PNHP

Private insurers turn to "captives"

Private insurers turn to "captives"

Richard Klumpp's Captive Insurance Brief

Wilmington Trust

March 24, 2011

A captive insurance company is a wholly-owned subsidiary created to provide insurance to its parent company (or companies).

Once established, it operates like any commercial insurer, i.e., it assumes the risk of its parent/owner in exchange for a pre-determined premium payment.

April 27, 2011

While captives are real insurance companies, they are essentially a form of self insurance, especially for single parent captives. Unexpected losses, if they occur, will negatively impact the profits of the parent firm.

http://blog.wilmingtontrustcaptiveinsurance.com/

And…

Seeking Business, States Loosen Insurance Rules

By Mary Williams Walsh and Louise Story
The New York Times, May 8, 2011

Companies looking to do business in secret once had to travel to places like the Cayman Islands or Bermuda.

Vermont, and a handful of other states including Utah, South Carolina, Delaware and Hawaii, are aggressively remaking themselves as destinations of choice for the kind of complex private insurance transactions once done almost exclusively offshore. Roughly 30 states have passed some type of law to allow companies to set up special insurance subsidiaries called captives, which can conduct Bermuda-style financial wizardry right in a policyholder’s own backyard.

Captives provide insurance to their parent companies, and the term originally referred to subsidiaries set up by any large company to insure the company’s own risks. Oil companies, for example, used them for years to gird for environmental claims related to infrequent but potentially high-cost events. They did so in overseas locations that offered light regulation amid little concern since the parent company was the only one at risk.

Now some states make it just as easy. And they have broadened the definition of captives so that even insurance companies can create them. This has given rise to concern that a shadow insurance industry is emerging, with less regulation and more potential debt than policyholders know, raising the possibility that some companies will find themselves without enough money to pay future claims. Critics say this is much like the shadow banking system that contributed to the financial crisis.

Aetna recently used a subsidiary in Vermont to refinance a block of health insurance policies, reaping $150 million in savings, according to its chief financial officer, Joseph M. Zubretsky. The main reason is that the insurer did not need to maintain conventional reserves at the same level as would have been required by insurance regulators in Aetna’s home state of Connecticut.

For insurers, these subsidiaries offer ways to unlock some of the money tied up in reserves, making millions available for dividends, acquisitions, bonuses and other projects. Three weeks after Aetna’s deal closed, the company announced it was increasing its dividend fifteenfold.

Another issue is public oversight. State regulators normally require insurance companies to make available reams of detailed information. A policyholder can find every asset in an insurer’s investment portfolio, for instance, or the company the carrier turns to for reinsurance. But not if the insurer relies on a captive. The new state laws make the audited financial statements of the captives confidential.

“We are concerned about systems that usher in less robust financial security and oversight,” said Dave Jones, the California insurance commissioner.

While saying that he wanted to remain open to innovation, Mr. Jones added, “We need to ensure that innovative transactions are not a strategy to drain value away from policyholders only to provide short-term enrichment to shareholders and investment bankers.”

http://www.nytimes.com/2011/05/09/business/economy/09insure.html?hp=&pagewanted=all

Comment: 

By Don McCanne, MD

Aetna has established a “captive” which has enabled it to refinance a block of health insurance policies for the purpose allowing it to maintain a lower level of reserves, under the cloak of confidentiality. Unlocking that money by removing it from reserves has enabled it to increase its dividends fifteen fold.

This is the industry that Congress has insisted must remain in charge of our health care financing. They create insurance products we can’t afford with benefits that won’t adequately protect us. They waste tremendous resources in their administrative excesses. And for what? To enrich shareholders and investment bankers by draining value away from policyholders?

Why is there no outrage? Why do Americans remain silent as our public stewards force us into giving control of our health care dollars to these crooks? Americans have made it clear that they don’t want our Medicare dollars to be placed in the hands of these thieves. Why can’t Americans make the connect that we could throw these jerks out and place all of our health care dollars into our own Medicare program?

Blue Cross, Blue Shield Getting Richer, Like Corporate Insurers

By Wendell Potter
PR Watch, May 2, 2011
 
I’ve written frequently in recent weeks about the eye-popping profits the big, publicly-traded health companies have been reporting. Last year — as the number of Americans without health insurance grew to nearly 51 million — the five largest for-profit insurers (Aetna, CIGNA, Humana, UnitedHealth and WellPoint) had combined profits of $11.7 billion.
 
But that was so 2010.
 
If the profits those companies made during the first three months of this year are an indication of things to come, 2011 will more than likely be the most profitable year ever for these new darlings of Wall Street.
 
But lest you think only those big New York Stock Exchange-listed corporations have figured out how to make money hand over fist while their base of policyholders is shrinking, take a look at the so-called nonprofit Blue Cross and Blue Shield plans.
 
Don’t think for a minute that the Blues are any more interested in your health and well-being than the companies that at least own up to being in business to make a hefty profit off of insuring the healthy and shunning the sick.
 
According to a report by Carl McDonald of Citi Investment Research and Analysis, last year was the most profitable year in history for the Blues plans, which enjoy significant tax advantages because of their claim to be nonprofit and terrific community citizens. Collectively, the Blues reported more than $5.5 billion in net income in 2010.
 
Not only that, but the Blues now have more than five times that amount in capital above what state regulators require. As McDonald noted in his report, maintaining such a huge reserve should make regulators think twice before approving rate increases in the future.
 
“Our analysis of the financial position of 33 Blue Cross plans suggests that their capital position has reached a level that’s difficult for the nonprofits to justify, and if sustained, will lead to significant tension between the nonprofit Blues, regulators and consumer activists,” McDonald wrote. “According to our data, the nonprofit Blues held a total of $52 billion in capital at the end of 2010, or more than $29 billion above minimum regulatory requirements.”
 
One of the ways the Blues have been able to amass such fortunes is by avoiding paying for care in exactly the same way the big for-profit companies do. They are rapidly moving their policyholders into high-deductible plans and spending far less on medical care — and far more on overhead — than they have in the past.
 
