States Have Greater Flexibility in Benefits, Cost Sharing

Centers for Medicare and Medicaid Services (CMS)
February 21, 2008

Two new proposed rules that would give states unprecedented flexibility in designing their own Medicaid programs, including adjusting their benefit package to more closely align with beneficiary needs and requiring increased cost sharing by enrollees, were announced today by the Centers for Medicare and Medicaid Services (CMS).

The proposed rules would implement provisions of the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Act of 2006. The rules are the latest in a series of regulations to implement the Administration’s goals of aligning Medicaid more closely with private market insurance and giving states more control over their Medicaid benefits packages.

“These new rules recognize that states are in the best position to design plans that provide Medicaid beneficiaries better health care for the same or even lower cost,” Health and Human Services Secretary Mike Leavitt said. “The proposed rules will result in patients having more choices and greater control over their health care decisions.”

Individuals with family incomes between 100 and 150 percent of the FPL may see some cost sharing while monthly premiums can be charged to individuals with incomes above 150 percent of the FPL. As in SCHIP, all cost sharing must be limited to no more than five percent of the family’s income. The 2008 FPL for a family of four is $21,200.

“Until passage of the DRA, states had few options, other than through waivers, to update the health benefit packages offered through their Medicaid programs to meet the needs of the people they serve,” CMS Acting Administrator Kerry Weems said. “These proposed changes allow states to use modern methods of providing health insurance coverage and encourage families to participate in their own health care decisions.”

http://www.cms.hhs.gov/apps/media/press/release.asp
(Click release for February 21, 2008)

Comment:

By Don McCanne, MD

So under the new rules, a family of four living at the federal poverty level ($21,200) can be granted “greater control over their health care decisions” by being granted the opportunity to use $1060 of their own income in order to make them better health care shoppers.

These are families who are not facing foreclosure on their homes (since they could never qualify to purchase them in the first place). They are not facing repossession of their automobiles (since they have, at best, a clunker, or they use public transportation). They are not impacted by a mandate to buy insurance on their clunker (since they have no funds to purchase the required coverage anyway). These are families who will not have to face additional credit card debt (since any cards they have are already maxed out, and they cannot qualify for new cards). These are families who are able to regularly experience new living environments (each time they are evicted for failing to pay their past due rent). These are families who have become very adept at budgeting (since they must stretch their $407 per week to cover their rent, food, clothing, utilities, transportation, school supplies, etc., etc.).

Many studies have shown that cost sharing in health care literally can be a death sentence, especially for those living at or near the poverty level. Secretary Leavitt and Administrator Weems already know this.

What kind of nation have we become?

Can the Profession Reclaim its Moral Legacy?

By John Geyman, M.D.

Medicine can no longer deny the extent to which unbridled self-interest has eroded its professionalism. As documented in earlier chapters, these excesses are pervasive throughout the profession, for all to see, involving patient care, education and research as well as academic medical centers and many of the profession’s organizations. The extent of deprofessionalization makes clear that the cause extends well beyond a few “bad apples.” If medicine is to restore its professionalism, the profession must accept responsibility for letting down the public trust, recommit itself to service over self-interest, and build effective mechanisms of self-regulation which can gain the public’s confidence.

Whether medicine will give up its customary defensive mode and respond positively to its moral and professional challenges is an open question. Despite its long struggle to maintain its independence, the profession has lost much of its autonomy as it increasingly serves corporate interests. In a more proactive stance, medicine may recognize a larger role of government as a potential force to support the context within which it can restore its professionalism. Business as usual will not serve the profession or the public well. The profession now has a window of opportunity to expand its vision and lead toward better health care for all Americans. To do so, it must involve itself with rebuilding the capability of public health and with advocacy for real health care reform, which leads us to the last chapters.

http://www.commoncouragepress.com/index.cfm?action=book&bookid=384

Comment:

By Don McCanne, MD

This book was very difficult to read, not because of the complexity of the topic, but rather because of the anguish felt over what has happened to our profession.

Although physicians have been complicit in the processes leading to the corrosion of medicine, their blame lies not with an active role in commercializing health care, but rather with passive acceptance of their role in our current model of health care that is controlled by business and market interests.

When you ask a physician what his/her occupation is, he/she does not say that I am a businessperson in the health care industry. Almost without exception, the response is, “I’m a physician.” That has much greater meaning than merely being engaged in an occupation that takes care of sick people. It is difficult to put into words, but every health care professional knows what I mean.

Although it was painful to be reminded of the compromises being made on behalf of the business of medicine, there is also real hope in the message in this book. You realize that it doesn’t have to be this way. We do not have to passively accept the role of being workers in an industry controlled by market entrepreneurs.

