Pointed Questions for WellPoint

On February 24th WellPoint CEO Angela Brady will appear before the House Energy & Commerce Committee. She will attempt to explain why the company’s California operating unit, Anthem Blue Cross of California, recently sought to raise rates on some individual policy holders upward of 39 percent. While the effective date of the rate increase was postponed, the hearing is not. And that it is being held the day before President Barack Obama’s bi-partisan health care reform summit with Congressional leaders is no coincidence. The Administration and others have pointed to the rate increase as one of the reasons comprehensive health care reform – or at least health insurance reform – is needed.

In preparation for the hearing, House & Energy Committee Chair Henry Waxman and Subcommittee on Oversight and Investigations Chair Bart Stupak sent a letter to Ms. Braly asking for background information. The information ranges from the general (“reasons for the premium rate increase”) to the specific (for 2005-2008, “a table listing, as applicable, premium revenue, claims payments, sales expenses, other general or administrative expenses, and profits for all individual health insurance products”) to what some might call a fishing expedition “all internal communications, including e-mail, to or from senior corporate management relating to the company’s decision to increase premium rates in California in the individual health insurance market.”)

The hearing will be closely watched, not only by lawmakers but by WellPoint’s competitors. It could provide an interesting glimpse into the rate making process employed by health insurance carriers. The information will certainly be cited by advocates – and opponents – of requiring carriers to spend a certain percentage of the premiums they take in on medical claims as opposed to administrative expenses and profits.

Ms. Braly’s testimony will also likely highlight the different ways politicians and business people view the same data. What to a member of Congress may look like profiteering could look to an executive like a prudent hedge against unknown risk.

The Associated Press has taken a balanced approach to explaining the issues behind the Anthem Blue Cross of California rate increase. The analysis is worthwhile reading for anyone following this particular controversy. Among its conclusions: rising medical costs are the main driver of rate hikes, not profits; health insurance rate regulations vary considerably from state-to-state; non-profit health plans also have large rate increases; carriers can’t, and probably shouldn’t, subsidize rates for one business line in one state with profits earned by other lines of business, especially in other states; and that there’s a lot of elements taken into consideration by carriers when they set their rates. While there’s little specifics many insurance professionals don’t already know (other than the make-up of WellPoint’s profits), it’s a very useful summary and analysis of the issues.

The timing of Anthem Blue Cross of California’s rate increase is generally perceived as constituting political malpractice. But there may be a silver lining. Ms. Braly has an opportunity to educate lawmakers on how and why carriers charge the health insurance premiums they do. If members of the Energy & Commerce Committee are willing to look beyond the politics of the rate increase, they might gain a better understanding of how health insurance works in this country.

Health Care is Local

Former House Speaker Tip O’Neill famously noted that “all politics is local.” And he’s right. He was not talking about the rules of the political game. Those are established by a national constitution and subject to state laws as well as local ones. He meant that the political dynamics of each district are what determines the ideological shading of a district.

Some examples are obvious: compare the voting record of legislators from Massachusetts and Utah. Others are less so: Republican Senator Charles Grassley had been a reasonable voice on health care reform until he remembered he was up for reelection in 2010 and saw how conservative Iowans were responding to unfounded claims of “death panels” and the like; he is now embracing aspects of the silliness.

Health care is local, too. The medical delivery system in Los Angeles looks far different from the one in Cheyenne. Even what’s considered standard treatment varies from community to community. And as Dr. Atul Gawande demonstrated in his New Yorker article, the cost of care varies greatly among localities based on medical provider’s approach to health care.

How the local nature of politics and health care interact underscores the complexity of health care reform. Because health care is local, what’s broken in the current system varies from place-to-place. Because politics and is local, acceptable solutions vary depending on locale. It may just be a coincidence, but it is worth noting that the initial advocate for community-based health insurance co-operatives, Senator Kent Conrad, hails from North Dakota where rural electricity co-operatives are common while many of those claiming only a government-run health plan will do represent urban areas.

