Wednesday, April 30, 2008

John McCain's Health Care Plan and the Uninsurable--There Are Better Fixes Than the Ones He's Proposed

John McCain spoke about health care in Tampa on Tuesday and tried to answer many of the questions that have been raised about his health care reform plan.

The most pressing question is how would people with preexisting conditions get health care coverage in his plan? The worry is that his plan emphasizes tax incentives for consumers to purchase coverage in the individual health insurance market that relies so heavily on upfront medical underwriting.

Here is how his website explained his answer to that question:
John McCain Will Work With States To Establish A Guaranteed Access Plan. As President, John McCain will work with governors to develop a best practice model that states can follow - a Guaranteed Access Plan or GAP - that would reflect the best experience of the states to ensure these patients have access to health coverage. One approach would establish a nonprofit corporation that would contract with insurers to cover patients who have been denied insurance and could join with other state plans to enlarge pools and lower overhead costs. There would be reasonable limits on premiums, and assistance would be available for Americans below a certain income level.
I am frankly amazed he offered this as a "solution."

First, he is simply shunting the problem off to the states.

Second, he implies that one or more states have figured out what to do with people who can't get health insurance because of preexisting conditions. Just which state is that? I don't know of a single state that has been able to provide widely available access to health insurance for people who cannot get it.

Third, just who would finance this pool? States have tried so called high risk pools before. Time and again they are swamped by people trying to get in and there is never enough money. Since they have never worked before, how would they work this time? There were vague references to coming up with $7 billion in federal money here. Is that their proposal?

At the risk of taking sides here, what I find most frustrating is that I think this problem is solvable for McCain.

As consumers left an existing employer or individual plan for any reason they could be guaranteed access into their new individual plan within a certain time limit--just as we have "creditable coverage" provisions today under HIPAA when people move between employer plans.

For those who are not insured today and want to purchase an individual policy in the new McCain health plan, I think he can guarantee access by telling people that his plan would be "guarantee issue" at a first open enrollment. The high cost people could then be carved out by the insurers and put into a risk pool that was reinsured across all market players. This would be a structure that consumers would never see--it would only be a behind the scenes risk transfer system between insurers.

There are a number of different mechanisms for the insurers to identify and pool these "high risks" and spread their cost across the entire individual market. The program would also be self-financing because the high risk costs would be spread across the entire pool. To the extent McCain wanted to fund his GAP program with federal money he could instead be subsidizing the private insurance pool in order to get people into mainstream insurance as opposed to state pools I doubt anyone would be looking forward to.

With this structure, Senator McCain could simply look everyone in the eye and say his plan will guarantee access to everyone--even those with a pre-existing condition.

But he didn't propose anything like this. McCain simply took one of the biggest problems his plan has--and one of the most legitimate criticisms Democrats can levy against his plan--and said there really isn't a problem. From his own website:


MYTH: Some Claim That Under John McCain's Plan, Those With Pre-Existing Conditions Would Be Denied Insurance.

  • FACT: John McCain Supported The Health Insurance Portability And Accountability Act In 1996 That Took The Important Step Of Providing Some Protection Against Exclusion Of Pre-Existing Conditions.

  • FACT: Nothing In John McCain's Plan Changes The Fact That If You Are Employed And Insured You Will Build Protection Against The Cost Of Any Pre-Existing Condition.

  • FACT: As President, John McCain Would Work With Governors To Find The Solutions Necessary To Ensure Those With Pre-Existing Conditions Are Able To Easily Access Care.
So people would not be denied insurance just as soon as he and the governors find a solution?

Senator, health care plans are supposed to be about your telling us how you are going to do it before you are elected.

McCain also vaguely talked about premium assistance for those who cannot afford coverage even after his $2,500 individual/$5,000 family tax credit but he also gave no details on how much would be available and who would pay for it. I would suggest he means test his tax credit just has he recently proposed doing for seniors in the Medicare Part D program and use that money to help subsidize low income folks. In his own terms, why is he giving a tax credit to Bill Gates and Warren Buffet when there are people who legitimately can't afford health insurance coverage?

Senator McCain, you had better get your health care act together before the Dems make their choice. At this rate, they're going to cut you to ribbons on this issue.

Earlier posts:
An Analysis of Senator John McCain's Health Care Reform Plan

Elizabeth Edwards Criticizes John McCain's Health Plan--He Needs to Fill in Some Important Gaps

McCain Would Increase Medicare Part D Premiums for High Income Seniors--A Small Step in the Right Direction

Monday, April 28, 2008

HMO Executive Earnings Are the Subject of Criticism--37 Execs Paid $277 Million in 2007

I have had two different emails today on the subject of health plan executive compensation.

