The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Archive for October, 2007

Unintended Consequences: A Looming Example

Posted by Alan on October 16, 2007

The law of unintended consequences is like gravity: it’s pervasive and unavoidable. Take ERISA. It was passed for the right reasons: to protect the health and pension benefits of American workers. Over the years, however, it has resulted in some unintended consequences which makes it difficult for states to experiment with certain health care reform models. For California, this may lead to a situation that has dire consequences for among the most in need  of help — lower income workers.

First some background: ERISA preempts some state laws relating to pensions and health benefit plans in part to enable national companies to have uniform programs in place across their entire workforce. As a result, when Maryland tried to enact a “pure” pay-or-play plan, one which would only have impacted WalMart, it was overturned in 2006 by the Fourth Circuit Court of Appeals on ERISA grounds. Just this year a federal district court in New York used similar reasoning to turn down a Sulfolk County ordinance.( For those wanting to learn more about ERISA and its impact on state health care reform, a good place to start is on the California Healthcare Foundation’s health care reform site.)

In part because of ERISA, the Governor’s current proposal pretty much leaves the group marketplace alone. For example, it does not (and under ERISA, probably could not) impose a minimum benefit package on health plans provided by employers.

Then things get complicated. The Administration wants to create a pool to provide low- and middle-income families (those with incomes up to about $50,000 for a family of four) with subsidized coverage. ERISA, however, requires a firewall to isolate the pool from the group group marketplace. Another provision of the plan (again, inspired in large part by ERISA) results in workers offered coverage under an employer plan ineligible for state subsidies.

Taken together the result will be that some low-income employees will be offered health care coverage by their companies requiring higher cost sharing than they would pay if they could participate in the purchasing pool. But being offered work-based coverage makes them ineligible to participate. It’s a Catch 22. It’s unintended, but it’s a consequence.

There are ways to mitigate this harm. For example, employers could be permitted and encouraged to pay more of the premium for lower-wage workers than for those earning more. To the extent existing laws or regulations hinder this approach in the small group market, changes to those obstacles should be made. Every creative solution to help help those who find themselves trapped by this dynamic should be explored.

Regardless of whatever mitigation emerges, however, this unfortunate situation highlights the reality of any legislation. The Governor’s proposal, with some modification, would benefit millions of Californians. Some, however, would fall through the unintended fissures every law creates. Yes, every law. This particular problem confronts the Governor’s efforts. Those with more far reaching solutions should not be smug however. Whenever anyone says their solution solves every problem, that it’s cost free yet delivers more, they’re simply ignoring the law of unintended consequences. As a wise man once said, we rarely solve problems, we just replace them with new ones.

Posted in California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , , | Comments Off on Unintended Consequences: A Looming Example

It’s About Controlling Health Care Costs: Learning from Massachusetts

Posted by Alan on October 14, 2007

Massachusetts’ health care reform experiment is nearly 18 months old now. According to an article in the San Jose Mercury News reports some fear “the initiative may buckle under money pressures in coming years.”

The good news is that the program successfully enrolled 200,000 previously uninsured people, virtually all of them in free or heavily subsidized coverage. These tended to be the state’s neediest residents. Those who were ineligible for state help and were uninsured are not flocking into the system, at least not yet.

The problem, according to Alan Sager, a professor of health policy and management at Boston University, is that “We’re covering more people, but it’s not sustainable over the long haul. The law does nothing to control costs.” And there’s the rub.

California may or may not pass comprehensive health care reform soon. The people of California may or may not pass any of several health care reform initiatives which will come to a vote in 2008 to fund these health care reforms. The problem is, that while we call these efforts health care reform, they mostly focus on health insurance reforms. Yes, they include cost containment provisions such as moving to electronic health records, promoting healthier lifestyles and wellness programs, encouraging evidence-based medicine and the like. But the reality is that the population is getting older, new technologies cost more, and consumers expect more from their medical care. In short, the underlying cost of health care is going to continue to increase regardless of what insurance reforms are put in place.

Attacking insurance company practices is good politics — and changes in market behavior are needed. Achieving universal coverage would be a real benefit to millions of Californians. It’s a goal we should move toward as soon as we can devise a workable way to get there. Health insurance reforms are needed (although some of the approaches being advocated are very ill advised). We need to recognize, however, that this approach addresses only a part of the problem, and the easiest part at that. What is most necessary is also much tougher: bringing the rate of health care costs down to something resembling overall inflation. There’s no magic solution for this. It will require tough choices and brave leadership. But as we’re learning from Massachusetts, failure to confront this challenge will undermine whatever so-called health care reform package emerges.

