The Constitution

The 10^th Amendment to the Constitution of the United States says the following:

“The powers not delegated to the United States by the Constitution, or prohibited by it to the states, are reserved to the states respectively, or to the people”.

The purpose of this provision is to enshrine into our society the concept that power resides with ‘we the people’.  Our federal government has only limited powers to impose its will on all people in the 50 United States.  Clearly, there must be rules that govern how we live together.  How do 50 separate states function together, properly balanced by individual freedoms to choose how we wish to live our lives?  Therein lies the purpose of the 10^th Amendment.

Creating Rules For A Civil Society

In the absence of rules, there would be chaos, which regrettably prevails in far too many places around the world.  We are lucky to live in a civil society called the United States of America, where we maintain our individual freedoms but accede to certain basic requirements such as:

• Stopping at a red light (both as pedestrians and drivers)
• Purchasing of insurance if you choose to drive a car
• Paying taxes

We could not function as a society without rules, but how are the rules made and by whom?  The answer lies in the genius of our Founders, who established the Constitution as the basis for rulemaking in this country, with a balance of powers between the executive, legislative, and judicial branches of government.

How Does This Apply To Healthcare Services and the Purchase of Health Insurance?

We now return to the fundamental question….can and should an individual be required to purchase health insurance?  Most people would agree that in a civil society, people who have heart attacks should not be left on the street to die.  But it is more complicated than that, including:

• How does the patient reach a hospital?
• Who is responsible for treatment?
• Who pays for the patient’s care?

These questions all have to be answered, starting with do we take care of the heart attack victim lying in the street.   The 10^th Amendment tells us that the answers must come from the states and/or the people, but generally not from the federal government.

So, does it EVER make sense to require every individual to purchase a health insurance policy?  Insurance is based on the “law of large numbers”, and it is a fact that an individual mandate will create a larger, more stable risk pool.  A larger risk pool is likely to have a mixture of good risks and bad risks, greater predictability of loss and financial stability, and lower cost of risk.  A state legislature must weigh the benefits of an individual mandate against the perceived ‘negatives’ associated with requiring specific action(s) on the part of all of its citizens.

I conclude that the individual mandate is one, but not the only, valid approach to establishing a large risk pool which is essential to creating stable prices for health insurance.  And, it is perfectly appropriate, and legal, if it is so determined at the state level.

Is The Individual Mandate Reasonable (EVEN FOR CONSERVATIVES)?

YES, if it is the decision of a state government, and not a requirement of the federal government.  If you pay taxes, buy car insurance, and stop at red lights, you should have no problem with a requirement to purchase private health insurance IF that is the decision of your state government.  It’s that simple, consistent with the 10^th Amendment.

So, let’s see an end to all the bickering about the individual mandate.  It is consistent with states’ rights and conservative principles when done at the state level, as in Massachusetts.  At the same time, it is arguably unconstitutional when imposed on all 50 states, as in PPACA.  If conservatives want to “repeal and replace” ObamaCare, let’s start with the fact that 50 state experiments are an appropriate and legal way to fix our healthcare system, some of which may even include an individual mandate.

I have written previously in favor of health exchanges, and an important related question is whether or not to incorporate an individual mandate, as contained in the Patient Protection and Affordable Care Act (PPACA).   Some argue that an individual mandate is an essential element of health reform, but I don’t think it is.  Furthermore, the constitutionality of PPACA is being challenged based on the question of whether the individual mandate violates the principle of limited federal government powers (i.e, the 10^th Amendment or “states’ rights”).  The remainder of this discussion focuses more on the desirability and less on the legality of the individual mandate.

What is the Individual Mandate?

Simply stated, the individual mandate requires all individuals in a specific geography to purchase insurance.  Many state legislatures require its licensed drivers to purchase automobile insurance, but those residents have an option of whether or not they wish to drive.  There is no equivalent ‘option’ regarding health insurance (whether to “live”?).  So therein lies the principle difference in the individual mandate for health insurance—is it an overreach of the federal government to require all living US residents to purchase health insurance, since living is a human condition and not a choice?  But moving on to the issue of desirability, the first question is….

