Medicare Advantage took the next dance from ACO's

Accountable Care Organizations (ACO's) were one of the more eagerly anticipated part of health reform. Well, they were eagerly anticipated by policy wonks and larger provider groups but the general community probably the ACO was a ligament in your knee.

ACO's were going to reward provider groups based on outcomes not volume of care. Provider groups would organize into ACO's, be assigned patients by the Center for Medicare (CMS), and receive additional payment if they managed costs well or penalities if they manged costs poorly. Providers responded since new revenue opportunities in a post-reform world are about as rare as moderate Republicans. They organized different provider structures, explored risk management software, and different techniques for population health management.

When the ACO rules were released by CMS, someone switched the dance music to the polka. Nothing's wrong with a good polka especially with my new lederhosen but it was the wrong dance beat. Providers were disappointed at the requirements and low likelihood of receiving additional revenue. What followed was like a hangover as providers were irritable and nauseous.

However, providers had already organized into structures that could manage population health and a global budget. They were also becoming successful at managing costs as Medicare increases were cut in half in 2010. Now they were looking for a payer partner to be compensated for their success. Although Molly Ivins says that you've got to dance with them that brung you, providers had a new dance partner. The much maligned, overpaid Medicare Advantage (MA) plans filled out that dance card.

Medicare Advantage plans typically pay providers more than Medicare or if they pay the same or less, they offer captive volume through networks that don't cover health care from providers that don't contract with them. MA plans are also accustomed to offering the same type of reimbursement methodology as ACO's without the additional requirements. As a result, large provider groups are starting to look for MA partners who can offer this type of reimbursement and starting to close their offices to patients with original Medicare and the ACO. Providers can negotiate with Medicare Advantage plans but not with CMS.

These relationship also reflect what is happening in the merger and acquisition world. MA plans are purchasing provider groups to build this arrangement. I guess that's an example of dance partners getting married. I hope the babies are cute. For provider groups who have a higher criteria for dance partners, may only want to dance with MA plans that receive a 4 or 5 star rating from CMS. Those plans get a 5% to 10% higher reimbursement from CMS and that bonus comes out of the pockets of 2 or 3 star MA plans. That's more revenue to share with providers. Since the star ratings are mainly driven by the better health outcomes for a plan's membership, this alignment makes a lot of sense.

This was the intended result of the ACO. Provider groups would be rewarded for moving from being paid on volume to being paid based on better outcomes. The surprise was that it's Medicare Advantage plans that are achieving this result while ACO's are still looking for dance partners.

Building Customer Feedback Loops and Surveying Medicare members in a Non-Resource Intensive Way

My longest blog title ever describes my presentation at the Medicare Market Innovations Conference. Although the title could have been "Speaking about Building Customer Feedback Loops and Surveying Medicare members in a Non-Resource Intensive Way while eating at In-N-Out Burger and getting Sunburned at the Beach." I get some points for brevity. It was a very enjoyable 2 days in Newport Beach, California and a great conference by Strategic Solutions Group. Now I see why Orange County, CA was the location of The OC as opposed to Oregon City, OR.

Below is a link to a presentation about how someone can create customer surveys and get good information without needing to do third party, double blind research with every Chi square dotted and every t test crossed. I also share the dramatic moments that this created in product development. Most readers are probably thinking, "Dramatic moments in product developments? Harry Potter fighting Voldemert creates dramatic moments. The only dramatic moments in product development are wondering if the finance folks are going to fall asleep during your meetings."

Medicare innovations conference customer feedback loop



View more presentations from dongrunt.

Here are the highlights from the rest of the conference:

• Best quote: "According to John Hopkins, here is what people are thinking about during presentations like this. 10% of you are paying attention to what I say. 20% of you are surfing the web on your phone. 70% of you are thinking about sexual fantasies. That means, no matter what I say, 70% of you are going to have a great time during my talk."
• Second best quote from the marketing director of a plan that serves Medicare and Medicaid: "According to state statistics, our company's customers represent 5 of the 10 poorest, unhealthiest, fattest, laziest, and least educated, people in America. But it's home."
• If anyone in insurance is looking for a group to test the strategy of doing absolutely nothing to respond to external market changes, the Medicare Supplement or Medigap insurance business provides an excellent example. The speaker for Medicare Supplement shared all the times that industry analysts thought the Medicare Supplement business was over due to external changes. The business didn't change tactics and luckily, neither did its customers. When I asked how the speaker would respond to an external threat that I identified in the northwest (providers no longer accepting original Medicare), his response was, "Oh yeah? We'll see."
• The average conference attendee composition is 66% vendors who are trying to sell services to 33% of the other attendees. As I learned previously, 70% of each groups are spending most of their time thinking about sexual fantasies.

Death's Door Bandit; A Sad Tale about the US Health Care System

An elderly gentleman walked into a bank and indicated to the teller that he had a weapon. The teller was convinced enough about the danger or nauseated enough by his ear hair that they considered the threat to be serious. Before anyone handed him the money, the gentleman collapsed into a chair and had a heart attack.

This turned out to be an actual lucky turn of events for our ear haired protagonist because he had robbed the bank to get money to pay for health care. Due to a 1976 US Supreme Court decision, it is considered cruel and unusual punishment for a prison not to provide health care. Since the elderly gentleman was now in the prison system, he got the medical care that he needed.

However, there is a plot twist for the Death's Door bandit (This is a better term than the Ear Haired Bandit. I don't know if he had ear hair or not but if he is over 65, it's safe to assume that he did. The Bleeding Heart bandit is also an option). Readers may be wondering if the Death's Door bandit (DDB) was old enough to qualify for Medicare, the health insurance scheme for senior citizens. Not only was he eligible for Medicare but also Medicaid, the health insurance scheme for the low income! In case anyone is wondering, why I am calling Medicare and Medicaid a scheme, it is because I am imitating the Economist who uses that terminology. If you read it with a British accent, it sounds much more regal.

DDB is getting his health care paid for by the prison system but could also get his health care paid for by Medicare and Medicaid. He will no longer need to rob banks for health care so this story appears to have a happy ending. But wait, this scheme has a plot twist!

Heart attacks and medical care for senior citizens whose physical and mental status has decompensated to the point that they don't even realize that they qualify for basic government programs is not cheap. It's costly enough that administrators for the prison health system and Medicare and Medicaid started to pay attention. Both administrators took the high road and began to maneuver to try and stick the other one with DDB's medical bill. Medicare and Medicaid administrators want DDB to stay in jail so the prison will pay for his health care while the prison administrators wants to release DDB so Medicare and Medicaid will pay for his health care. The justice system is caught in the middle.

Only in America. Our health system must rank number one in something for this scenario.

Full disclosure: This is a true story. Names and details would have been changed to protect the innocent, except there are no innocent in this story.
Full disclaimer: I don't know the difference between disclosure or disclaimer.

Are ACO's DOA?

A lot of people have been staking the future of health care on the idea of Accountable Care Organizations (ACO's). President Obama thinks they will reduce health care costs, providers have been reorganizing to take advantage of the opportunity, and bloggers have praised them. Even the event planning industry loves them as it has spawned a whole new line of conference opportunities.

To those who have not been following the ACO's like fantasy league baseball owners follow spring training, an ACO is an old idea that aligns the financial incentives of providers and payers. It provides a global budget for managing the care for Medicare beneficiaries. This rewards providers for efficient health care or keeping patients healthy rather than lots of invasive procedures. Medicare projects that it will save $510 million over a 2 year period. However, the release of the proposed ACO rules by Center for Medicare and Medicaid (CMS) at the end of the March had the same effect on the party as urine in the punch bowl. Or as my blog title foreshadows, it's like Weekend at Bernie's 2 where providers realize that participating in an ACO is like partying with a dead guy. It's a lot of work, not a lot of fun, and starts to smell after a while. In summary:

Lots of work: To participate in an ACO, providers will need more reporting, IT systems, have to develop some insurance functions, and build up the infrastructure to better track patients health. This is not unexpected and was part of the ROI analysis. What pushes the amount of work over the edge is the governance requirement. There must be a separate Board of Directors that runs the ACO that includes patient representation. This is a common aspect of Federally Qualified Health Centers and also the most challenging requirement to meet. Creating a separate governance board with complete control removes a lot of control from the providers who are launching a new venture. It's not easy to give up control of something that requires this much investment.

