Health Insurance Crisis

Late last week Boston.com’s White Coat Notes reported Massachusetts House leaders are proposing legislation that would create new state agency to monitor health spending and order reductions in hospital and doctor fees it finds excessive.  Hospitals charging patients 20 percent or more above the comparable median statewide contracted price would be face a 10 percent tax surcharge that according to the article would support struggling hospitals.  The California HealthCare Foundation’s CaliforniaHealthline has more details on the bill, H 4070.

Whatever happens in the Bay State bears watching inasmuch as its 2006 omnibus health care reforms served as a prototype for the federal Patient Protection and Affordable Care Act.

Meanwhile, CaliforniaHealthline reports a California ballot initiative that if qualified for the November 2012 ballot would have limited hospital profit margins to 25 was dropped by its sponsor, the Service Employees International Union (SEIU).  The California Hospital Association had termed the measure along with another SEIU-sponsored initiative requiring nonprofit hospitals provide at least five percent of their care on a charitable basis a “thinly veiled negotiating tactic.”

An Urban Institute Health Policy Center study released this week commissioned by the California State Controller’s Office found nearly 30 percent of health care expenditures for California state workers in 2008 were attributable to lifestyle-related chronic conditions such as diabetes, heart disease and hypertension. Ironically, the study determined, state entities with the highest percentages of employees with these preventable conditions staffed health-related departments including the Department of Health Care Services and the Department of Public Health.  According to this Sacramento Bee story, the latter department will pilot a workplace wellness program that was kicked off in a ceremony emceed by television personality Dr. Mehmet Oz.  Later in the week, Gov. Jerry Brown, noting preventable and chronic health conditions account for 80 percent of the Golden State’s healthcare expenditures, ordered the state’s Health and Human Services Agency to create a task force to develop a 10-year plan for improving the health of Californians.

California is to be commended in recognizing that some form of intervention is required to bring down medical utilization costs among its workers where a degree of choice and control can be exercised.  The California Public Employees Retirement System (CalPERS), is one of the nation’s biggest purchasers of health benefits, so whatever the state does to demonstrably bend the cost curve is likely to serve as a national model for public and private employers as well as payers and providers as an emerging accountable care paradigm begins to take root.

However, state officials should give thoughtful consideration to how this intervention is framed and executed if it is to have more than symbolic value and actually reduce medical expenditures.  “Workplace wellness” is a misnomer insofar as the lifestyle choices that can exacerbate — and prevent — chronic conditions are made mostly outside of the workplace and involve personal decisions concerning exercise, meals and sleep.  Moreover, a 2011 survey of employers found mixed results among those that adopted workplace wellness programs in terms of tangibly improving the health status of employees.

Instead of “workplace wellness,” the focus should be simply on wellness.  It should treat employees like adults and give them the freedom to make the personal lifestyle choices they and their medical providers believe can best improve and preserve their health and fitness.  Confining employees to a cubicle for set work hours 40 hours a week and adding on more sedentary time spent commuting to and from that cubicle is hardly a health promoting activity.  It robs workers of valuable time that could be spent on activities that enhance health, particularly sustained exercise.  Nor is it necessary since Information and Communications Technology (ICT) has matured to the point knowledge state employees who are mostly knowledge and information workers can do their jobs from a home office or wherever else they can concentrate and be productive.

On this point, California’s pilot employee wellness program should incorporate a Results Only Work Environment (ROWE).  A ROWE values getting the work done over daily office attendance.  Early indications are that workplaces that adopt ROWE can achieve better health status.  A University of Minnesota study issued in December 2011 found workers in a ROWE realized increased health-related behaviors of more sleep and exercise — behaviors that can go a long way toward maintaining health and reducing medical utilization.

California lawmakers are concerned a trend of small employers self insuring their employee health benefits and purchasing stop loss coverage for cases when a given worker incurs high medical bills will play havoc with the state’s small group health insurance market.  The chief concern is the arrangement will further reduce an already shrinking and distressed market segment and foster adverse selection as the state prepares to bolster the market starting in 2014 with a Small Business Health Options Program (SHOP) offered through the California Health Benefit Exchange.

Lawmakers are responding by imposing restrictions on medical stop loss coverage with SB 1431, legislation sponsored by California Insurance Commissioner Dave Jones and approved this week by the Senate Health Committee setting higher attachment points for the insurance.  Stop loss coverage has been reportedly offered with attachment points as low as $10,000 to $20,000.  Combined with a $1,000 to $2,000 deductible, employers would be responsible for an employee’s medical bills in a relatively narrow window above the employee deductible and below the stop loss attachment point.  Stop loss insurance kicks in when an employee’s medical costs exceed the attachment point.

