Whither the Health Insurance Broker Profession?

As the Mitt Romney would put it, "Creative destruction is about to hit the health insurance broker profession." As an average American would put it, "The health insurance broker profession is under a lot of stress and a lot of them might lose their jobs. Occupy might have a lot more marchers."

For those who have never interacted with a health insurance broker, they are also called agents or producers. Producers is a relatively new term that reminds me of farmer's markets but I guess that brokers thought it made them sound productive. They do pay attention to marketing as they also call their trade organization, the National Association of Health Underwriters, despite the fact that no health underwriters are actually members.

Besides coming up with clever names, brokers sell health insurance and are compensated by the insurance companies or health plans. The purchaser of the health insurance company does not pay brokers anything. Besides helping clients understand the insurance market, they do ensure that insurance companies receive the correct information about the groups or individuals and help enroll the client in the insurance company's system. This does save an employer group's human resource staff time. They will also advocate for clients who have difficulties with insurance companies. Brokers that work with very large employer groups call themselves consultants and can be paid by the client because they help them design their health insurance plans. For example, they might come up with a two for one colonoscopy provision to help encourage preventive services.

Why is the broker industry facing the wrath of the creative destruction of Romney and his merry band of private equity, hedge fund, and other exotic financiers? They don't charge clients for their services and keep insurance companies honest. The answer, as always, will appear as a series of bullet points:

• The Medical Loss Ratio requirement: Insurance companies now must pay 80%-85% of every dollar they receive on medical care. That leaves 15%-20% for profit and administration like paying brokers their approximately 8% commission. Broker commissions can be 10%-20% of the insurance company's administrative costs. It creates a very clear image of taking a dollar out of the insurance company's pocket and giving it to the broker. Now that administrative costs are a limited resource, insurance companies are starting to question their administrative expenses. Broker commissions are a large one. There was a movement in Congress to exempt broker commissions from the medical loss that is making slow progress through Congress. I assume that while brokers are good at coming up with creative and fun names, they must not have good as lobbyists as private equity firms. Well, their lobbyists are probably better than poor people who have the worst lobbyists.
• The Health Insurance Exchange: States are creating online websites called Exchanges that helps consumers by standardizing health plans to make comparison easier. In other words, they do the work of brokers. These Exchanges charge insurance companies a fee or commission to sell their plans on the Exchange just like brokers do. Are insurance companies going to pay two commissions to agents who are selling their plans? Probably not which is why brokers are rightfully concerned.
  
• Ability to act strategically: While the previous examples are external forces acting upon brokers, this 3rd point is self-inflicted. If brokers had an ability to act strategically, they could find a way to reposition their value proposition. Kind of like if Herman Cain could find a way to not act like a 70's porn star, he could have propositioned er I mean positioned himself differently. An example of my strategic thinking is that I make sure there is toilet paper in the bathroom before I position myself on the toilet seat. From talking with insurance brokers, I have learned that they are very tactical and tend not to think beyond the next sale. When a panel of insurance agents was asked about their approach to health reform, most talked about what they were going to do next week. When I ask brokers about advice for plan improvements, most say that if we added more features and lowered the price, they could sell more. When I press them and ask how much more they could sell, I realized they just mean it would be easier for them to sell our product if it sold itself.
• What's the value proposition? Is the broker profession doomed and going in the direction of mortgage brokers? No and yes. There will be less insurance brokers out there. However, a role can be carved out. Strategic insurance brokers (or brokers who make sure there is toilet paper in the bathroom) have changed their value proposition to demonstrate how they save health plans administrative costs. They can provide training to groups or other brokers on the impact of legislation so health plans don't have to. They answer questions to save time for health plan's customer service teams. They ensure the enrollment process is smooth to support health plan's billing and enrollment teams. Since their commission is paid out of the health plan's administrative budget, they are demonstrating their administrative savings. Strategic brokers are moving away from just being a distribution channel to an outsource customer service, training, and enrollment function.
  

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.

Be the Change that you can Abdicate to Others

Not quite the snappiest title like "Be the change that you see in the world" which is both a popular bumper sticker and looks good on the back of graduation T-shirts from social work programs. However, I like the word "abdicate" as much as I like the word "colonoscopy" and it's easier to spell.

The fact that I completely digressed before I even started writing the post is completely impressive, too. I can't even use "But I digress" as a transition. My point is that local governments are running away from making any difficult decisions in designing health care systems. Their lack of boldness is making Wisconsin governor Scott Walker's decision to declare war on organized labor look good because at least he made a decision and stuck to it.

The state of Oregon has provided some very fine recent examples of such abdication with their Medicaid program. Rather than make difficult, thoughtful decisions to guide the program, they throw half baked ideas to health plans and providers. They are:

1. Charge copays for services. The state gave the option to charge a $1 to $3 copay to non-Native American adults for prescription drugs and primary care. This was intended to reduce the amount of money that the state paid for services by passing on the costs to the Medicaid beneficiaries. However, trips to the emergency room were still no cost to the Medicaid beneficiary. In an effort to save money, the state made an incredibly poor benefit design decision and and as a bonus, set up in a way that was difficult to administer. Providers would have to figure out who they could collect $1 to $3 from and what to do if that individual did not have any money (like send them to the Emergency Room rather than give them their $4 generic prescription drugs).

Almost all the carriers decided not to implement this copay scheme and just take less money from the state. This is an example of a bad idea to save money that the state floated to health plans and providers. It went over like a lead zeppelin. This was an opportunity to have a serious discuss about benefit designs and what Medicaid beneficiaries should pay for and what they should not pay for. Incentives could have been developed to guide positive behavior and punish negative behavior. Instead, an administratively unwieldy option was offered to punish positive behavior. The end result was a waste of time.