Does the Individual Mandate Make Economic Sense?

Yes, because insurance is based on the “law of large numbers”.  The individual mandate creates a larger, shared risk pool, and the larger the pool, the more likely you are to have a mixture of good risks and bad risks.  A larger risk pool also means greater predictability of loss, greater financial stability, and lower costs.  You do NOT want to create a pool where certain participants (the perceived ‘good’ risks) can be “cherry-picked”.  Many insurance pools have failed (with serious financial consequences) because certain participants choose to leave the pool in order to realize short-term premium savings (sometimes the result of “predatory pricing”).  If this happens to a significant degree, the pool will inevitably fail and EVERYONE ends up paying more.

Creating a Large, Stable Risk Pool

An individual mandate is one way to do it, but not the only way.  Consider a “conditional” mandate, where individuals or small employer groups (below a certain size, say 25 employees) that choose to buy health insurance must buy it through a State Health Exchange.  There would be an annual open enrollment period when the election to participate and choice of plan takes place.  In other words, a person cannot wait until they are sick or become injured to buy health insurance coverage.   In my view, people seek health insurance to avoid catastrophic losses, and thereby provide their families with financial protection from a serious illness or injury (e.g., the $100,000 healthcare bill that may cause bankruptcy).  Most people would feel compelled (but not obligated) to buy health insurance at an annual open enrollment because nobody knows if a serious illness or injury looms 6 months into the future.

ObamaCare vs. RomneyCare

So, we have determined that in order for health reform to succeed, there must be:

1. Competition between carriers on the basis of cost and quality.
2. A large and stable group of health insurance purchasers (the “risk pool”).
3. No “cherry-picking” of the good risks.

An individual or conditional mandate within the context of a health insurance exchange accomplishes these objectives.  When implemented at the State level through State legislation, such as RomneyCare, the approach clearly passes Constitutional muster and complies with the concept of “states’ rights”.  Other states can learn from the experience and may choose to follow a similar approach if it is proven successful.  Furthermore, the Massachusetts legislature (or succeeding states that adopt either an individual or conditional mandate) can decide to improve, change, or repeal its legislation at any time.  That, in my view, is the vision of our Founders.

Does the ObamaCare individual mandate pass muster on these same Constitutional questions regarding States’ rights?  Does the individual mandate fall within the definition of enumerated powers of the federal government?  I have my doubts, and the Supreme Court of the United States will likely soon tell us.

 
Though the Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama in March 2010, the debate over its implementation and the future of health reform in the United States rages on. PPACA may yet be revised, repealed, defunded, or declared unconstitutional. Here are some of the more salient issues, with information that will allow you to make your own informed judgments:

• Confused about how the new health reform law really works? Watch “Health Reform Hits Main Street” from the Kaiser Family Foundation. This short video provides a basic explanation of the problems with the current health care system and what to expect from health reform initiatives.
• In February 2011, McKinsey & Company commissioned a survey of 1,329 U.S. private-sector employers – Employer Attitudes About Health Reform – to measure their attitudes about healthcare reform. The results indicate 30% of respondents that currently offer employer-sponsored health insurance said they would “definitely” or “probably” drop coverage in the years following 2014. Critics are attacking this study, but McKinsey is standing by the integrity and methodology of its survey.
• Accountable Care Organizations (ACOs) are one of the centerpieces of the health-reform law. An ACO provides a comprehensive set of services to a predetermined population in exchange for a fixed rate of payment, thereby rewarding providers for higher quality care and better results. However, some of the leading provider organizations in the country (e.g., Mayo Clinic, Geisinger) that served as the models for the ACO concept are unhappy with the content and complexity of the new ACO regulations being written by the Department of Health and Human Services (see The Accountable Care Fiasco).
• A Bloomberg News survey assesses support for repealing the Affordable Care Act and for changing Medicare. Bloomberg reports that there is significant public concern about the potential impact of the Ryan Medicare Plan and that most Americans prefer that the new healthcare law not be repealed, though it may need modification.
• There has been widespread use of waivers from the Affordable Care Act by the Obama administration. As of the end of May 2011, a total of 1,433 1-year waivers have been granted. For example, mini-meds (e.g., a basic plan such as the one offered by McDonald’s to its hourly workers) do not meet minimum coverage requirements and have been temporarily exempted so the employer would not be forced to drop coverage. There has been significant criticism over the need for these waivers and the criteria used to their issuance.

