The Good News is that Health Care Spending is Down

The bad news is that the country’s too broke to be sick. The New York Times reports that health care spending rose just 3.9% in 2010, totaling $2.6 trillion or 17.9% of the Gross Domestic Product. The information was derived from the latest report from the government’s National Health Expenditure Accounts (NHEA), which are, according to the Center for Medicare & Medicaid Services, “the official estimates of total health care spending in the United States. Dating back to 1960, the NHEA measures annual U.S. expenditures for health care goods and services, public health activities, government administration, the net cost of health insurance, and investment related to health care. The data are presented by type of service, sources of funding, and by type of sponsor.”

The Times notes:

Health spending normally grows much faster than the economy. But in 2010 growth rates were similar, so that health care accounted for the same share of total economic output in 2009 and 2010.

“U.S. health spending grew more slowly in 2009 and 2010″ than at any other time in the 51 years the government has been collecting such data, said Anne B. Martin, an economist in the office of the actuary at the Department of Health and Human Services.

How bad is it? The data is, well, record-breaking.

The Times:

In 2010, the study said, hospitals reported a decline in admissions and slower growth in emergency room visits and outpatient visits. Likewise, it said, doctor’s office visits declined, and spending for doctors’ services grew just 1.8 percent, to $416 billion in 2010. Total health spending averaged $8,402 a person, up 3.1 percent from 2009, the report said.

Doctors often prescribe drugs during office visits, and the decline in visits helped slow the growth of drug spending, as did the use of lower-cost generic medications. The number of prescriptions filled rose just 1.2 percent in 2010, and total retail spending on prescription drugs also grew 1.2 percent, to $259 billion, the slowest rate of growth in a half-century, the report said.

Those numbers of slowed growth are even more incredible given the context of a slowed generation of aging baby boomers.

But in the inimitable words of R. Hunter and J. Garcia,

Talk about your plenty, talk about your ills
One man gathers what another man spills

The Times notes:

For the first time in seven years, total private health insurance premiums grew faster than insurers’ spending on health care benefits, the administration said. Premiums totaled $849 billion in 2010, while spending on benefits totaled $746 billion. The difference includes administrative costs and profits.

There are a number of other interesting points to be found in the New York Times article, not the least of which is the growth in federal expenditures. It’s well worth a read.

Of provident kidney stones, health insurance and a CT Scan that may have saved my life

As we bid farewell to 2011 while ushering in the new year, some thoughts about health care — my own — emerge. I underwent major surgery this last year, having had roughly 15% of one kidney–or, more precisely, the cancerous portion of one kidney– removed. I chose to blog about the experience, chronicling the process from the onset, back when the tumor was initially thought to be a kidney stone or a cyst. But found early, it was small, they say they got it all and that it had not spread. I was lucky. A relatively rare form of the disease (roughly 50,000 cases per year), the survival rate for kidney cancer is not great because it is largely asymptomatic and is not generally tested without a family history for such.  Often, by the time someone wanders into a doctor’s office with complaints of an aching lower back or bloody urine, the tumor has grown to the size of a baseball, the cancer has spread, and the prognosis is not optimum. My tumor was found, as is so often the case, “incidentally” as they were looking at something else.

And that something else has me thinking; without it I’d be walking around with a ticking time bomb firmly ensconced and concealed in my kidney.  Which brings me to July of this past year when I awoke torn by excruciating pain from what I was to later discover were two kidney stones. Wave after wave of fortunate pain brought me to the emergency room. A CT scan discovered the stones–and something else– that ultimately turned out to be that cancerous tumor approximately 2.2 cm, lying in wait.

And there’s the rub. I had health insurance. Without health insurance I might have still gone to the hospital–the pain was immense– but I would have refused the CT scan.  I know of what I speak. A lack of health insurance is a state of affairs and a mindset that is distinctly different from that of having health insurance: as one deprives Peter to pay Paul “home medicine” takes on new meaning. And if forced to see a doctor, one minds the bottom line always ready to refuse treatment, especially avoiding diagnostic tests such as x-rays, CT scans and MRIs as they are the well traveled road to poverty if not bankruptcy.

And there it is. Without health insurance I would have refused the CT scan which may well have saved my life.

Instead, I ultimately had one of the nation’s top surgeons (the brilliant Dr. Paul Russo, most recently described by Maureen Dowd in the NY Times as “exuberantly blunt”) at Sloan-Kettering pluck the ticking time bomb from my body, while saving the affected kidney and me.

In the hands of a less skilled surgeon, my entire kidney may have been removed (it’s easier), and even if alive I’d have spent the rest of my life at a  increased risk for hospitalizing events from chronic  kidney disease, heart disease, and even hip fractures. The bill for my stay and surgery was roughly $27,000; my co-pay merely double digits (thank you Cigna).