2. Ask health plans what the reduction in Medicaid costs should be: Oregon is facing a budget shortfall and has stated that it plans to reduce Medicaid spending by 19%. Another option is increase the provider tax in order to get more federal matching funds and face a 10% to 12% reduction. Oregon also has a rule that its Medicaid spending must be actuarial sound. That means if they want to cut costs by 10%, or 12%, or 19%, then the health care services used should also be projected to reduced by that same amount. This also provides yet another example of how actuaries are guaranteed employment forever.

Oregon has proposed some good ideas to redesign their Medicaid system to achieve those savings. However, they don't think that they can achieve the savings this year. They are squandering a perfectly good crisis and asking health plans to come up with their own actuarial sound analysis of the lowest cost to provide health care services for Medicaid beneficiaries. In other words, they are asking health plans what the cut in spending should be. This is a crucial decision in Oregon's Medicaid program and they asking health plans to do their homework for them.

A budget cut is just a loss of services but a budget cut and a health care system redesign is an opportunity. Under health reform, states have more options available to transform their health care system with Xxchanges that will allow them more control over the health insurance market. There are "pay or play" options where carriers must participate in Medicaid or providing guaranteed issue to children or face a financial penalty. This is the opportunity for bold and difficult decisions for states to make that will change the lives of their most vulnerable citizens.

This is not the time to buy a vowel.

We need a Single Payer System like a Fish needs an XBox

I used to wear T-shirt that I got from a thrift store that said "It's time for Peace, Jerry Brown '92" while I drank from a water bottle with a Dennis Kucinich sticker. Yet, I don't see how a single payer system can be viable.

Here are the reasons that I hear from proponents of a single payer system:

1. It will provide health insurance for everyone and cover all services.
2. Insurance companies will no longer make huge profits and the money saved will cover health insurance for everyone, the national debt, and an Xbox for every fish.
3. It will make the health care system simpler and more efficient and the money saved will provide Guitar Hero III for every non-vertebrae.
4. It's easy to do, just expand Medicare to cover everyone.

Here are the problems:
1. Health Reform has been working towards preventing the denial of health insurance which is necessary to have a humane society. However, access to health insurance won't solve health care costs that exceed inflation. It won't create more primary care physicians or more care providers. It also won't address the approximstely 33% of the uninsured who make more than $50,000/year and refuse to buy auto insurance, wear motorcycle helmets, and still probably try to smoke on airplanes.

2. With a little extrapolation from this data of the large publicly traded health insurance companies, I see about $12-$15 billion in profits that can be seized. That would cover about 50,000 hip replacements which will probably be needed by the 50 million Baby Boomers or 12,500 very premature babies. In today's health care dollars, that's actually not a lot of money. Health insurance plans have an average profit margin of 3%. Some might argue that we should include money spent on marketing and CEO salaries. However, a single payer system will have to market to explain its system and have expenses developing a large enough system to cover the whole US. If I was feeling really snarky, I would counter that the likely rich benefit packages from unionized government workers would be about the same as large CEO salaries. If I was feeling less snarky, I would point out that $10 million in salaries is 1% of a billion dollar in revenue company so that savings opportunities is closer to 40 more hip replacements.

While ending the existance of evil health plans creates the same delight that one gets when their favorite team beats the New England Patriots, the money would cover the cost increases for the next few years at the most.

3. One claims system, one billing system, one benefit package, and one coverage system is very appealing. I have heard that it would eliminate provider administrative costs by 30%. Oregon had made movements towards consolidating its Medicaid carriers into one carrier per geographic region with this same argument. However, they pulled away because there were not necessarily carriers that could serve all the Medicaid beneficiaries in that region. Some carriers and provider groups that did service a particular county would be eliminated. That approach would award a monopoly to one group. That's the danger of the Highlander (In the end, there can only be one) approach. If one company controls an entire market with no competitors, how do we expect them to behave?

Health care is also very local and segmented both geographically and demographically. The east coast features large academic medical centers while the west coast features the integrated delivery systems while the south has entrants as new as most of its latest round of carpet baggers. In Oregon, you have to cover naturopathic medicine to be competitive while in Boston, you have to include the Partners Health Group.

Some individuals want alternative care covered, some can't afford their diabetic medications unless there is no cost share, and some want the cheapest plan possible and would rather pay 50% when they have to use services. It's not possible to create one universal benefit plan that would meet the needs of everyone and be affordable. Segmentation is a hallmark of successful business ventures. Trying to be all things to all people is a recipe for failure. The banking system and telephone lines lends itself towards a national model. Most other services lend themselves to a state wide model at best.

Creating this simplicity would entail a lot of sacrifice of personal choice. We're not good at sacrificing choice in cell phone plans, let alone health care coverage. Part of growing up as a health care system is figuring out what we really want to be. One universal model is not something that appeals to any characteristic of our nation.

4. The biggest problem is that the only group that is really equipped to offer a universal health plan is Unitedhealth Group. They are the only ones who have the size and scale.

The Medicare program has no experience with any level of sophisticated claims processing, network management, or negotiating for medical services. Network management and even a rudimentery claims processing is necessary for any type of system that pays providers for offering the right level of services and not just lots of services. Their price negotiations involves setting a price and telling people to take it or leave it. The idea that they can negotiate with prescription drug companies on pricing will be undermined by the fact that they have no department that can do it. Currently, they rely on the same companies that private insuracne companies use for prescription drug negotiation. Medicare can barely prevent fraud and abuse let alone managing costs. It has driven disease management programs into bankruptcy.

