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

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

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

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

Lower Premiums.

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

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

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

And…

Letter to Senator Bayh

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

Nongroup Policies

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

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

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

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

New Market Rules Would Reduce Administrative Costs

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

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

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

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

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

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

Comment: 

By Don McCanne, MD

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Lower Premiums.

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

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

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

And…

Letter to Senator Bayh

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

Nongroup Policies

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

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

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

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

New Market Rules Would Reduce Administrative Costs

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

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

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

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

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

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

Comment: 

By Don McCanne, MD

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Comment:

By Don McCanne, MD

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

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

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

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

L.A. County slashes doctors’ reimbursement rate

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

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

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

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

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

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

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

Comment:

By Don McCanne, MD

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

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

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

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

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

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

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

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

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

And…

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

RAND
February 16, 2010

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

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

Comment:

By Don McCanne, MD

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

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

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

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

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

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

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

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

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

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

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

And…

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

RAND
February 16, 2010

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

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

Comment:

By Don McCanne, MD

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

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

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

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

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