How much insurance firms spend on medical care is measured by what is called the medical loss ratio.
 
In 1993, the average medical loss ratio in the health insurance industry was 95 percent, which meant that insurers spent 95 cents out of every dollar they collected in premiums on medical care. In their quest for profits, all insurers, regardless of their tax status, have been spending less on care in recent years. The average medical loss ratio is now closer to 80 percent.
 
McDonald found that some of the Blues are spending far less than that these days. The medical loss ratio at the Texas Blues, for example, was just 64.4 percent last year.
 
The Big Myth: Competition Between Insurers Results in Lower Premiums
 
Beginning this year, as a result of the health care reform law, insurers will have to maintain medical loss ratios of at least 80 percent. Had that provision of the law been in effect in 2010, McDonald says the Texas Blues plan would have had to price its policies for individuals about 12 percent lower than it actually did.
 
McDonald found that some Blues are much greedier than others when it comes to making profits and building up big surpluses.
 
It turns out that the Blues plans that have to compete with the big for-profit companies behave, well, just like the big for-profits. In other words, the competition actually works against the interests of policyholders. The profit margins and the size of the surpluses of
the Blues in states where the for-profits have a significant presence were on average considerably higher than in states where the for-profits don’t have as much market share.
 
So much for the myth that competition among insurers results in lower premiums.
 
Health insurance is one part of the U.S. economy where the free market works beautifully for the insurers and a few executives (and shareholders of for-profit companies) but horribly for the rest of us.
 
Little Difference Between For-Profit and Non-Profit Insurers
 
The nonprofit Blues don’t have to reward shareholders, but they do lavish a big chunk of their premium revenue on themselves. Take BlueCross BlueShield of Tennessee as an example.
 
Last year was a very good year for the Tennessee Blues. It raised premiums an average of 6.5 percent, which was enough to increase profits five-fold over 2009 and boost its reserves to almost 50 percent more than the $955 million required by the state. Its medical loss ratio for individual policyholders was only 76.7 percent.
 
The company has been building up the reserves for many years, but instead of giving money back to policyholders in the form of rate reductions, it has built itself a veritable palace overlooking downtown Chattanooga.
 
Under pressure by lawmakers and consumer advocates a few years back to reduce its surplus, BlueCross BlueShield of Tennessee decided instead to spend $300 million on a new 950,000 square-foot headquarters. The building has a scenic view of the Tennessee River and is on historic Cameron Hill, where during the Civil War the Union built a fort and fired cannons at the Confederate army.
 
When the company’s 4,000 employees moved into their new digs in 2009, they left vacant several buildings in downtown Chattanooga. City officials now realize it will be hard to find new tenants for those buildings, but that didn’t stop them from giving BlueCross an unprecedented 16-year, 50 percent tax break back in 2005. Bottom line: nonprofits can be very profitable If your nonprofit is a Blue Cross or Blue Shield plan.
 
Wendell Potter is senior fellow on health care for the Center for Media and Democracy. He previously served as head of communications for Cigna, one of the nation’s largest health insurers.
 
http://www.prwatch.org/news/2011/05/10696/blue-cross-blue-shield-getting-richer-corporate-insurers

Private insurers turn to “captives”

Richard Klumpp’s Captive Insurance Brief

Wilmington Trust

March 24, 2011

A captive insurance company is a wholly-owned subsidiary created to provide insurance to its parent company (or companies).

Once established, it operates like any commercial insurer, i.e., it assumes the risk of its parent/owner in exchange for a pre-determined premium payment.

April 27, 2011

While captives are real insurance companies, they are essentially a form of self insurance, especially for single parent captives. Unexpected losses, if they occur, will negatively impact the profits of the parent firm.

http://blog.wilmingtontrustcaptiveinsurance.com/

And…

Seeking Business, States Loosen Insurance Rules

By Mary Williams Walsh and Louise Story
The New York Times, May 8, 2011

Companies looking to do business in secret once had to travel to places like the Cayman Islands or Bermuda.

Vermont, and a handful of other states including Utah, South Carolina, Delaware and Hawaii, are aggressively remaking themselves as destinations of choice for the kind of complex private insurance transactions once done almost exclusively offshore. Roughly 30 states have passed some type of law to allow companies to set up special insurance subsidiaries called captives, which can conduct Bermuda-style financial wizardry right in a policyholder’s own backyard.

Captives provide insurance to their parent companies, and the term originally referred to subsidiaries set up by any large company to insure the company’s own risks. Oil companies, for example, used them for years to gird for environmental claims related to infrequent but potentially high-cost events. They did so in overseas locations that offered light regulation amid little concern since the parent company was the only one at risk.

Now some states make it just as easy. And they have broadened the definition of captives so that even insurance companies can create them. This has given rise to concern that a shadow insurance industry is emerging, with less regulation and more potential debt than policyholders know, raising the possibility that some companies will find themselves without enough money to pay future claims. Critics say this is much like the shadow banking system that contributed to the financial crisis.

Aetna recently used a subsidiary in Vermont to refinance a block of health insurance policies, reaping $150 million in savings, according to its chief financial officer, Joseph M. Zubretsky. The main reason is that the insurer did not need to maintain conventional reserves at the same level as would have been required by insurance regulators in Aetna’s home state of Connecticut.

For insurers, these subsidiaries offer ways to unlock some of the money tied up in reserves, making millions available for dividends, acquisitions, bonuses and other projects. Three weeks after Aetna’s deal closed, the company announced it was increasing its dividend fifteenfold.

Another issue is public oversight. State regulators normally require insurance companies to make available reams of detailed information. A policyholder can find every asset in an insurer’s investment portfolio, for instance, or the company the carrier turns to for reinsurance. But not if the insurer relies on a captive. The new state laws make the audited financial statements of the captives confidential.

“We are concerned about systems that usher in less robust financial security and oversight,” said Dave Jones, the California insurance commissioner.

