Is All Payer Ready for a Comeback?

Congress is debating the American Health Care Act, the first of three steps in Republicans’ march toward repealing and replacing the Affordable Care Act. Things are not going smoothly. GOP conservatives, which have considerable clout in the House of Representatives, want the bill to repeal more and replace less. More moderate Republican Senators, of which there are enough to block any legislation, argue the legislation goes too far in some respects. Attempts to mollify one side hardens opposition on the other. And so far, no real effort has been made to entice Democrats to do more than watch Republicans fight one another.

It’s possible President Donald Trump, Speaker Paul Ryan and Senate Majority Leader Mitch McConnell can corral enough votes in each chamber to push the AHCA through Congress. It’s possible, but I’m skeptical. And what if they can’t?

Well, they could do nothing, leaving enough uncertainty laying about that the individual market, at least, collapses. That could make 2018 a tough election year for Republicans. Or they could offer AHCA version 2.0 and hope for better results. Wishful thinking is a great past time, but hardly a vehicle for making public policy.

All of which argues for doing something outside the proverbial box. Maybe Congress could even address the core problem facing America’s health care system: the cost of medical care. What might that look like? One option would be to look at an idea that’s been around since the 1990s if not longer: an all payer system. It would certainly be an interesting debate.

One idea that fits that bill is an all payer system. To oversimplify, under this arrangement providers and payers (usually the government) establish a price for each medical treatment and service. Every provider accepts this rate as payment in full and every payer (government, private insurance, self-funded plans and individuals) pays this rate.

As noted by The Hill, several states experimented with one version or another of all payer systems in the 1990s, although today only Maryland’s remains. As recently as 2014, academics at Dartmouth proposed using 125 percent of Medicare reimbursement rates for a national all payer program. Pricing transparency advocates like all payer systems because everyone knows the cost of care – the ultimate transparency. And this system eliminates the wide variance in pricing for identical treatment so prominent today.

A pure all payer system would be difficult to pass, however. Free market Republicans will not accept the government setting the price for all medical care payments. And pharmaceutical companies, doctors, hospitals and other providers are not going to take kindly to having anyone set a one-size fits all cost structure. There are variations on the all payer theme that might make such a system more palatable — and allow for a healthy (and entertaining) debate..

For example, consider an all-payer system in which Medicare reimbursement rates are simply a starting point; the benchmark used by all providers in setting their costs and all payers in determining their reimbursement levels. No more Alice in Wonderland pricing by hospitals and other providers. Each service provider would describe their fees as a multiple of Medicare. Insurers would offer plans that cap reimbursements at different multiples of Medicare.If the doctor’s charges are at a lower or the same multiple as an insurance policy’s, that provider would be fully reimbursed by the carrier and no charges beyond co-payments, deductibles and co-insurance (if any) would be required of the patient. If the practice has set a higher Medicare multiple than a patient’s policy covers then the patient is liable for the additional cost. The key, however, is that the consumer would know this before incurring the charge. (Which is why emergency care would be treated somewhat differently).

An all payer system requires higher cost providers to justify the extra expense. It eliminates the helter skelter of ever-changing networks. Health insurance premiums would reflect reimbursement rates and would correlate with the number of providers whose services would be covered in full.

Conservatives can’t claim all payer systems is a government takeover of health care. On the contrary, the only role Medicare plays is providing the baseline for reimbursement … a common language all providers and payers speak.  What they do with that baseline is up to them. Liberals won’t like that insurance companies remain in the health care system and will object to limiting, as a practical matter, poorer Americans to low reimbursement policies.

Right now, all attention is on the American Health Care Act. That’s as it should be. After all, it’s not dead yet. Given there’s a good chance the legislation will crash and burn, there’s no harm in thinking about what could come next. I’m rooting for something that isn’t just a rehash of the 2009 debate, but rather something bolder. An all payer proposal is just one idea and there are no doubt many better ones.

What’s your favorite?

Supreme Court May Undermine State Transparency Efforts

When it comes to health care, costs matter. This may seem obvious, but it’s remarkable how often this reality gets lost in the arguments of the day. Yet consider: depending on the market segment, the Affordable Care Act requires that 80%-to-85% of every premium dollar be spent on medical care. This means the more medical care costs, the more insurance policies cost. One might hope that higher health care prices also correlates with better medical outcomes. One might hope that was the case, but one would be wrong.

Over the years there have been several studies demonstrating this disconnect between medical costs and quality of care. A Health Affairs Blog post authored by Jonathan Skinner, David Goodman and Elliot Fisher in analyzing a recent report provides links to others done over the years. Then there’s a study by Castlight Health showing the cost of mammograms in Los Angeles ranging from $86-to-$954–the pricing disparity in other cities such as Dallas and New York were even greater.

Advocates assert that medical pricing transparency will lower insurance premiums by promoting competition among medical providers and allowing consumers to shop for the lowest cost quality care. Payers like large employers, insurers and the government, could also use this information to negotiate lower charges for health care services.

Yet America’s health care system is amazingly opaque when it comes to pricing. As Steven Brill reported in his Time Magazine cover story, so is the method providers use to set their prices.Cost effectiveness leaves the room when there’s little rhyme or reason for how physicians and hospitals set prices.

Key to effective pricing transparency is meaningful data and lots of it. As the National Association of Health Underwriters puts it, the need is for “current, accurate, unbiased and relevant data” available in “a format and process that is user-friendly.” Which is why 18 states have laws requiring self-insured companies and other payers to contribute patient claims data to a pricing database.

