Corporate Research Group’s Weblog

Wachovia analyst Matt Perry had this to say after the Senate Finance Committee rejected the controversial public health insurance option:

On Tuesday the Senate Finance Committee voted down two separate amendments that would have created a government run public insurance option. The first amendment, introduced by Senator Rockefeller, was defeated on a 15-8 vote – with 5 Democrats joining all 10 Republicans in opposition. Rockefeller’s amendment would have been the ”strong public plan”, paying Medicare rates and forcing providers to accept it. The second amendment, introduced by Senator Schumer, was defeated 13-10. Schumer’s version was a ”weak public plan”. The defeat of these two amendments means that the Senate Finance bill will not include a public option (although it could include co-ops). This development is not surprising, but the fact that neither vote was close deals a blow to supporters of the public plan and is a positive sign for health insurers, in our view.

Note that five Democrats voted against the Rockefeller amendment and three voted against the Schumer amendment — meaning that these Democrats were the swing votes.  So much for Republicans being the only ones obstructing real reform.

Just like democracy, single-payer coverage is probably the worst way to run a health-care system … except for all the others. — Rich Smith, The Motley Fool

Here’s a depressing thought.   Vince Ventimiglia of B&D Consulting thinks we’re still in the early stages of the healthcare reform debate.  Ventimiglia, who spoke on a conference call Sept. 18 hosted by Wells Fargo Securities, noted:

I think we’re still on the first wave, and that wave is the wave of intense committee effort to develop something that gets pretty close to universal coverage–a universal access bill to ensure that the uninsured are covered and that the health system is improved….I do have a belief that this first wave is not going to be successful – that it’ll be difficult to get consensus around a broad universal coverage bill, and that the Democrats will look at two other options. 

The second is reconciliation, a wave that will start being considered, I think, in the next few weeks. And if it is pulled, if they decide to act on that wave, [then it] would happen middle/end of October.

Ultimately, I believe there will be a third wave (I don’t believe they’ll go with reconciliation…) late in the year –sometime in December — that will essentially be a Medicare package with  some incremental insurance provisions in it that will be driven by the need to ultimately have a doc fix…so that docs can avoid their 21% cut.

FYI, he’s referring to the 21% cut to physician Medicare payments scheduled for 2010….See you at the next Town Hall meeting.

President Obama was on five Sunday morning news shows pitching his healthcare reform package, and the question is whether this unprecedented media blitz will win public support for reform. 

If past Gallup poll data are any indication, the answer is no.

Take, for example, the President’s recent speech to a joint session of Congress.  That impassioned defense of reform appears to have had little to no effect on public opinion.  Notes Gallup (from a poll released Sept. 16): 

Americans — who were divided on healthcare reform legislation before President Obama addressed Congress last week — remain so after the speech. Part of this stems from deep partisan divisions, with the vast majority of Republicans opposed to reform and the vast majority of Democrats in favor.

Another example: Remember all those heated Town Hall meetings over the summer – that whole ugly spectacle?  It had little to no impact on Americans’ views about reform.  Writes Gallup (from a poll released Sept. 8):  

A month of town-hall meetings across the country during Congress’ August recess has hardly budged Americans’ views about passing a healthcare reform bill, or helped many more Americans form an opinion. The public is as divided over healthcare reform today as at the beginning of August (37% in favor and 39% opposed), with a large segment still undecided.

In other words, Americans weren’t moved by the shouters at Town Halls, and they weren’t moved by Obama’s cool, reasoned debate.  More broadly, Gallup notes:

It is unclear how much success the president and other healthcare reform proponents will have in changing Americans’ philosophical views about healthcare, which are probably more fundamental to their worldviews and therefore resistant to change.

My conclusion is that we’re going to get the Baucus reform plan – i.e., a fairly watered down version of Obama’s original vision (which itself was a compromise aimed at avoiding serious consideration of single-payer healthcare). 

All of which means we’re going to have to go through this all over again in the not-too-distant future.

