Retirement reversal

Retired public employees may face higher health care costs, fewer benefits under proposal by cash-strapped Sonoma County

By Bleys W. Rose
The Press Democrat
February 5, 2008

After four decades of promising Sonoma County public employees generous health benefits upon retirement, the county now is warning thousands of current employees and retirees they face precedent-setting reductions.

A proposal by county administrators that would effectively force many retirees to pay more for their health plans will be presented today to county supervisors.

In addition, the administration proposes to dramatically alter health benefits for new hires by, in the future, not funding anything upon retirement.

The decision could have implications for government employees across the county, from cities to school districts, as they confront mounting health insurance bills for retirees.

The shift in thinking about the way governments view obligations to pay future retirement benefits comes about because the private, independent Governmental Accounting Standards Board in July 2004 ruled public agencies from states to city governments to school districts needed to assess the value of their promises and explain how they plan to pay for them.

Details on how much more retirees will pay still must be negotiated with unions as contracts come up for renewal. The most notable is the Service Employees International Union, which represents 3,000 county workers and whose contract expires in June.

“We really don’t know if this proposal sets the pattern for what we can expect to see at the bargaining table, but our feeling is that they will want to stuff it down our throats,” said Tom Drumm, SEIU’s work site organizer for county employees.

http://www1.pressdemocrat.com/article/20080205/NEWS/802050310/0/NEWS01

And…

Public Employee Post-Employment Benefits Commission (California)

Funding Pensions and Retiree Health Care for Public Employees

On December 28, 2006, Governor Arnold Schwarzenegger established the Public Employee Post-Employment Benefits Commission to propose ways for addressing unfunded post-employment benefits. The first of the Commission’s three assigned missions is to: “Identify the full amount of post-employment health care and dental benefits for which California governments are liable and which remain unfunded.” (Health and dental benefits are “other post-employment benefits” or OPEB.)

Key findings:

* California’s public employers reported a combined unfunded OPEB liability of at least $118 billion as their most recent actuarial valuations.

* Pay-as-you-go continues to be the funding strategy used by those agencies that offer OPEB benefits.

* The total amount that public employers are currently paying or setting aside for future payments is at most $3.5 billion on an annual basis.

Recommendation 19:

Public employers should provide timely notification to both active and retired employees when proposing a change in retiree health care benefits. This notification should be provided in a time frame that reasonably allows affected employees and retirees to understand the impact of the benefit change, to review other options available to them, and to comment to the employer on the proposed changes.

Recommendation 32:

Health plan sponsors should identify individuals who are Medicare-eligible and inform them of the need to enroll in Medicare in a timely manner. Employers should provide those individuals with information on penalties which result from delayed enrollment in Medicare.

Full report (332 pages):
http://www.pebc.ca.gov/images/files/final/080107_PEBCReport2007.pdf

Comment:

By Don McCanne, MD

Quick! How many of you, under age 85, have the same health insurance plan that you had twenty years ago? None?

OK. Then how many of you changed plans simply because the private insurance market offered new plans with improved benefits and lower premiums? None?

Why did you change? Did your employer change the health benefit program offered to employees? Did your employer increase your share of the premium to a level that you could no longer afford it? Did your employer terminate the program? Did you change jobs and lose the coverage you had? Did you lose coverage because you reached an age that bumped you off of your parents’ plan? Did you become self-employed but found that you could not afford the premium for individual coverage? Or was coverage denied because of a pre-existing disorder? If you did have coverage in the individual market, did the insurer increase premiums to a level that you could no longer afford? Or did the insurer simply withdraw that product from the market? When you did change coverage for reasons not really under your control, did the new plan have better benefits with lower costs than your prior plan?

What is the obvious conclusion? Health insurance coverage on a continual basis is practically non-exisent in the private insurance market. In almost all of the instances listed, the insured individual was not granted the option of “keeping the insurance you have.”

Everyone knows that the most stable coverage that exists is that offered to government employees. The life-time health benefit package offered is one of the most important reasons that individuals seek employment in the government sector. But that is beginning to change.

The experience in Sonoma County is presented above as only a single example of the challenges faced by government entities in financing health benefits for their employees. You have no doubt read many other reports of other reductions in government employer-sponsored benefits.

