The Affordable Care Act and Affordability

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

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

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

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

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

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

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

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

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

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

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

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

Effort to Eliminate Waste Coming Soon

It’s not that the Patient Protection and Affordable Care Act doesn’t contain any provisions aimed at reducing the cost of medical care – it’s that it doesn’t have enough of them. Still, what it has should be acknowledged. For example, Politico Pulse has reported that a unit of Health and Human Services will soon announce a package to incent providers to “disseminate effective practices and foster the spread of new knowledge on patient safety to the hospital community.” According to Spencer Health Strategists, who obtained a copy of a draft memorandum a few weeks back, the goal is to dramatically cut the estimated $50 billion spent each year on preventable hospital readmissions and hospital-acquired conditions.

The grants are designed to get private hospitals to improve patient safety and improve outcomes. Instead of developing new approaches or dictating specific practices, financial incentives will be to encourage hospital-generated innovations and to share best practices.  For example, the Innovation Center within the Centers for Medicare and Medicaid Services within HHS will support “states and large systems to developed networked learning project.” Those networks that achieve specified results will get additional resources to expand their efforts.

This focus on the private sector links the effort to improve safety and reduce readmissions underway within Medicare. According to the memo posted by Spencer Health Strategies, by 2013 six percent of hospital payments from Medicare to providers will be tied to public reporting of errors and the provision of safer, more reliable care ….” Over the next 10 years, $70 billion of Medicare hospital payments will be tied to hospitals’ “delivery of high quality care.” Medicaid will introduce similar provisions.

None of this is “official” yet, but based on the Politico Pulse report, it appears the Obama Administration will be launching this initiative soon. The potential of the program is to save billions of dollars and to do so relatively quickly. Even more significantly, the program could save thousands of lives. There’s a lot wrong with the PPACA, but this is an example of something that it gets right.

Rate Regulation Grants Announced by HHS

Carriers set health insurance premiums based on several criteria. The single biggest component is the expected cost and utilization of medical services. Then there’s the need to cover overhead (such as operations, sales costs, marketing and armies of lawyers to deal with regulation) and profit (or retained earnings for non-profits). Insurers know they don’t operate in a vacuum, however, so they consider the pricing of competitors as well.

What’s a reasonable premium? Arguably it’s one that covers claims, operations, provides a profit, but is still affordable to consumers, at least relative to the pricing of competing carriers. This approach assumes an effective market. Carriers that get greedy (and overcharge) will lose market share to more fairly priced competitors. Those that underprice their plans one year will need to seek large premium increases the following year to make up for losses. At any one time a particular carrier’s pricing may be out-of-whack (to use the technical term), but over time the market is supposed to work things out to keep pricing reasonable.

The market, however, can be messy. A carrier seeking to make up for losses in prior years may need to seek substantial rate increases (think 40-to-50 percent).  Within the walls of the insurance company such increases makes perfect sense. Medical costs and utilization are skyrocketing. Operating efficiencies take time to achieve (without totally degrading customer service). Executives are rarely first in line to reduce their own take-home pay (nor would it amount to a lot if they did). The only way to make up for underpricing errors is to raise rates – a lot.

Outside the bubble that is most corporations, however, double-digit premium increases appear more like highway robbery than a logical business decision. How many items in our economy go up 10, 20, 40 percent of more each year? Year-after-year? Cars don’t. Most food items don’t. Gas prices may skyrocket, but they drop from time-to-time, too. Health insurance premiums seem to be on a one-way trajectory upward. When’s the last time health insurance premiums fell? (1996 is the last time I recall, but I may be missing some other exceptions).

This pricing trend is unsustainable. Some of you may recall the “rule of 72” from your economics (or math) classes. The rule of 72 is a way to estimate how long, given a growth rate, it takes to double a number. Just divide the assumed rate of growth into 72. Invest $100 in an account paying 5 percent interest and your principal will double in roughly 14.4 years (72/5 = 14.4). Increase the cost of health insurance by 10 percent per year and premiums will double in 7.2 years.

So here’s the situation: carriers price their products to cover their costs (both claims and administration), to earn a profit and to be competitive in the marketplace. Consumers see their costs increasing at unacceptable levels. What’s a lawmaker to do?

