The Obama administration’s confidence game on administrative savings

Posted by on Friday, Feb 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.

Insurance Companies Prosper, Families Suffer: Our Broken Health Insurance System

HealthReform.gov, U.S. Department of Health & Human Services
February 18, 2010

Recently, Anthem Blue Cross of California, an insurance company owned by the for-profit company WellPoint, Incorporated, announced that its individual market premiums would rise by as much as 39 percent in the coming months. This shocking increase isn’t unique. Across the country, families have seen their premiums skyrocket in recent years, and experts predict these increases will continue.

A Broken Health Insurance System Works for Insurance Companies – Not Families

The “value gap” in the health insurance market is evident not just in overall premium hikes, but also in the use of those premium dollars. Over the past decade, the amount private insurance companies spent on administrative costs grew faster than the amount spent on prescription drugs, a trend that is projected to continue through the next decade. Three of the top five insurers cut the proportion of premiums they spent on customers’ medical care last year, committing more to salaries, administrative expenses, and profits.

Lower Premiums.

The Congressional Budget Office estimates that reform will streamline administrative costs of insurance companies and bring more people into the insurance market, lowering premiums of a comparable plan in the individual market by 14 to 20 percent. (25)

(25) Congressional Budget Office. Letter to Senator Bayh. November 30, 2009.

http://www.healthreform.gov/reports/insuranceprospers/index.html

And…

Letter to Senator Bayh

Congressional Budget Office
November 30, 2009.
(Reference 25, above)

Nongroup Policies

CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law.

• Average premiums would be 27 percent to 30 percent higher because a greater amount of coverage would be obtained.

• Average premiums would be 7 percent to 10 percent lower because of a net reduction in costs that insurers incurred to deliver the same amount of insurance coverage to the same group of enrollees. Most of that net reduction would stem from the changes in the rules governing the nongroup market.

• Average premiums would be 7 percent to 10 percent lower because of a shift in the types of people obtaining coverage. Most of that change would stem from an influx of enrollees with below-average spending for health care, who would purchase coverage because of the new subsidies to be provided and the individual mandate to be imposed.

New Market Rules Would Reduce Administrative Costs

Compared with plans that would be available in the nongroup market under current law, nongroup policies under the proposal would have lower administrative costs, largely because of the new market rules:

• The influx of new enrollees in response to the individual mandate and new subsidies—combined with the creation of new insurance exchanges—would create larger purchasing pools that would achieve some economies of scale.

• Administrative costs would be reduced by provisions that require some standardization of benefits—for example, by limiting variation in the types of policies that could be offered and prohibiting “riders” to insurance policies (which are amendments to a policy’s terms, such as coverage exclusions for preexisting conditions); insurers incur administrative costs to implement those exclusions.

• Administrative costs would be reduced slightly by the general prohibition on medical underwriting, which is the practice of varying premiums or coverage terms to reflect the applicant’s health status; nongroup insurers incur some administrative costs to implement underwriting.

• Partly offsetting those reductions in administrative costs would be a surcharge that exchange plans would have to pay under the proposal to cover the operating costs of the exchanges.

http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf

Although the Obama administration continues to advocate for reform based on private health plans, they have seized on the current outrage over skyrocketing insurance premium increases to to demonstrate why reform is essential. Although they are attacking the private insurance industry, they continue to push for a reform model that provides this market with tens of millions of new customers.

Do the proposed reforms of the insurance market really provide us with the assurance that everyone will have access to affordable health care? We already know that they could not achieve the goal of covering everyone, and will leave about 25 million with no coverage (RAND 2/10). Also there is doubt that other measures in the legislation will have much impact in containing costs. But what about the egregious administrative waste in our dysfunctional financing system?

In their report released yesterday, the administration claims that “reform will streamline administrative costs of insurance companies and bring more people into the insurance market, lowering premiums of a comparable plan in the individual market by 14 to 20 percent.” They cite the CBO letter to Sen. Bayh as their source for this statement.

And what does the CBO say? First, the premiums will actually be 10 to 13 percent higher because of the offsetting requirement for increased benefits in these plans that would increase premiums by 27 to 30 percent. For those who say that the improved benefits are worth this increase, keep in mind that the benefits move from the current actuarial value of 60 percent to an actuarial value of 70 percent. That is still significantly below the 80 percent actuarial value of current employer-sponsored plans. These individual plans will continue to leave many people who need health care exposed to unaffordable out-of-pocket expenses.

What does CBO say about the 14 to 20 percent administrative savings claimed by the Obama administration? Half of it (7 to 10 percent) isn’t even administrative savings but merely represents a dilution of the risk pool with healthy individuals mandated to purchase private health plans.

The other half of the premium savings, also 7 to 10 percent, stems from a slight reduction of administrative costs since the plans would be sold through an insurance exchange eliminating some of the costs such as underwriting and brokers’ fees. When you look at the CBO explanation of where the administrative savings would occur, it is clear that there is not much there, and some of it would be offset by the additional administrative costs of the new exchanges.

