Author Archive: Frederick Pilot

Health reform bill’s delayed implementation will spark another round of reform

The Patient Protection and Affordability Act was enacted largely in response to a perceived crisis in health care in the U.S. That sense of urgency propelled the reform train forward over objections that the nation’s medical care system would be effectively deprivatized to a greater extent than it was by Medicaid and Medicare more than four decades ago.

But most of the law’s provisions don’t take effect until 2014 and thus don’t provide an immediate solution to what’s seen as an immediate problem. Premium rates in the individual health insurance market — which covers only about five percent of working age Americans but provided much of the impetus for the Act’s enactment — are rising in response to higher underlying medical care costs.

Between now and Jan. 1, 2014 when health insurance purchasing exchanges are set to begin operating with the expectation they will provide increased power to individuals and small businesses to bargain for lower rates, both can expect to see their premiums rise above levels many complain are already unaffordable in a presently busted boom and bust economy.

What this means is health insurance reform isn’t over — because the crisis isn’t over. Expect another round of omnibus reform as the distress in the individual and small business market continues and grows amid concern that the underlying medical cost drivers haven’t been adequately tamed. This will clearly affect the political environment. Policymakers won’t be able to satisfy constituents by telling them to wait until 2014 to see if things get better.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

The cost drivers of the health insurance crisis

The health insurance crisis is essentially a health care cost crisis. Two articles in today’s Sacramento Bee provide insight. One spotlights hospital costs and the tensions they stoke between hospitals and insurers that pay their bills.

Another profiles Dr. Walter Bortz, a professor of medicine at Stanford University. Bortz criticizes the demand side of the health care cost equation, proclaiming the simple truth that rising health care costs can be contained with healthy lifestyle choices rather than more and more treatment once we become ill due to poor diet and lack of exercise.

Bortz’s profile reflects the philosophical divide between advocates of healthy lifestyle choices like himself and a medical industrial complex dependent upon treating people for costly, chronic conditions for the health of its own top line. Medicine as currently practiced in the United States is “a whorehouse” in Bortz’s blunt assessment.

The take away from these articles is we are being forced to choose the preventative lifestyle cost control measures Bortz advocates because our economy can no longer absorb the cost of providing “sick care” as it’s called by some. No amount of adversarial finger pointing between payers and providers can alter that fact and only portends the coming meltdown of the current paradigm.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Interim high risk pool may not significantly reduce ranks of medically uninsured

High risk health insurance pools to cover Americans with pre-existing medical conditions who fall short of medical underwriting standards of individual market insurers and managed care plans must be in place within 90 days of the March 23 enactment of the Patient Protection and Affordability Act.  That mandate was put in place by H.R. 3590, Subtitle B, Section 1101.

Going forward, several aspects bear watching.  Among them is how states — the majority of which already have high risk pools in place — implement the pool in their jurisdictions and conform their existing high risk pools to the new federal requirements.

In the interim before the high risk pool mechanism ends Jan. 1, 2014 and health insurance purchasing exchanges that must accept all applicants regardless of pre-existing medical conditions start up, a key question will be the number of people who actually sign up for high risk coverage.  The number in large part will be driven by the size of the premiums.

California’s high risk pool, the Managed Risk Medical Insurance Program (MRMIP), is required by statute to set premiums 125 to 137 percent of standard market rates and has an annual coverage cap of $75,000 and a lifetime limit of $750,000.  Currently the program covers just 7,100 Californians — a tiny fraction of the 1 million potentially medically uninsured Golden State residents projected by Harbage Consulting in 2008.

MRMIP has been limited on the supply side by enrollment caps due to limited funding and on the demand side by relatively high premiums.  HR 3590 requires premiums to be established at a “standard rate for a standard population” that can vary based upon age, an important factor considering a large segment of medically uninsurable are between 50 and 64 years old.  For the oldest members of the pool, premiums are limited to four times those charged the youngest members of the pool.

Standard rates however are on an upward trajectory as evidenced by a sharp increase being implemented for indemnity-based policies by California’s dominant player Anthem Blue Cross.  Those rates if ultimately approved by the California Department of Insurance would be as high as those previously charged those in the MRMIP pool.  For many, they would likely prove unaffordable.  Particularly in a tepid economy that some economists predict won’t fully recover until the high risk pools are slated to end in 2014.

