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I’ve never been a big fan of minimum medical cost ratios for health plans, but this suggestion from The Value At Risk blog on how health plans might respond if minimum MCRs were including in the final healthcare reform legislation isn’t fair — and it isn’t very nice either.

Medical costs and operating expenses combined have come close to – or in most cases exceeded – premiums received by the major health insurance companies. Therefore, health insurance firms are not able to turn a profit from premium revenue alone. Profitability, it seems, is achieved by two other sources of revenue: fees and investment income….If I could make a recommendation to the industry, it would be to arbitrarily “invent” new fees. Maybe introduce another stage to the application process that would require payment of additional fees. To introduce a little bit of irony to the situation, the industry could pretend that it now faces burdensome ratio compliance costs, and must assess a few cents worth of compliance fee upon every claim. Remember: Focus on the Fees.

The U.S. Senate gave the nation a Christmas gift yesterday with the passage of a substantial healthcare reform bill, which when reconciled with the House bill will help improve the lives of millions of people.  The bill has flaws and shortcomings, as I’ve noted before.  But it’s a significant step in the right direction on the road to universal coverage.  And who knows, maybe all the debate over whether the bill will or won’t save money at the very least gets us thinking about one day actually affecting administrative simplification, evidence-based medicine and real cost savings (Hey, it’s Christmas, I can dream). 

One more thing, you know, being the birthday of Jesus Christ and all:  The Economist offers yet further proof of the need to include immigrants in the healthcare safety net.  (Hat tip: Infectious Greed):

Immigration keeps America young, strong and growing. “The populations of Europe, Russia and Japan are declining, and those of China and India are levelling off. The United States alone among great powers will be increasing its share of world population over time,” predicts Michael Lind of the New America Foundation, a think-tank. By 2050, there could be 500m Americans; by 2100, a billion. That means America could remain the pre-eminent nation for longer than many people expect. “Relying on the import of money, workers, and brains,” writes Mr Lind, America is “a Ponzi scheme that works.”

This has special meaning for me as I sit down to Christmas dinner with my Japanese-born wife, my Italian-American mom, and my half-Japanese, half-Italian, All-American daughter.

House Minority Leader John Boehner (R-OH), following passage of the Senate healthcare reform bill, which doesn’t include a public option and assures private insurance companies an important role going forward:

“Not even Ebenezer Scrooge himself could devise a scheme as cruel and greedy as Democrats’ government takeover of healthcare.” 

In the spirit of Christmas, I’ll refrain from comment.

Others have addressed this question before (see prior post), but here’s a good piece by David Leonhardt of The New York Times on how concerns about healthcare can stifle American innovation.

In the cradle of American innovation [Silicon Valley], workers are making career choices based on co-payments, pre-existing conditions and other minutiae of health insurance. They are not necessarily making decisions based on what would be best for their careers and, in turn, for the American economy…Economic research suggests that more than 1.5 million workers who would otherwise have switched jobs fail to do so every year because of fears about health insurance. Some of them would have moved to companies where they could have contributed more, and others would have started their own businesses….Just consider the economic research showing that people married to someone with health insurance are more likely to work at small companies than people who aren’t so lucky.

Jonathan Gruber of M.I.T. compares the Senate healthcare reform bill to the House bill (from The New York Times):

Take the Senate on cost control and the House on affordability, and you’ve the best possible bill.

Nate Silver of the FiveThirtyEight blog has 20 questions for liberals who believe the Senate healthcare reform bill is too compromised to be supported and should be killed – a viewpoint expressed by Howard Dean in a Washington Post opinion piece and by Keith Olbermann on Daily Kos.   Here are two questions that stood out and one more that made me laugh:

Over the medium term, how many other opportunities will exist to provide in excess of $100 billion per year in public subsidies to poor and sick people?

Where is the evidence that the plan, as constructed, would substantially increase insurance industry profit margins, particularly when it is funded in part via a tax on insurers?

How many of the arguments that you might be making against the bill are being made out of anger, frustration, or a desire to ring Joe Lieberman by his scruffy, no-good, backstabbing neck?

I’ll put it another way.  Dear Howard and Keith, I feel your pain — and to the extent your comments are simply aimed at motivating the public and political communities to improve the legislation, I’m on your side.  But the bottom line is that for all the legislation’s flaws — and there are many and they are real — there’s simply too much good here to just kill the bill.

Carl McDonald of Oppenheimer says that the Medicare buy-in for people age 55 to 64 is a silly idea for seniors and an unfair compromise for “liberal members of Congress who saw their government run health care plan suffer an inglorious defeat.”  Notes McDonald:

Medicare generally costs between $800-1,000 per month. How many 60-year-olds do you know that have $900 lying around that they can use to pay for health care every month? Not too many I’m aware of. So it seems likely to us that there would be two groups of people that would participate in the Medicare buy-in. The wealthy, and people with severe chronic conditions….