While saying that he wanted to remain open to innovation, Mr. Jones added, “We need to ensure that innovative transactions are not a strategy to drain value away from policyholders only to provide short-term enrichment to shareholders and investment bankers.”

http://www.nytimes.com/2011/05/09/business/economy/09insure.html?hp=&pagewanted=all

Aetna has established a “captive” which has enabled it to refinance a block of health insurance policies for the purpose allowing it to maintain a lower level of reserves, under the cloak of confidentiality. Unlocking that money by removing it from reserves has enabled it to increase its dividends fifteen fold.

This is the industry that Congress has insisted must remain in charge of our health care financing. They create insurance products we can’t afford with benefits that won’t adequately protect us. They waste tremendous resources in their administrative excesses. And for what? To enrich shareholders and investment bankers by draining value away from policyholders?

Why is there no outrage? Why do Americans remain silent as our public stewards force us into giving control of our health care dollars to these crooks? Americans have made it clear that they don’t want our Medicare dollars to be placed in the hands of these thieves. Why can’t Americans make the connect that we could throw these jerks out and place all of our health care dollars into our own Medicare program?

Are Health Insurers Writing Health Reform Regulations?

By Wendell Potter
PR Watch, May 5, 2011

One of the reasons I wanted to return to journalism after a long career as an insurance company PR man was to keep an eye on the implementation of the new health reform law.  Many journalists who covered the reform debate have moved on, and some consider the writing of regulations to implement the legislation boring and of little interest to the public.

But insurance company lobbyists know the media are not paying much attention. And so they are able to influence what the regulations actually look like — and how the law will be enforced — with little scrutiny, much less awareness.

At a January meeting of several hundred patient and consumer advocates in Washington, a top aide to Health and Human Services Secretary Kathleen Sebelius all but pleaded with those in the audience to bombard the Obama Administration with messages insisting that the law be implemented as Congress intended. Rest assured, he told them, that the insurance industry’s lobbyists were relentless in their demands that the regulations be written to give them the maximum slack.

One example: a section of the law expanding the rights of consumers to appeal adverse decisions made by their health plans.

“The Affordable Care Act will help support and protect consumers and end some of the worst insurance company abuses,” read an Obama administration fact sheet from last summer.

The fact sheet went on to assure us that the new rules would guarantee consumer access to both internal and external appeals processes “that are clearly defined, impartial, and designed to ensure that, when health care is needed and covered, consumers get it.”

“In implementing this law, we have worked to end the worst insurance company abuses, preserve existing options and slow premium increases,” an administration official said. “Through it all, protecting consumers has been — and remains — our top priority.”

The rules, originally scheduled to go into effect July 1, 2011, were actually written by the [[National Association of Insurance Commissioners|National Association of [State] Insurance Commissioners]] (NAIC), which was tasked by Congress to develop several important regulations required by the law. If the law is implemented as the NAIC recommends, patients will be able to get an external appeal of a broad range of coverage denials, including denials that result from an insurer’s decision to rescind, or cancel, a patient’s policy — not just denials made on the basis of “medical necessity” as determined by the insurer.

The NAIC’s standards also say that insurers must provide consumers with clear information about their rights to both internal and external appeals, and that the companies must expedite the appeals process in urgent or emergency situations.

Insurers Push Back Hard; is the White House Capitulating?

Well, surprise, insurers don’t like being told what to do by regulators. So they’re pushing back hard. Consumer advocates who have been in meetings at the White House in recent weeks say they believe the administration is bending over backward to accommodate the insurers.

“We have reason to fear that the external appeal regs won’t be very consumer friendly,” said Stephen Finan, senior director of policy for the American Cancer Society Action Network.

Finan and representatives of several other consumer and patient rights organizations, including Consumers Union, the National Partnership for Women and Families and the American Diabetes Association, wrote officials in the Departments of Labor and Health and Human Services in
late January pleading with them to “stand firm for consumers” in rejecting several of the insurance industry’s demands.

They expressed concern that the final regulations would allow insurers to stack the decks against patients by allowing health plans to deem a second-level internal appeal of a denial as meeting the
requirement for an independent external appeal. They’re also worried that health plans will not be required to provide clear and understandable information to policyholders about their denial
decisions, that the plans will not provide adequate translation of written communications into other languages (insurers are claiming this would be too burdensome), and that they will be able to take as long as 72 hours (instead of the recommended 24) to decide an urgent appeal.

Equally as frustrating for the consumer advocates is the administration’s indication that they will give the insurers until January 1, 2012, rather than July 1, 2011, to comply with the regulations.

Consumer advocates say the administration has told them that the reason it is proposing to delay the effective date of the new rules for half a year is to accommodate the health plans’ enrollment cycles and marketing needs. Health plans do need adequate lead time to make changes to their systems and to prepare materials to inform their customers of new procedures, especially in multiple languages, so some of their push back is understandable. The new regulations will also add to the insurers’ administrative costs, and the new law limits how much they can spend on overhead.

But the consumer groups believe the administration itself has caused some of the problems by taking so long to finalize the regulations. The NAIC got its work done comparatively swiftly.

“There is a clear pattern of leaning toward the insurance industry more than consumers,” one of the patient advocates told me.

Industry Lobbyists Outnumber Consumer Advocates 100 to 1

The consumer advocates, most of whom not so long ago were applauding the Democrats for getting reform enacted, even if it fell short of their original goals, are becoming increasingly discouraged, partly because there are so many more lobbyists for the insurers than for consumers. It’s hard to compete with them.

“We’re outnumbered 100 to 1,” said one of the consumer advocates.

It’s clear,” he added, “that the insurers are willing to make life more difficult for patients” by trying to weaken and delay the consumer protections.

It’s also clear that, at least for now, the insurers seem to have the upper hand in dealing with the White House.

