Will ACOs Usher in a New Era of HMO-Style Managed Care?

Amber May has published an article on BenefitsPro.com that recalls a time in the 1990s when HMOs were the biggest thing in health care. She points out that the most obvious benefit of an HMO system is the coordination of care the organizations facilitate and how, since 1995, the National Health Insurance Law in Israel made participation in one of the four Israeli HMOs compulsory for all Israeli citizens.

May points out that once again the United States is experimenting with managed care. She notes that the Patient Protection and Affordable Care Act (PPACA) is attempting to address the lack of care coordination that’s developed in the American health care system by creating provisions for accountable care organizations (ACOS), coordinated groups of health care providers that provide care for specific populations of patients and are accountable for the quality, cost and outcomes of that care.

She notes that through PPACA, ACOs are tied to Medicare and speculates that a universal managed care system similar to Israel’s may be a long way off for the U.S. – To learn more see benefitspro.com.

Did Sen. Baucus Just use a Jedi Mind Trick to Confuse About the Public Plan?

The word coming out of Washington over the last few days dealing with healthcare reform legislation reminds me somewhat of the Jedi hand wave mind trick from the original 1977 Star Wars movie.

Luke, Obi-Wan, and the two droids are entering the village where they hoped to find a pilot who can help them escape the Imperial blockade, but they are stopped at a roadblock by Stormtroopers searching for the two droids.

Stormtrooper: Let me see your identification.

Obi-Wan: [with a small wave of his hand] You don’t need to see his identification.

Stormtrooper: We don’t need to see his identification.

Obi-Wan: These aren’t the droids you’re looking for.

Stormtrooper: These aren’t the droids we’re looking for.

Obi-Wan: He can go about his business.

Stormtrooper: You can go about your business.

Obi-Wan: Move along.

Stormtrooper: Move along… move along.

After being confronted by a number of Democrats in the House last week over possibly getting soft on adding the so called “Public Plan” in health care reform legislation, Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, told a press briefing “will get to this a little later.”

It was not reported whether, or not he waved his hand, but Baucus went on to say he wants to get a “little momentum” behind health reform legislation before the committee tackles such a divisive issue.

“Cool it,” Baucus said. “We don’t have to deal with it now. It’s kind of a hot-button item.” (Maybe another little wave of the hand?)

Essentially, Baucus said he will temporarily set aside talks on a new public insurance option to focus on maintaining employer self-insurance plans.

According to CQ Today, Baucus turned attention to large self-insured employers saying he would aim to preserve this self-insurance system while expanding private coverage and public programs such as Medicaid. He said, “We’ll end up with more private insurance and more public insurance.”

As for the creation of a new public insurance option, Baucus said that it is “on the table,” adding that it “might be to the side a little bit, … but it’s still on the table.” He added, “We’re trying to get momentum going. We’ll get to the public option a little later. Let’s not forget: There’s an awful lot more here than the public option” (Young, The Hill, 4/24).

Move along… move along…

Proposed “Public Plan” would Hurt Private Carriers, Providers.

The Lewin Group released a report yesterday that shows the possible impact that a “public health plan” like the one that appears in many of the health care reform proposals would have on private insurance carriers. While a public plan would have the desired effect of lowering premium costs and creating greater access to insurance coverage, it would have an adverse effect on private insurance carriers, providers and possibly even large employers. The report does not address the cost to the federal budget.

The report titled The Cost and Coverage Impacts of a Public Plan: Alternative Design Options,” examines potential impacts that a public health plan might have in competing for enrollment with the private insurance industry.

A team led by John Sheils assumed that the new public plan would offer a plan design and benefits similar to those of the plan that covers members of Congress, with $15 co-payments for in-network care and a $250 deductible for out-of-network care. The report estimates the impact on cost and coverage based on different levels of eligibility and reimbursement rates.

On price, the study concludes that if Medicare payment levels are used in the public plan, premiums would be up to 30 percent less than premiums for comparable private coverage. On average, the study says the monthly premium in the public plan for a typical benefits package would be $761 per family compared with an average of $970 per family in the private market for the same coverage.

This savings, the report says, is possible because provider payment levels for hospital services under Medicare are equal to only about 71 percent of what is paid by private health plans for the same services. In fact, the report notes, Medicare payments to hospitals are actually equal to only between 92 percent and 95 percent of the cost of the services provided by hospitals. For physician services, Medicare pays only about 81 percent of what is paid by private health plans for the same services.

The report also assumed that administrative costs are also expected to be lower for the public plan than under private insurance, reflecting that the public plan would not include an allowance for insurer profit and insurance agent and broker commissions and fees.

