Category Archives: Private-Employer Based Health Insurance

Era of Accountable Care

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For many months I’ve been talking about the array of health transformation initiatives the Department of Health and Human Services has been deploying as both demonstrations and programmatic changes.  I’ve been characterizing this strategy to create more accountability as an evolving menu, buffet, or map – sort of like those magical Harry Potter maps where the lines keep appearing on the parchment to create a recognizable image.

As part of releasing the final rules for the Medicare Shared Savings Program, HHS also put forth a document subtitled “Menu of Options for Improving Care,” which is a list of some of the landmarks in the future map of an Era of Accountable Care. This document listed “options for healthcare providers of all sizes, types, all across the country” to work together to coordinate patient care, improve quality and lower costs. Besides the Medicare Shared Savings Program for Accountable Care Organizations (ACOs), these options include:

  • Partnership for Patients ($1B over 3 years)
  • Bundled Payments for Care Improvements (4 models proposed and 4 more planned)
  • Comprehensive Primary Care Initiative (Medicare partnering with Medicaid and private payers in 5-7 local markets to support primary care improvement)
  • FQHC Advanced Primary Care Practice Demonstration (with HRSA)
  • Advanced Payment Accountable Care Organization Model (pre-funding for physician groups wanting to form ACOs for the Shared Savings Program)
  • Pioneer Accountable Care Organization Model (demonstration program for advanced ACOs)
  • Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid Enrollees

The Menu document clearly indicates a coherent strategy for doing what the Medicare Payment Advisory Commission recently recommended: “Medicare payments should strongly encourage providers to move towards [ACOs, bundled payments, capitated models, shared savings programs] and make FFS less attractive.”

HSS’ Menu document is an initial description of the map HHS is drawing for providers about these more attractive options.  In contrast, in all the debate about health reform and Medicare there has been very little discussion about the future of Fee-for-Service payments or how to make FFS more sustainable -  except for the $300B budgetary hole and pending 30% fee reduction in  Medicare’s physician payment system’s Sustainable Growth Rate formula.  However, making “FFS less attractive” is certainly one of the transformational “sticks” Medicare has been wielding based upon provisions in the Accountable Care Act* and through other Medicare initiatives such as Value Based Purchasing, not paying for Never Events, and using Competitive Bidding for certain products and services.  And the future will see more and expanded use of these types of initiatives to “make FFS less attractive.”

CMS Has Already Been Transformed

Another significant distinction between HHS’ current actions and what they have traditionally done is that HHS is not moving forward alone by modifying Medicare and Medicaid.  Instead they are actively seeking to work in alignment – if not outright partnership – with private payers.  This is clearly stated in the CPCI and the Multi-payer Advanced Primary Care Initiative, which has already started in 8 states.

I have previously written about Accountable Care, (and how it is fundamental for successful health reform), and with the unveiling of the menu from HHS I am encouraged that we are on the way to an Era of Accountable Care – because that is what people really want and society needs, i.e. Accountability for Clinical Outcomes and Accountability for Economic Results.  It is only through those two avenues of accountability that we will achieve my version of the 3-Part Aim:

  1. Saving Lives
  2. Cutting Costs
  3. Creating Jobs

Health Reform is Essential for Creating Jobs

“Creating Jobs” doesn’t usually appear in lists about the goals for health reform, but it is really a fundamental reason for fixing our fractured healthcare system: By reducing the financial bite healthcare is putting on families and companies – as well as creating security for access to health insurance for individuals – health reform will pour capital and confidence into the economy leading to the creation of jobs.  That will be an era of healthcare that we can all count on.

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* The given name for the health reform legislation is the “Patient Protection and Affordable Care Act,” and it is often referred to as the Affordable Care Act or the ACA.  However, I believe the transformational components of the ACA are its features that will create accountability for the clinical and economic outcomes our healthcare system produces, and thus I call it the Accountable Care Act.  In the context where others are referring to this law as Obamacare, or as a government take-over of the US healthcare system, or portrayed voluntary counseling as death panels, then I am very comfortable nick-naming the ACA the Accountable Care Act.