Not a lot of fun: The fun in ACO's was the opportunity to get paid more treating Medicare beneficiaries through shared savings compared to a benchmark. However, CMS took away the fun or opportunity to make more money by doing the following:

• The benchmark or cost target that providers have to beat to make additional money is the current Medicare benchmark for the geographic area. For providers in the Northwest where benchmarks are very low because they are historically low cost areas, that means limited opportunity. For providers in Texas and Florida, where the benchmarks are very high because these are expensive areas, there is opportunity. However, these providers get paid enough by Medicare already so there is not the incentive. In other words, providers that are well-organized and poised to form an ACO have little room to get additional money. The wide variation in geographic payment for Medicare has been a continual problem and removes a lot of incentive from the ACO.
  
• CMS also keeps the first 2% of any savings. Therefore, providers have to lower costs by greater than 2% in order to get additional payment. Or yet another barrier to participation. That's like having to watch Weekend at Bernie's 2 before you get to watch the first one or just turn off the TV.

Smelling like a corpse: Given the current structure, there is a risk that no provider group will apply to the ACO's. The current rules went over like a fart in a spacesuit to the 10 provider groups that participated in the original Physician Group Practice demo. If those provider groups who are the most likely to be successful aka make additional money in this model don't participate, who will? This would be a large blow to the Obama administration's vision of designing a more efficient health care system.

Hope or Yes we Can: It's too easy to write a critical blog post about how a new idea in health care might not work. Any blogger who writes such a critical post should either balance it out with a solution or some really good colonoscopy or animal husbandry jokes. Since I don't have any new jokes, I'll pick the solution option.

Despite the fact that CMS has made participation in an ACO as appealing as a colonoscopy, this model represents the best solution to the US health care system. The fee for service model has proven to be unsustainable. Others besides CMS, like large employers or unions will start to demand this type of model from insurance companies and provider groups. While the revenue opportunities in an ACO are not good, there are not any better revenue opportunities elsewhere. Provider groups can no longer compare opportunities to today's payment but should compare it to the future payment opportunities. Provider groups who can organize under an ACO structure and lower health care costs will be more viable in the future. Those who cannot and expect to continue to be paid at today's levels will become just like the main character/corpse in Weekend at Bernie's.

Provider groups best option is still the ACO model. If CMS can't develop a good structure, that presents the opportunity for the health care industry to develop its own.

My Predictions for the Health Care Industry in 2011

It's the holiday season which means it's time for holiday parties, left over money in the company budget is blown on work parties, lots of food, plenty of excuses to drink alcohol, and lots of nostalgia. For bloggers, this means guaranteed blog topics either in a form of 1) a review of the year that was or 2) predictions for the next year. I have a tradition of making conservative predictions. Last year there was a trend for bloggers to dismiss predictions as so last year and boldly proclaim that no one can predict the future. Really? Is that the best that you can do? Are you going to tell me that bears poop in the woods (and wipe their butts on the the rabbits) and "refudiate" isn't really a word?

With that introductions, my non-refudiable 2011 health industry predictions are:

1. Hospital Executives will be the next set of CEO's to be hauled in front of Congress: and struggle to take their inquisitors seriously. I mean it's probably tough not to laugh at the histrionics of some of the members of Congress, let alone not stare at Henry Waxman since he's so funny-looking. Or want to ask Dennis Kucinich if he wants to sit on your lap and tell you what he wants for Christmas.

However, hospital executives will have to practice refraining their giggles as recent articles have pointed out how some hospitals are so dominant that they can paid above market rates by insurance companies. Another article pointed out that California inpatients hospital costs have increased 150% (or 11% annually) since 2000. The best defense that hospital executives could muster in response to these articles was "the data must be flawed." That's not much better than a response of "So's your face." Hospital costs (and accompanying specialists) make up at least half the health care dollar and are growing too fast not to be identified as key driver of runaway health care costs. While the insurance companies have received the most public scrutiny this year, next year it will be on like Donkey Kong for hospitals.

2. Despite state budget woes, Medicaid will continue to grows: I wanted to pick a word that rhymed with woes and couldn't figure out how to use toes. Since 2007, the number of Medicaid recipients has grown 16% nation-wide to 50 million. In Oregon, it's grown 25% in the last year. This growth doesn't even include the projected 16 million new Medicaid enrollees in 2014. This isn't going to change in 2011 since the states are getting larger matching funds from the federal government. Every $1 the state spends brings $1.60 from the federal government. Medicaid is still one of the best ways to arouse, er no, stimulate a state economy.

3. Everyone gets more comfortable with Medicare Advantage: Despite becoming the ginger-headed step child of government programs, a lot of reform provisions are borrowed from Medicare Advantage. Risk adjustment based on health conditions in the Exchanges is from Medicare Advantage. Open Enrollment periods are being used for individual insurance for those under 19 years of age. Currently, seniors are in the middle of the November 15th-December 31st Annual Election Period for Medicare Advantage. One of the crankier bloggers who doesn't like health reform (or much of anything) sees open enrollments as good replacement for an individual mandate that will likely be challenged in the Supreme Court. The senior citizen model for health insurance is quickly becoming the market norm under health reform only with slightly better shoes and a mobile phone app.

4. Health Care Costs will actually decline: Earlier in the year, there was discussion of reduction in the Pentagon budget. What they really mean was not an actual budget cut but the budget just wouldn't increase as much as it typically did. Rather than an increase of 3% in the budget, the increase would only be 1%. Until Robert Gates took a dump in the punch bowl and announced that there would be an actual budget cut complete with negative numbers.

This situation was pretty similar to health care costs where the holy grail was an increase that merely matched inflation. This may be the year that we see an actual cut. The money that insurance companies are inhaling from businesses like a frat guy sucks on a bong is about to get bogarted. The canary in the West Virginia coal mine was the Connecticut's Insurance division rejection of Anthem's 20% rate increase for individual plans and a counter offer of 0%. The rejection of rate increases is likely to become more common. Providers are likely to get similar treatment if the "budget" or health insurance revenues are frozen like a Siberian winter.

For the record, Senator Lieberman expressed disappointment at the Connecticut Insurance Division's decision because he saw a great opportunity to be a dick wad.

5. There will be more consolidation in the health care industry. This prediction is to absolutely guarantee that I get one of these right. Predicting consolidation is as safe as predicting that your human resource department will do something aggravating. There has been annual consolidation in every industry from health insurance to Thai food carts since the 12 tribes of ancient Israel were consolidated in 10. Even ancient Hebrews understood economies of scale and market power.

Moving Away from a Middle Finger Relationship in Health Reform

During one of the many webinar's on health reform where I was multi-tasking (or looking at youtube videos of water skiing squirrels), there was a presentation on the evolution of the relationship between insurance companies and regulators. The speaker described it as an arm's length relationship that needed to move towards a hand shake or hug for the industry to be more successful. I disagree with this. The relationship is not currently arm's length but rather a middle finger relationship that may involve orifices shortly. The worst part is that the Obama administration has a model in place that could move the insurance industry and regulators to a friendlier position.

Health and Human Services Secretary and prominent middle finger extender, Kathleen Sebelius, fired off a statement last week accusing the insurance industry of blaming health reform for a 1%-9% increase in prices. Sebelius felt the price increase attributed to health reform should only be 2% at the most. The insurance industry pointed out that removing maximums on lifetime benefits, making preventive services like colonoscopies free for everyone, requiring that children under 19 never be denied insurance, and other provisions are not going to make insurance any cheaper and defended their numbers.

Implied was that insurance companies should reduce their profit margins which average 3%. While that is reasonable (and expected given the current viewpoint that the only difference between insurance companies and a horde of pillaging Vikings is that the insurance companies have moderately better personal hygiene), the insurance companies have been losing profit margin with other reform provisions. There are billions in new fees and a requirement that medical expenses be at least 80%-85% of revenues which has taken a few percent off profit margins already. Additionally, the reduction in Medicare Advantage payments will increase the cost that employers and individuals pay for insurance. Medicare Advantage was most of the profit margins for insurance companies the last few years.