The first cited a link to an article in the Baltimore Sun that reports the $17.65 million severance settlement with the former CEO of CareFirst (Maryland Blue Cross) is under scrutiny by the State of Maryland.

The second was a reference to an Industry Radar post that compares HMO executive compensation from the six biggest publicly traded health plans to what the federal government pays our leaders. They have also juxtaposed a long list of disputes these health plans are currently engaged in with customers, investors, and other providers in the column to the right of their salary chart.

Taken together, these six health plans paid 37 executives three times what the top 562 leaders in the federal government (executive, judicial, and legislative) received.

I am not sure whether I should be angry or jealous.

The Genetic Discrimination Bill Shows Us Just How Hard Health Care Reform Can Be

About 1990, I was a member of something called the Task Force on Genetic Testing at the then Health Insurance Association of America (HIAA). The health insurance industry realized that, with the Human Genome Project in its early stages, we weren't far away from genetics being a part of everyday health care and the Orwellian implications on us as insurance underwriters were not lost.

The task was to think about all of this and develop an industry policy for dealing with it.

Here's the headline: In 1990, there was agreement among the many insurance executives on the panel that it should never be the insurance industry's policy to use genetic information to underwrite or otherwise use the information in a way that disadvantaged the people we either insured or could insure.

So, 18 years later, the news that the Senate has passed a genetic non-discrimination bill by a unanimous vote and we are a week or two from the House approving, and the President signing, a bill to outlaw the use of genetic information for the purpose of underwriting was notable. The bill would also prohibit an insurer from forcing someone to take a genetic test and using that information to limit their coverage and it would prohibit an employer from using the information in the workplace.

In fact, to my knowledge, in these 18 years there has not been an example of a health insurance plan using genetic information for any of these things.

The good news is that we are about to have a bill prohibiting the use of genetic testing for insurance or employment discrimination so no one can ever use it for these purposes.

The bad news is it took 18 years to do something that was obvious and the insurance industry never objected to in principal. There were tangential disagreements about how such a law could create a new protected class and therefore increase the number of lawsuits in the workplace.

The implication for health care reform is that if it takes 18 years to do the easy things you can understand why it is taking so long to do the hard ones.

Friday, April 25, 2008

What Good Has Private Medicare Done for Shareholders?

Wall Street seems to have lost faith in publicly traded HMOs.

When the Medicare Modernization Act was passed in late 2003, it was seen as a major boon to the health plan business. Without a doubt the revenue and profits that have accrued from the privatization of Medicare have been more than substantial.

But what good has Medicare privatization done for shareholders?


The first week of January 2005, just as Medicare Advantage enrollment first went into high gear, United Health, the biggest player in private Medicare, saw its stock price close at $43.62. The first week of January 2006, as the first seniors were signed up for the new Part D drug program, United's stock price was at $62.90. Yesterday, United's stock price closed at $33.59.

Wellpoint was at $57.90 in January 2005, $78.93 in January 2006, and closed at $49.00 yesterday.

Universal American, a senior specialist who has made a disproportionate play in this space, was at $14.80 in January 2005, $15.39 in January 2006, and closed at $10.01 yesterday.

Humana, arguably the company most leveraged in private Medicare, was at $29.42 in January 2005, $57.08 in January 2006, and closed at $43.06 yesterday. Humana and Universal have been particularly hard hit by Part D pricing problems involving anti-selection issues but have pointed out their Part D blocks are overall operating as planned.

Aetna was at $30.99 in January 2005, $46.90 in January 2006, and closed at $42.26 yesterday.

Historically, these managed care companies are at all time high profit levels--it's not like their results have suddenly bombed and the business is coming off its rails.

The problems these companies have had, such as they are, are not limited to the senior business. There are also concerns about growth and profitability in the commercial market every bit as big. But the Wall Street analysts all said the private Medicare business was supposed to be a growth and profit diversification to the normally cyclical employer health insurance market.

Listening to the research reports the privatization of Medicare was the second coming.

The bottom line is the bottom line.

Where are the great valuations the private Medicare business was supposed to create?

Recent related posts:

Wall Street Continues to Be Disappointed in Managed Care--Just Where Did They Think It Was Headed in the First Place?

