Does the Fee Imposed by Section 9010 of the Affordable Care Act Apply to Stop-Loss Coverage?

It was the intent of Congress in enacting the Patient Protection and Affordable Care Act to regulate health insurance comprehensively. Most of the regulatory provisions of Title I (the insurance reforms) apply to “A group health plan and a health insurance issuer offering group or individual health insurance coverage.” The definitions of these terms are drawn from the definitional section of the Public Health Services Act (added by the Health Insurance Portability and Accountability Act), which defines a “group health plan” as an ERISA plan, and a “health insurance issuer” as “an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance.” 42 U.S.C. § 300gg-91(a)(1), (b)(2). Thus the ACA covers both self-insured ERISA plans and insured individual and group plans.

In fact, however, the ACA does not apply to all health insurance coverage, and does not apply to all health insurance coverage to which it does apply to the same extent.  HIPAA excepted benefit plans, including specific disease and fixed-dollar indemnity plans, and short term individual coverage are not subject to ACA requirements, and many of the provisions of the ACA that apply to individual and small group plans, including the essential benefit package, the risk adjustment program, and the risk pooling, community rating, minimum medical loss ratio, and unreasonable premium increase justification requirements do not apply to self-insured plans.  It is, therefore, important to read the ACA section by section to determine which requirements or prohibitions apply to which types of health insurance.

One particularly important provision that has not received enough attention is section 9010, “Imposition of Annual Fee on Health Insurance Providers” (at 811-815 in the link).   This provision is found in Title IX of the ACA, but was amended both by the December 2009 Managers’ Amendment, which became Title X, and by the Health Care and Education Reconciliation Act, enacted in March 2010.  Section 9010 imposes a fee, beginning in 2014, on a “covered entity’s net premiums written with respect to health insurance for any United States health risk.” The fee is determined by multiplying the fraction determined by dividing the covered entity’s net premiums by the net premiums of all covered entities that are taken into account under the statute times a set annual amount, which begins at $8 billion, but rises to $14.3 billion by 2018.  This fee will be an important revenue source for funding the ACA’s coverage expansions.

The fee imposed by section 9010 does not apply to all insurers equally.  Insurers with annual net premiums of $50 million are fully taxed on their revenues, while insurers with annual net premiums of $25 to $50 million are taxed on only half of their net premium revenues, and insurers with net premiums below $25 million are not taxed at all.  Certain tax-exempt insurers are also taxed on only half of their net premium revenues (after applying the small insurer discount just mentioned).

The fee also only applies to “covered entities.”  Section 9010(c) defines “covered entity” as an entity that “provides health insurance for any United States health risk,” subject to a number of exclusions.  These exclusions include “any employer to the extent that such employer self-insures its employees’ health risks;” government entities; certain non-profit insurers that derive 80% of their revenue from government programs; and VEBAs that are tax exempt under I.R.C. § 501(c)(9).What is the universe of “covered entities,” however, that remain subject to § 9010 after these exclusions are applied?

To answer this question it is necessary to parse the meaning of “health insurance” and “United States health risk.”  Both terms are defined in the section, but only in part.  “United States health risk” is defined to include the health risk of an individual who is a United States citizen, resident, or located in the United States. § 9010(d).  “Health insurance” is defined to exclude certain but not all forms or HIPAA excepted benefits (as defined in I.R.C. § 9832(c)), long-term care insurance, and Medicare supplemental insurance.  Nowhere in § 9010, or indeed anywhere in the Internal Revenue Code, however, are the terms “health insurance” or “health risk” defined.  Section 9010 tells us what “health insurance” is not, but not what it is.

The most interesting question is whether health insurance for a United States health risk includes stop-loss coverage.  The sale of stop-loss coverage to small employer groups is increasing very rapidly.  As noted above, self-insured small groups are not subject to many of the consumer and market protections that the ACA applies to insured small groups.  Self-insured group plans are also not subject to state regulation because of ERISA preemption.  There is thus a great deal of interest in the part of small group plans in self-insuring.  Small groups can only self-insure, however, if they can find generous stop-loss coverage that will assume most of the health risk of employees.  A small employer that fully assumed coverage for its employees without stop-loss coverage would face unacceptable risk.  Some insurers, therefore, are actively marketing stop-loss coverage, often with very low attachment points, to small groups.

Is this stop-loss coverage subject to section 9010?  It certainly is “insurance” and it certainly covers a “health risk.”   It also does not fit within any of the explicit exclusions from the term “health insurance.”  But is “stop-loss insurance” “health insurance”?  The term “health insurance” is nowhere defined in the Internal Revenue Code (which would be the relevant code since the fee is administered by the Secretary of the Treasury and the fee is considered to be an excise tax, see § 9010(f),(h)(1)).  “Health insurance coverage” and “Health insurance issuer” are defined in § 9832, but those are not the terms used in section 9010, presumably intentionally.  By analogy, the term “group health plan” is used throughout the ACA to mean an ERISA plan, but in § 1301(b) the term “health plan” is explicitly defined to not include self-insured ERISA group plans.  Wherever the term “health plan” is used in the ACA without the adjective “group,” therefore, it does not include self-insured ERISA plans, but where it appears with the adjective “group” self-insured plans are included.  Similarly, it must be presumed that Congress used the term “health insurance” to mean something different from the defined terms “health insurance coverage” or “health insurance issuer,” which terms are used throughout the ACA in different contexts.

