The following remarks were made by Karen Green Stone at the annual shareholders meeting of the giant health insurer WellPoint in Indianapolis on May 17. Green Stone is a member of Hoosiers for a Commonsense Health Care Plan, an affiliate of Physicians for a National Health Program. For the past several years she and other members of HCHP have challenged WellPoint’s profit-driven business practices on the floor of the annual meeting, urging shareholders to vote for a resolution demanding the company return to its nonprofit roots. They’ve received significant media coverage for their efforts, and their support for single-payer national health insurance has also been noted. An excerpt from her remarks on Tuesday was published in the Indianapolis Business Journal.
My name is Karen Green Stone from Bloomington. I own 15 shares.
Since last year’s meeting it’s estimated that another 50,000 people have died in the United States because they are uninsured. That equals the entire population of Kokomo [Ind.].
I’d like to start with comments made by friends and strangers I’ve talked to about coming to this meeting. “Give the bastards hell,” one said. “Go get ’em,” said another. “I hate Anthem,” a friend told me. Still another: “Don’t get me started.”
After hearing Wendell Potter speak in Bloomington on his book tour (I’m sure you all know Wendell Potter) a friend said to me, “I sometimes thought I was crazy, a conspiracy theorist – now I know they really are evil.”
I read and talked to Wendell about his book, “Deadly Spin.” What stirs my anger the most is the stealth and perversion you’ve used to shape public opinion. Your PR campaigns have nurtured fear and confusion in the minds of reasonable and caring Americans.
I imagine it must be very difficult hold steady the concept of “I’m a good person and I work for a corporation that by its very nature lacks compassion and is indifferent to suffering.” But good and intelligent people can sometimes fall into a trap.
Everyone in this room knows that it’s all about money and power. We know WellPoint’s sordid history of rescission, rigged software, cherry-picking of healthy patients and denial of care. We know about the barriers you build, making it so difficult that people give up or die fighting with you.
I hope that one or some of you in this room who feel the stirrings of having sold out will find the courage to go public with inside information because your business model is taking down America.
Angela, it takes 285 public school teachers in Indiana who earn an average of $47,000 a year to equal your 2010 compensation package of $13.4 million.
Would you kindly tell us why you are entitled to so much more than them?
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.
Factors Associated With Closures of Emergency Departments in the United States
By Renee Y. Hsia, MD, MSc; Arthur L. Kellermann, MD, MPH; Yu-Chu Shen, PhD
JAMA, May 18, 2011
Our nationwide analysis of ED closures between 1990 and 2007 identified several risk factors that suggest economic drivers are associated with ED closures. Hospital-specific characteristics related to higher risk of closure were safety-net status, for-profit ownership, and low profit margin. After controlling for demographic and market factors, safety-net hospitals are at higher risk of closing their EDs compared with non–safety-net hospitals, suggesting that safety-net hospital status reflects other pressures that, although less measurable, are associated with ED closure. For example, some EDs have difficulty maintaining a full on-call panel of specialty physicians because of unwillingness of specialists to cover emergency calls, especially for poorly insured patients. While this finding deserves more study, it signals that safety-net hospitals may require particular attention if emergency care access is to be sustained.
Hospitals in counties where a high proportion of residents live in poverty were more likely to close their EDs than hospitals in more economically secure communities. Factors such as crowding and the increasing challenges of providing high-quality care in the face of burgeoning demand could contribute to difficulty in recruiting and maintaining staff at all levels. These community-characteristic findings are especially compelling given that vulnerable populations, including those in minority groups and both uninsured and underinsured patients, use EDs for acute care at greater rates than other populations. As more of these patients lose access to primary care, an increasing number of EDs are meeting criteria as safety-net facilities, which suggests that more EDs may be at risk of closing in the future. ED closures can have substantial effects on vulnerable communities, causing a decline in care as hospitals serving poor and minority populations select to provide services based on profitability rather than community health needs.
Local market competition is strongly associated with the ability of an ED to remain open. The presence of other EDs within a 15-mile radius and highly competitive markets are both associated with increased risk of ED closures. Previous literature reported that emergency services in areas with poor payer mix are often money losers. Our study extends this finding, showing that market forces, beyond profit margin alone, are substantially related to the ability of an ED to remain open.
Our findings expand the evidence base by showing that economic factors related to ED closures are similar to those related to hospital closures and may be even stronger. All factors (except for the increased risk of hospitals serving a higher proportion of patients in poverty) identified in our study can be shown to be market-driven. Profit margin, for example, is influenced by a number of factors ranging from patient payer mix, reimbursement decisions from payers (and negotiated discounts between hospitals and payers), to competition. Market factors may also be the reason that many for-profit hospitals choose not to provide emergency services.
