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Wednesday, December 31, 2008
However, I'm feeling good about 2009 predictions for what will happen in the US health care industry. I read Medicare releases the 2010 health plan reimbursement in the spring and finalized plan designs are due in early June. There is not a lot of time for the Obama administration to make any major changes which is why I think that there will be little new for Medicare. Additionally, the 2008 legislation that delayed cuts in physician reimbursements also tightened sales and marketing restrictions and called for the end of Private Fee for Service (PFFS) plans in 2011. PFFS plans were the source of most of the complaints and confusion.
Medicare comes up in reform or cost conversations because of the size of the program. However, when reimbursement is cut in Medicare, costs are shifted to commercial plans resulting in no net change. Likewise when reimbursement is raised in Medicare (like with Medicare Advantage plans or Part D prescription drugs), costs in the commercial side can go down. Since any changes to Medicare would be politically difficult and just get absorbed by another part of the system, I don't see major changes made.
2. Technology dollars will start to leave the health care industry: There were attractive returns for health care technology since the purchasers (mainly hospitals) generally got paid what they needed to be paid. Kahn pointed out that the credit crunch and new construction costs are hitting hospitals so they will have less money to spend on new technology. As those funds dry up, GE and the like will look to for other places to sell its imaging technology. Maybe Medtronic will figure out a way to incorporate pacemakers in fuel cells.
3. Except there will still be dollars for technology that explains health care: Health care is becoming a retail industry. Consumers are paying more of the costs and having more questions about what they're paying for. After your next hospital stay, ask for an itemized receipt and see if you can get one that you can understand.
As a result, a return is starting to emerge for web-based programs that can explain health care to end users so an organization's operators and call centers are not overwhelmed. Transparency is starting to become mandated so there is also a regulatory need to be able to explain why services cost what they do or what kind of service someone should get. This is the next frontier for technology companies to enter where they can get the return that they're looking for.
4. SCHIP will be expanded: The State Children's Health Insurance program (SCHIP) will be expanded by the Obama administration to provide health insurance for more children. This should be a really easy one since it's getting harder and harder to make the case for not providing health insurance for children. Their check-up's are cheap, they generally don't need expensive total joint replacement surgeries, and preventative services for children can have a 400% return. I was at a health insurance CEO forum, where one CEO was painted by the others as the conservative one. He cleverly responded by repeatedly pointing out the need for health insurance for children, showing that while he may be conservative, he has a heart.
5. No changes will be made for the individual or small employer group market: The most dysfunctional insurance markets are around individuals and employer groups of less than 25. They pay the highest rates and if they use a lot of insurance, will often be priced out of the market. There are no easy solutions around it so it can't be addressed without generally resulting in insurance carriers leaving the market. A comprehensive health care overhaul that addresses these markets, large employers, Medicare, and Medicaid is the only thing that will really solve it. There will have to some cost shifting or subsidizing of the smaller employer or individual markets by the larger ones.
6. Providers will start accepting more patients with Medicare and Medicaid: More and more providers had stopped accepting Original Medicare and Medicaid insurance since the programs kept the prices down. A 2006 physician workforce survey in Oregon reported that about 25% did not accept Medicare at all and the number is higher for Medicaid. However, with less and less patients having commercial insurance and bad debt rising from self-pay clients, any kind of insurance is going to start to look good. I guess this is a silver lining.
7. Reconstructive Surgery or Comprehensive Reform will happen in 2010: We have gotten to the point where a comprehensive overhaul is the only kind of real change left to be made. The Congressional Budget Office issued a very sobering report that can be found here for anyone looking some light reading and light holiday conversation, that dispels the myth that there are tons of savings to be found with Electronic Medical Records and promotion of more Preventative care, like colonoscopies. True savings and solutions will come with a major reconstructive surgery that addresses the tougher questions of health care like how we pay for units of service, not outcomes, or how so much money is spent on the last 6 months of life. However, it will take the whole year to demonstrate the need to the entire nation. Change isn't a quick process nor is explaining the health care system, so I don't see it happening in 2009. The Obama administration is positioning it well by showing the economic argument but not even Obama can turn water into wine.
Overall, my predictions are pretty safe, kind of the equivalent of an index fund. I should throw in some predictions like "US Hospitals install tanning salons to combat medical tourism" or "Scotch approved as cheaper option to anesthesia for elective procedures". But health care changes slowly and we are starting to hit the inflection point where the current system is not sustainable.
Monday, December 29, 2008
Having to break down my story of Capetown into various acts makes me appreciate story telling even more. Act I set the stage, Act II were some of the better stories that emerged, and Act III was a tribute.
I also saved the what we did for the last Act since it mirrors what happens in development work. Peace Corps had learned that it takes 3 generations of volunteers in a community for effective development work.
- The 1st volunteer introduces the community to Peace Corps, what Peace Corps can do and starts the personal relationship
- The 2nd volunteer introduces new work projects and starts the work relationship
- The 3rd volunteer gets the glory by finishing all the work
Hence, I spent the first 3 Act talking about the relationship. But for those who are wondering what heck the ROI was on trip, here's what our 3 teams did:
Clinic Operations Improvement: My team was involved in Clinic Operations Improvement and we visited 5 clinics in a variety of townships. The photo on the right is of Khayelitsha, one of the larger townships. The township clinics felt understaffed for all the work but needed to demonstrate the need for additional resources and that they were using current resources as efficiently as possible. During our visits, we shadowed staff, patients, and timed various parts of the visit. Most patients came in the morning to ensure they could be seen. As a result, mornings were overwhelming and afternoons were quieter. An appointment schedule wouldn't work since most patients didn't have watches and culturally all were used to scheduling around blocks of the day like dawn, late morning, noon, etc. A solution was to block off these periods into appointment types like well baby visits would be in the morning (when mothers and children typically travel) while TB visits would be in the afternoon (when children would not be there). STD visits could be on one specific day when a specialized staff member could attend.
We also conducted work shops to teach the clinic managers how to do operations improvement in the future. The workshops were around Continuous Quality Improvement (CQI), performance management, using score cards for planning and evaluation, and a summary of findings. The clinic managers had never seen these hands on techniques before that while more standard in US health care, were not widely used in South Africa.
Our findings showed that adding more nurses (nurses were typically the highest clinical level), a frequent request from the clinic managers, wouldn't help see more patients since patients had to complete the registration process and visit with the medical assistants. The best solution was to ensure that everyone worked at the top of their license. The nurses would often do work that lesser trained staff could do such as weighing babies since that was their typical practice. With our observations across clinics as non-politically affiliated observers, we were able to help the clinic managers they saw that adding less expensive staff such as medical assistants or people at the registration desk would improve efficiency more at a lower cost.
A lot of our recommendations had been made by the previous group in the form of a report. They didn't have the time to do a the 4 days of work shops that we did but some of the clinic managers had tried their recommendations such as the block schedule and were successful. As you can imagine that endorsement convinced most of the clinic managers to try these new techniques.
