Proof that individuals game the individual mandate

Posted by on Wednesday, Jun 30, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Short-term insurance buyers drive up cost in Mass.

By Kay Lazar
The Boston Globe
June 30, 2010

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

The result is that insured residents of Massachusetts wind up paying more for health care, according to the report.

“The active members subsidize some of the costs tied to those individuals who terminate within one year,” the report says.

http://www.boston.com/news/health/articles/2010/06/30/short_term_insurance_buyers_drive_up_cost_in_mass/?rss_id=Boston.com+–+Health+news

Report:
http://www.mass.gov/Eoca/docs/doi/Companies/adverse_selection_report.pdf

During the reform process the concern was expressed repeatedly that an individual mandate – requiring individuals to purchase their own health insurance – would result in gaming the system. People would enroll when they needed expensive care, and then drop out after the care was completed. The experience in Massachusetts has demonstrated that it did not take long for the public to learn this game, for this is precisely what has happened. Nevertheless, the individual mandate is now the law of the land.

Options being considered to reduce this form of adverse selection include, as examples, allowing open enrollment for only one month per year, or increasing the penalty for remaining uninsured. Although such measures might reduce this tendency to game the system, they will not eliminate it.

It is the structure of the financing system that is fundamentally flawed. It cannot be fixed merely by tweaking the mandate, nor by tweaking the thousands of other provisions in this dysfunctional system. It needs to be replaced with a structurally sound system.

With a single payer national health program the issue of an individual mandate would be moot since everyone would be enrolled, automatically, throughout life.

Sen. Evan Bayh’s fortunes tied to WellPoint

Posted by on Wednesday, Jun 30, 2010

By Chris Gray

Sen. Evan Bayh, D-Ind., a staunch opponent of single-payer national health insurance who waffled on his support of even a meager government-run public option in this past year’s health care debate, has about a third of his stock invested in just one company: Indianapolis-based WellPoint, Inc., perhaps the most notorious of health insurance companies.

Bayh’s WellPoint stock is worth about $1 million. His net worth is modest by Senate standards, totaling no more than about $3 million in 2008.

Using data provided by opensecrets.org, a PNHP analysis of congressional health insurance stock assets revealed that the industry is not a popular one for legislators, with investments totaling only $2.1 million. Bayh’s investments are almost half that total.

The only other legislators with significant holdings in health insurance stock were Rep. Rodney Frelinghuysen, R-N.J., Rep. Jane Harman, D-Calif., and Sen. John Kerry, D-Mass. Frelinghuysen holds $300,000 in Aetna stock; Kerry has the same amount in WellPoint. Harman has $150,000 in Aetna and $50,000 in WellPoint.

But Frelinghuysen, Kerry and Harman are all among the 20 wealthiest members of Congress, and their health insurance stock is less than 1 percent of their portfolios. Bayh stands out as a clear outlier.

The Indiana Democrat is set to retire at the end of the year. He has disparaged single payer as “socialized medicine” and spoke out against the public option for much of the year before announcing in October that he would not oppose a public plan. He joined Republicans to filibuster an amendment to the Senate bill in December that would have allowed the re-importation of drugs from Canada and Europe.

Bayh’s wife, Susan, sits on the board of directors for WellPoint, and over the past six years has earned at least $2 million in compensation, according to The Street magazine. The Street also said her appointment to the board in 2003 would likely have been viewed as a surprise, since she was relatively young and inexperienced to be helping to direct a multibillion-dollar board.

Bayh frequently stressed his “fiscal conservative” credentials as he helped organize the so-called Blue Dog Democrats, and favored maintaining and bolstering the system of for-profit health insurance throughout the reform debates.

Vermont Joint Fiscal Committee approves single payer study

Posted by on Tuesday, Jun 29, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Vermont health reform panel recommends analyst

By Nancy Remsen
Burlington Free Press
June 29, 2010

The Health Care Reform Commission recommended Monday that the Legislature hire the Harvard economist who helped Taiwan revamp its health-care system for a six-month, $300,000 health research project for Vermont.

