Archive for September, 2009

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.

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Top Five Reasons the Baucus Bill Is Really, Really Bad

September 17, 2009

Here are the top five reasons why it’s a really bad bill:

1. Premium rules that are a giveaway to the insurance companies.

The first shocker in the Baucus bill came early on in the draft. Since  I was stunned to see that the bill allows insurers to charge up to five times as much for some enrollees as for others, based on age. (By contrast, the House draft bill only allows them to charge up to twice as much based on age.)

One of the things we’ve been hearing from the President and other Democrats is that insurance needs to be affordable to everyone, including those with pre-existing conditions. This new provision, however, is a back-door way to let insurers essentially evade that provision. High-cost medical conditions, including chronic (and therefore pre-existing) conditions, aren’t restricted to older people, of course. But they become increasingly common as we age — so much so that indexing costs to age addresses a lot of the difference. The Baucus bill allows insurers to use age as a proxy for costly medical conditions and make coverage prohibitively expensive for those who need it the most.

There’s a principle involved here. The fundamental reason we have insurance in the first place is to spread the risk, so that services are accessible and affordable in our time of need. That’s why it’s considered a social good (if done right). This provision goes a long way toward undoing the principle of shared risk.

The net result would be to make insurance increasingly unaffordable to Americans as they age. Nevertheless …

2. The individual mandate is in there anyway.

Although I’ve been critical of the way many proposals have structured the individual mandate, I’ve always said that I understand the logic behind them: If you’re going to force insurers to take all comers at a relatively average price, the healthy as well as the sick need to enroll. But if you’re allowing insurers to charge much more for the (probably) sick than they do for the (probably) healthier, why have a mandate at all? You’re not pooling risk in the manner originally proposed, so this is a heads-I-win-tails-you-lose proposition for the health plans.

3. It taxes benefits, slowly but surely.

I’ve been opposing the idea of taxing so-called “Cadillac benefits” for a long time. This plan does just that, although they’re not likely to be “Cadillac plans” for long. As I feared, the tax isn’t based on plan design. It targets plans above $21,000 indiscriminately, regardless of the reason for the added cost.

How is this terrible? Let us count the ways. First, it will hit plans hardest when they enroll older employees (who, you will remember, can cost five times as much to cover). That will penalize older employee groups, and will encourage employers to discriminate on the basis of age. Next, it will hurt people who live in urban and coastal areas where medical costs are higher (not that the Senator from Montana cares about that, I suppose). Lastly, if medical costs continue to increase at 10% per year, $21,000 will be the cost of the average plan in five or six years.

This plan’s good CBO forecast rests in part on this new tax income. In other words, it achieves much of its vaunted “budget consciousness” on the backs of the middle class. It’s a lousy bargain for workers and business alike. Granted, taxes will apply only to that portion of cost that exceeds $21,000 — but that portion will increase nationally every year. And the tax rate for costs above the cap is 35%, so it will quickly become a huge new burden.

4. No public plan option.

But you knew that already, didn’t you?

5. Co-ops can’t always “cooperate.”

First, the good news: Co-ops will be able to share data systems and some other services. Given the horrible nature of the bill overall, I was surprised to find that. But they can’t pool their negotiating ability to get better deals from providers on behalf of the American consumer. (Congratulations, Dems — more money out of the taxpayer’s pocket.)

The draft language reads: “[Purchasing councils for co-ops] shall be prohibited from setting payment rates for health care facilities and providers.” That means less savings to be passed on to enrollees.”

It’s unclear whether this provision also applies to drug companies and pharmacy benefit programs. If so, guess who that benefits? After all, most physicians serve patients primarily from one state, so this provision wouldn’t apply to them. Hospital systems may serve patients in two or three states at most. But pharmaceutical companies are national entities. If co-ops could bargain with them collectively (make that “cooperatively”), they could demand substantial savings.

This issue needs to be clarified right away — hopefully in the consumer’s favor, by indicating that it does not apply to drug companies.

The plan does other bad things, too, like the provision that will encourage employers to discriminate against lower-income workers. But hitting you with more than five of them at once could conceivably be bad for your health.

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.

How Progressive Groupthink Hindered Health Reform

September 9, 2009

There’s no point just blaming Max Baucus, Rahm Emanuel, or Barack Obama for the current unpleasant state of health reform – although they’ve each earned their share of criticism. The Left bears some responsibility, too, for failing to set the stage for meaningful change. By granting too much authority to “experts” and ceding their judgment to the resulting groupthink, many progressives laid the groundwork for the poor state of health reform today.

The public option’s in trouble. And if Max Baucus and the other centrist Dems have their way Americans will be forced to buy health insurance that costs $12-14,000 per year. Progressives are finally raising a hue and cry about this burden, but a year ago they were busy promoting the idea that mandates were the centerpiece to meaningful health reform. Now, as the reality of this “reform” takes shape, it’s becoming clear how badly this could turn out. Rational options are being proposed. But with the mandate issue all but resolved politically, progressives have no leverage left to push their agenda.