I agree with most of what Rep. Dennis Kucinich (D-OH) says in this video interview on Tech Ticker about health reform, i.e., the public option is dead; healthcare is a right; and “the people of the United States deserve a lot better” than the Baucus bill.  Notes Kucinich:

Unless you have a public option, there is no way that you can drive down the cost of healthcare because insurance companies won’t have any competition. 

Kucinich also argues that the U.S. should work toward a long-term goal of establishing a single-payer system:

It’s a longer term effort, but at least we’re not pretending that we’re bringing about wide-scale reform by forcing people to choose between private insurance companies.

As I’ve noted before, I have no problem with going to single-payer; however, I also think a properly regulated public-private insurance market could work. 

I’m not sure what Kucinich is referring to in the video when he says that a single-payer system would convert all healthcare assets in the U.S. to not-for-profit — or that by going to single-payer we could use the $800 billion a year that goes to private insurance companies to pay for coverage for everyone. 

(I called — and emailed — Kucinich’s office but hadn’t received a reply before presstime).

On the later point, he would be correct in noting that about 13% of the $800 billion in annual health plan premiums go toward administrative costs and profits.  That’s $100 billion annually or $1 trillion over 10 years. 

Add in the additional administrative savings on the provider side from not having to deal with multiple insurers, and yes that should be more than enough to cover everyone.

Btw, kudos to Tech Ticker for giving a single-payer guy some airtime.

Senate Finance Committee Chairman Max Baucus (D-MT) finally released his long-awaited healthcare reform bill, which closely follows the framework he’d already outlined (see prior post). 

But the big news was that the Congressional Budget Office said the bill “would result in a net reduction in federal budget deficits” through 2019.  Total cost of the bill is estimated at $774 billion over 10 years — all of which and more is expected to be paid for through cost savings and taxes.

Matt Perry of Wachovia said the CBO scoring provides significant political momentum to the bill.  Still, he has some doubts about the cost estimates, and CBO itself admits to certain caveats.  Notes Perry:

The bill assumes that Medicare payments to doctors are cut by 25% in 2011. While this is written in current law, it seems unlikely to happen. Further, the excise tax on high cost plans is expected to provide over 25% of the bill’s funding and to grow by 10-15% per year. This is likely to be very unpopular with labor unions and with high cost states that would be hard hit by the tax.

CBO expects the bill to cover 29 million of the uninsured by 2019, leaving 25 million without coverage (a third of whom are illegal aliens).   Basically, the percentage of uninsured (excluding illegal aliens) would fall to about 6% of the population from 17%.

And what about health insurance co-ops, which are included in the bill as an alternative to the controversial public option?  Notes CBO:

The proposed co-ops had very little effect on the estimates of total enrollment in the exchanges or federal costs because, as they are described in the specifications, they seem unlikely to establish a significant market presence in many areas of the country or to noticeably affect federal subsidy payments.

That’s not the same as saying the co-op concept is a joke, but it’s pretty close.  Furthermore, the bill doesn’t appear to do much to address the trend of rising healthcare costs.

All of which brings us to the bottom line on the Baucus bill.  I give it a hearty “sigh.” 

It’s good news for the 29 million additional people who will be able to get coverage through an expanded Medicaid program, Federal subsidies, state insurance exchanges and a reformed individual insurance market with community rating and guaranteed issue.

But without a strong public option to give consumers a choice beyond private health plans and without seriously addressing cost trends, this round of healthcare “reform” is really just an incremental step.   

That’s not saying anything new.  The nation has been incrementally increasing the role of government in healthcare and will continue to do so over time. 

Last stop on this journey is either a single-payer system or a highly regulated public-private insurance market.  A public plan would have gotten us a step closer to where we’re going anyway.  But at least we’re heading in the right direction.

We all know that Rep. Joe Wilson (R-SC) yelled “You lie!” when President Obama said during a speech to a joint session of Congress that healthcare reform wouldn’t cover illegal immigrants.

