MLR to Mean Greater – and More Interesting – Disclosure

Much of the debate over the Patient Protection and Affordable Care Act’s medical loss ratio provisions have focused on what expenses are to be considered claims and quality improvement spending, which are to be treated as administrative costs, and what carrier expenditures should be removed from the MLR calculation altogether. This blog alone has dozens of posts touching on the topic.

One of the primary goals of the PPACA’s medical loss ratio provisions is to lower premiums. The health care reform law requires individual and small group carriers to spend at least 80% of the premium dollars they take in on claims and improving the health of their members – and requires large group coverage to spend 85% of premium dollars on those expenses. The likelihood of this happening is, to put it politely, extremely low. Back in 2007 when California Governor Arnold Schwarzenegger proposed a similar provision, I pointed out some of the misconceptions surrounding MLR targets and cost.

But there is likely to be one revelation that will result from the PPACA’s medical loss ratio requirements. There will be greater transparency concerning how carriers spend their money – all carriers – than there has been in the past. While publicly traded insurers have been required to disclosed significant information, how it’s organized and presented is of more use to investors than policy analysts. And non-profit or private carriers have been subject to far fewer disclosure requirements. And those disclosures are subject to rules that vary from state-to-state. All of this makes comparisons across carriers and markets challenging.

All that is about to change thanks to the Patient Protection and Affordable Care Act and, specifically, the MLR provisions in the health care reform law. I realized this after reading Health Affairs excellent brief on the medical loss ratio provision published in HealthAffairs and brought to my attention by Chris Conover (publisher of the U.S. Health Policy Gateway blog. (Both HealthAffairs and the blog are featured on this site’s Health Care Reform Resources page.)

The HealthAffairs brief reminded me of a minor provision in the PPACA I’d forgotten about: although the medical loss ratio requirements only take effect on January 1, 2011, the law calls for a “dry run” to test out the system. Once the medical loss ratio regulations are final (the MLR rules were developed by the National Association of Insurance Commissioners, but must be certified by the Department of Health and Human Services) carriers will complete the various forms describing their 2010 spending. Assuming these reports are made public, they’ll enable the first true apples-to-apples comparisons among carriers. What are their current medical loss ratios? How much is being spent on quality improvement programs? What percentage of premium is passed on to brokers in the form of commissions? The list goes on.

Transparency and disclosure have been heralded as a “disinfectant” in politics. The results, as the $4 billion+ spent on the mid-term elections underscore, are questionable. Nonetheless, in most situations, most of the time, disclosure does tend to help keep people and corporations on, well, if not the straight-and-narrow, then the straighter-and-narrower.

I can’t predict what we’ll learn from the disclosure resulting from the implementation of the PPACA’s medical loss ratio requirements. But I’m willing to bet it will be interesting.

Governor Schwarzenegger Signs California Health Benefit Exchange Legislation

California became the first state to enact legislation creating an exchange under the Patient Protection and Affordable Care Act on September 30th when Governor Arnold Schwarzenegger signed into law AB 1602 (authored by Assembly Speaker John Perez) and SB 900 (by Senator Elaine Alquist). The two bills create the California Health benefit Exchange. In signing the bills Governor Schwarzenegger stated “Choice and competition have the power to improve health care quality and reduce health care costs for California consumers. With the California Health Benefit Exchange, we will be able to create a competitive marketplace where consumers can choose among qualified health plans – all without relying on the state’s General Fund.”

The five-person Board created by the legislation are tasked with creating an exchange to present health plan options to individuals and small businesses beginning January 1, 2014. Concurrent with Governor Schwarzenegger’s signing of the bills, the Obama Administration announced a $1 million grant to the state “to fund the costs of preliminary planning efforts related to the development of the Exchange.” Further federal funds are expected to become available to the California Health Benefit Exchange in 2011. After 2014 the Exchange is designed to be supported entirely from fees paid by health plans and insurers, meaning no general revenues will be allocated to the entity.

Some carriers supported the legislation; others urged the Governor to veto it. The concern of many opponents was the power given to the Exchange’s Board to exclude accept or exclude carriers from the Exchange. The fear, which is demonstrated on a weekly basis by local, state and federal agencies every day, is that the Board will use the carrot of being included in the Exchange as a lever to dictate what insurers do (and what plans they offer) outside the Exchange. Giving this power to an independent Board (one that is exempt from significant oversight by the legislative or executive branches of government) is seen as a threat to the private marketplace.

