Accountable Care Organizations: Landmark Report from California

Earlier this week the Integrated Healthcare Association (IHA) released an important whitepaper entitled “Accountable Care Organizations in California — Lessons for the National Debate on Delivery System Reform.” (Click here for a pdf of the whitepaper). The IHA describes itself as: “a statewide multi-stakeholder leadership group that promotes quality improvement, accountability and affordability of health care in California. “

ACOs have been discussed before at HRW in the context of reforming the health care delivery system. Unfortunately, ACOs are relatively new and untested. This is what makes California — a tried-and-true state policy laboratory — a valuable laboratory for health reform, particularly for models like the ACO that the reform law attempts to leverage. The tables provided in the whitepaper make it easy to appreciate California’s experience with ACOs:

The upshot of IHA’s report are the ten lessons that they have distilled from the 285+ physician organizations that together display many of the characteristics of ACOs. These lessons are as follows:

Lesson One: A variety of organizational structures are effective at delivering high quality coordinated care; at least as important to success as structure are an organization’s capabilities, culture and infrastructure, as well as the alignment of goals between the organization and its individual physicians.

Lesson Two: In California, a range of relationships exist between physician organizations and hospitals. Alignment of incentives between physician organizations and hospitals offer important opportunities for performance improvements across the entire continuum of care.

Lesson Three: As a method of payment, capitation can be effective at encouraging coordinated care, but payment methods should vary across ACOs depending on an organization’s ability to assume risk.

Lesson Four: Health plans acting in concert on payment methods and performance measurement helped facilitate the growth of California’s provider organizations, and should also play an integral part in fostering ACO development nationally.

Lesson Five: ACOs are not a panacea for healthcare spending control.

Lesson Six: ACOs must be agnostic to insurance type; most provider organizations in California have focused on commercial, Medicare and Medicaid HMO plans for their patients, but for ACOs to be viable across the country, mechanisms must be found to encourage PPO and traditional Medicare and Medicaid patients to use their services.

Lesson Seven: Balancing patient choice with the desire to decrease costs and effectively coordinate care is difficult. California’s experience underscores the challenge of promoting care coordination in an environment of unrestricted provider choice.

Lesson Eight: Regulation of the financial solvency of provider organizations is important to ensure market stability.

Lesson Nine: Consumer protections from capitated provider organizations need to be balanced, not overburdening.

Lesson Ten: Special attention must be given to establishing ACOs in areas with social and economic challenges.

There is a common thread that runs through many of these lessons: the tension between new organizational models and the payment models that currently exist:

In California, provider organizations have developed hand-in-hand with HMO products, and have been largely unsuccessful in their attempts to diversify into serving PPO patients. This has been driven in part by regulatory restrictions at both the State and  Federal  level  surrounding  providers  accepting capitation  and  FFS  payments. Downward trends in HMO enrollment in California have meant that this failure to diversify has limited the impact of the state’s physician organizations. In order for ACOs to flourish, laws and policies must allow for innovative provider payment arrangements, regardless of insurance type, and internal organizational changes will be needed to adapt to different payment methods.

As the report goes on to describe:

The greatest challenge and greatest opportunity facing ACOs in California and elsewhere is the potential for integrating the coordinated care programs developed originally for HMO and other narrow network insurance products into PPO and other broad network products.

The managed-care backlash of the 1990s is a reminder that past is prologue.  Increased consumer choice through products like PPOs is likely here to stay for quite some time. What remains to be seen is how the future regulations governing ACOs will promote greater collaboration in the delivery of care while embracing the payment models that consumers have come to appreciate and expect.

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.

A Doctor Speaks About Healthcare, Big Business and Justice

[Ed. Note: We received today's post from Timothy Shaw, M.D. F.A.C.S. as a comment in response to a post, "Health Care and Disparity in a 'Post-Racial' Era."]

Twenty years ago, upon entering private medical practice for the first time it took me about a month to realize that the United States needed “Health Care Reform.” After serving the previous fifteen years in the US Army Medical Corps, I started my first civilian medical job. I was asked to come to a hospital by another surgeon to perform an ear operation on a 3 year old boy at the same time as he would be performing an eye operation. This would save the child from two anesthetics on two different days. Since I had never worked at that hospital, and apparently in order to set me straight from the start, one of the head doctors at this hospital, came up to me in the preoperative holding area, and boldly shoved the child’s chart in my face, pointed to the child’s insurance (Medicaid (Welfare)) and shamelessly told me, “if all you are going to do, is to bring this “****” in here, then we don’t need you to come here.” The poor little guy sitting in the corner with his Mom, was smiling at us with his cute partially toothless grin, and coke-bottle glasses. He didn’t realize what one of his doctors called him because of his health insurance coverage.

Again, several months later I was called to a different hospital (one that I normally did not work at either) in the same city by an operating nurse who asked if I took Medicaid “welfare patients.” She asked me if I would come to their operating room to take a coin out of a 2 year old child’s esophagus. She informed me that their hospital doctors in my specialty did not take welfare patients and they were looking for someone to do the operation as the child had choked on a coin. “Apparently someone forgot to screen this child’s insurance before he came to the operating room.” I canceled my clinic patients and drove across town, performed an esophagoscopy and removed the coin.

Obviously, the doctors in these above scenarios did not support “the Public Option” (Medicaid).

What had happened to our Health Care System? What had changed? Where was the honor that we had in the Army Medical Corps? We treated everyone from Generals to Privates and their families with the same respect. In accordance with Geneva Conventions, we even treated enemy soldiers during the Iraq War in our Combat Support Hospitals with the same care that we treated our own.

In a significant measure the United States Private Health System had changed into “Big Business.” In some measure the humanitarian emphasis had eroded.

Although spurning the pharmaceutical industry as “conflict of interest” entities, not suitable for proper patient care, surprisingly, doctors saw no apparent conflict of interest in merging with the Health Insurance Industry. Doctors and the Health Insurance Business became so closely aligned that their DNA intertwined to form a new species. This powerful new combined-arms team became the forme fruste of our new United States Health Care Industry. Doctors armed with new found business tactics, and the Health Insurance Industry armed with the legitimacy of the Doctor’s legal authority to limit health care to patients became the de facto United States Health Care System.

The business meeting replaced the medical conference to discuss “patient care” issues. To cope with the ever burgeoning bureaucracy, more and more doctors went into administration. More doctors have their MBA’s then carry black bags and make house calls. Mergers, Acquisitions, Expansions, Contracts, Covered Lives, Marketing Strategy, Demographics, Competition Threat Forecasts, Actuarial Science, and Health Insurance became the focus of many doctors. Time was spent on avoiding insurance business risk, trying to avoid the high risk patients, finding the better payer groups, etc. Hospitals became less hospitable. Doctor’s began to discharge patients so rapidly, that in the mid 1980’s the majority of States passed consumer protection laws (”Drive By Delivery Laws”) to protect mothers/newborns from being discharged from the hospital too soon.