It was an ugly episode, but it raises two important questions. 

1.  Was Obama indeed lying? 

The answer is no.  Obama’s healthcare reform package doesn’t cover illegal immigrants.  In fact, the White House said last week that illegal immigrants wouldn’t be allowed to buy coverage through a health insurance exchange even if they pay for it themselves. 

They would still be able to buy insurance directly from private plans in the individual insurance market; unfortunately, that market is going to be much smaller with the advent of exchanges.  Note: Of the nation’s 12 million or so illegal immigrants (estimates vary), nearly half have health insurance.

2. Should we be offering coverage to illegal immigrants (or legal immigrants for that matter)?

The answer is yes.  Since immigrants (illegal or otherwise) tend to be young and healthy, they would probably improve the insurance risk pool and their premium dollars would help subsidize reform.  So at the very least they should be allowed to buy coverage through an insurance exchange. 

But the issue is bigger than that.  If healthcare is a right — and I think it is — then how do you provide care to one human being living and working in your country but deny it to another?

It is true that emergency rooms are required to provide care to the uninsured — including illegal immigrants.  But that’s a terribly inefficient way of delivering healthcare.  And it turns out that immigrants in general are low utilizers of E.R. services, compared to U.S. citizens.

Yes, covering illegal immigrants would cost money and is a political minefield.  But at some point we have to ask ourselves what are we trying to achieve with healthcare reform: coverage for everyone holding the right piece of paper or coverage for everyone living and working in America?

Surveys show that a majority of Americans favor a public health plan.  A new study from the Robert Wood Johnson Foundation shows that a majority of physicians also favor a public option. 

So here’s the question: Why is the public option all but dead despite all this support?  Your input would be most appreciated.

From the Daily Show with Jon Stewart (video here) and from The Colbert Report with Stephen Colbert (video here).

No, but it could help. 

Fortune magazine has published a comprehensive — and very interesting — article on the debate over marijuana legalization.  The part that stood out for me concerned revenue projections from taxing marijuana sales — and the potential savings in law enforcement costs.

Assuming a national consumer market for marijuana of about $13 billion annually, Harvard economist Jeffrey Miron has estimated that legalization could be expected to bring state and federal governments about $7 billion annually in additional tax revenue, while saving them $13.5 billion in prohibition-related law enforcement costs.

In California…a legalization bill has been introduced in the state legislature, and the state board of equalization has estimated that if passed, it would bring in $1.4 billion in new revenue, a seemingly conservative estimate.

It’s even possible that legalization would reduce national health-care costs, by easing demand for costly pharmaceuticals.

If you believe Miron’s estimates, then legalizing marijuana would generate about $200 billion in tax revenues and law enforcement savings over 10 years — which would pay for one tenth of the cost of healthcare reform. 

Coincidentally, that’s the about the same amount of money generated by health insurance industry profits (see prior post). 

Thus, taxing pot sales and health plan profits combined would cover 20% of the cost of reform — and we’d all be too stoned to worry about where the other 80% came from.

The U.S. Census Bureau reported that the number of people without health insurance rose 1% to 46.3 million in 2008. 

It would have been worse if not for government programs such as Medicaid picking up the slack for an eroding employer-sponsored insurance market.  Uninsured rates for minorities — blacks, Asians, Hispanics — were far higher than for whites.

All of which isn’t a big surprise.  The last time Census released data on insurance coverage — covering the year 2007 (see prior post) – the number of uninsured actually declined.  But that was before the economic crisis of 2008.  Below are the Census findings from yesterday’s press release.

The number of people with health insurance increased from 253.4 million in 2007 to 255.1 million in 2008.

The number of people without health insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008.

Between 2007 and 2008, the number of people covered by private health insurance decreased from 202.0 million to 201.0 million, while the number covered by government health insurance climbed from 83.0 million to 87.4 million. The number covered by employment-based health insurance declined from 177.4 million to 176.3 million.