Health Law Is Reforming System Via Market Forces

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All the controversial rhetoric about the new health reform law is missing a huge reality:  The law is driving dramatic changes in the real world.  Almost every major health delivery system is preparing to reorganize how they provide care to hundreds of millions of Americans by becoming Accountable Care Organizations (ACOs).

Health Systems are Voting With Their Wallets
The magnitude and level of financial interest in ACOs – and proof that it is not just cautious planning – were dramatically illuminated by recent actions and a Washington Post article:

  • On Thursday, HHS released the long anticipated proposed rule for ACOs and Medicare “Shared Savings.” For the rest of the day the Federal Register’s website was nearly shut down by people trying to download the 429 page document.
  • Today’s Washington Post article, “Complicated health-care law leads to payday for consultants,” includes figures about the tens of thousands of dollars consultants are charging for strategy sessions about how to think about ACOs, and the millions of dollars in fees they are getting for actually helping health systems to become ACOs. Health systems were signing consultants up for these engagements before the draft regulations were released because of their expectations of how dramatically competition among ACOs will change their financial incentives and structures. And some of the phrases in the article highlight the level of importance being placed on ACOs: “ACO frenzy,” “Oversubscribed,” “Glittering high fees” and, “I have never seen anything quite like this in my 35 years in this business.”

Bottom Line
I could write more about the proposed ACO rule, my interactions with health systems looking to become ACOs (and the organizations helping them), and how ACOs will very likely produce significantly more savings for Medicare than the Congressional Budget Office has projected, but the bottom line looks like this:

  • ACOs are happening.
  • The Medicare ACO/Shared Savings rule will shape their form, but not their creation.
  • ACOs – and their quality/efficiency incentives payments – will fundamentally transform health care in the US.
  • This transformation will be like an avalanche as health systems compete locally to demonstrate how much more Accountable they are to patients and payers, i.e. how they provide higher quality at lower costs than their competitors down the street or across the river.
  • While the official title of the new health law is the “Affordable Care Act,” it very easily – and perhaps more accurately – should have been called the “Accountable Care Act” because it is that part of the law which will actually lead to more affordable care for more people.

As always, stay tuned and keep your seat belts tightly fastened for the upcoming wild ride. Like a roller-coaster, the fun is just beginning.

Roller Coaster

Regulating Insurance: States v. Federal Roles

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One of the fascinating issues within the health reform debate is how to improve the insurance market by changing government regulations.  While large employers who self-insure are except from state regulations, (and must only conform to limited Federal rules under ERISA), individuals, small groups, and others who actually purchase insurance have their policies regulated by individual states.

Both Democrats and Republicans agree that the current system of insurance regulation creates job lock and other socially undesirable effects, and that insurance companies should be able to sell policies across states lines.  However, their solutions are quite different.

Democrats favor national regulation to create a single playing field, and Republicans prefer permitting insurance companies to sell in multiple or all states if they are licensed and regulated in any state.  The insurance industry’s trade association (AHIP), doesn’t seem to take a firm position on this issue – at least from looking at their website.

However, I was surprised to see a full page ad from an individual company on the back cover of a recent issue of National Journal advocating for national rules to replace state insurance regulation.  This interesting ad included the following phrases:

“Something’s wrong when…. innovation surpasses…. insurance regulation.”

“Here’s something to bristle at: the regulatory system that shapes our…. insurance policies hasn’t changed much in the last century.  Yet everything …. has changed dramatically…… Chrome and steel have given way to thermoplastic and fiberglass.”

And the company’s recommendations for solutions focus on increasing national regulations:

“Today there are 50 different sets of insurance regulations in 50 states.  This makes it difficult to introduce innovative new products.  But with a modern system of national regulation, consumers would get to choose from the best products available nationwide.”

“National regulation would help spread risk more fairly across similar geographic areas.”

“Modern regulation is the kind of protection Americans deserve.”

However, the caveat here is that this ad is talking about regulation of car insurance and not health insurance.  In fact, the specific company doesn’t even sell comprehensive health insurance – so they don’t have a dog, cat or Cadillac plan in that fight.

What is also interesting is the parallel developments and history in the State of Massachusetts with health and auto insurance. Everyone following the debate about health reform has certainly heard what Massachusetts has done with health insurance reform and mandates to achieve near universal coverage.  However, in roughly the same time-frame the state also reformed its auto insurance regulations to enable national insurers to enter the market.  This increased competition resulted in dramatic decreases in premiums – but the insurance plans are still regulated by the state.

