Democrats seek greater control over health insurance rates

By Noam Levey
Los Angeles Times
April 21, 2010
Congressional Democrats have begun pushing legislation giving government regulators greater authority to block big increases in health insurance premiums.
The move, which comes less than a month after President Obama signed the healthcare legislation, is aimed at giving all states the power to stop premium hikes deemed excessive and allowing the federal government to step in if the states don’t act.
“There is no need for federal involvement in states with insurance commissioners who are protecting consumers,” (Sen. Dianne) Feinstein said Tuesday.
“Health plan premiums are a symptom, not a cause of the problem,” said Karen Ignagni, who heads America’s Health Insurance Plans, the industry’s Washington-based lobbying arm.
http://www.latimes.com/business/la-fi-health-premiums-20100421,0,2986100,full.story

The cause of high health insurance premiums is high health care costs. State insurance regulators have no control over that, nor over the administrative costs of the insurers. If insurance company profits are abusive, then regulators can pare back profits to a reasonable level.
The problem is that insurance company profits are an almost undetectable portion of our $2.5 trillion national health expenditures (NHE). Dramatically reducing insurer profits will not even appear as a footnote in the report of our NHE. The terrible waste is not in insurer profits but in the profound administrative inefficiencies of a fragmented system based on a multitude of private and public plans.
Karen Ignagni of America’s Health Insurance Plans is correct when she says that insurance premiums are a symptom and not a cause of the problem. High health care costs are. Unfortunately, her industry has been and will continue to be ineffective in controlling rising costs. Throughout the reform process she had stated repeatedly, in effect, that the government must provide the solutions to rising costs.
Under the reform model approved by Congress and the President, there are no effective solutions. Merely experimenting with meager health policy proposals holds little promise for effective cost containment at the level that we need. (Those who contend that the independent Medicare advisory board would be effective should keep in mind that it would ratchet down Medicare while allowing the private insurers free run. That could be a disaster for Medicare.)
Of course, the government solution that Karen Ignagni doesn’t want, but one that would be truly effective, would be an improved Medicare that covers everyone. (Is there an echo in here?)

By David S. Hilzenrath
The Washington Post
April 18, 2010

The idea was simple enough: Make sure that health insurers spend the vast majority of their revenue on patient care, instead of using it for things such as advertising, profits and executive pay.

To that end, the new health-care law says an insurer must give money back to consumers if it devotes less than 80 percent of premiums to paying medical claims and improving care. For insurers serving large groups, the target is 85 percent.

But even before the health-care overhaul was signed into law last month, one of the nation’s largest insurance companies reclassified certain expenses in a way that increased its so-called medical-loss ratio. In January, WellPoint began including under medical benefits such costs as nurse hotlines, “medical management,” and “clinical health policy,” a WellPoint executive said in a March briefing for investors.

Redefining medical spending to make the requirement more attainable is just one way insurers might adapt to the new legislation.

Similarly, the requirement that insurers devote 80 or 85 percent of premiums to medical claims and related expenses creates conflicting incentives. At its simplest, it encourages insurers to cut overhead expenses. In addition, it might give insurers pause before raising copayments and deductibles, turning away applicants with preexisting conditions, or squeezing payments to doctors and hospitals, because each of those steps would reduce medical spending and make it harder for insurers to meet the required ratios.

On the other hand, the target ratios might give them added incentive to raise premiums. By doing so, they could keep overhead and profit fixed, even as those items decline as a percentage of the premium dollar.

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/17/AR2010041702658.html

And…

Implementing Health Insurance Reform: New Medical Loss Ratio Information for Policymakers and Consumers

Committee on Commerce, Science, and Transportation, Staff Report for Chairman Rockefeller
United States Senate
April 15, 2010

The goal of the medical loss ratio provision of the new health care law is to make sure that consumers get the full benefit of the health care premiums they pay insurers. As this report discusses, the insurance industry is beginning to consider the financial impact of the new minimum medical loss ratio requirements. At least one company, WellPoint, has already “reclassified” more than half a billion dollars of administrative expenses as medical expenses, and a leading industry analyst recently released a report explaining how the new law gives for-profit insurers a powerful new incentive to “MLR shift” their previously identified administrative expenses.

