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Florida HMOs: Already Meeting The Senate Bill’s New Standards?

January 4, 2010

I found the attached chart, sent via Managed Care OnLine’s “Daily Factoid,” interesting.  Why?  Because these top Florida HMOs are already well ahead of compliance standards with the Senate’s proposed limit of 15% administrative costs for health plans (or close to to achieving them, depending on how the accounting standards are finally written).

Take a look:

Florida HMOs Medical Loss Ratio and Administrative Costs as a Percent of Premium Revenue,
1st Quarter 2004 – 1st Quarter 2009
Medical Loss Ratio Administrative Costs as a % of Premium Revenue
1st Qtr 2004 82.0% 10.9%
1st Qtr 2005 81.1% 11.3%
1st Qtr 2006 82.6% 11.7%
1st Qtr 2007 82.2% 9.9%
1st Qtr 2008 83.5% 10.2%
1st Qtr 2009 84.5% 10.0%

Source: Florida Hospital Association (FHA) Eye on the Market: HMO Indicators Report, 1Q04-1Q09

The Middle-Class Health Tax Must Be Stopped

December 8, 2009

Liberal/Democratic Washington policy thinkers appear close to reaching the consensus view that the Senate’s excise tax on higher-cost health plans is a good idea. Here’s the problem: The consensus is wrong. The so-called (and misnamed) “Cadillac tax” is unfair and unwise. It’s also a political landmine for its supporters, and a political goldmine for those who oppose all health reform. It must be stopped.

Why do I feel so strongly about this issue? Probably because I’ve been involved in the health care field for nearly thirty years, in roles that include data analysis, health policy, private-sector management and consulting, and international development. Before I began writing and blogging I worked for private and public clients domestically and in over 20 other countries. Yes, I confess! I’ve worked in the much-disliked health insurance industry. But that work taught me many valuable lessons, one of which is that an idea may look good on paper and work out very badly in real life. The health excise tax looks a lot like one of those “looks good/works out badly” ideas.

That’s why I intend to spend a great deal of time in the next few weeks working to prevent this tax from being enacted into law. I will be working closely in this effort with the Campaign For America’s Future, whose leadership understands the political and human damage this tax could inflict. For the next six weeks I’ll be maintaining a blog page at CAF’s website called “No Middle-Class Health Tax,” which will lay out some of the arguments against this tax and will track new findings and developments in this area.

Here are some of the key arguments against this tax:

  • It’s based on flawed logic:  Adherents would have you believe that the excise tax will change the way people use medical services – for the better.  In the days to come we will demonstrate why this is untrue.
  • It’s a tax on middle-class Americans: They call it a “Cadillac tax” because it was originally pitched as a way to make wealthy executives pay for their luxury plans.  But this tax isn’t tied to overall income.  It will hit middle class families the hardest – and because health plan costs are rising much faster than the tax’s inflation index, it will hurt more middle-class families every year.
  • It’s anti-union:  Many American unions traded real wages and other forms of income in order to ensure that their members got decent health coverage.  Taxing those benefits will provide employers with an excuse to break their promises and cut these benefits, while giving nothing back in return.
  • It’s bad politics:  We will show that this tax is likely to hurt politicians who support it. This is true nationwide, and especially in some states and regions where it can least afford to alienate core constituencies.  We will show in the coming weeks why this tax is unpopular and how it is likely to hurt the party’s chances in 2010.
  • It could promote bias in hiring: Health plans become costly for a variety of reasons. Benefit design, the target of the tax, is only one reason. Geographical variations in health cost are another. An older workforce and other demographic factors also drive costs. This tax does not do enough to distinguish these cost drivers, and could make employers reluctant to hire certain workers.
  • Campaign promises are being broken:  A number of candidates in last year’s elections, including the President, promised voters that health reform would not result in new taxes for the middle class.  They also promised voters that “if you like the plan you have now, you can keep it.”  This tax not only breaks the first promise, but also the second.  Employers will cut current health plans in order to avoid this tax.