How changing the regulation of selling health insurance would change costs and affect consumer protections is open to debate.  Unfortunately as an “issue” it has been overshadowed in the health reform discussions by other aspects such as the so-called public option, abortion coverage, coverage of immigrants, costs to individuals, effects on the Federal deficit, and mandates for having insurance. Thus Federal v. State insurance regulation – which is really a core part of health reform – hasn’t been a big part of the national political debate, even though changing insurance company practices has been a large part of the Democrats’ messaging.  Despite that, there are several interesting points to consider:

  1. Insurance companies operate on a business model very similar to financial institutions, such as banks, in that they seek to manage risk and they make most of their money on the “float” – or interest earned – based upon having large amounts of money for a period of time between collecting premiums and having to pay for covered benefits… and deductibles also adds a delay to these payments, which creates a cushion to the float.  Therefore, because their revenues are tied to their interest earnings, the lower the prevailing interest rates the lower their earnings – and thus the more they need to raise premiums… and vice versa.  (I did an analysis several years ago showing that premium increases were directly correlated with interest rate fluctuations, but delayed a year or two.)  This parallelism with banks raises the question about why it is OK to Federally regulate banks, but not health insurance companies? How much more important is it to protect people’s money than their health insurance coverage?
  2. National insurance regulation would help address both job lock for individuals within companies that purchased insurance directly, and location lock for small businesses and entrepreneurs – particularly those operating service businesses where location may not be as crucial as manufacturing or retail operations.
  3. Permitting the selling of insurance across state lines based upon licensing in one state would probably result in reduced consumer protections since some states have less oversight and requirements than others about marketing, coverage guarantees, etc.
  4. And neither national rules from the Federal government or allowing selling across state lines would significantly affect the growth in health case costs or insurance premiums, i.e. they wouldn’t really bend the cost curve.  Although allowing selling across states lines could reduce premiums in certain higher cost states, but that would be due to people being able to by insurance policies with less coverage or intrinsic protections.  In some ways this would follow the old saying, “you get what you pay for.”
  5. And since the consensus is that bending the cost curve will require changing how health care is actually delivered to patients, (which makes sense since ~80+% of health care spending goes to pay for health care goods and services), this discussion makes me wonder how differential state regulation of doctors and healthcare providers fit into this equation?  While laws and legal procedures may vary among states, presumably the practice of medicine shouldn’t vary dramatically…. Although many studies have shown that it does so in ways that can’t be explained by demographic differences or regional variations in disease states such as Lyme disease. I’m not certain how changing the way clinicians are licensed would improve healthcare delivery or costs, but it is another aspect of State v. Federal regulation that is becoming an increasingly contentious issue – as was pointed out in an article in today’s New York Times.

High Costs of Cancer Treatments for Patients Not on Medicare

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Last week I wrote about the challenges of people with Medicare getting the best treatments for cancer.  Today, the Kaiser Family Foundation released a report examining the challenges people who get insurance through the private system, (i.e. employer based or individually purchased),  have affording their cancer treatments. And how the public insurance programs, (i.e. Medicare and Medicaid), have waiting periods or other enrollment requirements that delay or prevent patients from being covered immediately – something which is of particular concern for patients with cancer.

The Kaiser Family Foundation’s report presents an excellent mix of data analysis and individual patient examples.  The report’s conclusions are that our health system has a significant number of holes (or cracks) that people can slip into causing them to suffer clinicall and/or financially.  This situation clearly exists not only for patients with cancer, but also for other serious and costly diseases, which is why it should be one of the priority foci for health care reform in the coming years.

The specific aspects of our healthcare financing system that the Kaiser Family Foundation’s report identified as potentially causing problems for cancer patients are: [empahsis added]

  1. High cost-sharing, caps on benefits and lifetime maximums leave cancer patients vulnerable to high out-of-pocket health care costs.
  2. People who depend on their employer for health insurance may not be protected from catastrophically high health care costs if they become too sick to work.
  3. Cancer patients and survivors are often unable to find adequate and affordable coverage in the individual market.
  4. While high-risk pools are designed to help cancer patients and others who are uninsurable, they are not available to all cancer patients and some find the premiums difficult to afford.
  5. Waiting periods, strict restrictions on eligibility, or delayed application for public programs can leave cancer patients who are too ill to work without an affordable insurance option.