As the National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services (HHS) work to implement the new statutorily required medical loss ratios, they need to make sure that insurers are spending consumers’ premium dollars on delivering health care and improving the quality of this care. Boosting medical loss ratios through creative accounting will not fulfill the new law’s goal of helping consumers realize the full value of their health insurance payments.

http://commerce.senate.gov/public/?a=Files.Serve&File_id=be0fd052-4ca6-4c12-9fb1-a5e4a09c0667

And…

American National Exec: Company to Stop Selling Individual Health Plans

insurancenewsnet.com
April 20, 2010

Two subsidiaries of American National Insurance Co. will stop selling individual medical expense health insurance plans due to the minimum medical loss ratio requirements contained in the new U.S. health reform law, an executive with the multiline insurer said.

The individual health plans are mostly high-deductible, major medical products that are a small part of the corporation’s overall business, he said. They comprise about one-third of American National’s total health sales a year.

The decision to stop new sales was made “after careful consideration of the recent health care legislation and based on the knowledge that the companies’ individual medical expense plans will not meet the requirements” of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, the company said.

http://insurancenewsnet.com/article.aspx?id=181490&type=newswires

Comment: 

By Don McCanne, MD

Although this concept has been touched upon in previous qotd messages, it is important that we clearly understand that the newly enacted medical loss ratio (MLR) requirements provide insurers with an incentive to further drive up health care costs.

How could that be? The intent of placing minimum limits on the medical loss ratio (the percentage of premiums spent on actual health care) was to limit the maximum percentage of premium dollars spent on administrative costs and profits. When the administrative costs exceed the permissible limits, the insurers, it was suggested, would find administrative efficiencies in their own operations, thereby helping to control overall spending. But since administrative services are the product that they are selling us, why would they want to pare back their own business?

Rather than achieving compliance with the medical loss ratio by reducing their own product, doesn’t it make much more sense from a business perspective to increase the amount of medical services being paid for, thereby achieving compliance with the ratio without any reduction in their own product? Of course it does.

One way to do that is to reclassify as health care as much as possible of the administrative services that they provide. As the Senate report indicates, WellPoint has already reclassified more than half a billion dollars of administrative expenses as medical expenses. This has a double accounting advantage on the ratio since it both reduces the administrative component while increasing the health care component.

What should concern us even more is the potential impact on health care spending. The more health care that the insurers authorize, the greater the health care component of the medical loss ratio. If they can hold their administrative costs at about the same level, increasing the health care component of the ratio allows them to increase… guess what… profits!

There are two ways to increase health care spending. The insurers can approve more medical services, increasing both the frequency and intensity of services authorized. More scary is that they are also motivated to increase health care spending by simply paying higher prices!

Let’s look at an example using an $80 billion insurance fund. Once the state sets up the insurance exchanges, they will be dominated by individuals and small employers. For this market, the law will require that the insurers maintain a medical loss ratio of at least 80 percent ($64 billion must be spent on health care). If they have fixed administrative costs of 15 percent ($12 billion), they can keep 5 percent as profits ($4 billion). If they can hold their administrative costs steady (at $12 billion) while increasing health care spending by 25 percent over a couple of years (to $80 billion), and increasing their premiums by 25 percent ($80 billion insurance fund increases to $100 billion) their administrative costs decrease to 12 percent (still $12 billion).
That leaves 8 percent for profits ($8 billion, up from $4 billion). Thus they DOUBLE their profits merely by being certain that health care costs continue to spiral upwards.

For those who insist that all we need is incremental fixes to the legislation that passed, tell us how you’re going to fix this one. Private market forces will always place profits before all else. Change the rules, and they will always find another way.

Imagine instead a health care financing system with about 3 percent administrative costs, zero profits, and incentives to control excessive prices and limit the excessive growth in the frequency and intensity of non-beneficial, high-tech services and products. That’s what we would have if we enacted an improved Medicare system that covered everyone.

Health insurers weighing options to get ahead of reform

By David S. Hilzenrath
The Washington Post
April 18, 2010
The idea was simple enough: Make sure that health insurers spend the vast majority of their revenue on patient care, instead of using it for things such as advertising, profits and executive pay.
To that end, the new health-care law says an insurer must give money back to consumers if it devotes less than 80 percent of premiums to paying medical claims and improving care. For insurers serving large groups, the target is 85 percent.
But even before the health-care overhaul was signed into law last month, one of the nation’s largest insurance companies reclassified certain expenses in a way that increased its so-called medical-loss ratio. In January, WellPoint began including under medical benefits such costs as nurse hotlines, “medical management,” and “clinical health policy,” a WellPoint executive said in a March briefing for investors.
Redefining medical spending to make the requirement more attainable is just one way insurers might adapt to the new legislation.
Similarly, the requirement that insurers devote 80 or 85 percent of premiums to medical claims and related expenses creates conflicting incentives. At its simplest, it encourages insurers to cut overhead expenses. In addition, it might give insurers pause before raising copayments and deductibles, turning away applicants with preexisting conditions, or squeezing payments to doctors and hospitals, because each of those steps would reduce medical spending and make it harder for insurers to meet the required ratios.
On the other hand, the target ratios might give them added incentive to raise premiums. By doing so, they could keep overhead and profit fixed, even as those items decline as a percentage of the premium dollar.
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/17/AR2010041702658.html

