Fun with Statistics

Today’s episode:  200 years of World Life Expectancies as a function of National Income


Insurers’ Operations to Become More Transparent

Under ACA (the health care reform law), insurance companies are required to payout a specified percentage of their premiums for claims and quality improvement activities (this is defined as the insurers’ Minimum Loss Ratio).  This means that insurers will have to report to the Department of Health and Human Services some detailed information on an annual basis.   HHS will then post the information for the public to review.  This will result in the curtain of mystery being opened a bit on the carriers operations.  If the insurers do not meet the minimum loss ratio levels designated by the law, they will have to pay rebates out to their covered members (this would result in a premium credit for employers who provide fully-insured health insurance to their employees). 

According to Carl McDonald, a Wall Street analyst at Oppenheimer who follows publicly-traded insurers, if  the new law had been on the books in 2009, the six largest for-profit health insurance companies would have been required to refund $1.9 billion in that year alone for spending too much on profits, CEO pay and administration. In other words, if Sebelius enforces this provision in the ACA, it has the potential to save billions over ten years; see the table below. (Thanks to Health Care for America Now and Health Beat  for calling attention to McDonald’s calculations.) 

Minimum Loss Ratio refunds

I would like to explain to you how this is all going to work, but rather than type a lengthy explanation, I will direct you to a lengthy report put together by CCH that does a great job of explaining it:

CCH® BENEFITS — 11/29/10

Medical Loss Ratio Rules Will Affect 64 Million Covered By Group Plans

from Spencer’s Benefits Reports: An interim final regulation implementing medical loss ratio (MLR) provisions in the Patient Protection and Affordable Care Act (ACA) will affect almost 75 million individuals enrolled in comprehensive major medical coverage, including 24 million individuals covered by small employers and 40 million covered through large employer group health plans.

The regulation, scheduled to be published by the Department of Health and Human Services (HHS) in the December 1 Federal Register implements MLR requirements in Public Health Service Act Sec. 2718, as added by the ACA.

The interim final regulation is effective Jan. 1, 2011, for health insurance issuers offering group or individual health insurance coverage. The interim final regulation adopts and certifies in full all of the recommendations in the model regulation of the National Association of Insurance Commissioners (NAIC) regarding MLRs.

Comments, due by Jan. 30, 2010 (60 days after publication of the rule in the Federal Register), may be submitted electronically to Follow the instructions under the “More Search Options” tab. In commenting, refer to file code OCIIO-9998-IFC.

General Goals Of Provision

The MLR regulation includes two primary provisions. The first is the establishment of greater transparency and accountability around the expenditures made by health insurance issuers. The ACA requires that issuers publicly report on major categories of spending of policyholder premium dollars, such as clinical services provided to enrollees and activities that will improve health care quality.

The second provision is the establishment of MLR standards for issuers, which are intended to help ensure policyholders receive value for their premium dollars. Issuers will provide rebates to enrollees when their spending for the benefit of policyholders on reimbursement for clinical services and quality improving activities, in relation to the premiums charged, is less than the MLR standards established.


The interim final regulation requires issuers to submit a report to the HHS that will allow enrollees of health plans, consumers, regulators, and others to take into consideration MLRs as a measure of health insurance performance.

For this information to be meaningful to consumers, the report provided to the HHS and made available to the public must include the amount of premium revenue received as well as the amount expended on each of these types of activities:

    (1) Reimbursement for clinical services provided to enrollees under the health insurance plan;
    (2) Activities that improve health care quality for enrollees;
    (3) All other “non-claims” costs; and
    (4) federal and state taxes and licensing or regulatory fees.

Issuers will report the premium earned, claims, quality improvement expenses and other non-claims costs incurred under health insurance that is in force during the calendar year (MLR reporting year). “Calendar year reporting will increase the reliability of the experience data that will be reported and that will be used as the basis for rebate calculations,” according to the regulation’s preamble.

The HHS requires that an annual report be submitted by June 1 of the year following the end of an MLR reporting year. The precise form and content of the data that issuers must report to the HHS will be announced in a subsequent Federal Register notice.

Some insurers expressed concern that the reporting and rebate requirements would disadvantage large or multi-state employers, including those with a small number of employees in one state and a larger presence in another. This regulation does not require these businesses to change the manner in which they operate, and accommodates issuers that provide coverage to such employers in a number of ways.