Posted in California Health Care Reform, Health Care Reform, Healthcare Reform, Politics, State Health Care Reform | Tagged: , | 11 Comments »

It’s Tough Being Post-Partisan. Just Ask Governor Schwarzenegger.

Posted by Alan on October 13, 2007

There are three political parties in Sacramento: Democrats, Republicans and the Post-Partisans. The Democratic Party holds large majorities in both houses of the legislature. The Republican Party has enough votes in both houses to block anything requiring a two-thirds majority vote. The Post-Partisan Party is far smaller than either. In fact, it has only one member: Arnold Schwarzenegger. Of course, the fact that Mr. Schwarzenegger is also Governor Schwarzenegger gives the PPP a fair bit of clout. In the highly partisan environment that surrounds the state capital, however, it’s tough being a party of one.

The Governor put forward his health care reform plan earlier this week. There were some significant changes from what he proposed in January. The Governor and his staff were clearly listening to a lot of interested parties. Whatever one might think of the specifics, the Administration deserves credit for trying to find a compromise which all political parties could, and arguably should, support — at least in principal.

(Two things: Yes, I know the Governor is really a Republican, but bear with me for now. And personally, I have several serious problems with the Governor’s proposal, which I’ve described elsewhere. Now, back to our regularly scheduled post).

Yet he’s having a tough time finding anyonein the State Capital who agrees with him. Consider: the Governor’s proposal actually achieves universal coverage, which Democrats strongly support. It doesn’t achieve this goal by creating a government-run health care system, but at the end of the day, everyone would have health care coverage. The Governor even expanded subsidies to folks the Democratic health care reform legislation, Assembly Bil 8 (which the Governor officially vetoed yesterday), left behind. One might think the Democrats would applaud the Governor for this. They might applaud his call for expanding  state health care programs to cover more low-income residents, for calling for insurance reforms similar to what was in AB 8, and for subsidizing premiums for a large part of the middle class in the state. One might expect this, but one would be disappointed.

The Democrats and their allies in Labor are hammering the plan for failing to subsidize residents with households of $100,000 (for a family of four).  Having teased the Governor in the past for failing to put his reform plan in legislative form, they now complain it took so long. Democrats, hurried passage of their own bill through the Legislature on the last day of the regular session are now saying that health care reform is too complicated to rush. “Taking a few extra weeks is the responsible thing to do,” says Assemblyman Hector De La Torre according to the Sacramento Bee.  Assemblyman De La Torre, who chairs the Assembly Rules Committee, is right. Yet that wasn’t what we were hearing a month ago.

Meanwhile the Governor has embraced some of the ideas put forward by Republicans, especially the idea of encouraging use of community-based health clinics. He is also standing firm against a 7.5 percent payroll fee on business, instead suggesting a four percent tax on business.  Yet the rush of Republican lawmakers seeking to carry the Governor’s proposal is, well, there is no rush. Not one GOP lawmaker wants to be associated with the proposal.

So the Governor is learning just how difficult it can be to be a party of one. He’s getting knocks from the left and the right. He has no allies on this issue, at least among Legislators. There’s no party loyalty he can fall back on as he doesn’t share party affiliation with anyone else in Sacramento. In the immortal words of Three Dog Night (actually Harry Nilsson), “one is the loneliest number.”

The upshot is that the chances for health care reform this year are small and shrinking. The Associated Press reports Speaker Fabian Nunez as saying he still has hope of reaching a compromise on health care reform with the Governor. Then the Speaker goes on to say, “Are we far apart? …  Yeah. I think we’re a bit apart.” Meanwhile the Sacramento Bee reports Speaker Nunez as declairing, “… where we end up on health care will look a lot like AB 8 – particularly on affordability, fair participation from employers and keeping the costs of presciption drugs down.” I don’t want to read too much into a couple of simple statements. However, given the fact that the Speaker’s allies in Labor and the Legislature are ripping the Governor’s program, the hardening of his own public position, and the change in tenor from Mr. Nunez’s previous statements, it may be that “a bit apart” is a gap too wide to bridge.

While regrettable, this isn’t a bad thing, so long as the effort to craft health care reform legislation continues. After all, the important thing is to get health care reform right. If it can’t be done before the Legislature convenes in January, as Assemblyman De La Torre suggests, so be it. However, it would be a shame for the special session to turn into a forum for partisan bickering instead of a time when all three parties can seek out common ground and attempt to develop a compromise which improves on what each is currently proposing.