Health Plan Stock Prices Hard Hit Recently--Then There is John McCain

Today's HMO Carnage on Wall Street

Thursday, April 24, 2008

Health Care Reform Will Be a Long Shot in 2009

Many people, me included, have compared the recent resurgence in calls for health care reform with the big debate we had in 1993 and 1994 and the expectation back then that we would see major health care reform. Of course, all of that focus on the issue ended with the failed Clinton Health Care Plan derailing health reform for at least 15 years--and counting.

Each of the remaining candidates for president--Clinton, Obama, and McCain--have major health reform proposals. Health care continues to register as one of the major issues voters want addressed and expectations are rising again.

But the chance for major health care reform in 2009--or 2010--is a long shot.

The problem is that the country is divided right down the middle on which very different direction to go on the issue. As high as health insurance costs are and as dissatisfied as consumers are with the system there is no consensus on what should change and no real willingness for any of the major stakeholders to compromise.

I don't know who will be elected president in November. But I am confident that whoever it is the vote will be another very close election with about half of the people on one side and half on the other. While the Congress will probably continue to be Democrat controlled, there will be no big majority wanting to take the country in one health care reform direction over another.

Something as big as health care reform requires a clear consensus--among voters and therefore in the Congress. We have nothing close to that today irrespective of the apparently strong commitment to health care change among the candidates for even incremental health care reform.

Jay Rockefeller is a Senate Democrat that has been working on health care reform for 20 years and he's an Obama supporter. About the $100 billion both Democratic candidates want to spend on health reform he says, "We all know there is not enough money to do all this stuff. What they are doing is...laying out their ambitions."

No one is a bigger supporter of Hillary Clinton than fellow New York Senator Chuck Schumer. He doesn't see any consensus on how to get health reform done either saying he's "not sure we have the big plan on health care." He goes on, "Health care I feel strongly about, but I'm not sure we're ready for a major national health care plan."

The next Congress, and likely the new President, will be ready to deal with a permanent extension and expansion of the State Children's Health Insurance Program (SCHIP) and they will be forced to make some necessary decisions about how Medicare pays physicians and potential cuts to private Medicare plans to pay for them. But the $100 billion expansion of health care Obama and Clinton want, or the abandonment of the longtime employer tax exemption and new emphasis on the individual market that McCain wants, are way beyond any kind of consensus we have among voters and in the Congress.

As bad as things are, they aren't bad enough.

Detailed analysis each of the candidates health care reform plans:

An Analysis of Senator Hillary Clinton's Health Plan Proposal

An Analysis of Senator John McCain's Health Care Reform Plan

A Detailed Analysis of Barack Obama's Health Care Reform Plan

Wednesday, April 23, 2008

Wall Street Continues to Be Disappointed in Managed Care--Just Where Did They Think It Was Headed in the First Place?

United Health's earnings and revenue grew by 7% this quarter year over year and the stock fell by almost 10% yesterday.

I'd hate to see them really screw up.

United is the first to admit that they have some service and persistency issues but the fundamentals of their business continue on track.

Wellpoint followed with another disappointing report today.

Wall Street finally seems to be figuring out that the health insurance business is, and has been for years, on a long walk off a short pier. What's sustainable about a business whose costs have continually exploded at 2-3 times the growth rate of the rest of the economy or the wage rate? Just where did Wall Street think this business was headed all those years the sector has been the darling of Wall Street?

Perhaps most telling was the recent comment by one analyst in the Wall Street Journal, "What we're seeing is a market that's gotten so mature and beyond its customer that people can literally no longer afford to buy the product," said Sheryl Skolnick, an analyst with CRT Capital Group. "The number of uninsured is growing faster than any player in the game, and it's getting bigger at the expense of the Uniteds, the WellPoints."

Ya, and it was five years ago.

Allow me to let you in on another gem Ms. Skolnick--and the other health care analysts out there: Pet Stark is getting ready to slash those fat private Medicare payments and either a Democratic president or one of the only Republican Senators to vote against the whole thing in the first place isn't going to veto it the next time around (that would be any nano second past noon on January 20, 2009). And, that's after the growth in these private Medicare products has already started to level off.

We are way past the time the really smart people on Wall Street (that would be all of you) needed to start asking just what the future of this business is. If the answer you get is that the future of managed care is just to ride an unsustainable health care cost trend rate many more years into the future you might just want to dig a little deeper this time.

Related posts:
Health Plan Stock Prices Hard Hit Recently--Then There is John McCain

Today's HMO Carnage on Wall Street

Tuesday, April 22, 2008

Obesity and Smoking--One Step Forward and Two Steps Back

Young Americans risk being the first generation whose health status will be worse off then the last.

