Insurance trade group sues to protect rescissions

Posted by on Friday, Aug 20, 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.

Trade group sues over new Calif. insurance rules

By Shaya Tayefe Mohajer
San Francisco Chronicle
August 19, 2010

A new regulation that makes it harder for health insurance companies to drop individual policyholders in California is being challenged in court by an industry trade group.

The California Department of Insurance’s new regulations, which took effect Wednesday, require insurers to investigate the medical histories of those seeking individual policies before accepting any premiums.

The Association of California Life and Health Insurance Companies sued to stop the rules on Monday, accusing the state of acting “in excess of its jurisdiction and authority” by creating regulation that conflicts with the state’s insurance code.

Insurance Commissioner Steve Poizner on Thursday called the lawsuit “shortsighted and morally wrong.”

“Sometimes I think representatives in this industry have their heads permanently stuck in the sand. Illegal rescissions are a repugnant industry practice,” said Poizner.

http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2010/08/19/financial/f132925D03.DTL

One of the most egregious offenses of the health insurance industry has been to retroactively revoke an insurance policy after the insured individual files a medical claim, a process known as rescission. Public outrage over this injustice helped to drive the process that brought us the Patient Protection and Affordable Care Act (PPACA).

Apparently the insurance industry has learned nothing. Their trade organization in California has the gall to infuriate all of us by suing to protect their right to do their underwriting after a claim is filed rather than before the policy is issued, whacking the patients when they are down.

Since PPACA will make rescissions more difficult, you would think that the industry would be quiet and accept the inevitable. No. Instead they reveal that they are not simply an amoral industry but rather a truly immoral one by insisting on their right to retroactively deny payment of medical bills run up by the hapless patient, merely to save the costs of timely underwriting.

This is not the industry that should be managing our health care financing. We need our own public financing entity – a single payer national health program.

Why are large employers unable to control their costs?

Posted by on Thursday, Aug 19, 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.

Large Employers’ 2011 Health Plan Design Changes

By Karen Marlo, Dannel Dan, and Craig Lykens
National Business Group on Health
August 2010

The National Business Group on Health conducted its annual plan design survey with members in the spring/summer of 2010.

Changes as a Result of Health Care Legislation

While there was uncertainty about the regulations determining grandfathered plan status, the majority of employers (53%) were still planning to make changes to their plan designs.

Medical Plan Costs

Employers estimated an average increase in health care costs of 7.0% for 2010, with reported estimates ranging from a 2.7% decrease to a 14.0% increase. For 2011, employers are estimating a slightly larger increase, an average trend of 8.9%.

In 2011, 63% of employers will be increasing the employee percentage contribution to premium costs, and 46% will increase out-of-pocket maximums, while 44% will increase in-network deductibles.

Consumer-Directed Health Care

Of the respondents, 61% will offer a CDHP in 2011. Of those offering a CDHP, 20% indicated that they will or have moved to a full replacement plan (i.e., no other option), up from 10% in 2010. The most common type of CDHP employers will offer in 2011 is a high-deductible health plan (HDHP) with a health savings account (HSA) (64%).

Pharmacy Benefits

To manage pharmacy benefits, the techniques employers are most likely to use are prior authorization (73%), followed by step therapy (63%), three-tier design (63%), and mandatory mail order for maintenance medications (47%).

Retiree Health

Very few employers offer retiree health benefits for new hires, with 18% offering coverage to pre-65 retirees and 11% offering post-65 supplemental coverage to new hires.

The top strategies being used to control retiree health care costs are caps on company contributions (46%), increasing employee contributions (37%), and eliminating coverage for future retirees (33%).

http://www.businessgrouphealth.org/pdfs/Plan%20Design%20Survey%20Report%20Public.pdf

The National Business Group on Health represents primarily Fortune 500 companies and large public-sector employers with self-insured health benefit programs. Because of their market power and their ability to eliminate the risk pooling function of private insurer intermediaries, you would think that these large employers would be immune from the high health care costs inflicted on the rest of us by our dysfunctional system of financing health care, but you would be wrong.

This report shows that escalating health care costs continue to plague our nation’s largest employers, so much so they they are turning to some of the same ill-advised cost containment measures used throughout our system. Amongst the most perverse is that they are shifting ever more costs to those individuals who most need to be protected by the benefit programs – their employees and family members who have health care needs. It is bad enough to have health problems, but it is even worse to be financially penalized for having them.

Why is it that these large employers, with their tremendous purchasing power and ability to bypass the extortion of risk-bearing private insurers, have been unable to control their health care costs? The reason is quite simple. Our fragmented, dysfunctional, multi-payer system permeates the entire health care delivery system, and these employers are unable to function in an isolated delivery system that has not been damaged by the financing perversities.

Let’s look at some of the excess costs that they face. First, U.S. health care prices are the highest in the world. Even with their purchasing clout, the employers are not able to slow the unrelenting escalation in health care prices; they still have to pay prices close to those negotiated by the private insurance industry. In fact, most of them use private insurers for administrative functions such as claims processing, so they’re playing the same ball game.

Second, and most importantly, the health care delivery system has built into it very high administrative costs due to the necessity of interacting with a multitude of payers, each with different contract requirements. There is no way that large employers can avoid paying these excess costs because they are fixed costs built into the delivery system.

It is true that large employers escape some of the costs of private insurance, such as the expense of marketing health plans, or the necessity of paying profits to investor-owned insurance companies. However they are exposed not only to the massive indirect administrative costs imposed on the health care delivery system, they also have their own excessive administrative costs.

The U.S. model of health care financing depends on provider networks, and these large employers must either establish their own networks, or, much more likely, rent these networks from the private insurers. It defies logic that they should pay extra to take choice away from patients, but they do. (Keep in mind that Medicare controls prices without the need of establishing restrictive provider networks.)

