The Challenges of Creating Health Insurance Exchanges

The Commonwealth Fund has just released a report (http://www.commonwealthfund.org/Content/Publications/Fund-Reports/2010/Sep/Health-Insurance-Exchanges-and-the-Affordable-Care-Act.aspx) on the eight difficult issues that have to be resolved in the creation of health insurance exchanges.

Of the eight issues, the most important one is guarding against adverse selection. If the exchanges only attract the least healthy risks, they certainly will fail. Therefore it is imperative that the same kinds of policies be offered both in and outside of the exchange to guard against this.

Massachusetts and the Movement Towards Developing Global Payments

I have blogged in the past about how health care reforms efforts in MA are a good harbinger of what the rest if the country will face in the next few years as the ACO is enacted. While reform efforts in MA increased access as hoped, costs have continued to sky rocket. Earlier this year the MA DOI denied rate health insurance company premium increases for both the individual and small group markets saying they were too high. HIs took the state to court saying the denials were illegal. Both parties reached a compromise that allowed an average increase of 12%. This settlement of course did nothing to address the issue of increasing medical costs.

One of the major reasons health care costs have continued to grow is the reimbursement system for providers, fee-for-service. Simply put providers are rewarded for how much health care they provide so over utilization results. A change in the reimbursement structure is therefore required that would reward providers for the quality of the care they provide. One such alternative is a global payment which would be given to an ACO responsible for the care of its members.

Both state and HI officials have been working on establishing such a system. So what is the latest in the state?

Dr. Judy Ann Bigby, secretary of health and human services for Massachusetts heads a working group of state officials and healthcare executives tasked with doing just that. They met this month to begin drafting a payment reform plan.

Some private insurers in the Bay State are already trying out global payments for the care of chronic conditions such as diabetes and high blood pressure. Blue Cross Blue Shield of Massachusetts, which covers three million Mass. residents, has moved 32% of its HMO business to global payments. Tufts Health Plan says that 20% of its business, mostly through its Medicare Advantage program, is contracted on a global payments basis, according to the Boston Business Journal.

This is going to be a long slog but it will be interesting to see where things go and what lessons can be learned for the rest of the country.

More News on MLR Regs and State Exchanges

The National Association of Insurance Commissioners, which is working with the Department of Health and Human Services on implementing key parts of the health law, is still considering how to determine the kinds of insurers' expenses that are considered medical care.

The Hill's Healthwatch blog: Brian Webb, of the NAIC, said commissioners are still debating three topics -- If insurers should be able to aggregate their ratios nationwide or state by state; how taxes from premiums should be handled; and how to avoid penalizing plans for fluctuations in revenues. "The draft is expected to be adopted as is on Monday by an NAIC panel, but it could change before the whole body votes on it in mid-October. The health reform law mandates that health plans spend at least 80 percent of premiums on care (85 percent in the large-group market) or pay rebates to customers. The NAIC is tasked with writing the regulation, to be certified by Health and Human Services Secretary Kathleen Sebelius" (Pecquet, 9/28).

Marketplace/American Public Media: "The intent of the rule is to make sure most of the money paid for health insurance is spent on health care. Not advertising, not salespeople, not CEO salaries, not profits. ... The biggest question: What exactly qualifies as a health care expense? Insurers and their lobbyists want as broad an interpretation as possible. Consumer advocates are on the other side. ... But under the [NAIC] proposal, insurers can't count things like fighting fraud as a health care expense. Marketing doesn't count, either. So, it might be harder for insurers to count brochures that promote wellness, for instance, as care" (Marshall Genzer, 9/28).

In the meantime, Bloomberg reports that health insurance exchanges are opening a new market for Internet-based vendors. "The federal government is preparing to award states up to $1 million each next month to study setting up the exchanges. The health legislation requires they be operating by 2014. States can run the sites themselves under the law signed by President Barack Obama in March, or leave the task to the U.S. government. EHealth, which reported $134 million in revenue from its insurance-shopping business last year, already has gained from the law, winning a $19 million U.S. contract to help build and operate a federal website where users can review state-by-state insurance options. ... The Congressional Budget Office estimates 24 million Americans will buy coverage through the exchanges." Only Massachusetts and Utah have statewide exchanges already in place (Edney, 9/29).

CA Moving on Health Insurance Exchange

The states that are resisting the new health-care law are getting a lot of press lately. But on some level, that's a sideshow. The more consequential story is what's happening in the states that are implementing the new law. And here, as is often the case, California is leading the way from the Washington Post:

Under two bills that the California legislature passed and Schwarzenegger is apparently expected to sign, the state's exchange authority would have explicit permission to “contract with carriers so as to provide health care coverage choices that offer the optimal combination of choice, value, quality, and service.” That mandate, combined with the bills' other provisions, means the exchange authority would be able to negotiate pretty aggressively over price and quality, excluding plans that don't serve consumers well. That's more or less what corporate benefit departments and the managers of public employee programs, like the Federal Employee Health Benefits Program, do for their members.