Is stop-loss insurance that covers health care risks health insurance?  This is certainly a reasonable interpretation of the term.  Moreover, the fact that Congress explicitly excluded from the definition of “covered entity” risk borne by employers in self-insured plans, but not risk that they pass on to stop-loss insurers, indicates that Congress did not intend to exempt stop-loss plans from the fee.

Applying the fee to stop-loss coverage would help to level the playing field between conventional health insurers and health insurers that insure health risk through stop-loss plans, and might help stem the flood of small groups to self-insured status, which in turn threatens to undo the consumer protections extended to employees insured through small groups and the market protections built into the ACA to stabilize the small group market (such as the risk adjustment and risk pooling requirements).

Section 9010(c) tasks the Secretary of the Treasury with providing implementing regulations and guidance.  It is to be hoped that the Secretary will clarify through the regulatory process that the § 9010 fee applies not only to conventional insurance, but also to stop-loss insurance.  Stop-loss insurance increasingly serves as an alternative mechanism for covering the same health risks that are covered by conventional insurance, while at the same time providing a means of evading ACA consumer and market protections.  Section 9010 should be applied to stop-loss insurance just as it is to conventional insurance.

McDonald’s Balks, Gets Waiver to Continue Serving Up McSurance to Employees

On Oct. 5, the Department of Health and Human Services granted waivers exempting employers from complying with certain provisions of the health care law, according to Bloomberg.  News of the waivers came just days after the Wall Street Journal reported that McDonald’s had warned federal regulators that it would drop health insurance for nearly 30,000 hourly restaurant workers unless regulators waived the requirement that companies provide a minimum of $750,000 of coverage next year, increasing incrementally to unlimited coverage in 2014.

The health care bill also requires that 80 to 85 percent of health care premiums must be spent on benefits, as opposed to administrative costs. According to the WSJ article:

“McDonald’s and trade groups say the percentage, called a medical loss ratio, is unrealistic for mini-med plans because of high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims.”

Mini-med plans, such as the plans McDonald’s offers to its hourly restaurant workers, typically have low premiums and low caps on benefits. The basic plan at McDonald’s costs about $700 per year and caps out at $2,000. The better plan costs roughly $1250 and caps out at $5000, and the best plan caps $1700 per year and caps out at $10,000. Yes, that’s a yearly max benefit to premium ratio of less than 3 to 1 for the basic plan, 4 to 1 for the better, and roughly 6 to 1 for the best. You don’t have to be an actuary to conclude that those ratios bode well for health insurance as a profitable concern– for the insurer. And it is not hard to imagine why an 80 to 85% medical loss ratio requirement would seem onerous to a company which provides an insurance policy which by definition maxes out at 33%.

The Wall Street Journal quoted Jerry Newman, a professor at State University of New York at Buffalo who penned “My Secret Life on the McJob” after working undercover at a McDonald’s, who said the mini-plan could be a life saver. “The packages maybe could be better, but for a start, they’re quite good,” he told WSJ.

Are they? Kate Pickert, who writes for Time Magazine, criticized the so-called mini-med plans:

“The Wall Street Journal described the McDonald’s coverage episode as an “unintended consequence,” but killing off plans like those offered by the fast food chain couldn’t have been more intentional. Policy experts have long known that “mini-med plans,” also known as “limited medical benefit plans,” rarely end up being a good deal for those who buy them. If you have a real medical need — like a broken bone or surgery — this insurance doesn’t come close to covering it. If you only use the coverage for a few doctor appointments, you would have been better off paying cash. Consumer advocates — including some attorneys general and state insurance commissioners — have sought to curb these plans for years.”

Judging by how quickly McDonald’s request for a waiver was granted, it seems like politicking is at play. From the Bloomberg story:

“The big political issue here is the president promised no one would lose the coverage they’ve got,” Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates, said by telephone. “Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they’ve got.”

However, there’s one more piece of the puzzle. What about those who cannot afford a decent plan? Where do they turn? I have a feeling we have not heard the last of the public option debate. The McDonald’s episode could be the start of many unintended consequences of the health plan.

If the administration is so quick to buckle to private insurers demands, then what hope does the health care law have of actually making a difference in how American’s get their health care? Perhaps the real problem is in the gap between now and 2014 when the law fully takes effect. Still, questions remain as to whether the health care law was strong enough to begin with. Remember, a poll by the Associated Press reminds us that American’s who believe the health care bill did not go far enough outnumber those who believe the health care law went too far two-to-one. President Obama ran his campaign on a public option and has since stated that the public option was never integral to his plan for health care reform.  The gaps that will lie between what the health care law requires and what employers are currently willing to offer under the new law will seemingly need to be somehow filled.

Mintz Levin: “Health Care Reform Advisory: Assessing the Impact of Federal Health Care Reform on Employers and Employer-Sponsored Group Health Plans”

I’ve written before on this blog about the value of Mintz Levin’s reports, and am about to do so again (you can find their  work, as a permanent link, under “Resources” on this blog). There is, linked below, a very nicely done recap of the health reform law– which gets quickly to the point regarding the implications of a number of provisions within the law for employers and employer-sponsored group health plans. For those of you unfamiliar, Mintz Levin is  a law firm with its primary office in D.C., and a health sciences group with a well deserved reputation for excellence. If you are an employer, or even an employee that has some appropriate notion of “trickle-down,” I highly recommend you take a look.