The upshot is HR 3590’s temporary high risk pool may not make much of a dent in the number of medically uninsured not covered through employment-based insurance or government insurance programs.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Coverage mandate likely spells end of for profit medical insurance in U.S.

The enactment of the Patient Protection and Affordable Care Act requiring all Americans to have medical insurance in 2014 follows in the footsteps of nations like Germany and Switzerland that opted not to put in place socialized health care systems like those of Britain and France or Canada’s single payer system where the government pays all medical bills.  Germany and Switzerland mandate all citizens have coverage.  But it’s no bonanza for medical insurers.  They fiercely compete for mere survival and not to earn profits.  If they don’t efficiently administer claims and keep providers and government regulators satisfied, they could find themselves out of business.  For profit U.S. medical insurers could find themselves in a similar market environment within a decade.

Indications of tighter regulation of medical insurance premiums — and ultimately insurer profits — are already emerging in the nation’s most populous state.  Last week, a California state Assembly committee approved legislation that would regulate health insurers like their counterparts in the state that sell property/casualty insurance.  Those insurers cannot use premium plans until regulators first approve them.

AB 2578 would similarly subject premiums, co-payments, and deductibles of both indemnity health insurers and managed care plans to this prior approval regulatory scheme.  If policyholders or plan members would pay seven percent or more above those currently in effect, it would trigger a provision allowing consumer and public interest groups to protest the filing through a public utility commission style hearing.

Nonprofit health insurers already operate in California, most prominently Blue Shield of California.  A de facto shift of medical insurance to a nonprofit business could give Blue Shield a leg up, although it would be under increased pressure to hold down adminstrative overhead.  (Notably, Blue Shield supported California reform legislation proposed by Gov. Arnold Schwarzenegger in 2007 including a requirement that all state residents have some form of medical coverage.  For profit insurer Anthem Blue Cross opposed the bill).

All payers — whether they are in business to make a profit or not — complain they are increasingly squeezed by raging medical treatment cost inflation.  According to Anthem Blue Cross, those out of control costs forced it to sharply raise premiums for its individual insurance products by as much as 39 percent, sparking outrage and giving a political boost to AB 2578.  A similar bill went nowhere in 2009.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

California appellate court reverses summary judgment in rescission case

The Second District California Court of Appeal has reversed a trial court decision upholding the rescission of an individual health insurance policy on the grounds the insurer as a matter of law failed to comply with California law barring ex post facto underwriting after a policyholder files a costly claim.

Today’s ruling in Nazaretyan et al. v. California Physicians’ Service, B213664 reverses summary judgment granted in favor of Blue Shield of California’s rescission of a policy on the grounds a married couple failed to disclose the wife had undergone fertility treatments before giving premature birth to twins, leading to nearly $1 million in medical bills.

The court agreed with the insureds that Blue Shield’s medical underwriting did not meet the standard set in Hailey v. California Physicians’ Service (2007) 158 Cal.App.4th 452.  Hailey permits rescissions only for material misstatements or omissions on applications for individual coverage provided the plan or insurer completed medical underwriting prior to issuing coverage or can demonstrate an applicant willfully misrepresented or omitted material information about their medical history. 

Blue Shield, which maintains it has no affirmative duty to verify the accuracy of information applicants for coverage provide about their medical histories, unsuccessfully attempted to convince the court Hailey was wrongly decided.  In 2008, the insurer’s petitions to the California Supreme Court to review the ruling were denied.

Blue Shield also unsuccessfully tried to distinguish Hailey from a recent ruling in Nieto v. Blue Shield of California Life & Health Ins. Co. (2010) 181 Cal.App.4th 60.  In that case, the court held Hailey didn’t apply because the rescission at issue in Nieto involved an indemnity policy falling under California’s Insurance Code whereas Hailey, like Nazaretyan involved a managed care service plan regulated by the Knox-Keene Health Care Service Plan Act of 1975, codified in the Health & Safety Code.  (The insured in Nieto has petitioned the California Supreme Court for review.)

