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Archives for Health Insurance

The Primary Care Conundrum


Ask any health care wonk and they’ll tell you that within the larger health care crisis is a primary care crisis. There is more and more demand for primary care physicians – the person you probably call your “family doctor” – but America’s medical schools are producing fewer of them.

Why? Well in a word, money.

It’s not actually medical school that’s the problem. It’s what happens next. A newly graduated physician, carrying a big chunk of debt used to pay for medical school tuition, gets to chose their residency and, as such, decides what type of doctor to become.

In the U.S. we let medical students choose what to do. Not being dummies, most of them notice that diagnostic radiologists and orthopedic surgeons make three times what primary care doctors make, and choose their career path accordingly. Why the vast difference in compensation? Doing something to a patient – fixing a broken hip, reading an x-ray – has always been better rewarded more than talking to them about their high blood pressure or their son’s excema.

And while the taxpayer has subsidised teaching hospital residency slots to the tune of a more than $100 billion over the last two decades, the government doesn’t limit the number of those slots by specialty type. Most sensible countries do because they know that the more specialists there are the more specialty care gets done. And specialty care is very expensive. Which is the main reason we spend so much more on health care here than in other countries. In 1965, primary care doctors made up 50 percent of physcians; the other half were specialists. Today, about 70 per cent of America’s doctors have become specialists. Most other countries have the reverse ratio.

There were two major attempts to redress the imbalance in the 1990s. First, managed care plans like HMOs started paying primary care physicians a global fee to provide all care to their patients. In some cases this meant that primary care groups started acting as general contractors and ended up reducing the specialty and hospital care their patients received — and keeping more money into the bargain. In some markets, notably southern California, specialists saw their incomes drop dramatically. Politically this resulted in the ‘managed care backlash’. Patients and specialists complained, politicians and judges threatened, and insurers and employers who were paying for the HMOs backed off. Worse the insurers started cutting payments to the primary care groups and many doctors ended up bankrupt — having taken on insurance-type risks that they couldn’t manage: getting paid to treat a group with a range of illnesses and problems and incomes rather than one or two not-so-sick people with fat wallets.

The other attempt to improve the lot of the primary care doctor was the introduction of a physician payment scheme by Medicare called the Resource-based Relative Value Scale (RBRVS). The name underlined the intention. Payments to doctors were meant to be based on the relative value of resources used. So a unit of time spent managing patients and talking to them about exercise for high blood pressure, for instance, would be close in value to a unit of time cutting them open.

Unfortunately, America’s specialty societies hijacked the process and they now control the somewhat secretive RBRVS Update Committee, which advises Medicare on those payments. So specialty care and procedures remain much much better rewarded than primary care. In the nearly three decades after this problem was first recognized, it’s becoming harder and harder to find primary care doctors. It’s going to get worse; last year the number of medical students opting for primary care fell to an all time low.

So what’s the likely outcome? Medicare clearly will take a hack at redressing the imbalance in payments as part of whatever reform happens in 2009. But unless the specialists and the hospitals that live in symbiosis with them are ready to significantly and voluntarily cut their incomes and reallocate that money to primary care, there will not be enough money for primary care to solve the current shortfall. And the U.S. is not seriously going to tackle – let along address – this problem as a matter of public policy until the whole system breaks so severely that more people demand massive reform. Such a time is still at least a decade or so away.

In the meantime, the market will have a go at addressing the primary care shortage. but it won’t do it in ways that primary care doctors will like. You’ll continue to see an expansion in nurse practitioners in retail clinics in supermarkets and drugstores. And more and more people will become frustrated by the lack of availability of primary care docs in their neighborhood and will go online where they’ll find plenty of entrepreneurial companies offering Internet consults. Of course if an online consult is good enough – and it probably is in many if not most cases – why does that doctor need to be in the same town, or even the same country? Or if it’s a diagnosis that requires extensive medical knowledge, why can’t a computer do it as well? Why not indeed? You’ll see all this happening in the next few years as well.

In fact, the result of the primary care crisis may not be inspired reform. it may instead just end up causing globalization and technology outsourcing to come into physicians’ lives. Just like it has to auto workers, steel workers and call center clerks.

