Self-funded health plans under attack in New Jersey

By Joanne Wojcik
Business Insurance, October 30, 2011

In an Oct. 25 letter to Thomas Considine, commissioner of the New Jersey Department of Banking and Insurance, the Self-Insurance Institute of America Inc. asked the department to rescind a bulletin it issued this month that alleges stop-loss insurers are “cherry-picking” employer groups with good claims experience.

The Oct. 3 bulletin alleges that the insurers, which write excess coverage for self-funded group benefit plans, are “selectively marketing coverage to small employers on the basis of health history of that employer’s employees, and denying coverage to employers based on employee health status. The result of this selective underwriting is to “cherry-pick’ groups less likely to incur claims, leaving the groups more likely to incur claims to the state’s guaranteed-issue insured market. This, in turn, drives premiums up for small employers purchasing insured plans.”

Because stop-loss insurance is excluded from the state’s definition of a health benefit plan, it is not subject to the same regulations as fully insured health coverage, the bulletin states. Therefore, the department has invoked New Jersey’s unfair trade practice law, asserting that “the selective marketing and underwriting described herein constitutes an unfair trade practice.”

Simpsonville, S.C.-based SIIA asserts that the department’s contention is “inflammatory and without merit. Stop-loss insurance is a completely different product than commercial health insurance, so it is misguided to conclude that “unfair competition’ exists,” SIIA said in its letter.

The Employee Retirement Income Security Act’s “regulatory exemption for self-insured (self-funded) plans is a persistent thorn in the side of state insurance regulators,” according to a September statement by Timothy Stoltzfus Jost, a law professor from Washington and Lee University School of Law in Lexington, Va., to the NAIC’s ERISA (B) Subgroup.

“This may be acceptable for large employer groups, which have the bargaining power and expertise to protect their employees. But when small-employer packages purchase “self-insured’ packages from insurers, including stop-loss coverage with very low attachment points and administrative services, they are essentially purchasing conventional health insurance, except that it is free from state regulation,” Mr. Jost said.

Moreover, he said “insurers have always had an incentive to market “self-insurance’ to healthy groups, and small businesses with healthy enrollees have always had an incentive to purchase it. The Affordable Care Act, however, increases these incentives…Insurers understand this and are very actively marketing “self-insured’ products to small groups.”

http://www.businessinsurance.com/article/20111030/NEWS05/310309989?tags=%7C74%7C305%7C339

For smaller employers who want to self-insure their health benefit programs, stop-loss insurance is an imperative. A very large medical bill for one employee or family member could bankrupt a small business. This need to protect against large losses has created a thriving market in self-insured packages from insurers, which escape health plan regulation, yet are beginning to look more like conventional health insurance with extremely high deductibles.

These plans not only provide stop loss coverage at a “low attachment point,” they are now providing administrative services for the employers’ self-insured plans, paying employees’ medical expenses using the employers’ funds. The attachment point – the level at which losses begin to be covered by the insurer – may be $40,000. That is a very low level for a stop-loss plan. Some conventional health plans have deductibles of $50,000. That blurs the distinction between a high deductible in a health insurance plan and a low attachment point in a stop-loss plan.

What is happening is obvious. The insurers are selling these “self-insured packages” as stop-loss plans, avoiding the regulatory oversight for health plans. Yet they actually function as health plans with very high deductibles.

Why does it matter? The insurers can avoid new regulations that prohibit medical underwriting. They are able to cherry pick – limiting the sale of these plans only to businesses with healthy employees, shifting the costs of higher risk employee pools to other programs with guaranteed issue. As Timothy Stoltzfus Jost states, “insurers have always had an incentive to market ‘self-insurance’ to healthy groups, and small businesses with healthy enrollees have always had an incentive to purchase it. The Affordable Care Act, however, increases these incentives…Insurers understand this and are very actively marketing ‘self-insured’ products to small groups.”

The private insurers have an absolute moral obligation to enhance value for their investors, and they must always make every effort to do so. The fault lies not with the private insurers themselves but with a financing model that is dependent on insurers. We need to change the model, switching to a single public insurer.

California gets OK for large cuts to Medi-Cal

By Anna Gorman
Los Angeles Times, October 28, 2011

The Obama administration will allow California to cut hundreds of millions of dollars from Medi-Cal, a move doctors and experts say will make it harder for the poor to get medical treatment.

California plans to reduce rates by 10% to many providers, including physicians, dentists, clinics, pharmacies and most nursing homes, the Centers for Medicare and Medicaid Services announced Thursday.