We can become active advocates of reform that places our patients first. If we take health care financing out of the hands of the MBAs and place it under the control of our own universal public financing system, the patients and physicians will be able partner together in achieving the best health care possible within the confines of our finite resources.

Financing reform is only the first step, but it makes the other necessary reforms possible. Not only will we restore our pride in ourselves when we say, “I am a physician,” our patients will once again understand the special meaning of medicine as a profession rather than as a mere business.

Americans continued to lose their health insurance even as the economy improved.

by John Holahan and Allison Cook
Health Affairs
February 20, 2008

The number of uninsured Americans increased by 3.4 million between 2004 and 2006, despite improving economic conditions. In the first four years of the decade, during a period of economic recession, the number increased by 6.0 million. The dominant factor in both periods was a decline in employer-sponsored insurance coverage. Although the recent decline was less than that experienced from 2000 to 2004, growth in public coverage was small, and the number of uninsured people increased by 1.0 million children and 2.4 million adults. Employer coverage declined most for self-employed or small-firm workers, in the South, and among noncitizens.

The decline was much greater in the first period, reflecting poor economic conditions. But the rate of employer coverage continued to decline even when the economy improved.

For children, the decline in employer coverage was offset by large growth in Medicaid and SCHIP in the first four years of the decade. As states experienced deteriorating fiscal conditions, they adopted policies that restricted growth in these programs. As a result, the number of uninsured children increased by 1.0 million between 2004 and 2006, after having fallen by 400,000 between 2000 and 2004.

Between 2004 and 2006, employer coverage fell by 6.2 percent for those below 200 percent of the poverty level and by 0.6 percent for those at or above 400 percent of poverty. Thus, the data show that employer coverage is clearly declining at all income levels, but primarily among those with the lowest incomes.

The decline in employer coverage can be traced to greater increases in health insurance premiums than in wages. As health insurance becomes more and more expensive, it adds more to the cost of a worker’s total compensation package. To the extent that firms cannot shift this back to workers in the form of lower wages, they become less likely to offer coverage.

It is striking that the rate of employer coverage declined and the number of uninsured people increased even after the U.S economy rebounded from the recent recession. This erosion will likely continue, particularly for low-income workers, because the basic factors underlying it seem unlikely to change.

http://content.healthaffairs.org/cgi/content/full/hlthaff.27.2.w135/DC1

Comment:

By Don McCanne, MD

The fact that the number of uninsured continues to increase is certainly not news. But there are a couple of points in this article that should alarm us.

A rebounding economy was unable to stop the decline in coverage. In spite of favorable economic trends, employers found their health benefit programs to be less affordable, and more dropped their employees from coverage. Clearly we will not be able to rely on improvements in the economy alone to expand coverage to more individuals.

This report demonstrates that the decline in coverage is impacting all sectors of our society, though some more than others. This indicates that targeted programs cannot eliminate the problem since some sectors inevitably will be left out. Also alarming is the fact that incremental reforms more narrowly targeting selected populations is not working either.

As an example, the greatest “success” in recent years has been insuring more children through the SCHIP and Medicaid programs. Yet the gain of 400,000 insured children during 2000-2004 was more than offset by a loss of 1.0 million during 2004-2006 (years of economic recovery). That certainly cannot be classified as a health policy success, yet that is the best we can show for all of our incremental efforts.

When you look at the leading comprehensive proposals, policies are included to target the more vulnerable populations. Yet they are very weak on policies that will help the largest vulnerable group of all: middle-income individuals and families.

Relying on improvements in the economy for most of us, with safety-net welfare programs for the poor, will never get us to a program that guarantees reasonably comprehensive care for all of us. It will require the adoption of a health care financing system that automatically includes all of us, for our entire lives.

Prepared for The Economic Policy Institute
The Lewin Group (an Ingenix company)
February 15, 2008

Executive Summary

Under the Health Care for America Proposal, employers would be required to provide coverage or pay a payroll tax to have their workers covered under a newly created national health insurance pool called Health Care for America (HCA). Modeled on Medicare, Health Care for America would offer a single Medicare-like fee-for-service option (public HCA plan) and a selection of Health Maintenance Organizations (HMOs) or other private managed care plans (private HCA plans). People who do not have employer-sponsored insurance (ESI) would be covered under HCA, including those now covered under Medicaid and the State’s Children’s Health Insurance Program (SCHIP). The Proposal would provide subsidies for worker HCA premiums for those living below 300 percent of the Federal Poverty Level (FPL), and premium subsidies for non-workers enrolled in HCA who are living below 400 percent of the FPL.