And…

Implementing Health Insurance Reform: New Medical Loss Ratio Information for Policymakers and Consumers

Committee on Commerce, Science, and Transportation, Staff Report for Chairman Rockefeller
United States Senate
April 15, 2010
The goal of the medical loss ratio provision of the new health care law is to make sure that consumers get the full benefit of the health care premiums they pay insurers. As this report discusses, the insurance industry is beginning to consider the financial impact of the new minimum medical loss ratio requirements. At least one company, WellPoint, has already “reclassified” more than half a billion dollars of administrative expenses as medical expenses, and a leading industry analyst recently released a report explaining how the new law gives for-profit insurers a powerful new incentive to “MLR shift” their previously identified administrative expenses.
As the National Association of Insurance Commissioners (NAIC) and the Department of Health and Human Services (HHS) work to implement the new statutorily required medical loss ratios, they need to make sure that insurers are spending consumers’ premium dollars on delivering health care and improving the quality of this care. Boosting medical loss ratios through creative accounting will not fulfill the new law’s goal of helping consumers realize the full value of their health insurance payments.
http://commerce.senate.gov/public/?a=Files.Serve&File_id=be0fd052-4ca6-4c12-9fb1-a5e4a09c0667

And…

American National Exec: Company to Stop Selling Individual Health Plans

insurancenewsnet.com
April 20, 2010
Two subsidiaries of American National Insurance Co. will stop selling individual medical expense health insurance plans due to the minimum medical loss ratio requirements contained in the new U.S. health reform law, an executive with the multiline insurer said.
The individual health plans are mostly high-deductible, major medical products that are a small part of the corporation’s overall business, he said. They comprise about one-third of American National’s total health sales a year.
The decision to stop new sales was made “after careful consideration of the recent health care legislation and based on the knowledge that the companies’ individual medical expense plans will not meet the requirements” of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, the company said.
http://insurancenewsnet.com/article.aspx?id=181490&type=newswires

Although this concept has been touched upon in previous qotd messages, it is important that we clearly understand that the newly enacted medical loss ratio (MLR) requirements provide insurers with an incentive to further drive up health care costs.
How could that be? The intent of placing minimum limits on the medical loss ratio (the percentage of premiums spent on actual health care) was to limit the maximum percentage of premium dollars spent on administrative costs and profits. When the administrative costs exceed the permissible limits, the insurers, it was suggested, would find administrative efficiencies in their own operations, thereby helping to control overall spending. But since administrative services are the product that they are selling us, why would they want to pare back their own business?
Rather than achieving compliance with the medical loss ratio by reducing their own product, doesn’t it make much more sense from a business perspective to increase the amount of medical services being paid for, thereby achieving compliance with the ratio without any reduction in their own product? Of course it does.
One way to do that is to reclassify as health care as much as possible of the administrative services that they provide. As the Senate report indicates, WellPoint has already reclassified more than half a billion dollars of administrative expenses as medical expenses. This has a double accounting advantage on the ratio since it both reduces the administrative component while increasing the health care component.
What should concern us even more is the potential impact on health care spending. The more health care that the insurers authorize, the greater the health care component of the medical loss ratio. If they can hold their administrative costs at about the same level, increasing the health care component of the ratio allows them to increase… guess what… profits!
There are two ways to increase health care spending. The insurers can approve more medical services, increasing both the frequency and intensity of services authorized. More scary is that they are also motivated to increase health care spending by simply paying higher prices!
Let’s look at an example using an $80 billion insurance fund. Once the state sets up the insurance exchanges, they will be dominated by individuals and small employers. For this market, the law will require that the insurers maintain a medical loss ratio of at least 80 percent ($64 billion must be spent on health care). If they have fixed administrative costs of 15 percent ($12 billion), they can keep 5 percent as profits ($4 billion). If they can hold their administrative costs steady (at $12 billion) while increasing health care spending by 25 percent over a couple of years (to $80 billion), and increasing their premiums by 25 percent ($80 billion insurance fund increases to $100 billion) their administrative costs decrease to 12 percent (still $12 billion). That leaves 8 percent for profits ($8 billion, up from $4 billion). Thus they DOUBLE their profits merely by being certain that health care costs continue to spiral upwards.
For those who insist that all we need is incremental fixes to the legislation that passed, tell us how you’re going to fix this one. Private market forces will always place profits before all else. Change the rules, and they will always find another way.
Imagine instead a health care financing system with about 3 percent administrative costs, zero profits, and incentives to control excessive prices and limit the excessive growth in the frequency and intensity of non-beneficial, high-tech services and products. That’s what we would have if we enacted an improved Medicare system that covered everyone.