Supporters argue that this power is essential if the Exchange to going to fulfill the desired (and desirable) goal of negotiating lower health insurance premiums for consumers and businesses buying through the Exchange.

Brokers have had another concern about AB 1602 and SB 900. The federal health care reform envision exchanges that include “navigators” to help consumers and business owners explore their health insurance options. However, the PPACA leaves it to states to define the actual specifics of the navigator role. Will they simply be a “help desk” answering questions about how to use the exchanges or will they be actively engaged in providing advice and guidance on which plan a consumer or business should select? The California laws leaves these details to the Exchange Board. What’s of concern, however, is that language that would have required the California Exchange’s navigators to be licensed was removed from the now-signed legislation shortly before it was passed by the Legislature.

And there’s a sentence in Governor Schwarzenegger’s press release touting his signing of AB 1602 and SB 900 that is at both once reassuring and of great concern. “The Exchange will work in partnership with agents and brokers, community organizations and other “navigators” to help consumers make informed decisions based on the price, quality and value.” While it’s reassuring the Schwarzenegger Administration recognizes that agents and brokers need to be involved with the Exchange, it’s of concern that they consider licensed professionals to be on an equal footing with unlicensed community organizations and others.

What will be important for the California Association of Health Underwriters, the leading organization representing independent producers, and other agent groups to work through with the Legislature and the Exchange Board is that there is a difference between licensed, regulated brokers and others. Each can play a role. When it comes to publicizing the Exchange and providing general advice about how to use it, non-licensed individuals and entities can play an important and valuable role. Helping consumers select the health plan that best suits their unique needs and then providing ongoing service to purchasers once they’ve obtained coverage, however, is best performed by licensed and regulated professionals.

The statement in the Governor’s press release is consistent with this division of labor, but only because it lacks details. Follow-up legislation and explicit regulations will be needed to assure consumers have access to qualified professionals. The National Association of Insurance Commissioners sees a continued role for brokers as an essential consumer protection. In a resolution adopted during their August 2010 meeting, the NAIC noted that “employers and consumers will need professional guidance even more in the future” as a result of health care reform. 

While Governor Schwarzenegger’s signing of AB 1602 and SB 900 directly impacts only Californians, other states are likely to study these bills as they contemplate the design of their own exchanges – another reason why legislation to clarify brokers’ role in the state’s Exchange should be introduced and enacted quickly in the next legislative session. So this California development could have repercussions across the country.

In some of the comments posted on this blog, some have suggested that Democratic states are likely to create anti-broker exchanges while more Republican states will create broker-friendly ones. This view, however, ignores the facts that Republican’s health care reform proposals are as those of Democrats to increase health care costs while undermining brokers’ role in the system. Consider Republican support for mandating carriers to offer health insurance coverage to all applicants (“guarantee issue”) and their opposition to requiring all consumers to purchase coverage (an “individual mandate”)  No surer recipe for skyrocketing health insurance costs exists than imposing guarantee issue without an individual mandate. Assuming lawmakers will do the right thing just because of the political party they are in is naive. What’s required is a strong political and educational push by people who understand the current system, who sees its flaws, and have practical and meaningful ideas on how to fix it. Put another way, brokers must stay involved and engaged regardless of which political party holds the majority of seats in their state’s legislatures.

Fortunately, there’s still time (even in California) to make a difference. As noted, CAHU is already working on needed changes to AB 1602 and SB 900. Meanwhile, the National Association of Health Underwriters is deeply involved in working with state legislatures and insurance commissioners to help them develop exchanges that implement the letter and spirit of the Patient Protection and Affordable Care Act while preserving consumers’ access to qualified, professional producers.

In any change of the consequence and complexity presented by health care reform there will be advances and setbacks. The nice thing about politics and legislation is there’s always another election and another legislative session coming up. The key is to avoid giving in to despair with each setback, but rather to persevere until one achieves the next advance.

California Exchange Legislation Greatly Flawed and Should be Vetoed

How states implement exchanges will have a tremendous impact on the efficacy of the Patient Protection and Affordable Care Act. States can create exchanges that educate consumers, bring them innovative products, increase choice in the marketplace and encourage competition. On the other hand exchanges can be designed to drive consumers to handpicked carriers, stifle innovation, strangle competition, and reduce choice. Fashioning smart exchanges (that would be the first type mentioned) won’t be easy. Fortunately, states have time to get it right.

