Recently, I took a bunch of heat for writing that Anthem was right not to encrypt. My point was that the application encryption is just one of several security measures that add up to a security posture, and that we needed to wait until we got more information before condemning Anthem for a poor security posture.
A security posture is the combination of an organization’s overall security philosophy as well as the specific security steps that the organization takes as a result of that philosophy. Basically the type of posture taken shows whether an organization takes security and privacy seriously, or prefers a “window dressing” approach. I argued that simply knowing that the database in question did not have encryption was not enough detail to assess the Anthem security posture.
Well we have more evidence now, and its not looking good for Anthem.
In other words, if premiums rise next year like WellPoint Inc. has predicted, subsidies also will rise to keep the net cost to consumers at the same percentage of their income.
So rising premiums aren’t a problem for consumers, unless their income rises so much that it reduces the size of their subsidy.
“If all insurers increase their rates by 10 percent, that might not have a dramatic shift in the market,” said Paul Houchens, a consulting actuary at the Indianapolis health practice of Milliman Inc. “Most of that premium increase is going to be absorbed by the federal government.”
(Rising federal spending could also be a problem for Obamacare–not to mention taxpayers–but that’s not my focus today. Also, Houchens noted, Obamacare’s premiums are not scheduled to rise in line with premiums forever, but will be indexed to income growth and inflation.)
But for 2015, what could cause the biggest problem for Obamacare consumers, Houchens pointed out to me last week, is if an insurer reduces its premiums. Or if a new compeitor enters the market in 2015 with lower premiums than insurers were offering in 2014.
If that idea makes your head spin, welcome to Obamacare, where up is down and down is up—at least compared to how health insurance used to work. It’s what I’ve taken to calling the weightlessness of Obamacare.
The Administration has snatched victory from the jaws of defeat and enrolled 7 million people (give or take a million who may not have paid their premiums) into health plans under the ACA, and more into Medicaid. The Affordable Care Act (ACA) isn’t as big a change as some of us would have liked, But in this moment of modest celebration let’s remember what some of the sensible old men said all along.
Sensible old men said reform couldn’t pass without bring in the Republicans. Sen. Baucus tried hard to do that, and it’s beyond clear that no Republican would have ever supported it–even a moderate like Snowe who was quitting. It passed anyway.
They said that we’d see massive rate shock. Instead plans tightened networks and rates were in general lower than they had been before.
They said that the web site debacle meant no-one would sign up and we’d go into an insurance death spiral. The web site launch was a cock up, but Medicaid expansion (where allowed) has more or less been OK, and the exchange web site(s) now more or less work(s)–outside Oregon & Maryland. By the way this backs my argument for having one Federal exchange, which you may remember was in the House bill before we ended up being forced to take the Senate version due to Ted Kennedy’s death.
You may have received a refund check in the past few months from your health insurer. This is not your individual reward for staying healthy; it is your insurer’s punishment for making too much money because you did.
Obamacare includes what the health care technocracy calls the “MLR rule” – minimum requirements for medical-loss ratios – or the percentage of premiums collected by health insurers that must be spent on medical care or refunded. The inverse of the MLR is the percentage spent on administration and marketing, and earned as profit. Obamacare sets minimum MLRs of 80 percent for individual and small group plans, and 85 percent for large groups.
Aside from its obvious populist appeal, this profit regulation mechanism signifies a belief, now enshrined in legislation, that health insurance markets do not work. Without such a rule, the architects of Obamacare believe, insurers can name their prices, however inflated, and we all just pay.
In the short term, that is true. Most health insurance plans price only once per year, are subject to long delays in cost trending information and multi-year underwriting cycles, and endure the meddling of a carnival midway’s worth of employee benefits tinkerers, agents, brokers, consultants, and other conflicted middlemen. But in the long term, over multiple annual cycles, premiums do rise and fall, and the health insurance industry’s fortunes with them.
You know we’ve gone through the looking glass when the hottest health care money on Wall Street is chasing Medicaid.
No, I didn’t mean Medicare, the $560 billion per year federal program for insuring the elderly that has launched a thousand IPOs. The current darling of health care investors is Medicaid, the hybrid federal-state program for insuring the poor that now dominates, and often overwhelms, state government budgets.
Last month, Wellpoint agreed to pay $4.5 billion for Amerigroup, a Medicaid managed care company, representing a nearly 50% premium over Amerigroup’s market price. Not to be outdone, Aetna this past week purchased Coventry for $5.7 billion, which also services Medicaid populations. These deals and several others like them rumored to be in the pipeline have driven up the share prices of Amerigroup’s competitors – other Medicaid managed care companies like Centene and Molinas – in anticipation of the latest round of monkey-see, monkey-acquire deals by health insurers.