And as I sit here reflecting on my good fortune and the providence of kidney stones timely sent, I cannot help but think of all those men and women across America without health insurance (or with junk insurance) who are left to face this coming year with health issues and hard economic choices each day–choices which will lead many to practice “home medicine” when faced with excruciating pain and the hidden harbingers of disease. Choices which will leave prescriptions unfilled. Choices which will lead many to refuse that costly x-ray, CT scan or MRI which might have saved their lives.

There but for the Grace of God–and a job with good health insurance.

And that’s not hyperbole: it’s a new year; it’s estimated that 45,000 people in America will die in it due to lack of health insurance.

Secret Prices: Free Market Triumph or Tragedy?

Can a market work when buyers are kept in the dark about the prices they’ll pay? That’s an increasingly urgent question for fans of consumer directed health care. In vogue during the administration of Bush fils, CDHC is reemerging as Obamacare’s opponents seek a standard to rally around (other than “laissez mourir“). In theory, consumers could force doctors and hospitals to compete by shopping around for services. But when the rubber hits the road, informed consumption is easier said than done, as Josh Barro describes:

Recently, my employer switched to a high-deductible health insurance plan, which means I’m paying at the margin for most of my health care. As a result, I have become more aware of the true cost of the care I receive—and more aware of how difficult it is to figure out that cost. . . . if you ask doctors how much a service costs, they tend not to know. I once had an argument with my doctor, who did not want to give me a blood test for fear that my insurer would deny the claim for the expensive test. I later found out that this test costs all of $9.48 at my insurer’s negotiated rates, despite a list price of $169. When I got orthotics, my podiatrist told me they would cost nearly $600. But that was the list price; the actual insured price was less than $250. . . .

It doesn’t have to be this way. We could legally obligate hospitals and medical practices to disclose their full price lists—both the inflated list prices and the rates negotiated with each insurer that the practice accepts.

A commenter on Barro’s blog retorts:

I’m a little surprised to see a blogger at the [National Review Online] suggest that the government “require” price disclosure from private market participants. This goes well beyond the market interference that some other odious “mandates” require. Why don’t we mandate that everyone disclose exactly what they pay each employee? . . . If you have an HSA or High-deductible policy, I would suggest it’s incumbent on the insurance provider to help you figure it out. If consumers want it enough the system should respond, right? Why not switch to an HDP that is more transparent?

The problem, of course, is that lots of parties have to agree to provide transparency, and there is a great deal of inertia. If all the other insurers aren’t transparent, there’s little reason for one of them to try to distinguish itself if it already has a steady customer base. And when it stirs itself to do so, it will find a wall of resistance from providers, who say “why should we give all this information to you—no one else is demanding it?” (Moreover, the “prices” don’t really exist except on paper on a “chargemaster,” and they’re practically meaningless (except as opportunities to gouge the unlucky). The real price is the negotiated price, and that’s generated out of iterative interactions.) Moreover, many interventions involve multiple providers, as a reader of Andrew Sullivan’s blog explains:
Read more

Constitutional Mortality: Precedential Effects of Striking the Individual Mandate

Professor Mark Hall, Fred D. & Elizabeth L. Turnage Professor of Law, Wake Forest University School of Law

Abstract:

Because insurance is necessary for decent access to health care, credible studies estimate that eliminating the Affordable Care Act or its individual mandate could cause thousands of avoidable deaths a year. That is sobering, but far more chilling is the loss of life that might result from the constitutional precedent that a negative ACA ruling would set. If the challengers’ chief argument is accepted, it creates the frightening prospect that the federal government may be unable to respond effectively to a catastrophic public health emergency that threatens millions of lives, if effective response requires mandating citizen behaviors unconditioned on any engagement in commerce.

Credible scenarios for natural disasters and flu pandemics might require just such federal actions, in the form of mandatory vaccination, evacuation, screening, treatment, or even mundane sanitary measures — and the Commerce Clause is the only source for such power when military defense is not involved. State and local governments are the primary source of authority for such measures, but recent disasters and near-misses demonstrate the real possibility that their responses may prove inadequate. Thus, rather than fretting over what slippery-slope vegetables the government might force people to purchase if the mandate were upheld, courts should be much more concerned about the insurmountable barriers that a nullifying precedent would set for effective federal response to realistic catastrophes.

[Ed. Note: Professor Hall's paper may be found here]

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.

CLASS Agonistes

This week the Obama Administration formally abandoned the CLASS Act, a component of the ACA designed to provide long-term care. Robert Reich explains why it was doomed from the start:

First, it required beneficiaries to receive at least $50 a day if they had a long-term illness or disability (to pay a caregiver or provide other forms of maintenance). That $50 was an absolute minimum. No flexibility on the downside.

Second, insurance premiums had to fully cover these costs. In budget-speak, the program was to be self-financing. Given the minimum benefit, that meant fairly hefty premiums. Third, unlike the rest of the healthcare law, enrollment was to be voluntary. But given the fairly hefty premiums, the only people likely to sign up would know they’d need the benefit because they had or were prone to certain long-term illnesses or disabilities. Healthier people probably wouldn’t enroll.

