Health for life

D.C. deals with health insurers

As Disease Management Care Blog readers are aware (for example, here and here), Obamacare forces health insurers to spend at least 80% (small group) to 85% (large group) of their premium income on health care, leaving only 15% for "other," including administrative overhead and profits. If that 80%-85% "medical loss ratio" (MLR) threshold is not met, insurers have to rebate the difference to their customers.

 While the White House has been happy to extoll the millions of dollars that were repaid to consumers (even though the individual checks were hardly eye-popping and then there is the risk that theyre taxable), the DMCB is interested in what actually happened to the commercial insurers.  Did they game the system and garner even higher profits?  Or, have they gotten their comeuppance, are now losing money and have to pursue other lines of business, like covering zombie attacks?

This article in the latest Health Affairs looked at that impact of the law when it went into effect on January 1, 2011.  The authors used NAIC data to examine the impact on the individual (N=1,219), small group (N=804) and large group market (N=750) insurers.

Individual, small group and large group numbers are broken out below. If there is a *, the change is statistically significant.

In the individual market, from 2010 to 2011:

Median medical expenses, as a percent of premium, increased      by 5.5%*.
Administrative expenses, as a percent of premium, decreased            by 2.6%*.
Profit (otherwise known as "operating margin" or the bottom line) decreased by 1.3%*. "For profit" insurers fared even worse, with a decline in operating margin of 2.2%* vs. their nonprofit competition with a decline in 0.8%.

2011 operating margins were overall negative:

Individual overall -0.1%.
Nonprofits:  -3.5%.
For profits:  0.4%.

In the small group market:

Median medical expenses increased by 0.7%.
Median administrative expenses declined by 1%*.
The bottom line increased by .5%. Nonprofits saw an increase of 1.2%* vs. the for profits having a small decline of .3%.

2011 operating margins were positive, ranging from 2.8% to 3.8%  across the non and for profits, respectively.

In the large group market:
Median medical expenses declined by 0.7%.
Median administrative expenses declined by 0.9%%*.
Profit increased by .7%*. Nonprofits saw an increase of 0.1%* vs. the for profits having a increase of 1.2%.

2011 operating margins were positive, ranging from .7% to 2.6%  across the non and for profits, respectively.

The DMCBs take:

Obamacare had a single digit impact on health insurers.  More was spent on health care and less was spent on administrative costs.  While the shifts were relatively small, those changes represent swings of hundreds of millions of dollars to the bottom line in an already thin margin business. If the purpose of Affordable Care Act was to beat up on the health insurers, it was more of a push than a shove.

Small and large group profitability increased and operating margins were positive, while the individual market struggled. As readers may recall, the inability of individuals to obtain coverage at any price was a big factor in the eventual passage of the Affordable care Act. While the future individual market may eventually benefit from an influx of healthy young "invincibles" armed with an accompanying bolus of insurance subsidies, Obamacare ironically hurt the individual market in 2011. If health care utilization didnt go down in 2011 as a result of the economy, it could have been a lot worse.

That tells the DMCB that, contrary to the insurers reports of doom and gloom, the 80%-85% MLR rule hasnt been a catastrophe.  On the other hand, it hasnt been good news for the individual market.  If the young invincibles dont 1) respond to the individual mandate, 2) use functioning insurance exchanges and 3) sign up, it could portend further stress on that sector of the health care economy.  No wonder the Obama Administration is pushing that so hard.

According to this The Hill article, President Obama took a break from tackling red lines, gun control, immigration orm, Trayvon Martin, the economy to make an appearance at a July 22 Obamacare promotion-planning meeting that included a host of A-list celebrities.  Theyll be needed to convince the young invincibles to pony up hundreds of dollars for health insurance that they dont want.

Despite the DMCB spouses unflattering assessment of her husbands media chops, the Disease Management Care Blog thinks it should have been in that White House room. 

It has a lot to contribute.

For example, American Idol finalist Jennifer Hudson was there.  How about a new CMS-sponsored talent show, says the DMCB, that is hosted by Ms. Hudson, called American Muddle? Enter the early crooning favorite, Hope Igeddadok, singing a reprise of that Dire Straits hit, "Money for Nothing."