If that lawmaker believes in markets they let nature take its course. If the lawmaker: 1) believes the market isn’t working; and 2) government needs to step in when markets are broken, you require carriers to get government approval before raising their rates. The Patient Protection and Affordable Care Act includes provisions to encourage this latter approach. Or as the federal government’s web site puts it, “The affordable Care Act provides new tools and resources to protect consumers and employers from large and unreasonable health insurance premium hikes.”

That encouragement is the reason the Department of Health and Human Services is making $199 million in grant funds available to help states “create or enhance their premium rate review programs.” The goal is to bring greater transparency to the rate making process while assuring that the states are “comprehensively” reviewing carrier’s proposed prices hikes.

The idea is to prevent “unreasonable” rate increases – which begs the question: what’s unreasonable? According to a regulation proposed by HHS, that would be any rate increase of 10% or more in the individual and small group market segments. Maybe. The 10 percent threshold doesn’t determine whether a rate increase in unreasonable, but it would trigger a state review to determine if it is. Carriers would also need to post their justification for such rate increases on the Internet.

Personally, I don’t mind increased transparency in health insurance pricing. As I’ve written before, carriers need to educate consumers and lawmakers about the value they provide. After years of being hammered politicians in both parties and reams of articles about denied or rescinded coverage, the general public would be excused asking “what is it you folks do that’s of any benefit?”

So if the states ask tough questions and make carriers justify their increases, I’m fine with it. A second set of objective eyes couldn’t hurt and as I’ve noted in an earlier post, the resulting dialogue could be a way to educate the public about how rates are driven by the cost of medical care. But what we’re likely to see is an increasing number of states deciding their regulators need to sign off on any rate increase (some states already do this).

Inserting politics into the premium setting process distorts an already messy process. What politicians (or their appointees) are going to sign off on a significant rate increase – even an objectively necessary substantial premium hike – in the middle of an election season? Rates are already impacted by the underwriting cycle, now they are to be beholden to election cycles? The calculation for a politician is simple: if they allow a substantial rate increase they anger voters; if they deny it they upset an insurance carrier. Sure they could try to explain to their constituents why the rate hike was needed. But that’s hard work. It’s far easier to just say no.

Nor are public officials likely to link medical cost increases to premium hikes. Far easier to attribute increasing costs to greedy insurance executives than doctors or hospitals. Nor is there anything regulators with the authority to reject premium increases can do about increases to medical costs. The PPACA does not give states the power to tell doctors what they should charge for a given procedure. Anyone who has read this blog for long knows I’m not a fan of a single payer health care system. I do respect, however, the honesty of single payer advocates who recognize that their approach is about controlling the cost of health care at its source – what doctors and hospitals charge for care.

Advocates of increased government involvement in rate setting believe it will help lower costs. And there’s no requirement that states seek approval powers over premiums to qualify for the grants. But some (I’m looking at you California) no doubt will.

There are cost containment provisions in the PPACA. Certainly not enough, but they’re there. Rate regulation, and encouraging states to establish themselves as the final arbiters of what rate increases are permissible, is not one of them.

Requirement that Carriers Justify Double-Digit Rate Increases a Teachable Moment?

Reasonableness, like a host of other things, can be in the eye of the beholder. Regulating reasonableness, consequently, is nothing like a science. Yet the Patient Protection and Affordable Care Act requires health insurance carriers to disclose their reasons for “unreasonable premium increases.” The Department of Health and Human Services has issued a preliminary version of the regulation aimed at determining how and where this rate increase disclosure will take place.

The draft regulation, which is open to comment and subject to change, requires carriers to publicly disclose any individual or small group rate increases higher than 10 percent. While double-digit increases will not be automatically considered unreasonable, they will trigger a review by state or federal regulators to determine if they’re justified. States will get the first shot at scrutinizing the rate hikes. Only if HHS determines a state lacks the ability to do a thorough actuarial review of premium increases will federal regulators step in. States are eligible for federal grants to bolster their review capabilities and 45 states have taken advantage of the program to date.

Over time this 10 percent threshold could be adjusted on a state-by-state basis according to the National Underwriter. “After 2011, a state-specific threshold would be set for the disclosure of rate increases, using data that reflect each state’s cost trends.”

HHS has the authority to require disclosure of large group rate increases, but chose not to do so.. They’re asking for comments on the advisability of seeking disclosure of large group claims, but according to the National Underwriter, regulators are concerned that doing so would not align with current practices. 43 states, however, already review — and some can deny — rate increases on individual and small group medical insurance coverage. Significantly, neither the regulation nor the PPACA gives HHS the power to deny rate increases. If they determine a premium hike sought by a carrier is unjustified it will post that finding on a government website, but the increase will still be permitted (again, unless a state regulator prevents it). 