Someone who provides universal coverage would also need to staff up on customer service and basic communications which are not Medicare's area of expertise. I would offer the image of the DMV running your health plan except that I don't like to drag in the poor DMV. They get picked on enough.

Since Medicare doesn't have the basic expertise, the other option is to contract with private health plans to offer universal coverage. This is called the Medicare Advantage program which has its critics, including President Obama.

The solution: Since I haven't come up with a colonoscopy joke, by my new rule, I have to come up with a solution. Personally, I like Germany's approach. A basic level of services is covered by the government and people can buy private insurance for more coverage. This is basically like our eduction system.

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.

Ryan's Field of Dreams while Oregon is not just waiting for them to come after Building It

Last week, representative Paul Ryan released a budget proposal that was called everything from "interesting" by Ezra Klein to "bold" and "game-changing" by Fox news. The popular sports analogy was how Ryan changed the playing field on the health reform debate with his hail merry. My mixed sports analogy would be that Ryan punted to the Field of Dreams where he thinks that if he builds it, they will come.

Ryan's proposal specifically "would provide Medicare beneficiaries with lump-sum vouchers to buy private insurance and turn Medicaid into a block-grant system." States would get $11,00 per Medicaid beneficiary and the federal government could cap its exposure to health care costs. In other words, the federal government is turning its health care programs from a defined benefit to a defined contribution program and getting out of the health insurance business.

I used to think that block grants were a good thing because the word block has positive connotations. It makes me think of a block party or playing with blocks. The idea that the government gives you a block of money and a lot of freedom also sounds appealing. However, I have realized that block grants should really be called blockhead grants because they are generally used for programs that the granter doesn't like. That's why block grants won't cover the actual costs of the programs. Calling the programs, "Hey blockhead, how much money do I have to give you to go away? That's it? Great!" would be too honest and the acronym would be too long.

Ryan's idea of vouchers and block grants for Medicare and Medicaid is nothing new. Democratic and Republican politicians have proposed these ideas since 1981. What would make this proposal interesting is if Ryan attempted to design a market that would create an incentive to participate in these programs and provide care. That is the challenging part and why this is just another example of Republicans punting on actually coming up with a solution for the health care system. It will shift costs to employers who will become a main source of health insurance for older workers or beneficiaries who won't be able to cover their health care costs. It does nothing to change a fee for service system that will respond to lower payments with higher volume and more invasive treatments that get higher reimbursement.

The state of Oregon is seeking federal waivers for its Medicare and Medicaid funding in order to design a real system of health care. Waivers doesn't have the same warm and fuzzy feel as block grants. However, it's better because with waivers you actually get the same amount of money as before. Oregon is taking the ball and running with it by designing a care delivery system to support it called Coordinated Care Organizations (CCO's). They are similar to the federal governments Accountable Care Organizations (ACO) with 2 key differences. Patients select their CCO in advance and have a relationship with the providers while patients are assigned to an ACO retrospectively and don't have the same provider relationship. The other difference is that one starts with C and the other stars with A. I really wish Oregon could come up with a BCO acronym since they skipped that letter but the only one that I could think of was Boring Care Organization.

The relationship aspect of the CCO gives the organizations an opportunity to attract patients to join. The CCO's will start by serving the growing Medicaid population (which will become 30% of Oregon's under 65 insurance market in 2015) but will have business steadily funneled to it by the state government bodies like the Oregon Healthcare Authority. For example, the state has indicated that they may only contract with CCO's for the lucrative public employees insurance. That is how the system creates incentives to participate in providing care to difficult populations like Medicaid and Medicare. This is very different from Ryan's plan to have these beneficiaries fend for themselves with a 50% off coupon.

This Oregon proposal is something that I would call bold and game changing.

Wrestling with the Individual Mandate or We still Don't Know what kind of Health System we Want

As a nation, we do not know what we want our health system to be when it grows up. We are still using our health system as a source for our own fantasies and shortcomings. The fantasies are on such a grand scale that we expect our health system to be like James Bond with better abs when it grows up.

Allow me to step down from my somewhat random analogy. We still have the illusion that we can provide health coverage and access to care for everyone, keep it affordable, and not make any sacrifices like increased wait times for services, no longer offer the most invasive option possible, or not have an individual mandate. We have delayed tough decisions under the delusion that wellness, better chronic disease management, and Electronic Medical Records will result our health system being affordable, high quality, and with access for all. The reality is that health systems can usually only offer two of the three.

The sacrifice of the individual mandate is the topic of this blog post. Those who are still reading, probably realized that from the title and are now glad that I finally got to the point. Economists have explained that an individual mandate is required in order to have affordable universal health coverage. The healthy, like James Bond, has to pay into the pool to support the sick and those who are not really really really ridiculously good-looking. However, politicians continually look for a way to remove the watered down individual mandate that is included in health reform. This shows a continued inability to make tough decisions about what we want our future health system to look like. The current individual mandate is a $700 fine which should hardly dissuade the die hard libertarian from not buying insurance. That individual can continue to not buy auto insurance, not wear a helmet while riding a motorcycle, not pay taxes, or refrain from bringing samurai swords on a plane or any of those other things that individuals are currently mandated to do by law.

This post on the individual mandate is mainly driven by Senator Ben Nelson's request to the Government Accountability Office (GAO) to see alternatives to the individual mandate. Now, given Nelson's history with the Cornhusker Kickback, his request for this analysis could be driven by a desire to fry up some more pork for his state or campaign contributions. Nelson never seems to have a position that he doesn't use to gain some benefit for himself. However, I'll assume that Nelson's inability to make hard choices about our health care system matches others. The GAO alternatives to the individual mandates can fall into the following categories:

Just another form of an individual mandate that will maybe convince those who aren't paying attention that it's not an individual mandate. It's kind of like reducing the number of uninsured by just changing the definition of uninsured to those whose religion forbid accessing medical care.