Written by Alden J. Bianchi and Patricia A. Moran, “Assessing the Impact of Federal Health Care Reform on Employers and Employer-Sponsored Group Health Plans,” may be found here.

Taking Steps Toward Reform

Should an imperfect health reform bill be passed?  Health reform should be about four things: 1) expanding coverage to all; 2) providing health security for those already insured; 3) ending the fragmentation of health care delivery in favor of sound coordination of care; and, 4) constraining cost to ensure that we can afford appropriate care in the future.

The House leadership bill (HR 3962) does a good job on the first, reaching a large proportion of the uninsured — although it will not achieve universal coverage.  It also gets good marks for reforming insurance regulations — although its weak version of the public plan will make true insurance reform more difficult to achieve.  It makes some tentative progress on care coordination, mostly through pilots and demonstrations in public insurance programs.  It provides some cost saving measures in Medicare and through encouraging alignment of financing systems — but cost containment is clearly the weakest aspect of the bill.   So, should the reform be passed, warts and all?

After months of criticism of the majority’s plans and promises of the production of a better plan, House Republicans proposed a substitute to the House leadership bill.   How does it stack up?  The CBO finds that the Republican substitute would reduce the deficit over the next ten years by about $68 billion, which is about $40 billion less than the reduction the CBO projects from the Democratic version.   The CBO also estimates that the Republican bill would reduce the number of uninsured over the next ten years by “about 3 million relative to current law, leaving about 52 million nonelderly residents uninsured,”  compared with its assessment that HR 3962 would reduce the number of nonelderly uninsured by 36 million during that time period.  So, the GOP substitute would do less to reduce the deficit, and cover 33 million fewer uninsured.   It includes some insurance reform provisions, many based on consumer-directed models that tend to further fragment, rather than coordinate care.  HR 3962 is far from perfect, and the CBO’s estimates have been subject to criticism, but the reports provide food for thought for those who hoped that the Republican plan would offer a meaningful alternative.

Sometimes proceeding in steps is necessary, particularly with complex systemic reform.  Massachusetts has in many ways been a model for drafters of federal reform plans, and stands as an example of incremental steps toward full reform.  It enacted sweeping health insurance reforms in 2006, creating a marketplace for regulated private insurance, the addition of public plans, and responsibility shared among businesses, individuals, and providers.  It has been remarkably successful at expanding access, driving the uninsurance rate down to 2.6% as of the spring of this year, and enjoying continuing strong support within Massachusetts.    Costs are a growing concern.  But the coalition of business, consumer, and provider groups behind the reform anticipated the need to circle back and tackle finance.  Cost concerns have only grown with the economic downturn, as tax receipts lag and countercyclical demand for Medicaid coverage strains budgets.  Resolve to push forward appears strong.  Representatives of several stakeholders reported last year that,

Since passage, all stakeholder groups have remained deeply engaged in implementation.  Despite news reports of higher-than-expected costs, the governor, legislative leaders, and stakeholders have repeatedly reiterated support for full implementation.  This consensus, crucial to enactment, has proved equally vital to implementation.

Massachusetts reformers made the decision to proceed in two steps: coverage first, cost control second.   While no one is proposing a two-step process for federal reform, expanding coverage and reforming insurance practices have been the overriding emphases in Washington.  And HR 3962 does advance the cause of care coordination for the chronically ill.  It was interesting to see the Dutch Health Minister in a recent interview emphasize coordinated care as a central feature of reform.  In describing his country’s reforms (from which some draw lessons for our country), he explained:

We are trying to make sure that no one receives health care that is not coordinated. And [we intend] that the general practitioners cannot negotiate any longer with insurance companies unless they are part of a coherent group that is offering coherent care.

What does the GOP bill do for people with chronic illness?   The CBO found that provisions in the proposed substitute would “tend to increase the premiums paid by less healthy enrollees.”   The substitute, then, entails fiscal benefits for the well at the expense of those who most need care and coverage.

HR 3962 reforms the insurance market to safeguard coverage for those who have it now; expands coverage for the uninsured; and begins the arduous task of shifting care delivery from fragmentation to coordination.  The GOP alternative covers one-twelfth as many uninsured, makes coverage for the chronically ill harder to maintain, and does less to reduce the deficit.  Common sense tells us that taking positive steps toward reform is vital, and that the GOP substitute is no reform at all.

The House Democrats’ Health Care Plan Unveiled, Questions on Women’s Access to Health Care Remain

Last Thursday, October 29^th, House Democrats announced their bill for health care reform, the Affordable Health Care for America Act.  The House bill includes provisions such as a public option and employer mandates.  For women, the House bill has been a controversial issue; though the bill contains provisions that will expand women’s access to certain areas of health care, other areas have been neglected.

On the plus side is the bill’s prohibition of domestic violence being categorized as a pre-existing condition for health insurance purposes.  Ms. Pelosi was able to follow through on her promise to women that such a discriminative practice would be ended through the House bill.  Meanwhile, U.S. News attributes the inclusion of women’s health needs in the bill to the widespread women-led activism for health care reform.  Still, as significant aspects of women’s access to health are yet left unaddressed, some advocates wonder if we should have asked for more.