As we discuss options for comprehensive health financing reform, retired government employees are amongst the most vocal in wanting the option of keeping the coverage they have. Those who are smug about their coverage should read the report of the Public Employee Post-Employment Benefits Commission. It is quite sobering.

And what about employees in the private sector? The auto industry has long been noted for having the most comprehensive benefit packages available. How have they responded? They converted their programs into VEBAs (Voluntary Employees’ Beneficiary Association) and turned the control over to the union. The problem is that these VEBAs are underfunded upfront. What will happen to retiree benefits once it is obvious that the funds will soon be depleted? And keep in mind that the auto industry has had the best that the private sector has to offer. Do you believe that the retired auto workers will want to “keep the insurance you have” when there are no funds to back it up?

Today’s message is not simply about underfunding of promised health benefits. It is about where we are headed in our efforts to reform health care financing.

Most polls on health care reform continue to ask many of the same questions as they have over the past couple of decades, but there is one new question. The pollsters are now asking if you support reform that would allow you “to keep the insurance you have.” For healthier individuals who believe that they have good insurance, this concept polls very well. In fact, the other questions in the polls are now tailored to reinforce this simple concept.

Large political coalitions are forming to spread this gospel. They are rejecting those who call for a national health program, stating that the policy debate is over, and now it is all about unity (behind this concept).

This movement has really gained traction. It is likely that the next president of the United States will enter office having campaigned on the promise of allowing you to keep the insurance you have.

The horrendous tactical error is that they are walking away from the policy dialogue when that is precisely what we now need to have. When our very best health programs, those provided by the government and the auto industry, are being threatened, we know that the lesser plans that most of us have will be shredded in an attempt to control insurance costs, by further reducing benefits and increasing cost sharing. And externalities, such as those listed above, will make it highly unlikely that we would even have the choice of keeping the same insurance we have.

“Oh wait,” they say, “you can buy the government Medicare-like plan that is more comprehensive and less expensive than private coverage.”

BS. Adverse selection would cause premiums in the government program to skyrocket (death spiral), and nobody could afford it.

We do need a national health program that provides lifetime comprehensive benefits for everyone, while being funded equitably. But that has been removed from the agenda of the keep-the-insurance-you-have coalitions, and that is precisely why their claim that we now have unity is a blatant fraud. That is why those of us who really do care about effective reform insist that we move forward with an honest dialogue on policy.

Yes. The progressives have once again called back up to duty our infamous circular firing squad. Blam! Blam!

By Andrew Welsh-Huggins
Associated Press
January 31, 2008

Six years after the collapse of the country’s biggest health care finance company (National Century Financial Enterprises), a trial is nearing for five executives accused of a $1.9 billion fraud that helped bring the company down.

The case involves one of the largest alleged white-collar crimes after Enron or WorldCom, yet it is largely unknown to the public.

National Century had been the nation’s largest source of financing to health care providers. Doctors, hospitals and other providers received money from the company rather than waiting for insurance payments, usually getting 80 or 90 cents on the dollar. National Century was then to collect and keep the full amount of the payments owed by insurance companies.

The government alleges National Century executives routinely overpaid some health care providers, many of them entities the executives had a financial interest in.

National Century raised the money to fund its business by selling bonds to investors, who received interest payments followed by a lump-sum payment.

Federal prosecutors say the officials conspired to defraud investors by diverting money from investors’ funds for improper uses, fabricating data in investor reports, and moving money back and forth between accounts to conceal investor fund shortfalls.

http://ap.google.com/article/ALeqM5gkdc2GUMaHK0IngdvbVHeZuQs0fgD8UGFDRG1

Comment:

By Don McCanne, MD

Accepting accounts receivable as security for short term loans is a process know as factoring. Based on this report, it appears that National Century was yet another administrative intermediary that used a variation of factoring to divert 10 to 20 percent of health care dollars to its own interests. As if we didn’t have enough administrative excesses in our system already, this is an atrocious waste of resources.

Why does this industry even exist? Well, it does meet a need. If payment for health care services already delivered is delayed, funds required to pay overhead expenses are tied up in the accounts receivable. Factoring increases cash flow, allowing the bills to be paid, though at a very high cost.