Which makes the California Legislature’s decision to create an exchange that will do more harm than good even more dismaying. Governor Arnold Schwarzenegger will need to decide whether to sign into law AB 1602 and SB 900 or veto the bills by September 30th (they can become law without his signature if he takes no action by that date). He should veto the bills and require the legislature to start over. There’s time and the need for a more thoughtful approach to California’s health insurance exchange.

AB 1602, authored by Assembly Speaker John Perez and SB 900, authored by Elaine Alquist, invests in a five member board the authority to create and operate the California Health benefit Exchange. The legislation law was supported by a broad coalition including Health Access, AARP, Blue Shield of California, Kaiser Permanente, Consumer’s Union and the SEIU. As originally drafted the legislation raised concerns, but took a more reasonable approach.

They were amended, however, in the last days before the California Legislature adjourned, in ways that will ultimately harm California consumers. The exchange board was given broad authority to set its own budget, sign contracts and create rules and regulations behind closed doors and without oversight. These concerns that are front-and-center in the efforts of the California Association of Health Underwriter’s and others to persuade Governor Schwarzenegger to veto AB 1602 and SB 900.

Other problems with the legislation is the empowerment of Navigators to assist consumers enrolling through the exchange. These individuals could wield great influence on individual’s purchasing decisions, but they are not required to be licensed. In addition, many are concerned that the exchange board could prevent independent brokers from participating in the exchange. Changes made at the last minute changed the legislation in ways that seem to run counter to a resolution recently enacted by the National Association of Insurance Commissioners which which calls on policy makers to “acknowledge the critical role of producers” and to include a role for them within exchanges.

Lawmakers need to determine the role of exchanges and strike a careful balance. Exchanges are generally regarded as a tool for simplifying the health insurance market. But simplify too much and through bureaucratic fiat as opposed to market demand, and the result will inevitably stifle innovation, depriving consumers of access to new and better plan designs.

Consider what would have happened had a five member board been empowered to determine product designs 10 years ago. Would they have created HSAs, one of today’s fastest growing types of health plans? Doubtful. And if they even considered the concept the decision would probably have been made on political grounds as much as economic ones. Would they have introduced value-based plans that reward consumers for visiting their doctors and taking healthy actions? Highly unlikely. (Full disclosure here, one of my consulting clients is SeeChange Health, a new insurance company that recently began offering just such value-based plans in parts of California).

AB 1602 and SB 900 empower the board of the Health Benefit Exchange a great deal of power to determine not just the types of plans offered within the exchange and which carriers can offer them, but also a tremendous amount of influence over what happens outside the exchange. One tremendous lever they’ll have to do so is their ability to determine, without public scrutiny or review, which insurers may participate in the exchange. They also have the ability to adopt major changes governing insurance coverage without public comment or legislative oversight.

Much has been written about how signing AB 1602 and SB 900 could be an an important part of Governor Schwarzenegger’s his legacy. Much has been written about how vetoing the exchange bills would reflect far better on the Governor’s service. Given his desire to fix what he frequently called “California’s broken health care system” the Governor no doubt would like to sign the legislation. And there’s nothing inherently wrong in giving the exchange board the ability to negotiate with carriers on behalf of those enrolling for coverage through the exchange. But those powers must be delegated in an appropriate way with an eye enhancing choice and innovation. AB 1602 and SB 900 fail to accomplish this.

All states need to be moving forward with creating their exchanges soon. It will take time to establish these operations, staff them and get them ready for business. However, lawmakers should also take the time necessary to get the legislation right. California lawmakers, in accepting last minute changes without public hearings, failed to do so. Starting over in January will still give them plenty of time to develop an exchange for the nation’s largest state that not only accomplishes the goals of such exchanges, but does so in a way that will nurture innovation over time.

Devil Dwells in the Details of Health Care Reform Compromise

A critical health care reform compromise seems to have emerged from negotiations between five liberal and five moderate Democratic Senators (the so-called “Gang of 10”). They are putting forward a compromise that eliminates (or at least postpones) the creation of a government-run health plan while allowing Americans 55 through 64 years of age to purchase Medicare and tasking the Office of Personnel management to administer a program offering coverage through non-profit, private health plans. Of course, as with anything as complicated as health care reform, a solution or compromise on one issue creates new ones elsewhere – think of trying to flatten a partially inflated balloon. Push down on one part and the air pops up in another.

