Myths & Facts About HealthCare Reform: Who Wins & Who Loses?

This is the first in a series of posts that will try to dispel the myths and reveal the facts about the reform legislation. What will reform mean for insurers, hospitals, doctors, Medicare patients, seniors who are now on Medicare Advantage, Medicaid patients and state budgets? Who wins and who loses?

You may be surprised by some of the answers. The legislation is rich in details that have been ignored.  Liberals as well as conservatives are making assumptions that just don’t square with the facts.

Below, I focus on the impact that reform will have on the private insurance industry--and on the industry’s customers.

MYTH # 1:  Health Care Reform represents a “boon” for private insurers.

FACT:  It is s true that, beginning in 2014, virtually all Americans will be required to buy insurance, or pay a fine. But while insurers will pick up a boatload of new customers, many will be refugees from a health care system that treated them poorly. Think of the boat as a life raft. These could be very expensive customers. 

Moreover, between now and 2014, insurers will face some serious financial hits. These new regulations will make our health care system fairer and more affordable. But the rules also suggest that going forward, for-profit health insurance may not be a viable business--unless these companies learn how to keep patients healthy, while insisting on value for health care dollars. Insurers that over-pay drug-makers or hospitals will find that they can no longer turn a profit by simply passing the added expense along in the form of higher premiums. 

Consider what will happen in the next three years:

1) This year, Washington sliced funding for private insurers who offer Medicare (a.k.a. Medicare Advantage) by 5%. Next year, payments will be frozen. In 2012, the serious cutting begins. Over ten years, Medicare will slash over-payments to Medicare Advantage insurers by $132 billion.

When the Medicare Advantage bill was passed in 2003, Congress agreed to pay Advantage insurers 12 percent more, per beneficiary, than it would cost Medicare to cover those patients itself . Most agree that this is corporate welfare that our health care system cannot afford.

But recent years, insurers have become increasingly dependent on the windfall payments from Medicare Advantage. As unemployment rises, insurers have been losing customers in the employer-based insurance market, and Advantage has come to represent a larger share of their profits. Humana, for example, has been receiving 60% of its operating income from Medicare Advantage.

Meanwhile, insurers selling plans in the private sector have been scrambling to rachet up premiums fast enough to keep up with the spiraling cost of healthcare.  For ten years private insurers’ payouts to doctors, hospitals and patients have been climbing by roughly 8% a year. Rising prices plus volume have driven reimbursements skyward. Each year Americans are taking more medications and undergoing more surgeries and tests. And every year, virtually every product and service in our healthcare system costs more.

This is why, according to Morningstar Investment Research, the health insurance industry showed an average profit margin of just 3.4% in 2009. This  means that, in terms of profitability, it ranked 87^th out of 215 US industries. As Henry Aaron, a highly-respected progressive reformer and senior fellow at the Brookings Institution observed last fall, “Insurance company profits in the larger picture have very little to do with the overall rising cost of health care.”

Given the skimpy profis that the industry has seen in recent years, generous subsidies from Medicare Advantage have remained what Carl McDonald, an analyst with CIBC World Markets in New York,  calls  a “bright spot” for companies such as industry leader UnitedHealth Group.

But under the reform legislation these fat Advantage subsidies will disappear, as they must, and Advantage insurers such as UnitedHealth Group will face tighter regulations. By 2014, insurance companies will be expected to pay out 85% of Advantage premiums for medical care, keeping no more than 15% of premiums to cover overhead and profits. Today, UnitedHealth Group keeps 19%.  This is not unusual. The majority of Medicare Advantage plans pocket more than 15% of premiums according to a recent report released by the House Committeon Energy and Commerce.

Good-bye “bright spot.” 

Only those insurers that can show that they are providing excellent value for Medicare dollars will continue to receive Medicare payments, and their subsidies will be much lower. Most likely, many insurers will simply give up on the once-lucrative Advantage business.

2) Next year, the new rules regarding pay-outs will apply to private sector plans. Insurers selling in the individual and small group market will be required to spend 80 percent of premium dollars on medical services, while plans in the large group market will be expected to spend 85 percent. Insurers that do not meet these pay-out thresholds will have to provide rebates to policyholders.

3) The new pay-out rules will make premium hikes far less profitable for insurers. Even if an company raises its premiums by 10%--for example, lifting a $14,000 annual premium for a family plan to $15,400--the insurer must pay out 85% of the $1,400 increase, or an additional $1,190 to hospitals doctors and patients , keeping only $210  of the $1,400  to cover overhead and profits.  

4) Another new cost for insurers: beginning in 6 months, all new group health plans as well as new plans in the individual market will have to provide coverage for preventive services at no charge. Co-pays and deductibles will not apply to recommended services.

(5) Beginning this year,  if you become seriously ill,  insures won’t be able to drop your coverage on the grounds that you forgot some detail of your medical history when you applied for insurance. They will be able to rescind your policy only if they can prove fraud, or that you intentionally set out to deceive them. This won’t be easy.

