Commonwealth Health Policy Report

June 22, 2006 — An annual event that typically gives Washingtonians blinkered by spin and ideology a bracing dose of business perspective on health care lived up to its reputation Wednesday.

Among the blunt assessments offered by Wall Street analysts at the event: the commercial insurance industry has given up trying to control health costs; much of the enrollment growth in the private plan side of Medicare is in plans that do little if anything to actually try to manage care; Medicare drug plans are going to set premiums for 2007 with basically no clue about whether they are running profits or losses in 2006; and starting in 2008, those plans are likely to cover a much more limited range of drugs.

Much of the focus of this year’s “Wall Street Comes to Washington Conference” was on the first year of the Medicare drug benefit, a reflection perhaps of the much greater impact that private sector behavior has on Medicare since the passage of the Medicare overhaul law (PL 108-173) in 2003.

Wall Street types noted the drug benefit has commanded center stage in the health care investment community, even though it has about as much impact on the overall earnings of the companies that offer those benefits as the price of paper clips, said Douglas Simpson, an analyst at Merrill Lynch.

But Wall Street’s growing focus on Washington seems less surprising due to the larger trend suggested by the Medicare drug benefit—the growing use by Republicans of private or public–private approaches to health care ills that policy makers more traditionally have targeted with government solutions.

Insurance industry analyst Robert Laszewski noted there are now three “important experiments” testing those approaches—the Medicare drug benefit, health savings accounts, and the new Massachusetts law requiring individuals without insurance to buy private coverage, in some cases with the help of government subsidies.

The result of those experiments tilting toward the private sector may be known within a few years, when the health care cost crisis may be reaching the boiling point nationally, Laszewski suggested, hinting at the possibility of dramatic government intervention in health care if those experiments don’t work out well.

‘Training Wheels’ on Rx Benefit

Laszewski said Medicare drug plans won’t have enough data on claims this year to make their premium bids for next year anything other than guesswork. He said one plan told him that premium bids for 2007 would be nothing more than “a crapshoot.”

But Christine Arnold, a managed care analyst with Morgan Stanley, noted that the drug benefit comes with “training wheels” for drug plans. She was referring to reinsurance provisions and “risk corridors” that cushion plans against losses, particularly in 2007.

But those wheels start to come off in 2008, with plans absorbing a larger share of any losses they occur that year, Arnold said. The result is that plans will have more restrictive formularies that year to rein in costs, she predicted. Plans also may be in a much tighter cost control mode because they tried to get a larger market share at the start of the benefit by charging low premiums, analysts suggested.

Because enrollment surpassed their projections, the analysts suggested that “adverse selection” would not be a big problem in the first year of the benefit. Adverse selection is when so many people with high health costs sign up for coverage that it forces the plan to charge sharply higher premiums the following year. This causes enrollees with relatively low costs to seek a better deal and creates a continuing spiral of rising premiums that makes the plan unaffordable.

Analysts suggested that enough healthy people are enrolling to keep that from happening, but they expressed some caution. “I think it’s way too early to know anything,” said Laszewski, referring to a lack of data on claim costs.

“It doesn’t look like adverse selection was an issue per se,” said Matthew Borsch, an insurance analyst with Goldman Sachs. But Borsch said he’ll be interested to see how high premiums are next year in drug plans with more comprehensive coverage that are more attractive to seniors who expect to fully utilize the drug benefit as compared with low premium plans offered by Humana that were expected to attract relatively healthy seniors.

‘Policy Mess’ in ’08?

Laszewski suggested that the drug benefit’s future may not be serene. “What happens when the federal government makes up for all the underpricing” by drug plans in early premium-setting? he asked.

If risk corridors entail much added federal spending to bail out plans with losses, and if plans also have to boost premiums 25 to 30 percent [in 2008] “to make up for all of this, you’ve got a policy mess on your hands,” he said. “I think there’s a real issue in terms of long-term policy sustainability of the program.”

Arnold agreed with Laszewski that managed care plans in Medicare, called Medicare Advantage plans, will have to trim benefits because strong reimbursement by the federal government since passage of the Medicare overhaul law won’t continue.