By Liz Kowalczyk
The Boston Globe
April 17, 2010

Health insurers are starting to sell policies that largely bar consumers from receiving medical care at popular but expensive hospitals such as Massachusetts General and Brigham and Women’s — a once radical idea that is gaining traction as a way to control soaring health care costs.

Amid intense scrutiny into why health care costs in Massachusetts are climbing 7.5 percent a year, limited networks have emerged as the most immediate way to control costs.

The Group Insurance Commission (the agency that oversees health insurance for state employees) required its two largest providers — Harvard Pilgrim and Tufts Health Plan — to develop restrictive networks this spring.

(Dolores Mitchell, executive director of Group Insurance Commission) acknowledged that restricted plans could lead to problems in the market, if healthy employees migrate to cheaper plans and those with serious illness remain in more expensive open networks because they need broad access to the advanced care provided at teaching hospitals. That outcome could raise costs for individuals in the open plans, since costs would be spread among fewer employees.

http://www.boston.com/news/health/articles/2010/04/17/some_health_networks_drop_elite_hospitals/?rss_id=Boston.com+–+Health+news

Comment: 

By Don McCanne, MD

Massachusetts intends to expand the use of limited provider networks in order to slow the rise in costs. The Patient Protection and Affordable Care Act also specifically allows the use of limited provider networks for the private plans that are to be established within the state insurance exchanges. The campaign rhetoric was that patients should have choice, yet the legislation limits patient choice of hospitals and health care professionals.

Losing choice is a big price to pay for allowing each private insurer to assemble provider lists based on lowest prices, especially when that doesn’t control total costs but only shifts costs. Contrast that with a single payer that negotiates appropriate prices with every provider on behalf of all patients. Appropriate prices would be based on legitimate costs plus fair profits throughout the health care delivery system. An expanded and improved primary care system would provide a portal for access to appropriate specialized services in any appropriate institution.

How would that work for expensive academic medical centers? Institutions would negotiate global budgets with consideration of patient care, teaching, and research services, and separate budgeting for capital improvements. The patient care component should not be any more expensive than similar care provided at the community level, except for high-tech services provided exclusively by the academic center. Even those services should be priced appropriately and accessed only when clinical screening indicates that they are warranted. Patients need guidance in order to prevent inappropriate choices of non-beneficial, high-tech services.

Restrictive provider networks are simply one more perversity that we don’t need in our health care financing system.

Some health networks drop elite hospitals

By Liz Kowalczyk
The Boston Globe
April 17, 2010
Health insurers are starting to sell policies that largely bar consumers from receiving medical care at popular but expensive hospitals such as Massachusetts General and Brigham and Women’s — a once radical idea that is gaining traction as a way to control soaring health care costs.
Amid intense scrutiny into why health care costs in Massachusetts are climbing 7.5 percent a year, limited networks have emerged as the most immediate way to control costs.
The Group Insurance Commission (the agency that oversees health insurance for state employees) required its two largest providers — Harvard Pilgrim and Tufts Health Plan — to develop restrictive networks this spring.
(Dolores Mitchell, executive director of Group Insurance Commission) acknowledged that restricted plans could lead to problems in the market, if healthy employees migrate to cheaper plans and those with serious illness remain in more expensive open networks because they need broad access to the advanced care provided at teaching hospitals. That outcome could raise costs for individuals in the open plans, since costs would be spread among fewer employees.
http://www.boston.com/news/health/articles/2010/04/17/some_health_networks_drop_elite_hospitals/?rss_id=Boston.com+–+Health+news