1. Impose a tax to pay for uncompensated care (How is that different than the current $700 fine other than it's called a tax?)


2. Restrict access to some federal benefits to people with insurance (whose value might be around $700?)


3. Require or encourage credit-rating agencies to factor in insurance status in credit ratings (and the impact could be greater than $700 for those whose credit rating results in a higher interest rate for their loan)

General proclamations and principle like "We support preventive medicine and ice cream for kids on hot days" that don't really mean anything. The only thing they offer is something that everyone can agree on.

1. Conduct a public education and outreach campaign


2. Provide broad access to personalized help with health coverage enrollment by creating access points such as pharmacies, schools, and grocery stores (How about bars, shooting ranges, and casinos which is where those who won't buy insurance are more likely to hang out and be drunk enough to maybe sign up?)

Ideas that insurance companies really like but don't really help the public or solve the problem.

1. Modify open enrollment periods and impose penalties for late enrollment (Insurance companies love this provision because it creates an incentive for people to preemptively sign up for insurance and stay enrolled longer. However, it doesn't work for the average citizen because this would mean that all of us who have insurance through our employers should start thinking about enrolling in individual insurance just in case we lose coverage. Open enrollment works in Medicare because the market is static. Once someone has Medicare, they always have it. The individual market is much more fluid since people will switch between Medicaid, Employer, and Individual insurance.)


2. Allow greater variation in premium rates based on the enrollees' age to get more young and healthy people to sign up (Insurance companies would love to have lower prices for the young and healthy which means higher prices for the old, sick, and those who are not really really really really ridiculously good-looking. The problem is that it's hard to get the price low enough to be appealing to the young and healthy while keeping the price affordable for the old.)

Ideas that don't really have anything to do with the individual mandate but address other issues.

1. Facilitate auto-enrollment for employer-sponsored coverage (If employees are not signing up for their health insurance, it's probably because they can't afford it or don't want it and are the type that need an individual mandate.)


2. Pay insurance agents and brokers a flat fee rather than commissions to help people enroll (The Exchanges and brokers' inability to demonstrate their value proposition may eliminte the entire broker and producer industry. This provision is a life preserver for the industry. It is also duplicates the Exchange and doesn't address the core problem of individuals who don't want to enroll in insurance. The flat fee should be given to the young and healthy who enroll instead.)

Every country has struggled with balancing access, cost, and quality. The United States believes that it is exempt from those struggles which is why it wrestles with tough choices like an individual mandate. However, these 9 alternatives are not really alternatives at all. When we finally realize that we need to make sacrifices and tough decisions, the United States' health care system will be all growns up.

PS If anyone has been wondering where Roll Away the Dew has been in the month of February and March, I got hooked on the Office and spent my free time watching the series. I have watched 131 of the series 136 episodes so I am preparing myself for life after the Office. Thanks to those who are still reading.

The Rise and Fall and Mostly the Fall of the For Profit Hospital Industry

The For Profit Hospital industry, led by Hospital Corporation of America (HCA) and Tenet (which I liked to call Tenant based on how it treader providers), was the poster child for health care efficiency in the 1990's. HCA owned by former Senator Bill Frist and led by current Florida governor, Rick Scott, gobbled up as many hospitals in the mostly Southeast, California, and Great Plains as they could. Tenet was close behind. They boasted of their management talent, market clout, and economies of scale that would shake up the sleepy non-profit hospital industry and turn it into a real business.

The first experience with becoming a real business involved HCA being charged with the largest Medicare fraud case in US history and Tenet was charged with milking the Medicare Outlier Pool like a cow on growth hormones. Basically these foundations of capitalism figured out how to suck money out of government programs like a collapsed supernova sucks light or the Green Bay Packers just plain suck.

The For Profit Hospital industry has made the news again which underscores the lack of change in the health care system. First, the Federation of American Hospitals, which is the association for the For Profit Hospital Industry, wrote a letter to Medicare about their position on the new Accountable Care Organizations (ACO). A principle of ACO's is that provider groups are assigned both patients and the dollars associated with managing their care. This provides incentives to provide the right care rather than the most profitable. The Federation of American Hospitals likes being assigned the dollars but wants to pick the patients that are assigned to them. This is cherry picking or called being "neither accountable, nor caring, nor organized". This creates the images of the same Redding, CA Tenet hospital that did open heart surgeries on anyone that they could sedate long enough, assigning themselves all the wealthy retirees who need a knee surgery for the spring ski season. The chronically ill lower income patients can be assigned to the non-profit hospitals who lack their managerial talent to completely game the system.

It's gotten so bad for Tenet, that they made the news because they were the target of a takeover from another for profit hospital group called Community Health Systems, Inc. (CHS). CHS has accused the Tenet Board of Directors of not taking their shareholder interests into account but their own personal interests. That's kind of like a Hell's Angel accusing another biker of poor flossing habits.

The reason that the For Profit Hospital industry has such a poor track record was that their management talent and ability to turn around hospitals was mostly a myth. They were successful because they bought hospitals that had a monopoly in their current suburban or rural town or located in a wealthy area where everyone had great insurance. They successfully ran hospitals in one-hospital towns where they had no competition. They had to run them 20% more efficiently than their non-profit predecessors in order to make up for new taxes and required shareholder return. When they could not, that's when they started milking Medicare or forcing unnecessary psychiatric hospitalizations on patients. Whenever Tenet entered a competitive market as they did in Philadelphia with the purchase of 2 of the city's 5 academic medical centers, they did as poorly as everyone else.