A wide array of interest groups, including consumer advocates like Health Access and nonprofit insurers like Kaiser Permanente, support the measure because they believe it will reward quality and help hold down the price of insurance--a verdict that a new market analysis from Citi seems to confirm:

“Limiting the number of companies that participate would seem give the exchange the power to negotiate more favorable terms with the plans as a basis for selection. In addition, the legislation appears to put significant focus on premium rates, with measures in place for premium rate reviews that will attempt to limit the magnitude of future rate increases.”

Chart on NIH Funding by Disease Prevalence

I blogged about an ongoing series by economist Aaron Carroll the other day. This chart is from his discussion of investment in health which includes such things as NIH funding and money for community health. The following chart just amazed me:

While funding for HIV/AIDs research is important, is it over 200 times more important than the research for heart disease?

Some State Commissioners Want to Phase In MLR Requirements

From the Commonwealth Fund website:

Two states—Maine and Iowa—have asked the Obama administration for more time in implementing a key provision in the health care law that spells out how much health insurers must spend on medical care and quality improvements, state insurance commissioners said after a White House meeting with the president on Wednesday.

A third state, Florida, is gathering additional concrete information and evidence to submit to the administration to bolster its case.

Leaders of the National Association of Insurance Commissioners (NAIC) said at a news briefing that President Obama told them during the meeting that he wants the federal government to be "thoughtful" and "realistic" as the difficult work of the health law's implementation goes on.

The commissioners said their concern is that small companies in the individual market, especially in smaller and more rural states, may founder if they must too quickly meet regulations dealing with what are known as medical loss ratios, or MLRs.

http://www.commonwealthfund.org/Content/Newsletters/Washington-Health-Policy-in-Review/2010/Sep/September-27-2010/State-Insurance-Commissioners-Suggest-Phase-in.aspx

Poll Results Show Majority of People Think HC Reform Did not Go Far Enough

With the earliest provisions of the ACA kicking in last week I thought it was interesting to see how the law is being perceived by the public. So here are some results:

The Associated Press: As Republicans seek to use the health law as a major talking point to help them win more seats in Congress, a "new AP poll finds that Americans who think the law should have done more outnumber those who think the government should stay out of health care by 2-to-1." The poll found four in 10 adults think the law didn't go far enough to change the system "regardless of whether they support the law, oppose it or remain neutral. On the other side, about one in five say they oppose the law because they think the federal government should not be involved in health care at all." The AP poll was conducted by Stanford University and the Robert Wood Johnson Foundation and has a margin of sampling error 3.9 percentage points (Alonso-Zaldivar and Agiesta, 9/26).

USA Today: In the meantime, another poll -- this from the Kaiser Family Foundation -- has found that the health law "regained support among more Americans this month," but opponents are more likely to vote in November. (KHN is a program of the Kaiser Family Foundation.) "As some initial provisions took effect six months after its enactment, the law was favored by 49% to 40% in the [KFF] monthly tracking poll. That margin shrunk to 46%-45% among likely voters." Democrats remain the more trusted party on health care and Medicare, according to the poll, and four in 10 Republicans said they were more likely to vote because of the law, compared with three in 10 Democrats. "Seniors continued to oppose the law, 49% to 38%, and to view the parties equally on health care issues" (Wolf, 9/27).

NPR's Shots Blog: "Perhaps it's not so surprising that Americans would be a little happier about overhaul in the same month that some of the first changes, such as an end to lifetime limits on coverage, start to kick in. But they're still not a majority. ... About one-quarter of Americans -- 26 percent -- believe health overhaul should be repealed, the [Kaiser] poll finds. And the thing that most people seem to agree on is that they really don't understand what overhaul is all about. Some 53 percent said they feel that way, up 8 percentage points from August" (Hensley, 9/27).

Roll Call: Democrats, however, are hoping for a bump in the law's popularity ahead of the midterm elections after several consumer-friendly provisions took effect last week. "House Democrats said they don't know whether it was the result of luck or strategic planning that widely supported consumer protections in the health care bill are kicking in as lawmakers enter the final stretch of campaigning. ... Couple these changes with a renewed push by the Obama administration and outside advocacy groups, and voila: Many Democrats are ready to publicly embrace an issue they largely ceded to Republicans and their accusations of a costly, big-government takeover." Democrats are using the provisions to paint the differences between themselves and Republicans (Bendery, 9/27).