Although the Obama administration is using this to claim administrative savings, the total reduction in our national health expenditures (NHE) would be so infinitesimal that it wouldn’t even warrant a footnote in the annual NHE report.

The profound administrative waste in our system is not limited to the outrageous excesses of the private insurers but it permeates the entire system, including the very high costs of the burden that private insurers place on physicians, hospitals and other sectors of the health care delivery system.

Although the amount of the recoverable waste is disputed, everyone agrees that it is profound. Very solid data demonstrates that somewhere around $4 trillion could be recovered over the next decade merely by changing to a single payer national health program – an improved Medicare that covered everyone. Those who argue that it is only half that need to explain why we should therefore refuse the $2 trillion in savings ($ 2,000,000,000,000).

Most of us have tired of conspiracy theories. But think about this. The Obama plan (to be formally released Feb. 22) is a gift of our tax funds to the private insurance industry. Recent events have suggested that the plan may not survive the legislative process. Polls and focus groups show that the public is outraged by insurance company abuses. The insurers have chosen the most inopportune time in the reform process to cram outrageous premiums into the faces of their customers. Or is it inopportune? Look at the platform that it has given President Obama and the cover that it provides for members of Congress. It is giving them an avenue that will allow them to push through this program that the insurance industry understands that it must have for its own survival.

The Obama plan will leave tens of millions uninsured. It will not adequately control health care spending. It will perpetuate the profound administrative waste in our system. Above all, it will revitalize the private insurance industry for decades to come. If we’re not going to react, then we’re simply going to have to learn to live with it.

L.A. County slashes doctors’ reimbursement rate

Posted by on Thursday, Feb 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.

L.A. County slashes doctors’ reimbursement rate

By Molly Hennessy-Fiske and Ron-Gong Lin II
Los Angeles Times
February 17, 2010

Emergency room doctors and on-call specialists treating poor, uninsured patients at private hospitals in Los Angeles County saw their reimbursement rate slashed by county supervisors Tuesday.

The rate cut could lead private hospitals to close emergency rooms and send more patients to crowded county hospitals, officials said.

L.A. County reimburses doctors 27% of estimated fees for patients’ first three days of care at private hospitals under the Physician Services for Indigents Program. Supervisors voted unanimously Tuesday to reduce the rate to 18% as of July 1.

The county had expected to pay doctors with $9 million from the state’s Emergency Medical Services Appropriation. But state lawmakers eliminated the fund, and as the number of uninsured grows, private doctors are expected to file more claims than ever with the county this year, Meyer said.

More than half of Los Angeles County’s 72 hospitals are operating at a deficit and two are in bankruptcy, Lott said (Jim Lott, executive vice president of the Hospital Assn. of Southern California). Countywide, 11 hospitals have closed since 2002, all of which had emergency rooms, he said.

http://articles.latimes.com/2010/feb/17/local/la-me-supes-uninsured17-2010feb17

“The County” – a hospital to which emergency patients with no money and no insurance are shipped. Most of us remember when The County was always the provider of last resort.

No longer. Any hospital with an emergency room, for humane reasons, must now provide emergency services to any person who presents with a bona fide emergency, regardless of the ability to pay. Unfortunately, the change in attitude of some occurred only after it became a criminal offense to fail to recognize that “ship ‘em to The County” fell short of a humane response. The fact that this legislation was needed should not reflect on the great many dedicated professionals who have always been ready to help, without any regard to the financial status of the patient.

But what about paying for this care? Should the private hospitals and physicians write this off as charity? When operating at a deficit with bankruptcy around the corner, that won’t work. Should the county, as the health care provider of last resort, pay for at least the costs of the care? State and local governments are struggling with deficits in their budgets. The 18 percent payment by Los Angeles County’s Physician Services for Indigents Program obviously won’t cover costs. And the state certainly is not helping by eliminating their Emergency Medical Services Appropriation.

There is a way we could do this. We could establish a single payer national health program – an improved and expanded Medicare that includes everyone. Under such a system, even those physicians who have had difficulty understanding a humane health care system would change their response. When that emergency call comes in that always means another paying patient, it will become natural for those physicians to say, “Ship ‘em here!”

The following letter was sent to the White House on Feb. 9, two days after President Obama announced his plans to convene a bipartisan summit on health reform on Feb. 25 in Washington.

February 9, 2010

President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

Physicians for a National Health Program, an organization of 17,000 doctors who support single-payer national health insurance, respectfully requests that you invite one or more of our representatives to participate in your White House health care session on Feb. 25.

We note that in your call for the meeting you urged Republicans, Democrats and health policy experts to gather, go over all the options and “walk through them in a methodical way so that the American people can see and compare what makes the most sense.”

We would like to offer several of our members as health policy experts for this important task.

As you may know, two key research studies that helped drive the health reform process forward this past year – one in the American Journal of Public Health that found 45,000 deaths annually are linked to lack of health insurance, another in the American Journal of Medicine that found 62 percent of personal bankruptcies are linked to medical bills and illness – were the work product of Harvard Medical School research teams guided by PNHP co-founders Drs. David Himmelstein and Steffie Woolhandler.