Currently, the U.S. health care system is outrageously expensive, yet inadequate. Despite spending more than twice as much as the rest of the industrialized nations ($7,129 per capita), the United States performs poorly in comparison on major health indicators such as life expectancy, infant mortality and immunization rates. Read more

Good News for Health Care Reform Implementation

HCR implementation is steaming ahead. Jonathan Cohn lays out some of the key issues in a recent article in The American Prospect. A restrictive definition of “grandfathered plans” (which are not subject to the Affordable Care Act (ACA)) was an early victory for consumer advocates. Coverage appeal rules will soon be hotly contested during the rulemaking process:

Even if insurers are required to take all comers at relatively nondiscriminatory prices — “relatively” since age can be a rough proxy for medical condition — they’ll still have financial incentives to restrict care. This isn’t entirely a bad thing: Given the evidence of rampant overtreatment in American medicine, insurers should exercise some check on the use of technology, drugs, and other resources, for the sake of the patients as well as the insurers’ bottom line. But because insurers sometimes deny even necessary care, just to increase profit margins, the law seeks to limit the insurers’ authority — most obviously, by opening up treatment denials to outside appeal.

The idea sounds simple enough: Allow patients convinced they’ve been wrongly denied care to make their case to independent experts with authority to overrule the insurer. But who are the experts? How quickly must they rule? And what’s to stop insurers from ignoring the recommendations? The Obama administration has to write regulations answering all of those questions. A viable, working model exists: The National Association of State Insurance Commissioners has a framework, similar to what’s already in place in several states. HHS will consult those guidelines in devising a new scheme. The model is not perfect, but with sufficiently strong regulations it could give consumers significant new leverage.

Cohn also notes some important appointments at HHS. Having examined her work in the past, I was encouraged by the appointment of Karen Pollitz to “set up an Internet portal to provide basic information about different insurance policies.”

Nevertheless, Tim Jost warns that there are many possible obstacles ahead:
Read more

New Interim Federal External Review Process for Health Insurance Appeals Announced

As reported earlier in New Rules for Insurance Appeals, the departments of Health and Human Services, Treasury, and Labor issued interim final rules on July 23, allowing patient appeals of health insurance coverage.  On August 23, the U.S. Department of Labor, Employee Benefits Security Administration (EBSA) issued Technical Release 2010-01, regarding “Interim Procedures for Federal External Review Relating to Internal Claims and Appeals and External Review” under PPACA.

Looking back at the interim final rules, as they relate to the interim procedures (from New Rules for Insurance Appeals):

Under the rules, new health plans beginning on or after Sept. 23, 2010, must have an internal appeals process for beneficiaries to challenge “adverse benefits decisions” — a “denial, reduction, or termination of, or a failure to provide or make a payment (in whole or in part) for a benefit.”

If the internal appeal is denied, patients may choose to have the claim reviewed by an independent reviewer.  According to Appealing Health Plan Decisions, States are encouraged to adopt the National Association of Insurance Commissioners (NAIC) standards in “their external appeals laws to adopt these standards before July 1, 2011.”  If State laws don’t meet these standards, consumers in those States will be protected by comparable Federal external appeals standards.

The EBSA release “sets forth an interim enforcement safe harbor for non-grandfathered self-insured group health plans not subject to a State external review process, and therefore subject to the Federal external review process.”  The Federal process will apply to plan years beginning on or after Sept. 23, 2010 and will continue until the interim period is over.

The issuer of the “non-grandfathered self-insured group health plans” (hereinafter, “health plans”) is primarily responsible for compliance with the interim final regulations.  During the interim enforcement safe harbor, the Internal Revenue Service (IRS) will not take enforcement action against health plans that comply with either of the two interim methods provided by the EBSA.

1.      Compliance with State external review processes

Health plans may voluntary comply with the provisions of their State’s external review processes.  However, the State must first choose to expand access to their external review processes to health plans that are not subject to relevant State laws.

2.      Compliance with the procedures set forth in the technical release

A health plan may also adopt the external review procedure outlined in Technical Release 2010-01.  The release sets forth procedures based on the Unified Health Carrier External Review Model Act promulgated by the National Association of Insurance Commissioners (NAIC Model Act).  The EBSA procedure requires that an external review may be standard or expedited.

A. Standard Review

Health plans must allow a claimant’s request for external review if filed within four months of the adverse benefit determination.  A preliminary review must be completed by the health plan within five days of the claimant’s request and must determine whether:

a.       The claimant was covered under the plan at the time the service was requested or provided

b.      The adverse benefit determination was related to a failure to meet eligibility requirements

c.       The internal appeals process has been exhausted or is not required

d.      All information and forms required for the external review have been provided

Within one business day of completion, the health plan must provide written notice to the claimant of the health plan’s determination.  If the claimant is not eligible for external review, the health plan must provide the reason for ineligibility.  If the request is incomplete, the health plan must notify the claimant that further information or materials are required and provide the claimant with an opportunity to complete the request.  Health plans must allow the claimant until the end of the four-month filing period or forty-eight hours from the receipt of the notification, whichever is later, to perfect the request.

The health plan must contract with at least three independent review organizations (IRO) to conduct external reviews.  The IROs must be “accredited by URAC or by a similar nationally-recognized accrediting organization.”  An independent, unbiased method for claim assignments, such as rotation or random selection, must be used.  The IRO may not have a financial stake in the outcome of its decision.

The following must be provided in the contract between a health plan and an IRO:

a.       The IRO will utilize legal experts as appropriate.

b.      The IRO will provide the claimant with timely written notification including a statement of the request’s eligibility and acceptance for external review and a statement that claimant may submit additional information for consideration within ten business days of the receipt of notification.

c.       The IRO may choose to consider additional information received ten business days after the receipt of notification.

d.      The IRO must submit all additional information received by the claimant to the health plan within one business day.  The health plan may reconsider its adverse determination and terminate the external review if it decides to reverse its prior determination and provide coverage or payment.

e.       The health plan must provide all documents and information related to the adverse determination within five days; otherwise, the IRO may terminate the external review and reverse the adverse decision.

f.       The IRO will review the claim de novo based on all information and documents timely received.

g.      Within 45 days of the assignment, the IRO will provide written notice of its decision to the health plan and claimant. The decision notice will contain a description of the disputed claim, the date of assignment, and reference to the evidence relied upon and reasoning for its decision.  The notice must provide a statement that the decision is binding to the extent that other remedies may be available under the law and that judicial review is available to the claimant.

h.      The IRO will maintain all records related to a claim for six years and make them available for examination upon request by the claimant, health plan, or government oversight agency.

