Healthy Policy

United Health Group and You

It's anecdotes like these that make me seriously question if profit should be in the health care industry at all.

When William McGuire switched careers in 1986, he was so restless that a pay cut of more than 30% didn't faze him. Health maintenance organizations were booming, and Dr. McGuire wanted to help run one. So he jettisoned a six-figure income as a pulmonologist in favor of an HMO management job that paid about $70,000 a year.

Savvy move. Today, the 58-year-old Dr. McGuire is chief executive officer of UnitedHealth Group Inc., one of the nation's largest health-care companies. He draws $8 million a year in salary plus bonus, enjoying perks such as personal use of the company jet. He also has amassed one of the largest stock-options fortunes of all time.

Unrealized gains on Dr. McGuire's options totaled $1.6 billion, according to UnitedHealth's proxy statement released this month. Even celebrated CEOs such as General Electric Co.'s Jack Welch or International Business Machines Corp.'s Louis Gerstner never were granted so much during their time at the top.

Dr. McGuire's story shows how an elite group of companies is getting rich from the nation's fraying health-care system. Many of them aren't discovering drugs or treating patients. They're middlemen who process the paperwork, fill the pill bottles and otherwise connect the pieces of a $2 trillion industry.

What's come of this $8 million a year, plus an estimated $1.6 billion in stock options?  Think how many extra people could be covered a year with that $1.6 billion.  Especially when the company also did this:

The Arizona Department of Insurance on Friday ordered United Healthcare to pay civil penalties totaling $364,750 — the largest fine in the department's history — for violations of state insurance laws. State regulators said United Healthcare illegally denied more than 63,000 claims by doctors without receiving all of the information needed to accept or deny a claim. The company also failed to follow state laws for promptly notifying doctors and patients about about decisions and appeals, the state said. United also violated a 2002 agreement to correct previous violations, the state said.
 

And the fact that they're doing this while the rest of us see our premiums rise 10%/year (if our employers don't drop coverage, that is):

The "risk" business has been a particular gold mine for UnitedHealth and its rivals in recent years. As health-care inflation eased, insurers still raised premiums at double-digit rates. UnitedHealth's stock price tripled between January 2003 and January 2006, helped by acquisitions, although it has fallen back somewhat since the beginning of this year. UnitedHealth's net income in 2005 totaled $3.3 billion, nearly four times the figure in 2001.

No, this all makes me quite angry, and really puts to question insurer's claims that health care costs are rising so quickly that they can't keep up with them. 

This is the kind of money I'd expect to see from an oil CEO (who are doing similarly well right now).  But in health care, this kind of profit is disgusting.  We have 45 15 (sorry quoted the percent on accident) million uninsured people in this country, we have a health care industry trying it darndest to shift costs to consumers with health savings accounts and high deductible plans, and we have insurance CEO's valued over a billion dollars for their efforts.  Not hospital groups, or entire organizations, but individuals. 

Is this the kind of system that fits with our ideals?  If health care is an expensive necessity, one that we join together to ensure for everyone, should health insurers be making these kinds of profits?

More ways to punish the poor

It's come to light that the 2005 spending bill contains a little-publicized new restriction:

Individuals seeking care through Medicaid beginning on July 1 will be required under federal law to show proof of U.S. citizenship -- such as a birth certificate, passport or another form of identification -- the Boston Globe reports. The requirement was included in the Deficit Reduction Act of 2005, which President Bush signed into law earlier this year. The provision's intent is to prevent undocumented immigrants from claiming to be citizens in order to receive benefits only provided to legal residents, according to the Globe.

Can we say Katrina??

It's well known that African Americans, not just "immigrants", often have no birth certificate or proof of citizenship (and they're certainly not using passports to go vacation in Europe).  And certainly recent natural disasters give us pause when considering these kinds of provisions -- imagine how many documents were lost last September. 

This bill is only going to make it harder for the most vulnerable and poor to get health care.  Any money it saves by denying illegal immigrants care will be far outshadowed by the extra pain we're shifting to other Americans, who are the victims of unfortunate circumstance.