The failure of CLASS has led to a flurry of proposals for alternatives to long-term care insurance. Some want a purely private sector solution. Maybe a new Rube Goldberg financing scheme could be implemented as a part of 401(k) plans. Perhaps Wall Street could sell disability derivatives and ability default swaps, engineering away the “risk of non-use” that keeps people from enrolling in programs like this.

In thinking about these proposals, my mind turns back to Robert Bork’s Antitrust Paradox. For Bork, antitrust law was “at war with itself” because it professed to promote simultaneously 1) a cutthroat competitive process that would encourage firms to maximize efficiency and 2) the threat of penalties for any firm that succeeded in being so efficient that it outcompeted all or nearly all of its rivals, if its efforts to do so stepped over the line into monopolization. Of course, one could resolve the so-called paradox if one recognized that the Sherman and Clayton Acts were passed not merely to maximize “consumer welfare,” but also to prevent concentrations of economic power from exercising excessive influence. But as the judicial interpretation of antitrust law took on more of the assumptions of the Chicago school, the paradox loomed ever larger in efforts to characterize antitrust as futile in an era of consolidation.

So what’s the CLASS paradox? There are actually several. Those who are not so well off (such as the 50% of American workers who made less than $26,000 last year) are likely to be the most in need of the program, but have the least amount to spare for premiums. Those in the top 1% (that is, those who make over $506,000 annually) will probably want to use their own savings and investments, rather than an insurance program, to pay for LTC. That leaves a middle 49%, making between $26,000 and $506,000, who are the most likely participants. But among that group, the more healthy, well-connected, wealthy, and younger you are, the less likely you are to buy in because the benefits are speculative, distant, and/or unneeded. And by and large, the sicker, more isolated, poorer, and older you are, the less likely you are to have the resources to participate now.

The question finally becomes: are we serious about social insurance in this country, or are we content with treating the very frail elderly like possessions in the home, to be insured as need and whim allow? The solution to the LTC crisis is a right to basic care and residence, funded by general tax revenues. Sure, we can have extensive and difficult debates about the obligations of individuals and families to contribute to long-term care, particularly in order to make better-than-basic options available. But the general focus needs to be on redistribution from the currently well-to-do to the currently needy, rather than an ownership society mirage of individuals anticipating distant futures that may never materialize (and that many or even most can’t very well prepare for even if they do materialize).

We should also consider funding more of Medicare out of general tax revenues, rather than from dedicated payroll taxes and premiums. Richard Kaplan has argued that this shift could better serve both equity and cost-control goals:

The use of general tax revenues, moreover, would make clear that financing the health care needs of the Medicare population is a societal undertaking, much like the Medicaid program, which targets low-income individuals of any age. At a minimum, eliminating the separate taxes for Medicare would simplify the lives of employees and employers alike and would additionally reduce the cost to employers of adding new employees. Perhaps changing the financing of the Medicare program along the lines just suggested might also make its beneficiaries less inclined to protest every proposed programmatic restriction and to understand that their benefits are indeed coming from a communal funding source. The resulting change in budgetary debates can only be salutary for the republic as a whole.

Health care finance in general must adopt to a world of massive and growing income and wealth inequality. From 1947-1980, when Americans’ incomes more or less grew together at the same rate, there was some justification for modeling the purchase of long term care as an investment that individuals would manage one by one, to reflect their tastes and preferences. Since 1980, the divergence in fortunes has become so great that such choices far more reflect ability-to-pay rather than taste for risk or comfort. It is unfair to expect struggling middle and lower class individuals to continue with such burdens. And to the extent tough choices need to be made, they ought to better reflect the collective wealth of the nation, rather than the tragic choices that can befall an individual forced to choose between preparing for bleak penury in old age or investing in present purchases that could make that neediness less likely.

Rising Health Insurance Premiums: Don’t Let Yourself Be Spinned

It’s not surprising that opponents of health reform are capitalizing on the rather surprising findings of the Kaiser Family Foundation’s Employer Health Benefits 2011 Annual Survey that the average annual premiums for employer-sponsored health insurance increased 8 percent for single coverage and 9 percent for family coverage from 2010.   These numbers don’t sound good.

But analysis by Jon Gabel, Senior Fellow at NORC at the University of Chicago, Roland McDevitt, Director of Health Research at Towers Watson, and Ryan Lore, Senior Associate at Towers Watson, which is summarized on the Commonwealth Fund Blog and will be detailed more fully in a forthcoming issue brief, shows that the vast majority of premium increases are not tied to health reform, and those that are relate to improved coverage.  As the authors summarize:

[Our analysis] attributes only 1.8 percentage points of the 8 percent to 9 percent rise in premiums to the insurance reforms. Moreover, this marginal increase as a result of the reforms also means that families have better coverage that protects them from catastrophic health care costs as well as lower out-of-pocket costs for preventive services like colonoscopies and mammograms. It’s logical that improvements in the quality of the product would increase the cost of premiums and lower out-of-pocket costs to some degree.

