Monday, October 30, 2006

CT’s medical insurance market is not in good shape

Connecticut received a score of 40 out of a possible 100 in a recently completed comparison by the Council for Affordable Health Insurance (CAHI) of how the health insurance market is working in 50 states!

In developing this evaluation t
he criteria was discussed with numerous actuaries and health policy experts to enable CAHI to state the report is a fair and accurate snapshot of each states health insurance environment. The following six measures of a viable medical insurance market were used in the comparison. The scores from each add up to a maximum of 100:

Percentage of uninsured – a maximum of 10 points was awarded for states with the lowest percentage. CT received – 10 points.

Number of state mandates – a maximum of 10 points for states with the fewest mandates. CT received – 0 points.

State regulatory environment – those with the best regulatory environment received 20 points. CT received – 10 points.

High risk pools – states with a well functioning pool provide a valuable safety net for individuals and those doing a good job received up to 20 points. CT received – 20 points.

Individual and small group premiums – those with the lowest premiums could receive up to 20 points in each market segment. CT received – 0 points in both the individual and small group markets.

What does CT’s score of 40 tell us about how we compare to others? States receiving 65 or more points are considered to generally have a well functioning medical insurance market. Those with 45 to 65 points are functioning but in need of improvements. Those with 40 or less are considered to be generally dysfunctional.

What can CT do? CT received zero points for mandates since we have the third highest number in the US. Because of this the premium cost for these mandates vs. the number of individuals using them need to be evaluated. One more immediate idea is for the General Assembly to pass legislation to allow mandate lite plans to be sold. Having plans with lower rates would result in a better score in the individual and small group premium index.

In thinking about this evaluation keep in mind it has long been known:

The cost of health insurance is the primary reason individuals are uninsured

State legislatures have a significant impact on the cost of medical insurance premiums.

The best way to reduce the number of uninsured is to improve the private market so a range of affordable policies can be offered.

Sunday, October 22, 2006

Observations on the uninsured in CT

One of the things which frequently comes up in discussions on health care reform is the number of uninsured is to high. In thinking about this it could be said any amount is to high however it is important to understand when a report on the number of uninsured is issued it includes people in various situations:

For example, using 2002 Census Bureau numbers for Connecticut, an analysis by the Foundation for Health Coverage Education indicated 346,000 were considered uninsured but the various situations people were in included:

116,000 were eligible for public programs e.g. could enroll in Husky

111,000 had an income over $50,000 e.g. could buy coverage

49,000 were uninsured for a short time e.g. between jobs.

Thus, the number of those really uninsured in CT was 70,000.

A couple other important factors to be aware of:

CT has, according to a July 2006 report, by the Agency for Healthcare Research and Quality, the third highest percentage of people in the US who have medical insurance coverage. Hawaii has the highest portion of it's population covered with 82.6% compared to the 68.8% here in CT.
Hawaii has had legislation for employers to provide universal coverage for a long time.

A March 2006 Rand study found - the uninsured get the same quality of care as those that have medical insurance.

It is also important to keep in mind the private sector did not create the uninsured issue – costs in the system of delivering medical treatment did. Things such as an inefficient treatment system, individual behaviors and lifestyle choices, and the cost of state required coverage did. States therefore have a very big responsibility to work on fixing things, which contribute to the cost problem. Working on mandating everyone be covered will only result in more cost.

BTW – There is no track record of success in mandating certain coverage. e.g. in states where individuals are mandated to have auto coverage about 15% of drivers are not insured.

Saturday, October 14, 2006

Observations on what others say about health care reform

Many community groups and politicians in Connecticut are talking about health care reform. However, because of the complexity of this misinformation gets spread around, discussion becomes focused on blaming something,and most importantly there is limited discussion on the cost of medical treatment. While discussions on this important issue are certainly good I happen to believe the focus needs to be on what approaches to reform can realisticly work. Thus, I'm sharing some observations from two recent insightful papers on ideas for effective reform.

First, a statement, which brings out the basic problem facing the health care industry, made in an article titled “White Paper on Medical Financing” by Andrew Schiafly, Esq. and Jane M. Orient, MD in the Fall 2006 Journal of American Physician and Surgeons, Vol. II, Number 3, is that – There has been no free market in American medicine for some 60 years.

The authors bring out two key points which I believe are important for everyone discussing health care reform here in CT to be aware of:

The drive for “reform” to accomplish “universal coverage” through subsidies and coercion will only exacerbate current problems including cost inflation with diminishing quality and access.

The second, related to the lack of an open market, was - "Government with the distortions it has imposed on the medical and the insurance market is the problem not the solution".