Wendell Potter is a senior fellow on health care at the Center for Media and Democracy. His former positions include serving as director of corporate communications for CIGNA.

http://www.prwatch.org/news/2011/05/10709/are-health-insurers-writing-health-reform-regulations

Part D private insurers actually raise Medicare costs

Lower-Than-Expected Medicare Drug Costs Reflect Decline in Overall Drug Spending and Lower Enrollment, Not Private Plans

Evidence Shows Reliance on Private Insurers Actually Raised Medicare Costs

By Edwin Park
Center on Budget and Policy Priorities, May 6, 2011

Some supporters of the House budget plan’s proposal to replace Medicare with a voucher to purchase private health insurance claim that reliance on private insurers can lower costs. They cite the fact that the costs of Medicare Part D, which took effect in 2006, have been lower than the Congressional Budget Office predicted when Congress enacted the drug benefit. They attribute this lower spending to efficiencies produced by competition among the private insurers that deliver the benefit.

This claim does not withstand scrutiny. The two primary factors driving the reduction in Medicare Part D spending were:

* The sharp decline in growth in spending for prescription drugs throughout the U.S. health care system.

* Lower-than-expected enrollment in Medicare Part D.

Moreover, there is evidence that, far from reducing costs, the use of private plans to deliver the Medicare drug benefit has increased costs.

http://www.cbpp.org/files/5-6-11health.pdf

Comment: 

By Don McCanne, MD

Edwin Park has dispelled the myth that private insurers were to be credited for Medicare Part D drug spending that fell below prior projections of the Congressional Budget Office. The lower than anticipated spending had nothing to do with the interventions of the private insurers, but were due primarily to two factors: 1) lower prices due to greater use of generics, more drugs losing patent protection, and a lack of new blockbuster drugs, and 2) fewer Medicare beneficiaries than anticipated enrolled in these lousy Part D drug plans.

Not only can these plans not take credit for the lower than expected program spending, they, in fact, actually increased costs to Medicare. The reasons are explained in the technical but easy-to-read, three page report available at the link above.

Not mentioned in the report are the facts that these plans also reduced choices in drugs by having limited formularies, and they reduced choices in pharmacies by having restricted pharmacy networks.

This is yet one more example of how private insurance intermediaries increase our costs while reducing our choices of both providers and their products and services. Yet the Patient Protection and Affordable Care Act is based on this model that brings us fewer choices at higher costs.

Let’s oust these expensive, wasteful, intrusive intermediaries and replace them with our own public financing program that would offer all of us free choice and greater value.

Vermont Passes Plan for Universal Healthcare

By Robert Lowes
Medscape Today, May 5, 2011

In a 94 to 49 vote today, the state House in Vermont sealed the deal on a bill to eventually create a publicly financed universal healthcare system that some supporters dub “single payer.”

With the state Senate already having given its approval last week, the bill will now go to Vermont Governor Peter Shumlin, who is eager to sign it into law.

Today’s action completes the second round of voting for the bill. Both chambers of the Vermont legislature had approved earlier versions, but a House–Senate conference committee had to iron out minor differences and send the bill back for additional votes.

The legislation establishes a state health insurance exchange — mandated by the new healthcare reform law called the Affordable Care Act (ACA) — through which individuals and small businesses can purchase coverage. The bill envisions this exchange becoming a publicly financed health plan called Green Mountain Care that is available to all Vermont residents. Proponents of Green Mountain Care have touted it as a single-payer system, but the bill allows individuals covered under the state plan to buy supplemental policies from private insurers. In addition, individuals can keep the insurance coverage they already have.

For these and other reasons, a group called Physicians for a National Health Program contends that the Vermont bill falls short of a true single-payer model. Although Governor Shumlin disagrees with that assessment, lawmakers removed the expression “single-payer system” from the bill and replaced it with “universal and unified health system.”

Under the ACA, states can obtain waivers to opt out of federal healthcare reform requirements and enact equivalent statewide reforms similar to the kind underway in Vermont beginning in 2017. Shumlin and others hope that Congress passes a pending bill that would move the opt-out date to 2014. States securing waivers will receive the ACA funding that they are otherwise entitled to. Nevertheless, Vermont lawmakers still face the job of devising a comprehensive plan to pay for their new system.

Vermont’s roadmap for universal healthcare coverage and a publicly financed health plan has received mixed reviews from physicians in that state. According to a survey conducted by Democratic state Rep. George Till, MD, who voted for the legislation, 44.2% of physicians support the single-payer concept, and 45.6% oppose it. Opponents tend to be specialists, who are more likely than primary care physicians to view the new system as financially unattractive. In addition, 28.4% of physicians say they would likely stop practicing medicine in Vermont if the proposed reforms come to fruition.

http://www.medscape.com/viewarticle/742154

Part D private insurers actually raise Medicare costs

Lower-Than-Expected Medicare Drug Costs Reflect Decline in Overall Drug Spending and Lower Enrollment, Not Private Plans

Evidence Shows Reliance on Private Insurers Actually Raised Medicare Costs

By Edwin Park
Center on Budget and Policy Priorities, May 6, 2011

Some supporters of the House budget plan’s proposal to replace Medicare with a voucher to purchase private health insurance claim that reliance on private insurers can lower costs. They cite the fact that the costs of Medicare Part D, which took effect in 2006, have been lower than the Congressional Budget Office predicted when Congress enacted the drug benefit. They attribute this lower spending to efficiencies produced by competition among the private insurers that deliver the benefit.

This claim does not withstand scrutiny. The two primary factors driving the reduction in Medicare Part D spending were:

* The sharp decline in growth in spending for prescription drugs throughout the U.S. health care system.

* Lower-than-expected enrollment in Medicare Part D.

Moreover, there is evidence that, far from reducing costs, the use of private plans to deliver the Medicare drug benefit has increased costs.

http://www.cbpp.org/files/5-6-11health.pdf

Edwin Park has dispelled the myth that private insurers were to be credited for Medicare Part D drug spending that fell below prior projections of the Congressional Budget Office. The lower than anticipated spending had nothing to do with the interventions of the private insurers, but were due primarily to two factors: 1) lower prices due to greater use of generics, more drugs losing patent protection, and a lack of new blockbuster drugs, and 2) fewer Medicare beneficiaries than anticipated enrolled in these lousy Part D drug plans.