Here are the enrollment projections based on various scenarios:

  • If as the President proposed, eligibility is limited to only small employers, individuals and the self-employed, public plan enrollment would reach 42.9 million people. The number of people with private coverage would fall by 32.0 million people. If private payer reimbursement levels are used by the public plan, enrollment would be lower, with only 10.4 million people switching to the public plan from private insurance.
  • If the public plan is opened to all employers as proposed by former Senators Clinton and Edwards, at Medicare payment levels the report estimates that about 131.2 million people would enroll in the public plan. The number of people with private health insurance would decline by 119.1 million people. This would be a two-thirds reduction in the number of people with private coverage (currently 170 million people). Here again, if the higher private payer levels are used, enrollment in private insurance would decline by only 12.5 million people.

Keep in mind that these shifts from private coverage to the public plan are predicted by the study despite the fact that it has assumed that:

  • Medicaid eligibility would be expanded to include all adults living below 150 percent of the Federal Poverty Level (FPL), including able-bodied adults without custodial responsibilities for children;
  • Tax credits would be provided to people purchasing private insurance who live between 150 percent and 400 percent of the FPL;
  • Medical underwriting and health status rating would be eliminated in all insurance markets, but rating by age is permitted; and
  • Large employers would be required to offer insurance or pay a payroll tax; and
  • Tax credits are provided to small employers (fewer than 10 workers) with low-wage workers for up to 50 percent of employer spending for worker coverage.

Now for the impact on providers: Assuming Medicare reimbursement rates and eligibility for all individuals and employers, provider net income would decline under this public plan proposal, even after accounting for reduced uncompensated care and increased utilization for the newly insured. Net hospital revenues would fall by $36 billion (4.6 percent), and physician net income would fall by $33 billion (6.8 percent). If eligibility is restricted to individuals and small firms, net hospital revenues would actually increase by $11.3 billion due to the increase in newly insured individuals. But net physician incomes would decline by $3.0 billion.

There is little wonder that the so called public plan has become a major sticking point for health care reform in Washington. The Democrats have included the idea in their reform proposals while key Republicans, Like Sen. Charles Grassley, are saying a public plan is a deal breaker. Meanwhile, the health insurance industry is saying that it will support dropping medical underwriting if coverage is mandated and the idea of adopting a public plan are dropped.

The devil is in the detail they say, and right now the public health plan offering is a very big detail

A Role for Consumer-Directed Plans in Achieving Universal Health Coverage

Over on the Market to Market blog today, Mark Reiboldt posted a summary of the event he chaired today on behalf of the Technology Association of Georgia, which explored the impact of the financial crisis on the healthcare industry.

Mark wrote in his blog that he posed a question to the panel them asking whether or not consumer-driven healthcare (CDH) will berelevant under a universal model, as proposed by Barack Obama, Hillary Clinton and most Democrats in Washington.

Mark writes that Dr. Bill Custer, who is a healthcare economist at Georgia State University’s Health Policy Center responded by saying that CDH will be relevant; however, not in the way that we have seen it thus far. Mark writes that Custer more or less argued that Health Savings Accounts and other products of the consumer-driven healthcare movement will likely not emerge as a competitive product or have a significant role in the model that is likely to emerge in the near future.

I disagree with Custer’s assessment of the role that CDH and Health Savings Accounts can play in achieving universal coverage. In comments I left on the Market to Market blog, I noted that as an executive with a national HSA administrator, I am seeing a very large number of HSA accounts being opened this January, so the rate of adoption seems to be picking up. I think these types of plans will continue to be relevant as we try to move toward universal coverage and while we continue to struggle to bring down costs.

As long as employers are involved in paying the bill, they will continue to look for ways to engage employees in helping to control the costs. This is the major premise behind consumer-driven health plans.

If, on the other hand, an individual mandate is the route taken, most individuals will no doubt be looking for the best coverage at the lowest cost – the way they do today with auto insurance. Where we seek a balance between what we are willing to self-insure (deductible) and what we want covered (catastrophic).

I think the future can be good for these types of plans as we work toward universal coverage, and I still believe that the competitive market forces that consumerism brings is the fastest way to make the health care system more efficient and effective.

UHG’s Continuity: Product Innovation, or Sign of the Times

The New York Times reported this week that the UnitedHealth Group has introduced a first of its kind product: the right to buy an individual health policy at some point in the future even if you become sick. That’s right, the new product called UnitedHealth Continuity, is not actual medical insurance, but is aimed at people who may have insurance now but are worried they may lose it and may not be able to obtain replacement insurance on their own.

Here’s how it works: It is much like the option on a life insurance policy that allows you to buy additional coverage at certain intervals without showing proof of insurability. Say that you are a 50-year-old male who lives in Columbus, Ohio, and you plan to eventually take an individual policy in which you would be obliged to pay the first $3,500 in medical bills. You would pay $32 a month for the right to eventually get that coverage or 20 percent of a policy that now costs $159 a month.

