November 21, 2007
And Here Comes The Industry...
I wouldn't take too seriously the idea that Mark Bertolini, President of Aetna, actually doesn't know what he's talking about. Rather, the reason he's calling Hillary Clinton's plan moderate and Obama and Edwards' plans less so is because he's trying to curry favor with Clinton, assuming that she will be the nominee and it will be her office with whom his company will need to negotiate. It's a gamble, and it may be a winning one. Aetna sees, in all of the Democratic plans, an opportunity for profit -- for the government to subsidize 47 million new customers. And they're right! The question is whether they can make these plans nothing but an opportunity for profit, whether they can rob them of the weak cost control mechanisms currently proposed, and erase the public insurer that can serve as a pressure agent on the private insurance system.
For evidence of their hoped-for future, look further into the interview, where the Aetna executive waxes rhapsodic over ending state mandates, and inadvertently explains everything that's wrong with the private insurance system. End coverage mandates, the interviewer asks, and the cheaper policies won't cover as much, right? "It's not the same coverage," says Bertolini, "but all the benefits in the Connecticut policy may not be things that I necessarily need. ... As an individual, why would I want to pay for coverage for Gaucher's disease?"
I don't know, maybe because you might have Gaucher's disease. Aetna doesn't want to pay for expensive diseases like Gaucher's, so it's trying to convince folks that they don't need the coverage. But what health coverage is supposed to do is defray the costs of treatment for rare, costly diseases. It's not supposed to excise such ailments from the coverage rolls so private insurers can be more profitable. That's why Hillary, and all the other Democrats, mandate minimum benefit levels for private insurers, and force community rating to boot. Those regulations -- which would force coverage of diseases like Gaucher's and force the insurers to cover patients with such illnesses -- are what Aetna will try and convince Clinton, or any Democrat, to excise from their plan. The question is whether they'll succeed. By lavishly complimenting Clinton now, Bertolini is hoping to better his odds when that negotiations finally comes.
But what health coverage is supposed to do is defray the costs of treatment for rare, costly diseases.
FYI-- The cost of treatment for rare diseases would not qualify as cost-effective under any metric/threshold that has been proposed for health care reform.
Which gets to this point:
As an individual, why would I want to pay for coverage for Gaucher's disease?"
Having looked at these issues in detail, individuals take on greater risks in other facets of life much greater than the risk of Gaucher's-- and I'm adjusting for the quality of life impact. Meaning there are literally hundreds of regulations that make much more sense than requiring coverage of rare diseases. I'm speaking solely of life-saving regulations: OSHA regulations, auto regulations, environmental regulations, consumer product regulations. The difference of course, is that when someone dies as a result of lax regulations in these other areas, its much less transparent that the regulations themselves were the cause, whereas in health care its very clear. On a population-level however, its clear there is much more value in increasing regulations in other areas.
PS. I like the new category tag.
Posted by: wisewon | Nov 21, 2007 2:47:56 PM
It's just extraordinary that Bertolini would use Gaucher's as an example. Gaucher's is a genetic disease that in the US is confined almost entirely to people of Eastern European Jewish descent. (Some Swedes also get it, but the susceptible Swedish ethnic group didn't send many emigrants to the US.) Bertolini "as an individual" doesn't want to pay for Gaucher's because he's not Jewish so he knows he's not going to get the disease.
What Bertolini seems to be saying is that he wants Aetna to be allowed to discriminate on the basis of ethnic background or genetic testing.
And wiseon, there is no chance - zero - that if Aetna is not required to cover Gaucher's, the money that is saved by allowing sick people to die will be spent instead on workplace safety regulation. It will be spent on Mr. Bertolini's new yacht.
Posted by: Bloix | Nov 21, 2007 3:10:24 PM
Doesn't Jonah Goldberg have Gaucher's disease? Or maybe that's where he went to college.