Not only can these plans not take credit for the lower than expected program spending, they, in fact, actually increased costs to Medicare. The reasons are explained in the technical but easy-to-read, three page report available at the link above.

Not mentioned in the report are the facts that these plans also reduced choices in drugs by having limited formularies, and they reduced choices in pharmacies by having restricted pharmacy networks.

This is yet one more example of how private insurance intermediaries increase our costs while reducing our choices of both providers and their products and services. Yet the Patient Protection and Affordable Care Act is based on this model that brings us fewer choices at higher costs.

Let’s oust these expensive, wasteful, intrusive intermediaries and replace them with our own public financing program that would offer all of us free choice and greater value.

Futurist Ian Morrison on being "bronzed" in the exchanges

The Four Americas

By Ian Morrison
Hospitals and Health Networks, May 3, 2011

Health insurance exchanges could have a major impact on the health care marketplace.

Here are some things to watch for.

* We are all turning bronze. There is a growing body of evidence — from actuaries, academics, consultants and researchers — that when consumers in the exchange select insurance options, they will pick the bronze plan (a 60 percent actuarial value). By definition, these plans will have high out-of-pocket costs and may not cover as wide a range of benefits as the health reform enthusiasts intended.

Some in the health care delivery business see exchanges as a new source of patients with commercial insurance similar to the benefits that schoolteachers and firefighters enjoy. Not so fast. Not only will those schoolteachers and firefighters get their benefits rolled back as part of the global backlash against public employees, but those of us in the exchanges will be operating with skinny network, high-deductible plans.

* Exchanges could be a non-event or become the exchange that ate Manhattan. Depending on how exchanges are structured at the state level, they could have limited pickup. The proposed insurance exchanges have two huge advantages over some of the failed insurance exchanges across the country, such as California’s PacAdvantage program for small business. First, the proposed exchanges have subsidies. Second, they have enabling rules. However, there is still a huge opportunity for states to make exchanges highly dysfunctional by not regulating the behavior in the nonsubsidized individual and small group market.

What killed PacAdvantage was brokers taking good risks outside the exchange and dumping bad risks into the exchange. Unless state legislation prevents this, it is highly possible that exchanges get selected against and spiral downward. Conversely, if exchanges are up and functioning and acceptable, there could be massive growth over time as employers see the benefit of giving their employees incentives to move to the exchange. This won’t happen initially in 2014, but in a Cadillac tax world and with high-functioning exchanges, there could be massive growth. (And remember, we would all be pretty bronzed.)

http://www.hhnmag.com/hhnmag/HHNDaily/HHNDailyDisplay.dhtml?id=6270005407

Comment:

By Don McCanne, MD

If the stewards of the ACA-mandated state insurance exchanges are diligent, they may be able to avoid problems such as the death spiral of adverse selection. With careful design, they should be able to establish a functioning market of private health plans. What can we expect of this market?

The overwhelming majority of insurance shoppers will be purchasing their plans based on price, whether or not they qualify for subsidies. Since most will be relatively healthy, it will be the price of the insurance plans that will drive their purchasing decisions, rather than the unanticipated but potential out-of-pocket expenses that they would face only if they were unfortunate enough to develop significant medical  problems. For the price discount, most purchasers will take a chance, gambling that they will stay healthy.

What plans in the exchanges will offer the lowest prices? The bronze plans. These plans cover an average of 60 percent of the medical costs and the patient is responsible for the remaining 40 percent. Although many would be eligible for subsidies, a recent Commonwealth Fund analysis (Gruber and Perry) demonstrated that one-fourth of middle-income individuals with medical needs would not be able to afford the out-of-pocket medical costs after meeting other necessary expenditures in their budgets. Thus choosing these plans is definitely a gamble, but one they must take since they cannot afford the higher costs plans – especially the gold and platinum plans (which are not Cadillac plans since about all they do is reduce out-of-pocket spending for relatively standard benefits).

What innovations will insurers use to keep their premiums competitive within the exchanges? Although they will have to provide a basic set of regulated benefits, they will be able to keep premiums priced at the lower end of the market by requiring large deductible and coinsurance payments, and by limiting provider contracting to a narrow network of the cheapest physicians and hospitals. This is what Ian Morrison is referring to when he says, “those of us in the exchanges will be operating with skinny network, high-deductible plans.”

If the stewards do their job well and the exchanges are very successful in achieving massive growth – “the exchanges that ate Manhattan” – then, as Ian Morrison states, “we would all be pretty bronzed.”

So if the exchanges work like they’re designed to, what will we get, at best? Unaffordable deductible and coinsurance payments, with skinny networks which take away our choices of physicians, hospitals, and other health care providers, unless we’re eligible for Medicare by being over 65 or permanently disabled.

Say, did anyone ever think that maybe it would be better to improve Medicare and provide it to everyone? That way we would have our choices of our health care professionals and health facilities, and we wouldn’t have to face unaffordable out-of-pocket costs. This seems like an idea that maybe we should work on.

Senator Leno’s Single Payer Health Care Bill Passes Health Committee

Office of Sen. Mark Leno
Wednesday, May 04, 2011

SACRAMENTO – The Senate Health Committee today approved the California Universal Health Care Act, authored by Senator Mark Leno (D-San Francisco). Senate Bill 810 guarantees all Californians comprehensive, universal health care while containing ballooning health care costs and improving the quality of care and delivery of health services statewide. The legislation passed with a 5-3 vote.

“California is being overrun by out-of-control health care costs, which has a significant impact on the state budget, businesses and families,” said Senator Leno, D-San Francisco. “Our single payer plan not only guarantees universal coverage for all Californians, but also contains health care costs, which is essential to solving our state budget crisis in the long term.”