As I noted the other day, expanding Medicare is an idea that appeals to both liberals and conservative Democrats. For example, former Governor Howard Dean, a leading and vocal advocate for a government-run health plan called the compromise “a positive step forward” on the CBS’ “The Early Show.” Meanwhile, Senator Joe Lieberman, who had threatened to support a filibuster of any health care reform plan containing a public option signaled the compromise might be acceptable. According to MSNBC Senator Lieberman said he was “’open- minded’ about the deal” and indicated he was encouraged by what he’s heard so far about the compromise. In other words, he’s pretty much on board.

Senator Reid will be submitting the Gang of 10’s compromise to the Congressional Budget Office where its financial impact will be determined. In the interim, it’s worthwhile asking some questions about the impact of elements of the health care reform compromise as it is in the details that the devil likes to linger.

For example, how will allowing 55 through 64 years old enroll in Medicare impact private health insurance premiums?  It is widely accepted that Medicare often pays doctors, hospitals and other providers less than the actual cost of the care they provide. For example, “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,” according to a study by the Lewin Group. Medical care providers make up for the Medicare reimbursement shortfall by charging more to their insured patients. This cost shifting is reflected in higher health insurance premiums.

To the extent the 55-through-64 year olds signing up for Medicare previously were insured by private carriers the amount of dollars being shifted to private insurance will increase and the number of privately insured consumers absorbing this cost will decrease. The result, upward pressure on health insurance premiums.

However, to the extent that these new enrollees were previously uninsured it will reduce the cost of private coverage. Right now virtually all the costs incurred by the uninsured are shifted to private carriers. If Medicare pays for 71 percent of these expenses that’s 71 percent less in losses providers need to shift to their insured patients. How these two consequences balance out is as yet unknown – and may not be knowable until after the fact. But lawmakers should be aware of these consequences.

There’s another detail of the compromise potentially offering affordable housing to the devil.  Alison, a regular reader of this blog, pointed out a provision that would require private carriers to spend at least 90 percent of premiums on medical care. Forcing carriers to spend a high percentage of premiums on medical costs is one of those proposals that: 1) sounds great; and 2) emerges with the regularity of ground hogs in Pennsylvania in February. And it’s a seriously flawed proposal.

Consider: requiring carriers to maintain a specified medical loss ratio (as the percentage of premium spent on claims is called) could reduce the availability of low cost plans. It costs just as much to process claims for a plan costing $300 per month as it does for one with a monthly cost of $100. If these fixed costs amount to $15, they represent 15 percent of the lower cost plan’s premium, but only 5 percent of the premiums for the more expensive plan. Need to get your medical loss ratio (as the percentage of premium spent on claims is called) to 10 percent? Raise your premiums. It’s counter-intuitive, but do the math and you’ll see the danger.

There are several other potential dangers from requiring a high and specific medical loss ratio. Economic swings or flu outbreaks (or the lack of expected flue outbreaks) can greatly alter the percentage spent on claims. So can government-imposed mandates to cover certain conditions. Private carriers pay taxes and need lawyers to deal with government regulation. These costs are beyond their control, but they tend not to increase over time (taxes and regulations have a nasty habit of piling up), meaning these uncontrollable costs are likely to absorb funds needed for truly administrative costs – like answering the phone. Answering the phone, of course, speaks to customer service, a likely victim of mandated loss ratios.

And setting the medical loss ratio at 90 percent would certainly eliminate broker commissions. Brokers would either need to charge fees directly to clients (if that’s permitted) or go away, leaving consumers bereft of independent advocates and counselors.

The good news is that just because a provision is in the compromise doesn’t mean it will be part of the final legislation. Or that it can’t be improved upon before reaching President Obama’s desk. When California Governor Arnold Schwarzenegger proposed an 85 percent medical loss ratio in his 1997 health care reform plan, lawmakers recognized the potential pitfalls. The provision was amended to make clear, for example, that taxes and disease management programs would be part of the claims side of the ledger. Eventually a workable compromise was was reached. (The bill did not pass the Legislature, however).

Of course, fixing California’s version of a mandated medical loss ratio didn’t happen of its own accord. Many interested parties, including the California Association of Health Underwriters, expended considerable effort to educate lawmakers about the implications of this provision. An effort of similar magnitude will be required to make sure that the devil is unable to take up residence in the details of the health care reform compromise shaping up in Washington.

