As health insurance leaders converge on San Diego for the annual America's Health Insurance Plans Health Institute this week, they face a potential new competitor—the federal government—that insurers worry could put many of them out of business. But the issues for health insurers go beyond whether the feds grab a greater share of their market; declining membership and perceptions about insurance costs and profits are also acute concerns.
Public insurance
Much of this year's conference focuses on the public option and healthcare reform. Over the past year, AHIP has presented a health reform plan that features an individual mandate to require that all Americans have health insurance, along with a guarantee that health insurers will not reject any prospective member because of a preexisting condition or charge women higher premiums than men for their individual coverage.
Robert Zirkelbach, director of strategic communications at AHIP in Washington, DC, says the insurer group supports a comprehensive healthcare reform package that includes the individual mandate coupled with payment reform that rewards physicians for improving health outcomes rather than paying for volume of service; research to find which treatments work best; and improved health information technology.
"They are all under the broad banner of reform," says Zirkelbach. "We believe we need health reform and we can address all the core concerns by building on what is working in the current healthcare system."
Insurers are afraid that a competing public plan, with lower administrative costs and lower premiums, would coax employer-based insurance members to flee for the public plan and crush private plans in the process.
In response to the public plan, Ian Duncan, FSA, FIA, FCIA, MAAA, president and founder of Solucia Consulting in Farmington, CT, says private insurers should promote the benefits of their offerings. "I would stress the positives that come from the current insurance system. Although nobody likes [the current system], you have the ability to strike individual contracts and strike individual bargains between payers/providers/patients. That would go away under a government system. I don't see anyone standing up and saying what we have is not perfect, but there are some positives to it," says Duncan.
Sam Nussbaum, MD, executive vice president and chief medical officer at WellPoint, Inc., in Indianapolis, says the healthcare industry and policymakers should develop a "meaningful healthcare reform" through such programs as pay for performance, bundled payments, and value-based insurance design.
"There is not one silver bullet here. There are many, many opportunities to improve health outcomes, to reduce costs, and to advance quality. There are many strategies that need to take us to better healthcare for all Americans," says Nussbaum.
Declining health plan membership
The future is cloudy for insurers, but the present isn't so sunny either.
Layoffs and employers cutting employee health benefits have hurt private insurer membership. Duncan says a major health insurer client is losing 1/2% of its membership every month because of the economy and related job loss. That insurer has lost more than 6% of its members in a year.
"A health plan doesn't grow in normal times that much in a year," says Duncan. "The contraction of employment is hurting health plans."
Though more members are being forced out of employer-based plans, private health insurers and employers are not making massive changes to benefits. In fact, employers continue to push ahead with employee wellness programs, which surprises Duncan. "In a situation of reduced budgets, I would expect [employers] to go for that first."
With the new Democratic-controlled White House and Congress, health insurers no longer have the support they enjoyed during the Bush administration. That change in leadership also means that Republican-enacted attempts to control healthcare costs, such as consumer-driven health plans, high-deductible health plans, and health savings accounts, have fallen out of favor. Rather than focus on cost-containment, Democrats view healthcare access as the larger problem, says Devon Herrick, PhD, senior fellow in health care for National Center for Policy Analysis, which is headquartered in Dallas.
"The public health advocates that are advising the administration and members of Congress tend to view cost-sharing as a barrier to access," says Herrick. "The way insurers have been trying to rein in spending and the way the Bush administration and the Republican Congress were trying to empower patients is really not a vision that is shared as much in the current administration and the leadership in Congress."
Herrick doesn't expect Democratic leaders to wipe out HSAs, but they may change regulations surrounding the accounts that would make them less attractive to prospective members.
Changing misconceptions about costs
In light of the health reform debate, health insurers have been vocal about the reasons behind healthcare cost increases. Some activists and policymakers have charged that health insurer overhead is a main reason and they subsequently have been pushing for limits on an insurers' medical loss ratio. But AHIP and the WellPoint Institute of Health Care Knowledge have come out with information that states otherwise.
WellPoint Institute of Health Care Knowledge reported last month that a mere 3 cents of the health dollar goes to insurer profit. Meanwhile, 87 cents of every premium dollar goes to providing medical services, such as physician services, hospital costs, drugs, and other medical services. The other 10% goes to compliance, claims processing, and other administrative costs, according to WellPoint Institute of Health Care Knowledge.
Those findings go against public perceptions. In a survey of WellPoint members between 2005 and 2008, the insurer found that 60% of consumers surveyed thought insurers' profit margins exceeded 20%.
So, if the health costs aren't rising because of health insurers, where is it coming from? WellPoint Institute of Health Care Knowledge suggests five reasons:
Higher priced technologies and overuse of them
Reduced provider competition
Prescription drugs
Regulation costs
Cost shifts from Medicaid, Medicare, and the uninsured to private payers, which WellPoint said increases premiums by between 15% and 20%
Nussbaum says the industry should analyze the "20% to 30% of healthcare services" that don't improve health outcomes. That is an area where healthcare could save money and, in turn, cover more people and provide preventive services. Finding that kind of information will lead to healthcare reform, he says.