Romney was Governor of Massachusetts from January 2003 through January 2007.  When RomneyCare was passed and signed into law in 2006, it was the right thing to do—a state experiment, a 90 page bill, and passed on a bi-partisan basis.  ROMNEY DESERVES CREDIT FOR TRYING SOMETHING, to fix a system that everyone knows is broken.  RomneyCare succeeded in covering the uninsured in Massachusetts, but it failed as a means to control healthcare costs.  Could RomneyCare been modified subsequent to 2006 to address healthcare costs?  I think so.  Is Romney to blame for the failures of RomneyCare?  Not in my view, because he’s been out of office for 4+ years.

Romney’s explanation last week could have turned a negative, RomneyCare, into a positive for Romney.  RomneyCare is a failed experiment in health reform.  But, instead of learning from the experience of Massachusetts, ObamaCare REPEATS the mistake of RomneyCare.  ObamaCare does little to address the problem of healthcare costs, but rather covers all Americans into a broken health insurance system.  Romney should say that as President,  I will not allow that to happen.  We will design a program at the federal level that will NOT impose the failed lessons of Massachusetts on the entire country.  Rather, we will let states experiment to find the right answer for them and let other states follow their lead, should they so decide.

My positions about ObamaCare are well known in my blog and newsletter archives–there are some positive aspects to Obamacare, but it is poor legislation (2900 pages) passed poorly.   Obamacare still needs to be fixed. Your thoughts??

First, Just The Facts…

1.      Health reform passed by the Obama Administration (the Patient Protection and Affordable Care Act or PPACA) includes a requirement that states establish regional or statewide Health Insurance Exchanges by 2014, or to participate in a federally-run exchange.

2.      A Health Insurance Exchange is a “marketplace” where patients/consumers can purchase their health insurance.  Individual purchasers are connected to private sector sellers of health insurance.

3.      There are a set of ‘rules’ for the Exchange which define how the health insurance will be bought and sold.  The rules must be carefully established and enforced in order to meet both public policy objectives and the needs of buyers and sellers in the Exchange.

4.      Today, for individual purchasers and small employer groups that are ‘high risk’ (or are perceived to be by insurance companies), health insurance can be unaffordable and sometimes unavailable.

Why Do We Need Exchanges?

The health insurance system in the United States is broken.  Healthcare costs and premiums continue to rise disproportionally.  It is a fact that approximately 30% of what we spend is wasted dollars (on unnecessary, inappropriate, and poor quality care).  And, we are at a major competitive disadvantage in the world economy.

Insurance is driven by the ‘law of large numbers’, and Exchanges address a critical problem by combining individuals and small employers into a large risk pool.  There are no exclusions for pre-existing conditions, with designated periods of time (“open enrollment”) when private insurance companies offer to sell their insurance plans to all the participants in the Exchange.

It is here that competition on the basis of cost and quality takes over.  There must be transparency—accurate and useful information available to patients and consumers so that they can make informed choices, including: patient outcomes, quality measures, premium and cost information, satisfaction levels, and so forth.  Those health insurers that provide the highest quality products at the lowest prices will be the winners in an Exchange model.

Are There Current Examples of Exchanges?

There are examples of Health Insurance Exchanges that already exist, such as the Federal Employees Health Benefits Program, or FEHBP.  Under this plan, insurance companies submit competitive bids once a year to the federal government’s Office of Personnel Management (OPM).  Federal employees then get information on benefits, costs and services, and can make their annual election of a carrier and a benefits plan. Competition to attract members on the basis of cost, quality and outcomes is what keeps costs down while providing the best possible care. Many states have similar plans for state employees.