Posted by Matt Holt at 5:42 AM | Permalink

An Expert Dilemma


I want to ask your help. I have to make a financial decision regarding my health insurance and given the confusion of the system – one I’m supposedly expert in – I need advice.

Now realistically you’re not likely to be much good to me. Why do I say this? Well, the data says you’re dummies.

Last week Trizetto, a private tech company, put out a survey that said as much. While 80% of consumers surveyed were concerned about health care costs, less than a third knew how much their family spent.

It gets worse. Around 60% of Americans, including the vast majority of those under 65, get their insurance from their employer. How much are employers paying each year? Well according to Joe Public, not that much. Most don’t know or think it’s less than $5,000 per family. In reality it’s around $9,000.

But I’m not one of the blissfully ignorant who gets his insurance at the company trough. Well, not quite. And hence my cry for help.

As a solo consultant I buy my insurance in the gong-show that is the individual insurance market. It’s an convoluted process in which you attempt to persuade an insurance company that you are healthy and worthy of their lowest premium rate. About four years ago I succeeded in this endeavor and Healthnet issued me a high deductible policy at the low price of $99 a month. I’m paying nearly $200 a month now because of premium increases, but that’s still way less than I would have paid if HealthNet had decided that I wasn’t a good risk.

Now California, where I live, doesn’t do much to protect individuals entering the insurance market but once you’ve bought an individual policy, the insurer can only increase the rates with everyone in your age group. But if you let the policy lapse and then try to buy another — usually because you went back into the corporate world and then left again — they’ll re-examine your medical history. If anything has gone wrong – surgery, illness, funny blood work – you might see your rates increase by a factor of 4 or 5. More likely, you won’t get insurance at all.

That’s not currently my problem. This is: I got married.

My wife has a job and health care benefits. She put me on her company plan for an extra $50 a month.

This year my individual premium is heading to $250 a month. Now most of you are saying, why is he continuing to pay $250 a month when his wife is paying $50 to cover him on her plan? The obvious thing is to cancel my HealthNet plan.

But what happens if my wife comes to her senses and stops being my wife? If that happens I’d be better off keeping my plan at $3,000 a year because if I have to buy insurance again in a year or two, and they decide I’m not a good risk, it might cost me $12,000 a year!

It gets more complicated. If my wife stops working, we could buy into her company’s plan under something called COBRA for another three years. But if we decide not to do that we might have to re-apply in in the individual market as a family which means being underwritten again – and running the risk of being a bad risk. So, perhaps we wouldn’t be able to buy insurance, and we’d both be in deep trouble!

And like the rest of the dummies in the survey I don’t know how much my wife’s employer plan actually costs. When you pay for COBRA you pay the whole fee: the employer does not chip in. So I need to find out, and work out the possible future costs. And if you figure into that the relative chance of my not being married and therefore not being able to buy into my wife’s plan my $3,000 in “extra” insurance starts to make a kind of odd sense.

But this all begs a question: Why? The current health insurance system has so many complex wrinkles that an alleged expert (me!) is not sure what to do. There aren’t any good choices, and the decision analysis requires PhD-level economic forecasting. Which makes Republican nominee John McCain’s plan to force these decisions on more people, by giving tax incentives for people to drop their employer’s plan, a mite puzzling.

If this keeps going long enough, the political revolt may create a stable universal insurance plan that will cover me. OK now I’m really kidding.

So can someone tell this dummy what to do?

Posted by Matt Holt at 9:36 AM | Permalink

Obama’s Rx for Change


Clinton has quit, Obama has three times McCain’s resources, and the country is fed up with the Republicans’ war, corruption and toadying to corporations. Democrats have won three “safe” Republican house seats in recent months. It’s their election to lose, and assuming that the fences between rivals really are mended, it might be a landslide.

I’ve written previously that I don’t think Obama is serious about pursuing health care reform. But this week in at a Health Care Town Hall held immediately after he clinched the nomination, he repeated that by the end of his first term, there would be universal healthcare.

In an Obama administration, we’ll lower premiums by up to $2,500 for a typical family per year. And we’ll do it by ….covering every single American and making sure that they can take their health care with them if they lose their job…..We’ll do it by the end of my first term as President of the United States……

Coming from someone who had relatively little to say about health care until goaded into it by former rivals John Edwards and Hillary Clinton this counts as a turning up of the rhetoric. So let’s imagine that there is a solid Democratic majority in the House and Senate with a strong Democratic President.