Cindy Mann, deputy administrator of the Centers for Medicare and Medicaid Services, told reporters the action gives California the flexibility it had requested to address its budget shortfall. “We know that the reductions that are being approved today will have significant impact on affected providers, and we regret the very difficult budget circumstances that have led to their implementation,” she said.

California, which already spends less per beneficiary than any other state, has led the way in aggressively slashing its programs. Now the government’s decision to allow California to move forward with its plans sets a precedent for other states seeking to reduce their Medicaid bills.

The California Medical Assn. expressed frustration over the new cuts, saying that physicians could receive as little as $11 a visit. Doctors will have no choice but to stop seeing Medi-Cal patients, said CEO Dustin Corcoran. “You can’t pay the bills at these rates,” he said. “They are unconscionably low.”

Federal healthcare reform, which includes a massive expansion of Medicaid, also could be seriously hampered by this new round of cuts, Corcoran said.

“They built federal healthcare reform on the foundation of Medi-Cal, and they just destroyed that foundation,” he said. “We have a hard time seeing how healthcare reform has a chance of being successful in the state of California after these cuts are implemented.”

http://www.latimes.com/news/local/la-me-medicaid-20111028,0,4273464.story

One of the most important components of the Affordable Care Act is the expansion of Medicaid coverage for uninsured, low-income individuals. Does the Obama administration seriously believe that this will be an effective step toward bringing affordable health care to everyone?

Look at what they just approved for California. The state already spends less per Medicaid (Medi-Cal) beneficiary than any other state, yet the Obama administration has approved another 10 percent reduction. Just wait until the budget cutters in other states get wind of this!

Theoretically, drastic payment reductions are met by further ratcheting down overhead expenses. At $11 per office visit, only a fraction of expenses can be covered, no matter how stringent the budgeting. In essence, the government is asking providers to help finance Medicaid through their own personal charity. Trying to cover 7.6 million Medi-Cal patients in the state by depending on provider charity is asking more than the system can bear.

Two quotes above need to be repeated.

Cindy Mann, deputy administrator of the Centers for Medicare and Medicaid Services: “We know that the reductions that are being approved today will have significant impact on affected providers.”

Dustin Corcoran, CEO of the California Medical Association: “They built federal healthcare reform on the foundation of Medi-Cal, and they just destroyed that foundation.”

And the other major component of the Affordable Care Act? A mandate for individuals to purchase inadequate coverage by paying unaffordable premiums.

The Obama administration officials and their co-conspirators in Congress could not have been serious about bringing us real reform. If they were, we would have an improved Medicare covering everyone.

Physicians for a National Health Program and the American Public Health Association are currently holding their national meetings in Washington, D.C. We need to go to Freedom Plaza and join the Occupy Movement.

By Julian Pecquet
The Hill, October 27, 2011

The report concludes that fewer than 2 million couples — out of 60 million nationwide — are projected to benefit from the insurance subsidies, while “almost half of the beneficiaries of the tax credit will be unmarried individuals without dependent children.”

One reason is that subsidies, which start in 2014, are tied to the federal poverty level, which does not increase proportionally along with household size.

Another problem is a snafu in the law that The Hill first reported back in July.

The law offers insurance subsidies for workers if their employer doesn’t provide affordable coverage, but proposed regulations released in August peg that affordability to individual, not family, coverage. As a result, a worker’s spouse and children would not have access to subsidies if that worker were offered affordable coverage — even if the worker could not afford the family coverage offered by the employer.

The American Academy of Pediatrics is spearheading a sign-on letter to the Centers for Medicare and Medicaid Services (CMS) that decries a “family penalty” that will “negatively impact the opportunity to access quality health insurance for significant numbers of children.”

http://thehill.com/homenews/house/190105-healthcare-reform-penalizes-married-couples-says-report

Comment: 

By Don McCanne, MD

This is yet one more example of the fundamental strategic flaw of trying to design reform to fit a fragmented system of private health plans and public programs. Instead of a complex set of rules which are designed to protect the insurance industry, it would have been so much easier and much more efficient to design reform around the patient instead by simply declaring that everyone is covered by a single comprehensive program that is equitably funded. We can still do that.

Healthcare reform penalizes married couples, says report

By Julian Pecquet
The Hill, October 27, 2011

The report concludes that fewer than 2 million couples — out of 60 million nationwide — are projected to benefit from the insurance subsidies, while “almost half of the beneficiaries of the tax credit will be unmarried individuals without dependent children.”