Drs. Himmelstein and Woolhandler, who are also primary-care physicians in Cambridge, Mass., have had several other groundbreaking studies published in our nation’s leading medical journals, including one in the New England Journal of Medicine that shows administrative costs consume 31 percent of U.S. health spending, most of it unnecessary. They have also frequently testified before Congress on their research. We urge that you invite them to participate in the Feb. 25 meeting.

The presence of Dr. Margaret Flowers, our congressional fellow, would also enhance the meeting. Dr. Flowers, a Maryland pediatrician, has met with numerous members of Congress and testified before two congressional committees last year about the urgent need for single-payer health reform.

Finally, we ask that you invite our president, Dr. Oliver Fein, to participate. Dr. Fein, an internist and professor of clinical medicine and clinical public health in New York City, attended the March 5 White House Summit on health care. He is a past vice president of the American Public Health Association.

Detailed biographies and contact information for each of these doctors are available upon request. Please feel free to call me (312-782-6006) or e-mail me (info@pnhp.org) should you need any additional information.

Sincerely,

Ida Hellander, M.D.
Executive Director

Is Medicare “close enough” to universal?

Posted by on Wednesday, Feb 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.

Measuring Coverage for Seniors in Medicare Part A and Estimating the Cost of Making It Universal

By Michael Birnbaum and Elizabeth M. Patchias
Journal of Health Politics, Policy and Law
February 2010

Medicare’s Part A Coverage Gap in the Context of National Health Care Reform

The fact that 1.6 million seniors in the United States — 5 percent of the elderly population — are without full federal Part A coverage is a significant policy issue. While Medicare is widely understood to cover the entire elderly U.S. population, this is at best a substantial exaggeration of Medicare’s reach and perhaps a mischaracterization whose broad acceptance preempts a national debate about Medicare eligibility policy and clouds the existing debate on universal coverage.

Will a national discussion on Medicare eligibility get at least a little traction? At this point it seems unlikely because of a powerful counterargument that Medicare is close enough to universal and that seniors without the full federal Part A benefit have other public programs and sources of government funding to support their health care needs, with some ultimately gaining Medicare Part A through their state Medicaid programs. This argument is valid and empirically strong, but it hangs on a normative question: when we are dealing with Medicare eligibility policy in the context of a national discussion about universal coverage, should we settle for “close enough” and accept that, when people fall through the cracks of Medicare’s eligibility framework, Medicaid and the states will be there as a last resort?

http://jhppl.dukejournals.org/cgi/content/abstract/35/1/49?etoc

And…

Projected Impact of Senate Health Reform Bill; Estimates of Alternative Designs

RAND
February 16, 2010

The (RAND) study finds that health care legislation passed by the Senate in December would cut the number of uninsured Americans to 25 million by 2019 (a 53 percent decrease).

http://www.rand.org/news/press/2010/02/16/

At what level do we say that the rate of coverage under a universal program is “close enough”? For Medicare Part A, we’ve already answered that question. Covering 95 percent of those over age 65 is “close enough,” leaving 1.6 million seniors out of the Part A program (primarily hospital care).

We now hear from our politicians that the Senate reform bill awaiting approval in the House is “close enough” to universal coverage, cutting the number of uninsured in half, leaving only 25 million without coverage, according to this new RAND report.

Many suggest that we abandon the term “single payer” and use “Medicare for All” instead. Universal coverage under single payer means 100 percent – everyone is included automatically, not 95 percent like Medicare Part A.

When we choose to use the Medicare rhetoric because it would resonate better with some audiences, we should refer to it as “improved Medicare for All.” That’s simply code language for replacing Medicare’s numerous flawed policies with a bona fide single payer program – a program that removes financial barriers to health care for absolutely everyone.

During the health reform dialogue, when someone says, “close enough,” you know that person is supporting flawed policies. Jump in immediately, protesting that “close enough” isn’t good enough when we have better policies that will get all of us all the way there.

Mark Pauly didn’t move; the center did

Posted by on Monday, Feb 15, 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.

Republicans Spurn Once-Favored Health Mandate

By Julie Rovner
NPR
February 15, 2010

For Republicans, the idea of requiring every American to have health insurance is one of the most abhorrent provisions of the Democrats’ health overhaul bills.

“Congress has never crossed the line between regulating what people choose to do and ordering them to do it,” said Sen. Orrin Hatch (R-UT). “The difference between regulating and requiring is liberty.”

But Hatch’s opposition is ironic, or some would say, politically motivated. The last time Congress debated a health overhaul, when Bill Clinton was president, Hatch and several other senators who now oppose the so-called individual mandate actually supported a bill that would have required it.

In fact, says Len Nichols of the New America Foundation, the individual mandate was originally a Republican idea. “It was invented by Mark Pauly to give to George Bush Sr. back in the day, as a competition to the employer mandate focus of the Democrats at the time.”

