The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Catching Up on Health Care Reform

Posted by Alan on May 15, 2011

Hello. It’s been awhile. Hope you’re all well. To all who have inquired, my thanks for your concern, but all’s good. Hectic, but good. Lot’s going on (more on that later) and an awful lot of travel. I’ve had a chance to meet and talk with brokers in various parts of the country, including a few places I’ve never been before or haven’t been to for years: Boise, Omaha, Denver, Nashville. It’s been a great time to learn, recharge and stay a bit too busy to write any meaningful posts. While staying busy appears to be the new constant, I’ll try to find something worthy to share on a more regular basis. For now, however, let’s play some catch-up:

We’ll start with some (relatively) good news. One of the more popular elements of the Patient Protection and Affordable Care Act is the ability for children up to age 26 to remain on their parents’ medical insurance. The Department of Health and Human Services estimated 1.2 million young adults would take advantage of this opportunity. A story at Kaiser Health News indicates the actual number may be much higher: at least 600,000 young adults have already obtained coverage under their parents’ health plans. While most of the growth has apparently been in self-insured groups, fully insured plans are experiencing the same upsurge in membership. WellPoint, for example, reports adding 280,000 young adult dependents nationwide and the federal government added a similar number (although the article didn’t state what percentage of these were in fully-insured plans).

Of course, when it comes to health care reform every silver cloud has a gray lining. The Kaiser Health News article quotes Helen Darling, CEO of the National Business Group on Health, as noting “I don’t think anyone is eager to spend more money. This is not something employers would have done on their own.” She further cites the unfairness of asking employers to cover adult children who may be employed elsewhere. And businesses (and their employees) will pay a bit more due to this expansion of coverage to young adults – about one percent more according to estimates. And while its unclear how many of these individuals would not be able to obtain coverage elsewhere, but the general thinking is that a large majority of these young adults would be uninsured or underinsured, but for this provision of the PPACA.

Next let’s pause to note how rate regulation can be big business for consumer groups. In some states, regulators must approve health plan rate increases before they take effect. In others carriers may need to file their rate changes with regulators, but so long as the rate increases are actuarially sound they move forward. California, where rate increases tend to generate national news, is in the latter camp. The state’s Insurance Commissioner, Dave Jones would like to change that. (Actually he’d like to put health insurance companies out-of-business by implementing a single-payer system, but that’s another matter). However, he and others are pushing to change that. Assembly Bill 52, authored by Assemblymen Mike Feuer and Jared Huffman. This legislation would give the Department of Insurance (which regulates insurers in the state) and the Department of Managed Care (which regulates HMOs) to reject rate or benefit changes the agencies determine to be “excessive, inadequate, or unfairly discriminatory.”

In the findings section of the bill (which are the “whereas” clauses justifying the bill), the legislation cites rising premiums and the need for the state to “have the authority to minimize families’ loss of health insurance coverage as a result of steeply rising premiums costs” are among the problems the bill is intended to address. The solution: give politicians and bureaucrats the power to reject rate increases. No need, apparently, to address the underlying cost of medical care. The assumption seems to be that the way to reduce health care spending is to clamp down on premiums. This, of course, is like saying that the way to attack rising gas prices is to limit what gas stations can charge at the pump. One might conclude that, to be charitable, the legislation is addressing only a part of the problem.

Not only does AB 52 give medical care providers a free pass, it is likely to result in a windfall for the consumers groups supporting its passage. Politico Pulse notes that AB 52 requires insurance companies to pay for costs incurred by groups representing consumers at rate hearings. For groups like Consumer Watchdog this can represent a substantial amount of income. The Politico Pulse post reports that “Under a similar California provision for property and auto insurance, Consumer Watchdog has recouped approximately $7 million in legal fees since 2003”

Then there’s the 4th Circuit Court of Appeals hearing on two Virginia law suits seeking to have the Patient Protection and Affordable Care Act declared unconstitutional. A ruling from the three judge panel is expected in July. Much has been made of the fact that two of these three Appeals Court Judges were appointed by President Barack Obama – and the third by President Bill Clinton. While those so inclined are likely to consider this a conspiracy of cable news worthy dissection ad nauseum, it’s important not to make too big a deal about this.

First, courtrooms are not like the floor of Congress: partisan leanings have far less influence there. Second, as the Associated Press article points out, there are 14 judges on the court. Which of them hear a particular appeal is randomly determined by a computer program. There’s nothing sinister about the three judges selected for these appeals being appointed by Democrats, it’s just the way things turned out. No black helicopters are involved. Third, whatever this panel decides will be appealed by whichever side loses. The appeal could go to a hearing before all 14 Appeals Judges in the 4th Circuit or it could go straight to the Supreme Court. Finally, even if the appeals remain at the circuit level for another round, the final decision will be made by the Supreme Court. Everything going on in the lower courts (and there’s a lot of other suits out there needing to go through their appropriate Circuit Courts), is simply prelude. Yes, what the appeals court decide influences the Supreme Court Justices, but in a matter of this magnitude, far less than one might imagine. What happens at the District and Circuit levels is not unimportant, but it’s far from definitive.