“SB 1431 is necessary to prevent the state’s small group market from falling victim to adverse selection and unsustainable premium levels and protecting California’s small businesses, its employees, and the success of the post-ACA (Affordable Care Act) insurance market,” the committee’s analysis notes.

California legislative health committees have approved legislation authored by their chairs that would require health plans and insurers to transition from medical underwriting to community-based rating in 2014.  The authors of the bills, AB 1461 and SB 961, said they would conform California law to a similar provision of the federal Patient Protection and Affordable Care Act (PPACA) that becomes effective that year.

The California Association of Health Plans (CAHP) opposes the bills unless they are amended to also mirror the PPACA’s requirement that all individuals be enrolled in a health plan or have health insurance.  If the PPACA’s so-called “individual mandate” is set aside as unconstitutional by the U.S. Supreme Court this year, CAHP fears without a similar requirement in California law, health plans will fall into the adverse selection death spiral and become actuarially unsustainable.

But putting teeth into any California requirement that all residents have some form of medical coverage could prove problematic since those teeth like the PPACA version would likely take the form of a penalty or excise tax.  As a new tax, it would require approval by two thirds of the California Legislature, which would be a near political impossibility as long as Republicans hold at least one third of the seats in either house.

CAHP also dislikes provisions in the bills that would bar health plans from considering smoking when setting an applicant’s rates, arguing it would lead to non-smokers subsidizing smokers.

Various California officials have been signaling over the past month or so that the Golden State would implement health reforms similar to those of the Patient Protection and Affordable Care Act (PPACA) if the U.S. Supreme Court rules the law unconstitutional this summer.

One influential state lawmaker, Senate Health Committee Chairman Ed Hernandez, put that intent on record this week.  He amended his SB 1487 to state legislative intent “to enact into state law any provision of the Affordable Care Act that may be struck down by the United States Supreme Court and that is necessary to ensure all Californians receive the full promise of the act.”

California continues moving forward to implement the Patient Protection and Affordable Care Act (PPACA), advancing legislation this week setting minimum coverage standards for health plans offered by small employers and sold through the California Health Benefit Exchange.

Section 1302 of the PPACA delineates 10 “essential health benefits” small group and individual market plans must offer including ambulatory and emergency services, hospitalization, maternity and newborn care, treatment for mental health and substance use disorders, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management and pediatric services, including oral and vision care.

Since health insurance markets vary among the states and to speed state efforts to establish health benefit exchanges, the U.S. Department of Health and Human Services late last year issued guidance allowing states to choose one of the following plans sold in their jurisdictions as a benchmark:

• One of the three largest small group plans in the state;
• One of the three largest state employee health plans;
• One of the three largest federal employee health plan options;
• The largest HMO plan offered in the state’s commercial market.

California advanced legislation this week, AB 1453, defining HMO Kaiser Permanente’s small group plan as of December 31, 2011 as the Golden State’s benchmark.

The Los Angeles Times‘ Chad Terhune via the Sacramento Bee quotes a key California legislator expressing support for a California version of the Patient Protection and Affordable Care Act’s (PPACA) coverage mandate if the federal law’s mandate is ruled unconstitutional by the U.S. Supreme Court.  California Insurance Commissioner Dave Jones also seems to favor an insurance mandate if the Golden State ultimately moves to put its own in place but doesn’t directly say so in Terhune’s story.

A week earlier, California Human Services Secretary Diana Dooley expressed support for the mandate, which state payer organizations contend is essential to prevent adverse selection in the state’s individual market, the largest in the nation as a percentage of working age adults and their dependents.

If the U.S. Supreme Court decides this summer that the Patient Protection and Affordable Care Act’s (PPACA) mandate that all Americans have health coverage or purchase it by 2014 is unconstitutional, California could nevertheless move forward with its own health reform plan including such a mandate.  That’s according to the state’s Health and Human Services Secretary Diana Dooley, per this excerpt from this story appearing in today’s Sacramento Bee:

If the court does rule the federal law unconstitutional, state Health and Human Services Secretary Diana Dooley said California should at least consider enacting its own universal health care legislation, including requiring every Californian to buy insurance.

“I think that we should be committed to making this system more rational than it is today, and improving the health of the people of California,” Dooley said in an interview. “If we ask the insurance plans to take everybody and insure everybody with no screens or pre-existing conditions, then we have to have everybody buying some level of health insurance to meet their responsibility to the system.”

