Heads You Win, Tails I Lose

It is November in Northeast Ohio. Homeowners are faced with an annual decision – buy a new snow shovel, buy/tune up the snow plow, or hire a plowing service. I was lucky enough to have always had a snow service when I had my house in Shaker Heights. For $250 a guy in a pick-up truck would magically appear every time there was as little as 2” of snow on my drive. He would clear the drive and make it safe for me and my family. Sometimes he would even sweep the snow off the walkway. $250 for six months. If it snowed only three times - $250. If it snowed thirty times - $250. I wasn’t purchasing the number of times he visited. I was buying peace of mind and security. And if it never snowed in Shaker Heights? Let’s not be silly. One year’s easy winter would surely be followed by a snow belt classic.

If you believe, as I do, that the Patient Protection and Affordable Care Act (PPACA) is designed to change who pays for health care in our country, then you had been waiting anxiously for yesterday’s decision from the Obama administration. Florida has aggressively fought the President’s legislation from day one. The latest salvo was a special request for a waiver of the 80% Minimum Loss Ratio (MLR) regulation. This special waiver has required a mound of paperwork and nearly a year of preparation.

And the verdict from the Centers for Medicare and Medicaid Services (CMS) was (drum roll please) - - - Come back in 30 days.

First, what is an 80% Minimum Loss Ratio? In the simplest of terms it means that for ever dollar of premium an insurance company receives, it must spend 80 cents on health care claims. That leaves 20 cents for taxes, administration, reserves, marketing, advertising, and profits. If the consumer has a good year and has fewer claims, the law requires the insurer to issue a rebate of the excess premiums. If the consumer has a really bad year, oh well.

I think you can see where this is going. Most of my clients are small businesses with fewer than ten employees. Some have only one or two employees. Many of my groups have little to no claims per year, while several of them more than make up the difference.

If a small business consists of three families, each paying $1,000 per month, we have an annual premium of $36,000. What happens if one of the spouses has a quadruple by-pass at $180,000? Where does the insurer get that money if it is returning excess premiums each year to the healthy clients?

The goal is to have a loss ratio between 65% - 80%. This goal is for the entire book of business, not on a client by client basis. We are pooling the risk, sharing the possibility of major accidents and illnesses among a large group of people. The MLR regulation effectively ends that. And in the end, it effectively ends private major medical insurance.

Insurers are threatening to pull out of the states that don’t get the federal waiver. At the very least, they will be forced to significantly restructure their product offerings. It is not an idle threat. This is all part of the process that began in March of 2010.

The Supreme Court will soon hear arguments about the individual mandate, a concept championed by Newt Gingrich and Bob Dole in the early 1990’s and pilloried by the Republicans today. This is a side-show. The Minimum Loss Ratio rulings will have far more impact on who pays for your healthcare in 2015.

I could have purchased a “pay as I go” snow service when I was a homeowner. What I couldn’t afford back then and can’t afford now is “pay as I go” healthcare.

DAVE

www.bcandb.com

An Angry Mob

The National Journal, a non-partisan Washington based news magazine, published the story as if it was news. Poll: Majority of Voters Want Medicare Funding Left Untouched The first paragraph noted that 83 percent of the respondents oppose cuts to Medicare and higher beneficiary copayments. 70 percent believe that the government should be more active in fighting waste, fraud, and abuse in both Medicare and Medicaid. It wasn’t until the second paragraph that we got the rest of the story.

The poll was commissioned by Fight Fraud First. One of the members of the collection of groups that created Fight Fraud First just happens to be AARP, the same organization that sponsors an endless series of television spots scaring and/or rallying senior citizens.

So we have three questions.

1. Is it at all surprising that 83% of the population (assuming that the poll wasn’t weighted with seniors!) want as much money and benefits as they can get with little or no charges?


2. Would you expect a poll conducted by an organization named Fight Fraud First to release the results of a poll that didn’t strongly endorse the concept of fighting fraud first?