What type of health care reform might actually pass into law?

Obama’s proposed plan is complicated so the plan’s trip through Congress will be tortuous. And some details are still not aligned. Although Obama says most employers would have to provide insurance, he doesn’t mandate that individuals to buy insurance. But then he says we’d get to universal coverage by having people buy insurance, rather than having the government provide it for free.

The Obama theory is that if insurance becomes cheaper, more people will buy it, and those that truly can’t afford it will be subsidized. But that’s not realistic. Ten percent of people account for more than 50 percent of health care costs and the current game in insurance is to avoid covering that 10 percent.

It looks fairly inevitable that the worst excesses of current insurance practices – avoiding people with chronic conditions – will be banned. But the next step, which is spreading that uneven cost of health care across wider populations, means healthy folks who are not paying their “fair share” will have to pay more. That’s necessary if those paying the most – or in reality, currently unable to get insurance – get to pay less. And those who will have to pay more will likely outnumber those getting a better deal right now. So the Obama plan will look like a cost increase to many. This has largely been the experience in the new Massachusetts “universal insurance” plan.

Obama’s way around this is to have the U.S. government subsidize some of the most expensive cases. That’s the source of his $2,500 a family savings. He’ll also allow people to buy into an equivalent of the Medicare system. Both of these safeguard proposals mean big increases in government subsidies that will require more taxes. But this is all likely to be proposed during a recession. The Federal budget is already heading for another record deficit. Add in the opposition from much of the health insurance industry to these reforms (as they will put some of its members out of business), and you can see how hard this will be to pass Congress.

There is one place Obama can go for the money to pay for his plans. The Medicare program continues to run more or less as it did in the 1960s, incenting doctors and hospitals to provide more and more services, at a total cost of some $460 billion in 2008. Remember that Obama says he needs less than $100 billion to cover everybody.

For the past two decades Medicare “reform” has meant paying private plans to take on more of the Medicare population. But more than 80% of Medicare recipients are still in the traditional program, and worse, it’s turned out that it costs Medicare more overall to send a senior into a private plan. So serious reforms of the mainstream Medicare program are going to be necessary.

Any such reforms will have winners and losers. Losers will presumably be those making money providing “too much” acute care now. You can imagine the ability of those “loser” hospitals and doctors to rally political support. So although there be reallocation of funds within Medicare and for the rest of Obama’s plan to work there’ll need also to be an overall reduction in Medicare spending to help pay for the expansion of subsidies to cover more of the uninsured.

So my quick forecast, regardless of who wins in November: We’ll see cuts in Medicare as part of a series of necessary and positive changes in how we pay for health care services. If Obama wins, we’ll also see greater regulation of insurers to prevent the bad behavior we’ve seen in the last few years.

Whether we’ll see real efforts to “cover every single American” is much less likely.

Posted by Matt Holt at 8:22 AM | Permalink

Half a Plan Isn’t Half a Loaf


Given that he’s the presumptive Republican nominee, it’s time to look at what would happen if Sen. John McCain won the election and the Republicans took Congress and they passed the plan that he’s proposed. Of course, the good news is that what I’m about to describe is purely theoretical. As we stand this fall, Democrats should win back the White House and will pick up enough Senate and House seats to prevent any GOP-backed proposals making it into law.

Nevertheless, this contemplation is spurred on by my recent visit with the Washington Policy Institute, a right wing think-tank in rainy Seattle, not cherry-blossom filled D.C. where McCain’s proposal got serious attention.

His basic idea is to phase out the tax exemption for employer-based health care and replace it with an individual tax credit of $2,500 per individual and $5,000 per family, to buy insurance. In addition, state laws governing health insurance would be overridden – so low cost plans from one state could be sold in another.