Either that or Governor Schwarzenegger really needs to start recruiting more members into the PPP.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , | 1 Comment »

Four Problems with the Governor’s New Health Care Proposal

Posted by Alan on October 12, 2007

The Governor’s revised health care proposal is a substantial improvement over what he originally put forward in January of this year. I’m impressed with the Administration’s willingness to listen to concerns and to try to address them. As I’ll be writing about the proposal a great deal in the next several days I thought it would be appropriate — and easier — to address my four biggest concerns in a separate post (this one). That way I don’t have to recite them in each of these future posts. (Warning: The bill is complex and I haven’t thoroughly digested it yet, so I reserve the right to increase this list later).

Problem #1: The Purchasing Pool.
Having a state-purchasing pool for individuals enrolled in state programs like MediCal and Healthy Families makes sense. A pool for individuals receiving premium subsidies through tax credits doesn’t. Purchasing pools have repeatedly shown themselves unable to bring down the cost of coverage, but they can distort the marketplace. Further, they can  become an irresistable magnet for expanding state interference in the market (I personally believe the state’s role in health insurance is to regulate the market, not to participate in it).

If the Governor insists on a pool that goes beyond MediCal and Healthy Families, however, there should be legislative language to thwart the natural tendency of regulators and state agencies to tilt the playing field in the favor of the pool. After all, when the umpire picks up a bat and steps up to the plate, he’s rarely called out on strikes. If there is to be a pool for those receiving premium subsidies it should be voluntary (which it is in the Governor’s plan) and it should have no artificial advantages over the private marketplace. This needs to be made clear in the legislation.

Problem #2: Minimum Coverage
The Governor’s January proposal outlined the minimum coverage individuals would need to obtain. In the October version he instead calls for the Secretary of the Human and Health Services Department to develop the minimum package. The problem is, without knowing what this coverage will look like it’s impossible to determine the impact the reform package will have on individuals’ pocketbooks and the state’s finances. I appreciate the political challenge in defining a minimum package in the legislation itself, but that’s the responsible course and the Governor should take it.

Problem #3: Enforcing the Mandate to Buy
I personally support requiring carriers to accept all applicants for coverage, regardless of their health (something called “guarantee issue”), but only in the context of a mandate for individuals to buy coverage. Otherwise there’s no reason for anyone to get insurance until they’re on their way to the hospital. It’s the equivalent of allowing people to buy auto insurance after their wreck is in the body shop. New York and New Jersey’s health care systems work this way and it’s a major reason why New Yorkers and residents of New Jersey (what are residents of New Jersey called? New Jersians?) pay 350% more for their individual health insurance policies than do Californians.

The Governor’s proposal is a bit vague on how it would enforce the mandate to obtain coverage. It allows late applicants to buy only the minimum benefit package (although, as noted in Problem #2, it fails to define what that is). But as enforcement goes, this is downright weak. The Administration a more robust plan. As I have before, I strongly encourage them to consider the enforcement mechanism outlined in CAHU’s Healthy Solutions health care reform plan.

Problem #4: The 85% Medical Loss Ratio
I understand the motivation behind the Governor requiring carriers to spend 85 percent of the premium they take in on health benefits (in insurance speak this means an 85 percent Medical Loss Ratio or “MLR”). If individuals are going to be required to buy insurance, they should know their money is being used efficiently. An 85 percent MLR would seem to address this concern. Unfortunately, the unintended consequences that could result more than offsets the intended benefit.

First, this proposal may drive up the cost of insurance. Since most administrative expenses are fixed costs, if the 15 percent of premiums left to cover them is insufficient carriers will have two options: eliminate administrative activity or increase premiums. The latter will be the easiest and, in many instances, the most reasonable approach After all administrative costs are not by definition bad. When a problem arises, as they do in any organization, having a customer service rep to talk to is a good thing, although it is also an administrative expense. So if a carrier wants to compete on service, it needs what it needs to cover the cost. Since 15 percent of a $100 per month policy is $15; but on a $200 premium it’s $30, the right thing to do might be to eliminate the less expensive plans.

The second unintended consequence of the 85 percent MLR provision is that it may diminish choice in the individual health insurance market segment, exactly where competition is needed most. After all, if you’re going to require people to buy coverage, you want a robust marketplace where robust competition drives down prices. The Governor’s proposal goes a long way to making the 85 percent Medical Loss Ratio fair by applying it to all of a carrier’s business. Yet the fact remains that administering coverage to individuals costs more than providing coverage to large groups. So carriers with a greater than average share of their business in the individual market will have a tougher time meeting the MLR requirement than its competitors whose business is primarily large group business. And new carriers will first need to develop a strong large group presence in the state before entering the individual market if they are to have any chance of complying with this law. This may inadvertently result in carriers shifting resources to attracting large group business and away from the individual market.