Health Care Reform 2009: Even More Required Reading

Welcome to the third edition of health care reform 2009’s required reading list. (The previous editions were Health Care Reform 2009: Required Reading and Health Care Reform 2009: More Required Reading). What I try to do in these cleverly titled posts is to pull together the articles and web sties offering meaningful insights into the current health care debate. I don’t always agree with the authors facts, reasoning or conclusion, but having them available can be a useful guide to what people are saying and thinking.

  1. If folks are going to argue over what’s in the House Energy and Commerce Committee’s legislation (the “America’s Affordable Health Choices Act“) we might as well all read the darn thing. And the various press releases, summaries and white papers associated with it. The Committee’s site has it all and more.
  2. When the Congressional Budget Office talks people listen. (To be precise, when the CBO writes, people read — especially lawmakers, public policy wonks, the media and the political groups seeking to sway the outcome of the health care reform debate). One of their most read pronouncements concerned the impact of a government-run health plan to compete with private carriers or through a health insurance exchange under the Energy and Commerce Committee’s bill. The CBO concluded enrollment in a public plan or exchanges would be relatively modest — by 2016 they project “nearly 3 million Americans who would be covered under an employment-based plan under current law … would choose instead to obtain coverage in the exchanges because the employer’s offer would be deemed unaffordable and they would therefore be eligible to receive subsidies via an exchange…”  When part-time workers are added in, the CBO estimates that the private carriers would lose approximately 9 million people to the exchange by 2016. Estimating that a public plan would offer premiums approximately 10 percent lower than typical private plans offered in the exchange,  the CBO concludes the public plan would have a “limited effect on the the proposal’s net budgetary impact,” implying enrollment would be modest. The CBOreport is a thorough analysis well worth an investment of time.
  3. When it comes to polling, trends often matter as much as the actual numbers. The Kaiser Family Foundation has been tracking the public’s attitude toward health care reform since March 2007.  Their July 29th Public Opinion on Health Care Issues finds a majority of Americans continue to believe “it is more important than ever to take on health care reform now.” While the percentage has declined since October 2008 from 62 percent to 56 percent, that’s still a striking result given the rhetoric surrounding the debate. Of course, it all depends on who you talk to: roughly 70 percent of Democrats believe this is the time for health care reform while approximately 60 percent of Republicans state “we cannot afford to take on healthcare reform right now.” Independents split 54 percent-to-42 percent in favor of moving forward with change now.
  4. Just because you see it on television doesn’t mean it’s true. Partisans on the left, right and middle have a tendency to misstate the facts. FactCheck.org, a project of the Annenberg Public Policy Center is an excellent source for the real scoop. They take on liberals and conservatives with equal fervor, for instance, debunking the euthanasia claims of the right and challenging President Barack Obama’s claim that health insurance companies are raking in “record profits.” 
  5. During the presidential campaign, one of Obama campaign’s most potent weapons was a site called “Fight the Smears.” It allowed the campaign to quickly respond to and debunk unfounded rumors. The White House is launching a similar site, called “Reality Check” to counter attacks on the president’s health care goals. The justifications are not surprisingly skewed to the Administration’s positions, but as a single source for President Obama’s positions on controversial issues it’s a great resource.
  6. Keeping the health plans straight without a program is nearly impossible. Even with a program it’s darn tough. The National Association of Health Underwriters offers a useful comparison between the Senate Health, Education, Labor and Pensions Committee legislation and the House of Representative’s legislation (HR 3200). In fact, NAHU has a wide range of useful legislative information of particular interest to health insurance brokers. (If you’re a broker and not a member of NAHU, now is the time to join. No other organization is as engaged or effective at representing the perspective of professional insurance brokers.) The Kaiser Family Foundation ahs a great tool for comparing various health care reform proposals as well.
  7. Health care reform is critical importance to state governments. They simply cannot afford the burden of increasing medical costs for programs like Medicaid (Medi-Cal in California). California Arnold Schwarzenegger made this point very clear in a letter to Congressional leaders urging them to pass health care reform, but warning against pushing the financial burden onto state governments. It’s an aspect of health care reform that is not receiving a great deal of attention, but is of critical importance. The letter does an excellent job of explaining the issue. 

Of course the most important document to read is the Senate Finance Committee’s compromise proposal. Unfortunately, it doesn’t exist yet, although there are plenty of stories on what it is likely to contain. Until it sees the light of day, however, reports on its provisions are merely conjecture, trial balloons or both. In the meantime, these sites and publications should provide some pleasant summer reading.

What if California Had Passed Health Care Reform?