SB 810 creates a private-public partnership to provide every California resident medical, dental, vision, hospitalization and prescription drug benefits and allows patients to choose their own doctors and hospitals. This single payer, “Medicare for All” type of program works by pooling together the money that government, employers and individuals already spend on health care and putting it to better use by cutting out the for-profit middle man.

“We must continue to fight for healthcare for every Californian,” said DeAnn McEwen, President of the California Nurses Association and a nurse at Long Beach Memorial Medical Center. “Federal reform does not insure that all Californians will receive the care they need. President Obama noted that if states come up with a better plan, they could move forward. Californians deserve the best. Senate Bill 810 will provide every Californian with an excellent standard of care, improve health outcomes, and finally get healthcare costs under control.”

California currently spends $200 billion annually on a fragmented, inefficient health care system that wastes 30% of every dollar on administration. Under Senate Bill 810, that wasteful spending is eliminated. The bill creates no new spending, and in fact, studies show that the state would save $8 billion in the first year under this single-payer health care plan.

“Most doctors support a public-private partnership like Medicare, but with everybody covered, better benefits, and lower costs,” said Dr. Henry L. Abrons, president of Physicians for a National Health Program, California Chapter. “We need to spend our precious resources wisely. Federal reform won’t accomplish these things, but SB 810 will.”

“Health Care for All realizes that the only way to provide better health care for absolutely everyone, for less money than we’re now spending, and control rising costs, is to pass a bill like SB 810 and then make the necessary changes to finance it,” said Greg Brockbank, chair of Health Care for All, California. “We stand ready to do our part in making that happen, and then to help successfully implement it.”

SB 810 is sponsored and supported by a broad coalition of patients, nurses, doctors, teachers and school employees, small businesses, faith community members, retirees, local governments and school districts. These groups represent more than 2 million Californians. The bill is also sponsored by the California Nurses Association, Health Care for All California, California One Care, California School Employees Association, Physicians for a National Health Program-California, Single Payer Now, California Teachers Association, California Federation of Teachers, California Alliance of Retired Americans, Amnesty International, League of Women Voters, California Council of Churches, Progressive Democrats of America, California Consumer Federation, National Organization for Women-California, Vision y Compromiso, Wellstone Democratic Renewal Club, Dolores Huerta Foundation, California Health Professional Student Alliance and Courage Campaign.

http://dist03.casen.govoffice.com/index.asp?Type=B_PR&SEC={F0DFD1A5-1C7B-4F09-9F09-C48A423D1072}&DE={F086DD17-8BCF-4C38-8AA7-F4AA0DA99BB3}

Futurist Ian Morrison on being “bronzed” in the exchanges

The Four Americas

By Ian Morrison
Hospitals and Health Networks, May 3, 2011

Health insurance exchanges could have a major impact on the health care marketplace.

Here are some things to watch for.

* We are all turning bronze. There is a growing body of evidence — from actuaries, academics, consultants and researchers — that when consumers in the exchange select insurance options, they will pick the bronze plan (a 60 percent actuarial value). By definition, these plans will have high out-of-pocket costs and may not cover as wide a range of benefits as the health reform enthusiasts intended.

Some in the health care delivery business see exchanges as a new source of patients with commercial insurance similar to the benefits that schoolteachers and firefighters enjoy. Not so fast. Not only will those schoolteachers and firefighters get their benefits rolled back as part of the global backlash against public employees, but those of us in the exchanges will be operating with skinny network, high-deductible plans.

* Exchanges could be a non-event or become the exchange that ate Manhattan. Depending on how exchanges are structured at the state level, they could have limited pickup. The proposed insurance exchanges have two huge advantages over some of the failed insurance exchanges across the country, such as California’s PacAdvantage program for small business. First, the proposed exchanges have subsidies. Second, they have enabling rules. However, there is still a huge opportunity for states to make exchanges highly dysfunctional by not regulating the behavior in the nonsubsidized individual and small group market.

What killed PacAdvantage was brokers taking good risks outside the exchange and dumping bad risks into the exchange. Unless state legislation prevents this, it is highly possible that exchanges get selected against and spiral downward. Conversely, if exchanges are up and functioning and acceptable, there could be massive growth over time as employers see the benefit of giving their employees incentives to move to the exchange. This won’t happen initially in 2014, but in a Cadillac tax world and with high-functioning exchanges, there could be massive growth. (And remember, we would all be pretty bronzed.)

http://www.hhnmag.com/hhnmag/HHNDaily/HHNDailyDisplay.dhtml?id=6270005407

If the stewards of the ACA-mandated state insurance exchanges are diligent, they may be able to avoid problems such as the death spiral of adverse selection. With careful design, they should be able to establish a functioning market of private health plans. What can we expect of this market?

The overwhelming majority of insurance shoppers will be purchasing their plans based on price, whether or not they qualify for subsidies. Since most will be relatively healthy, it will be the price of the insurance plans that will drive their purchasing decisions, rather than the unanticipated but potential out-of-pocket expenses that they would face only if they were unfortunate enough to develop significant medical  problems. For the price discount, most purchasers will take a chance, gambling that they will stay healthy.

What plans in the exchanges will offer the lowest prices? The bronze plans. These plans cover an average of 60 percent of the medical costs and the patient is responsible for the remaining 40 percent. Although many would be eligible for subsidies, a recent Commonwealth Fund analysis (Gruber and Perry) demonstrated that one-fourth of middle-income individuals with medical needs would not be able to afford the out-of-pocket medical costs after meeting other necessary expenditures in their budgets. Thus choosing these plans is definitely a gamble, but one they must take since they cannot afford the higher costs plans – especially the gold and platinum plans (which are not Cadillac plans since about all they do is reduce out-of-pocket spending for relatively standard benefits).

What innovations will insurers use to keep their premiums competitive within the exchanges? Although they will have to provide a basic set of regulated benefits, they will be able to keep premiums priced at the lower end of the market by requiring large deductible and coinsurance payments, and by limiting provider contracting to a narrow network of the cheapest physicians and hospitals. This is what Ian Morrison is referring to when he says, “those of us in the exchanges will be operating with skinny network, high-deductible plans.”