And what about Improv comedy artist Amy Poehler? After a great stint at SLN, she went on to star in the hit comedy show, Parks and Recreation.  The DMCB suggests a pro-Obamacare commercial that features Deadlock and MakeItUpAsWeGoAlongination.

And fresh from being tossed under the campaign bus by Valerie and Michelle, Oprah Winfry is back in play. Given Oprahs masterful interview of disgraced bicyclist Lance Armstrong, positively spinning Obamacare and the IRS should be a piece of cake. First up, the IRS Chief Counsel!

Alicia Keys was there and can she sing! She can be this "Girl Is On Hire" for Obamacare in an MTV video-advert.

And it was no accident that Bon Jovis people were there, what with a song list that includes "Livin on a Payor," "Panel Says Dead or Alive," "Its My Right," "You Give Hope a Bad Name," "Runaway Costs," "Bad Medicine" and "Shot Through the Heart and Well Still Pay."

Last but not least, folks must have been excited about Will Ferrell. Since his Bush impersonation has run its course, Ron Burgundy may be the best choice for some faux-news insights.  He can provide periodic updates on how the health insurance exchanges are going: "Theyve done studies you know," "Sixty percent of the time it works every time," "In a glass case of emotion," and "Stay classy, Obamacare."

If anyone in the White House is reading this, just drop an email.  The DMCB is ready to roll up its sleeves and help.

While the prescient Disease Management Care Blog was among the earliest to identify the threat of an Obamacare-induced insurance "death spiral," it missed spotting the potential fallout from a delay of the individual mandate.

As shrewdly pointed out in this Politico article, health insurance timelines require at least three months of claims experience to inform future rate setting.  Once that actuarial work is done, it then has to go through the states Insurance Departments for approval.

In other words, if large numbers of Obamacare customers are allowed to sign up after March 31, 2014, insurance companies wont know what to charge their customers on January 1, 2015. 

While overcharging can be remedied by customer rebates, it remains to be seen how accommodating Washington DC will be if the insurers undercharge. That means negative cash flows, raiding surpluses and facing the ire of their investors and Boards of Directors.

Its baseball season, so think of the death spiral as a potential strike one, and inaccurate rate setting as a potential strike two.

Which brings the DMCB to a dreaded strike three. If it happens, the health orm brand could be irretrievably tarnished.  It could also and sink the current version of Obamacare.

Strike three would be a critical mass of inaccurate insurance policies.

If reports like this and this are even remotely representative of the back-end of Obamacare enrollment, the relative trickle of individuals who are successfully navigating the exchanges are getting commercial polices that depend on a very vulnerable reconciliation process involving many moving parts.  That includes information from the "hub" as well as user-based data entry. As noted in this report, commercial insurers are being forced to manually "clean up" the information prior to issuing their exchange-generated policies.

The DMCB suspects that a "garbage in, garbage out" adage may apply. Thanks to sheer number of inputs, clean-up mistakes are going to be inevitable.  And it will get a whole lot worse if the healthcare.gov web site gets only partially fixed. 

While a few mistakes are acceptable in large risk pools, more than a few could be huge problem at three levels:

1. At a business level, where a core competency of insurance companies is to cover their enrollees and only their enrollees. Insurance companies are really good at knowing who is and who isnt insured for a covered or non-covered service with or without a variety of co-insurance arrangements.  Its more than just getting it right, it goes to the core of their business model. If enough policies are inaccurate, it could bring the finances of some smaller health insurers to their knees.

2. At national health policy-making level, where a critical mass of insured customers with premiums and subsidies mismatched to the risk could destabilize the market and distract our political leaders. Think about the customers who assume a service is covered, providers who expect to get paid accurately, balance sheets that dont lect the truth about claims expense as well as IBNR and regulators who will need to sort it all out.

3. At an Obamacare "brand" level.  Think about all those unfriendly and anecdotal news reports about vulnerable patients who ended up legitimately - if mistakenly - paying more out of pocket for care, or persons mysteriously lacking insurance, or hospitals and doctors being unable to get paid. It could ultimately track back to the HealthCare.gov web site that everyone will loves to hate.

The worst part is that the White House has done such a masterful job of bullying the insurers that its unlikely that theyll want to rock the boat by going public with any notification that their enrollment data is corrupted.  Mr. Obama will naturally claim that he wasnt in the loop and his loyal aides will deflect blame elsewhere.

Strike three, and we may not even see it coming.