Recognizing this dynamic, the the House Energy and Commerce Committee has described HR 3200’s impact on each Congressional District. (My thanks to Dwight Mazzone for bringing these documents to my attention). Reading through these is a glimpse of the richness and variety of America.

For example, in Wyoming (which has one Representative for the entire state) up to 19,000 businesses would be eligible for tax credits to pay for health insurance, 7,400 seniors would benefit from reducing brand name drug costs, much of the $23 million in uncompensated care hospitals and health providers face would be eliminated, and the tax surcharge to pay for reform would impact 3,120 households.

Compare this to the Los Angeles area district represented by Henry Waxman, the Chair of the Energy and Commerce. In California’s 30th District up to 14,300 businesses would be eligible for the subsidy, 5,200 seniors would see lower prescription costs, hospitals and other providers would be relieved of much of the $85 million in uncompensated care they deal with today, while 22,100 households would pay the tax surcharge.

The statistics cited come from legitimate sources, but are presented in order to muster support for HR 3200. Were the same information to be presented by House Republicans it would no doubt have a different spin. Nonetheless, the information is a treasure trove of insight into the local politics and health care that drives the health care reform debate.

These statistics should also give lawmakers demanding a single, one-size-fits-all solution to health care reform pause. As I’ve argued before, state health care reform efforts usually fail. America’s health care system is too large, too interrelated and too complex to be reformed on a state-by-state basis. States lack the tools needed to make meaningful changes work; the national government has those tools. However, the reforms themselves could benefit from local implementation. For instance, instead of creating one, national government-run health plan to compete with private carriers, enabling the creation of local health insurance co-operatives to generate competition where it is needed is more appropriate.

Finding the balance between federal and local management of health care is critical to a well-functioning medical system. It is also good politics.

Progressives Will Face Tough Health Care Reform Choice

Just looking at the broad facts, liberals should be riding high. President Barack Obama occupies the White House. Democrats hold a 60-40 super-majority in the U.S. Senate and a commanding 256-178 majority in the House (with one more on the way after a special election in California later this year). Republicans are on an electoral losing streak of epic proportions and have yet to find a unified voice. It doesn’t get much better than this.

Except appearances can be deceiving and liberals will soon need to decide whether they are willing to vote for a bill that, in their view, improves America’s health care system but does not go nearly far enough or should they leave the system the way it is.

Note: This post was updated on July 30th to provide more details concerning the House Energy & Commerce Committee compromise and liberals reaction to it. Additions are presented in italics.

The evolution of health care reform legislation as it moves through Congress must frustrate progressives. It started off to their liking. Senator Edward Kennedy’s Health, Education, Labor and Pensions Committee pushed forward a bill that satisfied much of the liberal wish list. Good times continued when the House Ways & Means and the Education & Labor Committees passed equally progressive bills. That the affirmative votes on all three committee came exclusively from Democrats was not of great concern to supporters. Health care reform was coming whether Republicans wanted to join the parade or not.

Liberals were on a role, but then their moderate and conservative colleagues began to make their presence felt. And there are more of them than is generally acknowledged. While conservative talk show hosts like to brand the Democrats as a monolithic subsidiary of Mao-spouting communists, the reality is far different (actually, reality is usually different than that described by conservative talk show hosts, but that’s a topic for another day).  A party does not capture 60 percent of the Senate and 59 percent of the House by running cookie cutter candidates all pledged to the same ideology. The country is too diverse. The brilliance of Rahm Emanuel, then head of the Democratic Congressional Campaign Committee and now White House Chief of Staff, was that he discarded virtually the entire Democratic litmus test in his search for candidates. The only significant requirement he demanded of the candidates he recruited was that, once elected, they would vote for a Democrat for Speaker of the House. Meanwhile, the GOP who hewed closely to the beliefs and principles of their base. Moderates were scorned and labeled RINOs (Republicans in Name Only). They succeeded in recruiting ideologues who had no chance of winning outside the reddest of red districts.