(6) In 2011, insurers will no longer be allowed to cap how much they pay out to an individual over the course of his or her life.  If a customer suffers from a serious illness that requires multiple hospitalizations and high-tech treatments over many years, the insurer faces an open-ended bill.  Starting in 2014, insurers will no longer be able to limit how much they pay out annually.

Make no mistake: patients need this protection. Parents should not have to worry that the insurance covering a child suffering from cancer is going to “run out”  if  her care costs too much in any one year—or if she survives too long.  But while the new rule is welcome, it will make the insurance business riskier: Actuaries will have a hard time guesstimating just how high those bills could mount, especially over 10 or 15 years. This is another reason why reform is far from a sweetheart deal for insurers.

(7)  In 2011 it will become more difficult to raise premiums. Given falling Advantage reimbursements, coupled with rising expenses, one might assume that insurers would simply lift premiums to make up the difference. But it won’t be quite that easy. Reform legislation helps states insist that insurance companies submit justification for requested premium increases. Any company with excessive or unjustified premium increases may not be able to participate in the new health insurance exchanges. 

Already, some state regulators are getting tougher. In March, the Providence Journal  reported that Rhode Island’s  state health insurance commissioner slashed proposed premiums increases, keeping rate increases in the single digits, while calling Blue Cross's proposed 14.6-percent hike "just not affordable."  And in April the Massachusetts insurance commissioner rejected nearly 9 out of 10 rate increases—ranging from 7% to 34%--that  the state’s health insurers had requested for individual and small group plans.

Still, many argue that long-term, insurers will emerge as big winners.

MYTH #2:  In 2014, when the mandate requiring that everyone must purchase  insurance kicks in, insurers will capture millions of new customers, government subsidies in hand, and their profits will, at last, soar.

FACT: In 2014, insurers will find that many of those new customers will be coming from low-income households. These are families who are not poor enough to qualify for Medicaid, but too poor to purchase insurance without the government subsidies that will become available in 2014. 

Today about one-third, or nearly 15 million of the 47 million uninsured live in households earning between $25,000 and $50,000.  These are the families who will be receiving good subsidies—and they are likely to sign up for insurance. 

But many will need extensive care. According to a 2009 report issued by the Kaiser Family Foundation, 11% of the uninsured are in “fair “or “poor” health, compared to 5% of those with private insurance. About half of all uninsured adults suffer from a chronic condition.  About 75% have gone without insurance for more than one year; 55% have not had insurance for more than 3 years. Some haven’t seen a physician during that time. Others have seen doctors, but have not been able to afford the medications physicians prescribed. These patients are likely to need more tests, treatments and surgeries than the average customer.

Keep in mind that, under the new reform law, insurance companies will not be able to charge these new customers more than they charge others in their community. Moreover, insurers will have to offer all patients comprehensive insurance that meets a high bar defining basic benefits. No more “Swiss cheese” policies filled with holes. This is all fair. But it does mean that insurers will be operating in an unfamiliar marketplace, where the rules are designed to benefit patients, not the corporations that sell them coverage.

Of course, not all of today’s uninsured are poor:  9.7 million live in households earning over $75,000 a year. Why don’t they have insurance? Some suffer from pre-existing conditions that have made it impossible for them  to secure insurance. Most likely, they will buy coverage adding to the number of sick patents in their insurers' pool.

Many others in this income bracket are healthy, and haven’t bought insurance because they just don’t think it’s a good value. Under reform rules, most earn too much to receive government subsidies. Unless premiums are significantly lower than they are today, many may well decide to pay the penalty rather than buy insurance.

After all, the penalties for individuals who ignore the mandate are surprisingly low:  $95 in 2014, $325 in 2015, $695 (or up to 2.5 percent of income) in 2016. Families will pay half the amount for children, up to a cap of $2,250 per family.  After 2016, penalties are indexed to the Consumer Price Index.

In addition, roughly 40% or about 19 million of the 47 million uninsured are 18-to-34-years old. Most in this group are healthy, and just don't believe that they need protection.  Under the reform legislation, some under the age of 26 will sign up for their parents’ insurance. But many of these invincible youngsters are likely to shrug, and pay the puny  penalty.

As a result, analysts at Fitch, the bond rating agency, observe:  “It is not unreasonable to envision that too many new sick customers will overwhelm the individual segment of the market, driving many health plans from it altogether.”  In other words, these Fitch analysts are suggesting that a fair number oy insurers may not even try to compete for the new but unprofitable business in the Exchange.  

“This could become most acute under a scenario in which healthy, younger individuals decide to pay the penalty as opposed to purchasing coverage,” the Fitch analysts write, “and older individuals let policies lapse during periods when they do not need medical services, and purchase coverage only when they face a pending medical need, such as a surgery or expensive sets of tests or treatments."