One reason is that subsidies, which start in 2014, are tied to the federal poverty level, which does not increase proportionally along with household size.

Another problem is a snafu in the law that The Hill first reported back in July.

The law offers insurance subsidies for workers if their employer doesn’t provide affordable coverage, but proposed regulations released in August peg that affordability to individual, not family, coverage. As a result, a worker’s spouse and children would not have access to subsidies if that worker were offered affordable coverage — even if the worker could not afford the family coverage offered by the employer.

The American Academy of Pediatrics is spearheading a sign-on letter to the Centers for Medicare and Medicaid Services (CMS) that decries a “family penalty” that will “negatively impact the opportunity to access quality health insurance for significant numbers of children.”

http://thehill.com/homenews/house/190105-healthcare-reform-penalizes-married-couples-says-report

This is yet one more example of the fundamental strategic flaw of trying to design reform to fit a fragmented system of private health plans and public programs. Instead of a complex set of rules which are designed to protect the insurance industry, it would have been so much easier and much more efficient to design reform around the patient instead by simply declaring that everyone is covered by a single comprehensive program that is equitably funded. We can still do that.

By James Livingston
The New York Times, October 25, 2011

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.

This is, to put it mildly, a controversial claim. Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.

The general public seems to agree. According to a New York Times/CBS News poll in May, a majority of Americans believe that increased corporate taxes “would discourage American companies from creating jobs.”

But history shows that this is wrong.

Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.

The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we face.

So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.

Why, then, do so many Americans support cutting taxes on corporate profits while insisting that thrift is the cure for what ails the rest of us, as individuals and a nation? Why have the 99 percent looked to the 1 percent for leadership when it comes to our economic future?

A big part of the problem is that we doubt the moral worth of consumer culture. Like the abstemious ant who scolds the feckless grasshopper as winter approaches, we think that saving is the right thing to do. Even as we shop with abandon, we feel that if only we could contain our unruly desires, we’d be committing ourselves to a better future. But we’re wrong.

Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term. If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)

We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper.

(James Livingston, a professor of history at Rutgers, is the author of “Against Thrift: Why Consumer Culture Is Good for the Economy, the Environment and Your Soul.”)

http://www.nytimes.com/2011/10/26/opinion/its-consumer-spending-stupid.html

Comment: 

By Don McCanne, MD

According to Professor James Livingston, the key to economic recovery is to use tax policy and government spending to redistribute income away from profits and toward wages so that it can be spent on products and services. So what does this have to do with health care?

Our current national policies have moved us in the wrong direction. The tax burden in the United States is one of the lowest of OECD nations. We are told that taxes need to be reduced further to enhance profits that can then be reinvested in our economy. Yet those profits are not being directed to consumer spending. Instead this surplus capital has been used in financial markets to wreak havoc on our economy. The billionaires scoop up more funds while the consumers have even less income to spend. What we need is an infusion of more funds into the economy – spending on real products and services, not on destructive financial instruments.

Health care is one of the most, if not the most, valuable sectors of our economy. Spending on health care is one of the better things that we can do. Yet our current policies are directed to shifting more of the costs to individuals with health care needs, with the result that there will be a decrease in health care purchasing simply because the health care consumer doesn’t have enough money.

Cutting back on spending in Medicare and Medicaid, and shifting to the new standard of unaffordable private underinsurance plans called for in the Affordable Care Act will deprive this important, beneficial sector of our economy of much needed consumer/government funds.

It has long been recognized that health care financing must be progressive if we are going to provide essential care for everyone. The retained corporate earnings and other stashes of wealth are crying out to be tapped to be moved back into our economy, whether it’s for health care or for the multitude of other essential needs that should be met in a well functioning society.

For the health care sector of our economy, we need equitable tax policies and government spending. An improved Medicare for all would work just fine. It would be good for our economy, and good for the health of each and everyone of us.

It’s Consumer Spending, Stupid

By James Livingston
The New York Times, October 25, 2011

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.

This is, to put it mildly, a controversial claim. Economists will tell you that private business investment causes growth because it pays for the new plant or equipment that creates jobs, improves labor productivity and increases workers’ incomes. As a result, you’ll hear politicians insisting that more incentives for private investors — lower taxes on corporate profits — will lead to faster and better-balanced growth.

The general public seems to agree. According to a New York Times/CBS News poll in May, a majority of Americans believe that increased corporate taxes “would discourage American companies from creating jobs.”