The consultant’s task: Give lawmakers three roadmaps the state could follow to achieve a more efficient and accessible but less-expensive health-care system. One must be a government-financed system, and another must include a public option for health coverage along with private insurance.

The commission received proposals from three consultants, interviewed representatives of two Monday morning and made a unanimous choice after lunch.

Today the Legislature’s Joint Fiscal Committee is to decide whether it agrees with the commission’s choice of William S. Hsiao, professor of economics at the Harvard School of Public Health and his associates, Jonathan Gruber, an economics professor at Massachusetts Institute of Technology, and Steven Kappel, a health policy analyst who previously worked for the state and for the Legislature.

Details of the Hsiao, Gruber, Kappel proposal — and the rival bids from Lewin Group of Falls Church, Va., and Mathmatica Policy Research Inc. of Washington, D.C. — remain confidential until an agreement is signed.

“All three proposals were good on the analytical front,” said Commission Co-Chairman Rep. Steve Maier, D-Middlebury. Still, he and others agreed Hsiao’s proposal stood out, and his presentation clinched his selection.

“Dr. Hsiao’s proposal offers us the greatest value,” said Rep. Mark Larson, D-Burlington.

“His group has a track record all over the work designing health-care systems,” said Rep. Francis “Topper” McFaun, R-Barre. “He knows what works.”

The designs the winning consultant must deliver by next winter are intended to guide the Legislature’s next steps.

Hsiao had spoken to the Legislature’s health-care committees last winter about the potential savings and shortcomings of a single-payer system. Many lawmakers came away impressed.

Sen. Kevin Mullin, R-Rutland, noted some people might suggest the “fix” was in to select Hsiao to do the study. Mullin said he tried hard to find reasons to pick one of the other consultants. In the end, he agreed with the rest of the commission: “This one is the best for Vermont.”

http://www.burlingtonfreepress.com/article/20100629/NEWS03/100628014/100…

And…

TO: All interested parties
FROM: Jim Hester, Director, Health Care Reform Commission
DATE: 6/29/10
SUBJECT: Selection of Health Care Reform Study Contractor

On June 28, the Health Care Reform Commission voted unanimously to hire the team of William Hsiao, Ph.D, Steven Kappel, and Johnathan Gruber, Ph.D to conduct the health care reform design study as laid out in Act 128 of 2010. On June 29th, the Joint Fiscal Committee voted to approve the recommendation of the Health Care Reform Commission. It is expected that a contract will be signed on or about July 15th.

http://www.leg.state.vt.us/jfo/Healthcare/Contractor%20Selection%20-%20Health%20Care%20Reform%20Design%20Study.pdf

Today the Vermont Joint Fiscal Committee gave the final approval for a study of health care reform for the state of Vermont. The study, to be done by William Hsiao, Ph.D, Johnathan Gruber, Ph.D, and Steven Kappel, will look at three models, including a government-financed system. Especially noteworthy is the fact that this study has received the support of Republican legislators. Single payer is on the table!

Town hall meetings get single-payer message

Posted by on Tuesday, Jun 29, 2010

By Walter Tsou, M.D., M.P.H.

Yesterday, AmericaSpeaks, a nominally nonpartisan group (but funded in part by billionaire Peter G. Peterson, a notorious advocate of cuts in the Social Security, Medicare and Medicaid programs), conducted a town hall meeting on the  U.S. budget deficit in 19 cities across the country. This 6.5-hour marathon consisted of about 3,500 people who were meant to be representative of America.

I was one of the 450 people who showed up for the session in Philadelphia. We were given the task of cutting $1.2 trillion from the federal budget by 2025.

The initial demographics suggested that there were equal numbers of men and women, liberals (44%), moderates (23%), conservatives (33%), a larger number of those older (55+) than the U.S. population, and fewer Latinos.

People were more supportive of government spending (51%) than not adding to the national debt (38%) at this time of recession. 61% felt government should do more to strengthen the economy. People were equally divided between taking care of the current generation vs. redirecting resources for “future generations” and equally divided between government caring for the most vulnerable and individual responsibility to take care of oneself. More people felt the rich should pay higher amounts to reduce the deficit.

