Quarter of Legislature Missed California’s Year of Health Care Reform

One day the politicans in Sacramento may pass a budget. Once (if?) that happens, lawmakers will turn their attention to, well, making laws. And some of those laws will impact health care coverage in California.

A lot of progress was made during the Year of Health Care Reform (2007 and a bit of 2008). The debate was intense and comprehensive reform nearly passed. It was approved by the State Assembly and supported by Governor Arnold Schwarzenegger, but defeated in the State Senate. The new debate is likely to start somewhere near where the last one ended.

For many legislators, however, the health care debate will be somewhat a matter of first impression. Of the 11 new Senators, all previously served in the Assembly. And of the 28 new Assembly Members, two have previously served in the Senate. However, four of the new Senators and one of the freshman AssemblyMembers were out of office during at least since 2006. So they missed all the educational opportunities the Year of Health Care Reform offered.

Needless to say there’s a lot of interested parties seeking to bring them up to speed. And California isn’t the only state where newbie lawmakers need to figure out how the current health care system works before they start in on messing with it. One resource they’ll have is the 2009 State Legislators’ Guide to Health Insurance Solutions and Glossary published by the Council for Affordable Health Insurance and the American Legislative Exchange Council. (My thanks to agent Bruce Jugan for bringing this Guide to my attention). CAHI is an insurance industry group so, guess what? Yep, it’s got a spin to it. Meaning few wil agree with everything it says (I don’t).

Nonetheless it’s an interesting overview of health care reform issues at a very high level. The Guide is not state specific, so it won’t fill in the gaps for legislators looking for a refresher course on California’s recent debate, but that lack of specificity is also a plus. The high-level perspective provides a good foundation for understanding the broad outlines of the issue. And the glossary is very handy.

If anyone out there knows of similar guides, but from other perspectives, please send them my way. Understanding the upcoming health care reform debate requires an understanding of how lawmakers think about the issue. And to understand that it can’t hurt to read what they are reading. Or at least, what they should be reading.

The Flawed Health Care Reform Plans of McCain and Obama

Both Republican Senator John McCain and Democratic Senator Barack Obama have put forward substantial healthcare reform plans. They both seek substantial changes in the current system. That they take starkly different approaches reveals a great deal about how their view of the current system and what they perceive the role of government to be in overcoming them. That both health care reform plans are dramatically flawed would seem to be of great concern, but probably isn’t. After all, these are just starting points and whatever new health care system emerges from Washington in the next few years is likely to be significantly different than either of these plans regardless of which candidate is elected.

As I’ve noted previously, the two plans are campaign promises, meaning they are more an expression of the candidates’ attitudes towards reforms than a blue print for legislation. That both starting points are flawed should be of concern, but is neither fatal nor devastating. They are, after all, just starting points.

Interestingly, the biggest flaw in each plan is the mirror image of the other. Senator McCain would encourage consumers to buy coverage in the individual market, assuming their employer isn’t providing health insurance, by offering tax credits — $2,500 for an individual and $5,000 for a family. While this would help many Americans buy coverage, there’s no requirement imposed on health plans to accept them for coverage (although there might be high risk pools under his plan for those turned down by carriers). Senator Obama, on the other hand, requires health plans to accept all applicants, but he fails to require everyone to purchase medical insurance. As has been demonstrated time and again, this is a sure path to higher premiums. Just look at New York and New Jersey where carriers must sell, but consumers need not buy, coverage. The premiums there are twice that in California.

Each health plan has other problems. Senator McCain would allow carriers to shop for the most lenient jurisdiction in which to file their plans, then impose this lack of regulation on other states. It’s competition without representation that is sure to result in consumer distress, political shenanigans that would embarrass an earmark addict, and undermine the credibility of the system.

Senator Obama, on the other hand, wants to create a government-run health care program to compete with private plans. The idea is to increase fair competition, but the result will be anything but fair. When the umpire picks up a bat, he’s rarely called out on strikes. Similarly, when the government competes in a market it regulates, the playing field is invariably tilted in favor of the government. The danger inherent in Senator Obama’s approach is that the government program, given unfair advantages, will squeeze out the private sector. The result will be a government-run system imposed on the nation without the accompanying debate such a policy shift warrants.

At Tuesday’s presidential debate in Tennessee expect to hear a great deal about their health plans. They’ll both be eager to dive into specifics about their own program — and to describe the failings of the other side’s plans. There will be heated exchanges concerning taxes and government takeovers. There will be fierce arguments over regulation versus goverment getting out of the way. As you watch, keep one thing in mind: none of it matters all that much.