3. Was this news?

Since the first two questions are obvious, allow me to answer the third. NO!

We want painless solutions to all of our problems and we are at least 83% convinced that someone else should pay for the debts we have all created. I’m not sure if this mindset can be traced to the concept of paying for two wars by shopping or if it is simply more prevalent in today’s society, but it is everywhere we look.

I was in New York City a few weeks ago and had a chance to visit the Occupy Wall Street. Yes, it did remind me of the anti-war protests of the late sixties and early seventies. But at the risk of ticking off most of my readers, I have to tell you that there is little difference between the Occupy Wall Street crowd, a Tea Party rally, and a group of Libyan soldiers firing their rifles straight up into the air with little regard to where the bullets will land. Within each group is a small core that understands and can discuss the issues. There is also a larger faction that has a propagandist’s view of the group’s concerns, but is totally committed for the moment. The rest, the vast majority, have nothing better to do and no place better to be.

The links in the above paragraph will provide you with plenty of laughs whether you are on the Right or the Left.

In a perfect world, in the ideal democracy, those masses gathering at Tea Party rallies and camping out at Occupy sites around the country would be engaged in intellectual policy debates. These citizens would be working hard to find solutions to our country’s economic woes.

That is not happening.

What we have, instead, are people desperately attempting to assert their relevance. It appears to be very easy to confuse one’s self-interest with what is allegedly in the U.S.’s best interest. And this leads us to the current health care debate.

The Patient Protection and Affordable Care Act (PPACA) attempts to change who pays for health care, but does nothing to control the cost of care. Changing the payer doesn’t solve our problem of spiraling health care costs.

The current financial debacle has forced some in Congress to start thinking about reigning in costs. This has resulted in the special interest groups to snap into action.

• The American Hospital Association has a woman staring into the camera, and our souls, decrying any cuts that could endanger her father’s health.


• AARP’s commercial supposedly speaks for 50 million seniors who are united to oppose any cuts and will vote, as one, against anyone who dares oppose them.


• The A.M.A. (American Medical Association) is spending big bucks to remind you that doctors are on your side.

Luckily, as Ohio residents we have been spared the finger pointing and shouting of the Republican presidential primary ads. Better Iowa than us.

The next year is very important. Will the PPACA survive? My guess is still Yes. The rules and regulations are being written and imposed now. It will be very difficult to simply reverse all of this, even if anyone wanted to, in January 2013. What you need to watch, what you need to ask are what cost containment measures, if any, are being implemented?

There is a lot of noise out there. People are marching to retain the life they think they have. Or they might be marching to claim their share of the American largesse that has eluded them. Many of these same people will soon be whipped into action to save their local hospitals or to protest a cut in nurses’ wages. The one constant throughout all of this will be the absence of personal sacrifice.

Ask people to pay more? That might create an angry mob.

DAVE

www.bcandb.com

Pulling The Plug

This blog has campaigned for transparency, honesty, and basic accounting principles. This isn’t a Democrat or a Republican issue. This isn’t Left or Right. Asking for our elected officials to perform at a higher level may, at times, appear child-like and naïve, but why would we work so hard, investing our time and money, if we didn’t believe that we were trying to help our country find our best leaders?

Flying to New York this past weekend gave me extra time to read. I need to share an opinion piece from The New York Times and a memo from Health and Human Services. This will take a few minutes. It will be time well spent.

Jane Gross, author of A Bittersweet Season: Caring for Our Aging Parents and Ourselves, discussed the last years of her mother’s life in The New York Times. The article, How Medicare Fails the Elderly, detailed the medical care Medicare paid and the hundreds of thousands of dollars of services that depleted the family’s savings. It was brutal. Ms. Gross lays bare the inefficiencies of a system that rewards unwarranted expensive procedures that may more successfully enhance the medical provider’s life than the patient’s. Please read the article. It is a difficult read and there wasn’t a happy ending.