The result of this would be that many – if not most employers – would get out of the business of providing health benefits, and people would take the tax credit to the individual insurance market. Where many, if not most, would buy high deductible individual plans. The problem is that these plans don’t insure people who are sick, ever have been sick or know anyone who may ever be sick, and make very big profits by doing so. I’ve ranted about one company, Mega Life and Health which sells dodgy plans to individuals, and has what’s known as a “medical loss ratio” that’s woefully low – around 30% – so only $3 in $10 paid in premiums gets spent on actual care. Another little known segment of the insurance marketplace, plans for college students, have just been exposed in BusinessWeek as having a medical loss ratios as low as 10%! But honestly, this isn’t all that unusual: the idea of keeping costs low by excluding sick people is what makes the insurance market a profitable business.

McCain has advisors who understand this. One, Galen Institute’s Grace-Marie Turner thinks giving sick people access to a combination of subsidies and government provided health plans of last resort can solve this problem. The idea is to help plans take on risker clients – by giving the consumer more money so the plan can charge them a little more – and then having states sponsor plans for those who fall between the cracks.

That may pass the theoretical smell test but in real life we’re talking about increasing taxes on the average to pay specifically for targeted groups that are likely to be poor, sick and expensive. As Sick author Jon Cohn often says, programs for poor people get treated poorly. If rich and poor are not in programs together – Social Security is the leading example – it’s easy for them to be ignored and de-funded. That’s happened with some states’ children’s insurance plans, and existing state-based high risk health insurance pools like those Turner proposes supporting.

The real solution, she says, is a new Federal program with more Federal dollars for people in high-risk groups, channeled through the state plans. The Libertarian sitting next to me called this yet another complicated government program. But the real issue is that it wouldn’t survive long. As soon as state budgets get tight, support for insurance for those on the margins will be cut, and the sickies will be left on the shelf. And since the employer-based market will be decaying even faster – it wouldn’t be tax exempt, remember – there’ll be more sick folks with no insurance.

The problem underlying all of these plans is that the care of sick people costs money. And somehow we have to redistribute money to pay for it. Simply suggesting that it ought to happen isn’t going to make it happen, no matter whether there’s an R or D after the politician’s name. Particularly if there isn’t a real, high demand for a solution. And I don’t think we’re seeing enough of that demand for Congress to come up with a plan that’s more than just window dressing.

So we’re going to spend the next few months going through the exercise of talking about health care reform. But it’s after all the talk, nothing’s going to happen. Which in the case of the McCain program is a good thing. His halfway solution is worse than no change.

Posted by Matt Holt at 3:39 AM | Permalink

Health Care Jungle


My six weeks of traveling the world on an extended honeymoon is over. With my lovely wife Amanda I’ve been diving on coral reefs, sleeping under the stars with the Bedouin, exploring 3,500 year-old tombs, watching lions tear apart a buffalo, and tracking chimps hanging out in the rain forest.

What better way to return than to enter the jungle of U.S. Presidential politics? So Tuesday, I sat in on two conference calls. One from the McCain camp on their health care proposal, the other from the Campaign for America’s Future, which is promoting Yale professor Jacob Hacker’s plan as the theory behind both Clinton and Obama’s policy intentions. Like the lion and the buffalo, it wasn’t pretty.

McCain’s proxies were Douglas Holtz-Eakin, sensible former director of the Congressional Budget Office, a usually fair-minded group of bean counters, and Carly Fiorina, the former CEO of Hewlett-Packard, apparently on the shortlist for the vice presidency.

The two surrogates offered a taste of what we can expect the Republican version of the health care debate to be as the election moves closer: For Carly it’s either free market choice, or the government telling your family which doctor you can go and see. You’re going to hear “government run heath care care” uttered as a threat – just as if we were all moving to the Gulag. Tomorrow.

After a lot of platitudes about medical homes and transparency and electronic medical records – Holtz-Eakin finally got down to the meat of the campaign’s proposal. McCain aims more or less end the employer-based system that’s currently in place for most Americans by taking away the tax deductibility of health benefits for individuals.

Instead, every family will get a $5,000 tax credit to go buy insurance in the individual market and they will no longer be restricted to buying insurance their own state thus, in theory, creating more competition between insurers. Holtz-Eakin has been sensible enough to get McCain to identify the problem associated with the main thrust of his plan: the consequences of forcing people into the individual insurance market. As many frustrated Americans know, under such a system most healthy people will find a high deductible policy that costs less than $5,000 a year but those with pre-existing conditions – like John McCain (were he not a Federal employee and eligible for Medicare) – would find insurance unobtainable.