This is not to minimize the impact of these increases.  Any increase in premiums, especially in a challenging economy, warrants scrutiny.  But rather than rush to judgment on data taken out of context by spinsters with a political agenda, we must continue to carefully consider the full panoply of facts and how they interrelate.  While some premium increases in the group markets seem to be linked to health reform, are the benefits worth the costs?

For example, the study estimates that expanding coverage for adult children accounts for 0.9 percent of the premium increases and affects 91 percent of group policyholders; banning limits on lifetime maximum benefits is responsible for 0.5 percent in premium increases and impacts 53 percent of group policyholders; and requiring employers to offer certain preventive services without cost-sharing increases premiums by 0.4 percent and affects 24 percent of group policyholders.   The total additional annual cost of the increased premiums tied to health reform amounts to $167 per policyholder in the group markets.

It is critical to explore whether these enhanced coverage options warrant increased premiums.  While we do, we also should ensure the public is aware that there is more to the data than nearly 10 percent premium hikes so it does not get dizzy from the spin cycle.

Man Robs Bank for Medical Treatment

We’ve talked often on this blog about the difficulties experienced by the uninsured. About the expenses associated with health care and how hard those expenses fall on some– how people eschew treatment because of cost, and even how a governor, by releasing two inmates, rid his state of the cost of care for dialysis and  possible transplant. Maybe the following is just a natural extension of the premise–or the flip side of the governor as a cost-shifting state benefactor in a down economy amidst rising healthcare costs.

A 59-year-old former truck driver took it upon himself, with the tools available to him, to engage in some cost shifting as well. In need of medical care and unable to afford it– and seemingly unwilling to bankrupt himself or his family through medical expense– he robbed a bank.

After losing his truck driving job of 17 years and a short lived driving job thereafter, James Richard Verone, who took a job as a convenience store clerk in a failed attempt to make ends meet, entered into a Gastonia, N.C. bank and, with a note, demanded of the cashier the sum of $1 and some medical attention. He then told the teller he would sit and wait for the police.

The convenience store job, apparently, took its toll on Verone. Yahoo News reports that

But Verone’s body wasn’t up to it. The bending and lifting made his back ache. He had problems with his left foot, making him limp. He also suffered from carpal tunnel syndrome and arthritis.

Then he noticed a protrusion on his chest. “The pain was beyond the tolerance that I could accept,” Verone told the Gaston Gazette. “I kind of hit a brick wall with everything.”

Verone knew he needed help–and he didn’t want to be a burden on his sister and brothers. He applied for food stamps, but they weren’t enough either.

So he hatched a plan. On June 9, he woke up, showered, ironed his shirt. He mailed a letter to the Gazette, listing the return address as the Gaston County Jail.

“When you receive this a bank robbery will have been committed by me,” Verone wrote in the letter. “This robbery is being committed by me for one dollar. I am of sound mind but not so much sound body.”

Mr. Verone is being held awaiting trial under a charge of larceny. As of last week, he was scheduled to see a doctor this week. Mr Verone is said to have observed, “If you don’t have your health you don’t have anything.”

Vermont and Single Payer, Laboratory for the States?

Law Professor Kevin Outterson, Health Law, Bioethics and Human Rights, at Boston University School of Law (as well as Editor in Chief of the Journal of Law, Medicine & Ethics and Faculty Advisor to the American Journal of Law & Medicine), gives a good account of the implications of Vermont’s recent declaration that it will be instituting  a single payer health care plan (yes, if you haven’t heard, that Single Payer Plan) on WNYC’s Brian Lehrer Show.

Professor Outterson observes that  implementation “will require multiple steps,” but that the formal decision to move forward was “a significant step,” and that “if Vermont is able to control costs better than their neighboring states, than they will be a magnet for employment.” He also notes that adjustments will need to be made by the federal authorities in order for Vermont’s plan to mesh with PPACA, Medicare and Medicaid, and addresses conflicts of interest in medicine, as presently financed and practiced, which add to the costs of healthcare.

The Single Payer segment starts at 3:48

Progress Not Perfection: More Insured Under PPACA

A UPI article (via the RWJF feed) notes that the PPACA provision that allows “young adults who are not full-time students to remain on their parents’ insurance plans until they are 26 years old,” has resulted in a gain of 600,000 additional persons to the insurance rolls in the first quarter of this year according to Forbes Magazine.

The article also notes that a recent Kaiser study shows that “46 percent more small businesses- those with 10 or fewer employees - were now offering health insurance to their workers.

The gain was prompted by a tax benefit offered in the Affordable Care Act.”

Looks like steps in the right direction. Read more here.

Sebelius: Did You Say Record Profits and Premium Increases?

In a post last week, “Insurers’ Profits Swell, Nation Can’t Afford to Get Sick, Can’t Afford to Get Well,” I noted with some distaste that health insurers were said to be looking “for premium increases amidst what [Reed] Abelson describes as ‘flush’ reserve coffers and shareholders ‘rewarded with new dividends.’”