Now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act (PPACA), health insurers are scrambling to reinvent themselves for a new era. In an earlier post, I quoted Aetna CEO Mark Bertolini as saying he wants to create a business model that makes sense under the new rules and regulations. In a recent speech Bertolini explained, “We need to move the system from underwriting risk to managing populations. We want to have a different relationship with the providers, physicians and hospitals we do business with.”
Starting with Aetna, this analysis will examine the ways that insurance companies are trying to reinvent themselves for a reformed health care delivery system that often wonders why we need health insurers at all.
Early this year, Aetna decided to evolve “’from an insurance carrier to a health solutions company.” ”The head of brand and consumer marketing at Aetna stated, “’More and more, the end consumer is who we need to focus on.’” Aetna has developed Care Pass Platform, an agnostic tool that all consumers can use to aggregate and organize their fitness, medical, insurance and nutrition data. Aetna is also partnering with Medicity to provide smartphone apps for providers and iTriage to provide apps for consumers.
Today’s headline was “Millions Expected To Receive Insurance Rebates Totaling $1.3 Billion.”
The Kaiser Family Foundation estimates that 3.4 million people in the individual market will receive $426 million in consumer rebates because of the Affordable Care Act’s new MLR rules. In the small group market 4.9 million enrollees will see $377 million in rebates, and 7.5 million people will get $540 million in the large group market.
But take a closer look at the report. Only 19% of those in the large group market will be getting a rebate and that rebate will average $72.31 per person. In the small group market 28% of those enrolled in these plans will get a rebate averaging $76.37. And, in the individual market 31% of consumers who have these plans will get a rebate averaging $126.81.
The Wall Street Journal, citing a Goldman analysis, is reporting that Aetna will be paying out $177 million in rebates. But Aetna has $11 billion in premium so that’s only a 1.6% rebate. UnitedHealth will be paying out $307 billion but that is only 1% of its $28.8 billion in premium. Wellpoint will pay out $94 million in rebates but that is only .28% of its premium for the year.
The average cost of employer-provided family health insurance is now about $13,000 per year. A family rebate of perhaps $200 will amount to only about 1.5% of premium for the relatively few people who will even get one.
Little over a month ago, IBM and WellPoint announced an agreement wherein WellPoint will deploy IBM’s latest and greatest super computer and artificial intelligence mega-mind Watson. Watson’s claim to fame was its ability to beat the human Jeopardy champions much like Big Blue beat reigning chess champion Garry Kasparov in 1997. Since that Jeopardy match, IBM has been quite vocal about its desire to apply Watson in the medical arena, we’ve been buried in press releases and briefings, but the WellPoint announcement is the first one of any real consequence. Having interviewed both IBM and WellPoint, following is our review and assessment.
Watson is a relatively new form of artificial intelligence, based to some extent on neural networks. What is unique about Watson is that it has been developed (trained) to understand the nuances of language. It is a question & answer system that uses among other techniques, natural language processing, to extract meaning out of unstructured data. In developing Watson for the Jeopardy challenge, one of the key design parameters was for Watson to answer a question in under three seconds – plenty fast enough in a diagnosis/treatment decision scenario. This is a key reason why Watson may have enormous utility in the healthcare sector where so much data is unstructured, the pace of change is so high and the ability to chose the optimum treatment patient plan for a given diagnosis is less than ideal today.
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 Krugmanwho 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…
Wellpoint is getting killed in the press over a “39%” rate increase for their individual health insurance block in California.
HHS Secretary Sebelius has pointed to the Wellpoint individual rate increases demanding an explanation. The President even brought it up in his interview on Sunday. At a time Democrats are fond of calling insurance executives “villains” this story just adds more fuel to the fire.
No less than five reporters called me the day the story broke asking me to explain it all.
Falling back on my industry experience it is probable:
The “39%” headline is anecdotally the biggest increase the press has found—the average is probably less albeit in the high 20% range.
This is likely driven by a combination of increasing medical cost trend, a bad economy, and anti-selection as healthier people disproportionately drop their coverage leaving a sicker group in the pool.
The rate increase is probably “defensible,” at least actuarially, based upon the actual experience in that block.
When the day is done this probably says more about why systemic health care reform is so critical than about any one company’s behavior. Last week we heard national health care spending skyrocketed to 17.3% of the economy. This is a real life example of what that macroeconomic statistic really means.