Posted by: Tom Hilton | Nov 21, 2007 4:00:34 PM
As long as the health system is run as a for-profit industry, it will always tend to try to eliminate the more costly aspects of it's buisness. Providing health care to sick peple is fairly costly, so the fewer sick people to get the treatment they need, the more money the insurance company makes.
It doesn't matter who is president or what they do, as long as it's run in the current buisness model, prift will be priority #1, and actual patient care, probably ranking around #6-7.
Whatever model that is come up with needs to insure that patient care will be the top priority, and none of the current plans seem to even come close.
Posted by: chefmudge | Nov 21, 2007 4:28:13 PM
My comments purely on the politics:
Rather, the reason he's calling Hillary Clinton's plan moderate and Obama and Edwards' plans less so is because he's trying to curry favor with Clinton, assuming that she will be the nominee and it will be her office with whom his company will need to negotiate. It's a gamble, and it may be a winning one.
True, but you're leaving out the bigger reason. The implementation of Clinton's plan will very likely be more industry-friendly than the others. So while the base plans may be the same, they're really not. Hillary had never spoken about a public option until the unveiling of her health care plan, as far as I'm aware. To many, its a pretty transparent attempt to disarm the left by incorporating enough of their ideas so that they are left with little to campaign on. So from a political perspective, Clinton's plan is more moderate than the others.
whether they can rob them of the weak cost control mechanisms currently proposed
They'd be in favor of the cost control mechanisms, if they didn't feel they were a precursor to enabling single-payer health care in the future. Insurance companies do spend millions of dollars looking a cost-effectiveness data in a very inefficient way (i.e. claims data) and are in a very tough position to make denial decision based on lack of cost-effectiveness given their perception in society. However, if the cost could be offloaded to the government, and denial decisions could be shielded by government-sanctioned cost-effectiveness data-- all the better. Its the threat of impending single-payer that gives them pause, the cost control mechamisms themselves are great for their business.
Finally, the political point on my post above. The risk of single-payer is that the politics will always be easier to err on the side of too much coverage/cost-ineffective coverage/etc. The anecdotes are readily available, always heart-wrenching, and while the bad guys are insurance companies today, it'll be greedy politicians/corrupt single-payer administrators in the future. See the politics of NICE in UK. That's part of the reason why their costs are actually growing faster than ours. The politics of coverage denials is a no-win proposition.
Posted by: wisewon | Nov 21, 2007 5:17:52 PM
One other point related to paragraphs one and two above and ties in a post of yours from a few days ago:
The reasons why industry is warming up to the idea of reform, is because while you don't believe me, they are pretty confident that Clinton-style implemntation of health care reform does hold off any reasonable chance of single-payer health care for another 20 years or so.
So to the degree its increasingly likely that HRC is the next president, they are incresingly more receptive to these ideas, because as I said above, a lot of them will improve their business dynamics in the short run, without a big risk of near-term evolution to single-payer.
Posted by: wisewon | Nov 21, 2007 5:33:30 PM
No need to suck to Hill & Bill, they're already bought and paid for...
"It's a gamble, and it may be a winning one." Ezra? C'mon?
It's a rigged table.
Posted by: S Brennan | Nov 21, 2007 5:55:36 PM
Wait wait wait wait ... I thought the Clinton plan was fairly strong. It's much closer to the Edwards plan than the Obama plan ... or have I not been paying enough attention.
Posted by: Nicholas Beaudrot | Nov 21, 2007 8:46:05 PM
But what health coverage is supposed to do is defray the costs of treatment for rare, costly diseases. It's not supposed to excise such ailments from the coverage rolls so private insurers can be more profitable.
Well, you could look at this issue a couple of different ways. No time for a long comment here, but, the situation described is why if you want community rating and if you want guaranteed issue (I want both these things) you really ought to consider looking at the possibility of having the government be a reinsurer. Sure, initially this might have the effect of enriching industry profits, but I'm willing to allow for this as a necessary lubricant to get the whole shebang off to a smooth start. I mean, when you think about it, that's not so different from what they have, say, in France. You know, the government does the heavy lifting when it comes to major medical and catastrophic care, and insurance companies fill in the gaps. Sooner or later, we're going to have to face the reality that rational, profit-seeking firms just aren't the right animal to deal with very sick people with preexisting conditions.
