Corporate Research Group’s Weblog

I’d wanted to write a brief note about the departure of Jeffrey Kang, M.D., as chief medical officer of Cigna earlier this month but got a bit pressed.  Alan Muney, M.D., replaces.  Kang, who was with Cigna since 2002, has taken a job as senior vice president of health and wellness services and solutions for Walgreen Co. 

I always found Kang to be more thoughtful than dogmatic in his approach to the problems surrounding the U.S. healthcare system.  I interviewed him in the run-up to healthcare reform, when the insurance industry was circling the wagons in opposition of the public option.  Kang noted at the time that health plans would actually “be able to compete favorably with any public option” as long as there was a national provider fee schedule that leveled the playing field — an approach I agreed with then and agree with now. 

Former Cigna public relations executive turned industry whistleblower Wendell Potter calls Kang ”a compassionate man,” noting that “he could always be counted on for a reasoned point of view.”  Prior to joining Cigna, Kang worked for the federal government, serving stints as chief clinical officer for the Health Care Financing Administration (now CMS) and as chief medical officer for the Office of Managed Care.

David Cordani, chief executive of Cigna, on the scalability of physician engagement tools that will come along with the company’s acquisition of HealthSpring:

We don’t believe it will be a one-size fits all model….We do believe philosophically that at the core aligning the physicians’ incentive and engaging them in a more partnered model using information to help to drive improvement in clinical quality is the sustainable way to drive forward.

Bloom Health (Minneapolis) — which provides an online administrative platform for defined contribution health benefits — expects its biggest gains to come from health plans, according to Abir Sen, chief executive. 

That’s not surprising considering that last month three top health plans — WellPoint, Health Care Service Corp. and Blue Cross Blue Shield of Michigan — acquired a majority stake in the company from Sand Box Industries.  BCBS-MI, which was already an investor in the company and increased its stake in the latest transaction, began using the Bloom platform to offer employers defined contribution insurance products earlier this year.  Medica does the same.  WellPoint and HCSC will follow. 

Bloom began in 2009 by targeted employers directly — offering a wide variety of options from various health plans.  To date, it has about 50 employer clients with 20,000 members.  Now it appears a growing share of business will come through health plans offering their own plan options to new and existing employer clients.  Bloom receives a per member per month platform licensing fee from the plans.

What’s interesting is the press release announcing the transaction touts it as a first step by the parties in the construction of a national, private insurance exchange.  My guess is the plans want to avoid leakage of employers to the public exchanges mandated by healthcare reform.  For complete coverage, see the latest issue of Health Plan Market Trends.

I’ve harped on the health insurance industry before about high administrative costs.  A new study from the Commonwealth Fund comparing the U.S. healthcare system to others around the globe reiterates the point.  Insurance administration costs — at about 7% of total healthcare spending in the U.S. — is about three times higher than in Japan, Finland, Australia and Austria, the study says.  Why?

Private health insurance in the United States is characterized by complex benefit packages and cost-sharing designs and high rates of turnover in health plan enrollment. Plans also incur significant marketing and underwriting costs.

O.K., but what about compared to nations like Germany, Switzerland and the Netherlands, where private health insurance is a big player?  The U.S. is still 30% to 75% higher, the study says.  Per capita administrative costs in the U.S. nearly doubled to $532 from 2000 to 2009 and are twice those of France, which spends the next highest amount per capita at $271, the study says.

The U.S. could save $55 billion annually, the study projects, by simply getting its administrative costs in line with other nations that have a mixed public-private insurance system like the U.S.  The savings would top $100 million if the U.S. could meet international benchmarks — in other words the entire cost of ObamaCare.

Health plans have been enjoying strong profits almost entirely because member utilization of healthcare services (and in turn healthcare costs) has been growing at historically low rates.  So it’s no surprise that when UnitedHealth Group reported today it expects an upswing in utilization trends, shares in the company sank (down nearly 4% as of presstime).

UnitedHealth chief executive Stephen Hemsley said on the company’s third-quarter earnings call that “medical utilization will trend toward more normal historical and seasonal levels” in the fourth quarter of 2011 and into 2012.  The upswing is expected to impact all product lines (including commercial, Medicare and Medicaid) and will largely be for services performed in physician and outpatient settings, Hemsley says.  Inpatient utilization remains flat to down.  The company is also seeing treatment costs rise for hepatitis C because of the introduction of certain new drugs. 

Overall, UnitedHealth expects consolidated medical cost ratio to increase to 81% in 2011 and to rise again 2012.  Commercial medical costs are expected to increase about 6% in 2011, driven by unit costs.  Meanwhile, the company is beginning to see pockets of price competition, says United Healthcare president Gail Boudreaux, especially in California and parts of the northeast and mid-Atlantic regions.  Still, she notes, price competition is far from across the board.

UnitedHealth tends to be a bellwether of industry performance, so health plan observers will be waiting to see if other insurers report similar trends.

The year 2011 is shaping up to be a good one for California HMOs, which reported net income of $2.4 billion through the first six months of 2011, up 44% from the same period a year earlier, according to an analysis of data from the state Dept. of Managed Health Care. Enrollment fell 3% to 14 million (excluding Medicare cost, MedSupp, PPO, and other lives).  Excluding Kaiser – which reports both hospital and HMO figures — the rest of the state’s HMOs had net income of $859 million, up 48%.

The beat goes on for health plan enrollment.  Second-quarter 2011 fully funded membership is down, mirroring long-term trends.  Meanwhile, HSA/HRA plan membership continues to show substantial gains, while self-insured and individual are up more modestly.  Complete details appear in this week’s issue of Heath Plan Market Trends.  Membership growth projections for 2012 and beyond will appear in the Outlook for Managed Care 2012.