Is that a good deal? It depends. Keep in mind that most states let insurers refuse to sell new individual policies to anyone with a pre-existing medical condition. One major illness, say a bout with cancer, and you would be hard pressed to find a individual health insurance policy – at any price.

Is it worth paying several hundred dollars a year just for the right to purchase insurance – not necessarily at a standard rate – sometime in the future, maybe? Are people that concerned that they my lose their employer-sponsored coverage in the near future?

What are your thoughts? Leave your comments below.

Tale of Two Trade Groups.

Last week ended with an interesting exchange between the trade groups that represent the nation’s health insurance plans over the route to take for solving the country’s health care issues.

First, America’s Health Insurance Plans (AHIP), and the Blue Cross and Blue Shield Association, said Thursday that they would accept a requirement that they offer coverage to applicants with serious health problems if the government would set up a risk-adjustment mechanism for insurers and require all individuals to own health coverage.

These statements were quickly countered by The Council for Affordable Health Insurance (CAHI), an Alexandria, VA-based groups that promotes free-market approaches to improving the U.S. health care system. CAHI said it disagrees with other insurance groups’ willingness to accept more government involvement in the health care system.

With health care reform aimed at creating some form of universal coverage set to come barreling out of Congress in January, both trade organizations are positioning themselves for the battles to come.

On the one hand the AHIP membership is sending the signal that they are prepared to accept all comers, but only if the government does its part and mandates that everyone have coverage and that there is some mechanism for dealing with the real train wrecks that will come looking for coverage.

On the other hand CAHI points out that this plan opens the door to more government regulation including defining what would count as qualified health coverage. This, they say, will lead to interest groups seeking to force qualified plans to cover their many different products and services and could end up creating barriers to, or a ban on, features such as health savings accounts or health reimbursement arrangements.

CAHI says the government could do more to expand access to coverage by providing subsidies for individuals who cannot afford coverage and supporting risk pool insurance programs designed for individuals with health problems.

Health Innovation Take: AHIP should be commended for taking the first step toward working with lawmakers to come up with a health care system that would achieve universal coverage while it preserves the current multi-payer system. However, where is the plan to manage utilization and to lower costs? As CAHI rightly points out, a mandate will definitely involve government in making the rules about coverage. Look no further than Massachusetts if you need proof. Innovation can not be legislated or regulated. True reform will come from allowing employers and health plans to work together within the framework of the marketplace to develop programs that address the utilization and cost issues that are prompting many employers to drop their coverage in the first place.

A Simple Proposal for Reforming Health Care without Busting the Budget.

It seems that a good way to end this week’s hand wringing about the individual health insurance market is to reference to a post that Joe Paduda left on the Managed Care Matters blog last Monday. Joe offered up a common sense approach to reforming health care without busting the budget. You can read the entire post here: http://www.joepaduda.com/archives/001326.html

Here is Joe’s simple proposal:

Congress could pass and the President could sign legislation prohibiting medical underwriting in the individual market, requiring insurers to cover pre-existing conditions, mandating community rating, and establishing a basic benefits plan. There are (at least) three mechanisms available to meet these objectives.

1. The legislation could require states to work with the National Association of Insurance Commissioners to develop model language that would meet these standards. (NAIC does this for lots of insurance types and policies today)

2. The Federal law could set forth minimum standards, while allowing states to require carriers in their jurisdiction to meet higher standards.

3. A new Federal regulatory body could be set up to ensure all insurance carriers comply with the standards set forth in the legislation.

To guard against cheaters’ – the folks who wait till they get sick before signing up for coverage, the law should include a provision allowing insurers to increase rates for those that do not sign up within a certain time after they become eligible’ for coverage. The increase would be pegged to the length of time the individual delayed obtaining coverage (similar to the way Part D works today).

Joe admits that his plan will probably raise premiums for the young and healthy, but argues that the way health insurance should work: “some subsidize others, with the understanding that when that some’ (or when their kids break bones or they get hurt) someone else will help them out.”

Health Plan Innovation Take: Joe’s plan sounds quite a bit like the plan now in effect in Massachusetts, with one big exception: there is no mandate. Those who hold off on securing coverage will pay a higher premium – makes sense. Another thing I like about the proposal is that it would standardize the basic regulation of health insurance at the federal level while still using the NAIC to involve the states in the process. The part of this plan that I do not totally agree with is continuing to allow states to require carriers in their jurisdiction to meet higher standards. This will perpetuate the patchwork of insurance laws in place today along with special interests pushing for enhanced coverages at the state level. However, if allowing states to continue in the regulation process will make this plan politically possible, I am all for it.

And so, apparently, is Ron Williams, chairman and CEO of Aetna, who is reported to have said on Wednesday that Americans should be required to buy health insurance, bringing healthier people into plans that will help bring down costs. Speaking at the Detroit Economic Club, Williams also said that he favors:

–Selling health insurance across state lines.
–Expanding access of those now eligible to Medicare and Medicaid programs.

