Understanding Insurance: Will a Public Option or Co-op Get US Where We Want?

Today's commentary comes from an article I'd written for the Journal of the American Osteopathic Association and published today. Please click here.

HR 3962: Mental Health Parity is the End of Disability Insurance

Until HR 3962, mental health conditions were subject to a plan’s limits. While this change will no doubt have the effect of dramatically increasing healthcare expenditures, it will have catastrophic effects on the disability insurance industry. In fact, it will virtually eliminate it entirely within about 2 years.

Disability insurance is income insurance if you are sick or otherwise unable to work. Typically, there is a two-year limit on mental nervous illnesses. The thought is - if there is a problem, this should give the person adequate time to get the help they need to recover. Presumably, if a person was capable of working before, that person should be able to be treated.

There are a few things that one must understand about this product: Disability claims routinely go up when the economy goes down. They also rise when a given employer is having financial difficulties and the fear of layoffs is real. Not too surprisingly mental-nervous conditions top the claims list, with depression or anxiety leading the pack. In fact, if employees know it is likely that they will be laid off or given a pink slip, it is not uncommon for them to take preemptive action to assure their income by claiming disability. Since all it takes is a healthcare provider’s note to get the process started, some employees will have their provider write a note the very day they are laid off. Keep in mind, full benefits are good till the end of the day.

As the former Chief Medical Officer for a global disability and workers’ compensation carrier who has reviewed thousands of disability claims, this is what you will commonly see: Providers often refuse to release psychiatric notes claiming patient privacy, despite signed releases for exactly such records. They will often re-write office notes or summarize notes so that insurers do not know what treatment has been given. In fact, there is great variability and little coordination of the treatment that is given. Anyone from a licensed social worker, psychologist, masters level psychologist, masters level degree in counseling, doctoral psychologist, neuropsychologist, psychiatrist, family practioner, physician’s assistant or nurse practitioner may be “treating” the person.

Many times the mental-nervous issues are situational, in which work often helps, but little or no tools are given to the patient as to how to better cope, other than to write them off work. It seems patients often spend their sessions rehashing their problems. There is no documentation of actual counsel given or progress made. In medicine, if it isn’t written in the medical records, it wasn’t done. Often little or no objective testing has been done to determine exactly what the diagnosis is, or if it is even real, versus secondary gain – such as a disability check. Many real physical conditions never receive a full medical work-up. As with other conditions in medicine, medical personnel often add to the prescriptive regimen without checking to see if the medical regimen is causing the problem. Another important issue is the number of people diagnosed with personality disorders in the workplace. There is a prevailing notion that these diagnoses preclude people from working, when in fact many are capable of functioning at a very high level; the issue is how they relate to others, not whether they have the actual knowledge base to do the job.[See the article Personality Disorders in the Workplace.] Granted some disorders are more amenable to treatment than others, however, quite a number of those in the mental health field seem to think these diagnoses are a lifetime pass.

Due to the delays from providers and frequent lack of objective evidence or testing, it takes thousands of dollars and months of time to prove the whether or not the disability is legitimate. The two-year limit at least puts a tail on it for employers and insurers. This bill will mean a guaranteed income to age 65 for the insured who finds a cooperative provider or switches providers often enough to keep the insurer a couple of steps behind. Given the outlook for the economy and this legislation, no good company will be able to afford to continue to provide this valuable benefit to their employees. No disability insurer will be able to continue to stay in business if HR 3962 passes the Senate. Instead, expect disability carriers to stop renewing policies and begin liquidating operations in the coming year.

Medicare, Medicare Supplemental & Medicare Advantage: Part II

Congress is planning on making big cuts to the Medicare Advantage program claiming that it is subsidizing the private insurers for this program. Is this true? The answer is yes, it is subsidizing the health plan; but it is really subsidizing the beneficiaries, not the insurers. People saw value and as a result the number of people in these plans has grown. The payments/expenditures for beneficiaries are higher on average than traditional Medicare.

The reason lies in how Medicare Advantage plans are paid. The Medicare Modernization act of 2003 set into place the present system of payment. A private insurer places a bid for what price per person it is willing to offer Part A and Part B services in a given geographic area. If it is under the government’s benchmark rate that it is willing to pay in that geographic area, they split the difference. Under the rules, the government keeps 25% of the savings, and the insurer must provide the beneficiary with additional benefits or a rebate equivalent to 75% of the difference. For example, if Medicare is willing to pay $500 per person per month to the insurer and the insurer has bid $400 per person per month, there is a $100 difference. Of that amount $25 in savings goes back to the government and $75 goes to the beneficiary in the form of a Part B or D premium rebate or additional services. Medicare pays out $475 in benefits. As you can see, the amount of additional benefits or rebates enrollees are offered makes one plan more attractive than another.