Happy Thanksgiving to all!
Posted by: Jasper | Nov 21, 2007 11:10:08 PM
Chefmudge I would disagree strongly with the way you lump all insurance together. The large profits these companies make are not from insuring risk but from financing healthcare. These are two very distinct segments of the market. Insurance is a very simple numbers game with high competition and low margins. Look at the stop-loss market in this country. Financing healthcare on the other hand is full of gimmicks and marketing and numerous ways to make exurbanite profit. Stop using insurance companies to finance healthcare and the profits will disappear overnight. Simplified don’t throw the baby out with the bath water.
Posted by: Nate O | Nov 22, 2007 3:00:38 AM
Wisewon I think you have the politics backwards. Search for Kennedy and HMO ACT 1973. HMO's have always been Democrats preferred method on single payor/National Healthcare Reform. They created them so they could take over the system not out of concern for our care. We use to have an employer based self-funded system people where happy with, congress destroyed this by mandating every employer with more then 25 employees offer an HMO.
HMOs, which are federally regulated, allowed congress to pull the strings from behind the curtain and not get their hands dirty. The evil HMOs would ration care and deny coverage while Congress saved face. Look how well it worked, 50% of the population hates HMOs and are looking at the congressman who forced them into them as saviors! This was their plan all along.
Posted by: Nate O | Nov 22, 2007 3:18:59 AM
I'd imagine this guy is calling Clinton's plan moderate, and John Edwards and Barak Obama's weak, is because Clinton is far more likely to sell out to her corporate masters than the other two are. It has nothing do with currying favor, and everything to do with trying to help the candidate big business would desperately like to see win the Democratic nomination.
Posted by: Soullite | Nov 22, 2007 9:09:13 AM
"Q. Why not support a single-payer system, like those in other countries?
The result of a single-payer system is decreased access and services. ... I don't think Americans are willing to give up the access to care they have at the level of quality they have. ... We have more MRI machines in New York City than they have in all of England. Is that good or bad? Unless you need one, you really can't pass judgment."
Aren't MRI scans widely considered one of the most flagrant examples of over medical over consumption.
Posted by: rtaycher1987 | Nov 22, 2007 11:52:58 AM
Isn't it very American to buy and consume that which we really don't need? It isn't right and we should conserve more, use less Healthcare etc but that's not how people are trying to sell single payor. That is exactly what single payor will do though, big brother will tell you when you need an MRI and if you will get one.
Posted by: Nate O | Nov 22, 2007 2:40:16 PM
Something very basic keeps getting missed: insurers get higher profits and much higher revenues from fully-loaded policies. The premium for a policy with first-dollar coverage and an expansive benefit set might be twice as high as for a high-deductible, low-benefit policy. Though margins may be a little higher for low benefit policies, they are not high enough to make up for the smaller premium base. 4% of $400PMPM is worth more than 6% of $200PMPM.
So why would an insurer want to sell a policy that covers only catastrophic care for 6 conditions when it could instead sell a policy that offers first-dollar coverage for everything under the sun?
As things stand now, it turns out that some of this hangs on underwriting and product development in a competitive context. The big national players tend to do these things better than smaller competitors. They can over time slowly take market share from the less nimble, hence the appeal of regulatory flexibility. This is exactly what they have been doing for the last 10 years, by the way, and Wall Street is well aware. I don't say that out of cynicism or paranoia, but because I have read the analyst reports from Wall Street investment firms and they are quite explicit about the dynamic that favors larger national firms.