The For Profit Industry has nowhere to go but go procreate with itself. All the lucrative hospitals with a local monopoly have been bought so there are no real new expansion opportunities. Which is probably why the latest For Profit hospital news stories provide better material for John Stewart and Stephen Colbert than for Harvard Business School case studies.

The Balance between ideal health reform solutions for the Insurance Industry and Consumers

A health reform solution that consumers and the insurance industry could agree on is as precarious and unstable as straddling 2 sides of a canyon. Everyone's groin starts to hurt after a while. Former insurance industry executive and blogging curmudgeon, Bob Laszewski, wrote a piece on what he saw as reform that could truly receive bipartisan support. What I saw is an example what best meets the needs of insurance companies and not those who purchase the plans. Here are Mr. Laszewki's arguments in contrast with my thoughts on actual consumer need. The reason that I am contrasting with consumer need is that the insurance company that figures out how to truly meet it will gain market share at the expense of others. Even the insurance industry needs to focus on its customers every once in a while.

1. Replace the individual mandate with a one-time open enrollment period: The individual mandate or requirement that individuals buy insurance is a contentious part of reform. However, if no one can be denied insurance, it's necessary to have everyone buy insurance in order to keep it affordable. Laszewski's solution is a one-time opportunity to buy insurance otherwise that individual could be denied insurance in the future. He calls it "freedom of choice and responsibility." I call it the status quo. Insurance companies love one time enrollment periods because they both bring in new customers as the same folks who always change their oil every 3 months will jump on the one time opportunity. Those folks who are too disorganized to maintain their health let alone their cars are more likely to miss the opportunity and be denied if they don't pass a health screen when they get around to applying for insurance.

The individual insurance market is very fluid. Most stay on a individual plan for a year at most before getting an opportunity for public or employer insurance. Therefore, a one-time opportunity will not be relevant to the vast majority who don't need individual insurance at that time period. For the average consumer, they want to be able to purchase health insurance when they need it not when insurance companies are willing to offer it. Health insurance has become the one industry that will refuse to sell their product to someone who has the money to buy it. That is not sustainable and needs to change or a new entrant will change it for the industry.

There is no real solution to balance affordability and access other than an individual mandate. United Healthcare developed the best alternative with an option, like a stock option, to buy insurance in the future without a health screen. While there probably isn't a true solution that consumers would embrace, Laszewski's solution mainly appeals to the insurance industry. The insurance industry's lobbying group, AHIP, has pretty effectively destroyed its reputation as a voice of reason or good ideas in health reform with ill-timed reports on cost or attacking ACO's to prevent the entrant of new competitors.

Eliminating mandated plans: Health Reform will limit insurance carriers to only 4 plan designs that are sold in formal health care exchanges. These plan designs are cleverly named platinum, gold, silver, and bronze because calling them Tweedledee, Tweedledumb, Tweedledumber, and TweedleAngryInsuranceExecutive was probably too obvious. Laszewski wants their to be only one mandated design (the silver or Tweedledumber option) and allow insurance companies the latitude to design other plans to provide more consumer choice. Again, this is the status quo as most states already require an insurance company to offer one basic plan design.

When I talk to consumers, they do not want the current level of choice because it's overwhelming and confusing. They have to study the plans to figure out what features are included, what are not, and conduct a personal conjoint analysis to figure out what they should buy. Most just want to be able to buy one standardized health insurance and not need an owner's manual to figure out how to use it. Offering 4 designs gives this ability to buy a health insurance at 4 different prices. This "choice" that Laszewski reference is really insurance speak for benefit eliminations of services not widely used by the public (but heavily used by a few) to lower the price. However, the price can be lowered by making universal changes to all 4 plans that are clear and transparent to the consumer.

In closing: The rest of Lasewski's points were improvements in subsidies to buy insurance and change in tax policy that don't really divide insurance companies and consumers like those other 2 issues. The gap in consumer vs health insurance industry appeal of those 2 issues is why the first wave of health reform focused on the insurance industry. Subsequent waves will continue to focus on the insurance industry until we learn how to better listen to consumers. At least half of my assumptions on consumer interests are overturned when I survey them or talk with them on the phone. Talking with consumers is not nearly as painful as dealing with fall-out from getting it wrong. It's also much easier on the groin.

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.

My Society of Insurance Research Presentation: The Business Opportunity that Health Reform Created

Some eager followers of Roll Away the Dew may remember that 2 weeks ago, I presented at the 40th Annual Society of Insurance Research (SIR) Conference in Jacksonville, FL. Other eager followers may still be recovering from Thanksgiving and that pumpkin cheese cake so everyone's mileage varies. Linked below for everyone's powerpoint pleasure is my presentation on the business opportunity that health reform created for Medicaid. I'm trying to figure out a catchier slogan that have the acronym of "SIR GALAHAD" or "TRON" but am having trouble.

SIR Medicaid Opportunity Presentation

View more presentations from dongrunt.

For those who may not plan to peruse all 13 dense slides, the cliff notes are as follows:

• Medicaid is going to become a larger insurance market. By 2016, almost 1 in 5 Americans will have Medicaid compared to 1 in 10 with individual commercial insurance or 1 in 8 with insurance through a small business.
• Market impact varies by state much like the Thanksgiving stuffing.
  