The number of uninsured children declined from 8.1 million (11.0 percent) in 2007 to 7.3 million (9.9 percent) in 2008. Both the uninsured rate and number of uninsured children are the lowest since 1987, the first year that comparable health insurance data were collected.

Industry trade group America’s Health Insurance Plans released a statement on Obama’s speech last night, which sums up the industry’s position on healthcare reform.  It’s interesting to read because it really does suggest how far the industry has come (sometimes we lose sight of how dramatic changes are when they occur over time) and where it’s still not willing to go.

We proposed health insurance reform to guarantee coverage to all Americans, eliminate pre-existing condition exclusions and rescissions, and no longer base premiums on a person’s health status or gender.  To keep coverage as affordable as possible, these reforms must be paired with an effective coverage requirement to get everyone into the health care system.

New health insurance reforms and consumer protections will solve the problem without creating a new government-run plan that will disrupt the quality coverage that millions of Americans rely on today.  We share the concerns that hospitals, doctors, employers, and patients have all raised about the significant unintended consequences of a government-run plan.

Health care reform must also include a serious commitment to cost containment to ensure coverage is more affordable and to put our health care system on a sustainable and fiscally responsible path.  New taxes on health care coverage will have the opposite effect by making coverage less affordable for families and small businesses across the country.

Last night’s speech by President Obama to a joint session of Congress is why politics is fun to watch. 

You had an impassioned President taking his vision of healthcare reform directly to the people.  You had Republicans holding up copies of their own reform proposals.  You had one opponent shouting “You lie!” when Obama said his proposal wouldn’t cover illegal aliens.  (Rep. Joe Wilson (R-SC) — who made the comment and was booed — later apologized for his “lack of civility”).

We all knew the speech wouldn’t break any new ground.  Obama still wants a public insurance plan, but is still willing to consider other options — including co-op health plans.  (It appears co-ops have emerged as the fallback option since the concept is already part of the reform framework proposed by Sen. Max Baucus (D-MT), chairman of the Senate Finance Committee).

I’ll admit it was exciting when Obama declared, “I will not back down on the basic principle that if Americans can’t find affordable coverage, we will provide you with a choice.” 

But after accounting for hedging, we were left pretty much in the same place as before.  I’m still guessing reform will include important changes to the individual insurance market, but no government-run health plan.

Of course, the point of the speech wasn’t to deliver a new message.  The point of the speech was to rally public support for the same message at a critical political crossroads.  We’ll have to wait for the opinion polls, but I wouldn’t be surprised to learn that the speech was well received.

There are a lot of people telling lies about healthcare reform.  Sorry, Joe, but the guy standing at the podium last night isn’t one of them.

That’s the message of this video from the White House, in which 35-year-old Laura Klitzka tells of her battle with advanced cancer, her anxiety over mounting out-of-pocket costs of care, and the possibility of hitting the coverage max on her health insurance policy.

The video — released by the White House today — also hints at the message President Obama is going to stress tonight as he lays out the case for reform: what’s happening to Laura Klitzka and her family can happen to any one of us.

You’d think it would be an easy point to make, especially since half of all personal bankruptcies in the U.S. are from healthcare bills. 

But as Jonathan Cohn noted in his book Sick: The Untold Story of America’s Healthcare Crisis and the People Who Pay the Price (HarperCollins, 2007), the stories of people like Laura Klitzka are in fact indicative, not representative. 

That’s a fancy way of saying these stories are infrequent enough that people can kid themselves into thinking it won’t happen to them.  Or as Cohn said in this video interview I did with him back in 2007:

We’ve had discussions about whether to create a universal health insurance system time and time again.  And one reason we’ve never made the decision to do that is that people who are insured — and at any one time most people do have health insurance — people feel I think sufficiently secure in that situation that they decide, “Well I really don’t want to make a change.  Change isn’t worth it because after all what do I have to gain.”

Against this backdrop, it really should be no surprise that one of Obama’s biggest challenges in selling reform is getting average middle-class people to understand what’s in it for them. 