Come November 4th one of these candidates will win. Come January 20, 2009 the winner will be sworn in as President of the United States. Unless there’s a miracle, the economic situation will push back meaningful efforts on healthcare reform for at least a few months. Yes, there will be a team put in place with orders to produce a meaningful plan within, let’s say, 100 days. But the real work of shaping the reforms could be delayed several months or a couple of years depending on the nation’s economic health.

Most importantly, once the plan is put forward, it will be changed profoundly by Congress and the new Administration as they respond to the public policy advice and political pressure of the nation. Some form of health care reform is likely to emerge before the next presidential election. Hopefully the major flaws in what’s currently on the table will be addressed — ideally without introducing new and bigger problems.

The Need to Do Something — But SB 1440 Isn’t It

We elect politicians to solve problems. That’s their job. It’s what we pay them for. No one campaigns for office proclaiming their intent to accomplish nothing. There’s always some injustice to right. There’s always a mess to fix. So no one should be surprised that current lawmakers in Sacramento are desperate to do something about California’s health care system. After all, there are real problems in the current system.

But there’s a difference between lawmakers really addressing problems and simply looking like their addressing problems. Take Senate Bill 1440 authored by Senator Shiela Keuhl. The bill would require carriers to spend 85 percent of the premium they take in on medical care. As originally introduced, SB 1440 would have had a devastating impact on the individual health insurance market. It would have increased costs, decreased competition and made it nearly impossible for independent agents to assist consumers in finding the right plan for their needs.

Fortunately, SB 1440 has been substantially amended since its original introduction. As it reads today, the biggest problem with the bill is it requires carriers to segregate their Department of Managed Care regulated plans from those regulated by the Department of Insurance. While it’s not surprising regulators and legislators perceive these plans to be worthy of distinction, from a consumer’s point of view it’s a meaningless difference. Governor Arnold Schwarzenegger and Senator Keuhl should address this issue in their negotiations concerning the legislation. But that’s not the overriding problem with SB 1440.

What’s wrong with SB 1440 is that it won’t lower premiums, which is the stated purpose of the bill. The Rand Corporation in a report by Neeraj Sood and Eric Sun titled “Health Insurance Premiums in California: The Role of Administrative Cost and Profits” examined the results of similar legislation in other states. They found states with no Medical Loss Ration legislation spend statistically the same percentage of premium as those that regulated the entire market (83 percent and 84 percent, respectively). While it’s true that states limiting the loss ratio of all coverage (individual, small group and large group) set targets at levels lower than the 85 percent called for by SB 1440, the report suggests consumers are unlikely to benefit from any premium savings.

The reason is that profits and administrative costs aren’t the problem with skyrocketing health care costs; it’s the price of medical treatment that drives premiums. The study found that 85 percent of the increase in revenue per enrollee between 2002 and 2006 was the result of medical costs.

Lawmakers could address 85 percent of the problem. But that’s hard work. It requires examining the drivers of increased medical costs and making tough decisions on how to reduce their rate of increase. It’s far easier (if less impactful) to go after health insurance companies and HMOs. Never mind that, as reported by the Rand study, the profits of California HMOs are less than the profitability of the companies comprising the S&P 500. The reality is that, along with oil and tobacco companies, they are about as easy a political target as exists.

So lawmakers will pass SB 1440 and declare a blow against rising insurance premiums. They may not be able to pass a budget, but they can teach those insurance companies a lesson. The fact that the legislation won’t have much, if any, impact on premiums is irrelevant. The fact that it won’t bring medical inflation down to general inflation levels doesn’t matter.

Because while we pay them for results, we have a tendency to elect lawmakers based on appearances. Which means the underlying problem remains.

Individual Coverage an Endangered Species?

I know I said I wouldn’t be posting anything for awhile, but recent articles could be indications that private market individual medical insurance could be a candidate for the endangered species list. Which is a shame because individual coverage offers consumers some major advantages over the alternative. Fortunately, some of the threats to the future of this market may hold the seeds of a brighter future.

Take for instance, the intent of Congressman Henry Waxman, Chair of the House Oversight and Government Reform Committee that “the individual market demanded more scrutiny, especially of cancellation practices,” as reported by Lisa Girion in the Los Angeles Times. The fact is, the way carriers handled their rescission powers have hurt innocent members, undermined their own credibility and battered whatever good will they might have possessed.

What’s ironic is that carriers rarely invoke their rescission rights. Consequently, whatever carriers gained in using it to fight fraud has been more than offset by the political damage they’ve taken.

Which brings us to Congressman Waxman’s hearings. Congressman Waxman is one of the House’s brightest members. He is passionate and committed to fighting injustice. His hearing will be thorough and, considering the political context of these things, fair. All sides will be heard and, with luck, some good might come of it. But it certainly will be a grilling causing strong insurance executives to sweat and bring weak ones to the verge of nervous breakdowns. Taking the oath before the Committee is not anything a CEO looks forward to: just ask all those former tobacco CEOs Congressman Waxman humbled a few years ago.