Pauly, a conservative health economist at the University of Pennsylvania’s Wharton School, says it wasn’t just his idea. Back in the late 1980s — when Democrats were pushing not just a requirement for employers to provide insurance, but also the possibility of a government-sponsored single-payer system — “a group of economists and health policy people, market-oriented, sat down and said, ‘Let’s see if we can come up with a health reform proposal that would preserve a role for markets but would also achieve universal coverage.’ ”

The idea of the individual mandate was about the only logical way to get there, Pauly says. That’s because even with the most generous subsidies or enticements, “there would always be some Evel Knievels of health insurance, who would decline coverage even if the subsidies were very generous, and even if they could afford it, quote unquote, so if you really wanted to close the gap, that’s the step you’d have to take.”

One reason the individual mandate appealed to conservatives is because it called for individual responsibility to address what economists call the “free-rider effect.” That’s the fact that if a person is in an accident or comes down with a dread disease, that person is going to get medical care, and someone is going to pay for it.

“We called this responsible national health insurance,” says Pauly. “There was a kind of an ethical and moral support for the notion that people shouldn’t be allowed to free-ride on the charity of fellow citizens.”

So while President Clinton was pushing for employers to cover their workers in his 1993 bill, John Chafee of Rhode Island, along with 20 other GOP senators and Rep. Bill Thomas of California, introduced legislation that instead featured an individual mandate. Four of those Republican co-sponsors — Hatch, Charles Grassley of Iowa, Robert Bennett of Utah and Christopher Bond of Missouri — remain in the Senate today.

But the summary of the Republican bill from the Clinton era and the Democratic bills that passed the House and Senate over the past few months are startlingly alike.

Beyond the requirement that everyone have insurance, both call for purchasing pools and standardized insurance plans. Both call for a ban on insurers denying coverage or raising premiums because a person has been sick in the past. Both even call for increased federal research into the effectiveness of medical treatments — something else that used to have strong bipartisan support, but that Republicans have been backing away from recently.

And how does economist Pauly feel about the GOP’s retreat from the individual mandate they used to promote? “That’s not something that makes me particularly happy,” he says.

http://www.npr.org/templates/story/story.php?storyId=123670612

And…

Chafee’s political prescriptions – Republican Senator John Chaffee has his own proposals for health care reform

By Rich Lowry
National Review
January 24, 1994

Senate Minority Leader Robert Dole tapped (Sen. John) Chafee, a long-time student of health care, to craft the principles that 23 Republicans signed last fall as a buffer against the Clinton onslaught.

Chafee’s plan then looked, as critics said, like “Clinton Lite”: no price controls or employer mandates, but, universal coverage, a comprehensive benefits package, a National Health Board, and purchasing alliances. Before long Hillary Clinton, eager for Republican cooperation, was calling him her “counselor and advisor.”

In October Chafee’s bill was redrafted under pressure from conservatives and Dole. It went from having mandatory purchasing alliances–the linch-pin of the Clinton plan–to voluntary ones. “This is night and day,” says Don Devine, head of Citizens against Rationing Health, a group supported by the American Conservative Union. The plan now includes medical savings accounts–an essential feature of the conservative John Goodman plan. And Chafee puts off universal coverage to 2005, promising to extend coverage only as savings are realized.

Newt Gingrich delivered perhaps his sharpest attack on the Clinton proposal yet in a speech to Empower America December 14. And, significantly, in a December 16 news conference Dole said, “I don’t think there’s a [health-care] crisis.” He went on to endorse incremental reforms: “When we’ve got some areas we agree on, why not just go ahead and pass those early next year?” Administrative simplification, coverage for people with pre-existing conditions, malpractice reform, insurance portability–the list goes on–would improve the system without scrapping it.

http://findarticles.com/p/articles/mi_m1282/is_n1_v46/ai_14809418/

In perhaps the greatest irony of the reform process, President Obama has scheduled a bipartisan health care summit in which the Democrats will submit a right-wing proposal similar to that crafted by conservative economist Mark Pauly and his market-oriented colleagues. The Republicans will offer nominal proposals that would provide no significant benefit in correcting the problems that we face with our health care system.

When President and Mrs. Clinton began their reform efforts, they understood the superiority of the single payer model, but they anticipated that it would be rejected as being a left-wing government program. They decided to stake out a position that they perceived to be in the middle, when in fact it was a market-oriented proposal that would have appeal more to those on the right except for the level of regulatory oversight.

Although with the Clintons already negotiating to the right of center, the conservatives moved the fulcrum of the negotiations further to the right by offering a counter-proposal for mandatory purchasing alliances – “a health reform proposal that would preserve a role for markets but would also achieve universal coverage.” The conservatives then again pulled up stakes and moved even further to the right by making them voluntary. The process ended with Sen. Robert Dole saying that all we needed was some incremental reforms. We all know what’s happened to our health care system since then.