Wednesday, December 24, 2008
The last Act was singing the praises and showing the human side of a very prominent world figure, Archbishop Desmond Tutu. However, our trip wouldn't be possible without a man who is a hero in South Africa but not as well known outside of his country. I linked to Dr. Toms wikipedia entry but due to his unexpected death from meningitis earlier this year, he needs his own story.
When the alumnus who was a Teaching Assistant for Archbishop Tutu wrote him the letter, Arch immediately thought of Dr. Toms. Dr. Toms ran the public health system and had become legendary for his protests of the brutality of the apartheid government by refusing conscription to the army. Rather than flee the country which was the most common method of protest, he chose prison. Upon hearing the story, I wondered what I would have done if I were in the situation where I felt so strongly against my country. I don't know if I would have had the strength to sacrifice myself in prison and fight directly when leaving the country would have been such an easier option.
Dr. Toms was also visionary enough to recognize the opportunity that our team presented. We wouldn't bring any extra money to his budget and we wouldn't immediately solve any problems. We also would probably take up his and his staff's valuable time. But he did see the potential pay off in the long-term. His team was so dedicated to the daily operations of keeping the clinics open that there wasn't time to work on long-term goals, evaluate improvement opportunities, or understand if funds could be spent more effectively.
Dr. Toms often read non-medical magazines like Business Week. However, he had never heard of Wharton before we contacted him so he had no idea what kind of MBA students and alumni we were. Since he hadn't heard of Wharton, I actually think that he figured that it couldn't be a very good school. A few months after the first team went, Dr. Toms did receive his copy of Business Week with the annual MBA program rankings and saw that Wharton was the top ranked program that year. He excitedly emailed the main alumnus with his discovery that he actually got a consulting team that had been verified by national publications to be pretty good.
We could see the sense of strength and conviction that Dr. Toms had. He made decisions that could go contrary to ruling elites, special interests, or were otherwise unpopular when he knew they were the right decisions. He did not have a fiery personality or exude charisma but a quiet strength and confidence. Our meetings with him were fairly ordinary so I must confess that he was not a dramatically memorable part of her trip. However, he was the reason that the consulting trip happened and continued since he saw the benefits of having a team of outsiders work on questions of the future while his team handled the issues of the present.
Next: Act IV: What we actually did when we got there
Monday, December 22, 2008
Anyone who lives in a non-tropical area is probably wondering, "It snowed for 2 days. It snows for 2 days a lot in the winter. How is this news?" I grew up in Chicago and kept going to school in the northeast so I agree completely. However, it only snows once a winter in Portland and usually for 1 day so we haven't invested in any new snow equipment since Lewis Clark came over in the winter. It's also really hilly which can be really hazardous. All of those things create a mindset of when it snows, we can all declare states of emergencies.
Personally, I really like the idea of shutting down the city as I have posted about before. We all get to sit back, take a deep breath, and have a free day where we are not expected to do anything. We've gone cross county skiing around our neighborhood the last 2 days and I've almost finished a set of baby hand sacks that will actually fit.
Sunday, December 21, 2008
The Wharton Healthcare International Volunteer Trip to Capetown, South Africa had started with an alumnus who was a Teaching Assistant for Arhbishop Tutu at an Ethics class at Emory University. A few years later, after reading about the worsening public health situation in South Africa, she wrote Arch a letter asking "Would it be naive to think that a group of Wharton students and alumni could help at all if we offered our consulting services for a short-term project?" Arch connected her with Dr. Toms in Capetown. Dr. Toms' story is Act III.
As a result of her previous relationship, we had the opportunity to meet Arch during our consulting trip to Capetown. Our first interaction was in his new office where we arrived during the blessing ceremony. Another religious figure was conducting the ceremony while all were quiet. Upon completion, he said that he was going to conduct the blessing in other room and Arch responded with joke about following him to make sure that he didn't take anything.
Afterwards we went out to lunch and took turns sitting next to him to hear his stories of the struggles in South Africa and view of the world. I don't remember what he said but you could see his words almost glowing with energy in the air. He has an aura. After an hour, he got up to leave and reached for his wallet. When we told him that we would pay for his meal, a smile spread across his face and he told the waiter, "I will not have to wash dishes today since they are paying for my meal." He still seemed genuinely happy about getting a free meal even with all that he had seen and done in the world.
Towards the end of our trip, we were invited to a private service that Arch was performing. It was early in the morning so only a few of us attended. Since I was Jewish and had not attended many non-Jewish services, I asked about customs, when I should stand, when I should kneel, or anything else that I might not expect. My trip mates told me that I would be offered communion but since this was an Anglican service, I could take communion without offending the underlying theology. So I took my first communion ever from Archbishop Tutu. Afterwards, I told him that was the first communion that I had ever taken and he gave me a funny look that probably meant either I was a really bad Anglican or a really bad member of another religion. The morning ended with a trip to one of one of those symbolic smoke filled backrooms. Actually it was a non-descript restaurant with heavy wooden furniture. Men introduced other men to Arch, each other, and even me. The way names were pronounced during the introductions, no one needed to ask what business anyone was involved in. It was implied that everyone knew the name or why they were being introduced. In between discussion of philosophy and South Africa's future, it felt like some serious business was being conducted.
The planned trip to South Africa had inspired me to do some research about the country and I was in the middle of Rian Malan's "My Traitor's Heart". Malan was related to a prominent figure in the apartheid regime, fled the country because he couldn't reconcile his feelings about his place, and became a somewhat controversial journalist to chronicle some of the poignant tales, contradictions, and how the political forces caused ordinary men to do what they did. The interactions with Archbishop Tutu made Malan's writing that much more powerful as I started to glimpse the people behind what I read. Even though I was just a brief bystander in Arch's amazing Nobel Prize winning daily life, his personal aura and presence just made South Africa's recent history glow for me. Archbishop Tutu combined with the work that we were did in the township's clinics made me feel a strong and powerful connection with the country in just 2 weeks while it had taken me years as a Peace Corps Volunteer in Paraguay to feel that same connection.
Saturday, December 20, 2008
The most incredible part of my MBA program at Wharton was an international volunteer project where I led a team of students and alumni on a 2 week consulting trip where we worked with the head of the Capetown public health department, Dr. Ivan Toms, and broke bread with Archbishop Desmond Tutu (or "Arch") as he preferred to be called. The fact that as a social working Peace Corps Volunteer whose only business experience prior to Wharton involved using an ATM card, I led, dragged, pleaded with and empowered, a talented group of students and alumni on this trip still boggles my mind. Here's the story, broken up into Acts, in This American Life style.
Act I How I pulled this off: The prior year a group of students and alum had taken the first trip to Capetown (part of the Wharton Healthcare International Volunteer Trips (WHIVP) to work with Dr. Toms and had done some great opening work around clinic operations improvement and helping with cost accounting so they could demonstrate how much it cost to treat various disease classes which helped defend budgets and demonstrate how much treatment Capetown could expect per dollars budgeted. The students presented their results to us first years and invited us to continue their work. Inspired to continue my Peace Corps style development work on a macro level, I approached one of the presenters and asked "How do we continue your work next year and go back to Capetown? What do we need to do to start organizing?"