"For meaningful health care reform to occur, policymakers will need a clear and accurate understanding of the real (vs. perceived) factors that are actually driving the cost increases," wrote WellPoint Institute of Health Care Knowledge.
Armed with reports they say document the lack of real health plan choice, several hundred protesters plan to demonstrate their case for a competitive, public plan this week as 1,200 health officials gather for America's Health Insurance Plan convention in San Diego.
"We want the insurance companies to support and allow our government to create a public health insurance option," says Mari Lopez, health policy specialist for the California Partnership, a statewide group that fights poverty. The partnership, several labor union groups, and single payer advocacy organizations plan to join in the demonstrations outside the San Diego Convention Center.
Lopez insists that the group does not oppose health plans per se.
"But we don't want those health plans to obstruct the creation of an affordable public plan. There needs to be something for the public that's similar to Medicare. They need to support this, or get out of the way," she says.
The groups are referring to claims by many health plan industry representatives that the health plan market remains competitive throughout the country.
But a report released late last month by Health Care for America Now! documents that in 12 of 43 states surveyed, one health insurance company controls at least two-thirds of the healthcare market. In another 12 states, one health insurance company has 50% or more of the healthcare market.
In 39 states, two health insurance companies have 50% or more of the health plan market.
According to the American Medical Association, 94% of insurance markets in the U.S. are now highly concentrated, which the report says has "undermined market efficiency. Premiums have skyrocketed, increasing more than 87%, on average, over the past six years."
The report said that insurance company mergers and consolidations have "disproportionately" disadvantaged rural and lower-population states. In Hawaii, Rhode Island, Alaska, Vermont, Alabama, Maine, Montana, Wyoming, Arkansas, and Iowa, the two largest health insurers control at least 80% of the statewide market. In Alabama, the biggest insurer holds 89% of the statewide market."
Both the national report released last week and the newer California report maintain that private health plans should compete side-by-side on a level playing field with public insurance plans "to reward those that deliver better value and do the best job of improving their enrollees' health."
"Public health insurance can offer a benchmark for private plans and a source of stability for enrollees, especially those with the greatest medical needs," the report said.
"A critical element of a functional competitive marketplace is to protect the ability of consumers to choose between genuine alternatives. The highly consolidated health insurance industry we have today, with its unacceptable concentration of market power, does not allow this," the report added.
Representatives of labor groups, including the Service Employees International Union and the California Nurses Association, will be staging several demonstrations against health plans on Thursday.
Lopez points to the downward trend in employer-sponsored health plans. In the early 1990s, she says, 70% of the U.S. workforce was covered. Today, she says, it's down to 54%. That's because health plans have run up premium costs to a level at which they are no longer affordable for many small- and moderate-sized businesses, she adds.
"We want to make the case to those who say we should have a competitive marketplace that having another competitor (a public health care plan) would be a good thing," says Anthony Wright of Health Access California.
Yesterday, Health Care for America Now! released a second report on health plan consolidations affecting just California, which claimed that insurance companies have "built a near-monopoly in the California market, burdening families and businesses with premiums that grew 4.8 times faster than wages from 2000 to 2007."
In California, the report said, the two largest health insurers control 58% of the market, a level that the U.S. Department of Justice classifies as "highly concentrated."
Two companies control at least half of the market in major population centers throughout the state, including Los Angeles, San Diego, Sacramento, Santa Ana, San Francisco, Fresno, Riverside, and Redding. Companies that sell their plans are more highly concentrated in California than they are in Florida or New York, the report added.
Shortly before President Barack Obama met Tuesday afternoon with one Independent and 23 Democratic senators, he said that healthcare reform "is something that has to be done." His target date remains October for when he wants to see a completed comprehensive healthcare reform bill approved by Congress and on his desk for his signature.
His comments at the White House reflect some of the findings from his Council of Economic Advisors' report, The Economic Case for Health Care Reform, that was released on Tuesday. In the report, the White House appears to be gearing up to promote healthcare reform among legislators and the public.
"Soaring healthcare costs are unsustainable for families. They are unsustainable for businesses, and they are unsustainable for governments—both at the federal, state and local levels," Obama said.
The report's details are thin about how many of the ambitious goals would be achieved. In particular, it does not address increases in federal spending that would be needed to make health reform work. It is clear, though, about what the report thinks reform could accomplish:
By slowing the annual growth rate of healthcare costs by 1.5%, the real gross domestic product—relative to the non-reform baseline—would increase just by 2% in 2020 and by 8% in 2030.
Considering a typical family of four, income in 2020 would be $2,600 higher than it would have been in 2009 dollars without reform, and $10,000 higher in 2030.
While considering these figures, Obama will need to keep the price tag in mind that expanding health insurance coverage to the uninsured would increase "net income well-being nationally by $100 billion a year," according to the report's estimates.
How to pay for it was one of the topics of discussion with the visiting senators. Sen. Max Baucus (D-MT), chair of the Senate Finance Committee, has "put the idea on the table" as an option to consider taxing various employer-related benefits. It's been an idea that Obama, who campaigned against this issue last year, has not been particularly warm about—but may have to look at it.