First, where an issuer insures employees of a business located in multiple states, the MLR reporting should be based on the “situs of the contract.” Under this approach, the premiums and claims experience attributable to employees in multiple states are combined and reported by the issuer in the MLR report for the state identified in the insurance policy or certificate as having primary jurisdiction over the policy—often the headquarters of the company.

Second, combined reporting across affiliates for “dual contracts” is incorporated. Under these types of insurance contracts, a single group health plan obtains coverage from two affiliated issuers, one providing in-network coverage, and a second affiliate providing out-of-network benefits to the plan. The experience of these two affiliated issuers providing coverage to a single employer can be combined and reported on a consolidated basis as if it were entirely provided by the in-network issuer. This maintains the experience of employees in a single reporting entity.

Third, where affiliated issuers offer blended insurance rates to an employer—rates based on the combined experience of the affiliates serving the employer—the incurred claims and expenses for quality improving activities can be adjusted among affiliates to reflect the experience of the employer as a whole.

Mini-Med Plans

The HHS received requests from issuers of so-called “mini-med plans” to be exempted entirely from the MLR and rebate provisions. The term “mini-med” generally refers to policies that often cover the same types of medical services as comprehensive medical plans but have unusually low annual benefit limits, often capping coverage on an annual basis for one or more benefits at $5,000 or $10,000, although some have limits above $50,000 or even $250,000.

For the 2011 reporting year, the HHS applies a methodological change to address the special circumstances of mini-med plans. The mini-med issuers, for policies that have a total of $250,000 or less in annual limits, will be permitted to apply an adjustment to their reported experience to address the unusual expense and premium structure of these plans.

Specifically, in the case of a plan with a total of $250,000 or less in annual limits, the total of the incurred claims and expenditures for activities that improve health care quality are multiplied by a factor of two. Because little information is available to inform this adjustment, this special circumstances adjustment applies for 2011 only. In order to determine whether, and if so what type of, an adjustment may be appropriate for 2012, mini-med plans that wish to avail themselves of this special circumstances adjustment for 2011 will be required to report MLR data on a quarterly schedule.

Calculating MLR

Insurers must provide their enrollees a rebate if their MLR is less than 85% in the large group market or less than 80% in the small group and individual markets. This means that issuers must spend at least 85 or 80%, respectively, of each premium dollar, as adjusted for taxes and regulatory and licensing fees, on reimbursement for clinical services provided to enrollees and activities that improve health care quality.

The numerator in an MLR equals the issuer’s incurred claims and expenditures for activities that improve health care quality. The denominator of the MLR equals the issuer’s premium revenue minus the issuer’s federal and state taxes and licensing and regulatory fees.

“Earned premium” is the sum of all monies paid by a policyholder as a condition of receiving coverage from a health insurance issuer including any fees or other contributions associated with the health plan, and accounting for unearned premiums. Unearned premium is that portion of the premium paid in the MLR reporting year for coverage during a period beyond the MLR reporting year. Any premium for a period outside of the MLR reporting year must not be reported in earned premium for the MLR reporting year.

Reimbursement for clinical services are direct claims paid and incurred claims during the applicable MLR reporting year. Incurred claims is the sum of direct paid claims incurred in the MLR reporting year, unpaid claim reserves associated with claims incurred during the MLR reporting year, the change in contract reserves, reserves for contingent benefits, the claim portion of lawsuits, and any experience rating refunds paid or received. Unpaid claims reserves are included in incurred claims. Unpaid claim reserves are the reserves for claims that were incurred during the reporting period but that had not been paid by the date on which the report was prepared.

Prescription drug costs should be included in incurred claims and prescription drug rebates should be deducted from incurred claims. Prescription drug rebates are rebates that pharmaceutical companies pay to issuers based upon the drug utilization of the issuer’s enrollees at participating pharmacies. Such rebates are an adjustment to incurred claims.

The interim final regulation allows a non-claims expense incurred by a health insurance issuer to be accounted for as a quality improvement activity only if the activity meets all of the following requirements:

    1. It must be designed to improve health quality;
    2. It must be designed to increase the likelihood of desired health outcomes in ways that are capable of being objectively measured and of producing verifiable results and achievements;
    3. It must be directed toward individual enrollees or incurred for the benefit of specified segments of enrollees or provide health improvements to the population beyond those enrolled in coverage as long as no additional costs are incurred due to the non-enrollees; and
    4. It must be grounded in evidence-based medicine, widely accepted best clinical practice, or criteria issued by recognized professional medical associations, accreditation bodies, government agencies or other nationally recognized health care quality organizations.