The heart of the problem is the benchmark rate calculation. By law, it must be at least as high as high as what the government would pay on average per person in the traditional Medicare fee for service (FFS) arena. Remember, Medicare pays 80% of the allowable payment rates. There are risk adjustments fir areas of the country where patients are “sicker.”

According to the Congressional Budget Office, for 2007 the “benchmarks are 17% higher, on average than projected per capita FFS expenditures nationwide.” [Note: This CBO report was released in 2007, yet proposals to fix the problem are just now coming forth.]

These benchmarks are determined by statutory rules. It requires an act of Congress to make any changes. This is the similar to the way the Medicare physician payment formula [SGR] is set. Do you see a pattern here? There is a problem anytime an act of Congress is required to make should be a common sense business decision - namely to fix the formula. Government bureaucracy seems to preclude it from making the necessary adaptations to respond in a timely manner to save money or prevent potential disruptions in service.

The next question is what will happen to current Medicare Advantage enrollees? Who will be most affected? We will try to tackle that tomorrow -

A.M Best: BESTWIRE: Under Proposed Reforms, Little Rate Regulation, New Customers May Mean Health for Insurers

This is an article from A.M. Best's BESTWIRE. "Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. Policyholders and depositors refer to Best's ratings and analysis as a means of assessing the financial strength and creditworthiness of risk-bearing entities and investment vehicles."

Co-ops: Real or Phoney?

In addition page 4 of the October CBO letter to the Senate Finance Committee Chair states the Baucus Bill will “provide start-up funds to encourage the creation of cooperative exchange plans (co-ops) that could be offered through the exchanges; existing insurers could not be approved as co-ops.”

Let’s think about this for a minute. Present day insurers are entirely shut out of the game. (You can almost hear the politicians say, “We showed them.” ---but is it a pyrrhic victory?)

Whatever you think about insurers, these are the people who actually know how to do the job. They have the systems and processes in place to service the needs of their customers, send them insurance cards, provide a network of providers and pay claims. This little provision means a lot of “newbie” nonprofit companies will be popping up, by necessity.

Who are these companies? Are they reputable? Do you believe your claims will be paid in a timely manner? What is their track record? Will you get the service you expect? What assurances do we have that they will be there tomorrow to pay claims after giving them your premium dollars? Do you think this opens the public up to a lot of potential fraud? Are state regulators going to be able to handle the job, given the number of new entities that will no doubt arise due to the amount of money at stake?

Of course, we can rely on the government to protect us from the hucksters, can’t we?

Baucus Bill Part III: Will it really be cheaper?

The CBO believes that employer provided plans will be “more expensive that the low-cost plans available in the exchanges, because healthcare services in those exchange plans would be more tightly managed.” [September CBO letter, page 4]

Administrative costs for all health plans, both for-profit and nonprofit, have averaged about 11% of premiums. The BCBS family of companies average about 10%. In fact, Highmark BCBS, a nonprofit insurer, in PA specifically states that their goal is for 90% of premiums to go toward paying medical expenses (aka medical-loss ratio) for enrollees. To more tightly manage the plan requires higher administrative costs, not less. And what does more “tightly managed” mean to the doctor and patient? You can bet there will be stricter standards for ordering tests/procedures, more “red-tape” and more non-certifications of coverage. There is simply no other way to make up for the added administrative costs, pay claims and still be competitive with the private sector marketplace, let alone be more affordable for individuals or small businesses.

Key Issues Not Addressed by the Baucus Bill: Part II

Continuing our look at the Baucus Bill based on the CBO Analyses of September 22 and October 7, 2009...

• The fees and taxes this bill imposes on insurers, medical device makers, clinical laboratories and drugmakers will be considered a “pass-through;” that is - passed through to consumers! It seems the CBO recognizes this on page 2 of the September letter which states those fees “will ultimately raise insurance premiums by a corresponding amount.” This is a tax on every person. It further raises medical costs. It’s counterproductive.
  
• The CBO admits on page 3-4 that comparing costs of coverage to the present system is difficult “for many reasons, including the extent of the coverage…;the rates and methods used to pay providers…; the quantity and intensity of services used; the insurer’s administrative costs; state regulations of the insurance market; employment status and employers’ decisions about offering coverage and the underlying health of the enrollee pool.” It seems that these are huge gaps in analysis that simply cannot be overlooked if this report is to be taken seriously.