NAIC MLR Regulations: Score One for the Health Insurers

The NAIC released a draft of its regulations for determining medical loss ratios. According to Reuters the HIs fared well:

Under a draft plan released on Thursday, insurers would be allowed to deduct nearly all federal and state taxes except for federal income taxes on investment income and capital gains in making their calculations.

"It's written the way insurers wanted it to be written, and so that is good for the insurers," said Amy Thornton, an analyst at Concept Capital's Washington Research Group.

The Healthcare law, passed in March, sets strict limits on how insurers allocate customers' premium dollars toward medical care versus administrative costs and profits, spending levels known as the medical loss ratio (MLR).

MLR is seen by Wall Street as an important indicator of a company's profitability. The new limits are due to go into effect in January.

Insurance companies have urged broad definitions that they say offer flexibility to provide better care while strict rules could force some to exit the market. Consumer advocates and Democrats want tighter limits to ensure that insurers spend enough on patient claims.

The plan was put forth by a committee at the National Association of Insurance Commissioners (NAIC). NAIC is comprised of state insurance commissioners from across the country.

NAIC spokesman Jeremy Wilkinson said the plan was a draft of what the organization intends to give the U.S. Department of Health and Human Services (HHS). It must be finalized by the NAIC and formally adopted by HHS.

Under the Healthcare law, large insurance plans must spend 85 cents of every premium dollar on health care while smaller plans can spend 80 cents on the dollar.

Ipsita Smolinski, a healthcare analyst for Capitol Street, said NAIC's proposal contained no major surprises and gave insurers "a fairly generous definition" of what counts as medical expenses that can raise the quality of care.

However HIs will have to account for their so-called "medical loss ratio" at each plan, rather than as an overall company. That stings, because the ratios vary widely across company's many offerings. For example, in New Jersey, Aetna has a plan that spends only 70 percent of its premium revenue on medical care, and one that spends a whopping 139% of revenue on care.

The regs will now go to HHS for final approval by the end of October.

Great Series of Post Explaining Why US HC Costs Are So High

I think this is a must read given the first three blogs in this series that I have read. (http://theincidentaleconomist.com/wordpress/what-makes-the-us-health-care-system-so-expensive-introduction/) The posts are to the point and well illustrated with charts and graphs. So far the author, Aaron Carroll, has covered inpatient care, outpatient care and drug costs with more posts to come. Really good stuff.

New CMS Chief: Let's Work Together to Reform Health Care

From a speech given by Donald Berwick at a recent AHIP sponsored function:

My door is wide open," Berwick said, to anyone "who will join authentically join" the administration to update the health care system. "Those who welcome change and will agree to meet it will find a friend."

However, he said, "Those who wish only to preserve the status quo . . . cannot be effective partners."

At one point during the meeting, tensions between Obama administration health officials and the health insurance industry became clear when an industry representative questioned Berwick. He asked what the new CMS administrator would do to alleviate the image within the administration as a "villain," change the culture within CMS to "acknowledge there are forces for good within the insurance industry," and reduce the "tone of hostility" shown toward health plan executives.

"Let's look ahead, not back," answered Berwick, who was sworn in two months ago. He said that if the administration and insurers steadily work together to make care better, "trust will resurface . . . If we do this together and make care better, the rest will follow."

I think this is a good message. Fighting the reform measures after the legislation will not do health care plans any good. HC Plans are going to have 39 M new potential customers. That really is not a bad situation. To make it the best it can be carriers should work w/CMS not fight them.

BCBS of NC Refunds Premiums

Health insurance regulators in North Carolina have identified nearly $156 million in refunds owed to Blue Cross policyholders because of changes coming under the nation's new health law. Consumers with policies at other companies across the nation also may deserve refunds, says North Carolina Insurance Commissioner Wayne Goodwin. ... The health care law will dramatically change how health policies are sold in 2014, and many plans in effect now will cease to exist that year in their current form. Yet state regulators who scrutinized a recent rate increase request by Blue Cross and Blue Shield of North Carolina say they discovered the insurer was collecting reserves to pay claims beyond 2014. ... The result: Blue Cross has agreed by year's end to send refunds to more than 215,000 North Carolina policyholders with individual plans in force on March 23 -- the date the new health law was enacted.

Accountable Care Organizations (ACOs): A Good Primer

ACOs are seen by many as being the answer to controlling health care costs and improving the quality of delivery. But what are ACOs and how do they differ from HMOs? Here is a post that provides good background on the concept (http://blog.healthintegrated.com/index.php/2010/09/16/the-aco-how-big-a-role-will-it-play/#more-691).

Two comments I have to make about the post. While the author notes that providers not only are responsible for care but also the risk for it, he does not note the difficulty in coming up with a payment structure acceptable to these providers. He also talks about how Kaiser has this concept in hand. However when I worked at Kaiser there was no proof (much to the chagrin of the sales force) that the ACO model provided better care at lower cost.