B. Expedited Review

A group health plan must allow a claimant to request an expedited review when a claimant receives:

(a) An adverse benefit determination if the adverse benefit determination involves a medical condition of the claimant for which the timeframe for completion of an expedited internal appeal under the interim final regulations would seriously jeopardize the life or health of the claimant or would jeopardize the claimant’s ability to regain maximum function and the claimant has filed a request for an expedited internal appeal;

or

(b) A final internal adverse benefit determination, if the claimant has a medical condition where the timeframe for completion of a standard external review would seriously jeopardize the life or health of the claimant or would jeopardize the claimant’s ability to regain maximum function, or if the final internal adverse benefit determination concerns an admission, availability of care, continued stay, or health care item or service for which the claimant received emergency services, but has not been discharged from a facility

The main difference between the expedited and standard review is the timeframe (unsurprisingly).  During an expedited review, the health plan must perform the preliminary review immediately and send notice of its determination immediately.  Upon assignment to the IRO, the health plan must transmit all documents and information related to the claim by any expeditious method.  The IRO must provide notice of the final external review decision as quickly as possible, but no later than 72 hours after assignment of the claim.

How Much Does PPACA Really Benefit Women?

A recent article by the Commonwealth Fund entitled Realizing Health Reform’s Potential: Women and the Affordable Care Act of 2010¸forecast that “over the next decade, the Affordable Care Act (ACA) is likely to stabilize and reverse women’s growing exposure to health care costs.”  However, a review of the claimed benefits shows that many are equally important to men and women.

Such claims of gender-specific benefits without statistical support are also available from the White house.  That being said, there are some provisions that will greatly benefit women — and to supporters’ detriment — have not received the focus that they should.

Intended Benefits

Several portions of PPACA are intended to benefit women.  The prohibitions against gender-based insurance denials or premium pricing are aimed at combating blatant gender-discrimination in the insurance market.  7.3 million women (38%) in the individual insurance market reported that they were turned down, charged a higher price, or had a preexisting condition excluded from coverage (see graphic below).  As the White House reports, “Right now, a healthy 22-year-old woman can be charged premiums 150 percent higher than a 22-year-old man.”  Such gender-based rating is allowed in 42 states, with some plans charging women as much as 84% more than men for the same age group.  As Secretary Sebelius phrased it, “[b]eing a woman is no longer a pre-existing condition!”

S. Collins, S. Rustgi, and M. Doty, Realizing Health Reform’s Potential: Women and the Affordable Care Act of 2010, The Commonwealth Fund, July 2010.

The essential benefits standards require insurers to cover maternity care, eliminating previously reported pregnancy-discrimination.  Only 13 percent of plans sold in the individual market provide maternity benefits and “in 22 states, no plan covered costs related to pregnancy.”  Other plans impede access to maternity benefits by placing severe limits on costs covered or implementing long waiting periods before coverage begins.

Other services that must be covered by all non-grandfathered health plans beginning September 2010 include:

• Breast cancer screening every one to two years for women age 40 and older
• Cervical cancer screening
• Genetic counseling for the breast cancer (BRCA) gene
• Osteoporosis screening for all women 65 and older, and 60 and older for those at high risk
• Aspirin to prevent cardiovascular disease in women ages 55 to 79

PPACA has several other provisions focused on breast cancer–including, “a special provision directed at raising awareness of, and increasing screening for, breast cancer in young women,” and a directive to pursue breast cancer prevention research in younger women.

Section 4207 of PPACA amends Section 7 of the Fair Labor Standards Act (”FLSA”) by requiring employers to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk… [in] a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public…”  The Department of Labor Fact Sheet #73 further explains that a space temporarily converted or made available will be sufficient.

Unintended Benefits

The ban on pre-existing conditions exclusions will remedy a number of  unfair and discriminatory insurance industry practices. It will benefit women in the eight states and District of Columbia where insurers may legally reject a woman’s application on the basis of her prior experience as a victim of domestic violence.  It will also benefit women who would have been previously denied, on the basis of a previous cesarean section, either future C-sections or health insurance as a whole.

Also, the phase-out of the “doughnut hole” coverage gap in the Medicare prescription drug benefit )Part D) will incidentally help more women than men.  Of the 16% of Medicare beneficiaries that reach the doughnut hole each year, women (along with Alzheimer’s and diabetes patients) are the most likely to reach the gap in coverage.

Benefits for Men

So how do men benefit from PPACA?  For starters more men will benefit from the extended health insurance coverage mandated by PPACA.  Although women comprise 60% of adult Medicaid beneficiaries (in 2006), 54.6% of all uninsured are men (in 2007-2008).  The Medicaid safety net has caught more women than men.  However, that is a completely different social discussion to be had another day.

*Note: uncited statistics can be found in the Commonwealth Fund article, S. Collins, S. Rustgi, and M. Doty, Realizing Health Reform’s Potential: Women and the Affordable Care Act of 2010, The Commonwealth Fund, July 2010.

New Rules for Insurance Appeals Under PPACA

On July 22, the Obama Administration released interim final rules that allow patient appeals of health insurance coverage decisions as required under the Patient Protection and Affordable Care Act (”PPACA”) and Health Care and Education Reconciliation Act (”Reconciliation Act”).  Published by the departments of Health and Human Services, Treasury, and Labor, these rules create standards for the internal and external processes by which patients can appeal adverse benefits decisions.

Prior to these rules, coverage appeals were governed by contract and State law.  Forty-four States have created some form of external appeal process for insurance coverage decisions; however, their coverage is limited and the processes vary greatly.  Effective January 1, 2003, changes to the Employee Retirement Income Security Act of 1976 (”ERISA”) regulations provided standards for internal appeals processes.  However, these standards only apply to employer-sponsored group health insurance.

As stated in the Obama Administration fact sheet entitled, “Appealing Health Plan Decisions,”

Today, if your health plan tells you it won’t cover a treatment your doctor recommends, or it refuses to pay the bill for your child’s last trip to the emergency room, you may not know where to turn. Most health plans have a process that lets you appeal the decision within the plan through an “internal appeal” — but depending on your State’s laws and your type of coverage, there’s no guarantee that the process will be swift and objective. Moreover, if you lose your internal appeal, you may not be able to ask for an “external appeal” to an independent reviewer.

Internal Appeals Process

Under the rules, new health plans beginning on or after Sept. 23, 2010, must have an internal appeals process for beneficiaries to challenge “adverse benefits decisions” — a “denial, reduction, or termination of, or a failure to provide or make a payment (in whole or in part) for a benefit.”  Such adverse benefits decisions may be based on individual eligibility, benefit coverage, limitations on otherwise covered benefits (such as preexisting condition exclusions, source-of-injury exclusions, and network exclusions), and a determination that a benefit is experimental or not medically necessary.

In addition, health plans must do the following:

• Notify a claimant of a benefit determination as soon as possible;
• Provide claimants, free of charge, with the evidence relied upon and the rationale for the decision;
• Avoid conflicts of interest by making decisions regarding hiring, compensation, termination, and promotion independent of a claims adjustor or medical experts record of denial of benefits; and
• Meet additional requirements for notice, including information on internal appeals and external review processes.