The second year presenter smiled at me and said, "By you asking me this question, I think that you have now started the organizing" Wharton has a very student driven approach so it's not uncommon for a student be able to run major parts of an organization. Other schools are student-driven, too but at some the administration takes on certain responsibilities that may be done by student clubs at Wharton.
So I just volunteered myself to lead the whole thing from the student side to keeping everyone motivated, connecting with the alumni and Dr. Toms, and organizing our teams. While I had no business training and our leadership classes hadn't started yet, I put together a game plan that went like this. This game plan below is also my answer to every question that I get about leadership in job interviews.
Let passion lead While this sounds like a romance novel, I made sure that everyone who wanted to go on the trip was really interested in development work and not just interested in a trip to South Africa. I had long, humorless conversations about the mission with anyone interested in joining in order to set the tone. At the initial meetings, I always asked why everyone was interested to reiterate the mission of the development work. I made napkins embossed with the importance of the mission- no not really. I also had everyone choose their own committees such as fund-raising, banking, and logistics to make sure people were on committees that interested them even though it meant banking only had 1 person. By making sure all the participants were motivated by the mission, the vision for the trip created itself.
I also came up with this before reading Jim Collin's "Good to Great" about getting the right people on the bus so it felt more groundbreaking than it probably seems.
Creating champions I drafted the most dedicated folks who represented different Wharton cliques into a subcommittee for idea generation, debating tactics, and dividing up responsibilities. That ensured that I brought plans to the larger group that already had been vetted by others and also that there were at least 3-4 people in the room who already agreed with me. This plan helped me avoid making some less well-received suggestions like fund-raising techniques that involved raffling off crafts that we could make.
Create a sense of accountability We were all going to be at summer internships across the country when we needed to do some serious logistical planning around travel. I needed to know that people would respond quickly so I created a culture of quick responses. I always responded to any question within 48 hours. Additionally, I did some test cases where I threw a fit when people didn't respond to minor questions like about who would bring a lap top. Well, it was calling people out for not responding and emphasizing the importance of timely communications to the trip's success. Remember, being humorless was one of my tactics. But my temper tantrums work as we were able to organize some major airline ticket purchase on a group rate which saved us 20% on travel.
Act II The 1st words that I heard Archbishop Tutu say were "I will follow you to make sure that you do not steal anything."
To be posted later. . . .
Thursday, December 18, 2008
Next addition is the role of the employer in the future of health care. The idea of employers offering health care originated during World War II when their was a labor shortage and wage freezes. In order to compete for workers, companies had to develop other benefits so they began offering this new thing called health insurance that was mainly offered by Blue Cross and Blue Shield (aka The Blues). The fact that they received tax benefits did not hurt. Another blogger, Milena Thomas, chronicles this history in her post along with a view that adds to the conversation and has similar conclusions to me but we have different ways of getting there and different end results.
Health care became an attratictive benefit, the insurance market grew, and providers benefited now that their patients were shielded from the cost. Fast forward to now and you have have employers still providing health care with the tax benefit but it has grown so complicated and costly that they are basically in the benefit administration business in addition to what they actually sell. Small businesses are overwhelmed and large business, like General Motors, have added costs that means they have to produce higer margin vehicles or spend less on the vehicle.
Busineses want to get out of the health care administration business. Various reforms have proposed pay or play (offer health care or pay into into a health care pool) or removing employers from the equation. However, offering a richer health care plan may be a cheaper way to attract workers other than wages. What is the most efficient and best role for employers in health care?
Get out of benefit administration: Winemakers start their own vineyards because they want to make wine not because they want to decide the benefits of an HMO vs a PPO of if they should move to a high deductible plan with a funded HSA account. They don't want to hear that their staff didn't get their health insurance ID cards. I think that moving benefit administration, the selection of health care, and than signing everyone up for the plan out of businesses would be efficient for everyone. Winemakers are not experts in health benefit administration, don't want to be, and someone could probably do it better.
Distribution Costs: The most compelling reason for me to keep the benefit administration with employers is because it is more efficient to sign up people at once than signing them all up individually. At my health plan, our administrative costs for signing up people individually (our individual insurance plan) are double for signing up a group. Removing employers from the health insurance value chain would mean those distribution costs would increase unless we found another distribution system. Government agencies should have enough of our information and are used to working on an individual basis that they could take on that role. The costs of distributing health care outside of the employer model will appear if we change the system. On the other hand, one could argue that would be another savings for employers.
Incentives for employees: The tax advantage (estimated to be around $200 million by the Economist) makes this an incentive that employers can offer where they pay less than the cost. However, employees who never use health care won't value it. Employees that do value it and would value it more than the actual cost are probably high utilizers or really, really risk averse and have emergency boxes in their basements with 6 months of canned food. You could probably estimate that half of company's employees would rather have the money (and buy a cheap health plan individually) and half would rather have the really good health plan (which they could not buy individually for anywhere near the same cost). Offering health insurance sends a signal the company's value employees. However, if health care was available outside of the work place at a fair price, than the value of this incentive would drop and employers could always offer some kind of supplement or buy-up plan. This incentive is not universally valued by all employees the same which suggests it's not a necessary incentive.
Conclusion: Employers don't want to be health benefit administrators, aren't the best at it, and others can take on that role and the accompanying distribution costs. However, I don't see employers completely getting out of the health insurance business having built up all this expertise. If there is another platform for getting insurance out to people individually, employers still have an opportunity to incent and attract workers with some kind of health product. While everyone will have a basic level of coverage, employers can offer buy-up options that could include fun cosmetic dentistry to put more bling in your mouth, private rooms in skilled nursing facilities, some plastic surgery, fancier hip replacement sockets or whatever the imagination could bring. There are some employees who don't want to go to the doctor and will never use it so the costs should be low compared to what's offered. The key is to make the buy-up elective procedures that aren't crucial to basic health care needs like extra days for mental health, brand medication, or services that could really impact the care someone could receive. There will be a gap between basic health care services and the buy up options. If employers fill the gap too completely, they will be back in the business of administering health care benefits.
Monday, December 15, 2008
MBA programs are typically market focused with regards to their applicants and have adjusted their application process over the years to get the type of class and caliber of student that they want. Some practices are very successful and some have not produced the results that the schools anticipated. While helping clients apply to some of the top MBA programs, there are some parts of the application that I emphasize as important and some that I tell them should worry them as much as a member of the Hell's Angel motorcycle gang should worry about what brand of dental floss they should use. Here are what I have noticed to be effective parts of the application process, ineffective, and really a waste of everyone's time.
