States and Health Care Reform

Health insurance has long been a state affair in the USA. Insurance companies were even exempt from many aspects of federal anti-trust law to better enable state regulators to oversee their activities. Yes, there were federal laws that standardized certain aspects of the business—think HIPAA and COBRA. Think about Medicaid, Medicare and SCHIP while you’re at it. But when it came to health insurance regulation the states reigned supreme.

Enter Congress and President Barack Obama stage left. With the passage of the Patient Protection and Affordable Care Act the federal role in shaping and regulating health insurance shifted significantly to Washington, DC. The Secretary of the Department of Health and Human Services is now arguably the most important health insurance regulator in the country. The Department of Labor and Internal Revenue Service will also play significant roles in determining the future of the nation’s health insurance market and the choices (or lack of choices) Americans have to meet their health care coverage needs. No wonder critics of the PPACA condemn the law as a “federal takeover.”

That the nexus of health plan oversight has shifted to the federal government is beyond argument. The new health care reform law touches everything from how medical plans are designed, priced, offered, maintained and purchased. To conclude that state insurance regulators are shunted to the sideline, however, dangerously overstates the case. In fact, the PPACA invests tremendous flexibility in the states, allowing them to implement the federal requirements in what will likely be very divergent ways.

Rebecca Vesely, writing in Business Insurance, makes this clear in her article describing how two states, Vermont and Florida, are taking strikingly different paths in addressing health care reform. Vermont has taken the first step toward creating a single payer system by 2017. Legislation to set up a five member board to move the state in this direction has already been enacted. And while many details need to be worked out (funding, to name one) and Vermont will need to obtain a waiver from the Centers for Medicare and Medicaid Services to put the package together, the state is further down the road to single payer than any other.

Then there’s Florida where the move is in the opposite direction. That state is seeking to shift virtually all of its Medicaid population from government coverage into private plans starting in July 2012. These private managed care plans would be offered through large health care networks with health plan profits above five percent shared with the state. Whether this approach will achieve the $1.1 billion in first year savings promised by the Governor or not, it has brought new participants into the Medicaid marketplace such as Blue Cross and Blue Shield of Florida.

The Business Insurance article includes a prediction by Boston University law professor Kevin Outterson that the Obama administration will sign off on the waivers Vermont and Florida need to move forward.

What the starkly different approaches to reigning in skyrocketing health care costs being taken by Florida and Vermont demonstrates is the broad flexibility states retain in shaping their own health care destiny. Yes, federal waivers are required, but that would be the case even if the PPACA had never passed—Medicaid is a federal program after all. The CMS web site lists 451 state waivers or demonstration projects in place today. The concept of allowing experimentations and exceptions is ingrained in the Medicaid program just as they are in the Patient Protection and Affordable Care Act. There’s nothing wrong with this any more than having shock absorbers on a car is an indictment of an automobile’s chassis or tires.

The marked variation in approaches being taken by Vermont and Florida are extreme examples of what we’ll see as states implement exchanges and other aspects of the Patient Protection and Affordable Care Act. Of course, whether this is good news or bad news depends a great deal on the state in which you live and work. States that are heavily tilted toward one party or the other (I’m looking at you California and Wisconsin) could make some of their residents yearn for the federal government to step in and keep things in perspective. Given the way the PPACA preserves state powers, however, they are going to be disappointed.

California Hospital Charges Increase 150% in 10 Years

The Patient Protection and Affordable Care Act does a great deal to address insurance industry practices. The new health care reform law, however, has been rightly criticized as failing to directly and forcefully attack rising medical costs, the primary driver of insurance premiums. Yes, the new law establishes.