I have repeated that prediction many times but today it looks like tomorrow is here.

A study by the Harvard School of Public Health and the University of Washington and published in the journal PLoS Medicine now tells us that the overall of life expectancy of many Americans has actually been in decline for almost two decades. At the heart of it all are the lifestyles of these people--particularly smoking and obesity.

Women were impacted far more than men. For 20% of women the increase in rising life expectancy that occurred from 1980 to 1999 leveled out or reversed. The deterioration is most pronounced in a swath of America from Appalachia to Texas. Geography aside, the deterioration is most pronounced among women who smoke and are obese. Diabetes is a big part of the problem complicated, or driven, by smoking and being overweight.

The health care industry has made enormous strides in improving the management of the cost and quality of health care. Insurers, hospitals, docs, all participate in a health care system more adept at controlling costs and managing toward a better quality of care then we did 20 years ago. Yet, costs continue to soar and health care outcomes deteriorate.

Is the health care system/business blameless? No.

But so much of what is pushing costs up are the poor lifestyle choices too many Americans make. As professionals in the health care system make progress on cost and quality too many citizens undermine all of that with foolish behavior. We then look to presidential policy proposals or the next generation of managed care to bail us out. But we keep sliding backward anyway. It's like the health care system takes a step forward and dumb lifestyle decisions by people cause us to take two steps back.

This from a recent post: "The obesity epidemic has caused a tenfold increase in the nation's private health insurance bill for conditions related to being overweight, according to a self-funded study by researchers with the Emory University Rollins School of Public Health published in the online version of the journal Health Affairs. According to the study, the cost of treating conditions linked to obesity increased from $3.6 billion to $36.5 billion between 1987 and 2002. The study concludes that the best way to lower health care spending is to target the rise in population risk factors -- especially obesity."

"Current approaches to controlling health care costs are not working because they ignore the true drivers of those costs. Increases in the number of people getting treatment for serious health problems like diabetes, heart disease, high cholesterol, and mental disorders are directly linked to population increases in obesity. If insurers and employers are serious about reining in health care spending, then obesity prevention should be at the top of their agenda."

It looks like things such as smoking cessation and obesity also need to be at the top of the agenda for these many people who are killing themselves.

It is also time for the rest of us to stop pussyfooting around the problem of unhealthy lifestyles and to label smoking and obesity for what they are--really stupid.

Everything we try from health information technology to presidential proposals to reform health care will continue to make only a modest difference unless we start to call a spade a spade and change some behaviors by making these choices socially unacceptable.

Is the Bush Administration in Favor of Provider Transparency and Accountability or Aren't They?

Brian Klepper has shared an open letter he and Michael Millenson have written to HHS Secretary Leavitt regarding the issue of provider information transparency and the Department of HHS's apparent contradiction with its own policies.

An Open Response To HHS Secretary Michael Leavitt
by Brian Klepper and Michael Millenson

A few months ago, the two of us – both long-time advocates for transparency and accountability – posted separate comments on Secretary Mike Leavitt’s blog. Brian asked Secretary Leavitt to square his support of "Chartered Value Exchanges” with the attempt to block release of physician-specific Medicare claims data to Consumers’ Checkbook, which wants to rate doctors. After a court ruled that the data should be provided to the group, HHS appealed. Michael urged the secretary to go beyond supporting Consumers’ Checkbook and use his “bully pulpit” to promote sophisticated data analysis that could be used to create national quality comparisons.

Secretary Leavitt graciously asked us to consider and comment on the department’s proposed "Medicare trigger legislation" calling for the release of physician performance measures. We are delighted to continue the conversation.

First, let’s give credit where credit is due. We agree that the proposed legislation is a major step in the right direction.

Yet the legislation’s intent seems at odds with the department’s turn-back-the-clock arguments in Consumers’ Checkbook vs. HHS. There, the department asserts that physicians have a right to privacy, and that the quality of medical care they provide in return for taxpayer dollars does not have to be disclosed — despite its importance to consumers and other purchasers of care. Interestingly, this privacy is a privilege hospitals do not enjoy.

In a December 10, 2007 American Medical News article (since revised), the American Medical Association’s board chair gloated that HHS had taken the AMA's “advice” in appealing the original August 22, 2007 District Court ruling for Consumers’ Checkbook. Moreover, as the Los Angeles Times pointed out, while the department proclaims in press releases that it simply wants legal clarification on its authority to release the physician data, the government's legal brief in the case calls for the appeals court to reverse [the August] ruling, leaving the restrictions on the release of data in place.