If the stewards do their job well and the exchanges are very successful in achieving massive growth – “the exchanges that ate Manhattan” – then, as Ian Morrison states, “we would all be pretty bronzed.”

So if the exchanges work like they’re designed to, what will we get, at best? Unaffordable deductible and coinsurance payments, with skinny networks which take away our choices of physicians, hospitals, and other health care providers, unless we’re eligible for Medicare by being over 65 or permanently disabled.

Say, did anyone ever think that maybe it would be better to improve Medicare and provide it to everyone? That way we would have our choices of our health care professionals and health facilities, and we wouldn’t have to face unaffordable out-of-pocket costs. This seems like an idea that maybe we should work on.

Health Reform: Necessary, but will the Affordable Care Act be sufficient?

By Johnathon S. Ross, M.D., M.P.H.
Communique: Academy of Medicine of Toledo and Lucas County, April-May 2011
 
Many physicians care about the injustice of a health care system that leaves 50 million of our patients, friends and family uninsured, but it is health care spending that threatens to destabilize the entire U.S. economy. We need to cover the uninsured and control costs. There are 50 million uninsured Americans despite spending $2.6 trillion annually. This is about one-sixth of the entire country uninsured and spending is at 17 percent of our GDP.
 
The number of uninsured has grown by about a million each year for the past 20 years. Ohio has 1.48 million uninsured despite spending over $80 billion annually. Contrary to popular thinking, the uninsured are not the chronically unemployed or illegal immigrants. Almost 80 percent of the uninsured are working people and their children.
 
One of the reasons many of the working class uninsured cannot afford to purchase insurance is that their incomes have not kept up with medical cost inflation. In fact only the wealthiest 5 percent have come even close to keeping up. Medical inflation continues 3 percent to 5 percent above the overall inflation rate.
 
Over the past 30 years, working families would have needed above 100 percent real growth in income adjusted for underlying inflation in order to keep up with rising health care costs. Most have seen their incomes rise only a few percent or less.
 
We already have what it takes to take care of everybody. The fixed overhead costs (buildings, nurses, doctors and equipment) of the health care system result in a large and expensive infrastructure that we all need in case we get sick.
 
The infrastructure is maintained by patient use and payments. Since only a small number of individuals are actually receiving care at any time (20 percent of patients generate 80 percent of costs), these payments for fixed costs must be shared by everyone. If these fixed costs are not met, the infrastructure will shrink, degrade or even disappear.
 
These fixed costs make up over 60 percent of spending and must be in place before a single sick patient can receive comprehensive care. We all must contribute if we want the care to be there when we need it.
 
Public financing (taxes) already accounts for 60 percent of total spending (Medicare, Medicare, VA, public employees and the tax deductibility of health insurance). Business and personal out-of-pocket payments cover the rest. In the U.S., public spending alone exceeds the total per person health care costs of eight European countries that cover all their citizens with better health outcomes. Businesses only pay about 20 percent of the total cost, yet they seem to exert an undue amount of influence over U.S. health policy decisions. That’s because about 60 percent of Americans receive their insurance coverage as a benefit of employment. These working people and their kids are the healthiest in our society and cost less to cover than the elderly, disabled and poor who have been left to public programs to cover.
 
You will hear conservative pundits complaining about health reform. They characterize it as a giant government takeover that “will ruin best health care system in the world.” (John Boehner actually said this recently!) Do we have the best health care system in the world?
 
According to Organization for Economic Cooperation and Development, the best international comparison data show that Americans live shorter lives and lose more healthy years of life to treatable illness than most of our economic competitors. Our infant and maternal mortality exceeds theirs. We are not more expensive because we are older. We do not smoke or drink more, use more doctor visits or hospital days or overstaff with nurses. We are in the middle of the pack regarding use of technology, joint replacements, transplants and on medical research articles published based on relative population size. We do feel we have better access to technology, although physicians in several other countries feel they have about the same level of access.
 
The one place we clearly lead is in the cost of our system where we spend almost twice as much as our economic competitors per capita. These excess health care costs are built into every American product and reduce our economic competitiveness. Our costs are rising much more sharply, although all the western democracies are struggling to control health care costs. Although our outcomes may be better for a few specific types of illnesses (breast cancer for example) by almost every general measure our outcomes are worse and our costs are twice as high.
 
This is why health reform has been under serious ongoing discussion since the debate over Medicare which resulted in a universal national health insurance program, but only for those over 65 and the disabled. The passage of the Patient Protection and Affordable Care Act (ACA) is a continuation of that debate and has left us divided and confused. What has this law brought about so far and what does it hold for us in the future?
 
One year after the passage of the ACA several provisions have already gone into effect. The number of Ohioans affected is in parentheses:
 
· Young Ohioans can keep or obtain insurance coverage on their family plans until age 26 (35,000).
 
· Insurance companies are prohibited from denying coverage to children with pre-existing conditions. (Many insurers dropped “child-only” coverage in response.) (unknown)
 
· High Risk Pools funded by the ACA now subsidize the uninsurable (1,100).
 
· Insurance companies may no longer impose lifetime dollar caps on enrollees. (unknown)
 
· The Medicare Prescription Drug benefit “doughnut hole” is being closed (110,000).
 
· Medicare beneficiaries can receive wellness checks and other preventive care without a co-pay or deductible (150,000). All private insurers will need to completely cover preventive care also.
 
· An estimated 127,800 small businesses in Ohio are eligible for the ACA’s tax credit to help purchase health insurance for employees and of those, 38,900 are estimated to be eligible for the full credit. (unknown)
 
· Grants, matching funds and other resources now available will help transform the way Medicaid funds long term care by shifting away from institutional care toward home and community-based care. (unknown)
 
· Employers can obtain re-insurance to help subsidize coverage to early retirees 55+. This will be a major financial benefit to large employers and they are already taking advantage of it.
 