The Good or Effective
The Why an MBA question, especially short and long-term goals: I think that this is the best question that schools have for differentiating candidates. An applicant has no other option but to describe their game plan, where they see themselves after graduation, and what they really want to do long-term. When someone in the tech field writes that they want to build on their quantitative skills to work in finance and have a post graduation plan of either private equity, hedge funds, or venture capital, it is glaringly obvious to the schools that this applicant has no idea what they want to do. That applicant looks like someone who wants to get out of technology so they can make more money in a now formerly trendy financial area.
I remember a classmate who decided to apply to every possible health care industry for his summer internship. He really hit the trifecta and applied for banking, consulting, and the pharmaceutical companies. He was up late into the night just trying to juggle interview spots when they came open, let alone actually preparing for any of the interviews. He spent a week not sleeping, did get one offer at an investment bank, and absolutely hated it. He is someone who would have benefited from thinking about this question more and developing a game plan for what he wanted to do post-MBA. Thinking about the question can help you better prioritize your job search when you are faced with a myriad of choices. Therefore, I find this question to be effective for schools who want to learn more about applicants and actually effective for applicants since they think about a game plan for their MBA program.
Extracurricular involvement: Schools have started to emphasize out of work involvement in the last 5 years as another way to gauge an applicant. It may seem like an MBA program is throwing out a random metric since some wonder what community service, sports participation, or the fine arts has to do with success in business. However, there are those candidates that figured out a way to balance a career with outside pursuits and they are being rewarded compared to those who spent their time outside of work watching Seinfeld re-runs or hanging out with dancers named Candy, Destiny, or Lexxxie. Since extracurricular involvement is a key part of the business school experience, I think that this is a good metric that schools can use to get the type of class that they want.
There have been some clients where I expected to see the return of $18/barrel oil before they would get accepted and some clients where I was equally surprised when they were denied admission. Involvement with non-professional activities were usually the deciding factor.
The Bad or Ineffective
Tell me about a time where you were faced with an ethical dilemma: Actually, don't tell me. This essay question started around 2001 when CEO's first started being read their Miranda Rights in mass numbers. Eight years later, the business section still needs a criminal reporter on its beat. Ethical decision-making is unfortunately still questionable in business despite MBA programs attempting to address it with this essay question. So we've seen no improvement and also, I can't imagine that this question yields very much meaningful information about a candidate. Anyone can figure out that when they write about a questionable ethical situation, that their response should probably be that they notified their superiors and tried to prevent it. This is also the one essay where I don't really need to spend a lot of time reviewing with my clients. They all generally get it right immediately. Since it's not helping produce more ethical MBA's and doesn't help schools learn anything new, they should get rid of it.
Taking accounting, economics, or statistics class to demonstrate quantitative skills: This emerged recently as yet another way for applicants to differentiate themselves. However, unlike extracurricular activities where clients differentiate themselves on an area that lends itself to the business school environment and creating a quality class, this is just lipstick on a pig. Most applicants for the top programs are smart enough to easily get an A in a local college class and they are going to take the same class over again at business school. Thus, encouraging applicants to take a business class that they will retake in business school isn't really indicative of the quality of a candidate. This only proves that someone has the free time to take a class at a local college so I don't see how it provides that much more valuable information for schools to assess candidates. Additionally, I don't think that many applicants enjoy spending their money and time taking a class that they will retake in a year.
The Ugly or Waste of Time
Letters of Recommendation: Quite a few of my clients want to talk about their letters of recommendations immediately. I always quote a classmate of mine who used to work in Wharton admissions who said, "Recs don't matter. If they're too good, we don't believe them." Schools have also made the letter of recommendation so specific, long, and require so much work that the recommender is practically writing a set of essays for each school themselves. Many recommenders give up trying to fill out all the 4 page templates and tell the candidate to fill them out. As a result, the MBA program gets no relevant new information and applicants and their managers spent extra time writing something that won't really impact the application.
Since the letters of recommendations have accomplished the rare feat of being both time intensive and low value, it's the ugly part of the application process. I think that MBA programs should either 1) get rid of letters of recommendation or 2) allow recommenders to use a general "To whom it may concern, I think that Candidate X walks on water and if I had a daughter, I would want Candidate X to marry her" format so they are not so time intensive or 3) evaluate them as highly as say the GMAT or another time intensive part of the application to make them of higher value.
Sunday, December 14, 2008
One to two times a winter, it snows in Portland and the city shuts down. It's a very hilly area with elevation ranging from sea level to a 1,000 feet above. Snow is rare enough that most snow equipment is on permanent loan to other states. Therefore, it makes sense to shut everything down since the cost of clearing snow is probably more than the cost of lost business by having everyone stay inside. I personally like how a snow is an accepted reason to cancel all plans or not go to work. It reminds me of my Peace Corps days where rain canceled everything since the dirt roads became impassable. I also remember when I lived in Philadelphia, there would be a ridiculous number of traffic accidents from snow no matter how they managed it. One time, they waited until it started snowing before closing schools and businesses. As a result, everyone was on the road at the same time while it was snowing and there were horrific accidents.
As you can see from the photo, our neighborhood turned into a winter wonderland. What looks like a snowy path in a forest is actually a major through way.
Another feature of snow in Portland, is comical news reporting. In 2004, the New Year's snow that stayed for 4 days had all the news stations competing to out- "Storm Watch your best source for everything related to the storm" each other. Footage mostly consisted of news reporters talking to people who were trying to put on snow chains for the first time. After the first day, the only thing left to talk about was that were was still snow on the ground. It seemed to me that reporters were having a contest to see who could create a riot by making the snow seem as menacing as possible and how it was the latest threat to all our children and small pets and was going to start trying to scam the elderly any second.
This year's snow is reported by the news as "Arctic Conditions" as it's going to be below freezing for possibly 6 straight days. Considering there are states that are below freezing for 6 straight months, I can handle 6 days of 20 degree temperature.
Other than our snow adventure, we stayed inside, played games and I did some more knitting on hand sacks. Hand sacks are mittens for babies that are just little sacks with no thumbs or fingers. Until, I saw the hand sack patterns, I had never realized that mittens with thumbs are unnecessary for babies. Trying to line up the thumb on a flailing baby hand would just be like trying to put a sweater on a cat.
Here's a picture of my first attempt. It got chewed on by a baby so it looks all boxy. I turned it into a baby chew toy because it was unfortunately too small. As always, I blame the Sirdar pattern that must have been sized for gnome babies. It also involved casting on an odd number of stitches for a knit 1, purl 1 ribbing pattern. Having an odd number of stitches means that you have to alternate starting with a knit stitch or purl stitch every other row and I kept having a seed pattern instead of ribbing. Sirdar could have made it much simpler by having a pattern with an even number of stitches but I think that company is run by oddly shaped physicists because their patterns are not sized for regular sized people and you need advanced quantitative skills to understand what their patterns.
As for future endeavors, I'm on the fence about braving the snow and going to work tomorrow versus knitting and maybe breaking out the cross country skis and cruising on the nearby golf course.