They also must either establish their own claims processing system, or again more likely, use private insurers or claims processing managers which profit from the services they are selling to the employers.

With the increase in consumer-directed health care plans employers have increased administrative responsibility for managing the various cost sharing provisions, ranging from tallying services before the deductible is met to management of payments from health savings accounts.

It is easy to see why being self-insured has not protected these large businesses. Their direct insurance-type administrative costs may be comparatively low, but the costly burden of our dysfunctional financing infrastructure has been placed upon the entire health care delivery system, and they must pay for that. (Yes, I repeat myself, but this is the crucial take-home message.)

Although some might want to give the private insurers a pass because the employers are not dependent on them for risk pooling, that would be a mistake. The private insurers and their political supporters are very much to blame because they have perpetuated this dysfunctional financing system that the large employers have been unable to penetrate. The politicians perhaps bear the greatest blame because they have supported the private insurance industry at a great cost to the rest of us.

What the United States lacks that all other industrialized nations have is a monopsony (single purchaser) to purchase health care. Even in those nations with multiple payers, government oversight pulls them together as a de facto single purchasing entity. In the private sector, a monopsony can be as evil as a monopoly, but a public monopsony is different because it purchases health care for the benefit of the nation’s patients.

Our nation’s largest employers, with all of their purchasing power, still lack the strength of a monopsony. They are making a tragic mistake in trying to solve their problems by passing more of the health care burden onto their workers.

If the leadership of the business community had just a little bit more vision, they would realize that it is time to establish a monopsony that would not only control their costs, but would work for all of us. The ideal monopsony for this nation, of course, would be an improved Medicare that covers everyone.

By Donald W. Light

The New York Times’ recent upbeat editorial about the radical reform of Britain’s National Health Service (“Health Care Reform, British Style,” Aug. 4) has its facts wrong and biases showing. As anyone familiar with the NHS knows, it has not been “bristling at any suggestion of change” but rather has been absorbing large waves of change since 1990.

The new government’s reforms will eliminate layers of public bureaucracy piled on by the last two Labour governments, but only to install a new variation of commissioning that will require more private bureaucracy in the form of hired management companies. These companies will charge several times more for doing the same kind of paperwork and administration that the civil servants who are being laid off currently do.

Or perhaps the private management companies will hire back the laid-off men and women who, after all, know how things work, only now the workers will have no job security. There is plenty of precedent for this kind of scenario.

English primary care doctors have long had power over treatment decisions and referrals. To say the reforms will give them more power is misleading, especially since the reforms will now make those doctors responsible for contracting all hospital and specialty services. Everyone agrees this is a time-consuming, complex job for which doctors have no training or experience. If anything, the reforms will add a great bureaucratic burden on GPs so they have less time to provide personalized care to their patients.

The editorial suggests there is cause for worry that introducing for-profit management companies and American features will lead to patients’ interests being shortchanged. Then why endorse such a path? Indeed, overall administrative costs are likely to go up, and 500 little GP contracting groups will not have the clout to save money by reducing the waste built into the hospital-centered structure of specialty services.

In the zero-sum game of a fixed budget with more of it going to management contracts, services to less-affluent patients will have to be cut. Clinical and class inequalities are likely to increase. When, in the name of austerity, the NHS is called upon to save 20 percent of its budget, the new reforms will transfer more money to managed care corporations and leave less for patient care. In these ways, the NHS will become more American.

Donald W. Light
Princeton, N.J.

Donald W. Light is Lokey Visiting Professor at Stanford University and professor of comparative health care systems, University of Medicine and Dentistry of New Jersey. He is the editor of the just-published book titled “The Risk of Prescription Drugs” from Columbia University Press.

Hospital Accounting: It’s Complicated

Posted by on Thursday, Aug 19, 2010

By Lynn M. Petrovich for CommonSense2.com

For the Love of Universal Health Care

Some time ago I received a letter from my employer regarding its health insurance policy which said there would be some changes to it. First of all, that’s never good. Second, I wasn’t sure what the letter meant. I was confused. I thought it meant whatever I had been doing, I couldn’t do anymore, but I wasn’t sure. You see, I hadn’t been doing anything prior to receiving the letter, and I didn’t know if I should still not be doing anything or if I should start doing something. Actually, doing nothing is what I do best…well, when it comes to this health care thing, that is. If I don’t need to use it, then that is when it works best for me and my family.

I mean, trying to understand the mechanics of our current health care structure requires an advanced degree in doublespeak. There’s a contract but somehow it’s always subject to unilateral alteration, especially if profits start dropping, then these insurance companies look for ways to re-assess the relationship (According to MS magazine until the year 2014, domestic violence, pregnancy, and cesarean sections are pre-existing conditions which could render a claim denied).

And there are times, I admit, I have to hand it to our for-profit health insurance for their ingenuity. The aforementioned letter forewarned of a 12 page pamphlet entitled “Important Notice of Changes to Policy”. Among the 40 or so “revisions” (which all increased insured’s out of pocket costs) was a real gem: The Company would no longer reimburse policyholders for prosthetic devices not prescribed by a physician and for which there was no loss of limb.

I wonder how long that had been going on before someone became the wiser.

So you can see why I’m rather claim-shy; I avoid doctors and hospitals like the plague. That is, until one night several months ago when the ultimate crisis happened: A family member became ill, and we had to go to our local emergency room. A total of 37 hours, including one night, was spent in the hospital. Then we got the bill. It totaled $16,808.

After the deductible, our insurance company paid $2,739. That’s it. Which begs the question: Which was the cost of the hospital’s services, $16,808 or $2,739?