This is why I predict that sometime between now and 2014, Congress will lift the penalties, and change the rules to make it impossible for someone to pay a penalty--and then buy insurance when he or she falls ill. The rest of us cannot afford to carry "free riders."  Some have suggested that when a person decides not to buy insurance, he should be required to sign a document saying that he will not try to buy insurance for three years, taking the financial risk that he will be in an accident or become sick during that period of time and wind up broke, with medical debt that he will be paying off for years.

We need young, healthy people in the pool or insurance will become unaffordable for everyone.

Make no mistake, there are many unknowns. We don’t yet know whether premiums will be high enough to  guarantee that insurers will recover the dollars they spend on new customers. But industry analysts predict that rate increases will be held in check by the new rules on the percentage  of premiums’ that insurers must pay out, and by heightened competition for customers, who will have more choice of plans than they currently do in the individual market. Insurers "will be free to price themselves into oblivion if they choose to do so," Sheryl Skolnick, an industry analyst with CRT Capital Group, told the Washington Post.

When all is said and done, it strikes me that the cuts and regs that go into effect in the next four years could easily lead to an industry shake-out. My guess is that some for-profit insurance companies won’t make it to 2014

On Wall Street, analysts vary in how they assess the net effect of reform legislation on insurers, but no one is jubilant. Keep in mind that most Wall Street analysts would prefer to be optimistic. Most companies are in the business of selling stocks.  It is not good for business to be bearish.

But everyone on the Street knows that while insurers will have more customers, profit margins are likely to be even lower than they are now. At best, this could prove to be a wash.

Offering a moderate  assessment of the damage, Ana Gupte, an analyst with Sanford Bernstein, suggests that "insurers come out a net negative, but not severely net negative."

What Will This Mean For You?

If for-profit insurers are going to survive and thrive, they will be compelled to be more creative and efficient than they are today.  They will be competing in the Exchanges where they will be offering comparable policies that promise  the same essential benefits with less fine print. Thus it will be far easier for customer to make head-to-head comparisons.  If you are buying your own insurance or work for a small business that doesn't offer insurance and are shopping the exchange, you are likely to find that insurers are offering  better value for your health-care dollars.  

This will not mean that premiums for employer-based coverage will climb. If insurers selling to large corporations try to jack up premiums, many corporations will simply switch to another insurance company. In this new, more regulated environment, buyers will have more leverage.

Meanwhile, the best of not-for-profit insurers are likely to do well in a regulated market. Some already have pioneered using comparative effectiveness research to learn how to keep customers well.  Kaiser Permanente, for examples has been honored for its work in preventing heart disease. 

Some for-profits also have been trying to do a better job of managing chronic disease. But too many-profit companies have relied on various gimmicks to stay in the black: cherry-picking, selling Swiss cheese policies, canceling policies when patients become ill, putting  caps on  annual and lifetime pay-outs. Many have relied on Medicare Advantage to stay afloat, while shifting risk to Advantage customers.

Now, they are going to find themselves operating in much more difficult climate. Some  of these companies just don’t know how to make money unless they are able to do it the old-fashioned, predatory way. I suspect that more than a few will go under.

If that happens, it is quite possible that non-profits that couldn’t have competed in the laissez-faire environment of the past will become viable.  In the 1980s and early 1990s for-profits with deep pockets drove many non-profits out of business. Now, new non-profits are likely to  pop up.

Finally, if for-profit insures have difficulty designing affordable plans that meet the new rules, my guess is that Congress will revive the public option.

 

Comments

[Shawn]

Problem with Health Care Reform is they stopped with the health insurance companies. We needed to look real hard at the Hospitals and the Pharmaceutical companies. This is what is driving up the health insurance rates!

[Jun]

Health care has been such a controversial and heated topic for quite a while now, and I've always enjoyed reading articles and blogs about it to get other people's view and opinions. So this was another interesting read.

[Maggie Mahar]

run 75441--

You make a good point.

In the past someone making the equivalent of $24,000 (in 2010 dollars) might well decide to wait 7 or 8 years before having children (say until his late 20s) before having children because if he was a good worker, he could be pretty certain of getting annual raises that exceeded inflation.

It was possible to move up the income ladder.

But for the past 30 years, after adjusting for inflation, the average workers' wages have remained flat to down year after year, with only brief periods when workers made progress.

Thus a 20 year old earning hte equivalent of $24,000 could look forward to becoming a 28 year-old earning the equivalent of $24,000--plus inflaiton.

Over those 8 years, the purchasing power of his income would not increase. So why put off having children? (Unless one assumes that the poor just shouldn't have children at all. )

[run75441]

Hi Maggie:

Interesting comments here, such as this one:

"If you are making 24,000/yr why would you have children? It would seem to me that supporting one person on that amount of money would be difficult."

