Corporate Research Group’s Weblog

From Deutsche Bank’s annual employer survey:

One of the more noteworthy takeaways from our survey is that compared to last year, fewer employers are considering migrating their employees into the new Exchanges starting in 2014. Specifically, 11% of employers in our survey are actively considering migrating employees into exchanges in 2014, down materially from 35% that said they are considering shifting employees into the Exchanges in 2014. Note that our industry market model currently assumes that around 10% of the employer market will shift into the Exchanges in 2014, so current employer sentiment appears to be exactly in line with our industry forecast.

We think the drop-off in interest in the Exchanges likely reflects the generally disorganized state of affairs around Exchange planning at both the state and federal levels, which has created significant uncertainty around the path to implementation of the Exchanges in 2014.

The proposal would allow states to choose one of the following “typical employer plans” as a benchmark:

• One of the three largest small group plans in the state by enrollment;
• One of the three largest state employee health plans by enrollment; 
• One of the three largest federal employee health plan options by enrollment;
• The largest HMO plan offered in the state’s commercial market by enrollment. 

In addition, the plan would have to offer coverage in 10 key categories:

1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services, including behavioral health treatment
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Laboratory services
9. Preventive and wellness services and chronic disease management, and
10. Pediatric services, including oral and vision care

All of which means I still don’t know what my health plan will cover when I’m really sick, but at least there’s a good chance I will have coverage.

I asked Maggie Mahar (formerly of HealthBeat and whose posts I sorely miss) what she thought of the Ryan-Wyden plan to reform Medicare.  She wrote me a lengthy response.  Here’s an excerpt:

When it comes to health care reform, I have never trusted Wyden. The private insurers have had him in their pocket.

 

The premium plan simply represents a way to shift the cost of Medicare (and Medicare inflation) to seniors — who can ill afford it. (The average senior has a median income of $20,000 — half earn less.)  Wyden says that the premium that seniors receive will “rise and fall” with the cost of insurance. What that means is that insurers will be the price-makers, seniors the price-takers. The subsidy that seniors receive will be enough to buy the poorest private plans, but not enough to buy the better more comprehensive private plans.

 

Only traditional Medicare has the clout to bring down the cost of Medicare without undermining the quality of care by using financial carrots and sticks to:

 

a) force hospitals to be more efficient (fewer preventable medical errors that hurt patients and cost a fortune; fewer preventable readmissions; less over-spending on hotel-like amenities; over-priced equipment that is no better than existing equipment; fewer unnecessary tests (often an ER will simply order a battery of tests before a doctor has even taken the patient’s history or done a hands-on exam);  

 

b) encourage doctors to focus on chronic disease management before the disease turns into a crisis that lands the patient in a hospital; encourage doctors to be more cost-conscious when prescribing drugs (ignoring bribes from the drug industry);

 

c) “bundle” payments to doctors and hospitals so that they have an incentive to coordinate care (no one gets the bonus unless everyone does)

 

These are just a few ways that traditional Medicare can bring down costs. And it’s already working!  As I wrote in one of my last columns, growth in Medicare spending has fallen to about 4% during the past two years –down from double-digit inflation in the preceding years. This is because hospitals, in particular, are working to become more efficient as they prepare for 2014. Former CBO director Peter Orszag confirmed what I said in a column that he wrote for Bloomberg, quoting HealthBeat.

 

There is no need to “compromise” with the Republicans over Medicare. Medicare is one of the most popular programs that we have.  And the carrots and sticks in the health reform legislation already are working to rein in the costs — even before 2014. 

I’ll agree on competitive bidding with a public option in the Medicare market (i.e., the Ryan-Wyden plan for Medicare reform), provided conservatives agree on competitive bidding with a public option in the under-65 market (i.e., ObamaCare with a public option).  Even better, why not “Medicare for all” with a competitive bidding component? 

The dichotomy of what Ryan wants for Medicare and his calls to repeal ObamaCare is noted by Ezra Klein:

Competitive bidding either works or it doesn’t. But it can’t only work for seniors. In fact, many health-care experts think seniors are the population among which its least likely to work, as many of their health costs are already locked in, and people with many health problems and established relationships with doctors don’t want to switch plans midstream.