I’ve spent months trying to get an answer to this question. Everyone at the hospital from accounting, to billing, the doctors and nurses, employees, former employees, collection agents, even the hospital’s Executive Director have been unable to articulate the tabulation of this invoice. I’m told “it’s complicated, very, very complicated” and “no one knows exactly how the bills are computed because it’s complicated.” There’s the chauvinistic approach: “Mrs. Petrovich, you don’t need to know because it has nothing to do with you.” And the demeaning: “It’s something you wouldn’t understand.” Of course then there’s the ever lovin’: “It’s just something we do, an adjusting entry, and no one really knows how it’s done because [you got it] it’s complicated.”

Without the knowledge of exactly how hospital bills are calculated, how can we ascertain if medical costs are indeed increasing? I mean if they’re just throwing darts at a board, we have no control or foundation for determining medical cost trends.

And quite frankly, how difficult can it be? I mean pardon the analogy, but it’s not brain surgery. It’s cost accounting 101.

Reviewing the hospital’s detail of services rendered, among the charges were $8,786 for the room (one night), and another $2,609 for the emergency room (2 hours – ouch!), and $368 for one X-ray (was it printed on gold?).

Here’s an interesting tidbit: If you can afford health insurance, the hospital will accept $2,739 as payment in full; if you can’t afford health insurance, you’ll owe more, like $16,808.

That’s not complicated, that’s sick.

So in an effort to thwart my frustration with regard to how much the hospital’s services cost to the hospital and why they would negotiate with our for-profit health insurance conglomerates to accept a sum that is sixteen percent of what they billed, I decided to dive into their financial statements because, like most hospitals in America, it’s a non-profit 501(c)(3) institution. IRS Form 990s are public information.

There are strict guidelines for operating a non profit, 501(c)(3), which is understandable because non profit entities pay no income, property, or sales taxes. Contributions are tax deductible. Also, an important component is that earnings (not referred to as profits, but as “surplus”) may not benefit any individual or stakeholder and must be retained by the organization and used to further their cause, which must advance the welfare of the public.

The latest IRS Form 990 available, 2008, was very interesting. The hospital, whose mission statement is to provide “medically necessary health care services to all individuals regardless of race, color, national origin, religion, or ability to pay” had a loss of almost $10 million on revenues of $266 million (of course we don’t know which set of books were used to tabulate the revenue, the one showing $16,808 or the one booking $2,739). Despite this loss, they doled out bonuses to their (already) highly compensated employees. Since this hospital is part of a system of hospitals and that conglomerate paid its Executive Director in excess of $3 million (including half a million as bonus), I reviewed at least a dozen hospital’s financials in the Tri-State area (Among nine hospitals, compensation to highly salaried personnel totaled over $55 million).

This particular hospital wrote off almost $12 million as uncollectible. (In fact one of their collection agencies told me they typically see over 1,000 accounts per year which they deem as uncollectible.). This hospital had a cumulative net fund balance (what’s left over after subtracting what’s owed) of negative $48 million.

Here’s something worthy of note: Stuck to the hospital room’s pegboard was a flyer which said they were on a “cost-cutting” mission and had partnered with doctors in a “profit-sharing” measure (not sure how a non profit has profit sharing). This mission included several critical modifications to their policies – like not changing patients’ bed linens daily unless they were soiled. Hey, aren’t hospital infections one of the largest problems of staying in the hospital? Just thinking out loud here but maybe they could cut out bloated paychecks, bonuses, “incentive” compensation programs (apparently a quarter to half a million dollars salary isn’t enough enticement), severance packages, world class travel and hotel rooms; or advertising and 12 page glossy color brochures with pictures of happy people catching butterflies which I receive ad nauseam (and are nothing more than teasers to people who can’t afford healthcare).

Some of the other hospitals had investment losses in the millions on derivatives which have become totally worthless. I’d cut that shit out completely. I mean it seems to me for every dollar lost on derivatives, they’ve got to make that up by charging more from people who can’t afford to pay you in the first place.

And for goodness sake, change the bed sheets already!

Oh the interesting information I found when digging into Form 990s, that is, those hospitals that didn’t close their doors. Here are some more highlights:

A NJ regional trauma hospital (6 CEOs with compensation in excess of $4.4 million) had unrealized losses on investments of almost $60 million. It wrote off almost $50 million as uncollectible.

For some reason hospitals spend large sums on office supplies totaling in the hundreds of millions – comprising over 20% of overhead (I’m talking about for each hospital). That’s a lot of white out!

A central Jersey hospital gave its former CEO severance pay of $732,809; current CEO pay was half a million.

Here’s a good one: One hospital paid two non-medical (i.e. administrative) employees a combined total of $460,000 and yet felt the need to add another $3,000 so they could get their taxes done.

According to a 2/22/10 article in the New York Post, St. Vincent’s Hospital (which closed this year due to insurmountable debt of almost $1 billion) paid NFL Giant’s quarterback Eli Manning at least $600,000 in addition to “first class airfare, lodging, ground transportation and meals for his family” for media events. Mr. Manning is already independently wealthy with a 6 year deal worth almost $100 million and another $5 million a year in endorsements. An astute St. Vincent’s board member noted “Manning’s pact was a ‘bad deal at a bad time’ that could lead to ‘bad publicity” (thousands laid off).

Harlem’s North General Hospital couldn’t hold on either. An official announcement this past April stated: ”Like many health care providers, North General has to find ways to cope with dramatic changes to health care, state funding, the economy and our local area.” North General closed its doors July 2nd (thousands laid off)

In the last decade, Los Angeles County saw 14 hospitals, with emergency rooms, close down due to financial constraints (tens of thousands laid off).

It seems the expense side of hospital ledgers is amok with waste and what we in NJ recognize as “The Blob”, and there’s obviously a tremendous disconnect between what is invoiced by the hospital and what is paid.

