The Alan Katz Blog

Perspectives on Health Care Reform, Politics and More

Is This Reform a Sham or Just Naive?

At some point during the Republican debate in New Hampshire Saturday night a candidate will call for allowing consumers to buy health insurance offered in other states. Apparently all the remaining presidential contenders support this as part of repealing and replacing the Affordable Care Act. Unless I’m missing something, however, this proposal makes no sense and won’t work.

The idea is appealing at first glance. Enabling consumers to buy health insurance available in another state increases choice and competition. Greater choice helps consumers find the plan that best fits their needs. Greater competition means they pay a lower price for their coverage. So far so good.

Look more carefully, however, and problems with this approach quickly become apparent.

Republicans being Republicans, the candidates are not calling for federal regulation of health insurance. They would still have state laws and regulations govern carriers. Which complicates things. While state regulatory structures need to be compatible with the Affordable Care Act, there’s still a lot of variety among the states.

These differences may be over treatments and services benefits policies must cover, how premiums are calculated, what reserves carriers must maintain, the size and nature of their provider network, and what consumer protections they provide their citizens. And so on.

If a Texas consumer buys a Connecticut carrier’s health plan, which state’s laws would apply? If the answer is Texas, then this reform does nothing: today carriers can offer policies outside their home states, they just need to meet the regulations imposed by the purchaser’s home state. Aetna, Anthem, Cigna, Humana, Kaiser, and United Healthcare are among the many carriers that sell policies in multiple states today.

Things get interesting if the answer is Connecticut, however. Leave aside the challenge a Texan faces in enforcing Connecticut consumer protection laws. Few carriers would domicile in Connecticut as their insurance laws are generally considered tougher than average. Instead, most health plans would seek out the state with the most insurer-friendly regulations and lowest reserve requirements. Just as South Dakota made itself attractive to issuers of credit cards and Delaware popular with C-Corporations, some state will become the favorite location for health insurance companies to call home.

In addition to opening the door to weakened consumer protections, advocates of empowering consumers to buy out-of-state policies display a profound ignorance of how health insurance works. Take just one example: networks. They matter; a lot. Under the ACA 80% of premiums an insurer collects for small group and individual policies must go towards medical expenses; that percentage increases to 85% for policies sold to larger companies. Which means health insurance premiums are strongly and directly impacted by how much insurers pay doctors and hospitals.

Carriers able to negotiate deep discounts from providers will be well priced; those that don’t won’t be. Doctors and hospital discounts are based in large part by how many patients the carrier can deliver to them. Carriers spend millions developing a strong network with the deepest discounts possible. Physicians and hospitals tend to be local, which means even national networks are cobbled together state-by-state, if not city-by-city. A New Yorker may like a policy available in New Hampshire (at about 1:25 into the clip). Unless the New Hampshire insurer has invested the time and resources necessary to build a competitive New York network the policy is worthless there.

This means whether a consumer wants to buy a medical policy available in another state is irrelevant, regardless of the wishes of politicians. What matters is if the carrier wants to sell policies in that consumer’s state. And if they do, they already can.

The first time I heard a presidential candidate call for this cross-border buying reform was in 2008 by then Republican presidential nominee Senator John McCain. How this nonsensical reform proposal has survived this long is a mystery. Either I’m missing something (I admit, a very real possibility) or journalists don’t know enough to call the candidates out on this sham of a reform so they continue to put it out there. If it’s the former, please educate me. If it’s the latter, however, maybe someone could sneak this post to one of the debate moderators?

A version of this article was originally posted on LinkedIn.

Zenefits’ Problems Keep Growing. So What?

Zenefits, the Cloud HR company that seeks to disrupt the world of community-based benefit brokers, has sailed into a sea of troubles of late. (And I think the previous sentence just violated some metaphor/single sentence law, my apologies). These problems are of their own making, which brings an element of justice to the situation. But it’s important to keep their current situation in perspective when considering their long-term prospects.

I offered some thoughts on this over at LinkedIn under the title “Zenefits’ Felony Investigation: Will It Matter?” back on November 30th. The response was quite …. strong. So I thought I’d share the post here for those of you who don’t hang out over there.