· Insurers will have to spend 80-85 percent of premiums on care. Primary care physicians will get increased payment from Medicare and Medicaid.
 
By 2014:
 
· Everyone will need to buy insurance or pay a fine. Those below 133 percent of poverty will be enrolled in Medicaid. Those from 133 percent of poverty to 400 percent of poverty will receive subsidies to purchase private insurance from among a range of insurers through state based insurance exchanges with standard benefits packages. Those who do not purchase insurance will be fined except for specific hardship cases. Cost sharing is limited to no more than 6 percent to 30 percent of premiums for those from 133 percent to 400 percent of poverty. There are no subsidies for those above 400 percent of poverty but they will be allowed to purchase insurance through the exchanges.
 
· Employers of more than 50 individuals must provide insurance or pay into a fund that will help subsidize coverage for the uninsured.
 
· The Congressional Budget Office estimates about 32 million of the 50 million uninsured will be covered, about half by exp
anded Medicaid and half by private coverage in the exchanges.
 
· Revenues needed for these programs are about $100 billion yearly (about a 4 percent increase in current annual spending). Physicians usually get about 20 percent of spending on health care so the ACA will likely increase physician incomes by $20 billion.
 
· Revenue is raised from taxing insurers and reducing excess payments to their Medicare Advantage plans, by taxing pharmaceutical companies and tanning salons, and by reducing the deductibility of some medical expenses and high cost health plan premiums. There are also assumptions of savings in Medicare and Medicaid based on changes in payment approaches. (See below)
 
· Five year grants for state based malpractice reforms are part of the ACA. Texas passed strong limits on malpractice awards seven years ago. This lowered malpractice premiums by over 50 percent, but has had little effect on health care cost growth.
 
There are many other good public health and quality improvement ideas in the ACA. Sadly, there are fewer that are likely to control costs. We already have evidence from the one state with ACA like reform-Massachusetts. They have reduced the number of uninsured to only 4 percent. This is less than one-fourth the national rate. However, costs continue to rise sharply despite reform.
 
It appears that you can cover most Americans with a mandate to buy private insurance, but if you leave the for-profit medical industrial complex untouched, costs will continue to rise unabated. Although some pundits claim that the health information technology, bundled payments and accountable care organizations promoted by the ACA will help to control costs, there is little supportive data from trials of these approaches under Medicare or to suggest that information technology will lower costs, though it might improve the quality of care.
 
If the ACA is unlikely to be highly effective in coverage and cost control, what are the alternatives? All the other advanced countries have covered everyone using one of three approaches.
 
A national health service (e.g. Great Britain, Sweden) is true socialized medicine where the doctors, nurses and other providers are public employees and the hospitals are publicly owned. A national health insurance with many not-for-profit insurers with a single negotiated fee schedule and very tight public insurance regulation (Germany, Netherlands, France) and lastly, single-payer national health insurance (Canada, Taiwan, Australia and our own version for seniors, Medicare). These are the systems that have been proven to provide universal coverage and cost half per capita.
 
It is worth noting that our own example of a single payer, Medicare, has actually had better cost control than private insurance over the past 40 years and has been more innovative (e.g. DRG’s, the RVU fee schedule, and public reporting of outcomes.)
 
Medicare is our best example of a successful American national health insurance system. It is funded by taxes that are placed in a trust fund (an efficient way to collect the needed revenue) and involves everyone in paying their fair share. A single insurer is hired, by competitive bid, to just process the Medicare bills according to a single fee schedule. This simplicity keeps insurance overhead for Medicare at less than 3 percent of premiums.
 
Private insurers will waste more than five times as much on administration and profits even with the restrictions of the ACA. Under traditional Medicare, doctors practice privately and are not employees of government. Hospitals are privately managed by their community based boards. Medicare is not socialized medicine. It is social insurance just like Social Security.
 
When we created Medicare in 1965, Canada created a Medicare system for Canadians of all ages. They even call it Medicare just as we do. Prior to 1965, Canada had a private insurance system just like ours. Their ability to control costs and provide care to all is proof that such a system can be changed and could work for all of us especially given our much more generous funding which is about twice as much per capita.
 
Taiwan also had a system like ours, but with many more uninsured (40 percent). Just over a decade ago, after study, they rejected the private insurance model and created a single-payer Medicare system for all Taiwan’s citizens. They made the transition in just a couple years and covered everyone with no significant increase in spending. The Canadians covered everyone, the Taiwanese covered everyone, and we did it for seniors with social insurance that provides better administrative value, better cost control and better outcomes.
 
The ACA continues under serious challenge politically. The individual mandate is possibly unconstitutional. Although there are many good aspects to the ACA as mentioned above, evidence suggests that the ACA will still leave almost 20 million Americans uninsured and will not control overall costs very effectively.
 
On the other hand, there is good evidence that an improved and expanded Medicare would cover everyone for no more than we spend now given the large administrative savings that would result from the simplicity of this type of reform. It would improve outcomes and control costs as similar systems have in other developed nations.
 
Medicare is constitutional. Many of the financial interests that are profiting form the current system will fight against the increased public accountability the ACA or an improved an expanded Medicare for all would bring to the health care system. Political challenges will remain either way.
 
An improved and expanded Medicare for all is likely to save more money, save more lives while allowing us to practice without the hassles that are the hallmark of the private health insurance system. Physicians must choose to show leadership on this tough political problem. We need to support covering everyone and cost control. Doing nothing is not an option.
 
http://www.toledomedicine.org/April_May_1_up%5B1%5D.pdf

Keeping Health Care Afloat: The United States vs. Canada

By Uwe E. Reinhardt
The Milken Institute Review, 2007

Many complain that a single payer system will inevitably lead to rationing.  Reinhardt explains how health care is rationed in the U.S today and why rationing by ability to pay is the most intolerable form of rationing.  “There is solid research showing the price system rations uninsured Americans out of the timely, early-stage primary and secondary care that might have avoided their serious or fatal illnesses.”

Read “Keeping Health Care Afloat: The United States vs. Canada”