Building a Health Exchange Strategy – Part III


Understanding Your Operational Readiness – Step 1
Posted by Errol Pierre

In Part I of Building a Health Exchange Strategy the discussion centered on how payers will have to be more consumer centric in their approaches to delivering health care. Part II focused on being aware of the political climate and how that will impact strategic decisions on whether to enter a Health Exchange market and upon entrance how to operate within one. Both dynamics, though critical, outlined external factors. Part III dives into internal factors; particularly around operational readiness.

It is clearly recognized that Health Exchanges offer a tremendous opportunity for health insurance companies to broaden their consumer base and expand their market share. By making health coverage more affordable it is likely that 30 million of the 45 to 50 million uninsured Americans will enter the market and purchase coverage through a Health Exchange.  Despite this opportunity, there is a high degree of complexity behind implementing and operating a Health Exchange book of business. The work in 2012 and 2013 provides a barrier to entry for smaller firms who may not have the financial and human capital to build the necessary tools and operational foundation to effectively compete with the larger players. Additionally, there are many interdependencies that exist with heavy reliance on each individual state as well as select Federal agencies to coordinate the coverage and manage the financing of the Health Exchange. The three main areas of concern that health insurance companies are grappling with are (1) product and plan design, (2) subsidy calculations and premium collection, and (3) eligibility and enrollment. Today’s article, (Part III, Step 1) will focus specifically on products and plan designs.

Product and Plan Design
Health Exchanges require at a minimum four levels of benefit offerings; bronze, silver, gold, and platinum. The different metals denote the level of coverage each plan must provide. For example, a bronze plan must cover up to 58% and no more than 62% of the health care costs for the health benefits a state deems “essential “ for a health insurer to provide. Likewise, a platinum plan must cover up to 88% and no more than 92% of the health care costs. These plan designs may be dictated by the individual state depending on the type of Health Exchange the state decides to run. Active Purchaser states like New York would be more inclined to create standard plan designs while Facilitator state like Utah would allow health insurance companies to come up with products and plan designs independently.

Within the “Silver” plan offerings the Health Exchanges will require the reduction of cost-sharing levels such as deductibles, co-payments, coinsurance, and out of pocket maximums depending on the consumer’s federal poverty level (FPL). For example, a silver plan may have a $1,000 deductible before coverage from the health plan kicks in. However, if a consumer with a FPL below 250% purchases a silver plan, the $1,000 deductible would need to be lowered by up to $500. This provides a level of complexity for health plans that has not been seen before. Lowering the deductible actuarially increases the price of the plan since the plan will provide more coverage. However, that cost of lowering the deductible is returned back to the health plan by the Federal government and not the purchasing consumer.

Additionally, the silver plan created by a health plan will have to be replicated up to 4 times over to accommodate for the variations in cost-sharing reductions that change the plan design of the product for each FPL level. Operationally, this inevitably means multiple people can buy the same exact silver plan. However based on their income level, they will have very different plans and very different utilization trends. Accumulator calculators that help health plans count up health care dollars will be imperative to ensure that physicians, hospitals, health plans, and most importantly health care consumers know when they have reached their deductibles and coinsurance maximums. The costs of administering such a complex set of plan designs are still unknown to many health plans; however this has not deterred them from pursuing the Health Exchange opportunity. However, the bigger impact to the cost of administration is how it will work in parallel with minimum loss ratio requirements that mandate the percentage of health care revenue that must be spent on providing health care as opposed to administrative costs; particularly if administrative costs increase due to the complexity of administering these plans.  This undoubtedly eats away at the profit margins of health care plans that already operate with very low margins (2-4% on average).

Basic Health Option
In addition to the four metal plans a state may opt to offer a Basic Health Option. This basically extends the state’s current Medicaid plan eligibility from beyond the 133% FPL up to 200% FPL. It behooves a state to pursue such an option because the Federal government would reimburse 95% of the costs. Today, the Federal government only pays 50% of a state’s Medicaid costs. As a result, states could potentially realize huge savings by shifting a portion of its Medicaid population to this Basic Health Option.

However, this route is very complex. The nuances here are that the Basic Health Option must have the essential health benefits deemed by the state even though the current Medicaid plans do not. So the population over and above the 133% FPL level will have a similar product however the underlying benefits could be substantially different. This poses complexity to the providers with coding and claim submissions. The states will be free to choose the methodology for their essential health benefit package as long as it represents (1) the most popular small group health plan, (2) the most popular HMO health plan in the state, (3) the health plan offered by the State to its employees, or (4) the health plan offered by the Federal Government to its employees in that state. There is also added complexity to the Basic Health Option when it comes to cost sharing. Deductibles and coinsurance levels are regulated within the health care reform bill to be based on FPL as well. So a health plan would have to administer two different types of Basic Health Plans based on whether a consumer is 133% to 150% of the FPL or if they are 150% to 200% of the FPL. These intricacies cause added complexity when it comes to administering a health plan, accumulating consumers’ deductibles and out of pocket maximums, and ensuring the plan designs receive actuarially sound price increases and adjustments year to year.

Catastrophic Plan
Lastly, individual states will also have the ability to create catastrophic plans that can only be offered to health care consumers under the age of 30. Many industry insiders refer to this population as the “young invincibles”. These plans must also meet the essential health benefit requirements, however the deductibles and out of pocket maximums are allowed to be higher. As a safeguard against consumers forgoing care because of high out of pocket healthcare expense there are a number of protections put in place as well. For example, preventive care and particular routine care must be covered in full and not be subject to the deductible. Additionally, three to four primary care office visits must also be covered in full and not subject to the deductible as well. Pricing for these plans provides a unique opportunity for health insurers since the risk pool and experience of the population will reflect a younger demographic. This means that pricing should in theory be more affordable and subsidies from the Federal government potentially could go a longer way.

In the End
Health Exchanges present standardization of plan designs to the health care consumer market with the potential of commoditization of health insurers as they compete for market share. As a result, the emphasis on products and plan designs becomes imperative. How an insurer operationally administers health care products in this space will be the differentiator to the consumer. Innovation in finding the ability to be unique in a very regulated space produces an opportunity for insurers to make product development the focal point of their Health Exchange success strategy.

