Obamacare Is Making Insurance Companies More Efficient

Obamacare may already be making private health insurers more efficient, according to a year-over-year comparison of data related to the biggest consumer protection in the law.

Last year, insurers had to rebate $1.1 billion to consumers because they failed to meet the minimum payout percentage required by the law.  That was the first year the payout provision, or mandatory minimum loss ratio, was in effect.

This year, the federal government has announced that the rebate will be just half that – slightly more than $504 million.

And the number of consumers who receive a rebate will also be smaller.  Last year, 12.7 million customers received rebates.  This year, the number receiving rebates has dropped by one-third, to 8.5 million.

Why are fewer and smaller rebates a good thing?

According to the Department of Health and Human Services, this is evidence that insurers are “spending more of their premium dollars directly toward patient care and quality, not red tape and bonuses.”

The loss ratio provision is sometimes described as the 80/20 rule.  It states that, for every health insurance plan it offers, a private insurer must pay out at least 80 cents of every premium dollar on patient benefits, reserving only 20 cents for administrative costs and profits.  (For some plans, the requirement is 85 cents.)  Whenever it does not, it has to rebate its customers the difference.

The provision does not affect Medicare, because Medicare has significantly lower administrative costs than private insurers, and regularly pays out around 95 cents in care for every dollar it takes in.

Those who receive rebates may be happy, but it is better not to receive one.  A rebate is a sign that your insurance company has not paid out enough in benefits to the people as a whole who are covered by your plan.  This can happen to any insurer – especially when its customers have a healthier year than expected.  But if you have received rebates for two years in a row, you might want to ask why, and consider whether another plan would be better for you.

HHS breaks the data down by state and by three categories.  This year there were six states in which every plan met the standard in the individual insurance category, fifteen states in which every plan met the standard in the small group category, and ten states in which every plan met the standard in the large group category.

In no state did every insurer meet the standard in all three categories, but there were six states in which insurers met the standard in at least two categories.  

In Vermont and Alabama, every small group and large group market insurer met the standard.  In South Dakota, Rhode Island, Maine, and Hawaii, every individual and small group market insurer met the standard.  Rhode Island probably edges out the other states as best overall – in the one category its insurers will pay some rebates, the average will be only $43 per policyholder.

For this year, every Connecticut insurer met the standard in the large group market, after at least some fell short in all three areas last year.  And there was a big drop in the average rebate in the individual market, from $124 to $64.  The small group market, though, saw an increase, from $162 to $357.

And even Floridians, with a weak state insurance regulator, have something to celebrate.  The size of the average rebates went down in all three categories, from $240 to $164 in the individual market, from $190 to $94 in the small group market, and from $94 to $51 in the large group market.

In general, the results for this year appear clearly more attributable to the work of the federal government than to the states. 

In fact, last year, there were 37 total times across all fifty states when all the insurers in a given category met the standard.  This year, that number went down to 31.

But the bottom line is unmistakable.  On the whole, insurers are paying attention to this consumer protection, and working to meet this new standard.  And this is something that would not be happening if it were not for Obamacare.

As HHS headlined in its release, consumers have saved a total of $3.4 billion upfront in their insurance premiums this year as a result of Obamacare, in addition to the $500 million in rebates.  This may not be all we wanted.  But it is a start.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/ 

States Expanding Medicaid Face Challenges of Their Own

Last week, I wrote about the states that have decided not to expand Medicaid this year.  The decision will cost them in money and lives. 

But the 24 (and counting) states that have chosen to expand Medicaid will face challenges of their own.  As a new article in Health Affairs Blog reveals, expanding states will have plenty to do to assure that the benefits of expansion reach those most in need.

The article, entitled Lessons of Early Medicaid Expansions Under the Affordable Care Act, reviews the experiences of five states and the District of Columbia in expanding Medicaid benefits to additional populations using authority granted to them under Obamacare.  The five states were Connecticut, California, Minnesota, New Jersey, and Washington.

All of the states were able to capture federal dollars to support state or local low-income insurance programs.  But, according to the authors, there were seven lessons these states learned that could be warning signs to other states banking on the savings.

One lesson was that they could not predict the size of their eligible populations as well as they thought they could.

For example, when Connecticut’s expansion was approved in 2010, it was estimated that 45,000 people would be affected.  By May of 2013, over 90,000 had been enrolled.  So while Connecticut may have saved $50 million on the first 45,000; it may have spent all of that on the second.

Connecticut will still benefit in the long run – the original expansion took place under the old federal reimbursement rate.  Higher reimbursement begins in 2014.

But I spoke recently with one former state official, who echoed the concerns of others.  He said that taking into consideration all of the state’s financial difficulties in recent years, perhaps the state should have waited to expand.

Another lesson was that it was not as easy to enroll newly eligible people as the states thought it would be.