If an insurer does not meet the applicable MLR standard, then the issuer must provide a rebate to each enrollee unless the issuer has too little experience to calculate a reliable MLR. An insurer that has fewer than 1,000 covered lives does not have sufficiently credible data to determine that the MLR standard has not been met and thus is not required to pay any rebates.

The rebate requirement is most simply met by requiring the rebate returned to the enrollee to be proportional to the amount of premium paid by or on behalf of the enrollee. The total rebate owed by the issuer is required, by statute, to be a percentage of the issuer’s total earned premium. An individual who was covered by an issuer for only three months would have paid substantially less than an individual who was covered by the issuer for the entire MLR reporting year. According to the preamble in the regulations, “It would be unfair to pay both individuals the same dollar rebate.”

An insurer may choose to provide current enrollees with a rebate in the form of a premium credit (that is, reduction in a premium owed), lump-sum check, or, if an enrollee paid by credit card or debit card, by lump-sum reimbursement to the same account that the enrollee used to pay the premium.

If an insurer chooses to provide a premium credit to a recipient, the insurer must apply the full amount of the rebate owing to the first premium due on or after August 1. If the rebate exceeds the amount of the first premium due on or after August 1, the insurer must apply any overage to succeeding premium payments until the entire rebate has been credited. With respect to rebates owing to former enrollees, the rebate is to be made in a lump-sum.

Insurers must provide enrollees with a rebate notification along with any rebate check or premium credit. The HHS is not requiring issuers who do not have to provide a rebate to provide notification to enrollees about the MLR and the fact that no rebate is owed. However, issuers who do meet the MLR standard may choose to provide such notice to their enrollees.

Insurers must report, for each MLR reporting year, information regarding the rebates it makes to enrollees. The information required includes the following:

    1. the number and percent of enrollees who receive a rebate;
    2. the amount of rebates provided to enrollees, including a breakdown of how much of the rebates were paid to policyholders and how much of the rebates were paid to subscribers;
    3. the amount of de minimis rebates that were aggregated and a breakdown of how they were disbursed to enrollees; and
    4. the amount of unclaimed rebates, a description of the good faith efforts that were made to locate the applicable enrollees, and a description of how the unclaimed rebates were disbursed.

 Rebates from insurers to consumers are estimated in the rule to be $0.6 billion to $1.4 billion annually.

The interim final regulation provides for the imposition of civil monetary penalties in the event an issuer fails to comply with the reporting and rebate requirements set forth in the regulation. The civil monetary penalties provide for a penalty for each violation of $100 per entity, per day, per individual affected by the violation.

For more information on the interim final rule, contact Carol Jimenez, Office of Consumer Information and Insurance Oversight, HHS, at (301) 492-4457.

©2010, CCH. All Rights Reserved.

HHS Reverses Rule on Losing Grandfathered Status

breaking health care reform newsThis is a breaking news announcement.  Regulators yesterday made an amendment to the “grandfather” rule:

The grandfather regulation includes a number of rules for determining when changes to a health plan cause the plan to lose its grandfathered status.  For example, plans could lose their grandfather status if they choose to make certain significant changes that reduce benefits or increase costs to consumers.  This amendment modifies one aspect of the original regulation.    

Previously, one of the ways an employer group health plan could lose its grandfather status was if the employer changed issuers – switching from one insurance company to another.  The original regulation only allowed self-funded plans to change third-party administrators without necessarily losing their grandfathered plan status.  Today’s amendment allows all group health plans to switch insurance companies and shop for the same coverage at a lower cost while maintaining their grandfathered status, so long as the structure of the coverage doesn’t violate one of the other rules for maintaining grandfathered plan status…

This is a big change and will help businesses that were looking for similar coverage at other carriers.  The bad news however, is that if you changed carriers after March 23, 2010 but prior to November 15, 2010 you still lose your grandfather status.  The rule is not retroactive.  It also only applies in the group health market and will not affect individual policies.  Any change in insurer for individual policies will result in the loss of grandfather status.

What if Government Introduced Price Controls into Health Care?

