Health Insurance Crisis

Critics of employer-based health insurance (and single payer advocates) will likely point to this recent article by the California HealthCare Foundation’s California Healthline reporting on a recent UCLA Center for Health Policy Research report finding 670,000 Californians lost employer provided health insurance in 2008 and 2009.  The article quotes Shana Lavarreda, lead author of the report, describing the numbers as an indication that medical coverage among middle class Californians was significantly undermined by the economic downturn and resulting job losses.  “The uninsured here is less and less an undocumented [worker] problem, and now it’s more of a Main Street problem,” Lavarreda told California Healthline.

The report has implications for the Patient Protection and Affordable Care Act, which is predicated on all Americans being in a public or private managed care or health insurance plan by 2014 — with the bulk of private coverage employment-based.  The experience of California (and certainly other states) in the two years leading up to the enactment of the Act in 2010 shows that employer-based coverage — which had been eroding even prior to the recession with fewer small employers providing coverage — remains quite vulnerable to fluctuations in the economy that disrupt employment.

If the U.S. Supreme Court severs a keystone element of the Patient Protection and Affordable Care Act that mandates all Americans have public or private health coverage by 2014 but leaves intact another key provision requiring insurers and managed care plans to accept all applicants without medical underwriting, payers would experience adverse selection and premium rates would necessarily rise in response, making coverage less affordable.  That undermines a key objective of the 2010 law designed to reduce the number of people who are medically uninsured, the UCLA Center for Health Policy Research concludes in a research note issued this month.

The note determined this scenario would result in only a small reduction in the number of medically uninsured Californians by 610,000 or 13 percent of the eligible uninsured by 2019. Eliminating the minimum coverage requirement while leaving in place the PPACA’s modified community-based rating where coverage is guaranteed to all applicants would not allow payers to avoid covering less healthy individuals more likely to need expensive medical care.

The UCLA research note effectively concurs with an amicus curiae brief in the Supreme Court case filed by health insurers and plans who contend the PPACA’s coverage mandate is designed to work in conjunction with community-based versus individual medical underwriting and therefore cannot be excised from the law.  “The result would be a ‘marketwide adverse-selection death spiral’ that would thwart rather than advance Congress’s goal of expanding affordable health care,” they warn.

The California HealthCare Foundation’s CaliforniaHealthline reports today on an about face by California’s Pre-Existing Condition Insurance Plan (PCIP) that could be a warning of things to come for other state high risk pools.

California’s PCIP was among the first state pools to open for business under a provision of the Patient Protection and Affordable Care Act (PPACA) that created interim high risk pools to provide temporary coverage at standard market rates until insurers and managed care plans must accept all applicants starting Jan. 1, 2014.  The PPACA allocated $5 billion to subsidize the pools since by definition they are an adverse risk selection mechanism and aren’t likely to cover claims costs solely with insureds’ premium dollars.

After getting off to a slow start in 2010, federal and state officials grew concerned that too few people were signing up for coverage.  So this summer, the Obama administration opened the tap wider on the $5 billion interim high risk pool subsidies, reducing premiums effective July 1 in two dozen states where the federal government runs the pools.  California’s PCIP soon followed, reducing premiums by as much as 20 percent to attract more enrollments.  The tactic worked, but perhaps too well.  Previously believing there were too few enrollees, California’s Managed Risk Medical Insurance Board (MRMIB), which oversees the PCIP, is now apprehensive too many will come aboard and sink the ship.

CaliforniaHealthline’s David Gorn explains:

 The threshold for the number of Californians who might participate in PCIP was estimated at about 23,000 people. Since a few more than 5,000 people signed up in that first year – and new enrollees came on board at a rate of roughly 500 a month – it seemed that the program was financially stable and able to take on more participants.

But after the first year, state officials got their first real claims data to test that estimate, and the amount required by recipients was much higher than expected. That 23,000-person threshold estimate was reduced to 6,800 Californians.

That means (given current enrollment of 5,290 including last month’s bump of 726 new subscribers), there’s now only room for a little more than 1,500 new enrollees (which is about two months’ worth of enrollees, given October’s bump of 726 new subscribers).

Unless the federal government pumps more money into the program.

In other words, more people are enrolling, but bringing with them high medical utilization costs that challenge the ability of the MRMIB to keep the PCIP solvent until 2014 when it will no longer be needed.  Other states may soon experience a similar conundrum:  fulfilling the PPACA’s mandate to have the interim high risk pools serve markets of last resort that must accept applicants without medical underwriting while having enough money to pay for their care.  And manage to do so for nearly four years.

A little more than one year ago, this blog discussed how the interim risk pools could become a catastrophic coverage pool for those requiring very high cost care and threaten to rapidly draw down the $5 billion appropriated for them in the PPACA.  This may well be happening now.