Medicare Advantage enrollment is up by about a million since then, but Laszewski expressed surprise that growth hasn’t been greater because of the extra benefits and lower-cost sharing offered by those plans. The plans are a “fantastic deal” for seniors but “the leap was just too much” out of traditional Medicare for many seniors, he said.

Much of the enrollment growth in Medicare Advantage has been in “private fee-for-service” plans, which allow enrollees to see the providers of their choice without financial penalty while also getting good coverage of costs not covered by traditional Medicare, analysts said. But there is little management of care in the plans. It’s unclear how sustainable the plans will be, said Borsch, apparently referring to their cost to taxpayers.

‘Boring’ Consolidation

Simpson said consolidation in the insurance industry has been “huge” and will continue over the next several years. Other analysts agreed, saying the trend is troubling. “I don’t like it—I just get bored,” Arnold said, complaining that she has just five big companies to follow and they have stopped innovating.

“When has anything interesting ever come out of a huge company trying to integrate 30 others,” she said.

Insurers are so big that they cope with Wall Street pressure for near-term earnings growth not through innovations in cost control but by acquiring other companies, Laszewski said. “It’s never been so boring—or profitable. The industry has given up on managing care and controlling costs,” he said. “We have a lot of people making themselves really rich and selling their industry down the river,” he said of insurance company executives. “I think my industry is on a long walk off a short pier.”

By ANGELA BURNS-PIPER
Virgin Islands Daily News
June 9, 2006

Tortola – Within one year, the government of the British Virgin Islands should receive a design for a national health insurance program to provide adequate health-care coverage for every man, woman and child in the territory.

Chief Minister Orlando Smith signed a contract Thursday with the University of the West Indies’ Health Economics Unit for the design and implementation of a national health insurance program for the BVI.

“While there are many intricate details to be worked out, the fundamental vision behind national health insurance is simple: We want a system of health-care coverage that will enable every man, woman and child of the BVI to get the health care that they need,” Smith said.

As in many other countries, the government of the BVI provides health care for certain categories of people, such as children younger than 15 years old and the elderly. Everyone else usually has to pay for their health care, although it is heavily subsidized.

“Though some people have health insurance, too many people do not and therefore cannot get access to the health care that they need, especially when they have to travel overseas to be referred,” Smith said. “So these are some of the things that had to be taken into consideration.”

Smith said that for the program to succeed, it will take the input and participation of the entire community, and he challenged every citizen and resident of the BVI to get involved.

“Over the coming year, there will be many opportunities for you to make your voices heard and to contribute to the formulations of a health-care system that works best for you,” he said. “Take up this challenge, speak your mind, ask hard questions, seek out information.”

The Social Security Board will be working closely with the UWI team during the coming months and will be responsible for administering this program after it is implemented.

Director Antoinette Skelton, who chaired Thursday’s signing ceremony, said the board is committed to making the program a success. “The Social Security Board is committed to this project because we see the access to adequate health care as the extension of the social protection presently offered by our organization,” she said.

“The failure to provide adequate social health protection leads to great inequality and poverty, since health expenditure puts pressure on family income and has an enormous effect on the most vulnerable,” she said.

She said it is a well-known fact that the high cost of treatment of illnesses such as HIV-AIDS, cancer, and heart disease is one of the main factors in generating poverty because it forces families who are not protected by health insurance to go to extreme lengths – sacrificing their savings or avoiding spending on basic necessities – to meet the high cost.

Professor Karl Theodore of UWI, who signed the contract with the chief minister, said it is important for the BVI and the university. “For in coming here to cooperate with the establishment of the national health insurance program, UWI is demonstrating its commitment to improving the quality of life of the people of the region,” he said.

Theodore said the program basically is about social insurance, in which there is prepayment and when an event occurs, contributors can access health services without having to put money in. He said it is different from private insurance, in which there is a pooling of risk and payment is based on individual risk.

“With social insurance, payment is based on risk assigned to the community as a whole,” Theodore said said. “The objective is to really maximize the access to health care of all the citizens and residents of the country.”

He said that when the system becomes functional, each person will be issued a card, which will be a guarantee to good service and an instrument to keep track of what is happening with the system in terms of quality and cost of service.