While we’re playing catch-up: my previous post noted that Congress was likely to repeal the 1099 provision in the health care reform law. They did and the President Obama signed the law removing the tax reporting requirement from the PPACA. The PPACA no longer impacts 1099 reporting. I know you already knew that, but I wanted to close the loop on this issue. It’s now closed – and repealed.

Finally, a note about broker commissions and the medical loss ratio calculations required by the health care reform law. Where we last left our heroes, the National Association of Insurance Commissioners was debating whether to endorse bi-partisan legislation (HR 1206) that would remove broker compensation from the MLR formula used to determine a health plan’s spending on claims and health quality initiatives. The NAIC task force dealing with this issue wants time to review data being pulled together by the National Association of Health Underwriters, carrier filings and elsewhere.  Pulling together all this information, much of which has never been gathered before and is not maintained in a centralized data base, took a bit longer than initially anticipated. According to Politico Pulse, however,  the task force no”now believes it has all the data it will be able to get.” Which means the task force’s final report on broker commissions and the MLR calculation is now expected by May 27th.

Stay tuned.

And thanks again for staying tuned to this blog.  I look forward to continuing the dialogue with all of you.


13 Responses to “Catching Up on Health Care Reform”

  1. Alan, it’s good to see you back.

    In “Catching up on Health Care Reform”, it might be important to note that today:

    1. Maine was granted a Waiver by HHS that amounts to 1,328,381 individual waivers, as the entire state and all of its residents are now exempted from PPACA rules and regulations. The states of New Hampshire, Nebraska, and Kentucky are expected to receive the same waivers soon. Many millions more will not have to participate in the PPACA.

    2. That association that claims to not be an insurance company, AARP, also received a waiver today: “The Daily Caller has learned that the Department of Health and Human Services (HHS) rate review rules, which it finalized on Thursday, exempt “Medigap” policy providers, like the American Association of Retired Persons (AARP), from oversight when such providers increase payment rates for their supplemental insurance plans.

    Insurance providers who aren’t exempt from Obamacare’s rate review rules are required to publicly release and explain some health care payment rate increases.

    Let’s not forget that AARP had a distinct interest in seeing ObamaCare pass, because it helped eliminate competition for AARP’s supplemental insurance program: The AARP is the nation’s biggest seller of Medigap policies, or supplemental healthcare plans that add onto what Medicare won’t cover for seniors. The senior citizens interest group advocated for Obamacare to include an attack on Medigap policies’ biggest competitor, Medicare Advantage.”

    Do you think that HHS and the Obama Administration showed favoritism to AARP? HHS says no, but…Read the article for yourself, and then you decide. “Latest beneficiary of ObamaCare waiver: AARP”: I think that the old saying, “Something Smells Fishy In Denmark” is appropriate here.

    Welcome back, Alan! 🙂

    • Saw this from NAHU. I question his intentions to distort.

      California Insurance Commissioner Participates In NAIC Broker-Compensation Discussion.
      CQ (6/8, Norman, Subscription Publication) reports, California Insurance Commissioner Dave Jones, during a conference call with National Association of Insurance Commissioners members Tuesday, “said that a survey of four of the five largest insurers in California found that aggregate broker compensation rose from $5.8 million in 2000 to $168 million in 2010” and their commissions were “tied to premiums paid by consumers.” But Jones said he “couldn’t agree with moving forward on an internal NAIC report” unless broker-compensation information is gathered from other states. Regulators are struggling with “whether to endorse a bipartisan measure in Congress” (HR 1206), which would give brokers “protection from job losses.” Jones’ dissent did not prevent the NAIC committee from “voting to send the report — which did not include a recommendation on the bill but rather just policy options — to an internal task force.”

  2. David said

    welcome back! how did you like Boise? its one of my favorite cities.

    • Alan said

      Hello David, and thanks. Boise was great. Beautiful city.The weather was perfect. Great people. And they laughed at my jokes. What more could I ask for?

  3. Al said

    “The state’s Insurance Commissioner, Dave Jones would like to change that. (Actually he’d like to put health insurance companies out-of-business by implementing a single-payer system, but that’s another matter).”

    I think you are correct. And I think that the voters of CA would back single-payer, but it would be close if it came to a vote.

    Vote or not, single-payer is where we are headed, if not in CA than nationally.

    First, there is no love out there for health insurance companies or their agents.

    Second, partly because of the above, I believe that if people had a choice of being on Medicare or keeping their current private insurance, even at the same price, they would take Medicare.

    Finally, only the government has the power to control the cost of healthcare. The private sector has tried it with HMOs, PPOs, POSs, HSAs, and so-called other “consumer directed” plans.

    No doubt agents and carriers will continue to “fight” for current system or incremental “reform,” but at the end of the day (which we will all see in our lifetime,) it will be a single-payer system that emerges. Why? It is the only system that has a chance of working.