Thursday, December 11, 2008
The regulation comes from all the reform efforts. The unsustainable rising costs has been increasingly described with the "b" word as in bubble. The specific rising costs in health care have been from specialists and hospitals and the bubble comes in the form is that the services provided are being viewed as overvalued for the price. Eventually, payers will have the information to demonstrate how they are overvalued and/or the ability to refuse to pay and prices will come crashing down. While I do sound like a cranky health insurance guy when I called hospital services overvalued, I can point to the Dartmouth studies which show vast variation in care by geography that defies science and a pricing system that is based on what hospitals feel they need to get paid rather than any real costs. One dirty secret of hospitals is that they are not very good at pricing how much their services actually cost. Here is the most interesting aspects that I can share from the presentation (besides how to make a nun blush).
What the government is good at: The government is really good at determining the price of health care services or how much everyone gets paid. For Medicare and Medicaid, prices have been determined for decades of how much physicians gets paid, how much hospitals get paid, and how much health plans get paid. They are adjusted be geography, health acuity, and have risen at the same rate as inflation if not lower. The government actuaries determine the costs, adjust them, and everyone in the health care world accepts them because they have all the data. The government's ability to dictate price will probably grow as they have proven to be very good at it. Insurance companies and providers are not good at it because the biggest player in the game just tells everyone what they will be paid and others have no leverage to counter it.
What the private sector is good at: Health plans and providers are good at managing how much health care people use or utilization. Health plans have case managers for members with chronic diseases, use authorizations to not pay for inappropriate care or makes providers demonstrate why the care is appropriate. Providers will also enter into contracts where they get paid for managing care, keeping their patients healthy, or receive bonuses for following quality of care standards. The government would not be good at managing care because it is best done at the local level and it's also something that the government has never done. New expertise would have to be built from scratch.
Myth around drug negotiations: A common reform effort is that Medicare should negotiate prices with pharmaceutical companies. However, Medicare has no ability, staff, or idea how to negotiate prices. They can dictate a price (previous point) but do not have the history, data, or staff to negotiate since they have never done this in the past. Medicare negotiating with drug companies would be similar to my negotiation attempts with my cat.
Popping the bubble: Health care was the only sector that did not lose jobs in November and one in seven jobs in this country are in health care. If we reduce the money spent on health care (lower costs), jobs are going to go away at some point. I start to wonder if I should update my resume. However, if the Obama health care reform results in losses of thousands of health care jobs that are not absorbed by the private sector, I think that the administration knows better than to pursue that approach. Health care spending can be a good thing if there are good outcomes and the bubble can be eased by lowering those costs and allowing more people (the uninsured) to receive care. The total dollars will not dramatically lower but be spread out among more people.
With technology and health care investment, if reimbursement drops because everything is paid at the same rate, some investment may leave health care because the returns aren't there. However, that investment will then look for other sectors of the economy with better returns.
The Brothers Emanuel: Ezekiel Emanuel has been working on his own plan for health care reform and advised numerous democratic candidates. I had the pleasure of seeing him speak about his health care voucher plan and I could not find anything that it did not address. I adopted his plan as my own and wondered if it was going to happen. I think that Ezekiel's brother, Rahm Emanuel, might be able to make it happen in Rahm's new position as Barak Obama's Chief of Staff. I think that if we want to know where health care reform is going, we should listen to Ezekiel.
Wednesday, December 10, 2008
Despite the title of this post, I don’t see myself in biblical role (although it would be cool to be able to wear white robes, sandals, and grow my beard and hair down to my shoulders). I do see my role as more social worker as I help others access knowledge that can advance one professionally or personally. This is some form of empowerment. Admissions consultants tend to be viewed as bottom feeders, writing essays for the client or flattering applicants for more business (“Sure you get a chance to get into Wharton”). In reality, we level the playing field for applicants who don’t work in industries that send a lot to MBA programs and don’t have friends who can’t explain the process to them. Just like social workers help clients access resources that they can’t gain themselves, I help clients understand the MBA admission process and make it an understandable process. Now, I’ll stop pretending that I am doing some deities’ work.
My work with a friend of a friend who is an architect interested in an MBA underscored how oblique the MBA application questions can be. Her career called for showing her design talents but how would that go over in a more conservative MBA environment? It was safe for her to understand the standardized test was important but what about the other parts of the application? Is it the essays, recommendations, visits to the school, or business background? How much math do you need to meet the threshold? What about the structure of the resume and content? For the interview, are you asked questions about your favorite investment strategy or what Civil War general would you most like to face in battle? Here are some of the reasons why the MBA admission process can be so daunting:
It’s a trade degree without a license: An MBA is a professional degree that is designed to teach you a trade. However, it is one of the few professional degrees that does not license or certify you to practice that trade. Anyone can do business so an MBA just teaches you how to do business better (in theory). It teaches a body of knowledge that is intended to be developed enough so that it can be successfully applied. It does not intend to teach a body of knowledge that will be researched further or for its graduates to follow and perfect this body of knowledge.
Since it’s a trade degree that doesn’t license you to do anything, how do you know that you even need one, let alone how do you demonstrate that you need one to an admissions committee? That’s an important thing to know as every program asks you why you want an MBA in some form or another.
No barriers to entry yet very high bars to hurdle: If you’re a really good yakhereder that developed a process improvement to help baby yak’s nurse and did a business plan to sell yak milk over the internet, can you get an MBA? Looks good, but have you taken any math classes? How about volunteer experience? Did you visit the schools or talk to alumni? Why not a masters in animal husbandry? How many years of yak herding experience do you have? Is 2 years of experience too few or is 6 years too many? Does your background add diversity or was the spider monkey breeder who was admitted last year sufficient? Any career background can get admitted but it is difficult to gauge how much background you need to hurdle over the requirements for math, extracurricular activities, school visits, or other factors that could impact your application. It's also difficult to determine which of those factors are really important (the important factors are GMAT and grades to show you can handle the academics, then work experience, quality of it, essays, and extracurriculars roughly in that order. Everything else is lipstick) As a result, everyone has a shot but it’s really hard to tell if you are really a good candidate.
Oh, if my example helps, if the yakherder can get a 680 or higher on the GMAT or did well academically in a prestigious school, they are in. A funky career background with demonstrated success must be paired with proven academic skills for a likely admission. Otherwise, no admissions officer wants to advocate strongly for the guy who might still use an abacus in class.
Admissions officers have to guess: This is paired with the last example where admissions officers truly don’t know if you have a decent chance of getting in without seeing your complete application and really no one else does either. Except for the letters of recommendations, it all really might matter. While we would like admissions to draw a stronger line in the sand, they really can’t. A candidate only might have finally broken 400 on the GMAT since they just filled out all choice C’s out of desperation but what if they taught capitalism to their hunting and gathering community that previous relied on bartering sheep ankle bones? That’s why an admissions officer can’t say that there is no chance of being admitted without a GMAT that is at least high enough that if it were a credit score, you would be approved for a subprime loan.
As for the friend in architecture, I told her that you can never go wrong with a conservative appearance but there are plenty of opportunities to blow it if you get funky. That’s probably true for any part of your MBA application.