If we had a single national health program with one set of rules, billing for services would be much more efficient and timely, and there would be no need to depend on factoring to increase cash flow.

So what is different about our current system that would create delays in cash flow? A major contributor to the problem is our multi-payer system, which creates administrative barriers to payment though the complexities of coverage and payment rules by the different insurers. Errors are inevitable, which result in payment delays or denials.

There is also a nefarious element in the delays. Private insurers can and do use relatively minor technicalities to delay payments often for months, especially for larger claims. Why would they do this? It is because it allows them to work the float. This past year, 43 percent of private insurers’ profits were from investment income from their reserves. That is a motivation unique to private insurers that would not exist in a public financing program.

Of course, National Century was involved not only in the “legitimate” business of factoring, but it also engaged in fraudulent acts involving investors, crossing the line into criminal activity.

But aren’t factoring, programed delays in claims payment, and selling innovative bond products all pretty much from the same mindset? How much longer are we going to leave the market element in charge?

By Paul Krugman
The New York Times
February 4, 2008

I’ve tried to explain in previous columns, there really is a big difference between the candidates’ approaches. And new research, just released, confirms what I’ve been saying: the difference between the plans could well be the difference between achieving universal health coverage — a key progressive goal — and falling far short.

So the Obama plan would leave more people uninsured than the Clinton plan. How big is the difference?

To answer this question you need to make a detailed analysis of health care decisions. That’s what Jonathan Gruber of M.I.T., one of America’s leading health care economists, does in a new paper.

Mr. Gruber finds that a plan without mandates, broadly resembling the Obama plan, would cover 23 million of those currently uninsured, at a taxpayer cost of $102 billion per year. An otherwise identical plan with mandates would cover 45 million of the uninsured — essentially everyone — at a taxpayer cost of $124 billion. Over all, the Obama-type plan would cost $4,400 per newly insured person, the Clinton-type plan only $2,700.

http://www.nytimes.com/2008/02/04/opinion/04krugman.html?hp

And…

Covering the Uninsured in the U.S.

By Jonathan Gruber
National Bureau of Economic Research
January 2008

One of the major social policy issues facing the U.S. in the first decade of the 21st century is the large number of Americans lacking health insurance. This article surveys the major economic issues around covering the uninsured. I review the facts on insurance coverage and the nature of the uninsured; focus on explanations for why the U.S. has such a large, and growing, uninsured population; and discuss why we should care if individuals are uninsured. I then focus on policy options to address the problem of the uninsured, beginning with a discussion of the key issues and available evidence, and then turning to estimates from a micro-simulation model of the impact of alternative interventions to increase insurance coverage.

http://www.nber.org/papers/w13758

Comment:

By Don McCanne, MD

This 74 page technical paper discusses economic issues and modeling of reform measures that would increase coverage for the uninsured. It is important to understand Professor Gruber’s framing and modeling since he is an advisor for various reform efforts such as those in Massachusetts and California, and he is also providing support for the proposals of leading Democratic candidates for president.

Although this paper presents modeling of “the impact of alternative interventions to increase insurance coverage,” he begins with assumptions that significantly limit the variety of options studied. He limits his options based on “two political constraints.”

“First, it is difficult to envision a solution to the problem of the uninsured which does not involve in some way the private insurance industry… The health insurance industry in the United States has revenues of over $500 billion per year, making it a very concentrated interest that would have to be defeated to move to nationally provided health insurance.”

“The second constraint is the fiscal situation of the U.S. government. Except for a brief window at the end of the 20th century, the U.S. government budget has been in significant deficit for thirty years, and this deficit shows no sign of abating… Given these pressures, major new expenditures to cover the uninsured are likely to engender a major political battle.”

Before he has even begun his analysis, he eliminates a single payer national health program because we must involve the private insurance industry, in spite of his acknowledgment of the high administrative costs.

Also, his modeling does not look at the impact on our total health care costs, but rather he models the impact on taxpayer costs. In so doing, he has placed a very high priority on keeping the costs of the expansions of health care coverage out of our government budgets, demonstrating that the biggest “bang for the buck” is attained by those alternatives that result in the lowest taxpayer cost per each additional individual obtaining coverage, ignoring the fact that the difference must be paid by individuals and/or employers.