Some of these self-insured companies, however, are pushing back. They fear the costs of complying with differing state requirements. Liberty Mutual Insurance Company is one of those companies. They sued the state of Vermont claiming the state could not demand claims data from them because ERISA denies them the power to do so.

The Second Circuit Court of Appeals agreed with the company. The case, Gobeille v. Liberty Mutual Insurance Company (often referred to in the media as Liberty Mutual v. Gobielle) is now before the Supreme Court, which heard oral arguments on December 2, 2015. Tyler Vandeventer and Jason Ottomano provide specifics concerning the case and the arguments on Cornell University Law School’s Legal Information Institute site.

The Supreme Court’s decision in this case will have a significant impact on pricing transparency and, consequently, the affordability of health care coverage. Without claims data, cost comparisons simply aren’t possible. This isn’t the case of garbage in, garbage out. This is nothing in, nothing out.

The Court’s decision will also clarify how states can interact with self-funded plans under ERISA. This too could have far-reaching impacts.

There are many more high-profile cases before the Supreme Court than Gobeille v. Liberty Mutual. None of those, however, are likely to have a greater impact on transparency and the cost of health insurance.

No date for a decision in Gobielle v. Liberty Mutual has been set.

A version of this post appeared on my LinkedIn page.

No on Proposition 45

As you know, this blog has been—and remains—on hiatus. I’m playing around with reviving it down the road, but before I could even think that idea through, a California issue has arisen that compels me to write something now. That issue is Proposition 45. There’s a long and storied history in California of great sounding initiatives that harbor devastating impacts. Proposition 45 is one of those and that’s why it needs to be defeated on November 4th.

Proposition 45 is Unnecessary

Proposition 45 supporters claim it will lower costs by simply requiring the California Department of Insurance Commissioner to approve rate and benefit changes to individual and small group medical plans before they take effect. (Large group coverage is exempt and untouched by Proposition 45). Whether this would actually lower rates or not is an open issue. After all, insurance rates are driven by a host of issues—the cost of medical care, new technologies and drugs, an aging population and changing demographics, increasing rates of chronic conditions—none of which are addressed by Proposition 45.

Regardless of its intent, Proposition 45 is late to the lower-premiums party. The Patient Protection and Affordable Care Act (the “ACA”), often referred to as ObamaCare, already requires carriers to spend a specified percentage of the premium they take in on medical services and related expenses. This mechanism acts to prevent the price gouging Proposition 45 proponents claim is rampant in the industry.

That Proposition 45 is unnecessary is reason enough to vote no on the initiative. But it’s far worse.

Proposition 45 Gives too Much Power to One Politician

Proposition 45 doesn’t create a single payer system; it creates a single overseer system. By explicitly giving the Insurance Commissioner authority over rates and benefits, Proposition 45 gives this elected official implicit power over everything relating to health plans in California. This includes what treatments carriers cover—or don’t cover, what doctors and hospitals are in—or out—of a carrier’s network, what insurers spend on marketing and distribution, and virtually everything else but what colors are in the carrier’s logo. And a creative Commissioner could probably find a way to control that as well.

The ability to leverage explicit powers to expand control over other items isn’t idle conjecture. I’ve seen it done in other contexts. In fact, I did this kind of thing in another context. When I served on the Santa Monica City Council we used our authority over zoning to extract all sorts of concessions from developers. For example, while we didn’t have explicit authority to require a developer to set up a job training program in the city, leveraging our power over zoning exceptions we got it anyway.

The power given the Insurance Commissioner by Proposition 45 is unprecedented—and dangerous. For example, while the Commissioner oversees insurance companies, HMOs are regulated by the Department of Managed Health Care. Proposition 45, however, allows the Commissioner to overrule a DMHC decision concerning an HMO’s rates. Or benefits. Or network. Or anything else.

Covered California is the state agency running the medical exchange in the state setup pursuant to the ACA. In that role Covered California negotiates with participating carriers over rates and benefits. Under Proposition 45, however, the Commissioner (or, as we’ll see, virtually anyone else) can object to the deals reached by Covered California. The result, discussed below, could be catastrophic for California’s health insurance exchange.

So long as we continue to elect human beings to public office no politician should be given such unbridled power. The temptation to misuse it (even in the name of all that’s good and just) would overpower a saint. And to my knowledge, there are few politicians who have been up for sainthood.

Here’s an interesting fact: every elected California Insurance Commissioner but two have run for higher office. One of the exceptions, Chuck Quackenbush was indicted and resigned the office. The second, the incumbent Dave Jones, simply hasn’t had the time yet. Commissioner Jones will be reelected this Tuesday and is widely assumed to be eyeing a run for Governor, Senator or Attorney General at the next opportunity. The post of Insurance Commissioner is a stepping stone, not a destination.

There’s nothing wrong with political ambition. But it does mean almost every decision made by an office holder is at least partially a political one. The calculus facing an Insurance Commissioner when reviewing a carrier’s rate submission is pretty straightforward. At the next election does the Commissioner want to run ads bragging about the hundreds of millions of dollars they saved voters or does she want to give her opponent ammunition to call her a tool of the evil insurance companies? In the political world, regardless of party affiliation, this choice is as close to a no brainer as politicians are legally allowed to stand. The market isn’t always a perfect pricing mechanism, but it’s far preferable to a political one.