From the HHS announcement that new rules allowing children up to age 26 to stay on their parents’ health insurance policy has resulted in 2.5 million additional young adults with coverage.

Thanks to the Affordable Care Act, 2.5 million more young adults don’t have to live with the fear and uncertainty of going without health insurance.  Moms and dads around the country can breathe a little easier knowing their children are covered.

Jonathan Cohn of The New Republic comments on the likely impact of ObamaCare on premium rate increases, and his views are pretty much in line with mine:

Critics of the law…have suggested that its expansions of and improvements to health insurance are not worthwhile because of the expense they inevitably impose. And it’s certainly true that requiring insurers to cover more services or more people will, on its own, force them to raise premiums. Recent private sector estimates have suggested that the law’s new requirements have raised premiums by 1 to 2 percent.

But that includes all of the early coverage provisions – i.e., not just the requirements to cover young adults but also new guarantees of access to preventative care and some prohibitions on discrimination against the sick. It should also be a one-time bump, since now those provisions are in effect. And while the Affordable Care Act will impose many more requirements on insurers in 2014, when its full provisions take effect, the law also includes myriad efforts at cost control that will, according to the Congressional Budget Office, more than offset the cost for government without causing private insurance premiums to soar.

The debate at Forbes over what ObamaCare — and more specifically minimum medical cost ratio requirements — will mean for health insurers is a fun one.  This being the holiday season, let me take this opportunity to say I disagree with everyone.

Rick Ungar argues that the MCR rules will mean the death of the health plan industry and the arrival of single-payer healthcare in America.  Well, Rick, we may one day go to single-payer, but it won’t be because of MCR requirements.  My back-of-the-envelope calculations suggest that MCR regulations will cut industry profits up to 7% in 2011 and new reform-related taxes will trim another 10%.  So health insurance will become a far less profitable industry, but still a viable one.  Even if margins are tiny, aggregate profits remain big.

Avik Roy argues that MCR regulations will lead to private health plan monopolies that drive up premiums.  Roy tends to write in a dizzying array of concentric circles, but I think his argument is MCR rules will force small individual plans to exit the market while making it harder for start-ups to enter. 

That would leave the big plans as monopolies.  Rather than cut administrative costs, he argues, they will raise premiums and spending to hit the 80% individual MCR minimum.  His math looks like this.  A plan with a $10k premium, $7k in medical costs and $3k in admin costs would have a 70% MCR.  But a $15k plan with $12k in medical costs and $3k in admin costs would have an 80% MCR.  The arbitrary MCR rules, he argues, just encourage waste.

Of course, there’s another way plans can meet the MCR: reduce premiums.  Or as Citi analyst Carl McDonald noted last year:

I think what you’ve started to see and will be seeing more of is plans lowering premium rates to bring that adjusted loss ratio closer to 80%. The thought is that a lower priced product will be better at attracting new members than maintaining the same price and writing a rebate check….Doesn’t always mean that absolute premium dollars go down, but it could mean that a plan that was planning on raising rates 10% because of increasing cost trends doesn’t have to do that anymore.

In other words, there’s a good chance plans will keep a lid on premiums and take the margin hit in exchange for share. Yes, there will be consolidation, so Roy is right on that score.  But there’s also the chance that innovators will figure out how to operate with a lower cost structure in an exchange — providing commoditized individual coverage that meets basic benefit and MCR requirements and beating traditional players at their own game. 

Finally, there’s John Graham, who argues that both Ungar and Roy are correct.  Monopolies will arise initially, he says, but they will abuse the public trust.  Result: the last of the health insurance industry’s political supporters will “switch sides and collapse” in support of “Medicaid-for-all” (I assume he means Medicare for all, but you get the point).

Frankly, I just can’t see someone like House Majority Leader Eric Cantor (R-VA) or John Goodman of the National Center for Policy Analysis switching sides in favor of single-payer.  More likely is a continued evolution toward a public-private system in which health plans are heavily regulated — sort of like utilities. 