If it wasn't for the issue of the last decade skewing tax breaks to those making >$250,000, the continued skewing of productivity gains from nonfarm Labor to capital, and the decreasing percentage of the Civilian NonInstitutional Population in the Civilian Labor Force due to a lack of job creation; people like Peter could have a point about wating on children and pulling one's self up by their boot straps. What was once the ticket to the middle class a high schoold education and a good work ethic has long disappeared with the demise of jobs and a biased portion of the government placing their heel upon the necks of those who have no recourse in favor of a moneied minority of the population.

And yes $89,000 provides well in places such as South Dakota and is considered needing subsidy in New Jersey for families of 4 for SCHP programs. People and some doctors should understand the economics a tad more before conseming the programs and those who sit on the bottom of the economy. I welcome any others who wish to make negative comments on the poor.

[Maggie Mahar]

Dave--

Many employers have instituted "wellness" programs that do penalize employees who are not healthy.

Please see this Consumer Reports' article on employer "Wellness Programs"

http://blogs.consumerreports.org/health/2009/12/health-care-reform-medical-underwriting-by-stealth.html

[Dave Pennington]

Maggie –

Since my last post, I looked into the WellNet program as well. From my understanding, there is absolutely nothing illegal about this operation, nor does this organization “discriminate against less healthy employees” - I believe a little law called HIPAA prevents employers from doing exactly what you mentioned.

Let’s say that I was “targeted” for being categorized as a high risk member because of high cholesterol. My company sees that high cholesterol seems to be a major cost driver of the healthcare plan from the DEINDENTIFIED data analysis they receive. WellNet then would reach out to me, and employ different wellness and disease management strategies in order to get me to live a healthier lifestyle, as well as looking at my current drug intake and suggest generic or therapeutic alternatives that will reduce the cost to the company.

It is a gross assumption to believe that employees will be single-out or even fired by implementing such a program, as all participation is voluntary. I hope I helped to clear up this issue for you.

[Maggie Mahar]

Rose--

I'm hopeful this means that you are gong to volunteer to proof-read my posts and fix formatting-- at no charge?

We're a non-profit and can't afford to pay for proof-reading services.

During the week, I have help with formatting from the Foundation, but not on the week-ends. . .

Nevertheless, given how much you pay to read HealthBeat, I can understand your irritation that the experience isn't as pleasurable as you might wish.

[Rose]

The formatting on this blog is unprofessional, uneven and distracting. Please try to standardize the formatting in order to make the experience of reading the blog more pleasurable. I have trouble concentrating on the content with such distracting font problems.

[Peter]

Okay then. I have found that love doesn't pay the bills and I need to be able to take care of situations that i get myself into you. For me to bring children into the world and not be able to provide for them would be a living hell. I waited until i could provide for my children on my own before having them. Otherwise i wouldn't have had them.

[Maggie Mahar]

Peter--

I sincerely hope that you don't have children.
Clearly, you have no understanding of why people have children. (Hint: it's not about money.)

[Don Levit]

The discussion between Maggie and Peter highlights the economic disconnnect between physicians, hospitals, and health care in general and the average middle class American.
What is one man's trash is another man's treasure.
We have very little room in which to adjust our economic realities.
Already, we are looking at subsidizing families up to $89,000 a year in income, which is probably the top portion of the middle class.
And, that is just for the bare premiums.
Actually, these subsidies, in my opinion, will simply delay the economic reality of this disconnection between the upper class and everyone else.
Even though the reality is very apparent to me, when the top 5% of income earners own as much wealth as the bottom 95%.
This is not capitalism - this looks more like communism.
Capitalism is when man uses man.
Communism is merely the reverse.
Don Levit

[Peter]

If you are making 24,000/yr why would you have children? It would seem to me that supporting one person on that amount of money would be difficult.

[Maggie Mahar]

Peter--

The lowest paid doctors in the U.S. make an average of about $110,000 --starting salary. That is not poverty.

Mid-career, he/she is likely to earn $140,00--$160,000--again, average income in the lowest paid specialties according to AMA numbers.

(The vast majority of these doctors see a combination of privately insured and Medicare patients. Some refuse all Medicaid patients, but many take at least a few Medicaid patients.)

If he or she marries or has a partner, they can probably expect to be living on $250,000 (assumign the partner earns $100,000 mid-career). That puts them in the top 3% of all American households.

That's not poverty.

That said, I agree that assuming someone emerges from med school with large loans, $110,000 puts him or her on a very tight budget for the first years following med school.

But if you want to know what true poverty looks like, I suggest that you visit a family of four living on less than $24,000.

There are words that one should not use lightly, and "poverty" is one of them--particularly in a country where so many children do live in poverty.

The new legislation greatly increaes scholarships and loan forgiveness for student interested in going into primary care and other areas where they are needed.

This seems to me an excellent idea.

In admitting students to med school, I also think need to encourage and recruit more students coming from low-income families who will be less likely to feel "poor" (and resentful) if they're earnign $100,00 or $115,000 a year.
Wealth is relative.