However, these requirements do not pertain to so-called “grandfathered health plans” — those health plans that were in existence before March 23, 2010 when PPACA was enacted.  In the individual market, health insurance providers must meet the foregoing requirements as well as the following three:

• Applicants for individual insurance must be allowed to appeal initial eligibility determinations;
• Internal review must be limited to a single level, allowing claimants to appeal to external or judicial review immediately; and
• Insurers must maintain all claims and notices for a minimum of six years, which is already required of employer-sponsored health plans under ERISA.

External Appeals Process

If the internal appeal is denied, patients may choose to have the claim reviewed by an independent reviewer.   According to Appealing Health Plan Decisions, States are encouraged to adopt the National Association of Insurance Commissioners (NAIC) standards in “their external appeals laws to adopt these standards before July 1, 2011.”

The NAIC standards call for:

• External review of plan decisions to deny coverage for care based on medical necessity, appropriateness, health care setting, level of care, or effectiveness of a covered benefit.
• Clear information for consumers about their right to both internal and external appeals — both in the standard plan materials, and at the time the company denies a claim.
• Expedited access to external review in some cases — including emergency situations, or cases where their health plan did not follow the rules in the internal appeal.
• Health plans must pay the cost of the external appeal under State law, and States may not require consumers to pay more than a nominal fee.
• Review by an independent body assigned by the State. The State must also ensure that the reviewers meet certain standards, keep written records, and are not affected by conflicts of interest.
• Emergency processes for urgent claims, and a process for experimental or investigational treatment.
• Final decisions must be binding so, if the consumer wins, the health plan is expected to pay for the benefit that was previously denied.

If State laws don’t meet these standards, consumers in those States will be protected by comparable Federal external appeals standards.

As Kaiser Health News reported, “This is a regulation that benefits everyone — consumers get protections, business and providers get more certainty in the rules and the need for litigation to settle these issues should be dramatically minimized,” Phyllis Borzi, assistant secretary of the Department of Labor, said at a briefing for reporters Thursday.

Consumer Assistance Grants

However, procedural rights for consumers are not sufficient to ensure proper appeals.  “Not enough consumers know this is an option that they have,” said Angel Robinson, the consumer advocate in the Iowa Insurance Division, according to Kaiser Health News.

In addition to the new requirements for internal and external appeals processes under the interim final rules, the federal government is offering nearly $30 million in resources to States and Territories to strengthen and establish consumer assistance programs.  Specifically, these programs are charged with:

• Helping consumers enroll in health coverage;
• Helping consumers file complaints and appeals against health plans;
• Educating consumers about their rights and empowering them to take action; and
• Tracking consumer complaints to help identify problems and strengthen enforcement.

Image Credit: Appeal to the Great Spirit, Cyrus Edwin Dallin (1909) Photo by Toni To via Flickr

Impact of Free Preventive Healthcare

Benjamin Franklin famously once said, “an ounce of prevention is worth a pound of cure.” The statement has that ring of truth– especially when it comes to American healthcare.  Numerous studies have shown that early detection of diseases as well as interventions for bad habits (e.g. overeating and smoking) can potentially avert thousands of deaths each year.  Additionally, reported by Reuters, these preventative cares can lead to massive health care savings because preventable diseases such as heart diseases, cancer, and diabetes account for 75% of the national health care spending.

Considering the potential of prevention, just last week, the White House laid out rules requiring health insurance companies to provide many preventative medical services at no cost to the consumer.  The NY Times reports,

The rules will eliminate co-payments, deductibles and other charges for blood pressure, diabetes and cholesterol tests; many cancer screenings; routine vaccinations; prenatal care; and regular wellness visits for infants and children.

Other services that must be offered at no charge include counseling to help people stop smoking; screening and counseling for obesity; and tests for infection with the virus that causes AIDS.

The rules stipulate that no co-payments can be charged for tests and screenings recommended by the United States Preventive Services Task Force, an independent panel of scientific experts. The rules apply to new health plans that begin coverage after Sept. 23 and to existing health plans that make significant changes after that date. The administration said the requirements could increase premiums by 1.5 percent, on average.

Currently, the government reports that Americans use preventive services at about half the rate recommended by doctors and public health experts.  The Obama Administration, including many experts and consumers groups, is hoping that these new changes will eventually have a huge impact and Americans will take advantage of the free preventative care.

But, how much impact would it really have?

While costs have deterred some consumers from preventive care, others have avoided doctors’ offices for other reasons.  For example, people with unhealthy lifestyles avoid checkups, not because of cost, but out of fear.  According to the NY Times,

Recent studies have shown that people who know they have health-endangering vices (like smoking or drinking) put off appointments because they do not want a healthy-living lecture. Others do not go because they feel doomed despite medical treatment. At the other extreme are the overly optimistic who are convinced they will get better no matter what. And then there are those who are embarrassed to discuss their symptoms, such as incontinence or impotence.

The bottom line for many people is fear: fear of bad news, fear of an uncomfortable test, fear of discussing something intimate.

And other people, namely men, do not regularly see their primary care physician because men generally tend to overestimate their health.  According to a survey by the American Academy of Family Physicians:

● Almost one in five men (18%) 55 years and older have never received the recommended screening for colon cancer.

● More than half (55%) of all men surveyed have not seen their primary care physician for a physical exam within the past year.

● Four in 10 (42%) men have been diagnosed with at least one of the following chronic conditions: high blood pressure (28%), heart disease (8%), arthritis (13%), cancer (8%) or diabetes (10%).

● More than one out of four men (29%) say they wait “as long as possible” before seeking help when they feel sick or are in pain or are concerned about their health.

● Despite this, almost 8 in 10 (79%) men describe themselves as in “Excellent,” “Very Good,” or “Good” health.

The “missing” men in these statistics would seem to be among those who would benefit, arguably most, from regular  checkups and screenings; unfortunately, it would seem that free preventive care will not drive these groups running to the doctor.  While the new rules will undoubtedly increase the number of people receiving preventive care, it is uncertain how much impact it will actually have as some groups will continue to avoid doctors regardless of costs.

Why Angela Braly, CEO of WellPoint Insurance, May Not Deserve a Raise After All

Earlier this year we discussed why Angela Braly, the CEO of WellPoint Insurance, deserved a raise. WellPoint, by number insured, is the nation’s largest health insurer.  Ms. Braly had been forced to make ends meet in 2008 with total compensation which amounted to $189,311.76 per week. This of course is less than half of what Aetna’s CEO, Ronald A. Williams, made that same year ($467,309.85 per week). For those of you keeping score at home, Ms. Braly commanded $9,844,212 in 2008. Mr. Williams made $24,300,112.