According to a report by the Institute for Health & Socio-Economic Policy (IHSP) dated 12/13/2005 (you can find this report at www.calnurse.org), “The Third Annual IHSP Hospital 200: The Nation’s Most – and Least – Expensive Hospitals Fiscal Year 2003/2004″ [”The Report”]:

“When pressed, the hospital industry habitually states that gross hospital charges are irrelevant since actual payments from Medicare and other payers are reimbursed via fixed rates. The question left unasked and unanswered is, if reimbursement rates are absolutely fixed, then why are not hospital gross chares – the ‘list prices’ – fixed and indexed to the same rate?”

“The Report”, p. 5

Exactly. What this Report found in its study of 238 hospitals across America was a shell game referred to as “The Health Care War Economy”:

“High hospital charges have provided ideological cover for health plans to raise once again premium rates by double digits – and to dramatically increase their profits – thus increasing health care costs for large and small employers and federal, state and local government agencies. This has prompted a number of businesses to scale back on the quality of the plan available for their employees and has been a significant contributor to the growing ranks of the uninsured whose only recourse to care is the hospital emergency room – the most expensive form of care. Hospitals then cost shift that economic burden to other payers by raising charges in so far as possible, particularly drug, medical supply and operating room charges, contributing to a self-perpetuating and self-defeating Health Care War Economy of more expensive care, less care, higher premium rates, and more uninsured.

This brings us full circle and is exactly what one should expect as the necessary outcome of the ongoing but unwinnable battle within the Health Care War Economy struggles among pharmaceutical corporations, insurers and hospitals as they do their best to exploit each other in a market care-blind to the nation’s health needs.”

The Report, pgs 14 – 15

This Report details in Table 9, pages 34 through 38, the average total billings-to-cost-ratio of the top 100 Hospitals by State. Some of the most egregious offenders, at one thousand seventy five percent above cost, are Tenet Healthcare (for-profit corporation that owns or leases at least 50 hospitals, $9 billion in 2009 sales), and Temple University in Pennsylvania (nonprofit 501(c)(3), CEO compensation for 2007 was $1.1 million) at nine hundred ninety percent above cost.

The Report reviewed lawsuits filed on behalf of patients who claimed they were unfairly treated:

Scott Ferguson, a retired artist without health insurance, was billed $66,900 for treatment of a heart condition at St. Anthony Central Hospital in Denver last December [2004]. If he had had insurance, his attorneys claim the tab would have been about $10,000.

The Report, p. 94

This, our standard industry-wide “health care” practice, indicates health care costs are not necessarily increasing (unless CEOs wants bigger bonuses, severance packages, and maybe a pony), but instead are artificially inflated and in an effort to maximize revenues from those least able to pay for it.

So what do hospitals do when the uninsured or those with limited insurance can’t pay? They aggressively pursue patients – for the inflated billings – by contracting with collection agencies that use any tactic available to secure payment. Many patients end up with ruined credit ratings, garnished wages, high-interest rate credit card debt, or bankrupt.

According to an online news agency, over 62% of bankruptcies filed last year were due to high medical bills, three-quarters of those people had medical insurance: “Unless you’re a Warren Buffett or Bill Gates, you’re one illness away from financial ruin in this country” said Steffie Woolhander, M.D., of the Harvard Medical School (CNN.com 6/5/09).

So going back to the criteria for establishing and running a non profit 501(c)(3) entity, how does forcing people into poverty or insolvency by insisting on payment for a puffed up hospital bill advance the welfare of the public?

Under our current system, hospitals’ sources of revenue are multiple and costly to obtain. A great deal of overhead must be expended in the (timely) claim filing process in order to secure funds among various entities, to name a few:

(1) Medicare

(2) Medicaid

(3) TRICARE (military reimbursement to civilian hospitals);

(4) Matching State Medicaid

(5) SCHIP (States’ Children’s Hospital Insurance Plans)

(6) Charity Care,

(7) For-profit private insurance companies which all have their own processing procedures, paperwork, and deadlines

(8) Collection agencies

(9) Attorneys who have filed legal claims against patients.

The Patient Protection and Affordable Care Act, signed into law by President Obama in March, does nothing to stop this abusive health care practice; in fact it enables the dysfunction by forcing more people into it.

So what, as a nation, can we do?

The best solution is Universal Single Payer Health Care which considers health care a basic human right, “un-complicates” the system, and removes the profit motive.

(1) Universal – because everyone would be covered regardless of race, age, sex, employment or ability to pay. It would be publicly financed, privately delivered.

(2) Single Payer – because funding would originate from a single source, a small, fixed payroll tax as a percentage of wages which would be much smaller than what the majority of Americans now pay in insurance premiums (full disclaimer: LeBron James and Paris Hilton would pay more);

(3) Health Care – that is, actual accounting-determined-cost-controlled health care for individuals and not for the exploitation of hospitals, private profit-driven insurance conglomerates, and the pharmaceutical industries.

Under Universal Single Payer Health Care, hospitals would be paid a single sum, an amount that is equal to their annual operating costs. That’s it.

On the expense side, there would be no need for

(1) Billing

(2) Filing of claim forms

(3) Writing off uncollectible accounts,

(4) Collection costs

(5) Colorful glossy brochures

(6) Advertising

(7) Lobbying expenses

Of course there would have to be oversight to knock down those million-dollar compensation packages (think employment!).

The cost savings just from uncollectible accounts would be enough to open more hospitals (a review of 10 hospital’s financials showed they collectively wrote off over $212 million – think employment!).

Even better the States would not have to fund charity care, SCHIP, TRICARE, match Federal Medicaid dollars, and any other low-income specific health programs. Conservatively speaking the collective savings would be at least $60 billion.

So under Universal Single Payer Health Care, we are able to save billions of dollars, open new hospitals, increase employment, and streamline costs and funding.

Now that’s a change I wouldn’t mind receiving a letter about!