One issue of contention is that an amendment to the the bill allows for 12 years of exlcusivity for biologic drugs– some of which have been found particularly efficacious in the treatment of breast cancer. In addition to the 12 year exculsivity period, manufacturers will also be able still to engage in the process known as “evergreening,” the practice of changing a drug slightly–such as altering the time release mechanism– and thereby garnering additional periods of exclusivity. These periods of exclusivity prohibit cheaper generic versions of the drug– known as “follow-on biologics” or “biosimilars” from entering the marketplace. (To read more about the biologic exclusivity debate read here and here.) The end result would seem to point– if money matters (and when does it not?),  to a decrease in the availability of breast cancer biosimilars and thus a decrease in available efficacious treatment.  One of the bill’s sponsors, Anna Eschew of California, defends the proposal on the grounds that it does not interfere with women’s access to breast cancer treatment, and that it only curbs the ability of bio-pharmaceutical generic competitors to freely utilize the costly, extensive research and development of the original bio-pharmaceutical innovators.  Eschew believes that lesser periods of exclusivity will have a chilling effect on biologic research and development– as lesser exclusivity would make it more difficult for the original developers of the drugs to recoup the large expenses associated with such development.

Reproductive health care issues have also come to the forefront of the debate, but with a clear consensus yet to have emerged on what the bill does or does not cover within the various exchanges, options and subsidies within the bill.

While political groups are preparing to battle out these issues, one thing remains constant, women are a force that both democrats and republicans want on their side.  The House Democrats were paying attention when drafting their health plan, but the holes still left in women’s health care access might mean that women need to make themselves heard again–and this time, maybe a little louder.

Consumer Protection in a Reformed Health Care & Insurance System

Implementation is critical to the success of translating universal coverage into access to appropriate health care for all.  Sound follow-through demands the design and execution of well-tailored consumer protection regulations. The first step is a prohibition of underwriting or rating decisions based on preexisting illness.  Insurers have agreed to this reform, as a quid pro quo for the millions of new customers they’ll get from coverage mandates.  Universal coverage and this prohibition of discrimination go together.  Insurers are right that it doesn’t make business sense to ignore preexisting illnesses if consumers can wait for illness to appear before contributing to the insurance pool.  They seem to agree that coverage mandates can adequately do the work of preexisting illness exclusions, rendering them superfluous.

Insurers’ position on non-discrimination would clearly change if folks like Rep. Tom Price (R. Ga.) have their way.  Price objects to mandates because they would allow the government to define “insurance” thereby disadvantaging some forms of currently-marketed coverage, such as bare-bones and HSA-linked consumer-driven products.  But underinsurance has been devastating the American middle class for years; real reform must establish basic levels of fiscal security, as well as medical coverage.  Representative Price’s attack on standards is, then, merely a back door attack on universal coverage.  It is a necessary package deal: either we have universal coverage with an end to preexisting illness exclusions, or markets will continue slicing and dicing “insurance,” leaving huge gaps in coverage. Read more

The Truth About Young Invincibles

Recently released data has indicated that young people don’t care about health care reform.  Or at least not in large numbers. The poll, released by Gallup, says that only 34% between the ages of 18 and 34 want their Congress members to vote for reform legislation.

But this conclusion, drawn by so many, may be somewhat at odds with what the underlying situation might realistically be: that young people actually do care about health care reform itself– but are reluctant to bear the costs for not only themselves–but aging boomers as well–especially as young people have borne disproportionately the effects of the economic crisis.  For those of us who are in between still being dependents on our parents’ insurance and having health coverage of our own through employment, health care coverage is important –and we’re not so stubborn so as to not admit it– but the cost of insurance at the onset of a working life can be a significant barrier.

Why is there a problem of young uninsured people anyway?  19 years of age seems to be the limit for when young people in our country can still get medical coverage under their parents’ policies.  Although many states have altered this equation, many have not. For many private insurance companies as well as Medicaid, young people are cut off from coverage at the age of 19 or when they graduate from high school.  Many insurance companies cover those dependents that go on to college, and many college insurance plans provide some level of coverage. But those who choose to join the workforce  directly following high school graduation are largely left without.  In addition, once a “young and invincible” graduates from college, most are severed from insurance coverage altogether (that is, if they weren’t already).

Again, what might lend itself to misconstrual among all the data on health care legislation support is the difference between young people wanting health reform and being able to afford it– even if we get it.  According to the Commonwealth Fund, the majority of the uninsured young adult population (ages 19-29) are from low-income households.  Also, more than 2.5 million recent college graduates are unemployed.  Important to remember is the fact that recent graduates simultaneously face the difficulty of paying off college loan debt.  Thankfully, President Obama has not forgotten that fact.

Some policymakers think that because young people are so “invincible” we make an ideal group to add into the health care insurance pool: we are healthy, cheap to cover, and take up a small percentage of overall costs on health care.  For them, it makes perfect sense to add a relatively healthy group to the larger pool of Americans requiring insurance so as to drive premiums down overall and/or increase the profitability of insurers.  Ideas like this overlook (or disregard) the resultant fact that young people will then bear the responsibility of subsidizing health care costs of older generations– counterintuitive and somewhat contraindicated  when we look at wage status and unemployment numbers for recent high school and college graduates entering the workforce, don’t you think?

