Health and Human Services Secretary Kathleen Sebelius is demanding that Anthem Blue Cross publicly justify its decision to raise member premiums by as much as 39%.

In a letter to Leslie Margolin, president of Anthem Blue Cross, California's largest for-profit insurer, Sebelius bashed the premium increases at a time when WellPoint, Anthem's parent company, "earned $2.7 billion in the last quarter of 2009."

Anthem Blue Cross, which has 800,000 individual insurance members, recently told individual members that it is increasing premiums on March 1. The Los Angeles Times reported last week that those premium increases were as high as 39%.

"As we continue the healthy insurance reform debate in Washington, this announcement reminds us that too many Americans can be left with unaffordable insurance each time the rates or rules change in the private market," Sebelius said. "It's clear that we need  health insurance reform that will give American families the secure, affordable coverage they need."

In her letter, Sebelius said the premium increases are up to 15 times faster than inflation and could make healthcare unaffordable for hundreds of thousands of Californians.

Sebelius asked for information not only about premium increases, but the insurer's medical loss ratios. Individual insurance usually has a lower medical loss ratio than the group market because there is more costs associated with marketing and customer service in the individual market.

"I believe Anthem Blue Cross has a responsibility to provide a detailed justification for these rate increases to the public. Additionally, you should make public information on the percent of your individual market premiums that is used to medical care versus the percent that is used for administrative costs. Policyholders in the individual market deserve to know if their premium increase would be invested in better medical care or insurance company overhead costs like salaries, profits, and advertising," wrote Sebelius.

In response to Sebelius' letter, Anthem Blue Cross issued a statement: "It is important to note that individual medical insurance premiums do not reflect an individual member's personal claims experience. Therefore, as medical costs increase across our member population, premium increases to the entire membership pool result. Unfortunately, in the weak economy many people who do not have health conditions are foregoing buying insurance.

"This leaves fewer people, often with significantly greater medical needs, in the insured pool. We regret the impact this has on our members. It highlights why we need sustainable healthcare reform to manage the steadily rising costs of hospitals, drugs and doctors.

"As such, it is important to go back to the beginning and get healthcare reform done right. At the same time, we are engaging with a broad range of key stakeholders across California to discuss the state's individual insurance market and share ideas on how we can collectively partner on meaningful change," said Anthem officials.

Massachusetts Democrats usually don't need to worry about U.S. Senate elections. Only one Senate race in recent memory caused the Democrats real concern and that pitted a fairly popular former GOP governor, Bill Weld, against Sen. John Kerry in 1996.

Besides that high-profile race, recent Senate races in the Bay State have been slam dunks for Democrats.

But the current race to replace the late Sen. Edward Kennedy has recently been transformed from a Democrat with a 30-point poll lead into a tight race.

Massachusetts voters will head to the polls today to decide on their next senator and the results will affect the health reform debate in Washington—and could impact the Congressional elections in the fall.

But what will really happen if Republican Scott Brown is able to beat Democrat Martha Coakley? Here are three questions and answers about the Massachusetts Senate race and its impact on healthcare and national politics:

If Brown wins, is health reform dead?
U.S. Rep. Barney Frank (D-MA) has said a Brown victory will kill health reform, but it's more likely that a Republican in Kennedy's old seat would wound—and not kill—health reform.

Brown has pledged to be the "41st vote" against health reform, which would allow Republican senators to filibuster health reform. The filibuster could be used to kill the legislation, but more likely the GOP would use the threat as a way to get Democrats to compromise on certain health reform provisions, such as taxes and social issues, including abortion.

But there is a way Democrats can pass health reform legislation without Republican support. They could use "reconciliation," which is a complicated process that requires a simple majority vote of 51 votes in the Senate and removes the filibuster threat.

The Democrats could also move quickly on health reform legislation, such as approving the Senate bill, which is considered the more conservative legislation, and pass the bill before Brown even takes office.

If Brown wins, and no recount is needed, the new GOP senator would begin in about two weeks. According to The Boston Globe, Massachusetts Secretary of State William F. Galvin would need to certify the vote and town clerks would need to wait 10 days to allow all ballots to arrive from overseas. State election law says that the results would need another five days to get to Galvin before the new senator could be sworn in.

This means Democrats would have slightly more than two weeks to ram through legislation or they could work with the GOP when Brown takes his seat.

By either rushing a vote or using reconciliation, Democrats could be seen as desperate, and moving forward without Republican input could hurt the party in Congressional elections this fall. On the flip side, passing a bill quickly or through reconciliation would give Democrats a bill they would support more than if they worked with Republicans.

If Brown wins, does that mean Massachusetts opposes health reform?
Massachusetts has been at the forefront of the health reform movement. The Bay State implemented its own reform in 2006 that requires nearly all Massachusetts residents buy health insurance.