We estimate that there were about 47.8 million uninsured people in the country in 2007. The Health Care for America (HCA) Proposal would reduce the number of uninsured by 46.5 million people (i.e., 97.3 percent of the uninsured), leaving only about 1.3 million people uninsured. Coverage under the proposal would be as follows:

* We estimate that 122.2 million people would be covered under ESI, compared with 157.0 million people under current law;

* About 128.6 million people would be covered through the newly created HCA pool; and

* Enrollment in Medicare and the TRICARE program (i.e., military retirees and dependents) would remain the same as under current law.

The Health Care for America Proposal would cover 46.5 million uninsured people without increasing national spending for health care, largely through lower provider reimbursement, administrative simplification and other features of the proposal. The spending effects of the Proposal include:

* Spending for health care services and prescription drugs nationally would increase by $53.2 billion in 2007 as the uninsured become covered;

* Administrative simplification would reduce administrative costs by about $25.4 billion in 2007;

* There would be additional savings of $27.9 billion due to changes in provider payments, requiring people to have and use a medical home, and government negotiation of prescription drug prices for people covered through HCA.

Federal government health spending would increase under the Health Care for America Proposal by $49.3 billion, after accounting for all offsets. Total program spending under HCA would be $417.7 billion in 2007 including benefits and administration. These costs would be offset by the following:

* Employer payroll taxes for firms that do not provide coverage ($106.8 billion);

* Premiums for individuals covered through HCA ($80.3 billion);

* Federal and state government savings to Medicaid and SCHIP that would be transferred to HCA ($160.1 billion); and

* Other savings and new federal revenues under the Proposal ($21.2 billion).

We estimate that state and local governments would save $21.2 billion as a result of savings to programs that traditionally serve the uninsured (i.e., safety net programs). There would be no immediate net savings to Medicaid and SCHIP for states because they are required to pay the amount saved to HCA to help fund the program (i.e., maintenance of effort for Medicaid SCHIP only). Over time, however, savings achieved by HCA would be shared with the states.

Overall we estimate that private employers spent about $442.7 billion on health care for workers and retirees in 2007 (excludes employee contribution). Under the Health Care for America Proposal, private employer health spending would decrease by $10 billion, reflecting that many firms will find it less costly to discontinue their health plans and pay a six percent payroll tax to enroll their workers in HCA. Changes in private employer spending include:

* Private employers who currently offer coverage would save $65.6 billion by discontinuing their insurance and enroll their workers in HCA by paying the tax;

* Private employers that currently do not offer coverage would spend $55.6 billion more due to the requirement that they either provide coverage or enroll their workers in HCA by paying the payroll tax;

* On average, firms that currently offer coverage would save $809 per worker and those that do not currently offer coverage would spend $1,568 more per worker.

The Health Care for America Proposal requires that individuals obtain coverage and automatically enrolls people who do not have insurance into the public HCA plan. It also provides subsidies to help low-income people pay premiums. Overall, families would save $23.3 billion primarily from lower out-of-pocket payments. However, other financing mechanisms that would be needed to fully fund the proposal (i.e., $49.3 billion) would reduce these savings to families.

The Health Care for America Proposal would control the growth in health spending as enrollment increases, by restricting provider payment increases, negotiating deeper drug discounts, and simplified administration. Thus, national health spending under the HCA Proposal will be lower than under current law. We estimate that under these cost controls, total national health spending over the 2008 through 2017 period would be about $1.04 trillion less than under current law over that same period.

http://www.sharedprosperity.org/hcfa/lewin.pdf

Health Care for America:
http://www.sharedprosperity.org/bp180.html

Comment:

By Don McCanne, MD

Why is this important? The “Health Care for America” proposal of Jacob Hacker provides the general basis for the health care reform proposals of the leading Democratic candidates.

Since this report was just released I have not had time to do an analysis of it. But I did take a quick look to see what it said about one of our most important concerns. How would the proposal make reasonably comprehensive health insurance affordable for average income families?

Regarding benefits covered: “Covered services under Health Care for America would include the services under the current Medicare program as well as comprehensive mental health, maternal and child health services and comprehensive prescription drug coverage, subject to a formulary.” So the benefits are better than Medicare.

What about family costs? The monthly HCA premium for a two-parent family at 400 percent of the federal poverty level ($84,800 for a family of four) would be $670 ($8040 for the year). A 6 percent payroll tax (nominally paid by the employer, but as a reduction in the employee’s income) paid into the HCA pool would be $5088. The maximum out-of-pocket spending ($500 deductible and 20 percent coinsurance) would be $5000.