The ruling in Nazaretyan comes the same day President Barack Obama signed into law H.R. 4872, the sweeping health care reform legislation that bars rescissions except in cases of fraud starting this year. 

Under one of the prongs of Hailey, California insurers and health plans can already legally rescind coverage if they can prove an applicant committed fraud in order to get coverage.   However, they don’t have to also meet the other test set forth by Hailey: that medical underwriting was completed before coverage was bound.

In 2009, California Gov. Arnold Schwarzenegger vetoed AB 2, legislation that would have permitted rescissions only in cases where both Hailey tests are met: medical underwriting is completed and an applicant intentionally committed the misrepresentation or omission in order to obtain coverage.  Health plans and insurers argued that would require them to meet an impossibly high legal burden of proof to make rescissions stick in court. That argument that found favor in Schwarzenegger.  In the previous legislative session, Schwarzenegger vetoed nearly identical legislation citing concern such a standard would harm a “fragile” individual health insurance market.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Academicians question “adverse deselection” in individual market

A post at the journal Health Affairs blog questions what I’ve termed “adverse deselection” —  when healthier people in the individual market decide to take their chances and drop their coverage to save premium dollars in the current economic downturn.  In California, Anthem Blue Cross contends the flight of these better risks left it with costlier insureds in its risk pool — what’s classically known as adverse selection — thus necessitating sharp rate increases to cover higher dollar claims brought by sicker individuals.  The theory is these folks will suck it up and pay the higher premiums in order to stay insured, knowing both that they’ll likely need medical care in the future and that they can’t shop around for lower premiums because no other insurers are likely to accept them due to their preexisting medical conditions.

Jonathan Kolstad, assistant professor of health care management at The Wharton School and Leonard D. Schaeffer of the University of Southern California’s Center for Health Policy and Economics, claim to have developed data casting doubt on that scenario.  “There is little evidence of a change in composition and size of the non-group insurance market between 2007, prior to the recession, and March of 2009, near the bottom of the recession,” they conclude.

Initially, I thought regardless of whether those dropping their coverage are healthy or not, the recession has likely shrunk the individual market.  Those who need medical services still have to pay the premium to keep their coverage in force.  And when comes down to paying the mortgage or a monthly health insurance premium that in many cases nearly equals the mortgage payment, it’s the latter that’s likely to go unpaid.  But consider another study issued this week by the UCLA Center for Health Policy Research projects California’s individual market actually grew during the recession, covering 8.5 percent of non elderly adult Californians at its start in 2007 to a projected 9.1 percent in 2009.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Big drop in Californians with employer-based coverage

Employment-based medical insurance is declining in the nation’s most populous state, falling from 57.3 percent of adult Californians aged 19 to 65 in 2007 to an estimated 51.3 percent in 2009, the UCLA Center for Health Policy Research reported today. Over this two-year period, the portion of this cohort insured through the individual market rose from 8.5 percent to a projected 9.1 percent.

The key driver in the drop in employer-based coverage is steep job losses.  Employment is a prerequisite for employer-based coverage and has become much harder to come by in California’s recession-wracked economy where unemployment exceeds 12 percent.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Reform legislation seeks to buttress individual market as employer-based coverage erodes

When President Obama took office last year and declared health insurance reform as a top domestic priority of his administration, he affirmed it would preserve employer-based coverage.  He rejected calls for a Canadian-style single payer system, branding it too radical and disruptive.

Nevertheless, the reform legislation that could come up for a final vote this month in Congress implicitly acknowledges an erosion of employer paid health care coverage in the United States.  It does with a focus on buttressing the individual market as an alternative for those who don’t get coverage through their jobs.  While this market segment currently covers only about five percent of the working age population, that number is likely to grow as more small employers stop providing health coverage to their employees.  The legislation lacks an “employer mandate” requiring small employers — defined as those with 50 and fewer employees — to slow that trend.

Instead, the reform bill appears designed to prop up the individual market, buttressing it as an alternative for those without employer-based coverage.  It does so by expanding the risk pool with a mandate that everyone but the very poor have coverage and requiring individual insurers to take all applicants including those with pre-existing medical conditions.