I can’t have been the only one beating the drum about mandates (although it felt like a lonely position at times). It was clear long ago that any plan that imposes them on the American public without first creating significant savings would be a disaster, both politically and in human terms. As things stand now, a family of four without employer coverage trying to get by on $75,000 could suddenly be forced to fork over 20% of their income to a health insurer – or face government punishment.1

And according to the usually-reliable form Martin E. Segal, those costs are likely to rise more than 10% on average in the coming year, even as benefits are cut back. Mandates? To buy that??

So perhaps those of us who have been sounding the alarm may be forgiven a little frustration when we read items like this one from Josh Marshall, which asks: “Am I the only one who thinks that if the Dems pass a bill with mandates and subsidies for poor and moderate income people to purchase it but no public option or competition with the insurers, that it will be pretty much a catastrophe for the Democrats in political terms?”

His reaction’s being echoed all over the progressive blogosphere, as progressives suddenly realize the idea’s unfair – and a political loser. Jed Lewison at DailyKos called it “horrible political miscalculation” when Marc Ambinder reported that “the President continues to operate under the belief that liberals will warm to the bill when presented with a goodybag that includes an individual mandate … ”

How? How could the President get the idea that an individual mandate, especially without a public option, was a “goody” for progressives?

Because progressives told him so – over and over during the 2008 primaries. Supporters of John Edwards and then Hillary Clinton hammered Obama because his plan didn’t include individual mandates, claiming explicitly (and wrongly) that mandates equaled “universal coverage” and were therefore more “left.” And it’s still happening, as in Joan Walsh’s comment from a recent piece: “Let’s remember that Obama opposed mandatory universal health insurance and backed the GOP fiction about the need for social security reform’ – two social policy stands that put him to the right of all the leading Democrats in the primaries.”

No! “Mandatory universal health insurance” is not a progressive position, as we explained here in 2007. And it’s not even “universal,” as we explained in early 2008. That’s why Obama was able to score some points against his opponents in the primaries by rejecting mandates. That’s a pledge he broke early on without drawing liberal fire, perhaps because of progressive misconceptions about this policy. But Paul Krugman, who battered Obama on this point during the election, understands what a wildfire the Democrats will ignite if they push mandates without a public option.

Context is everything. Virtually without exception, writers who are considered progressive leaders on health care pushed for individual mandates without considering the regressive and confiscatory form they could well take, and without emphasizing that they could only work fairly in the right context. As Ezra Klein wrote when the President met with all those “stakeholders,” reflecting this progressive consensus: “Insurance market reforms can’t happen in the absence of an individual mandate. Either everyone jumps together or no one will leave the ledge.”

There is sound actuarial logic and economic calculation behind this concept. But a kind of groupthink took over. The group-thinkers decided to push Obama on mandates and assume that questions of access, fairness, and cost containment will be handled through a public option or some other mechanism. But nobody put those issues on the front burner, even though they were given lip service The result is the potentially disastrous plan facing us today.

With mandates, the execution has to be practical and fair. Taxation’s one such principle – the one I originally pushed – but it’s apparently politically unsupportable. So Jacob Hacker came up with another (as discussed in my interview with him, here). But Hacker’s plan, as with any meaningful reform proposal, requires a public option – both for cost containment and to serve as an insurer of last resort. If you’re going to force people to buy something, you have to ensure they can afford it.

How did we get here? Josh Marshall’s piece holds part of the answer. First he writes of Switzerland and Massachusetts, whose plans feature individual mandates and no public plan. But Switzerland created a rational system before things got out of control, so the Swiss aren’t being forced to buy $14,000 plans. As for Massachusetts, its reform is only vaguely popular there, where the initial problems weren’t nearly as complex as they are nationally, and is decidedly unpopular with those who have been affected by it (see summary about two-thirds of the way down the page, here).

And I have a sneaking suspicion that the people affected on the national level – independent tradespeople and contractors, for example – might just be swing voters in critical states like Indiana.

Marshall writes: “… many health care experts I have a lot of respect for still believe (these plans) would be a big improvement over the current situation.” I have respect for those people, too, but we might be better off today if Josh Marshall and others had trusted their own instincts instead of relying on a group of people who appear to have reinforced each others’ fixation on mandates. Now the progressive debate has been reduced to whether the likely final version (via Sen. Baucus) will be slightly better or significantly worse than today’s status quo – and sadly, we can’t know the answer to even that modest question yet. We could have had better than this.

So what now? Let’s encourage the people who spoke with one voice in favor of mandates to speak with one voice again – this time, in favor of comprehensive and meaningful reform – while there’s still a chance to influence this legislation.

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1The new Baucus draft bill limits out-of-pocket costs to 13% of income, but that draft is jumbled and incomplete, and it’s unclear how this would be achieved. See here for details.