Here is the story from the Detroit Free Press: http://www.freep.com/apps/pbcs.dll/article?AID=2008810220304

Progressives See Value of Consumer-driven Health Plans in Achieving Goal of Universal Coverage

A blog post appeared recently on thedemocraticdaily.com that made the case for consumer driven health plans becoming a major part of healthcare reform to achieve near-universal coverage in this country.The author, Jon Ethington, acknowledged that “the majority of Americans will probablynever accept a one-size-fits-all health insurance system that is funded primarily with tax revenue” and went on to point out that the potential for consumerdriven careis currently overshadowed by “the perverse incentives for health insuranceplaced in our federaltax code.”Ethington wrote that the most perverse incentive in our tax code pertains to the deductibility of health insurance premiums by employees. He noted that the problem with this is that it benefits high income earners much more than people that live paycheck to paycheck. A taxpayer in the top tax bracket saves 35 cents for every dollarof salary reduction, but mostworkers save 15 cents or less due to the structure of our federalincome tax code.

Instead of the current system, Ethington proposed three basicideas that for reforming the tax code to create a more sensible tax policy:

1. Replace salary reduction plans with a refundable taxcredit between 15 to 25 percent depending on how much of the budget the federal government wants to devoteto this purpose to provide Americans a greater incentive to purchase health insurance for themselves.

2.Endthe “use it or lose it”provisionwith Flexible Spending Accounts. Employees should be permitted to roll over FSA balances to the next year if the balance is less than theannual maximum they are allowed to contribute on an annual basis.

3. Allow all small businesses and corporations to have the same flat refundable taxcredit for paying their portion of insurance premiums as part of their benefitspackage to employees.

Ethington went on to point out that a single payer system that guarantees everyone health care for life is just not realistic either form a budgetary or political standpoint.

These ideas actually sound quite a bit like the proposed McCain healthcare plan, and it is encouraging to see that this dialogue offered up in more progressive circles.

Yes, we are expensive, but we do poor work.

A news story carried by Reuters on Thursday led with a summary of findings from a new report stating that Americans spend double what people in other industrialized countries do on health care, but they have more trouble seeing doctors, are the victims of more errors and go without treatment more often.

This appears to be another twist on the expression, Yes, we are expensive, but we do poor work. In any other context we would have a little laugh at that idea, but would never acknowledge that we were so careless with our own money that we would actually hire anyone who subscribed to such a motto at least not for long.

What if your plumber, auto mechanic, or dry cleaner posted a sign that read:

Yes, we are expensive, but we do poor work.

How long would it take you to find a new one? Not very long, I trust, as we are all careful with our hard-earned money. We would not long tolerate a mechanic with whom it was difficult to get an appointment and who made frequent errors. But now we find out that we Americans each spent $6,697 on healthcare in 2005 — a whopping 16 percent of gross domestic product — at a merchant that had that sign posted in the back room if not in the front window. What were we thinking?

Let me point out right now, that I am not blaming health care providers. Health care is the United States is the most responsive and dynamic in the world. Higher prices enable the system to cater to patient desires for convenience and innovation and as a result our system excels in treatment of some specific diseases, such as breast and prostrate cancer.

I am not blaming insurance carriers either. They have been struggling for decades to come up with plans that employers can afford and that employees will find acceptable. Meaning that they feature low out-of-pocket costs and a fair amount to freedom to seek care when and how we choose.

I am sticking the blame on the government. Yes, the government that started this crazy system that grew out of World War II wage freezes. Crazy is a system where we have to depend on our employers to provide us with medical coverage. Of course at first, we patients were part of the process. We were sensitive to the overall cost of health care and found the insurance to be a financial lifesaver when something unpredictable and serious happened to us or a family member.

By the late seventies it was necessary for employers to make the first real push to control what was becoming out of control spending. The answer was managed care. The promise was lower costs for employers and convenient co-pays for the employee instead of a percentage of the total bill. The tradeoff was that we had to go though a primary care physician who managed our care including our visits to specialists and stays in the hospital. We hated it.

So what happened? The employers and insurance carriers said, Ok, you can go see anyone you want, any time you want and still pay a co-pay as long you stay in the network. Fine, we can do that. But the costs started mounting again. Why? Because we all now believe that doctor visits cost $20 and all prescription drugs are $10, Of course the real cost is much more, but how would we know? We as consumers have been insulated from the real cost of health care because the insurers and the providers have negotiated the prices and let us in on the true cost only after the fact. This should be enough to prove that negotiations at a corporate or government level can not solve the problem.

It takes the everyday negotiations of the marketplace to really have an impact. Mechanics and dry cleaners who are expensive and do poor work are soon adjusting their business models, or they are closing their doors. It is time we apply the same logic to our health care system.