But history shows that this is wrong.

Between 1900 and 2000, real gross domestic product per capita (the output of goods and services per person) grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What’s more, in 1900 almost all investment came from the private sector — from companies, not from government — whereas in 2000, most investment was either from government spending (out of tax revenues) or “residential investment,” which means consumer spending on housing, rather than business expenditure on plants, equipment and labor.

In other words, over the course of the last century, net business investment atrophied while G.D.P. per capita increased spectacularly. And the source of that growth? Increased consumer spending, coupled with and amplified by government outlays.

The architects of the Reagan revolution tried to reverse these trends as a cure for the stagflation of the 1970s, but couldn’t. In fact, private or business investment kept declining in the ’80s and after. Peter G. Peterson, a former commerce secretary, complained that real growth after 1982 — after President Ronald Reagan cut corporate tax rates — coincided with “by far the weakest net investment effort in our postwar history.”

President George W. Bush’s tax cuts had similar effects between 2001 and 2007: real growth in the absence of new investment. According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we face.

So corporate profits do not drive economic growth — they’re just restless sums of surplus capital, ready to flood speculative markets at home and abroad. In the 1920s, they inflated the stock market bubble, and then caused the Great Crash. Since the Reagan revolution, these superfluous profits have fed corporate mergers and takeovers, driven the dot-com craze, financed the “shadow banking” system of hedge funds and securitized investment vehicles, fueled monetary meltdowns in every hemisphere and inflated the housing bubble.

Why, then, do so many Americans support cutting taxes on corporate profits while insisting that thrift is the cure for what ails the rest of us, as individuals and a nation? Why have the 99 percent looked to the 1 percent for leadership when it comes to our economic future?

A big part of the problem is that we doubt the moral worth of consumer culture. Like the abstemious ant who scolds the feckless grasshopper as winter approaches, we think that saving is the right thing to do. Even as we shop with abandon, we feel that if only we could contain our unruly desires, we’d be committing ourselves to a better future. But we’re wrong.

Consumer spending is not only the key to economic recovery in the short term; it’s also necessary for balanced growth in the long term. If our goal is to repair our damaged economy, we should bank on consumer culture — and that entails a redistribution of income away from profits toward wages, enabled by tax policy and enforced by government spending. (The increased trade deficit that might result should not deter us, since a large portion of manufactured imports come from American-owned multinational corporations that operate overseas.)

We don’t need the traders and the C.E.O.’s and the analysts — the 1 percent — to collect and manage our savings. Instead, we consumers need to save less and spend more in the name of a better future. We don’t need to silence the ant, but we’d better start listening to the grasshopper.

(James Livingston, a professor of history at Rutgers, is the author of “Against Thrift: Why Consumer Culture Is Good for the Economy, the Environment and Your Soul.”)

http://www.nytimes.com/2011/10/26/opinion/its-consumer-spending-stupid.html

According to Professor James Livingston, the key to economic recovery is to use tax policy and government spending to redistribute income away from profits and toward wages so that it can be spent on products and services. So what does this have to do with health care?

Our current national policies have moved us in the wrong direction. The tax burden in the United States is one of the lowest of OECD nations. We are told that taxes need to be reduced further to enhance profits that can then be reinvested in our economy. Yet those profits are not being directed to consumer spending. Instead this surplus capital has been used in financial markets to wreak havoc on our economy. The billionaires scoop up more funds while the consumers have even less income to spend. What we need is an infusion of more funds into the economy – spending on real products and services, not on destructive financial instruments.

Health care is one of the most, if not the most, valuable sectors of our economy. Spending on health care is one of the better things that we can do. Yet our current policies are directed to shifting more of the costs to individuals with health care needs, with the result that there will be a decrease in health care purchasing simply because the health care consumer doesn’t have enough money.

Cutting back on spending in Medicare and Medicaid, and shifting to the new standard of unaffordable private underinsurance plans called for in the Affordable Care Act will deprive this important, beneficial sector of our economy of much needed consumer/government funds.

It has long been recognized that health care financing must be progressive if we are going to provide essential care for everyone. The retained corporate earnings and other stashes of wealth are crying out to be tapped to be moved back into our economy, whether it’s for health care or for the multitude of other essential needs that should be met in a well functioning society.

For the health care sector of our economy, we need equitable tax policies and government spending. An improved Medicare for all would work just fine. It would be good for our economy, and good for the health of each and everyone of us.