Insurance companies are prepare to give the middle finger right back by refusing to participate in the coverage of all children under 19 by not offering individual insurance to any children at all. There has been some movements in that direction and it's increasing in my home state. Individual insurance covers 9% of all Americans and children make up around 1/3 of that group. Therefore, it's a very small line of business and insurance companies are signaling that they may leave it entirely rather than follow the new rules. Individual insurance may stop being sold to any child no matter how sick or how healthy as a result. I was initially surprised at the speed in which insurance companies deployed a nuclear option. However, given the Obama approach towards the industry, it's not like insurance executives were going to be invited to play pick up basketball anytime soon.

The state regulators are in no position to enforce rules as Sebelius has promised they would. In my state, the email around a proposed open enrollment period as a solution to this issue had the subject line, "Please disregard previous email, this is the correct version." If state regulators can't even send the right attachment with a very important email, they are not in a position for this volatile and tricky negotiation.

What makes this situation even more unfortunate is that the Obama administration has a way to avoid all these dueling middle fingers. That way is the much maligned Medicare Advantage program. This is the program that Obama has said doesn't work since it overpays insurance carriers since it pays 15% more than the federal government pays for traditional Medicare.

The private Medicare Advantage program used to be called Medicare + Choice and it paid 5% less than traditional Medicare. Not many insurance companies and only 7% of the seniors participated in it. I listened to a webinar with Tom Scully, former administrator of Medicare, where he explained that they needed to pay insurance plans more for participation. This increased payment did result in 25% of seniors participating and a lot more insurance companies. However, he agreed that 15% more was too much which is why Obama should have cut the payments (despite the impact on employer and individual insurance which I describe above). With the payment cuts, there are quality bonuses that plans can earn for demonstrating good customer service, medical management, and ensuring high quality care. To earn these bonuses, plans have to cover preventive services for free, pay 85% of revenue on medical expenses, and similar requirements as health reform. However, insurance plans are not fighting these provisions because of the Golden Rule. Medicare has all the gold so they make the rules. Insurance plans will be paid more for following these provisions and less if they do not.

This supports a future health insurance model of the government contracting with private insurance plans which is the current Medicare Advantage model. It's the simplest incentive plan in the planet. If the government controlled all payments for health insurance, insurance companies would have to follow the rules. There are no middle fingers given in Medicare Advantage. In fact, Tom Scully's advice for how insurance companies could form a successful relationship with Medicare regulators was:

"Suck up, suck up, and suck up some more. Take a nap, then suck up, suck up, and suck up again. Medicare likes working with good plans and doesn't like working with plans that don't follow the rules."

With Health Reform, the Obama Administration Needs to Learn to Keep its Enemies Closer

In October 2009, the Obama administration declared the insurance companies an enemy and began keeping them at arm's length (or really middle finger length). This move was triggered by the decision of the health insurance companies lobbying group, AHIP, commissioned a PricewaterhouseCoopers (PwC) report that forecasted significant increase in health insurance premiums and lack of affordability. This report was released shortly before Congress voted and PwC (why the lowercase w? What did waterhouse do?) shortly refuted AHIP's interpretation and how the methodology was applied.

Kathleen Sebelius of Health and Human Services returned the favor with a Wall Street Journal editorial that was released the day before Medicare Advantage bids were due. It's methodology was also not applied well and was also released too late for it to have an impact. Although, Sebelius could have extended the deadline for bid submission if she actually wanted something to be done. Like the PwC report, it was the equivalent of an abstinence lecture to a couple during their 6 month prenatal visit.

This WSJ editorial was not the first jab on the health insurance industry by Sebelius nor was it the least effective. The prize for the least effective was the angry letter to WellPoint that pretty much received a F#ck Off response from their CEO.

The Obama administration has tried to brawl with the insurance companies as part of is health reform strategy and given the AHIP PwC report, I can't blame them. However, I do blame the strategy. Providers and hospitals brawled with the health insurance companies in the 90's once providers got big enough to fight back. In California, Sutter Health System and California Blue Shield made some of the World Wrestling Foundation rivalries look tasteful in comparison. It was also about as effective as both lost their reputation and money over the stalemate. Through consolidation, providers and health insurance have become equally strong which has mostly higher payments to providers and higher insurance premiums for the country. Still licking wounds from their previous battle, these two were mistrustful and had no interest in learning each other's business. For example, with medical management, providers have missed the opportunity that insurance companies capitalized on with nurse case management programs. Insurance companies could learn from hospitals on how to develop better cooperative partnerships with physicians.

The Obama administration is fighting a 90's style battle with insurance companies. Like acid wash jeans, it's no longer fashionable and not yet retro cool (like leg warmers). Although most in health care thought that the insurance companies would lose influence as their business models were not sustainable, they are as powerful as ever. There is no reason to think that the Obama administration's battle would have a different outcome as doing the same thing but expecting a different outcome is the definition of insanity.

My recommendation is that the Obama administration keep a closer relationship with the insurance companies. There is much to learn about the insurance model that can be applied to populatio health or how to talk its beneficiaries. For example, insurance companies learned a long time ago not to send glossy 4 page full color material to seniors since they see it as a waste of money. Insurance companies could price out some of the Obama administration initiatives which will help address future claims of affordability. Simply, it's an Abraham Lincoln, Team of Rivals approach of staffing his cabinet with his enemies. It would represent a new approach to competing with the insurance companies since the current approach hasn't worked for anyone else.

Democrats: Missing the Point about Segmentation in the Medicare Advantage Market

I read a recent Government Accountability Organization (GAO) report about the Medicare Advantage market that Democrats are portraying as an example of private health plans "piling on extra costs to health seniors." Some readers might be shocked at the Democrats accusation. Some readers might be more shocked that I actually read a GAO reports.

The reports notes that healthier Medicare beneficiaries who buy less expensive, lower premium plans have higher out of pocket expenses for hospital visits, skilled nursing facility stays, and other services than seniors in poor health who buy more expensive plans. The Democrats feel that is evidence that "health care reform will protect Medicare beneficiaries from unscrupulous insurers". I feel that a better parallel for this example is to note that college seniors tend to buy cheaper alcohol when hanging out with their friends watching sports than they do when they're on a date with a woman they're trying to impress. There is a time when a case of Pabst Blue Ribbon will get you a fist bump and a time when a nice bottle of red wine will get you invited back to her place. Democrats are really missing the point of market segmentation.

With health insurance, you either pay more upfront in the form of a higher premium to minimize the risk of having to pay more if you get sick or you do the opposite. If you are sicker, you are probably more likely to buy better health insurance because you know that you are likely to use it. This GAO report describes this perfectly. Healthier seniors buy cheaper plans that have a higher copays and out of pocket costs for hospital services or skilled nursing facilities. The plans are cheaper because they cover less services and according to the report, the 43% in good health prefer those plans. For the 20% in poor health, they will pay more upfront in order to have lower costs when they are likely to enter the hospital.

To underscore this example of segmentation, 55% of the plans that seniors in good health chose, had fitness discount benefits. Only 28% of the of the plan that seniors in poor health chose had fitness discounts. In other words, a healthy senior would rather pay a lower premium for a plan with a fitness discount than one with a good hospital benefit that they are not likely to use.

I should stop acting indignant when political parties spin reports to support their point of view. It's like getting indignant when your cat doesn't listen to you. But I can get indignant when political parties seem to completely misunderstand the data or think so poorly of the average citizen that we believe their illogical point of view.

The most interesting question that the report helped address is whether it is worth it to pay more for a Medicare Advantage plan with richer benefits. When we buy insurance, we always wonder if we should we pay more for the lower deductible an our auto insurance or will we never use it?

The report noted that the average premium for a plan that a healthy senior chose was $24/month, for a moderately healthy senior it was $37/month, and $31/month for a senior in poor health. For seniors in poor health, this likely includes Special Needs Plans (SNP) which receive more money from Medicare so they charge lower premiums. They also have less healthy, low income members so are not a good comparable. The best comparison is the $24/month plan for a health senior and $37/month for the moderately health senior. The difference per year is $156.