• States that are complaining about budget impact are not talking about how the federal government will pay for 100% of the new Medicaid eligibles from 2014-2016 and 90% of the cost for 10 more years.
• These post 2014 Medicaid eligibles will be very different than the current Medicaid eligibles. New eligibles from reform will be mostly adults, be working poor, and have successful experience managing their own health. The main difference between this new pool of Medicaid eligibles and a blue collar service union group is the union membership.
• Provider partnerships and financial arrangements will have to be different and no longer rely on the number of physician visits as the vehicle for payment. Reimbursement needs to focus on care teams, long-term partnerships, and reward medical management. Federally Qualified Health Centers (FQHC) provide an excellent opportunity.

At the end of my presentation, I had convinced a very Liberatarian crowd who had this view of government to give Medicaid a different look. My next step is convincing my employer to invest in these ideas.

As far as the rest of the Society of Insurance Research conference, it was a very interesting event with compelling speakers that had some great analysis of the segments of people who buy property and casualty insurance. Plus, at what other conference do you find yourself exclaiming how those property and casualty folks really know how to party?

Relationship between Hospitals and Health Plans: Strange Bed Fellows are Getting Stranger

The relationships between hospitals and health plans has been fairly simple. It's all about exclusivity and the payment. Health plans would ideally like a discount for an exclusive relationship but may pay more for an exclusive relationship with the right hospital. That relationship can directly bring more business to the health plan because potential members may really want to be able to access care at that hospital. Additionally, a benefit design that provides limited or no out of network benefit can really accelerate membership growth for a health plan.

Hospitals tend to focus on payment first since they have higher fixed costs and don't have vehicles like a benefit design to drive business. Exclusivity or limited exclusivity is also a goal in hopes that their beds will be filled primarily with the members of well paying health plans. However, as I found with recent discussions with hospitals, it's secondary to payment. Their negotiating levers are limited. As a result, hospitals are mainly looking for the attractive partner first and if it turns into a beautiful relationship where they cook and remember each others birthday, that's a bonus.

Some hospitals and health plans work out a favored nation status with each other like the Michigan Blue Cross plan and area hospitals. Under this arrangement, the hospitals gave Blue Cross the guaranteed best price for any health plan. In relationship terms, that's like getting her agreeing to get together in the back seat of a Volkswagen. The Justice Department is calling that anti competitive behavior in its law suit against Blue Cross.

The result could shift the traditional health plan and hospital relationships. Both businesses have been growing so large in certain geographies that it's becoming hard to avoid anti competitive behavior. In 24 states, 2 or fewer insurance companies control 70% of the market. In some local markets, hospital systems like Sutter in Northern California or St Charles in Bend, OR can demand the best rates and don't have to worry about exclusive relationships (or using protection). AHIP, the health plan lobbying group, is continuing its bid to be the least effective lobbying organization by releasing statements over concerns of the anti-trust implications of Accountable Care Organizations (ACO's). Despite the logical and appropriate payment model of ACO's, AHIP is too concerned that it will give providers more market power.

As a result, the times are right for new thinking about the hospital and health plan relationship that doesn't mirror primal urges. With both industries teetering on the edge of an anti-trust law suit, the problem may be solved by others if hospitals and health plans don't come up with a solution. Personally, I think that focusing more on the exclusivity in the relationship could be the answer. ACO's create an opportunity for a long-term partnership and could (but not likely) be structured where there can be only one hospital or one health plan in this three way with primary care providers. Health plans and hospitals with similar market segments, philosophies or levels of quality might pair up and find more synergies pursuing common customers.

This is basically a model similar to Kaiser Permanente and closed systems only have historically had limited appeal. However, history is changing and it may be time to stop basing the relationship on how many dollar bills are required to be thrown on stage.

Roll Away the Dew is Speaking at the Society of Insurance Research Conference

It's road trip time at Roll Away the Dew. Well, actually it's just a plane trip with a connection in Altlanta, on the way to Jacksonville, Florida where I will be speaking at the 40th Annual Society of Insurance Research Annual Conference (SIR A.C.). Did you know that Jacksonville is the largest city in terms of square milage in the lower 48 states? That actually sounds horrifying me to as an example of uncontrolled urban sprawl that we don't see here in Oregon with our Urban Growth Bounderies. However, I did hear very positive things about Amelia Island and Florida in November is not something to look down at.

Readers may be wondering what Roll Away the Dew could pontificate upon for 45 minutes. How many colonoscopy or animal husbandry jokes will the speech include? Will the inmate and asylum analogy continue? Will familiar topics of MBA's behaving badly be broached or will this be a pure health care focus on the strengths of the Medicare Advantage program, the dysfunctions of the Individual insurance market, or the future of Accountable Care Organizations? Will the words, MediCAID for all be uttered and for those guessed this topic, you know Roll Away the Dew way too well!

Actually, I think that I need to make a "MediCAID for All" T-shirt for the conference. I will be speaking at the newly created Health Insurance track for the Society of Insurance Research. My topic will on the business opportunity that health reform created for Medicaid managed care companies. If there is a health care organization that can afford to ignore a market that is going to almost double then I want to see your business model. That's because that health care organization must be performing at a very high level in commercial, Medicare, individual, self-funded or other aspects of health care to be able to ignore 25% of the market.

If you want to hear more about my presentation, come to Jacksonville, Florida from November 14th-17th. I hear that the Property and Casualty insurance guys really know how to party. Another option is to just wait until after the conference when I'll do a full postmortem on my site.
Before I do that, I think that I really need to make myself a MediCAID for all T-shirt.