Considering this disparity, we wrote

So why does Angela Braly deserve a raise? …. Because WellPoint subsidiary Anthem Blue Cross of California has found the audacity to raise individual insurance premiums in that state 39%. That’s right, 39%. This, according to Secretary of Health and Human Services Kathleen Sebelius, “as WellPoint Incorporated has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.”

Profits “soar,” raise rates. What more could Wall Street want?

The answer to that question, apparently, is both math skills and a public relations strategy.

In April, Wellpoint was forced to withdraw its California rate hike of 39%  because of math errors in the submission. Yes, math errors.

According to the Wall Street Journal, “WellPoint’s stock fell almost 10% on April 30, the day after the company disclosed mathematical errors in its California rate filing, and it hasn’t rebounded.”

As such, Ms. Braly is said to have faced staunch criticism as of late at WellPoint’s annual shareholder’s meeting and at meetings with the company’s managers and top brokers prior. The shareholder’s meeting, described as “testy” by the Associated Press, was cut short when William H.T. Bush, the brother of former President George H. W. Bush, and a member of WellPoint’s board of directors, collapsed. Although no one is said to have collapsed at her other meetings, no one has described them as cordial either.

Wellpoint faced criticism from the Obama administration in light of its noteworthy proposed rate hikes in California, including, but not limited to, the scathing letter quoted above from Secretary of Health and Human Services Kathleen Sebelius. The level of acrimony recently escalated when, according to the Wall St. Journal

A week ago, President Obama said his administration had recently asked an insurer to stop systematically dropping coverage of women with breast cancer. The president didn’t name the insurer, but WellPoint has been fending off accusations that it targets such women.

Ms. Braly denied the allegations and shot back at Mr. Obama for spreading “false information.” Health and Human Services Secretary Kathleen Sebelius has called on states to investigate WellPoint’s pricing practices. And last Thursday, the Senate Finance Committee asked Ms. Braly for a detailed account of how the errors occurred.

Perhaps the lady doth protest too much?

Either way, Ms. Braly is said to have later offered that: “The goal is to have a positive relationship with the government at all times.”

It is good to have goals.

The Wall Street Journal notes that

Jay Nogueira, vice president at one of the company’s top 10 shareholders, T. Rowe Price, said the stock won’t bounce back until investors were convinced that there isn’t another chapter in the hostility with the government. “These guys are not dealing well with the public limelight,” said Mr. Noguiera.

Obama in Ohio, a Letter from Natoma Canfield

As the Health Care Reform debate winds to a frenzied conclusion, President Obama visited Ohio to reach out in favor of the bill’s passage. I’ll let the President speak for himself, but there’s a letter below this video that you should read. Natoma Canfield sent the letter to President Obama back in December; it epitomizes, I believe, the every day tragedy which is the current state of health care and health care finance. Since then, it’s gotten even worse. Facing the prospect of unaffordable increases in her insurance premiums, Ms. Canfield took, and lost, the gamble that no one wants to take. Unable to pay, she discontinued insurance coverage; she was just recently diagnosed with leukemia.

Betting on Health Care Reform

At least investors think health care reform will be happening some time soon.  The Wall Street Journal reported that managed care stocks fell after Obama asked Congress to take an up or down vote Wednesday afternoon.  It might be wishful thinking (or dreadful, depending on which way you look at it) for the investors who are moving their investments from managed care plans.  With Congress members still treating health care reform as a game of cat and mouse, whether a vote will happen and whether the vote will be for reform is yet to be determined.

Take for instance Nathan Deal, a Republican from Georgia, who is purposely postponing his resignation from the House until a vote on health care happens so that he can get his nay vote in.  Then, there is the promise from Senate Republican leader Mitch McConnell to repeal health care reform before it has even been passed.  And despite Wall St. estimations to the contrary,  with the complications of reconciliation, the prospect of getting a bill that actually creates a mass exodus out of managed care seems at least somewhat iffy.

Interestingly, as the Washington Post revealed on Wednesday, private insurance companies, such as the infamous WellPoint, will be the primary beneficiaries of a failed health care reform attempt.  As Ezra Klien stated:

The argument is simple: Wellpoint’s business model is uncommonly concentrated in the individual and small-group markets. Those are the exact markets that health-care reform will drastically change. Those are the markets where people get rejected for preexisting conditions, where insurers spend 30 cents of every premium dollar on administration and where rate hikes are volatile and constant. Health-care reform wants to change all of that, and if it does, Wellpoint’s business model will be changed, too.

It would seem, then, that health care reform would not be difficult to carry through in considering who stands to win and who stands to lose if reform is not passed.  One of the major barriers is the Republicans’ animosity towards using reconciliation to pass a final health care bill, an idea they consider foreign to the democratic process.  However, as NPR just reported this past week, reconciliation is not “unprecedented,” and in fact, it has been used many times in the course of our country’s history to pass similar bills.  COBRA, Children’s Health Insurance Program (CHIP), and changes to Medicare have all happened through reconciliation.  Moreover, between 1981 and 2008, 16 out of 21 reconciliation bills were Republican initiatives.

Without a final vote on health care soon, many worry that the momentum will be lost.  Many members of Congress, steadfast in their platform promises, are not helping the process move any quicker.  In the meantime, insurance companies continue to prosper; Americans continue to pay the price.

High-Risk Pools: a Precarious Pillar of Republican Reform

At the Health Summit last week we were able to more fully observe the Republican vision for reforming health care. A constant idea that the Republican leadership came back to was the concept of “high risk pools.” But what are high risk pools, and what potential do they have to lower costs?

High-risk pools are state-run programs that provide insurance for those who suffer from pre-existing conditions or have some other issue that makes them “medically uninsurable.”  They are often utilized by those in limbo who were previously covered by an employer’s group coverage, but for whatever reason are now relegated to the veritable disaster that is the individual market. Currently, 34 states have high-risk pools, with the combined number of insured from those pools at 200,000. (See Kaiser Family Foundation, State High Risk Pools: An Overview). As noted by Kaiser, coverage is typically at 125% to 200% of the standard market rate for health insurance.  In some states, the high-risk pool insurance costs as much as $14,000 per year. Thirty states offering high-risk pool coverage have waiting periods before pre-existing medical conditions can be covered.

Edmund Haislmaier of the Heritage Foundation has provided a succinct and helpful discussion of the relationship between high-risk pools and the related concept of “reinsurance.”  Haislmaier breaks down these risk-transfer tools into two groups: “inclusionary” and “exclusionary” risk-transfer mechanisms:

The “exclusionary” mechanisms segregate high-risk individuals from the low-risk population, subsidizing them in a separate pool. The “inclusionary” mechanisms keep high-risk individuals in the same pool as everyone else but seek to redistribute and/or subsidize their more expensive claims.