There are other compelling reasons to oppose this tax, but this list hits most of the key points.

I know first-hand that the common wisdom of accepted policy experts can be wrong. During last year’s primaries I said that mandates wouldn’t provide “universal coverage,” contrary to expert opinion, and “guesstimated” that such a plan would still leave 8 million uninsured. Now the CBO estimates that figure at nine million, which is pretty close. I said the “opt-out” public option provision was nothing to celebrate, predicting that at least 20-30% of states would use it (while many liberal policy analysts insisted that none would.) Now the CBO essentially agrees with my number. I also said that a public option without Medicare-based rates or a common administrative platform might not reduce costs at all, and the CBO validated that argument too. (They estimate a public plan under current proposals could actually be more costly – and they may be right.)

Many of the experts promoting the excise tax failed to anticipate the problems that Massachusetts would face in enacting its health reform proposal. So the conventional wisdom can be – and has been – wrong. The same shortsightedness is at work here. This is not a partisan issue, nor should it be. The numbers and the logic drive inexorably to one conclusion: The excise tax is a bad idea, both as policy and as politics, and must be stopped.

I hope you’ll be moved to join the effort by getting active on this issue in the days and weeks to come. Most of the middle-class plans under attack are pickup trucks, not Cadillacs. They may be “ram tough,” like the TV ads say, but they’re not luxury vehicles. They’re hard-working and durable, and they carry a lot of middle-class Americans. They shouldn’t be driven into a ditch.

(The new “No Middle-Class Health Tax” web page can be found here. Please check back regularly, as we’ll be updating it more than once a day.)

Top 50 Healthcare Blogs

September 20, 2009

These “best of” and “top” lists are always subjective, or course, but this one is pretty good.

If you’re like me, you can’t name anywhere close to 50 anyway, so you’re bound to discover some new ones.

Why Did Health Insurance Stocks Go UP After The President’s Speech?

September 11, 2009

The President gave a speech last night that was exciting, stirring, and unapologetic in its defense of government activism. He singled insurance companies out for special criticism, gave a convincing argument in favor of the public plan option, and forcefully stated that a health reform bill can and will be passed this year.

So why did health insurance stock prices go up the next day?

UnitedHealth? Up 17 cents. WellPoint? Up 19 cents. Aetna? Up 59 cents. Humana? Up $1.12.

These gains weren’t great leaps forward. On a percentage basis, they ranged from the fairly negligible (UnitedHealth) up to the minor but healthy – no irony intended – 2% to 3% range. But why should they gain in value at all?

Investors may well have been reacting to the President’s emphatic endorsement of mandates. He called failure to enroll in a health plan “irresponsible,” and said for the first time publicly that “under my plan, individuals will be required to carry basic health insurance.” (Since this is a reversal from his position during the campaign, until now he has preferred to let Democrats in Congress carry water for him on this issue.)

Investors are likely to recognize that this mandate means that a surge in enrollment is coming for health insurers, followed by a flood of new revenue.

The market is also like to have understood that, while the President made the case effectively for the public option, he also indicated willingness to consider other options. What’s more, many of them may not have realized until now just how many concessions have already been made regarding the public plan, especially in restricting its eligibility to small businesses and the currently uninsured. This may be the first time many investors have heard that it’s expected to enroll no more than five percent of all Americans as a result.

Marcy Wheeler of Firedoglake and Ezra Klein of the Washington Post have been engaged in an enlightening exchange about the role of for-profit insurers in the US healthcare system. After Marcy rebuked Ezra over insurance companies, Ezra responded with a thoughtful and detailed response which focused on the fact that health insurance ranks only 86th in the list of most profitable industries, with an average profitability margin of 3.3%. With relatively slim margins, he suggests, trimming the “profit” out of healthcare won’t put that much back into the system.