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A quick update on my post “Zenefits Problems Real, But Not Fatal.” Someone called that my “Schadenfreude article”as it laid out why many benefits brokers took pleasure in the problems raining down on Zenefits at the time: missing the revenue projections their CEO, Parker Conrad, made earlier in 2015; and Fidelity Investment’s resulting devaluation of the company’s worth by 48% among others. The post also explained why Zenefits would survive those woes.

Now comes news that Zenefits is under investigation for using unlicensed agents in Washington State and other states, giving brokers even more fuel for enjoying Zenefits’ distress. And the distress is serious: knowingly selling insurance without a license is a felony in Washington, punishable by a fine of up to $25,000 per incident or 10 years in jail. Mr. Conrad famously told Fortune that “All of the existing brokers today are all fucked.” So, as with the financial miss and marked down valuation, it’s not surprising to hear brokers rhetorically asking, “Who’s screwed now, Mr. Conrad?”

If Zenefits is guilty of knowingly using unlicensed agents to sell insurance policies, they will be, and should be, punished. Most likely that means a fine–a Zenefits manager would need to be in blatant and gross violation of the law to justify jail time, especially if no consumers harm arose from the violation.

Time will reveal how this situation came about and what it means for Zenefits. As of today, the company is innocent and remains so unless and until regulators prove their case. Zenefits isn’t outright denying the charge. In a statement to BuzzFeed, Zenefits seems to claim any problem is more a matter of timing. “When we started Zenefits, we followed a practice common to many small independent brokers of having each broker licensed in their home state and having the agency itself also registered in all 50 states so as to allow out-of-state sales. As we grew and heard from regulators that they wanted each licensed broker individually to acquire a non-resident license, we set out to do just that.” Note the “set out to do just that.” Maybe they were going through the states alphabetically and simply hadn’t gotten to “W” yet?

(Interesting how when they launched, Zenefits’ leadership colorfully differentiated themselves from “traditional” brokers, but now are claiming to be just part of the crowd. The spin required to impress venture capitalists apparently differs from that aimed at appeasing state regulators. But I digress.)

Zenefits’ regulatory problems arise alongside anecdotal claims of a persistency challenge. These are brokers describing how they lost a client to Zenefits only to regain the case a short time later. This fits the narrative many brokers have (and which I share) that most employers need and want the services of a community-based broker, something Zenefits can’t and doesn’t deliver.

Zenefits doesn’t publish their lapse data and has no need to. So it may be the company has no retention problem. Still, Zenefits executives are keeping busy (some might say distracted).

  • They’ve launched a new payroll service, which creates a whole new set of business and regulatory issues to deal with.
  • The regulatory investigation in Washington state may soon expand to other states.
  • Their growth failed to fulfill Mr. Conrad’s projection, but still creates growing pains.
  • A significant and reputable investor lowered their estimation of the company’s worth–just a few months after making an investment.
  • Direct competitors are raising capital and aggressively marketing direct-to-consumer services comparable to Zenefits.
  • Independent brokers are increasingly turning to tools that help them compete more effectively against the company. (Full disclosure, I’ve co-founded a company bringing such a platform to market, NextAgency, early next year).

All of which adds up to tough times in Zenefits World.

So what? Executives at Zenefits aim to build a huge company. They raised over $580 million to do just that. While they’ve spent a significant amount, they claim to still have a large cash cushion, probably enough to survive these challenges as well as some yet unknown. Right now they’re on the receiving end of bad press. If there are fines to pay for using unlicensed agents, Zenefits will pay it and get more bad press. Then they’ll move on.

Even if their peak valuation of $4.5 billion is marked down again, it’s not a big deal unless they need to raise more capital and, according to Mr. Conrad, that’s not in their plans. Even a $1 billion valuation makes them a Silicon Valley unicorn. True, their current investors and employees would be unhappy (extremely unhappy), but the company would survive and remain a market presence. (Personally, I think even a $1 billion valuation is overly optimistic, but time will tell).

And maybe there’s a silver lining. Perhaps all of the bad press Zenefits has earned over the past few weeks will teach their executives humility.

I doubt it, but that would be nice.