California lawmakers recently passed a budget that, at least on paper, may, perhaps close the $42 billion shortfall the state faces in this and the next fiscal year. The budget was due before July 2008. So it was a bit less than eight months overdue. One of the methods required to close the gap was to reduce funding to some of the state’s neediest citizens.

Lawmakers inability to find a budget compromise in a timely fashion and in such a cruel fashion speaks volumes about a dangerous and dysfunctional political system. It brings into question whether California lawmakers can be trusted with something as critical to its citizens as the nature of its health care system, which would have happened had California enacted Assembly Bill X1-1 last year. Given the state’s current economic and political problems, what would have happened had health care reform passed in early 2009?

ABX1-1, you may recall, passed the Assembly, was supported by the Governor, but was defeated in the Senate early last year. A major reason for its demise was a Legislative Analyst’s Office Report on ABX1-1 that raised serious concerns about the state’s ability to implement the reform package within the $14 billion price tag touted by its supporters, primarily Governor Arnold Schwarzenegger. then Assembly Speaker Fabian Nunez and then President Pro Tem Don Perata. Using what it considered to be optimistic assumptions of the bill’s sponsors, the LAO concluded the plan would be running a deficit of $300 million. Using more conservative (and what the LAO called, more realistic assumptions), it estimated the health care plan would be running a deficit of $1.5 billion in it’s fifth year and have run up a cumulative deficit of $4 billion during it’s first half-decade of operation.

Supporters of the health care reform bill protested that the LAO report underestimated savings from fixing the state’s broken health care system. They relied on a study conducted by professor Jonathan Gruber of the Massachusetts Institute of Technology that demonstrated the reform package was a net financial plus for the state.

Yet the Gruber report made some questionable assumptions. The LAO report noted, for example, that the Gruber model “is not designed to estimate the effects of an economic slowdown on population responses” to the various elements of the reform.”  Translation:  if the economy tanks the Gruber analysis doesn’t work. That’s because, according to the LAO report, ABX1-1’s proponents assumed then current growth rates would continue over time. “For example, the cost of expanding Medi-Cal to adults was grown at the projected growth rate for current Medi-Cal expenses, while the wage-based employer fee was projected to grow at the projected growth rate for wages.”

But tank the economy did (and has). Time and again, the LAO report, delivered to the Legislature on January 22, 2008, warned against the danger of mis-predicting the future. “California is subject periodically to slowdowns in economic activity. During these times, unemployment often increases. This reduces the number of Californians with access to employer-provided healthcare. A recession similar to the one California experienced in the early 1990s could result in hundreds of thousands of Californians losing access to employer-provided health care, thereby increasing the costs for the [health care reform] plan.”

Statistics published by the California Economic Development Department puts this into context. In January 2008, when the LAO report was published, the state’s unemployment rate had been below six percent for three years, dipping below five percent in 2006. This compares to the state’s unemployment rate during the 1990s recession of more than nine percent during most of 1992 and 1993, peaking during several months at 9.9 percent. California’s current unemployment, at least during January 2009, was 10.1 percent. The worst case scenario the LAO warned against has arrived.

I don’t bring all this up to deny the need for substantial health care reform. For the state and national economies to recover sooner-than-later, substantial changes to the health care system are necessary. In times of economic dislocation like we are experiencing now, the human need for change in health care is especially acute and poignant. Unemployment is about more than data and statistics, it’s about neighbors and families in pain.

Nor am I raising this issue to gloat over the failure of ABX1-1. A number of the reforms contained in that legislation would have significantly improved California’s health care system.

These statistics, however, point to several truths:

  1. Predicting the future is hard, if not impossible. Any reform package has to make assumptions about the economic environment years from now. And most likely, those estimates will be wrong.
  2. Meaningful health care reform must come from the federal government — state’s simply aren’t equipped to deal with it. This isn’t to say there aren’t good ideas emerging from the states. But they lack the tools needed to deal with unexpected problems. As California has ably demonstrated, states do a poor job of facing economic challenges. They can’t deficit spend. The federal government has a tough time influencing the economy; states simply can’t.

Think about the budget drama of the past eight months. Now think about a health care structure upon which the state’s residents depends being subject to this horrendous display of chaos. It’s more than scary. It’s a nightmare that eventually California — or any state — will likely face if it tries to tackle the complex issues of comprehensive health care reform aimed at achieving anything close to universal coverage. Until states can print money, they will be incapable of shepherding their health systems through economic times like these.