The mechanics of the rate review are described in the proposed regulation. To oversimplify, if its desired rate increase is over 10 percent or greater, the carrier will need to notify HHS and post its justification on the insurer’s web site. In evaluating the increase HHS will consider whether:

  1. “the rate increase results in a projected future loss ratio below the Federal medical loss ratio (MLR) standard
  2. “one or more of the assumptions on which the rate increase is based are not supported by substantial evidence.
  3. the choice of assumptions or combination of assumptions on which the rate increase is based is unreasonable.”

The timing of the rate increase is determined by state law, so HHS’ review cannot delay implementation of the rate change. What it will do, however, is require disclosure of a great deal of information, bringing an unprecedented amount of transparency to the rate setting process.

Transparency is one of the reasons Consumers Union praises the draft regulation. According to Kansas City InfoZine, its spokesperson, DeAnn Friedholm, cited two benefits the group expects the premium regulations to deliver: “First, it provides a strong incentive for insurers to do a thorough review of their justifications before asking for big rate increases. And second, it will help consumers better understand why their rates are going up and they can decide to look for better plans.”

Which could lead to an interesting result. As the Consumer Union notes, the regulation could “help consumers better understand why their rates are going up .…” And the scrutiny on carriers explanation for increases will be intense. Which makes the posting of the reasons behind the price hikes a powerful  “teachable moment.”

Carriers can use the disclosure to tell a detailed explanation for their actions. For example, in California, hospital rates increased by 150% between 2000 and 2009. Carriers can, and should, get creative in presenting how this medical trend drives premium increases. The question is whether carriers, their actuaries and their attorneys have the skill and willingness to take advantage of this opportunity to present the full story behind skyrocketing insurance costs. Regence Blue Cross Blue Shield provides an example of a meaningful explanation for premium hikes. They even explain the impact of deductible leverage, which is no mean feat.

Regence is providing a general explanation of how pricing works, something other carriers will need to do as well. However, when justifying specific rate increases, Regence and others should go further, naming names. A hospital increases their reimbursement rates by 10%? Name the hospital. A pharmaceutical manufacturer introduces a new drug that costs 20% more than the effective medicine it replaces? Name the drug and the manufacturer.

Carriers could – and should – get even more specific. If the hospital initially sought a 20% increase the insurer should note it’s success in reducing the increase. After all, the beneficiaries of carriers’ successful negotiations with providers are consumers. As I’ve noted previously, health insurers need to do a better job justifying their role in the system. Most health insurance executives would justify their enterprise’s contribution to the system as lowering the cost of health care. Yet with every rate increase they undermine this argument by offering the broad excuse that premiums are rising due to increases in “medical inflation.” Well, now they have the forum and the reason to be specific about what — and who — is driving that inflation.

Who knows, some day regulators may decide to ask medical providers if their charges are reasonable. Until then, there’s no reason carriers can’t ask that question – publicly and loudly. As long as transparency is coming to rate setting, the bright light of disclosure may as well shine on as many parts of the system as possible.

A Few More Unrelated Health Care Reform Items

There’s always something happening related to health care reform in general and the Patient Protection and Affordable Care Act in particular. As I continue my year end “clean-up” here’s some short takes on some of the more noteworthy events and ideas I’ve come across lately.

The AMA and the Individual Mandate:
The American Medical Association is of two minds when it comes to requiring everyone to obtain health care coverage  This individual mandate is at the heart of many of the law suits seeking to overturn the PPACA in court. During the health reform debate they supported this requirement. As reported over at the HealthAffairs blog, during their recent interim House of Delegates meeting the AMA voted to reverse this position. Only after “desperate scrambling by AMA leaders” the House voted to refer the issue to the AMA Board of Trustees and to hold a vote concerning their their position on the individual mandate when the House reconvenes again in June.

Both votes were close and reveal a deep schism within the AMA. Like the Wright on Health blog where I came across this item, I don’t believe the result will actually split the AMA, but if the organization abandons its support for the individual mandate it would be a serious political blow to the Obama Administration.

