Another win for insurers

Posted by on Tuesday, May 11, 2010

Originally published in the Berkshire Eagle.

The passage of the “health insurance” bill has been a huge political success for President Obama and the Democrats and has been compared to the historic passage of Medicare and Social Security. Unfortunately, this bill is not in the same league as those successful programs, which provide medical and financial security to every elderly and disabled American. This is not a “health care” bill; it is a “health insurance” bill, which will hand out $447 billion in taxpayer money to insurance companies as subsidies to purchase inadequate insurance products. And the bill will require millions of Americans to buy these substandard products. The insurance companies are the big winners in this legislation.

We did not need to create this scenario to obtain the useful measures in the bill, like additional funding for community health centers, expansion of Medicaid, reduction of the “donut hole” in prescription drug coverage for Medicare patients, and allowing young adults to stay on their parents’ health insurance plans until age 26. These fixes could have been done separately. Instead, they were inserted into a 2,000-page bill that will further enrich and empower the insurance industry.

Sen. Max Baucus recently praised his aide, Elizabeth Fowler, former vice president of the giant health insurer Wellpoint, for her pivotal role in crafting this legislation. While middle class families were struggling to pay their escalating health insurance premiums, rising deductibles and co-payments, Wellpoint’s profits increased by $2.3 billion in 2009, 91 percent more than the previous year. Not content with this level of profiteering, Wellpoint’s subsidiary, Anthem Blue Cross of California, seeks to increase profits even more by raising its premiums by an astounding 39 percent this year.

Wall Street loves the law. Mutual fund analysts say it is beneficial for health industry stocks, particularly for pharmaceutical and medical equipment companies, because there are no “onerous cost controls.” Health insurance company stocks continue their upward trend, and CEO salaries remain astronomical.

In addition to the bill’s handout to the insurance industry, this legislation has many shortcomings:

* Twenty three million people will remain uninsured, which translates into 23,000 unnecessary deaths every year.

* Millions of middle-income people will have to buy health insurance policies, costing up to 9.5 percent of their income, but covering an average of only 70 percent of their medical expenses, because of high deductibles and co-payments.

* People with employer-based coverage will still not be able to choose their doctors and hospitals, and eventually face steep taxes on their benefits as the cost of insurance grows.

* Health care costs will continue to skyrocket, as we have seen here in Massachusetts after the passage of Chapter 58, which did nothing to contain costs.

* The insurance regulations are riddled with loopholes, as one might expect when insurers helped to craft the bill. For example, older people will be charged three times more than their younger counterparts, and large companies that have more female workers will continue to pay higher rates until 2017.

The American people did not have to be saddled with an expensive package of individual mandates, taxes on workers’ health plans, sweetheart deals with insurers and Big Pharma, and a perpetuation of our current dysfunctional and unsustainable system. President Obama did not seize his chance to inherit the mantles of Presidents Roosevelt and Johnson, with their historic fashioning of legislation for Social Security and Medicare. This bill’s passage reflects political considerations, not sound health care policy.

Sooner or later, our nation will have to adopt a single-payer national insurance program, an improved Medicare for all. We could save $400 billion annually in administrative costs, enough to provide comprehensive coverage for everyone. And only a single-payer system provides the tools for cost control, like bulk purchasing, negotiated fees, global hospital budgeting, and capital planning.

Polls show that almost two-thirds of the American public supports this approach, and a recent survey shows that 59 percent of U.S. doctors do as well. Inevitable price increases by the insurance industry will expand the popularity of the single-payer movement. Ultimately we will have a national health insurance program. Single-payer health care is the only coverage that is universal, comprehensive, and affordable.

Susanne L. King, M.D. is a Lenox, Mass.-based practitioner.

“Behavioral economics” and “choice architecture”

Posted by on Monday, May 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.

For good behavior

By Rebecca Vesely
May 10, 2010

The biggest test of how well behavioral economics can be applied to healthcare is the new federal health reform law, which contains in its more than 1,000 pages many opportunities to nudge people toward better health choices.

“There’s definitely a general fascination about this area,” said Alan Garber, an internal medicine physician and professor of medicine and economics at Stanford University. “In healthcare, for years and years and years there’s been an interest in changing provider and consumer behavior.”

But some worry that behavioral economics could exacerbate health disparities, or inadvertently punish the elderly or people who suffer from chronic diseases.

Meanwhile, some employers are moving full-force to apply behavioral economics to benefit-package design in order to cut healthcare costs.

The most obvious example of behavioral economics in the new healthcare law—and one that drew fire from chronic-disease groups—is a change in employer wellness program incentives. Starting in 2014, employers can offer workers rewards worth up to 30% to 50% of their cost of health coverage for participating in a wellness program and meeting health benchmarks. The law also sets up a 10-state pilot program for similar wellness initiatives on the individual insurance market.

The idea is to create more incentives for workers than is allowed by law today to improve their health, and thus lower medical costs for everyone. The large incentives were pioneered by the grocery chain Safeway.