In the meantime, brokers should not make the erroneous assumption that a major competitor is imploding. First, because Zenefits isn’t imploding. Second, because even if they did, there’s plenty of others striving to take their place. Have you met Namely and Gusto?

The Affordable Care Act and Affordability

The official name of what some call Obamacare is the Patient Protection and Affordable Care Act. Most frequently it’s referred to as the Affordable Care Act or the ACA. There’s just one problem with this title: it’s questionable whether the new law is making health care — or health insurance — more affordable

When you ask politicians about bringing down the cost of medical care, they invariably pivot to discussing health insurance premiums. And the press lets them, no doubt because: 1) insurance companies are easier to beat up on than doctors and hospitals; and 2) controlling the cost of care is much more complex than addressing insurance premiums.

When it comes to “bending the curve” concerning premiums, the ACA is arguably working. While every broker can cite examples of clients receiving double-digit increases (often, many examples and north of 20%), overall, according to PolitiFact, “premiums have risen by about 5.8 percent a year since Obama took office, compared to 13.2 percent in the nine years before Obama.” This year, for example, the 2015 UBA Health Plan Survey indicates that the average annual health plan cost per employee in 2015 is increasing just 2.4 percent from the prior year.

One point for the ACA–for now. In some parts of the country, it should be noted, the second most affordable silver plan in the exchanges (a key benchmark) is increasing by 30% or more.While this development doesn’t mean all rates are going through the roof in all places, it’s a warning sign that needs monitoring moving forward.

For now, the rate of increase we’re seeing in health insurance premiums have stabilized. That, however, doesn’t mean that health care coverage is more affordable. Health insurance costs are like a teeter totter. On one side is fixed-costs known as premiums. On the opposite seat are variable costs represented by out-of-pocket expenses. The higher the fixed-costs, the lower the variable ones and vice versa. The laws of physics cannot be legislated away. So as the ACA helps keep premiums down, out-of-pocket costs are rising.

One driver of higher out-of-pocket costs is straightforward: High deductibles in health plans are increasingly common. Another less obvious reason is that carriers are narrowing their provider networks while increasing the cost of seeking treatment outside their networks. For example, according to the UBA study, family out-of-network deductibles increased 75% in the past five years.

For healthy consumers this is a net positive. Premiums are lower under the ACA and, since they don’t see providers, narrow networks aren’t a problem. For those who do need health care treatment, however, (and families are especially likely to have someone needing medical attention in a given year), this teeter totter is what’s making the Affordable Care Act not so, well, affordable.

This isn’t to say that the ACA is a failure. The uninsured rate in America dropped to 10% in 2014 from 18.2% in 2010–and will likely be lower in 2015. This means 15 more million Americans now have coverage than in 2010. Perhaps if we renamed the ACA the Health Insurance Access Act the description would be more accurate.

However, that’s not what it’s called and the ACA is failing to keep live up to its name. The reason, I believe, is because it does too little to address the cost of medical care. To be fair, the ACA includes provisions to reduce medical costs. Accountable Care Organizations and the Independent Payment Advisory Board are two elements of President Barack Obama’s health care reform plan that show promise.

At best, however, the ACA only lays the groundwork for controlling medical costs, and we need to do more. Because at the end of the day, to make coverage more affordable, we have to attack where the money is going. And in that regard, the facts are straightforward: health plans must spend 80% (individual and small group coverage) or 85% (large group plans) on claims. If health insurance is to become more affordable, health care must be more affordable.

That means changing the ACA something that will not happen during a presidential election year. That doesn’t mean, however, that we can’t begin pinning presidential candidates on what they would do to bring down medical costs. We’ve had a question  about fantasy football during the debates. Maybe the moderators could slip one in on concrete steps the candidates would take lower the cost of health care … and not let them pivot to the easy dodge of attacking health insurance premiums.

OK, that’s asking too much. Maybe they could ask them what they’d do to control insurance premiums and then ask about controlling medical costs. If nothing else it would be interesting to see how many of the candidates realize these are two different questions.