These features of our “crazy quilt” health financing system are not new discoveries, nor are they unique to patients with cancer.  But the report highlights the importance of understanding them, and if these issues are not addressed in our nation’s ongoing “health reform” efforts, then the specific proposals produced by those efforts are unlikely to gather enough public (and political) support to actually become law and improve people’s lives.

Auto Industry Retirees’ Health Benefits Squeezed Again

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In all the discussion about the auto industry’s financial problems, health care costs for retirees are often brought up as one of the major challenges the big 3 domestic companies.  This is not a new issue, and one that I actually researched in the early 1990s when I worked for a Congressman from the Detroit area.  What is new is that the companies had worked out an arrangement with the United Auto Workers union to turn paying for retiree health costs over to Voluntary employees’ beneficiary associations (VEBAs).  These VEBAs – one for each company – were created in the fall of 2007, and were funded by the companies as a way to relieve the them of the unpredicatbility of future costs for retiree health benefits starting in 2010.

An AARP policy analyst wrote a paper about these VEBAs last spring, and noted that the VEBAs might be underfunded based upon the mixture of financial provisions and mechanisms included in their overall makeup.  Of course what has happened to the companies in the last several months has raised questions about whether these VEBAs are viable at all.

As a Kaiser Family Foundation new summary noted on Monday, the government loans to GM and Chrysler included requirements for the companies to pay what they owe to the VEBAs in cash and stock.  While this might provide short term help to the VEBAs – and thus to today’s retirees -  it could also prevent the companies from maintaining their viability.  It remains to be seen if the new Congress and Administration will modify those loan requirements, but with the fast changing situation in Washington and with the economy, anything seems possible to believe in.

Another Humorous? Humana Video

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Last week I wrote about Humana’s YouTube videos designed to “explain” parts of the healthcare system.  Well they just put another one titled, “Some Doctors Cost More. Why?”

Two interesting points about this video: First, at the beginning they describe  insurance companies (like Humana) as “Providers.” (The narration uses the term “health coverage providers,” but the graphic shows “PROVIDER.”)

While physicians and other clinicians really dislike being called providers, I think they wouldn’t want to see that term used for insurance companies either, since it implies that the insurance company is actually providing healthcare.  (I usually reserve the term provider to describe broad groupings of clinical entities, such as, “providers of oncology care in the Chicago area,” – which would include physicians, nurses, hospitals, etc…)

And second, the title and content of the video doesn’t focus on the total costs of care or services provided by individual physicians, but mostly only patients’ co-pays – which are lower when they use the physicians that are in-network for their insurance plan.

And as the video’s tag line says, “Now you know.”

McCain Plan Would Tax 100% of Health Insurance Costs

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I had a revelation tonight at an event about women’s health issues in the Presidential election at the Kennedy School of Government’s Institute of Politics.  One of the speakers was Gail Wilensky – a Senior Health Care Advisor to Senator McCain’s campaign. I asked her a question about how Senator McCain’s proposal to eliminate the tax deduction for employer provided health benefits would effect non-profit organizations since they don’t pay taxes.

Gail Wilensky’s answer really shocked me.  I’ve been doing health policy work for about 20 years, and following the election’s health issues for the last year.  What she said was that it wouldn’t matter whether the person worked for a non-profit or a for-profit company, since the employee would be the one paying tax on the entire cost of their health insurance – whether it was their contribution, or dollars coming from their employer.

This makes sense from the economic theory perspective that what an employer spends on employee benefits (such as health insurance contributions) are equivalent to wages.  However, it also means that under Sen. McCain’s proposal if an individual was having $1,000/year taken out of the pay for health insurance, and their employer was contributing another $4,000/year, then they would have to pay tax on the entire $5,000.  Before tonight, I thought that the individual would be paying tax on $1,000 and the company would have to pay tax on their $4,000.