It was interesting to hear how people balanced the choices (which were pre-chosen by the sponsors) between cuts in spending and raising revenue. The final report won’t be out for several weeks, but my impression was that people were angry about the undue influence of lobbyists and corporate interests over that of ordinary people. The recent decision not to extend unemployment benefits and Federal Medical Assistance Percentage (FMAP) funding for Medicaid is a perfect example of this.

People favored raising taxes over cutting health care or Social Security. When people were asked if they would cut Medicare and Medicaid by 5%, 10% or 15%, the largest group (38%) said they wanted no cuts.

Many felt that the choices were too limited. In the session’s “options workbook” there is this statement: “At the moment, the nation does not seem prepared to consider fundamental reform of the kind suggested in the first two approaches above — premium support or single payer.”

Amazingly, when people were asked to comment on their health cuts, there was a huge support for single-payer health care — enough to get into the final report. In Philadelphia, which was the host center for the entire AmericaSpeaks program, there was loud clapping for single payer.

Dr. Alice Rivlin was in the Philadelphia conference all day and is one of the members of the debt commission. I went up to her and pointed to my T-shirt which said, “It’s simple: Medicare for All”. More generally, she most assuredly observed the support for single payer.

There was one area that people definitely wanted cut — defense spending (85%). There was also support for raising taxes on corporations to 40% (59%) and millionaires (68%), imposing a carbon tax (64%) and stock and bond trading tax (61%).

I have to say that the technology was pretty impressive. There were live camera interviews from all of the sites cross the country. Every one of the 3,500 people had keypads which allowed instantaneous polling within 20 seconds of asking a question. Each of the sites had tables with 6-8 people randomly assigned and a facilitator who discussed all of these issues. Each table had a laptop, and free-form comments were invited, which allowed other choices besides the ones prescribed by the organizers. I was surprised at the consensus at my table. If there were tea baggers, they did not make their presence known in Philadelphia.

AmericaSpeaks says that there is a scheduled meeting next week to discuss these national findings. They have access to key congressional staffers and some members. I, of course, am too cynical to believe that it will make much of a difference since our politicians are totally bought off by the lobbyists. I remember the town hall meetings in 2006 leading up to the health reform debate which also supported a single-payer system. It was not even a consideration for the politicians.

But for those of us in the town hall meeting, I think the message was pretty clear — raise taxes on those who have the money, cut defense spending, don’t cut services for main-street Americans, and stop listening to special interests and start listening to the American people.

Winner-Take-All Politics

Posted by on Monday, Jun 28, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Invisible Hands

By Kim Phillips-Fein

This book is about those determined few, those ordinary businessmen from companies of different sizes and from various industries, who worked for more than forty years to undo the system of labor unions, federal social welfare programs, and government regulation of the economy that came into existence during and after the Great Depression of the 1930s.

http://www.amazon.com/Invisible-Hands-Making-Conservative-Movement/dp/0393059308

And…

Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States

By Jacob S. Hacker and Paul Pierson
Politics and Society
June 2010

Too many economists and political scientists have treated the American political economy as an atomized space, and focused their analysis on individual actors, from voters and politicians to workers and consumers. But the American political economy is an organized space, with extensive government policies shaping markets, and increasingly powerful groups who favor winner-take-all outcomes playing a critical role in politics. Finding allies in both political parties, organized groups with a long view have successfully pushed new initiatives onto the American political agenda and exploited the opportunities created by American political institutions to transform U.S. public policy — through new enactments and pervasive policy drift. In the process, they have fundamentally reshaped the relative economic standing and absolute well-being of millions of ordinary Americans. Politics and governance have been central to the rise of winner-take-all inequality.

http://pas.sagepub.com/cgi/reprint/38/2/152

(The entire special June issue of Politics and Society is devoted to the Winner-Take-All article by Hacker and Pierson, and to six responses. It can be downloaded for free at: http://pas.sagepub.com/)