This is not a partisan issue. Most objective health care experts across the political spectrum believe that transparent pricing and quality information is critical to transforming the current crisis-ridden system into one that is stable and sustainable. Without the kind of information sought by Consumers’ Checkbook, a health care marketplace simply cannot function. President Bush virtually said as much in his August, 2006 executive order.

HHS has said it “recognizes and shares the goals of Consumers’ Checkbook.” If that is so, HHS should match words with deeds. That means dropping its appeal of the Checkbook ruling and challenging purchasers, health plans and individual consumers to use the marketplace to reward doctors and others who provide or contribute to safer, higher quality, more efficient care.

Respectfully,

Brian R. Klepper, PhD
Healthcare Performance, Inc.
Atlantic Beach, FL
904.246.9643o
bklepper@gmail.com

Michael L. Millenson
Health Quality Advisors LLC
Highland Park, IL
847.681.1476
mm@healthqualityadvisors.com


Secretary Leavitt's Original Response to Brian and Michael:


Claims Data from Medicare

The proposal I made last week is also relevant in another way. A couple of commenters asked about a lawsuit involving the use of Medicare claims data by people outside of government.

Brian Klepper said: “On Friday the Memphis Business Journal reported you saying that we ought to have ‘a Travelocity for health care’ that would ‘give a quality grade for doctors and show how much they charge for services.’ I'm wholeheartedly with you on this. But how do you square this proposal with the fact that, though you're the nation's largest payor, you acquiesced to the AMA's interests and then refused to release physician data?

Can you please explain these discrepancies?

Michael Millenson of Highland Park, IL agreed with Brian. He said, “It's past time for HHS to be an aggressive, whole-hearted mover towards release of more information and more timely information. Meanwhile, one easy, no-cost step would be for Secretary Leavitt to use his bully pulpit to call for states to collect ‘all payer’ data. It sounds like a technical issue, but what it will do is allow valid national comparisons of quality of care, as well as enable better state efforts. A local/nation win-win.

I want to use Medicare claims data for this purpose. And I have been advocating the states provide their data for this purpose. However, I have a problem. A federal court in Florida, some years ago, prohibited HHS from publicly disclosing certain Medicare claims data. Specifically, HHS was prohibited from disclosing annual Medicare reimbursement rates for individually identifiable physicians.

A few months ago, another federal court — this time in D.C., ruled the opposite — that I must provide the data to a specific party. This leaves me sandwiched between two differing courts.

We are working to develop a solution. However, the real fix will need to be legislative.

In the Medicare trigger legislation I sent to Congress, I have included language that would allow HHS in a thoughtful, consistent way to enhance quality improvement efforts in our Chartered Value Exchanges with physician performance measurement results. This needs to happen. I think there is a potential for bipartisan action on at least this part of the legislation I sent up.

Michael and Brian, take a look at the legislation linked above and tell me what you think.

Thursday, April 17, 2008

Provider Payment "Food Fight"

For some time I have been saying that we are about to have a "food fight" between health care providers over who will sustain Medicare payment cuts--HMOs, docs, hospitals, nursing homes, durable medical equipment, and others.

But even I was surprised by a recent email from the AMA that included this connection between provider payments and food:
“While it’s unusual to think of farmers and hospitals together, the farm bill conference report has thrown them together at the expense of America’s patients. Opponents of physician-owned specialty hospitals are trying to slip a provision to ban specialty hospitals into the farm bill conference report, well after the bill has been passed by both the House and Senate."
Get ready for more intramural fights between those who benefit from Medicare and Medicaid. State Medicaid budgets are under pressure as state revenue projections come up short while the Congress needs to find money in the Medicare budget to fix short term problems like the upcoming physician fee cut and longer-term Medicare solvency problems.

Coming up soon will be a big fight over whether Medicare Advantage payments should be cut to pay for a physician fee fix. Maybe even bigger will be the fight over just how the Medicare physician fee schedule will need to be permanently fixed. That fight will happen between the physician specialties--particularly over how primary care payments will get fixed and what role the better paid physician specialties play in that solution.