Importantly, besides the issue of unemployment, the types of work young people are usually able to secure affect their chances of getting health coverage too.  Those who are able to obtain jobs usually start off working part-time or lower-wage jobs, ones which typically do not offer benefits such as medical insurance.  Read the story about this young woman who was highlighted in the LA Times; she was unlucky enough to need an operation to remove a cyst while she was still in the introductory period as a new-hire (no insurance until you prove yourself, of course).  The only way she was able to cover the out-of-pocket expense of $12,000 was through her parents’ refinancing of their home.

Implicit in all this is age rating. For many reasons beyond its potential negative effects on both young and old, age rating should be divorced from actual health care reform.  Age rating would allow insurance companies to actively discriminate against its beneficiaries based on age alone.  For young people, such proposed age-rated, young-invincible plans are not even comprehensive; they would only cover medical care in times of emergencies or extreme illness, giving the plans the name of “catastrophic insurance.”  That sounds enticing.  Hard to believe young people wouldn’t be banging down the doors of their elected officials, adamantly demanding “catastrophic insurance,” right?

Better plans would incorporate the real needs of young people: preventive care, prescription benefits, and affordability.  These issues are not just unique to older generations.  If we want to keep the so-called invincibles healthy, we have to give them better options than just care in times of dire need.  Keeping young people on their parents’ insurance until a certain age limit is a good idea, as long as it plays out in practice too.  Anything is better than forcing young people to get coverage they can’t afford.  If you want our support for health care reform, try tailoring some of the reform bills to what we actually need.

Because She Said So: Michelle Obama Wants Women to Stand Up for Health Care Reform

Last Friday, First Lady Michelle Obama addressed the nation’s women, asking them to mobilize in support for health care reform.  Similar to the sentiments expressed in my post last week, Obama presented health care as a woman’s issue– further stating that health care is most important to what she called the “sandwich generation,” those who have the responsibilities to care for the elderly in their family as well as the children.  Obama calls the current health care system “unacceptable,” and one that needs reform to “ensure women have opportunities that they deserve.”  Included in such opportunities for women, as the First Lady said, is the freedom and ability to care for their families.

Further complicating the situation, many women find themselves earning more than is allowed to be eligible for public insurance yet not enough to purchase private insurance.  Women are also less likely than men to secure employer-based insurance, which can be attributed to the fact that women are more likely to work part-time and have lower incomes.  Employment equality issues ring a bell?  Check out this New York Times web tool, which gives a comparative analysis on how different individuals are affected by health care reform.  It is interesting in that it shows that for women, especially those who are unmarried, the current system leaves them largely to fend for themselves in the individual market; it also shows the potential benefits of a public plan option.  As I detailed last week, the individual market in health insurance, not subject to a host of anti-discriminatory legislation and regulation, poses significant problems to women when it comes to supplying affordable and reliable insurance.

One of the biggest issues Michelle Obama seemed to have with the current system was gender rating; it continues to force women to pay much higher premiums than men in private insurance plans.  The actuarial argument, that women’s health care needs require regular preventive care (which in reality, women and men alike should be getting) is significantly undermined by the research which shows the ultimate cost benefits of preventive care–for both women and men. It seems both ironic and counter-productive that this justification is used to punish with higher premiums those who embark upon the proactive health maintenance which so many agree is both the key to ultimate health care cost control and one of the primary goals of health care reform. Hopefully, Obama’s optimism that such gender rating will be removed through the current reform process will prove true.

With so many challenges aligned against women, it is apparent that, as stated by the Congressional Joint Economic Committee, “The status-quo health insurance system is serving women poorly.” Perhaps this is why the Obama administration, in its drive to convince Americans that the issue of health care can no longer be pushed aside, is turning to women.  A smart choice, whichever way you look at it, since women as a whole are one of the groups most strongly supporting health care reform.

So what can women do to get active in the health care reform movement, as Michelle Obama asks of us?  For now, make sure you stay on top of what the language of health reform bills says about health care for women and families.  The National Women’s Law Center is a great organization to get connected to for updates and summaries of the effects of new legislation on women’s access to health.   Through the National Women’s Law Center, you can also contact your Members of Congress to let them know that you support health care reform that addresses women’s needs.  Spread the word to your mothers, daughters, sisters, and friends; tell them Michelle Obama needs our help.

Baucus: Not So Fast with that Swift Boat, Attack Ads = Lose Your Seat at the Table. Some Hold Fire.

Yesterday, we ran a post (Health Care Reform in 60 seconds or Less, or “Was That a Swift Boat I Just Saw Carrying Away Meaningful Reform?”) in preparation for what we perceived to be the onset of a deluge in Health Care Reform advertising as we approach the 4^th of July recess. And although Roll Call reports that for the recess

A long list of industry and interest groups have taken out advertising spots, are activating grass-roots networks and are planning Member meetings outside the Beltway.

Roll Call also reports that

Several major industry stakeholders, however, will be noticeably absent from the advertising airwaves over the July Fourth recess….AARP, the American Medical Association, America’s Health Insurance Plans, the Federation of American Hospitals and AdvaMed all say they are sitting out this recess when it comes to advertising campaigns.