If the family used no medical care, they would be responsible, directly and indirectly, for $13,128 just for their share of the coverage. That’s 14.6 percent of their income. If they also had $5000 in out-of-pocket spending, that would total $18,128 or 20.2 percent of their income. (The percentages would be worse if I hadn’t calculated the total income as $84,800 plus the $5088 payroll tax.)

Many policy experts consider 15 to 20 percent of income for health care to constitute a financial hardship. A single payer national health program could do better than that.

CORRECTION for the Quote of the Day, February 15, 2008, “Lewin Group Analysis of ‘Health Care for America'”

As I mentioned in my last comment, I had not done an analysis of the full Lewin Group report but had taken only a quick look to pull out some of the numbers to see whether insurance under the proposal would be affordable.

In the calculation I added to the 6 percent payroll tax a premium of $670 per month (for a two-parent family at 400 percent of the federal poverty level). That was incorrect since that is the premium that non-workers would pay. The correct premium for a worker whose employer is paying the payroll tax would be $200 for a two-parent family at 300 percent of the federal poverty level. Obviously my quick look was too quick.

The calculations are revised for a two-parent family at 300 percent of the federal poverty level or $63,600 (the income level at which the premium is fully phased in). A family that used no medical care would be directly responsible for the $2400 premium plus indirectly responsible for $3816 in payroll taxes, or a total of $6216. That is 9.2 percent of their total income of $67,416 ($63,600 plus the employer payment of $3816 on the employee’s behalf). If they also had out-of-pocket expenses of $4770 (capped at 7.5 percent of $63,600 in direct income) that would be 16.3 percent of their total income of $67,416.

For non-workers, premiums are fully phased in at 400 percent of the federal poverty level or $84,800. For a two-parent family the annual premium would be $8040 or 9.5 percent of their income. If they too had out-of-pocket expenses of $5000 (plan cap on cost sharing) that would total 15.4 percent of their income.

When the average premium for employer-sponsored coverage is already over $12,000 per year, these family payments of $6216 and $8040 seem low. In fact, for an individual, the report states, “We estimate average enrollee costs in Health Care for America would be about $3250 compared to $4230 under a private insurance product in 2007.”

Does that seem reasonable? They state, “Health Care for America premiums would be lower than comparable private insurance due to lower provider payment rates, administrative costs and low-income subsidies.” The low-income subsidies do not apply to the two examples above, both middle-income families. Although they do discuss administrative savings in the report, it is likely that the amount is much smaller than they suggest because they fail to recover much of the waste inherent in a multi-payer system. And the lower provider payment rates? I’ll let you think about that one.

I do wish to express my profound apologies for having used incorrect numbers in my last message. It is important that we make every effort to maintain full credibility in our dialogue. But even the corrected numbers still pose significant problems.

It reminds me of the mathematician, the accountant and the economist who were each asked to solve the problem of two plus two. The mathematician said four, the accountant said four, plus or minus ten percent, and the economist asked, “What do you want it to be?”

Rather than crafting health care financing based on individual plans, whether public or private, it would be far more efficient and equitable to totally separate health care financing from the delivery of health care services. Establish a single, universal risk pool, funded equitably through the tax system, and then use that common pool to fund health care.

Then we would no longer have to tell the economists that we want a plan that provides comprehensive benefits, but it has to have a premium that’s affordable. That may be what we want the plan to be, but we can’t ignore the simple math behind the program.

Finally, I wish to express my profound admiration and respect for the individuals supporting the “Health Care for America” proposal. They share precisely the same goal as ours – comprehensive, high-quality, affordable health care for everyone. With the most noble of intentions, they have crafted a proposal that they believe meets the test of political feasibility while accepting what they would hope to be only temporary, modest compromises on the path to reform.

Our only substantial difference is that we believe that we should not begin from a position of compromise. The private insurance industry has to go.

Cost Impact Analysis for the “Health Care for America” Proposal

Prepared for The Economic Policy Institute
The Lewin Group (an Ingenix company)
February 15, 2008

Executive Summary

Under the Health Care for America Proposal, employers would be required to provide coverage or pay a payroll tax to have their workers covered under a newly created national health insurance pool called Health Care for America (HCA). Modeled on Medicare, Health Care for America would offer a single Medicare-like fee-for-service option (public HCA plan) and a selection of Health Maintenance Organizations (HMOs) or other private managed care plans (private HCA plans). People who do not have employer-sponsored insurance (ESI) would be covered under HCA, including those now covered under Medicaid and the State’s Children’s Health Insurance Program (SCHIP). The Proposal would provide subsidies for worker HCA premiums for those living below 300 percent of the Federal Poverty Level (FPL), and premium subsidies for non-workers enrolled in HCA who are living below 400 percent of the FPL.