The real danger, however, is not the reputations of a few CEOs, but what “reforms” might emerge from the hearings. A lot of people simply don’t like individual coverage. They believe the carriers have too great an advantage in the transaction. To them, baring a government takeover of the health insurance system, the only other option is having the government micro manage the market.

Yet government micromanagement will inevitably lead a blander market of vanilla coverage and reduced choice. That’s what’s happened when states have intervened to create purchasing pools for consumers. While the pools have generally failed to lower the the cost of coverage, they have succeeded in limiting consumer choice.

Yet it’s the flexibility of the individual market that is one of its greatest strengths (along with its availability being independent of one’s job). Choice in the individual market makes it easier to find a solution for consumers’ unique needs. And those needs do differ. Ask a 22 year old fresh out-of-college and a recently retired 60 year old what they need from their health insurance. It will quickly become clear health insurance is not a product where one size fits all.

Increased flexibility brings the potential to lower costs, making coverage more accessible for more consumers. In short, there’s a lot of benefits to the individual market. It would be a shame if mistakes carriers made involving recessions results in over regulating the market. That’s could happen soon in California. Along with several rescission bills, legislation to regulate the kind of plan designs carriers can offer is moving forward. SB 1522, authored by incoming President Pro Tem Senator Darrell Steinberg is currently on the Assembly Appropriation Committee’s Suspense File. Which means it’s ready to be passed if the Legislature ever resolves the budget impasse.

I’ve written previously about problems with the bill’s specifics. Beyond those, the legislation also is symbolic of lawmakers’ desire and willingness to insert themselves into the market at a very granular level. It’s not a long leap from defining what policies must be offered to regulating their price, distribution and implementation.

So where’s the silver lining in all this? Individual coverage rules and regulations vary widely from state-to-state. This means consumer protections vary widely across state boundaries. It also reduces competition in some states. Senator John McCain and others propose to address this by allowing policies approved in one state to be sold in any state. This approach, however, would result in a disastrous dash by carriers to file their products in the states with the most lenient rules and the laxest enforcement.

Congressman Waxman’s hearings, however, could lead to a different solution: national standards establishing a credible structure to enable policies to be sold nationally. These structure would, ideally, bring increased credibility to the individual market without diminishing consumer choice.

OK, it’s a long shot. And it may only replace the spectre of over-regulation by state lawmakers with the danger of over-regulation by federal lawmakers.

But, hey, I only claimed it was the lining. But sometimes that’s all endangered species can hope for.

SB 1522: Political Judgment versus the Wisdom of Crowds

I guess the theory is that regulators know perfection when they see it. And have the wisdom and detachment from mundane concerns like politics and pressure to deliver it. At least that seems to be the thinking behind Senate Bill 1522.

Under this legislation, introduced by Senator Darrell Steinberg, California regulators would establish five classes of individual health plans. The bill requires these categories to would gracefully arc from low cost (and, presumably, lower benefit) plans to higher cost (and higher benefit) offerings. All medical plans would need to fit into the five defined categories.

Supporters claim this approach will allow consumers to make apple-to-apple comparisons among plans. Todays market, they argue, is too confusing. Consumers are hard pressed to select from the dozens of options before them which one suits their needs the best. (As discussed below, they never seem to mention the availability of professional agents to help consumers make these choices — that would undermine the need for this particular solution).

Supporters are also concerned about risk segmentation. Their concern is that healthier individuals gravitate to lower cost plans and their less healthy neighbors rush to buy richer benefits at a higher cost. As a result, those high end plans get more expensive more quickly.

The arguments in favor of SB 1522 are not without merit. But that doesn’t mean the bill deserves passage — at least not in its current form.

The trade-off for simplifying the market is eradicating choice. If all medical plans have to fit into prescribed categories, innovation and improvements in terms of plan design goes away.

Imagine what would have happened if in the 1980s government regulators defined five categories of cars. No other vehicles would be available to consumers. The political battles between groups advocating inclusion of their pet enhancement would be fun to watch. Muscle car enthusiasts would be pitted against gas mileage advocates. Proponents of big trunk space would duke it out against those pushing for smaller cars (the better to fit them into those “compact” parking spaces just coming into vogue. 

The battles would be fierce and there would be winners and losers. One thing for certain: the cars of today would look pretty much like those of the 1980s. And whether hybrids or other offerings unanticipated 20 years ago would have emerged is uncertain. Instead, choice would be determined by the political winds blowing through Sacramento at the time. The influence of the market would be secondary at best, and perhaps marginal.