There is a rational way out of this fix for those (including me) who want to hasten the end of employer-based health insurance. Establish a regulated national insurance market which forces insurers to take all comers. Massachusetts has made vague efforts towards creating such a market. And Sen. Ron Wyden has proposed something similar. But doing that without killing the insurance market requires the government to force everyone to buy in to the plan. It also means that benefits and options have to be made similar by regulatory fiat, and that a system of risk adjustment between those insurers needs to be in place. Failing that the whole thing collapses because insurers will be left with all the sick people while the healthy ones opt out of the system.

There’s no reason that McCain couldn’t have gone some way down that path – Wyden’s plan has Republican support. But McCain’s answer to the problem is literally, “we’ll study it more”.

Now, this should be sweet hay for the Democrats and the AFL-CIO. And yes, the Campaign for America’s Future’s folks were very persistent in reminding us that 1) McCain wants to take away employer-based health insurance and 2) you’re on your own in the individual market.

Funnily enough, though, they focused on point one – changes to health care tax deductibility ending the employer-based health care benefit. Instead they should explain the obvious about point two – the individual market is run by insurance companies who focus on attracting healthy customer who need fewer services, not on the sick. In the political jungle it should be pretty fair to say that the individual market is run by insurance companies (like some in California that retroactively cancel all sick people’s policies) and that under the McCain plan that’s the only place you’d be able to buy insurance! But I’m sure we’ll hear loads more about that come the Fall, won’t we?

But the lack of pointed Democratic criticism aside, why is straight talking maverick John McCain spouting the free market line drawn by the National Federation of Independent Businesses and the Cato Institute? Isn’t this a great area to be a maverick and deviate from the Bush rhetoric?

I assume that the answer is McCain feels health care is important enough that he has to say something, but he’s more concerned about not upsetting the health care industry. After all, even if he does win the election by some miracle (or the usual Democratic ineptitude) he’s not actually going to do anything about health reform.

But then again, my guess is neither are the Democrats.

Posted by Matt Holt at 1:23 AM | Permalink

Just Saying “No”


An American by choice, the last few days have made me nostalgic for British elections, with their clearly defined, disciplined parties, 80-plus percent voter turnout and three-week campaigns. After all there’s barely a ha’penny’s worth difference between the three leading Democratic candidates.

To separate himself from the Democratic front-runners former Sen. John Edwards has spent the last few days laying into insurance company, Cigna, for its failure to immediately approve a liver transplant for California teenager, Nataline Sarkisyan. That action, says Edwards, in concession speech after concession speech, is emblematic not just of the health care system’s break-down but of a failure of the current American political system.

Edwards like most Democrats wants a single payer health system and his plan is the closest of the three front-runners to providing one. But his advocacy of Natalie Sarkisyan’s case raise a question no one else seems to be asking.

First, some background. Natalie’s doctors at UCLA Medical Center had suggested the transplant as essentially the last roll of the dice to save her life. Cigna initially refused to pay for the operation. Their reasoning – and it was quite a rational reason – was that the operation would be futile. To be fair, the surgeons at UCLA disagreed. (But as the Brits like to murmur at these moments, “They would say that wouldn’t they?”)

There was an immediate outcry of the kind we’ve become accustom to as health care policy becomes increasingly political. Ten days later Cigna relented, offering to pay for the transplant itself (if it simply approved the procedure immediately, Natalie’s mother’s employer would have paid). And, of course, UCLA Medical Center, which is after all a government institution, could just have sucked it up and paid for the operation itself, but it didn’t seem to be too keen to do that.

But two things get in the way of this, perhaps commensensical, approach on Cigna’s part. And they’re getting in the way of the current debate.

First, insurers have no credibility. Their bad behavior over the past few years means that no one trusts them at all.

Second, there’s an election to win, and John Edwards decided his campaign will be the voice of the girl’s parents, a fine idea for a politician seeking office. Lousy policy.

One good reason to have a single payer system is to rationally decide what is paid for and what isn’t. Meaning that if Edwards’ ideas about health care are adopted and become law there may well be more people being denied last-chance, possibly life-saving operations than there are now.