Polls have shown that most residents support the state initiative (though questions remain about whether it has been successful), so a vote for Brown is not a vote against health reform. It's more complicated than that.

One issue is the political climate. Massachusetts Governor Deval Patrick, a Democrat who was elected as a "change" candidate, has seen his poll numbers drop since he took office in 2007 and there is much concern that he could lose in the fall.

There is also the fact that Coakley was not initially embraced by the liberal base during the primary and was criticized as jumping into the fray too soon after Kennedy's death.

Critics also say that Coakley, the state's attorney general, has a boring personality that has not resonated with voters.

A vote for Brown is not a vote against health reform. The candidates' personalities and growing mistrust of the State House and Washington will be the reasons why voters may side with the Republican.

What would a Republican victory in Massachusetts mean symbolically across the nation?
Democrats are rightfully concerned about the potential of losing a Senate seat in "the bluest of blue states." That worry was evident over the weekend when President Barack Obama traveled to the state to deliver a speech in support of Coakley.

A Massachusetts victory for the GOP will be seen as a referendum against health reform, though that is not the case. Nevertheless, a Massachusetts victory could spark Democrats on Capitol Hill to lose their nerve on health reform and they could be more apt to weaken certain provisions. It could also, in turn, cause Republicans in Washington to stand up against the plan and embolden GOP candidates to run for Congress in the fall. More Republicans in Congress next year could also lead the GOP to rescind portions of health reform legislation in which it does not support.

Of course, there is a still a distinct possibility that Coakley pulls off an election victory today and all of these questions will be moot later tonight.

If the GOP is able to win the Senate seat, pundits will call it a referendum on health reform, but the real reasons will be: an unhappy electorate, an unpopular governor, and a Democratic candidate that simply did not inspire Democrats and independents.

There are so many studies and surveys in healthcare that sometimes an important one gets lost in the mix—especially with the myriad health reform studies comparing the House and Senate plans.

That was the case with a study released last Friday that has ramifications not only to CMS and policymakers, but health insurers—whether they offer Medicare Advantage or not.

Researchers from Kaiser Permanente Medical Care Program and David Geffen School of Medicine at UCLA compared drug costs and adherence among Medicare beneficiaries with a standard Part D coverage gap versus those with supplemental gap coverage in 2006. Using pharmacy data from the Medicare Advantage Prescription Drug plans, researchers looked to see how the so-called Medicare doughnut hole is affecting seniors and their care.

The doughnut hole requires seniors to pick up the tab for prescription drugs once their annual drug costs reach $2,250 and until the total reaches $3,600. The belief behind the doughnut hole is that transferring costs onto the beneficiary will reduce over prescribing and force beneficiaries to make wiser healthcare decisions.

What researchers found was that Medicare beneficiaries with diabetes in the doughnut hole experienced lower drug costs (3-4% lower), but the bad news is that they had much higher out-of-pocket spending and worse medication adherence to three chronic drug classes.

These results should not surprise anyone—and shows the dangers of shifting costs onto consumers. If people need to choose between food and their blood pressure medication, everyone will side with eating.

How the Medicare Study Links to Group Health Insurance

Some insurers may see that the study involved Medicare beneficiaries and dismiss it as not pertaining to their group health insurance. Although this study targeted the Medicare Advantage population, all health insurers and employers should take note. Shifting healthcare costs to the individual will save money in the short-term, but could have long-range cost implications if the members are not following medication regimens.

There is no better example of how this cost-shifting can affect member health than high-deductible health plans. If these plans are coupled with member education and tools, they have the potential to lower costs and create more informed healthcare consumers. The problem is that high-deductible plans are often lacking in the area of member engagement and tools.

One idea gaining popularity is value-based insurance design (VBID), which removes or lowers cost barriers for those with certain chronic illnesses; the notion being that taking away the cost component will make members more likely to comply with medication regimens. While lowering costs for the most beneficial drugs and services, VBID also increases costs on medication and services that are not valuable.

For HealthLeaders Media's annual 20 People Who Make Healthcare Better, I spoke to one of the people who created the idea of VBID.

A. Mark Fendrick, MD, is co-director of the University of Michigan's Center for Value-Based Insurance Design in Ann Arbor. Fendrick says VBID can lead to averted emergency room visits and hospitalizations, and decreased costs associated with chronic disease. (Check out what else Fendrick had to say about VBID in this audio clip.)

The VBID Alternative

From the onset of VBID nearly 10 years ago, the concept has garnered the support of such innovative large employers and innovators as Pitney Bowes and Marriott. Nevertheless, most health plans and employers are still shifting costs to consumers.

"We view VBID as soft paternalism in the fact that we use the copayment and physician reimbursements to provide that financial and sometimes non-financial nudge to understand that it costs you less as the patient and makes you more money as the doctor" when there is value-based medicine, says Fendrick.