[Peter]

Maggie,

The oath I took did say anything about money nor was it a vow of poverty. I cannot make ends meet with Medicare and Medicaid payment. Maybe in the future those accepted to medical school should have to take a vow of poverty or maybe the goverment can look into having only priests, nuns, or monks become doctors.

[Maggie Mahar]

Henry--

Care is NOT rationed in continental Europe. The only country that I know that rations care based on cost-effectiveness is the UK --this is because their national health budget was gutted by Thatcher.
Then the economy squeezed them and so they have rationed.
Elsewhere in continental Europe everyone gets all needed medical services. In countries like Germany, France, Switzerland, and Sweden care is very generous.
What the U.S. spends on healthcare is more than twice what the UK spends per capita. As Dr. Don Berwick, the president's candidate to head Medicare said at a conference last summer: "We Do Not Need to Ration Care."
There is plenty of money sloshing around in the system: there is a consensus among medical experts that about 1/3 of our health care dollars are now wasted on redundant, unnecessary, often unproven tests and treatments that expose patients to risk without benefit. We also over-pay for many products and services.

As for Europe-- I've studied care in Europe and know people living in Germany and France who are treated within their health care system. Surveys published in Health Affairs and elsewhere show a significanty higher level of satisfaction with the health care in Euorpe than in the U.S. Their 3rd party payer system is well-regulated and seems well-accepted.

Peter-- I'm sorry that you have "closed your doors" to Medicare and Medicaid patients. I can't help but wonder how you reconcile turning away the poor and the elderly with the oath you took when you became a doctor.
Glad to hear your profits are up.

[Henry]

I think it's rather naive to make a broad brush-stroke comment that the third-party payment system in Europe is working well. Everything is relative and there's always two sides to every story. And I look in the mirror everyday and I know that there are problems with the current system. But, no one wants to face the reality that the U.S., like Europe has been doing for many years, will have to use rationing to control their spending period. There is absolutely no other way to control the cost of health care. I don't care how you want to phrase it, or mask it in hyperbole, it's still rationing. And, it needs to be implemented in an overt way.

[Peter]

Tom,

Believe me doctors can make it without Medicare and Medicaid patients. My group has shut our doors to these patients and we have seen our profits increase.

[Maggie Mahar]

Brad--

It's not clear why anyone would want to buy a policy outside the exchange. Prices would be comparable (The regulations say that plans in the Exchange cannot charge more than insurers would charge outside the exchange.

And within the exchange, insurers have to justify premium increases to state regulators, and conform to other regs regarding transparency, etc.

Also on the Exchange, an individual will get group rates; outside the Exchange he will pay higher individual rates.

Would there be an advantage to insurers to sell outside the Exchange?

No. Kaiser Family Foundation addresses the possibility that insurers might try to set up plans for healthier (or younger) patients outside the Exchange and says that this would be mitigated by requiring any plans outside the Exchange to conform to the rules laid down for plans within the Exchange.

We can expect amendments to the legislation, as needed, to block "gaming" of the system. Insurers, in particular, will be closely watched. They're not popular.

As you probably know employer-based plans also will have to conform to the same rules.

I haven't been able to find anything indicating that there would be different regs for non-profit managed care plans. But the best will have an advantage --they already know how to control the underlying cost of care, at least to some degree.

For example the Peguot Sound Cooperative in the state of Washington was able to continue offering the original private sector Medicare after other insurers backed out saying that couldn't make money.

Not having shareholders on your back, demanding growth, is a real advantage.

Wall Street thinks short-term. Without shareholders, you can think long term about controlling costs and, down the road, saving money.

In other words, you can put patients ahead of profits, and over the long-term, the profits come.

Tom-- Health Care providers will have no choice but to accept changes in Medicare.
Virtually no hospital could keep its doors open without taking local Medicare patients (and in some cases, Medicare patients from out of state.)

Some doctors could keep a practice running without Medicare patients, though they would probably have to be under 50. (They would need many younger patients, and younger patients often prefer younger doctors who they assume (rightly or wrongly) are up to speed on the latest research.)

Many doctors have tried to survive without taking Medicare, and found that they couldn't make it.

Finally, private insurers will be under financial pressure, and so will no longer be able to over-pay certain brand-name hospitals and docs. They will also certainly follow Medicare reforms that cut waste and over-payment.

Bottom line: Medicare has plenty of clout. And now it will have the freedom to exercise that clout without having to get permission from Congress to extend a money-saving pilot project. It also will be able to adjust doctors' fees-- and eventually hospital fees--with much less interference from Congress.

Private insurers that want to stay in business will have to be more cost-conscious. They will negotiate with providers and drug-makers.

Insuring everyone will Not mean that Premiums will rise-- about 1/3 of our health care dollars are wasted on unnecessary, sometimes over-priced, often unproven tests, drugs and treatments.

There is plenty of money to be saved--more than enough to cover the uninsured.