In some areas, the episodic closure of EDs may be of little consequence, particularly in competitive health care markets where nearby facilities can deliver the needed clinical care for patients who seek ED treatment. Some might assert that such “creative destruction” is a manifestation of a healthy marketplace. However, the market economics of US health care, particularly emergency care, are distorted by the fact that 51 million Americans lack health insurance, and another 48 million are covered by Medicaid and other forms of public insurance that reimburse well below cost. With health care reform, the numbers of individuals covered by Medicaid and other forms of public insurance are likely to increase substantially, with far-reaching implications if these patients cannot access timely and adequate care. In most of the US health care system, an effective business strategy is to minimize uncompensated costs by declining to treat these patients, but EDs cannot do so.
The economic challenge of operating an ED in the face of a federal obligation may explain, in part, why for-profit hospitals were twice as likely to close their EDs as facilities that are nonprofit or publicly owned. It may also explain why hospitals in the lowest quartile of profitability (essentially, negative profitability) and those in highly competitive markets were more likely to close their EDs. Yet even after controlling for these and other characteristics, we observed that safety-net hospitals were significantly more likely to close their EDs than hospitals that did not serve this role.
The closure of an ED can have profound repercussions for a community. Closures can adversely affect access to emergency care for everyone—insured and uninsured alike. Hospital closures significantly affect access to care not only by increasing the distance to the nearest hospital but also by increasing the patient load at neighboring hospitals. ED crowding degrades quality of care, not only by prolonging patient waiting times and increasing the rate of patients who leave without being seen, but also in terms of outcomes, including increased rates of morbidity and mortality. Because Medicaid, SCHIP, and uninsured patients are highly reliant on hospital EDs for acute care, ED closure can displace tens of thousands of uninsured and low-income patients to other EDs, worsening crowding and potentially setting the stage for additional closures.
Our findings underscore that market-based approaches to health care do not ensure that care will be equitably distributed. In fact, the opposite may be true. As long as tens of millions of Americans are uninsured, and tens of millions more pay well below their cost of care, the push for “results-driven competition” will not correct system-level disparities that markets cannot—and should not—be expected to resolve.
In summary, this study demonstrated that from 1990 to 2009, the number of hospital EDs in nonrural areas declined by 27%, with for-profit ownership, location in a competitive market, safety-net status, and low profit margin associated with increased risk of ED closure.
We have a crisis with closures of our emergency departments. With our current dysfunctional mechanisms of financing health care – mechanisms that are perpetuated by the Affordable Care Act – market considerations rather than medical need are driving these decisions. The more vulnerable populations suffer the most.
Many of the affluent individuals who have had great influence over the reform efforts may not care that safety-net emergency departments are shutting down, but they should. They could become victims of major traffic accidents and taken through rush hour traffic to their preferred for-profit emergency departments. If they had to ride past padlocked safety-net emergency departments to the other side of town, they could DIE no matter how much money they had or how good their private insurance is.
A well designed single payer system includes regional planning and separate budgeting of capital improvements. Decisions on the location and funding of Emergency Departments are made based on community need rather than on market considerations.
Maybe most of the rich don’t care about the rest of us, but you would think that, at least, they would care about themselves and their families.
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.
Letter to Donald Berwick, M.D., Administrator, CMS
American Medical Group Association
May 11, 2011
Re: Medicare Shared Savings Program: Accountable Care Organizations
We write today, however, to express our serious concerns over the direction of the Proposed Rule. On its face, it is overly prescriptive, operationally burdensome, and the incentives are too difficult to achieve to make this voluntary program attractive. As you know, most policy experts believe multi-specialty medical groups are best poised to become ACOs in the short term. However, in a survey of AMGA members, 93 percent said they would not enroll as an ACO under the current regulatory framework.
Our membership’s concerns were many and focused on issues such as the risk sharing requirement, static risk adjustment, retrospective attribution, quality measurement requirements, the Minimum Savings requirements and others. Without substantial changes in the Final Rule, we fear that very few providers will enroll as ACOs and that CMS and the provider community will miss the best opportunity to inject value and accountability into the delivery system.