Bottom Line for the Employee
What this would mean in dollars and cents, is that the individual would pay not only Federal income tax on that $5,000, (and most likely state income taxes too), but if the employer has a Section 125 cafeteria plan for providing health and other benefits, then the employee would now also have to start paying FICA tax on the cost of their health insurance. (And the company might have to pay their share of the FICA taxes too.)  So while people like to talk about the marginal tax rates of 15%, 25% and 28% for middle class wage earners – the effective tax rates would be much higher than those percentages. (And companies could also see an increase in their FICA taxes.)

So, again, I was shocked.  After 10 months of reading about the candidates positions I had been under the impression that Senator McCain’s proposal would have the employer and employee each paying tax on their contributions.  The only solace I can take is that I wasn’t alone in this misunderstanding.  Just last week I’d discussed this with a friend who is a law professor with expertise in employee benefits – and he had the same impression.

Addendum:
Below is the text of an email sent out about this posting by a friend who teaches at University of Central Florida (UCF) .  I have his permission to put the text of his email here. It adds some great personal and real world perspectives.

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Dear Friends,

Michael Miller is a doctor who specializes in medical policy.
Michael’s blog entry about the McCain plan re: health care benefits is a real eye-opener:

I’ll confess that (until I read Dr. Miller’s blog) I hadn’t really understood how the McCain health care plan would effect me.

I work for a state University.  One of the reasons I can work for the salary UCF pays is that UCF pays for most of my excellent health insurance. According to Dr. Miller, if John McCain’s plan passes, the amount that UCF contributes to my insurance will be treated as taxable income.  I’ll owe income tax (and FICA?) on whatever UCF pays for my health insurance. I don’t know how much UCF is currently paying for my health insurance, but nationwide employers are paying on average $8,824 for an annual family health insurance policy.   http://www.nytimes.com/2008/05/01/us/politics/01mccain.html

My insurance coverage is better than average.  Except for the $50 or so I contribute each month and the co-pays when I see my doctor, the coverage I receive costs me very little.  The McCain plan would dismantle this system.  My tax bill would increase by more than the tax credit the McCain plan would offer me.

Under the current law, what my employer contributes to my health plan is tax exempt. Maybe that’s regressive (only people with good jobs get their health care paid for substantially by their employer).  But the  McCain plan is wealth re-distribution that hurts the middle class.   The McCain plan really puts the bite on people who’ve taken low-paying jobs that offer health insurance.  Under the McCain plan, the better your health insurance, the more you’ll have to pay Uncle Sam.

Under John McCain’s plan, the people who will be hurt the worst (as a percentage of income) are union workers and others with lower salaries who’ve been able to negotiate strong health plans.

Best,

Randy

More on Employer-Based Health Benefits

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A couple of weeks ago in writing about ERISA, I included some data on the stability of health benefits provided by large companies.  The Kaiser Family Foundation just released their 2008 Employer Health Benefits Survey.  Below is the updated chart from my earlier post.

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

KFF Annual Survey 1999-2008

The Kaiser Family Foundation’s Report also included an interesting table that provides some insight into what I wrote earlier this week about the differences in employer health benefits between high and low turn-over industries.  The relevant information from  the Kaiser report’s Exhibit 2.3 is below:

Percentage of Firms Offering Health Benefits by Industry in 2008
Agriculture/Mining/Construction                                                67%
Manufacturing                                                                           73%
Transportation/Communications/Utilities                                    89%*
Wholesale                                                                                74%
Retail                                                                                        40%*
Finance                                                                                    81%*
Service                                                                                     58%
State/Local Government                                                           97%*
Health Care                                                                              71%
ALL FIRMS                                                                          63%

[* Estimate is statistically different (p<.05) from all other firms not in the industry category.]

Given the findings of the research discussed in my other post, these industry differences shouldn’t be surprising.  However, I do wonder if after this week the Finance Industry will still be on the high end of providing health benefits.  Of course, it also raises the question of whether financial firms that survive through a federal “bailout” or “takeover” (whatever the end result is) will offer health benefits 97% of the time like state and local governments?  If so, then the number of employees that have access to health benefits may increase – although I also suspect that the number of employees in that industry may decline overall, and possibly add to the number of people without health insurance.

