Congress attempted to achieve a social objective—higher homeownership rates—on the cheap by using Fannie Mae to acquire mortgages. The subsidy, in the form of an implicit guarantee of Fannie Mae's capital, meant that Fannie did not need to hold the levels of capital required to support the explosion in mortgage lending that resulted. The results are plain for all to see.
Fast forward to the healthcare debate: Congress is now proposing to repeat the trick with health insurance cooperatives. Health insurers are regulated by state insurance departments, who, over time, have built up a wealth of experience of the levels of capital needed to support an insurance enterprise. After all, if a health insurer should default, it is the state insurance department that is left to protect policyholders. This has led to what is called risk-based capital (RBC) requirements for health insurers.
The minimum level of free capital (also called surplus) that an insurer needs to hold is somewhere between 8% and 11% of premiums in most states (New York is an exception, and its rule is 25%). If an insurer's capital falls below this level, the state insurance department can step in and take action that could ultimately lead to winding-up the insurer.
Prudent insurance companies—for example, members of the Blue Cross Blue Shield Association, which has its own (higher) guidelines for its members' capital—hold considerably more than the minimum required by the state. Typically, well capitalized insurers hold anywhere between 15% and 40% of premium income in the form of free capital.
Capital, of course, is not free. An insurer with 100,000 members could well have $500 million in premiums, and require the backing of between $50 million and $200 million in capital. Assuming a 10 % return on capital pre-tax, this requires between $5 million and $20 million in profits, pre-tax, to service the insurer's existing capital, or an additional charge to the monthly member premium of between $4 and $17.
Because of healthcare inflation, an insurer has to constantly increase this capital. The additional capital can be provided by investors (in which case the return on capital scenario above applies) or, more likely in the case of insurance co-ops, it will have to be provided by insured members. A 10% increase in premiums ($500 per year) could require an additional charge (to increase its capital) to the member's premium of between $50 and $200 per year. These additional charges are offset somewhat by earnings on an insurer's capital, but the rules for what counts as admissible assets for RBC purposes tend to result in conservative investments and (relatively) low yields.
Bills in front of Congress imply that the co-ops will have to meet some sort of solvency standard, although it is not clear that they will have to meet the same state standards as existing insurers. Given that the cost of capital can add as much as $8 to $35 per month to the premium, the more likely course is that co-ops will receive either an implicit guarantee (as did Fannie Mae) or will operate at the minimum state standard.
In the latter case, they will initiate a "race to the bottom" in terms of capitalization, forcing existing prudent insurers to reduce their capital standards to compete. In the former case, co-ops run the risk of becoming the next Fannie Mae, as either the states (or the US Treasury) are forced to bail out failing co-operative insurers.
Policymakers would do well to review the history of cheap mortgages as they contemplate their plans for cheaper health insurance.
Ian Duncan, FSA, FIA, FCIA, MAAA, is president and founder of Solucia Consulting, a SCIOinspire company. Solucia, based in Hartford, CT, provides analytical and consulting services to the healthcare financing industry. An actuary by training, he has 30 years of experience in healthcare and insurance product design, management, financing, pricing, and delivery. He is active in public policy and healthcare reform, and serves on the boards of directors of the Commonwealth of Massachusetts Healthcare Connector Authority and SynCare LLC (an MBE Care Management Co.).
Public support for healthcare reform reversed its slide this summer and climbed slightly in mid-September, according to a new Kaiser Family Foundation Health Tracking Poll released Tuesday.
Overall, 57% of 1,203 adults interviewed by telephone said they thought tackling healthcare reform was more important than ever—up from 53% those surveyed in August. The percentage of those who thought that their families would be better off if health reform legislation passed also increased by 6% (from 36% in August to 42% in September), while the percentage who think that the country would be better rose 8% (from 45% to 53%).
However, despite the rise, almost half of those surveyed (47%) favored taking more time to work out a bipartisan approach to health reform, compared to 42% who preferred to see Democrats move faster on their own. At the same time, the public continued to view the action in Washington with mixed feelings: 68% said that they were "hopeful" about reform, while 50% reported being "anxious" and 31% said they were "angry."
While opinions in upcoming months are hard to predict, much of the summer downturn in support was largely erased as individuals' focus "shifted from the town halls and hot button issues to the President, the Congress and the core issues in the legislation that affect people the most," said Kaiser President and CEO Drew Altman.
Those who identified themselves as Republicans and political independents appeared more pessimistic about healthcare reform in August, while those viewpoints changed slightly in September: 49% said in September that their family would be worse off if healthcare reform passed—down from 61% in August. Those who were independents said they would be worse off declined from 36% in August to 26% this month.