Exchanges for private sector employees are also operational in Massachusetts and Utah.  They are very different models and there are lessons to be learned from each.  The early results from Massachusetts (the Massachusetts HealthConnector) are that the program has succeeded in providing health insurance to nearly all state residents, but has so far failed to address rising healthcare costs.  The Utah Health Exchange is designed differently, focusing on ‘defined contribution’ approach, but it is too early in its operations to draw any firm conclusions.

Where Do We Go From Here?

There is much more to be learned and written about Health Insurance Exchanges.  However, “perfection is the enemy of the good”, so the time is NOW to start building Exchanges throughout the United States.  When designed and implemented properly, they will be a major step forward towards fixing our health insurance system, so let’s get going.

It is true that the devil is in the details.  So, for a more detailed discussion of this topic, I refer you to “Health Reform in the 112^th Congress”, where I offer suggestions on:

1.      Positive aspects of the new law that should be retained.

2.      Problematic provisions (e.g., 1099 reporting) that should be removed.

3.      Important elements of health reform that are missing from the current law and should be added.

This debate will continue for weeks, months, and probably years.  There will hopefully be an expedited review, because otherwise the Supreme Court is not expected to rule on the constitutionality of the individual mandate for a year and a half.  I’m happy to present to Boards, senior managers, and other groups on the implications of Obamacare and what they could (and should) be doing now.

I would welcome your questions, comments and suggestions.

In March 2010, the President signed into law the Patient Protection and Affordable Care Act, followed by the Health Care and Education Reconciliation Act of 2010. Together, these two pieces of legislation constitute what is commonly referred to as “Obamacare,” representing the most significant restructuring of our healthcare system in decades. Everyone agrees that the healthcare system in the United States needed (and still needs) fixing—it costs too much, quality is inconsistent, and outcomes oftentimes vary inappropriately and based on an individual’s economic status. So does Obamacare fix what is broken? To a certain degree it does, but from the political left to the political right, most Americans (including the President) are saying that Obamacare itself needs to be fixed.

So what’s missing from Obamacare? First, Obamacare placed too much emphasis on providing all Americans with health insurance coverage and not enough on fixing a broken system. We need to focus on the fundamental problems that are creating waste and inefficiency, starting with a systemwide failure to properly apply general principles of insurance to healthcare. Insurance is meant to provide individuals with financial protection against large, unexpected losses. When used in that way, insurance works, such as in the market for automobile and fire insurance. When insurance is used to pay for smaller, routine, day-to-day expenses, insurance does not work, thereby creating an inefficient and wasteful financing mechanism.

Should we “tweak Obamacare” as some would argue, or should we “repeal and replace” it, as the other side demands? Let’s be pragmatic and do what works, consistent with a set of consensus goals for fixing healthcare in this country. The mission, in my view, is to keep the system private, ensure access to all Americans while preserving choice, and not bust federal or state government budgets. The following are provisions for health reform that are in the bill…and should REMAIN.
 

The above represent positive aspects of Obamacare that need to be retained or, if the bills are ultimately repealed, need to be included in any “replacement” legislation. On the other hand, below is a list of provisions of Obamacare that potentially cost the American people too much or offer solutions not likely to resolve the root problems of our current healthcare system. The following are provisions that should NOT be a part of health reform…but ARE (and therefore need to be repealed).
 

As we reconsider Obamacare and health reform in general, there is an essential role for government, but what is it? To meet the objectives outlined above, the appropriate role for government is not to be an insurance company (e.g., Medicare), where the government negotiates with doctors and hospitals, sets the rates of payment, and cuts the checks. Furthermore, it is not the proper role of government to dictate to individuals and businesses whether and how to purchase health insurance. Rather, government’s proper and necessary role is to facilitate true competition, based on cost and quality, between private insurance companies, and to require high levels of transparency needed to allow these markets to operate fairly and efficiently.