The PPACA and Medicare:
President Barack Obama and his allies argue that the Patient Protection and Affordable Care Act will strengthen Medicare even though the health care reform package cuts about $500 billion from the federal health program over the next 10 years. The Associated Press did an interesting fact check that sheds some light on the PPACA’s impact on Medicare. The bottom line: unless there are offsetting cost reductions in Medicare, the cuts to the program required by the PPACA will simply need to be replenished by other sources. While the Associated Press’ Q&A points out another example of the financial gimmickry so common in Washington, it also highlights the need to reform Medicare, especially in terms of reining in medical spending. The PPACA creates some pilot projects and the like to do just that. Whether they will generate the savings necessary in time is the $500 billion question.

And for a lighter look at Medicare, feel free to check out “The New Medicare Drug Card” brought to you by the Onion.

Speaking of Controlling Medical Costs:
Health insurance premiums reflect the cost of health care. This is a fact that many lawmakers seems unable to grasp. Perhaps its a gap in their education or, at the risk of being appropriately cynical, perhaps it’s because it is easier – and better politics – to beat up on insurance companies than it is to take on hospitals and doctors.

One way to reduce costs is to reduce needless care. As David Leonhardt wrote in the New York Times earlier this year, the potential savings from eliminating unnecessary medical treatment is huge, both in terms of dollars and in lives. Mr. Leonhardt, who writes the Economic Scene column for the paper, identifies three steps necessary to earn these savings: 1) “learning more about when treatments work and when the don’t;” 2) “give patients the available facts about treatments;” and 3) “changing the economics of medicine to reward better care rather than simply more care.”

What’s especially interesting, and especially for those who believe the PPACA does nothing to restrain health care costs, is Mr. Leonhardt’s point that the new health care reform law makes a good start down this path. As he makes clear, the PPACA doesn’t go as far as is needed, but it lays the groundwork for much of the hard work yet to come.

Physician Owned Surgery Centers:
Here’s a not surprising headline: “Doctors with ownership in surgery center operate more often: U-M study.” Shocking, no? The University of Michigan study shows the financial incentives gained by doctors when they have a financial stake in a a surgery center. One possible explanation the researchers mention for this is “that these physicians may be lowering their thresholds for treating patients with … common outpatient procedures.” Those financial incentives can be hefty, amounting to what the authors call a “triple dip.” Doctors with a stake in a surgery center “collect a professional fee for the services provided … share in their facility’s profits and [in] the increased value of their investment.”

Writing in Health Affairs, the data showed that “owners operated on an average of twice as many patients as non-owners” and their caseloads increased more rapidly and dramatically. Significantly, the study reports that doctors have a stake in 83 percent of surgery centers in the United States. To be fair, these out-patient centers often charge less for comparable treatments than hospitals do. But if they double the number of surgeries, how much do they really contribute to constraining health care costs?

The “Best of” CBO’s Health Care Reform Reports:
The Congressional Budget Office occupies a unique position in the legislative process. In a hyper-partisan Congress, they are an island of non-partisanship. (Of course, partisans in both parties only admit this when what the CBO reports supports their position, but that’s politics). This is not to say that the CBO is always right or that they’re not constrained by the questions asked or the data they are provided. But at the end of the day, when it comes to reliable information and analysis, there are few places better to turn to than the Congressional Budget Office.

When it comes to health care reform the CBO was instrumental in providing meaningful input to the debate. And now those reports – and other health care related studies – are compiled in a greatest hits collection entitled “Selected CBO Publications Related to Health Care Legislation, 2009-2010.” The information contained in this 364-page compendium is invaluable. But what will be even more fun five or 10 years from now will to look back on the CBO’s projections and see how rarely the world world abides by the predictions of even well-informed and well-intentioned economists.

Two More Unrelated Health Care Reform Items

In something as complex and pervasive as, say, changing the entire health insurance industry, the “big” things tend to divert attention from noteworthy items that deserve some attention, too. In my previous post I wrote about the inability of Congress to repeal the 1099 requirement contained in the Patient Protection and Affordable Care Act.  As I continue to clean out my (digital) files, there’s a few other items I’ve come across that deserve mentioning.

Anti-Trust Suit:

Back in October, the Justice Department filed suit against Blue Cross Blue Shield of Michigan claiming the health plan had used its dominant position in the market to force hospitals to charge higher prices to its competitors, a violation of anti-trust laws. According to New York Times, the complaint alleges the “most favored nation” clauses insisted upon by BCBSMi, which “require hospitals to charge other insurers a specified percentage more than they charge Blue Cross — in some cases, 30 to 40 percent more” result in “higher health insurance premiums for consumers and employers.” The clauses also prevent the medical providers from offering any other carrier a better price than they offer to BCBSMi. In exchange for the favorable treatment the suit asserts BCBSMi agreed to pay higher prices themselves.