President Obama clearly understands the superiority of the single payer model and has stated so on several occasions, going so far as to say that we would adopt single payer if we were starting from scratch. But the position he eventually staked out was far to the right, even further to the right than the initial Republican counter-proposal offered in 1993. He campaigned against an individual mandate to purchase private plans since they were not affordable to middle-income individuals and families. Although a pseudo-mandate has been included in the Democrat’s proposal, it would still leave tens of millions without coverage, falling short of the goal that conservative economist Mark Pauly likely envisioned.

This bipartisan process began on the right. Over the past couple of decades it has been pulled further and further to the right until it has deteriorated into a process in which we are looking for those reforms, all in right-wing territory, that we can agree on. We’re only one step away from returning to Bob Dole’s incrementalism – a path that leads ever downward into despair.

It’s not too late. We can start over with single payer – an improved Medicare that covers everyone. That would end our despair.

Underrating Reform – A Response

Posted by on Friday, Feb 12, 2010

Paul Starr’s analysis of the stalled health insurance reform bill, “Underrating Reform”, suggests that the compromises and concessions made by the Democrats in Congress “to get something passed” in no way diminishes the legislation’s significance. I agree. But not for the reason you might think.

This “stunning historical achievement” succeeds in shining a bright light on “pay to play” politics in Washington and on the spinelessness of the “so-called” Congressional Progressive Caucus. And when the public option finally succumbed to the chopping block, as many of us knew it would, then even “progressives” such as Howard Dean joined the ranks of liberals calling for the President to “start from scratch.”

Professor Starr goes on to assert “the legislation would be a major advance in two important respects…it would boost the living standards of low-wage workers…and improve economic security for the middle class.” A Medicaid expansion would, indeed, improve living standards for low-wage workers. The same is true of the SCHIP expansion that Congress passed in 2007. This clearly improved conditions for many of the country’s poorest children. And it passed without need to resort to reconciliation.

I disagree, however, that the proposed legislation would be a boon to the middle class. That simply defies history. We have only to look to the experiences of the citizens of Massachusetts to see that mandates to purchase private health insurance, subsidized by taxpayers’ money, has been a bust, not a boon, to these families. It has created a population that is underinsured and now has lost its safety net hospitals and providers. Only the private health insurance industry benefits from mandates and subsidies.

What is most distressing, but predictable, about Prof. Starr’s analysis is his vilification of those darn “pie-in-the-sky” liberals who won’t go along with progressive incrementalist spin but, instead, persistently focus the light on shameless influence-peddling by corporate lobbyists and meaningless posturing by progressive Democrats.

Cheap shot, Professor Starr.

Profits for largest insurers now 30%

Posted by on Friday, Feb 12, 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.

Health Insurers Break Profit Records As 2.7 Million Americans Lose Coverage

Health Care for America Now!
February 2010

The five largest U.S. health insurance companies sailed through the worst economic downturn since the Great Depression to set new industry profit records in 2009, a feat accomplished by leaving behind 2.7 million Americans who had been in private health plans. For customers who kept their benefits, the insurers raised rates and cost-sharing, and cut the share of premiums spent on medical care.

Executives and shareholders of the five biggest for-profit health insurers, UnitedHealth Group Inc., WellPoint Inc., Aetna Inc., Humana Inc., and Cigna Corp., enjoyed combined profit of $12.2 billion in 2009, up 56 percent from the previous year. It was the best year ever for Big Insurance.

Of the estimated $809 billion spent on private health insurance in 2009, the five biggest forprofit companies…  captured $232 billion.

Medical loss ratios for 2009:
WellPoint – 82.6%
UnitedHealth – 82.3%
Humana – 82.8%
Cigna – 81.2%
Aetna – 85.2%

http://hcfan.3cdn.net/a9ce29d3038ef8a1e1_dhm6b9q0l.pdf

Is health insurers’ profit 2% or 22%?
http://www.pnhp.org/news/2009/october/is-health-insurers-profit-2-or-22

In a previous Quote of the Day (link above) it was pointed out that, for investor-owned private health insurers, the percentage of revenues reported as profits does not represent how lucrative the profits actually are for this industry. In light of record profits being reported, let’s look at an update of the numbers.

For purposes of these ballpark calculations, revenues are assumed to be premiums paid for purchase of the private plans (ignoring investment returns on reserves). The revenues are split into 1) a fund to be used to pay for health care benefits, and 2) funds to operate the business entity that is selling insurance services. The latter portion includes all administrative expenses and other costs of running their businesses, plus profits.

Those funds being held to pay for health care, in essence, are funds that belong to the insured and are merely being held by the insurers “in trust.” They are not part of the actual business operations of the insurers. Their exposure to risk is almost negligible since their actuaries continually adjust premiums so that they cover the potential risks.

Their actual business entity is the creation, marketing and servicing of their products that provide administrative services for health care financing. This is comparable to the service that they provide to self-funded employer health benefit programs. The actual business entity is very similar, but the employees’ health care funds are held “in trust” by the employer rather than the insurer.