Hospitals and price transparency

Tony Chen of Hospital Impact has a good list of why price transparency won't bring the earth shattering changes advocates promise:

(1) 10% of folks make up 70% of costs. and most of them won't be subject to financial incentives, so they won't be shopping too much.
(2) lots of folks just won't have time to shop given healthcare's urgency
(3) for a lot of services that would be very "shoppable" (e.g. a nose job), a face-to-face with the doc to get an estimate is necessary, adding too much work to shop
(4) healthcare just isn't that simple; one size does not fit all; price ranges (very big ones) seem appropriate.
(5) well, the cartoon above says it. oh, and one minor detail, what about quality of care?

I think people really underestimate the quality of care issue.  Who among us doesn't want to absolute best care for their loved ones?  This isn't a race to the bottom, and when life and death is concerned, people aren't thinking about which hospital offers the lowest price for the angioplasty that has to be done right now.   Their choices just aren't rational in this situation; it's not like when I call around to five different tailors asking how much a hem is.  You also enter into a personal relationship with your doctor, and the one offering the lowest price might not give you the most confidence. 

Also, we're big fans of cartoons here at Healthy Policy; head over to Tony's and see the great cartoon attached.

Massachusetts Mandate

Apparently someone was listening to my post from Monday, as Massachusetts has taken the leap and mandated health insurance for all of its residents. Ok, kidding, I know it's been in the works for months.  But I'm thrilled to see a state take such a drastic step in solving insurance problems.

Gov. Mitt Romney (R) supports the proposal, which would require all uninsured adults in the state to purchase some kind of insurance policy by July 1, 2007, or face a fine. Their choices would be expanded to include a range of new and inexpensive policies -- ranging from about $250 per month to nearly free -- from private insurers subsidized by the state.

Romney said the bill, modeled on the state's policy of requiring auto insurance, is intended to end an era in which 550,000 people go without insurance and their hospital and doctor visits are paid for in part with public funds.

"We insist that everybody who drives a car has insurance," Romney said in an interview. "And cars are a lot less expensive than people."

The health insurance as compared to auto insurance is a common meme, although I take issue with the author's phrasing elsewhere in the article that goes, "[this is] the first state to tackle the problem of incomplete medical coverage by treating patients the same way it does cars."  You know, or it's the first state to open up real options to make sure everyone can afford health insurance.  They make it sound like patients are going to treated like automobiles going through factory assembly when put like that.

In any case, this is a huge first step, and it makes allowances like I laid out in my earlier post: opening up low-cost insurance to everyone, subsidies for those who can't afford insurance, and financial punishment for those who continue to go without insurance.

In Iowa they've started a program (Iowa Care) where the uninsured are given all the information for signing up for the low cost insurance whenever they go to the hospital.  I hope lawmakers will adopt similar tactics in MA to get as many people enrolled before the deadline as possible.

What's more; this is a major experiment.  It will demonstrate how affordable these programs are, what major flaws the program didn't for see, what major benefits the program brought, even how easy or difficult it is to get the chronically uninsured into insurance.  Everything that goes on under the program will be carefully watched by universal insurance advocates. 

I would, however, really like to see an EMR initiative along with this legislation, but I guess that's too many birds to kill at once.  Hopefully HIT pushes can be adopted in the next few years.

Also, Shadowfax has more.

Pecking at nothing

Apparently Medicaid is now requiring all nursing homes to return "left over" medications:

CMS has ordered state Medicaid programs to require nursing homes to return unused medications to pharmacies and to ensure Medicaid is repaid for unused treatments when nursing home patients die, are discharged or have their prescriptions changed, according to a March 22 letter, the Atlanta Journal-Constitution reports. In the letter, Dennis Smith, director of the Center for Medicaid and State Operations at CMS, also wrote that state Medicaid programs should limit the amount of medications provided to nursing homes at one time to "help to curtail prescription drug waste."

It's not that anything is particularly wrong with with this program, but honestly, this is how we're going to cut back on waste in health care?  By ordering nursing homes to return medications? 

How much money will this actually save anyways?  Particularly once you factor in the administrative costs of such a program. 

It's just such a backward way of controlling costs.  Random comparison: my home state of Kansas recently legalized concealed weapons.   Some advocates claim that concealed weapons actually make people safer because "criminals" will be less likely to draw guns or use force because the person they're trying to rob/kill might have a concealed weapon.   Well, I guess on some weird planet that logic makes sense.  But not compared to simply much tighter gun control laws to get guns out of people's hands, period. 