We estimate that there were about 47.8 million uninsured people in the country in 2007. The Health Care for America (HCA) Proposal would reduce the number of uninsured by 46.5 million people (i.e., 97.3 percent of the uninsured), leaving only about 1.3 million people uninsured. Coverage under the proposal would be as follows:

* We estimate that 122.2 million people would be covered under ESI, compared with 157.0 million people under current law;

* About 128.6 million people would be covered through the newly created HCA pool; and

* Enrollment in Medicare and the TRICARE program (i.e., military retirees and dependents) would remain the same as under current law.

The Health Care for America Proposal would cover 46.5 million uninsured people without increasing national spending for health care, largely through lower provider reimbursement, administrative simplification and other features of the proposal. The spending effects of the Proposal include:

* Spending for health care services and prescription drugs nationally would increase by $53.2 billion in 2007 as the uninsured become covered;

* Administrative simplification would reduce administrative costs by about $25.4 billion in 2007;

* There would be additional savings of $27.9 billion due to changes in provider payments, requiring people to have and use a medical home, and government negotiation of prescription drug prices for people covered through HCA.

Federal government health spending would increase under the Health Care for America Proposal by $49.3 billion, after accounting for all offsets. Total program spending under HCA would be $417.7 billion in 2007 including benefits and administration. These costs would be offset by the following:

* Employer payroll taxes for firms that do not provide coverage ($106.8 billion);

* Premiums for individuals covered through HCA ($80.3 billion);

* Federal and state government savings to Medicaid and SCHIP that would be transferred to HCA ($160.1 billion); and

* Other savings and new federal revenues under the Proposal ($21.2 billion).

We estimate that state and local governments would save $21.2 billion as a result of savings to programs that traditionally serve the uninsured (i.e., safety net programs). There would be no immediate net savings to Medicaid and SCHIP for states because they are required to pay the amount saved to HCA to help fund the program (i.e., maintenance of effort for Medicaid SCHIP only). Over time, however, savings achieved by HCA would be shared with the states.

Overall we estimate that private employers spent about $442.7 billion on health care for workers and retirees in 2007 (excludes employee contribution). Under the Health Care for America Proposal, private employer health spending would decrease by $10 billion, reflecting that many firms will find it less costly to discontinue their health plans and pay a six percent payroll tax to enroll their workers in HCA. Changes in private employer spending include:

* Private employers who currently offer coverage would save $65.6 billion by discontinuing their insurance and enroll their workers in HCA by paying the tax;

* Private employers that currently do not offer coverage would spend $55.6 billion more due to the requirement that they either provide coverage or enroll their workers in HCA by paying the payroll tax;

* On average, firms that currently offer coverage would save $809 per worker and those that do not currently offer coverage would spend $1,568 more per worker.

The Health Care for America Proposal requires that individuals obtain coverage and automatically enrolls people who do not have insurance into the public HCA plan. It also provides subsidies to help low-income people pay premiums. Overall, families would save $23.3 billion primarily from lower out-of-pocket payments. However, other financing mechanisms that would be needed to fully fund the proposal (i.e., $49.3 billion) would reduce these savings to families.

The Health Care for America Proposal would control the growth in health spending as enrollment increases, by restricting provider payment increases, negotiating deeper drug discounts, and simplified administration. Thus, national health spending under the HCA Proposal will be lower than under current law. We estimate that under these cost controls, total national health spending over the 2008 through 2017 period would be about $1.04 trillion less than under current law over that same period.

http://www.sharedprosperity.org/hcfa/lewin.pdf

Health Care for America:
http://www.sharedprosperity.org/bp180.html

Comment:

By Don McCanne, MD

Why is this important? The “Health Care for America” proposal of Jacob Hacker provides the general basis for the health care reform proposals of the leading Democratic candidates.

Since this report was just released I have not had time to do an analysis of it. But I did take a quick look to see what it said about one of our most important concerns. How would the proposal make reasonably comprehensive health insurance affordable for average income families?

Regarding benefits covered: “Covered services under Health Care for America would include the services under the current Medicare program as well as comprehensive mental health, maternal and child health services and comprehensive prescription drug coverage, subject to a formulary.” So the benefits are better than Medicare.