The report indicates that for the plans that a healthy senior would select compared to a moderately healthy senior are:

• $97 more for a hospital stay for the plans a healthy senior would select
• $14 more for an inpatient psychiatric stay
• $60 more for a skilled nursing facility stay
• $320 more for renal dialysis for the year

It looks like the healthier seniors are saving money with their plan selection. If a healthy senior has a hospital stay and a skilled nursing facility stay in a given year, they will break even from their premium savings ($156 vs $157). Otherwise, they will be ahead financially.

From talking with seniors, they make very calculated decisions when selecting a Medicare plan. They literally take out a calculator, look at the premium difference and how much they project to spend in out of pocket costs for services they are likely to use. They don't rely on Democrats to protect them.

MediCAID for Everyone

The title of the post really is Medicaid for all not Medicare for all. The excitement level for all single payer advocates should drop a little bit. For the rest of the population who is trying to remember the difference between Medicaid and Medicare, Medicare is for seniors, pays doctors a little bit better, and is the non-stigmatized government health insurance. Medicaid is the ginger-headed step child that has to sleep in the boiler room when it comes to government programs.

I tracked an interesting set of comments from the Archimedes group list serve, an Oregon-based advocacy group started by former Oregon governor John Kitzhaber. It was a debate on whether Medicare or Medicaid should be the health insurance plan that should be turned in to the single payer system. There were some participants who had both insurances. Ultimately, they admitted that they didn't like Medicaid because it was less widely accept by providers but primarily due to the stigma associated with it. Not surprisingly, Medicaid for Everyone has a branding problem.

From a plan design perspective, Medicare for Everyone makes little sense. It's designed for seniors and thus covers a screening for aortic aneurysms but no annual check ups. It covers eye glasses that one gets following cataract surgery but no routine vision exams. It covers 3 pints of blood for transfusion but not maternity services. It's benefit design fits the non-senior population as well as Glee's Rachel Berry's skirts and general wardrobe fits her. Finally, the benefit design basically covers 80% of all services with no limit to out of pocket costs. That leaves the beneficiary with 20% of all medical costs that are covered with no cap.

From a care delivery perspective, Medicare is a fragmented payment fee for service system that had the least successful experience with disease management in US health care history. Lifemasters, a disease management company, went bankrupt trying to work with Medicare.

Medicaid typically operates in a capitated managed care environment. The benefit design focuses on preventive care, mental health services that most of its beneficiaries need, and even dental. It focuses on fixed copays and limited out of pocket exposure. A primary care provider is given the budget and control of the beneficiaries health care dollars to use appropriately. Most of the currently uninsured have more in common with your average Medicaid beneficiary than your average senior citizen. Thus, Medicaid is the most appropriate federal health plan design to use for a single payer system.

I touched upon the provider payment issue with Medicaid which is the main current barrier to a Medicaid for All campaign. It's more difficult to find providers to work with Medicaid beneficiaries because it pays so little. The capitated payments that it provides don't cover a lot of health care services so delivery systems usually lose money on Medicaid. However, with any business that is losing money, there are always 2 levers. The revenue lever and expense lever. Health care has focused on growing revenue for a long-time which is why it increases at the twice the rate of inflation.

Health Reform will shrink revenue for health care organizations. Medicare's physician payment needs to be cut 21% according to current laws and commercial insurance revenue is not going to grow at present rates. Medicaid payments for primary care actually are supposed to increase. The biggest factor is that number of people with Medicaid is forecasted by McKinsey Consulting to grow by 25% through 2016. Employer insurance is forecasted to remain flat or the same levels at 2010. Health care organizations that can thrive under a Medicaid level payment structure will thrive in a post-reform world. It will grow more than any other insurance market and refusing to accept its patients because the payment is too low is not going to be an option.

Instead health care organizations will have to learn to adjust their cost structure in order to be able to make money under a Medicaid level of revenue. That includes deciding where to invest money and where not to. The care delivery system to be built around the Medicaid patient does not have to be expensive since the primary care provider is king (or queen). Networks can be narrow and special partners and hospitals can be required to be on the same electronic record system, use the same disease registries, and follow other protocols as a requirement for payment from the capitated pool.

Providers and hospitals have been in an expensive war for commercial insured patients. However, the competition for the Medicaid market can be a much cheaper fight and can be most lucrative in a post health reform world.

Health Reform as a Stimulus for the Consulting Sector

Business school colleagues of mine who worked in consulting beforehand had a unique view of HIPAA or the Health Insurance Portability and Accountability Act. Former consultants remember this as the Consultant Employment Act as it resulted in a bonanza of new business as the health care industry scrambled to figure out how to understand and implement this legislation.

Health care is as retro as the fashion industry and tends to repeat itself every 20 years (the 80's capitation payment models and leg warmers are both back in fashion). The latest health reform act has unleashed another horde of consulting opportunities. Consulting firms offer to help understand the strategic opportunities in key provisions or how to treat mandated provisions as new product opportunities. Niches have been created for companies to enter as there will be more money available in Medicare's customer rating system or money to be lost based on hospital readmissions. Providers are trying to figure out how to become effective Accountable Care Organizations which is really Capitation 2.0 (where providers would accept a fixed dollar amount per patient and be in charge of managing all of their health care).

As always, there is the good, the bad, and the ugly with the snake oil that consultants or new niche companies are selling to help the health care industry swallow health reform.

The Good:
Accountable Care Organizations (ACO) represent the best opportunity for consultants: However, no one is really piling into this space since it won't hit until 2014 and it's going to be hard. The reason it's such a good opportunity for consultants is that few provider groups or insurance companies can accomplish this without an objective third party. The third party doesn't even have to be smart, just objective, because these companies are crossing into industries where they had traditionally combative relationship. It's like Sue Sylvester coaching the Glee club.

An ACO is the offspring if an insurance company and provider group mated. They provide population-based health care across a fixed budget and are in charge of managing health and costs. Some insurance companies have these payments models set up and they also called risk sharing. Basically an insurance company would approach a provider group with the following offer. The insurance company keeps 10% of the insurance premium for administration and expects to pay 80% of the premium to the provider group for medical costs. The two will split the remaining 10% if everything goes well. If all goes better than expected, they split the surplus and health care costs are worse than expected they share the loss. There is some stop gap in place for the provider groups.

The typical current payment model involves insurance companies trying to squeeze every last dollar from providers to control costs. Providers don't have enough data or experience with population health to know if 80% of the premium is appropriate or how much risk to put on the table. Their main lever is to increase their utilization to make more money. Both sides are extremely entrenched in their current business models. They have built infrastructure like hospital charge master systems that produce incomprehensible bills because a revenue management consultant configured them to maximize Medicare reimbursement by making the cost for all bed pans a prime number.

The US health care industry need armies of consultants to figure Accountable Care organizations. Or they can just contact the public health systems at every other industrial nation (and some emerging markets) that have figured this out already.

The Bad:
Still charging to tell everyone what they don't know: The Obama administration has only provided guidance on a few of the big changes that will happen in October. That is what has passed for news at most of the $279 webinaires that are being offered. In the rush for first mover advantage, firms are launching webinaires touting their expertise with the grand conclusion of "We still don't know more than we do know." That's kind of like expecting your probation officer to be excited that you didn't jaywalk during your drug-fueled weekend crime spree.

The Ugly:
Overstating market opportunities and not understanding the work to achieve it: Consultants are good at identifying strategic opportunities but bad at figuring out a way to actually implement them. Yes, that statement is not exactly at the same level as one of the Lost Season Finale explanation of the flash sideways, but health reform has only exacerbated this tendency.

For example, Medicare will start paying 4% more for plans that receive 4 or more stars for their overall customer service rating. 23% of Medicare plans have a 4 star rating so there's lots of insurance plans who could use this revenue boost. That 4% more can mean an additional $25-$30 per month per member or $300-$360 per year or $3-$3.6 million per year for 10,000 members. Three million dollars can buy a lot of customer service staff to improve that rating which is why consulting companies are promoting this opportunity. In theory, an insurance plan can hit the Medicare reimbursement jack pot by hiring some staff to call Medicare members on their birthday or asking them how their doctor office visit went.

They have no idea if these calls are going to be considered welcoming or creepy to your average senior. They don't know how many customer service staff should be allocated or if there is another service issue that is causing problems. There are probably no proven methods to actually improve the Medicare star rating. No one has looked at this before because Medicare enrollees don't seem to care about the star rating.