He discusses two “modest reforms:” public insurance expansion, and non-group tax credits, which are quite inadequate compared to the need.

Then, for “more fundamental reform,” he states that issues to be addressed include pooling, affordability, and mandates. He considers three options, “given the constraint that private insurance provision must be a centerpiece of any reform plan.”

His first option is to ensure universal access of individuals to an affordable insurance product. He describes state-specific pools that are community rated with guaranteed issue. Voluntary participation would be encouraged by sliding scale subsidies based on income. By his modeling, this would cover about one-half of the uninsured, at a high taxpayer cost of $4500 per individual (Obama plan – per Krugman).

His second option is to add an individual mandate to this universal access approach. He makes the assumption, without supporting evidence (theorizing that strong penalties would be effective), that “95% of those who would not voluntarily choose to insure are forced to insure through the mandate.” By his modeling, this would cover about 97% of the uninsured at a lower taxpayer cost of $2732 per newly insured (Clinton plan – per Krugman).

His third option is to remove the tax subsidy (regressive) for employer-sponsored insurance and use those funds for the pools in the individual mandate approach. The tax subsidy is so great ($200 billion) that this would result in a negative cost per dollar of insurance provided (individual mandate cost of $120 billion). But once again, this is a reduction in government spending (a government subsidy not granted) with a redistributive shift between employers and individuals of varying incomes.

Professor Gruber concludes, “To fundamentally control health care costs we need to actually be willing to deny care that does little for health – but which consumers now want. This would be accomplished either through government technology policy, medical standards, or global provider budgets… The fundamental insight of this round of reform is therefore to not hold the attainable goal (universal coverage) hostage to the (currently) unattainable goal, fundamental health care cost control.”

But isn’t that the problem? Health care costs are now so high that private insurers can no longer provide us with reasonably comprehensive plans at premiums that are affordable for middle-income individuals.

His first option of pooling (community rating and guaranteed issue) cannot make the plans affordable. His second option of an individual mandate can’t work simply because the plans are not affordable, especially when he has made keeping government budgets in check a major priority. His third option corrects a tax policy injustice, but, in itself, is hardly a reason to perpetuate the inefficiencies and injustices of the private health plans.

Jonathan Gruber and Paul Krugman deserve their reputations as being amongst the most respected economists in the nation. But their fixation on individual mandates provides about the same level of insight as to what we need in the way of health financing reform as does the insight provided by the proctologist who tries to tell us our general state of health from his perspective.

Health plan takes new applicants

By Thelma Guerrero-Huston
StatesmanJournal.com
January 29, 2008

More than 600,000 adult Oregonians lack medical care coverage, according to Oregon Department of Human Services.

Last week, the agency announced it would offer new enrollment opportunities for uninsured individuals… by allowing them to put their names on a reservation list for possible health coverage in the Oregon Health Plan’s Standard benefit plan.

In March, a computer will begin to draw names randomly from the reservation list. People whose names are drawn will be mailed an application to apply for the OHP Standard plan.

Applications will continue to be mailed out each month until 10,000 to 12,000 new individuals are enrolled.

This is the first time since 2004 that the Standard plan — established in 1994 — is open to new enrollments.

Currently, there are 19,000 people on the OHP Standard plan, which provides low-cost health care coverage to Oregon residents who are age 19 or older, have a low income, and do not qualify for traditional Medicaid coverage.

“People without health insurance coverage are sicker and die sooner than those who are able to access health care every day,” said Dr. Bruce Goldberg, DHS director. “This is really a tragedy. It’s a stain on our community in general.”

http://www.statesmanjournal.com/apps/pbcs.dll/article?AID=2008801290334

Comment:

By Don McCanne, MD

Oregon has long been admired for its innovative efforts to expand coverage in an environment of limited state resources. It has even seriously considered single payer reform.

But a lottery to provide coverage for 10,000 to 12,000 of Oregon’s 600,000 uninsured adults? Come on!

What types of fraudulent schemes are perpetrated by those in the insurance field?