If we didn't have health care reform, we can be certain our premiums would continue to rise as they have for the last 10 years. Providers should continue to over-treat and insurers would continue to over-pay, passing the cost along in the form of higher premiums. No one would be trying to weed out waste.

Other developed countries cover everyone. They spend far less per person than we do. Outcomes are as good--or better. And no European country has single-payer.

They all use private sector insurers (to varying degrees)--most of those insuers are non-profit.

I suspect our system will move in that direction.

Bill Stapleton--

The individual market in NYS has not collapsed.

Until 3 years ago (when I joined the Foundation) I bought my insurance in NYS in the individual market for 7 years. It was not cheap,but it was doable--even for a writer. And I had good coverage-- low deductiible and co-pays as long as I stayed in network, no annual or lifetime caps, etc.

Insurance may not be as profitable for insuerrs in NYS--maybe that's what you mean by a market collapse.

But individual plans are available, quite a few insurers offer them, and best of all, in NYS they can't ask you about pre-existing conditions or threaten to cancel your policy if you get sick.

On large employers-- many large corporations self-insure. But many companies that are considered "large" are sitll insured by insurers (who take the risk)

I'm afraid I know too much about for-profit insurers to believe that Aetna and Cigna put patients ahead of profits. (I worked at Barron's for 12 years after all and I know how Wall Street pushes for earnings increases. . .) . . These for-profit insurers, like other profits, have denied claims that should not have been denied. They have raised premiums without giving adequate notice (recent NYS case that Aetna lost).
In the late 80s and at the beginning of the 1990s, there were non-profit HMOs offering much better value than Aetna. but they were driven out of business by the big for-profit insurers. (I covered this for Barron's.)

As for "having a brand name to protect"-- GE had a brand name to protect and look at what it did to the environment; Enron had a brand name to protect and look at what it did to California, not to mention its shareholders; HCA had a brand-name to protect and look at how it cheated Medicare and put patients at risk.

The notion that the insurance industry will collapse and that we will wind up with single-payer ignores what has happened in Europe. No country in continental Europe has single-payer. All use insurers--but they are largely non-profit insurers and they are regulated. None Of these countries (on the continent) ration care. Everyone gets all medically needed care.

As Don Berwick said at a recent conference: In order to cover everyone we do NOT have to ration care or hike spending.

Look at population surveys-- people in these countries are generally very happy with the level of care--much happier than Americans.
Is it likely that, over time, we will wind up with a system that relies, to a large degree on non-profit insurers? Yes. But that is not single-payer. Nor is it socialized medicine.
A great many Americans who have non-profit plans like Kaiser in N. Cal and Colorado are very happy with them. Their customers stick with the company for a long time. There is also a waiting list of docs who want to work for Kaiser.

Bruce-- In 2014, insurers will have to offer a basic but very comprehensive package of benefits.

I am sure that some brand name drugs will be included (if there isn't a generic equivalent) and that rehab will be included.

It's hard to tell whether some of other changes in your policy are Draconian or sensible.

For instance, I can't tell know whether fees for rehab are slashed or number of appointments. And I don't know how much the policy paid and how many appts it covered before this change. I do know that some policies now cover more rehab than is medically needed.

(Here, I'm not talking about rehab following surgery, I'm talking about physical therapy for someone who is experiencing shoulder pain.)

Finally, on private nursing, my guess is that insurers will be required to cover it only if it's medically necessary.

I can understand capping private nursing at 30 days in most (not necessarily all) instances. . . Private nursing is expensive; hostpitals Should be able to cover most patients. (Of course some hospitals are badly understaffed, and don't- meet patients'' needs. But this doesn't mean that we should all hire private nurses.

Rules for hospital staffing need to be enforced. Some of these hospitals need to invest more in nursing, less in cosmetics and construction..

Other (usually safety-net or public) hospitals are underfunded. They need to be fully funded--or closed, and replaced with community clinics. Patients who need hospitalization should be sent to better, fully funded hospitals.

In any case, as a society we can't afford to pay for unlimited private nursing for anyone who might want it. . .

Finally, most middle-income and upper-middle-income families ask relatives and close friends to rotate staying with the patient at night . .

Sid-- Yes, as my post indicates, Vioxx is off the market. And yes, we do too many CT scans.

And no,defensive medicine is not the primary cause of overtreatment. In sates where we have seen tort reform and caps on damages, malpractice insurance rates went down---but overtreatment continued to climb.

Doctors overtreat for a geat many reasons and fear of lawsuits is only one factor. The major factor is perverse financial incentives -- fee-for-service encourages doing more.

Current medical training in our med schools encourage "doing more."

Many doctors also assume that they must do more to keep their income at a certain level. Some specialists honestly believe that if they are not earning $400,000--or more, sometimes much more, a year they are not being paid enough.

We've been in a health care bubble for at least three decades--now it's about to pop. . . This will require adjustment, but people will adjust. The world will not end.