All that is known is that there is a $3 million opportunity that can be achieved for far smaller costs. If consulting firms sell a few proposals, than they quickly advertise themselves as subject matter experts or even better, share best practices. Which is why this round of health reform can be called The Consultant Stimulus Package.

Medicare is Teaching Private Health Plans about Free Market Principles

I never thought that I would write a title about the Center for Medicare and Medicaid Services (CMS) is teaching private health plans about free market principles. I shouldn't be surprised considering how our current president has captured the merchandising opportunity that passing health care legislation presented. My sister bought me a T shirt from Obama's store that immortalized Joe Biden's reference that health care reform is a big f#cking deal. After seeing the Obama store, I don't see how anyone can accuse Obama of being a socialist. That's like accusing Dick Cheny of being nice.

Back to Medicare's venture into capitalism. They recently issued a memo announcing that if a health plan has multiple Medicare Advantage plan designs, there must be a significant difference the total out of pocket costs for a member. Medicare analyzed utilization for 15,000 Medicare members to come up with the significant cost difference at $20 per month between 2 plans that a company offers. Therefore, if a plan has 2 different Medicare Advantage plans (in the same category like both HMO or both PPO), than the member's copays, coinsurance and other costs must have greater than a $20 per month difference.

This is good old fashioned proper product segmentation. Good product design will result in plans that appeal to different segments based on how much they want to spend and the difference in benefit design. If plan sells 2 HMO plans and the only difference is the color of the brochures and $500 in hospital visit copays, that's poor product development. That's like selling cars whose only difference is the size of their spoiler. Or breeding yak whose only difference is whether there fur turns into dread locks (I haven't made an animal husbandry joke in a while). Those are 2 overlapping plans and the insurance company should have the good sense to terminate one of those plans or change it. They appeal to the same segment of customers and offer no significant choice or benefit.

However, private insurance plans have not done that themselves which is why Medicare has stepped in with a good lesson on proper product segmentation. In the early wild west of the Medicare Modernization gold rush, health plans through some plans on the wall just to see what stuck. Some ideas didn't work and it's the private plans fault for not correcting their portfolio on their own.

Let S/he Who Has Not Sinned Decide who are the Deserving Poor

I recently read a blog post from one of the few libertarian bloggers, Milena, that doesn't cause me to sputter like Daffy Duck at my computer screen. It was about one of this country's favorite topics which is, who are the deserving poor and who are the undeserving poor? Whenever there is talk of expanding a safety net benefit like unemployment insurance, food stamps, or something really crazy like health insurance expansion, the following proclamations are issued:

• These people live a lifestyle of luxury on $400/month! When you give people just enough money to not starve or be homeless, they have no incentive to ever get a job!
  
• I know an obese person on food stamps who eats junk food all day! They should only let people on food stamps eat vegetables and drink skim milk!
• I have a job with health insurance! Why should people without jobs have health insurance! They clearly must f#cked something up if they don't have a job with health insurance!

Milena's blog post connects the food stamp program with artists and uses that angle to examine the government support/subsidization of art. The idea of using safety net programs for a specific field is an interesting concept. However, the idea of asking who deserves access to these programs is not as interesting.

One of the few things that I learned in social work school is that the country's safety net programs were set up very differently if the recipients were thought to be deserving poor compared to undeserving poor. Medicare and Social Security were for the deserving poor, or elderly who had spent their lives contributing to society and needed a retirement program that didn't involve being broke and slowly dying in a hospital. The enrollment process is very easy. Turn 65 or 62 and the government signs you up automatically.

Thanks to the National Kidney Lobby, if you have End Stage Renal Disease, you are also deserving poor. You automatically get signed up for Medicare health insurance if are diagnosed with the disease no matter how old you are. However, if you have tuberculosis and can't work, it's too bad so sad.

If you need cash assistance from the state or want to qualify for Medicaid health insurance, the enrollment process alone makes it very clear that these are for the undeserving poor. It requires extensive documentation to overcome the assumption that you are not spending extensive amounts of time and effort to cheat the government out of approximately $400-$600/month. If someone was skillful enough to defraud a government assistance program, they would use those talents on a much higher scale and defraud the private sector of millions.

What about Ronald Regan's welfare queen who had "eighty names and 12 social security cards" to defraud safety net and government assistance programs of $150,000/year? She was never proven to exist. There was a story about a woman who managed to defraud welfare programs for $8,000 with 4 aliases before being arrested. As I had said before, it's really hard to defraud government assistance programs for a large amount of money without getting caught. If Regan's welfare queen was as good as he claimed, she would find more lucrative opportunities.

As a result of dividing the poor into deserving or undeserving, we create extremely inefficient safety net programs. Programs spend money on more administrative aspects, create additional bureaucracy, probably deny assistance to beneficiaries who should receive it, and operate a program based on the exception rather than the norm.

If I were president and could force Congress- no, that's not realistic. The president can't even force Congress to be polite during his speeches. If I had enough weapons and bombs and barricaded Congress in a building, here are the 2 choices that I would give them to reform our safety net and assistance programs:

1. Create a program that follows 90% of behavior and assume that all poor are deserving: If someone's income or disease state prevents them from supporting themselves, simply allow access to entitlement programs. Being on these programs is not a life of luxury so 90% of all applicants are not trying to defraud the system but simply need help. There will probably be enough savings from removing the extensive application and review process to expand programs somewhat.

2. Assume all poor are not deserving and end the programs: Let the exceptions rule and just end assistance programs that are a charade or promise of assistance. For those who don't want to subsidize health insurance, then let's end the Emergency Medical Treatment and Active Labor Act (EMTALA), also known as not letting hospital emergency rooms deny treatment based on ability to pay. Why start paying for services when someone collapses on an emergency room floor from a very treatable chronic disease but refuse to pay for the doctor office visit to prevent it? That is completely economically inefficient and still fairly heartless. For the libertarians, let's just be heartless but at least be fiscally consistent.

How I Learned to Stop Worrying and Love Health Reform

The evolution of my posts on health reform have been a Dr. Strangelove tale of "how I learned to stop worrying and love health reform." Initially, I called it health insurance reform when the Obama administration was just resorting to changing the most egregious insurance practices. Later, I called it plain health reform when the focus was expanded to the rest of the health care system. Actual health care reform will come later when we address the unsustainable practice of paying providers for volume rather than outcomes.

I have not done a complete analysis of the bill. I just came back from California and am still recovering from my In-N-Out animal style burger feast. There's also the NCAA college basketball tournament where I now have no regrets that I didn't fill out a bracket due to all the upsets. However, the passage of this House bill and improvement in some provisions might have been the biggest upset of the weekend.

To reiterate, the bill is not a government takeover, socialism, or a case of dictators not doctors. I do love how the right manages to accuse the Obama administration of socialism and fascism at the exact same time. In its simplest forms, the bill simply requires everyone to have insurance and forbids insurance companies from denying insurance to anyone. To pay for it, the Medicare payroll tax is raised on the wealthy, some high end or Cadillac plans (although this provision was gutted like the Kansas Jayhawks basketball team) lose their antiquated tax exemption, and health care companies pay more as an entry fee to being 1/6th of the American economy.

You can find a good summary here. Here are the new provisions that got me excited:

1. Primary care doctors will get paid more by Medicaid: Medicaid payments to primary care physicians and pediatricians will be increased to the same payment levels as Medicare. Keep in mind, that's not all doctors but just the primary care physicians. Primary care is finally getting the respect that it deserves. At med school reunions, they can start to make fun of urologists who sold out by making a career choice to look at penises all day.

Given there are complaints about how little Medicare pays, you can imagine how little Medicaid must pay if it needed to be raised to Medicare levels. Since Medicaid will be expanded to cover more people, doctors needed to be paid higher than current levels. This will dramatically increase the odds of a Medicaid beneficiary being able to get a doctor's appointment before 2014. This provision was so logical that even the Republicans thought that it was a good idea and they weren't even paying attention.