Yes, you can go broke from healthcare bills even if you have insurance.  Reform is one way of protecting yourself and your family.  That’s the point the President has to hammer home tonight if he wants his vision of reform to become a reality.

The all-important Senate Finance Committee – which still hasn’t put forward its version of a healthcare bill – did release an 18-page framework for reform legislation.  (Correction, Sept. 9, 12:29 p.m.: The proposed framework was circulated to SFC members by chairman Max Baucus (D-MT)).

Read it carefully, because when all is said and done, this is pretty much what healthcare reform is going to look like — no matter what President Obama says in his speech tonight.

The framework calls for guaranteed issue of healthcare insurance regardless of a person’s health status, an individual mandate, state-based insurance exchanges, Medicare Advantage cuts and Medicaid expansion.  No limited benefit plans, no rescissions, and no lifetime coverage limits allowed.  No surprises here.  The framework also calls for co-op health plans, rather than the highly controversial public health plan endorsed by the President.  Again, no big surprise. 

One thing that did stand out, however, is that health plans would get hit with a $6 billion annual “Health Insurance Provider Fee,” plus a 35% tax on any benefit options with premiums topping $8000 single, $21,000 family. 

According to Wachovia analyst Matt Perry, the fee would represent 20% to 25% of the health insurance industry’s 2008 pretax profits and 40% of after-tax profits — and would almost certainly be passed along to customers in the form of higher premiums. 

The pharmaceutical, medical device and lab industries would get hit with similar fees of $2.3 billion, $4 billion and $750 million; however, hospitals, biotech companies and others would not.  (Note: while the SFC is saying these are “fees,” it’s not clear what direct benefit accrues to the healthcare companies making the payments; so I’m going to call them taxes).

Benefit options in the health insurance exchange would have actuarial values of 65% for the Bronze option, 73% Silver, 81% Gold, and 90% Platinum.  A separate option aimed at “young invincibles” would also be available.  

Health plans would be allowed to vary premium rates based on a few factors, such as age and geography, according to the following ratios: age 5:1; tobacco use 1.5:1; family composition (single 1:1; adult with child 1.8:1; two adults 2:1; family 3:1).  All told, premium variation wouldn’t be greater than 7.5:1.

The framework would mean a big expansion to Medicaid, with eligibility set at 133% of the federal poverty level and including childless adults.  That’s a plus for health insurers; however, gains could be offset by disruption in the State Children’s Health Insurance Program, which would run through the insurance exchanges beginning in 2013. 

Tax credits would be available to individuals and families at 134% to 300% of the federal poverty level (there would also be a variety of other credits and cost-sharing assistance to insure affordable coverage).  While individuals would be mandated to purchase health insurance, penalties would be relatively mild — $750 single, $1500 family for those at 100% to 300% of FPL; $950 single, $3800 family for those above 300% of FPL.

While there isn’t an employer mandate to provide health insurance, employers with 50 or more employees would get hit with a fee of up to $400 per employee if any one employee receives a tax credit to purchase insurance through an exchange.

One final note: the framework does little to address  rising healthcare costs.  Notes Oppenheimer analyst Carl McDonald, “Sure, there are provisions for accountable care organizations and some value based purchasing initiatives, but these apply only to Medicare and will only be implemented on a very limited scale.”  In the end, that may very well be the thing that comes back to haunt all these reform efforts.

President Obama is set to make his case for healthcare reform in a nationally televised speech tonight before a joint session of Congress. I sat down with Carl McDonald of Oppenheimer last week to discuss the likely impact of Obama’s speech and assess the prospects for healthcare reform (video here). From the Nasdaq Market Site in New York, Sept. 3, 2009.

As I noted in a prior post, I don’t expect any major shifts in direction from Obama.  One of the things he seems to understand is that politics is a marathon.  If you believe in what you’re saying, you need to keep saying it over and over.  Expect more of the same from Obama tonight.