HI Claims Expected to Rise 10% in the Next 12 Months

In a survey of about 60 health organizations around the country earlier in the year, Aon Consulting, a subsidiary of insurance broker Aon Corp., found that insurers expect to pay out 10.7 percent more in claims for preferred provider organization, or PPO, managed care. Many factors contribute to the rising cost of providing insurance, including expensive medical treatment, health issues related to obesity and an aging population, the number of unemployed taking advantage of short-term benefits and the effect of the new health care law.

To combat this increase, insurers say they will negotiate better rates with providers and move towards having their accounts use select networks which provide high quality care at an efficient price. Some companies are even having their CFOs sit in on the provider negotiations.

Health Insurance Costs: Not Going Down Yet

One of the challenges with health care reform was that it was sold as a way to reduce the cost of health care in this country. Given this, consumers are expecting their health care costs to drop in the next few years. Unfortunately, since the major cost containment provisions of the act will not take place until 2014 and then on a pilot basis, it will be awhile before we see the cost curve "bent".

Some of the provisions that are now available, like tax credits for small (25 or less employees) employers are now available, However, a recent Commonwealth Fund study estimated that although more than 16 million workers are employees of businesses that will be eligible for the tax credit, only 3.4 million work for business that will take advantage of the credit to stabilize or expand coverage. This is a significant number of people, but it represents only about 2 percent of the current U.S. civilian labor force.

There are other provisions of reform that should help to lower the cost of insurance. The reinsurance program to assist employers with retiree health costs may indirectly lower costs to employees, and the high-risk pools may marginally reduce the cost shift from uncompensated care. Over the long-term, the cost-controlling provisions linked to reform of the medical delivery system should provide enormous benefits to employers and employees and taxpayers.

Although the absolute costs to employers and employees will rise, so will the value that they get for this spending due to provisions such as eliminating caps on lifetime benefits. Often overlooked in conversations about the cost of health insurance is the quality of coverage. Though the average cost of health insurance is predicted to rise in response to new regulations and people’s electing to choose more comprehensive coverage, the cost for comparable health insurance will fall. This is a subtle distinction and, as such, has been the subject of much unsubtle political debate.

Commonwealth Fund Study: We Need Better Criteria in Selecting Physicians

A study released by the Commonwealth Fund (http://www.commonwealthfund.org/Content/Publications/In-the-Literature/2010/Sep/Associations-Between-Physician-Characteristics.aspx) found that the normal ways people select their doctors ( e.g., medical school, malpractice history, board certification) have little correlation with the type of care they will receive. Given this the authors say it is important that consumers look at clinical quality measures when selecting a physician instead. Unfortunately, this data is not easily accessible.

Kaiser Survey: Employees Paying More for Coverage

The Kaiser Foundation just released its annual survey of employer health insurance costs and how these costs were shared. The major finding was that while the cost of coverage went up 3 percent, employee contributions towards their coverage increased 14 percent.

http://www.kff.org/insurance/090210nr.cfm

Since 2005, workers’ contributions to premiums have gone up 47 percent, while overall premiums rose 27 percent, wages increased 18 percent, and inflation rose 12 percent.

And while most employees have PPO coverage (58%), it is interesting to note that HDHPs coverage increased from 8% to 13% between 2008 and 2010.

In short, employees continue to pay a greater and greater share of their coverage at a rate that far outstrips their wage increases.

How One Company Controls Health Costs

From Forbes magazine here is an article about how providing employees with an HSA accounts turned them into smart consumers and lowered their annual health costs:

http://www.forbes.com/2010/09/09/health-care-cost-containment-leadership-managing-human-capital-10-employees.html

What I found interesting was that they were able to get good data on costs and quality which often is a major isse for an employee looking to make an informed provider decision.

Employers Turning to Wellness Programs

According to an article in the Witchita Eagle (http://www.kansas.com/2010/09/09/1484748/ness-fits-strategy.html) more and more employers are instituting wellness programs for their employees--up to 81% nationally. The article provides a good summary of the issues involved in establishing a program. But it was encouraging to see more and more employers viewing the health of their employers in this way:

"Employers are starting to view health as a competitive economic advantage," he said. "They're finally starting to focus on the demand side of the equation instead of the cost side."

Healthy workers are not only less expensive they are more productive. This obviously is of great concern to small employers where an absence of just one employee is a major issue. However providing health promotion programs to small employers at no cost is an issue for most health plans. Small employers switch carriers on an annual basis and therefore the payoff of a health promotion program several years down the road makes little economic sense for a health plan who very likely no longer has the group as an account.