More on Medicare provider cuts:
Bush Budget Dead On Arrival But It Underscores the Trouble With Entitlements and The Choices That Must Be Made

Wednesday, April 16, 2008

The "Frontline" Report on International Health Care, "Sick Around the World," is Worth an Hour of Your Time

Last night the PBS program, "Frontline" gave us an hour long tour of the health care systems in Great Britain, Japan, Germany, Taiwan, and Switzerland and asked what can we Americans learn from them.

When I heard about the program, I was dubious that an hour long report covering five different systems could possibly be helpful. But this hour long tour de force accomplished a great deal and I came away impressed.

Did the report skirt a number of really important issues and fail to mention things that critics or supporters will be upset about? Yes.

But from my experiences in international health care I have to say it is a generally fair and balanced job. "Sick Around the World" is a constructive contribution to our national health care debate.

As the report pointed out, most of these systems rely heavily on the health care market--private insurers, private doctors, and private hospitals.

The program also offered a number of conclusions from their investigation of these national health care systems which, from my own experience, I cannot deny:
  • These nations have health care systems--often as much market oriented as government oriented. Market or government, the U.S doesn't have a health care system as much as a hodgepodge of things we have drifted into over the decades and that creates much of our problem.
  • That the quality of health care in each of these nations is generally as good as ours--it is a myth that the U.S. gets a lot more quality health care for the money we spend.
  • That these nations take advantage of market forces but at the same time all impose limits that so far we have been unwilling to impose.
  • That nations who successfully rely upon private insurance use only not-for-profit insurers and the insurers must accept everyone.
  • That everyone is mandated to have insurance and the poor and near poor receive adequate premium support.
  • That doctors and hospitals are required to accept one standard price structure--and their prices are far less than ours.
The program ended asking, "Can Americans accept ideas like that?"

I strongly recommend you spend an hour online watching, "Sick Around the World."

All of my posts on international health care

Tuesday, April 15, 2008

McCain Would Increase Medicare Part D Premiums for High Income Seniors--A Small Step in the Right Direction

As part of his broader speech on economic issues John McCain today called for high income seniors to pay more for their Part D drug coverage. Couples making more than $160,000 a year would pay higher premiums.

This is a good idea and a down payment on something I believe is ultimately unavoidable--means testing for entitlement programs.

It isn't news that the cost of senior programs--Medicare, Social Security, and Medicaid--are not sustainable. The current federal cost for these three programs now tops $27,000 a year for each senior over the age of 65. That number increased 24% since 2000--after adjusting for inflation.

Part D alone added $8 trillion to Medicare's 75-year unfunded liability--twice the unfunded liability of the entire Social Security system and a fourth of Medicare's overall unfunded liability.

[Part D was an irresponsible expansion of entitlement programs that John McCain voted against.]

The cost of these entitlement programs is unsustainable in the long-term.

Some believe that a better use of the market will help us control costs. Some believe that more use of the government is needed to control costs. Either way, market competition or government controls, means paying out less to someone.

Many people believe means testing--the richer getting less or paying more for these benefits--is bad policy because it has the potential of creating a two-tiered system. They worry that if the more wealthy don't share in these generous benefits we will lose important political support for these entitlement programs and the less well off will suffer. That is possible.

But when the day is done, how are we going to control these costs and just who is it that will get less? Will it be seniors, drug companies, insurers, doctors, hospitals? Well likely all of these. But why not the better off getting less help as well?

Means testing would appear to me to be the easiest way to reduce the cost of these programs and do the least harm.

McCain is on the right track here and I hope he takes means testing even further.

Earlier posts:

An Analysis of Senator John McCain's Health Care Reform Plan

Means Testing for Medicare--It's Unavoidable If Politically Problematic

Good Riddance to Karl Rove--How Part D Left an $8 Trillion Debt and Got Them Nothing

Thursday, April 10, 2008

Nonprofit Hospitals Hardly Unprofitable––A Bad Time to Find Out Hospitals Are Making Big Money

Senator Charles Grassley (R-IA) has for years been complaining that non-profit hospitals have lost their way--that the tax benefits they get, originally intended to help pay for their charity care, simply aren't going to charity care anymore.