All health systems and all societies everywhere somehow ration what’s available to patients. Otherwise we’d all have full time nursing care every time we get a cold. However, compared to other countries the American health system has gotten particularly out of whack by delivering unnecessary, expensive and futile care, especially at the end of life.

To some extent, this state of affairs is the result of the work that trial lawyers – like Edwards – have done on behalf of grieving families like the Sarkisyans. It’s been an effective cudgel but not particularly good medicine. And it’s been going since the early 1990s when another insurer, HealthNet, had a multi-million dollar judgment against it for denying payment for a bone-marrow transplant for a woman with end-stage breast cancer. Ten years, billions of dollars, and thousands of literally agonizing procedures later, the clinical trial results finally arrived. The procedure didn’t work and did more harm than good.

Clearly no one trusts health insurers to make these decisions. But the process that Cigna, (and HealthNet), went through is defensible, and to some extent duplicates what happens in other countries. For single-payer (or any health system) to work and work well, someone somewhere has to say, “This is a justifiable procedure. That’s literally a waste of money that could be better spent somewhere else.” Any rational universal health care system is going to have to confront this problem, even while it solves many others that the current US system causes, such as the financial catastrophe visited on those who are uninsured and get very sick.

So why did Edwards bring up this debatable case? I guess it’s just that he felt that he’d get a quick political score based on a dramatic case that fits into his anti-insurer mantra. But it doesn’t obviate the main issue which is that at some point it’s humane for both the patient and the society for someone to say, “no.”

Posted by Matt Holt at 12:00 PM | Permalink

A Californian Crystal Ball


Pretty much anyone interested in U.S. politics is focused today on what 32 corn farmers in the middle of the country have to say about the 20-some people currently hoping to run the world by becoming President of the United States.

And while health care concerns have figured in many of the conversations the U.S. political press has had – or overheard – with Iowa Caucus voters, it’s been a wild holiday season for California’s health care system. The impact on what type of health care reform legislation will eventually come to national attention is probably just as great.

On Christmas Eve a California appeals court unanimously decided that the way insurers have been practicing in the state for many years is illegal. The case involving retroactive cancellation of policies was one that the nice well-behaved non-profit California Blue Shield had fought in the courts while its aggressive for-profit competitor, Wellpoint’s Blue Cross unit, had settled.

Blue Shield maintained it had the right to retroactively cancel those insurance policies for which it says that policy-holders had lied on their applications. At first the series of stories, which started coming out last year and ended up making an appearance in Michael Moore’s Sicko, seemed cut and dried. People who’d received expensive care were having their insurance canceled for pre-existing conditions that they’d either clearly disclosed on their applications, or couldn’t possibly have been expected to remember. Meanwhile the behavior of the health plans was shown to be particularly cynical, with one, HealthNet, actually paying out bonuses to staff doing “recissions” based on how many expensive policy holders they kicked off their rolls.

However, over time more of the recission stories seemed to be about people who had either been extremely careless in filling out the application or had fudged the truth. But the public opinion battle was clearly lost. Now the state insurance commissioner, Republican (yes you read that right) Steve Poizner, has decided that because insurers have the right to investigate before they issue policies, they have no right to retroactively cancel them, regardless of the circumstances. It appears that the district court is more or less agreeing. Leading one attorney, William Shernoff, who settled for his clients with Blue Cross on the same type of case to say:

“What this court is saying is these cases are going to juries, and that’s going to scare the hell out of the insurance companies,” Shernoff said. “Just one or two punitive damage awards by juries will clean this up, and the appellate court is now going to let that happen.”

Note the word “punitive” in that sentence. Want to place odds on how much sympathy a jury will have with a health insurance company? Didn’t think so.

So it looks like insurance companies’ really bad behavior in the individual market is coming to an end. That, in turn, probably means the end of the current individual market here altogether. Why? Because, under the current system, health care is so expensive for sick people that insurers who don’t exclude them really struggle to provide a inexpensive product for the majority who are not sick. A healthy person in California can buy a high deductible plan for the low hundreds of dollars a month – a plan that might cost a sick person thousands a month – if it’s available.