Setting aside the “trust funds,” let’s look at what the actual expenses and profits are for the five biggest for-profit health insurers.

The non-weighted average of their medical loss ratios for 2009 is 82.8%. That means that 82.8% of revenues go into the “trust funds,” and 17.2% is retained for their administrative and other business expenses plus their profits.

These five companies had combined revenues of $232 billion. Of that, $192 billion went into the “trust funds,” and $40 billion went into their business operations and profits. Their combined profit was $12.2 billion. That $12.2 billion profit out of the $40 billion that they retained for their business expenses means that their actual profit averaged over 30%. Over 30%! No other industry has returns anywhere near this level.

The insurance industry often responds by saying that their profits are less than one percent of our total national health expenditures (NHE). Even if that is true, these five companies alone kept one-half of one percent of our NHE as their profits.

Some in the policy community say that eliminating profits of the private insurers won’t save enough to make a difference. But they miss the point. First, that $12.2 billion would provide for quite a bit of health care. But a far greater amount could be recovered by eliminating the administrative excesses of the insurers and the costs of the administrative burden that they place on physicians and hospitals.

But the most important reason is not even quantified. This intrusive industry has taken away our choices in health care by assessing heavy penalties for care provided outside of their restrictive networks, while putting in place numerous barriers to the health care that we need. Why do we reward these despicable people so richly for their unseemly, heinous acts?

We want a system that helps us get health care that we need, like Medicare, not one that impedes our access to care as they pick our pockets and snatch our purses.

Gruber says middlemen brokers can function as exchanges

Posted by on Thursday, Feb 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.

Md. health care receives good marks

By Shantee Woodards
Maryland Gazette
February 10, 2010

Health care reforms in Maryland need only minor adjustments to be as effective as an insurance “exchange” established in Massachusetts, according to a new report that compared both states.

The report, released Wednesday in Annapolis by two insurance trade associations, found that Maryland’s current system of distributing insurance to small employers and individuals is adequate and takes the place of the so-called health insurance exchange offered in Massachusetts.

In Maryland, there’s an environment “where brokers can buy health insurance and it’s sold to individuals and it looks like our ‘Connector,’ ” said Jonathan Gruber, an author of the report and professor of economics at the Massachusetts Institute of Technology.

http://www.hometownglenburnie.com/news/Health/2010/02/10-21/Md.+health+care+receives+good+marks%0A.html

And…

A Health Insurance Exchange for Maryland?

Comparing Massachusetts and Maryland

By Robert L. Carey and Jonathan M. Gruber, PhD.
Maryland Association of Health Underwriters
National Association of Insurance and Financial Advisors of Maryland

The success of the reform generally, and the Connector specifically, in Massachusetts has motivated similar approaches both at the Federal level and in other states. Virtually every current proposal for reform at the state and Federal level includes some form of “exchange” that would organize and sell health insurance in the non-group and small group markets. The popularity of this approach raises the important question of whether the Massachusetts model can be replicated – and how much government involvement is required to make that a reality. The answer will clearly vary from place to place, and with the details of the proposed exchange.

In this report, we evaluate the possibility of setting up an exchange in Maryland. We begin with a detailed description of the non-group and small group markets in Massachusetts before health reform. We then discuss health reform in that state, discussing both the establishment of the Connector and its early role in health reform. We next turn to an evaluation of the non-group and small group markets in Maryland, and in particular the much more significant role played by intermediaries in that state. In many senses, intermediaries in Maryland play a role much like the Connector plays in Massachusetts. This makes the transition to an exchange much less onerous in Maryland.

http://www.marylandahu.com/broker_images/marylandahuorg/documents//mahu_exchange_study.pdf

Many experts touting the Congressional reform proposals have singled out the insurance exchange concept as being one of the most important avenues of reforming the private health insurance market. MIT Professor Jonathan Gruber was involved in designing the Massachusetts exchange and has been an independent-expert-on-the-dole for the administration and Congress as they move forward with the concept of private insurance exchanges.

In this report, commissioned by the insurance intermediaries that would be threatened by an insurance exchange, Robert Carey and Jonathan Gruber conveniently show that Maryland’s brokers are already providing the function of an exchange, so the transition to an exchange would be “much less onerous.” They seem to suggest that we could retain this middleman industry to fulfill the function of the exchange.

They are careful to say that they addressed this one issue only, and did not address the many other issues involved in reform. That’s important since Maryland’s private quasi-exchange has left 800,000 uninsured – over 14 percent of their population. Also Maryland citizens are facing the same outrageous increases in insurance premiums that citizens of other states face. Exchanges alone will not solve these problems.

The Gruber/Obama/Baucus approach to reform has been to take a group of individual policy proposals, such as the exchange, and patch them together in a comprehensive reform package. Each policy concept used has significant deficiencies. When you patch them all together, you still end up with a system that will leave tens of millions without insurance, with inadequate measures to stem health care inflation, with an expansion of underinsurance products, and with increasing financial hardship for America’s workforce and their families.

