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.

The House of Representatives Has Spoken; Can We Do Better in the Senate?

If we are to effectively reform healthcare in the United States and keep the system private, there is one critical concept that needs to be accepted and respected—that is, we must properly apply the 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 markets for automobile and fire insurance. When insurance is used to pay for smaller, routine, day-to-day expenses, insurance doesn’t work—it is an inefficient and wasteful financing mechanism. If we want to fix healthcare in this country, preserve choice, and keep the system private, there is a way and it doesn’t have to bust the federal budget.

So how do we move forward with health reform? Let’s keep what is good in the House of Representative’s healthcare bill, do better in the Senate, and move forward in a conference committee resolution that serves the best interests of the American people. The following are the consensus provisions for health reform that should be in the healthcare bill…and are.

Below is a list of provisions of H.R. 3962 bill, which 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 of H.R. 3962 that should not be in the bill…but are.

The key “takeaways” from the above section are that we do not need to spend in excess of $1 trillion to create a new public option or new COOPs if we enhance competition through other means. We do not need to spend money on new “exchanges,” if we use the effective ones that currently exist. IMPORTANT: The House of Representatives considered using FEHBP as a health insurance exchange in H.R. 3962, but deemed it to be too expensive. Are our elected representatives saying that FEHBP is good enough for Capital Hill, but not for Main Street? This should tell you that the health benefit plans available to Members of Congress and federal employees are too rich and we, the taxpayers, are currently paying too much for their health benefits.

Finally, if we accept that our objective is to propery apply general insurance principles to the health insurance industry, there are additional steps to be taken for meaningful reform of the system. These are provisions that should be in a health reform bill…but are not in H.R. 3962.

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. 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) from living a healthy lifestyle? Let us help your organization be a leader in your community and show the government how to fix healthcare at the grassroots level.

We must also insist that our elected representatives not only talk, but also “walk the walk.” Send them this critique of H.R. 3962 and challenge them to incorporate the following provisions into future legislation:

1. Open up the FEHBP for use as the health insurance exchange available to small businesses and individuals.
2. Benefits for all participants in the FEHBP, including federal employees, should be consistent with the level of benefits provided by larger, private sector corporations in America.
3. If there is to be a compromise that allows for a “public option” plan, it should be triggered only if a private sector initiative fails and, Members of Congress should be required to drop their FEHBP benefits in favor of their participation in the public plan.

Given the amount of wasted dollars currently in the system, 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 cut the waste in their healthcare expenses while the country waits for passage of meaningful health reform legislation. Who knows how long that will take, but the tools are available to you today. Be part of the solution, not part of the problem. Contact us for more information.

The Basics. Fundamentally, the health reform debate seeks an answer to the question of government’s role in healthcare. Read my newspaper debate with Congresswoman Allyson Schwartz: Congresswoman Schwartz supports the President’s position, calling for expansion of government-controlled health insurance, while seeking to improve quality and efficiency. I am in favor of health reform through competition and better transparency in the private sector, but not through expansion of government-controlled health insurance (Medicare or a new public option).

A Healthcare Town Hall Meeting. “Health Care Reform: A Medical Emergency” is the name of a 3-hour town hall meeting and live broadcast of the Dom Giordano radio program on The Big Talker 1210 AM. A complete podcast of the session is available at the station’s website. Part 1 is an informative exchange of views from local members of Congress. I answer questions on behalf of the business community and address the potential impact of health reform proposals in Part 4 of the podcast.

Understanding the Legislative Options. Do you want the latest information on the various health reform bills that are currently circulating in Congress? The Kaiser Family Foundation has updated its interactive, side-by-side health reform comparison tool, which allows users to compare any of 12 different major health reform plans, including the one Democratic plan that has passed through the Committee process.

A Business Perspective (and Lobbying Position). We are in favor of good healthcare reform, and perfection is the enemy of the good. However, bad healthcare reform may be worse than no reform. It depends on what the final bill that emerges from Congress will say. At a Health Care Summit in Harrisburg sponsored by the Pennsylvania Business Council on September 10, 2009, I spoke on, “Policy Impacts and Response from Small, Medium and Large Employers.” I recommended a position for the business community to take to its legislators (see A Businessman’s Message to Congress: Health Reform Dos and Don’ts).