Proposition 45 Will Create Chaos and Confusion

Some 35 other states require state regulators to approve rate changes. None of them, however, have an “intervener” system like that contained in Proposition 45 (or gives such extensive power to a single politician). Proposition 45 enables “consumer advocates,” lawyers and others to object to carriers’ rate actions. Once their intervention is accepted by the Commissioner, these interveners can earn $675 per hour for their efforts. A similar provision in Proposition 103, which dealt with auto and home insurance, has earned the authors of that initiative millions of dollars since its passage. No wonder they included a role for interveners when they drafted Proposition 45.

The extremely lucrative intervener provisions in Proposition 45 are virtually guaranteed to result in costly and frequent objections. Which means rate and benefit changes could be delayed months. Under Proposition 103, the average rate filing subject to intervention takes 343 days … over 11 months. Given that health insurance is not the same as property & casualty coverage this is extremely troubling. Timely decision-making is even more important with medical coverage than homeowner and auto policies.

If anything remotely close to these delays were to result from Proposition 45 the result would be chaos and confusion. Here’s a nightmare to consider: the premium subsidies available individuals in Covered California’s individual exchange is based on the cost of a specific plan (the second lowest cost Silver plan for those interested). What happens if, after this linchpin-product is identified, priced and in place, an intervener objects to its rates? What would the premium subsidy be based on then? What plans would be available in the exchange?  It could, and I believe probably would, take months to decide.  And by then open enrollment in the exchange could be over.

Think of the opportunities for mischief. Want to undermine the ACA? Wait until the last-minute and then object to the plans and rates negotiated by Covered California. No wonder the Board of Covered California have expressed their dismay about the damage Proposition 45 could do to their program.

Broad Opposition to Proposition 45

And the Board of Covered California (who took no formal position in opposition to Proposition 45) are not the only ones concerned about Proposition 45. The roster of Proposition 45 opponents is broad and impressive.

Earlier this week House Minority Leader Nancy Pelosi voiced her opposition to Proposition 45.telling the editorial board of the San Francisco Chronicle, “If I wanted to kill the Affordable Care Act, I would do this.”

Minority Leader Pelosi joins the California Medical Association, the California Hospital Association, the Service Employee International Union of California, the California State Conference of the NAACP, the Small Business Majority, the California Association of Health Plans and a host of others in opposing Proposition 45. Significantly, the vast majority of newspapers in the state are opposing the initiative as well, including the Los Angeles Times, Sacramento Bee, U-T San Diego and the San Francisco Chronicle.

As are the major agent and broker organizations: CAHU, NAIFA-California, IIAB-Cal and WIAA have come together to form Agents of Action. This is a grassroots effort to generate 100,000 No votes on Proposition 45. The strategy is by harnessing the efforts of brokers throughout the state to educate and motivate their clients, colleagues, friends and family on why it’s important to defeat Proposition 45. (Full disclosure, I’ve played a leadership role in Agents of Action).

If you’re a broker in California, please check out the web site at www.AgentsOfAction.org, download the tools available to you there and get your network out to the polls on November 4th to vote No on Proposition 45. As Agents of Action emphasizes, Proposition 45 is bad for you and worse for your clients.

Of course, the important thing to do is vote. Too many have given too much for us not to live up to our responsibilities.

And, hey, when you do vote, please vote No on Proposition 45.

Health Care Reform: The Individual-Small Group Seesaw

One of the most frequent questions I’m asked about health care reform is whether the Patient Protection and Affordable Care Act will result drive people from group plans to individual plans or vice versa. It’s an interesting question. We have enough information to make some guesses, but not enough to know. And there are reasonable scenarios that can be created for each conclusion.

An individual coverage scenario: No small business owner I’ve met got into business for the thrill of buying health insurance for the company.  Now health care reform makes it easy for them to get out of the insuring business: give every worker a small raise along with the URL for the state health insurance exchange. The employees benefit: they get to choose their own health plan and some may qualify for premium subsidies. Their coverage isn’t tied to their employment and they can keep their plan if they change jobs. They don’t even need to spend all of their raise on premiums nor are they locked into the exchange. Once the employer decides not to provide coverage they can obtain individual coverage where they please.

Employers benefit from no longer having to shop for health insurance for their workers (they’ll have to shop for their own families, but that’s a lot less stressful). No more complaints. No more  bookkeeping.

A small group coverage scenario: Small business owners aren’t required to purchase coverage today, but there are good reasons for their doing so — and those reasons aren’t changed by health care reform. Providing health insurance helps small businesses recruit and retain good employees. Employers’ contributions to health insurance premiums makes coverage more affordable for employees. Yes, the Patient Protection and Affordable Care Act provides subsidies to some workers, but only those earning less than 400 percent of the federal poverty level ($43,320 for an individual and $88,200 for a family of four in 2010).  So, depending on their salary, sending employees to the individual market will be perceived as a loss to some employees.

Even if employees receive a small raise to help them with buying their own coverage, employees may see the loss of work-based coverage. How long before that raise is considered just part of their salary? A month? A quarter? The connection between the raise and the coverage is tenuous and easily forgotten. Look at it from an employee’s point of view who …

  • Receives a raise and buys own coverage: my boss gave me a $200 raise. Coverage costs $250. Wow that’s a lot. Of course, after the raise it’s a net expense of $50, but still — $250 a month for insurance is a lot of money.
  • Has employer-provided coverage: My share of the health insurance premium is just $50. My neighbor pays $250. I’ve got a good deal.