America’s economy will recover. It’s only a matter of time and hard work. The nation’s health care system can be reformed into a truly American-style system that achieves universal — or nearly universal — coverage. It’s also a matter of time, hard work as well as of smart politics able to find common ground among competing factions. It won’t be easy, but it can be done.

No one during the debate over ABX1-1 could have anticipated what’s happened to the economy. The LAO warned against the potential, but even they did not declare this situation likely. Yet here we are. If ABX1-1 had passed the California fiscal crisis would be even worse than it is. And the state’s lawmakers would have been unable to face the challenge.

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.

Do Schwarzenegger Vetoes Signal a Push for Comprehensive Reform in 2009?

Governor Arnold Schwarzenegger vetoed a host of health care reform bills on Tuesday. Some of them were to be expected. For example, he struck down Senate Bill 840, Senator Sheila Keuhl’s attempt to create a government-run, single payer system in the state. The Governor has been on record as opposing this approach for years and has vetoed the concept in the past. His vetoes of several bills requiring medical plans to include coverage for certain conditions is also consistent with his previously stated opposition to coverage mandates.

But there were lots of surprises on the list, too. Governor Schwarzenegger vetoed legislation that would have made it far more difficult for carriers to insurance companies to rescind an insured once they’ve accepted an application for individual or family coverage (Assembly Bill 1945 by Assemblyman Hector De La Torre. No carrier practice has garnered more negative press — and bigger fines — than rescission. From a political point of view, AB 1945 was a soft ball. Yet Governor Schwarzenegger struck it down.

He vetoed legislation (Senate Bill 1440 by Senator Keuhl) to compel carriers to spend 85 percent of the premium they take in on medical care — even though this concept was contained in the unsuccessful comprehensive health care reform package the Governor was pushing for last year. The same fate befell Senate Bill 973 by Senator Joe Simitian that would have created a statewide public insurer to link together existing regional and county-based health plans even though it too was similar to a portion of the Governor’s own reform plan.

Governor Schwarzenegger’s veto of Assembly Bill 2 by Assemblyman Mervyn Dymally was especially surprising. It would have expanded the ability of the state’s existing high risk pool to help more Californians unable to qualify for coverage in the private marketplace due to pre-existing health conditions.  The program needs significant help to continue to meet its mission. He also vetoed Senate Bill 981 by Senate President Pro Tem Don Perata which would have prohibited “balance billing” by doctors and other care providers.

The Governor had his reasons for keeping these bills from becoming law. His veto message concerning AB 1945 deplored the practice of unfair rescission and listed consumer-protection provisions he would want to see in legislation dealing with the issue. But he noted that AB 1945 was “written by the attorneys that stand to benefit from its provisions” and would lead to unwarranted litigation. Similarly, he preferred a different solution to the problem of balance billing than the approach embodied in SB 981.

Vetoes of this type, over approaches to solving problems, are common. They represent legitimate policy and political differences. The Legislature, for example, considered several bills addressing recission. They could have worked with the Governor’s office to fashion a compromise that he would sign. That didn’t happen. The veto did.

But it’s Governor Schwarzenegger’s rationale for vetoing AB 2, SB 1440, and SB 973 that best illuminates what’s in store for California concerning heatlh care reform. In all three of his veto messages, Governor Schwarzenegger made clear he wants comprehensive health care reform. Piecemeal and incremental changes are unacceptable.

I’ve written previously about why state health care reform efforts usually fail. In my mind, meaningful and comprehensive reform will need to come from Washington. And while enacting such reform has been greatly complicated by the current financial crisis, it still remains near the top of the domestic agendas for both Senator John McCain and Senator Barack Obama.

If the new Congress and the next Administration succeed in enacting dramatic health care reforms, it could preempt laws and regulations at the state level. To me, this suggests the efforts of California’s leaders might best be spent in helping to shape what happens in Washington, DC. Governor Schwarzenegger apparently disagrees.

Governor Schwarzenegger’s vetoes make clear he intends to pursue a California solution. It’s not just what the veto messages say, it’s their political impact that is important. They keep pressure on lawmakers to enact substantial reform. His opponents, for example, will be unable to call for a “time out” on further changes to the system while the new laws are given a chance to work. His allies, while angry at the vetoes, will work all the harder to get their pet reforms enacted.