Letter to Donald Berwick, M.D., Administrator, CMS
The Everett Clinic
Univ. of Michigan Med. School
St. John’s Clinic
Novant Medical Group
Middlesex Health System
May 12, 2011
On behalf of the multi-specialty groups participating in the Physician Group Practice (PGP) Demonstration Program, we are writing to you today regarding Section 3022 of the Affordable Care Act’s notice of proposed rule-making (NPRM) for the Medicare Shared Savings Program/Accountable Care Organizations (ACOs).
However, as presently proposed, we ALL have serious reservations about the economics and the complexity of the Medicare Shared Savings Program/ACO NPRM. All of our organizations are planning to individually respond with our own respective concerns, but broadly, the “Shared Savings” model/NPRM has the following aspects that are problematic:
* There is downside risk during the initial 3-year term, unlike the recently concluded PGP Demonstration project. Such downside risk is compounded by significant investment cost on the part of the ACO.
* Savings are measured net of 2% threshold for the one-sided risk model. Additionally, the Minimum Savings Rate (MSR) is set at high levels for ACOs with lower enrollment.
* Limits placed on accounting for beneficiary acuity level that is documented and appropriate will dilute true savings realized by the ACO, and is a disincentive for management of patients with complex care needs.
* There are a large number of quality measures, especially new quality metrics in several domains, that go into effect starting year one. As an example, on average, it costs about $30,000 just to program a single new quality metric. This NPRM has more than 60 new ones, which equates to nearly $2,000,000 for each organization. The excellent results produced by the PGP demonstration are evidence of the benefits of a careful expansion of quality measures.
* Retrospective attribution places limits on the ACO’s ability to bend the cost curve. It impedes optimal patient engagement, timely program planning and course correction, and compounds underlying issues of claims lag and financial settlement.
* The logistics associated with Medicare beneficiaries’ opt-out of the ACO program is simply not practical. We believe this would lead to beneficiary and physician confusion on the terms of engagement.
As currently proposed, ACOs have a greater potential for incurring losses under either track, than for generating savings. This risk-reward imbalance makes it difficult, if not impossible, for internal decision-makers to accept the financial design.
ACO start-up costs higher than estimated, AHA study says
By Rich Daly
ModernHealthcare.com, May 14, 2011
Accountable care organizations will likely face start-up and first-year costs six to 14 times higher than HHS has estimated, according to a study released by the American Hospital Association.
The study, which was based on an analysis of previous research, concluded that the various elements required to successfully manage the care of a specific population will cost between $11.6 million and $26.1 million—depending on the size of the hospital or hospital system involved in the ACO—and far more than the $1.8 million estimated by the CMS in its proposed rule.
The cost findings are based on 23 different capabilities that ACOs will need to develop across four categories: network development and management; care coordination, quality improvement and utilization management; clinical information systems; and data analytics.
The accountable care organizations (ACOs) called for in the Accountable Care Act (ACA) don’t seem to be getting off to a good start. Most medical groups do not intend to participate, the hospitals have found that they are too expensive, and the distinguished participants in the Group Practice Demonstration Program all have serious reservations about the proposed rules for ACOs under the ACA. What is going on here?
The goal seems to be to establish integrated health care delivery systems with varying design characteristics based on local needs and logistical considerations. Size and complexity would vary greatly. Such systems should provide a primary care base for entry into the system and for coordination of services. Specialty care should be integrated within the system, providing appropriate access and interaction with primary care. Information technology systems should enable access to clinical records while providing tools that reduce error and duplication of services, while assisting with clinical decisions. Basically, we want health care professionals and hospitals working together to provide more efficient, higher quality care for everyone.
That is the concept behind ACOs. Integrated systems would be rewarded based on quality and efficiency (i.e., lower costs). Because of political considerations, Congress decided that they should apply the ACO concept exclusively to Medicare, while letting the private insurers supervise their own quality and cost programs.
The simplistic solution was to establish the Medicare Shared Savings Program. Reduced costs would be built in by rewarding the ACO systems with a portion of the funds that they saved, and ensuring quality by making the rewards dependent on meeting certain quality measures. The problem with this became evident when it came time to write the rules. Not only were the systems required to enable this very expensive, the rules would create what bureaucracies are so adept at creating – a bureaucratic quagmire. The letter from the participants in the Group Practice Demonstration Program list some of these aspects that proved to be problematic.
Bundling of payments has been another approach, but only certain clinical presentations conform well to bundling. So it would not be an answer to the majority of clinical problems. Also bundling removes risk from the common financing pool and splits it up amongst the providers of health care. Luck or lack thereof plays too great of a role to ask the providers to place bets on it merely by agreeing to accept patients with conditions subject to bundling.
