding and control do insurers have over the utilization in (and out of) their networks. So take a look at this piece and particularly, given the issues at the BUCAHs and at smaller players like Agilon, consider how much insurers actually know about spending? And remember that Wellpoint was the 1990s name for what is now Elevance, via being called Anthem!–Matthew Holt

No one is arguing that Len Schaeffer isn’t a very bright guy, nor that he hasn’t done very well in America’s health care system. He’s also done very well out of America’s health care system. So when McKinsey publishes a fawning interview with the man who saved Blue Cross of California, and turned it into one of the most profitable for-profit health insurance companies, and then merged it with the other for-profit Blues, it’s perhaps appropriate to ask a few more questions.

Full disclosure here; in the distant past I’ve worked for several companies that are now part of the Anthem/Wellpoint collosus; and I currently do work for the California Health Care Foundation, which wouldn’t exist were it not for the fact that, when Wellpoint converted to for-profit status, it (and the California Endowment) were endowed with a huge chunk of stock. So you can take my comments in what ever light you like. In addition I’ve only done limited research here and a couple of things are retelling of tales I’ve heard, so if anyone knows more gossip, please email me.

Schaeffer is coming towards the end of his business career, but he started young and fast. He was head of HCFA (the artist now known as CMS) at age 33 in the Carter Administration. Now I call Mark McClellan the boy wonder, but he was 41 when he got the job! After leaving HCFA (before it got really exciting in the early years of the Reagan administration when DRGs were introduced, but being the first to introduce a type of DRG for kidney dialysis), and going via Group Health for a couple of years, he ended up at Blue Cross of California. He got there in the middle of an incredible screw-up.

Blue Cross had set up an HMO to compete with Kaiser called HealthNet. Incredibly enough somehow or other Blue Cross didn’t manage to enforce their formal corporate control over its board members on the board of HealthNet. So the board of HealthNet looked around the room one day, noticed that they might do alright if they were running a for-profit company, and declared independence. More on that story in this court documents. And apparently despite several years in court there was nothing Blue Cross could do. Retroactively Healthnet had to agree to endow a foundation with the state (the California Wellness Foundation) but the amount put into that foundation was a tiny, tiny proportion of HealthNet’s market value.

Schaeffer turned up to steady the ship at Blue Cross in the wake of the Healthnet screwup. In part he did this by turning Blue Cross from a warm and fuzzy non-profit into a pretty avaricious underwriter and a health plan that played very hardball with its providers (and members). More on that in the first section of this document, but it’s a reminder of a tack taken years later by Jack Rowe at Aetna.

But he clearly learned something from the experience.  The first thing he did was to set up a for-profit subsidiary called Wellpoint which started buying health plans and offering services (primarily outside California). Then he tried to put all of Blue Cross’ assets into Wellpoint. It looked like he’d away with this for a while, but then started  negotiations to take the whole thing for-profit. Apparently when the state first asked him the amount with which he would fund the foundation, his first offer was “nothing”.  This eventually got anted-up to $100m. Eventually the state (pressured by consumers’ groups) pointed out that it had quite a bit of control over the Blue Cross plans, and in the end the two Foundations were set up with lots of money and the majority of the stock, which gets spent doing good works in California (and funding some great research!) — not that everyone’s happy with it!

However, what amuses and dismays me is that Schaeffer is lauded for a couple of things, specifically the creation of new insurance plans and the shift to consumer care, and a commitment to IT. I really don’t understand what is so amazing about the new consumer plans, other than the Tonik brand has a lame web sites which look exactly like what a 50 year old thinks a 23yr old thinks is cool.  THCB readers already know that, while selling high deductible plans to youngsters may help a 23 yr old who needs catastrophic insurance, you’re not going to fix the problem of uninsurance by replacing it with under-insurance. But underwritten properly, these plans are very profitable for Wellpoint. And Wellpoint is damn good at underwriting.

So much so that you’d be surprised at what Schaeffer says is the main problem with American health care. Practice variation and lack of information:

The level of variation in our health care system is unbelievable. You could be hospitalized for nine days in New York and for three days in California with the same diagnosis—and those differences would have no impact on outcomes. There is no other industry in the world that uses so many different approaches to the same thing and in which these differences don’t relate to better results

So can’t health plans fix that? Apparently not:

As a health insurer, if you start by telling doctors, “We know what’s best; we’ll pay you for it,” you violate the fundamental principle that doctors want to exercise their own discretion. That’s what killed HMOs—telling the doctors what to do. Doctors don’t like to follow cookbooks, but, clearly, evidence-based medicine would work better for patients.

So because health plans failed at getting doctors to practice better medicine, instead they’re going to give them the information systems that show the doctors all about this variation, and it’ll magically self-correct. Except there’s the odd problem there too, including more cluelessness by health plans.

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