According to a report released Tuesday by the Center on Budget and Policy Priorities, a liberal leaning policy research group, Congress will unlikely finance health reform legislation with universal coverage "unless it limits the exclusion of employers' health insurance payments from workers' income and payroll taxes."
Obama told the senators he wants to see savings through reform of the underlying system. "This means promoting best practices—not just the most expensive practices."
In particular, Obama said he would be discussing with the legislators how to change incentive structures by looking at why "places like Mayo Clinic in Minnesota are able to provide some of the best healthcare services in the country at half or sometimes even less of the costs than some other areas where the quality is not as good."
The scenario is far too familiar: Patient gets a call from a hospital about a bill. Patient says they never went to the hospital. Hospital says they did.
Now you've got a case of healthcare identity theft—and maybe a class action lawsuit.
Sai Huda, chairman and CEO of Compliance Coach, a San Diego software company that specializes in automated regulatory compliance solutions, says bluntly of the FTC's enforcement delay: "So what? Anyone who is out of compliance is out of compliance."
Patients seeking damages from hospitals in identity theft cases have a leg up against hospitals that have yet to comply with the Red Flags Rule, Huda says.
"The patients will be asking, 'How did this happen to me,' and then they find it was the healthcare provider," Huda says. "And then they find out the healthcare provider hasn't done anything about it, and then they go to a plaintiff attorney. All of a sudden, you have a class action lawsuit." You may end up fighting a case that says you violated the Unfair Deceptive Acts and Practices (UDAP) Act. Not to mention attorney fees and bad publicity.
"This is a big risk," Huda says. "Don't wait."
The Red Flags Rule requires organizations considered as "creditors" to implement programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. That regulation falls under the Fair and Accurate Credit Transactions Act of 2003 (FACTA).
In a Compliance Coach's survey to 100 hospitals across the country last year, 73% of respondents said they were surprised the Red Flags Rule applied to them. And 77% said they were just learning about it.
To comply, Huda's company offers these tips:
Formulate a compliance committee to implement compliance with the Red Flags Rule
Perform an inventory to identify all accounts (e.g. medical repayment plans) currently offered to patients. Identify any service providers (e.g. HIS or database providers, collections agencies, etc.) involved in opening or servicing accounts.
Utilize the risk factors in the rule to perform a risk assessment to identify which accounts are covered
Consider the 26 Red Flags in Appendix J to the Rule (p. 63756 of the Red Flags Rule in the Federal Register), but also any red flags from historical incidents of identity theft or external identity theft cases.
For each covered account, map applicable red flags to one or more detection and response procedures.
Develop a risk-based written program. Make sure it includes service provider oversight procedures. Obtain board of directors approval or approval from a board committee (e.g. audit committee).
Train all appropriate staff on how to implement your program.
And finally, don't think you're in compliance with Red Flags because you comply with HIPAA, Huda says.
"[Red Flags] is essential to moving ahead and to become fully operational in an e-health environment," says John Parmigiani, HIPAA security and privacy consultant and president of John C. Parmigiani & Associates, LLC, in Ellicott City, MD. "Protecting against identity theft and medical identity theft and ensuring data confidentiality, integrity, and availability are critical success factors in the 'trust' equation."
President Obama told Democratic senators that he is willing to consider taxing employer-sponsored health benefits to help pay for a broad expansion of coverage. Senate Finance Committee Chairman Max Baucus said Obama expressed a willingness to consider changing the existing tax exclusion. The decision would probably anger liberal supporters such as labor unions, but such a tax change would raise enormous sums of money to help with the estimated $1.2 trillion needed to pay for healthcare reform over the next decade.
President Obama has affirmed his support for the creation of a government-sponsored health insurance plan, but he acknowledged that such a plan would sharply reduce the chances for Republican support of legislation to overhaul the healthcare system, said Democratic senators. The senators said Obama also set forth a timeline, calling on Congress to send him a comprehensive healthcare bill by October.
Officials at the University of Iowa Hospitals announced it will cut its work force through layoffs, retirements, and attrition. The hospital, a 680-bed facility with an annual budget of about $860 million, has already trimmed its expenses by $23 million for the fiscal year ending June 30, officials said.
UAB Hospital, UAB Highlands and the UAB Health System in Birmingham, AL, announced they are eliminating 164 positions and shifting 81 workers into jobs now held under contracts for non-patient care support services. Overall, 245 positions are being eliminated, but 81 of those workers will fill jobs now held under contracts.
California Insurance Commissioner Steve Poizner plans to unveil proposed regulations to combat the health insurance industry practice of dropping members with costly illnesses. Poizner's draft regulations would allow applicants a "not sure" answer to questions about their preexisting medical conditions. In addition, they would bar insurers from dropping someone if the companies failed to thoroughly investigate an applicant's medical history before issuing a policy.
Officials from Connecticut-based Greenwich Hospital say they are planning to lay off close to 80 workers. Hospital president Frank Corvino says the layoffs are because of fewer patients and a decrease in funding. Officials say most of the hospital departments will be affected but patient care and safety will not.