But the American Diabetes Association, the AARP and other groups have criticized the enhanced incentives, saying that they could penalize those with chronic diseases by forcing them to pay more for healthcare.

“Our position hasn’t changed,” said Colleen Fogarty, spokeswoman for the American Diabetes Association, in an e-mail. “We remain opposed to the language, but it is now the law and we have to work to ensure that these provisions do not have a harmful or unfair impact on people with chronic diseases.”

Proponents of the provision say it is a good example of a component of behavioral economics called “choice architecture.” Essentially, choice architecture is organizing choices in such a way that influences people’s decisions. In theory, enhanced wellness program incentives allow employers to encourage workers to make the healthiest choices.

Choice architecture is sure to be hugely influential in how the government structures new health insurance exchanges, set to go online in 2014, Garber said. While the government won’t be able to pick favorites among insurers participating in the state-run exchanges, it will be able give customers information about the plans, using transparency measures. This has already been done through the Medicare Part D prescription drug program, which lets insurers compete on the Medicare website for business.

“Behavioral incentives can be powerful, but they are unlikely to overcome a powerful financial incentive,” Garber said. So, for some people, an expensive healthcare plan they have to pay for in monthly premiums could be less appealing than a once-a-year financial penalty.

The dangers of financial penalties in healthcare have been shown time and time again when examining prescription drug use. If copayments go up too high, then some people stop filling their prescriptions and wind up sicker.

On the other hand, financial incentives don’t always work to change behavior, as evidenced by the disappointing results in physician pay-for-performance programs.

“We’ll be seeing some interesting experiments unfolding over the next few years,” Garber said. “This will, in the end, play out in the market.”

Express Scripts, a St. Louis-based pharmacy benefit manager, in 2008 launched the Center for Cost-Effective Consumerism and hired experts in behavioral economics—including Garber at Stanford University—to its advisory board.

Lowe’s, the home-improvement retail chain, saved $5.2 million in 2009 by getting employees who take maintenance prescription medications to switch to home pharmacy delivery. It did it using behavioral economics. Bob Ihrie, senior vice president of employee rewards and services at Lowe’s Cos., describes the method as “carrot, carrot, stick, big stick.”

Lowe’s started by educating its 225,000 employees nationwide about home drug delivery, and the cost savings involved. After the third month, if workers hadn’t switched, they are notified at the pharmacy when picking up their prescription and told that if they don’t switch to home delivery, they would start paying the full price of the prescription. The next month, if they hadn’t signed on for home delivery, they paid full price at the in-store pharmacy.

Another carrot followed. Last September, about 22,000 employees who were not signed on for home delivery received a postcard from Lowe’s informing them that if they select home delivery, their prescription drug would be free the first month. About 10% responded to this incentive, Ihrie said.

At the end of 2009, nearly 38,000 workers had switched to home delivery, up about 160% from 14,500 in 2008. Then came the big stick. Starting in January, employees eligible for home delivery but not yet enrolled pay twice the retail price for the drug in store. “We are still waiting to see the outcome of this,” Ihrie said.

The program has worked by breaking the cycle of procrastination, Ihrie said. “We give them choices upfront and then gradually move them along a path that is more mandatory,” he said. Conducted in partnership with Express Scripts, the program cuts waste out of the system without affecting clinical outcomes, Ihrie said.

Several high-ranking officials in the Obama administration are strong proponents of behavioral economics. Cass Sunstein, co-author of Nudge, is now the administrator of the White House Office of Information and Regulatory Affairs. Peter Orszag, director of the White House Office of Management and Budget, has spoken about the promise of behavioral economics to control costs.

“Behavioral economics” and “choice architecture” are being used to shift health care spending from the healthy to the sick by directly or indirectly assessing financial penalties against those who are unfortunate enough to have greater health care needs. This is strictly another scheme by pro-market enthusiasts who support the flawed concept of consumer-directed health care.

As an example of the flaws, a scheme that requires patients to pay twice the usual retail price for a drug is a perverse scheme indeed. Another example is Safeway’s fraudulent claims of savings from their wellness programs when their savings were really only from shifting to high-deductible health plans.

Instead of jerking patients around with perverse market tools, we need to switch to a public system that simply helps patients get the care that they need – an improved Medicare for everyone.

Did a split over health care divide the British?

Posted by on Friday, May 7, 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.

Socialized healthcare: The ‘untouchable’ of UK politics

By Paul Armstrong
May 5, 2010

After weeks of feverish election campaigning, Britain’s political parties have fought over every issue, from the economy to the country’s nuclear deterrent, with one exception: the National Health Service.

To many Republican politicians in the United States, a publicly-funded national health system like the NHS is the embodiment of austere, Soviet-era style medical care, but in the UK it is viewed as sacrosanct.

Centrally-funded through taxation, pressure to respond to growing demand has seen record levels of investment in the past decade.

Ruth Thorlby, a research fellow at the King’s Fund, told CNN that all the major parties appreciate the NHS strikes an emotive chord with the public and that it is a price worth paying. She said: “We have this extraordinary political consensus now that the funding structure of the NHS is sound.”