A valid point, but somewhat overstated. For one thing, profit margins are calculated only after administrative expenses are paid. That means, for example, those exorbitant salaries and cash bonuses you’ve read about are excluded from the 3.3%. And while Ezra makes some excellent points about overstating the administrative cost differences between public and private plans, the fact remains that marketing costs add a huge cost burden to the system. (Putting everyone in an Insurance Exchange could reduce that significantly, even if we continue to rely on private insurers.)

Regarding that 3.3% figure, it appears understated. That average isn’t weighted for the market share of each company on the list. Larger players appear to be doing better than the average. Looking at them based on Fortune 500 ranking, the top five health players of 2008 (UnitedHealth, Wellpoint, Aetna, Humana, and CIGNA) averaged a much healthier 5.44%. CIGNA had a whopping 9.69% margin, while Wellpoint, Aetna, and United were at 4.5%, 4.00%, and just under 4.00%. At the other end of the spectrum, a low-end player like Universal American (#669 on the Fortune 500, to United Health’s #25) bends the curve substantially with its 0.4% margin.

While that’s still not enough to radically change the equation, 2% or 3% of a trillion-dollar market could still insure a hell of a lot of people.

The biggest problem caused by private-sector insurance isn’t the size of their margins, anyway. It’s the absurd pressure placed on executives at all publicly-held companies to meet investors’ expectations on every quarterly earnings call. That, even more than the profit motive itself, encourages predatory behavior.

So do I want private insurers out of the equation? That would probably result in a more rational system, but I have no ideological stake in the process. If private insurers could prove they’re capable of doing a better job – providing better care at cheaper cost – I’d be all for them. “I don’t care if a cat is black or white as long as it catches mice,” as Deng Xiaoping once said. Unfortunately health insurers haven’t proven to be very good mousers, and their resistance to a public option suggests they don’t want to compete with any other cats in the neighborhood.

The market’s initial reaction to the speech suggests that, at least in investors’ eyes, they’re not going to be asked to anytime soon.

Like many others, I was moved and inspired by the speech. The fact that it gave a slight boost to insurance company fortunes is not prima facie evidence that there’s anything wrong with the reform plan. In fact, it could be argued that private insurers haver ability to enact cost containment measures that might not withstand the political process, and that the profit motive could inspire new innovations that could outstrip the public sector. But then, why aren’t they willing to go head-to-head with a public plan?

After the glow of the speech, the devil is still in the details. The success of the President’s reform plan should be measured by the markers laid down in his own words. First, it must “provide insurance for those who (don’t have it.)” Providing means more than just “mandating.” It means ensuring that it’s affordable , especially to lower-income working people. (People at or near the poverty level would already be covered under current Democratic plans – which, it should be noted, would be an enormous accomplishment.)

Lastly, any plan must must “slow the growth of health care costs for our families, our businesses, and our government,” as the President said. Families should come first on that list. If reform truly meets the needs of uninsured and badly insured Americans, I don’t care what happens to healthcare stock prices. But until then I’ll keep worrying – even after this inspirational speech.

CORRECTION:  The President did not say that the public option was expected to pick up “five million members.”  He said it would pick up no more than 5% of the population.  While that is still a significant limitation of its estimated market impact, we significantly understated the President’s estimate and apologize for the error.  The paragraph has been corrected.

ObamaHealth: The Prognosis at 100 Days

April 29, 2009

(originally written for The Huffington Post)

We can find out which medical treatments work best with “clinical effectiveness research” (CER). Newt and Hillary both love it – but some people are against it just because the President supports it. They say these measurements would be too “arbitrary.” Well, speaking of arbitrary measurements …

It’s Day 100. That’s early to draw any conclusions, but people will anyway (bringing to mind Henny Youngman’s opening line, delivered as he walked out on stage: “How do you like me so far?”) A fairer measurement might be: How have these 100 days measured up against expectations? Giving a single grade would be too arbitrary, so we’ll give several instead, like doctors do when they check your vital signs:

Building Public Support

So, has the President been effective at articulating the need for health care reform? Has he been building a broad base of support for the idea that we need to change the system? What, are you kidding? This is Obama we’re talking about. When we talk about communications we’re in his house – and it shows in the polling numbers.

