PNHP

Health insurance underwriting cycle

Health insurance underwriting cycle

MILLIMAN, USA
April 10, 2003
Health Insurance Underwriting Cycle Effect on Health Plan Premiums and
Profitability
By Richard Kipp, M.A.A.A., John P. Cookson, F.S.A., & Lisa L. Mattie, R.N.

Health care cost trends are not the only factor influencing the change in health insurance premiums. Competition, legislation, regulation and difficulty predicting future costs are all contributors to the phenomenon called the underwriting cycle-a repeating pattern of gains and losses within the insurance industry. As the cycle plays out, expected trends and the associated premium increases tend to go above or below the actual rate of change in underlying health care costs. Today, as the cycle approaches another highpoint, we see improved profitability of Plans as premium growth exceeds the growth in the costs of health care claims for Health Plan enrollees.

Today as premium growth again climbs into the double-digits, it is important to understand the role this cycle plays as we formulate a policy response to current trends.

This report first discusses the underwriting cycle in general terms, and then describes some of the actions and reactions that Health Plans’ typically exhibit at various points during a cycle. Lastly, the report discusses specific events of the 1990s that may have contributed to the pattern of insurance company profits and acted to exaggerate upward and downward swings in premium growth-swings that went well above or below the actual changes in underlying health care costs.

http://www.hospitalconnect.com/aha/press_room-info/content/MillimanReport030410.pdf

Comment: This report, prepared by a leading consulting firm for the health care industry, provides a clear description of the underwriting cycle. It is important to understand why we have intermittent periods of excessive premium increases interspersed with solvency issues that continue to threaten the stability of the health care system.

This is yet one more reason why we should abandon the use of “market forces” to control health care funding in the United States, and, instead, adopt a rational, single payer system of funding care.

Will the public ever understand the complexities of reform?

National Public Radio/Kaiser Family Foundation/Kennedy School of Government
National Survey of Americans’ Views on Taxes
April 2003

14. And now I want to read a brief list of terms that are related to taxes and the federal tax system. For each, please tell me if you have heard the term and know what it means, have heard the term but don’t know what it means, or have not heard the term.

a. Progressive taxes

21% – Heard the term and know what it means
23% – Heard the term but don’t know what it means
56% – Have not heard the term

http://www.kff.org/content/2003/3340/NPRTaxSurveyToplines.pdf

Comment: One of the advantages of a single payer system is that it would be equitably funded at least partially through progressive taxes. This is one of the many messages that we must deliver to the American public before we can expect a grassroots effort to provide political traction for our proposal. If the public doesn’t even understand the concept of progressive taxation, how can we ever expect them to understand the complexities of health care reform?

We have a lot of work to do.

Dr. Dean's Dr. Dynasaur

Brattleboro Reformer
April 19, 2003
Dr. Dynasaur cost hikes worry some
By Toby Henry

Local legislators on Friday voiced concerns about proposed increases to monthly premiums, as high as 400 percent in some cases, for families enrolled in the Dr. Dynasaur program.

Dr. Dynasaur, a Medicaid-based program introduced in 1989 to help extend preventive care to children under 18 and pregnant women, has monthly premiums ranging from $20 to a high of $50 for qualified families. According to the Office of Vermont Health Access, approximately 56,000 children and expectant mothers are enrolled in the program across the state.

Under the proposal, premiums for enrollment in the Dr. Dynasaur program would increase from $20 to $81 per month for families with incomes are between 185 and 225 percent of the federal poverty line.

Based on a study from the Vermont Public Interest Research Group, an estimated 19,000 people could leave Dr. Dynasaur and other health-care programs if the premiums go up.

“That’s not what we should be doing if our goal is to provide Vermonters with accessible, quality, affordable health care,” (Rep. Michael) Obuchowski said.

“What’s happening now is that there’s so many profit centers (in the health-care system) and so many special interests protecting those profit centers that change is difficult,” he said.