As you might have gleamed from the title of the post, the primary reason for the increased profits was thought to be attributable to “a recessionary mindset” which has led to the insured deferring treatment and thereby not utilizing their health insurance benefits.

As I noted then, despite record profits now, “someday there might be a rainy day” [was/is] a common refrain/justification among insurers.”

Apparently, the Obama administration was none too thrilled with either the prospect of double digit premium increases or the justification. The New York Times reports that

Kathleen Sebelius, the secretary of health and human services, issued a final rule establishing procedures for federal and state insurance experts to scrutinize premiums. Insurers, she said, will have to justify rate increases in an environment in which they are doing well financially, with profits exceeding the expectations of many Wall Street analysts.

“Health insurance companies have recently reported some of their highest profits in years and are holding record reserves,” Ms. Sebelius said. “Insurers are seeing lower medical costs as people put off care and treatment in a recovering economy, but many insurance companies continue to raise their rates. Often, these increases come without any explanation or justification.”

PPACA requires annual reviews of “unreasonable increases in premiums.” Starting in September, insurers will need to justify rate increases over 10 percent–with state by state adjustments to that presumptive number the following year. You can read more about the details here, in the Times.

Insurers’ Profits Swell, Nation Can’t Afford to Get Sick, Can’t Afford to Get Well

Reed Abelson wrote an interesting piece in The New York Times recently– and it is worth considering. Entitled, “Health Insurers Making Record Profits as Many Postpone Care,” the first paragraph speaks volumes:

The nation’s major health insurers are barreling into a third year of record profits, enriched in recent months by a lingering recessionary mind-set among Americans who are postponing or forgoing medical care.

But still there is the push to further increase premiums– with “someday there might be a rainy day” a common refrain/justification among insurers.

I’ll leave alone for now the premium increases amidst what Abelson describes as “flush” reserve coffers and shareholders “rewarded with new dividends.” Res Ipsa Loquitur. But you may want to take a quick look at Reed Abelson’s article.

Having said that, I am taken again by the equation which is said to have filled those coffers: people too broke to get themselves fixed– despite having health insurance. It’s a calculus largely unto itself. In many articles here at HRW we’ve discussed how health insurance is unlike other commodities in the marketplace– averring that the economics of health care itself and that of health care finance may not be reckoned the same as say automobiles or butter and bread.

In this instance we consider health insurance– an asset, or benefit– garnered by an employee in return for work provided to an employer. Presumably, this benefit is received in lieu of an increased rate of pay– cash– that that employee would otherwise receive. The employee may also contribute to paying for the insurance out of his or her wages– once again lessening available cash. And the benefit is not utilized– for lack of cash, or the perceived inability to take time from work in the midst of a recession. But the premium is still, of course, paid.  I generally eat the butter and bread I buy.

With health insurance we pay for an assurance (mutually contracted with risk spread) that in the event we need medical care it will be available. An assurance that we will have the means at our disposal to get well, or at least for someone to try. Though at present, it seems, the economy itself (and the prevalent high co-pay/ deductible structure) has dictated that we are not available to receive the medical care we bargained for– despite it being, ostensibly, available. More years into a recession than I care to count, as a nation we can’t afford to get sick, and can’t afford to get well. For insurers, it’s a perfect storm of the optimal. Having said that, putting aside for the moment the prospect of the catastrophic, the employer/employee/health “benefit” seems somewhat illusory. And yet, unlike butter uneaten we will continue to buy it. That is the nature of insurance– you buy it and hope you don’t need it. Though “need” as of late seems to have been redefined economically. As such, it is a very sunny day for the umbrella salesmen– the umbrellas have been all paid for, but they only hand them out on rainy days. It seems the height of hubris to now seek more money for those umbrellas because someday it might rain– or just business as usual. Apparently the risk spread over time doesn’t include insurers.

Image by Karen Apricot

Gregg Bloche’s The Hippocratic Myth

Georgetown law professor Gregg Bloche’s new book, The Hippocratic Myth, looks to be a major contribution to health policy debates. I haven’t had time to read it yet, but many reviews and radio shows give the impression of a rigorous work leavened with engaging narratives of individual patients and providers.

Bloche’s approach to rationing will rekindle many of the health care debates of 2010. A former advisor to the Obama health policy team, Bloche concludes the following:

Medicine’s therapeutic potential has surpassed our ability to pay for it, but our elected officials are afraid to tell us. The historic health reforms enacted last year will protect 30 million Americans from the Darwinian cruelty of lack of access to care. But contrary to much wishful thinking in Washington, these reforms do little to stave off looming medical cost catastrophe. Our future fiscal and social stability will turn on our ability to gain control of spending without imperiling patients’ trust in their caregivers.

Bloche also observes the importance of the medical profession in upcoming bioethical debates:

Medical judgment incorporates hidden political and moral beliefs, and doctors have become key political and legal decision-makers—on such matters as child custody, criminal punishment, access to performance-enhancing drugs, and the politics of obesity, abortion, and homosexuality.

