ICYMI: The New York Times on the Need to Bring Down Underlying Medical Costs
Posted by The Campaign on April 21, 2010 at 5:49 AM
With each passing day, there seems to be a greater and greater recognition of the fact that health care costs are growing out of control. And it is these costs that are driving the icnreases in premiums. Thus if the country is going to get premium growth under control it has to design a strategy to get these underlying costs under control.
The New York Times picks up this line of argument today in its editorial "Health Care Reform and Massachusetts." First, the NY Times recognizes that premium caps are "a short-term fix."
The editorial goes on to argue:
"Like the rest of the nation, the state needs to deal with the underlying issue: the relentlessly rising prices charged by health care providers. Those are driven in part by costly new technologies and treatments. In Massachusetts, it is exacerbated by the outsized bargaining power of prestigious teaching hospitals and regionally dominant community hospitals."
This argument follows closely to the points made by AHIP in yesterday's hearing in front of the Senate HELP Committee. The Committee held a hearing on premium increases. The New York Times covered the hearing and picks up AHIP's point of view here:
"Congress, [AHIP's President and CEO Karen Ignagni] said, has largely ignored the cause of rising premiums: the explosive growth of medical costs and the power of hospitals and other health care providers to dictate prices. Ms. Ignagni said the law imposed new requirements, taxes and fees on health plans, which could further drive up costs."
Rising Cost of Health Care and the Effect on Health Premiums
Posted by Campaign on April 20, 2010 at 9:08 AM
Rising Cost of Health Care and the Effect on Health Premiums
Washington, DC - AHIP President and CEO Karen Ignagni today addressed the rising cost of health care and the effect on health premiums before the Senate Committee on Health, Education, Labor and Pensions. Below are excerpts from her written testimony:
"Our community is strongly committed to the successful implementation of the 'Patient Protection and Affordable Care Act' (PPACA), and we already have begun taking important steps to lay the foundation of a health care system that rewards value, not volume. Health plans are pioneering new initiatives for improving patient care, enhancing quality, and helping enrollees receive the highest possible value for their health care dollars."
"Health insurance plans are committed to engaging physicians, hospitals, and other health care professionals in the design and implementation of payment reforms. Our members also are working with various stakeholders to make performance measurement more consistent. We urge the committee and policymakers to assess these efforts and consider building upon the PPACA initiatives to ensure a system-wide approach to delivery reform."
"When the cost of health care services increases, the cost of providing health benefits also rises. The federal government's data on national health expenditures indicate that over the past 20 years (1989-2009) health benefit costs have increased by an average of 7.2 percent annually and premium increases likewise have averaged 7.1 percent annually. This trend clearly demonstrates the importance of addressing underlying medical costs through measures that achieve system-wide cost containment."
"As we examine issues surrounding health insurance premiums and medical costs, it is important to look at recent history, particularly the decade of the 1990s when premium growth was well below historical trend and stable for several years, contributing toward economic growth and growth in coverage. We know from this experience that health plans can hold down premiums when they are able to use care management tools to reward the delivery of high quality, appropriate and efficient care."
"In today's health care system, we face new challenges - most notably, rapid increases in the unit price of medical services - that are contributing to higher health care costs. In fact, according to the 2008 National Health Expenditures (NHE) report issued in January 2010, price increases constituted two-thirds of the year-over-year increase in health spending. Specifically, of the 4.6 percent annual increase in personal health expenditures reported in 2008, price accounted for 3.1 percentage points, while 1.5 percentage points was driven by non-price factors. The NHE report also indicated that for 2008, health insurance premiums increased at 3.1 percent, approximately one-third below the increase in total health spending."
"In the face of these exploding costs, our members are deploying the next generation of medical management tools to promote a high-value health care system, including:
- Targeting disease management services to enrollees who stand to benefit the most from pro-active interventions;
- Working with primary care physicians to expand patient-centered medical homes that promote care coordination and accountability for clinical outcomes;
- Providing incentives to promote the use of decision-support tools and health information technology;
- Providing quality improvement reports for physicians to monitor their progress in managing disease;
- Offering personalized risk assessments and wellness programs;
- Encouraging electronic prescribing and consumer safety alerts;
- Providing peer-to-peer comparisons to demonstrate the appropriate use of health care services across specialists and manage the use of high-cost imaging services."
"Many of the quality programs and innovative initiatives being implemented in various markets across the country by the private sector would improve the delivery of care and patient outcomes in a more timely and efficient manner if public programs were part of the local initiatives. Expanding these programs to encompass the full health care system - both public and private payers - is an important step toward identifying gaps in care, pursuing opportunities for improvement, and evaluating innovations so adoption can occur more broadly."
"The debate leading up to passage of health care reform ultimately became framed as a need for insurance market reform and greater regulation of health plans, creating legislation disproportionately focused on health plans, which make up only 4 percent of national health expenditures, and doing little to address the underlying drivers of health care costs, which have a substantial affect on premium increases."
"Massachusetts and California provide high profile examples of a public discussion about insurance rates entirely delinked from an examination of the factors driving these rates. In the case of Massachusetts, a comprehensive and in-depth report from Attorney General Martha Coakley recently reported two findings: that the market leverage of providers was leading to higher prices, without any noticeable difference in quality; and that increases in the price of health care services had caused most of the increase in health care costs - not utilization."
"Capping premium increases without looking at the underlying components is similar to capping the prices auto makers can charge consumers, while allowing the steel, rubber, and technology manufacturers to charge the auto makers whatever they want. This will lead to financial instability throughout the system. What has occurred in Massachusetts is a politicization of processes related to premium review and approval, creating benchmarks for review that do not reflect the underlying cost drivers."