Which makes no sense. The market is the collective decisions of millions of consumers. It’s the wisdom of crowds. Proponents of SB 1522 would replace that wisdom with the judgement of politicians and their appointees.

The problem of risk segmentation is serious. Unfortunately, SB 1522 does little to solve it. The segmentation will still exist, just within the confines of the five categories. Unless the regulators cram the tiers together into minor variations on a single theme, there’s going to be significant differences between the rates and benefits along the regulated continuum. Consumers will gravitate to the one that makes the most sense for their needs. Supporters of SB 1522 claim there will be substantial differences between the tiers, but if so, then the bill won’t solve the segmentation challenge.

SB 1522 is flawed, but it’s likely to pass (whether the Governor will sign it in its present form is unknown — at least by me). Its author, Senator Steinberg, is the President Pro Tem in Waiting.  That makes it extremely difficult for lawmakers to challenge his proposals. This is the pre-honeymoon stage of his ascension during which everyone makes nice. Voting no is not generally considered to be an effective way to make nice.

But perhaps some lawmakers will step forward and offer ways to improve the bill. For example, there’s no need to make the five categories defined by regulators exclusive. Carriers could be required to offer at least one plan in each category, but still remain free to offer coverage outside those tiers. This would allow easier comparison for some offerings while maintaining a market that delivers choice, diversity and innovation. It would also provide useful feedback to the regulators. If consumers consistently choose plans outside the defined tiers, they would know corrective action is required.

Can consumers be trusted to handle a diverse marketplace offering innovative choices? Will they always make the right choice? There’s no guarantees. Even if the government eliminates a great deal of the diversity in the marketplace, consumers may make the wrong decision.

But there’s already a resource available to those looking for the right health insurance plan: independent agents. Professional agents understand the language. They can explain the trade-offs between Plan A and Plan B. They can get to know the prospect and help them explore their choices. They can even help them through the application process and help with any problems arising after the sale.

Choice can be daunting, but it can also lead to innovation and help the system evolve as needs, expectations and desires change. Helping consumers find the plans that best fit their needs is something better left to shoppers and their agents than to a political process. Just ask anyone driving a Prius.


Making it Simpler: Reinventing Individual Health Insurance

KISS, as a business imperative, is cited so often it’s passed beyond cliché to become background noise. Keep It Simple Stupid, however, is more of an illusive ideal than a comfortable accomplishment for most businesses. The individual health insurance industry is no exception – yet it needs to be.


Consumers buying medical coverage for themselves and their families lack the support network larger enterprises have. They (hopefully) are working with an independent insurance agent who understands their needs and knows the way through the maze of getting coverage, fixing billing problems or getting claims paid. But there’s no human resources department in the living room or colleagues to call upon for help in the kitchen. Worse, for those without an agent, there’s often no one to call for help than the carrier itself.


This isn’t necessarily a bad thing. Many people working in carriers’ membership service departments are quite good – once you get past the dreaded phone system. (I just dealt with a customer service rep at the health plan for my small business who solved the problem in one phone call – and was nice about it to boot).


The thing is, however, if you need to call for help, then something isn’t working right. Getting health insurance shouldn’t be complicated. Neither should understanding bills or explanations of benefits (EOBs). And doctors and hospitals shouldn’t have to devote so much resources and time into their interactions with health plans.


If Google can make searching the web clean and simple, if Apple can make a cell phone/music player/ PDA elegant and straightforward, if Visa and Mastercard can present payment histories in a relatively easy to understand manner, if Southwest can make booking a flight a breeze, then certainly health plans could simplify their processes.


A place to start would be with the products themselves. Each carrier describes their benefits in their own terms. Surely there’s a best practice for this kind of thing, but every carrier has its own unique and often idiosyncratic method. The result: agents (and their clients) devote hours to creating their own apples-to-apples comparisons.


There are the conspiracy theorists out there who believe this is done to make it more difficult for consumers to understand what they’re buying. I believe their wrong: why assume bad intent when indifference or incompetence explains the situation? When it comes to presenting benefits I think it’s more a case of an inward orientation with a dash of pride of authorship thrown in.


Or take provider directories. Many have moved online, but again, there’s a best practice out there that would make finding your doctor even easier. Or claim forms. Every doctor I see (and at my age it’s more than one, now) complains about the paper work. There have been efforts to move claim submittals online, but the problems with the process are more than technical. There’s also a need to simply make the process simpler. There’s a place for uniqueness. Commodity material is rarely that place.


Instead, the focus needs to be on something somewhat foreign to most health plans: design. Design has become a hot business concept. Magazines like Fast Company, Inc., Fortune fawn over the concept and those who excel at it. Products like iPods and half the house wares at Target are held up as icons of a new business paradigm.