Doctors and the rest of us will need to address the morality of innovations we never thought possible. Drugs that block—or boost—biological mechanisms of stress resistance, brain-scanning methods that read minds, and medicines that interfere with formation of traumatic memories are among the technologies that will soon be with us.

During his interview with NPR’s Leonard Lopate, Bloche mentioned an aspect of insurer practice that renders suspect many consumer-directed ideals of medical care. Many insurers’ care protocols are kept secret, as proprietary information. Bloche found the practice deeply troubling, and I agree. Insurers’ criteria for providing care are important aspects of the service they are providing. They should not be hidden from patients or doctors. In more encouraging news, Bloche notes that he has not lost an appeal of a medical coverage decision to an insurer.

Enforceable Contracts for Cheaper and More Limited Care

Bloche seems committed to permitting consumers to make enforceable contracts for lower levels of care. Tyler Cowen recently evoked that possibility of ala carte insurance in his evaluation of the recent Ryancare proposal:

Let’s say it’s 2027 and I’ve just turned 65. I fill out a Medicare application on-line and opt for a plan with superior heart coverage (my father died of a heart attack), not too much knee coverage and physical therapy (my job doesn’t require heavy lifting), no cancer heroics (my mother turned them down and I wish to follow her example), and lots of long-term disability. Is that so terrible an approach? Is it obviously worse than having the Medicare Advisory Board make all of those choices for me?

Cowen worries that “Perhaps an individual will choose ‘no coverage for lung cancer,’ but the government cannot precommit to the outcome of no coverage.” But Bloche makes a point in an NPR interview that suggests that a physician’s decision to withhold care in that instance would not violate the Hippocratic Oath:

The rationale there is that the doctor who stints on care three years later when you get really sick is acting in accordance with your preferences as you expressed them in the employee benefits office three years before. And therefore, the doctor is not violating the Hippocratic Oath. The doctor is merely complying with your preferences when you rolled the dice in the employee benefits office.

Of course, that is in the private insurance context, not Medicare, and I don’t know if that distinction would make a difference for Bloche. But it does help me see how the book attracted a blurb from a Heritage Foundation analyst. Contemporary conservative health policy experts are committed to giving individuals the chance to buy low-cost plans, and so far the Obama Administration has been quite accommodating in granting waivers for them. My sense is that Bloche is committed to a minimum essential benefits approach that would allow consumers to opt out of “cancer heroics” (perhaps defined as biotechnology drugs costing over $7 million over one’s lifetime?), but not to waive “lung cancer” coverage generally.

Bloche argues in the book that:

[M]edicine’s capabilities and costs will inexorably grow. Increasingly, doctors will need to say no to care that’s technologically possible and that could prolong life, but that does so in competition with other national priorities. We must empower them to do so even when the consequences seem tragic. But we must give them this power without asking them to break faith at the bedside. To this end, the current regime of covert rationing, under cover of ‘medical necessity,’ should be supplanted by visible resource allocation rules–rules set for doctors and patients by social institutions. (58-9)

Transparency of this sort will compel us to come to terms the truth that insurers must say no to beneficial care to stay within the limits we impose when we seek low prices for products for products and services, elect politicians who promise low taxes, and choose cheaper health care plans for ourselves.

Though I hate to disagree with such an eloquent statement by so eminent a scholar, I am slightly troubled by that language. I think money saved from the health sector is more likely to go to new adventures in the Middle East or dot-com, housing, and commodities bubbles than it is to be allocated to “other national priorities.” Health care is only one of many sectors where US-style casino capitalism has seriously distorted capital allocation.

I also believe that the invocation of “we” here glosses over the moral role of redistribution in an extremely unequal economy. A privately insured person who really wants a procedure can spend himself down to bankruptcy, then apply for Medicaid. At that point, the government must make a decision. Given that “the government collected less in taxes in 2010 than it has in over three generations, and tax rates are at historic lows” for the very wealthy, I don’t think it is entirely fair to say “we” can’t afford certain care. Rather, those at the top of the income and wealth scale are increasingly supporting politicians who will not tax the wealthy. The current scarcity of care for the least well off is not a natural feature of the world; rather, it is epiphenomenal of repeated decisions not to impose certain tax burdens today even though they would have seemed perfectly fair 50 years ago. Since a “Wall Street transactions tax of only 0.50% on short-term speculation could raise up to $170 billion annually,” I fail to see an imperative to reduce incomes in the health sector until problems in much less socially productive sectors are addressed.

On the other hand, if our government “of the top 1%, by the top 1%, for the top 1%” continues, major cuts to the health sector are inevitable. If they must come, we need more trusted and fair voices like Bloche’s at the table. As Daniel Alpert has observed, “the U.S. has engineered a winner-take-all economy and indebted both the majority of its people and its government to keep a ‘don’t tax, but spend anyway’ consumerist fantasy alive.” Bloche helps us face the difficult task of unwinding the consequences of all those bad economic decisions.