The memo is also about an ending. Kathy Greenlee, CLASS Administrator, sent a memo to the Secretary of Health and Human Services, Kathleen Sebelius, recommending that the program be suspended. CLASS is the acronym for the Community Living Assistance Services and Support Act. Ms. Greenlee was forced to report that there was no logal way to make this program work.

This was not a shock.

The CLASS Act was an important part of the Patient Protection and Affordable Care Act (PPACA). It was important to consumers because it promised to help pay for long term care. It was even more important to the President because, through a bit of accounting sleight of hand, the CLASS Act generated a $70 billion dollar surplus during the first ten years. That money would cover $70 billion dollars of deficit from the PPACA. See, revenue neutral!

Ms. Greenlee was forced to admit that the numbers did not add up. A voluntary program that didn’t have any underwriting couldn’t be actuarially sound the way the law was written. With no public funding available and healthy people not forced to participate, the independent actuaries predicted disaster. Thankfully, the program will be pulled now before any more money is wasted.

The need for long term care planning and the cost of that care are the themes that tie these two readings together. My fixation on transparency is why I have brought them to your attention.

DAVE

www.bcandb.com

Perfectibility

Prohibition was about human perfectibility, that humans can be perfected. You could have the perfect marriage if you could eliminate alcohol. from Ken Burns' Prohibition

I watched Ken Burns’ Prohibition on PBS last night. A group of people decided what would be best for everyone else. Armed with moralistic fervor inspired in equal parts by their G-d and their fear of others (immigrants and non-whites), they campaigned to eliminate someone else’s vice. And they succeeded in part until they failed entirely.

There is a shocking parallel between the Prohibition movement of one hundred years ago and today’s health care debate.

Part of what drives the current discussion is this concept of perfectibility. If only the profit motive was removed from the delivery of health care, if access was unlimited, then no one would die before his/her time.

• Can you really remove profit from health care?


• How unlimited is unlimited?


• When is it our time?

The simple answers are - NO!, Who knows?, and Gosh, what a silly question.

Doctors need to be paid. Medical equipment suppliers need profits to build their businesses. Pharmaceutical companies risk millions to develop new compounds that may cure illnesses and alleviate pain and suffering. The insurers play a role in all of this, too. Eliminate them, the market organizers, and their function will have to be performed by the government. You may debate whether that would be more efficient that the businesses, but to deny that money is a key element in the delivery of health care is to deny reality.

Heart transplants? Liver transplants? Any age? Any health status? Should a 75 year old overweight diabetic with bad lungs from years of smoking stand in the front of the line waiting for a new heart? There have always been, and always will be, some limits to access. What we have not had, as a country, is an open, honest discussion about limits. We are not talking about death panels. We are talking about realistic expectations. What is society’s responsibility to the sick and injured?

The last part of this is the most difficult. Who amongst us wants to address our own mortality? No amount of health care would keep us alive forever. We are not machines. Yet there are people who claim that changing our health care delivery system will magically enhance our life expectancy.

Which returns us to this concept of human perfectibility. Can we improve the payment and delivery of health care in the United States? Absolutely! The first steps will be transparency and an honest discussion about achievable goals.

Now would be a good time to start.

Shell Game 2.0

It is important to remember that everything works in theory. Communism, in its purest form, is just as effective as Capitalism, in theory. Reality is a much different story. The Russians and Chinese are now embracing many of the benefits of Capitalism just as the U.S. faced-down the Robber Barons and put an end to such practices as child labor a hundred years ago.

Reality has a habit of rudely poking holes in theories. My favorite piece of Swiss cheese is the Patient Protection and Affordable Care Act (PPACA). Today we are going to revisit the Preexisting Condition Insurance Plan, the stop-gap measure to provide access to coverage to the long-time uninsured.