One interesting sidebar: Even as we debate the merits and faults of ObamaCare, the private market is rapidly adopting consumer-directed health plans — the approach favored by free-market advocates.  Or as Drew Altman of the Kaiser Family Foundation notes:

Conservatives rail about Obamacare, but they may be winning more than they are losing; it is their vision of insurance with more “skin in the game” that is gradually taking over the marketplace because employers have no other way to control costs.

In other words, we’ve unwittingly created a real-world health system laboratory — providing a unique opportunity to simultanously test and compare the liberal vs. conservative approaches.  May the best plan win.

Interesting piece in The Economist notes that healthcare tort reform in Texas, which caps damages in most cases at $250,000, hasn’t led to an increase in the number of physicians in the state or reduced healthcare cost trends.

The caps did achieve their direct aim: medical-malpractice claims fell sharply in number, and awards dropped just as sharply in value….But these have failed to bring down overall Medicare costs, a key indicator of medical costs generally.

Of course, Massachusetts-style healthcare reform — the model for ObamaCare — hasn’t bent the cost curve either, The Economist notes:

In reality, incentives must change in American health care across the board, and tort reform is only part of that.

But you knew that already.

Premiums go up, and lots of people remain uninsured — as illustrated in the charts below created by Aaron Carroll using data from Jonathan Gruber.  (Hat tip: Healthbeatblog)

From a New York Times editorial following the decision by Don Berwick, M.D., to resign as tempory head of Medicare in the face of fierce Republican opposition to his nomination to the post.   

Through no fault of his own, Dr. Berwick, a respected expert on health care costs and quality, became a lightning-rod for Republican attacks on health care reform and government entitlement programs. Republicans distorted his record and past statements to imply that he would introduce “socialized” medicine and “death panels” and ignored the praise heaped on him by health care professionals and medical organizations.

Karen Davis, 69, will retire as president of The Commonwealth Fund at the end of 2012 after 20 years with the organization.  My view on Davis: if there were more people like her, the world would be a far better place.

Oh yeah, 49 million was right around the number of Americans without health insurance prior to the passage of ObamaCare.  (It actually came close to 51 million in 2009). 

What’s interesting about the 49 million figure released last week by the Census Bureau for people living in poverty in 2010 is that it’s based on a new measure.  In the past, the poverty threshold was set at three times the cost of a minimum food diet for a family of four — or about $22,000 in 2010.  (Imagine living on an income of $22,000 a year.  Hell, imagine living on twice that).  Using this measure, there were 46.6 million in poverty in 2010.

The new measure counts the value of government programs like food stamps as part of household income, but in addition to the cost of food includes expenses like clothing, shelter, utilities and out-of-pocket medical expenses.  That raises the poverty threshold to $24,000 — meaning more people fall at or below the poverty level.

The impact of out-of-pocket medical expenses is big.  Under the new measure, about 16% of Americans live in poverty.  That percentage would fall to 12.7% if it wasn’t for medical expenses.  In other words, about 10 million people would be lifted out of poverty if they didn’t have to pay out-of-pocket medical expenses.

As I’ve noted before, one reason we have ObamaCare today is because of the uninsured.  Simply put, the numbers were getting too big for people to find comfort in platitudes like “it won’t happen to me.”  “It” being sickness and financial ruin. (Another reason is the uncomfortable fact that health insurers sometimes abandon their own sick members).

With the number of people living in poverty reaching similar heights (coupled with rising economic risk and uncertainty for those lucky enough to have a decent job), you have to wonder if movements like Occupy Wall Street are just noise or a sign that another round of social reforms is coming.

At a recent family party, someone asked me what I thought of ObamaCare.  “It’s O.K., but it doesn’t go far enough,” I said.  The reply: “Well, we can’t pay for everybody.”  Actually, we can.  It’s just a matter of deciding what we want to spend our money on.  The cost of healthcare reform is projected to be about $1.1 trillion over the next 10 years — or $110 billion per year.  Here are five things that cost at about that much.