The Guards take over the North Gate: The battle for the Asylum of Health Reform Rages On

In the battle for the implementation for the first provisions of health reform, I will continue to beat my inmates battling for control of the asylum analogy like an actual inmate probably used to be beaten in an asylum. In the latest battle, the guards or the government agencies like the Oregon Insurance Division have beaten back one of the craziest inmates.

This inmate in question is Lifewise of Oregon, a subsidiary of Premera, the Washington Blue Cross/Blue Shield company. Lifewise typically acts like Oz's Ryan O'Reily. They don't look very strong, kind of wiry, but are devious and will not hesitate to do whatever they need to win. Lifewise's interpretation of guaranteed issue for children 19 and under or no longer denying coverage due to pre-existing conditions was that they could wait until September 2011. However, the law states that this provision must go into effect September 23, 2010. The Oregon Insurance Division informed Lifewise that all new sales of individual insurance plans would be suspended until they complied with the law. Lifewise also needed to comply by the end of October so they could participate in the first open enrollment period for children 19 and under.

Lifewise's defense was "that it is in alignment with the “good faith” provision of the U.S. Department of Labor FAQ (dated 10/8/2010),which provides issuers a reasonable period of time to come into compliance with the requirements of the Act". In other words, they would be happy to comply but would do it later. This is the same defense that young children use to avoid cleaning their room, high schoolers use to avoid doing their homework, and college graduates use to avoid moving out of their parents' house. I think that only college graduates are moderately successful with this defense.

Technically, Lifewise files their individual plans in September which is why they though that they could wait until September 2011. They planned to continue to deny coverage to children under 19 with pre-existing conditions until that date. However, there is nothing in the law or general field of logic that supports this conclusion.

Forcing an insurance carrier to not flagrantly disregard a health reform provision should not seem like a victory. However, if Lifewise's behavior was allowed to continue much longer, it would have been much worse. It would have provided every other insurance carrier with a complete disincentive to comply with health reform or made the future riots even worse.

Riots in the Asylum: Part 3 of the End of Pre-Existing Conditions for Children

When we last left this series of health reform implementation gone wildly badly, it looked like the inmates had built a roof top hot tub and organized a spa day. The state insurance divisions appeared to be overwhelmed trying to set up a system to ensure that insurance carriers would provide insurance for those under 19 without denying coverage to anyone with pre-existing conditions. This is also call guaranteed issue for children.

Insurance carriers had been defining their own rules or not participating. It had gotten even worse as insurance carriers started introducing perfectly legal ways to charge people even more money for insuring children in response to this legislation. This new method was to change the "underwriting tier" or how they classified the price based on the type of family unit that was applying. Most insurance carriers have a family tier that is the same whether a family has 1 child or 12. Only 5%-10% of families have even more than 2 children so it's not like John and Kate + Eight are getting a free ride. However, insurance carriers announced that they would no longer offer a family tier but would now charge families per child. When one thinks of Jon and Kate + Eight or OctoMom, this doesn't sound like a bad idea. However, for a family with 5 children this could triple the amount of money they pay for health insurance.

Regence Washington announced this change and attributed it to health reform. While nothing in health reform was related to underwriting classifications, it did cause insuring children to become more expensive. As a result, insurance carriers are moving away from any pricing strategy that makes it attractive to provide insurance to children. This probably represents the peak of the inmates' control over the asylum and showed just how many perfectly legal strategies they could deploy to not support guaranteed issue for children.

However, the insurance divisions sent in the riot squads, cut the electricity, drained the hot tubs, and poured out the exfoliating cremes and cucumber wraps from spa day. In response to Regence's Washington decision to stop selling child only policies, the Washington Insurance Division charged them with age discrimination. The California and Maryland state legislatures have introduced legislation to require insurance companies to offer child only plans. It's gearing up to be a siege on the asylum.

However, given how easily insurance carriers have short-circuited this legislation, I am not optimistic that the guards will regain control. The hole in the logic of any of the state insurance divisions or legislators, especially Washington's, is that the child only plan was an invention of the insurance industry. When insuring children was an attractive prospect, insurance companies developed new ways to insure them. A child only policy is not an inherent right of citizenship (except in Ohio, New York, and Virginia where this was mandated into state law a while ago) but a private sector innovation.

When the courts would probably rule in favor of the inmates, the Obama administration might need to rethink it's health reform implementation approach.

Oregon Health Insurance CEO Forum: Lame and Lamer

Last year I attended, the Oregon Health Insurance CEO Forum and noticed some excitement in the air around some new developments such as cost transparency, value-based benefit design, and the importance of caring for children. This year, despite their very industry being turned upside down, they talked about popular health care topics from the 80's and 90's. That was the lame part. The lamer part was four CEO's including the CEO from local Blue Cross, Regence, which used to have the largest market share, didn't attend. Considering the unpopular decisions their plans were making around not providing access to insurance for children, it was not very likely that their absence was because they were receiving humanitarian awards elsewhere.

First, the Lame:

• The popular topics from the 80's were around capitated arrangements with providers where the primary care physician manages medical costs and how 10% of the population uses 70% of health care costs. The Cigna Northwest Region CEO, Chris Blanton, still wanted to talk about how employer groups should play an active role in driving health insurance change. The only thing that was missing from his 90's flashback was flannel as employer groups are either currently pushing the innovation to the limits of what their employees will accept or scrambling to understand the post-health reform environment.
• To further underscore the stock shorting performance of Cigna's Blanton, he did a poor job of hiding the smirks on his face when questions were asked such as what did everyone think about Health and Human Service's (HHS) assessment that health reform would only increase insurance prices by 1%-2%.
  