2. Medicare Advantage payments are getting fair: Seniors sacrifice in health reform was the loss of benefits for those with Medicare Advantage plans. However, not all seniors were treated equally. Health plans received 50% more money from the government to offer Medicare Advantage plans to seniors in Florida than to seniors in Oregon. As a result, seniors in Oregon did not have access to the same level of benefits. Nor did they have access to the same level of providers who are also paid less in Oregon than in Florida for services. These are the results of antiquated payment methodologies. This bill works to correct that by paying 5% less to Florida Medicare Advantage plans and 15% more to Oregon Medicare Advantage plans. There will still be hair cuts in overall payments but Oregon will just get a trim while Florida gets the mohawk that its needed for a long time.

Overall, there will still be cuts to Medicare Advantage plans but the party had to stop eventually.

3. Congress is starting to understand the importance of the mandate to purchase insurance: If no one can be denied insurance coverage, than everyone needs to purchase insurance to keep costs from blowing up like most people's NCAA tournament brackets. In previous versions, the penalty for not buying insurance was so low, that people would probably ignore the mandate. This is like removing one leg on a stool with 3 legs. Individual mandates goes together with no denials for coverage like peanut butter goes with chocolate, like Batman and Robin, like child movies stars and drug overdoses. I think that you get the idea.

The penalty for not buying insurance was increased slightly, from $695 to $750 in one version of the penalty. That increase is probably too small to actually change behavior so that's why I'm celebrating that Congress is starting to understand. They haven't quite fixed it.

4. Death Panels for our grandparents and more money for abortions for babies! You betcha! Actually, no. No cross generational jihad was ever really planned but some folks who had no actual ideas for health reform needed something to talk about.

There will be some unanticipated consequences, of course. That's the fun part of looking at legislation, kind of like trying to guess which #3 seed in the NCAA tournament will lose in the first round.

For example, the improvement of the individual market and penalties on large employers (those with 50 or more employees) who don't provide affordable insurance will probably result in employer dropping coverage. They may give employees some extra money in their flexible spending accounts to go buy insurance on the open market. However, that is not a terrible consequence as employers who are uninterested in offering health insurance or can't really afford it, can get out of the health insurance business.

The doughnut hole in the Medicare prescription drug plan will likely be filled. I always thought the doughnut hole was an elegant benefit design that was unfairly attacked. It simply provides a powerful incentive to slow down on the prescription drugs use. However, if someone really needs all that Viagra, there is a catastrophic cap after the beneficiary has spent a certain amount of money for their erections. It provides an incentive to limit utilization and a cap or protection for those who need it.

Wonkish analysis of geographic disparities in Medicare payments aside, this bill make the United State a more humane country. In 2014 when the provisions are all in place, we will no longer be a lay off away from not being access medical care. Also remember that desegregation was met with huge protests in its time.

Medicare understands Social Networking even Less than I Do

In the late 90's, I thought that the internet would only amount to a glorified yellow pages. In the early 00's, I wrote "Palm" on a small notebook and called it my Palm Pilot. The way that I would offer to "sync" or exchange contact info with others was to write my phone number in marker on a piece of paper in my "Palm Pilot", lick the other person's arm, and press the wet ink on their arm.

Needless to say, I am not the quickest adopter of new technology or even in the large part of the bell curve. I've written off Twitter after 1 tweet, tell social media marketers to shut up until they can show me the ROI, and have injured bystanders with a hard eyeball roll whenever anyone talks about video blogging.

However, compared to Medicare (the Centers for Medicare and Medicaid Services), I am an innovative early adopter. Medicare just released their guidelines for how Medicare Advantage plans cannot use social networking sites like Twitter or Facebook to communicate with seniors.

Not surprisingly, Medicare guidelines has an early 00's view of social networks and sees them as vehicles to push out marketing talking points. These guidelines are under the marketing section and prohibit plans from using "public interactive features" such as "chat, messaging, blogging, or wall discussions." Basically, they are prohibiting Medicare Advantage plans from using social networks to communicate despite the fact that the next wave of seniors is the largest growing segment of users of these tools. A social network site without interactive features is like a telephone that's not actually connected to the phone lines. It's a nice decorative piece but doesn't tell you much.

Even this Cromagnon cave man blogger has learned that social networking is not about the unsolicited pushing out of marketing messages to a community. It's about creating a dialogue, spreading information, and public discussions. It's a popular communication method that encourages transparency and allows participants to learn more about a company or insurance plan. It offers a variety of mediums like text, pictures, or video which can be helpful to an older population.

Medicare's reaction is ridiculous and disturbing on many levels. First, they show a lack of understanding about social networking by putting in the same category as direct mail. Second, their reaction is to block social networking or attempt to ban the use of it. However, the next generation of Medicare beneficiaries are heavy users of social networking so the agency looks pretty out of touch with the people that it is supposed to serve. Finally, this was supposed to be the year where Medicare starts to get innovative and look at new ways to do business. Instead, they attack an innovation with pitch forks and torches.

My critiques and attacks on social media have the goal of learning more about it and testing my arguments. Through this skeptical approach, I learn more and correct my misconceptions. With these published guidelines, Medicare is showing no curiousity nor interest in finding out the appropriateness of social networking. Senator Grassley may look foolish on Twitter but at least he tries. Looks like when it comes to social networking, Medicare makes a 76 year old looks like an innovator.

Medicare Advantage market: Not Dead Yet

I previously had posted that the Medicare Advantage (MA) HMO plans were the only ones likely to survive the 3.5%-4.5% cut in Medicare reimbursement from the federal government. From looking at the Pacific Northwest enrollment results from the Annual Election Period, it looks like the overall MA program is more resilient than I had thought. For background, Medicare Advantage is a program where the government contracts with private insurance companies to offer Medicare. The program has been down around for a few decades but payments to insurance companies were increased in 2006 to attract more participants. Obama likes to call these examples of programs that don't work so funds have been cut. When I hear that, I have to stifle the urge to tell Obama that his momma don't work right either but that never stopped me. I don't say that because I'm worried that Rahm Emanuel will find me.

Digressions about momma jokes and chief of staffs going medieval on me aside, Medicare Advantage enrollment in the Pacific Northwest grew 2% since last January despite average premium increases of 25% and benefit reductions. A PPO plan in Oregon increased its price from $121 to $176, reduced benefits, and gained market share. Another Oregon PPO plan tripled its price to $230 and only lost 50 members. Most HMO plans only had slight price increases and gained the most market share.

With a 25% increase in price, reduction in benefits, and examples that I described above, most did not initially expect the Medicare Advantage market to grow. I even changed my forecasting models to predict a 10% decrease in enrollment. As a result, my best job forecasting to date is still last year's NCAA college basketball tournament bracket where I predicted a North Carolina-Michigan State final. However, I predicted that Michigan State would win and lost the pool to someone's second grader.

This indicates that 1) Medicare beneficiaries still see the value in Medicare Advantage and consider it one of the better options and 2) Medicare Advantage plans were underpriced. With the second point, a 65 year old pays $110 Part B premium + $176 PPO plan above for a total of $286 per month. However, their plan has no deductible, the 65 year old pays $50 to go to the Emergency Room, nothing for an outpatient surgery or CAT scan, $10 to go to the doctor. A similar plan on the open market would probably cost $500 for a 30 year old.

It still remains to be seen if the Medicare Advantage market will survive planned 2011 reductions as well as future cuts. The growth in the market despite the 2010 reductions shows how the public values the program and it probably did not need all of the money from the federal government to remain attractive. These reductions will continue to be the seniors contribution towards health care reform. Given my forecasting skills, I am going to continue to predict doom and gloom for the Medicare Advantage in hopes that I am completely wrong again. I will also share my future NCAA college basketball brackets.

2010 Health Care Predictions

For those of who belong to religions where we think Jesus was just a really good carpenter, we have a lot of free time on Christmas Eve. Thus, this is a perfect time for my planned post on 2010 mostly health care predictions.

A year ago, I boldly predicted there would be a lot of talk about change but not much done. For the most part, I was right as we have not finalized the latest health care bills yet. However, I was wrong about no changes to the Medicare Advantage program. A reduction of payments resulted in benefit reductions, 25% average increase in premiums, and approximately 20% of plans exiting the market. Scrutiny increased significantly signaling that future insurance marketing will become even more highly regulated. When reform is fully implemented, it's likely all health plans will have the same templates for all documents explaining benefit plans. That's not a bad thing except for the fact that Medicare considers 33 pages to be a reasonable length for a benefit "summary". If that's a summary, you can imagine what the full book looks like. Health care reform may result in deforestation.