In some significant ways, the potential for success is greater in 2009 than it was in 2008. Governor Schwarzenegger will be negotiating with a new cast of Legislative Leaders.  He will will be working with a relatively new Legislature, many of whom will have no scars with from his previous effort. Yet, unlike in 2007 when he launched the Year of Health Care Reform, a year in which, for most of it, the Governor offered only general principals, in 2009 he can use his defeated reform legislation, Assembly Bill X1-1, as a detailed starting point.

Certainly, the task won’t be easy. It may even be impossible. The state’s finances are in shambles and health care reform is expensive.

But there’s a legacy to be attended to. Plus, the Governor does not like to lose and the defeat of ABX1-1 was both visible and painful. His vetoes are a clear signal of where he’s headed. Expect 2009 to be the Year of Health Care Reform. Again.

Single Payer Losing Ground

This should be the best of times for advocates of a single payer health care system in America. The environment for radical change has never been better. After years of hammering at problems in the current system, there is general agreement on the need for substantial change. When asked what single issue will most impact their vote for president, a substantial number of voters have consistently cited health care according to the Kaiser Health Tracking Polls. For example, in the August 2008 survey, 16% cited health care as their determinative issue, ranking this concern behind only the Economy (49%), Iraq (25%) and and Gas Prices 18%). Significantly, health care reform is a critical part of the economy and 24% of the respondents said paying for health care and health insurance was a serious problem. 

Meanwhile, legislation to create a single payer system has been introduced in Congress and several states. In California, the Legislature passed a bill to create a state-run health plan:(Senate Bill 840 by Senator Sheila Kuehl. (It currently is awaiting a veto by Governor Arnold Schwarzenegger).

Given all this momentum for radical change, you would think a government-run system would be a major issue in the presidential campaign, yet it’s not. Clearly, Senator John McCain, the Republican nominee is not going to support a single payer system. What’s significant, however, is that Democrats are not advocating this approach either. Neither the Democratic nominee, Senator Barack Obama. nor his chief rival through the primary season, Senator Hillary Clinton, called for a government takeover of America’s health care system. Even the Democratic Party platform rejects a single payer system.

The 2008 Democratic National Platform, Renewing America’s Promise, gives its approach to heath care reform considerable prominence. Here’s some meaningful excerpts from the document:

“Democrats are united around a commitment that every American man, woman and child be guaranteed affordable, comprehensive healthcare.”

Our vision includes: Covering All Americans and Providing Real Choices of Affordable Health Insurance Options.  Families and individuals should have the option of keeping the coverage they have or choosing from a wide array of health insurance plans, including many private health insurance options and a public plan. Coverage should be made affordable for all Americans with subsidies provided through tax credits and other means.”

Shared Responsibility. health care should be a shared responsibility between employers, workers, insurers, providers and government. All Americans should have coverage they can afford; employers should have incentives to provide coverage to their workers; insurers and providers should ensure high quality affordable care; and the government should ensure that health insurance is affordable and provides meaningful coverage. As affordable coverage is made available, individuals should purchase health insurance and take steps to lead healthy lives.”

Meaningful Benefits. Families should have health insurance coverage similar to what Members of Congress enjoy.”

This is not the language of single payer advocates. Yes, the Democrats call for coverage for all Americans that is “similar to what Members of Congress enjoy.” And they want to protect Americans from “the burden of skyrocketing premiums, unaffordable deductibles or benefit limits that leave them at financial risk when they become sick.” So we’re not talking about a “hands-off” approach here.

But we’re also not talking about a single payer system. Advocates of SB 840 claim as one of its chief benefits the elimination of health insurers and HMOs. That’s a long way from the platform’s call for “keeping private health insurance options” available.

There will be robust debate in Washington concerning health care reform. As I’ve written previously, a bipartisan coalition of Senators is waiting for the new president with their own health care reform package. Single Payer advocates are not going away. They will throw their proposals into the mix, but this won’t change the reality: the Democratic nominee and his party’s platform have rejected the single payer approach.

So here’s the question: if single payer advocates can’t win when the political stars are so strongly aligned in their favor, will they ever win?

My take is that the stars are realigning in such a way to make the answer a resounding “no.” Over the next two-to-four years there is a real possibility that Congress and the new president will pass meaningful, comprehensive health care reform. That’s another two-to-four years in which the cracks in existing single payer systems around the world will deepen, broaden and become more apparent. Faced with a new alternative to what will increasingly be seen as a nonviable approach at hand being rolled out, single payer advocates won’t go away, but they won’t be successful either.

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.