Small business points at its competitor

It wasnt until the Disease Management Care Blog had read this Jan. 30 Wall Street Journal opinion piece that it realized that its "nano" corporate" status was packed with such futuristic potential. According to the editorialist, American companies should follow the DMCBs lead and be "protean" by dropping old fashioned W-2 employees and substituting 1099 contract relationships.  That way, everyone - including a single person "nano" - can enjoy the upsides of being a corporation and stay below Obamacares 50 employee pay-or-play $2000 penalty threshold.

Since the DMCB formed its own corporation more than 5 years ago, it has certainly participated in "protean" business relationships. Once things get underway, the DMCB often discovers that of the many prominent organizations that it does business with really consist of a small core office populated by a few owner-founders, a single administrative aide and one or two payroll folks who oversee the outsourcing of everything else.  While the term "protean" is certainly novel, the DMCB thinks distributed, adaptable and organic business networks have been around for years.

But the WSJ editorial opens a window into an underappreciated consequence of Obamacare and the underlying assumptions of the central planners who run Washington DC.  The DMCB doesnt necessarily think its bad, but it sure is interesting.

Read on.

While the Affordable Care Act (ACA) was intended to link employment and health insurance, what it has really done is handed many small nimble interlocked businesses another leg-up against their large traditional mainframe competitors. For example, one colleague pointed out to the DMCB that "new" pharma companies are really marketing departments that outsource manufacturing that, in turn, outsources supply management that outsources I.T. that outsources its cloud services. Its the only way they can compete. 

The new economics of health insurance will only accelerate similar trends in other manufacturing and service sectors of the economy.  Toss in the ability of people and capital to move and work across borders and the picture becomes even more dynamic. And in the meantime, Washington DC continues to implement the ACA with a legacy of large companies buying comprehensive health insurance for its employees.

Little did anyone anticipate that the ACA would hamper the success of American big business.

Image from Wikipedia

Modern political discourse

The Disease Management Care Blog had a Hurricane Sandy choice: either a) leave day before that early A.M. hospital procedure and stay with friends who live close by, or b) stay at home and make the long trip in the wind and the rain to the hospital that same morning.  The DMCB spouse turned to repetitive education to help the DMCB make the right choice.

Does that learning tactic underlie Obamacare supporter Maggie Mahars approach to the latest Health Wonk Review?  Thats what the DMCB thought when it read Maggies posting.

To help the thousands of health orm realists who make up the DMCB readership, Hurricane Maggie repetitively retreads the cost-control talking points from orm architect Peter Orszag, surgeon Golden Boy Atul Gawande and the White House Office of Management and Budget  Rest assured, says Maggie, if you selectively counter the DMCBs fiction with facts, youll realize Washington DCs solutions are the right choice.

The DMCB isnt too sure about that.

Maggie doesnt argue health care costs arent rising, only that the increases are less than widely claimed.  She credits Obamacare.  The Disease Management Care Blog agrees that cost trends are moderating, but it also credits a lackluster economy.
. 
Maggie says be of good cheer, because the increased costs are delivering correspondingly better value for the health care dollar. The DMCB says value remains an inexact science that is ill-suited to simplistic nostrums and blunt force laws and regulations. The latest examples of this conundrum include mammograms and annual check ups.  There are plenty of others like this.

Maggie points to Massachusettss Atul Gawandes brimming optimism about Massachusetts leading the way with risk and performance contracting as a cost-control panacea.  The DMCB awaits the arrival of hard macroeconomic outcomes data that proves the experiment works.  It also points out that the Bay States recently passed cost control legislation speaks volumes on what that states leaders really think about the savings-success of Romneycare.

Last but not least, not everyone on the blue side of political spectrum shares Maggies optimism.

By the way, the DMCB has received a cost estimate from the unnamed hospital mentioned above. That institution is the flagship part of a nationally recognized integrated delivery system that is a basis for much of Maggie Mahars enthusiasm. The DMCBs planned procedure coupled with OR charges and an overnight stay will result in charges, prior to discounts and contracted rates, in excess of $100,000.

For those of us with a lingering doubt that our political classs health orm sound-bites, nostrums, talking points and pronouncements will cut through all those inconvenient facts, the DMCB recommends this catchy tune.  Youll feel a lot better:



Image from Wikipedia