Errol Pierre is the Assistant Vice President of Product Management at a regional health insurance company focused on business development, sales, and strategy planning around Health Exchanges. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


The Hidden Healthcare Election


Posted by Errol Pierre

It’s Healthcare, Stupid!
James Carville famously coined the phrase “The Economy, Stupid!” while he was a campaign strategist for the 1992 Clinton Presidential campaign. Fast-forward to 2012 and for good reason both campaigns seemed to take heed to Carville’s advice. For good reason, the unemployment rate hovers around 8%.  On top of that 40% of the unemployed have been jobless for more than 6 months. The labor force participation is barely 64%. Lastly, more than 8 million people last month were employed only part-time specifically due to economic reasons.

However, there seemed to be an undercurrent of Healthcare specific issues in this election that never really surfaced or was given its due attention.  Many of these issues revealed themselves in the exit polling of the most contentious battle ground states.

Obamacare & Florida
16% of the U.S. population lacks health coverage. Obamacare would provide substantial subsidies to individuals that otherwise could not afford insurance. Even though Mitt Romney has proven experience with health care by being the first Governor to ever pass universal healthcare legislation in a state, he ran to repeal President Obama’s healthcare bill even though it closely mimicked the Massachusetts bill Romney himself signed into law just 3 years prior.

Florida has the highest uninsured rate and uninsured population of any battleground state standing at 20% and 4 million people respectively. Over 90% of the uninsured population falls below the 500% federal poverty level ($55,000 for an individual). In Florida roughly 50% of the electorate earns below $55,000 a year. Exit polling showed Obama carried 60% of that population with Romney winning only 40%.

Auto Bailout & Ohio
November 18, 2012 will mark the 4 year anniversary of Mitt Romney’s infamous New York Times Op-Ed entitled Let Detroit Go Bankrupt. Romney called for a managed bankruptcy for General Motors, Ford, and Chrysler standing in strong opposition to a pure bailout. He also called for the heads of the companies to step down and acknowledged that autoworker benefits, including health care, would need to be reduced in order to alleviate the $2,000 burden of additional costs Detroit cars had that made their cars foreign counterparts did not.  During the last leg of the Presidential election, Mitt Romney became unpopular in parts of Ohio for this stance. In fact, President Obama ran on the auto bailout with his Vice President claiming, “Osama Bin Laden is dead and General Motors is Alive!”

The Obama administration ended up moving forward with a plan that very much resembled the Romney Op-Ed. The Obama plan called for the heads of the car companies to step down, sought to have GM and Chrysler pursue Chapter 11 bankruptcy filings, and acknowledged that auto unions would face “belt-tightening in wages, healthcare, and retirement benefits”.  In the end, based on Ohio exit polling, 56% of Ohio voters approved of Obama’s auto bailout and Romney was never able to properly articulate how close his auto plan was to the President’s.

Minority Unemployment Rates & Ohio/Nevada/Colorado/Virginia
The majority of the country receives their health insurance from an employer-sponsored program. That means a job is more than just a paycheck, it’s a means to get health coverage as well. The unemployment rate for African Americans is 14%; six percentage points higher than the national average. Obama won 89% of the African American vote in Nevada, 93% of the African American vote in Virginia, and 96% of the African American vote in Ohio. The unemployment rate for Hispanics is 10%; two percentage points higher than the national average. In the battleground state of Colorado, Obama won 74% of the Hispanic vote. In Nevada  Obama won 69% of the Hispanic vote. In the end, Minorities were convinced that President Obama could grow jobs that offer comprehensive benefits like healthcare better than Mitt Romney.

Abortion & Ohio
Abortion is indeed more than a religious issue. It’s a healthcare issue as well.  Mitt Romney went on record vowing to defund Planned Parenthood during a campaign stop in Ohio. This was after Republican candidate, Todd Akin, interjected the phrase “Legitimate Rape” into the American lexicon justifying it as information he garnered from physicians. Overlay these two instances with Ohio exit polling and we witness that 56% of voters believe Abortion should either always or mostly be legal.  As a result, Obama won 80% and 63% of those votes leaving Romney on the losing end of an important Ohio issue.

Errol Pierre is the Assistant Vice President of Product Management at a regional health insurance company focused on business development, sales, and strategy planning around Health Exchanges. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


Free Market Lessons from Sweden’s Single Payer System


Posted by Errol Pierre

The United States with a population of over 313 million people spends over 17% of its GDP on health expenditures while over 14% of its population lack health insurance. This has led to runaway costs, access to care issues, and in the face of recent healthcare reform efforts, worries of severe physician shortages come 2014. On the contrary, Sweden, with a much smaller, homogenous population of 9.4 million people has been able to keep health expenditures less than 10% of its GDP while covering all of its population. If efficiency of health dollars were the metric to compare health systems internationally, Sweden would lead the U.S. in this regard for the last 30 years. Despite their successes, like all developed nations, Sweden faced threats of increasing costs in the 1990’s due to an economic downturn. Additionally, Sweden also saw an aging population with a longer life expectancy from advancements in technology and modern medicine. When healthcare is government run it inevitably will succumb to rationing when tax dollars are scare. However, Sweden has been able to achieve sustainable results through policy and market reforms focused on (1) the decentralization of healthcare management, (2) cost containment measures, and (3) physician and hospital competition.

Decentralization of Healthcare Management

While Sweden is a model for a single payer system, many of their reforms can be applicable to the United Stated. In Sweden the Health and Sickness Care Law of 1982 decentralized the Swedish government’s control of healthcare to keep it “accessible, efficient, and equitable.”  Counties within the country were given more autonomy to set up boards and administer health services. In turn, many of the national rules dissolved. This decentralization gave more power for regional decisions within the counties of Sweden. This is unlike America where the answer to the uninsured population in its most recent healthcare reform efforts was to use the national approach of health exchanges and essential health benefits rather than delegating the particular solutions to individual states and localities. For example the Department of Health & Human Services mandated that every state have a health benefit exchange by 2014 or the Federal government would create one within the state.