The PPACA has a number of pilot projects, demonstration programs, and studies buried in its provisions that could, in time, lower overall cost spending. And supporters of the bill will argue that the Medical Loss Ratio provision is aimed at keeping down the cost of coverage. (Ironically, the MLR limits may have the unintended consequence of raising insurance costs. Administrative costs are usually fixed and independent of the premium paid. The cost to have a claims representative process a claim is the same whether the coverage cost $1,000 or $3,000 per year. But the $1,000 policy makes only $200 available for administrative expenses under the medical loss ratio calculation; the $3,000 plan makes $600 available. In other words, because the MLR rules apply percentages, carriers have an incentive to eliminate low-cost plans).

Carriers need to educate lawmakers and the public about the elements that go into a premium rate. Yes, profit and overhead are a part of the cost. But the biggest driver of health insurance premiums is the underlying cost of medical care. And the carrier community may have begun this educational process.

America’s Health Insurance Plans, the industry trade association, released a study showing that, in California, hospital charges increased 150 percent between 2000 and 2009. The Sacramento Bee, quotes AHIP spokesperson Robert Zirkelbach as observing “What this data shows is that there needs to be much greater focus on the underlying cost of medical care that is driving those premium increases. At some point, people will have to address these underlying cost drivers if health care costs are going to come down.” In other words, you’ve taken your shot at the insurers, now, if you’re serious about reducing costs, let’s look at the hospitals.

Interestingly the AHIP report acknowledges that hospitals and other providers of medical care need to make up for underpayments by government health programs. In California, between 2000 and 2009, hospitals charges to health plans rose by 159 percent. This is more than twice the rate of increase for Medicare and eight times the increase hospitals received for Medi-Cal – the state’s version of Medicaid.

Needless to say the hospitals didn’t appreciate AHIP pointing this out. “It’s really tough for a pot to call a kettle black,” the Sacramento Bee reports Scott Seamons, the regional vice president for the Hospital Council of Northern and Central California. I don’t know if Mr. Seamons intended to acknowledge that hospitals are at least as much at fault for rising insurance premiums as carriers, but if the insurance companies are the pot and the hospitals the kettle, that is what he’s saying. If so, that would be a refreshing dose of frankness to the dialogue. Meanwhile, consumer groups, not unexpectedly, accused the AHIP of trying to shift the blame for rising premiums. Apparently they can’t accept that anything other than insurer greed and profiteering drives insurance premiums. Any correlation with hospital charges or medical inflation are merely accidental.

All of this rhetoric and accusing is standard issue among advocacy groups and trade associations. And if all that comes out of the report are fingers among these usual suspects pointing at the usual places, then this report will have done little good. If, however, the study represents the beginning of a concerted effort to bring to the public’s attention what drives their insurance premiums; if it leads lawmakers to ask “why” hospitals needed a 159 percent rate increase over 10 years; if it gets people thinking about the monopoly position some hospital chains enjoy – and employ – in parts of the state, that’s something altogether different. Because if these possibilities become reality, the AHIP report may be seen as an important start to what will be a long, but critical, educational effort.

Big Impact from Small Health Care Reform Initiatives?

Whether Congress will pass comprehensive health care reform is, shall we say, an “iffy” proposition at this stage. Members of Congress continue to meet, seeking to find a way to pass meaningful reforms through a House increasingly reluctant to support anything expensive and a Senate incapable of shutting off a filibuster. Not surprisingly, observers are looking for clues as to what Plan B … or C, D, E and F … might look like.

According to the Associated Press “President Barack Obama’s modest health care budget may be harbinger of what’s ahead if his overhaul plan dies in Congress.” “Modest” is the correct word. Among the items:

  1. Emergency funds for state Medicaid programs ($25.5 billion) to help handle the influx of program participants as a result of the recession.
  2. $290 million to community health centers, providers to much of the uninsured.
  3. Funds for Medicare to experiment with ways of treating chronic health problems.
  4. Increased funding for comparative effectiveness research to help identify the treatments most effective at addressing costly conditions
  5. A boost to existing efforts to speed adoption of computerized medical records.
  6. increasing anti-fraud personnel and programs within Medicare and Medicaid.