You’d think that the economic crisis might lead people to conclude “we can’t afford health reform right now.” While that’s a familiar refrain in Congress, the public’s singing another tune. An April poll by the Kaiser Foundation shows that “59% of U.S. residents believe health care reform is now more important than ever,” while only 37% say that “reform would be too costly to attempt during the current economic climate.”

That’s a home run for the President.

How did he achieve these numbers? First, by adopting a position forcefully supported by Peter Orszag (according to Ryan Lizza’s New Yorker profile): that health reform, if done correctly, is deficit reduction. The New Yorker piece describes Orszag’s “obsession” with “the findings of a research team at Dartmouth showing that some regions of the country spend far more money on health care than others but that patients in those high-spending areas don’t have better outcomes than those in regions that spend less money.” That would be the Dartmouth Atlas of Health Care, designed by Dr. John Wennberg. It’s a critical tool for understanding how healthcare works in this country.

Orszag’s fascination with this kind of research has pushed ideas like CER and results-based doctor reimbursement to the forefront, and Obama’s been able to communicate the notion that reform can be cost-effective, despite scare-mongering on the topic from his opponents. That’s a big win.

Grade: A+.

Staffing

It wasn’t supposed to be this way. By now Health Czar Tom Daschle was supposed to have used his DC experience, his insight into the healthcare system, and the power vested in him by the President to launch health reform in a broad and dramatic way. But the Daschle nomination was derailed and the HHS spot stayed open. Things should start to pick up with today’s news that Kathleen Sebelius’ nomination is moving forward.

Read the rest of this entry »

The Impact of Hard Times On the Hospital Industry

April 29, 2009

The American Hospital Association sent out a press release today (text below).  It describes a survey they conducted which outlines the impact of the economic downturn on U.S. hospitals.  While there is a lobbying aspect to their work, the information described in the press release appears to be sound, and illustrates the reasons why health reform is even more urgently needed during economic hard times.

________________________

WASHINGTON (April 27, 2009) – Six out of ten hospitals nationally are seeing a greater proportion of patients without insurance coming through their emergency departments, according to a new survey from the American Hospital Association (AHA). At the same time, nearly half of hospitals reported they have cut staff. Recent employment information from the Bureau of Labor Statistics confirms that hospital employment is no longer growing and that the number of mass layoffs for hospitals reported in February was more than double what it was a year ago.

The majority of hospitals reported that fewer patients are seeking inpatient and elective services; however, many hospitals are seeing more patients covered by Medicaid and other public programs for those in need. Need for hospital-subsidized services such as clinics, screenings and outreach is increasing even as charitable contributions are down for many hospitals.

“Today’s findings signal what many of us in health care are concerned about: people put off care when they lose their job, which can complicate health care issues for many down the road,” said AHA President and CEO Rich Umbdenstock. “At the same time, the fact that hospitals are cutting staff challenges the notion that hospitals are recession-proof.”

The survey also found that the economy is affecting hospitals with nine in 10 hospitals making cutbacks to help weather the economic storm. At the same time, more than one in five hospitals reported reducing services their community depends on, such as behavioral health programs, post acute care, clinics and patient education.

“Community need for care remains high and in these tough times, communities turn to their local hospital,” Umbdenstock said. “Hospitals are walking a tightrope, trying to balance the growing needs of their communities with today’s economic challenges.” Despite taking these steps, the majority of hospitals are seeing a moderate or significant decline in their financial health in 2009 versus the same period in 2008. Many hospitals are struggling to make ends meet with over 40 percent expecting losses in the first quarter of 2009, jeopardizing their mission of caring for their communities.

The majority of hospitals reported fewer patients are seeking inpatient hospital care or elective care, further shrinking the resources hospitals rely on to meet the health needs of their communities. Financial measures such as days cash on hand that are important to creditors are slipping. If key measures fall below a certain level, creditors can require immediate repayment of borrowed money. Nearly all hospitals report that their ability to borrow funds to make improvements is getting worse or remains challenging. In a December survey, many hospitals reported that it was significantly more difficult or even impossible to access tax-exempt bonds and other sources of capital to make improvements.