Private insurers are providing us with expensive, intrusive, and largely worthless services that take away our choices in health care. What good will it do to line them up in a private insurance exchange that adds only the imprimatur of the federal or state governments?

Using the most expensive and dysfunctional model of reform to build on the most expensive and dysfunctional health care system of all industrialized nations makes no sense whatsoever, especially when the goals of universality, comprehensiveness and affordability have been so mercilessly compromised.

The least expensive and most effective model would be to improve Medicare and include everyone. But Gruber’s microsimulation model is designed to assess private insurance solutions. It does not work for a single payer Medicare model.

Isn’t it time that we told Gruber to pick up his model and take a hike? Let’s bring in Steffie Woolhandler and David Himmelstein and take a closer look at their model. Of course the sponsors of this new report by Gruber and Carey would cringe at that prospect.

Sen. Russell Feingold on single payer

Posted by on Wednesday, Feb 10, 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.

Health care on their minds

By Bryan Horwath
The Dunn County News
February 9, 2010

It was clear what topic was at the forefront of most people’s minds during a listening session with Sen. Russell Feingold (D-Wisconsin) at Boyceville High School on Saturday — health care, health care and more health care.

The topic of the day included concerns over health care costs, the so-called government takeover of health care, requests for universal health care, and horror stories from individuals and small business owners over what many described as a broken system.

After a couple of questions about the perceived lack of civility among politicians in Washington and the possibility of peak oil becoming a real concern, the health care questions started coming in droves.

Singling out single payer

One resident wanted to know why the single-payer system — popular in other industrialized nations — isn’t on the table any longer with regard to President Obama’s health care reform bill.

The health care bill passed in the U.S. Senate on a bitter partisan vote in December of last year, but is currently tied up in the House. Some in Washington think the bill is on the verge of falling apart because of strong opposition by Republicans and the recent election of Scott Brown to the U.S. Senate in Massachusetts.

“If you would have been to some of the other town meetings I’ve been to in the past year, you would know why (health care is fading),” Feingold said. “The opposition is unbelievable. The bill that we passed in the Senate not only doesn’t have single-payer, but there isn’t even a public option. People are calling it a government takeover of health care, but it’s just the opposite — it’s a big increase in private health care.”

The senator got applause from the mostly pro-Feingold crowd when he said he was in favor of a single-payer system, but said he has not seen enough support for single-payer in recent months.

“There wasn’t near enough support for single-payer at this point,” Feingold said. “I’m willing to see if this bill that we passed in the Senate works. If it doesn’t, however, then maybe we have to go back and look at single-payer. I’m suddenly hearing more talk about it, so if the current health care bill dies, we might eventually hear more about (single-payer).”

Reform is overdue

Feingold did say that the time for health care reform is long overdue.

“I’m worried about this,” he said. “I was in this job in the early 90s when the health care plan with the Clintons failed. Every year in the 90s when I went to town meetings like this, health care was the number one issue. I’ve been going to these types of sessions for 17 years, and by far the thing people ask for the most is universal health care.”

Feingold did say that the current health care bill would still be a victory for health insurance providers.

“When we had the public option die with our bill in the Senate, the champagne bottles were popping over at the insurance companies’ offices,” Feingold said. “My only hope is that people decide they don’t want to be dominated by the big insurance companies any more than they want to be by big government. You have to balance big government with big business so that people are protected, but that’s not where we’re headed.”

One resident said he was happy that Democrats have been attempting to pass a health care bill, but was dismayed that nothing seems to be getting done.

“I think the president is absolutely right,” Feingold said. “You can’t talk about the deficit or the economy without talking about health care. We’ll see what happens.”

http://www.dunnconnect.com/articles/2010/02/09/news/doc4b7193d6509f4816839479.txt

Sen. Russell Feingold seems to be saying what we’ve been saying all along. If the Senate bill fails, then we’ll “hear more about (single-payer).” If this bill passes but doesn’t work (and it won’t), then “we have to go back and look at single-payer.”

One way or another, we eventually will have single payer or some form of social insurance very close to it. With increasing intolerance to rising costs which result in diminished access and impaired health outcomes, no other end result is possible.

Why does Anthem Blue Cross need a 39% premium increase?

Posted by on Tuesday, Feb 9, 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.

Anthem Blue Cross dramatically raising rates for Californians with individual health policies

By Duke Helfand
Los Angeles Times
February 4, 2010

California’s largest for-profit health insurer is moving to dramatically raise rates for customers with individual policies, setting off a furor among policyholders and prompting state insurance regulators to investigate.

Anthem Blue Cross is telling many of its approximately 800,000 customers who buy individual coverage — people not covered by group rates — that its prices will go up March 1 and may be adjusted “more frequently” than its typical yearly increases.

The insurer declined to say how high it is increasing rates. But brokers who sell these policies say they are fielding numerous calls from customers incensed over premium increases of 30% to 39%, saying they come on the heels of similar jumps last year.

