Corporate Research Group’s Weblog

Daniel Hilferty, chief executive of Independence Blue Cross (Philadelphia), on the impact of ObamaCare on health insurance premiums:

There is going to be sticker shock because of all the costs that are associated with reform.  Our biggest fear is that the backlash of these large premium increases will cause government–Congress and the president to say it’s time for a single-payer system.

We keep hearing about states that may opt out of the ObamaCare Medicaid expansion.  But there’s a strong argument that states headed up by even the most dogmatic opponents of reform–like Gov. Rick Perry’s Texas–will end up opting in. 

As Jay Hancock of Kaiser Health News notes (and I agree), “Insurers are expected to join hospitals and patient advocates to fight for Medicaid expansion and what are enormous amounts of money.”  He adds, “If there’s one thing more powerful than Republican governors’ dislike of the Affordable Care Act…it may turn out to be the business interests in their own states.”

I also sincerely believe that public pressure to help millions of poor people will simply force the hands of the Rick Perrys of the world.  Call it the “better angels of our nature” argument.   As Jonathan Cohn says, “I remain convinced that most states will choose to participate in the Medicaid expansion before January 1, 2014, and that the holdouts will come within a few years after that. But I’m confident of that only because I’m confident that politicians will feel political pressure to do so—and progressives must do their part to create it.”

Twelve publicly traded health plans posted a combined 1% decline in first-quarter 2012 net income.  But if you include only the health insurance operations of Aetna, Cigna and UnitedHealth in the total, net income among the 12 companies rose nearly 2%–largely because the Cigna and United health plans outperformed consolidated corporate operations.  Net margin among the 12 plans slipped 30 basis points to 4.3%.  Complete coverage appears in Health Plan Market Trends.

From the Centers for Medicare and Medicaid Services:

More than 5.1 million seniors and people with disabilities on Medicare saved over $3.2 billion on prescription drugs because of the new health care law….For St. Louis resident Fritzi Lainoff and her husband, the discounts meant $2,500 back in their pockets last year. “It was a blessing,” she said. “The law’s Medicare savings have made an enormous difference.”

Given Obama’s almost certain reelection, it looks like other key components of the law will roll out as planned, making repeal that much harder.  Said another way, people like getting stuff.

WellPoint’s poor recent financial results aside, the outlook for the managed care industry in 2012 calls for steady profit growth of about 8%, according to the newly released Outlook for Managed Care, 2012.  Medical cost trends remain muted by the sluggish economy, which means premium rate hikes — though expected to decelerate this year — should cover cost increases, the report says.

While the short-term outlook is solid, the report notes:

Longer-term, however, health plans face broad profit pressures largely tied to healthcare reform.  These include rebates, taxes and participation in low-margin insurance exchanges.  Even without reform, health plans continue to face a variety of structural issues that hamper long-term profit prospects – including deterioration of fully funded membership and the shift toward low-premium high-deductible health plans.  The advent of ACOs also threatens the relevance of health plans by diminishing the industry’s central role in managing risk.

One bright spots is Medicaid, with states turning to managed care plans to control costs and because of expanded eligibility under reform.  Dual eligible are also expected to be an area of membership growth for managed care.  Fully funded commercial membership is expected to be flat to down.

From the Haynes & Boone Oct. 31 Healthcare Alert, commenting on the final regulations for Medicare ACOs:

Under final rules issued by the Centers for Medicare and Medicaid Services (CMS), Accountable Care Organizations (ACOs) will continue to face large start-up costs and uncertain savings, despite a decreased regulatory scheme and increased financial incentives….In an implicit acknowledgement that healthcare providers will be slow to warm to the idea of ACOs, CMS lowered its range of anticipated ACOs to between 50 and 270, a drastic decrease from the 300 to 800 potential ACOs it estimated in its draft regulations. However, CMS maintains that start-up and ongoing annual operating costs will remain at approximately $1.7 million per ACO, despite a widely-publicized American Hospital Association (AHA) study that estimated such costs to be in the range of $11.6 million to $26.1 million, depending on the size of the ACO.