“What is happening is that as our economy contracts, people who have health insurance from their employers have to pay more in status-quo situations. It’s a situation that, cost-wise, to everyone — employers and employees alike — is out of control. The system is broken, but we’re only treating the symptoms.”

A long-term solution to the health-care concerns of all Vermonters, Obuchowski said, is the passage of a statewide single-payer health care bill.

http://www.reformer.com/Stories/0,1413,102~8862~1336550,00.html

Comment: Vermont Gov. Howard Dean, in his campaign for the Democratic nomination for president, cites the “successful” Dr. Dynasaur program of his state as part of his proposal for health care coverage for everyone. As with other programs designed for low-income individuals, Dr. Dynasaur is vulnerable to policy changes that force beneficiaries out of the program and into the ranks of the uninsured.

Rep. Obuchowski is correct. Our broken system needs to be replaced with a single payer program if we wish to assure permanent, affordable access to comprehensive care for everyone.

Dr. Dean’s Dr. Dynasaur

Brattleboro Reformer
April 19, 2003
Dr. Dynasaur cost hikes worry some
By Toby Henry

Local legislators on Friday voiced concerns about proposed increases to monthly premiums, as high as 400 percent in some cases, for families enrolled in the Dr. Dynasaur program.

Dr. Dynasaur, a Medicaid-based program introduced in 1989 to help extend preventive care to children under 18 and pregnant women, has monthly premiums ranging from $20 to a high of $50 for qualified families. According to the Office of Vermont Health Access, approximately 56,000 children and expectant mothers are enrolled in the program across the state.

Under the proposal, premiums for enrollment in the Dr. Dynasaur program would increase from $20 to $81 per month for families with incomes are between 185 and 225 percent of the federal poverty line.

Based on a study from the Vermont Public Interest Research Group, an estimated 19,000 people could leave Dr. Dynasaur and other health-care programs if the premiums go up.

“That’s not what we should be doing if our goal is to provide Vermonters with accessible, quality, affordable health care,” (Rep. Michael) Obuchowski said.

“What’s happening now is that there’s so many profit centers (in the health-care system) and so many special interests protecting those profit centers that change is difficult,” he said.

“What is happening is that as our economy contracts, people who have health insurance from their employers have to pay more in status-quo situations. It’s a situation that, cost-wise, to everyone — employers and employees alike — is out of control. The system is broken, but we’re only treating the symptoms.”

A long-term solution to the health-care concerns of all Vermonters, Obuchowski said, is the passage of a statewide single-payer health care bill.

http://www.reformer.com/Stories/0,1413,102~8862~1336550,00.html

Comment: Vermont Gov. Howard Dean, in his campaign for the Democratic nomination for president, cites the “successful” Dr. Dynasaur program of his state as part of his proposal for health care coverage for everyone. As with other programs designed for low-income individuals, Dr. Dynasaur is vulnerable to policy changes that force beneficiaries out of the program and into the ranks of the uninsured.

Rep. Obuchowski is correct. Our broken system needs to be replaced with a single payer program if we wish to assure permanent, affordable access to comprehensive care for everyone.

Blue Cross of California – How much profit?

Knox-Keene Health Plan Expenditures Summary
FY 2001-02
Published by the California Medical Association

This is the tenth report published by the California Medical Association in regard to Knox-Keene Health Plan expenditures. The California Medical Association believes that the information provided in this report should be published annually by the Department of Managed Health Care, but, to date, they have chosen not to do so. Thus, we will continue to provide this information to the public.

This report is a compilation of expenditure data reported from managed care plans to the Department of Managed Health Care, and from reports provided by publicly traded plans to the U.S. Securities and Exchange Commission (10-K and Annual Reports).

Blue Cross of California:
% Revenue – Medical Care: 78.9%
% Revenue – Administration: 13.8%
% Revenue – Profit/Income: 7.3%

http://www.calphys.org/assets/applets/0102_knox_keene_report.pdf

Comment: Although this is a report of health plan performance in California, WellPoint, the parent company of Blue Cross of California, has been attempting to acquire significant market presence in other states. Also, the business success of Blue Cross of California has led other insurers to attempt to emulate its performance by adopting some of its innovative approaches to health care coverage. All of us should be concerned about the activities of Blue Cross/WellPoint.