Tuesday, December 9, 2008
Actually, I am completely serious. I will keep this blog away from social commentary of the “Why did that person in front of me drive like they flunked jedi knight school but are still trying to use the force” or “You’re ordering coffee not conducting a congressional hearing” variety. However, the more that I listened in to her conversation, the more I realized my Picasso inspired jury mate symbolized the Northwest. Since I was entering financial data into spreadsheets, it was easy for me to listen and I was easily distracted. Here’s my thesis:
Mounting technology: Embracing technology is not subtle enough, she mounted it. I heard her talk about setting up account tracking spreadsheets for small businesses that will improve their productivity and tracking federal tax forms that caused a CPA to pause for a moment of reverence. It sounds like she does the hard work of being a change agent showing businesses about the benefits of automating accounts receivable and payable. It’s one thing to use new technology but other to evangelize it. Also the technology that she is promoting has a long track record and prove efficiency rather than web 2.whatever-version-we’re-supposed-to-be-on-now. Although I am a luddite with technology, I recognize it as the engine of this region as the Pacific Northwest has been successfully transition from timber and manufacturing to technology and sustainability. Those who embrace- er mount the proven technologies or latch onto the trends that win out, are more successful in this region. While that’s true in any part of the world, there are less legacy institutions that need to be overcome so new technologies gain traction quicker here and are more widespread.
Independence of Institutions: “Forget working for someone, just 1099 me” was her approach that can help those who move to the Pacific Northwest make it or break it. Outside of Seattle, there are not the large businesses that look for the corporate resume and offer a steady source of jobs. Therefore, you have to be willing to freelance, especially when times are tough. During my unemployment stint, I pulled myself out of it through independent consulting before I found my way to the corporate spigot of health insurance.
Don’t just judge appearances: As I described, she honestly looks like she’s transitioning from a Goth to Straight Edge phase and cultivated a “Blow me” appearance. However, from eavesdropping, I realized that she is savvy with regards to business and the impact of her chosen appearance. “Look at me, I’m never going to be chosen to serve on a jury. I don’t even have to wear my ‘I hate babies’ shirt.” A number of Pacific Northwesterns dress down or choose a Whole Foods cloth bag to carry work as opposed to brand name messenger bags. While appearance does play a role in business, it is not a deal breaker out here. Depending on how it’s used, it can be a differentiator, especially for the Creative Class that does flourish out here.
Thursday, December 4, 2008
Roughly 80 percent of the Medicare beneficiaries in Medicare must pay higher premiums to subsidize those who enroll in private Advantage plans. It should be noted that the private Medicare Advantage plans do not always provide more care than traditional fee for service.
The $1,100 figure quoted is an average of how much more these plans get paid per enrollee, not what is actually spent on services. In fact, many of these plans charge far more than traditional Medicare for important items like hospitalizations, home health care, durable medical equipment and chemotherapy.
Congressman Starks has been a tireless health care reformer, has had many laws named after him, and has passed some great legislation that reduces conflicts of interest in health care. I am more interested in this letter than most because I am responsible for my organization's private Medicare Advantage plan. However, if some of the details in his letter are correct, than either 1) Centers for Medicare Services (CMS) is not bothering to read any material that health plans submit them for review and approval and spend their days looking at youtube clips of animals performing improbable feats, 2) health plans are blatantly not following any of the rules that CMS clearly laid down and all of their Regulatory, Compliance and Legal staff spend their days forwarding above youtube clips to CMS employees, or 3) Congressman Starks is exaggerating details to make a political point and I am pursuing a hobby in stating the obvious.
Now when I mean exaggerating details, I mean it looks like he's found the few exceptions out of hundreds of plans. Here are the two instances where the facts don't support his assertions.
Private Medicare Advantage plans do not always provide more care than traditional fee for service.
This comment is what provided the fodder for my youtube animal jokes. When private plans present a bid to CMS, they show how much there are paying to cover the benefits of original Medicare and how much they are paying to cover additional benefits that a senior gets from the private plans. If a bid shows that a plan is paying less than original Medicare for any service, that plan's Regulatory, Compliance, or Legal department should have never signed off on it and CMS never should have accepted it. It's just the law.
Also, all the documents that explain the private plans show how much original Medicare covers and how much the private plan covers. The senior can clearly see if the private plans covers less. Now for out of network services, a private plan can cover less than original Medicare. That's because they don't have contracts with out of network providers and they want seniors to use in network providers. But otherwise, it's required that private plans cover as much as original Medicare and usually more and seniors can clearly tell when they are not by looking at the plan documents.
$1,100 figure quoted is an average of how much more these plans get paid per enrollee.
I am assuming that the $1,100 quoted is the benchmark payment that CMS pays plans per enrollee. However, from looking through the Kaiser Family Foundation website for information on benchmark payments, the highest is Florida's at $1,032. Other states are as much as hundreds of dollars lower. That number may include member premiums which can be $0-$150 typically but that still doesn't get anywhere close to an average of $1,100. Therefore, the $1,100 quoted is higher than what plans actually get paid. It could include risk adjusted payments but those are generally paid later and vary greatly depending on the health condition of the enrollee.
With regards to the comment on how this $1,100 does not include medical costs, 90% of what health plans receive typically goes towards medical costs according to the data that I review at the state quarterly financial filings. This isn't the individual market where plans can only spend 75% or even less on medical costs. The allusion that plans are able to keep the bulk of the money just doesn't happen as senior use a lot of health care.
This letter from Congressman Starks disturbs me because he is a very respected and usually very accurate voice of health care reform. Therefore, the contradictions and fact that the publicly available facts don't support his assertions worry me more than if he was known to be some hack. Either he has his facts wrong (worrisome and unlikely) or he is vastly distorting them (even more worrisome since it's more likely).
Wednesday, December 3, 2008
On the other hand, Medicare is the golden child. It provides coverage for 40 million elderly Americans who have the highest number of health conditions because they have been using their bodies for so long. For generally $150 per month in premium, they have some of the better insurance available that keeps them healthier and living longer. Medicare beneficiaries also make up 25-30% of health care providers patient volume and probably fund a similar percentage of medical devices and drugs. Would anyone else, other than the government, take on the job of insuring the highest utilizers of care and the crankiest because after a certain age, you really don't give a damn.
Medicare does a lot for the health care industry and solves a lot of problems that others don't want to think about it. Therefore, should it be a surprise to anyone that costs increase every year? This cost increase is usually expressed in the form of insolvency of the Medicare trust fund as described in this recent article about how the Medicare trust fund could be insolvent before the project 2019. To be clear, the trust fund insolvency only refers to the hospital and nursing facility payments but these are the most expensive areas to cover.
The Boston globe article talked about how the recession could change the actuarial projections from insolvency by 2019 to 2016 or 2018. In other words, they don't know when, but it will be earlier. While this may sound alarming and cause fear that Medicare won't be around for much longer, I will address those concerns and explain why there is no reason to panic.