There are other examples of VBID, including UnitedHealth Group, which created the Diabetes Health Plan in its self-insured (larger employer) market, which is the first condition-specific VBID plan. UnitedHealth's plan lowers or eliminates out-of-pocket costs for medications and provides online monitoring, wellness coaches, and self-management programs for diabetics and pre-diabetics if they follow their treatment plans and evidence-based guidelines.

Fendrick also proudly says that VBID is part of the health reform discussion as value-based programs have been mentioned in legislation, including testing the idea in the Medicare population.

Fendrick says lawmakers and health leaders shouldn't merely focus on healthcare costs, but must include value to the discussion. "Cost containment should not be the sole focus of healthcare reform. We need to realize that the reason we provide health insurance and wellness programs is to produce health. As we try to contain costs, we have systemically created barriers for both clinicians and more importantly for patients to get those well established evidence-based interventions that have been clearly shown to improve health at a very reasonable cost," says Fendrick.

And that should be the case whether we're talking about Medicare Advantage, group insurance, or the individual market.

The difficult financial climate has not only hurt hospitals' ability to borrow, but it's also caused health systems to rethink their banking relationships and forced them to deal with new banking partners.

The partnership between hospital chief financial officers and bankers historically has been cordial and built on trust, but as capital funds have dried up and the financial sector has seen much upheaval, hospital CFOs are facing a situation with fewer available dollars and new bankers and institutions.

Mike Rowe is senior vice president of finance and CFO of Sisters of Charity of Leavenworth Health System, a Lenexa, KS-based system with nine facilities in four states, with 2,054 staffed beds. He notes that the hospital banking community is much smaller than a year ago. Many bankers who built strong relationships with health systems are no longer in the business, which has caused hospitals to forge ahead with new people and banks.

One example of the changing dynamic is at Crouse Hospital, a 439-staffed bed facility in Syracuse, NY. Kimberly Boynton, CFO, says her hospital uses a regional banking institution that has cut back on the hospital's credit line.

"When things are good, the relationship just kind of coasts along and you don't have the kind of scrutiny that goes on now," says Boynton.

Investment banker Jeffrey Cohen, managing director at Jefferies & Company, Inc., in Albany, NY, says commercial banks are asking his hospital clients to reevaluate their capital structure.

"Hospitals have to wait it out. The hospital industry—like other industries—got spoiled when credit was so cheap and credit was so easy to come by," he says.

So how are hospitals handling the situation? Here are three ways they are surviving the current capital crisis.

Rethinking banking
Banks are looking across all of their letters of credit with hospitals and shrinking lines of credit. Hospitals, in turn, are looking at how to cut costs and whether to move their business to other banks.

The result is that banks are now offering broader relationships with hospitals.

"They are looking for an opportunity such as your primary cash management functions, to do lockbox services, to do patient receivables financing. They don't just want to write you a loan," says Rowe.

Diversifying
Hospitals have responded to the changes by looking to other banks.

"We are broadening our relationships with banks in general, simply because one of the big lessons you learned from this economic recession is you can't afford having too much of a dependency on one bank or one banking institution or one vender to provide you with everything you are going to need—no matter how strong you are," says Rowe.

Moving to new banks comes with positives and negatives. Community and regional banks could provide more face-to-face interaction but smaller credit lines. And each institution has different requirements. So the more banks a hospital deals with, the more reporting and analysis a CFO will need to submit to satisfy each bank's requirements.

"When you start to do things like that and you start answering to three institutions rather than one, that makes a big difference and takes a lot more time," says Boynton.

Rowe thinks the move to diversification will continue even after the capital climate improves. "This is probably a permanent change. You are not going to see hospitals maintaining a one-on-one banking relationship," he says.

Getting creative
Boynton says hospitals are looking at different ways to have access to capital. One idea is rather than having bank letters of credit for self-insured programs, such as workers' compensation or medical malpractice, hospitals are finding insurance bonds that allow them to go through the insurance vehicle, which can be a more favorable option now.

"You have to go out and look at these kinds of alternatives," she says.

With this greater scrutiny has also come greater inquiry.

The reason is twofold: Banks are more interested in how healthcare institutions are dealing with the capital crisis, and they have refocused efforts to review rather than sell.

"They are not selling as many new products, so I think there is more of an opportunity to really look at what they have already sold," says Boynton.

Though many hospital CFOs have gotten more proactive and diversified in dealing with banks, there are still questions as to whether CFOs will continue that approach as the capital climate improves. Boynton wonders if CFOs will go back to simply searching for the lowest rates again once business returns to normal.

"Ultimately, the hospital's job, the CFO's job, is to save money for the institution, and that's when reducing the risk and saving the money is most important," says Boynton.