Health Care Price Controls in the United StatesThroughout this great land of ours, health care insurance and the cost of health care has been increasing non-stop for the past 20 years and then some.  What if we were to take a drastically different approach and have the government apply price controls to health care?  They could say that a doctor could only charge $50 for an office visit.  Appendix being removed?  $2500.  And the price would be the same at each and every doctor’s office and hospital across the country.  Each and every procedure and transaction would be priced like the menu at McDonald’s.

Ridiculous, right?  Doctors who would not be able to make a decent living would leave the profession.  There could be a shortage of health care workers as a result.  Patients who couldn’t afford a procedure would have nowhere to go to find a lower priced alternative.  Perhaps the government would inadvertently price a procedure too high and very few would be able to afford it, causing unnecessary suffering.  Or perhaps the government would inadvertently price a service too low, say $10 x-rays, causing every person with a borderline ankle twist or arm pain to run out and get x-rayed, you know, just to be on the safe side. 

“Not in America!”, you say.  Well, I’m sorry to report that while you were sleeping (remember that catnap you took back in the Eighties?), your government set price controls on health care.  Yes, they did it during the Reagan administration.  Snuck it right into Medicare.  And as a result, all health care in the U.S. is determined based on these price controls.  I now refer you to an article from Economix, an economics blog on the New York Times website.  Below is the article in toto:

Medicare’s Soviet Label

Today's Economist

 Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

Medicare, Where Soviet Economic Thinking Lives On,” was the headline on a recent blog offering commentary on an article about Medicare pricing in The Wall Street Journal, accompanied by a videotaped, highly critical interview on The Journal’s “Online Opinion.”

The article and the video are focused on Medicare pricing of physician services. But the Soviet label can also be affixed to Medicare’s pricing for hospital care.

Joseph Antos, the widely respected Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute, agrees with the Soviet label. “Medicare ignores the market, setting prices for physician services based on an academic theory with its roots in the Soviet Union,” he wrote in his “Confessions of a Price Controller.”

Dr. Antos writes with authority on this issue. As he acknowledges in the piece, he oversaw both the academic study leading to this pricing system for physicians and its subsequent implementation.

I find it hard to disagree with Dr. Antos. Medicare fees are administered prices, set by a central government for the entire country. And that is Soviet economics.

So naturally one is led to ask: Who imported this fiendish Soviet pricing theory to the United States and imposed it on Medicare?

It was the administration of President Ronald Reagan, with the concurrence of a Congress controlled by the Democrats.

The Reagan administration acted after it became alarmed at the inflationary force inherent in a payment mechanism adopted by Medicare at its inception, at the behest of the hospital industry: retrospective, full-cost reimbursement of each hospital for its reported costs.

After exploring a number of alternatives, most of them probably not politically feasible, the Reagan administration and Congress decided to switch, during 1983-86, to set, centrally administered prices. It’s hardly likely that the Reagan administration or Congress thought themselves inspired by Soviet theory, a notion that has been advanced more recently. These policy makers just thought the new system made more economic sense.

Most health economists — including me — saluted the switch, believing it would lead to more efficient hospital management. Hospital executives took a less kindly view, because it signaled the end of the Golden Era of hospital management.

The new payment system for hospitals used case-based bundled payments for “diagnostically related groupings” of inpatient cases, each with roughly similar reported costs and with a small and tolerable variance of actual costs per case around average costs for that case. The system is now known simply as the D.R.G.’s. It started with about 535 distinct D.R.G. cases and now has 745.

The D.R.G. system had its origin in pioneering research by Profs. John D. Thompson and Robert Fetter of Yale. They intended the D.R.G. classification to be mainly a management tool, a basis for managerial cost accounting and cost control commonly used in other industries.

It soon dawned on policy makers, however, that the D.R.G. classification could also be used as a basis for paying hospitals. That idea was successfully tested in the early 1980s in New Jersey and was put into effect nationwide in 1983.

In the words of Prof. Rick Mayes of the University of Richmond, who has chronicled the genesis of the D.R.G.’s in a fine paper: “The change was nothing short of revolutionary. For the first time, the federal government gained the upper hand in its financial relationship with the hospital industry.” Indeed, that revolutionary innovation has by now been widely copied around the world, first in Australia and France, and subsequently in Germany and several other countries.

The Medicare fee schedule for physicians — the actual focus of the article in The Wall Street Journal — was introduced in 1992, by the administration of George H.W. Bush.