Any and all of these may be useful and necessary. None individually or all of them collectively can be called “comprehensive.” As Secretary of Health and Human Services, Kathleen Sebelius describes them, the budget is “a platform.” And that is how it should be looked at. If comprehensive health care reform legislation dies in Congress, the game will shift to “small ball” in Washington, D.C. The goal will be to accumulate minor gains through the budget, to advance health care reform through executive orders, and to use existing programs to experiment with ways of improving medical care and reducing health care costs.

Comprehensive health care reform coming out of Washington is still possible, albeit far more unlikely now than just two weeks ago. As a result states are far more likely to move forward with more robust reform legislation than were considered in the past year or so. And Washington will continue to try to improve on the status quo through small efforts aimed at having a substantial cumulative effect. Significantly, because these more restrained proposals are less controversial, there’s a high likelihood at least some of these ideas will become law.

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.

Walgreens Free Health Clinic Visits a Sign of the Times

You can look at this story in several ways. Walgreens is offering free health clinic visits to unemployed and uninsured individuals. According to the Associated Press, individuals and their uninsured dependents who become unemployed and uninsured after March 31 will be able to receive free treatment at Walgreen’s in-store clinic, which operates under the Take Care brand name. The typical visit costs $59 or more. Take Care’s lab partner, Quest Diagnostics, is helping out by offering tests for strep throat and urinary tract infections at no cost.

How you interpret this says something about your health care reform biases. Some will see this as further proof that the private sector can fill in the cracks of the safety net. After all, Take Care clinics are a for-profit entity. The press their receiving for this program and the positive word-of-mouth they’ll be receiving. Additionally, since the Take Care program provides free services for treatment that might otherwise wind up in an emergency room or urgent care center, they may make some sales of their other services such as immunizations or makes additional over-the-counter drug sales. So what they’re doing is an example of a market-driven win-win: consumers get care; Walgreens gets more customers.

The other perspective is that this effort highlights the cracks in the system. Newly unempl0yed who don’t qualify for government medical assistance through Medicaid or the State Children’s Health Insurance Plan (SCHIP) are poorly served by today’s system. Without employer based coverage and unable to afford individual insurance, they must rely on a drug store for their health care. There’s something wrong with that picture.

My take: Walgreens is to be commended for reaching out a helping hand to those who need it, even if they’ll profit from the gesture. And universal, portable and affordable health care coverage is needed and needed soon. The current system works well for most Americans, but as a nation it’s our culture not to leave anyone behind. The lesson here isn’t that we need a government-run system, but that we need a more comprehensive, integrated and sensible system to assure basic health care coverage to all Americans.

The State’s Role in Health Insurance Rate Increases

The first part of the year is when the cost of most health insurance policies increase. Most medical plans in most places are seeing rate increases far greater than general inflation. This raises legitimate questions about the sustainability of private health insurance pricing. Increasing faster than other prices means health insurance costs represent a larger percentage of overall spending. This, in turn, impacts the competitive position of American firms and the spending power of American families. That’s one of the reasons comprehensive health care reform needs to be high on the nation’s agenda.

In fashioning reforms, it’s important policy makers look at the complete picture. For example, comparing the rate of rising health insurance premiums inflation to general inflation is misleading. What drives health insurance costs is a complex mix of new technologies, an aging population, increased consumer demand and expectations, greater utilization of medical treatment, the cost of prescriptions in this country and a horde of other factors. Those required to defend health insurance rate increases (no one volunteers for the job) usually point to medical care inflation as a more appropriate benchmark than using general inflation. The problem with this defense is that, recently, premiums have increased at rates higher than medical inflation. This discrepancy was pounced upon by some legislators during hearings on health care reform in California this year. Clearly, the lawmakers implied, this is evidence of the industry’s lust for profits. What’s required, they say, is a governmental smack down. (OK, they didn’t actually use the word “smack down,” but premium regulation amounts to the same thing).