Eighteen months and millions of dollars later, it might be difficult to recall that the main justification for completely remaking our health care system was to provide coverage for the uninsured. Remember the uninsured? They were of real concern two years ago. The PPACA was supposed to cure this problem.

Last June, in a post entitled The Shell Game, I discussed the five billion dollars the federal government had allocated to the Preexisting Condition Insurance Plan. Of more local relevance, $152,000,000 was given to Ohio for the four year interim program. Even though Ohio had about 17,000 chronically uninsured, state officials were thrilled that $152,000,000 would help 5,000 people get insurance. I felt that they were a touch optimistic.

Theory, meet Reality.

How’s the program working? Initial projections from the Office of the Actuary of the Centers for Medicare and Medicaid had as many as 375,000 uninsured Americans rushing the states and jumping at the opportunity to acquire heavily discounted coverage. As of April that crush was only 21,454. Ohio, with almost 1800 enrollees, is one of the most successful programs. Don’t worry. We may not insure that many people, certainly no where near the governments rosy projections, but all of the money will be spent.

Sunday’s Cleveland Plain Dealer detailed the difficulties Ohio and Medical Mutual of Ohio, the state’s contractor, are having difficulty raising prices and limiting access. The biggest problem was that no one was prepared for the shocking reality that really sick people rack up big claims.

Now we’re paying actual claims and those claims have come in much higher – the loss ratio is much higher – then had been projected, said Carrie Haughawout, assistant director for health policy for the Ohio Department of Insurance.

The claims for 1800 people were more than what they thought 5,000 unhealthy people would incur? That is hard to imagine. The simple math in last year’s blog post showed that premiums for a 60 year old male would need to be around $800, with the subsidy, to have a chance of covering the cost of care. The Ohio High Risk Pool is charging between $416 and $458 for a 60 year old non-smoker! That isn’t even close.

The PPACA does not include any meaningful cost containment. There is also no underwriting and no exclusions for preexisting conditions in the PPACA’s planned future which begins in 2014. So, as theory invades reality, one day all of these incredibly unhealthy individuals will be moved into the common risk pool. How will this impact the premiums you or your employer pays for health insurance?

The theory is that the unhealthy will disappear in the sea of doctor avoiding, health obsessed, average Americans who will hardly notice the difference of adding a couple hundred thousand chronically ill individuals into the mix. And besides, now they will be paying premium instead of just invading the E/R and counting on the kindness of strangers to pay their bills. Yeah, right.

The High Risk Pools, the Preexisting Condition Insurance Plan, was a dry run for the future of the PPACA. No real planning. Not nearly enough honest, transparent public discussion. An idea that meant well, but was underfunded and was neither properly explained nor promoted. The Preexisting Condition Insurance Plans were projected to do so much at what may have almost seemed like a reasonable amount of money. Instead, we have another program that has fallen tragically short.

Reality, meet Theory.

DAVE

www.bcandb.com

Just a reminder, this post also now appears in the WordPress format on my website. It appears that more people are reading it there and that is where most of the comments are posted.

The Future Is Fine. I'm Concerned About The Present.

I'm sitting outside of Club Isabella waiting for a friend. There are six medical students at a near by table enjoying food, friendship, and a moment away from their daily stress. What do they talk about? They joke and laugh about doctors and classes, routines and procedures, and their daily grind. They are an interesting group. Two are women. Four appear to be of Asian descent. One, a tall thin white guy with his baseball cap on backwards, appears to have been delivered to us from Central Casting. They wave and shout to their friends walking by. They are incredibly normal.

I find this terribly reassuring. At 56, I am looking at the people who will be caring for me 20 years from now. They are bright, engaged, and sound like they are actually enjoying their work. This is important. If all of this work, time, and effort is just to get a title, a job, and a paycheck, they will never be fulfilled. And they probably won't be very good at the practice of medicine. One can only hope that their discussions of cadavers (over dinner!) is a precursor of great careers.