On the surface, enrollment seemed straightforward enough.  If a person’s income was below a certain cut-off – 138 percent of poverty – he or she was eligible under the expansion and could enroll.

But this presumes that people are following the news as closely as our public officials do.  And it also presumes that they can easily calculate how much income 138 percent of poverty means for them, taking into account their own family situation.  Finally, it presumes that they can get to the right place to file an application and verify their income, their address, and other information.

Beyond that, once they were enrolled, they often moved or had other changes in their status.  And that meant making certain that the state found them at their new address and captured up-to-date information.

The federal government anticipated these challenges when it provided for more navigators to assist with enrollment.  But not every state is on board with the widespread use of navigators. Even though Florida chose not to expand Medicaid, it still passed a law this year placing some unnecessary and onerous registration requirements on the new navigators.  States following Florida’s lead may discourage both Medicaid and private insurance enrollment in general.

The authors also found that expanding states were covering more people with mental illnesses than they anticipated.

To anyone following the implementation of Obamacare closely, this is no surprise.  The mental health coverage required by both Obamacare and the soon-to-be-implemented Mental Health Parity Act is far more generous – and fairer – than it has ever been.

The authors think that the jury is out on whether every expanding state will experience this.  The early expanders typically focused on very poor people, and there may be more people with mental illness in this group than in the poor and near-poor populations most affected by Medicaid expansion.  We will find out soon enough whether this is so.

Finally, the authors also noted that the political context for expansion is important. 

At bottom, states that want to provide coverage to more people will find a way to do it.  Those that do not, will not.

But in every state, the political drumbeat for better coverage is going to get louder over the next year or two.  

And, according to the authors, the drumbeat may be loudest among the safety net providers.  Hospitals and community health centers have the most to gain by expansion, and the most to lose in states where the numbers of uninsured remain the highest.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/ 

Grim Numbers Result from Failure to Expand Medicaid

In the aftermath of the decisions by state governors and legislators not to expand Medicaid, the grim numbers are beginning to roll in.  Failure to expand Medicaid will cost states more than 19,000 lives and over a billion dollars per year.

And that, sadly, is only the beginning.

Source: RAND Analysis, Health Affairs, June 2013

I wrote about this prospect earlier this year, when I concluded that as many as 36,000 lives could hang in the balance of the Medicaid expansion debate.

Now we have some new numbers from a RAND Corporation analysis, published this month by Health Affairs, which quantified the impact of failing to expand Medicaid in fourteen states (as of April 2013) where governors opposed the expansion.  The fourteen states were Alabama, Georgia, Idaho, Iowa, Louisiana, Maine, Mississippi, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, and Wisconsin.

It found that in 2016 there would be 3.6 million fewer insured people in these states.  Collectively, the states would lose $8.4 billion annually in federal reimbursement.  And they would also need to spend an additional $1 billion annually on uncompensated care as a result of their short-sighted decision.

In addition – and most chillingly – there would be 19,000 additional deaths in those states each year.  This is two and a half times the number of total combined combat deaths by coalition troops since the beginning of the wars in Iraq and Afghanistan, and more than the total number of homicide deaths in the nation each year.

But these numbers are already out of date, overshadowed by legislative decisions of the last month.

After the analysis was completed, several more states have moved to reject expansion.  Florida adjourned its legislative session in early May without agreeing to the expansion.  Nebraska’s expansion bill died in mid-May.  As recently as two weeks ago, Michigan’s Republican governor was calling for federal help to try to convince legislators in that state to put Medicaid expansion back into the budget.  And both the Ohioand New Hampshire Senates rejected Medicaid expansion just last week.

These decisions will cost hundreds of millions more dollars, while adding millions to the number of uninsured.  Florida’s rejection alone will account for one million more uninsured people and cost state taxpayers at least $430 million.

Failure to expand Medicaid in these states and others will also add thousands more deaths to the tally.

The irony is that all of these states have strong pro-life constituencies.  But the moral imperative of protecting lives doesn’t always extend to those who are already among the living – especially when it is the Affordable Care Act that offers the protection.

The people who will die prematurely as a result of decisions not to expand Medicaid include children with special health care needs – think of children who await organ transplants as examples – and adults with chronic diseases.  These people survive under the most challenging of physical and mental conditions, and have done nothing to incur the wrath of political leaders. 

And yet there is an undercurrent of anger toward those who are acting to save these lives that is, frankly, chilling.

Here is what the Republican Party of Benton County, Arkansas, published in its April 2013 newsletter directed at Republican legislators who supported the Medicaid expansion in that state:

“The 2^nd Amendment means nothing unless those in power believe you would have no problem simply walking up and shooting them if they got too far out of line and stopped responding as representatives.  It seems that we are unable to muster that belief in any of our representatives on a state or federal level.