Conservative leader David Cameron seems as committed to the NHS as Labour, despite his party’s ideological disposition to the private sector.

He recently acknowledged its value on his party’s Web site. “Millions of people are grateful for the care they have received from the NHS — including my own family,” he said.

“One of the wonderful things about living in this country is that the moment you’re injured or fall ill — no matter who you are, where you are from, or how much money you’ve got — you know that the NHS will look after you.”

Cameron’s words were reinforced by the party’s election manifesto, in which it calls itself “the party of the NHS” and pledges “never to change at the idea at its heart that healthcare in this country is free at the point of use and available to everyone based on need and not ability to pay.”

The United Kingdom has the ultimate system of socialized medicine: a government-owned and government-administered National Health Service (NHS). Though their system is much less expensive than ours in the United States, it is viewed as sacrosanct by the British citizens.

The system was launched in 1948 by a left-wing Labour government, but its appeal has become so universal that the right-wing Conservative party now claims to be “the party of the NHS.”

In the United States we have chosen a right-wing solution over which we remain politically divided because of its serious flaws. Since we spend far more on health care than any other nation, we should be able to use those funds to craft a system with such intense universal support that we would consider ours sacrosanct as well.

Of course we can. Try to convince senior Tea Baggers to relinquish their Medicare, even though it is a government program. Medicare is a right that they have earned merely by being American taxpayers. Just imagine improving Medicare and providing it to everyone. After people experienced the benefits of an improved Medicare for all, can you imagine a major political party campaigning against the program? In fact, it’s the Republicans who are now expressing outrage over the fact that PPACA includes some reductions in Medicare funding.

Now that the Republican party seems to be presenting itself as “the party of Medicare,” wouldn’t you think that the Democrats would want to trump them by becoming “the party of an improved Medicare for all”?

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.

Documents reveal AT&T, Verizon, others, thought about dropping employer-sponsored benefits

By Shawn Tully

May 6, 2010

The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans — coverage they know and prize — will react to the new law’s radically different regime of subsidies, penalties, and taxes. Now, we’re getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.

Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.

That would dismantle the employer-based system that has reigned since World War II. It would also seem to contradict President Obama’s statements that Americans who like their current plans could keep them.

AT&T produced a PowerPoint slide entitled “Medical Cost Versus No Coverage Penalty.”

A document prepared for Verizon by consulting firm Hewitt Resources stated, “Even though the proposed assessments [on companies that do not provide health care] are material, they are modest when compared to the average cost of health care,” and that to avoid costs and regulations, “employers may consider exiting the health care market and send employees to the Exchanges.”

Kenneth Huhn, vice president of labor relations at Deere, said in an internal email that his company should look at the alternatives to providing health benefits, which “would amount to denying coverage and just paying the penalty,” and that he felt he already had the ability to make this change under his company’s labor agreement.

Caterpillar felt it would have to give “serious consideration” to the penalty option.

AT&T revealed that it spends $2.4 billion a year on coverage for its almost 300,000 active employees, a number that would fall to $600 million if AT&T stopped providing health care coverage and paid the penalty option instead.

(Caterpillar) could reduce its bill by over 70%, by Fortune’s estimate.

It’s these analyses — which show it’s a lot cheaper to “pay” than to “play” — that threaten to overthrow the traditional architecture of health care.

The full article contains links to documents supporting some of these assertions:

Yesterday’s qotd message described measures in the Patient Protection and Affordable Care Act (PPACA) that would motivate employers to downgrade their health benefit programs to an actuarial value of 60 percent (the employees would pay an average of 40 percent of actual health care costs, in addition to their share of the insurance premium). Today’s message reveals that major employers are considering the option of dumping their health benefit programs altogether.

The government subsidies for plans purchased in the state exchanges are large enough to shift a major portion of the costs of the health benefit programs from the employers/employees to the taxpayers. Further, the subsidized Silver-tier plans in the exchanges provide an actuarial value of 70 percent, resulting in greater benefits than the downgraded plans would have, at a net lower cost for the employers.

Unfortunately, neither is a great deal for the employees and their families. Employer-sponsored plans currently have a typical actuarial value of 80 percent, and sometimes as high as 90 or 95 percent. PPACA exchange plans will shift more costs to those who need health care by reducing the effective actuarial value to 70 percent for those with incomes over 250% FPL (federal poverty level), and those with incomes over 400% FPL would have no out-of-pocket limits to protect them.

Regardless, the complex structure of PPACA will result in worse coverage for employees than many of them currently have. This was the result of Congress and the Obama administration insisting that reform be built on our existing employer-based system, while facing the complex logistical problems of balancing the flow of money between individuals, employers, the government, the insurers, and the providers of health care.

It would have been far simpler, less expensive, and much more effective to establish a single financing pool, equitably-funded through the tax system, while providing significantly greater value in health care purchasing for all of us through a publicly-owned, publicly-administered, beneficent monopsony – an improved Medicare for all. We can still do it.

Mercer projects downgrading of employer-sponsored health plans

Posted by on Wednesday, May 5, 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.