Originally posted on CommonSense2.com

Is NAIC agreement on medical loss ratios in patients’ interests?

Posted by on Wednesday, Aug 18, 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.

Commissioners OK health rate plan

By Sarah Kliff
Politico
August 17, 2010

The National Association of Insurance Commissioners approved Tuesday morning (by a unanimous vote) a preliminary outline of what insurers will be able to count as medical costs, a document necessitated by the health reform bill’s requirement that insurers spend at least 85 percent of subscriber premiums on medical costs in the large group market and 80 percent for small group and individual plans.

While insurance commissioners moved forward unanimously, familiar fault lines emerged between consumer advocates and industry over the document and how it categorizes medical spending.

“In general, we are very pleased,” said NAIC consumer advocate Timothy Jost, a professor of health policy at Washington & Lee University. “The process has been very open and participatory. We feel like our concerns have been listened to.”

“The NAIC is conducting a transparent and thorough process as it develops the [medical loss ratio] MLR definition, but the current proposal could have the unintended consequence of turning back the clock on efforts to improve patient safety, enhance the quality of care and fight fraud,” AHIP president Karen Ignagni said in a statement.

http://www.politico.com/news/stories/0810/41179.html

NAIC approved reporting form (blank):
http://www.naic.org/documents/index_health_reform_mlr_blanks_proposal.pdf

Letter from AHIP’s Karen Ignagni:
http://www.politico.com/static/PPM153_ahip_081510.html

The National Association of Insurance Commissioners (NAIC) has finally come to agreement on the reporting form that likely will be used to determine whether or not the private insurers are in compliance with the required medical loss ratios (MLRs). The agreement is being reported as a victory for health care consumers and a defeat for the private insurance industry, but this ignores the crucial overriding issue.

The debate was over how much of their administrative costs the private insurers would be able to pass off as quality improvements that could be classified as medical expenses. Such reclassifications would allow the insurers to spend more for other non-medical purposes such as marketing and profits. Much of their attempted overreach – some described in Karen Ignagni’s letter – was rejected.

This is not a victory for the health care consumer. We are still stuck with a middleman industry that has been granted the right to keep 15 to 20 percent of our premium dollars to use for their own purposes. Congress and the President rejected a model of reform – an improved Medicare for all – that would have eliminated much of this waste plus the waste of the excess administrative burden that the insurers place on physicians and hospitals. The insurers get to include the latter as medical costs, further padding their margins, but administrative waste doesn’t benefit anyone’s health.

With all of the attention being given to the details of implementing the Patient Protection and Affordable Care Act (PPACA), too many have forgotten about the fact that the financing model in PPACA is irreparably flawed and can never bring us affordable health care for everyone. Instead of frittering away our efforts in the peripheral skirmishes, we need to pull together and win this war.

Economic crises and cost sharing don’t mix

Posted by on Tuesday, Aug 17, 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.

The economic crisis and medical care usage

By Annamaria Lusardi, Daniel J. Schneider, Peter Tufano
National Bureau of Economic Research
Working Paper 15843
March, 2010

We use a unique, nationally representative cross-national dataset to document the reduction in individuals’ usage of routine non-emergency medical care in the midst of the economic crisis. A substantially larger fraction of Americans have reduced medical care than have individuals in Great Britain, Canada, France, and Germany, all countries with universal health care systems. At the national level, reductions in medical care are related to the degree to which individuals must pay for it, and within countries are strongly associated with exogenous shocks to wealth and employment.

http://www.nber.org/papers/w15843

This five-nation study of the impact of the financial crisis on usage of routine medical care demonstrates that both a decline in employment and a decline in wealth are strongly associated with reductions in medical care. But once again, the United States is an outlier.

U.S. citizens pay the highest out-of-pocket amounts for health care, and therefore were two to five times more likely than Europeans to reduce their use of health care. In difficult economic times, higher cost sharing has a greater negative impact on health care access.

The Patient Protection and Affordable Care Act (PPACA) will intensify this problem because most of the subsidized private plans will have low actuarial values, requiring larger deductibles, higher coinsurance (percentage of costs paid by the patient), and higher copayments (dollar amount paid by the patient).

The health care financing system should be designed to allow individuals to have the health care that they need without exposing them to financial hardship, and that protection certainly should extend into times of economic crises.

Now that PPACA has established underinsurance as the norm, we can anticipate greater reductions in necessary care, especially during difficult economic times. Or instead we could ensure that people receive the care that they need by replacing our financing system with a single payer national health program. As voters, it’s our choice.

Is WellPoint’s business model viable?

Posted by on Monday, Aug 16, 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.

Big and beleaguered: WellPoint’s bad image

By Emily Berry
American Medical News
August 16, 2010

Thus far, WellPoint and insurance trade group America’s Health Insurance Plans have responded to criticism about rate increases with variations on the same theme: Medical costs, driven by physicians and hospitals, are rising so dramatically that insurers cannot avoid raising rates.

The argument doesn’t appear to work if WellPoint and AHIP are trying to elicit sympathy or understanding from the public or policymakers.

As it went on the defensive using studies demonstrating higher medical costs, WellPoint reduced payment for physicians in most of its markets by double-digit percentages for certain procedures, and the cuts were across all specialties, said Susanne Madden, CEO of the consulting firm Verden Group in Nyack, N.Y.

“They’ve done a spectacular job destroying customer loyalty and physician loyalty at the same time, and they’re not making any friends in government,” she said. “They don’t seem to have a grasp on the fact that if they do not have physicians as allies in some way, shape or form, they’re going to have a hard time.”