Much of the difficulty has stemmed from the new, widely touted principle that we should no longer pay for volume but instead we should pay for quality and efficiency, but both quality and efficiency have proven to be very difficult to define. The default has been a few parameters of each which in no way can represent the broader spectrum of quality and efficiency.
Health care is a lot of work. No matter what else, the delivery system will have to be paid primarily on volume, but we need to get the volume right. Much attention has been paid to excess volume being driven by the rewards of fee-for-service care. In fact, the largest volume increase has been in imaging services, yet most physicians who order the procedures are not compensated for these services. The Dartmouth variations do remain of concern and further attention in defining these is certainly warranted.
The greater problem with volume has been demonstrated to be underutilization of services. According to a RAND study, most patients receive only about half of the care that they should have. The emphasis on reducing the volume of care has been somewhat misguided since there is a greater need to increase the volume, though we need to get the pricing right when we do that. The SGR dilemma must be addressed, but the basis for it will not go away.
The bottom line? Integrated health systems that are designed for optimal patient service are an admirable goal, but integrated health systems designed predominantly as a business model are not. ACOs designed to comply with the Medicare Shared Savings Program are an abstract concept that will never fly, as today’s quotes indicate. On the other hand, ACOs designed as a business model – the so-called commercial ACOs – are just another label for the intrusive managed care organizations that most of us have been trying to get away from.
The goals of higher quality at reasonable costs would best be achieved by humanitarian integrated health systems financed not by a dysfunctional, fragmented system of private and public plans, but rather by a publicly-financed and publicly-administered universal risk pool – an improved Medicare for everyone.
The ACO misstep is more of a problem of well intentioned but misdirected policy application. The now-tarnished ACO label should be dropped as we move forward with mutual efforts to improve the quality and efficiency of our health care delivery system so it works well for all of us.
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.
Partisan fights in Congress stall panel on primary-health-care shortage
By Amy Goldstein
The Washington Post, May 13, 2011
When the government set out to help 32 million more Americans gain health insurance, Congress and the Obama administration acknowledged that steering more people into coverage had a dark underside: If it works, it will aggravate a shortage of family doctors, internists and other kinds of primary care.
So Page 519 of the sprawling 2010 law to overhaul the health-care system creates an influential commission to guide the country in matching the supply of health-care workers with the need. But in the eight months since its members were named, the commission has been unable to start any work.
The group cannot convene, converse or hire staff because $3 million that it needs for its initial year has been blocked by two partisan wars on Capitol Hill — strife over the federal budget and Republicans’ disdain for the health-care changes that Democrats muscled into law 14 months ago.
“We’ve been sort of hamstrung,” said Fitzhugh Mullan, a professor of medicine and health policy at George Washington University who is one of the 15 commission members appointed by the Government Accountability Office. The panel’s only activity so far, Mullan said, was a single conference call during which members were told they could not lobby members of Congress for funds or accept money to operate from foundations or anywhere else.
The National Health Care Workforce Commission is intended as an ongoing brain trust to focus new energy on solving an old problem that will become increasingly severe. The law says the new commission will analyze primary-care shortages and propose innovations for the government — and medical schools — to help produce the doctors and other health workers the nation needs.
Proponents of the workforce commission say they were surprised that Republicans have balked, because there has, in the past, been little ideological schism over the need to bolster the supply of primary care — doctors, nurses, physicians assistants and others.
Republicans and Democrats agree with the health policy community that we desperately need to reinforce our primary care infrastructure. The National Health Care Workforce Commission that would propose innovations to help build primary care requires a mere $3 million to establish operations, but the Republicans have blocked this authorization. Do they expect us to simply rely on the private sector to meet this need? How is that working for us so far?
Health Insurers Making Record Profits as Many Postpone Care
By Reed Abelson
The New York Times, May 13, 2011
The headline says it all. Under the Affordable Car Act we’re getting more of the same, except worse (higher costs, skimpier coverage). It doesn’t have to be this way.
Would Privatizing Medicare Lead to Better Cost Controls?
By Uwe E. Reinhardt
The New York Times, May 13, 2011
The annual Milliman Medical Index, released earlier this week by Milliman Inc., the Seattle-based employee-benefit consulting and actuarial company, is illuminating, and I highly recommend it. The index is particularly timely as the nation considers proposals to reduce sharply the role of the federal government in financing health care, along the lines proposed by Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee.