Words of Wisdom

Everyone knows Paul Ginsberg is just freaking awesome.  Hop over to the Health Care Blog and read his testimony on price transparency and consumer directed health care. 

Exactly what price transparency isn't going to do

From the opening paragraph of this WaPo article:

Hospital bills are about to become less mysterious. Within a few weeks, the Bush administration plans to publish the prices Medicare pays for common medical procedures, a move that advocates for the poor say will pressure hospitals to give uninsured patients the discounts provided to people with insurance.

I hate to get all nit-picky on this, but I have to.

First of all, this is not going to make hospital bills less mysterious AT ALL.  There will still be five million billing codes, five million acronyms and foreign phrases, and lists and lists of things patients are charged for.  No, this has nothing to do with simplifying bills.

What it does do is list the price Medicare pays for certain procedures. 

But I'd like to see just exactly how, especially in the light of Medicare Part D, this listing is going to "give uninsured patients the discounts provided to people with insurance."

Really though, in the interest of fairness, let's look at how hospitals work with insurance companies.  The insurance company agrees to cover services at a given hospital, and the hospital agrees to charge discounted prices because of the guarantee of patients. 

What happens when an individual comes to the hospital?  They have no contract with the hospital.  If they're uninsured, they have no guarantee (nor can they make one) that they will return to the hospital for further business.  And lastly, if they're poor and uneducated, they have no access to these price lists, have never heard of these price lists, and certainly have no clue how to use price lists to leverage their payment.

That being said, Medicare, with its huge bargaining power, should have control over how much it pays for services, and use that as general tool to influence more uniform pricing.  Price transparency is generally a good thing, and something that we could certainly use more of.

But let's not be naive about what price transparency will accomplish. 

Association Health Plan Primer

cross-posted from tpm

The Senate Health, Education, Labor and Pensions Committee on Wednesday voted along party lines to approve an association health plan (AHP) bill.  President Bush pointed to AHP’s in his state of the union address as one of many reforms to help individuals attain health insurance.  But AHP’s expose individuals to another frontier of risk, where their health benefits are paltry, uncertain, and expensive. 

The key complaint driving the creation of AHP’s is that state regulation bars insurers from offering affordable health plans.  If insurers could offer plans on a national market, bypassing any state regulations, more plans would be offered and more individuals would become insured. Unfortunately, this type of thinking isn’t supported by reality.

Bare-bones plans have been offered for years, and people don’t want them.  But more than that, Ezra Klein takes a look at why we have state regulations in the first place:

The reason states mandate that insurers cover certain procedures is so insurers can't price folks who are likely to need those treatments out of the market. Insuring young women, if you didn't need to cover anything related to pregnancy, would be relatively cheap. Pricing the pregnancy package through the roof would be relatively easy. And denying the claims of those who bought the base package and then got pregnant would be trivial -- and would save you a ton of money. So almost all states mandate that you cover maternal care. And this goes across the board, from procedures the old use but the young don't need to packages that target specific lifestyles. If you allow the insurance companies to subdivide the market by treatment needs, what you'll have is bargain-basement pricing for the young and healthy coupled with unbelievable premiums for their less-lucky friends.

But this statement from Committee Chair Mike Enzi (R-WY) on the purpose of AHPs is the most revealing:

Let us put the power in the hands of small employers and family-owned businesses, rather than in the hands of insurance companies or the government. Let the consumers band together to drive the change that we want to see happen

Enzi is completely wrong about where the power in this situation is going.  It’s funneled directly to the insurers!  They’ll be offering bare-bones plans to these small businesses, who will have no ability to negotiate higher benefits.  Why?  Because there’s nothing barring them from trying to negotiate plans with insurers now.  Insurers simply aren’t interesting in offering an affordable but comprehensive product to small businesses. 

But why trust history?  Enzi wants consumers to band together and force doctors/ hospitals/ insurers/ employers to provide them with cheaper health care.  Because they surely haven’t had enough time to do so the last forty years. 

The bill has already passed committee.  If it passes the Senate, it will only continue to weaken health insurance as we know it.  The way to solve our health insurance problems isn't by cutting benefits, it's by fixing our fragmented system that costs twice as much as our more generous international counterparts.