What about family costs? The monthly HCA premium for a two-parent family at 400 percent of the federal poverty level ($84,800 for a family of four) would be $670 ($8040 for the year). A 6 percent payroll tax (nominally paid by the employer, but as a reduction in the employee’s income) paid into the HCA pool would be $5088. The maximum out-of-pocket spending ($500 deductible and 20 percent coinsurance) would be $5000.

If the family used no medical care, they would be responsible, directly and indirectly, for $13,128 just for their share of the coverage. That’s 14.6 percent of their income. If they also had $5000 in out-of-pocket spending, that would total $18,128 or 20.2 percent of their income. (The percentages would be worse if I hadn’t calculated the total income as $84,800 plus the $5088 payroll tax.)

Many policy experts consider 15 to 20 percent of income for health care to constitute a financial hardship. A single payer national health program could do better than that.

CORRECTION for the Quote of the Day, February 15, 2008, “Lewin Group Analysis of ‘Health Care for America'”

As I mentioned in my last comment, I had not done an analysis of the full Lewin Group report but had taken only a quick look to pull out some of the numbers to see whether insurance under the proposal would be affordable.

In the calculation I added to the 6 percent payroll tax a premium of $670 per month (for a two-parent family at 400 percent of the federal poverty level). That was incorrect since that is the premium that non-workers would pay. The correct premium for a worker whose employer is paying the payroll tax would be $200 for a two-parent family at 300 percent of the federal poverty level. Obviously my quick look was too quick.

The calculations are revised for a two-parent family at 300 percent of the federal poverty level or $63,600 (the income level at which the premium is fully phased in). A family that used no medical care would be directly responsible for the $2400 premium plus indirectly responsible for $3816 in payroll taxes, or a total of $6216. That is 9.2 percent of their total income of $67,416 ($63,600 plus the employer payment of $3816 on the employee’s behalf). If they also had out-of-pocket expenses of $4770 (capped at 7.5 percent of $63,600 in direct income) that would be 16.3 percent of their total income of $67,416.

For non-workers, premiums are fully phased in at 400 percent of the federal poverty level or $84,800. For a two-parent family the annual premium would be $8040 or 9.5 percent of their income. If they too had out-of-pocket expenses of $5000 (plan cap on cost sharing) that would total 15.4 percent of their income.

When the average premium for employer-sponsored coverage is already over $12,000 per year, these family payments of $6216 and $8040 seem low. In fact, for an individual, the report states, “We estimate average enrollee costs in Health Care for America would be about $3250 compared to $4230 under a private insurance product in 2007.”

Does that seem reasonable? They state, “Health Care for America premiums would be lower than comparable private insurance due to lower provider payment rates, administrative costs and low-income subsidies.” The low-income subsidies do not apply to the two examples above, both middle-income families. Although they do discuss administrative savings in the report, it is likely that the amount is much smaller than they suggest because they fail to recover much of the waste inherent in a multi-payer system. And the lower provider payment rates? I’ll let you think about that one.

I do wish to express my profound apologies for having used incorrect numbers in my last message. It is important that we make every effort to maintain full credibility in our dialogue. But even the corrected numbers still pose significant problems.

It reminds me of the mathematician, the accountant and the economist who were each asked to solve the problem of two plus two. The mathematician said four, the accountant said four, plus or minus ten percent, and the economist asked, “What do you want it to be?”

Rather than crafting health care financing based on individual plans, whether public or private, it would be far more efficient and equitable to totally separate health care financing from the delivery of health care services. Establish a single, universal risk pool, funded equitably through the tax system, and then use that common pool to fund health care.

Then we would no longer have to tell the economists that we want a plan that provides comprehensive benefits, but it has to have a premium that’s affordable. That may be what we want the plan to be, but we can’t ignore the simple math behind the program.

Finally, I wish to express my profound admiration and respect for the individuals supporting the “Health Care for America” proposal. They share precisely the same goal as ours – comprehensive, high-quality, affordable health care for everyone. With the most noble of intentions, they have crafted a proposal that they believe meets the test of political feasibility while accepting what they would hope to be only temporary, modest compromises on the path to reform.

Our only substantial difference is that we believe that we should not begin from a position of compromise. The private insurance industry has to go.

By Vanessa Fuhrmans and Theo Francis
The Wall Street Journal
February 14, 2008

The New York attorney general said his office plans to sue UnitedHealth Group Inc. as part of a broader investigation into the way the health-insurance industry sets payment rates for hospitals and doctors outside of their networks.

The move takes aim at a common practice among health insurers that can result in higher medical-bill payments for many consumers. While insurers typically pay in-network hospitals and physicians a negotiated fee for medical claims, out-of-network providers are reimbursed “usual and customary” or “reasonable” charges. These charges are set according to what insurers have determined is the going rate for a given procedure or service in a specific area.