It's always been projected to go broke: These are actuarial projections so it's not like a burn rate but a fairly educated guess. Through out Medicare's 30+ year history, it has generally been projected to be insolvent within 11-14 years. Three times (in 1969-1972, 1982-1984, and 1995-1997), it has been projected to be insolvent within 7 years. Therefore, this is not a new scenario because some degree of insolvency is always projected. Costs are expected to continue to rise and exceed funds at some point in the future.
It's political: There is also not a direct correlation between the years to insolvency and calls for crisis. As you can imagine, political expediency plays a role (which should surprise no one) In 1993, insolvency was projected to be 6 years but the alarm was not sounded until 1995. There wasn't a political need. Never estimate the the political role in calls about Medicare insolvency. However, after this election period, telling someone not to underestimate the role of politics in a decision is like telling someone not to underestimate rush hour traffic during the first big winter rain.
We have solved it before: During the previous crisis of 69-72, the solution was professional review organizations to reduce utilization. The 82-84 crisis resulted in Diagnostic Related Group or DRG's where Medicare paid a set case rate for a procedure as opposed to just paying based on how long someone stayed in the hospital. In 95-97, managed care was introduced to lower costs. In all cases the interventions did work and the years to insolvency increased. Therefore, there has been experience and success with reducing the costs of Medicare.
All of these interventions were changes to administration, payment system, and all were done within the context of an insurance framework. Medicare continues to be funded by a 1.45% pay roll tax that was set in 1965 when Medicare was created. There has been yet to need to pull major levers like use government general fund money or increase the payroll tax to fund Medicare.
I don't mean to down play the need to reduce costs for Medicare to continue to be sustainable. However, I do want people to switch to an immediate crisis mentality when they think that Medicare is going broke or is going to swallow the entire federal budget. Medicare has been self-sustaining with the same financing mechanisms that were set up in 1965. Medicare will always have a project insolvency time frame and it will usually be within 10-15 years in the best of times. That's because medical costs are always projected to increase. However, medical utilization controls have proven to be successful three times in the past.
Medicare has been and still should continue to be a successful entitlement program as long as we continue to maintain it. I fully expect to use Medicare in 30 years when I am cranky senior who doesn't give a damn.
United Health Group announced in this article it is selling an option for insurance in the future.
The main summary of the New York Times article is:
An average individual plan premium is $200 per person so for $40 per month or $480 per year, you have the option to be able to purchase individual insurance whenever you want regardless of your health or lack of health at the time. You of course have to be healthy enough to pass the health screen that you fill out but for people who like the idea of insurance, you can have the knowledge that you can always buy health insurance for the price of a gym membership.
The product, called UnitedHealth Continuity, is intended for people who currently have insurance but are concerned they might lose coverage -- because they lost their job or retire early -- and might not be able to obtain other coverage.Enrollees in Continuity will pay 20% of the current premium on an individual policy monthly to reserve insurance under that policy for the future, according to the Times.
The article later pointed out that purchasers of this type of option probably don't think that health care reform will come anytime within the next few years. If health care reform does come than United will never have to pay out on this option. It doesn't help people who can't get individual insurance now but it does fill a niche by letting people buy an insurance policy that lets them buy an insurance policy.
From a product portfolio perspective, I have to grudgingly give United a lot of credit for coming up with a product that fills a gaping need and will probably be a winner financially. From a value creation perspective, they basically copied the idea of selling licenses to be able to buy season tickets from the sports world. That may be why the New York Times is lukewarm to the whole idea and feels that people may be overinsuring themselves and it's not worth the money. But given the desire for some to always be able to purchase health insurance, it fills a clear market need.
Tuesday, December 2, 2008
I can understand why the MBA admission process can be difficult. For the engineers, tech workers, and bankers that make up the bulk of the MBA application pool, the most complicated thing that they have had to write since college was their Match.com dating site profile. Or they never had to take writing classes in college. Applicants also have to figure out what information MBA programs think is relevant compared to what they want to share. There are so many paths to take that I can understand how it can be a daunting process.
Your average MBA applicant doesn’t help themselves by tending to over think the whole application process and look for data when there is really just noise, look for trends and causality when it’s just correlation, or ultimately rationalize their own fate.
There is one myth that MBA applicants tend to evangelize the most that has the least amount of data or rationality to support it. For that reason, it befuddles me the most because it should so obviously be dispelled years ago but it continues to live on, like that rash that you thought finally went away last summer.
That myth is that MBA admissions programs carefully segment and slice applicants into distinct categories or buckets and than use a careful predetermined quota system to select the top applicant from each bucket. These buckets that contain the most applicants are the most competitive and thus, one should position themselves in comparison to others in their bucket, try to change buckets, or apply to a lower ranked set of schools because they are not competitive in their bucket. Popular examples are the male Asian technology worker bucket or the white male banker bucket. Here are the reasons why this makes as much sense as intelligent design theories.
How do you define a bucket? Does the Asian category include: Asian-americans, Asians living in Africa, or Asians just born in Asia? Any difference between Indian, Pakistani, Bhutan, or Nepali candidates? How about tech worker? Does an IT consultant go into the tech bucket or the consulting bucket? What if they worked in both IT consulting and management consulting? How about the network administrator for a yak herding co-op? Does he go into the technology bucket or animal husbandry bucket?
Admissions offices could spend the whole year arguing in which bucket they should put the Asian orphan who was raised by Guatemalan nuns who then became an investment banker, left banking to become a monk, started a non-profit milk co-op, then decided to be a brand manager for the organic milk line of an Icelandic consumer products company.
This is a lot of work. MBA admissions staff are usually 5-6 people with degrees in higher education. There is no database administrators or SAS trained analysts who can do all the statistical crunching of these buckets to determine the class that will best maximize value. The staff just tries to fully read all the applications, let alone spend all this time categorizing them in ways that they can slice and dice the data.
What’s the point? Even if you could put everyone into these buckets with a powerful database to do all kinds of meaningful analysis, how many bankers, tech workers, or religious yak herders do you really need in a class? If you picked two Olympic curlers last year do you need any Olympians this year or do you think that bob sledder will add a 0.3 additional r squared of diversity?
All right smart guy, what do you think admissions staff really do then? I think that after the admissions staff has read and rated all the applications and picked enough people to fill the projected seats, they look at the demographic stats. They make sure they have accepted enough woman so it’s not a big frat party and don’t have an overbalance of any career category based on historical trends. That’s only after all the decisions have been made and as a double check on the class composition. It’s not done beforehand to socially engineer a class. All decisions are made on the basis of the individual application alone. Now, I did hear that admissions have seen enough applicants form certain banks or consulting firms that they can tell how the applicant ranked in their class. But the applicant is still judged on their individual merits and the class ranking at their firm is an added piece of information.
So why does this bucket theory still exist? MBA applicants are an analytical group and at their jobs are always looking at data for some insight or arbitrage opportunity. They see some data mining opportunities and assume that admissions are doing it too.