1. War: U.S. Defense Dept. spending on war (e.g., Iraq and Afganistan) has averaged $130 billion annually over the past decade.  Source: Costs of War

2. Wall Street Bailout of 2008: The total amount outstanding (mostly loans and net of TARP funds and liquidity loans already paid back by banks and financial companies) is $1.56 trillion. Source: SourceWatch

3. Tax Cuts for the Wealthy. Since 2001, the Bush tax cuts have saved the wealthiest 5% of Americans $1 trillion.  Source: Costoftaxcuts.com

4. Health Insurance Administrative Costs: At about 7% of total healthcare spending, administrative costs associated with health insurance total about $160 billion annually — a figure that could be reduced by $100 billion by simply achieving international benchmarks.  Source: The Commonwealth Fund

5. The New York Yankees Payroll.  All right, it’s actually “only” $200 million annually, but give it time.

Special Bonus Update: For those of you who argue that ObamaCare is just a handout for freeloaders, I ask you this:  Do you own a home?  Do you deduct mortgage interest payments from your taxes?  Good, because the mortgage interest deduction costs the federal goverment about $100 billion annually — or nearly the entire cost of ObamaCare.  Source: The Tax Foundation

The irony surrounding the individual health insurance mandate continues to mount.  As Mitt Romney pointed out in the Republican presidential debate yesterday, the idea of the individual mandate came from conservatives — specifically the Heritage Foundation.  There appears to have been a difference in scope between the version in ObamaCare and the one Heritage proposed — along with some other twists to the story (Heritage later repudiated the mandate) — but as James Taranto of The Wall Street Journal notes, “the Heritage mandate was indistinguishable in principle from the ObamaCare one.” (Hat tip, Avik Roy).

As I’ve noted before, Obama never wanted the mandate and had to be dragged on board.  Now he takes heat from conservatives (who invented the concept) for something he didn’t want in the first place.  As for the health insurance industry, it pushed hard for a mandate to protect against adverse selection (i.e., only the sick buying insurance) and to ensure membership growth. 

I think the health insurance industry is right, and so was the Heritage Foundation before it was wrong.  Universal coverage works best if everyone is in the pool.

Here’s a slide from a recent WellPoint presentation showing projected membership by type of healthcare coverage pre and post reform.  While the biggest gains are in government programs like Medicaid and Medicare, the analysis also suggests the commercial market will expand.

Click here to watch David Blitzer of Standard & Poor’s discuss rising healthcare costs withMark Haines of CNBC.  Below is an excerpt

Blitzer: Despite all the excitement about technology and drugs, healthcare is a very labor intensive activity, and people — labor — costs a lot of money, and that seems to be the key factor driving it up.”

Haines: “Logically, then you would find the worst or the most inflation occurring in hospitals.”

Blitzer: “You would and indeed on the commercial side you do.  On the Medicare side you don’t, and I think that brings up a different aspect.  Over the last few years, we’ve heard a lot of arguments about single-payer plans versus other kinds of plans.  Single payer means Uncle Sam pays for all the healthcare.  We pay him.  Medicare for people over 65 is a single-payer plan, and indeed we consistently see smaller rates of increase in Medicare items than we do in commercial insurance — the kind of insurance that employers provide for their employees.”

Haines: “O.K., I’m going to leave that lying there because some of our viewers right now are going apoplectic, thinking that you have just endorsed single-payer healthcare.”

Blitzer: “I haven’t.  I’ve only reported the numbers.  I’m not endorsing anything.”

Haines: “Believe me, I  understand you’re just quoting the facts.  Some people think facts are partisan.  I don’t know how they get there, but they do.”

CMS Administrator (for now) Donald Berwick in a speech comparing the U.S. and U.K. healthcare systems:

Excellent healthcare is by definition redistribution…

…of wealth, that is. 

Berwick, a recess appointment who requires Senate confirmation to keep his job, seems like a decent enough guy with ideas worth trying to address rising cost and lagging quality in the U.S. healthcare system.  Unfortunately, he won’t get much more of a chance.  Last week, 42 Republican senators sent a letter urging President Obama to withdraw the Berwick nomination.