A spokesman for the health plan was quoted by the New York Times as responding that it was against the insurer’s interests to pay more than they could otherwise negotiate and the “These kinds of low-cost guarantees are widely used in a variety of contracts in a number of industries.”

However the suit turns out, merely bringing the legal action will draw attention to what the Washington Post describes as the “concentration of power that dominant health insurers wield in many parts of the country.”  A study sponsored by the General Accounting Office last year found that the median small group market share of the largest carrier in a state was 47 percent. The dominance of a single insurer varied considerably from state-to-state: in Arizona the largest carrier had a 21 percent market share among small businesses; in Alabama the dominant carrier had a 96 percent share.

A government-run health plan, what was called the “public option” during the health care reform debate,  was President Barack Obama’s attempt to, among other things, provide competition to these dominant carriers. Of course, in bringing competition to Alabama (where arguably it is needed) he was also imposing a government-run plan on Arizona (where it apparently is not needed). Having failed to secure a public health plan in the PPACA, the Obama Administration is now using the courts to bring about greater competition among health insurers.

The courts will determine if what Blue Cross Blue Shield of Michigan does in its contracts are unfairly (and illegally) anti-competitive.  There’s nothing wrong with the Administration bringing suit to find out. That’s how America’s legal system works. But given a recent insurance industry study disclosing that hospital costs in California rose 159 percent over the past 10 years, in part because of the dominant position some medical providers enjoy in parts of the state, it will be interesting to see if the Administration gets around to exploring the anti-competitive activity that may be involved in their business practices.

Doctor Owned Hospitals

The Patient Protection and Affordable Care Act makes it extremely difficult, if not impossible, to create new physician-owned hospitals that bill Medicare for reimbursement. A group of Texas doctors sued to have this provision (Section 6001 of the new health care reform law for those keeping track at home) declared unconstitutional. U.S. District Court Judge Michael Schneider dismissed the suit, but the plaintiffs have pledged to appeal his decision according the Becker’s Hospital Review. The plaintiffs claim the provision, which also limits expansion of existing doctor-owned facilities and freezes the percentage physicians can own of a hospital, is “retroactive in effect.”

It was only last summer when Dr. Atul Gawande, writing in The New Yorker described the impact doctor-owned facilities had on making McAllen, Texas the most expensive town in the country in terms of Medicare spending. His article gained widespread attention and was cited by President Obama during a major speech on to the nation on health care reform. The PPACA attempted to address this cost driver. Doctors are suing to excise that provision. Whether they succeed or not, the law suit will (hopefully) bring additional attention to the advisability of having the those who help determine the amount of demand for care own the source of supplying that care.

And what both these items underscore is the important role courts will play in determining the nature — and affordability — of America’s health care system in the coming years.

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.

Addressing Medical Costs

The Patient Protection and Affordable Care Act has lots of what can objectively be called “patient protections” – at least if one defines “health insurance policyholders” as patients. There’s restrictions on rescissions, increased policy transparency, improved preventive coverage, etc. And there are provisions aimed at addressing the cost of coverage: the medical loss ratio requirement and a host of pilot projects (I’ve promised a list of these and I’ll deliver a post on these cost containment items when I have the time to dig into the deeper crevices of the legislation).  But most objective observers – and quite a few of the more biased ones – will agree that the PPACA focuses more on health insurance reform than health care reform.

Yet making health care (not just health insurance, but medical services) more affordable was a major impetus for reform. The failure to boldly and visibly address this issue is one reason so many Americans are disappointed with the new health care reform law. Not surprising then that the itch, having failed to be scratched, is gaining increased attention. Alex MacGillis, in an opinion piece in the Washington Post, discusses the perceived failure of the PPACA to address “the price problem. He describes how the law focused on reducing the amount of unnecessary care that is delivered as opposed to directly dealing with the price of medical services.  And ends with the thought that “there may be support for tougher action on high prices once the principle of universal health coverage is established.”