When the usual and customary payment is much lower than what the provider charged, patients are often billed for the difference. Doctors and hospitals have long complained that the methodology is opaque and sets reimbursement artificially low.

As part of the probe, Andrew Cuomo, the New York attorney general, issued subpoenas to 16 health insurers, including Aetna Inc., Cigna Corp. and Wellpoint Inc.’s Empire Blue Cross Blue Shield unit. UnitedHealth is at the center because it owns, through its unit Ingenix, the database that much of the rest of the industry uses to determine usual and customary charges.

Called the Prevailing Healthcare Charges System, the database contains price information from more than one billion medical claims collected from more than 100 health plans nationwide. Health insurers typically compare out-of-network claims against the database and automatically reduce the bill to a “reasonable” size before reimbursing the patient or doctor.

Linda Lacewell, who heads Mr. Cuomo’s health-care industry task force, characterized the Ingenix database as “garbage in, garbage out,” with insurers sometimes manipulating data and knocking out price information from doctors with higher charges.

“We believe there was an industrywide scheme perpetrated by some of the nation’s largest health insurance companies to defraud consumers,” Mr. Cuomo said at a news conference. He said he plans to sue UnitedHealth and Ingenix within five days. He added that the health insurer’s ownership of the billing-data provider was “a gross conflict of interest.”

“Real people get stuck with excessive bills and are less likely to seek the care they need,” Mr. Cuomo said.

http://online.wsj.com/article/SB120292255343965679.html.html

And…

Payment Integrity: Harnessing the power of technology to detect and deter fraudulent, erroneous and abusive claims

Ingenix
Executive Briefing

…Compounding the damage, health plans also spend millions of dollars annually on erroneous and abusive claims that do not reach the level of fraud.

Effectively utilizing advanced fraud management technology and services is the best option for striking back against those who abuse the system.

Critical Elements for Success

Claims editing software is a Web-enabled, rules-based application that allows health plans to edit professional and facility claims while responding to dynamically changing guidelines and regulations in the health care marketplace. Claims editing software is typically focused on editing professional claims.

Health care claims billing is a complex process that is highly codified. While codification promotes automation, the breadth of relationships between the many different types of billing codes adds complexity. Therefore, effective fraud and abuse management programs must address the complexity of the health care claims billing process in order to successfully reduce cost.

Health Plan Return on Investment

With an effective application of fraud and abuse detection technologies, an April 2005 Gartner report estimates that health care payers will see a return on investment of at least 5-to-1. Framed another way, research by Reden & Anders, an Ingenix company, indicates that an anti-fraud program that saves even 1 percent of medical expense can increase the profitability of a typical health plan by up to 16.7 percent.

http://www.ingenix.com/content/attachments/06-10221%20PI%20Exec%20Briefing.pdf

Comment:

By Don McCanne, MD

To better understand the out-of-network benefits of insurance products being offered, I looked up, as an example, an application form for UnitedHealthcare in California, specifically PacifiCare SignatureValue. It states, “To be considered for reimbursement, expenses must qualify as covered expenses. Expenses are also subject to usual and customary limits, unless you use a network…”

The plan brochure states, “Usual and Customary Charges (U&C) – means charges for medical services or supplies for which PacifiCare is legally liable and which do not exceed the average charged rate charged for the same or similar services or supplies in the geographic region where the services or supplies are received. Usual and Customary Charges are determined by referencing the 80th percentile of the most current survey published by Medical Data Research (MDR) for such services or supplies. The MDR survey is a product of Ingenix, Inc., formerly known as Medicode.”

Thus it appears that most of the time, the full fee for out-of-network providers should be authorized, yet hardly anyone has had that experience. This lawsuit will determine the extent to which the insurers have violated their contracts with the patients to provide full payment for usual and customary charges. Since out-of-network providers have no contracts with the insurers, the patients are responsible for the full amount denied by the insurers.

Most current proposals for reform call for an expansion of IT (information technology) services to help control health care costs. Ingenix is demonstrating just how the private insurance industry adapts IT innovations to our health care system. It is using IT to shift more costs to patients while “increasing the profitability of a typical health plan by up to 16.7 percent.”

Gad. The private insurance industry really is about profits, not patients. And all of the leading politicians want us to have more of this?

Probe Targets Health Insurers On Payments

By Vanessa Fuhrmans and Theo Francis
The Wall Street Journal
February 14, 2008

The New York attorney general said his office plans to sue UnitedHealth Group Inc. as part of a broader investigation into the way the health-insurance industry sets payment rates for hospitals and doctors outside of their networks.

