Cigna CDHP Experience

Cigna just released its 4th annual study of its CDHP business or Choice Fund. The study showed significant reduction in medical trend--14%--from 2007 to 2008 along with an increase in preventive services as compared to traditional plans. This increase in preventive care services is significant because of the the concern that CDHP members are not seeking care because of the high deductibles. While the results are encouraging I still think that CDHP plans will only be effective for a select group of consumers. Most consumers know little about their health care coverage and while giving them "skin in the game" I still doubt that CDHP plans will dominate the marketplace.

Which Way For Healthcare Reform?

Before I even had a chance to comment on the Medicare buy-in proposal it appears to be dead even before the CBO gives an estimate of its potential costs. 55-64 yr. olds are a market that many insurance companies have looked at. But given their age and likely poor health profile insurers have not rushed into this marketplace, not without strong underwriting at least. The only way for the buy--in to work would be to require all 55-64 yr. olds to purchase the coverage from the government. This potentially would spread the risk enough that premiums would not be outrageously expensive and there only attract the sickest individuals. But this discussion may be moot since some senators believe this Medicare buy-in concept is the "first road to a single-payer system".

So it appears the alternative to the public option is dead. Where will Reid find his 60 votes to move discussion along? That right now is a very good question withoout an obvious answer.

Contrarty to Popular Belief, Medicare Cost Savings Initiatives Are Implemented

One of the biggest criticisms of health care reform is that the proposed Medicare cost savings measures are ephemeral because these types of reform are never implemented because of political pressure. Well a study put out by the Center for Budget and Policy Priorities (http://www.cbpp.org/cms/index.cfm?fa=view&id=3021&emailView=1) refutes this thinking. To quote from the report directly:

"The history of health legislation in recent decades demonstrates that, despite some critics’ charges, Congress has repeatedly adopted measures to produce considerable savings in Medicare and has let them take effect. For example, Congress took such action as part of major deficit-reduction packages in 1990 and 1993 and as part of more modest deficit-reduction packages in 1997 and 2005. Virtually all of the cuts that it enacted in 1990, 1993, and 2005 went into effect. After Medicare spending slowed dramatically after 1997 — in 1999, it was for the first time lower than it had been the year before — and the budget was balanced in 1998, Congress did ameliorate some of the Medicare cuts that it had enacted in 1997. But, even in those special circumstances, it allowed four-fifths of the 1997 cuts (other than those described in the next paragraph) to take effect.

In arguing that Medicare cuts never “stick,” critics point in particular to Congress’ repeated refusal to let the reductions in physician reimbursement rates under Medicare’s so-called “sustainable growth rate” (SGR) mechanism, which it enacted in 1997, take full effect. The SGR cuts, however, represented a badly designed measure that was not intended to produce large savings (the projected SGR savings represented less than five percent of total Medicare savings in the 1997 bill), but turned into a blunt instrument that would have produced cuts far in excess of what was anticipated and would have had harsh and indefensible effects. (Moreover, even though Congress did not allow the full cuts required under the SGR formula to take effect, it has still cut the physician reimbursement rate substantially — at its current level, the reimbursement rate in 2010 will be 17 percent below the rate for 2001, adjusted for inflation.) The SGR mechanism has little in common with most of the other provisions that Congress has enacted over the years to produce savings in Medicare and that have, in fact, taken effect. This distinction is important because most of the Medicare savings provisions in the House and Senate health reform bills are similar in nature to the types of Medicare provisions that Congress has enacted in the past that have taken effect — and they differ markedly from the blunt-instrument design of the SGR cut."

So it appears that the conventional wisdom on the "non-enactment" of Medicare cost savings measures is wrong. Kudos to the Center for doing the research to prove it.

BCBSA Report on Individual Premiums

Harry Reid's staff has strongly criticized the report commissioned by the Blue Cross and Blue Shield Association on the impact of health care reform on individual premiums. The report states that premiums will increase sharply due to the impact of adverse selection anticipated because proposed penalties for not obtaining coverage are so weak. As a result, people will not seek coverage until they absolutely need to. Healthy, young people in particular will stay out of the insurance market denying the pool a much needed source of revenue. Reid's staff says the report is just "fear-mongering" by the health insurance industry which wants to impede change. But I believe the report gets it right and unless the penalties for not obtaining coverage are increased, individual premiums will increase just providing more reasons not to seek coverage.

Impact of Health Care Reform on Insurance Premiums

Everyone is discussing the CBO Report on the impact of health care reform on health insurance premiums. Overall, the CBO study shows that premiums will not increase for the vast majority of Americans and will reduce costs for many because of the available subsidies for lower income individuals. However, I think the cost of coverage will definitely increase because of the following factors: the premium tax of 2% that will start to be due in 2010, the tax on Cadillac Plans, the decrease in MA reimbursement and the loosening of underwriting requirements. Tax increases will of course be passed along to groups and consumers. Cuts in the MA program will cause price increases on the commercial side for those publicly traded companies that want to maintain their overall profit margins. Finally, loosening the underwriting restrictions without having severe penalties for not having coverage will also cause prudent health insurers to build up their reserves through premium increases in anticipation of increased claims costs starting in 2014. The increases in the cost of coverage will of course mean that spending on subsidies will jump to keep the cost of coverage affordable. Measures to control the cost of health care are going to have to kick in fairly quickly (which is not the prediction) to prevent major financial strain.