Coming back to our original mission—the fundamental need is to properly apply general principles of insurance to the healthcare industry, and there are some additional commonsense provisions beyond the current Obamacare model needed to accomplish meaningful reform of the system. We conclude with the following provisions that should be in any health reform package…but ARE NOT in Obamacare.
 

Some Final Thoughts…and Practical Steps That YOU Can Take

We started this discussion with the statement that in order to fix the health system, we must PROPERLY apply general principles of insurance to healthcare. Don’t wait for the government to act—take action now. Does your organization incorporate this concept into its health insurance purchasing practices? Do your employees understand why healthcare costs so much and the importance (financially and otherwise) of living a healthy lifestyle?

We must not only “talk the talk,” but also “walk the walk.” Create facts on the ground by applying the principles discussed above to healthcare purchasing for yourself, your business, your municipality and school district, and other organizations in which you may be involved. Send your elected representatives this critique of Obamacare and challenge them to incorporate these principles into their thinking about health reform. By doing so, we will reduce the significant amount of wasted dollars in the system, giving us the option to expand the safety net if necessary and affordable, using a “defined contribution” or voucher approach.

We can fix the American healthcare system from the bottom up and the top down without spending trillions of dollars and mortgaging the future of our country. At Risk Management Partners LLC, we are helping companies every day to cut the waste in their healthcare expenses. Be part of the solution, and not part of the problem, by contacting us at 610-975-4415.

FACT: IT WAS AN OVERWHELMING, BI-PARTISAN MAJORITY VOTE OF 406 TO 19!!!

Wednesday’s (2/24/10) Action in the House of Representatives

I am an advocate for effective, bi-partisan health reform that can be accomplished by breaking the large problem into smaller, manageable parts.  The viability of this approach was demonstrated by Wednesday’s vote to repeal the exemption from federal anti-trust laws.  Certain partisan obstructionists tried to stop it—for example, Republican House Minority Leader John Boehner (Ohio) opposed the measure.  Yet, there was constructive Republican leadership from Minority Whip Eric Cantor (Virginia) who encouraged Republicans to support the measure, which they did overwhelmingly.  It the end, it’s not about right vs. left; it’s about right vs. wrong.  In this case, doing what is “right” for the American people prevailed.

Thursday’s (2/25/10) Summit Meeting at Blair House

On the other hand, yesterday’s bi-partisan summit to discuss health reform, convened by President Obama, was mostly for show.  The President’s supposedly new, health reform proposal, which was announced on Monday, is more of the same.   The President’s plan mirrors the existing legislation with one addition: a new federal government agency to regulate health insurance premiums.  The President is not unaware of the role currently played by State Insurance Departments, but I guess he thinks the Federal Government will do it better.  Though the Summit was marked by partisan rancor, I believe that the Republicans demonstrated that they are not obstructionists and that they support viable steps to reform health care that do not spend the country into oblivion.

Where Do We Go From Here?

First, encourage your Senators to take action on the bill passed in the House this week.  The Senate should pass similar legislation to remove the health insurance industry’s anti-trust exemption and SEND A BILL TO THE PRESIDENT’S DESK FOR SIGNATURE.

From an overall policy perspective, bi-partisan action to reform healthcare is not impossible—we should focus on those aspects of health reform on which reasonable people agree (see After Massachusetts: NOW WHAT?)  From a political perspective, it’s much more difficult because so many of our elected representatives believe that partisanship is more important that serving the best interests of the American people.

Yet, the House of Representatives proved on Wednesday that bi-partisanship is possible, but it’s only a small first step.  I encourage you to send your Members of Congress, Democrat and Republican, the following message—start over and pass meaningful health reform NOW (as demonstrated in the House of Representatives) or pay the price at the polls in November.

Searching For Alternatives to Traditional Medicare

Around 1980, the Federal Government began a demonstration project where Medicare beneficiaries could join private health plans in order to receive their Medicare benefits.  It was called the “Medicare Capitation Demonstration Project”, involving 8 HMOs from around the country, including 4 in the Minneapolis/St. Paul region.