The move takes aim at a common practice among health insurers that can result in higher medical-bill payments for many consumers. While insurers typically pay in-network hospitals and physicians a negotiated fee for medical claims, out-of-network providers are reimbursed “usual and customary” or “reasonable” charges. These charges are set according to what insurers have determined is the going rate for a given procedure or service in a specific area.

When the usual and customary payment is much lower than what the provider charged, patients are often billed for the difference. Doctors and hospitals have long complained that the methodology is opaque and sets reimbursement artificially low.

As part of the probe, Andrew Cuomo, the New York attorney general, issued subpoenas to 16 health insurers, including Aetna Inc., Cigna Corp. and Wellpoint Inc.’s Empire Blue Cross Blue Shield unit. UnitedHealth is at the center because it owns, through its unit Ingenix, the database that much of the rest of the industry uses to determine usual and customary charges.

Called the Prevailing Healthcare Charges System, the database contains price information from more than one billion medical claims collected from more than 100 health plans nationwide. Health insurers typically compare out-of-network claims against the database and automatically reduce the bill to a “reasonable” size before reimbursing the patient or doctor.

Linda Lacewell, who heads Mr. Cuomo’s health-care industry task force, characterized the Ingenix database as “garbage in, garbage out,” with insurers sometimes manipulating data and knocking out price information from doctors with higher charges.

“We believe there was an industrywide scheme perpetrated by some of the nation’s largest health insurance companies to defraud consumers,” Mr. Cuomo said at a news conference. He said he plans to sue UnitedHealth and Ingenix within five days. He added that the health insurer’s ownership of the billing-data provider was “a gross conflict of interest.”

“Real people get stuck with excessive bills and are less likely to seek the care they need,” Mr. Cuomo said.

http://online.wsj.com/article/SB120292255343965679.html.html

And…

Payment Integrity: Harnessing the power of technology to detect and deter fraudulent, erroneous and abusive claims

Ingenix
Executive Briefing

…Compounding the damage, health plans also spend millions of dollars annually on erroneous and abusive claims that do not reach the level of fraud.

Effectively utilizing advanced fraud management technology and services is the best option for striking back against those who abuse the system.

Critical Elements for Success

Claims editing software is a Web-enabled, rules-based application that allows health plans to edit professional and facility claims while responding to dynamically changing guidelines and regulations in the health care marketplace. Claims editing software is typically focused on editing professional claims.

Health care claims billing is a complex process that is highly codified. While codification promotes automation, the breadth of relationships between the many different types of billing codes adds complexity. Therefore, effective fraud and abuse management programs must address the complexity of the health care claims billing process in order to successfully reduce cost.

Health Plan Return on Investment

With an effective application of fraud and abuse detection technologies, an April 2005 Gartner report estimates that health care payers will see a return on investment of at least 5-to-1. Framed another way, research by Reden & Anders, an Ingenix company, indicates that an anti-fraud program that saves even 1 percent of medical expense can increase the profitability of a typical health plan by up to 16.7 percent.

http://www.ingenix.com/content/attachments/06-10221%20PI%20Exec%20Briefing.pdf

Comment:

By Don McCanne, MD

To better understand the out-of-network benefits of insurance products being offered, I looked up, as an example, an application form for UnitedHealthcare in California, specifically PacifiCare SignatureValue. It states, “To be considered for reimbursement, expenses must qualify as covered expenses. Expenses are also subject to usual and customary limits, unless you use a network…”

The plan brochure states, “Usual and Customary Charges (U&C) – means charges for medical services or supplies for which PacifiCare is legally liable and which do not exceed the average charged rate charged for the same or similar services or supplies in the geographic region where the services or supplies are received. Usual and Customary Charges are determined by referencing the 80th percentile of the most current survey published by Medical Data Research (MDR) for such services or supplies. The MDR survey is a product of Ingenix, Inc., formerly known as Medicode.”

Thus it appears that most of the time, the full fee for out-of-network providers should be authorized, yet hardly anyone has had that experience. This lawsuit will determine the extent to which the insurers have violated their contracts with the patients to provide full payment for usual and customary charges. Since out-of-network providers have no contracts with the insurers, the patients are responsible for the full amount denied by the insurers.

Most current proposals for reform call for an expansion of IT (information technology) services to help control health care costs. Ingenix is demonstrating just how the private insurance industry adapts IT innovations to our health care system. It is using IT to shift more costs to patients while “increasing the profitability of a typical health plan by up to 16.7 percent.”

Gad. The private insurance industry really is about profits, not patients. And all of the leading politicians want us to have more of this?