Individual insurers will have a larger number of insureds to share the risk and generate premiums. But they will also have sicker people in the pool with costly chronic conditions like diabetes they can no longer turn away.  The question going forward if the reform bill is signed into law is whether that approach is actuarially sustainable given continued projected increases in medical care expenditures and whether premiums can remain affordable even with subsidies.  It’s a critical question given the Obama administration’s reliance on the individual market to fill the coverage gap created by a shrinking small employer group insurance market.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Minimum medical loss ratio, individual mandate won’t corral rising premiums

Veteran Sacramento-based journalist and policy wonk Daniel Weintraub, who recently launched his Website, deserves a big shout out for pointing out California law requiring health plans and insurers spend at least 70 cents of each premium dollar on medical care for plan members and policyholders can do virtually nothing to hold down premium increases. Moreover, it may even lock in the absolute growth of health plan and insurer profits that many consumer advocates blame for rising premiums.

Simple mathematics explains why.  Seventy percent of medical treatment costs — a quantity that has been outpacing the rate of inflation over the past decade — is still a growing number in absolute terms.  For example, if the cost of providing medical care to plan members and insured policyholders increases from an average of $3,000 annually per plan member or policyholder to $5,000, a health plan or insurer would be required to spend on average at least $3,500 per member versus just $2,100 under the 70 percent minimum loss ratio requirement.  Premiums must naturally rise to absorb the increase.  The 30 percent left over after health plans and insurers meet the minimum medical loss ratio grows into a bigger pot of cash.  The same math would be at work if the minimum medical loss ratio were increased as some policymakers have advocated.

Rising medical treatment costs produce ratcheting upward pressure on both premiums and potentially the profits of health plans and insurers when administrative costs are netted out.  This ratcheting effect also undermines arguments by health plans and insurers that if everyone was required to have coverage — the so-called individual mandate — then coverage would become more affordable and accessible since there would be a much larger pool of people with coverage and paying in premiums to cover the cost of their medical care.

An individual mandate might produce some temporary relief by spreading risk across a bigger pool of people.  But due to the ratcheting effect of rising health care costs, the same underlying mathematics would be at work, simply subjecting a larger number of people to rising premiums while locking in higher absolute profits for health plans and insurers.

An individual mandate does however make sense when viewed from the perspective of the business model of health plans and insurers when that model assumes profit margins in the low single digits such as suggested last week by Anthem Blue Cross President Leslie Margolin in testimony before a California legislative committee.  Low margin businesses (such as grocery chains and airlines, for example) offset their skinny profit margins with big sales volume.  So it’s not surprising that health plans and insurers like the idea of forcing everyone to have coverage.  It would be like the airline industry requiring everyone to purchase at least one round trip ticket per year.  Or requiring everyone to shop at a major grocery chain outlet at least monthly.  It’s no wonder that both free market conservatives and more liberal consumer advocates dislike the individual mandate.  The former because it’s contrary to free market economics and consumer choice and the latter because they fear consumers will end up trapped on the up escalator of rising medical costs that will be passed through to them by health plans and insurers.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

Pols’ ire at “profits before patients” misdirected

California Assemblyman and Insurance Commissioner Candidate Dave Jones upbraided Anthem Blue Cross in a hearing in Sacramento this week over its sharp individual health insurance premium increases that are now slated to take effect May 1.   Jones expressed particular umbrage with Anthem Blue Cross for trying to make an underwriting profit and raising rates to offset an underwriting loss.  “How much profit is enough?” Jones asked  Anthem Blue Cross President Leslie Margolin.  When Margolin suggested a number in the single digit range of 2 to 5 percent, Jones responded “Have you no shame?”

In hearings in both Sacramento and Washington this week, Anthem’s deplorable sin is “putting profits before patients.”  But of course.  Anthem owes a duty first and foremost to its shareholders.  If Jones and other public policymakers have a problem with a for profit model of paying for health care, they should direct their ire — and search for alternatives — at the model itself rather than unfairly beat up those who work within it.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email or call 530-295-1473. 

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