I also think that it’s a helpful reason for explaining why despite a GMAT of 750 and all kinds of promotions, that someone did not get accepted at a school. No reason from stats emerge so they look for other reasons like being in a competitive segment. However, I have read the essays of some of those folks who believe that they are in these competitive buckets. The essays are absolutely terrible. They don’t answer the questions completely or spend lots of time on irrelevant details about their companies phase gate product development improvement process. It’s the most subjective part of the application that completely destroy their chances. For applicants who thrive on analysis and quantitative rigor, that’s a difficult lesson to understand.
Monday, December 1, 2008
Medicare market: Those who are on Medicare can either just get original Medicare that cover 80% of their expenses or pay anywhere from a few dollars more per month to hundreds of dollars more per month to get everything covered with any doctor. There are possibly more choices of Medicare plans than there are choices of breakfast cereal with everything from pure gut cleaning fiber to sugar infusions that will give you instant diabetes. All this is brought to you by the federal government which generally pays for 90% of the cost of the plans and offers a risk adjusted payment scheme to well, limit risk. With risk adjusted payments, insurance plans get paid more for sicker members so there is no incentive to try and put in conditions to try and attract only healthy members.
Individual market: All these options in the Medicare market, contrast with a real lack of choice or good options in the individual commercial insured market. Various health care reform proposals have proposed making insurance an individual purchase. However, it doesn’t address the issue that purchasing an individual insurance plan is kind of like buying a car in the 70’s. Not a lot of reliable options, not a lot of emphasis on the features that you really want, and it can tend to burst into flames just when you need it.
Supply vs Demand: In general, people want to buy health insurance because they are high utilizers (the 20-30% who use 70-80% of all health care dollars in a given year) or only want it if they get run over by a herd of wildebeests. However, most health insurance plans are priced and planned for the median consumer and don’t need the coverage that the high users want and are more expensive than what the avoider of wildebeests want. The health insurance consumer curves demand looks like a 2 humped Bactrian camel while the supply is a 1 humped camel.
Am I listening? Health insurance companies need to come out with individual plans that better match what consumers want to buy if it is going to be a viable market. The only really interesting part of that statement is that I’m yelling at myself to do something since this is the field where I work. Other blog posts tend to yell at some else to fix something. I’m yelling at myself because I can tell the individual health insurance market is not working and if I am not motivated to do something about it than someone will change it for me and I will probably become a government employee in the process. Not that being a government employee is a bad thing as I thoroughly enjoyed my previous stint in the county health department.
Solution- Products to match 2 main segments: There’s lots of ways that the individual market needs fixing but my lens for viewing it right now is to come up with plans or products that fit people’s needs. Right now, the average carrier’s strategy is to come up with a middle of the road insurance plan that isn’t so comprehensive that it appeals to people who really want to use it but isn’t so expensive that healthy people won’t buy it because it isn’t worth it. That’s how you balance risk and try to lean it towards the healthier folks. The result is mildly satisfying some but leaving a group of unhealthier folks who can’t get as good of a plan as they could get if they got employer insurance and healthier folks who see a plan that’s more expensive than they want.
Free Market Approach: The vaunted free market has not come up with a solution but encouraged a race to the bottom approach of pre existing conditions, limitations, and rigorous screening. The game has been about getting healthier members since that’s the best way to make money. I don’t fault carriers for using this approach since that’s how the system is set up.
Regulatory Solution: The alternative approach that I see involves some regulation of requiring the creation of 2 types of health insurance plan categories; one for low utilizers and one for high utilizers. In order to participate in the individual insurance market, you must offer plans for both of these segments. To ensure that viable plans are offered to both low and high utilizing segments, both the price and membership are linked together by multiples. Your ability to compete for the the low utilizers will be tied to your competitiveness with the high utilizer segment.
The Details:Insurance companies can offer a category of plans for low utilizers that have less benefits at a price that makes it worth it for the low utilizer. Since they are not likely to use the plan, are getting it as a well, insurance policy in case something goes wrong, they are looking more at price and less at coverage. However, to offer plans to this segment, companies must also offer more comprehensive plans at a price that’s a multiple of the low utilizer segment. If you make your high utilizer plans more expensive than your low utilizer plans will have to be more expensive (and less appealing). The final kicker is the membership in your low utilizer plan will also be a multiple of the membership in your high utilizer plan. The plans for high utilizers can have lots of case management, disease management, and be heavy on the design to reduce costs for those with chronic conditions. They can also contain their own network of physicians who have more success or skills with this type of disease management. The insurance companies that can better manage medical costs will do better financially.
To continue the car example, it’s a low end model for those who just need a car to get around and a high end model for those who really like to drive, show off their car, or for whatever reason people get high end cars. These 2 segments are looking for very different things in an insurance plan and have different value to insurance companies. In order to get the higher valued customer (lower utilizers of health care), carriers need to figure out how to serve the higher utilizers of a health care in a sustainable manner.
There are lots of issues with the individual market but this is one solution that addresses the fact that the individual plans that consumers truly want aren’t available because insurance companies have congregated left of center. It should create more appealing insurance options for low utilizers (typically young adults who have a 30% uninsured rate) and more affordable options for high utilizers who have been pushed out of the market.
Sunday, November 30, 2008
Roll away the dew? What kind of hippy are you?
I'm pretty much a typical hippy. Started listening to the Grateful Dead and wearing tie dye senior year in high school, grew my hair down to my shoulders in college, cut it before I graduated, stayed kind, and now work a corporate job but am still pretty kind. The lyrics of the Dead (Roll away the dew is from the song "Franklin's Tower) speak of the kind of journeys, rebirth, and discovery that we all go through and also reflect the journey that blogging takes you on.
What's up with this Deadhedge reference?
My rugby team nicknamed me Hedgehog after I grew a porn star mustache and the name stuck even better than duct tape. I used the nickname on some on-line message boards until it got deleted because I didn't follow the rules of the board. Hence "Dead" hedge and given the Grateful Dead references, it works.
What’s up with the little purple hedge hog for your profile picture?
What’s not to like about little purple hedge hogs?
If I am not into purple hedge hogs or the Dead, why should I read your blog?
I like to think that purple hedge hogs and the Grateful Dead are just my thinnest outer layer of my philosophical onion. Here's what you will see posts about:
The big bad business of health care: I have worked in every arena of health care administration this side of a colonoscopy clinic. The business of health care has become an industry that people are now actually talking about so if you quote anything that I write with dramatic pauses, people will think that you know something about health care and that your dramatic pauses are annoying.
MBA Admissions: I have helped a lot of people over the last 4 years figure out the byzantine MBA admission process and people who are a lot smarter than me have even paid me to shred their essays and their self-esteem
Knitting: Now how many knitting rugby players do you know? I’ve been knitting longer than I’ve been doing the other two things. Mostly I’ll rant about how much Sirdar patterns suck.
Pacific Northwest: This is where I live and the general, catch all random, personal category of things that I do and local events. It’s the naval gazing part of this blog.