The professor said the program will take about three years to put in place.

The contract, worth $585,100, calls for UWI to perform a number of tasks, including developing the legislative framework, registering the population, developing information systems and generating actuarial projects.

– Contact Angela Burns-Piper at 284-494-1291 or send e-mail to angelaburnspiper@yahoo.com.

by Silver Donald Cameron
The Chronicle Herald, Halifax, Nova Scotia
June 23, 2006

I CAN’T AFFORD to Get Sick! cried the cover of Reader’s Digest. And below that line was the somber title, Fixing Our Health Crisis.

Right, I thought. Here we go again. Economists viewing medicare with alarm. Politicians defending it by dismantling it. Soaring costs, a quicksand of bureaucracy, physicians departing for the States.

But no. This article was about the States. This was not the Canadian edition of Reader’s Digest, it was the U.S. version. And the Americans were evidently having a health crisis of their very own.

Like most discussions of medicine, the article was mostly about money. Americans who have medical insurance get it from private companies, often as a benefit of employment. The poor and the elderly are sometimes covered by government plans. About 15 per cent of the population — 45.8 million Americans — don’t have any coverage at all.

As in Canada, medical costs have been rising, driving insurance premiums up by 73 per cent since 2000. But employers resist, demanding that employees “co-pay” a larger share of the cost of treatment or accept a lower level of coverage. Many employees can’t afford the co-pay, especially if there’s serious illness in the family. They postpone treatment.

When they can’t postpone it any more, they go ahead with treatments they can’t pay for. They scramble desperately to cover the costs, spending their savings, borrowing heavily, running up their credit cards. Eventually they topple into bankruptcy. Health costs are by far the leading cause of personal bankruptcy in the U.S.

But if the patient doesn’t pay, the doctors and hospitals are stuck with the costs. They recover their losses by raising their prices, and the cycle begins again.

All of which led the Reader’s Digest to ask how costs could be better controlled in the first place. Malpractice suits are common and expensive, and the average jury award is now $600,000. Doctors may pay $200,000 a year just for malpractice insurance. And the wide array of insurance companies means that the system is choking on paper and stifled by bureaucracy. A doctor needs a whole staff just to process patients’ insurance claims.

The Digest dutifully surveyed the opportunities for reducing costs, including caps on malpractice awards, tax incentives for citizens, reform of the insurance regulations, the use of generic drugs, and digitization of records and prescriptions. Good, boring stuff, and some of it would be useful in Canada, too — like digital record-keeping.

But the issues the Digest did not consider provide a textbook lesson in the way the media can shape debate. The Digest notes, but doesn’t discuss, the cost of white collar crime in the form of health insurance fraud, which drains off $100 billion a year. And it doesn’t even mention the most obvious and effective way to get better coverage at a lower cost, which is to bring in national health insurance, like every other OECD nation except Mexico.

Canada’s health-care system is demonstrably more efficient (and infinitely more democratic) than the awful Rube Goldberg contraption which is failing the U.S. so badly. In 2001, for instance, health care cost Canadians $2,163 per capita — $1,533 through medicare, $630 out of pocket. The U.S. system cost more than twice as much — $2,168 from the government and $2,719 from the individual, for a total of $4,887.

Or, to put it another way, the U.S. spent 13.6 per cent of GDP on health care — and didn’t cover 15 per cent of its people at all. Canada covered everyone at 9.5 per cent of GDP. If we’re after effectiveness and efficiency, those numbers are pretty conclusive.

But Canada’s system, of course, is “socialized medicine,” a phrase too scary for the Reader’s Digest even to mention, a concept so terrifying that it freezes thought (and even arithmetic) in its tracks. What Americans mean by this phrase is “socialist medicine,” or “government-controlled medicine,” which is ideological poison. Of course that’s not what Canada has; we simply have a publicly-operated health insurance program which covers everyone. Doctors here are as free and independent as they are anywhere else — and in Canada they always get paid, no matter how poor their patients may be.

But in a different sense, this is certainly “socialized medicine.” The word “socialize” also means “to make fit for companionship with others; make sociable,” and “to convert or adapt to the needs of society.” That’s exactly the way that medical services should be oriented. They should be integrated with the social order, and have social well-being as their objective.