Meanwhile, at the Brookings Institute’s Engelberg Center for Health Reform, a report entitled “Bending the Curve Through Health Reform Implementation” has been released. The report was written by a bi-partisan group that includes former WellPoint CEO Leonard Schaeffer. They offered three opportunities created by the PPACA:

  1. Speed payment reforms away from tradition volume-based payment system to better align them with quality and efficiency.
  2. Implement the insurance reforms in the PPACA, including the exchanges, to reward Americans when they choose higher quality care at lower premiums
  3. Reform coverage to empower Americans to save money and obtain other benefits when they make decisions that improve their health and reduce costs.

The report analyzes which of the numerous actions they call for can be done administratively under the new health care reform law and which would require additional legislation. The recommendations contained in the report are important and useful. Even more important than the specifics, however, is the non-partisan context they create on the issue of restraining skyrocketing medical costs.

When a new Congress reconvenes there’s going to be an initial flurry of political maneuvering to repeal, refine and/or gut the Patient Protection and Affordable Care Act. As I wrote in my last post, this is both a necessary and inevitable process. The news shows, like moths, will be drawn to where the most light and heat exists. And there will be plenty of heat. Hopefully, while the partisan battle rages, a few lawmakers will find the space to focus on meaningful public policy to move forward with initiatives that have the potential to meaningfully reduce the cost of medical care.

One can only hope.

Coming Soon: The Inevitable Revision of the Patient Protection and Affordable Care Act

Health care reform legislation may have been signed into law on March 23, 2010, but the issue is not going away. Anyone watching the election campaigns playing out across the country can attest to that. Republicans have made the  “repeal and replace” of health care reform a key promise in their "A Pledge to America" campaign document. While some Democratic candidates are touting their support of the Patient Protection and Affordable Care Act, others are bragging about their opposition to it. And others, like West Virginia Governor and Senate candidate Joe Manchin have talked about “repealing the things that are bad in the bill.”

Then there’s the impact on polling. Now, some readers of this blog get vehemently angry that Congress and President Barack Obama would dare pass legislation opposed by the public. I disagree. Political leaders have a job to lead, to make tough choices, to examine the facts, their constituents’ interests and then to cast their votes in accordance with their beliefs and conscience. I do not think politicians who flip-flop in whatever direction the polls show is popular at the moment are worth a lot. If politicians are simply to reflect the majority of opinion we could replace Congress with online survey software and be done with it. Also, consider this: if politicians only voted as the polls dictate there would have been no Civil Rights Act in 1964. American troops would have been out of Iraq during the Bush Administration. Whether liberal or conservative, there are numerous examples of legislation passing in spite of polls showing a majority of Americans opposing the new law that you are likely to applaud – and decry.

Nonetheless, polls do and should be a factor in the deliberations of politicians. They indicate when problems have reached a critical point where a solution is demanded. And they can serve to help shape and influence the likely outcome. Some polls of late have shown that a plurality of Americans – and perhaps more important given that election day is near at hand, likely voters – have an unfavorable opinion of the PPACA. But if polling is to influence decision making, then it’s important to dive a bit deeper into the numbers.

A recent Associated Press-GfK poll shows why. This survey shows that only 15 percent of likely voters support leaving the new health care reform law as is while 85 percent want the PPACA changed in some manner. However, that 85 percent is far from monolithic. 37 percent of likely voters surveyed said they wanted to repeal the Patient Protection and Affordable Care Act completely. Another 10 percent wanted changes to the law that would narrow its scope, but did not call for repeal. And 36 percent, a nearly identical number to those supporting repeal, want the law expanded. I couldn’t find a copy of the poll itself, but I assume this latter group includes those who support a single payer system or at least a public option, who want greater regulation on insurance carriers and/or who want greater cost controls included in the legislation. However, one could easily assume a single payer advocate, for example, might simply state they want the new law repealed.

My point here is that advocates on the right and the left will be seeking changes to the PPACA. The basic law may have passed in 2010, but it will evolve over the next few years. Some of the likely battles:

  • Repealing the requirement that businesses issue 1099s to any corporation or individual to which they pay $600 in a year. Democrats and Republicans alike support changing this provision. Whether it’s repealed or greatly revised is the only open question. Similarly, requirements for including health insurance premiums paid on behalf of employees on W-2s (which is optional in 2011) create a burden on businesses, especially small ones, that will necessitate changes.
  • There will be an effort to revive the idea of creating public run health plans (the so-called “public option”). Given the firestorm of opposition to the federal government expanding its role in America’s health care system, however, I don’t see the votes being there for this approach – especially in a Congress with small majorities in each House.
  • I expect, although it may be more of a hope, that there will be a push to allow premium subsidies to Americans earning less than 400 percent of the Federal Poverty Level to use those subsidies outside the exchanges being set up under the PPACA. This would allow those receiving the premium support greater choice and force the exchanges to compete with the outside market on a more level playing field. The exchanges are unlikely to go away: both Democrats and Republicans support them. But taking away arbitrary advantages will result in greater and more fair competition in the marketplace. Let the best offerings win.
  • There will be proposals to do away with the mandate that all Americans obtain health care coverage. While there are law suits seeking this result, I personally don’t think they’ll prevail. But Republicans (and some Democrats) will see a benefit to championing the repeal of an individual mandate. Neither party, however, is likely to seek a repeal of the requirement that carriers accept all applicants, regardless of their health conditions. As I’ve written before, a mandate on carriers to sell health insurance absent a mandate on individuals to buy imposes a horrific surcharge on health insurance premiums. I would hope this effort fails, but fortunately, if it succeeds, there are other ways to reduce the inevitable adverse selection that would follow (impose limited open enrollment periods, increase premiums or impose pre-existing conditions when consumers buy coverage after going uninsured for a specified period of time, etc.)
  • And maybe Congress and the Administration will focus attention on the biggest driver of increasing medical insurance premiums – the skyrocketing cost of medical care. The PPACA has some meaningful cost containment ideas hidden away in its 300,000+ words, more than the new health care reform is given credit for  (the topic of a future post). But even so, there’s a lot more to do. Lawmakers know they need to confront this issue eventually. Eventually they will.

We all have a tendency to draw straight lines from current data. That’s how bubbles happen. Stocks are going up and they’ll continue to do so. Gold is at a record high it’ll continue going higher. Tulip prices are skyrocketing and they’ll do so forever.

The same phenomenon occurs in connection to laws and regulations. A law passes and humans have a tendency to accept that that’s that. Now that the law is in cement nothing will change. But laws evolve. They are molded by regulators. They are shaped by the people who live under them. And sooner or later they are revised by the legislative body that passed the new law in the first place.

When thinking about the Patient Protection and Affordable Care Act, intense revision was, and is, inevitable. No law seeking to reshape America’s health care system would get it right on the first try. Politicians may proclaim “Mission Accomplished” when speaking of legislation (and wars), but the reality is the goal is never achieved perfectly and refinement is always needed Usually there’s a passage of some time before the first attempt to address a problem and subsequent efforts. Changes to the Patient Protection and Affordable Care Act are likely to start much sooner. I’m thinking early January 2011.

The CMA, California’s 5th Assembly District and the Future of Health Care Reform

[Full Disclosure: This post is about the 5th Assembly District. The leading Democrat in the race, Larry Miles, is a Trustee on the San Juan School Board, an attorney, mediator and my close friend for over 35 years. I’m actively supporting his campaign.]

Regardless of whether health care reform passes the House of Representatives this weekend, a great deal of how health care reform takes shape going forward will be determined by the states. If national reform fails, state legislators, who for the most part have been holding back to see what emerges from Washington, will attack the problems inherent in the status quo with a vengeance. If Congress enacts President Barack Obama’s health care reform package, the terms of the new law creates substantial responsibilities on the states to implement many of its provisions.

In short, the health care reform debate won’t be over any time soon. It’s center of gravity will, however, shift somewhat toward the states. Special interests have recognized this coming reality and some are doing something about it.

Take physician groups, specifically, the California Medical Association. Even the most ardent supporters of the health care reform bill before Congress will concede it deals more with health insurance reform rather than medical cost containment. True, the legislation being considered by Congress has some cost reducing provisions and lays the groundwork for still more, but it also contains many elements likely to increase the cost of medical insurance. Having addressed the easy part of reform (changing how carriers do business) lawmakers will eventually have to tackle the hard, complex and politically charged work of constraining medical costs.

For now, however, President Obama’s health care reform package asks little sacrifice of doctors. And that’s just the way the American Medical Association and its affiliates like it. The Medical Associations exist, after all, to look after the financial interests of doctors as their focus on medical liability reform, medical physician payment reform, balance billing issues and the like makes clear. They are a political organization looking out for the best and specific interests of its membership. Nothing wrong with that. In fact, that’s what special interests groups are supposed to do.