Lesson Learned: Place the burden of the uninsured into the hands of local governments to formulate strategies to address the issues that are sensitive to the local values.

For example, in the U.S. one third of the uninsured find insurance within 6 months. In Sweden, many counties pay for insurance costs for citizens up to 6 months until they find a new job. This would eliminate 15 million of the 45 million uninsured. Additionally, 50% of the uninsured work part-time. A U.S. state resolution would be a sickness fund (similar to Medicaid) that caters to individuals that work less than 40 hours a week with multiple employers, which would lower the uninsured rates to ~20 million. Lastly, 43% of the uninsured are located in only 4 states (New York, Florida, Texas and California). A focus on local initiatives to answer a national problem similar to Sweden could have potentially been a better use of resources and national funds than a Federal law impacting all 50 states.

Cost Containment

In 1984, with the passage of the Dagmar Reform of 1984, national revenues were divvied up and doled out to counties as block grants based on population size. As a result, private providers could no longer directly bill the national healthcare system for medical services rendered. This is very similar to how physicians who treat Medicare enrollees operate today. From 1984 to 1985 the count of practicing physicians went from well over 5,000 to just over 2,000 greatly controlling costs. Block grants also declined the percentage of GDP in Sweden spent on health expenditures. Sweden is one of the few countries that have been able to lower the percentage of health expenditures.

Additionally, as the economy worsened in the early 1990’s, the Swedish government froze taxes from 1991 until 1994. During this time 22% of the country’s beds for acute bed care were eliminated. Also self referrals received a higher copayment. This is very different in the U.S. where economic downturns cause private insurance enrollment decreases due to cost containments that occur in the private sector. However, since all health care cost controls are not vested in local state government, public spending and public health expenditures balloon during such times. For example, Medicaid spending increased by one third from 2000 to 2003 during the U.S. economic down turn. It grew by 10% between 2010 and 2011 representing 25% of all expenditures for states. U.S. healthcare reform efforts plan to reduce Medicare and Medicaid by 500 billion respectively which is likely to get caught up in the same political stalemate as the Medicare “doc-fix” since these decisions have not been decentralized and delegated to local governments. Since Sweden represents close to 80% of all health expenditures compared to less than 50% in the U.S., they are more sensitive to cost containment measures which lead to quicker reaction and better results.

The Federal government in the U.S. has continued to push off a fix to Medicare reimbursement reductions due to lobbying from physicians and trade groups. If these decisions were made at a local level to handle local concerns, States would have the ability to better control costs. Additionally, 50% of the Medicaid spend is handled by the states. This allows the states conversely to only handle 50% of the costs.

Lesson Learned: Medicare and Medicaid should be handled purely at the state levels since many states have balance budget amendments, cannot run deficits, and it is very costly for states to borrow funds.

Lastly, in 2002, Sweden introduced reference pricing and generic substitution for pharmacy coverage. This meant that when a drug was purchased, the health system would pick up 110% of the lowest priced drug. If a brand name drug was requested over a generic, the consumer would be responsible for the difference. From 2002 through 2005 Sweden realized $7 billion in savings which was close to 10% of total drug spend.

Lesson Learned: Adopt reference pricing and generic substitution in both Medicare and Medicaid programs across the U.S. to sharply cut pharmacy growth rates.

Physician & Hospital Controls

The United States is quickly facing a physician shortage when 20 million or more Americans will enter the insurance market in 2014 through Health Benefit Exchanges. In 1993 Sweden passed a law called The Point of Service Primary Care Reform which answered concerns of primary care shortages. The law made counties responsible for making sure every Swede had access to primary care. Additionally, it capped the amount of specialty training that occurred outside general medicine. It set ceilings and floors for the amount of patients treated by a single practice (1-3k patients per year). It provided credits and loan forgiveness to primary care doctors who started a new practice. And finally, the law allowed pay for performance measures that reduced the reimbursement to physicians who underperformed. Such controls including other initiatives has led to the use of electronic medical records for 94% of Swedish primary care physicians as compared to only 45% in the U.S. Additionally, 49% of Swedish physician practices have the capacity for advanced electronic health information compared to only 26% in the U.S. Lastly, 54% of Swedish practices will see patients after hours as compared to 29% in the U.S.

Lesson Learned: Strong controls on physicians at the local government level can greatly eliminate the potential of primary care shortages and improve the quality of care.

Conclusion

There are feasible lessons to be learned from recent healthcare reforms in Sweden particularly in the areas of decentralization, cost containment, and physician controls. In particular there are four lessons to be learned that are viable in the U.S. despite the current political climate and threat of the unconstitutionality of the Patient Protection and Affordable Care Act. Lesson 1: decentralize the burden of the uninsured to the individual states. Lesson 2: Allow individual states to budget for health care through block grants. Lesson 3: adopt reference pricing and generic alternative scripting. Lesson 4: place strong controls on physicians to eliminate shortages and increase access to care.

Despite America’s strong dislike for government run healthcare, roughly 40% of the population (125M Americans) is enrolled in a federally facilitated health program. Specifically there are 44M Medicare recipients, 62M Medicaid recipients, 10M Tricare recipients (health insurance for the U.S. military) , and 8M Federal Employee Health Benefit recipients. Sweden has been able to use free market principles within a government run system to manage care and cost. And yes, with any balance between quantity and quality, rationing of care does exist. But in a free market, when does rationing based on supply and demand not exist outside of anomalies like luxury and inferior goods?


Building an Exchange Strategy Part II – Understanding Your Political Climate


Posted By  Errol Pierre

By 2014 there will potentially be a health benefit exchange in every state across the country. Like snowflakes no exchange will be alike and politics will play a pivotal role in the differences found between them. While the healthcare reform bill signed into law requires the establishment of exchanges, the details of operation have yet to be determined. In fact, in March 2012, the Department of Health and Human Services (HHS) provided 600 pages of additional guidance to the states. The guidance given was more of a framework while much of the particulars were purposefully left out. This has made the role of the individual State Governors ever important. They are now in a position of power and play a very integral role in bringing exchanges from a theoretical policy concept to a legislative and operational reality.