The banning of recissions could be seen as a first step towards forcing insurers to cover everyone at a “community-rated” price. That means healthy people pay more so that sicker people can be included in the same pool.

Which is just what the bill that passed the Assembly last month and will now become a ballot measure proposes. It bans underwriting – the process of investigating someone’s health history – and forces insurers to take all-comers. This would normally cause insurers to flee the state as their risk pools filled with only sick people. But the California plan includes an individual mandate and forces medium-sized employers to pay into a state fund for those not insured, bringing in a group that may not be insured now because of the cost but which may not – assuming they’re healthy and able to work – pose a substantial risk. Funnily enough, Blue Shield is one of the insurers who thinks this might turn out better for them.

Now we’re a long way from that being a done deal. In fact the California initiative won’t be on the ballot until November, which seems a life time away to those of us facing 11 months of Presidential horse-racing. And more to the point, the always vocal if not particularly logical shock-troops of small business are starting to raise their hackles about health care.

But it’s clear that the intentions that California’s politicians and judges have are similar to those of Democratic Presidential candidates Sen. Hillary Clinton, John Edwards and even Sen. Barack Obama’s plans (although I have severe doubts that Obama cares enough to push for it).

So by all means this week watch what’s happening in Corntown USA. But pay a little attention to how the rumblings in the California health insurance market are starting to spread across the political landscape too.

Posted by Matt Holt at 7:15 AM | Permalink

Last of the Old Solutions?


This week, with lots of hoopla, California sort of passed a health reform bill. In the tangled world of California politics, that means less than you might think. For a start, it passed the state Assembly as a result of a deal between the speaker Democrat Fabian Nunez and Republican Governor Arnold Schwarzenegger. But it didn’t get a single Republican vote.

Senate president Don Perata, a Democrat, has essentially said the legislation is dead on arrival in that chamber. And the thorny issue of whether the bill’s employer mandate – provide insurance or pay an alternative payroll tax – requires a 2/3 majority approval. This being California, the whole thing has to go to the voters in November.

Even assuming that this proposal becomes law, it’s not clear that what’s been approved gets California very far. If the goal is universal coverage, the pay-or-play system in which employers have to offer coverage sounds good – as well as familiar – but it doesn’t really get us there. Hawaii passed something similar in the 1970s and several other states have tried some variant and still no one’s really got close to universal coverage.

Why? The nature of American economy means that most low-wage employers can’t afford to provide decent health insurance benefits, and – surprise, surprise – their employees are the very people who can’t afford to buy the health insurance. To really make the system work – and insure those who can’t afford it – subsidies are needed. So really California, like Hawaii, is depending on employers to do the right thing and for the taxpayer to magically produce subsidies to allow the working poor to buy into the health care system. But in the end, programs for the poor are treated poorly, and those promised subsidies may not amount to much.

Which brings us to California’s other problem: it’s massive budget deficit. There may be an agreement on health care but there’s also a housing slump and no Google public offering to boost tax revenues–providing Perata with his mortality report. Deficits tend to mean cuts in programs like Medicaid for the poor.

And the California proposal doesn’t hold down the costs of care which, in theory, could benefit those normally in opposition. In fact, once the covers are really pulled back many private health plans and providers will probably benefit from this deal. They’ll get more business from those who aren’t hugely wealthy but who are well enough to have jobs where the cost of care can be covered. The health plans and some of the unions have been salivating over something similar at the national level.

But that doesn’t mean everyone, let alone everyone in the health care industry, will accept the proposal the California Assembly has approved. An odd coalition of the single-payer advocates at the California Nurses Association and the mercantilist capitalists at Wellpoint, the big for-profit insurer, look like they’re the major opposition. Stir in some small business angst (which is what happened with the similar Proposition 72 which appeared on the ballot in 2004) and the chances of this new bill getting anywhere in November are not as great as some might believe.

This is all a pity. California (and the nation) needs serious health care reform which puts everyone in a genuine single pool. Of course how that’s structured is matter for serious debate amongst policy wonks. But no one realistically can expect to get to universal coverage, and use its associated levers for cost control, by glomming more people and tax dollars onto the employer-based system that’s the root cause of all our trouble. It’s a system that lets those who often need coverage the most run up the largest bills while providing those who need coverage the least with expensive, sometimes lavish, care.