Consequently, the Democratic caucus is chock full of moderates and even conservatives.  Which all but guarantees that liberals will be disappointed. There are simply not enough liberals in Congress to pass a bill without support from moderates.

So it should not have been a surprise when problems developed as the progressive juggernaut moved beyond some of the most liberal committees in Congress. The Blue Dog Coalition, a group of moderate Democrats in the House, objected to a host of provisions in the Ways & Means and Education & Labor bills. While they lacked the votes to hold up the legislation in those committees, they did such leverage in the the House Energy & Commerce Committee. The Blue Dog Democrats had an agenda for health care reform that differed in many respects from that of their more liberal colleagues.

Meanwhile, in the Senate, Democrats and Republicans on the Senate Finance Committee were working tirelessly to hash out a health care reform package that could garner bi-partisan support. To get there, Senator Max Baucus, Chair of the committee, was willing to jettison some of the more treasured elements of the liberal health care reform agenda.

Both the Blue Dog Democrats and the moderates on the Senate Finance Committee are making substantial progress. House Energy & Commerce Committee Chair Henry Waxman and Representative Mike Ross, speaking on behalf of the Blue Dogs, announced an agreement that will allow the full committee to begin marking up health care reform legislation. The specific changes to the bill from the versions passed by the Ways & Means and Education & Labor Committees are not yet public. But there are four major elements according to wire stories:

  • Keeping the 10-hear cost below $1 trillion by agreeing to $100 billion in cuts
  • Preventing a public plan from simply imposing Medicaid rates by allowing physiicans and other medical providers to negoiate rates with the government plan
  • Exempting businesses with payrolls below $500,000 (86 percent of all small businesses)  from any government mandates requiring them to provide health insurance to their employees
  • Postponing a full House vote on health care reform until after September 8th

At the same time, Senator Baucus and the ranking minority member of the committee, Senator Chuck Grassley, are making it known they are close to unveiling the Senate Finance Committee’s compromise. Their proposal is unlikely to include a government-run health plan. It may not include all the mandates and subsidies liberals seek. In short, they will reform the health care system, but leave much of what exists in place. Which puts progressives in an uncomfortable position.

Moderates and conservatives seem willing to defeat any health care reform legislation rather than vote for the kind of reforms liberals seek. Will liberals refuse to support legislation that does not go as far as they demand? As of now they are threatening to do just that. The Progressive Caucus is circulating a letter seeking 50 signatures (enough to defeat any bill) pledging to kill any legislation failing to contain a strong public plan.

That’s not yet known. That the compromise proposals will be attacked from both the left and the right is to be expected. And liberals are already expressing outrage at having their wishes denied. For example, the Associated Press quotes Representative Lynn Woolsey  as saying “They can’t possibly be taking us seriously if they’re going to bring this [compromise legislation] forward.”

But will liberals insist on getting their way even if it means letting the status quo stand?

Ideology and pragmatism are often hard to reconcile, but my prediction is that liberals will vote for moderate health care reform. The reason: Senator Kennedy and President Obama will eventually accept a compromise. Throughout his career Senator Kennedy has demonstrated the political wisdom of taking half a loaf now and continuing the fight for the rest another day. And, according to the Associated Press story cited above, the White House is already making clear the Administration is willing to settle for a more moderate bill.

With Senator Kennedy and President Obama’s urging, enough liberals will accept that even modest reform is preferable to the status quo. They won’t be happy with what it contains, or more accurately, what it doesn’t contain, but they will be among those applauding when President Obama signs the bill into law this Fall.