The Pharmaceutical Research and Manufacturers of America will be running positive ads touting health care reform.

The groups have been holding their fire in response to threats from the staff of Senate Finance Chairman Max Baucus (D-Mont.) and White House aides, who have warned that any groups that run ads attacking reform efforts before the bills have been crafted would lose their seats at the bargaining table.

Presumably, the Republican Senators on the Finance Committee are exempt from the decree, and will not lose their seats at the table despite a recent offering from the Republican National Committee which, as we posted yesterday, seeks to explain the complexity of health care finance through the following: “President Obama talks about a quote, ‘public option.’ When he says public option, that means putting government bureaucrats in charge instead of patients and their doctors. It’s a bad idea.”

But maybe, in a real sense, the Republicans lost the table a little more than 6 months ago–which is why the tag line in this ad is: “Republicans want bipartisan health care reform.” I’m sure they do.

Health Care Reform in 60 Seconds or Less, or “Was That a Swift Boat I Just Saw Carrying Away Meaningful Reform?”

USA Today has run an interesting article about recent advertising efforts regarding Health Care Reform. USA Today reports that

Business groups opposed to health care bills floated by House and Senate Democrats launched print ads this week. The Republican National Committee ran its own TV ad as well.

Until now, ads for and against President Obama’s proposed health care overhaul have been run by lesser-known groups. Interested groups are stepping up their efforts during Congress’ July Fourth recess.

“It’s probably the starting gun,” says Evan Tracey of Campaign Media Analysis Group, which tracks political advertising.

And so it begins. 30 to 60 second assaults on reason designed:  to grab the reins of the angels of our better (or worse) nature (see RNC ad which states:  “President Obama talks about a quote, ‘public option.’ When he says public option, that means putting government bureaucrats in charge instead of patients and their doctors. It’s a bad idea.”); to remind Congressman where their bread is buttered (last week “the U.S. Chamber of Commerce ran a full-page ad in Roll Call, a Capitol Hill newspaper,” and “the National Federation of Independent Business ran an ad in The Hill” –see list of health industry contributions to Health Committee Congressman here, page 16); and, last but not least, to protect the interests of those who have paid for the ads.

In short spots, the key is to evoke emotion (fear and anger work well) under the flag of the “informative” (in the RNC ad listen to the gentle voice and piano meant to convey dispassionate, grandfatherly “reasonableness” while stating the conclusory). The trick, of course, is to make the viewer believe that his or her interests and that of the producer of the ad are coextensive– all in 30 to 60 seconds.

Even a cursory glance through the pages of this blog will show a multifarious complexity sometimes difficult to grasp even with hours if not years of study. Very smart people can, and often do, disagree. There is minutiae to contend with and, as always, the devil is in the details.

In an NPR All Things Considered piece about lobbyists we covered in a post the other day, one of the lobbyists, “Sharon Cohen, head of the health-care practice at the Podesta Group, one of Washington’s biggest lobby firms,” made a point well worth noting regarding the legislative process and the importance of details in the form of amendments. NPR spoke with her after she had attended the initial health care overhaul panel of the Senate Committee on Health, Education, Labor and Pensions:

Cohen later told us that, as she sat in that first health care session, she was listening to the senators position themselves in their opening statements, but “it’s really about the amendments, in terms of how they’re being discussed and the ultimate votes on those amendments.” The committee didn’t get to any amendments that day. The 22 opening statements consumed morning and afternoon sessions.

In the first quarter of this year, the expenditure for health care lobbying reached $1.4 million per day.

Ultimately, the devil is in the details. The Big Print giveth and the small print taketh away. The obscure clauses in the depths of the amendments are as likely as not to make big differences in the reality of reform. The ads we will be seeing most assuredly will not provide details–they will be Big Print–”opening statements”–more likely to obfuscate than educate. They will help provide clatter and cover for the lobbyists to do what they need to do, and help provide justifications for Congressman to vote against their political opponents and in favor of their benefactors (see list of health industry contributions to Health Committee Congressman here, page 16).

The ads may be dumb, but that doesn’t mean they can be ignored. To quote the snake oil ad above: “It is under such conditions that the seeds of disease are sown which bear bitter fruit in the present and future generations. “The danger here is that we will ultimately wind up with “Health Reform” in name only– and it will be another 10 or 20 years until anyone seriously talks about overhaul again. Whether through advertisement or amendment or a combination of both, to be “swift boated” is to lose.

Competition among private plans: Who is served?

Our private health insurance marketplace works poorly.  Commentators including Jacob Hacker, and many Democratic legislators, argue that the creation of a public plan to compete with existing private plans will assist in the dual tasks of improving quality and reducing cost inflation.  Responding today to these assertions in a NYT Op-Ed, David Reimer and Alain Enthoven argue that there is a role for government in a reformed health finance system, but not as a market participant.  Rather, they argue, it is as a regulator that government can cure the ills of our poorly functioning insurance marketplace.  Implementing their vision might or might not benefit well, low-cost workers; it would not, however, help those with chronic illness and other high-cost insureds — those who need coverage the most.