That reciprocity was a core principle of the Health Care Security and Cost Reduction Act.  In early 2008, California lawmakers considered but rejected the legislation championed by then-Governor Arnold Schwarzenegger and top legislative leaders.  Like the PPACA, the act was modeled after Massachusetts legislation enacted in 2006 that also served as a prototype for the PPACA and included as a central feature the so-called “individual mandate” requiring adults to have some form of public or private health insurance or managed health care plan.  In turn, insurers and health plans would abandon medical underwriting and accept all applicants regardless of medical history, thereby making coverage accessible to more people.  Other key policy goals of the mandate are to alleviate “cost shifting” in which those who have coverage end up paying for health care costs of those without coverage through higher premiums and to reduce the threat of adverse selection that can rapidly render payers insolvent.

It remains to be seen whether California would move forward with its own reform plan if the PPACA fails to survive judicial scrutiny by the nation’s highest court.  Increasing the probability is the view among the Golden State’s health care industry leaders that health care reform has achieved critical mass and will move forward regardless of what happens at the federal level.

Also generating momentum for reform is the state’s already partially spent federally funded investment in setting up the California Health Benefits Exchange under the PPACA to create a marketplace to help individuals and small employers aggregate their purchasing power.  Then there are the state’s demographics.  California is the nation’s most populous state and has more people in the individual health insurance market than other states — about eight percent of those 65 and younger versus about five percent in the nation as a whole.  It also has a relatively large percentage of medically uninsured residents, whose numbers have increased as many people lost employer-paid coverage in the economic downturn.

The recession was just getting underway when the Health Care Security and Cost Reduction Act was before the California Legislature, prompting then-state Legislative Analyst Elizabeth Hill to question if the state could afford its tax credits, subsidies and other costs.  Four years later, the state’s finances remain under siege amid ongoing deep budget deficits. Selling the individual mandate could also prove politically challenging as it did in 2008, when California health care payers were divided over it and business and consumer interests nearly uniformly opposed.

The death spiral of California’s individual health insurance market appears to be speeding up.  The market segment — which covers about eight percent of working age Californians — has been plagued by adverse selection as relatively healthy people drop coverage.  That in turn forces managed care plans and insurers to boost premiums to make up for the lost dollars when healthier people pull out of the pool and to cover the costs incurred by the less healthy who feel they must keep their coverage in place.  Exacerbating the problem, payers attempt to staunch claims with strict medical underwriting guidelines that reject relatively healthy individuals whose premiums could bolster the solvency of the pool.  As premiums keep rising, even more people question the value of paying the higher rates.  Or can’t afford them even if they want coverage as monthly premiums equal the size of modest home mortgage payments.   As the state’s individual market fails, self-employment is becoming synonymous with being medically self-insured.

Take for example, the Libresco family of San Rafael, California, mentioned in this recent Los Angeles Times story on the latest round of rate increases by the state’s largest individual market payer, Anthem Blue Cross:

Last month, Anthem notified Josh Libresco, a 57-year-old marketing researcher in San Rafael, that his family’s monthly premium would increase 29% to $1,636, effective May 1. This is after Anthem raised the deductible for the family of four to $5,900 from $5,000 last fall as well as increasing co-payments for doctor visits and prescription drugs.

“I don’t know how people can afford these increases every year. We are about at our limit,” Libresco said. “Whether it’s 20% or 29%, it’s still an enormous number.”

It’s not hard to see why this family might be inclined to drop its coverage.  Especially when they are essentially getting only catastrophic coverage but not at a price they would expect to pay for it.

Self-insuring health benefits has traditionally been the province of large employers that could afford to assume the risk of paying much of their employees’ health care costs.  Smaller employers with too few workers to feasibly spread that risk have traditionally relied on insurance as a risk transfer mechanism.

In a sign of how distressed the small group health insurance market has become, that notion is being turned on its head.  Now small employers are shunning insurance and self-insuring their health benefit risk — to a certain point.  After an employee’s medical costs hit a set amount, stop loss insurance kicks in.  That “attachment point” as it’s referred to in insurance terminology can be as low as $10,000 to $20,000, according to this Los Angeles Times article.

As the Times reports, the practice is stoking controversy and raising concern it could steer small employers away from Small Business Health Options Programs (SHOPs) being set up under the state health benefit exchange component of the Patient Protection and Affordable Care Act (PPACA). Beginning in 2014, SHOPs will allow small employers to offer employees a variety health plans like so-called “cafeteria plans” offered by large employers.  The concern is without sufficient participation by employers, the SHOP plans could face increased risk for adverse selection by limiting the size of the SHOP’s risk pool.

While not directly saying so in the Times story, California’s insurance regulator is sufficiently alarmed by the potential threat to the actuarial integrity of that state’s yet to be formed SHOP that he wants legislation that would require higher attachment points for self-insured small employer health stop loss coverage.  That would also make self-insurance a less attractive option for small employers than getting coverage through the Golden State’s SHOP, reducing the SHOP’s spread of risk.  The California Health Benefit Exchange issued a solicitation last month seeking bids to help it design its SHOP.