Of the major insurers in California, Blue Cross has the lowest medical loss ratio. Since this means that they spent the least on patient care, it is very good news for Wall Street, but not so good for those paying the premiums and for those receiving health care services. Compared to participants in other plans, Blue Cross purchasers and beneficiaries are paying more and/or receiving fewer benefits.

The Blue Cross profit is listed as 7.3%, but does this really represent their true profit? A more accurate assessment of profit can be determined if we look at their actual business model. They administer the pooled funds designated for health care. These are not their funds, but they belong to the payers and beneficiaries. Since their business model is administration, their funds (revenues) are the administrative costs plus the profits that they assess for managing the risk pool.

The funding of Blue Cross’ administration is quite high when compared to public programs. 13.8% of the risk pool is much more than Medicare’s ~3%. But Blue Cross is a for-profit corporation, and, from a business perspective, they should be doing all they can to increase the size of their own entity. Growth is a fundamental goal in any business, and more growth in administration equates with the growth of Blue Cross’ business model. As long as expanding their administrative business can increase profits, they should make every effort to do so.

The size of their business then equates with 13.8% of the risk pool. But the 7.3% profit is not the profit on the size of their business but it is a “profit” expressed as a percentage of the entire risk pool, 78.9% of which is not their funds. That 7.3% profit, when expressed as a percent of their administrative revenues (13.8% of the pool), is actually a return of 52.9% on their net administrative revenues (which is 34.4% of their gross revenues, administrative costs and profits combined). No wonder WellPoint is the darling of Wall Street.

The way we fund health care is irrational. We select an industry that concentrates on its own growth of administrative functions, and reaps a handsome profit in doing so. This diverts tremendous resources from the actual health care delivery system, which is particularly tragic considering that the unmet need is so great.

Should we blame the insurance industry for this waste? Of course not. They are doing precisely what any business should be doing – growing in size, maximizing revenues, and minimizing expenditures that do not increase their revenues, thereby creating maximal profit. For any business to do less would be irresponsible.

The blame lies with the policymakers. Why are they perpetuating policies that are designed to protect this industry that wastes so much in resources, when they should be developing policies that optimize the use of our resources for patient care? Not only does this industry waste resources, but it also failing in its primary responsibility to pool risk, as it shifts risk to others, thereby perpetuating the inequities in our system, leaving high-risk and low-income individuals without adequate protection. We are paying far, far too much for a very lousy job.

We need to communicate to our policymakers the fact that we need to dismiss this egregiously wasteful, private bureaucratic goliath and replace it with an equitable, affordable, publicly-administered system of comprehensive coverage for everyone. Should our policymakers remain unresponsive, then it would be our obligation to replace them with individuals that will act in the interests of patients. To do less would be to fail in our own responsibilities to make every effort to ensure the best health care for our families, friends, neighbors, and ourselves.

Emily Friedman

Health Forum Journal
Spring, 2003
Rocket Science
By Emily Friedman

The health care system makes patients feel powerless, and it makes many of those who work within it feel exactly the same way. But until we change the infrastructure and the corporate culture of health care, until the fiefdoms and the turfs and the lust for money and the competition and the power positions are broken down, until teamwork replaces individual arrogance and patients replace power mongers as the focus of the system, innocent people will continue to be terrified, humiliated, injured and killed unnecessarily–not because of any individual wrongdoing, but because the system does not and cannot serve them well. One might say the same of a dictatorship or a prison system, but we cannot allow it to be said about our work, our hopes, our goals. We can do better than that, and we must.

http://www.hospitalconnect.com/healthforumjournal/jsp/voices.jsp?voicepic=emily_pic

Would we create the current system of funding care?