    Most people see health carriers as greedy, evil institutions and there is no love for the agents of that system (us.) There is no groundswell of political support for either entity.

    NAHU and others can “fight the good fight” but I believe it is a losing battle… unless the private sector can find some way to control the costs and thus show a value-proposition to the public. They have failed up to now, but maybe there is a silver bullet out there somewhere. However, I think that if there WAS one it would have been found by now!

    Welcome back, Alan. I enjoy your blog even if you are tilting at windmills, defending a system that I think most people see as the problem, not the solution.

    • John Pack said

      Al, with all due respect, I disagree with your opinion that “single payer is where we are headed.” Please answer me the one question that no supporter of single payer has been able to answer for me in over a year. How will the government pay for a single payer system? Medicare is on the verge of bankruptcy with the baby boomer generation primed to enter the Medicare generation. Social Security is headed down a path to oblivion, and the Postal Service is bleeding money left and right. We have over a trillion dollar deficit, and yet the liberals talk about implementing a single payer system run by the very same government that cannot turn a profit in most of its endeavors. Please just support your premise by answering my question not by spewing more liberal rhetoric which is usually all I get when I ask this question. Thanks.

  4. patty murphy said

    Glad to see you back, Alan. I enjoy reading your posts.
    Patty in Hotlanta!

  5. Ann H. said

    Welcome back, Alan! We’ve missed you!

  6. JoeC said

    Thanks for your posts Alan, they are much appreciated.
    What is the situation on the exchanges as of 2014?

    My market is individual plans. Am I understanding correctly that in order to get the subsidies that the gov will be giving, individuals will have to buy through the exchanges. And, that going through the exchanges will completely cut agents out of the loop.

    Since the subsidies for families’ goes up to those that make up to $70,000, that would be a majority of the people in the country. This would seem to mean that as of 2014 agents that have concentrated on the individual market will be pretty much toast.

    Even writing business now in the hopes of getting the renewals in the future might be futile since those current clients that would in the future qualify for the subsidy, would change over to the exchange in 2014.

    Have I missed something? Or is this the correct way to understand how the exchanges will work?

    • Alan said

      It’s not 100% clear what the exchanges will look like come 2014. Exchanges are expected to be set up by each state and there can be substantial variance. While in some states (like California and Washington) brokers will have to get politically active to assure a role in the exchanges, in other states brokers will be very much a part of the exchange.

      You are right about the subsidy only being available for use in the exchange. There’s talk of changing that, but success is unlikely. The subsidies decline considerably as income rises. So for families earning close to the 400 percent of federal poverty level they may not amount to as much as folks expect (of course something is better than nothing).

      My guess is that there will be a vibrant market outside of the exchanges in most states. This doesn’t mean diversifying into the group market and taking on additional, compatible lines of coverage should be ignored. What brokers need to do between now and 2014 is to be prepared for whatever comes down the road.

  7. Adam said

    How about the repeal of the “free-choice vouchers”? This seems to have been largely missed (or ignored) by most media outlets. A provision embedded within PPACA that would force employers (<50) to provide vouchers to their employees to shop in the exchange if their premium contribution was between 8-9.5% of their income?

    Seems like a big win for employers…

  8. G Cox said

    Glad to see you posting again. Have missed reading updates.

    Alan, I’m just curious to know…

    First, what do you PERSONALLY think is a fair amount of compensation for a benefits broker, for sale and service of group health insurance in the “small” group marketplace? (Let’s define “small” as being 2 to 99 employees.);

    Second, what do you think will be the average compensation for a broker in this same marketplace in 2015? (I know it’s just a guess, but I think it would be as “educated” a guess as anyone’s.)

    I really would be curious to see what you think regarding the answers to these questions.


    • Alan said

      Thanks. It’s nice to be back writing. Your question is a tough one. Compensation varies from state-to-state and traditionally the 51-99 market has had a different schedule than that of 2-to-50 employees. So let me answer from a California perspective for 2-to-50.

      Generally I think 5-to-7 pecent level is about right. And that’s where most small group plans are in California today. What I think does need to change is tying commissions to medical inflation, which runs nearly twice that of general inflation in many years. There’s a couple of ways of doing this. Anthem has an interesting approach: they pay 6.5% first year and then reduce the pecentage by .5% until it reaches 5%. I haven’t penciled this out yet, but it seems like a reasonable approach. Other carriers, at least in other states, are moving to a capitated model. An approach that sets captitation at a fair level and increases with CPI could be a fair approach. Again, I’d have to pencil it out.

      What carriers (and policy makers) need to understand is that broker commissions has to be set to fairly compensate for the time and effort brokers put out to sell, service and renew groups, but it has to be sufficient to keep them selling group health insurance. In other words, in setting compensation, health insurance carriers not only have to look at what their competitors are doing in the marketplace, but what other types of coverage (life, disability, etc.) are paying.

      I should also note that you asked for and I’ve given my personal opinion. These do not necesarrily reflect those of past or future clients or employers. But I hope you find this helpful.

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