Yet design shouldn’t be the sole purview of gadget manufacturers or fashion designers. Processes can be well designed, too; so can forms. But good design will only come to the work flows and materials of health plans if it’s a priority of their leadership. And that takes some courage. It’s not easy to make being easy a corporate priority, especially when your industry is under fire.


Yet those attacks can be seen as a motivator for simplification, too. For example, individual health plans are going to have change the way they underwrite applications. Their ability to discover fraudulent applications is going to be extremely limited once lawmakers get done reforming the rescission process. With no back-up, the importance of underwriting at the front-end becomes even more critical than it already is.


This is a great opportunity to make enrollment applications simpler. Again, there are those who claim the applications are complicated to enable carriers to play “gotcha” with their members who later incur claims. They have no facts to back this up, but that hardly matters, especially when these critics get a lot of attention just for making the claim. Which means carriers are going to have to deal with this charge for quite awhile – or until something changes.


(What’s more likely to blame for complex applications is the same dynamic that haunts anything created by committee. When lawyers, underwriters, actuaries, and business managers sit down to create a form – especially one that needs to meet regulatory standards – that form is going to be bloated, complicated and annoying. No ulterior motive is required.)


Instead of spending time repeatedly repudiating the charge, however, health plans would be better served to move beyond it. The fact is, applications are more cumbersome and complicated than they should be. Carriers should work with their Departments of Insurance and an outside design consultant to come up with standardized and, even more importantly, simplified underwriting forms. The forms should focus on making it as easy as possible for consumers to provide enough information for the carriers to make their underwriting decisions.


And that should be the explicit goal: easy sufficiency. This, in turn, means using simple language in a clear, concise manner. It means laying out the questions in a manner that flows and avoids asking for the same information repeatedly. It’s a lot easier to describe than do (I know, I tried once), but if made a priority, it’s doable.


When lawmakers, prosecutors and others are lobbing grenades your way it might be counter-intuitive to use the situation to focus on design. In reality, simplifying the touch points where consumers, agents and medical providers interact with the carrier is an extremely visible way of demonstrating a commitment to change. As important, it’s a vehicle for getting in front of the change that is inevitable.

Executing the Basics: Reinventing Individual Health Insurance

The best strategy in the game, the most inspiring vision in the industry means nothing without execution. And if an organization isn’t executing the basic components of the business, implementing something fancy — culture change, a new business model — isn’t going to get very far.

Executing the basics is the least exciting critical component of any successful business. By definition, a successful business has proven itself. It’s an ongoing concern. Leaders like to lead and that usually involves moving in new, more exciting directions. Over time, attention to the nuts and bolts can wane. The basics become a source for savings. The attention moves from serving the customer to an internal focus on efficiency. After all, resources need to be freed up to fund those new initiatives.

In the context of individual health insurance, the basics include processing applications, issuing bills, paying claims, contracting with doctors, appointing agents, and answering the phone. Most carriers do an adequate job on these items most of the time. All carriers do a lousy job on some of these at some time. Those osciallations in performance are normal and to be expected. What’s unacceptable is that “adequate” is, well, acceptable. Carriers will talk about delivering first class customer service, being partners with their providers and producers, but few, if any, consistently succeed.

The problem, I believe, is two-fold: an inability to measure the return on investment of better service; and an unwillingness for competitors to cooperate.

Providing services, whether it’s underwriting applications, answering questions from insureds and their physicians, or paying commissions, costs money. These dollars can be measured, tallied and monitored. Given the need to keep coverage affordable, the appropriate goal for carriers is to provide these services as efficiently (meaning at the lowest cost) as possible.

These services also have benefits in the form of customer satisfaction, increased efficiencies at the partner level (less time spent in doctors offices tracking down an answer freeing up more time to work with patients), and a negative public image. The problem is that dollars are a lot easier to track than satisfaction or efficiency in someone else’s office. So when carriers do a cost benefit analysis on a new IVR system (IVRs are those automated “press 1” or “say ‘billing'” phone routing systems) they can measure the savings in personnel costs, but they lack the tools to measure the increased frustration members feel when unable to make the artificial (un)intelligence get them to the right place.

Health plans aren’t the only industry with frustrating phone systems. Sprint, AT&T, Time Warner, DirecTV and Verizon are a few others with IVRs deserving of a shout-out — or shut down, depending on your point of view. But cable and phone utilities are not the standard to which carriers should hold themselves. Nor should the standard be Nordstrom or Starbucks. It should be what consumers define as good customer service, doctors define as good physician service, and producers define as good agent service.

Carriers need to examine their basic operations from the consumer point of view. They need to define customer expectations and then think about ways to deliver those services in a cost-effective way that meets those expectations.