America’s Disappearing Common Ground

Everyone knows the reason so little gets done in Washington is that the two political parties have become ever more divided and uncooperative. We can see it on cable news programs. We can hear it on talk radio. And we experience it as the federal government generates more crises than solutions. We also experience it every Thanksgiving dinner when our crazy uncle starts spouting eye-roll inducing political nonsense.

For those of us engaged with health care reform, we witness this dynamic every time politicians on both sides of the aisle identify the same problem, but refuse to work together to resolve it.

Subjectively, we all know common ground is shrinking in this country. Turns out there’s objective evidence, too. The Pew Research Center tracked the distribution of political values held by Democrats and republicans between 1994 and 2014. As the graph below shows, the gap is widening.Pew Ideological Divide Graphic

There’s a couple of things to note in the graph. First, the gap between the center of each party is further apart now than 20 years ago. The second is the bulking up of the extremes. “92% of Republicans are to the right of the median Democrat, and 94% of Democrats are to the left of the median Republican”. This shows what we’ve all felt: the parties have moved apart and common ground is increasingly rare.

The Pew study was issued more than a year ago. However, anyone watching this year’s presidential debates will attest that ideological differences between the parties is definitely not diminishing.

America moves forward when reasonable people can disagree, find common ground, and compromise. Over the past 20 years, however, fewer partisans see the other side as reasonable; fewer are willing to compromise. Common ground is disappearing.

The Pew Study is pretty depressing for those of us who want less fighting between the parties and more problem solving. However, there is some good news in the report. While there’s movement towards the extremes, the majority of Americans remain neither uniformly liberal nor conservative. As the Pew Research Center notes, “more [Americans] believe their representatives in government should meet halfway to resolve contentious disputes rather than hold out for more of what they want.”

Politicians often claim to speak for the “silent majority.” This is usually not the case as it’s their next statement is often a pander to the most extreme elements of their party. The real silent majority are those who want their representatives to “meet halfway.”

The problem is, however, the silent majority is, well, silent. No one hears them. In a political context, silence equates to voting. If it’s the extremists who vote, then politicians listen to the extremists. When a majority of Americans stand up and insist that their representatives work together, politicians will find a way to work together. Maybe not right away, but eventually they’ll get the message.

Until the majority speaks up (votes), however, it’s the crazy uncles that are listened to–and not just on Thanksgiving. In fact, it seems the crazy uncles are part of the presidential debates now, too.

Where the Heck Have I Been?

My apologies. It’s been too long since I wrote a post here and I haven’t left word as to why and what’s up.

First, my absence is not because there isn’t a lot to write about. On the contrary, what’s going on with health care reform is both fascinating and diverse. Rather, I simply haven’t had a chance to carve out the time necessary to write about the many things that are happening. I’ve tried, often unsuccessfully, to make this blog a resource that provides a perspective on health care reform developments, a perspective that takes what’s evolving and makes sense of it in some way that isn’t always available elsewhere. After all, there are a lot of resources out there on the topic. I wanted to provide something different. The downside of acting on this desire, however, is that it takes more time than simply linking to other sources, and time has been in somewhat short supply of late, for reasons described below.

The second reason for my absence is a change in my occupation. In this blog I’ve sought to present a broker’s perspective on health care reform. Yes, I’ve held many positions in-and-outside of the insurance industry. When I started writing I was (again) leading an insurance agency. Subtitling this blog “Health Care Reform From One Broker’s Perspective” was both accurate and appropriate. Even when, a  few years ago, I became a consultant the subtitle felt comfortable. Yes, I worked with carriers, agencies and others. And I wa no longer actively selling health insurance. But I remained active in working with brokers. I wrote a book on sales, spoke frequently before audiences of brokers. And I remained active in Health Underwriters. In short, I still felt like a broker. As most brokers who read this blog know I’ve worked hard over the years to educate the public and decision makers about the value we bring to the system. And when discussing brokers and what we do, it still feels more natural saying “we” than “they.” So I kept the subtitle.

Now, however, my job has changed. One of my clients, a carrier named SeeChange Health Insurance, made me an offer I couldn’t refuse. They have offered me an opportunity to help build and launch not only a new carrier, but a new approach to health coverage. Value-based benefit plans focus on the “health” in health insurance, providing financial incentives to members who take specified actions to take care of themselves and identify chronic conditions before they blossom into serious problems. This, it seems to me, is how health care coverage should work. The opportunity to be a part of the first carrier whose entire product portfolio provides this kind of benefits on a fully-insured basis to small and mid-size groups was irresistible.