Which way?

There’s a lot of other factors that will impact the movement of consumers between individual and small group plans. Employers may cover the cost of Bronze benefit plans and allow each employee to buy-up to a Silver or Gold offering. Companies could drop — or add — ancillary products like dental, life, long term care or disability coverage. The exchange could be easier to use than is anticipated today — or much harder.

Predicting whether health care reform will shift consumers from small group to individual or move them the other way is simply guesswork at this point. My advice to brokers who ask what they should do to prepare for this seesaw ride is to get engaged in both market segments. Brokers active in both the individual and small group markets will have plenty of customers regardless of which direction the teeter totters. I also suggest they become expert on assorted other benefit plans (voluntary benefits, group dental, life, long term care and disability). That way they’ll have additional opportunities to meet clients’ needs. Success under health care reform will go to the nimble and flexible.

What’s your guess? (Please vote only once)

[polldaddy poll=3135404]

Obama’s Health Care Speech a Beginning, Not an End

Whether you support President Barack Obama or not, his address tonight on health care reform to a joint session of Congress is a major event. American want reform, but are increasingly wary of the what they are hearing is likely to emerge from Washington. Of course, much of what they hear about what’s being considered is wrong or concern proposals that no one expects to reach the President’s desk, but the public’s unease is troubling for reformers nonetheless.

A well established political law holds that it is easier to attack than to propose and promote change. Reformers, consequently, are always at a disadvantage. The White House has seen the tenor and substance of the debate hijacked by charges both serious and silly. Worse, from their perspective, President Obama is being tied to reform bills he has neither endorsed nor blessed. The media and voters describe Congressional proposals as those of the Administration even though the President has stated only principles for reform, not details.

That changes tonight. Or at least, it starts to change tonight. President Obama is going to step into the health care debate over the next several weeks in a far more forceful fashion than before. While it’s unclear how specific he will get tonight, there is little doubt that he will be very clear about what he wants in a health care reform bill – and what he does not – over the next several days. My guess is he will use the introduction of mark-up of legislation by the Senate Finance Committee, expected to begin as early as next week, as his foundation. But whatever vehicle he commandeers (to mix metaphors), we are very close to moving past accusations concerning what Obamacare is to seeing what actually what the President’s plan actually looks like.

And this process begins with tonight’s speech. The folks over at Politico have a good “what to look for” post. Among the most significant items:

  1. Will President Obama keep it simple – and, consequently, comprehensible?
  2. Who will serve as the President’s foil? (My guess – insurance companies).
  3. Where does President Obama stand on a government-run insurance plan? We know he wants one, but will he threaten to veto a bill without a public plan?

Here’s some other questions to keep in mind while watching the President’s speech:

  1. Is the President specific about ways of reducing medical costs?
    Health insurance premiums reflect the underlying cost of health care. So does the burden of public programs like Medicare and Medicaid. Will President Obama make this clear? And will he have ideas for dealing with them?
  2. How will the President frame the rationing issue?
    The spurious fear mongering around death panels not withstanding, the public has legitimate concerns about what reform will mean to their own access to health care. There is rationing of care under the status quo (based primarily on the quality of one’s health insurance), but it’s mostly hidden and subtle. Every health system rations care in some way. How explicit will the President be about the inevitable rationing resulting from his plan?
  3. What type of Health Care Exchange does the President support?
    Does he see these exchanges as bringing together information or are they actively negotiating with carriers concerning rates and benefits? Will they replace brokers or supplement them?
  4. How does President Obama describe the efforts in the Senate Finance Committee to shape bi-partisan reform?
    Does he describe their efforts as central to health care reform legislation or as just one of many sources? Does he give its chair, Senator Max Baucus, political support and cover or leave him to fend for himself? As regular readers know, I’m one of those who believe the bill the Senate Finance Committee produces will be close to what eventually emerges from Congress. Part of my reasoning has been that President Obama wants reform legislation . Which brings us to …
  5. Does President Obama show more interest in practical results or partisan purity?
    Will he seek to please the liberals or the moderates? Will he show a willingness to accept less than a full loaf or will he insist a host of specific elements be included in the reform bill?
  6. Will President Obama succeed in making the status quo unacceptable?
    The devil known is always more welcome than the unknown variety. Right now those attacking reform have the easier task. The President needs to reverse the argument, putting the burden on his critics to demonstrate that the current system is worth preserving – or that it can be preserved. If he fails, the Administration will remain on the defensive. Not a fatal setback, but a serious problem.

Watching the spin doctors go to work on the speech will be a fascinating lesson in politics. Watching them will also be annoying. One can predict what Fox News and MSNBC will be saying, but they don’t really matter. They preach primarily to established constituencies. The public that still has an open mind on the issue will be tuned to the networks, CNN and waiting for their morning paper.

As you listen to the reaction, keep in mind that tonight’s speech is only the beginning of the Administration’s final push for health care reform.  The game isn’t over tonight. It’s just beginning.

Health Insurance Brokers to the GOP: “Et Tu?”

Health insurance brokers are appropriately worried about the impact health care reform will have on their livelihood. That’s human nature. Politics is about the management of self-interest. When it comes to health care reform, the list of concerned onlookers is long. Patients, doctors, hospitals, carriers, government bureaucrats, health insurance agents, employers, lawyers, dentists, chiropractors, pharmaceuticalfirms and, well, you get the idea.  Anymeaningful change is going to require sacrifice by most all of these stakeholders. 