And…

One response to Hacker and Pierson: The Public’s Role in Winner-Take-All Politics

By Andrea Louise Campbell

Through its political dominance and cagey understanding of esoteric and complicated economic and regulatory policies, the top 1 percent has enjoyed stunning success in shaping public policy to its advantage. But it’s not enough to examine the strategies of the economic elite; to understand fully how they have achieved such a remarkable degree of inequality it is necessary to examine why ordinary citizens have failed to act as an effective counterweight. One chief problem is that citizens simply don’t pay attention to such complex policies; another is that even if they did, they can’t figure out what their stances should be, and no one is helping them. Low salience and great ignorance make for a disastrous democratic brew. The brilliant organizing strategies of the rich tell half the story; the lack of organization and hence information among ordinary Americans tells the other crucial half.

http://pas.sagepub.com/cgi/reprint/38/2/227

And…

Six Things to Know About Health Care Coverage

A Study of the Media and the Health Care Debate

Pew Research Center
Project for Excellence in Journalism
June 21, 2010

Conclusion

Last summer, as tempers flared in town halls throughout the country, CBS correspondent Wyatt Andrews described the environment as a “show of August heat.” And in many ways, it was the heat of the health care battle that most interested and influenced the media.

Coverage peaked when the public got the most passionate and when the politics got the most partisan. The press focused far more on the horserace aspects of the legislative struggle than on examining the system it was designed to reform. No one lavished more attention on the subject than the talk show hosts, who spend much of their time engaging in ideological warfare. And the terms that resonated in the media narrative, perhaps most notably “death panels,” were those that packed a polarizing punch.

All of which raises the question of the extent to which the media shed light versus heat when it came to health care reform. Certainly, many outlets did good work covering the numerous layers of the complex issue. But it’s also true that the public seemed consistently confused by the health care debate and had a difficult time sorting out fact from fiction.

http://www.journalism.org/node/20966

People who understand health policy have difficulty understanding why there has not been massive public demand for reform that will make health care affordable and accessible for all of us. Why did we settle for the most expensive model of reform when it falls so short of our goals – leaving tens of millions with impaired access and potentially exposed to financial hardship should they require health care? Today’s quotes are particularly important because they provide some insight as to what hit us.

Anyone who has been paying any attention at all is certainly aware of the proliferation of very well funded conservative and libertarian organizations. What is not commonly realized is the ability of these organizations and the individuals behind them to permeate the political process. They have been highly effective in transforming U.S. public policy.

The conservative/libertarian faction has certainly been very influential in assisting the creation of inequality-inducing policies and laws, but what has caught most of us off guard is the phenomenon of “drift,” as explained by Hacker and Pierson:

“A second mechanism, which we call ‘drift,’ is equally, if not more, important. Drift describes the politically driven failure of public policies to adapt to the shifting realities of a dynamic economy and society. Drift is not the same as simple inaction. Rather, it occurs when the effects of public policies change substantially due to shifts in the surrounding economic or social context and then, despite the recognition of alternatives, policy makers fail to update policies due to pressure from intense minority interests or political actors exploiting veto points in the political process. Thus, drift requires (1) policies whose effects change due to shifting circumstances, (2) recognition of this change, (3) availability and awareness of viable alternatives, and (4) nonmajoritarian reasons why those alternatives are not adopted.”

Ouch! We have drifted into a health care morass, and the rigid conservative/libertarian public policy agenda – gradually formulated over the past half century – has resulted in both Democrats and Republicans adopting policies that merely expand the the mess in the morass. (Keep in mind that the financing system in the Accountable Care Act was originally promoted by conservative economists and think tanks.)

Hacker and Pierson emphasize the precipitous rise of income confined at the very top, and they demonstrate it with impressive graphs and tables. For our purposes, it serves as a proxy for the public policy flaws that have perpetuated profound dysfunction in our tremendously expensive health care system.