Personally, I don’t think the MLR requirement is necessary (although I see the political benefit of it). If the Governor won’t eliminate this from his plan, he should at least add language which instructs and empowers the regulators who will enforce it to encourage increased competition in the individual market space.

So, these are my four biggest problems with the Governor’s October plan. There’s much in it I support: expanding state programs; premium subsidies through tax credits; the fact it would eventually lead to universal coverage; and the cost containment elements; and wellness provisions to name just five. Maybe I’ll write about these later. For now, I just wanted to go on record with my concerns.

And I’m curious, what are yours?

Note: This blog represents my  personal opinions. It is not an official blog of the California Association of Health Underwriters (of which I’m a Vice President) or any other organization. In this case, however, it should be noted that CAHU shares these same four concerns

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform | Tagged: , , , , , | 3 Comments »

Looming State Finance Shortfall Could Undermine Health Care Reform

Posted by Alan on October 10, 2007

Governor Schwarzenegger’s updated health care reform proposal sports a $12 billion annual price tag. To his credit, the Governor has identified revenue sources for his program. If legislation emerges from the current special session many of these funding mechanisms will be put before voters for approval through a November 2008 initiative. Of course, if that compromise includes the greater premium subsidies and the expanded eligibility for those subsidies, as Democrats are demanding, the cost of health care reform will be significantly higher.

The problem is the state is cruising toward a financial future which is looking increasingly dismal. And that spells trouble for health care reform. 

Judy Lin reports in today’s Sacramento Bee that current year revenues are already below what was projected in the state budget — yes, the budget passed just six weeks ago. During July and August state revenue from personal, corporate and sales taxes were $300 million below what was forecast. Ms. Lin reports state officials are already considering some of the revenue sources in the 2007-08 budget to be shaky. ,” she quotes Finance Director Mike Genest as acknowledging.

State finance officials were already predicting a $6.1 billion gap in next year’s budget.  Now they are recognizing this estimate is low, very low. “It’s fair to say the revenue situation is not going to be as good as we had hoped. It’s likely the $6.1 billion (projected operating deficit will be higher,” according to Finance Director Mike Genest. By higher he means a lot higher: something like $8.5 billion. Keep in mind, this summer’s budget debacle centered around a little more than $700 million in spending. Multiply the problem by 12 and you can estimate the kind of political maelstrom we’re heading for.

Into this storm marches health care reform. Every plan out there will increase state spending on heath care. Most admit this although some advocates of a single payer system believe eliminating the insurance industry will save enough to pay for the medical care they promise to all residents. However, doing away with insurance companies, agents and the like will take time and in the meantime there will be bills to pay. And ironically, eliminating the industry will cost the state substantial revenue in lost corporate, premium and individual taxes (I don’t know how much, but I bet there’s a lot of zeros involved). In addition, nuking the industry is pretty much a one time event. Once the industry is gone, those savings, if any, are gone. As the underlying cost of delivering health care increases the state will need to find new revenue sources.

So the budget battle of 2007 was just a skirmish involving sticks and stones. Next time around we’re likely to witness a nuclear conflict. More evidence: state agencies have already been told any new spending they propose for next year have to be offset by cuts to existing spending.

State budgets are all about setting priorities. Some of those priorities are set in stone. For example, certain funds are earmarked for education and can’t be diverted to health care or fixing aging infrastructure. One might think that something as critical as health care will wind up near the top of the list for lawmakers, making its funding secure. Unfortunately, it doesn’t work that way.

Consider: approximately three-quarters of the $700 million in cuts needed to close a budget deal this summer came from the Health and Human Services Department. Among the items cut : $55 million for a program to help homeless adults with serious mental illnesses; and $65 million for programs to get children already eligible for Healthy Families to enroll in the program. However, a tax deduction for new yacht sales survived — provided the new owner keeps the boat outside of California for a few months. There’s simply no way of predicting where cuts will fall, but no discretionary program is safe.

None of this means health care reform shouldn’t move forward. It should. But it does mean lawmakers have to face — and address — thee reality that making it work will be far more difficult than is currently being discussed.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics, Single Payer | Tagged: , , | 1 Comment »

Reaction to Governor Schwarzenegger New Health Care Reform Plan

Posted by Alan on October 9, 2007

Governor Arnold Schwarzenegger held a press conference today (October 9th) to announce changes to the health care reform plan he originally introduced in January. (Here’s a link to the press release and a comparison of the new and original plans).  The new proposal is laid out in an update to the legislative language first made public on September 28th.  Whereas the Governor’s staff made clear then that this earlier version was to enable input from interested parties only, the new version is now the Governor’s official proposal.