Massachusetts intends to expand the use of limited provider networks in order to slow the rise in costs. The Patient Protection and Affordable Care Act also specifically allows the use of limited provider networks for the private plans that are to be established within the state insurance exchanges. The campaign rhetoric was that patients should have choice, yet the legislation limits patient choice of hospitals and health care professionals.
Losing choice is a big price to pay for allowing each private insurer to assemble provider lists based on lowest prices, especially when that doesn’t control total costs but only shifts costs. Contrast that with a single payer that negotiates appropriate prices with every provider on behalf of all patients. Appropriate prices would be based on legitimate costs plus fair profits throughout the health care delivery system. An expanded and improved primary care system would provide a portal for access to appropriate specialized services in any appropriate institution.
How would that work for expensive academic medical centers? Institutions would negotiate global budgets with consideration of patient care, teaching, and research services, and separate budgeting for capital improvements. The patient care component should not be any more expensive than similar care provided at the community level, except for high-tech services provided exclusively by the academic center. Even those services should be priced appropriately and accessed only when clinical screening indicates that they are warranted. Patients need guidance in order to prevent inappropriate choices of non-beneficial, high-tech services.
Restrictive provider networks are simply one more perversity that we don’t need in our health care financing system.

By David S. Hilzenrath
The Washington Post
April 16, 2010

The chief executive of UnitedHealth Group, one of the nation’s largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.

Stephen J. Hemsley exercised 4.9 million options in February 2009 at a gain of $98.6 million, the company said in a regulatory filing. The options were awarded almost a decade earlier.

According to measurement standards used by the Securities and Exchange Commission, Hemsley’s compensation for 2009 was a less stratospheric $8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.

The compensation committee of UnitedHealth’s board believed that Hemsley’s 2009 compensation package “was appropriate to recognize Mr. Hemsley’s overall leadership in positioning the Company for long-term success in a very difficult overall economic environment,” UnitedHealth said in the report filed with the SEC Thursday.

The committee credited Hemsley with “enhancing the Company’s reputation, ethical culture and tone at the top.”

“Although Mr. Hemsley’s total compensation is below the median as compared to other CEOs in the Company’s peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him,” the company reported.

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/16/AR2010041601191.html

Comment:

By Don McCanne, MD

Although the compensation of UnitedHealth’s Stephen Hemsley may be enough to motivate and retain him, it is difficult to see how it affirms his role in enhancing an ethical culture at the top. The behavior for which he is being rewarded is precisely what should have been eliminated with the recently enacted health care financing legislation.

The ethical culture we should have would be one in which our health care dollars would be used to ensure that everyone receives the health care that they need. Instead, President Obama and Congress have ensured that Mr. Hemsley and his ilk will continue to be richly rewarded (for what?), while tens of millions are left without coverage, and the rest of us will have difficulties paying our premiums and our-of-pocket expenses.

UnitedHealth’s version of “ethical culture.” What BS!

UnitedHealth CEO reaps nearly $100 million from stock options

By David S. Hilzenrath
The Washington Post
April 16, 2010
The chief executive of UnitedHealth Group, one of the nation’s largest health insurers, reaped almost $100 million from exercising stock options last year, the company reported Thursday.
Stephen J. Hemsley exercised 4.9 million options in February 2009 at a gain of $98.6 million, the company said in a regulatory filing. The options were awarded almost a decade earlier.
According to measurement standards used by the Securities and Exchange Commission, Hemsley’s compensation for 2009 was a less stratospheric $8.9 million, up from $3.2 million in 2008. The 2009 total included a salary of $1.3 million, which was unchanged from the previous year, and a cash bonus of $2 million, up from $1.8 million the year before. It also included $5.6 million attributed to stock-related awards.
The compensation committee of UnitedHealth’s board believed that Hemsley’s 2009 compensation package “was appropriate to recognize Mr. Hemsley’s overall leadership in positioning the Company for long-term success in a very difficult overall economic environment,” UnitedHealth said in the report filed with the SEC Thursday.
The committee credited Hemsley with “enhancing the Company’s reputation, ethical culture and tone at the top.”
“Although Mr. Hemsley’s total compensation is below the median as compared to other CEOs in the Company’s peer groups, the Compensation Committee and Mr. Hemsley agree that it is sufficient to motivate and retain him,” the company reported.
http://www.washingtonpost.com/wp-dyn/content/article/2010/04/16/AR2010041601191.html

Although the compensation of UnitedHealth’s Stephen Hemsley may be enough to motivate and retain him, it is difficult to see how it affirms his role in enhancing an ethical culture at the top. The behavior for which he is being rewarded is precisely what should have been eliminated with the recently enacted health care financing legislation.
The ethical culture we should have would be one in which our health care dollars would be used to ensure that everyone receives the health care that they need. Instead, President Obama and Congress have ensured that Mr. Hemsley and his ilk will continue to be richly rewarded (for what?), while tens of millions are left without coverage, and the rest of us will have difficulties paying our premiums and our-of-pocket expenses.
UnitedHealth’s version of “ethical culture.” What BS!