For 2010 predictions, I will continue to shoot down the middle:

1. Seniors finally realize what is happening to Medicare Advantage but don't riot: There will likely be additional cuts to revenue that Medicare Advantage pays health plans which will result in an average increase of $30 per month for seniors. The Republicans repeatedly raised this point to try and foment a senior rebellion but the Democrats countered by claiming that the only cuts would be to health plans' profits.

As Medicare beneficiaries realize the true impact, they will rise up and announce that they are still happy with the Medicare program. They don't need gold plated health plans and understand they are not immune to the health care increases.

2. No one else riots over the passage of health care reform either: Although opinion polls on the health care bills place it on the same satisfaction level as the latest straight to DVD version of American Pie (Does Eugene Levy need the money that badly?), Democrats will not be punished in the mid-term 2010 elections. As the incumbent party, they will lose some seats.

However, the public will better understand the benefits that they got from the health care bill and forgive its shortcomings. I also realized that the Republicans won't get punished for spending most of the debate playing Sudoku. Republicans always oppose new social benefit programs just like they did with Medicare in 1965. I think that it's part of the oath that they take when they join the party.

3. Health Insurance Reform Passes! In other bold predictions, we still don't resolve the question of whether people to drink Miller Lite because it tastes great or is less filling. Congress will produce one bill that passes. It's major provisions will start earlier, in 2013, to realize benefits sooner. There will be no Public Option plan.

4. The Health Care Construction Boom is over: Architects bemoan the loss of one of their more lucrative lines of business. The restrictions on health insurance will reduce the amount of money in health care. There is now only enough to money to pay for the Boomers hospital stays in the existing supply of beds. The next boom will be in technology that keeps patients out of hospitals and doctor's offices since space and supply won't increase.

5. State start working on their own health care reform: We saw the federal government's best effort with health care reform. While admirable, it's kind of like the best effort of whoever is playing quarterback for the Chicago Bears. It fell short. The states will stop waiting for the federal government for solutions and start designing their own. This will make health care even more local and regional which will hurt national plans. However, it will represent the best chance for true heath. care. reform.

6. We finally learn how to pronounce 2010: People who call it Oh-10 will be viewed in the same light as those who think global warming is caused by polar bear farts. Aught 10 is too awkward. Ten will work just fine.

The Time to Hate Health Care Reform is Over

It's easy to find something to criticize about the House and Senate health care reform proposals. They either cover too much abortion or too little. There are too many taxes on health insurance companies or there is too much new business and giveaways for them. Cost containment is either not taken seriously or a single payer system is not taken seriously.

The names of the legislation don't produce exciting acronyms. The House's Affordable Health Care for America Act would be AHCAA and the Senate's Patient Protection and Affordable Care Act is PPACA. What about Health Entitlement and Affordable Reform Treatise or HEART? The opposition could offer Healthy American Treatment and Empowerment or HATE?

Would COBRA (the option to keep your former employer's health insurance if you pay for it) still be around if it were called HMGPH instead of being named for GI Joe's archenemy?

The time to hate is over. The status quo is not a sustainable option and Congress has made more progress with health care reform than the last 40 years combined. As reform ticks closer, it's time to shape the solution rather than point out the flaws. If you can't be with one you love, love the one you're with. Republican Party, are you listening or do you enjoy being irrelevant?

I have criticized a national blogger for only pointing out the problems. Pointing out problems is easy blog fodder that can be written while sitting on the toilet. With this post, I plan to stake out my ideas for 1) the current proposals and 2) my ideal health care solution.

1. The current proposals: A health care reform proposal that will realistically pass will reshape the current system. Health care is a complex system that will take decades of tinkering since not all the parties in government take it seriously. The health care system also can't take a month off to reboot. Therefore, it is not realistic to expect a dramatic shift to single payer or another country's model.

With those very real constraints, I have to say that I agree with most of the current health insurance reform proposals. They shift money around from those with lots of insurance to those with none. That's the basic concept of insurance. They try to create rules to encourage good behavior. There is the hint of cost containment with an independent body that will make recommendations for Medicare that Congress must accept or reject as is. No horse trading, smoky rooms, or ear marks. Here's what I would change:

• A real individual mandate: For health insurance to really work, everyone has to participate. The basic concept of insurance means that everyone has to pay into it, even if you might not use it. There needs to be a real penalty for not buying health insurance. The House's 2.5% of income is getting there. The Senate's penalties are closer to what you would pay for marijuana possession and last I heard, that's being mostly decriminalized.


• Stop Medicare geographic discrimination: Original Medicare pays providers differently based on geography. That payment methodology is mostly based on how much is being currently spent so frugal regions receive less money. That means providers are paid less and less likely to accept Medicare patients. That's geographic discrimination as seniors in Florida get twice as many health care dollars and access to more providers than seniors in other states.


• Don't mandate gold plated health plans: Congress is passing various mandates for health insurance plans such as lower deductibles, out of pocket maximums (which is the most that someone would have to pay in a year for health insurance), and preventive services for no cost. These are fairly expensive, comprehensive plans that will continue to shield the consumer from the real cost of health care. These mandated benefits could very well reach the levels of gold plated or cadillac plans which would cost someone (usually the employer) $8,000 per year, that the Senate is proposing to tax. These mandates are moving towards providing more insurance than is necessary. It's kind of like offering a buffet and hoping people don't overeat.

2. My ideal health care solution follows the US educational system or Germany.

There is a baseline government funded level of benefits. Medicaid and Medicare are dissolved except to provide subsidies for those with low income. The baseline level is determined using the same methodology as the Oregon Health Plan. A budget is set that would be a certain percent of GDP. Medical services are ranked, cost is estimated, and when the budget is used up, no more services are covered. Just like public school, everyone gets reading, writing, and math covered but if there's not money for art, music, or playground equipment, it may not be covered.
Everyone who offers a healthcare service from doctors to durable medical equipement has to fully participate. The role of this baseline plan is to prevent startvation but not provide an all you can eat buffet.

The private sector can still compete to offer more: The rest of medical services or art, music, and playground equipment or fancy private schools with uniforms and SAT preparation can be offered by employers to attract workers and insurance companies to sell fancy new insurance policies. Providers can offer services to attract those who have these plans and fight it out with insurance companies on how much they can get paid. The competition of the free markets can be unleashed without casualities.

Review of the House Health Care Bill, Affordable Health Care for America

My review of the Affordable Health Care for America Act, HR 3962, is based on 2 key aspects. First, it's a health insurance reform bill, not health care bill reform. The prevailing mood around reform has been that if we just get everyone insured, we'll win. Insurance reform is not time for a victory lap but rather a quick pit stop to prepare for the hard work of cost containment. I am making the big assumption that government will address health care costs after addressing coverage. This strategy worked for the creation of Medicare as Lyndon Johson knew that he could never show Medicare would pay for itself initially. Instead he focused on creating the need and for better or worse, let future governments work on the financial viability.

Second, our current health care system is a mostly clogged artery that's waiting to burst. Taking the stairs instead of the elevator would be an improvement. Doing nothing is rapidly disappearing as a choice. That's why I found the Republican's decision to work on their Sudoku or their profiles on the new GOP social networking site to be so counterproductive. Their lack of interest made the narrow House vote less significant.

With those two caveats (and these caveats border on assumptions like Lindsey Lohan has finally gotten herself straightened out), I'll say that the House bill is not bad. Just like NCIS Los Angeles, I first found it to be unwatchable due to the complete lack of chemistry between the main parts. However, some role players have emerged and the writing has improved. While the Senate bill will dictate the final outcome, here's how I see the House bill using my trusted framework of the Good, the Bad, and the Ugly:


The Good:

• The House was somewhat serious about the individual mandate: Everyone is starting to understand that in order for insurance to really be affordable, everyone has to participate. The young, healthy, and good-looking have to pay for the old, sick, and ugly. The House bill has a penalty that is 2.5% of income. Considering there should be available health plans for 8% of income, that penalty should be enough to make most participate. One of the biggest problems with the Massachusetts reform was that the penalty was not significant for people to care given the cost of insurance. While I'm going to congratulate Congress for growing a pair, I'll at least offer a fist bump.