When it comes to balancing all these competing interests, the partisan nature of American politics usually comes into play. Public policy flowing from the Democratic party tends to benefit some at the expense of others. The same holds true with the Republican party.

Health insurance brokers, for example, tend to rely on the GOP to promote policies supportive of their profession. One reason for this connection is political. I’ve no empirical data, but long experience in working with health insurance brokers leads me to believe that the majority vote Republican. Another reason, however, is ideological. Republicans tend to support market-based health care reform solutions  and brokers are integral to making the market work. Brokers take competing health plans and interpret them to their prospects and clients. One method they use is to take the different explanations of benefits used by different competitors and put them into a consistent template. They serve as consumer’s advisers and, when needed, their advocates to assure they get full value from their health plans.

As President Barack Obama’s Administration works with the Democratic majority in Congress to fashion health care reform, many brokers are relying on Republicans in Congress to stand firm against a public plan (which most brokers believe would eventually drive private plans out of existence — and take brokers down the drain with them). And they are trusting Republicans will make the case for the value brokers add to the system.

This trust may be misplaced.

Last week four leading Republicans put forward “The Patients’ Choice Act.” The Act is their call to action for fixing what they refer to as America’s broken health care system while at the same time seeking to preserve much of the current market driven arrangement. The authors of the proposal, Senators Tom Coburn and Richard Burr and by Congressmen Paul Ryan and Devin Nunes, are leading voices within their party on health care reform. It’s not clear whether the Patients’ Choice Act is the official position of the Republican caucuses in Congress, but no other proposal has been forth by the GOP. And the media is certainly treating it as the “Republican health care reform plan.”

Not suprisingly, the GOP lawmakers explicitly reject a public health program. Indeed, while acknowledging other factors leading to runaway costs (new technology, an aging population) their document proclaims the primary reason America’s health care system fails so many patients is “government intervention.”

Nonetheless, there are several elements of the Patients’ Choice Act which occupy common ground with Democrats (more on these in a future post). Some of what’s in The Patients’ Choice Act summary is, suprising and even amusing. For example, Republicans have taken to accusing Democrats of seeking to move America to “European-style socialism.” Yet, in justifying some of their ideas the sponsors of the Act turn to similar programs working in — wait for it — Europe.

Some elements of the reform package are just foolish. For example, under the Patients’ Choice Act carriers to accept all applicants regardless of their health condition (often referred to as “guarantee issue”). However, explicitly reject requiring individuals to obtain coverage stating that “if individuals do not want health insurance, they will not be forced to have it.” In fact, they go so far as to suggest that individuals be able to purchase coverage at any time “through places of employment, emergency rooms, the DMV, etc.”

In taking this position it appears the the Republicans have adopted the greatest flaw in then candidate-Obama’s health care reform plan — and made it worse. Why would anyone purchase coverage before they need it? Any reasonable person would wait until they’re on their way to the doctor, stop by the DMV and purchase coverage. In case of an accident, all they would need to do is go to the emergency room (the most expensive place to receive care), sign up at the receiving desk and enter the facility as a fully insured patient. As soon as they’ve recovered, it would be safe to drop the coverage.

(I find it hard to believe the Republicans are taking such a naive view of insurance. And, to be fair, the Patients’ Choice Act is somewhat lacking in details. However, what I’ve described comes from the Republican lawmakers’ own document. If they are creating safeguards to prevent such gaming of the system, there’s no evidence of it yet.)

As with any health care reform proposal, there’s elements to like and to dislike in the the Patients’ Choice Act. What will be most troubling for brokers, however, is the GOP’s call for creating state-based exchanges. The benefits of such exchanges includes a “one-stop marketplace for health insurance. Individuals would get a hassle-free opportunity to choose the plan that best meets their needs through an Exchange.” Most brokers believe that’s their role in the current system. To have Republicans propose a state agency to take on this responsibility is disconcerting at best; a betrayal at worst.

Then there’s the “auto-enrollment” feature touted by the Republicans allowing individuals to obtain health insurance at the DMV and other locations. Apparently the GOP sees little value in having consumers work with licensed, regulated agents and brokers, not when there’s a clerk at the DMV available.

To be fair, the Republicans are not explicitly excluding brokers from their version of a new health care system. In fact, they are expected to remain a part of the system. In the GOP’s “Patients’ Choice Act Q&As they write, “Whether an individual uses an insurance broker, an internet [sic] comparison page, or calls a toll free number, individuals are provided the information needed to choose a plan tailored to their individuals [sic] needs.” This basically equates the knowledge, skills and expertise of  independent brokers to what can be delivered by an Internet site or a customer service rep at the state Exchange. How comforting.  Perhaps they are relying on the Exchange to standardize health insurance so much that professional guidance is no longer required. Although if coverage is that standardized, then perhaps calling their proposal the Patients’ Choice Act might be somewhat misleading.

The National Association of Health Underwriters, the primary professional organization for health insurance brokers, is working hard to educate lawmakers concerning the value independent brokers add to the system — value which should be preserved in whatever reform package emerges from Washington.  To the extent the Patients’ Choice Act represents Republican thinking on health care reform, relying on the GOP as an ally in this effort could be a painful path to disappointment.