As Americans, we are facing one of the greatest challenges of our lifetime — how to fix our broken healthcare system. There is widespread agreement on the following set of goals: address the cost of health insurance, improve access to care, and reduce wasteful spending. We face a choice of protecting our children’s future with constructive health reform or behaving like them and achieving nothing. President Nixon tried National Health Insurance reform in the early 1970s and failed. Twenty years passed until the Clintons tried again in the early 1990s — and failed. After 15 more years of the status quo, we can ill afford to fail again.

There is a way, and it does not cost much. Instead of the two sides retreating to their corners and entrenching in their positions, let’s focus on specific, considerable areas of common ground. We shouldn’t try to remake 1/6 of the United States economy in one fell swoop. So, here is a short list of dos and don’ts that focus on our areas of agreement. If you agree with these principles of health reform, pass them on to your members of Congress.

Health Reform Dos

1. Underwriting Reform. Individuals and small employer groups are often unable to obtain health insurance due to exclusions for pre-existing conditions, waiting periods, and other similar underwriting practices. These practices must end.
2. Increase Competition. Everyone agrees that we need more competition in the current health insurance system. It is painless and inexpensive to allow private health insurers to compete across state lines.
3. Purchasing Alliances. Establish guidelines that encourage the individual states to establish purchasing groups, particularly to help individuals and small employer groups. If a state cannot or will not comply, give these purchasers access to buying their coverage through the Federal Employees Health Benefits Plan (FEHBP) — an existing and effective alliance.
4. Level the Tax Playing Field. Everyone should be able to deduct health insurance premiums, but these deductions should be capped. This will encourage the growth of Health Savings Accounts (HSAs) and other more efficient ways to purchase health insurance.
5. Fix ‘Medicare Advantage.’ Like with Medicare supplemental insurance, the federal government should establish a limited number of plan design options. This simple step will increase competition, leading to lower costs and better results.

Health Reform Don’ts

1. A Public Option. The federal government should not be in the business of contracting with doctors and hospitals, setting rates of payment, and cutting the checks. This is an expensive, inefficient, and politicized system of healthcare (e.g., Medicare).
2. Non-Profit Cooperatives. There are some, but few, successful examples of this model in the United States. If non-profit cooperatives were the solution to the problem, there would be many more existing plans of this type. It is an expensive and unnecessary approach to increasing competition.
3. Mandated Coverage. Let’s agree not to add to our tax burden now or require individuals to buy insurance until the above health reform changes achieve their desired results. Then, it makes sense to require all citizens to purchase health insurance (like car insurance) and subsidize those who cannot afford to purchase coverage.
4. Rush the Process. Healthcare reform is too important a process to be rammed through Congress (e.g., a 1,300-page bill that people cannot understand). It does not need to be that speedy or that complicated.
5. Create Unrealistic Expectations. As a society, we cannot expect to have all the health services that we want, when we want them, and at someone else’s expense. Whatever healthcare we receive must be paid for by individuals, employers, and taxpayers.

America is the last, best hope. We have always thrived and prospered because of innovation, hard work, and personal responsibility, and not because we follow the lead of Europe. We have to be willing to blaze a new trail when it comes to healthcare delivery and financing, and the solutions are within our reach.

And, if we fail again at health reform, we will have snatched defeat from the jaws of victory. If we cannot constructively reform healthcare, a single payer system may be the only remaining option, and we will get what we deserve — the same type of “lowest common denominator” care that is available in Canada and Great Britain. But, in the tradition of America, we can and should do better.

The US has the best healthcare services in the world, but our system of health insurance is broken, leading to unnacceptably high healthcare costs, significant wasteful spending, and a lack of access to healthcare services or health insurance for some. Most would agree that the status quo isn’t acceptable.

“Medicare for All” Means Less Access to Care
At one extreme, some people argue for a socialized, government-run healthcare system, a so-called “Medicare for All.” But there’s no evidence that this can work within the context of the American value system that allows freedom of choice and rewards personal responsibility. “Medicare for All” can reduce costs, but only by reducing access to care.