I’ll be writing later about the details of the new health care reform proposal soon. What’s clear at first glance, however, is that requiring all residents to obtain health care coverage remains central to the Governor’s reform plan. Further, the legislation is likely to have a limited impact on the group health insurance, but would make substantial changes to the individual market segment.

This version provides more details on how the plan might be funded, too. For example, the Governor is backing away from seeking a two percent tax on the gross revenue of physicians. And he caps the payroll fee on employers at four percent (Democrats in the Legislature had proposed 7.5 percent) with the percentage reduced to zero for firms with payrolls of less than $100,000. The Governor proposes to make up for these foregone revenue sources by leasing the lottery to a private firm (the percentage of lottery revenue directed to education would apparently not be impacted by this arrangement).

While future posts will focus on the public policy aspects of what the Administration has now placed on the table, for now I thought it might be interesting to see what the initial reaction to the press conference has been.

The Associated Press initially posted a brief story, reprinted here as it ran in the San Jose Mercury News:
SACRAMENTO—Gov. Arnold Schwarzenegger has announced a health care reform bill that he wants lawmakers to consider as they meet in special session.

Schwarzenegger laid out his health reform ideas in January, but Democrats ignored his plan. Instead, they passed a health reform bill the governor says he will veto.

Schwarzenegger hopes his latest effort will lead to a deal with Democratic leaders. But organized labor has been negative about the governor’s approach and may pressure Democrats to vote no.

Well, you have to admit, that’s to the point. Of interest is that the AP leads with a reminder that the Governor was unable to get any Democratic support for his “post-partisan” plan. What’s unstated is that he was unable to get Republican support either. However, as noted here months ago, this is Governor Arnold Schwarzenegger we’re talking about. He didn’t need a bill before. And my guess is he’ll get one now.

A few hours later, AP reporter Laura Kurtzman wrote a longer piece with a lead that focused on the Governor letting doctors off the hook for helping to finance reform and the proposal to lease the lottery. After highlighting several of the changes in the Governor’s health care reform approach since January, Ms. Kurtzman notes organized labor’s concern over the challenge of making required health insurance premiums affordable.  She reports on organized labor’s preference for premium for families of up to 500 percent of the Federal Poverty Level — over $100,000 for a family of four (compared to the Governor’s proposal to provide such assistance to households up to 350 percent of FPL — about $72,000).

In it’s story, the Sacramento Bee emphasized the Governor Schwarzenegger’s proposal to lease the lottery to a private firm in lieu of taxing doctors. Again, the emphasis is on the Governor’s failure to build a bi-partisan coalition for his plan.

Tom Chorneau, writing for the San Francisco Chronicle, also emphasized the concerns of Democrats and Labor with an individual mandate. He quotes Speaker Fabian Nunez as saying, “I have been strongly committed to ensuring affordability, and I will be examining the governor’s bill in that light, along with how it addresses prescription drugs for Californians and fair participation by employers.”

So, what to make of all this?

Remembering that we’re still dealing with just tea leaves here, the critical issue is beginning to emerge. The Governor will not back down from requiring all residents to obtain coverage. He’ll acknowledge this means health insurance must be affordable. He’ll maintain that expanding eligibility for Healthy Families and premium subsidies for households with incomes of up to 350 percent of the Federal Poverty Level, combined with a mandate that carriers spend 85 percent of their premium on health benefits, meets this requirement. The Democratic Leadership and their allies will claim it’s not enough. They’ll want to increase both the amount of the subsidy and expand who is eligible for it. This will require more revenue which they’ll want to extract by increasing the maximum health care coverage payroll tax on businesses from the Governor’s four percent to closer to eight percent or more. This, in turn will be problematic for the Governor.

Does this mean health care reform is dead for 2007? Nope. It’s always been an iffy proposition, certainly no more than a 50/50 chance. But keep in mind, Governor Schwarzenegger is an adroit politician. When some Democrats thought they had boxed him into a position in which he would have to sign AB 8, he nimbly escaped without breaking a sweat. He accomplished this in part by taking negotiations public; which has now done again.  The burden is now on the Democratic Leadership to put something as detailed on the table. They may fall back on Assembly Bill 8, but that’s so September. My guess is they’ll decide to put on the table a package which offers some concessions toward the Governor’s plan, but with subsidies which greatly increase the cost. I also wouldn’t be surprised if Speaker Nunez introduces both, the Leadership’s and the Administration’s health care reform proposals in bill form. And then we’ll see if a compromise this year is really possible.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , | 7 Comments »

Medicare Administrative Expense Reality Check

Posted by Alan on October 8, 2007

Discussions concerning the cost carriers incur in administering health insurance often compare the private sector to similar costs incurred by Medicare. Many claim the cost of Medicare administration is about two percent of claims costs. Meanwhile, the private sector is accused of spending 20, 25 percent or more. These charges are made so often and with such conviction that they’ve taken on the aura of truth. Thus the question: is it true or just an urban myth?