A third of employers may be penalized for health coverage deemed ‘unaffordable’

April 27, 2010

More than a third of the nation’s employers – 38% – have at least some employees for whom coverage would be considered “unaffordable” under the newly enacted Patient Protection and Affordable Care Act (PPACA), according to a new analysis of data from Mercer’s annual employer health plan survey.

According to Mercer’s analysis, one of the more challenging provisions to interpret and apply may be the rule that employers provide “affordable” coverage – meaning that full-time employees must generally be asked to pay no more than 9.5% of their household income for coverage.

If employer coverage is “unaffordable” by this definition, and at least one employee receives government assistance to buy individual coverage through a health insurance exchange, the employer must pay a yearly penalty of $3,000 per full-time employee who gets government assistance and buys coverage in an exchange (to a maximum of $2,000 times the number of full-time employees in excess of the first 30), starting in 2014. For employers trying to understand their potential risk for incurring the penalty, determining each employee’s household income presents a significant challenge. Without access to that information, employers can use a conservative approach by assuming that each employee’s pay is the total household income.

Apart from employers that don’t currently offer coverage at all, reform may have the biggest impact on employers with large part-time populations that don’t provide coverage to any part-time employees or require them to work more than 30 hours per week for coverage eligibility. Under the “shared responsibility” requirement, all employees working an average of 30 hours per week or more in a month must be eligible for affordable coverage, or the employer may be subject to a penalty.

Mini-med, or limited benefit, plans, which typically limit coverage to $50,000 to $100,000 per year, will no longer be an option for part-timers or other employees who work an average of 30 or more hours a week.

How many employers don’t have any of the three red flags – for unaffordable coverage, ineligible part-time employees, or mini-med plans – described above? Only about a third (38%) of them; close to half (48%) have one red flag and 14% have two.

Although they may require the most significant changes in benefit strategy, these aren’t the only provisions affecting employer plans. Employers will have to discontinue lifetime maximums, most annual dollar maximums, and cost-sharing on preventive care – even something as modest as a $10 copay. The use of lifetime benefit maximums, banned under PPACA, currently is the rule rather than the exception. About three-fifths all employers (61%) and nearly three-fourths of large employers (71%) have lifetime benefit maximums in their PPO plans. Lifetime maximums are less common in HMOs, where 25% of sponsors currently use them.

“The design changes really have to be looked at in concert with the affordability requirement for contributions. Simply stated, it’s going to cost an employer more to offer a generous plan and cap the contributions for low-income employees at 9.5% of their income,” said (Tracy Watts, a partner in Mercer’s Washington, DC, office). “An unintended consequence of reform may be that employers adopt a ’safety-net‘ plan that meets the minimum requirements as their new standard plan and offer a more generous plan at higher cost to employees.”


Study: Many Health Plans Not Affordable

May 3, 2010

Nearly 40% of employers may be at risk for violating the Patient Protection and Affordable Care Act’s (PPACA) mandate that company health-care plans be affordable, according to a recent Mercer analysis of close to 3,000 employer-sponsored health plans.

… experts say the level of health coverage would likely degenerate compared with current levels, in order to make the plans cheaper. Particularly if all plans must be affordable, “you’ll probably see the level of coverage going down,” says (Beth Umland, director of research for health and benefits at Mercer), with employers making additional, richer coverage available for workers to purchase with aftertax dollars.

The law does require a minimum level of coverage — specifically, that health insurance plans cover 60% or more of medical costs — but most appear to be well within that constraint, says Umland, offering plenty of leeway for downgrading.

One of the more important reasons given for choosing the model of reform that was eventually enacted (PPACA) was that the administration and Congress did not want to disrupt the portion of health plan coverage that was working fairly well: employer-sponsored health plans.

Not only did this represent the largest sector of those already insured, the benefits in the plans were relatively generous compared to the individual insurance market, and, most importantly, policymakers were reluctant to forgo the massive infusion of health care funds already provided by the employers. Though these funds actually represent forgone wage and salary increases for the employees, the financing was already in place, thereby eliminating the need to try to fit this enormous expense into the federal budget.

Although the individual and small group insurance market was a disaster, Congress recognized that employer-sponsored plans also were facing difficulties. Because of rising health care costs, plans were becoming less affordable. Employers began shifting more costs to employees through benefit design changes (high-deductibles, etc.), and some employers were even dropping coverage altogether. To reduce the financial burden on the employer, Congress decided that the plans would not be required to have an actuarial value of greater than 60 percent, even though that shifted more costs to the employees and their families. Congress also realized that employees would not be able to bear an excessive share of the increasing insurance premiums, so they limited the employee premium contribution to 9.5 percent of household income. Further, to be sure that employers did not bail out, they established a $3000/$2000 employer penalty for any employees that purchased government subsidized plans in the exchanges.

Put those numbers together and then ask yourself, was Congress effective in its effort to avoid disrupting the employer-sponsored segment of private health plans? The structure of the reform leaves employers with almost no other option than to significantly downgrade their plans, shifting more costs to individuals and families who actually need health care. They may continue to offer their employees the option to purchase better plans, but only those employees who can afford the additional costs of after-tax premiums will do so. Thus Congress has further intensified the economic divide between the wealthy and the rest of us.