If it cannot raise rates, WellPoint — and other national insurers — will have to cut costs, experts said. This is where physicians might be affected. WellPoint is likely to cut costs by further reducing payments for hospitals and physicians and restricting networks, experts said.

http://www.ama-assn.org/amednews/2010/08/16/bisa0816.htm

WellPoint’s phenomenal business success has been largely due to its ability to offer competitive premiums by limiting what it has had to pay out in health care benefits. Will WellPoint’s business model continue to be viable?

It has targeted its marketing to the healthy workforce and their young, healthy families, and to the portion of the individual market that can pass underwriting standards. Under the Patient Protection and Affordable Care Act (PPACA) WellPoint will no longer be able to exclude individuals with greater health care needs, neither by favorable selection nor by retroactive rescissions. Without other innovative cost controls, premium increases will be inevitable.

Under PPACA, WellPoint will also be required to provide a standard package of benefits, preventing them from reducing health care spending by cutting benefits. They will also be required to provide plans with tiered actuarial values, prohibiting them from requiring ever greater out-of-pocket cost sharing by the patient. Thus premiums will have to reflect the actual increases in health care costs.

It would be possible for WellPoint to slash reimbursement rates for physicians and hospitals, but that would be a terrible business decision wince it would risk a massive exodus from their provider networks.

It is likely that WellPoint and other insurers will establish more restrictive networks with providers who are willing to accept payment reductions in exchange for greater volume, but that loss of choice would certainly further alienate their plan subscribers, also threatening their market.

The plans may search for other innovations, including some of those in PPACA, but at this time there is little prospect that cost savings could be achieved without creating greater animosity amongst patients and providers.

To comply with PPACA, WellPoint will have to increase premiums and market primarily plans with low actuarial values of 60 or 70 percent, leaving excessive out-of-pocket costs for those with health care needs. The subsidies in PPACA are too small to prevent financial hardship, and there is little political will to expand the federal budget by increasing the subsidies.

The situation can only grow worse with time. The WellPoint model will inevitably end up in the trash heap of failed policies as it is replaced with a single payer national health program – a program that would meet the needs of patients and their health care professionals.

Corporate perquisites and drug testing the left

Posted by on Wednesday, Aug 11, 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.

Executives at health insurance giants cash in as firms plan fee hikes

By Noam N. Levey
Los Angeles Times
August 11, 2010

The top executives at the nation’s five largest for-profit health insurance companies pulled in nearly $200 million in compensation last year — while their businesses prepared to hit ratepayers with double-digit premium increases, according to a new analysis conducted by Health Care for America Now.

http://www.latimes.com/health/la-fi-insurance-salaries-20100811,0,7386070.story

And…

White House spokesman blasts liberal critics

By Peter Nicholas and Tom Hamburger
Los Angeles Times
August 11, 2010

Festering tensions between the White House and liberal activists flared Tuesday, with presidential Press Secretary Robert Gibbs scolding what he called “the professional left” for its vocal objections to President Obama’s record.

“These people ought to be drug tested,” Gibbs said. “They will be satisfied when we have Canadian healthcare and we’ve eliminated the Pentagon. That’s not reality. They wouldn’t be satisfied if Dennis Kucinich was president.”

The backlash against Gibbs was swift.

Dr. Quentin Young, a Chicago physician and national coordinator of Physicians for a National Health Program, which advocates for single-payer health insurance, said he was “incredulous” when he first heard of Gibbs’ comments. Young, an early supporter of Obama, immediately wrote Gibbs.

“I believe that unless you retract the insulting description of deeply committed citizens you will drive off those of us who supported the president’s campaign and have anguished over the fruitless lurches to the right that have characterized the first half of the president’s first term,” Young wrote.

http://www.latimes.com/news/nationworld/nation/la-na-gibbs-20100811,0,7297603.story

It is no secret what the Democrats under the leadership of President Obama did when it came time to fix our health care system. They left the big corporations in charge of the health care funds. The report on the very high compensation for the top executives of the nation’s five largest for-profit health insurance companies at a time of double digit premium increases leaves no doubt as to who the financing infrastructure is designed to benefit. It is a sickening example of our national priorities which result in a massive transfer from the ordinary people to the wealthy.

Liberals who care are becoming less tolerant. The message has been received by The White House. Their response? We should be “drug tested” for wanting “Canadian healthcare.”

PNHP’s Quentin Young has responded appropriately to presidential Press Secretary Robert Gibbs, as quoted above.

It isn’t that those on the left who wanted a better deal for all Americans are poor losers. It’s that the administration of Change who greased the conduits for the upward flow of societal funds are bad winners.

How effective the mind is in dealing with perceptions and realities brings us to asking another question. Who is it that needs to be drug tested?

The new health care legislation is a step toward elimination, by slow strangulation, of private health insurance and establishment of government as the ‘single payer.’”                                                                                                           – George Will, in his weekly newspaper column, Sunday July 11, 2010

Everyone loves to pick on the Affordable Care Act (ACA), and well they should.  This 2,000+ page contraption, this heap of handouts to the special interest lobbyists with a few shiny baubles thrown in to placate the common folk, was not only written by the for-profit health insurance industry but now will be implemented by former WellPoint/Anthem Vice President Liz Fowler who actually penned much of the law in her role as Max Baucus’ chief healthcare counsel for the Senate Finance Committee.  You don’t have to make this stuff up, as emptywheel reported on FireDogLake July 14, 2010, “Former WellPoint VP Liz Fowler to Implement Health Care Oversight”

But what about George Will’s fine whine that the insurance industry faces strangling regulation?  Robert Pear wrote in the New York Times on August 2 that the new law will lead to more regulation of the industry, and “the transition is full of risks and uncertainty for all involved.” If the Obama administration is going to “regulate the industry for the benefit of consumers,” he noted, then “they can’t help but destabilize or disrupt the existing market.”