The answer is that the cost of administering Medicare is substantially higher than stated and the cost of administering private insurance is lower. At least that’s the conclusion of a January 2006 study entitled Medicare’s Hidden Administrative Costs: A Comparison of Medicare and the Private Sector. To be sure, the cost of administering Medicare is substantially less than the cost of administering private coverage (although this doesn’t count the the free-ride Medicare receives on the cost of its capital and customer service services provided by Congressional offices). 

The study concludes the actual comparison is more like 5.2 percent versus 16.7 percent (or 8.9 percent if commissions, profits and premium taxes are excluded). However, the Medicare percentage benefits from the higher cost it pays out per beneficiary which increases the denominator. The payout per beneficiary is in turn driven by the average age of those participating in Medicare — and even it’s younger beneficiaries incur higher than average claims.  In 2003 the average medical cost per beneficiary for Medicare was estimated at about $6,600; the average per person medical cost for those in private health insurance was closer to $2,700 (out-of-pocket costs are excluded from both figures).  When adjustments are made to equalize these differences the Medicare administrative costs would be closer to 6-to-8 percent range.

The report identifies several hidden expenses surrounding Medicare. For example, Medicare reports its administrative costs as a percentage of identified administrative costs divided by claims. Seems simple enough, but as the report points out, there’s a lot more to administering a health plan than just paying claims. For example, there’s an entire bureaucracy involved in managing Medicare, the Centers for Medicare and Medicaid Services (CMS). Yet the salaries of these professionals are not included in Medicare’s administrative costs. Nor are the marketing costs incurred by CMS to promote Part D. Nor Medicare’s use of the tax apparatus to collect “premiums.” By overlooking these and other hidden costs, advocates of government-run health care greatly underestimate the true cost of administering Medicare.

The report also points out another myth inherent in the whole cost of administration argument: some administrative costs add value. Disease management programs can help reduce overall medical care spending while improving the quality of life for insureds. The private sector also pays taxes, government fees and incurs the cost of compliance with government mandates and reports. Good or bad, these costs are beyond the control of private health plans.

What all this comes down to is that administrative costs are inherent in any system. And not all administrative costs are bad. The key question is whether a health care coverage provider — public or private — is efficient or not. Artificial ratios don’t get to that question.

Posted in Health Care Reform, Healthcare Reform | Tagged: , | 8 Comments »

To Legislate or Not to Legislate. That is the Question

Posted by Alan on October 7, 2007

To legislate or not to legislate. That is the question.

OK. It’s not really the question. Everyone seems to want to legislate, so a better question is whether they can or not. Governor Arnold Schwarzenegger’s and others labored through this weekend working toward a compromise that: 1) makes the current health care system better (at least in their view); 2) can earn the vote of a majority of Legislators; and 3) can get signed by the Governor. The endless meetings, sharing of drafts, eternal discussions, and shaping of legislative language constitute the nuts and bolts of legislation. It’s not flashy and it’s not fun, but ultimately it’s what moves legislation forward.

Will their efforts be enough? In today (Sunday’s) San Francisco Chronicle, Tom Chorneau writes that time is running out for health care reform this year.  He quotes Jan Emerson of the California Hospital Association as saying “It’s hard to tell how all this is going to play out. I think there’s still a lot of momentum, and people are still working very hard.”

According to those quoted in Mr. Chorneau’s column, the biggest obstacle remains the Governor’s insistence that all individuals obtain health care coverage and lawmakers differing approaches to making health insurance affordable — especially if Californians are mandated to buy it. Another stumbling block is how to finance the reform package.

There are a several dynamics which indicate against achieving a compromise. According to the Chronicle, the current special session is scheduled to conclude next week. (It would be relatively straightforward to extend it, although keeping enough legislators around to accomplish anything could be a problem). The devil dwells in details and while the Governor has assembled a broad coalition in support of the principles underlying his reform package, it remains to be seen how enthusiastic his supporters will be with the language that eventually emerges. Then there’s the small matter of the differences between the Administration and Legislature being very real and not easily resolved. Both have constituencies pulling in opposite directions and they may not be able to bring them together in the middle.