Although disruptive innovation has great appeal on Wall Street, Congress’s disruptive innovation for employer-sponsored health plans will be a disaster for our workforce and their families who need health care.

It’s not too late to dump the highly flawed PPACA and move on with a program that actually would work: an improved Medicare for everyone.

Barbara Starfield on primary care lessons from Canada

Posted by on Tuesday, May 4, 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.

Reinventing Primary Care: Lessons From Canada For The United States

By Barbara Starfield
Health Affairs
May 2010

Canada is, in many respects, culturally and economically similar to the United States, and until relatively recently, the two countries had similar health systems. However, since passage of the Canada Health Act in the 1970s, that nation’s health statistics have become increasingly superior. Although the costs of Canada’s health system are high by international standards, they are much lower than U.S. costs. This paper describes several factors likely to be responsible for Canada’s better health at lower cost: universal financial coverage through a so-called single payer; features conducive to a strong primary care infrastructure; and provincial autonomy under general principles set by national law.

Differences in health — both overall and regarding social disparities — in two countries that are otherwise quite similar are attributed to the important effect of two related phenomena: achievement of important health-system characteristics and a strong clinical primary care infrastructure in Canada. Several international studies have confirmed the importance of three health-system characteristics of countries that achieve better health at lower cost: government attempts to distribute resources, such as personnel and facilities, equitably; universal financial coverage either through a single payer or regulated by the government; and low or no cost sharing for primary care services.

U.S. policy achieves none of the three structural characteristics of good health systems. Canada achieves all three. At the same time, although Canada’s efforts to distribute resources equitably have been more extensive and successful than in the United States, Canada’s are less adequate than in other countries, such as Sweden, Finland, Denmark, the Netherlands, Spain, and the United Kingdom.

The United States also is the only industrialized country to lack a national strategy to address important building blocks of a strong primary care system, including services delivery, workforce, information systems, medical products, vaccines, technology policy, financing, leadership, and governance. International experiences demonstrate that national stewardship, financing, and generation of resources are important for an adequate primary care infrastructure.

Health Affairs theme issue: Reinventing Primary Care

The May 2010 issue of Health Affairs is a theme issue on “Reinventing Primary Care.” As a long time advocate of strengthening our primary care infrastructure, Barbara Starfield’s comments serve as an entry to the concepts and policies discussed in this special issue. We need to enact a single payer financing system, but that would be of little consolation if the health care professionals were not there when we needed them.

WellPoint Shareholders Revolt!

Posted by on Monday, May 3, 2010

Wasichu is the Lakota (Sioux) word for “those who take the fat,” the greedy ones.  WellPoint/Anthem, the health insurance behemoth born of Blue Cross, is a wasichu corporation.

As the Blue Cross movement grew in the 30’s, one of the foundational standards established in 1937 was “No private investors should provide money as stockholders or owners.”  There was no concept of pre-existing condition.  Excluding someone from health insurance because they might be likely to become ill (and need to actually use the policy) was felt to be immoral.  Their mission was essentially charitable.

Over the following fifty years the Blues grew dominant, but in late 80’s the marketplace began to change, and many state Blue plans found themselves in trouble.  Blue Cross of California established a for-profit subsidiary in 1994 and that summer the national Blue Cross Blue Shield Association changed its policies so that its licensees could convert to for-profit status and distribute their earnings to those who controlled the company.  Enter WellPoint, under the guidance of Leonard Schaeffer.

A similar story played out in Indiana where the local Blue Cross began by merging with surrounding state plans and then “de-mutualized” to become a publicly traded company.  Their initial stock offering in late 2001 raised $1.7 billion, which only fed the acquisition and for-profit conversion rampage, culminating with the mother of all insurance mergers when WellPoint of California and Anthem of Indiana came together in 2004 to create the largest health insurance company in the country, with 34 million lives covered. Today one American in ten carries their card, and WellPoint is number 32 on the Fortune 500.

Corporate headquarters moved to Indianapolis, under Anthem’s Larry Glasscock, whose bonus was $42.5 million for closing the deal.  WellPoint’s Leonard Schaeffer retired with a package valued at $337 million.  Wasichu.

In 2005 my wife Karen and I bought five shares of WellPoint stock so we could make the hour’s drive up to Indianapolis for the company’s annual meeting and “speak truth to power.”  Last year I warned the WellPoint board that I would be coming back in 2010 with a shareholder resolution to change the direction of the company back toward its Blue Cross, charitable, non-profit roots.

We beat the odds and were successful in placing our resolution on the proxy ballot.  The proxy was sent to all shareholders last week, to be voted on at the annual meeting May 18.

People ask me, why should WellPoint shareholders vote for a proposal to radically change the course of the company?

The reasons are being published every day. Going back just 12 weeks:

The Indianapolis Star on January 16 revealed WellPoint to be covertly funding U.S. Chamber of Commerce attack ads against health care reform.  WellPoint spent tens of millions on other non-covert lobbying.  Keep in mind that the bill recently passed was largely written by former WellPoint Vice President Liz Fowler in her role as Max Baucus’ chief healthcare legislative aide.