Many people will get better care than they do now. Many doctors and other health care professionals will find more job satisfaction in a more rational health care system.

John-- Yes, many Advantage customer who actually tried to use the insurance (file claims for needed, expensive medical care) have run into problems. And many doctors have stopped taking Advantage.

Free eyeglass frames are nice but that's not why we buy insurance.

Dave- I looked into the WellNET program.

They use data on what prescriptons employees use as well as other medical data to "identify"-- high-risk employees.

Then employers "communicate" with these high-risk employees.

What do they say? Your medical records show that you are taking high levels of depression medications--which are very expensive. We'd like to encourage you to cheer up!
Or . . . look for another job? Buy a "high-risk plan" and pay higher premiums than some of your fellow-employees??

Under health care reform I suspect that many of these programs that discriminate against less healthy employees (whether obese, depressed, suffering from high blood pressure or high cholesterol) will become illegal.
Thanks for drawing this program to my attention. I'd like to find out what happens after they have "targeted" you.

Henry--
Can you explain why the third-party payment system hasn't collapsed in Europe? It seems to be working rather well: lower costs, better care, everyone covered, higher patient satisfaction.

[Don Levit]

Bill and Henry brought up excellent points.
Bill wrote about companies who self insure, which is about as non-ptofit as you can get.
Still, those companies have health care costs that primarily mirror health inflation.

Henry, I agree with your assessment of getting rid of the insurers, but not single payor, which is still a third party.

We need to look in the mirror to see that we are the problem, not the third party.
If not, "Turn out the lights, the party's over."
Don Levit

[Henry]

I see the third-party payment system collapsing within 3-5 years, which is what the designer's want. Maggie and her minion's seem to feel that the grass is greener on the other side of the street. Just wait as when it's single-payer it's single-decision and, therefore, your single-choice. How comforting!

[Dave Pennington]

Bill,

“Insurance companies do not "insure" large employers; they pay claims for a fixed fee. Who will save the EMPLOYERS from escalating costs. By largely ignoring cost drivers and strangling the insurers, the new rules will just speed our way to a public option. The public option will lead us to rationing which is perhaps the only politically palatable way to rein in cost increases”

There is another way. A colleague of mine recently brought WellNet Healthcare to my attention, and I am currently working on getting our management team to set a meeting. What they do is use an integrated-online portal which contains all aspects of a firm’s healthcare plan. By predictively modeling the data, it exposes cost drivers within the plan, then WellNet works to deploy member marketing campaigns focused solely on employees within “high risk” categories (20% of employees’ drive 80% of costs).

They claim to be showing companies 10-30% savings – which I why I want to set up a meeting! Their website is www.wellnet.com - I suggest glancing at it to garner a little more info.

[John H]

I can attest to how Humana is making money off of Medicare advantage policies.
I had one for a year. I had to have physical therapy for my back and they only paid $1.18 on a $1259.50 bill. after filing two apeals they finally paid their part and I paid $240.00 copay.
Half way through the year my doctor dropped out of there ppo list and I tried to find another Dr.
I called every Dr. that was listed within an 8 mile radius of my home and not one would accept any new Humana patients. One Dr. that I called whos office had only been open for a few months said that they were being bombarded with calls from new enrollees and they just could not accept any more of the Humana patients.
At this time Humana was running ads in the newpaper and on tv for new Mediacare Advantage customers.
If you can't get a Dr. to see you the only care that you could get would be at an emergeny room.
I have changed to Blue Cross and things are much better.

[sid goldfarb md]

Vioxx is off the market!! Celebrex is the only cox 2 on the market. I am a surgeon a urologist. I use celebrex as the base medicine for surgical patients so they don't have to rely on percocet, with constipation, bowel slowing and possible doctor related adddiction as results.
A non profit private sector company would have been better than the senate bill.
Also a recent CDC report showed that ct scans in the er have increased 4 fold in the last 12 years. Have disease incidences changed so much? My thesis is that this is all defensive, as are the extra admissions, etc done for defensive purposes. Medicine is much more defensive than driven by profit and costs every payer 20-30%. CBO said that "fixing" defensive costs would save 54 Billion over 10 years but that was just capping pain and suffering in lawsuits. The real savings would come from a complete alternate dispute resolution with panels health courts etc.
Sid Goldfarb MD
Princeton NJ

[Bill Stapleton]

Maggie,

You are correct. There is no boon for health insurers. Medicare Advantage membership and profits will shrink. The individual market as designed will collapse as the New York marketplace has with similar restrictions. And the not-for-profits are not viable as they lack the scale, technology and capital to compete with the big boys. Take Massachusetts where the DOI rejected rate increases even thought Blue Cross, Tufts and Harvard Pilgrim all lost money last year. Without significant rate increases the "free lunch" theory of punish the insurers will be unmasked for what it is - an exercise in squeezing a balloon.