On the plus side, there is a real desire among the principals and their staff to get something done. They sincerely believe in what they’re doing and are deeply committed to their goals. Better still, while desire to succeed is a good motivator, fear can be a better one, and there’s plenty of that to go around, too. If lawmakers had initially declared health care reform a two year effort, it might be different. Unfortunately, both the Governor and the Legislative Leadership have repeatedly announced otherwise. The political fallout of failure to meet this (unnecessary) deadline would be substantial — especially in the run-up to the initiative aimed at modifying the state’s term limit law on the February 2008 ballot.  Also arguing for a resolution is that a great deal has already been accomplished.

My personal take on all this is that no legislation will pass next week. There’s just too many details to iron out on too many issues. So I think the special session on health care will be extended and negotiations will continue for a few more weeks. By Halloween, however, (and how appropriate is that?) we’ll see something both sides can agree on. It will then take several days to assess reaction and determine if a critical mass of stakeholders support the consensus. If there is, a bill could be on the Governor’s desk by mid-November.  Of course, much of what’s in the bill will be contingent on the passage of a funding initiative on the November 2008 ballot, so passage of legislation is only the start of the reform effort. For now, however, all anyone can do is keep moving forward through the political and policy thicket and hope there’s a there there when they’re done. Because the question isn’t whether or not to legislate. It’s not even whether they can legislate. Responsible and workable reform is needed. So the real question is, not whether to legislate, but what to legislate.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , | 1 Comment »

Republicans Sidelined By Choice?

Posted by Alan on October 5, 2007

The San Jose Mercury News had an interesting editorial yesterday which took to task the Governor and the Legislature on their failure to deliver on health care reform “two weeks into Gov. Arnold Schwarzenegger’s special session of the Legislature.” Some of what they had to say strikes me as greatly unfair. Lawmakers are seeking public input on proposals. If that takes some time so be it. Better the public should be heard than not, a sentiment I’m sure the Mercury News would agree with.

It was editorial’s criticism of Republican Legislators that got me thinking, however. As the Mercury News observes, the likely output of the special session, if there is any, will be legislation creating the framework for a new heatlh care system tied to a November 2008 initiative to finance and implement the reforms. The reason is that without Republican votes, there is no way the Governor and the Democratic Leadership can gain the two-thirds vote necessary to pass a spending bill.  Yes, as the Mercury News notes, “… instead of taking advantage of a prime opportunity to negotiate from strength, Republicans are remaining on the sidelines ….”

And he’s right. Republican legislators have been scarcely heard from on health care reform of late. There have been some op-ed pieces published in newspapers around the state (many of them quite good), but they’re clearly not a part of the negotiations. Earlier in the year the Republican caucuses presented their reform packages. Several of their ideas were innovative and would definitely improve the lives of many Californians, which is, after all, the goal here. The Democrats never held hearings on those bills and now the Republicans are “on the sidelines.”

Which makes me wonder: why? Is it their choice to leave the room or were they escorted out? (This being a Democratic leadership who punishes moderates in their own caucus by locking them out of their offices for crime of daring to be, well, moderate, perhaps “kicked” would be the more appropriate verb than “escorted.”). In a strange way it’s a bit of both. Republicans are so locked into a “no new taxes” mindset that they tie their hands on public policy. Since the Democrats are looking at expensive changes, why should they tolerate anyone at the table who can’t support the results under any circumstance? As a result, the only folks around to negotiate a compromise are the Democratic Legislative Leadership and the post-partisan Governor — or at least their staffs. The Republicans are no where near, without any influence.

Could they have a voice in the reform debate? It depends, I suppose, on how pure they want — or need — to be. If no new revenue sources are acceptable then I guess there’s nothing more for them to say. But maybe if they held out the possibility that if the health care reform package was a net win for the state’s economy and financial well-being (far from a sure thing, but definitely possible) that they could support it, perhaps their voice would be part of the debate. And that would be a good thing. Every voice needs to be heard, conservatives as well as liberals (and post-partisans, too). 

For example, when I was on the Santa Monica City Council there were two factions — the liberals and the moderates (this being Santa Monica even the conservatives were moderate) — with three members each (and they were formal members of their factions, running as slates and all). The seventh member was me who was independent of both coalitions. The best success I had was when I used my influence as a swing vote to force the two sides to reach a compromise. The result wasn’t necessarily what I would have come up with on my own, but it was something a broad spectrum of the city could get behind.

The same dynamic could happen with health care reform. It is a shame, however, that Republican have backed themselves so deeply into a no-tax corner that they deny themselves — and the people of California — the benefit of their ideas, influence and participation.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , , | 1 Comment »

Health Care Reform Teleconference Summary

Posted by Alan on October 3, 2007

A little less than an hour ago, Herb Shultz, Senior Health Policy Advisor to Governor Arnold Schwarzenegger concluded a conference call with individuals from the insurance industry. (They are holding similar calls with other stakeholders in order to get input from all interested parties). The topic of conversation was the Draft Health Care Reform Package currently clogging up email boxes across the state and country (it’s over 4 megs, so be warned).