The U.S. system could justly be called “unsocialized medicine,” and you would think that a major piece by a major magazine would at least have to consider the idea that the U.S. system may be fundamentally flawed. But no. And Americans will be stuck with it at least until publications like the Reader’s Digest can describe their dysfunctional medical industry as the disgrace it truly is.

Silver Donald Cameron lives in D’Escousse.

It’s absurd how much we all pay for so little

By WILLIAM MARVEL
Concord Monitor (NH)
June 11, 2006

I lacked health insurance until my 40th year. Until then I had declined workplace packages because of relentlessly good health and because chronically low local wages left me unable to afford my share of the premiums.

It was understood among veterans that the Veterans Administration would take care of catastrophic ailments, and all male Marvels were veterans, so I paid the small bills for my own routine care and counted on a grateful nation to stand by me in the event of a major illness.

National gratitude usually lasts only about as long as the echoes of big-mouth patriotism, though, and so renowned a patriot as Ronald Reagan eviscerated VA services in the 1980s. Even my father, with his quarter-century of naval service, suddenly found himself ineligible for most VA care, and he shifted to Medicare. I could be treated for only a couple of service-connected disabilities if they ever troubled me, but I still felt too young to worry.

At last I fell in with a company big enough for a group rate. I had begun to find my contemporaries featured in obituaries, and some of them had led lives even healthier than mine, so the group rate seemed more attractive than it might have before.

I participated for a time, but reverting to self-employment disqualified me. I had to resort to a Cobra plan, and the premium proved so expensive that I considered dropping it altogether. A friend discouraged me from that by enumerating the devious restrictions insurance companies impose on any lapse in coverage. While I pondered her advice, my gall bladder disintegrated.

I fear debt worse than death, and that close call with hospital-induced bankruptcy demonstrated that entropy had turned the odds against me. The Cobra plan expired, and I arranged for an individual plan with an inattentive agent who allowed my coverage to lapse. As I was dialing the state insurance commission, he repaired that blunder, finally restoring my continuous coverage at a price equal to one quarter of my income.
The new carrier played the common game of threatening massive premium increases for the same policy, or promising smaller increases if I agreed to significant reductions in coverage. Either way, the price always went up, and over the years my premiums more than made up for the cost of that gall bladder operation.

Eventually I married someone young enough to warrant a relatively reasonable family rate, but once that policy was in place, the scam of higher premiums for less coverage resumed almost immediately.

The latest increase has sent us looking for another carrier, and we found a company called something like Chincoteague Marine, Mollusk, and Tidewater Trust. As I understand it, its introductory premium covers us fully for any illness or injury, but with one minor proviso: Our policy will be immediately discontinued if it can be demonstrated that any family member has approached within 75 feet of a hospital, health clinic or medical office building – voluntarily or otherwise – or if a family member can be proven to have made eye contact with a surgeon, physician, physician’s assistant, nurse or emergency medical technician, or otherwise indicated a desire or need for medical treatment.

The policy is also void if any family member makes a phone call to an establishment offering medical services or advice. To ensure compliance, the insured must agree to the monitoring of all land-line and cell phones. The phone prohibition covers wrong numbers, too, on the rationale that someone worried about a potential medical problem might dial the family doctor through stress-related subconscious error.

The restrictions of the company’s continuous-risk-assessment program may give pause to the nitpicker, but the low monthly rate of $557.63 is hard to beat, and the telephone monitoring devices are all included in the premium.

Like everyone, I’ve wondered why American medicine and medical insurance have become so abominably expensive. Castigate if you will the poor suburban doctor who makes a measly five or 10 times as much as the average American, or begrudge the overworked insurance executive his few million a year, but those people are innocent.

The real culprits are our neighbors to the north: If only those stubborn Canadians would abandon their nationalized health system and migrate to the United States, the size and better health of their population could reduce our group rates for months or years to come.

More to the point, dismantling their system of health care and coverage would eliminate the embarrassing comparison that makes ours look so damn bad.

(William Marvel is an author and historian who lives in South Conway.)