Two other statements, which I believe could be useful in discussions on health care reform:

The first is that the goal of true reform should be to optimize access to care, stimulate quality improvements, and lower costs not to “equalize” access by leveling down and assuring misery for all; not to impose uniformity and conformity; and not to redistribute wealth to achieve “social justice”

The second statement is made up of two related points:

In a free economy, government does not attempt to design a one size fits all benefits package and force it on citizens in an uncontrolled experiment.

The optimal solution cannot be designed since no possible design will guarantee full protection of all against all possible hazards, or eliminate the need for a social safety net, such as family, church, or community charity

The paper concludes with another statement,
important in reform discussions - no system should be considered that impairs the basic rights to life, liberty, and property exercised in buying medical care with one’s own resources.

advocacy groups, politicians, and individuals advocating universal health care do not directly state it but it is implied that more government involvement is the solution. In looking around at what is known about what happens when a government run or single-payer approach is used we find a paper – High-Priced Pain: What to Expect from a Single-Payer Health Care System. It was written by Kevin Fleming, MD from the Mayo Clinic Division of General Internal Medicine in Rochester, Minnesota, published Sept. 22, 2006 by the Heritage Foundation, and is well documented with extensive detail and 198 footnotes. The full paper can be found on this link.

Doctor Fleming indicates there is renewed interest in “socialized medicine” but just as nations have learned political management and control is not the best way to run the coal, steel, farming, banking, airline, or electrical power industries, policymakers should conclude the political process is a poor way to manage health care.

Also brought out is the point the very real problems of America’s health care system, including the problem of uninsurance, can be addressed through innovative market based solutions.

In the concluding section Dr. Fleming
quotes from Professor’s Michael Porter and Elizabeth Teisberg book - Redefining Health care: Creating Value-Based Competition on Results – this point:

“It simply strains credulity to image that a large government entity would stream line administration, simplify prices, set prices according to true costs, help patients make choices based on excellence and value, establish value-based competition at the provider level, and make politically neutral and tough decision to deny patients and reimbursement to substandard providers.”

The paper includes three talking points one of which relates to the lack of an open market:

Market based reforms, however, would dramatically expand coverage, promote innovation and economic efficiency, and eliminate existing market distortions in the health care system. Real market competition would allow more efficient and productive providers to thrive, while less productive providers would either become more efficient or go out of business.

Another advantage to private market based reform efforts, not stressed in the paper, is that it provides consumers many choices. Experience tells me choices
are very important. Why? Having choices enables people to select, through their employer or when buying on their own, the coverage they are interested in and which fits their current financial and lifestyle needs.

Saturday, October 07, 2006

Observations about the cost of health care

The rising cost of medical insurance is impacting, in a significant way, both employers who set up coverage for their employees and individuals who buy their own coverage. The reasons are various but one big contributor to the cost which is important to keep in mind when discussing health care reform is health insurance has become expensive because the cost of health care or medical treatment is very expensive.

To better understand this lets look at some points about overall health care costs. The current medical insurance system was designed for acute care and problems such as a broken leg. However, today perhaps as much as 75% of medical treatment costs come from chronic problems such as diabetes and obesity which the system was not desgned for.

Some of the factors influencing overall costs in the US include:

Our population is getting older. Not only are people getting older but within five years the number of them will increase rapidly. Because of this a large percent of total spending in the US comes from the federal Medicare program and from Long Term Care services which are a large percent of Medicaid’s cost.

The utilization of prescription medications has increased for many years, new medications are entering the market and replacing older less expensive versions, and pharmaceutical prices have been going up. Looking ahead the industry is on the verge of a big increase in biotechnology based medications. These certainly have the potential for vast improvements in peoples lives but the question for providers and others to consider, which applies to all new medical related technology, is how much of this spending on new ways will really result in a significant benefit to the person.

Up to 50%, of total health care spending results from the behavior and lifestyle choices of individuals. Educational efforts and incentives to encourage people to adopt healthier lifestyles will be very important steps because it is known costs are lower and people are more productive when they are healthy.

Now lets look at some cost drivers which result from the ways medical treatment is provided:

The cost for the same treatment can vary almost from town to town and there is evidence certain treatments are overused in some areas. Because of this the National Committee for Quality Assurance stated, The US health care system is still saddled with an anachronistic payment system that rewards quantity, not quality of care. This contributes to widespread variations in the way health care is delivered.

Variations in treatments mean many individuals are not receiving the most effective care. In other words health care dollars are not being spent in the best way. Thus, medical treatment providers should be working to not only eliminate overuse but to establish a system which gives them easy access to which treatments are effective. Educational efforts to encourage consumers to ask about the most effective treatment will also help.

The American Institute for Preventive Medicine reports 25% of physician visits and 55% of emergency room visits are not necessary. Why is this? The current low co-pay and the third part payment system which creates the perception someone else is paying are big factors in these extra costs.