A common exclusionary mechanism is a state-run “high-risk pool” for the individual health insurance market. The pool offers coverage to people who have been refused coverage in the individual market due to poor health status. Although coverage carries high premiums, the premiums are not enough to cover the cost of claims by enrollees. To make up the difference, lawmakers use a mix of assessments on private insurers and public subsidies. In some states, the losses are funded entirely out of assessments on insurers and, thus, ultimately included in the premiums paid by everyone with health insurance coverage. In other states, the losses are funded primarily out of general revenue appropriations and, thus, are ultimately born by all the state’s taxpayers. Still other states use a mix of both funding sources.

Inclusionary risk transfer mechanisms operate on essentially the same principle, except that high-cost individuals are not given separate coverage. Instead, some portion of their claims is pooled and then proportionately redistributed among the carriers in the market. As with high-risk pools, public subsidies may also be used to offset some of the cost of claims. This type of mechanism is often called, somewhat inaccurately, a “reinsurance pool.” A more precise termed is “risk-transfer pool.”

Notably, Haislmaier recognizes that high-risk pools offer little help when it comes to the true goal of health reform: reducing costs:

Regardless of design, risk transfer mechanisms only shift or redistribute costs among funding sources. Specifically, risk transfer mechanisms offer ways to more equitably redistribute the costs of a small number of expensive cases or individuals across a broader population. While these features enable health insurance markets to function more smoothly, they are not a solution for controlling health care costs in general.

This is noteworthy coming from the Heritage Foundation. However, to be sure, high-risk pools are not peculiar to Republican health reform proposals. Both the House and the Senate bills provide for high-risk pools. The follow table is from The Kaiser Foundation’s paper “High-risk Pools: An Overview”:

The important row of the above table is “Timeline.” Whereas the House and Senate bills utilize high-risk pools as a temporary measure to provide insurance to those with pre-existing conditions before the exchanges take shape, the Republican proposal would implement risk transfer mechanisms as the primary means by which individuals with pre-existing conditions can obtain coverage. For those purchasing on the individual market, the Republican proposal would provide federal funding for state-run high-risk pools. Reinsurance mechanisms would operate in the small group market.

This is in contrast to both the House and Senate proposal which both prohibit the insurance exchanges  from denying coverage because of an applicant’s pre-existing condition–thus negating the need for high-risk pools.  Instead of subsidizing high-risk pools that would segregate the sick from the healthy, the individual mandate in the Democrats’ bill would ensure that the costs of high-risk and currently sick individuals would be spread throughout the exchange.

As Haislmaier noted, it is unclear how risk transfer mechanisms would lower health care costs. For example, whereas exchanges would increase competition by making the purchase of health insurance more accessible, high-risk pools and reinsurance would not alter the current maze that is the individual insurance market.   It is somewhat remarkable that the Republicans opt for high-risk pools instead of a proscription against pre-existing condition preclusions, especially given the public disdain for pre-existing condition preclusions. But the Republicans have little choice. Since they are wholly opposed to the individual mandate, insurers and states running high-risk pools under the Republican plan would not have healthy individuals paying into the system to offset the cost of sick insureds.

Why Angela Braly, CEO of the WellPoint Insurance Co., Deserves a Raise

Angela Braly, CEO of  health insurance giant WellPoint, deserves a raise. As regular readers of this column know, Ms. Braly did not make as much as Aetna’s Ronald A. Williams in 2008.

In a post written back in May of 2009 I noted of Insurance Company CEO Total Compensation:

Aetna’s Ronald Williams received $24,300,112 last year. That’s $467,309.85 per week. That’s a house. Maybe not a house that Mr. Williams would live in, but a house nonetheless. The man makes a house a week. And interestingly enough, if Mr. Williams were to eschew the purchase of a house on any given week and instead look to deposit the money in a bank– in order to remain FDIC insured (up to $250,000)– he would actually need to open more than one account–every week. Lest we lament the fate of the other CEOs on the list, in 2008 Ms. Braly had to get by on $189,311.76 per week….

Less than half of what Mr. Williams brought in, in 2008 Ms. Braly was forced to make ends meet on $9,844,212.

In 2007, her first year on the job: $9,094,271. Which, for those keeping score at home, is $174,889.83 per week. Her predecessor at Wellpoint, Larry Glasscock, received  $23,886,169 in total compensation in 2006. Again, in 2008 Ms. Braly had to get by on $189,311.76 per week. True, it was $14,421.93 more per week than she had made the year prior, but that won’t be nearly sufficient for this year.

So why does Angela Braly deserve a raise? Pay so high that the  FDIC limits on insurance (yes, it’s somewhat ironic) won’t work for her weekly paycheck? Because WellPoint subsidiary Anthem Blue Cross of California has found the audacity to raise individual insurance premiums in that state 39%. That’s right, 39%. This, according to Secretary of Health and Human Services Kathleen Sebelius, “as WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.”

Profits “soar,” raise rates. What more could Wall Street want?

Secretary Sebelius has demanded “justification” for the increase. In a letter sent to the Wellpoint subsidiary Anthem Blue Cross, she writes:

One of the biggest pressures facing families, businesses and governments at every level are skyrocketing health insurance costs.  With so many families already affected by rising costs, I was very disturbed to learn through media accounts that Anthem Blue Cross plans to raise premiums for its California customers by as much as 39 percent. These extraordinary increases are up to 15 times faster than inflation and threaten to make health care unaffordable for hundreds of thousands of Californians, many of whom are already struggling to make ends meet in a difficult economy.

Your company’s strong financial position makes these rate increases even more difficult to understand. As you know, your parent company, WellPoint Incorporated, has seen its profits soar, earning $2.7 billion in the last quarter of 2009 alone.

And there you have it, profits soar, raise rates, the stock soars–as will, presumably, Ms. Braly’s stock options. She won’t have “to get by on $189,311.76 per week” for all that much longer. With that kind of move it’s only a matter of time before she finds herself in Mr. Williams’ neighborhood.

Now that the healthcare reform debate awaits its Summit, from the vantage point of its nadir, one might imagine other Insurance Company CEO’s to embark upon a similar strategy. Good thing we jettisoned all those proposed pesky insurance regulations contained in the House & Senate bills.

Because it never gets old to me, here’s the list of Insurance Company CEO Total Compensation:

Res Ipsa Loquitur.

Ins. Co. & CEO With 2007 Total CEO Compensation

• Aetna Ronald A. Williams: $23,045,834
• Cigna H. Edward Hanway: $25,839,777
• Coventry Dale B. Wolf : $14,869,823
• Health Net Jay M. Gellert: $3,686,230
• Humana Michael McCallister: $10,312,557
• U.Health Grp Stephen J. Hemsley: $13,164,529
• WellPoint Angela Braly (2007): $9,094,271
  L. Glasscock (2006): $23,886,169

Ins. Co. & CEO With 2008 Total CEO Compensation

• Aetna, Ronald A. Williams: $24,300,112
• Cigna, H. Edward Hanway: $12,236,740
• Coventry, Dale Wolf: $9,047,469
• Health Net, Jay Gellert: $4,425,355
• Humana, Michael McCallister: $4,764,309
• U. Health Group, Stephen J. Hemsley: $3,241,042
• Wellpoint, Angela Braly: $9,844,212

See Nonprofit Health Related CEO Compensation Here.