Which brings me to the third reason I haven’t posted anything here of late. I’m too much of a broker to pretend that assuming a leadership role at a carrier is incompatible with calling oneself a broker. I may be bringing the attitudes and outlook of the brokerage community into this insurer (and SeeChange Health is, not surprisingly, both broker-friendly and broker-centric), but that doesn’t mean I can do a blog discussing “health care reform from a broker’s perspective.” By necessity, the nature of this blog has to change.

For example, I need to be sensitive to the fact that when I criticize carriers (either specific ones or as a group) I’m no longer viewed as an observer or broker, but as a competitor or participant. Or that when I talk about how carriers in general approach issues of importance to public policy or commissions, there will be a tendency for readers to think I’m speaking for or about SeeChange Health. Or when I challenge some brokers on one issue or another some are likely to perceive my response as “typical of the way carriers think.”

The need to rethink the nature of this blog coincided with the requirement that I devote considerable effort and time to launching a new venture. (Although we’ve launched in only one state, for now, when that state is California we’re talking about a big state). As a result I’ve been away from the blog for several weeks.

I confess I miss the place. I’ve enjoyed deep dives into the issues surrounding health care reform and I’ve learned a great deal from those of you who have taken the time to comment on this blog or been kind enough to introduce yourselves at various speaking engagements. And I do intend to return to more regular postings, starting in September. Yes, this blog will change–a bit. (It will definitely need a new subtitle for one thing). I hope, however,  the community we’ve built here will remain and even grow.

I look forward to continuing our dialogue. Soon.

Trailblazed Book Goes Digital

Off topic, but … as is apparent from the book cover appearing on the right of this page, I’ve written a book. Titled Trailblazed: Proven Paths to Sales Success the book reports on the findings of a study my consulting firm, the Alan Katz Group, conducted to identify the practices, procedures and perspectives common to high-growth producers (those achieving 20% sales growth year-over-year), but not to their less successful colleagues.

The book has been doing well (thank you all) and has been available for purchase on Amazon and Barnes & Noble for some time. (And those of you who have read it and liked it, please feel free to leave a review on either of those sites. For those who read it and didn’t like it, please feel free to leave a nice review for a Tom Hopkins or Jeffrey Gitomer book).

As I give speeches about the Trailblazed Sales Project Study, I’ve been asked if the books were available in digital format. I can finally answer “yes.” Trailblazed is now available for Amazon’s Kindle, Barnes & Nobles Nook, and Apple’s iPod through the Kindle or Nook apps. The eBook version of the Trailblazed includes the exact same content as the real world book, but contains a lot more pixels.

We now return to the regular Alan Katz Health Care Reform blog already in progress.

Still on Hiatus

Hello. Just wanted to let you know this blog will be reactived soon — I’m aiming for the first of July. After over two years, roughly 450 posts, and the long health care reform debate, it was time to take a short break. My thanks for the kind notes and inquiries and I look forward to resuming the dialogue in a few weeks.
Thanks,
Alan

Trailblazed: Proven Paths to Sales Success

This is an off-topic post. Way off topic. But I have news to share: my book was published this week. The book, Trailblazed: Proven Paths to Sales Success, describes the findings gleaned from a study I conducted that sought to discover the behaviors and attitudes shared by successful sales people, but not widely practiced by their less successful peers.

The study, which was done in conjunction with Steven Miller, PhD of Miller Marketing Insights, focused on health insurance producers in six states who sell individual, small business and senior coverage. We focused on health insurance brokers for two very simple reasons. First, the study was underwritten by insurance companies and a general agency. Second, by law and regulation, health insurance brokers in a given market sell the same products for the same price. They are prohibited from offering discounts. They cannot alter the terms of the policy. As a result their sales success is based on what they do — and don’t do — rather than on what gimmicks they employ. When it comes to identifying the shared practices of successful producers, you couldn’t ask for a better context than that.