Jeffrey Kang, M.D., chief medical officer of Cigna, is among the most thoughtful managed care executives — and a nice guy as well.  I spoke to him recently at the World Health Care Congress about how health plans can survive reform.  His view — not surprisingly — is that health plans must focus on two areas: 1. Wellness and care coordination; 2. Payment reform. 

Kang says that the reform legislation is “completely silent” on shifting provider payments from fee-for-service to fee-for-results.  “This is a big opportunity for health plans to innovate in the area of payment reform,” he says.  Despite all the talk about medical homes and accountable care organizations, payment reform really boils down to incentives and measurements, he says. 

It’s important to measure and provide incentives for better outcomes, Kang says, not for improved processes or certifications achieved.  Some examples of outcomes to measure might include smoking cessation, weight loss, lower blood pressure, and lower total cost of care.  Incentives should be around pay-for-performance, Kang adds, not for shared insurance risk.  “We as health plans are better off continuing to hold that insurance risk because we have the actuaries and the capital,” he says.  Health plans can then focus on “really trying to create payment methods that give people incentives to improve quality, lower cost or penalties if they miss these targets.”  Cigna has eight pilots offering incentives for quality, outcomes and lower total healthcare costs. 

As for wellness and disease management, Kang notes, “From a benefit design perspective, the legislation did get it correct” by focusing on first dollar coverage for prevention and screening.  “You want 100% of the people to be getting the recommended prevention and screening services.  That’s the opportunity that health plans have,” he says.  He notes that about 75% to 80% of Cigna’s entire book of business has access to first dollar coverage for preventive services, including all risk and consumer-directed lives; however, utilization is only 60% — representing a big upside.

Blue Cross Blue Shield of Michigan — one of the companies skewered by HHS Secretary Sebelius in her report on individual health insurance premium increases — announced yesterday a statutory underwriting loss of $257 million in 2009, including a $94 million loss in its individual business serving members under age 65.  The reasons for the individual losses were familiar, according to BCBS-MI:

The state’s broken regulatory system will continue to drag down financial performance in the individual market until a fair and balanced system is put in place. The current system allows out-of-state for-profit insurers and nonprofit HMOs to reject unhealthier and costlier-to-insure applicants in the individual insurance market. BCBSM accepts all applicants, regardless of their condition or cost.

Overall, however, BCBS-MI reported statutory net income of $12 million in 2009, largely because of investment gains of $242 million. Essentially, BCBS-MI lost a lot of money on its individual and Medigap lines, posted a profit on its other business lines, and was a big winner in its investment portfolio — up 14% — because of rebounding securities markets in 2009. 

For additional color on the company’s financial performance, here’s a video of BCBS-MI vice president of finance Paul Mozak on the 2009 results.

Great stuff in documents released by the House Committee on Energy and Commerce, calling into question the level of premium increases proposed by WellPoint:

Internal company documents appear to call into question WellPoint’s assertion that the 25% average rate increase is necessary. They suggest that WellPoint padded its rate increase by five percentage points to counteract anticipated concessions to state regulators concerning the size of its premium increases.

On October 24, 2009, Mr. Shane, the actuary, e-mailed Mr. Sassi, the head of WellPoint’s individual market division, that WellPoint executives needed to “reach agreement on a filing strategy quickly – specifically in the area of do we file with a cushion allowed for negotiations/margin expansion, or do we file at a lower level that maintains margin, but does not allow for negotiation.”

It appears that WellPoint elected to file with “a cushion.” In an October 21, 2009, presentation to the WellPoint Board of Directors, Mr. Sassi identified the “Key Assumptions” in the pricing for the individual market in 2010.  This slide differentiated the “2010 Rate Ask” from the “2010 Plan Rate Increase.”  According to the slide, WellPoint’s “Rate Ask” would be 25% to 26%, while the “Rate Increase” the company assumed in its “2010 Plan” was just 20.4%.

Here’s a heartfelt — and spot-on — assessment from First Lady Michelle Obama (and others) of the importance of healthcare reform in general and for women in particular.

While still growing at a hefty pace, there are clear signs that the rate of increase in membership in HRA and HSA-compatible high-deductible health plans is slowing.  In the second quarter of 2009, HSA and HRA plan membership rose about 19%, compared to 39% a year earlier .