Hybrid Health Care System: The Search for Common Ground

As the debate intensifies over the wisdom of including a publicly financed health plan to compete with private carriers serving the individual and small group market, it’s only natural that a search for a compromise intensifies, too. As noted in previous posts, Professor Uwe Reinhardt has promised to unveil a proposal that would enable a public health plan to compete with private offerings without destroying them.  And President Barack Obama’s Director of the White House Office for Health Reform, Nancy-Ann DeParle, has expressed confidence compromise is possible.

One place they’ll be looking to for examples is the experience states have in running government financed plans in competition with private carriers in coverage programs offered to state workers. For example, last month Lee Nichols and John Bertko of the New America Foundation examined what could be learned from these state programs in a policy paper entitled “A Modest Proposal for a Competing Public Health Plan.” The authors consider the polarized debate on the topic of a public health plan unnecessary. “It is possible to structure a new insurance marketplace so that public and private health plans compete on a level playing field,” they claim.

Examining state employee programs like California’s Cal-PERS, Mr. Nichols and Mr. Bertko conclude that the solution is to separate “oversight of the public plan from that of the managers of the marketplace or exchange(s). It will also require that all rules of the marketplace – benefit package requirements, insurance regulations, and risk adjustment processes — apply to all plans equally, whether public or private.” They also call for a system-wide approach to containing medical costs and warn against “relying heavily on the public plan’s potential market power” to bring down those costs.

The New America Foundation report does a good job of summarizing the positions of those in favor and opposed to creating government-run health plans. For that reason alone it’s worth reason. But the paper is also noteworthy for being among the first to offer a solution that, while not wholly satisfactory to partisans on either side of the issue, at least proves that common ground is possible.

Their emphasis on the need for a level playing field between the private and public health plans is especially critical. And the hardest to assure. Even if a program starts off with good intentions, over time the temptation to tweak the system in order to favor the government program could become overwhelming for lawmakers. If how Congress and the Pentagon deal with defense contracts is any indication, it won’t be long before a public health plan becomes a political toy for lawmakers to play with.

I have other concerns about the report. For example, like many others, the authors treat state employee health plans as fair equivalencies of the individual and small group market. But that’s a questionable assumption. The general public is far more diverse, dispersed and expensive to reach than state employees. There’s a reason why carriers who excel at serving large group clients flounder when they enter the small group or individual marketplace. It’s not just that the dynamics and challenges of the two segments differ, but so do the needs and expectations of the insureds.

Comprehensive health care reform is too complicated, controversial and complex for the partisans to harden their positions this early. There are going to be a host of issues to work through; creation of a hybrid system is merely one of them. By putting forward a compromise solution, instead of simply taking sides in the debate,  Mr. Nichols, Mr. Bertko and the New America Foundation have made a valuable contribution to the health care reform process. Assuming, of course, that the partisans on either side of the issue are able to consider compromise in the din of the debate.

A Hybrid Health Care System: Good Politics; Unrealistic Policy

When it comes to topics as complex as health care reform, the legislative dance generally involves two steps.  The first focuses on educating decision makers. It’s a sincere effort to learn the facts, understand the options and identify the trade-offs. Yes, there’s a political element to this phase, but there’s more often a genuine desire to learn about the issue.

The second step in the dance is when the actual language is drafted. This is the phase in which partisanship dominates, where the goal is to win, not educate. Yes, compromises will emerge, and hopefully they’ll be informed by the educational phase that went before, but this is when decisions get made. Which means it’s when political muscle matters more than the ability to educate.

We’re still in the educational step — for now. But the step is coming soon and outlines of the political phase are becoming clear. As I’ve written before, one of the key issues will be whether there should be a government-run health plan competing with private carriers for consumer’s premium.   Proponents see this hybrid approach as a way to drive down costs while keeping private health plans honest. Opponents see it as a big step to government takeover of the health insurance industry.

The Lewin Group published a study today that bolsters the argument of opponents. Entitled “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options” the report attempts to quantify the impact a federal offering would have on private competitors (and on the income of providers). And that impact is substantial. The study assumes health plan offers coverage comparable to the Blue Cross Blue Shield Standard Option within the Federal Employee Health Benefit Plan (meeting President Barack Obama’s promise to offer all American’s access to the same coverage as members of Congress).  If this government competitor sets doctor and hospital reimbursement at the same level as is used by Medicare, the Lewin Group predicts over 131 million Americans would enroll — approximately 119 million of them shifting from private plans.

If the government alternative is made available only to individuals, the self-employed and small businesses the impact is significantly less, but still substantial.  The study estimates 42.9 million Americans would enroll in the government offering — 32 million of them moving from private plans.

While several factors were taken into account by the study’s authors, John Sheils and Randy Haught, the most impactful driver was cost. The theory is that the federal-plan would impose Medicare reimbursement rates on doctors, hospitals and other medical care providers. This gives the public plan a 30-to-40 percent premium advantage over comparable coverage offered by private carriers. The reason: as noted by in the study “payment levels for hospital services under Medicare are equal to only about 71 percent of what is paid by private health plans for the same service.” Indeed, this reimbursement rate covers “only between 92 percent and 95 percent of the cost of the services provided by the hospitals.” 

When it comes to doctors, the Medicare reimbursement rates are about 81 percent of that paid by private carriers.  The study assumes the public plan would have a further pricing advantage due to lower administrative costs resulting from there being no need to earn “insurer profit and insurance agent and broker commissions and fees.” But the big savings comes from the reduced claims costs.