Right or Left
At a high level, left leaning blue states will design their exchange to be an active purchaser. This will allow the Governor to take an active role in the day to day exchange operations. Under the direction of an exchange board, most likely selected by the Governor, these states would choose precisely which insurance companies participate, the types of policies sold, the rates of the selected products, and how enrollment and eligibility of those enrolled would work. In some more aggressive instances, states could even negotiate pricings with doctors, hospitals and pharmaceutical companies in the very same ways insurance companies do today in the private sector. This is obviously foreign territory to many of the states pursuing such a model. Nonetheless, proponents of the model see value in such an approach believing more oversight will lead to more affordability and better health outcomes in the long run.

Right leaning red states on the other hand will opt for a facilitator model. The state will merely be a marketplace for health benefit transactions between consumers and insurance companies to occur. They will set the high level guidelines and guardrails and merely outline the rules of engagement. Much of the market dynamics will be left up to private insurance and market forces to sort out. Benefit design, rate approval, distribution strategy, the “off-exchange” marketplace, and pricing will all be left up to “the invisible hand” of Adam Smith’s market forces. The idea of competition lowering healthcare costs has been refuted by the likes of many including Alain Enthoven – the father of managed competition – and Kenneth Arrow – the pioneer in research on asymmetric information as a market failure in healthcare. Nonetheless, American capitalism seems to have trumped over such doubts in these states. As a result, the role of government in these exchanges will be as minimal as the healthcare reform legislation will allow. There are already mandates that must be in place for each exchange. For example there must be four benefit categories ranked by actuarial values labeled bronze, silver, gold, and platinum for simplicity. The legislation also caps insurance company profit at 20% before operating costs are factored in. Lastly, the legislation requires health insurance companies to accept all enrollees and requires that the ratio between the pricing of the healthiest and the sickest consumer not exceed a 3 to 1 ratio. All in all, governors of these red states feel too much regulation stifles competition and the reform bill already has enough rules. As such, they are reluctant to add any further requirements on top of the federal ones. In this role the state will play referee rather than player/coach.

Politics at Play
State by state, there will be different shades of blue as states consider the ramifications of building a health benefit exchange. Health insurers must be prepared to understand how these different shades will impact the development of health policy. Vermont, for example, will be one of those very bold blue states. On May 26, 2011, Governor Peter Shumlin signed into law a historic universal healthcare bill which would cover every citizen in the state under a single payer system called Green Mountain Care. It will be in place by 2017 and the state has been drawing down federal funds from the national health reform bill as it prepares.

Like blue states, there too will be shades of red. Arkansas is a perfect example of a bright red state. Legislative opposition to a state run exchange was so great, Jay Bradford, the State Insurance Commissioner, had to  start preparing for a federally run exchange. By law, when a state cannot come up with its own legislation to run an exchange, the federal government is required to step in and set one up. Ironically, legislators that are so vehemently against Obama’s healthcare reform legislation will end up with a federally run exchange led behind Kathleen Sebelius, the current Secretary of Health and Human Services and former democratic Governor of Kansas.

Understanding the political environment of your state of operation is paramount to assessing the viability of a successful exchange strategy for a private insurance company. An active purchaser model lends itself to be a market where the constraints may be too great to be successful and sustainable. If the market is too controlled, healthcare coverage quickly becomes a commodity and erodes the levers of differentiation used to be competitive. Health insurance companies could come to the conclusion that participating in such a state will not be viable and opt to stay on the sidelines. However, the state would technically have the right to mandate (either directly or indirectly) insurance company participation, which could turn the state into a defacto-single payer.

On the other hand, a facilitator model lends itself to be the more favorable for an insurance company to operate within. However, a state that has done everything to obstruct healthcare reform progress like Arkansas is just as dangerous. It most likely will end up with a federally run exchange which could potentially be more burdensome than a facilitated one a red state would have had the option to create.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu

 


It’s a Rotten Apple for NY’s Small Businesses: A look at health care regulations that uniquely contribute to high health insurance costs in NY


Posted By Errol Pierre

Want to start a small business and help our staggering economy? Think twice about NY. Studies continue to show that affordable health coverage is the top concern for small businesses in this state. Contrary to popular belief health insurance profits and administrative costs barely contribute to the rising cost of coverage representing only 6% of total health spending. Despite this reality, this is exactly where policy makers have focused their time and energy with a desire to rein in costs. Profit margin in the NY small business insurance market is among the lowest in the country. In fact, many health insurance companies in NY are losing money, barely breaking even, or attaining modest 2-3% margins. Instead, we should focus on the big ticket items. That is, let’s focus on the factors that are unique to NY that contribute the most to higher costs. If modified to match national standards, these factors could substantially reduce insurance rates in this state making affordable health coverage available to more small businesses and in effect, more New Yorkers. After all, small businesses are the engine of the NY economy and the catalyst for NY job creation.

The primary driver of high insurance premiums in NY is the unusually high cost of health care delivery. NY is one of two states (California being the other) that lead the nation in spending at $163 billion per year. Each New Yorker makes up about $8,300 in annual health care costs per year; 22% higher than the national average. However, NY’s high spending rates have not translated into healthier New Yorkers. NY is only in the middle of the pack when it comes to quality (21nd out of 50 states). The state comes in dead last (50th out of 50 states) when it comes to avoidable hospital use. Statistics continue to show that hospital care is the #1 contributor to total health care spending in the America and this is exactly where NY has its problems. As health spending increases in this state, the price to insure New Yorkers increases as well.

Why is this happening?

Here are several regulatory factors unique to NY that exacerbates the high cost of coverage listed in order of magnitude:

High Medicaid Enrollment – A huge detriment to the affordability of small business health insurance rates is the number of New Yorkers enrolled in Medicaid. Of the 10 states that lead the nation in health insurance rates, high Medicaid enrollment is a reoccurring theme among them all. 1 out of every 4 New Yorkers receiving Medicaid benefits making it the 6th highest of any other state. Despite not leading the country in Medicaid enrollment, NY is the highest spending Medicaid state in the entire country. This means we are paying more per person without offering better care. In its meager attempts to rein in these high rates of spending, NY continually cuts the payments given to hospitals and doctors that provide care to NY Medicaid enrollees. These cuts set off a chain reaction causing hospitals and doctors to subsidize patient revenue losses with income from patients that have private insurance. This disproportionately impacts small businesses because there are fewer tools at their disposal to combat cost shifts. As a result, NY is the 2nd most expensive state for small business health insurance in the country averaging $554 a month for an individual and $1,455 a month for a family. How does that compare to the rest of the country? NY rates are 30% higher than the national average.