What will not surprise brokers who visit this blog with any regularity is that among the characteristics successful producers share are those that underscore the value brokers add to the health insurance products they sell. These include a commitment to the interests of their clients, a desire to be worthy of the trust those clients place in them, and a dedication to finding the right solution for their prospects’ unique needs.

Even more significantly, it turns out the practices, procedures and perspectives shared by successful producers help them master the massive changes that inevitably impact their business, whether those changes are the result of economic trends, losing a major client or new regulations. Given the need to prepare for the impact of health care reform, I consider this a welcome and reassuring finding.

Trailblazed will soon be available through online vendors such as Amazon, Barnes & Noble, and Borders (it takes a few weeks for the publisher to get the book into their systems). But the book is available now at  the Trailblazed Sales web siteAs a way of thanking readers of this blog, and to celebrate the launch of the book, from now through the end of April, the book is available at a 10% discount from the list price when purchased through the Trailblazed Sales web site. You can also learn more about the study there.

As most readers know, I write this blog out of a passionate interest in health care reform, as a forum where I can share my views on the topic and benefit from your views and perspectives. This is also where I can offer an occasional insight on an important issue and provide links to what I consider interesting news and useful resources.

This book is not about health care reform. For those sales professionals among you thinking about the future and how to prepare for it, however, my hope is that Trailblazed: Proven Paths to Sales Success will be an additional source of helpful strategies and ideas.

And now, back to our regularly scheduled blog.

Civility Required Here

There are plenty of blogs out there where partisans can throw red meat (or blue meat, as the case may be) to their base; blogs where the more outrageous the statements the more praised the writer will be. This is not one of those blogs.

Health care reform generates a great deal of passion and heat. The issues are personal and critical, moral and political, economic and ideological all at once. People have strong feelings and beliefs about America’s health care system. There is absolutely nothing wrong with that – unless it slips into the kind of ugly behavior we’re seeing across the country where vandalism and name-calling seems to be becoming increasingly acceptable.

Because while there’s nothing wrong with being passionate about one’s beliefs, there is something wrong in viewing the other side as less than human, labeling them as socialists or whiners or idiots or what-have-you. Name calling and stereotyping do nothing to shed light on a complex topic. It may make the writer feel better, but it diminishes the debate and the value of this blog.

I’ve let the arguments and venting run for the past few few weeks. First, because I don’t monitor the comments as closely as perhaps I should. Second, because I felt it reflected the anger, jubilation and passion readers feel about what’s happening with health care reform. And third, because I don’t want to stifle open conversations.  I was willing to let some inappropriate comments remain on the site because I didn’t want to stifle the conversation. I did remove some especially offensive comments, but frankly I should have removed more. The tone of the debate on the site has too often slid into an abyss that is neither appropriate nor welcome.

So, as reluctant as I play the role of censor, I’m going to impose a tighter rein on the discussion. Hopefully I won’t swing too far the other way as I truly enjoy the give-and-take that takes place on this blog. The articulate expression of views and perspectives that most commentators provide this blog most of the time is part of its appeal, at least to me.

I very much appreciate that you all take the time to read my posts and share your comments with the small community we’ve created here around the health care reform issue. And I hope you’ll continue to join in the discussion.  When you just have to vent, there’s plenty of other sites available to you. Knock yourself out. But when you’re writing here, please keep it civil.

Recommend Posts and Comments

This blog is run on software provided by WordPress.com (it’s very easy to use and I highly recommend it). They just added a new feature that might be interesting for readers: the ability to recommend posts and comments you think other readers might find interesting – or to warn your fellow readers away from them.

As a new feature, WordPress is still working out some of the kinks. For example, the ratings a post or comment receives does not yet appear on the home page of the blog. To see the recommendations – or to make one – you’ll first need to click on the title of a post. According to some of the forums, the WordPress folks are working on getting the recommendations to show on the home page, but it’s not all that easy so it could take some time.

Whether this function enhances the blog remains to be seen, but I figure it’s worth testing out. So please feel free to recommend – or warn against – what you read here, both the posts and the comments. We’ll see how things works out and if folks find it useful, we’ll keep it.

Thanks for reading.
Alan