Added 9:05 pm July 29, 2009: As noted above, liberals are upset over any compromise that does not include a public health insurance plan. In a post on Politico.com, Glenn Thrush reports that “Two months ago, most of the 80-plus members of the Congressional Progressive Caucus signed a pledge that they would oppose any health care bill that didn’t contain a bona fide public option that would compete with private insurers. On Wednesday, they seemed willing to stick to their promise.”  He goes on to quote Representative Barney Frank as saying liberals might reject the House leadership’s  request to support a weakened public option. “I don’t think it would pass the House — I wouldn’t vote for it,'” the post quotes Rep. Frank as saying.  No one would cheer louder than Republicans to see health care reform fail because moderate and liberal Democrats fail to come together. Which is, to repeat my prediction from above, why I think liberals will eventually take a deep breath, vote for a moderate bill, and come back in 2010 fighting for more.

More Health Care Reform Proposals Added to the Mix

So many health care reform proposals are flying around the nation’s capital it’s nearly time to bring in the air traffic controllers. There are draft bills, option papers, proposals, outlines, and about any other kind of document you can name whirling around like jets over O’Hare.

Michael Johnson of Blue Shield of California and I gave a presentation on health care reform Wednesday to a group of health insurance brokers. We were reading up on one of the latest ideas issued a few hours earlier literally minutes before the panel got underway. It’s only going to get worse as some stake out (somewhat extreme) negotiating positions while others offer up potential compromises.

Here’s some of the more recent health care reform proposals to be launched — or about to be:

  1.  The web site The Hill is reporting that moderates in the House of Representatives from both sides of the aisle are meeting in private to fashioning a compromise package. Among those meeting are part of the GOP’s “Tuesday Group,” the New Democratic Coalition and the Democratic Blue Dog Coalition. Fearing retribution from party leaders, neither side is offering the names of participants. The meetings are significant not just because they are likely to produce yet another health care reform package. The negotiations also underscore the reality that while the media tends to portray both Democrats and Republicans as monolithic parties of extreme ideologies, there are a significant number of lawmakers who eschew the hardline ideology of their colleagues and search for pragmatic solutions.
  2. Former Senate majority leaders unveiled a health care reform plan they hope will provide a middle ground in debate. The plan was developed by Republican former Senators Howard Baker and Bob Dole along with Democratic former Senators Tom Daschle and George Michell. (Former Senator Mitchell is credited by the Boston Globe with having contributed to the document, although it is signed by only Senators Baker, Daschle and Dole). It weaves around the middle on a number of issues, although it does lean to the left. For example, while the proposal does not call for a creation of a federal government-run health plan it would permit states to create them. It also calls for taxing the value of health plans an employee receives to the extent it exceeds the cost of coverage provided to members of Congress. According to the Boston Globe this would amount about $5,000 for an individual and $13, 000 for a family.
  3. The House Republican leadership unveiled their health care reform plan on Wednesday, too. Among other features it would allow states, small businesses and other group to come together into “pools” to offer low cost health plans that, at a minimum, is provided in a majoirty of states. It also would offer lower-income Americans refundable tax credits they could use to purchase coverage and would make individual health insurance premiums tax deductible. It does not require consumers to buy coverage, but the GOP plan would encourage states “to create a Universal Access Program by establishing and/or reforming existing programs to guarantee all Americans, regardless of pre-existing conditions or past illnesses … access to affordable coverage.” Development of the GOP plan was led by Representative Roy Blunt.
  4. Last week the Chairs of the three House committees with jurisdiction on health care reform released a framework for reform. The Tri-Committee Health Reform Draft Proposal, put forward by House of Representative Chairs Charles Rangel of the Ways and Means Committee, Henry Waxman of the Energy and Commerce Committee, and George Miller of the Education and Labor Committee outlines the key provisions of a unified Democratic reform package. The framework calls for creation of a government-run health plan to compete with private carriers, requires all Americans to obtain coverage (with exemptions in cases of financial hardship), requires most employers to either provide coverage or pay a fee, and provides subsidies for Americans households with incomes up to 400 percent of the federal poverty level.