This means shifting the focus from an internal point-of-view to one that looks at operations through the eyes of the consumer (or physician or agent). This isn’t hard: every officer in every health plan should be required to call their customer service departments on a monthly basis. They should get a monthly bill and call in with a question. They should receive an Explanation of Benefits (EOBs) and be asked how much and to whom they would cut a check if it was for real. They should call in to the pre-authorization phone line and follow-up on an application. In other words, they should walk in their customer shoes at least monthly. Then, on a quarterly basis, their staff meetings should focus on what they experienced.

There’s other techniques that work. For example, executives and managers should be required to plug in and listen to phone calls between their service reps and customers. Not occasionally, but in a regular, disciplined way.

Carriers also need to find ways to quantify something more than dollars. Perhaps bonuses should be impacted by customer satisfaction survey results or even public surveys. Or, perhaps they should ask someone. Fortunately for carriers, there’s too many economists in the world with too little to do. Certainly some of them have come up with mathematical formulas for measuring intangibles. Give them a call — they’re hungry for someone to talk to. Make your CFOs sit down with them and come up with a formula that works.

And then share the results. Which is the other part of the challenge. Most businesses tend to think that everything they do must be confidential and proprietary. The market is a jungle and every advantage needs to be exploited to survive. In this mindset, advantages are to be hoarded, not diluted by sharing.

The problem is that most customers don’t really care about a lot of these proprietary advantages. An example from a book I read, but now forget the title, describes the foolishness of the auto industry when lawmakers required them to incorporate catalytic converters into their cars. Each auto maker spent many millions of dollars to invent and implement their own design. Yet who has ever purchased a car because of its catalytic converter? The industry could have redirected most of those dollars to features that matter if they had come together and designed a standard converter they all could have used.

This concept of standardizing and sharing resources is much more acceptable in the software world where open source systems like Linux and MySQL are widely used. It’s foreign to most companies, including carriers. 

Yet the opportunity to standardize and share resources is huge in the industry. Applications for coverage, claim forms, EOBs, bills, commission statements aren’t competitive advantages — their Babel-like diversity is merely a source of frustration for users. Better yet, by standardizing them, entrepreneurs could develop tools to increase efficiency for the carriers and convenience for consumers.

Consider: most carriers currently accept online applications from large producers like eHealthinsurance. Yet, as large as eHealthinsurance’s production is, it represents a small percentage of carriers’ overall sales. Why create mechanisms that benefit just a few agencies? Instead, carriers should agree on standards for quoting and case submission systems that works for all health plans in all states. These standards should be freely distributed as open-source software. eHealthinsurance may compete in the market based on its quoting system, but carriers don’t. By creating a publishing low- or no-cost software carriers can more easily implement customer friendly services like automated underwriting, immediate issuance of membership cards and the like.

Standardization doesn’t mean customization isn’t allowed. There are several flavors of Linux commercially available. Similarly, entrepreneurs could take the open-source quoting/submittal software and package them, adding new interfaces and functionality. So long as carriers standardize around the basics, however, they should all save money, increase efficiency and improve customer satisfaction with the industry as a whole. They could then use the freed-up funds to better compete on what does matter to consumers: benefit design, cost of coverage, and the like.

Would this kind of cooperation be legal? It depends on how it’s approached. The standards negotiations can be outsourced to an independent third party. Or they can be convened under the auspices of regulators. In California, Insurance Commissioner Steve Poizner has done something similar and has expressed an interest in helping carriers appropriately address common challenges. So yes, it can be done legally.

Attending to the basics is not exciting, but it can be impactful. Perhaps more importantly, invigorating innovations will fail unless they’re built on a strong foundation. So if the individual health insurance industry is going to reinvent itself, the nuts-and-bolts of the business is where it has to begin.


Reinventing Individual Coverage: Defining the Approach

In my previous post I suggested the current political environment provides more than sufficient inspiration for individual health insurance industry to reinvent itself. One of the challenges to actually implementing change is figuring out how to approach the problem. It’s often too easy to get caught up in the details without remembering the goal.

And the goal here is to deliver value to consumers who purchase their own health insurance coverage. This may seem obvious, but in too many cases, industry insiders and reformers at the barricades alike get so caught up in rules and regulations, processes and work flows, structure and platforms that they lose site of this simple truth: at the end of the day we either provide value to consumers … or else.

And it’s a truth that is agnostic as to whether the “we” is a private enterprise or a government agency. We either deliver or we go away.

So instead of structuring the gratuitous advice I intend to offer over the next several posts on specific items (dealing with rescissions, simplifying the application, etc.) I’m going to focus on a few general themes. Specifics may crop up as examples or to help amplify the themes, but it’s the overarching themes that provide a framework for change.