According to Politico, “Democratic senators and the White House are backing down.”

From the Kaiser Family Foundation February 2011 Health Tracking Poll (hat tip: PBS Newshour). 

Sen. Lamar Alexander (R-TN) on political rhetoric following the attempted assassination of Rep. Gabrielle Giffords (D-AZ):

We ought to cool it, tone it down, treat each other with great respect, respect each other’s ideas, and even on difficult issues like immigration or taxes or the health care law, do our best not to inflame passions.

(Hat tip: Politico)

From the White House Executive Office of the President statement alerting House Republicans that President Obama will veto legislation aimed at repealing healthcare reform, specifically H.R. 2, The Repealing the Job-Killing Health Care Law Act:

The Administration strongly opposes House passage of H.R. 2 because it would explode the deficit, raise costs for the American people and businesses, deny an estimated 32 million people health insurance, and take us back to the days when insurers could deny, limit or drop coverage for any American.

Click here for a handy “Factbox” from Reuters listing the basic provisions and timeline for healthcare reform.  When presented like this – without spin from liberals or conservatives – the benefits of the legislation to average Americans really jump out.  That’s why I think Republicans will fail in their attempts to repeal or scale back the law.  People are going to realize there’s a lot of good stuff in here for them.  Or as former GE chief Jack Welch summed it up: “Freebies are now coming my way.”

We keep talking about the healthcare market shifting toward “consumerism.”  Well, here’s what consumers surveyed by PricewaterhouseCoopers had to say about healthcare and reform.  From PWC’s annual Top Health Industry Issues report:  

• Only half of consumers said they would stay within an ACO-like organization for all of their care.
• Less than half of consumers know what a health insurance exchange is.
• Nearly three-fourths of consumers said they would trade employer-sponsored insurance for higher pay.
• Currently, eighty-six percent of consumers do not access their medical records electronically.
• More than one-third of consumers said costs and waiting times would increase as a result of healthcare mergers.
• Consumers seek health information from media companies more than from government, healthcare companies, and consumer companies combined.

Here’s the link to proposed HHS regulations released today, which would make health plan premium rate hikes of 10% or more in the individual and small group markets subject to regulatory review and require insurers to publicly justify and list the assumptions behind the increases.  States would make the final call on whether a rate hike is “unreasonable,” unless the state doesn’t have an effective rate review process — in which case HHS would handle the review.  HHS says that 43 states already have some form of rate review, and a “significant majority” are expected meet the standards of an effective review process.  HHS and state officials at a press conference made clear the goal isn’t to supplant state authority, but rather to provide a backstop.  A 10% hike isn’t necessarily “unreasonable,” but could be deemed so “if the actuarial assumptions underlying the increase were invalid or unreasonable.”  Even in cases where states don’t have the regulatory authority to reject a rate hike, the thinking is the very process of making public and questioning the assumptions behind the increases will help moderate trends.  The 10% national threshold is only a starting point and is expected to be made state-specific over time.  In setting the 10% threshold, HHS found that “the majority of increases in the individual market exceeded 10% each year for the past three years.”

Click here for a copy of today’s ruling, in which U.S. District Judge Henry Hudson in Virginia found that the mandate included in the healthcare reform law requiring virtually every American to purchase health insurance by 2014 or pay a penalty is unconstitutional.  Given that a federal judge in Michigan ruled otherwise, the next stop for this dispute is the U.S. Supreme Court.  Hudson also ruled that the mandate could be invalidated without finding the entire law unconstitutional.

The decision is already being described as a defeat for Obama that could further erode political support for reform.  But the irony is thick.  Obama, who didn’t want the mandate in the first place, had to be dragged on board.  Yet Republican state attorneys general are the ones litigating against the mandate.  Meanwhile, the health insurance industry — also an opponent of reform — favors the mandate to protect against adverse selection (i.e., only the sick buying insurance) and to ensure membership growth.

Kevin Klobucar, chief executive of Blue Care Network (the HMO unit of Blue Cross Blue Shield of Michigan), on why healthcare reform won’t likely be repealed:

It’s hard to argue against all the things reform stands for.