SOLUTION:  NY should immediately implement the recommendations from the NY Medicaid Redesign Team formed under the leadership of Governor Cuomo. The #1 cost contributor to small business health insurance is its subsidization of Medicaid spending in the state. If NY wishes to attract and retain small businesses, it must enact legislation that stops it from being the highest spending Medicaid state in the nation.

Pure Community RatingNY stands alone as the only state that requires health insurance companies to charge all small businesses purchasing the same plan in a similar region the same price regardless of business size, demographic makeup, industry type, or health history. The other 49 states allow pricing to differ on a variety of factors which provide lower rates for healthier, younger, and even larger small businesses encouraging enrollment. Enrollment from diverse companies balances the insurance risk pool making coverage affordable for all. Inherent to the smallest of companies are higher operating costs and more fluctuations in health status and demographics which cause pricing for this population to be higher than average. However, because of this law, NY must charge all small businesses the same price regardless of size. This has caused NY to be the highest priced state in the nation for companies with 11-50 employees, which becomes a huge disadvantage for the NY economy.  Small businesses in this segment size represent more than 60% of the total small business workforce in NY making neighboring states like CT, NJ, and PA more attractive to larger small businesses. When fewer small businesses opt to offer coverage and the ones that do are smaller in size, the cost of insurance drives up at even faster rates than the normal health trend.

SOLUTION:  Adopt “modified community rating” as outlined in the federal health care reform bill which allows small business rates to vary by age and  tobacco use. This will allow more favorable pricing that will attract a both larger small businesses that employ more people and attract younger/healthier New Yorkers into the insurance risk pool.

Hidden TaxesThe single largest small business tax in NY is on private health insurance coverage. NY collected over $4.1 billion in revenue through these various taxes, fees, and assessments in 2011. Private health insurance has historically been targeted for solving state budget deficits. As such, these taxes have increased year after year adding more than $500 million to insurance costs since 2007. No other state has such an onerous tax burden and it is only likely to get worse as Federal health care reform is implemented. Both Health Benefits Exchanges and Market share assessments will result in more taxes imposed on the privately insured).

SOLUTION: Make New Yorkers aware of the taxes, fees, assessments hidden in health insurance rates. New Yorkers have a right to know where tax revenue for the state is generated.

o   $2.33B was raised by surcharges placed on hospital and health services given to consumers of private insurance

o   $1.16B was raised by an assessment based on a health insurer’s enrollment

o   $353M was raised by taxes placed on the prices commercial insurance companies charge their customers

o   $270M was raised by assessments on health insurance companies to fund running the Department of Financial Services

o   $240M was raised by an assessment based on a health insurer’s enrollment to specifically fill NY State budget shortfalls.

Benefit Mandates NY has a laundry list of over 40 specific conditions and treatments that all health insurance policies must cover by law, regardless of an employee’s health needs or preferences. Compared to states like Idaho (12 mandates) and Alabama (18 mandates), NY is one of the states that lead the nation in mandates. These mandates in many instances supersede Federal standards, increasing NY’s health care costs by more than a 12%. In fact depending on the mandate, insurance costs can increase between 1% and 5% for each additional mandate.

SOLUTION:  Change the current set of benefit mandates that exceed the Federal standards to be “made available for purchase” rather than being mandated for inclusion in all small business plans offered.  This will allow employers to choose the plan that best suit their business needs. Larger employers that self-insure have been able to free themselves of many burdensome and costly mandates through ERISA rules which have not created a level playing field and disproportionately impacted smaller businesses.

Health Insurance Rate Review (Prior Approval Law) In 2010, NY passed a law requiring all small business insurance rates to be approved by the Department of Financial Services. It also requires that $0.82 of every $1.00 in revenue be spent on medical care. As feared, this new rate approval process has become highly politicized rather than being a true actuarial exercise. First, $0.82 is higher than the federal requirement of $0.80 found in the recent health care reform legislation. Secondly, insurance companies in NY spend closer to $0.87 of ever $1.00 in the small business market and after operating costs, profit margins average only 2%. These actions create a hostile market place for competition and have led to fewer insurance companies offering coverage to small businesses in NY.

SOLUTION: Remove the onerous and political nature of rate increase reviews and improve the timeliness of state decisions

Individual Market FailuresHealth insurance coverage for an individual in NY exceeds $1,000 a month in most cases. These rates are almost 60% higher than those for small businesses, causing some individuals who are priced out of the marketplace to form phony small businesses to avoid the high costs and market failures of the individual market.  As a result, insurance companies inadequately price small business insurance coverage to properly reflect the risk.

SOLUTION: Enact a “facilitated model” for health benefit exchanges as outlined in the health care reform legislation. This will increase competition and fix the individual market by removing the restrictions of plan options that must be sold in the state. Today, NY requires all health insurance companies to offer basic HMO and POS products that costs more than $1,000 a month for an individual. Fewer regulations in the pricing and the plans offered to individuals would unleash the creativity and innovation found in products health insurance companies sell to larger businesses.

SOLUTION: Modify the NY “Young Adult Option” law that allows unmarried young adults through age 29 to purchase health insurance through their parent’s plan. This law should be modified to lower the cost of insurance to adequately reflect the health status of an average 29-year-old. Today, the pricing reflect the health status of the current population, which is much older and less healthy, making it unaffordable for many young workers in NY.

The NY Dilemma

Based on a 2010 AHIP study below, NY health insurance pricing is more attractive to the very small businesses that cause rates to sky-rocket. This is an unsustainable state of affairs that only hampers NY’s ability to have a strong and fast economic recovery.