• Robert Pallari, the former CEO of the Portland-based Legacy Health System and architect of the Oregon Health Plan was the moderator. He was also formerly colorful and bombastic as he lobbed soft ball questions like "Look into your crystal ball and tell me what you see in the future?", "How will health reform influence your organization", and "What type of partnerships are you pursuing with providers?"
• Actually Pallari did blatantly insult the Kaiser Permanente CEO, Andy McCulloch, by pointing out that the Kaiser system has been as much about setting up barriers to health care as it is about providing care. Perhaps, McCulloch was too distracted by Banton's smirking or thinking about who play 3rd base for the Cleveland Indians in the 80's since his expression didn't change at all. Nor did he respond.
• During this forum, the battle for the future of the individual insurance market was raging, the payment process for Medicare and Medicare Advantage is being completely revamped, and the new health reform provisions had been effective for 5 days. Three of the CEO's were trying to decide if their individual plans should remain open to children while Cigna and their Chief Smirking Officer had already decided to close their plan to children. Yet not one question was asked about insurance for children. Last year, CEO's couldn't talk enough about how important it was. I badly wanted to ask the question but I recognized that it would a CLM (Career Limiting Move). Next year, I'll find a plant in the audience to ask questions like this one.
  

There were some bright spots:

• ODS CEO Robert Gootee did have the great line of pointing out that we "can't drink our bath water and call it champagne" about some of the more egregious performances.
• Gootee also called the Secretary of HHS and Middle Finger Extending Kathleen Sebelius by the name, "Kathleen Celibate". That would explain a lot. Actually, I talked with someone who worked at HHS who did vouch for Celibate's er I mean Sebelius's administrative skill. That person also pointed out that just because she has been launching the political attacks doesn't mean that she wrote them or necessarily believes in them. It's just politics.
• My main conclusion from last year's forum was that we should let our children grow up to be actuaries. This conclusion was proven again by the presence of the PacificSource Chief Operating Officer, Sujata Sanghvi, who is a Harvard educated actuary!
  

And the Lamest Aware goes to:

• While the CEO's that did show up gave lame performances, at least they came. Well, Cigna's Blanton could have just sent a 12 year old boy to smirk for him so I don't give him credit for attending.
  
• On the other hand, Lifewise, Health Net, United, and Regence sent no representatives. They all have announced that they are no longer offering child only coverage in the individual market in the last few days so their lack of attendance is probably not a coincidence.
  
• Lifewise's membership has been dropping like acid at Woodstock, Regence has lost their 2 largest group accounts in the last 2 years and 40% of their group enrollment, Health Net is trying to sell itself, and United is well, still United. Given how badly these plans are currently doing, I can't imagine that they would have many great ideas to share. Perhaps it's best that they did not attend.
  

The Inmates have taken over the Asylum: the 2nd step of health reform

When we last left health reform, one of its most significant early changes was dangling over the cliff. Guaranteed issue or the practice of no longer denying health insurance for children under the age of 19 was scheduled to start on Sept 23rd. Health insurance plans or the inmates in this analogy were expected to change their practices but there was a trouble brewin' on the horizon. The insurance companies pointed out that with this provision, children could drop their insurance whenever they didn't need it and then enroll whenever they needed it. This would be expensive and individual insurance could become even less affordable. The Obama administration was so concerned that they gave the state insurance divisions flexibility to negotiate and offer concessions like a limited period of time when children could enroll or open enrollment period.

How did the state insurance divisions and Obama respond in this crisis when it emerged in early August? Late and ineffectively. If they were super heros, school bus would have toppled over the cliff. If they were Austin Powers, they would have been eaten by sharks with frickin laser beams.

Children were supposed to stop being denied insurance on September 23rd. As that date approached, the two state insurance divisions in my area (Oregon and Washington) had yet to issue any guidance or rules to respond to the insurance companies' concerns. In response, the insurance companies steadily began to announce that they would stop offering insurance to children. First, national carrier Health Net, stopped offering individual insurance to anyone. Other national carriers like Cigna, Assurant, and Aetna pulled out of the child or dependent only market. This means that a parent must both pass the health screening and enroll in the individual insurance plan in order to purchase coverage for their child with these plans. In Oregon, the nail in the coffin was when when Regence, the local Blue Cross plan who sells almost half of the individual insurance plans in the state, announced they were leaving the child only market. When there is market uncertainty, the market seeks certainty. The main result of this health reform provision has been the disappearance of the option for children to purchase insurance without a parent.

There was great hope that reform would stop insurance companies from sinking to the lowest common denominator. It was thought that there would be vigorous and clear enforcement by the regulatory bodies that would convince all insurance companies to participate in guaranteed issue for children under fear of fines, exclusion from future opportunities, or even sharks with frickin laser beams. The biggest fear that insurance companies had is that they would be the only ones participating, receive a disproportionate share of unhealthy children, and be at a competitive disadvantage that they couldn't recover from. This fear was not allayed.

Instead, the Obama administration and Health and Human Services (HHS) did not provide sufficient support and guidance to the state insurance divisions. The state insurance divisions to not have the resources nor bandwidth and were overwhelmed by the issues with this implementation. Insurance companies filled this leadership vaccuum by announcing their own interpretations and intentions for how they would implement guaranteed issue.

The Washington and Oregon insurance divisions finally issued draft guidelines on open enrollment periods and other provisions that would apply on Sept 23rd which was the day that they were supposed to be implemented. Insurance brokers have reported that some insurance carriers like Lifewise, don't intend to comply until Sept 2011 when they have to refile their plans. However, that's actually fairly irrelevant since the insurance division haven't been able to provide guidance and ensure compliance for the insurance companies that have expressed an interest in following the rules.

I had higher expectations for reform then this.

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."