Bloche is also admirably restrained in his sense of how much current law can do to rationalize health care spending. As he notes in a book excerpt:

30 percent of health spending [is] wasted on worthless care—about the price of the $700 billion mortgage bailout, squandered each year. . . [One study estimated that only] about 10 to 20 percent of medical procedures rest on “gold-standard” evidence — randomized clinical trials. . . . Risky and pricey therapies routinely make their way into common use without such studies. . . .

Change is looming. The 2010 health reform law created a “Patient- Centered Outcomes Research Institute,” funded by levies on Medicare and private insurers, to sponsor such research. But the funding level, less than a tenth of a percent of what Americans spend on health care each year, will do little to increase the fraction of medical decisions that rest on science. And the Institute’s governing body — composed mostly of representatives from the hospital, insurance, and drug and device industries, as well as physicians — seems almost designed to enable stakeholders to block studies that threaten their interests. Moreover, multiple provisions in the law (sought by providers and drug and device makers) hobble Medicare’s ability to base coverage decisions on research the Institute sponsors.

The mix of hope and realism in the paragraphs above reflects the judicious sensibility of the many Bloche articles I have had the good fortune to learn from. I look forward to reading his book.

Health Insurance CEO Total Compensation in 2009

Last year we posted the Total Compensation for a number of Health Insurance Company CEOs for 2007 & 2008. Those numbers, culled from the companies’ SEC filings (Schedule 14A) appear immediately below. Below that are the numbers for 2009, courtesy of FierceHealthcare.com.

As you can see, the year has brought decreases for some CEOs (but not all). One wonders, discretion being the better part of valor, if the clamor for health care reform in full force during the course of 2009 counseled caution –at least for the time being– with regard to executive compensation. If the timing for further compensation has merely been adjusted so as to backload payments until after the health care reform debate is settled? As the clamor for health care reform has turned into a political clamor for reform of health care reform, I wonder what the 2010 numbers will be. If, perhaps, the wait for the Supreme Court to settle the individual mandate question– when insurers will know whether or not a country full of customers will be ushered into their pool, will influence compensation–and the timing of its public display. Either way, the numbers for 2009 pretty much speak for themselves. And not everyone on this list can be accused of prudence– Ms. Angela Braly of WellPoint received total compensation of $13,108,198 in 2009– which is more than $3 million more than her compensation the year prior. This, of course, is the same Angela Braly who evoked the wrath of many, including Secretary Sebelius, by raising premiums as much as 39% in California amidst allegations of systemic insurance recissions for women suffering from breast cancer. It should be noted, however, that part of her total compensation figure for 2009 included additional security, “in light of growing concerns regarding the safety of Ms. Braly.”

Last year we noted with some amazement that

…it has struck me that 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, and Mr. Hemsley had to somehow manage on $62,327.73 per week (but perhaps he was able to save a little from last year when he made $253,164.02 per week).

We’ll leave Mr. Williams of Aetna alone this year, as his compensation dwindled to a mere $18,058,162 in 2009. Though not particularly inclined to hear Mr. Williams’ recession story, he had to make ends meet on $347,272 per week.

I am somewhat interested in Mr. Allen Wise of Coventry Health Care though. Mr. Wise received $17,427,789 in 2009. His first year at the helm, some of that is signing bonus. Nevertheless, it amounts to an astounding 7% of Coventry’s net income. Yes, 7%.

As my own car, a 2003 Ford Crown Victoria, has recently exceeded 100,000 miles, I thought it might be interesting to look at this total compensation in terms of cars. More specifically, my car. I like my car, one of the last of the large American rear wheel drive sedans, and expect (knock on wood) that I’ll be driving it for some time to come. It’s paid off. It came with a full leather interior and eight cylinders of pure speed. In 2009, the list price for the car brand new was $29,115. I’ll suppose (perhaps foolishly, but hypothetically) for a moment that Mr. Wise lacked my haggling skill but liked and wanted the Crown Victoria– en masse.

In 2009 Mr. Wise’s could have bought 11.5 brand new Ford Crown Victorias per week, or 599 for the year.  Considering you can’t buy a new car in New Jersey on a Sunday, that’s almost 2 per day. And in case you were wondering, $17,427,789 per year comes out to $47,747 per day. If he tired of the Crown Vic, though anachronistic, he could also purchase a 2011 Mercedes Benz SLK 300 Roadster– each day.

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

Ins. Co. & CEO With 2009 Total CEO Compensation

• Aetna, Ronald A. Williams: $18,058,162
• Coventry, Allen Wise: $17,427,789 (took over from Dale Wolf)
• WellPoint, Angela Braly: $13,108,198
• United Health, Stephen Helmsley: $8,901,916
• Cigna, David Cordoni: $6,593,921 (took over from CEO H. Edward Hanway)
• Cigna, H. Edward Hanway: $18,800,000
• Humana, Michael McCallister: 6,509,452
• Health Net, Jay Gellert: $3,643,342

From Viral Marketing to Medical Profile Contagion

As ACA implementation lumbers ahead, and challenges to it slouch toward the Supremes, the U.S. health care system’s arbitrary old ways continue to mystify and frustrate. Consider this story on one person’s quest to obtain insurance:

Most employees assume that if they lose their job and the health coverage that comes along with it, they’ll be able to purchase insurance somewhere. . . .My husband, teenage daughter and I were all active and healthy, and I naïvely thought getting health insurance would be simple. . . .