Dr. Antos confesses to having been part of its genesis. I confess that I, too, played a bit part, in my capacity as an appointed commissioner on the Physician Payment Review Commission, established by Congress. The commission unanimously recommended the adoption of the new payment system to Congress at the beginning of the 1990s.

The new Medicare fee schedule was based on research financed by the Reagan administration during the 1980s and conducted jointly by Prof. William Hsiao of Harvard and the American Medical Association. It was implemented in 1992 by the Bush administration, along with what was, in effect, a national budget for Medicare’s total payments to physicians, then known as the “volume performance standard,” and modified in 1997 to what is called the S.G.R. system, for “sustainable growth rate.”

This new payment system for physicians replaced a highly dubious mechanism under which Medicare paid each doctor his or her “customary, prevailing and reasonable” fees, a clone of the “usual, customary and reasonable” system then widely used by private health insurers. It was a bewildering, computer-intensive system, with several filters based on each physician’s own charge profile for each service during the previous year, along with frequency distributions of fees for each service by all physicians in the physician’s market area.

The “usual, customary and prevailing” system, used since the inception of Medicare at the insistence of organized medicine, had proven to be highly inflationary, as could have been predicted at the outset. It also was unfair, because it could result in quite different Medicare payments for the same service to two physicians working in the same building — simply because one was more aggressive in billing than the other.

Soviet label notwithstanding, the relative fee structure underlying the Medicare fee schedules imposed in 1992 — the so-called “resource-based relative value scale” — has by now been widely adopted by many private health insurers in the United States as the basis for negotiating fees with physicians. The scale values procedures relative to a base unit that is given a monetary value by Congress and adjusted every year.

Among private insurers, this approach has replaced “usual, customary and reasonable.”

In coming weeks I will examine more closely how Medicare’s pricing for hospital services and physician services actually works, and contrast that with how fees are determined in the private insurance sector.

Tort Reform and Competition Solutions for Health Care Reform

Tort reform, competition and health care reformMany people I’ve spoken with say that the sensible way to bring down health care costs would be 1) enact some form of tort reform and 2) allow insurance companies to compete across state lines.  While these solutions sound sensible, they need to be deconstructed to some degree to find that they won’t/don’t really reduce the price of health care expenditures in this country (around $2.3 trillion), at least not much. Keep in mind that $2.3 trillion equals $7,491.85 for every person in the country ($2.3 trillion/307 million).

Let’s start with tort reform.  Malpractice insurance premiums in this country are estimated at about 1% of total health care costs in this country.  That would put total premiums at $23 billion.  Let’s be generous and assume that tort reform would reduce premiums by 25%.  That would result in savings of $5.75 billion.  On top of that, let’s assume an  estimated cost reduction through reduced utilization of health care costs (CYA tests that doctors order) would result in an additional $7 billion in savings, for a total savings of $12.75 billion (more than the 2009 CBO estimte of $11 billion).  Now, $12.75 billion is nothing to sneeze at, but we are still only talking about reducing total U.S. health expenditures by less than 0.6%.  So while tort reform would save money, it would NOT reduce health care spending (or health care premiums) by any considerable degree.

Now let’s take a look at selling insurance across state lines.  The argument goes that if there is more competition from more insurance companies, then price will be driven down.  The problem I see with this is that health insurance is not like other consumer goods.  Sure, if I were looking for a bicycle I would want as many bicycle manufacturers as possible competing for my purchase.  Basic economics will show that an increase in supply will result in lower prices.  So why doesn’t this work for health insurance? 

The answer is “networks”.  Insurance companies such as Blue Cross are able to keep insurance premiums down by negotiating lower payment rates with providers in their network.  If you go to a provider that is out-of-network it will cost the insurer (and you) more.  So let’s assume that Kaiser Permanente is allowed to compete in Illinois.  Their $500 deductible policy is cheaper than Blue Cross Illinois, but the reason I know you will not buy it is because Kaiser does not have a network in Illinois; meaning that any doctor in the state of Illinois that you go to will be considered “out-of-network”.  This means you will be paying higher deductibles, higher co-insurance, higher out-of-pocket costs and that Kaiser will not have negotiated a discount, so the amount charged to you will be higher than the Blue Cross negotiated pricing discount.  Okay, but wouldn’t Kaiser start negotiating with providers to build their own network in Illinois?  Probably, but here’s the problem.  There is a direct correlation between the discounts an insurer can negotiate and the amount of market share they hold in any given market.  A new insurer such as Kaiser coming into the Chicagoland market (or Peoria market, or Rockford market, etc.) has very little leverage with providers.  A doctor or hospital will be less likely to discount prices for Kaiser because they have very little to lose by not negotiating.  If the doctor/hospital walks away from Kaiser, they maybe lose access to a couple of hundred people whohave Kaiser policies.  Blue Cross, on the other hand, probably has a couple of hundred thousand people insured.  Doctors and hospitals HAVE to negotiate with Blue Cross or the bulk of their patients will find an in-network Blue Cross provider resulting in lost revenue for the doctor/hospital that didn’t negotiate with Blue Cross.  The end result will be that while more insurance companies are in the Illinois market competing, none will be able to compete with the top two or three market share holders when it comes to discounts and, ultimately, premium cost.   