McClatchy Newspapers on February 24:  ”While Anthem Blue Cross proposed a 39 percent rate increase on thousands of its California customers, its parent company gave 39 of its executives more than $1 million each and spent more than $27 million on 103 lavish executive retreats, congressional investigators said.”

The Los Angeles Times on March 10 updated its readers on the rescission scandal dogging WellPoint in California. “Only a small fraction of eligible Californians have benefited from agreements that Anthem Blue Cross made to settle accusations that they systematically and illegally dropped sick policyholders to avoid paying for their care.”  These were people whose insurance coverage was cancelled after they were diagnosed with cancer and other serious conditions.

Consumer Watchdog reported March 31 that WellPoint sent a message to investors describing how it would simply re-label administrative costs as “medical care” in response to the new health reform law. The message follows revelations that WellPoint, also intentionally padded already huge premium increases in California, in case regulators demanded reductions.

I could cite hundreds more, and now this week the news of CEO Angela Braly’s 51% compensation increase, up to $13.1 million.  Their arrogance is overwhelming.  Why wouldn’t shareholders be concerned about where the company is heading?  It’s not like WellPoint even pays any dividends, while it has plenty to spend on its executives and lobbying.

Last Tuesday I heard Allan Hubbard speak on health care reform at Indiana University.  Mr. Hubbard, an Indianapolis businessman, served in the GW Bush administration and is a former Director on WellPoint’s Board.

He made no bones about being a Republican and shared a Republican view on where health care reform should go from here.  At the end of his talk he concluded with this prediction, “My guess is that in 15 years we will have a single payer health plan, Medicare for All.”  He wasn’t saying this gleefully.

He explained that all health insurance companies do is serve as middlemen between patients on one hand and doctors and hospitals on the other.  He fears that as health care reform moves forward, Congress and the people will turn on them as a way to cut spending.

They (we) should.

The health insurance industry adds huge administrative costs to our system, not to mention the profits they siphon off.  WellPoint is a parasitic middleman that adds no value, but actually increases the cost of healthcare for all of us.

I see the day when socially responsible investors will divest themselves from health insurers’ stocks.

My recommendation is that WellPoint investors support a drastic change in direction for the company, and not wait for the stock price to plummet, for the health insurance bubble to burst.

Check your pension plan and mutual funds.  If you own any WellPoint (WLP) stock, vote FOR PROPOSAL NO. 3, SHAREHOLDER PROPOSAL CONCERNING A FEASIBILITY STUDY FOR CONVERTING TO NONPROFIT STATUS. TIAA-CREF is the 12th largest holder of WellPoint stock.  If you’re invested with them, tell them what you think. If you have any affiliation with a university, ask them about their endowment holdings. Does your faith tradition have a policy for socially responsible investing?

Polls in 2008 and 2009 consistently showed over 60% of the public favoring a single payer plan.  The public option polled over 70% approval well into the Fall. Have those people gone away?  No, but they (we) are disappointed, discouraged, and weary.  They (we) look back and say, “I wrote letters, made calls, went to rallies, and some of us were even arrested.  And what did we get?   Tens of millions of Americans forced to buy private insurance with our tax dollars subsidizing the premiums, a huge transfer of wealth from taxpayers to shareholders.”

People ask me what I think about the new healthcare bill.  My reply:  “Healthcare reform:  We’re STILL FOR IT… and we’re not done yet.”

Money talks, like Arianna’s Move Your Money campaign.  Let’s speak to the insurance behemoths in language they understand.

[Originally published in the Huffington Post 4/12/2010]

For more information, go to Hoosiers for a Commonsense Health Plan.  To read the text of the resolution, go to the HCHP blog.  View TV coverage of the 4/7 press conference in Indianapolis.

Rob Stone MD practices emergency medicine in a community hospital in the Hoosier Heartland.  A gardener, a grandfather, and a teacher, he is the Director of Hoosiers for a Commonsense Health Plan and on the board of Physicians for a National Health Program.

GAO report on IRS administrative burden of tax credits, and participation rates

Posted by on Monday, May 3, 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 Coverage Tax Credit: Participation and Administrative Costs

Government Accountability Office (GAO)
April 30, 2010

This report formally transmits the attached slides (at link below) in response to section 1899L of the American Recovery and Reinvestment Act of 2009. The statute required the Comptroller General to examine issues related to participation in and administrative costs associated with the Health Coverage Tax Credit program administered by the Internal Revenue Service (IRS) in the Department of the Treasury, and to provide the results to Congress by March 1, 2010.

The Health Coverage Tax Credit (HCTC) is a tax credit created by the Trade Adjustment Assistance Reform Act of 2002 that pays a share of health plan premiums for eligible individuals: certain workers who lost their jobs due to foreign competition and are eligible for Trade Adjustment Assistance (TAA) benefits, and certain retirees age 55 and over whose pensions were taken over by the Pension Benefit Guaranty Corporation (PBGC).