 Mr. Shultz made very clear this was not compromise language, but rather a starting point for future discussions negotiators wanted to make available to interested parties in the interest of transparency “prior to the introduction of a bill.” So in reading the document, please note that no one involved is committing to any particular provision.

I can’t emphasize the importance of this enough. The Governor’s office, and presumably the Legislative negotiators are taking extraordinary steps to make sure stakeholders are aware of what’s happening and have an opportunity to provide input. Speaking on behalf of the Governor’s staff, Mr. Shultz made it clear they are working weekends to craft a bill and that they are listening to as many people as possible. (Moments before the teleconference began I received a call from three agents who said they’d just spent two hours talking to John Ramey and Richard Figueroa, key advisors to the Governor on health care reform, about the proposal). This willingness to listen to interested parties is quite impressive. How all it impacts the final result remains to be seen, but at least they are keeping the lines of communication open. That’s always a good thing.

Here’s a summary of my notes from the call (my comments are in italics):

  1. The provisions of the draft package are starting points, not agreements.
  2. The draft contains much that has been part of the Governor’s proposal from the beginning including wellness and prevention programs, encouragement of electronic medical records and the like.
  3. While some of the language is very specific, certain elements are statements of intent. Specifics on these items will be fleshed out by an initiative in 2008 (in the case of financing), later legislative language, or future regulations.
    • For example, concerning financing of the health care reform plan, the draft states “It is the intent of the Legislature that the provisions of this act be financed by contributions from employers; individuals; federal, state, and local government; health care providers; and others.” (Section 97, page 191). What’s significant about this is that the Governor has, from the beginning, emphasized the need for shared responsibility. The Legislature in Assembly Bill 8 (Nunez) had put most of the financing burden on employers.
    • Another topic addressed through intent language concerns tax credits to subsidize premiums for families with household incomes of 250%-to-350%. (Section 98, Page 191).
    • The third “intent” topic concerns enforcement of the requirement that all California residents obtain at least minimum health care coverage. This will be a critical component of the final package. That carriers will be required to “guarantee issue” at least some individual health plans is now a given (guarantee issue means the carrier cannot deny an applicant because of their health condition). Guarantee issue in the absence of effective enforcement of a mandate for consumers to buy coverage has resulted in dramatically higher premiums and less choice for consumers.
  4. There had been earlier discussions of limiting the amount low income individuals would pay toward their medical care and insurance premiums. The draft puts on the table no spending requirement for families below 150 percent of the Federal Poverty Level and no more than five percent for families between 150 percent and 20 percent of FPL.
  5. There is no set date for introducing an actual bill. However, Mr. Schultz did note that the goal was to try to achieve agreement on health care reform at the same time an agreement is reached on water legislation (there are concurrent special sessions on these two topics currently underway in Sacramento). The goal of negotiations over the water issue is to qualify an initiative for the February 2008 ballot. As a practical matter this means resolving the issue by mid-October (October 16th, give-or-take).
  6. The Governor’s staff is open to hearing from any and all interested parties on any element of the package.

So what to make of all this? First, as noted above, negotiators are listening; whether what they hear changes the results remains to be seen.

Second, we’re getting close to the end game for health care reform in 2007. If the goal to produce legislation is mid-October, there’s not a lot of time. Of course, there’s nothing magical about this timetable. While the goal is to resolve health care reform at the same time the water issue is resolved, if lawmakers think more time is needed, they’ll take more time.

Third, progress is being made, but passage of a health care reform package is far from certain. The draft is a starting point. There are substantial differences to bridge and the constituencies of the Republican Governor and the Democratic Legislative Leadership have different goals and agendas. There will be a lot of pain, late nights and frayed nerves before a compromise the Legislature will pass and the Governor will sign is reached — if it can be reached at all.

My personal hope is that a responsible, effective reform package can be enacted this year. In my mind, even though reform will create new challenges for insurance agents — and for the industry — the right reform is much better than no reform. I’ll be looking for:

  • details on how the purchasing pool and connector/exchange is to be operated;
  • the language surrounding the requirement that 85 percent of premiums received by carriers be spent on health benefits is also critical (the draft language is a step in the right direction, but still punishes carriers whose primary business is in the individual and small group market); and
  • whether the guarantee issue/mandate to buy provisions make sense.

There are other important issues that the final health care reform bill will address, but these are the three that I personally find of greatest concern. But hey, as long as they are willing to listen, I’m happy to keep talking (and blogging).

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , , | 1 Comment »