We would like to think that the solution would be found in our democratic process. But we have an uninformed electorate that doesn’t even realize that they are victims of the failed public policies of the drift. The Pew report confirms that even the media focused on the heat rather than the light during the health care debate. How is the average citizen going to be able to understand health policy when the primary source for most is cable and network news and talk radio?

If you think that the average voter is smarter than that, look at the results this weekend of the Peter G. Peterson Foundation-sponsored AmericaSpeaks national town hall meetings. The majority believe that the answer to our high health care costs is simply to reduce spending by 5 percent. They also believe that we should increase retirement age for Social Security to 69. The prevailing public policy of government budget neutrality – with adjustments made primarily on the spending side and not on the revenue side – has trumped the public policies of social solidarity.

Drift works to the advantage of anti-government forces. Effective public policies – such as single payer – are merely left out of the conversation. And the rich get richer – much, much richer.

How do you counter drift? Educate and organize at the grassroots level. New public policies require action.

The private insurance oligopoly

Posted by on Friday, Jun 25, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

WellPoint’s Kleinman Sees Health Insurer ‘Oligopoly’

By Alex Nussbaum
Bloomberg Businessweek
June 24, 2010

U.S. health insurers are “moving towards an oligopoly,” a process that this year’s health-care overhaul will accelerate, the investor-relations chief at WellPoint Inc. said today.

New regulations on administrative spending and premium increases will push some independent insurers out of business or into deals with bigger rivals, said Michael Kleinman, vice president for investor relations, at a Wells Fargo & Co. conference in Boston.

The insurance market is becoming an oligopoly, a market where supply and pricing are dominated by a few companies, “and health-care reform is going to move us in that direction more quickly,” Kleinman said. “There are going to be smaller insurers that are not going to be able to survive in this marketplace.”

Led by WellPoint, 12 health plans cover two-thirds of the enrollment in the U.S. commercial-insurance market, said Ana Gupte, a Sanford C. Bernstein & Co. analyst in New York, in a June 11 note to clients.

The health-care overhaul is likely to push at least 100 insurers with 200,000 members or less out of the business “as the plans are increasingly unable to invest in the infrastructure and technology to effectively manage care,” Gupte wrote.

“Insurance companies should see this reform as an opportunity to improve care and increase competition,” (said President Obama in remarks on June 22 touting the health-care overhaul).

http://www.businessweek.com/news/2010-06-24/wellpoint-s-kleinman-sees-health-insurer-oligopoly-.html

President Obama claims that this is an opportunity for insurers to increase competition, yet the very structure of the weakly regulated insurance markets established by the Affordable Care Act will concentrate the private insurers into an anti-competitive, oligopolistic market.

The insurers will keep 15 to 20 percent of the premiums to sell us plans that cover only 60 to 70 percent of our care, and they won’t really have to compete with each other to do that. And this outrageously expensive scheme allegedly was to promote competition?

Forget oligopolistic competition! Let’s throw out the middlemen and establish our own public monopsony – a single payer national health program. That’s market control that works for the benefit of us instead of the insurers.

Venture capitalists say cheap is the name of the game

Posted by on Thursday, Jun 24, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Name Of Game In Health Care: Cheaper, Better, Faster

By Jennifer Rossa
The Wall Street Journal
June 13, 2010

Now that health-care reform legislation has been signed into existence in the U.S., venture investors say they are focused even more intently than before on companies with products that aim to lower the cost of health-care.

Leslie Bottorff, a general partner at Onset Ventures, said she anticipates there will be opportunities to invest in health-care providers, infrastructure, and technology, as they all provide ways to take costs out of the system without affecting how doctors are paid. “You can’t scale doctors,” she said, speaking on a panel at the Dow Jones Limited Partner Summit in New York.

“Cheaper, better, faster is absolutely the name of the game” now, Bottorff said.

http://blogs.wsj.com/venturecapital/2010/06/23/name-of-game-in-health-care-cheaper-better-faster/

So the venture capitalists are lining up ready to invest in companies with products that “aim to lower the cost of health-care.” How many pharmaceutical firms do you suppose are ready to market innovative new inexpensive drugs that will replace their older more costly products? How many medical device companies are ready to market new devices that will cost less and make obsolete their existing products which are highly profitable? But doctors, well you can’t scale them.