Before lawmakers get too carried away, however, they should look at their contribution to rising health insurance costs. Leave aside the costs related to mandated benefits, regulatory compliance and the like. Those are significant, but obvious. What’s less apparent is the government’s use of private insurance to subsidize public programs.

Medicare and Medicaid make up 55-to-60 percent of the average hospital’s revenues according to Richard Umbdenstock, president and chief executive of the American Hospital Association. As reported by the Todelo Blade, Mr. Umbdenstock said this would require providers to shift more costs to private insurance. In other words, when government budgets get tight, they cut back on what they pay doctors and hospitals to provide care to Medicare and Medicaid enrollees. Some of those providers reduce the number of such patients they’re willing to see — or stop serving them all together. That’s bad enough.

Others, however, shift the cost to those with private coverage. With more than half their income generated by government programs, it means a disproportionate amount of increase on private plans is required to make up for public cutbacks. If 60 percent of a hospital’s income flows from public programs, a 10 percent reduction in reimbursement rates requires increasing charges to private insurers by 15 percent. And that’s before increases based on medical cost inflation, general inflation or any other factors. It’s a rate increase entirely generated by governmental action.

This system actually works well for politicians. They get to cut government spending by undercompensating medical providers treating public program patients and they get to complain about “indefensible” rate increases by greedy private health plans. In other words, they get to pitch the problem, avoid having to catch it, and they can criticize the people that do.

Politicians who want to control both sides of the equation — cut back on public program funding and regulate private health insurance premiums — should be careful about what they wish for. Their own contribution to skyrocketing medical insurance premiums will be much more obvious. They’ll have to catch the problems they create  and they’ll be on the receiving end of the criticism, too.

Public and Private Sectors Facing Tough Health Care Decisions

I’ve written numerous times in this blog on what’s needed to achieve meaningful health are reform: increase access to health care coverage; and constrain escalating medical costs. The latter is the most important. If we don’t get control of health care costs we won’t be able to afford to provide access. Not only that, health care costs will vacuum resources away from other important societal needs.

There’s been some success in recent years on increasing access. The State Children Health Insurance Plan has resulted in coverage for millions of children that otherwise would likely to have gone without. Carriers have created innovative products that have proved popular with young people and those seeking catastrophic coverage. (There’s also been numerous disappointments during that time, when opportunities to expand coverage failed).

In fact, a substantial component of the uninsured could obtain coverage today. As Aetna CEO Ron Williams noted at a meeting of the Business Council in Florida last week, 20 percent of the uninsured are eligible for Medicaid and the state children’s health programs, but fail to enroll in those programs. In an article on the conference by Jason Szep of Reuters, Mr. Williams also noted that 10 percent of the nation’s 47 million uninsured are college students and “could be easily and relatively cheaply enrolled for health care insurance.”

At the same conference, Angela Braly, the CEO of WellPoint, called for expansion of programs aimed at children and low-income families. WellPoint estimates this could cut the uninsured by 25 million if all 50 states acted to cover all children and increasing eligibility for Medicaid.

It’s true that too many of those eligible for public programs fail to enroll in them. It’s true that some states have had success in requiring college students to have health care coverage. And it’s true that expanding children and low-income health programs would bring many of today’s uninsured into the system. The problem, however, is that these programs are under tremendous stress. The safety net that has assured health care for all is crumbling.

In Los Angeles, for example, there are plans to shut 11 health clinics to meet the county’s $195-$331 million budget deficit. According to the Los Angeles Times,  a majority of the Board of Supervisors opposes these closures, but simultaneously, health officials are drawing up contingency plans that would shutter all of the county’s health clinics — facilities that provide “more than 160,000 urgent care visits and nearly 180,000 specialty care visits a year, mostly from the uninsured and poor.”

Meanwhile, in Sacramento, doctors providing care to Medicaid patients will see their reimbursement rates cut by 10 percent as the state makes a mid-year adjustment to its hemorrhaging budget. As a result, fewer physicians are likely to accept new Medicaid patients or some may stop seeing program participants altogether.