The number of medical errors is high. While this is tragic it is also a big cost contributor since itÂ’s expensive to fix errors. Some large employers have stopped paying the cost of fixing errors. The implementation of additional information technology will help with this problem and reduce some of these costs.

Medical malpractice is a two fold problem. Providers have the added cost of very high malpractice insurance rates, especially in certain specialties. Then too, more costs are created since the risk of lawsuits motivates them to practice defensive medicine with extra tests and procedures. More focus on quality can lower these costs.

Increased utilization of medical treatment. 43% percent of the increase in cost in the last year came from patients asking for more services according to a large health care cost report. New technology coming into the market for diagnosis, surgery, etc will certainly add to the costs of this additional utilization.

While there is no one simple solution to these medical related treatment cost issues it is a known fact that private market efforts will be much more effective in working on solutions than government mandates or regulations.

There are also some things going on in the marketplace which will lower costs and in turn improve access:

Make the cost of medical treatment more transparent to consumers. The point is people have access to costs on all other goods and services they consume and there is no reason they should not have it for medical treatment.

New and lower cost ways to provide services are being developed such as walk in clinics with posted rates in retail stores.

Various company and other organizations are working to improve quality throughout all aspects of the medical treatment delivery system. The result - when quality is better costs savings can be achieved.

New approaches to medical insurance, through what are best called consumer choice plans with health expense debit cards are a good step toward helping people get them more involved in the medical treatment they receive. These new plans should not be considered - cost shifting. Since, as mentioned around 75% of medical treatment costs relate to chronic conditions the focus in consumer choice needs to be on changing behaviors.

Note: The cost of services paid through the third party payment system have increased substantially over the last decade but rates for a service such as cosmetic surgery, where people pay directly, have fallen. Another example is LASIK surgery. Rates were about $2,100 per eye shortly after it was approved in 1999 and have fallen 20% or more in six years. This certainly is evidence that when people are involved in paying for medical treatments with their own money the market reacts and costs are lower.

Thursday, October 05, 2006

Points on all the discussion in CT about health insurance for everyone

Universal Health Care – there is lots of attention here in CT in the media, by politicians, and from advocacy groups such as the Universal Health Care Foundation on the desire to bring universal health care to CT.

Some of the issues being raised are:
"Oh my there are to many people uninsured” and
“The health care system in the US is broke”

Instead of dealing with the real problem thia type of attention often results in new legislation to mandate this or that and these types of “solutions” end up just making the problem worse. The real issue we face here in CT is the factors driving the cost of medical treatment!

Research into efforts here in the US and in other countries finds – no examples of a government run system that is working effectively today – yet alone one that could provide the kind of quick access to all sorts and types of medical treatment people in the US have come to expect.

What one finds in government run systems. which always operate with limited funds, is they:
Put limits on the number of people who can enroll
Pay providers way below the level needed to run their business
Result in long waits for the services of specialists.
Delay the introduction of new methods of treatments, especially for prescriptions.

Because of all this I do not believe people in CT, when they come to understand, will want such an approach!

There are other ideas in CT and in various states from advocates to require companies of a certain size to comply with X or Y. These proposals are often called Fair Share. Maryland for example, passed Fair Share legislation [found later to be against the law], which was focused on solving the uninsured issue. Analysis however, indicated it would not have lowered the number of uninsured by much. e.g. 99% of Maryland’s uninsured do not work at WalMart

The question then becomes – What could be done? In thinking about this it is important to keep in mind the current cost problem is the result of many factors and consequently there is no single solution. When one looks around the US, at what is working, one finds:

It is very important to focus on cost. Programs that provide help to lower income people are more important than working on access for all, which is not the problem.

State mandates are a big contributor to cost, directly and indirectly, thus efforts to reduce these and create so called mandate lite plans in the individual and small group market is important. Eliminating mandates does not take coverage away from people as some advocates proclaim. Why? The marketplace will offer plans with the coverage people want. Plus there will be options for people to buy additional coverage e.g. maternity if someone believes it is important.

Big companies and company coalitions such as the LeapFrog Group are now focusing on the quality of medical treatment results and moving away from the current system which pays for a treatment activity without regard to the result. Programs in various areas of the US such as Pay for Performance and Bridges to Excellence are achieving results and will also help deal with the cost of medical insurance here in CT

Here in CT legislators need to work on implementing public policies to encourage not mandate personal responsibility for having medical insurance. This would be much more effective than all the talk about just giving access to coverage.

Note: Studies have found somewhere in the range of 50% to 75% of the funds in programs implemented to expand public health care coverage go to those who dropped private coverage to enroll in the new public program.