Need help with your company’s health care costs?  Contact me.  Would you like more information on health care reform?  Subscribe! Read more of this post

Health Care Bill Repealed!!!

Health Care Bill RepealedWith the mid-term elections upon us, could we soon see this headline in the local papers or on the cable news scroll?  Don’t bet on it. While the GOP has made “repeal and replace” their mantra during this campaign season, there are quite a few roadblocks standing in their way.  Even in some corners of the GOP they are admitting that repeal is a longshot. But for argument’s sake, let’s say that somehow the bill gets repealed and the repeal bill gets past a presidential veto.  How would repealing the health care bill affect ordinary Americans?

Well, let’s consider that a number of provisions from the bill have already taken effect.  Undoing those provisions would be felt first. Consider:

  • All of those twenty to twenty-six year olds that were allowed onto their parents’ insurance would now have to be kicked off and told to find coverage elsewhere.  How will the parents’ of those young people react to that?
  • Under the health care law, children with pre-existing conditions cannot be denied coverage.  Repeal means that the insurance companies can start denying coverage to those children again.  How will parents deal with that?
  • Any plan that started (or was re-newed) after October 1 of this year had to begin offering preventative services with no cost-sharing (no deductibles or co-pays allowed) – now they will have to reverse all of that. How will people who’ve been able to get free mammograms, physicals and colonoscopys feel about having that benefit taken away from them? Remember, this provision applies to medicare too.  How will seniors feel about the government messing with their medicare coverage?
  • Speaking of medicare, the treasury has already mailed out $250 rebate checks to seniors with Medicare Part D.  Will they be forced to return that money? How will seniors feel about the ‘donut hole’ being re-instated?
  • Fully insured health plans (after Oct 1) have built in premium increases to account for the additional services and dependents being covered.  Will they reverse these increases or will policy holders be stuck with the higher premiums even though the additional coverage has been stripped out? 
  • Most insurance companies have already reduced their commission rates for brokers going forward.  Will the carriers reverse this or will brokers be stuck with the new commission structures?
  • Finally, after the health care bill is repealed, we will still be stuck with a health care system with ever escalating costs.  What will replace it?  Are we ready for another year or two of political debate on health care reform?

So will the politicians in Congress have the intestinal fortitude to repeal the law given the above?  Maybe, but I doubt it.  “Okay,” you say, “but what about the lawsuits that the states have filed stating that the individual mandate to buy insurance is unconstituional? At least we may be able to get the individual mandate taken out.”

Most legal analysts have said this is a longshot too, but again let’s assume it happens.  The insurance companies agreed to waving pre-existing conditions for everyone in 2014 based on the individual mandate which would go into effect in 2014 as well.  Why?  Because in order to waive pre-existing conditions there must be a way to avoid adverse selection.  And the only way to avoid adverse selection is to have everyone buy insurance.  If that requirement goes, expect the insurance companies to turn around and lobby Congress to remove the pre-existing condition provision.  If Congress removes that provision, they risk alienating a large portion of the public.  If they don’t remove that provision, insurance companies will lose a lot of money and/or get of the business of health insurance altogether.   

Given the unappealing consequences of repeal for politicians, I would say that we are now on the long, bumpy road of health care reform in this country.  The best bet will be for future Congresses to tweak the bill and try to improve upon it.  How they do that will be anyone’s guess.  In the meantime, subscribe to my blog for updates.