This concerns me, the general happiness of physicians, because so much is changing in the practice of medicine. Many previously independent doctors are now, in 2011, employees of the major hospitals. Some have adjusted to this change. Some doctors embraced this. Many, however, have not. Being an employee, even a highly compensated one, is not the same as being your own boss. There is a certain freedom in being an independent business owner. And other doctors, like radiologists, have seen specialty treated like a commodity.

I'm not ready to have my health dependent upon the lowest bidder.

Our young doc-to-be's at the next table have not experienced any of this. There is no transition for them. Medicine will be a corporate enterprise for them, complete with signing bonuses and holiday pay.

How will this impact the way they practice medicine? For one, they will have been initiated, from day one, into a system that allocates a specific number of minutes per patient. They will be instructed in profitability. They will always know the origins of their income. And once you are in this system, how hard is it to change employers? If, or when, the government becomes the major or single payer of health care, would these doctors even notice?

Hard to say.

We face a looming shortage of primary care physicians and gerontologists. I didn't ask any of the future docs what they wanted to practice. I only wonder if their future employers will bother to ask.

DAVE

www.bcandb.com

ACT 1

“…the only way affordable access can be achieved is for every citizen to have some type of health insurance.”

Barack Obama? Nancy Pelosi? No, that would be too easy. The above sentiments were voiced by the former Republican leader of the Senate, Dr. Bill Frist in September 2009.

And that is the problem. Democrat and Republican leaders know that mandating insurance, whether it is from an employer or individually purchased, is a core requirement to meaningful reform. If you accept that the system we had on March 22, 2010 was unsustainable, then getting everyone to participate is an integral part of any solution.

Is the individual mandate of the Patient Protection and Affordable Care Act (PPACA) constitutional? It depends on who you ask.

On Friday, August 12th, a three judge panel with the 11th Circuit Court of Appeals ruled against the President and the mandate. It was a split decision. Two of the judges, Joel Dubina a Bush appointee and Frank Hull who was brought to the bench by President Clinton, issued a 207 page ruling that clearly stated their opposition. “This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority: the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them re-purchase that insurance product every month for their entire lives.”

Judge Stanley Marcus, also a Clinton appointee, noted that his peers had ignored “the undeniable fact that Congress’ commerce power has grown exponentially over the past two centuries”.

The White House was quick to point out that insurance rates will skyrocket if all of their changes (free stuff) are implemented without the individual mandate. In other words, if insurance is guaranteed issue and preexisting conditions don’t matter, healthy people won’t bother to buy coverage. This would create a pricing death spiral.

This recent decision is just another step towards the inevitable Supreme Court showdown. In an evenly divided Court, Justice Anthony Kennedy becomes the swing vote. What will he decide? Darned if I know. My guess is that he will note that the individual states have the power to impose this mandate, but that the federal government does not. But that is just a guess.

And, if you have been reading this blog for awhile, you know that this ruling has no impact on my prediction of our final destination.

The federal government, the states, the insurers, and businesses have spent millions of dollars to comply with the PPACA. The Republicans may have won the House last November, but as predicted, they have not taken even the smallest of steps to modify this legislation. Their Bill – H.R. 2 Repealing the Job-Killing Health Care Law Act was neither serious nor constructive. This train has left the station.

If the mandate is struck down, but all of the benefits are retained, rates will continue to climb and the federal government will be forced to offer a competing Public Option. The Public Option will be designed like Medicare Part B, an optional benefit that covers doctors, testing, etc… that almost 90% of all Medicare Beneficiaries accept. There is a heavy fee for failing to purchase Medicare Part B when it is initially offered. Seniors aren’t forced (mandated) to take Medicare Part B. They are just screwed if they don’t. That’s constitutional!

The insurers will dump the individual and small group market on the government and concentrate on the far more profitable supplemental products.

So here we are in August 2011, seventeen months into the PPACA. All of the players are following the script. I suggest you get another popcorn. This show has just begun.

DAVE

www.bcandb.com