As of now, I’m inclined toward four major themes:

  1. Executing the Basics
  2. Making it Simpler
  3. Sharing Technology
  4. Earning Trust

Executing the Basics is all about the nuts-and-bolts of being a health insurer. Processing applications, issuing bills, paying claims, contracting with doctors, appointing agents, and answering the phone.

Making it Simpler recognizes that individuals are not businesses, even when they have the assistance and counsel of a qualified agent. Health insurance coverage is complicated enough. The process of getting and using it, however, shouldn’t be as complicated as it is. Nor should finding the plan that best fits a family’s need. Nor filing a claim. Nor … well, you get the idea.

Sharing Technology stresses that a carriers’ sales and member service technology shouldn’t drive consumers’ buying decision. A health plan’s benefit design, pricing, access to providers and the carriers’ customer service offerings should.  The industry could save millions of dollars by adopting standards that any and all technology providers can use for everything from accepting online applications, issuing online membership cards, processing claims, creating provider directories, etc.

Earning Trust may be the most important theme. After more than a year of every major office holder in the country calling the system broken, after endless legislative hearings, headlines and press conferences attacking the industry, consumer confidence in the industry is lower than its ever been. Worse, this only seems to inspire supposed industry insiders to pile on. The fact is there are problems in any enterprise, public or private. What’s needed is facing them honestly, not to score points.  Most of all, earning trust means raising the standards of behavior and meeting them.

These themes overlap with one another. What works in one area might well impact another. But they provide a general framework for discussing ways to reinvent individual health insurance. At least they are the themes I’ll be addressing over the next several days. Do you have others you think need to be considered? Are these off-target? Please let me know your thoughts by posting a comment. 

Reinventing the Individual Health Insurance Market

The health insurance industry has been under attack for years. There are those who would like to do away with it completely. While those voices have grown louder in recent years their political success has been limited at best. For evidence, just look at the campaign for the Democratic presidential nomination: no major candidate called for a government-run, single-payer system. The two remaining contenders have both explicitly taken such an approach off the table.

Yet there is one aspect of the industry that is under intense attack: the individual market. Again, this isn’t new. In the past, however, most of the attacks have been unfocused or ill-informed. Critics tended to ignore unique aspects of the coverage targeted at individuals and families buying insurance outside of work: it’s a voluntary decision. To maintain affordable premiums carriers must weed out potential buyers who are certain to incur substantial claims.

For example, carriers will often reject an applicant who is a regular user of a particular prescription drug. This strikes many as wrong, if not immoral. Just because someone needs a certain medication is no reason to deny them insurance.

Yet, when the monthly prescription costs exceeds the monthly premium, what else can the carrier do? Insurance is about spreading risk. In a voluntary market where people can choose when to purchase coverage, it means they need to buy insurance before their known risks exceeds the premium. Otherwise, they are simply asking other consumers to subsidize them. This dynamic, known as adverse selection, is at the root of much of the problems facing the individual market.

It’s not the only cause, however. Carriers exacerbated the problem by mishandling their approach to managing adverse selection. The most obvious mistakes involved how rescissions were handled. Even the industry’s most ardent foes admit carriers need to protect themselves from fraud. If an applicant knowingly and intentionally lies about material information on an application for coverage, the carrier should have the right to revoke the coverage.

It’s identifying when the misstatements are knowingly and intentionally that creates a gray area. Carriers chose to be aggressive in applying their right to rescind coverage. Now they’re paying a huge cost for this posture in the form of large fines, law suits and horrendous publicity.

The rescission issue is the hammer being used by lawmakers, regulators and pundits interested in reshaping the individual health insurance market. That their proposals would be more likely to do more harm (in the form of higher prices and less consumer choice) than good seems almost beside the point. They want change. They want it now.

While their changes are often off target their goal may not be. Perhaps the attack on the this market segment is what’s needed to prod the industry to reform itself. Perhaps it’s the motivation needed to reinvent the individual health insurance market, to make it stronger, more valuable and more respected than in the past.

I’ll be writing about the opportunities for reinvigorating the individual market over the next several days. I hope you’ll share your ideas, too. Please post your thoughts on ways to reinvent individual health insurance products, the way they’re sold, administered and used. By the end of this dialogue we’ll at the very least have built a list of alternatives to some of the misguided proposals currently being considered in Sacramento, Washington D.C. and elsewhere. At best, someone who can actually implement the changes may be inspired by your thoughts and meaningful change will follow.

Stay tuned.  

2007 Prediction Results

On January 2, 2007 I was foolish enough to post some predictions for the year. At the time I promised to review my results in a year. And here we are, a year later. Just keep in mind these were predictions. I wasn’t saying these things should occur. I was predicting they would occur. 