Participation: fewer than 30,000 of the hundreds of thousands of potentially eligible individuals each year have participated

From 2003 through 2008, total annual HCTC participation averaged about 26,000 individuals, with declining participation since 2005.

HCTC participation increased after key Recovery Act changes took effect: The average number of advance participants per month increased by 36 percent. This was higher than the increase in the average number of potentially eligible individuals per month — 23 percent.

Prior to the Recovery Act temporary increase, the HCTC covered 65 percent of health plan premiums.

Recovery Act changes to the HCTC in 2009 increased the credit from 65 percent to 80 percent of premiums.

The HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, and most health plans reported that any additional administrative costs were minimal.

The Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 includes a tax credit to help individuals pay for health coverage. Like the HCTC, it will be administered by the IRS and available in advance as a payment directly to health plans or as a credit on participants’ end-of-year taxes. A key difference between the administration of the new credit and the HCTC is that, under the new credit, participants will pay their share of the health plans’ premiums directly to the health plans and IRS will only process the governments’ share of the payment.

HCTC Administrative Costs:

• From 2003 through 2008, HCTC administrative costs to IRS averaged 17 percent of total HCTC-related costs, with variation related to start up costs in early years.

• Most HCTC health plan and TPA officials that provided information reported that any additional administrative costs for HCTC participants compared to the typical costs incurred for non-HCTC participants were minimal.

• A share of the $793 million in health plan premiums paid from 2003 through 2008 covers the health plans’ administrative costs.

• Industry estimates of health plans’ typical administrative costs for all enrollees vary greatly, from 5 to 26 percent for group plans, such as employer-sponsored plans, and 25 to 40 percent for individual, nongroup plans.

An important feature of the Patient Protection and Affordable Care Act (PPACA) is the provision of a tax credit to help individuals purchase private health plans. A similar tax credit is already available for eligible displaced workers and certain retirees. This report from the Government Accountability Office (GAO) provides insight to anticipated participation levels, and to the administrative burden placed on the IRS which has administered the current tax credit program and will be administering the tax credits under PPACA.

Regarding participation levels, only tens of thousands, out of hundreds of thousands eligible, participated in the HCTC (Health Coverage Tax Credit) program, even though the tax credit was increased to 80 percent of premiums. Under the PPACA, tax credits are much more modest for average-income individuals and families (35 to 44 percent at 300 to 400 percent of the federal poverty level). Although PPACA differs because there is a mandate to purchase insurance with penalties for non-compliance, the poor response to a much more generous program should raise concerns about the inadequacy of the PPACA premium subsidies, which will likely result in lower than anticipated levels of participation. We will still be seeing far too many individuals who will remain uninsured.

Regarding the administrative costs, the burden of HCTC on the IRS has been quite high, adding 17 percent in administrative costs to the already high administrative costs of the private insurers (5 to 26 percent for group plans and 25 to 40 percent for individual plans). Although greater participation would spread the IRS’s fixed costs more broadly, any program that requires continuing reassessment of eligibility determination for each individual is bound to perpetuate administrative complexity.

What a waste. It would be so much simpler and much less costly to automatically include everyone in a single health care program, and fund it separately through equitable tax policies. The extra burden for the IRS would be essentially nil, not to mention that we would eliminate the profound administrative excesses of the private insurance industry.

We can still do it right.

Edward Luce of Financial Times on single payer

Posted by on Friday, Apr 30, 2010

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

Washington Journal, C-SPAN

Edward Luce, Financial Times, Washington Bureau Chief
April 30, 2010

I think I would, controversially, and these are my personal opinions, not the opinions of the Financial Times, necessarily; but you mentioned single payer. I think if we could transcend the political realities for a moment… in terms purely alone of American competitiveness, forget the moral argument, forget the social justice case for universal access to public health care, but just in terms of putting a lid on the galloping costs in the American economy, the disincentive to creating a new manufacturing job here for example, as opposed to in China, or Canada for that matter, I would have a single payer system. A single payer system would be able to negotiate like a monopsony, which is the buyer side of a monopoly, and to reduce drug prices which is one of the biggest contributors to health care inflation in America. It would be able to do all sorts of things to drive health care costs down, and that would help begin to solve America’s fiscal problem.

Although we cannot just forget the moral argument – the social justice case for single payer – those who worry more about the American economy should be just as concerned as we are. As Financial Times Washington Bureau Chief Edward Luce states, single payer “would help begin to solve America’s fiscal problem.” The nation should be unified, socially and politically, in support of single payer reform.

New Health Affairs article on administrative waste

Posted by on Thursday, Apr 29, 2010

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

Saving Billions Of Dollars — And Physicians’ Time — By Streamlining Billing Practices

By Bonnie B. Blanchfield, James L. Heffernan, Bradford Osgood, Rosemary R. Sheehan and Gregg S. Meyer
Health Affairs
April 29, 2010


The U.S. system of billing third parties for health care services is complex, expensive, and inefficient. Physicians end up using nearly 12 percent of their net patient service revenue to cover the costs of excessive administrative complexity. A single transparent set of payment rules for multiple payers, a single claim form, and standard rules of submission, among other innovations, would reduce the burden on the billing offices of physician organizations. On a national scale, our hypothetical modeling of these changes would translate into $7 billion of savings annually for physician and clinical services. Four hours of professional time per physician and five hours of practice support staff time could be saved each week.