On the other side, those who were Democrats remained strongly in favor of addressing healthcare issues now (77%), while most Republicans said that no time could be afforded to do so (63%) while independents are more evenly divided (51% in favor and 44% opposed).
When it came to issues, such as paying for healthcare reform, two ideas currently under discussion among legislators received support: 57% of the public said they would support "having health insurance companies pay a fee based on how much business they have" and 59% said they would support "having health insurance companies pay a tax for offering very expensive policies." In both cases, Republicans were evenly divided while Democrats and political independents appeared to be more in favor. The survey did not examine arguments for and against the policies.
Many of those surveyed said that proposals to obtain savings in the Medicare program were driving opposition among seniors: Nearly half said that seniors (49%) opposed the idea of limiting future increases in Medicare provider payments as a way to help pay for healthcare reform. However, a majority (59%) said they would back the same limits if they were framed as helping to "keep Medicare financially sound in the future."
Some Medicare changes being discussed in the healthcare reform debate can be seen as strengthening Medicare for the long term or as harming it, said Mollyann Brodie, vice president for Public Opinion and Survey Research at the Kaiser Family Foundation. "Which of these messages breaks through could ultimately shape seniors' reactions."
Updated October 2—Three hospitals in Alabama and three in Indiana have agreed to pay $8.36 million to settle allegations that from 2002 to 2008 they kept spine fracture repair patients overnight in an effort to increase their Medicare billings, the Department of Justice announced Sept. 29.
The hospitals, and three others in Minnesota, which settled similar allegations in May, were investigated for keeping patients overnight for kyphoplasty procedures, which federal officials contend can, in many cases, be performed safely through less-expensive outpatient stays.
"Hospitals that overcharge Medicare drain critical funds from the Medicare program and increase healthcare costs," said Daniel R. Levinson, Inspector General for the U.S. Department of Health and Human Services. "This settlement demonstrates the federal government's resolve to address this kind of fraudulent conduct."
Kathy Mehltretter, U.S. Attorney for the Western District of New York in Buffalo, said, "By keeping patients overnight, without regard to medical necessity, hospitals could seek greater reimbursement from Medicare and make much larger profits on kyphoplasty."
Pamela E. Jones, chief legal officer for St. Francis Hospital & Health Centers in Beech Grove and Indianapolis, IN, however, said in a statement Wednesday that "the ‘necessity’ of the inpatient stay was not the issue. The government does not contend that the stays were unnecessary. The issue is that the documentation did not support the inpatient stay–not that it was unnecessary.”
Jones also rejected the suggestion of fraudulent conduct. "The Department of Justice investigation at St. Francis was focused solely on our lack of documentation to support the treatment in an inpatient setting. The DoJ has never said it was a "scheme to defraud.”
In the settlement, St. Francis Hospitals agreed to pay $3,158,629; Deaconess Hospital in Evansville, $2,110,034; and St. John's Hospital System in Anderson, IN, $826,256. The Alabama hospitals are St. Vincent's East Hospital in Birmingham, $1,459,395; St. Vincent's Birmingham Hospital, $422,748; and Providence Hospital in Mobile, $381,713.
In a statement Tuesday, St. Francis said that it "cooperated fully with the government and took immediate action to investigate its practices. It is important to note that the probe had nothing to do with quality of care, patient safety or medical necessity."
In a statement Wednesday, Deaconess Health System in Evansville said, "This matter involved inadvertent billing and documentation errors and did not relate to the medical necessity of the underlying kyphoplasty procedure or the quality of care provided to the patients."
Kyphoplasty is a minimally invasive technique to remedy painful fractures often linked to osteoporosis. The short procedure involves insertion of a balloon-type of device to restore the height and shape of the vertebrae, and insertion of a bone-strengthening cement product in the spine.
Earlier this year, three Minnesota HealthEast Care System—St. Joseph's Hospital, St. John's Hospital, and Woodwinds Hospital in the Minneapolis-St. Paul area—paid $2.28 million to settle with the government.
In May 2008, Medtronic Spine (the corporate successor to Kyphon) paid $75 million to settle allegations that between 1999 and 2006, the company defrauded Medicare by counseling hospital providers to perform kyphoplasty procedures as an in-patient procedure, the Department of Justice stated.
"The allegations were that these hospitals kept these people overnight in order to turn an outpatient procedure into a hospital admission allowing them to capture the DRG [diagnostic related group] payment," says Matthew Smith, one of the three attorneys with Phillips and Cohen, a Washington, D.C. law firm specializing in qui tam lawsuits that represented the whistleblowers.