Insurers are free to cherry-pick the healthiest customers in the lightly regulated individual market. They can raise rates at any time as long as they notify the state Department of Insurance and prove that they are spending at least 70% of premiums on medical care.

Many policyholders say the rate hikes are the largest they can remember, and they fear that subsequent premium growth will narrow their options — leaving them to buy policies with higher deductibles and less coverage or putting health insurance out of reach altogether.

The insurer said it had a team of workers to help customers balance costs and insurance.

“Anthem offers a variety of health benefit plans,” the company said, “and we are dedicated to working with our members to find health coverage plans that are the most appropriate and affordable for their needs.”

http://articles.latimes.com/2010/feb/04/business/la-fi-insure-anthem5-2010feb05

And…

Letter from Kathleen Sebelius, Secretary of Health and Human Services, to Leslie Margolin, President, Anthem Blue Cross

U.S. Department of Health & Human Services
February 8, 2010

Excerpt:

One of the biggest pressures facing families, businesses and governments at every level are skyrocketing health insurance costs.  With so many families already affected by rising costs, I was very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39 percent. These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy.

Your company’s strong financial position makes these rate increases even more difficult to understand. As you know, your parent company, WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.

http://www.hhs.gov/news/press/2010pres/02/20100208c.html

And…

‘A Wasted Opportunity’

By Joseph Rago
Wall Street Journal
February 7, 2010

Mrs. (Angela) Braly is the CEO and president of WellPoint, the largest U.S. commercial health insurer by membership. Her company’s affiliated health plans in 14 states cover 34 million people—or roughly one out of nine Americans. It contracts with 82% of the nation’s primary-care physicians, 84% of specialists, and 94% of hospitals. That scale lands her on the most-wanted list in President Obama’s Washington.

The tragedy, as she sees it, is what “a wasted opportunity” it all turned out to be. “Health-care reform” soon became “health-insurance reform” exclusively. “It was a pivot that was—unfortunate,” she says, “because it is not going to solve the longer-term problem.”

The solution is to “reintroduce the consumer to the health-care equation,” and on that front, she believes, insurers “are actually the part of the health-care delivery system that is there to create the value.” Mrs. Braly thinks patients will make more cost-conscious decisions if they have the incentives and the tools—namely, the information about cost and quality that is the basis of any ordinary market.

Mrs. Braly concedes that some people with pre-existing conditions can find it difficult to find affordable coverage, especially if they lose their job, get divorced, move, etc. “It’s when people have no option that we’re really in trouble and need to find a solution,” she says. But a better alternative to central insurance planning is public-private partnerships to create insurance pools for those with high risks. “That was a great idea that got pushed aside, and I think we need to revisit that concept.”

http://online.wsj.com/article/SB10001424052748704259304575043861057904360.html?mod=rss_opinion_main

WellPoint’s California subsidiary, Anthem Blue Cross, has provoked appropriate outrage in response to its announcement of premium increases as high as 39 percent. Why would they risk creating this potential public relations nightmare when Congress is considering major increases in regulatory oversight of their industry?

Keep in mind that Anthem Blue Cross has been very successful in keeping its individual insurance products competitive by selling only to the healthy by subjecting applicants to medical underwriting. With the unabated rise in health care costs, the upward pressure on premiums has been moderated by introducing numerous innovations, especially increased cost sharing.

Currently the most important tool they have to limit their exposure to health care costs is to switch their clients to plans with high deductibles  (often $5000 or more) and high coinsurance (typically 40% of all allowed costs over the deductible). You can confirm these numbers at eHealthInsurance.com.

By jacking premiums up to intolerable levels for low deductible and low coinsurance plans, they force their clients to choose these high cost sharing plans. Once enrollment drops in the low cost sharing plans, high cost individuals remain, driving premiums up even further resulting in the death spiral. At that time they can withdraw the low deductible plans from the market and require that their clients choose either the high cost sharing plans or drop their coverage altogether.

Another factor that has driven premiums up now is the high unemployment rate that has caused many individuals to drop their coverage, especially those who are relatively healthy, leaving in the plans those who try to hang on because of their greater health care needs. Of course, that adds to the death spiral.

Angela Braly, president, chairman, and CEO of WellPoint, supports greater patient cost sharing to “reintroduce the consumer to the health-care equation.” Patients will buy less health care, no matter how beneficial, when they are using their own money. That also happens to work out well for WellPoint since they will spend less on health care.

Angela Brady also wants those who need health care to be covered by public high-risk pools, while the healthy are covered by her private plans. That too allows WellPoint to spend less on health care, while we taxpayers foot the larger bills.

It would seem that the outrageous premium increases by Anthem Blue Cross would cause the administration to rethink a strategy of reform based on private insurance plans. But no. Instead HHS Secretary Kathleen Sebelius responds with a tisk, tisk, as Congress and the administration continue to move forward with locking us into this perverse system.

We need to respond with more than a tisk, tisk. We need to show up by the millions on February 25 (President Obama’s televised bipartisan health session) and demand the enactment of an improved Medicare for all of us.

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