An Overview of Exchanges under the House and Senate Bill

On January 8th, 2010, the Alliance for Health Reform and The Commonwealth Fund  co-sponsored and moderated a panel discussion on the health insurance exchanges that are being proposed in both the House and the Senate health reform bills. The panel consisted of Washington and Lee professor Timothy Jost, John Kingsdale of the Massachusetts Commonwealth Health Insurance Connector Authority, and Philip Vogel of the Connecticut Business and Industry Association (CBIA), which runs the non-profit CBIA Health Connections, a health insurance exchange for the state of Connecticut.

The co-sponsors have uploaded all of the event’s materials, including a webcast of the entire event, as well as all of the powerpoint slides and papers. All of this information can be found here.

Professor Jost and the Commonwealth fund created detailed charts comparing the differences between the two bills. Below is a reproduction of Professor Jost’s chart, which can be viewed by clicking on the thumbnails.

Both the House and the Senate bills would create new health insurance exchanges that would help consumers and employers navigate the purchase of health insurance. Though the common thread of a regulated marketplace runs through both bills, all three panelists noted the stark difference in the vision and implementation of the exchanges under the respective bills.

Below are some of the key distinctions between the two bills.

The House Bill — Public Option with Opt-Out Possibility

The House’s bill, H.R. 3962 (click here for entire pdf) provides for a federal exchange that would essentially eliminate the individual marketplace for health insurance going forward. A public plan would be offered that would reimburse providers at negotiated rates between those of Medicare and commercial rates. The applicable section of the House’s bill is Title III, entitled Health Insurance Exchange and Related Provisions.

Title III of the House Bill would create the Health Choices Administration with a Commissioner who would oversee the exchange. Citing Section 301 and 308 of the Bill, Professor Jost notes on page 17 of his paper:

The exchange operates at the national level, established within a new Health Choices Administration. The Commissioner of the HCA can, however, permit individual states or groups of states to administer an exchange within their territory in place of the national exchange if specific requirements are met, subject to revocation if the state ceases to meet the requirements of the bill. Even if the HCA delegates exchange authority to a state, the Commissioner retains enforcement authority and can further specify functions retained by the Commissioner and not delegated.

Thus, the House’s bill would create an exchange system that is fairly centralized and regulated, but with added flexibility. If the states fail to implement their own exchange then HHS will implement an exchange for them. Only those policies considered “grandfathered” could be sold outside of the exchange, and such “grandfathering” can only occur in the individual market. (See Section 202). Insurance offered inside the exchange would fit into one of four tiers: basic, enhanced, premium, and premium plus. (See Section 303). These tiers would correspond to different actuarial values of the plans. Subsidies would be provided on a sliding scale that is determined by the purchaser’s income.

The House bill would also limit the medical loss ratio of plans offered in the exchanges to 85 percent, largely prohibit the rescission of contracts, eliminate lifetime coverage limits, eliminate pre-existing condition exclusions, as well as require guaranteed issue and renewal of plans. Variations in premiums based on the age of the insured could only vary by a maximum of 2:1.

Not all of the panelists agreed with every provision. For example, Mr. Vogel took issue with the dependence on the medical loss ratio in regulating the market, instead arguing for a greater reliance on the “claim dollar” as a guide post.

Whether offered inside the exchange or grandfathered, all plans must meet certain requirements in terms of essential benefits, which would be determined by HHS, and would be based on the recommendation of the Health Benefits Advisory Committee–a public/private hybrid entity.

• Click here to jump to section 223 outlining the Health Benefits Advisory Committee

These benefits would include hospitalization, outpatient care, prescriptions drugs, equipment, and a host of other benefits.

• Click here to jump to the section 222 which details the essential benefits.

The House bill would also impose rules regarding the transparency of the plans offered in the exchange by requiring certain information about the plans to be disclosed.

The Senate Approach — No Public Option; Multistate Substitute Would Exist

For whatever reason, the Senate crafted a more complicated framework of exchanges.

A crucial point of divergence from the House bill is the Senate bill’s lack of a federally financed public plan offered through the exchange. However, as discussed below, part of the Senate plan attempts to act as a substitute. Another area of divergence is that existing individual and group plans may continue alongside newly created exchanges, in addition to any grandfathered plans. This is in stark distinction to the House bill that would eliminate some existing policies. Though as noted, the House bill would allow for some grandfathering.

The Senate’s exchange framework is based on section 1001 of the bill which provides that HHS will, with the help of the National Association of Insurance Commissioners (NAIC), craft standards regarding the minimum benefits and other aspects of the plans sold through the various exchanges.

In terms of the Senate’s framework for exchanges, it is as follows. The Senate bill will allow for a number of exchanges that would exist on variety of different governmental levels. Whereas the House bill envisions a more federal exchange system, the Senate bill would instead allow for state-based exchanges, multistate exchanges (i.e. regional), or substate exchanges.

• Click here for a pdf version of Senate bill, as passed.

State-based Exchanges
For the individual and the small group markets, the Senate bill would require each state to create a American Health Benefit Exchange for individual purchasers of insurance, and a Small Business Health Options Program (SHOP) for small businesses purchasers. HHS would regulate these exchanges (See section 1321(a)(1)). These exchanges would be governed by regulations promulgated by HHS, unless the states adopt alternative standards that the HHS finds acceptable.

The state may combine the individual market exchanges with the small business (SHOP) exchanges. Additionally, states have the flexibility to establish regional exchanges or smaller subsidiary exchanges that target specific geographic areas within the state. (See Section 1311(f)). If the states do not create a system of either separate exchanges for individuals and small business, or some combination, HHS will establish an exchange or utilize a non-profit insurer to fill the void. See 1321(c).

The multistate exchanges are important, as they may mollify those who have been touting the idea of interstate health insurance offerings as a panacea for the woes of U.S. health insurance.

Regardless of how any states’ exchange(s) plays out, many of the important provisions of the Senate’s bill such as certain minimum benefits, the ban on lifetime or annual dollar limits, the ban on rescission, and medical loss ratio requirements would apply across the landscape of exchanges.

State Opt-Out Possible
Under the Senate bill, the states would be eligible in 2017 to opt-out of the federal requirements listed above if they can demonstrate that they are providing affordable coverage that is at least as affordable and comprehensive as the Bill requires. Alternatively, the state may be allowed to create a “public health plan” for those under 200% of the federal poverty level. Under this arrangement, the federal government would compensate the state for 95 percent of what would have been provided through premium tax credits as well as cost-sharing reduction payments. (See Section 1331).