The venture capitalists are there for one reason only – to make money, as much as possible. Do they really believe that the pharmaceutical companies and medical device manufacturers don’t have the same goal? Money, money, money. Yeah. Forget about that “cheaper” part.

Will grandfathering save our current private plans?

Posted by on Wednesday, Jun 23, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Fact Sheet: Keeping the Health Plan You Have: The Affordable Care Act and “Grandfathered” Health Plans

U.S. Department of Health & Human Services
Accessed June 23, 2010

During the health reform debate, President Obama made clear to Americans that “if you like your health plan, you can keep it.”  He emphasized that there is nothing in the new law that would force them to change plans or doctors. Today, the Departments of Health and Human Services, Labor, and Treasury issued a new regulation for health coverage in place on March 23, 2010 that makes good on that promise.

Compared to their polices in effect on March 23, 2010, grandfathered plans:

* Cannot Significantly Cut or Reduce Benefits.
* Cannot Raise Co-Insurance Charges.
* Cannot Significantly Raise Co-Payment Charges.
* Cannot Significantly Raise Deductibles.
* Cannot Significantly Lower Employer Contributions.
* Cannot Add or Tighten an Annual Limit on What the Insurer Pays.
* Cannot Change Insurance Companies

http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html

And…

“Keeping the insurance you have” – Don’t believe it!

Comment by Don McCanne, MD
Quote of the Day
July 11, 2008

Pause for a minute. Think back to the insurance you had twenty years ago. Remember? Now do you still have precisely that same coverage? Unless you are over 85 and have been in the traditional Medicare program for the past twenty years, it is highly likely that you do not.

So why do you no longer have the better coverage that you had twenty years ago? You may have changed jobs, likely more than once, and lost the coverage that your prior employer provided. Your employer may have changed plans because of ever-increasing insurance premiums. Frequently your insurer introduces plan innovations such as larger deductibles, a change from fixed-dollar copayments to higher coinsurance percentages, tiering of your cost sharing for services and products, reduction in the benefits covered, dollar caps on payouts, and other innovations all designed to keep premiums competitive in a market of rapidly rising health care costs. You may have lost coverage when your age disqualified you from participating in your parents’ plan. You may have found that health benefit programs have been declining as an incentive offered by new employers. Your children may have lost coverage under the Children’s Health Insurance Program when your income, though modest, disqualified your family from the program. Your union may not have been able to negotiate the continuation of the high-quality coverage that you previously held. Your employer may have reduced or eliminated the retirement coverage that you were promised but not guaranteed. Your employer may have filed for bankruptcy without setting aside the legacy costs of their pensions and retiree health benefit programs. You may have decided to start your own small business and found that you could not qualify for coverage because of your medical history, even if relatively benign, or maybe your small business margins are so narrow that you can’t afford the premiums. You may have been covered previously by a small business owner whose entire group plan was cancelled at renewal because one employee developed diabetes, or another became HIV infected. Your COBRA coverage may have lapsed and you found that the individual insurance market offered you no realistic options. You may have retired before Medicare eligibility, only to find that premiums were truly unaffordable or coverage was not even available because of preexisting medical problems.

http://www.pnhp.org/news/2008/july/keeping-the-insurance-you-have-dont-believe-it

The opponents of reform, especially the Republicans in Congress, are making a big deal out of the fact that the Affordable Care Act breaks President Obama’s promise that you will be able to keep the insurance plan you have. The Obama administration is countering by publicizing the new regulations that will allow plans in place on March 23, 2010 to be grandfathered, supposedly assuring that you will be able to keep your plan if you had it on that date.

Actually, this is a silly debate. As explained in my comment two years ago, except for those individuals on Medicare or other financially sound retiree programs, almost no one gets to keep the insurance he or she has. Rather than stabilizing existing coverage, the regulations that would grandfather plans make it less likely, in an environment of increasing health care costs, that existing plans would continue to be offered without significant changes.