Health Affairs
January/February 2003
The Road To Meaningful Reform: A Conversation With Oregon’s John Kitzhaber
The first step is to call into question the basic inequities and
contradictions in our current health care system-the things we will not
openly defend.
by Jeff Goldsmith

John Kitzhaber, M.D., former governor of Oregon:

“Let’s write a health care bill which describes the policy underlying the
current system and see how many votes we get for it.”

http://www.healthaffairs.org/readeragent.php?ID=/usr/local/apache/sites/heal thaffairs.org/htdocs/Library/v22n1/s15.pdf

Comment: Given what we now know, would we create our current system of
funding health care? Tweaking this system will never right the wrongs of our
current policies. Obviously we really do need comprehensive reform based on
sound policy.

Wisdom of "the government" and Medicare

The Washington Post
April 10, 2003
Medicare HMO Benefits Down, Premiums Up
By Theresa Agovino, The Associated Press

Medicare HMO premiums are rising while the benefits they offer are diminishing for the fourth year in a row, according to a new study by a nonprofit health research firm.

“Plans don’t want to scare healthy people away with high premiums. You are seeing the plans trying to raise money in different ways like charging more for hospital stays and drug copays.” said Marsha Gold, a senior fellow at Washington-based Mathematica Policy Research who co-wrote the study using government data on the plans.

“The government shows no indication that they want to make this a profitable business for the private sector,” said Clifford Hewitt, an analyst at Legg Mason Wood Walker Inc. in Baltimore.

http://www.washingtonpost.com/wp-dyn/articles/A1944-2003Apr10.html

Comment: Perhaps “the government” has the wisdom to not only end the waste of resources on health plan middlemen, but also the wisdom to add a desperately needed prescription benefit to the traditional Medicare program.

Wisdom of “the government” and Medicare

The Washington Post
April 10, 2003
Medicare HMO Benefits Down, Premiums Up
By Theresa Agovino, The Associated Press

Medicare HMO premiums are rising while the benefits they offer are diminishing for the fourth year in a row, according to a new study by a nonprofit health research firm.

“Plans don’t want to scare healthy people away with high premiums. You are seeing the plans trying to raise money in different ways like charging more for hospital stays and drug copays.” said Marsha Gold, a senior fellow at Washington-based Mathematica Policy Research who co-wrote the study using government data on the plans.

“The government shows no indication that they want to make this a profitable business for the private sector,” said Clifford Hewitt, an analyst at Legg Mason Wood Walker Inc. in Baltimore.

http://www.washingtonpost.com/wp-dyn/articles/A1944-2003Apr10.html

Comment: Perhaps “the government” has the wisdom to not only end the waste of resources on health plan middlemen, but also the wisdom to add a desperately needed prescription benefit to the traditional Medicare program.

Urgent alert: Association health plans approved by House committee

Kaiser Daily Health Policy Report
April 9, 2003
House Education and Workforce Subcommittee Approves Association Health Plan Bill

The House Education and Workforce Employer and Employee Subcommittee on April 8 voted 13-8 to approve a bill (HR 660) that would allow businesses in the same trade groups to form association health plans exempt from state laws that require health plans to provide certain benefits, according to CongressDaily Markup Reports. Under the legislation, the AHPs would not have to adhere to state laws that require health plans to provide certain benefits. Rep. John Boehner (R-Ohio), who sponsored the bill, said that exemption from state laws would help control costs. Subcommittee Chair Sam Johnson (R-Texas) added that the legislation would increase “small businesses’ bargaining power with health providers” and predicted that the formation of AHPs would “increase the number of insured Americans by up to eight million individuals.” However, most Democrats on the subcommittee said that the bill would “foster the creation of a group of cheap, inadequate plans immune to state requirements for benefits packages” and would prompt employers to switch to AHPs to reduce costs.

http://www.kaisernetwork.org/daily_reports/print_report.cfm?DR_ID=17082&dr_cat=3

The full text of HR 660, the “Small Business Health Fairness Act of 2003”: http://thomas.loc.gov/cgi-bin/query/F?c108:1:./temp/~c108rZeEjR:e2114

Comment: Employer mandate (play or pay) proposals are receiving considerable attention as a possible means of expanding health care coverage to many of the uninsured. A concern expressed by employers, especially small businesses that frequently operate on narrow profit margins, is that health insurance is becoming less and less affordable. Association health plans (AHPs) would be exempt from state insurance requirements, allowing AHPs to offer plans with only minimal benefits, and with excessive cost sharing requirements that would be unaffordable for many.