“But we have to have something, something costly, something that they will fear and that we will use if they step out of line.  If we can’t shoot them, we have to at least be firm in our threat to take immediate action against them politically, socially, or civically if they screw up on something this big.  Personally, I think a gun is quicker and more merciful, but hey, we can’t.”

So we should think about shooting Republicans who vote for Medicaid expansion? 

Could the opposition to Medicaid expansion be more absurd and less grounded in reality? 

I suppose it could, if it involves giving up billions in federal dollars, costing state taxpayers billions more, throwing millions onto hospitals’ charity care rolls, and costing thousands their lives.

Come hear Paul Gionfriddo speak about what comes next for the health and mental health of South Floridians now that the legislature failed to expand Medicaid.  Sponsored by the Mental Health Association of Palm Beach County, and open to the public.  On Thursday, June 20, at noon at 909 Fern Street, West Palm Beach.  To Register: http://www.mhapbc.org/index.cfm?fuseaction=events.details&content_id=132

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/ 

The Medicare Myth, Or Why We Can't Trust Anything Our Politicians Tell Us about Health Care Financing

The 2013 Medicare Trustees report is out, and it proves once again that the so-called Medicare funding crisis is a myth that has been manufactured by political leaders more interested in cutting the size of government than in assuring access to health care for all.

Those may seem like strong words, but we have been waiting for a long time for government leaders to tell us the truth about Medicare.  That it hasn’t contributed to our budget deficit.  That its trust fund is solvent. 

And, most important, that it would take only the tiniest of tax increases to preserve Medicare as we know it for everyone who is alive today.

The 2013 report was released last week.  Nearly one in every six (or 50.7 million) Americans is covered by Medicare.  42 million of them are age 65 and over, but 8.5 million are younger and living with serious disabilities.

The combined Medicare expenditures – for parts A, B, and D – were $574 billion in 2012.  Taxes, co-pays, and other income produced $537 billion in revenue.  The remaining $37 billion came from trust funds – not as some politicians want us to believe from general governmental spending.

Furthermore, there were two trust funds to help cover that shortfall.  The one we always hear about – the so-called “HI fund” that supports Medicare Part A expenditures – had $244 billion in it at the start of 2012. 

Was that enough?  The trustees advise that there should be at least one year of reserves in that fund at any time.  At the start of the year, it had 92 percent of that – almost exactly the recommended amount. 

As a result, when its share of the 2012 shortfall came to $24 billion – less than anticipated a year earlier – it extended the life of the fund to at least 2026.  That was the headline in many of the news reports.

But there is more.  Based on current projections, the trustees now expect that there will be surpluses added to the fund between 2015 and 2020 – partially because of the Affordable Care Act and partially because of the lower health care inflation of the last few years.

Only the Heritage Foundation could refer to this as a “bleak future.”

Dire warnings aside, we still should not sit on our hands doing nothing over the next thirteen years, nor refuse to consider containing Medicare costs in the future.

Based on current projections, Medicare spending, which consumes 3.6 percent of GDP today, will grow to 6.5 percent of GDP over the next 75 years. 

Some may call this unsustainable growth.  But another way to look at it is to consider that energy costs alone consumed 8.3 percent of GDP in 2010, and helped lead to the investments and innovations that could lead to American energy independence within the next ten to fifteen years. We can always use that kind of investment and innovation in health services.

And this is the biggest exploding myth of all – how much would it actually take to finance a Medicare program that consumed 6.5 percent of our GDP?

According to the trustees, it would take a tax increase of – are you ready for this? - .55 percent to employees and .55 percent for employers.  This isn’t a typo.  We’re not talking 55 percent or even 5.5 percent - we’re talking about five-tenths of 1 percent to preserve Medicare as we know it for everyone alive today.

This is less than the two-thirds of 1 percent it was projected to cost last year, and much less than the 1.9 percent it was projected to cost just five years ago, before Obamacare.  So even the trend line looks good.

None of this, of course, fits into the “Medicare in Crisis” political narrative of our times, and it is why this report will probably get even less attention than last year’s report.

Because this is the truth.  While our Congress still has some work to do on Medicare – most notably reforming the reimbursement formula that has led to the need for an annual “doc fix” that could still add another 3 percent to Medicare’s draw from GDP – the program is mostly on the right track.

There is no reason to scare Americans into believing that Medicare is in crisis, and even less of a reason to argue that the government can’t be trusted to provide efficiently and effectively for the health care needs of its most vulnerable citizens.

Paul Gionfriddo via email: gionfriddopaul@gmail.com.  Twitter: @pgionfriddo.  Facebook: www.facebook.com/paul.gionfriddo.  LinkedIn:  www.linkedin.com/in/paulgionfriddo/