In an effort to make the insurance plans more affordable, further adjustments in deductibles and coinsurance are almost inevitable, and the ever-changing insurance marketplace will surely result in changes in insurance companies selected. Insurance price shoppers, who are mostly healthy, will be much more sensitive to size of the premiums than they would be to cost sharing; this is precisely what has happened throughout the individual market. These pressures would accelerate the decline in grandfathered plans.

This HHS report predicts an end to the individual market and a sharp decline in the small employer market. They claim that the large employer market will not see much change, but other studies have shown that large employers are already switching to plans with larger deductibles and other cost sharing simply to keep premiums affordable, and many are switching the insurers that they are using, thereby losing their eligibility for the grandfathered status. Besides, for the reasons mentioned in the July, 2008 comment above, almost no one will end up staying indefinitely in the same employer sponsored plan anyway.

“Keeping the insurance you have” was only a slogan used to market the reform proposal. It wasn’t a serious long term strategy. Instead of wasting time in another political dogfight – this time over grandfathering – we should move forward with supporting policies that will work for everyone – like a single payer national health program.

Are high premiums due to medical costs or insurer profits?

Posted by on Tuesday, Jun 22, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Insurance Industry Inflates Rates While Falsely Blaming New Health Care Law

Health Care for America Now! (HCAN)
June 2010

The health insurance industry argues that rising medical costs are to blame for runaway premiums, but it’s clear that they are constantly looking for excuses to raise rates and expand their cash flows.

Premium hikes have surpassed the growth of medical costs, wages and overall inflation. From 2000 to 2008, premiums for families enrolled in employer-sponsored health plans increased 97 percent, while rates for individuals in workplace health plans climbed 90 percent. During that same period, private insurers’ payments to health care providers rose only 72 percent, medical inflation increased 39 percent, wages grew 29 percent and overall inflation climbed 21 percent. Health insurers are basing increases on something other than medical inflation, wages or general inflation.

http://hcfan.3cdn.net/d8f62f1fc66d8e0224_q6m6bnff1.pdf

If you look beyond the inflammatory anti-private insurance rhetoric of this report (mostly appropriate, some perhaps not), you can find a few real numbers to help understand rising insurance costs. From 2000 to 2008, overall inflation increased 21 percent, but medical inflation increased 39 percent, while employer-sponsored insurance premiums increased 90 percent for individuals and 97 percent for families.

The fact that medical inflation grew faster than overall inflation supports the position of the private insurers that rising health care costs have necessitated higher premiums, but that isn’t the whole story.

Private insurers’ payments to health care providers increased at 72 percent, considerably higher than the rate of medical inflation. This supports the insurers’ position that failure of government reimbursement rates to keep up with medical inflation, especially in the Medicare and Medicaid programs, has resulted in a cost shift to the private insurers who are paying more to make up the differences. However, some economists have suggested that this merely represents a failure of the private insurance industry to hold down excessive price increases.

Even with medical inflation and public-to-private cost shifting, premiums have increased at a significantly higher rate. This likely represents both higher administrative costs and greater profits. If the insurance industry were efficient, the percent dedicated to administrative costs should actually decline since higher prices would reduce the percentage of premiums absorbed by each unit of administrative service.

Although the insurance industry has been evasive about the portion of premiums that are consumed by administrative services, the for-profit insurers have been required to report their profits and their medical loss ratios. From the 2009 data (included in this report) we know that their administrative costs are outrageously wasteful, and that their profits are at an all time high.

Today President Obama told representatives of the insurance industry to not raise their prices so high. Do you think that they will listen? It seems that he would be much more effective if he were to tell the public stewards of an improved Medicare for all to get the prices right.

The following is to clarify a legitimate concern of one of the qotd subscribers.

From the 6/22/10 message:

21% – general inflation
39% – medical inflation
72% – increase in private insurers’ payments to health care providers
90% & 97% – premium increases for individual and family health plans

General inflation and medical inflation refer to increased prices. Payments to providers and insurance premium increases refer to increased prices modified by increased volume and intensity of services.