"The new health care reform law recognizes that states properly serve as the primary regulators for health plan activities, subject to new and consistent federal standards impacting a wide range of activities, including annual rate review."
"The real question, therefore, is not whether additional legislation is needed to further address the operation of 4 percent of the health care sector as a percentage of total spending, but whether policymakers will now broaden their focus to address sectors accounting for the remaining 96 percent of our health care system."
"To succeed on a long-term basis, health reform ultimately must include bolder steps to achieve system-wide cost containment. We believe this can be achieved with a more comprehensive effort to reduce the rate of increase in costs, better alignment of public and private sector payment reform efforts, and broader medical malpractice reform. Perhaps most important, we believe that efforts to reduce costs are complementary to our nation's effort to improve quality as policymakers attempt to drive greater value in the delivery of care. Focusing only on premiums and not the components that are driving premiums makes little sense."
"Our members remain strongly committed to working with the committee to ensure the successful implementation of the new health reform law, while also working to slow the growth of underlying medical costs to make health insurance more affordable."
The full written testimony can be found at: http://bit.ly/d7jHAg.
FACT CHECK: Putting Health Plan Profits in Perspective
Posted by Campaign on April 20, 2010 at 7:02 AM
FACT CHECK: Putting Health Plan Profits in Perspective
Some important facts about health plan profits:
Analyzing 13 of the 14 health plan companies on the Fortune 500 list (these 13 have filed their initial year-end financial statements with the SEC) the profit margin for these 13 companies averages 3.19 percent for 2009 -- for 2008 it was 2.3 percent for these same 13 companies.
- Six of the 13 companies actually saw a decline in their profit margin - averaging a decline of 48.7% in profit margin from 2008 to 2009.
For the five largest health plans (determined by market cap), the average profit margin for 2009 is the second lowest from 2005-2009 - 2008 was the worst year.
- 2009 - 5.2% (4th)
- 2008 - 3.2% (5th)
- 2007 - 5.6% (2nd)
- 2006 - 5.4% (3rd)
- 2005 - 6.4% (1st)
According to Yahoo! Finance's analysis of the latest quarterly data, the net profit margin for the entire health care sector is 13.26%. Using the same index, health plans have a 4.3% net profit margin - 208% less than the entire health care sector.
According to Yahoo! Finance's analysis of the latest quarterly data, the net profit margin for drug makers was 21.3% compared to 4.3% for health plans - 395% less.
According to Fortune Magazine, the health insurance industry had a profit margin of 2.2% in 2008, ranking them 35th on the Fortune list of industry profits. This is below pharmaceuticals (#3, 19.3%), medical products and devices (#4, 16.3%), and medical facilities (#34, 2.4).
5 drug companies had profit margins of more than 20%
14 companies had profit margins of more than 10% -- which is more than double the health plan industry average
The average profit margin for health plans 3.19% vs. 18.67% for drug companies
The highest profit margin health plan company: 7.3% vs. 47.48% for a drug company.
One company had more profits than the entire health plan industry
The top two highest profit drug companies had almost double the entire profits for the health plan industry
Click here for a document putting health plan profits in perspective.
FACT CHECK: Increases in Health Premiums are Caused by Increases in Underlying Health Care Costs
Posted by Campaign on April 20, 2010 at 6:54 AM
FACT CHECK: Increases in Health Premiums are Caused by Increases in Underlying Health Care Costs
Sacramento Bee Article on Hospital Charges: The Sacramento Bee takes a look at rising hospital charges in the state of California and the effect on health premiums.
Sac Bee Hospital Charges Chart: A closer look at hospital charges across the state of California.
Fact Sheet - Premiums Driven by Benefits and Putting Administrative Costs In Perspective: A comparison of health care spending by sector to provide perspective on cost increases.
What They Are Saying - Federal Rate Review: Independent experts weigh in on the proposed creation of a federal board to review premium increases.
What They Are Saying - Costs and Premiums: Independent experts take a look at what is driving increases in health care costs and premiums.
Fact Sheet - Examples of Increasing Costs: Some examples of increases in health care services and procedures that are driving up premiums.
ICYMI: Leap of Faith and Health Care Costs
Posted by The Campaign on April 19, 2010 at 5:43 AM
Much has been written and discussed about the impact of the new reform laws on costs and in particular premiums. The NY Times continues this discussion by looking at New York state and the impact of reforms implemented several years ago on premiums, costs and coverage.
Here are some key highlights from the article:
"New York’s insurance system has been a working laboratory for the core provision of the new federal health care law — insurance even for those who are already sick and facing huge medical bills — and an expensive lesson in unplanned consequences. Premiums for individual and small group policies have risen so high that state officials and patients’ advocates say that New York’s extensive insurance safety net for people like Ms. Welles is falling apart."
"The problem stems in part from the state’s high medical costs and in part from its stringent requirements for insurance companies in the individual and small group market."
The article then lays out specifically how premiums began to increase -- a combination of adverse selection and skyrocketing medical costs. From the article "Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the 'adverse selection death spiral.'"
These policies have led to two very serious problems:
- "Since 2001, the number of people who bought comprehensive individual policies through HMOs in New York has plummeted to about 31,000 from about 128,000, according to the State Insurance Department."
- "At the same time, New York has the highest average annual premiums for individual policies: $6,630 for single people and $13,296 for families in mid-2009, more than double the nationwide average, according to America’s Health Insurance Plans, an industry group."
So surely policymakers at the national level must have taken some lessons from New York when writing the new reform law? Sort of. The article does mention the coverage requirement that is part of the new law but notes "...analysts say that provision could prove meaningless if the government does not vigorously enforce the penalties, as insurance companies fear, or if too many people decide it is cheaper to pay the penalty and opt out."
And for this to work, Mark Hall a professor at Wake Forest University says "You have to sort of take a leap of faith..."