Please don't believe that the Aetnas and Cignas of the world practice the cynical gimmicks that you mention. They have brands to protect. And don't believe that large companies will just switch insurance companies. They did that 25 years ago and are all self-insured. Insurance companies do not "insure" large employers; they pay claims for a fixed fee. Who will save the EMPLOYERS from escalating costs. By largely ignoring cost drivers and strangling the insurers, the new rules will just speed our way to a public option. The public option will lead us to rationing which is perhaps the only politically palatable way to rein in cost increases.

[Maggie Mahar]

Tom,

Tom--Many thanks for your comment.

I, too am hopeful that we will "see an influx of doctors who want to practice medicine for it's own sake, rather than for the big incomes it often provides."

This is aleady happening. Many of the younger doctors, residentns and med students that I talk to when I go to conferenes are not "money-driven."

By the early 1990s, it was becoming clear that if you wanted to become very, very rich, there were many easier ways to do it. Med school is hard--and actually practicing medicne can be harder.

The good news is that non-profit insurers already have begun controlling costs. (They've been doing it for years.)

They refuse to over-pay for drugs when risks for patients outweight benefits. (Kaiser took Vioxx off its list more than a year before the company was forced to withdraw it from the market. The VA and Mayo did the same thing.

For-profit insurers continued to pay for Vioxx--and pass the cost along in the form of higher premiums. The for-profits were concerned that they would lose market share if they refused to pay for Vioxx.

Also, keep in mind that all of the countries in continental Europe rely on not-for profit insurers to
deliver health care. These insurers, along with the govt (govt regulation) control costs. No country in Europe has single-payor system. (Single-payor is in Canada and the UK)

In the U.S. Kaiser, Intermountain, Geisinger and other non-profits have done an admirable job of trying to keep patients well, which saves patients and saves money. They are adding value to the system and reining in costs.

If Medicare starts doing the same thing (which it will, with Bush no longer blockign Medicare reform and Don Berwick directing Medicare) we are going to
see a major effort to reduce medical waste nation-wide.

[Tom]

Maggie, thank you for your very informative analysis.

I have never believed that the insurer's profits, for the most part, were the issue.

Even with the spending requirements, the influx of lower income people requiring substantial healthcare, will drive premium much higher due to the costs of their services.

If insurers are driven out of business, you are assuming someone, e.g. non-profits, will fill the gap. But this still does nothing to control costs; it only controls O&P.

It appears that everyone needs the insurers to act as middlemen to distribute reimbursements. So if the insurers can't compete, and leave the business, the only solution seems to be single payor.

I believe that single payor, as with Medicare, is the only practical, long-term means to hope to control costs. There must be a single entity powerful enough to say "no more".

It will be interesting to see how the healthcare providers react to the cuts in Advantage and Medicare. Therein lie the long term results of this reform. And, perhaps we will see an influx of doctors who want to practice medicine for it's own sake, rather than for the big incomes it often provides.

[brucefryer]

Maggie,

The cost shifting has begun. Regence Blue Cross / Blue Shield is canceling our 2 years old HSA plan and replacing it with a new HSA plan. The premiums are rolled back to the level of 2 years ago (after a 38% increase). How did they do this? Skilled nursing is now capped at 30 days. Brand drugs are never covered at all. Neurodevelopmental therapy is eliminated. Rehabilitation is slashed 25%.

It appears they are preparing for the Lifetime Maximum Benefit change by eliminating anything that would cost money over a period of years.

I did ask them since this new plan has a lifetime limit of $2M, if they were going to cancel this policy next year and they said they were only going to modify it.

I'm curious as to what major changes are happening with the group policies.

[Brad F]

Don
I meant distinctions under new bill.
Brad

[Don Levit]

Brad:
Thanks for asking your second questrion.
My research on non-profit insurers shows that to fully earn their tax exempt status, they need to operate distinctly different from the for-profits.
Maggie pointed out that one non-profit is pioneering comparative effectiveness research and
preventing heart disease.
Another area in which non-profits can excel to fully earn their tax advantage is in the products they offer.
The products need to be distinctively different.
However, from what Maggie is describing, this innovation seems to be precluded from being offered, in order to "level the playing field."
This would be unfortunate, unless the policyholders were able to own a portion of the reserves, as is available with non-profits. Then, when the "insurer" does not meet the payout threshold, it provides rebates to the policyholders, which can help pay the benefits for all.
Don Levit

[Martha]

We are self-insured at our union. How do you think this will affect us? We take no profits, but find our costs climbing at an unsustainable rate every year.

[Brad F]

Maggie
Two questions:

1) Will there be a firewall between the exchanges and open markets. Still have not seen or heard on this, ie, can the HMOs write business outside the exchange and offer products that "conform" to the law, but from an actuarial point of view (minimal value), provide services young and invincibles would desire--as opposed to geriatric set.

2) What are the rules that govern how for-profit vs non-profit MCOs operate? Does one or the other have a freer hand or looser restrictions?

Thanks
Brad