Nearly eight of 10 hospitals have stopped, postponed or scaled back projects such as facility upgrades as well as clinical and information technology planned or already in progress. The survey, AHA’s second about the economic downturn’s impact on patients and communities hospitals serve, was sent to all 4,946 community hospitals in March. 1,078 responses were received, broadly representative of the universe of hospitals.

Comp Medical Management: Study Profiles Runaway Costs, Weak Results

March 23, 2009

A recent study by the California Workers’ Compensation Institute (CWCI) could lead a reader to some startling conclusions.  At first glance one is tempted merely to conclude that comp medical management isn’t working.  But it may be even worse than that:  vendor incentives for claims and medical services appear to be profoundly out of whack.  From a vendor incentive perspective, medical management is in the same place mortgage lending was two years ago:  You make more money doing a bad job than a good one, and there is no penalty for failure.

CWCI VP Alex Swedlow summarized their findings in a recent press release:  “Ultimate projected workers’ comp medical costs per claim increased 55% from 2002 to 2008, reaching $36,849 per claim.” Yet costs for medical management are rising even more quickly.  Expenditures for these services more than doubled as a percentage of medical during the same period – from 4.9% to 11% of all medical costs.  (The raw figures are $312 per claim in 2002 vs. $784 in 2007.)

One is tempted to think of the Russian Revolution, where the families of people shot by the Soviets were charged for the bullets.

Medical management defenders have always argued that greater economic forces are at work, and that medical costs would have been even higher without these techniques.  While difficult to prove, such arguments sometimes have merit.  My suspicion is that these techniques were more effective in the 1980s than they are now, and that the inflation we’re seeing is building on a somewhat smaller cost base than we would have seen otherwise.  (It’s an interpretation modeled after William B. Schwartz’s Tufts studies of the overall health economy in the late 1980s – and Schwartz is no managed care fan.)

But even that generous assumption could be wrong.   It may be that whatever cost savings effect comp medical management once provided is long gone.  Either way, it now seems that traditional medical management techniques have a lot of explaining to do.

As for the increase in these costs, it’s hard to defend.  If medical management costs had simply grown with comp medical inflation they would have seen a 55% percent increase in revenue per claim over five years – a healthy rate of growth.  Instead they’ve been outpacing medical inflation, and their per-case revenues have grown 2.5 times over that period.  (Granted, case volume is down, so their aggregate revenue has not grown at the same rate.)

It’s difficult to see how this story could have turned out much differently, given the incentives now in place.  Insurance companies tend to over-rely on medical management, without conducting in-depth studies to determine if it works – or, if so, which cases could respond well to these techniques.  Claims departments are not typically measured for their success in managing these costs.  In fact, I’ve seen claims shops where adjusters routinely overload case management nurses with files – just to take the caseload off their own desks.

The TPA situation is even worse.  The majority of TPAs mark up medical management services and keep a percentage of revenue for themselves.  Under that model they make more money if medical management costs skyrocket.  Why would they control these costs?  Nursing, bill review, and PPO organizations each benefit from greater volume – of RN hours or medical treatments – and greater costs.

It’s a system of perverse incentives, one that employers and the general public have failed to note.  At what point does a backlash become inevitable?

for wonks only …

February 5, 2009

The latest Health Wonk Review is up, courtesy of David Williams at Health Business Blog:

http://www.healthbusinessblog.com/?p=2063

sentinel effect’s greatest hits

February 2, 2009

“Hits” being, of course, a highly relative term …

I came across these stats by accident while deleting some comment spam. Our most popular posts to date have been the following:

The “Health Wonk Review” is up

January 22, 2009

We all take turns hosting this health policy and econ blog “carnival.” If you’re a health care nerd who just can’t get enough, this wonk’s for you – courtesy of Disease Management Care Blog.

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