2007 Prediction #1. More Major Carriers Will Enter the California Individual Health Insurance Marketplace
The theory was sound. The individual health insurance market in California is huge. And with employers dropping coverage it has been getting bigger. Major carriers (I mentioned Humana and Cigna) couldn’t ignore the potential here. And they still can’t, but they certainly didn’t act on it in 2007. My guess is the health care reform debate created enough uncertainty that, combined with opportunities in other state, made California less attractive. In fact, a carrier, Nationwide, left the California individual medical market. So while other carriers might get here eventually, this prediction was a big miss.

2007 Prediction #2. Carriers Will Experiment With New Distribution Strategies
The premise of this conjecture rested on carriers recognizing that online sales weren’t enough in the indivdiual insurance market segment. While that channel would grow in 2007 (see prediction #8) I sensed a countervailing trend to get more people in the streets talking about individual medical coverage. So I predicted a carrier (didn’t know which one) would supplement its independent agent channel and launch a captive field force. Agents wouldn’t like it, but some carrier’s need to increase market share would drive them to at least experiment with this approach. Turns out 2007 was not a year for carriers to be upsetting agents. In fact, all of the carriers have reached out to agents and their association, the California Association of Health Underwriters, for input and help on health care reform issues. Chalk this up as another miss.

2007 Prediction #3. A Carrier Will Try to Introduce Per Member Compensation
Tying agent compensation to the cost of health care doesn’t make much sense, yet the historical practice of paying agents a percentage of the health insurance premium pay has deep roots. Like many traditional practices they’re hard to change. I thought 2007 would be the year one of the major health insurance carriers would take a stab at it. I was wrong. The desire not to upset their relationships during the health care reform process may have influenced this, or it might be that none of the carriers thought this was an important enough issue to address. In any event, this is clearly miss #3.

2007 Prediction #4. Kaiser Will Seek to Work Closer With Agents in the Individual Market
Kaiser has been thinking about ways to work with independent agents since their small group team successfully added this distribution channel. With Tom Carter and Mitch Ross, among others, in leadership roles there, I felt 2007 would be the year they’d actually move forward with an agent channel. I’m sure they’re still considering it, but their deliberations — which can seem endless even to those inside Kaiser — are ongoing. Sensing a trend here? Strike 4.

2007 Prediction #5. No Major State Health Care Reform in 2007
I launched this blog thinking it would deal with health insurance related topics, but in a general way. That it came to focus on health care reform (to the extent that I renamed the site) was a gradual process. In hindsight it’s kind of interesting (at least to me) that it wasn’t until the fifth prediction that the topic of health care reform came up. Here’s the full text of that forecast: “This is a cheap prediction. While health care reform is at the top of everyone’s agenda in Sacramento, the issue is too big and complicated, there are too many stakeholders involved with too many diverse perspectives, and there are too many other pressing issues demanding attention for the Governor and Legislature to work things out in one year. But watch out for 2008.” Less of a “cheap prediction” than I imagined, but it turned out to be right nonetheless.

2007 Prediction #6. Mandates Become Viable
The idea here was that acceptable health care reform would require reducing the number of uninsured. This would mean requiring all residents to obtain coverage and that, in turn, would mean requiring all carriers to sell coverage to all applicants. These twin mandates were are key components to the health care reform package currently awaiting Senate consideration. And they’ve been a big part of the debate for most of the year. Clearly, mandates are viable. Hit #2.

2007 Prediction #7. More Musical Chairs in Carrier Organizations
There was a lot of changes occurring in the leadership of health plans around this time last year. In this prediction I noted, for example, that Lisa Rubino, had recently left as CEO of Blue Shield’s individual, small group and government program division and would no doubt be recruited quickly. Shortly after this post, Ms. Rubino was named president of Molina Health Plans in California. And while fewer moves among the carriers took place than I was thinking when I originally wrote this one, there were a number of changes. Since I’m the one giving out the scores here, I’m going to count it as a hit — but only barely.

2007 Prediction #8. Online Sales Will Continue to Grow
This was the gimme of the lot. The trend of independent agents to move a portion of their sales online is growing. The top producers for virtually every carrier sell exclusively or mostly online. Internet-assisted sales is a permanent part of the individual health insurance landscape. Its influence on small group sales is growing as well. I still believe that local agent who get to know their clients do a better job of finding the right health insurance plans for a particular consumer’s unique needs than any web-based sales site. But I also believe local agents should integrate the Internet into their sales process. Anyway, this was an easy prediction to get right, and I did. So that makes hit #4.

The tally reads four hits and four misses. My prediction skills are either half full or half empty, depending on your personality type. Significantly, I missed on all the predictions dealing with carrier competition, but got both of those involving health care reform right. Narrowing the focus of this blog to health care reform-related issues was a good move.