Where is Congressman Stark getting his facts?

A letter from Congressman Peter Starks appeared in today's New York Times that criticized private Medicare Advantage plans for providing less benefits to seniors at a higher cost. The article below details his specific concerns

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).

Sometimes the sky isn't falling

I have been bemoaning the status of the Individual insurance market as the red headed step child of the insurance industry that has a nasty habit of drawing unwanted attention to for its shortcomings. When the Individual market farts during temple, it tends to further embarrass itself by gambling and losing with the expulsion.

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.

Free Market responds to gaps in the Individual Insurance market

In a previous post, I pronounced that when it came to solutions for the individual insurance market, the free market had fled from the opportunity to insure those who had more health conditions rather than embracing the challenge. However, United Health Group came up with a solution showing me how persistent the free market can be. Just when you think that this collective free market has retired to a remote tropical island with its carefully tax sheltered windfall, it comes back to try and maximize profits one more time. Kind of like Wiley Coyote's pursuit of the road runner only with conference rooms and Microsoft office applications.

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:

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.

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 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.

Bring me a bucket of bankers: Dispelling myths about the MBA Admissions process

For the past 5 years, I have been helping friends, clients, and on-line characters with their MBA essays for the top 30 MBA programs in the world. A combination of writing and social work skills help me understand what MBA admissions programs want and how to explain it to people. Some very smart people have paid me to shred their essays and occasionally their self-esteem. This has put me in a position to see how difficult the MBA admission process can be for some people and how many stories and myths are perpetuated year after year as applicants try to make sense out of it.

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.

The Individual Insurance Market: Selling Pintos among a fleet of Cadillacs

With apologies to kicking the auto industry while they’re down, there have to be ways to sell a better individual insurance plan to those below the age of 64 since we provide such grand individual insurance plan to those above 65 and get Medicare.

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.