The other major factor is that being free of state regulations in particular would help health plans compete more effectively for what is now self-insured business. Roughly 50% of employer-sponsored insurance is actually self-insurance (where the employer doesn't buy insurance from an insurer, but is its own insurer for its employees). And self-insurance is covered by ERISA, which exempts the plans from state regulation. So, if there is a Federal law which puts insurers on a more equal footing with self-insured plans, then they will have a much better ability to compete for self-insured business and get much higher revenues per member served.
Those are the main reasons they want "flexibility." It has nothing to do with being able to deny people care and profit more from it. Seriously.
Ezra, I read this site nearly every day because I think you're one of the best health care analysts out there, but stuff like this makes me think you there's still a lot you don't get about how the insurance industry actually works: "Aetna doesn't want to pay for expensive diseases like Gaucher's, so it's trying to convince folks that they don't need the coverage."
If the option is between (a) selling a policy that covers gaucher's and getting the incremental premium for it and (b) selling a policy that does not cover gaucher's and not getting the incremental premium for it, then the insurer would prefer (a). But if the option is between (c) offering gaucher's coverage and not winning the sale and (d) not offering gaucher's coverage and winning the sale, then it will choose (d).
If there is a universal basic set of benefits that all insurers have to offer and all citizens have to buy (or have purchased for them), then I think you will get very little resistance to covering things like Gaucher's from insurers. What do they have to gain from objecting?
Posted by: jd | Nov 23, 2007 1:36:48 AM
I should add that in the above I am referring to real managed care companies. I am not referring to what are sometimes called "limited benefit" plans or plans that are not insurance at all. For example, MEGA Insurance, I think, has ridiculously low medical expense ratios. It's under investigation in many states. This is what people rightly call "junk" insurance, and it's a small but sad part of the market.
Posted by: jd | Nov 23, 2007 1:43:58 AM
"That is exactly what single payor will do though, big brother will tell you when you need an MRI and if you will get one."
There are 2 ways to reduce costs:
1) Pay healthcare providers a flat salary regardless of how many patients they see, diagnoses they come up with, or treatments they give.
2) Have a central government bureaucrat decide who gets workups and treatments and when they get them.
All the socialized nations use option #2. Its the ONLY way thats ever been successful in actually reducing costs.
You guys need to study the socialized nations a little closer. When they first switched to socialized medicine, healthcare costs actually skyrocketed. It was only later after option #2 was implemented, that healthcare costs started to come down to their current levels.
Posted by: joe blow | Nov 23, 2007 9:35:11 AM
That is exactly what
single payor our current system will do though, big brother your insurance comapany will tell you when you need an MRI and if you will get one.
There, fixed that for you.
Posted by: DMonteith | Nov 23, 2007 11:10:53 AM
You can't get Ezra to even discuss self-funding or admit it exist. Since I started reading this blog when he was calling out other bloggers to debate him I have raised the point that self-funding as numerous benefits he is looking for, has a proven track record and exist today. He doesn't like carrier profits, self-funding cuts them drastically. He doesn't like HMOs denying care, employers have a far softer reputation for allowing needed care.
Returning to a self-funded employer based system doesn't transfer power and tax revenue to washington so it's not even up for consideration. It just goes to prove it has never been about solving the problem always about the money.
Stregthen ERISA, allow MEWAs, and reduce federal regulation and problem solved
Posted by: Nate O | Nov 23, 2007 1:10:10 PM
Nate O, what do you mean "return" to a self-funded employer-based system? I thought that the percent of commercial business that is self-funded is now the highest it's ever been. Also, it only works for large organizations. A small employer with 10 employees could not self fund, as I'm sure you know, and an individual certainly couldn't do it. For an individual to self-fund is just a fancy way of saying the person has no insurance at all.