Premiums by State, 2010 (Top 5 Most Expensive States)
       
Small Employers w/ 26-50 employees Avg. Monthly Premium
  State

Single

Family

1. New York

$565

$1,485

2. New Hampshire

$512

$1,345

3. Nebraska

$443

$1,164

4. Illinois

$435

$1,147

5. California

$428

$1,125

Avg. United States

$406

$1,065

   

Small Employers w/ 11-25 employees Avg. Monthly Premium
  State

Single

Family

1. New York

$577

$1,514

2. New Hampshire

$523

$1,374

3. Nebraska

$449

$1,179

4. Massachusetts

$439

$1,153

5. Illinois

$438

$1,151

Avg. United States

$419

$1,100

   

Small Employers w/ 10 or fewer employees Avg. Monthly Premium
  State

Single

Family

1. Nebraska

$579

$1,519

2. Massachusetts

$545

$1,430

3. New Hampshire

$539

$1,415

4. New York

$536

$1,408

5. Florida

$489

$1,283

Avg. United States

$446

$1,172

AHIP Small Group Health Insurance in 2010: A Comprehensive Survey of Premiums, Product Choices, and Benefits, July 2011

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


SOTU: What Obama Didn’t Say


Posted By Errol Pierre

President Obama filled up close to 90 minutes of TV airtime giving his 3rd State of the Union Address last week. With 6,953 words (about 12 pages) to choose from political pundits filled the airwaves all across the country with animated reactions commenting on everything from the details of his plans to his tone, his demeanor, and overall performance. But all too often we forget that with great orators, it is more important to focus on the words that were not said than the ones that were….

Here are the facts:

– “Health” was used only 7 times during his speech (roughly 0.001% which takes up less than 1 line on a page).

– His comments regarding Healthcare made up only 332 words. That represented 4.7% of his speech (about a page and half). A little better but still severely lacking in substance.

How can that be?

– Health expenditures in this country represent more than 16% of our GDP while the average percentage among high income nations is roughly 10%.

– 13.1 million Americans lack a job but more than 50 million Americans in this country lack health insurance. Doesn’t healthcare deserve more attention?

– Since inauguration, he has spent 60% of his time in office getting what he called his #1 domestic policy agenda, healthcare reform, passed through Congress. If you recall, he entered office on January 20, 2010 and healthcare reform was passed on March 23, 2011. So 15 out of his now 25 months were dedicated to the pursuit of universal healthcare.

– Lastly, most of the popular provisions of the law have already been instituted. Millions of young adults in their twenties have been able to get insurance through their parents. And even more promising, no child under 18 can be denied coverage for pre-existing conditions.

So why were there so few words on healthcare? Discussing income inequality yet avoiding healthcare is not having an honest discussion about the problem. America spends more money on healthcare than any country on the planet. What is not widely known are the percentages spent by the government versus the private sector and how that impacts the American pocketbook. This country is actually on par with other high income nations spending 7.4% of their GDP on government health expenditures like Medicare, Medicaid, and Veteran healthcare. For a comparison, countries like France (8.7%) and Germany (8.1%) are at higher levels with government run universal healthcare. However, when it comes to expenditures from the private sector, America spends an additional 8.5% of its GDP representing almost half (52.2%) of total health costs for the entire country. That is 4 times higher than most like nations. In fact those private sector figures put us in 50th place between Rwanda (49th) and Gambia (51st) according to the World Health Organization.

WHY IT MATTERS

Most Americans get health insurance through their employer leaving American businesses on the hook for large portions of the country’s private health expenditures. It’s been the catalyst for corporations moving jobs overseas. It’s why the United States Postal Service is teetering on the edge of insolvency. It’s why America bailed out General Motors and restructured their Union contracts to be the #1 car company in the world again.

Most Americans work for businesses with 200 or more employees. According to the Kaiser Family Foundation, 99% of the time these businesses are offering health insurance to those employees. The foundation goes on to highlight that the cost of these employer health plans have gone up by 113% over the past 10 years with employers paying close to 73% of those costs on behalf of their employee population. As a result they have shielded much of the exorbitant healthcare increases from their employees. This has had grave repercussions to the average American salary. You cannot talk about income inequality and ignore non-salaried benefits like health insurance. These increases have poked huge holes in the bucket of funds that corporations use to payout employee compensation. You also cannot blame health insurance companies for these increases either. Their profit margins barely surpass 4% compared to pharmaceutical companies that enjoy 15% margins. The blame really goes to the actual cost of providing healthcare.

The U.S Social Security Administration has tracked the national average wages in this country since 1951. In 2001 it was $32,921. In 2010 it is $41,673. So despite the increases in health insurance costs, wages have still gone up 27% in the past 10 years. American employees however have seen 131% growth in the amount of money they must contribute to their health plan. It has gone from $1,787 in 2001 to $4,129 in 2010. So Americans have literally went from paying 5% of their salary on health insurance to 10% in 10 years not even accounting for the increase in co-payments, deductibles, and out of pocket costs.

If you truly want to tackle income inequality, look no further than tackling the increases in healthcare spending. Healthcare reform did not go far enough on this issue. It increased access via health exchanges, protected more patients via insurance regulations like profit ceilings and mandated benefits. But it did nothing to tackle costs. Even worse, our healthcare system will continue to shield costs from the consumer by giving subsidies to lower income Americans so that insurance can be more affordable. But these subsidies are paid for by taxes and fees levied on health insurance companies ($60 billion), on Americans with rich “Cadillac” type health plans ($32 billion), on pharmaceutical companies ($27 billion), and on high income earners use of hospitals ($210 billion). The only problem with these types of revenue streams are the laws of economics. Since individual Americans and large businesses will be required by law to purchase insurance by 2014, they as consumers will be more inelastic than their suppliers. In the end most of these taxes and fees will be passed on to the most vulnerable consumers further eating away at their hard earned income.