One for All and All for One

Health purchasing co-operatives for 501(c)3 organizationsIn the state of Illinois, there are a couple of laws on the books that allow for organizations to band together for the purpose of providing insurance coverage to members. There is an inter-governmental law that allows municipalities, counties, school districts and other units of government to form co-operatives to insure (or self-insure) various risks. These include work comp, property and health care. There is also the Charitable and Religious Risk Pooling Trust Act which allows for 501(c)3 organizations and religious institutions to insure (or self-insure) various risks including work comp and property – but not healthcare. Finally, there is a law that allows for private employers to come together and form a health insurance purchasing group in order to buy insurance for their organizations (this law does not allow self-insuring).

Why would any employer or organization want to combine with others to purchase insurance? The main reason most do it is to create a larger population group. A larger population results in more stable insurance rates, partly because of a smoothing out of claims experience due to the law of large numbers. It is much easier to predict the number and amount of claims in a group of 1,000 than it is in a group of 10. Additionally, it levels out the insurer’s profit margin for fully insured groups. An insurer builds in a larger profit margin on small groups because of the additional risk (lack of predictability) in insuring them. Again, the larger a group is, the more predictable the risk becomes, which in turn lowers the risk premium (profit margin) that an insurer needs to build into the contract. Self-funded co-operatives are able to remove this ‘risk premium’ entirely, resulting in an immediate reduction in cost.

A group purchasing co-operative could also benefit its members by using its group purchasing power to provide additional services, such as wellness programs, at a cost lower than small individual groups could get on their own. Currently, I am working with not-for-profit organizations in the Chicago metro area to form a health insurance purchasing co-operative. It is hoped that we can reach a sustainable number of participants over a set period of time so that the purchasing co-operative will become an attractive target for a large number of health insurers, or that the regulatory environment allows for the co-operative to eventually become a true self-funded entity. If you would like more information about this health insurance purchasing co-operative, please contact me.

Have You Found That Missing Sponge, Bob?

Accountable Care OrganizationsOne of the interesting things to come out of Health Care Reform is the push from insurance companies to get hospitals focused on quality.  As an example, some research indicates that a medical sponge is left inside a patient one tenth of one percent of the time.  That’s 1 in 1000.  Doesn’t seem like much of a problem right?  Well, maybe you’ll reconsider once you read this story in the Miami Herald.  Two words I never want to read again: festering sponge.  The point of the story for insurance companies is that while one surgery is expensive, two surgeries is MUCH more expensive.  In fact, Medicare and most private insurers will not pay the hospital at all for the surgery to remove the sponge.  This is just one example of making providers accountable.

The new health reform law talks a lot about Accountable Care Organizations, which you can find out more about at the Code Red blog.  The idea is to provide the hospitals and doctors with one lump sum up front to treat a patient’s condition.  If the cost of treating that patient is more than they received, they have to eat the difference.  But, if the hospital team is able to treat the patient for less, not only do they keep the difference but they may also get a bonus from the insurance company.  Blue Cross has recently entered into an accountability contract such as this with the Advocate Hospital System.  Hopefully, this will lead to better care for the patients and a way to rein in health care costs and in turn, insurance premiums.

So, what are hospitals to do about missing sponges?  While most hospitals count sponges going in and then coming out, there are new technologies available now.  The Mayo Clinic says that before they implemented a computer scanning system (like the kind used at Target or the grocery store), they were losing a sponge a month (!) inside of patients.  For the past year and a half, using the system, they haven’t lost one.  Think about that for a minute.  That means that there have been 12 fewer unnecessary operations over the course of a year, which probably equates to hundreds of thousands of dollars saved not to mention the malpractice awards.  You probably will be hearing a lot more about Accountable Care Organizations in the very near future.  In the meantime, why don’t you let us take a look at your current group health policy?

Health Care Reform Made Easy

Today is the official start of a number of provisions within the Health Care Reform law (also known as the Affordable Care Act).  After reading and re-reading the law and reading and re-reading explanations of the law, I have been explaining and re-explaining all of the ways that this law will affect employers, employees, individuals, insurance companies, etc. etc. since March. 

Recently, I came across a video from our friends at the Kaiser Family Foundation that does a very good job of explaining health care reform for the average Joe.  Please take less than ten minutes to watch the video below.  You won’t be an expert after you see it, but you will definitely have a better understanding of how the whole thing is supposed to work.

Ah, Ah, Ah, Ah, Stayin’ Alive, Stayin’ Alive!

Every now and again, medicine advances in an unexpected way.  The good news today is that there is now a new, simpler, less “germy” method of saving someone’s life.  And it’s got a beat you can dance to…

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