Last Friday, the Wall Street Journal ran a front page story on the enormous profits many of the nonprofit hospitals are recording. The article made a number of points:
  • The combined net income of the 50 largest nonprofit hospitals increased nearly eight times to $4.27 billion between 2001 and 2006.
  • At least 25 nonprofit hospitals each now earn more than $250 million a year in profits.
  • Nonprofit hospitals are more often profitable than for-profit hospitals--77% of the 2,033 nonprofits are profitable while 61% of for-profits made money last year.
  • Nonprofit hospitals received $12.6 billion in annual tax exemptions on top of another $32 billion in federal, state, and local subsidies the entire industry receives.
  • "One reason for hospitals soaring profits is the gradual increase in Medicare reimbursements" in recent years.
  • Hospital profits have also increased because of consolidation and increases negotiating leverage with payers, demanding upfront payments from patients, hiking list prices to "several times their actual cost," selling patients debts to collection companies, focusing on expensive procedures, and issuing tax exempt bonds and investing that cash in better yielding securities.
The article cites at least two specific cases where the hospital's tax benefits are multiples more than the charity care they provide. The story also cites the salaries of nonprofit hospital CEOs and lists 10 executives paid between $3.3 million and $16.4 million a year.

The WSJ article also makes clear that many hospitals, particularly inner city hospitals with substantial numbers of low income patients, are having a tough time making it.

But clearly, most community hospitals and major medical centers are well into the black.

The growing data about the wealth of these nonprofit hospitals may kill the golden goose by giving the Congress permission to take away or modify their tax status. Just think of the incentive these hospitals would have to provide charity care if they actually paid taxes and could deduct the cost of their services to the uninsured.

But all of this publicity will have another very important effect.

We are about to start the 2008 budget debate as we face a looming 15% Medicare physician fee cut on top of an emerging problem in funding both Medicare and Medicaid in the coming years. The Bush budget calls for Medicare and Medicaid cuts for both hospitals and doctors. The providers respond that it is the Medicare HMOs and their "over payments" that should take the hit.

We are about to see a major "food fight" between hospitals, doctors, and HMOs over whose hide Medicare and Medicaid cuts will come out of. Each of them will be pleading their own version of poverty.

News that the nonprofit hospitals are not so nonprofit comes at exactly the wrong time for them.

Monday, April 7, 2008

Elizabeth Edwards Criticizes John McCain's Health Plan--He Needs to Fill in Some Important Gaps

In my detailed analysis of John McCain's health care reform plan, I said that he needs to fill in some very important gaps in order that voters have confidence that his market-based solution will cover them.

During the Republican primaries it was important for McCain to present a conservative and traditional Republican approach to health care reform. His outline for a health care system controlled by individuals and portable from one job to another can be a workable one. But McCain's plan it is not workable until he answers some very important questions and closes some very important loops:
  1. How will older and sicker people get coverage in an individual health insurance system that today excludes the sick and charges very high prices to the older?
  2. McCain calls for deregulating that same individual health insurance market even more. But these regulations grew out of market abuses and limit such things as medical underwriting, pre-existing conditions provisions, and age rating. How will he deregulate the market even more and still be able to cover everyone who wants to be covered?
  3. McCain says he will not raise taxes to expand health insurance. The source of his funds will be taking one tax break and exchanging it for another. McCain would end the current personal income exemption for employer provided health insurance and replace it with an individual tax credit for those who have health insurance. But there are tens of millions who are not covered today and do not have access to an employer contribution for health insurance and therefore don't have a personal exemption that can be reshuffled into a personal tax credit. I understand where he will get the money for his tax credit for those who today have the benefit of the employer tax exemption. But what will the source of his funding be for those who today don't have the benefit of the employer exemption but would be eligible for the tax credits?
  4. Moving the tax benefit of health insurance from the workplace to the individual as McCain does will likely encourage employers to drop their health programs and instead just give the health benefit contribution they were making to the worker in the form of wages. This move from a defined benefit to a defined contribution structure pushes the health care trend risk from the employer to the employee--the employer's cost now grows at the wage rate rather than the much higher historical health care trend rate. With the employer cash in hand, as well as the tax credit, the employee would be well positioned to pay for their own health insurance--at least in the early years. But it may not be that simple. If the employer gave every employee the average cost of their health insurance in the form of wages, the young would get far more then they needed and the old far less in what would be an individual market where rates presumably vary by age. Would McCain require employers to age-adjust their payments in lieu of benefits?
As I have said before, it won't take long for the Democrats to pick-up on these issues inside McCain's health plan and hammer away.

The final phase of the campaign is still months away but it has already started.