• The fact the Florida seniors get twice as much for Medicare was discussed: According to the >Huffington Post, there is a provision to study the geographic variation in the costs of health care or why it costs twice as much in Florida or McAllen, TX. I think the fact that some seniors receive twice as many health care dollars or that their doctors are paid enough to accept Medicare while others do not and are not is one of the least talked about injustices of our health care system. While I know commissioning a study is like forming a committee to address a problem, at least, it's getting discussed.


• It's an insurance reform bill: There is no great secret to paying for universal health care. It's always been a matter of requiring the Haves to contribute to the Have Not in some way to prevent people from gaming the system. The wealthy, health care companies, and employers will be taxed more. Seniors will receive lower Medicare benefits and individuals will have to pay or play. Whether this is considered to be socialism, communism, or paganism, it's just the basic concept of how you pay for insurance.
  

The Bad:

• There are no cost containment plans: Health insurance for everyone is going to be expensive and the government has had little success reducing costs. Medicare has had little to no success with disease management programs. No one in government has ever negotiated with drug companies or providers. Their only ideas around value-based benefit (value-based involves covering evidence-based services at little to no cost while charging more for services with questionable value) designs involve lower copays for preventive services. Private insurance companies figured that out 10 years ago. The government has had success with requiring providers to manage all care, including complications, for a set price (called DRGs). However, that's it and that's why I really hope that there is still the political fortitude to get serious about cost when the bills come. The bills will be about as pretty as lipstick on a pig.


• Seniors are going to be pissed: This bill will cut funding for Medicare Advantage which includes health plans that have been providing Medicare coverage for decades. This year, we have seen that a 4.5% revenue cut resulted in higher prices for Medicare Advantage by 25%, reduced benefits, and had plans already leave the business. Seniors were told not to worry about benefit cuts and that the doughut hole in the drug plans will be filled with this bill. By the way, the doughnut hole (after a certain level of coverage, seniors whose drug spending is around the 75th percentile will have to pay $1500 on their own, and then only have to pay 5% of drug costs in the catastrophic category. The $1500 they they pay on their own is the doughnut hole), is an example of a value-based design to promote better utilization of drugs. However, the government is running away from it in an effort to show seniors something bright, shiny, and new with Medicare. Taking money away from Medicare to fund the uninsured is probably a good use of the health care dollars, but no one has been that honest with the seniors. No, I did not expect politicians to be upfront with a key voting block about bad news, but this is an impressive bait and switch considering the cuts will wipe out the prescription drug program and its newly filled doughnut hole.
  

The Ugly:

• With this Public Plan Option, the government is going to start a brand new insurance company: A government-run health plan or the Public Plan was included in this bill but it requires that they negotiate with providers for fees and act like a regular insurance plans. I have written ad nauseum about how I think the Public Plan is a bad idea and the majority of the cost savings would come from paying providers lower rates. This Public Plan in the bill does not pay providers a lower fixed rate and the Congressional Budget Office notes that price for the Public Plan will be higher than comparable private plans. I have am image of dominant hospitals telling the Public Plan administrators the astronomical fees that they will have to pay them to make up for the fact that Medicare and Medicaid pay them too little. Next, the dominant hospital would tell them that they don't accept Medicare, don't accept Medicare, and where they can shove the Pubic Plan. The Public Plan has been a bigger distraction from the real issues than abortion or immigration.
  

If you're looking for more information or think I'm an idiot and want to hear other opinions, This American Life did an excellent job of explaining the key issues of the health care system that this bill does not address. Here's the more pessimistic view from an objective (but grumpy) health care insider or a slightly wonkish but accessible view.

The Early Results of Medicare Advantage Cuts or the HMO's Aren't Dead Yet

I thought of subtitling this post, "Forget the Death Panels, this is what Grandma Really Needs to Worry about," but let's leave grandma out of this. In April 2009, the Obama administration surprised Medicare Advantage plans by cutting the 2010 revenue they give to insurance plans by around 3-5%. Previous year the revenue increased by 3-5% and medical costs certainly aren't slowing down.

Medicare gives insurance plans $800-$1000 per member per month (depending on geography and health of the the members) to provide benefits, cover administrative costs, and make a profit. If the plan can cover all of those with that money, the member pays nothing. However, most plans do not cover all their costs and charge the member a monthly premium. While these revenue cuts were announced in April, we just saw the impact on October 1st which was the first day that insurance plans could reveal their 2010 plan info and premiums. The results already very clearly showed the impact of the cuts and more are expected to come in future years.

With these revenue cuts, Medicare Advantage product managers had only a few options which were 1) lower profit, 2) pay providers and hospitals less, 3) reduce benefits by increasing what the member has to pay for a service, 4) raise the price.

With regards to 1) profit, an insurance plan is happy with a 4% margin which is about matches the revenue cut. Most non-insurance folks would say, Problem solved, no profit for you this year. However, additional cuts are expected in the future years so even if an insurance company would operate Medicare at no profit, next year, they would operate at a loss. Okay, you can stop laughing at the idea of an insurance company not making any profit on a product line.

With 2), pay providers and hospitals less, I can hear providers laughing just as hard.

For the 2010 plans, that leaves 3) and 4) where grandma pays more for less- sorry, I said that I would leave her out of it. One article reports that nationally, monthly premium increased from $32 to $39. However, it's unknown how benefits were reduced. Given the sheer math involved, seniors will absorb some of that 3%-5% revenue cut which amounts to $25-$40 per month. Insurance companies will keep at least a 2% margin which is pretty much the margin of error for ensuring that they will at least breakeven. That leaves at least $10-$20 that will either be added to the monthly premium or reduced in benefits.

The interesting part is how the results played out differently across different types of plans. HMO's, PPO's, and Private Fee for Service (PFFS) plans had very different outcomes which could be called, the good, the bad, and the ugly.

The Good: HMOs: If you played a word association game with someone and said HMO, they would probably say cockroach. HMOs made up probably 90% of the Medicare Advantage market as most of them got started under the Medicare+Choice program in the 90's. In the past 5 years, they have steadily lost membership to PPO and PFFS plans.

However, HMO plans in my state had the lowest premium increases and virtually no benefit reductions with their 2010 plans. Their ability to coordinate care and partnership with a panel of physicians have proven to deliver efficient care. Maggie Mahar blogged about the value of Medicare Advantage HMO plans and how they deliver more benefits than traditional Medicare for the same cost (Any resemblance to the Don Grunt whose comments were cited in the article and the author of this blog are purely coincidental). Just like the cockroach, it look like Medicare Advantage HMO plans will be around for a long time.

The Bad: PPOs: Most seniors had a PPO plan prior to retiring, are familiar with it, and the membership in PPO plans has been rapidly growing. However, the PPO plans in my state had $20-$140 increase in premiums for 2010 in addition to significant benefit reductions. Some went old school and added a deductible which is usually only found in traditional Medicare. It looks like PPO plans are not able to coordinate care with their more open networks. Additionally, they don't have the relationship with physicians to get patient information to improve their risk scores. Insurance plans get paid more for less healthy members (called risk adjustment) but they need to demonstrate their health status to Medicare.
It looks like PPO plans will steadily become more expensive and offer less benefits as they were heavily impacted by the revenue cuts. Younger senior prefer PPO designs but we'll see if they will be able to survive on less money from Medicare.

The Ugly: PFFS plans: PFFS plans have no networks and were used as a vehicle to bring Medicare Advantage to rural areas where insurance plans can't contract with sufficient physicians. In that regards, they have been successful as rural seniors have access to options other than traditional Medicare. The ugly part came with their launch. Since they have no contractual arrangements with providers, they had no idea what they were, and refused to accept them. PFFS plans traditionally paid agents higher commissions than other plans so they were aggressive well sleezy about selling them.

With the Medicare revenue cuts, PFFS plans are already leaving the building. Toward the end of 2008, there were 2.3 million seniors in PFFS plans. Plans with 30% of that membership (667,000) have already stopped offering their plans even though PFFS plans aren't due to sunset until 2011. In short, their business model could not survive on lower Medicare revenue.