More employers to offer HSA's

Via Kaiser, a recent survey  of mid-size to large employers found that 30% are currently offering high deductible health plans.  This is a significant increase over the previous year.

Keep in mind here, though, that a high deductible plan is not necessarily coupled with a Health Savings Account. 

I'll be interested to see what the pick-up rate is (i.e. how many employees choose these plans), and how many of those employees stay in the plans after a year. 

It's the specialists!

Matt Holt has an excellent post about the supply of doctors in the U.S. and the inefficiency they create:

Today in Health Affairs (or you can read the potted version in Forbes), Dartmouth researcher David Goodman and his team (including Wennberg) cry bullshit on the “we need more doctors” meme. While the big academic centers which get the money from training them would love to have more residents, by examining one type of intensive medical process — caring for patients at the end of life in ICUs — Goodman et al shows pretty logically that many major academic centers use far too many physician resources. In other words we could provide equally good (or probably better) care while using many many fewer physician “inputs”. Hence overall we need fewer physicians, more efficiently used.

But what Matt fails to address is the number of specialists.  Obviously if many Americans have unfettered access to specialists, the number of tests and procedures will be much larger.  So while in an ideal world we would just scrap a large number of doctors and med school spots, that's clearly not going to happen.  One thing that can change in terms of expensive supply, however, is providing greater incentives to encourage more newly minted M.D.'s to head into internal medicine or become general practitioners. 

That requires fee and reimbursement adjustments, but Medicare could easily lead the way.  As it is, doctors get paid more when they order things.  Increasing payment for good health status or  for general visits that don't involve ordering tests (i.e. I have a fever and need antibiotics) would encourage more doctors to become GPs.  We could even go so far as to substantially discount tuition for doctors that promise to become internists. 

Or you can go another route, which involves greater responsibilities for Nurse Practitioners and Physicians Assistants.  Their labor is cheaper and plenty capable for general check ups. 

Medical bankruptcy

A new report was released today found that only 17%, not 46%, of bankruptcies are caused by medical bills.

What's the deal?  Is this just another case of the CW being very wrong?

It appears that the discrepancy comes from quibbling over the source behind the "cause".  The first study, done by Harvard researchers, surveyed over 1,700 people asking them if "medical bills or illness caused their bankruptcy".

Unfortunately, they didn't make much of a distinction between whether illness made them lose money or whether it was the bills themselves.  The new research flushed these groups out.

"It is insufficient to show that medical problems are associated with bankruptcy," Dranove and Millenson write, adding, "one must determine whether, and to what extent, medical spending causes bankruptcies." Dranove and Millenson note that for the 17% whose bankruptcy could be tied to medical expenditure, it could not be determined whether medical costs were the primary cause of those bankruptcies.

They're right; it does matter if the actual bills were the direct cause of bankruptcy.  Even so, no one should be in a position that medical bills (an actual necessity unlike a bigger house or more expensive car) cause their bankruptcy.  Especially 17% of  bankruptcies. 

The Looming Cost Crisis

The doomsday predictions have arrived:

U.S. health care spending will increase by an average of 7.2% annually until 2015, when spending will reach $4 trillion and account for 20% of the gross domestic product, according to a report released on Tuesday by the National Health Statistics Group at CMS

Health spending the previous four years increased at rates much higher than 7.2%, and most of the recent decrease was due to a lower utilization of prescriptions.  With the Medicare drug benefit now implemented, much of those savings will be erased.  It's also unclear exactly how much the benefit will cost, so those predictions are volatile.   As every sector of health care spending almost doubles, premiums will sky rocket.  Unless substantial reform is enacted, expect the number of uninsured to sky rocket as well. 

Regardless, 2015 is now only nine years away.  And nothing we have right now is going to slow spending enough in nine years time.  Paul Ginsberg thinks there's another reason that spending will increase more than 7.5% a year:

Ginsburg also said that the report was "optimistic" because the authors are "only following current laws on the books, which means they assume there will be continued physician payment cuts in Medicare," adding, "But people don't expect that to happen".