Though the numbers should not be compared on a single scale, the principles are still the same as stated earlier. The rate of medical inflation (prices) has continued to increase in excess of the rate of general inflation. Insurance premiums have continued to increase in excess of the payments (prices x services) to providers.

Twenty percent average premium increase

Posted by on Monday, Jun 21, 2010

This entry is from Dr. McCanne's Quote of the Day, a daily health policy update on the single-payer health care reform movement. The QotD is archived on PNHP's website.

Recent Premium Increases Imposed by Insurers Averaged 20% for People Who Buy Their Own Health Insurance, Kaiser Survey Finds

Kaiser Family Foundation
June 21, 2010

People who buy their own insurance report that their insurers most recently requested premium increases averaging 20 percent, according to a new Kaiser survey examining the experiences and views of people who buy health coverage in the non-group or individual market.

Most say they paid the increase, but 16 percent of all policyholders say they switched plans, either buying a less expensive policy from their current insurer or switching companies altogether. After these so-called “buy downs” are taken into account, people who faced a premium increase ended up paying 13 percent more than before.

Many people report being in plans with high deductibles, including one in four (26 percent) with an annual deductible of $5,000 or more and 6 percent with a deductible of $10,000 or more.

Overall, the average deductible reported for single coverage is $2,498, almost four times the $634 deductible reported on average for employer-sponsored PPO coverage.  Those with family coverage whose deductibles must be met on a per-person basis report an average deductible of $2,959, while those with a family deductible (the total spending required across the entire family before coverage kicks in) report an average of $5,149.

More than one in five (22 percent) say over the past year they or a family member covered by their plan did not get needed medical care because of the cost, and a similar share (20 percent) say they skipped filling a prescription due to cost.

Nearly four in ten policyholders (38 percent) report at least one problem getting their insurer to pay a bill.

“With people in the individual market being hit with average increases of 20%, the survey shows that the steep increases we have been reading about over the last several months are not just extreme cases,” Kaiser Family Foundation President and CEO Drew Altman said.

http://www.kff.org/kaiserpolls/posr062110nr.cfm

This survey is very important because it shows that outrageous insurance premium increases are not limited to the anecdotes that we have been hearing, but rather are a pervasive problem, inflicting the nation with an average 20 percent premium increase in the individual insurance market. Those who say that the Patient Protection and Affordable Care Act (PPACA) will fix this had better take a closer look.

With these increases, it is not surprising that many looked for less expensive plans, usually opting for higher deductibles. But look at the numbers. The average deductible for a family is now over $5000, and for some, $10,000 or more. In spite of all of the buy-downs to higher deductible plans, people still ended up this year paying an average of 13 percent higher premiums – paying more and getting less.

Will PPACA provide relief from these high deductibles that are impairing access to needed medical care? No. The plans will be required to have an actuarial value of only 60 percent, or 70 percent for the exchange plans eligible for premium credits. When the patients’ share averages 30 to 40 percent of the costs (plus the premium), it is inevitable that the plans will have high deductibles.

Will the cost sharing subsidies of the exchange plans adequately ameliorate the impact of the deductibles? No. Lower income individuals do not have adequate disposable income to meet their portion of the cost sharing, even with the subsidies. For those with incomes over 250 percent of the federal poverty level ($55,125 for a family of four), there are no cost sharing subsidies beyond the equivalent of a 70 percent actuarial value. The portion of the subsidized insurance premium that this family would still have to pay is $4438 (8.05 percent of income), so with a $5000 deductible, they would have to pay over 17 percent of their income before coverage begins (except for limited preventive services), and even then they would still have coinsurance payments plus costs for non-covered or most out-of-network services. By any definition, that is underinsurance, which will become the norm for the United States.

The problem is not the total cost of health care for our nation. We can afford it, though we are nearing our collective tolerance. The problem is the fragmented, dysfunctional financing system that results in tremendous inequities and runaway cost increases. A single payer national health program would fix this.

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