The index measures the total cost of health care for a typical American family of four covered by a preferred provider plan, widely known as a P.P.O. The index’s great virtue is that it includes not only the employer’s and employee’s contributions to the premium for P.P.O. coverage but also the out-of-pocket expenses the family has under the plan.
Employers can control the growth of health insurance premiums by shifting more and more of the cost from the insurance policy to the family’s budget, through higher deductibles and coinsurance or by excluding benefits from coverage that had previously been covered.
Thus, the index provides a more accurate picture of the actual burden of health spending for a typical American family than does just the premium for P.P.O. coverage.
The estimated average cost of health spending from all sources for a typical privately insured American family more than doubled in the last decade, to $19,393 in 2011 from $8,414 in 2001. Over the decade, the index exhibited an average compound annual growth rate — widely known in the trade as C.A.G.R. — of 8.8 percent, although, in recent years, that rate has ranged between 7 and 8 percent.
Despite that recent abatement, the growth rate is still more than twice the rate at which total average employee compensation has grown, for all but the top executives among private employers. In recent years, the growth in employee compensation has hovered beneath 3 percent.
In other words, health care is chewing up employees’ paychecks like Pac-Man in the famous arcade game. And there is considerable empirical evidence that the employer’s ostensible contribution to the employee’s health-insurance premiums actually comes out of the employee’s take-home pay.
As noted above, it is not a stretch to argue that the Milliman Medical Index bears directly on the hypothesis that private health insurers are able to control the growth in per-capita health spending better than Medicare can.
At the theoretical level, one might be persuaded to subscribe to that theory, because private nonprofit and commercial health-insurance plans have at their disposal cost-control mechanisms that traditional Medicare has been denied by statute — for example, selective contracting with preferred providers that offer the insurer lower prices, or various direct interventions to control the volume of health services.
In addition, private nonprofit or commercial health insurers can offer other advantages that traditional Medicare has not, like disease management, wellness programs and better coordinated care — advantages that, in principle, are empirically demonstrable if they exist.
But the Milliman data do not suggest that superior control over total health spending — as opposed to controlling premium growth through cost-shifting to private household budgets — is among the industry’s strengths. To argue that the industry can do so is, at this point, faith-based analysis.
It is widely assumed, among both health insurers and the hospital industry, that the more rapidly rising prices paid by private insurers reflect a cost shift from government to the private sector. The theory is that private insurers must compensate with higher prices for the shortfall from actual cost imposed on providers of care by unduly low Medicaid and Medicare payment rates.
With a few exceptions, economists remain skeptical on the validity of the cost-shift theory, although it may operate in some market environments.
But suppose one accepted the cost-shift theory at face value. It implies that in many markets with highly consolidated hospital systems and large physicians’ groups, private insurers simply lack the market power to resist price increases from the more powerful providers of health care for whatever reason — cost shift or otherwise.
Milliman Medical Index:
Each year we look at the Milliman Medical Index and realize that our current system is still not working. The Affordable Care Act (ACA) provides no realistic hope of slowing costs in the privately insured sector. ACA’s only effective mechanism is the establishment of the Independent Payment Advisory Board, but that would leave private plans alone while risking converting Medicare into an underfunded welfare program.
Looking at the Milliman numbers, it seems so obvious. Instead of privatizing Medicare, we should improve it and then provide it as a public program that covers everyone. Cost escalation would be slowed to sustainable levels while preserving free choice of physicians and hospitals (which would be lost in a privatized Medicare program).
Single payer legislation has already been introduced that would allow us to take a serious look at this concept. In the House, Rep. John Conyers has introduced The Expanded and Improved Medicare for All Act (H.R.676), and Rep. Jim McDermott has introduced the American Health Security Act of 2011 (H.R.1200), which also has been introduced in the Senate by Sen. Bernie Sanders as S.915.
It is no wonder that conservatives often say that if we don’t adopt their less regulated privatization schemes we are going to end up with single payer. They understand the numbers, and they realize that single payer would actually work. It’s time that we look at single payer not as a threat, but as a hope – a hope that we could finally provide affordable health care for everyone.
2011 Milliman Medical Index
The annual Milliman Medical Index (MMI) measures the total cost of healthcare for a typical family of four covered by a preferred provider plan (PPO).
2011 cost is $19,393 (an increase of $1,319, or 7.3% over 2010)
83.1% – Actuarial value of an employer-sponsored PPO
Relative proportions of medical costs
59% ($11,385) – Employer contribution
24% – ($4,728) – Employee contribution
17% – ($3,280) – Employee out-of-pocket
Under the Affordable Care Act (ACA) the largest sector of health care coverage – employer-sponsored plans – remains relatively unchanged. The Milliman Medical Index is a measure of health care costs in the employer-sponsored plan sector, so it is important to understand what the number – $19,393 – really means.