Today, hospitals and other providers make up for the shortfall in revenue received for services to Medicare patients by increasing the fees charged to their insured patients. While this hidden tax raises the costs of premiums, it impacts on private carriers is somewhat equal. Since the Medicare population is distinct from the commercial market, the playing field remains level.

If the government were to step onto the field as a player, however, the dynamic changes. Now a competitor gains the pricing advantage — and that advantage would grow over time. As the public plan attracts more members, providers will see an increasingly negative impact on their income. The severity of the impact depends greatly on whether the public plan is open to all employers or only small businesses, the self-employed and individuals. If everyone has access to the public plan, the ability to shift costs to privately insured patients is greatly reduced. Under the latter scenario, providers could more than make up for the government’s underpayment by charging higher rates to large group insureds while also benefiting from a reduction in the number of uninsureds.

The likelihood, however, is that all Americans will have access to the public plan. President Obama has clearly linked health care reform to his economic recovery efforts. Large companies (think the auto firms) need the relief offered by the availability of a public plan — especially a public plan offering a 30-to-40 percent premium advantage.

The spiral would kick in rather quickly. As the public plan attracts more members, rates charged by private plans would go higher driving even more insureds to the government offering. Eventually, the only health plan standing would be the government’s.

Some might claim that the public plan would be unable — or unwilling — to use Medicare reimbursement rates. But why? The entire purpose of the government coverage is to drive down costs. Voluntarily paying providers more than Medicare would run counter to the governing agency’s mission.

There’s some caveats to this bleak scenario. It’s a good idea to be skeptical of all studies that estimate the future impact of unknown legislation. I’m not questioning the authors motivation or scientific rigor, but studies like this are, ultimately, educated guesses based on assumptions that may not come to pass and whose unintended consequences cannot, by definition, be anticipated.

Nonetheless, the study does raise the likelihood that the coming debate over whether there should be a public alternative available in the private market is the wrong topic. The Lewin Group Study underscores how difficult it will be for the government to maintain a level playing field while it competes on that field. And once the playing field begins to tilt in its favor, the result is inevitable: eventually the public plan will be the only player on the field.

So the debate is really whether Americans want a private health care system or a public system for all. There is no middle ground. The hybrid approach won’t last — eventually it will become a public system. So while the hybrid approach is attractive politically, it’s a false choice from a policy perspective.

There’s a legitimate debate to be had over whether the government should replace private carriers. That’s the debate lawmakers should have — especially while we’re still in the educational phase of the legislative dance. Calling for a mixed system sounds nice, but it’s not really an option. And health care reform is too important to debate fantasies.

Out-of-Network Scandal is a Good Thing

As they said in the 60s, “you’re either on the bus or off the bus.” Were Ken Kesey talking in a more modern medical context he might have said “you’re either in the network or out of the network.” And being out of the network can be costly.

Unlike HMOs, which are closed systems — your health plan covers treatment within their network or, with few exceptions,  doesn’t cover the service at all — PPOs are more open. You get a higher reimbursement for seeing providers within the health plan’s network or you get reduced coverage for services from non-network physicians. The benefits to all concerned are rather straightforward: the physicians and other providers offer the health plan lower rates in exchange for the health plan encouraging patients to see those providers. The health plan pays less so can offer their coverage at a lower cost, increasing their market share. Consumers pay less out-of-pocket when they use one of these preferred providers. Yet, if the consumer does seek medical care from a provider outside the network, the health plan pays a significant portion of the bill.

In theory, what the carrier pays for out-of-network services is a percentage of the usual, reasonable and customary (“UCR”) charges imposed by most providers in that community. That sounds fair: if a consumer chooses to engage a doctor who is more expensive than the norm, the consumer should pay for excess cost.

The problem is that few people know what the UCR cost is for any given treatment. Heck, physicians rarely know what the UCR is for their community for a particular service. When the carrier notifies the patient that their doctor charged more than what is typical it’s too late for the patient to do much about it. The result: angry patients, frustrated doctors and another deposit of ill-will in the industry’s karma account.

At the heart of the problem is defining “usual, reasonable and customary.” In the end, despite all the surveys and actuarial work, a high level of subjectivity is involved. How is it measured? Who determines if the costs are “reasonable” even if they are usual and customary. There’s a lot of wiggle room in the data base.

For years, the “decider,” as a past president would put it, for the nation’s largest health plans has been a company called Ingenix. Ingenix is owned by UnitedHealth Group, Inc., which also owns the health plan United HealthCare. Even though Ingenix is owned by a competitor, most of the major health plans in the country relied on its billing information for determining what out-of-network charges they would pay.

Not for long. New York Attorney General Andrew Cuomo went after Ingenix and UnitedHealth for manipulating reimbursement rates and defrauding consumers. As a result of Attorney General Cuomo’s actions, Ingenix will exit the billing database business and UnitedHealth will pay $50 million to help create a non-profit assigned to maintain a new, independent database.

While the New York legal action is no doubt painful to some carriers, most notably UnitedHealth, it could work to the industry’s benefit. It replaces a point of intense friction with an objective, common definition. It’s not that the definition of UCR put out by the non-profit won’t still be significantly subjective — it will be. But it will be the definition of the non-profit.  And it’s not that consumers won’t blame the health plans when they disagree with the non-profit’s definition of UCR — they will. But the carriers will be able to refer their members to the non-profit.