The current Medicare program is a financial train wreck waiting to happen. As the largest healthcare payer in the United States, Medicare has largely led to high levels of unnecessary, inappropriate, and poor-quality care. It’s a politicized system of healthcare, not an economic system. Decisions are made and providers are paid based on who has the political power, not who provides the most value as determined in the marketplace.

What’s Government’s Proper Role?
To quote Shakespeare, that is the question. Should government be a payer of healthcare services, set payment rates for providers and cut the checks as do Medicare parts A and B in this country and government-run healthcare in Canada and England? Or, should government manage and pay into a system of competing private insurers, establish the rules of engagement, referree, and promote competition based on quality and cost of care? Examples include the non-traditional, Medicare Advantage Part C Program and our Federal Employees Health Benefits Program (FEHBP).

Government-Run Healthcare Full of Ills
In Canada and England, government sets the rates, pays the providers, and limits the supply of services such as the number of hospitals and high-tech diagnostic equipment. This rationing of care keeps a lid on costs. Everyone is covered and per capita costs are lower, but there are waiting lists for services, a dissatisfied public, and a growing system of private insurance. In the US, Medicare wastes money beyond the pale, such as paying ten times the market rate for durable medical equipment in certain areas. The system leads to too many providers of expensive speciality services and not enough primary care providers. And, since Medicare covers only 60% of costs on average, recipients need private supplemental insurance to pay for healthcare services Medicare doesn’t cover.

Government Already “Managing Competition”
A far better approach is for government to pay into a system of competing private insurers, such as FEHBP. In this type of system, insurance companies submit competitive bids once a year to the federal government’s Office of Personnel Management (OPM). Federal employees, including members of Congress, then get the information on benefits, costs, and services and make their annual election of an insurance carrier and benefits plan. No waiting periods for coverage, no exclusions for pre-existing conditions, and the process for enrolling or re-enrolling in the chosen plan is simple. The individual knows exactly what services are covered, and how much single or family coverage will cost out of pocket. Health insurance plans for state employees are also examples of government-orchestrated “managed competition” in which participating health insurers must compete to sell their products based on cost and quality factors.

How Else Can We Improve Quality and Reduce Costs?
Once an effective “market” for health insurance services has been created, a program for national health reform should incorporate the following principles so the market functions fairly and efficiently:

Electronic Medical Records. By investing in electronic medical record systems, providers and insurance carriers will improve claim accuracy, provide a data foundation for personal responsibility and transparency, and reduce long-term operating cost.

Consumer Choice. For competiton to work, consumers should choose between a range of health insurance plans, from rich, comprehensive plans with higher premiums to high-deductible plans with low premiums.

Personal Responsibility. Consumers who self-insure a portion of their risk also take a greater role in managing their own health and assume a share of financial responsibility.

Enhanced Transparency. Effective consumerism depends on transparency—information to make good decisons. We must do a better job of collecting, analyzing, and disseminating data on the quality and cost of healthcare services from public and private sources.

Pay for Performace. Healthcare providers should be increasingly accountable for both the quality and efficiency of the care they provide and be paid for good performance.

Prevention, Wellness, and Health Education. Individuals should have access to an array of prevention, wellness, and health education programs. Those who live healthy lifestyles and make good healthcare decisions should get financial rewards.

What about Those Who Can’t Pay?
The answer is to fix the health insurance system first based on the above principles, so that waste in our healthcare system will be drastically reduced, allowing us to help those in need. Once the system is “fixed,” it makes sense to require all citizens to purchase health insurance (like car insurance) from a “managed competition” pool for small employers and individuals. Reducing the estimated $750 billion of wasted healthcare dollars will let us subsidize those out of work or otherwise unable to afford their own health insurance.

Time to Act
Eventually, America will emerge from the current mortgage, banking, and credit crises, but we run the risk of growing healthcare costs suffocating our future economic prosperity. Now is the time to act. Contact your Members of Congress today to let them know you support health reform but oppose any expansion of government-run health care, including a “Public Option” health insurance plan.