In 2011, $19,393 is the average amount paid for health care for a family of four insured by an employer-sponsored preferred provider organization (PPO). Keep in mind that this large sector is composed of members of the relatively healthy workforce and their young healthy families. It represents what we are paying for health care in the best of circumstances.
It is important to understand that the $19,393 is only the amount paid for actual health care and does not include the administrative costs of the insurers or the employers. It does not include the 15 or 20 percent of the premium that the insurer would consume under the ACA guidelines. However, the $19,393 does reflect the discounts that the PPO receives by contracting with the various providers, so list prices are not taken into consideration.
Milliman does split the costs into 1) the employer contribution to costs paid through insurance (which is not the same as the premium, as explained above), 2) the employee contribution to costs paid through insurance (ditto), and 3) the employee contribution to costs paid out-of-pocket (including deductibles, coinsurance, and co-payments).
Thus the employees’ average payment for actual health care costs is about $8000 or 40 percent of total average health care spending for a family of four. Yet these plans are better than the gold plans under ACA since they have an actuarial value of 83 percent (the insurance pays an average of 83 percent of the costs). Under ACA, most will purchase plans with actuarial values of 60 or 70 percent, so the patient will be responsible for even more of the costs (albeit with inadequate subsidies).
When you consider that the median household income is $50,221 (2009), $8000 is quite a bite out of the household budget, but most economists don’t buy this number. They calculate the employer contribution as having been paid by the employee in forgone wage increases. So it is the employee who is actually paying the full $19,393 in health care costs, plus the expenses consumed by the insurers that don’t appear in this number. Though an apples to oranges comparison, $20,000 in family health care costs and $50,000 median household income are not a dire prediction for the future. Those are today’s numbers!
In a society in which we have expanded the ongoing transfer of wealth up to the top of the chain, the only way we are going to be able to pay this staggering bill is through progressive financing. Middle-income individuals and families are no longer able to pay for their proportionate share of health care. We can do this simply, equitably, efficiently and transparently through the tax system (a tax-financed single payer system), or we can attempt to do it through a fragmented, inequitable, expensive, opaque, complex maze of private and public plans (ACA), acknowledging that we’ll fall far short of covering everyone while threatening hard working, middle-income Americans with financial hardship should they need health care.
So why isn’t this in the forefront of the national dialogue on health care spending? Do we really want the debate to be over slashing Medicare? That framing of the problem is getting us nowhere. Do we continue to let them control the framing as we stand on the sidelines taking potshots? Or do we finally take over the framing and debate the real issues that concern all of us? It’s our choice.
In today’s message on the Milliman Medical Index, I stated, “Though an apples to oranges comparison, $20,000 in family health care costs and $50,000 median household income are not a dire prediction for the future. Those are today’s numbers!”
The “apples to oranges” referred especially to two issues: 1) the family of four with an employer-sponsored PPO is not necessarily the same as a median household, and 2) $11,385 in health care paid by the employer, according to the view of most economists, should be added to the household income, but to the household income of the family of four with an employer-sponsored PPO (a number that I don’t have) and not to the median household with an income of $50,221.
The numbers are still valid.
The average costs of health care, with insurance administrative costs added, is about $20,000 for a four person family in the workforce.
Median household income is about $50,000.
You can adjust these numbers all you want to try to align them better (sort apples from oranges), but you will still end up with the fact that middle-income Americans need more help with their health care costs.
Risk Adjustment Under the Affordable Care Act: A Guide for Federal and State Regulators
By Mark A. Hall
The Commonwealth Fund, May 2011
To achieve the aims of the Affordable Care Act, state and federal regulators must construct an effective system of risk adjustment, one that protects health insurers that attract a disproportionate share of patients with poor health risks. This brief, which summarizes a Commonwealth Fund–supported conference of leading risk adjustment experts, explores the challenges regulators will face, considers the consequences of the law’s risk adjustment provisions, and analyzes the merits of different risk adjustment strategies. Among other recommendations, the brief suggests that regulators use diagnostic rather than only demographic risk measures, that they allow states some but limited flexibility to tailor risk adjustment methods to local circumstances, and that they phase in the use of risk transfer payments to give insurers more time to predict and understand the full effects of risk adjustment.