AHIP (America’s Health Insurance Plans)

Agent and Broker Fraud

Misrepresentations on applications

A man tells an agent filling out an application for him that he is a smoker. The agent intentionally fails to note this on the application so that the man will get a better rate.

Misrepresentations of coverage

Agent Carson deliberately and falsely tells an applicant that her family history of high blood pressure and heart disease and her prior treatment for irregular heartbeats will have no bearing on the issuance or rating of the policy.

Improper replacements, including churning and twisting.

Churning occurs when an agent or broker replaces the coverage of his own current clients without regard to need in order to earn a new commission. Twisting occurs when an agent or broker targets new prospects for the purpose of replacing their existing coverage without regard to need in order to earn a commission.

Agent Miller changes her affiliation to another insurer. She persuades many of her clients to get new policies from her new company by telling them that the coverage it offers is superior. This is not really so — Miller just wants to earn new commissions. (Churning)

Broker Harlan targets clients of other agents and brokers. He tells them that the coverage he offers is better than what they have. Again, this isn’t true — Harlan too just wants to earn new commissions. (Twisting)

Insurer Employee Fraud

Insurance company employees are in a unique position to manipulate information in applications and claims. Home office employees also have access to automated billing systems and computer databases. Consequently, opportunities for employee fraud are abundant.

http://www.ahiphiwire.org/Broker/LearningCenter/Feature.aspx?doc_id=147191

Comment:

By Don McCanne, MD

In a single payer national health program enrollment is automatic and permanent. Churning, twisting, misrepresentations of coverage, and falsified applications wouldn’t even exist.

By Kristin J. Cummings, MD, MPH and Kathleen Kreiss, MD
JAMA
January 30, 2008

Employment arrangements in which the worker has a nontraditional relationship with the work-site employer have come to be grouped together in recent years as “contingent” work. Throughout the 1970s and 1980s, as employers sought more flexibility, contingent employment arrangements became more common in the United States. From 1969 to 1993, the number of part-time workers nearly doubled, representing a quarter of all growth in the national workforce. From 1982 to 1990, employment in temporary agencies increased 10 times faster than did the workforce as a whole. During the 1980s, the use of independent contractors in coal mining and of contract company workers in agriculture doubled.

The use of contingent workers has not been limited to the private sector: by 2006, the federal government was spending an estimated $400 billion per year on contractors. Since national data were first collected by the Department of Labor in 1995, contingent workers have consistently represented nearly one-third of the total workforce, reaching 43 million in 2005. However, because only those with fixed addresses are surveyed, this is likely an underestimate. Thus, contingent work has taken hold in the United States, bringing with it concerning implications for health.

Contingent workers are a diverse group, ranging from well-compensated independent financial consultants to low-skilled construction workers. The majority of the contingent workforce is white and aged 25 years or older; however, compared with workers in traditional arrangements, contingent workers are more likely to be young, female, black or Hispanic, and to have lower incomes and fewer benefits. One analysis of 2005 federal data found that 16% of contingent workers have family incomes less than $20 000, a proportion twice as high as that of noncontingent workers. For some contingent workers, such as day laborers and agency temporary workers, the proportion surpassed 20%. Only 13% of contingent workers (and 9% of those with low family incomes) had health insurance provided by their employer, compared with 72% of noncontingent workers.

http://jama.ama-assn.org/cgi/content/full/299/4/448#AUTHINFO

Comment:

By Don McCanne, MD

“Only 13% of contingent workers had health insurance provided by their employer, compared with 72% of noncontingent workers.”

It is unrealistic to expect employers to provide long-term health benefits to these employees who move in and out of their workforce. Because of changes in income, residency, dependent status, and so forth, it is also very difficult to provide stable enrollment in public insurance programs.

A national health program in which enrollment is automatic and permanent would eliminate the problem of finding a way to finance health care for these individuals. Although that certainly would not eliminate all access problems, it would remove the financial barriers to care.

In the meantime, our Community Health Centers do provide some basic health services for these individuals, though access to specialized services, laboratory tests, imaging, pharmaceuticals, and other products and services, is still quite limited. If we had a health care financing system that covered everyone, just think of how much more effective these centers would be in providing appropriate health care services. As part of our health care delivery system, they also need assurances that they will have the funds to fulfill their mission.