President Obama concluded his healthcare remarks conceding that he was “willing to look at other ideas to bring down costs, including one that Republicans suggested last year — medical malpractice reform to rein in frivolous lawsuits.” The only problem is here is the sad reality. According to the Kaiser Family Foundation only 11,000 malpractice claims were paid in 2009 amounting to $3.6 billion. That sounds like a big number but it is only 0.2% of total U.S. health costs. So the only question left is how much medical malpractice reform could help to actually close the income inequality gap. Well, the average malpractice suit is only $11.99 per capita, putting $12 bucks back in everyone’s pocket. I guess the good news is this kind of policy change would help fight the common cold giving every American the extra disposable income to buy a bottle of Robitussin from CVS.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu

 


Building an Exchange Strategy Part I – Changing Your Vantage Point


Posted By Errol Pierre

Health benefit exchanges are set to be fully operational by 2014. As part of the Patient Protection and Affordable Care Act (PPACA), these exchanges seek to be a marketplace for consumers to purchase affordable coverage. Subsidies to reduce both the cost of insurance and the out of pocket expenses from copayments and deductibles will be available to eligible consumers as well. Estimates suggest close to 30 million Americans will find coverage through this avenue lowering the uninsured rate to 3%.

These exchanges will revolutionize the way health insurance companies operate. Most Americans receive insurance through their employer. As such, insurance companies have built their world around marketing to them rather than directly to individual consumers. Over the years, insurance company processes, products, and strategies have all conformed to employer choice and preferences. Even the way customer service is organized and how information is shared caters to an employer-centric business model.  However, by 2014 health insurance companies will need to operate differently to capitalize on the million of new health consumers entering the market.

Consumers purchase products much differently than employers. Consumer motivation is largely based on personal preferences and emotions while companies make rational decisions based on economic value.  So business to consumer (B2C) marketing has been much more demanding and onerous than business to business (B2B) marketing. Health insurance companies as a result have gotten away with minimal efforts in advertising using business publications and newspaper ads that reach CEOs, CFOs, benefit consultants, and decision makers. Marketing campaigns targeting decisions makers has been an easier road to handle than attempting to market the average consumer.  In fact most of the insurance policies sold in the United States are through brokers or independent agents hired by a business that receives compensation from the company whose product gets sold. Consequently, the construct of this industry has kept marketing innovation and ingenuity at bay. For years the basic message segmentation for B2B advertisements has been limited to industry and firm size.

Not all insurance companies suffer from this lack of consumer centric segmentation however. The car insurance industry is a perfect example of what the health insurance industry will aspire to be by 2014. Geckos and cave men, made up stores with humorous sales representatives, over the top actors representing natural disasters and unfortunate accidents, and catchy jingles all represent the car insurance industry’s push for market share catering to consumer preferences. Geico, Progressive, Allstate, and State Farm have all used innovative TV, internet, and other media ads recently to differentiate themselves. One main reason is because car insurance is largely purchased at the consumer level. As such, the industry caters solely to the wants, needs, and desires of the personal shopper. They have developed enhanced customer service levels, easy to use online tools, and a wide array of products and services all with a focus on consumer appeal. The consumer is essentially the center of the strategy. After all, it is the consumer who has the power to terminate the policy at any time; not the consumer’s employer.

Health insurance companies have a tough road ahead if they wish to compete at the same level. Moving from an employer-centric model to a consumer-centric model is more than just a mission and a vision. It really is a shift in corporate culture. It starts from the top down as much as it does from the bottom up. The CEO must believe in the change as well as the customer service representative answering the phone. There must be a commitment to innovation, ease of use, positive public perception, and consumer preference. The products offered must allow for customization and flexibility. The policies for grievances, appeals, and complaints must be customer friendly and aimed at pleasing the client. Such attributes have unfortunately been foreign to the health insurance industry and they have less than 2 years to quickly figure it all out.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


Sticky Notes & Pairs: Dial Up Staff Collaboration and Improved Solutions in your Performance Improvement Work!


Posted by Paloma Medina

Situation: You have an organizational issue that would benefit from the use a team approach. Perhaps you need to update a work flow or improve organizational performance on a specific measure. However, during staff meetings you find that engagement is low, brainstorming lacks innovation, specific people dominate the meeting, and/or inter-departmental tensions impede collaboration.

Solution: Change your meeting structure! The following “Meeting Recipe” will dial up staff energy and lead to better performance improvement solutions!

What you’ll need:

Meeting time of 1 – 2 hours (epending on the depth of the problem or area you’re focusing on)

20 or more sticky notes and one pen per attendee

Dry erase board or flip charts

A volunteer to act as a high-energy facilitator & time keeper

Instructions:

  1. Assign attendees into random or strategic pairs
    Have them sit together in their pairs
    I highly recommend being strategic — think about how pairs might increase collaboration among departments or individuals. You could pair up nurses with providers, administrators with front-line workers, etc.
  2. Pass out sticky notes and pens to each attendee
  3. State the challenge and the goal. Be clear and concise
    For example, “We want to increase provider productivity by 20% in three months” or “We want to improve our patient check-in process to decrease patient and staff stress”
  4. Give individuals 5 minutes to brainstorm on their own ideas for how this could be done
    Rules:
    1. One idea per sticky note
    2. Each attendee must write down  4 – 10 ideas (yes – this is doable!)
    3. At least one idea must be crazy, really fun, or pie-in-the-sky big (I often award candy to craziest ideas — this greatly energizes and revs up divergent thinking)
  5. Have individuals now share ideas in their pairs
    Give them 2-3 minutes per person to share their ideas, call “time” when it’s time to switch and have the other person share
  6. Have pairs generate ideas
    Give them 10 minutes to come up with 10 more ideas with their partners. Ideas can be  completely new or building on each others. Again, one idea per sticky, at least 2 new crazy ideas.
  7. Call everyone back together and round-robin to report back ideas
    Rules:
    1. Have pairs come up and post their sticky notes as they explain their idea onto the dry erase board or flip charts
    2. Hold off on judgement – responses to ideas can only be praise or clarification questions
    3. Limit reporting to 60 seconds per idea – make it a fun but strict cut-off to assure pairs report concisely and energy stays high in the room
    4. If an idea was already presented, just have pairs say “ditto on ___ idea” rather than repeat it
    5. Spread out the area where you’re posting the stickies, the more spread out, the better
    6. Anyone at any point can “build” on an idea that is being presented and write down a new sticky note for it
  8. Everyone vote for their 5 favorite ideas
    Have everyone walk up at once and move around to review the ideas, then “vote” by marking the chosen sticky notes with a star. Give this just 5 minutes for this to assure people move fast and energy doesn’t drop – you’re almost there!
  9. Now re-vote to narrow it down
    Take down all but the top 10  voted-on ideas. Have everyone vote again but this time everyone gets one vote – this will lead you to your top 2-3 ideas to test out.
  10. Decide on next steps
    As a group decide what are the next steps to test out the chosen ideas, include time frames. Have pairs volunteer to take on the tasks. Pairs can them meet outside the meeting to plan how they’ll carry out their tasks. Have everyone report back in a meeting within a week.