As Business Law Daily reports, California legislation that would have subjected health insurers and managed care plans to a prior approval rate regulation scheme has been shelved for this year.  AB 52 could however be revived in 2012, the second year of the two-year legislative session.

A logical argument can be made that health insurers and managed care plans should be subject to prior approval rate regulation.  California’s market for health coverage is an oligopoly in which a handful of big payers control about 90 percent of the market.  Given the lack of robust competition, market forces alone aren’t likely to check premiums.  But it’s also not clear that placing payers under prior rate approval like the state’s far more competitive property/casualty insurance marketplace would do so either.

Payers would still pass along the relentless rise of medical care costs to policyholders and members.  Perhaps not as quickly since regulators would first have to green light premium hikes.  But ultimately higher medical costs would be reflected in increased premiums.

Just as the Baby Boom generation drove up auto insurance premiums in the years after its members got their drivers licenses until middle age and they became safer, more experienced drivers, the Boomer generation’s now aging cohorts are placing enormous cost pressures on health insurers and managed care plans.  Those demographic forces as well as rising chronic conditions and obesity among later generations cannot be corralled by insurance rate regulation.  They can be mitigated by healthier, more balanced lifestyle choices — choices made by individuals and not regulators.

With the advance this week of California legislation that would subject premiums for health insurance and managed care plans to prior rate regulatory approval, the New America Foundation’s Micah Weinberg correctly notes in a Sacramento Bee op-ed article that regulating insurance rates is a piecemeal solution.

From a logical standpoint, regulating premium rates makes sense insofar as only a handful of insurers and managed care plans control about 90 percent of the market in California.  That’s not a robust competitive market that will work to hold down premiums.

Even so, Weinberg correctly suggests, these companies are not the ultimate market makers for health care.  Insurance and managed care is a risk spreading and pre-payment mechanism, respectively, that doesn’t ultimately price the cost of health care.  Instead, insurers and managed care plans act as intermediaries, passing along the increased costs of health care utilization to their policyholders and members.  That’s why they strongly opposed the California rate regulation measure — out of well-justified fear of being squeezed by increasing costs for covering their customers at the same time regulators pressure for lower premiums.

Some states including Maryland recognize this and have responded — as some nations have done — by imposing price controls on medical providers.  Weinberg notes Massachusetts is considering legislation that would allow regulators to bar rates charged by hospitals to payers as excessive.

As group health insurance premiums continue to rise, HealthLeaders-InterStudy reports growing interest among mid-sized California employers in directly paying employee medical costs, known as self insurance.

The findings are reported in HealthLeaders-InterStudy’s proprietary California Health Plan Analysis.  The report notes CIGNA HealthCare is seeing “significant sales increase” in a self-funded product tailored to smaller groups, adding that other California group health insurers are expected to respond by developing self-funding products offering financing plans to mitigate the risk associated with paying all of a group’s medical claims.

Most importantly, since employers will be paying for their workers’ health costs out of their own coffers, they will have far greater incentive to promote employee wellness and management of chronic conditions.  So far, workplace wellness efforts have produced a mixed verdict in terms of their effectiveness.

The bulk of individuals buying health plans through health benefit exchanges established by the Patient Protection and Affordability Act (PPACA) starting Jan. 1, 2014 will be low to low moderate-income earners, making less than 400 percent of the Federal Poverty Level (FPL).  An actuarial projection by Mercer Government Human Services Consulting presented this week at a Sacramento, Calif. symposium sponsored by the California HealthCare Foundation estimates that just 25 percent of about 4.6 million Californians not covered by employer or government plans will purchase coverage through the California Health Benefit Exchange.

Most in the state’s individual market earning more than 400 percent of the FPL will purchase commercial insurance and managed care plan products offered outside the exchange, the Mercer estimate concludes.  On the other hand, “virtually all” individuals earning between 200 and 400 percent of the FPL will opt to purchase their coverage through the exchange, Mercer projects, in order to benefit from subsidies in the form of tax credits.

That’s shaping up as a bifurcated individual market, giving rise to insurer concerns over the prospect of adverse selection, with higher cost insureds gravitating toward the exchange, particularly if commercial insurers continue their primary competitive strategy of avoiding those with pre-existing conditions.  But as noted at this week’s Sacramento forum, insurers won’t be able to wall off higher risk individuals in the exchange since they will be required to pool risk from both exchange and non-exchange insureds.  That has some insurers concerned that the experience of the exchanges could actuarially jeopardize commercial markets outside the exchanges.