The annual Medicare premiums would represent almost 40% of median household income of $57,265 for the age group.  This calculation excludes Medicare cost sharing and assumes Medicare premiums of $900 PMPM (per member per month), or $21,600 annually.  However, if the government offers a generous subsidy of $600 PMPM (60% of total cost), the plan quickly becomes more affordable as the annual premium drops to $7,200, representing 13% of household income for the median household. 

McDonald sees this level of subsidy as a “non-starter.”  Meanwhile, Jacob Hacker of Yale, who is most closely associated with the public plan and still strongly supports the concept, writes on The New Republic‘s web site:

I like the idea of a Medicare buy-in for uninsured Americans aged 55 to 65….This could be a simple, popular way of providing affordable coverage. It’s also one, valuably, that could be made available almost immediately, not almost a half decade from now, like the rest of the Senate bill’s big steps.

As for me, I’ll be 55 in just five years, so the idea that I can buy into Medicare with the help of a government subsidy (especially if I get really sick) is reassuring to say the least.

I don’t doubt the implications behind the World Health Organization’s ranking in 2000, which placed the United States 37th in healthcare even though we spend more per capita than any other nation.  I just wonder if things are a bit more complicated than the topline suggests.  New data from the Organisation for Economic Co-Operation and Development offers some perspective:

The United States and Canada have good cancer care, screening more people than most other countries and saving the lives of a greater number of cancer patients. Japan also has higher survival rates for people with cancer than most countries. The Netherlands, Italy, Switzerland and Germany provide good primary care, reducing costly hospital treatment for chronic conditions such as asthma or diabetes. But no one OECD country provides high quality care in all areas….All OECD countries provide universal or near-universal coverage for a core set of health services, except the United States, Mexico and Turkey.

I remember asking Standard & Poor’s chief economist David Wyss back in 2007 (see video) if the high cost and low ranking of the U.S. system is proof that we need to move to single-payer healthcare.  His response: “It’s certainly an argument for changing what we’ve got now.  I’m not sure you have to go to a single-payer system.  Germany does fine with an insurance system, but it has to be a universal coverage.”  The sad truth is that after reform, we’ll be closer to universal coverage, but still not there.

Todd Swim of Mercer comments in an article in the Los Angeles Times on the Senate compromise that would allow people age 55 to 64 to buy into Medicare.

“This is the biggest news in this whole reform thing.  Those 55 to 65 are the most expensive for employers to cover, and they pay the most if they have to buy coverage on their own.   Access to medical care is one of the biggest inhibitors to retiring early, and a lot of people are going to be looking at that as an option.”

Word is the Senate will drop the public option as part of a compromise.  Here’s how Matt Perry of Wachovia sums up the deal:

Under the compromise, instead of creating a government-run insurance plan, the Senate bill would empower the Office of Personnel Management (OPM) to contract with insurers to set up non-profit plans that would be offered on state-based exchanges. Currently the OPM manages the Federal Employees Health Plan…In giving up the public plan, liberal Democrats look like they’ve received two important items in return – both of which are negative for diversified managed care companies,  in our view. 1) Medicare buy-in for people aged 55-64. We have no detail on how this would work, but it could shrink the market for private sector insurance….2) Minimum MCRs. The compromise would require insurers to spend 90% of every premium dollar on medical care.

Analyst Matt Perry of Wells Fargo has downgraded the managed care sector to hold from buy, citing the likely passage of the Senate healthcare reform bill.  Perry maintained buy ratings on Amerigroup, CVS Caremark, HealthSpring, Humana and WellPoint.  Notes Perry: 

It’s a case of getting bad news before good news. 1) The Senate is likely to pass a bill in the next several weeks that is relatively unchanged from the bill currently being considered. Thus, investors expecting the bill to be watered down or passage to be delayed could be disappointed. This could cause sector valuation to remain at current levels or contract. 2) After the Senate passes its bill we think the final bill could be watered down, scaled back and/or delayed in conference with the House. This is likely to cause managed care cause sector valuations to expand. After the Senate bill passes we could re-visit our current cautious view, all else equal.

From a new analysis by the Commonwealth Fund  and the Center for American Progress:

The combination of provisions in the House and Senate bills would save $683 billion or more in national health spending over the 10-year period 2010–2019 and lower premiums by nearly $2,000 per family. Moreover, the annual growth rate in national health expenditures could be slowed from 6.4 percent to 6.0 percent.

The Congressional Budget Office says that insurance premiums after reform will be flat to down for the vast majority of people. Those forced to pay more will get much better coverage. What’s this mean for the reform debate? Carl McDonald of Oppenheimer and Carl Mercurio of CRG comment. From the Nasdaq Market Site in New York.