Wall Street doesn’t like uncertainty.  It detests being destabilized.  Stock analysts are not missing out on this.  The brokerage firm Edward Jones “downgraded the ratings on the stocks of the three health insurers it covers – UnitedHealth Group, WellPoint and Aetna — to ‘sell’ from ‘hold’ late on Friday [7/30]. Those companies are the three largest U.S. health insurers.” (Reuters 8/2/10)

This new blow comes after legendary investor Warren Buffett pulled the plug on WellPoint and United Health, selling all Berkshire Hathaway’s holdings in the insurance giants during the first quarter of 2010 (“Buffett’s Berkshire Disposes Stake in UnitedHealth, WellPoint”)

Speaking in Virginia, former House Speaker and presumed presidential candidate Newt Gingrich said on May 14,

“The employer-based system will collapse because [the ACA] encourages businesses to drop health care coverage and incur the fine. When employees realize the high costs of the health care exchanges, they will demand a nationalized health care system.

It only gets worse, or better, depending on your perspective.  According to Gingrich, the business community is going to lead the call for single payer Medicare for All.

And well they should.  Gingrich wasn’t making this up.  On May 6, CNN Money released documents showing that “many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government…  AT&T revealed that it spends $2.4 billion a year on coverage for its almost 300,000 active employees, a number that would fall to $600 million if AT&T stopped providing health care coverage and paid the penalty option.”

Is the Affordable Care Act unaffordable?  Isn’t it at least a step in the right direction?

Those questions can only be answered by considering whether the ACA ends up strengthening or weakening the health insurance corporations. Progressive critics of the bill point out that the new legislation hands over $350 billion in government subsidies to the private insurers while mandating consumers to buy the industry’s shoddy products.  That, combined with a lack of price controls means the ACA could prove to be a bonanza for the corporate stakeholders in the medical-industrial complex.

On the other hand, the changing marketplace is full of perils, even if the conservative icons quoted above are exaggerating them to stir up fear of Socialized Medicine (and maybe scare up some donations).

If we stand back and rest on our laurels, believing that the ACA will save us, then we are doomed. The industry lobbyists are working overtime to take the best parts of the bill and weaken them, while destroying any good that is in the bill (see Wendell Potter in the Huffington Post on July 27, Health Insurers Leaning on State Insurance Commissioners to “Reform” Reform).

We believe that Medicare for All is inevitable in the United States.  It is up to all of us to determine when the inevitable becomes the reality.”

– Representatives Dennis Kucinich (D-Ohio), John Conyers (D-Mich.), and U.S. Senator Bernie Sanders (I-Vt.), statement for Medicare’s birthday, July 29, 2010

If you’re not inclined to believe George and Newt, then how about Dennis, John, and Bernie:  “It is up to all of us to determine when the inevitable becomes the reality.”

The reality is that single payer, Medicare for All, is not inevitable, nor is there any guarantee the ACA won’t bankrupt us while enriching the corporations that lobbied for it.

It reminds me of a slogan we have in Indiana, “Healthcare Reform:  We’re Still For It, and We’re Not Done Yet!”

From California to Vermont, Medicare for All advocates are working for bills to create state single payer systems.  The grassroots are pushing up thru the disappointment of the Affordable Care Act.

Nationally, with the growing recognition that the health insurance giants stand as the greatest barrier to affordable healthcare for all, investors are beginning to see that this is not an industry socially responsible stockholders should be in (Huffington Post May 12, Napalm, Big Health Insurance, and Divestment).

I went to medical school to take care of sick people.  The insurance companies fulfill their fiduciary responsibility to their investors by finding ways not to pay for the care of the sick.  All their innovation and creativity go to this goal of not paying for care.  No other sector in our crazy healthcare system operates under this incentive.

It will take a mass movement, like those for women’s suffrage and civil rights.   It will take a divestment campaign like the one against apartheid in South Africa.  We must keep the pressure up, shine a light on their nefarious deeds, drive down their stock prices, and expose them for what they are: parasitic middlemen who add no value while sucking billions out of our economy.

It is up to all of us to determine when the inevitable becomes the reality.”

In a recent post, we brought together an overall assessment of the Patient Protection and Affordable Care Act of 2010 (PPACA), showing how it cannot be expected to remedy our health care system’s four major problems—lack of universal access, unrelenting surge in costs, decreasing affordability for much of the population, and variable, often mediocre quality of care. That was followed by other posts that took cancer as a bellwether for how patients with serious illness are likely to fare under the new law, again with disappointing results.

Even though the new law is just entering its implementation phase, we already know how and why it will fail to meet urgent needs for reform. More fundamental reform that more directly attacks the forces responsible for system problems will be required, sooner rather than later. But to be more successful the next time around, we need to learn the lessons as to how and why this last reform effort went off the tracks if we are to avoid making the same mistakes once again. That is the subject of this post.

Here are some of more important ways in which the politics of reform diverted the process from the real goals of reform, ending up instead with a nearly $1 trillion bill that serves corporate interests in the medical-industrial complex and Wall Street much better than Main Street and ordinary Americans.

1. Framing of the issues and the entire political process were hijacked by the very interests that are largely responsible for the system’s problems of access, cost and
quality. The opening assumption was that we had to build on the existing system, thereby serving the interests of insurers, drug and medical device makers, hospitals, organized medicine and other parts of the system that would resist structural change. Missing from the subsequent health debate were more basic issues, such as whether health care is a right or a privilege based on ability to pay for just another commodity on the open market, and whether the business model underlying our system is consistent with the long-term public interest. Instead, the language of the debate was dominated on the right by defense of markets as the solution and that government is the enemy, and on the left by such meaningless slogans as “competition” and “guaranteed affordable choice”. The debate then devolved to such arcane details as public options, exchanges and triggers, which much of the public found difficult to track and understand.