America’s current health care system is already a mix of private and public health care programs. The private sector is under attack for its rescission practices, among other issues. The public sector is going broke and, even in the best of economies, seems unable to reach out to all those promised care.

What’s needed is a national dialogue about priorities. If Americans are serious about expanding coverage, they’re going to have to find a way to pay for it in good economic times or bad. And that means keeping it affordable. States should not balance their budgets by breaking their promise to those whom they promised coverage.

The private sector is also going to have to clean up its act. Behaving legally is not enough, they have to act right. Carriers need to act in ways that earns the public’s respect by demonstrating an appreciation of the critical role these enterprises play in society — a role that requires them to meet a higher standard than most corporations. Business as usual could mean no business at all.

There’s a strong demand among voters to change the country’s health care system. Given all that’s happening, that’s not surprising. And, given all that’s happening, it’s not going to be easy, either.

Upcoming Medicaid Cuts: A Single Payer Warning

If the debacle over funding for the State Children’s Health Insurance Plan (SCHIP) wasn’t enough, here’s another reminder why ceding control of health care decisions to the government can be hazardous to your health — especially if you’re not powerful or well connected. Washington is cutting yet more Medicaid funding and, as a result, services to California’s most vulnerable residents are at risk.

The Sacramento Bee reports at least $15 billion in Medicaid funding is being cut by the feds, $4 billion of that from Targeted Case Management programs. According to the article, written by Aurelio Rojas, Targeted Case Management programs are used by counties to serve “pregnant women and infants, the elderly who cannot care for themselves, the mentally disabled, foster children and adult probationers who receive substance abuse treatment.”

The federal dollars are used to match expenditures by state and county governments. Because of the nature of the programs, it’s not yet possible to project the impact on California’s Medi-Cal program (Medi-Cal is the state’s version of Medicaid). However, the Bee reports state officials as predicting it will be a “substantial amount.”

The cut to Target Case Management programs has been delayed by the current Congress, but that repreive is scheduled to end next year.  Governor Arnold Schwarzenegger has written California’s congressional delegation asking them to help extend the maratorium and to try to reverse the cuts. Whether that will happen is unknown, but there’s certainly no guarantee.

There are no market forces at play here, just the politics of the federal budget. There’s no doubt far more than $15 billion in pork, waste and funding for out-dated programs in that budget, but it’s pregnant women, infants, and the elderly who cannot care for themselves who are taking the hit. Yet single payer advocates want to turn our health care system over to the this government — or its state counterparts. Do they think that every president from now on will be liberal? That Democrats will hold a majority of Congressional seats forever? Or do they labor under the misconception that governments: 1) always do the right things; or 2) at least do fewer wrong things than private (especially for-profit) entities. If so, there’s little evidence this is the case.

Instead here’s yet another example of a government program facing mounting  financial problems that attempts to address the problem by whacking away resources from those who need it most. I doubt advocates of a single payer system would say this is the “right” thing. At least private insurance companies are subject to regulation by state agencies. Bad things happen, but they get addressed. Between market forces and government oversight the system tends to right itself. But when it’s the government itself doing something like what’s happening with Medicaid, it’s just business as usual.

Everyone knows that government programs tend to spiral away from their original purpose toward a state of non-reality enabled by a host of barnacle-like interests. It’s Political Science 101 — just look at the Farm Subsidy program. Does anyone think a government-run health care program will be any different? Would voters hold incumbents accountable at the ballot box? Not likely.

Supporters of the effort to pass Senate Bill 840 (Keuhl), which would eliminate private health insurance companies and put virtually all health care for nearly all residents of the state in the hands of government bureaucrats, often describe their proposal as offering “Medicare for everyone.” Whether that’s a good model or not is for a later post, but what amazes me is that they never seem to consider even the possibility that they’ll be delivering what’s happening to Medicaid today, instead.