The majority of people and the vast majority of voters are still experiencing and preferring the devil they know – getting health care from their employer and having no idea what it costs – to any kind of serious change. Politicians are loathe to mess too much with that system because of its familiarity. That’s why the Century Foundation’s Maggie Mahar now agrees with me: We can’t realistically have major reform soon, and it’s also why most of the Democratic presidential candidates are trying to build off the employment-based health care system we currently have.

My guess is that all the rhetoric and premature celebrating in Sacramento this week will one day be remembered as the last of the failed efforts to try it the “old way”, changing a failing system at the margins, instead of enacting true reform. In a few years we’ll be forced into really totally restructuring health insurance. But between now and then, we’re in for a whole lot of continued pain.

Posted by Matt Holt at 5:50 AM | Permalink

Health Plans Behaving Badly


It’s not been too pretty a picture for America’s health insurers lately. Sure they’re still turning decent profits, but for the past two years their stocks have barely been matching the S&P 500 Index. What went wrong? Well, you can blame Wall Street. The Street is concerned with two things. Money now and money later.
Since 2001 the big health plans have managed to increase the percentage they keep of fast-growing health care premiums (which have been going up at 3 to 4 times the rate of inflation), a number known to stock analysts as the ‘Medical Loss Ratio’ (MLR). It used to be that for most big insurers roughly 82-87% of premiums went out the door to pay for actual doctors, hospitals, drugs et al. Now the MLR is generally below 80%, and in some cases below 75% meaning less money’s out the door and more is on the bottom line of the health plans.
But the health insurer party that’s been going on for most of this decade may be coming to an end. But perhaps being busted by the cops and being told to tidy the house might be the best thing that ever happened to the insurers. Let me explain.
Wall Street is demanding. It expects continued growth in profits at health plans. So either the MLR must continue to go down or premiums must keep going up. But higher premiums makes customers grumpy and less likely to buy insurance. And lower MLRs makes doctors and hospitals grumpier and less likely to honor insurers. So insurers have had to find new paying customers to keep growing their businesses.
They didn’t have to go far. The U.S. government, in particular the Medicare program, stepped up to the plate. In three years, from late 2003 to mid 2007, Medicare enrollment in private health plans has almost doubled, going from about 11 percent to a eye-popping 18 percent of the number of folks eligible for Medicare, according to the Congressional Budget Office. How’d this happen?


Posted by Matt Holt at 2:07 PM | Permalink

It’s A Sicko World


There’s so much wrong with Michael Moore’s Sicko that it’s embarrassing, especially for a health care pundit, to reveal the emotional punch it gives you. You know that your head is being bowled over by your heart, and you also know that it’s very, very cleverly done. But that doesn’t make the message any less powerful.
In the end it’s emotional half-truths that seem to move us so perhaps Sicko will have the desired effect — getting this nation’s politicians off the dime on universal coverage. Of course, the contrast Moore’s setting up is not to the rational debate that you may get from me here at Spot-on, or in the pages of Health Affairs. The contrast that Sicko sets for itself is with decades of right-wing propaganda.

That propaganda shown in the movie includes not-yet President Ronald Reagan making speeches for General Electric Corp., likening universal health care to creeping totalitarianism. And it contains a brief clip of an anti-Medicare speech given to an empty Madison Square Garden in 1962 by the head of the American Medical Association. Of course the Reagan Administration continued the huge growth of Medicare, and the AMA benefited incredibly from that growth. That disingenuosness aside, the same echoes can be hear today in sound-bites littering the movie from Fox and CNN’s talking heads.

An even more ridiculous example of this type of thinking were the Fox News commentators who this week blamed the terrorist attacks by doctors in the U.K. on the British National Health Service and the ease by which it’s infiltrated by foreigners. Of course, roughly one quarter of American residents (trainee physicians) are foreigners too.
In other words, propaganda is nothing new in health care. And of course propaganda is more useful for maintaining the status quo than creating a new one. And that’s maybe why Moore decided that it was easier to take just one part of health care – the insurance industry, and more particularly 1990s-style HMOs – and vilify them.


Posted by Matt Holt at 5:00 AM | Permalink

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