2. The democratic process was commandeered by corporate money. Corporate interests, intent on expanding their markets through the “reform” bill, pushed their agenda through lobbying, campaign contributions to key legislators, advertising campaigns through disease advocacy groups and Astroturf organizations, and feeding talking points the media (which thrived on the 24-7 coverage of the battle over a year and a half). These examples illustrate this coordinated effort by industry: Industry representatives were often in critical places as illustrated by these examples: (1) (MSNBC. Obama health czar directed firms in trouble) (2) (Center for Public Integrity, as cited in Moyers, B, Winship, M. The unbearable lightness of reform. Truthout, March 27, 2010)
• Elizabeth Fowler, insurance industry representative turned staffer of the Senate Finance Committee, largely wrote that bill.
• Nancy-Ann DeParle, White House Director of the Office of Health Reform, had received $6 million previously while serving on boards of directors of at least half a dozen companies that were targets of federal investigations, whistleblower lawsuits and other regulatory actions.
• By the time the reform law was finally passed, about 1,750 businesses and organizations had hired some 4,525 lobbyists, eight for every member of Congress, at a cost of $1.2 billion.

3. Market failure was not recognized as the wellspring of our system problems. Market advocates were successful in perpetuating the myth that competition in health care markets can rein in uncontrolled costs, even when experience and many studies confirm the opposite. These examples make the point:
• Continuous escalation of prices and costs by drug and medical device manufacturers, hospitals, physicians and other members of the medical-industrial complex.
• A nine-year study by the Community Tracking Study of 12 major U. S. health care markets found these four barriers to efficiency and quality of care: (1) providers’ market power; (2) absence of efficient provider systems; (3) employers’ inability to push the system toward efficiency and quality; and (4) insufficient health care competition, (3) (Nichols, L et al. Are market forces strong enough to deliver efficient health care systems? Confidence is waning. Health Aff (Millwood) 23 (2): 8-21, 2004))
• Consolidation among providers limits choice and competition in many markets. (4) (Kronick, R, Goodman, DC, Weinberg, J, Wagner, E. The marketplace in health care reform. The demographic limitations of managed competition. N Engl J Med 328: 148, 1993)
• A 2006 AMA study found near-monopolies by private insurers in 95 percent of HMO/PPO metropolitan markets. (5) (Associated Press. Study: Health insurers are near monopolies. April 18, 2006)

4. The private insurance industry, already dependent on various kinds of government subsidies, does not offer enough value to retain its 1,300 insurers.
These are the main reasons that the present multi-payer system should be replaced by a not-for-profit single-payer financing system: (6) (Geyman, JP. Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It. Common Courage Press, 2009)
• continued inflation of health care costs, which insurers cannot control.
• growing unaffordability of premiums and health care.
• decreasing coverage of policies with often unaffordable out-of-pocket costs.
• growing economic insecurity and hardship, even for the insured.
• shrinking private insurance markets and cutbacks in public markets.
• adverse selection in shrinking risk pools.
• increasing profits despite declining enrollments (e.g. Aetna profits up by 42 percent in second-quarter 2010). (7) (Veiga, A. Aetna posts higher 2Q profit up 42 percent. Associated Press, July 28, 2010)
• Stockpiling large surpluses even while hiking premiums. (8) (Young, A. Consumer group: Insurers kept surplus while hiking premiums USA Today, July 22, 2010)

5. The Obama Administration has so far been unwilling to confront the special interests and address the real problems. After winning the 2008 election, with the Democrats taking both the House and Senate as well as the White House, the pragmatic and overly cautious incoming president did a 180-degree turn from this statement made five years previously to the Illinois AFL-CIO:
I happen to be a proponent of a single payer universal health care program… (applause)…I see no reason why the United States of America, the wealthiest country in the history of the world, spending 14 percent of its Gross National Product on health care, cannot provide basic health insurance to everybody….But as all of you know, we may not get there immediately. Because first we have to take back the White House, we have to take back the Senate, and we have to take back the House. (9) (Obama. Speech to the Illinois AFL-CIO, June 30, 2003)
As a result of the deals the president made with corporate interests through their voluntary, unenforceable pledges, he joined forces with them in gaining political support for “reform”. But this “alliance” with corporate interests assured that the legislative outcome would meet corporate interests more than those of ordinary Americans. And it leaves the president with little clout to rein in these interests, since he now depends on the PPACA to work. It would be a PR and political disaster if more insurers leave the market, more physicians refuse to see newly “insured” patients, and growing numbers of patients and families see affordable care and choice as disappearing. The state of Maine has already asked the federal government to waive its medical loss ratio (MLR) requirement, fearing disruption of the individual and small business market. (10) (Pear, R. Covering new ground in health system shift. New York Times, August 3, 2010: A13)

6. Policy makers and politicians ignored the lessons of history in attempting incremental “reforms” that had already failed over the last 30 years. Improved access and containment of health care costs have been addressed by many initiatives over the last 30 years, including managed care, employer and individual mandates, tax credits, association health plans, chronic disease management, pay for performance, and expansion of health information technology. Although all have failed to redress these two system problems, they were included in one way or another in the PPACA as more fundamental financing reform, such as shifting to a not-for-profit financing system, was intentionally kept off the table for political reasons.

In sum, the medical-industrial complex won this last battle over health care reform. Robert Kuttner, co-founder of The American Prospect 20 years ago, reminds us of the political challenge ahead: President Obama took office at a moment when free-market ideology, Wall Street hegemony, and conservative incumbency were thoroughly disgraced by recent events. But Obama has not yet been able to translate that failure into a durable progressive counterrevolution. (11) (Kuttner, R. A 20-year odyssey. The American Prospect 21 (7): 3, 2010)

Adapted in part from Hijacked! The Road to Single Payer in the Aftermath of Stolen Health Care Reform, 2010, with permission of the publisher Common Courage Press.

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