Posted by: jd | Nov 23, 2007 11:02:35 PM
JD, self-funding peaked early 2000s late 1990s. HMOs, by way of federal law saying employers over 25 emps had to offer them, started eating into the groups in the late 80s early 90s. At first only the young healthy employees would sign up because the rates where so cheap. As HMOs pulled off the young healthy risk the average PEPM cost for self-funded plans started to rise. FOr every few points the self-funded plan increased another layer of healthy workers would leave. HMOs where able to keep their rates low into the mid and late 90s becuase they where only getting the healthy risk. As self-funded plans started to have adverse selection in the late 90s they started to collapse and groups went all HMO. When this started to happen in early 2000s is when HMO rates started to take off. All of a sudden they had to insure the bad risk that was left in the employer self-funded plans.
Self-funding works for small groups as well, we had hundreds of employers under 100 lives that had succesful self-funded plans, the smallest I can remember off the top of my head is 12 lives. I have a client know with only 45 lives that has been self funded for over 15 years. As states have cracked down on self-funding and it became more difficult a new form has arisen called self-funding under a high deductible. A small employer can cut their premium 40%+ by going with a high deductible and self-insuring the risk down to a normal deductible. If the government would stop meddeling for any length of time the market will find a solution. But I'm sure you where aware of the huge market for small employers to self fund and just forgot right?
Individual can through an association or by also purchasing a high deductible.
For a blog supposedly dedicated to addressing the problem with healthcare delivery I just don't understand how this all is never addressed! Really leads one to question the agenda of someone proposing changes to insurance when they appear to be unfamilar with what we have now. Maybe some blogger will call Ezra out to debate why government has underminded self-funding and why it is not considered as a solution so we can get to the bottom of it.
Posted by: Nate O | Nov 23, 2007 11:20:58 PM
If these statistics are wrong, please point me to the right ones. In my time in the industry, I've only ever heard that the share of self-funded employer-based insurance has been growing since 200. What you say contradicts many data sources, including Wall Street investment banks. I don't see how everyone could have gotten it wrong, but perhaps you are talking about something slightly different or have access to data others do not. Please enlighten me.
As for the huge market for self-funding for small groups, I had honestly never heard of it. I am not in sales, and have never dealt directly with groups.
As for the advisability of self-funding for small groups, I have always heard that it isn't a great idea. I don't think this is the place to have an argument about the pros and cons of self-funding for groups smaller than 500 (the number most analysts I've read endorse as the cut-off). I also don't think you'd budget on your position, so the debate would be fruitless. However, if you have data to support the advisability of self-funding for small groups I'd be happy to read it.
Posted by: jd | Nov 24, 2007 11:45:27 PM
2000 not 200, of course.
Posted by: jd | Nov 24, 2007 11:48:19 PM
jd, this is a healthcare policy blog advocating drastic improvements to our current system, I couldn't imagaine a better place to hold a forum. I'll find you a link for the decline in employers self-funding, I'll have to find something to support what I have seen, we lost 100s of clients to HMOs and a large number of our competitors are no longer in buisness.
This is some interesting reading to start on the plight of small employers;
Why does self-funding work so well for small employers? The growth and maturity of the TPA and stop-loss insurance market has provided a very cost-effective (as much as 40% savings) way for even tiny employers to use the advantages of self-funding. Thus, self-funding empowers even employers of 2 people to escape the expensive dregs of insurance company options or being black-balled. Multiple employer (such as sponsored by trade associations) and multi-employer (jointly sponsored with unions) plans have a decades-long successful record as the proven way to maximize cost-effective health coverage for small employers. Common sense note: To be candid, much of the migration of small employers to self-funding has been because they had no choice. They were priced out or black-balled by insurers. Thus, it is not a choice between fully-insured and self-funding. If self-funding continues to be hindered, or is eliminated, especially for smaller employers, those employers will simply not offer health benefits and the number of uninsured among those 65% of U.S. employers will rise dramatically.
Ezra if you happen to read this take the above snibbit then add the States that require minimum group size or stop-loss levels forcing small employers out and again your left with the problem is not free market but government activly trying to sabatoge our current system so they can take it over.
Posted by: NateO | Nov 25, 2007 9:38:05 PM
The comments to this entry are closed.