HMOs were paid a fixed monthly amount established by formula (95% of the area adjusted per capita costs or AAPCC) designed to save money for the government.  In exchange, the HMO provided an enrollee with their standard Medicare benefits plus ‘additional’ benefits (provided at the discretion of the participating HMO) designed to attract beneficiaries to voluntarily sign up,.

Beginning in 1981, I was working for a consulting firm based in Rockville, MD named Jurgovan and Blair, Inc. (JBI).  JBI had the evaluation contract, and I was part of a team of 8 or so people traveling the country to evaluate all aspects of the financial and operational effectiveness of this Demonstration program.

Demonstration Results

The government concluded that the concept of Medicare beneficiaries joining private plans was a success, a ‘win-win-win’ proposition.  The Federal Government saved money, the participating plans benefited from membership growth from a new source of patients, and the Medicare beneficiaries received great benefits (generally better that traditional Medicare) for little or no cost.  As a result of this demonstration, Congress passed a law in 1985 (part of the annual budget reconciliation) to allow qualified HMOs to contract with the government on this basis.

Two Plus Decades of Change (NOT for the Better)

The original Medicare Capitation Demonstration program has evolved into today’s Medicare Advantage (Part C) program.  However, the program has changed significantly since 1985, with over 11 million Medicare beneficiaries covered at the end of 2009.  But over the course of two decades and despite its popularity, the program has become costly and unwieldy in the following ways:

1. The government began allowing PPOs and later private fee-for-service (PFFS) plans to participate in the program.
2. The number of plan options has grown dramatically, making it very difficult for Medicare beneficiaries to understand and comparatively shop for coverage.
3. Payment formulas have been co-opted such that average payments to the plans are now 15% to 18% above average traditional Medicare costs (instead of 5% below).

Medicare Advantage should be fixed, but not eliminated as suggested by many Democrats.  Traditional Medicare is a financial mess and is decidedly NOT a better model for financing health care for the elderly.  The evidence—it costs 3X as much per capita for Medicare in Miami, FL compared to Honolulu, HI?  The major differences in costs and utilization reflect structural deficiencies in the government’s approach to paying for health services.

Solution To Runaway Medicare Costs

We need to go back to basics—the original principles for private plan participation in Medicare that worked in the 1980s.  The following changes should be made:

1. Allow only managed care plans (PPOs and HMOs) to participate in the program that meet specific standards for effectively managing utilization and cost.
2. Limit the number of benefit plan options—there should be 10 or so standard plan designs that any eligible insurer can offer to beneficiaries in its service area.
3. Continue using the current payment formula, but limited by a payment cap tied to average Medicare per capita costs in the country that is phased in over three years (e.g., 2011—the lesser of the current formula amount or 130% of the national average cost; 2012—cap reduced to 120%; 2013—110%; 2014—capped by the national average).

The above plan will force inefficient providers to model themselves after programs in other parts of the country that are delivering high quality care for less money.  This is managed competition—requiring insurance carriers to compete on the basis of cost and quality.  What do you think?

This process of passing health reform legislation has become an abject lesson in government sausage-making. Some examples:

1. The deal granted to Senator Ben Nelson to exempt the State of Nebraska from paying for expanded Medicaid services, which is being legally challenged by other state Attorneys General.
2. The bill will reduce payments (and cut benefits) for the popular Medicare Advantage (Part C) program, except for the 800,000 Medicare Advantage members in Florida, who are exempted from this provision.
3. Additional hospital payments are targeted to certain states, such as $100 million for a hospital building project in Connecticut, and an increase in Medicare hospital payments in Iowa.
4. A proposed tax on Cadillac health plans (a good idea to reduce healthcare costs), while at the same time promoting plan standards that encourage rich benefits (which may be considered Cadillac plans).

As the great philosopher Pogo stated, “We have met the enemy and it is us.” The private sector, and each of us, needs to do a better job of cutting waste from our healthcare spending and showing the government how to do it, so we will be less dependant upon the type of government interventions that we are currently witnessing.