Elizabeth Edwards took the first shots:
  • She criticized McCain's proposal to move the regulation of health insurance from the states to the feds pointing out the recent policy rescission controversy in California and asking why consumers should want fewer consumer protections.
  • She pointed out that if consumers see their coverage move to an individual responsibility how will they get coverage in an individual market that rates by age, that medically underwrites and that excludes people with preexisting condition's provisions.
  • Edwards argues that McCain’s health plan would give insurance companies carte blanch to sell whatever they want at whatever price by whatever sales tactics get them the greatest number of healthy policyholders.
  • Finally, she says that neither she nor McCain--both Cancer survivors--would be able to get coverage under his individual-based health plan because of their pre-existing conditions.
McCain health policy adviser Douglas Holtz-Eakin responded that Mrs. Edwards comments indicated that she did not understand the comprehensive nature of McCain's health policy proposal.

Well, neither do I.

John McCain's general health plan framework can work and it can provide the structure on which we can build an effective health insurance system. But, he doesn't tell us enough about how he is going to deal with these practical problems that his individual system of insurance would need to overcome.

He better do it soon or the very effective criticism Elizabeth Edwards just made will be something we will be hearing all over the political playing field in the coming year.

Detailed analysis of the Clinton Health Plan

Detailed Analysis of the Obama Health Plan

Friday, April 4, 2008

Health Plan Stock Prices Hard Hit Recently--Then There is John McCain

The recent hit HMO stocks have taken in the market has come because Wall Street has the jitters over revised earnings outlooks. Many health plan stocks have fallen by 50% in recent weeks.

The Street is right to worry that the health plans are going to have difficulty pumping out more of the great and predictable earnings we've seen from them in recent years. But they also continue to miss a very large political risk that still looms as the Congress looks to trim private Medicare payments.

Health plan profit expectations are going to be harder to make in the next few quarters. The health care trend rate has stopped its five-year deceleration and the easy days are over. Now, a health plan has to hit its numbers on the head without the help of falling trend rates and the good things that result like "positive reserve development."

Wellpoint upset the market when it said it missed its health care cost trend assumptions by half a percentage point--that's little more than the margin for error in this business. I've missed it by multiples of that! Management reports that the fundamentals in the Wellpoint businesses continue to be strong even if the business is getting harder.

Universal American
and Humana announced they miscalculated on their Part D pricing--Universal American because of mistakes in a health plan they later acquired and Humana because they once again blew their anti-selection assumptions. The other parts of the business for these companies--they tell us--continue to perform as expected.

We are at a point in the underwriting cycle where profit windfalls from a five year deceleration in the medical trend rate are gone. Growth in Medicare Advantage and Part D plans are both slowing as the low hanging fruit in those markets are gone. A slowing economy makes growth in the commercial health insurance market all but impossible unless you steal someone else's business.

So, the easy money days are over. But the wheels are not coming off. Margins continue to be at historically high levels.

If medical cost trend picks up the business will get even tougher. Two things would cause that to happen--an increase in underlying health care price inflation and/or cuts in Medicare and Medicaid payments to providers that force them to shift costs to the private sector. Cost shifting can assert itself both in higher prices and higher utilization. Both may be on the way, but neither has happened yet.

So, the health plan business is at a point where there is neither any profit windfall from decelerating health care cost trends nor is there a real pick-up in costs. The current environment isn't helping or hurting health plan results much--but we are at a place where a health plan has to hit its marks perfectly to come in on expected results.

So, the recent HMO sell-off was probably overdone--but with the easy results past us not entirely wrong.

But on top of legitimate earnings concerns there is still a pretty big political risk the stock market seems to be ignoring. That is the risk that payments to private Medicare plans--particularly Private Fee-For-Service plans--will be cut in the next year.

A recent article in Forbes.com by David Whelan has it about right. He points out that the health plans have made a lot of money on private Medicare and that is their real risk these days.

As David points out, Clinton and Obama would waste little time trying to kill private Medicare--and would have plenty of allies in a presumably Democratic Congress.

The only reason the Congressional Democrats haven't clipped that program's wings so far is that President Bush would veto any attempt. But this President is out of a job on January 20, 2009. Bush hopes John McCain will succeed him.

Will John McCain defend the terrific private payments the 2003 Medicare Act has given the health plans?

Well, McCain was one of the only Republicans to vote against the private Medicare legislation calling it a big boondoggle.

United, Wellpoint, and Aetna have only a single digit percentage of their profits tied up in the private Medicare Advantage business. Good for them.

Humana and Universal American have a whole lot more--Humana about half it its profits.

Humana and Universal American have both lost about half of their market cap in recent weeks because of earnings worries in the wake of disappointing news from both. But what about the political risk they are taking?

Doesn't look like John McCain has the same attachment to the 2003 Medicare Act George Bush has had.
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