There will be many more proposals coming soon. As it is relatively early in the legislative process, most will stake out relatively pure ideological positions. Neither party has an incentive to offer compromise solutions yet. So House Democrats, along with Senator Edward Kennedy and his Health, Education, Labor and Pensions Committee, will anchor the left and the GOP Leadership and conservative Senators will anchor the right. As in most negotiations, the goal is to establish a starting position so far to one extreme or the other that the middle shifts in their direction.  

There will be some pragmatic proposals put forward as well. The most anticipated is that expected to be coming soon from the Senate Finance Committee. It’s Chair, Max Baucus, and its Ranking Member, Charles Grassley, seem to be sincere in their efforts to put forward a bi-partisan solution. In the meantime, President Barack Obama will keep up a drumbeat in support of getting comprehensive health care reform legislation through Congress before the end of the year. Although the White House continues to let Congress take the lead in fashioning the final reform package, the Obama Administration is beginning to get more engaged in the legislative process.

What the final health care reform legislation will look like is, as yet, unknown. It may resemble one of the ideas already put forward. Or perhaps something new to the mix will gain momentum. I’m betting that something will pass this year. The process of getting to one bill will be messy, but eventually, a consensus will form.

Not yet, but eventually.

Coming Soon: A Down Payment on Health Care Reform

The battle over the State Children’s Health Insurance Plan (SCHIP) was one of the most emotional battles of between Congress and the White House during the Bush Administration’s waining years. Twice, bi-partisan majorities of Congress passed the reauthorization legislation. Twice President George Bush vetoed the bill. Although the votes for an override were available in the Senate, it narrowly lost in the House. That’s now about to change. Congress is working hard to have a reauthorization of the State Children’s Health Insurance Plan (SCHIP) ready for the new president’s signature as soon as possible — it will be tough, but possibly even on inauguration day.

SCHIP provides health insurance for children in households that earn too much to qualify for Medicaid, but are unable to afford private coverage. States administer the program and, within federal guidelines, may adjust eligibility. They also pay a significant portion of the program’s cost. Currently, about six million children are covered in the popular program.

Congress twice voted to expand the SCHIP program in late 2007, but could not muster enough votes in the House of Representatives to overcome President George Bush’s vetoes. That was then. Now Democrats have stronger majoirites in both the House and Senate. Even more significantly, President-elect Barack Obama is a supporter of the expansion.

According to the Associated Press, discussions on how to approach the SCHIP reauthorization have been underway in Washington.  Although there was some thought of including SCHIP expansion in the forthcoming economic stimulus package, the decision seems to have been made to move forward with the stand-alone bill. While not promising to have the legislation ready for signature on inauguration day, House Speaker Nancy Pelosi promised “we’ll be done soon,” according to AP.

The first test for the SCHIP reauthorization will be in the House Energy and Commerce Committee. The Committee’s chair, Congressman Henry Waxman, called passing the legislation a “down payment on national health insurance.”

Passage of the SCHIP reauthorization would be more than a symbolic breaking with the past. The current recession is placing greater demands on safety net programs like SCHIP. In addition, states pay a significant portion of the coverage provided by SCHIP (from  17 percent to 35 percent depending on the state). Knowing where the program stands — and how much funding they can expect — is of critical importance to state lawmakers struggling with their own hemorrhaging budgets.

How Congress will pay for expanding the program still needs to be worked out. In 2007 the legislation included a 61-cent per pack tax on cigarettes. This was expected to allow the program to insure as many as 10 million children.

SCHIP is a critical component of the patchwork quilt that is America’s health care system. A majority of both Democrats and Republicans agreed it should have happened over a year ago. That it took a new Congress and a new President to get the job done demonstrates how hard achieving comprehensive and meaningful health care reform will be. But to use Congressman Waxman’s terminology, it’s a down payment well worth making.

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.