What’s happening in the 5th Assembly District here in California illustrates just how serious the California Medical Association takes this role. There the CMA has recruited a candidate and is now seeking to buy the seat on his behalf. Thus the candidacy of Dr. Richard Pan in the 5th AD. (The 5th AD stretches from east Sacramento to Folsom).

Dr. Pan is by all accounts an outstanding pediatrician and a fine, decent person. Whether he had any political ambitions before the CMA came calling is unknown. He certainly cannot claim to be a community-generated candidate nor boast of much grass roots support in the district. In the financing period that ended December 31, 2009 (the last reporting period available) over 95 percent of Dr. Pan’s campaign contributions came from outside the 5th Assembly District. Even more revealing: over 95 percent of those campaign dollars came from the California Medical Association, other medical PACs, doctors, dentists and other members of the medical industrial complex. Calling Dr. Pan’s support from within the district “thin” would be an understatement.

But the CMA doesn’t care. They are not concerned with the interests of the residents of the 5th Assembly District. They want one of their own in the state legislature – one of their own who can look out for the interests of the California Medical Association.

In addition to pouring money into the campaign, the CMA has provided Dr. Pan with a campaign manager enamored with the Karl Rove school of politics, Josh Pulliam. Mr. Pulliam is well known for hardball tactics of the devious kind. He’s a brawler both in the political arena and beyond (Mr. Pulliam, is the alleged instigator of a melee at a Cubs-Dodgers baseball game involving players and fans when he reached into the Dodger bullpen and grabbed catcher Chad Kreuter’s cap). In fact, Dr. Pan has already had to apologize for Mr. Pulliam’s Liz Cheney-esque campaign attack on Larry Miles, the front runner in the Democratic primary. (Mr. Pulliam, like Ms. Cheney, fails to understand the role lawyers play in America’s system of justice).

The CMA’s concerns are not limited to the 5th Assembly District of course. In 2009 the California Medical Association Small Contributor Committee contributed over $925,000 to lawmakers and candidates. And this is just from one of their PACs. Nor does this total include contributions from their allies in the medical-industrial complex including contributions made by individual doctors, county medical associations and the like at the CMA’s request.

Nor is the substantial political spending by the CMA anything new. A recent report published by California’s Fair Political Practice Commission shows that, between January 1, 2000 and December 31, 2009, the CMA has spent over $9 million to influence elections (including ballot measures and giving money to political parties) and spent another nearly $14 million on lobbying activity to help shape legislation.

There’s nothing immoral with the CMA and like-minded attempting to foist Dr. Pan on the residents of the 5th Assembly District. They’re playing by the rules of the game. Nor is there anything wrong with the CMA spending large amounts on campaigns. It’s their money and again, they’re playing by the rules. While obnoxious, there’s nothing illegal with Mr. Pulliam’s hardball election tactics either. Politics is, after all, a contact sport. That the CMA and Mr. Pulliam are running Dr. Pan against a good friend of mine is just one of those things. May the best candidate win.

Nor is the CMA alone among interest groups concerned about how health care reform plays out. Others are spending tremendous amounts of money to influence elections and legislation, too.

What’s significant about the CMA’s efforts (and the efforts of other special interest groups) is what it says about the important role state legislatures will play in determining how national health care reform (assuming there is national reform) is implemented and how future health care reform efforts play out. Washington will still matter. Regulations will be developed there. Follow-on legislation will be voted upon there. But the role played by state lawmakers and regulators will be increasing The California Medical Association and their allies recognizes this. That’s why they want Dr. Pan in the State Assembly. They know one vote, one voice in the legislature, can make a difference.

Whether the CMA-led medical-industrial complex can purchase the 5th Assembly District for Dr. Pan is far from certain. The frontrunner for the Democratic nomination, Larry Mile, has built his campaign with a strong and broad foundation of local support. Significantly, Mr. Miles has won two elections in a school district that covers some 75 percent of the Assembly District. Then there’s the general election. Democrats only recently have come to outnumber Republicans in the District (and roughly 20 percent of registered voters are in neither party). But what’s significant is not whether the CMA wins. What’s significant is the money, resources and political capital they are spending to try.

[Note: As I mentioned at the beginning of this post, Larry is a long-time friend. I’ve contributed to his campaign (as has the California Association of Health Underwriters PAC).  Those readers of this blog wishing to join me in supporting Larry can do so at his web site or through ActBlue.]