The recent Kaiser Commission report on cost sharing demonstrated that even modest cost-sharing requirements significantly reduce the utilization of effective health care services. Most of the studies that demonstrate the importance of health care coverage in enabling access to care are based on coverage that is comprehensive has only relatively nominal cost-sharing by the patient, if any. There has been little study of the impact on access of the newest products that have stripped plans of many of their benefits and that have dramatically increased the cost-sharing requirements. And there is no information available on the degree to which access will be impaired under these even more Spartan AHP plans.

Most employers do care about their employees and do want them to have affordable health care coverage. But achieving affordability through AHPs is not sound policy since the products will not permit many employees to receive the care they need, simply because of inadequate coverage and lack of affordability of the cost sharing.

There is a much better way. Placing everyone in a single risk pool would ensure comprehensive coverage not only for employees but for everyone else as well. And funding that pool in an equitable manner would ensure that no individual or entity would be assessed an unfair or unaffordable amount. Small business owners would have the satisfaction of knowing that all of their employees and family members would always have access to affordable health care, and the owners would not be burdened with either excessive premiums or the guilt of knowing that the association health plan that they would have purchased is not much better than no coverage at all.

Our urgent task is first to fight for the defeat of HR 660, and then to move on immediately to the task of providing affordable, comprehensive coverage for everyone. Let Congress know… now!

Mismatch of administration's health policy and proposal

Houston Chronicle
April 6, 2003
President promises one health policy, proposes another

In his State of the Union address in January, Bush said the nation must move to a system in which “all Americans have a good [health] insurance policy and choose their own doctors,” with seniors and low-income Americans receiving the help they need. The president urged the nation to take control of health care away from the bureaucrats, trial lawyers and HMOs and return it to doctors, nurses and patients.

However, the Medicare reform plan Bush proposed just before the start of the Iraq war would force the elderly to choose among these goals, thus preventing Americans’ attainment of a majority of those goals.

Since January, President Bush has been preoccupied with regime change in Iraq. Perhaps he has forgotten the words of assurance he spoke to Americans in his State of the Union message. If the president relies on aides to prevent him from making empty promises or contradicting himself, his aides have failed him.

http://www.chron.com/cs/CDA/story.hts/editorial/1853344

Comment: This is simply one more reminder that health care proposals must be based on sound policy rather than on the politics of those who place their lesser agendas above that of the health of our people.

Mismatch of administration’s health policy and proposal

Houston Chronicle
April 6, 2003
President promises one health policy, proposes another

In his State of the Union address in January, Bush said the nation must move to a system in which “all Americans have a good [health] insurance policy and choose their own doctors,” with seniors and low-income Americans receiving the help they need. The president urged the nation to take control of health care away from the bureaucrats, trial lawyers and HMOs and return it to doctors, nurses and patients.

However, the Medicare reform plan Bush proposed just before the start of the Iraq war would force the elderly to choose among these goals, thus preventing Americans’ attainment of a majority of those goals.

Since January, President Bush has been preoccupied with regime change in Iraq. Perhaps he has forgotten the words of assurance he spoke to Americans in his State of the Union message. If the president relies on aides to prevent him from making empty promises or contradicting himself, his aides have failed him.

http://www.chron.com/cs/CDA/story.hts/editorial/1853344

Comment: This is simply one more reminder that health care proposals must be based on sound policy rather than on the politics of those who place their lesser agendas above that of the health of our people.