The nascent California Health Benefit Exchange hopes to stave off adverse selection by penalizing or excluding from the exchange insurers that engage in marketing practices designed to cherry pick healthy individuals while directing higher-risk consumers to the exchange.

A New York Times piece published May 13 suggests insurers see tougher times coming once the exchanges open for business in less than three years.  In the meantime, they’re making hay while the sun is shining and medical utilization is suppressed by a weak economy.  “I think they’re going to go through a winter,” Paul H. Keckley, executive director of the Deloitte Center for Health Solutions, a research unit of the consulting firm Deloitte, told The Times.

The California Department of Managed Health Care (DMHC) is questioning the reasonableness of a May 1 rate increase Anthem Blue Cross will be taking for 120,000 individual managed care plan members.

DMHC sent a letter to Anthem Blue Cross asking for an explanation for the rate increase and why it is higher in comparison to indemnity-based insurance products with similar deductibles. DMHC regulates managed care plans in the state.

In an April 25 letter in response to DMHC, Anthem Blue Cross states its individual managed care plan pool is shrinking.  The letter strongly implies adverse selection requires it to boost rates to keep up with losses incurred by those members remaining in the pool who tend to use high levels of medical services.  Anthem Blue Cross projects it will incur a medical loss ratio of 88.5 percent for individual managed care products for 2011 after a 16 percent rate hike and increased deductibles effective May 1.

See the conclusion section on page 7 of Anthem Blue Cross’s letter.

More evidence the individual health insurance market segment in the nation’s biggest individual market — California— appeared in today’s Los Angeles Times. While an Anthem Blue Cross spokeswoman wouldn’t confirm the account, the newspaper reports a couple was told by the insurer it was shuttering the couple’s $2,500 deductible plan because the risk pool is shrinking and no longer viable.

“A shrinking risk pool will eventually mean that the only people left in the plan will be ones with preexisting conditions,” John Barrett, a Pasadena health insurance broker told The Times. “Over time, rates would go up more than other plans.”  In a nutshell, that describes adverse selection in which insureds likely to place the greatest demands on the risk pool comprise an increasingly larger portion of the pool, forcing the insurer to raise premiums in order to ensure the pool remains solvent.

The report comes a little more than two months after Paul Markovich, COO of Blue Shield of California, told a Sacramento, Calif. health care forum that adverse selection is placing “tremendous stress” on the individual health insurance market.

For sedentary office-based jobs, workplace wellness is something of a non sequitur.  Especially considering American adults spend nearly half their waking hours at work (not counting commute time) as was pointed out earlier this week at a Sacramento, Calif. symposium on wellness incentives hosted by the California Senate and Assembly Health committees and the California Endowment.  Employers remain split on the benefit of workplace wellness programs.  In a recent survey, equal numbers indicated that the programs have either improved or had no appreciable impact on the health of their workforces.

Symposium participants discussed making it easier for cubicle-bound workers to move around more at work by providing onsite exercise classes and breaks.  Also, installing standing “tread desks” that allow workers to walk a treadmill while working.  I imagine typing on a keyboard is rather challenging in this moving position that aside from the cost of these machines calls into question its widespread use and adoption.  The tread desk has great ironic symbolism attached to it.  It represents — to the point of absurdity — how some employers are attempting to accommodate a deeply embedded industrial age notion that knowledge work can only be accomplished in a office or cubicle located in an urban center or office park while at the same time encouraging office workers to get off their duffs and move more in order to reduce health care utilization and absenteeism.

A more elegant and sensible solution is to treat knowledge workers as knowledge workers instead of assembly line workers who can only do productive work at a “bench” or desk during set timeframes.  Knowledge workers conceptualize, analyze, synthesize, problem solve, write and report.  That work is essentially performed in the brain.  The brain goes wherever the worker goes and is location independent.  Moreover, as many office workers can attest, it doesn’t easily switch on and off in “work time” and “non work time” mode.  With information accessible most everywhere 7/24 via the Internet, it’s potentially always working.  The best and most creative ideas and solutions to tough problems are often conceived outside the formal workplace. They bubble up during sleep and exercise, particularly vigorous exercise when the brain is flooded with endorphins and oxygen.

Some of the best thinking and problem solving can be done outside the workplace doing the very things health experts say most Americans need more of to maintain better health: sleep and exercise.  That’s a prescription for potentially enhanced employee wellness and improved productivity.  Throw in using office space for meetings instead of housing workers in cubicle farms five days a week and there’s the added bonus of saving on office overhead as well as employee health costs.

The ultimate workplace wellness program for knowledge workers is to allow them to work anywhere and manage their schedules.  They’ll have a lot more time for exercise when they’re not commuting and sitting in traffic.  Measure their work product by the quality of the product — and not by how many hours they put in at the office.