Multistate plans: A Compromise?
One major amendment passed on December 24th was section 1334 which amended section 1333 which dealt with multistate exchanges. Under section 1334, The Office of Personnel Management (OPM)–the agency that governs the federal employees health benefit program (FEHB)–will enter into contracts with insurance carriers to offer at least 2 multistate plans through each exchange in each state. (See 1334(a)(1)). These plans will cover the individual and small group market. At least one of those plans must be a non-profit insurance plan, and must be in accordance with the general standards set forth for health insurance plans.

Though there would be a minimum level of benefits and protections required for all plans, the States would be entitled to offer multistate plans with more substantial benefits. However the state will have to defray the costs of the additional benefits.

Unlike the House bill which eliminates the state-based individual market, the Senate bill envisions exchanges that would co-exist with both the individual and small-group markets, and operate under the same rules. Though the Senate bill allows for flexibility, the subsidies provided by the federal government could only apply to insurance plans sold through the exchange.

One of the most important and controversial sections of the amended Senate bill is section 1334(a)(4), which specifies that, in administering the multistate plan, OPM will have the same bargaining power as they currently have for plans offered in the FEHB. Thus, OPM would be able to negotiate for a specified medical loss ratio and profit margin, as well as specified premium rates and any other terms in the “interest of the enrollees.” The goal is for these plans to be offered nationwide. Whether the OPM-run exchange will succeed is obviously yet to be determined, but some like Professor Timothy Jost are worried that the Senate’s plan to allow some plans to operate outside of the exchange complicates the federal government’s job in risk adjustment.

‘Taking Aim’ at Insurance Co. Executive Compensation

Over the weekend, the Associated Press published a story that told us: “Senate Takes Aim at Insurance Company Executive Pay.”

We’ve taken aim at Insurance Company executive compensation before here on Health Reform Watch, and you can find our article linked here in this interesting article by Morton Mintz at the Nieman Foundation for Journalism at Harvard University’s Nieman Watchdog (or even at the bottom of the Huffington Post posting of the A.P. story, after WSJ).

What Mintz points out is worth noting: he says of Ronald A. Williams, CEO of Aetna:

If Williams would care to justify his compensation — $64,857.46 a day, every day of the year; $2,702.39 an hour every hour of every day — I’d gladly extend him the opportunity to do so.

“Justify his compensation.” The truth is, I have honestly tried to imagine what an Insurance Co. executive could possibly do during the course of any given day to warrant that kind of compensation. Williams’ official bio tells us that:

Under his leadership, Aetna has sought to make a positive impact on health care in America by serving as a catalyst for change, focusing the industry, public policy leaders, physicians and employers on issues aimed at increasing access and affordability.

As a job description, I’m not entirely sure what qualifies as seeking “positive impact” or “serving as a catalyst,” but I’m pretty sure the following, as described by Mr. Mintz, will not qualify as aiming at “increasing access and affordability.”

Now, as I just read in Huffington Post, “Aetna is planning to force up to 650,000 clients to drop their coverage next year as it seeks to raise additional revenue to meet profit expectations.” Maybe he [R.Williams] can justify that, too.

Mintz goes on to list the numbers, but then makes an additional point worth noting regarding the totals:

Others in similar positions are also raking it in. I’ve learned from Seton Hall University School of Law’s Health Reform Watch that Williams’s 2007 compensation of $23,045,834 was nearly $2.8 million less than Cigna CEO H. Edward Hanway’s $25,839,777. Also in 2007, Coventry’s Dale B. Wolf received $14,869,823, United Health group’s Stephen J. Hemsley $13,164,529, Humana’s Michael McCallister $10,312,557, WellPoint’s Angela Braly $9,094,271. and Health Net’s Jay M. Gellert $3,686,230. Total 2007 pay for seven health-insurance CEOs: $100,130,021.

In 2008, Williams led the pack, with $24,300,112, followed by Hanway, $12,236,740; Braly, $9,844,212; Wolf, $9,047,469; McCallister, $4,764,309; Gellert, $4,425,355, and Hemsley, $3,241,043. Total 2008 pay for the seven: $67,859,240.

Suppose the seven had been paid, say, only $1 million each. That compensation would have enabled significant premium reductions — in 2007, of roughly $93 million; in 2008, of about $61 million — that would have enabled purchase of coverage by many of the 45,000 Americans whose deaths each year are linked to lack of health insurance.

Seven execs, two years’ compensation, $154 million in excess of $1 million per year.

Having said that Articles Editor of the Yale Law Journal, Aaron Zelinski, makes some very interesting and worthwhile points over at the Huffington Post regarding some of the shortcomings in the proposed Senate measure to curb Insurance Co. exec compensation. The subject readily lends itself to political grandstanding, and the Senate bill looks only to change the corporate tax deduction of health insurance executive compensation. Zelinski’s article, “Political Grandstanding: Excessive Compensation and the Health Care Bill,”  is well worth reading and well worth quoting at length. He writes:

Currently, publicly held corporations can effectively deduct unlimited amounts of executive compensation from their federal corporate income tax returns. Although Section 162(m) of the Internal Revenue Code purports to limit such deductions to $1,000,000 annually per executive, Section 162(m)(4) contains a loophole large enough to sail a mega-yacht through: Deductions are still allowed for any “performance based” pay, no matter how high.

The Internal Revenue Service has interpreted 162(m)(4) to allow almost any compensation plan to pass muster, even when executive compensation is tied to comically low performance metrics. Thus, Section 162(m) has become largely a dead letter; unlimited amounts of executive compensation can be structured as performance-based and therefore deducted for federal income tax purposes.

The current Senate health care bill seeks to revive Section162(m) by removing the “performance based” exceptions. However, the bill applies only to corporate salaries paid to health insurance executives, not to compensation for employees in any other industry.

Under the bill, health insurance companies would only be able to deduct compensation below $500,000 (or, under a pending amendment by Senator Blanche Lincoln of Arkansas, $400,000). More importantly, health insurance companies would be denied the Section 162(m)(4) loophole for performance-based pay. These insurance companies could still pay their executives large amounts, but taxpayer money would no longer subsidize such salaries via corporate income tax deductions.

Zelinski further states:

“Unfortunately, the Senate Democrats’ decision to target only the compensation paid to insurance executives belies an unwillingness to address the broader issue at hand: the taxpayer’s subsidy of excessive executive compensation via tax deductions.”

He also points out that “the proposed changes will do nothing substantial to address health care costs, since executive compensation is a minuscule fraction of such costs.”

I think Mr. Zelinski has a point; the net taxpayer result of this provision will certainly not cure what ails us as a country healthcare wise –but, grandstanding aside, it may be a step in the right direction. Some things seem more a matter of principle than money– and if they could speak, I wonder what those 45,000 Americans whose deaths each year are linked to lack of health insurance would say when looking at Ronald Williams’ pay.

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