Then the first letter arrived — denied. . . .What were these pre-existing conditions that put us into high-risk categories? For me, it was a corn on my toe for which my podiatrist had recommended an in-office procedure. My daughter was denied because she takes regular medication for a common teenage issue. My husband was denied because his ophthalmologist had identified a slow-growing cataract. Basically, if there is any possible procedure in your future, insurers will deny you. . . .

As I filled out more applications, I discovered a critical error in my strategy. The first question was “Have you ever been denied health insurance”? Now my answer was yes, giving the new companies reason to be wary of my application. I learned too late that the best tactic is to apply simultaneously to as many companies as possible, so that you don’t have to admit to a denial.

As was recently reported, “50 to 129 million (19 to 50 percent of) non-elderly Americans have some type of pre-existing health condition.” The “health care market” is sending a strong signal: don’t step out of the system if you have any continuing need for even minor care.

But what’s more worrisome are the types of information circulating about you that you aren’t even aware of. Consider this story from Businessweek about the profiling of insurance applicants by third-party intermediaries:

Most consumers and even many insurance agents are unaware that Humana, UnitedHealth Group , Aetna (AET), Blue Cross plans, and other insurance giants have ready access to applicants’ prescription histories. These online reports, available in seconds from a pair of little-known intermediary companies at a cost of only about $15 per search, typically include voluminous information going back five years on dosage, refills, and possible medical conditions. The reports also provide a numerical score predicting what a person may cost an insurer in the future. . . .

[A] 57-year-old safety consultant in the oil and gas industry, says he tried to explain that the medications weren’t for serious ailments. The blood-pressure prescription related to a minor problem his wife, Paula, had with swelling of her ankles. The antidepressant was prescribed to help her sleep—a common “off-label” treatment doctors advise for some menopausal women. But drugs for depression and other mental health conditions are often red flags to insurers. Despite his efforts to reassure Humana, the phone interview with the company representative “just went south,” Walter recounts. He and his wife remain uninsured [as of 2008].

Health-related data from a wild west of unregulated intermediaries may spread to employers and other decisionmakers, just as credit scores have migrated from the bank context to influencing insurance pricing, and credit histories now influence employers. Sharona Hoffman has observed that “It is not uncommon for employers to obtain applicants’ and employees’ medical records. According to one source, every year, over ten million authorizations for release of medical information are signed by workers prior to the commencement of employment.” She has predicted disturbing possibilities arising out of that access to data:

Existing laws, including the ADA, GINA, HIPAA, and their state counterparts, provide important assurances to applicants and employees but are insufficient to guarantee that they will suffer no ill consequences as a result of EHR disclosure to employers. Employees may be especially concerned in times of recession, knowing that financial pressures make workers with health problems particularly unattractive to employers. Employers or their hired experts may develop complex scoring algorithms based on EHRs to determine which individuals are likely to be high-risk and high-cost workers. In addition, in times of financial difficulty, limited resources may be available to implement technology and policies that will secure EHR confidentiality.

Secondary uses of health data could be a very lucrative niche for profilers of the future.

Given these possibilities, individuals should at least have the right to access and correct the health data that intermediaries have compiled about them. The FTC recognized this right, and “forced the [insurance] industry to begin disclosing the use of prescription information under . . . the Fair Credit Reporting Act. . . . Copies of prescription reports are supposed to be available to consumers at no charge under federal law.” This is a small step forward. But if the “scores” assessing individual risk are compiled according to proprietary algorithms, the consumer may still feel “in the dark,” unable to adequately influence the presentation of herself to the insurer.

As Esther Dyson has stated in another context, mysterious data flows can jeopardize individual autonomy:

The comforting thing about the kind of data that Facebook primarily deals with is that it’s public. If your friends and other people can see it, so can you.

More troubling is the data you don’t even know about – the kind of data about your online activities collected by ad networks and shared with advertisers and other marketers, and sometimes correlated with offline data from other vendors. By and large, that’s information you can’t see – what you clicked on, what you searched for, which pages you came from and went to – and neither can your friends, for the most part. But that information is sold and traded, manipulated with algorithms to classify you and to determine what ads you see, what e-mails you receive, and often what offers are made to you. Of course, some of that information could go astray.

Online advertisers already slice and dice population segments (and distribute opportunities & exposure to ads) via marketing discrimination. Will the “e-health revolution” bring their methods out of cyberspace, and into the deadly serious business of offering employment and insurance based on estimates of health status that applicants can’t understand or challenge?

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