Our “Must-Read” Links

• Obama’s Top 5 Health Care Lies (Forbes)
• Sick and Getting Sicker: Healthcare costs pushing entrepreneurs to the limit. (Wall Street Journal)
• Clinic Doors Locked for Uninsured (Cleveland Plain Dealer)
• A Painless Way To Hold Down Healthcare Costs? (NPR)
• Senate Trio Outlines Health Reform Overhaul (Kaiser Health News)
• Evaluating Healthcare Reform: Compare Proposals from the President and Congress (Kaiser Family Foundation)
• “Legislating under the Influence” of Lobbyists Tops $1.4 Million Per Day (National Journal)
• Great Expectations: Clarifying the Goals for Healthcare (Milliman, Inc.)
• Is the British Approach the Right Prescription for Reform? (CBS News)

How Does Our Healthcare System Threaten Business?
Small business has identified healthcare reform as its top priority because the current healthcare system and the way we pay for it is financially unsustainable. As a result, the health and financial security of Pennsylvanians and all Americans is under threat. Large employers can self-insure their health costs, but small-business owners and their employees are especially vulnerable to the weaknesses of our current system.

The evidence shows that small-business owners take care of their workers. On average, they pay about 18% more in insurance premiums than large firms do. More importantly, 51% of firms with 20 or fewer employees pay the full premium for their workers. (Only 37% of firms with more than 20 employees do the same.) So, “if we fix healthcare for small business, we fix it for America.”

For over 30 years, NFIB members have reported health insurance and healthcare costs as their number-one business concern. The good news is that policymakers finally appear to recognize the problem. But are lawmakers in Harrisburg working on reforms that will meet the needs of small business owners and working families? Are they on the right track?

What Direction Will Reform Take?
The panelists agreed that a broad consensus is emerging among many otherwise competing interests and that the system needs reform now. Although either the federal government or the states may shape the changes, reform at the federal level is more likely.

In Pennsylvania, the governor’s attempt at comprehensive reform has been taken off the table, but several bills are pending that will impact specific components of the healthcare system. Given that certain federal matching funds are going away, one particularly onerous bill seeks to replace these funds with a 2% tax on health insurance premiums. This would make health insurance less affordable for small business and would penalize employers for doing the right thing-offering their workers health insurance.

Other pending bills generally viewed as positive for the business community include a mini-COBRA law, elimination of payments to providers for adverse events, and renewal of the Pennsylvania Health Care Cost Containment Council (PHC4).

How to Limit Expenses
The panelists made several points about wasted healthcare expenses from unnecessary, inappropriate, and poor-quality care:

• Defensive medicine drives a significant amount of unnecessary care-the need for tort reform is urgent.
• Government should provide for meaningful competition between health insurance carriers.
• Efforts must be made to change behaviors of providers and consumers.
• Variations in treatment patterns are significant- compensation should be changed so that healthcare providers are rewarded for positive outcomes.
• Establish “pay for performance” compensation systems.
• Individuals should bear the consequences of their actions and lifestyle decisions.
• Public policy must do a better job of teaching and promoting wellness.
• Certain factors make containment of healthcare costs difficult, such as aging of the population and costs for new technology.

Solutions Outside the Box
A concept that’s been in the formative stages for a long time has triggered many questions. Members of the audience asked the panel about options for small businesses to form groups in order to pool their risk. Should there be a high-risk pool for individuals with pre-existing conditions? Should Chambers and Associations be permitted to form a single health insurance pool? There are no easy answers.

Another concern was whether the system can improve through changes in the approach to insurance rating, from community- to demographic- to experience-rating? Many people see the solution as a community-rating approach combined with mandated coverage. The problem here is that the young and healthy would be forced to pay more in order to subsidize the old and infirm. Is that fair?

For now, questions outnumber the answers and policy makers who seek to reform the system face big challenges.

*Panelists:

• Sam Marshall, President and CEO of the Insurance Federation of Pennsylvania
• Jim Redmond, Senior Vice President of the Hospital & Health System Association of Pennsylvania (HAP)
• Vince Phillips, President of Phillips Associates, a government relations firm in Harrisburg representing insurance agents and brokers.

Moderator: David Edman, Risk Management Partners LLC

* This article is a general summary of the statements and comments made at the seminar on May 4, 2009 and do not represent the specific positions of any particular speaker.