The Affordable Care Act presents an opportunity to make the health care system more accessible and affordable, especially for patients with preexisting or chronic health conditions. But accomplishing health reform’s goals requires effective risk adjustment to ensure that the highly skewed distribution of medical costs across any population does not destabilize insurance markets by favoring some insurers over others. Although risk adjustment may be the thickest of technocratic regulatory weeds, wading into this thicket is critical if insurance reforms are to succeed.
Private health insurers, as businesses competing in the marketplace, have a responsibility to maximize profits and to maintain a competitive edge by offering insurance products with lower premiums. The surest way to do both is to enroll as many healthy individuals as possible while avoiding patients who have or may develop expensive health problems.
In a fragmented system of financing health care dependent on a multitude of private insurers, such as we have under the Patient Protection and Affordable Care Act, it is essential that policies be established to prevent insurers from basing their success on their ability to defeat the very purpose of insurance, which is to equitably shift the costs of health care from the few with greater health care needs to the many with fewer needs.
For an equitable, multi-payer health care financing system that theoretically covers everyone, not only must each insurer pool risks within their respective insurance pools, but regulators must have tools to redistribute funds from those pools comprised of mostly healthy individuals to those pools that have enrolled sicker patients who require more expensive care. This process of transferring funds from healthier pools to sicker pools is known as risk adjustment.
This twelve page Commonwealth Fund brief by Mark Hall is an excellent primer for trying to understand the processes and deficiencies of risk adjustment. Without going into any of the details, on reading this primer the conclusion can be reached that there are a multitude of opportunities for private insurers to game the system, and game it they will. We’re not talking about crooks. We’re talking about private businesses that have a duty to gain a competitive edge by exercising whatever innovations will give them that edge.
Although an inventory of gaming opportunities cannot possibly be provided in this comparatively brief message, a single example can demonstrate this problem.
One tool for adjusting risk is to use the diagnostic codes of the patients in the insurance pool. As the Commonwealth brief states, “Using diagnostic information will likely lead to some degree of upcoding (i.e., increased identification of higher-cost conditions), but some degree of increased diagnostic coding is desirable in order to correct for inaccurate or undercoding.”
Because of both patient confidentiality and the need to protect proprietary information, the coding is done by the insurer. Upcoding is a given since it rewards the insurer with transfers from pools with healthier diagnostic codes, but can you believe that the insurer would ever allow its employees to undercode?
Risk adjustment is important when risk is borne by third parties in multiple, fragmented pools. What would happen in a single payer system? Risk would be borne solely by the government, obviating the need for risk adjustment between pools.
That was the way Medicare worked until private Medicare Advantage plans were introduced. Although risk adjustment mechanisms have been introduced for these private plans, the insurers undoubtedly find ways to enroll the healthy while reporting them as being sick so that they benefit from risk adjustment.
Why have we not been apprised of this scandal? It is difficult for CMS to audit confidential, proprietary information that may have been manipulated in a manner that covers the trails that lead to results benefiting the insurers, especially when CMS is swamped with other work and is funded by austere budgets.
So this is one more reason to switch to an improved Medicare that covers everyone. It eliminates the need to attempt to accomplish the nearly impossible task of accurately adjusting for risk – a totally unnecessary task simply because the single government payer would bear all of the risk.
Single-Payer, Medicare-for-All Legislation Introduced
Senator Bernie Sanders
May 10, 2011
Sen. Bernie Sanders (I-Vt.) announced today that he introduced legislation to provide health care for every American through a Medicare-for-all type single-payer system.
Rep. Jim McDermott (D-Wash.) filed a companion bill in the House to provide better care for more patients at less cost by eliminating the middle-man role played by private insurance companies that rake off billions of dollars in profits.
The twin measures, both called the American Health Security Act of 2011, would provide federal guidelines and strong minimum standards for states to administer single-payer health care programs.
“The United States is the only major nation in the industrialized world that does not guarantee health care as right to its people,” Sanders said at a press conference on Capitol Hill. “Meanwhile, we spend about twice as much per capita on health care with worse results than others that spend far less. It is time that we bring about a fundamental transformation of the American health care system. It is time for us to end private, for-profit participation in delivering basic coverage. It is time for the United States to provide a Medicare-for-all single-payer health coverage program.”
McDermott said, “The new health care law made big progress towards covering many more people and finding ways to lower cost. However, I think the best way to reduce costs and guarantee coverage for all is through a single-payer system like Medicare. This bill does just that – it builds on the new health care law by giving states the flexibility they need to go to a single-payer system of their own. It will also reduce costs, and Americans will be healthier.”