Bush refused to push through with Medicare fee cuts this year.  It really depends on the political climate of the next presidency on whether or not those fee cuts will proceed.  They're substantial -- 26% over 6 years.  In the place of reform, legislators might go ahead and push through, but it will be an uphill battle.  Doctors will take on a massive PR campaign claiming they won't be able to see any new Medicare patients.  With so many baby boomers on the verge of retirement, you can be sure that won't sit well.

The percentage of growth might be higher or lower than 7.5%, but doomsday is coming.  Employer and employee alike will feel the financial pain as industry attempts to adjust to these costs.  It's an unprecedented amount of growth, and we can't underestimate its effects on the economy. 

What do Americans think about health spending?

(Note: this is cross-posted from TPMcafe because your blog host is worn out from traveling on crutches)

For us health policy wonks (or those plugged into recent data about health spending), the cost of health care in the U.S. is very troubling.  Not only do we spend more than twice as much as the other OCED countries, but it eats up an enormous percent of our GDP, at 16%.  The growth in health spending is reflected in premium increases, hospital bills, and the projected growth of Medicare and Medicaid.

If only Americans saw it this way, too.

Robert Blendon, a health opinion polling expert, made an instructive presentation for would-be reformers yesterday at Academy Health's National Health Policy Conference in Washington, D.C.  According to this August 2004 poll, 78% of Americans believe we don't spend enough on health care.

That's right -- even though we spend more than twice as much as other developed nations (and 53% more than the next most expensive country, Switzerland), Americans believe it's not enough.  It's not entirely clear why they hold this belief, but surely many Americans look at the number of uninsured and conclude we just aren't paying enough to cover them. Or that their premiums are high because insurance companies and doctors are greedily pocketing too much money.

It's not that insurance companies are greedy; it's that in our fractured care delivery system, they're very inefficient.  Most estimates place private administrative costs at 15-30%, whereas Medicare hovers around 2%. It's not that doctors are greedy either; it's that they duplicate care and continue to use expensive treatments that are no more effective than older ones.

Covering the uninsured isn't going to cause costs to go through the roof either.  A 2003 article in Health Affairs estimated that covering the uninsured would add less than one percentage point to health's share of GDP.   

These stats are all well and good, but policy makers need to connect with Americans on an emotional level.  Like: Do you worry that expensive health care is causing/will cause your employer to cut back on the number of employees? When you stayed in the hospital, did you have to repeat yourself to a lot of people?  Did you know what every test you got was for? It's essential to make these connections -- that the growth in health spending (which is in every part of health care, not just for baby-boomers and retirees), affects your job, your family, and your security.

We have a long way to go to convince the public that the way we do health care in this country is wasteful.  The first is helping them connect the dots between GM and other companies whose health costs are drowning them, and the fact that we spend too much on health care, not too little.  It's too much money not because we should treat people less, but because we pay for it in an inefficient way, we duplicate care, and we don't cover everyone we can.

Medicare vs. private sector

Ezra has a fantastic post deconstructing Robert Samuelson's WaPo column. From Sameulson:

Now, some say that because the "market" has failed, greater government control is the answer. Private insurance has high overhead costs and generates too much paperwork. True. Still, there's not much evidence that over long periods government controls health spending any better. From 1970 to 2003, Medicare spending rose an average of 9 percent annually, reports the Kaiser Family Foundation. In the same years, private insurance costs rose 10.1 percent annually. Part of the gap reflected private insurance's greater generosity. It covered drugs while Medicare didn't.

And Ezra lays down the smack:

First, Samuelson didn't read the study. It evaluated "common benefits," or benefits provided by both Medicare and private insurers.  Prescription drugs were not included.  Moreover, the apparent closeness comes from the so-called "managed care revolution", where private insurers switched from traditional insurance to HMO's, creating a one-time drop in growth during the mid 90's. Where growth had previously hovered between 10-12 percent, it plummeted to the low single digits through the 90's.  As the decade closed, however, growth, well, grew.  Between 2000 and 2003, private spending has grown at an average of 8.8%, with increases each year (2003 hit 9.6%).  Medicare averaged out 5.9%, with 4.7% growth in in 2003. 

Who Really Pays?

Warning: Blog quibbling detailed below. Proceed at own risk.

It seems a post of mine on state efforts to mandate health insurance has caused a stir. I started the controversy so I figure it's time to clarify my original statements and respond to my responses.