After the meeting: Have someone transcribe all the ideas and note which were the highest rated. Refer back to these when you’re ready to try out a new test.

Real-life example:

A New York community health center faced this exact challenge — front-line staff were tasked with improving their productivity numbers but felt frustrated by leadership’s lack of support for their ideas. Months of meetings went by with little improvement in the situation and their numbers remained low.  The front-line workers requested to have a potluck lunch meeting with leadership to re-energize the group and used this “recipe”. They paired up management team members with frontline staff members to break down hierarchy walls. After the meeting both leadership and front line workers reported loving the voting structure and noted the high energy among everyone- a significant change from prior meetings! They now plan on using “pairs” for all of their performance improvement work.

Paloma Medina is an MPA HPAM 2012 candidate with a specialization in organizational coaching and development. Her background is in homeless health care, community development and design. In her spare time Paloma can be found tailoring her clothing, re-organizing her craft supplies or coming up with new toppings for hot dogs.


Must the creation of excellent data visualizations be solely relegated to UI and graphic designers?


Posted by Paloma Medina

Just when I thought my obsession with data visualizations was over, I come across a new gem.  Up until this point, my fan-dom had been focused on admiring finished products, like Hans Rosling’s Gapminder or GE’s Healthymagination Stats of the Union. However, what next interested me was how to bring this tool to the masses. My question was, “Must the creation of excellent data visualizations be solely relegated to UI and graphic designers?” As it turns out, no, it does not. There is a tool that democratizes the creation of data visualization:

Many Eyes: An experiment based on IBM research.

Many Eyes is an online tool that democratizes data visualization by allowing anyone, regardless of design or coding background, to turn data into visual information that is so much more than bar graphs and pie charts.  In addition, the site includes a browsing function and discussion forum that fosters collaborative learning.

Created in 2007, the site features pre-loaded data sets as well as the ability to upload your own set. Once you’ve selected what data you want to work with, you have more than a dozen options for how to organize your data. This is where it gets interesting. The beauty of the site isn’t just that you can create these amazing visual representations, it’s that you can play around and see how the same data translates depending on which type of visualizing model you choose. This means that non-designers can learn by doing what makes some data visualizations work and others not, depending on the data you’re working with.

The exciting thing about all of this is that tools such as Many Eyes will allow us to move towards a day when data visualization can benefit from crowd sourcing the way other fields have. What if Many Eyes was to health data what Flickr is to photographs?

Explore the site, let me know what you think and what potential you think it could have in your own health work.

Paloma Medina is an MPA HPAM 2012 candidate with a specialization in organizational coaching and development. Her background is in homeless health care, community development and design.


The Power and Shortcomings of Healthcare Interventions


Posted by Katie Magoon

I was living in rural Kenya the first time I really began to think critically about the power and shortcomings of healthcare interventions.  I stumbled upon this totally accidentally as I was studying the economic empowerment of females in the “informal sector” of Kenya’s rural economy.   Specifically, I was exploring the ways in which women create and distribute their wealth, and the how these decisions impact the communities in which they live.  As I looked more intimately into the lives of these women, I realized that one could not truly understand the role of a female in an economy without understanding a variety of aspects related to her health.

In talking with many women, it became clear that some of their economic concerns were in large part related to the number of children their husbands/communities expected them to have.  Some women secretly obtained birth control in order to shelter their families from the economic hardships that they would face with having more and more children.  In some cases, their husbands would begin to suspect this and abuse them or use it as an excuse to have extra-marital affairs with other women (often bringing home sexually transmitted infections or HIV).  In many settings, women bear the brunt of raising families.  As a result their individual health is extraordinarily important to the health of an individual female’s family as well as community.  Issues such as lack of access to birth control, “back-alley” abortions, the dangers of childbirth, lack of empowerment for sexual decision-making and boundary setting, and even post partum depression can have a tremendous impact on the economic health of a community.  Such issues were so pervasive in the lives of the women with whom I spoke that it quickly became clear that these women could not achieve economic security without accessible and effective healthcare that is responsive to their specific needs.

Many believe that these are problems that do not apply to women in the United States.  I have found this belief to be grossly inaccurate.  In my work as a nurse practitioner, I encounter young women every single day who are forced to have sex, pressured to leave school and have children, and struggle with depression and other mental health problems that can make employment and/or caring for children very difficult.  Often these women put faith in their “boyfriend” who quickly moves on when their belly starts to grow or times get tough.  A young woman may be left to support a family with very limited resources.  Further, she has already stopped school to have and begin to raise the child, leaving her even more vulnerable to economic hardship.  This has obvious implications for her family and community.

Health interventions can address a small portion of this problem by offering family planning to women.  Women that do not want or are not ready to have more children can use birth control.  If need be, they can do this without the knowledge of their partner.  However, a woman is more likely to be successful with the use of her birth control if her partner is supportive.  In my mind, this simultaneously points to a success and shortcoming of the health system.  In this example, birth control is simply addressing a symptom of a larger problem in society—gender inequality.  Birth control could be considered a single disparity-decreasing intervention that can help women, and in turn their communities.  However, in a world that often does not value women as it values men, I cannot help but to ask: Is birth control enough?  Internationally and domestically, when will women finally be empowered to make their own decisions about what happens to their bodies, and offered support for those decisions?

Katie Magoon is a North Canton, Ohio native who currently works as a nurse practitioner at an adolescent community center in Manhattan.  She is an HPAM student, specializing in policy.