An important part of what really needs to be done here in CT is for the General Assembly to set up Public and Private partnership programs for coverage focused on lower income individuals such as:

The waiver program to take some State Children’s Health Insurance Program dollars, called Husky here in CT, and provide them to employers so Mom or Dad can afford to put their kids on the firms plan.

Preparing now so the federal refundable tax credit program, e.g. $1,000 for single coverage to help lower income folks, can be implemented as soon as it is approved.

Some additional facts, which everyone should know:

In 2005 general inflation contributed 27% of the cost increase in medical insurance premiums – 43% came from higher levels of utilization – price increases, greater than inflation, resulted in the remaining 30%. There are various forces, which influence each of these.

In 2005 – 86 cents of each medical insurance premium dollar went to pay form medical treatment – 5 cents is for things such as provider support, marketing, investments in technology – 6 cents went for things such as claims administration and regulations – 3 cents went for health plan profits.

An analysis of the 346,000 considered to be uninsured here in CT tells us – 116,000 are eligible for public programs e.g. Husky – 111,000 have an income over $50,000 e.g. able to purchase coverage – 49,000 are uninsured for a short time e.g. between jobs. Thus, the number of those really uninsured in CT is 70,000

The private sector did not create the uninsured issue – things such as the inefficient medical treatment system, individual behaviors and lifestyle choices, and the cost of state required coverage did. States therefore have a very big responsibility to work on fixing things, which contribute to the cost problem. Working on mandating everyone be covered will only result in more cost.

BTW – There is no track record of success in states that mandated individuals have certain insurance coverage. For example, states which mandated auto coverage still have about 15% of drivers that are not insured.

Wednesday, October 04, 2006

Observations on one type of consumer choice health plan

Medical insurance will in the relatively near future move away from traditional plans with office visit co-pays or small deductibles to what is perhaps best called consumer choice health plans such as a Health Savings Account (HSA).

Individuals with medical insurance from an employer or a plan they personally purchased are able to select an HSA and will have coverage which provides a much better value.

Why is an HSA a better value? Medical insurance plans with co-pays hide individuals from the real cost of the treatment they receive. This causes the reaction “someone else is paying” thus people tend to use their coverage more and are not careful shoppers. HSAs are a step toward changing this by helping individuals become better consumers of medical care.

Why do they become better consumers? Research tells us - individuals with HSA’s get involved in treatment details because it’s their money and just as importantly they want effective care!

How can they get involved?
One way people can become better consumers of medical services is to ask MDs what the suggested treatment will do and what other approaches could be used.
Another easy to do and important approach is to ask the MD about generic medications – they are the same as brand names but less expensive.
BTW - Getting involved means a person receive improved quality of care!

How is an HSA different? The medical treatment expenses a person may have would be paid in two ways.
The first part uses an easy to use debt card connected to a special savings account to pay day-to-day medical treatment expenses. The best way to think about the money in this account is that it’s an individuals financial protection for the routine expenses they may have.

Note (1): This special account is “owned” by the individual and it’s portable. Funds can be used to pay for any treatment expenses before the HSA plan’s insurance coverage begins such as going to the doctor when you are sick and getting medication for two weeks. Other medical related expense listed in IRS Section 213(d) e.g. eyeglasses and dental care can also be paid from this account.

Note (2): IRS regulations tell us contributions into this special medical expense account can be made by the employee, the employer or both and deposited regularly by payroll deduction or periodically. Contributions are limited each year to the level of risk (deductible) of the HSA major cost coverage plan but not more than $2,700* for Single & $5,450* for Family coverage during 2006. Funds going in through payroll are tax free, they grow tax-free, and come out tax free when used for medical expenses. Amounts remaining at the end of the calendar year stay in the person’s account. Contributions other than by payroll deduction become an above the line deduction, at tax time, and are also tax-free.
[ * Based on being eligible for 12 months.]

A good way to think about the second part of the HSA program is as major cost insurance because it’s financial protection for situations when someone has significant medical expenses. In one sense, HSA’s are a return to the real purpose of insurance – coverage for unexpected medical expenses.

The major cost insurance, which is called in the IRS regulations a qualified HSA High Deductible Health Plan (HDHP), works this way:

Medical treatment expenses whether from a primary care or specialist office visit; diagnostic work; medication; outpatient surgery and procedures; or hospitalization are all combined and apply toward an annual deductible of say $2,000 for Single & $4,000 on an aggregated basis for Family. IRS regulations set the minimum deductible for single coverage in 2006 to be $1,050. A maximum deductible is not defined but instead the maximum out of pocket expense for a single person in 2006 is $5,250.

Note: IRS regulations allow for an exception to all expenses going toward the deductible for preventive care treatment such as the age based preventive care visits. They have no cost.

Please post any questions or comments.