Guide to spending in 2004

Health care spending slowed in the last year, growing at 7.9% (see more commentary here, here, and here). For policy buffs, heading over to the Health Affairs article itself is fairly enlightening. So here's your guide to trends in health care spending, 2004:

• This is the first year researchers included investment in medical equipment and software. Considering all the hype about increased health care spending due to expensive technology, I don't really understand why they wouldn't include this in the past. In any case, these sunk costs are now incorporated into the estimate.

• Private health insurance benefits stabilized as slowing drug spending offset faster hospital and physician spending growth

• Private spending actually increased at a slower rate than public spending, at 7.6 and 8.2%, respectively. The Medicare Modernization act increased payments for certain providers, which explains part of the public increase. Also some disparity can be attributed to the fact that fewer employers are offering health insurance and more people are being excluded from the private system.

• The largest shift comes from decreased spending on prescription drugs. This bit on Medicaid drug spending gives some insight as to why:

Historically one of the fastest-growing Medicaid services, drug spending slowed significantly in 2004. States have been intensifying efforts to contain the rise in drug spending by instituting prior authorization policies; imposing quantity limits on drugs dispensed; requiring use of generics; negotiating higher rebates, including supplemental rebates; and joining multistate purchasing pools.

Keep in mind, however, 2004 (and possibly 2005) will be an outlier year as the new benefit kicked in January 1.

• Insurance is remaining profitable on premiums: "Private health insurance premiums amounted to $658.5 billion in 2004, compared with $563.5 billion in benefits paid."

• Payers have been encouraging the use of generics, which increased at double-digit rates for the third straight year.

And there you go. While you're armed to impress with your intimate knowledge of health care spending in 2004, the bottom line is that costs still increased. They've been proceeding much faster than inflation, taking up a greater proportion of families' income. A slowing this year means little in the long run in the context of 6 years of rising costs. With the new Medicare drug benefit, growing rates of uninsured, and a hospital construction explosion, don't expect this trend to last.

Hospital Profitability

So hospitals have managed to emerge from the market slump of the last four years fairly unscathed, posting the largest profit margins in six years:

Profit margins for the nation's hospitals reached a six-year high in 2004, with an average of 5.2%, according to data from the American Hospital Association, USA Today reports. The increase in profit margins was spurred by strong bargaining power with insurers, slowing expenses and an improving stock market that pushed investment income, according to USA Today.

It's good to see hospitals get out of the red, but I have a couple questions:

• How are hospitals returning to profitability this year while the number of uninsured rose by 5.9 million during the same time period?

• What am I supposed to take from this?

Lisa Goldstein, a senior vice president at Moody's, said that profit margins were helped by favorable Medicare reimbursements and higher negotiated rates with private insurers; more expensive surgeries being performed, such as cardiac surgery, orthopedics and neurosurgery;

Has there been an outbreak in number of people requiring heart surgery, orthopedic, or brain surgery in the last six years? No, this spells "unnecessary care".

Profitability isn't a problem per se, but it's troubling to see that hospitals made the most money in six years when millions of people will be turned away or hounded by debt collectors, medical error remains a huge problem, and increased profitability comes, in part, from increased intervention.

Health spending abroad: it's not what you think

Ezra has a great post on Reinhardt and Hussey's Health Affairs paper on U.S. health spending and the rest of the world:

A lot of libertarian economists (Arnold Kling and the like) tend to argue that the high costs of care in America are a simple result of how much we pay for services. They, predictably, ascribe the sums to the awesome technologies and phenomenal operations we deploy. But it's more structural than that. In their (damn good) paper on the variance between US health spending and costs in other countries, Uwe Reinhardt, Peter Hussey, and Gerard Anderson explain.

According to the authors, higher costs can be attributed, in part, to health practitioner's wages and a fragmented delivery system that gives more market power to the supply side of the equation. Which puts a hole in arguments over technology, but lays open quite clearly that things like high deductible health plans (HDHPs) and other plans to shift cost to consumers won't make a huge difference. The increased spending vis a vis other nations is on the backs of doctor's and hospitals fees for care, as well as gaping holes in the delivery system that give them more market power. Integration of care within regions (and between them), coupled with larger payers with more power will help bring us back in line with the rest of the world.