Opportunity For Reform

The growth in administrative complexity has been largely overlooked as an opportunity for health care reform, with administrative expenses being viewed as a relatively mild influence on the growth in health spending. The Patient Protection and Affordable Care Act of 2010 does not contain major provisions to limit excessive administrative complexity. However, it does require that health plans begin to standardize the transfer of electronic data, which will cut down some of the duplicative information technology costs. The law does not specifically address the need for comprehensive uniformity of all data and information requirements.

The results of this study enumerate the inefficiencies engendered by excessive administrative complexity. We also hope that they will provide detail to enable understanding of the magnitude of these costs, and to inspire multistakeholder discussions around proposals of incremental reforms that standardize payment processing rules across payers. The current cost of excessive complexity would not be tolerated by employers from any other type of vendor. We believe that once fully explained, the current administrative burden will be recognized as intolerable by patients, purchasers, and policy makers.

Thus far, health reform has not resulted in a single-payer mandate that replaces the U.S. health insurance industry and nationalizes billing and payment processes. But the evidence of the system costs from excessive complexity in our case study indicates that imposing a standard set of payment requirements, increased payment-rule transparency, standardized forms, and a standard set of data exchange requirements remains an important and high-value target for future policy reform efforts.

An incremental move to one set of payment rules would yield significant dollar savings as well as work-life and productivity opportunities for physicians and their office staffs. Done carefully, administrative simplification could still leave room for a diversity of insurance products and could promote innovation without relying on blunt and opaque administrative processes as a tool.

The savings from reducing administrative complexity could be translated into decreased costs in general. These decreased costs would be of greater magnitude than estimated here. Many of the changes under the single-rule-set scenario would result in decreased costs for payers as well, and would provide resources that could be passed on as savings to purchasers and patients or could be used to provide additional needed health services.

Achieving these savings would not require restructuring the basic market-system tenets of our complex health care system through, for example, mandating a single-payer approach. Rather, mandating a single set of rules, a single claim form, standard rules of submission, and transparent payment adjudication — with corresponding savings to both providers and payers — could provide systemwide savings that could translate into better care for Americans.

This study confirms the previously well documented administrative waste that occurs in physicians’ practices due to the complexity of complying with the various requirements of multiple payers in our fragmented system of health care financing. However, the authors do a disservice by perpetuating the myth that all we need is a single billing form and a single set of rules, thereby obviating the need to switch to a single payer model of health care financing.

The authors estimate that a single claim form and simplified rules would save about $7 billion yearly. Yet the single payer model has been projected to save about $400 billion yearly. What are these authors overlooking?

First is the profound administrative waste intrinsic to the private insurance industry. It is so great that our legislators up front granted them the right to retain 15 to 20 percent of insurance premiums just to pay these costs (plus profits).

Although this article indicates that the administrative burden on the physicians is great, the authors still would not salvage all of the waste that is recoverable since they contend that the insurers could still continue to provide a diversity of innovative insurance products, perpetuating the inevitable administrative complexity.

Anyone who has looked at a hospital bill understands the great administrative complexity of hospital payment systems under our multi-payer system. Under a single payer system, hospital financing would be provided by global budgets based on legitimate costs, much like our fire and police departments. The labor-intensive, complex hospital chargemaster disappears.

Bulk purchasing would be used for pharmaceuticals and medical supplies, again greatly reducing the administrative waste.

More waste is generated when payers and providers try to work the system to their own advantages – an understandable response in a complex and opaque system. A single payer system provides much greater precision and transparency in payment processes.

It is not as if the authors didn’t understand these differences. They cite the landmark paper of Woolhandler, Campbell and Himmelstein showing the dramatic reduction in administrative waste in Canada compared to the United states, after Canada changed to a single payer system of financing. But they seem to sweep the conclusions under the carpet while insisting that all we need is a simple form (which we already have – CMS 1500) and simple rules (which we will never have with the diversity of insurance products and insurer innovation that they support).

Perhaps the most outrageous comments in this paper are the following:

“Prior studies of this problem have examined the relative overall administrative costs of health care in the United States, particularly in comparison to those in Canada. However, these studies have been able to provide only an overall view of the costs and do not provide specific direction to foster improvements. As a result, these findings have done little to move stakeholders in the U.S. health care system — including patients, providers, payers, purchasers, and policy makers — to confront excessive administrative complexity as a target for reform.”

No specific direction!? The single payer advocates have been vociferous in showing the direction in which we must head! Google “health care administrative costs.” There are over 45 million results, and the first one is the landmark NEJM article by Woolhandler, Campbell and Himmelstein. People who deny that there is adequate evidence that a single payer system would provide us the savings that we need to provide health care to everyone are simply liars!

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