Reimer and Enthoven argue that government-run exchanges can adequately address market failure in the health insurance market, allowing well-regulated private insurers to compete in terms of price and quality.  The exchange would ease consumer comparisons of insurers by limiting incentives (tax or otherwise) to a benchmark created by reference to the lowest-price qualifying plan.  As consumers would then be required to pay any excess out of pocket, plans would be incented to stay at or close to the benchmark price, driving cost pressure down to providers, thereby reducing health inflation.  At relatively uniform prices, plans would presumably distinguish themselves by putting together “good, economical plans.”

The argument over whether the market for purchasing health insurance could operate in a classically efficient manner, at least absent distorting outside influences, is long-running.  Enthoven has argued the affirmative vigorously and ably for decades.  Tim Jost and others have argued that classical economic analysis is largely inapplicable to the market for health insurance because the timing of the purchasing decision confounds consumer decision-making, and because health care is a sufficiently special good that we are unlikely to hold people to their restrictive ex ante decisions as to coverage.

Let us for the present accept that a market for health insurance, well-regulated as Reimer and Enthoven suggest, can produce “good, economical plans” for the average consumer.  This would occur because insurers would seek to enroll as many of these average consumers as possible, and to maintain good service and low pricing to keep them enrolled.  But, as I described previously,  there is a class of people insurers would not welcome.  Health care costs are heavily concentrated in the sickest 10% of consumers, and many of the most expensive users are easily identifiable in advance because they have chronic illnesses.   Rational, self-maximizing insurers would shun these consumers absent some risk-adjustment payment Reimer and Enthoven do not mention, and that indeed appears not to exist to an extent adequate to reasonably combat insurers’ selection bias.  Insurers can be required to offer them coverage, even to provide coverage for chronic care services.  But will rational, self-maximizing insurers serve them well, left to their own devices?  Why would they, if they could discourage their patronage by providing lackluster care coordination, home care, physical therapy, and other services that are markers for expensive chronic illnesses?  We ought not rely on self-interested market participants and expect them, all else being equal, to act contrary to their own self-interest.

Competitive private markets for health coverage might make sense if health costs were homogeneously spread, or even if high costs occurred unpredictably.  In a world where a large number of Americans are predictably poor bargains for insurers due to known chronic conditions, we need, as an option, an entity whose sustainable, reliable mission is to provide good, economical coverage for those who most need care, and who incidentally represent a substantial portion of our health care budget.  If committed public plans show the way to excellent chronic care coordination, we will be able to judge the efforts of private insurers in this important regard; otherwise, the needs of the chronically ill can too easily be swept under the rug.

Atul Gawande: Why McAllen Texas Kant be the answer to health reform

“Act in such a way that you treat humanity, whether in your own person or in the person of any other, always at the same time as an end and never merely as a means to an end. ”

-Immanuel Kant, Groundwork of the Metaphysic of Morals^[1]

Atul Gawande has done it again. He has written a piece for the New Yorker that you simply have to read:  “The Cost Conundrum.What a Texas town can teach us about health care.“

Gawande writes that McAllen “is one of the most expensive health-care markets in the country. Only Miami-which has much higher labor and living costs-spends more per person on health care. In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.”

El Paso, Texas, similarly situated, spends significantly less- half as much. The why of it is absolutely compelling. And it struck me while reading that what Gawande finds is essentially a medical culture functioning, and incentivized, contrary to Kant’s categorical imperative (see above): the simple moral admonition that one must not merely “use” others.

Might I suggest that it is passing strange to find ourselves, in the midst of such daunting medical, technical, and financial data contained within the  proposed solutions and counter-solutions to arrive at this–a simple (but difficult) age old moral truth?

Pragmatically, as one looks upon the current system of health care and health care finance,  it is well worth quoting Harold Luft from today’s Washington Times: “A redesigned system must create new incentives for those entities so their self-interested behavior leads to a better societal outcome.” Gawande offers examples of systems which provide an infrastructure conducive to Mr. Kant’s imperative.

http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?currentPage=1

Health Insurance Administrative Costs to Doctors = $31 Billion Per Year

Back in January, in a post titled Health Care and Productivity, a National Cost, I had occasion to write a line or two about the affect of insurance paperwork upon my family physician, whom I had just seen. I ventured then in a roughshod way (I was sick), that such would impact his productivity, and consequently that of the nation:

…if my family physician and his staff of two are grudgingly forced to devote numerous hours to a maddening array of paperwork and phone calls (“it gets worse every year”) in an attempt to navigate the various streams of insurance authorizations and payments (“some of it seems designed solely to frustrate and slow or prevent payment”) -he will not be seeing patients. Tomorrow, he will not be seeing patients; he will be trying to catch up on paperwork–as will his staff.

Perhaps then, when we consider that Health Care costs amount to 16% of the GDP, we might also consider that this number does not take into account the difficult to gauge loss of national productivity. And although the sickness of one can be the work of another, the exchange does not seem to be an even one as it relates to national production: the doctor functioning, in a sense, as a support and enabler to the productivity of others. Having said that, if that doctor is unavailable (through lack of insurance or remoteness) to remedy the ills of the now unproductive (or the less productive) the nation suffers for it. If the doctor is needlessly enmeshed in tasks, inefficient and ancillary to patient treatment, the nation suffers for it.

A portion of the suffering has been gauged: L. P. Casalino, S. Nicholson, D. N. Gans et al., “What Does It Cost Physician Practices to Interact with Health Insurance Plans?” Health Affairs Web Exclusive, May 14, 2009, gives us numbers–and they agree with my doctor.