American Health Security Act of 2011:
http://thomas.gov/ (select bill number and insert S.915 or H.R.1200)
Doctors’ group greets single-payer health bill in Senate
Physicians for a National Health Program
May 10, 2011
Physicians for a National Health Program says Sen. Bernie Sanders’ American Health Security Act would go far beyond federal health law, slash bureaucracy and lay the basis for universal, high-quality care.
The single payer concept has not gone away. We really don’t have to accept the deficiencies of the Patient Protection and Affordable Care Act (PPACA): tens of millions uninsured, and under-insurance as the new standard. The low actuarial value plans being established by PPACA will create financial hardships for middle-income Americans who have significant health care needs.
What we do need is an America that understands what we can have in health care for everyone, but what we won’t be receiving if we simply sit back and let PPACA play out. It’s our job to get the word out.
Richard Klumpp’s Captive Insurance Brief
March 24, 2011
A captive insurance company is a wholly-owned subsidiary created to provide insurance to its parent company (or companies).
Once established, it operates like any commercial insurer, i.e., it assumes the risk of its parent/owner in exchange for a pre-determined premium payment.
April 27, 2011
While captives are real insurance companies, they are essentially a form of self insurance, especially for single parent captives. Unexpected losses, if they occur, will negatively impact the profits of the parent firm.
Seeking Business, States Loosen Insurance Rules
By Mary Williams Walsh and Louise Story
The New York Times, May 8, 2011
Companies looking to do business in secret once had to travel to places like the Cayman Islands or Bermuda.
Vermont, and a handful of other states including Utah, South Carolina, Delaware and Hawaii, are aggressively remaking themselves as destinations of choice for the kind of complex private insurance transactions once done almost exclusively offshore. Roughly 30 states have passed some type of law to allow companies to set up special insurance subsidiaries called captives, which can conduct Bermuda-style financial wizardry right in a policyholder’s own backyard.
Captives provide insurance to their parent companies, and the term originally referred to subsidiaries set up by any large company to insure the company’s own risks. Oil companies, for example, used them for years to gird for environmental claims related to infrequent but potentially high-cost events. They did so in overseas locations that offered light regulation amid little concern since the parent company was the only one at risk.
Now some states make it just as easy. And they have broadened the definition of captives so that even insurance companies can create them. This has given rise to concern that a shadow insurance industry is emerging, with less regulation and more potential debt than policyholders know, raising the possibility that some companies will find themselves without enough money to pay future claims. Critics say this is much like the shadow banking system that contributed to the financial crisis.
Aetna recently used a subsidiary in Vermont to refinance a block of health insurance policies, reaping $150 million in savings, according to its chief financial officer, Joseph M. Zubretsky. The main reason is that the insurer did not need to maintain conventional reserves at the same level as would have been required by insurance regulators in Aetna’s home state of Connecticut.
For insurers, these subsidiaries offer ways to unlock some of the money tied up in reserves, making millions available for dividends, acquisitions, bonuses and other projects. Three weeks after Aetna’s deal closed, the company announced it was increasing its dividend fifteenfold.
Another issue is public oversight. State regulators normally require insurance companies to make available reams of detailed information. A policyholder can find every asset in an insurer’s investment portfolio, for instance, or the company the carrier turns to for reinsurance. But not if the insurer relies on a captive. The new state laws make the audited financial statements of the captives confidential.
“We are concerned about systems that usher in less robust financial security and oversight,” said Dave Jones, the California insurance commissioner.
While saying that he wanted to remain open to innovation, Mr. Jones added, “We need to ensure that innovative transactions are not a strategy to drain value away from policyholders only to provide short-term enrichment to shareholders and investment bankers.”
Aetna has established a “captive” which has enabled it to refinance a block of health insurance policies for the purpose allowing it to maintain a lower level of reserves, under the cloak of confidentiality. Unlocking that money by removing it from reserves has enabled it to increase its dividends fifteen fold.
This is the industry that Congress has insisted must remain in charge of our health care financing. They create insurance products we can’t afford with benefits that won’t adequately protect us. They waste tremendous resources in their administrative excesses. And for what? To enrich shareholders and investment bankers by draining value away from policyholders?
Why is there no outrage? Why do Americans remain silent as our public stewards force us into giving control of our health care dollars to these crooks? Americans have made it clear that they don’t want our Medicare dollars to be placed in the hands of these thieves. Why can’t Americans make the connect that we could throw these jerks out and place all of our health care dollars into our own Medicare program?
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