In any case, I’m confident that the issue of employees’ health benefits will not be a significant concern for those trying to work out stabilizing solutions for the upheaval in the financial industry.  This would be consistent with the priorities that led to the famous statement about the 1992 Presidential campaign, “It’s the economy stupid.”  Or was it, “It’s the stupid economy”?

The Granularity of Employer Provided Health Benefits

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After writing last week about Pitney Bowes’ experience in creating positive financial returns by providing quality health benefits for their employees, I attended a panel of alumni and faculty from the Yale School of Management that discussed the topic “Do Consumers Make Rational Healthcare Decisions?” (I’m told a video podcast will be available soon.)  While their consensus on this question was no, their discussion and Q&A included employer provided health benefits.

Professor Fiona Scott Morton noted that the value employers get from providing health benefits depends upon their industry – specifically whether the company retains employees or has a high turn-over rate.  This makes sense, since it would take time for employers to have a positive return on investing in employees’ health.  Professor Scott Morton also pointed me to a very interesting research article by professors at Duke and NYU that looked at this issue by analyzing data bases that included individuals occupations.*  By comparing workers in high and low turn-over industries they found several interesting things, including:

  • Employers in low turn-over industries provide better health benefits
  • Employees in low turn-over industries use more health care services while working
  • Employees in high turn-over industries use more health care services when retired

This paper had many other interesting conclusions, and I’ll confess to not being able to fully assess all its conclusions because of some of the mathematical modeling used and the manner in which they presented their quantitative findings.  However, from what they said, I do wonder if much of the effect they observed could be due to higher wages in the lower turn-over industries.  This makes simple economic sense to me, because the researchers used average vocational preparation for the employees in the industry as a proxy for turnover (see footnote), and companies that depend on higher skilled workers would likely pay them more – which would also lead these companies to retaining their employees.   In addition, companies with lower skilled workers might also be less likely to provide paid sick leave as an additional form of compensation – which could account for the lower rate of doctor visits and preventive care the researchers found for the employees in the high turn-over industries.

What this means for health reform – and the future of employer-based insurance in the US – is that for some employers and employees the current situation works well, and seems to benefit society overall since retirees from higher skilled/low-turnover companies are less of a financial burden on Medicare.  However, for employees and employers in industries with high turn-over rates, the  employer-based insurance situation in its current form may not be working so well – although I’m still concerned about how much of the researchers conclusions are related to income -  either directly or as a proxy for less generous health benefits.  In any case, the findings from their paper point out some of the areas where our health system is working and others where it needs some fixing.  Hopefully reform initiatives in the coming months and years will address those realities.

* The researchers used the average Specific Vocational Preparation (SVP) – a Department of Labor categorization system used in the databases -  for each industry as a proxy for employee turn-over since other researchers have found an inverse relationship between average SVP and employee turn-over.

Value of Employer Provided Health Benefits

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I recently heard Michael Critelli, Executive Chairman of Pitney Bowes Inc., talk about what the company has learned about the value of providing quality health benefits and services to their employees.

Because they have a workforce that is divided between their offices and customers facilities, Pitney Bowes has been able to conduct a natural experiment and see how providing access to different health and wellness services can effect their employees and the company’s costs.  What they found was that providing a good quality health benefits package in conjunction with healthy food and exercise options, etc., has reduced health care costs for their employees that work in their own offices compared to employees who work off-site.

I haven’t been able to connect with Mr. Critelli to get more data, but he did state that the saving have been around $2.3:1.  Pitney Bowes careers web-site states, “We recognize that our people are key to our success. Simply speaking, our business growth depends on the talent of our people.”  This sounds like the rhetoric that many companies use, but apparently at some level they actually put their money behind this statement.

Implications for Health Reform
At a time when some are proposing to shift the tax incentives for the purchase of health insurance from the employer to the employee – which would dramatically reduce the percentage of health insurance provided by employers – the experiences of companies like Pitney Bowes should be very informative.  Having grown up in the Insurance Capital of the World, I saw how companies that understand the value of employees health and satisfaction make extensive efforts to promote both.  Only time will tell what direction health reform will take in the US, and whether immediate cost reduction or longer-term health and productivity of the workforce will be the higher priority.