Key Findings

• Physicians, on average, spent 142.3 hours per year interacting with health plans, or 3.0 hours per week and 2.7 physician work weeks per year. Primary care physicians spent significantly more time (164.9 hours per year) than medical specialists (123.7 hours) or surgical specialists (100.3 hours).
• Nursing staff spent an additional 23 weeks per year per physician interacting with health plans, while clerical staff spent 44 weeks and senior administrators spent 2.6 weeks doing so.
• Compared with other interactions, physicians, on average, spent more time dealing with formularies (78.2 hours for primary care doctors, for example), and the least on submitting or reviewing health plan quality data (1.9 hours annually for all physicians).
• Converted into dollars, practices spent an average of $68,274 per physician per year interacting with health plans; primary care practices spent $64,859 annually per physician, nearly one-third of the income, plus benefits, of the typical primary care physician.

The authors further note that “the estimated $31 billion in costs physician practices incur in their interactions with health plans comprises 6.9 percent of all U.S. expenditures for physicians and clinical services. That is six times the amount the federal government spends annually on the Children’s Health Insurance Program (CHIP).”

The study also notes that “Primary care physicians, especially those in small practices, spend larger amounts of time interacting with plans than those in other specialties.”

My physician and his staff of two devote an entire day every two weeks, and his staff devotes a great deal of the time in between to this “maddening array of paperwork and phone calls (‘it gets worse every year’) in an attempt to navigate the various streams of insurance authorizations and payments” –some of which “seems designed solely to frustrate and slow or prevent payment.” The study estimates that expense for a primary care physician (though more for those “in small practices”) at $64,859 annually.

For more details you can read a brief Commonwealth Fund article on the report  here
or the Health Affairs article with the report here.

Greaney on the Public Plan

Is genuine health reform possible? Several recent developments are promising. President Obama’s big Congressional majorities (plus the Specter defection) are reminiscent of the Johnson-era milieu that led to Medicare and Medicaid. Key interest groups are less “Harry and Louise” and more “try to appease.” Most importantly, the failures of managed care, consumer-directed health care, and other artifacts of the “ownership society” are now self-evident. As unemployment rises, lack of insurance spikes, compounding the misery of many of those unlucky enough to get thrown out of work.

What could derail real health reform? Most likely, fake health care reform, particularly the kind that assumes there is something near a “free market” in operation now. As health care antitrust scholar Thomas Greaney argued yesterday, markets for health care are often very concentrated or riddled with barriers to entry:

The unfortunate fact is that a majority of the country is served by a few dominant insurers. (In 16 states, one insurer accounts for more than 50 percent of private enrollment; in 36 states, three insurers have more than 65 percent of enrollment). Likewise, because of lax antitrust enforcement, most markets are characterized by dominant hospital systems and little competition among high-end physician specialists.

In these circumstances, which economists call ‘bilateral monopoly,” the players often reach an accommodation in which they share the monopoly profits rather than compete vigorously. A prime example is the experience in Massachusetts, where Blue Cross/Blue Shield, the dominant insurer, reached an understanding with the dominant hospital system, Partners Healthcare, that entrenched higher prices for health insurance and hospital care.

Some might hold out hope that the Obama administration’s new emphasis on antitrust enforcement might solve that problem, but I would not hold my breath. After losing seven hospital merger cases in a row, the government is not exactly in a position to go storming into health care markets to demand competition. Only new antitrust laws are likely to accomplish much in that direction, and even if they were by some miracle adopted this year, I can’t imagine them having much effect within any reasonable time frame.
Read more

Employers Adopt Chronic Disease Management Programs

Kaiser Family Foundation reports another option for employers attempting to keep health insurance programs affordable.

KFF states:

“Eighty percent of large U.S. companies this year are offering chronic disease management programs for workers in an effort to reduce health care costs, up from 51% last year, according to a new survey by Hewitt Associates, the Houston Chronicle reports. Hewitt surveyed 343 large companies and found that more employers are targeting costly chronic diseases — such as diabetes, heart disease, asthma and depression — rather than workers’ eating or exercise habits. Hewitt estimates that a company with 9,500 workers and 500 retirees younger than age 65 spends between $18 million to $22 million on health care just for those with diabetes.”

Companies are managing chronic disease “by offering employees personal health coaches, on-site health clinics and copayment waivers for needed medications.”

Compared to consumer-directed health plans, chronic disease management is a relatively uncontroversial approach to lowering health care costs for employers.  As we’ve noted in a recent post, “Twenty-five percent of the U.S. community population were reported to have one or more of five major chronic conditions.” Not only does chronic disease management focus on preventative care and employees’ long-term health, employers are saving money in the short-term.  The results, although varying, are generally successful, with employers “spending 10% to 30% less per year on medical care after two to five years (Sixel, Houston Chronicle, 4/2).”  The short-term savings could lead to healthier employees, higher productivity and long-term savings.

The Houston Chronicle reports that:

According to Joseph Jasser, regional medical director for Houston for Concentra, an industrial medicine and urgent care provider, “If you can change their lifestyle — cut out smoking, eat better and exercise — then they’re healthier and companies end up spending less for medical care.”

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