Those whistleblowers are two former employees of Kyphon Inc. Craig Patrick, of Hudson, WI, is a former reimbursement manager for Kyphon. Charles Bates of Birmingham, AL, is a former regional sales manager. They will receive $1.4 million, or 17.5% of the hospitals' settlement payments.
They independently went to U.S. Justice officials about their concern that the hospitals and their employer, Kyphon Inc., were violating the federal False Claims Act, Smith says. Kyphon sold a kit that was used in the procedure.
Smith explained that outpatient reimbursement for Kyphoplasty has climbed over time and is now reimbursed around $5,000. When hospitals billed for Kyphoplasty as an inpatient procedure, they were able to charge Medicare on average around $10,000 to $12,000, Smith says.
On June 29, the Department of Justice announced it was investigating hospitals around the country for similar improper inpatient kyphoplasty billings.
Emergency departments are not caring for patients as quickly as recommended, according to a new study in the Annals of Emergency Medicine.
The study, called "United States Emergency Department Performance on Wait Time and Length of Visit," found that a mere 30% of EDs got the majority of their patients seen by a physician within recommended time frames and only 13.8% of EDs achieved the triage target for the majority of patients who needed to see a doctor within one hour.
"We found that hospital emergency departments perform fairly poorly in seeing acutely ill patients within the time recommended by the triage nurse," said lead study author Leora Horwitz, MD, MHS, of Yale University and Yale-New Haven Hospital in New Haven, CT. "In addition, only 24.5% of emergency departments got patients needing admission admitted within four hours. That kind of delay at the back end increases the delay at the front end, when patients are waiting to be seen by the emergency physician. It creates a really dangerous situation, especially for the sickest patients."
These figures were released as the National Quality Forum (NQF) is looking for changes to ED quality standards, including measures on wait times and the visit length for admitted patients. Though NQF has not defined a target length of visit in the U.S., the United Kingdom defines it as four hours, Canada suggests four to six hours, and Australia says eight hours.
"These delays in care and in moving admitted patients into the hospital are connected to systemic issues within hospitals, such as admitting procedures and prioritization of non-emergency department admissions," said Horwitz. "The optimal length of visit for an admitted emergency patient is unclear. However, nobody would argue that people who need to be seen within one hour of coming to the emergency department should wait longer than that, and that is what’s happening at ERs around the country."
After an intense debate, the Senate Finance Committee rejected two Democratic proposals to create a government insurance plan to compete with private insurers. The votes underscored divisions among Democrats and were a setback for President Obama, who has endorsed the public plan as a way to "keep insurance companies honest."
Harbor-UCLA Medical Center is poised for a major expansion after Los Angeles County supervisors voted to approve the final piece of a $333-million plan to expand the facility's emergency department and renovate the surgical ward. The emergency room will grow from 25,000 square feet with 42 bays to 75,000 square feet with 80 bays, providing enhanced privacy. The existing facility treats 65,000 adults and 20,000 children every year. Patients with critical injuries are examined within minutes, but patients seeking more routine care can sometimes wait more than 16 hours and officials hope the expansion will relieve overcrowding.
Many immigrants will no longer be able to get care from three major Boston-area healthcare networks as of Oct 1, when the state's new health plan for 31,000 legal immigrants begins. Executives of Beth Israel Deaconess Medical Center, Boston Medical Center, and Cambridge Health Alliance said that they were denied contracts by the insurance company selected by the state to serve the immigrants. That denial, the hospital officials said, will mean that many of their roughly 10,000 patients will face significant disruptions as they are forced to find new physicians in the network of state-subsidized CeltiCare Health Plan of Massachusetts and their records are transferred to new providers, reports the Boston Globe.
Battling to overcome deepening losses, the board of Jackson Health System wants voters to approve a new taxing district that might add $300 a year in taxes to the average Miami homeowner. Jackson's leaders have been struggling to find new revenue because of the rising numbers of uninsured and lower funds from the sales and property tax money it already receives. The system faced a $133 million shortfall in 2010 before it balanced its budget by announcing the closure of nursing homes and primary care centers.
A panel looking for ways to downsize state government recommended that Louisiana scrap its plans to build a new teaching hospital in new Orleans in favor of gutting and rebuilding the shuttered Charity Hospital. But Gov. Bobby Jindal's administration has given no indication of backing away from its commitment to building a $1.2 billion, 424-bed teaching hospital in the city.
Hospitals are opening drive-thrus and drive-up tent clinics to screen and treat a swelling tide of swine flu patients. The goal is to keep coughing, feverish people out of regular emergency rooms, where they can infect heart attack victims and other very sick patients. Jim Bentley, policy chief at the American Hospital Association, told the Associated Press many hospitals are trying novel ways to care for more people than their emergency rooms can handle, especially children.