Given the low regard the industry is held in by the public, any action which stems that flow of ill will deposits is a good thing.

Of course, this being America, the path to better karma is not an easy one. The industry will first need to go through the political gauntlet of law suits and public hearings. Next in line: The Senate Commerce, Science and Transportation Committee.  It’s Chair, Senator Jay Rockefeller, is holding a hearing Tuesday in which executives from United HealthGroup and Ingenix will be the star witnesses. As reported by the Associated Press, Senator Rockefeller claims, UnitedHealth and Ingenix are “lowballing deliberately. They deliberately cut the numbers so the consumer as to pay more of the cost. … It’s scamming. It’s fraud.”

In that UnitedHealth has already paid $350 million to settle a suit on the matter brought by the American Medical Association, albeit without admitting guilt, the accusations are hardly surprising. And while UnitedHealth would like to put the UCR scandal behind them, there’s a script to these things and they tend to run through Washington. So this is just something they need to do. And it’s something they should do.

Because the UCR situation wasn’t fair to consumers. And if the industry needs to pay a price as part of fixing it, so be it. At the end of the day, there will be a more fair way of defining what out-of-network charges should be. And that’s a good thing for consumers, providers and health plans.

Obama’s First Health Care Reform Test: His Tax Increase Proposal

Health care reform rarely is accomplished in a process that is anything like a straight line. In 2009, for example, changing America’s health care system first requires addressing the nation’s tax system. That may not be intuitive, but it does seem to be the way things are working out.

President Barack Obama makes very clear that comprehensive health care reform is an integral part of his economic recovery program. Impressively, he has already accomplished a number of his goals, specifically inclusion of funding for health care technology as part of the recently passed stimulus package and the renewal and expansion of the State Children’s Health Insurance Plan (SCHIP). Those were just the start of his reform efforts, however. And now comes the difficult part.

President Obama wants to change the way Americans purchase and use their health care. He wants to achieve near universal coverage, reduce the cost of both health insurance and of medical care, and vastly reduce wasted spending on health care. This is not an easy task — just ask California Governor Arnold Schwarzenegger. Or Secretary of State Hillary Clinton, for that matter.

President Obama’s mission is complicated by the withdrawal of former Senator Tom Daschle to lead the Administration’s health care reform efforts. Senator Daschle had tremendous credibility in Congress and policy wonks alike. He was a superb choice to serve as President Obama’s Secretary of Health and Human Services and to be Director of the White House Office of Health Reform.  His nomination withdrawn due to Senator Daschle’s tax problems, the Administration is unlikely to find a replacement of equal political heft, access to the President and in-depth knowledge of the issue.

Finding a leader for is the Administration’s second most pressing health care reform challenge. The first is passing a tax increase. Here’s how it plays out.

The stimulus plan supported by President Obama greatly increases the nation’s spending. At the same time, the Obama Administration inherited a budget deficit of about $1.3 billion courtesy of the Bush Administration. This week, in a White House summit on fiscal policy and in an address to Congress, President Obama will make clear his commitment to slashing the deficit to $533 billion by 2013. To do that, according to the Associated Press, he will: 1) reduce spending on the Ira war; 2) end “temporary” tax breaks enacted during the administration of President George W. Bush on those making $250,000 or more a year; and 3) increase government efficiency. Among those programs slated for streamlining is reducing Medicare Advantage subsidies to insurance companies according to the New York Times.

The Administration is also likely to propose treating investment income earned by hedge-fund and private-equity partners as ordinary income according to the Bloomberg Press. This income is currently taxed at the capital-gains rate of 15 percent. Ordinary income is taxed at as much as 35 percent (but could go up to 39.5 percent if the Bush tax cut for those earning $250,000 or more is repealed.

Without these savings, President Obama will be hard pressed to finance expansio of health care reform and his energy  initiatives, increase education spending and enact his homeowners assistance program and send more troops to Afghanistan and reduce the deficit.

Of these, make no mistake: health care reform is near or at the top of the list.  As Office of Management and Budget Director Peter Orszag puts it, as quoted in the New York Times, “He wants to present an honest budget, he wants to focus on health care ….”  The Times quotes senior adviser David Axelrod as explaining, “The president believes there are essentially three areas that have to move forward even as we pare back elsewhere — health care, energy and education.”

It all comes down to the economy, however. And most objective observers would agree that America needs health care reform to have a sound economy. (The debate is not over whether reform is needed, it’s what kind of reform is required). So health care, taxes and the rest are all tied up in the Administration’s effort to right America’s fiscal ship.

We’ll have updated estimates as to how much revenue the tax increases are expected raise over the next four years when President Obama introduces a summary of his budget later this week. Clearly, however, it will be a critical component to the Administration’s fiscal goals. If the tax increases fail, it will be substantially harder for President Obama to finance a big ticket item such as his health care reform proposal. With the increases, he will have demonstrated his political acumen and bolstered his bargaining position with Congress while, at the same time, finding the revenues he needs to implement his plans.

So the first test of whether President Obama can pass his health care reform will not be a vote on creating a Federal Health Board or establishing a national purchasing exchange. It won’t mention guarantee issue or community rating nor even provider reimbursement levels. It will be a vote on whether a tax reduction scheduled to expire in 2011 will be allowed to so, then or sooner. Not a straight line, but a necessary course of action nonetheless.