Tag Archives: politics

What Will SCOTUS* Do?

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Posted by Joel Wittman

After three days of hearing oral arguments on the legality of all, or parts, of the Patient Protection and Affordable Care Act (ACA), the Supreme Court is hopeful of rendering its decision in June.  Based on what we’ve heard so far, it doesn’t bode well for the ACA.  The primary issue of contention is the inclusion of an “insurance mandate” whereby citizens are required to purchase health insurance or pay a penalty.  The mandate seems to be the linchpin of the reform act; without this requirement will insurance premiums skyrocket and will access to health insurance be limited?  This also raises the question of severability.  If the mandate is struck down, will the entire ACA also be invalidated or can parts of it survive?  Will the law’s popular “guarantee issue” and “community rating” provisions survive without the mandate that virtually all Americans must have health insurance?  Guarantee issue prevents insurers from discriminating against people with pre-existing conditions and community rating standardizes insurance premiums for those living in the same area.  The states that have attempted to enact guarantee issue and community rating systems without instituting mandates saw their health reforms fail – insurance premiums skyrocketed, consumers had fewer choices and the number of uninsured went up.

So, what is the insurance industry to do?  Insurers must prepare for a worst-case scenario – a ruling that the individual mandate is unconstitutional, but insurers still must provide policies for all people.  In that situation, insurers say premiums will rise sharply because of people with chronic illnesses and pre-existing conditions, for example, would buy health coverage, but healthy people would not.  Short of persuading Congress to write a new law, the insurers are considering certain contingencies including:

- Penalizing those who enroll outside of short annual windows

- Denying treatment for specific conditions, especially right after a policy is purchased

- Rewarding certain insurance buyers, such as offering much lower premiums for younger and healthier people

- Expanding employers’ role in automatically enrolling employees for health insurance

- Urging credit- rating firms to use health insurance status as a factor in determining individuals’ credit ratings.

There remains, however, a divided opinion about the exclusion or inclusion of the individual mandate in the health reform act.  Some believe that its exclusion will cripple the ACA and all of its proposed benefits, while others contend that the penalty associated with the mandate is not onerous enough to deter individuals from not purchasing health insurance.

Things are never as simple as they seem to be.  The good intention of the current administration to increase access to health insurance coverage for all individuals at affordable pricing may not be good enough to preserve the goals of the ACA.  Do you throw out the baby with the bath water if the entire plan is deemed unconstitutional?  Do you preserve part of plan and try to make the best of the remaining regulations?  Or, do you leave the ACA as is and have the first meaningful health care reform since the Great Society?  Only SCOTUS can let us know.

* Supreme Court of the United States

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry. He can be reached at joel.wittman@verizon.net.


Building an Exchange Strategy Part II – Understanding Your Political Climate

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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

 


The Curious Case of Kansas

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Posted by Errol Pierre

On April 28, 2009, Kathleen Sebelius joined the Obama Administration as the Secretary of the Department of Health and Human Services (HHS). It was one month and five days after the President signed his landmark healthcare legislation into law. Sebelius’ primary task would be to lead the massive implementation effort of a very complex bill with multiple phased in milestones that run through 2018. Throughout her first two and half years she has been vocal about her commitment to transparency and affordability for the American healthcare consumer. She is no stranger to the underlying issues in our system. In fact her dealings with healthcare started in America’s heartland way before this cabinet appointment. It started in Kansas; the Sunshine state. Ironically, the same state where President Obama’s mother grew up.

There’s No Place like Home

After receiving a Masters in Public Administration from the University of Kansas, Sebelius moved to Kansas and pursued politics. This led her to an eight year stint as the state’s Insurance Commission from 1995 to 2003. It was historic for Kansas. Sebelius was the first woman to ever hold the post. She was later profiled as a public official of the year in 2001 noted for her balance between tough regulations and her promotion of business. In full manifestation of her principles, she publically battled healthcare giant, BlueCross BlueShield of Kansas. She successfully blocked the sale of the company to an even larger out of state insurance conglomerate noting her determination to keep healthcare costs low for Kansans. The move was unprecedented and proved to be very timely. It happened one year before the Kansas gubernatorial election of 2002. Sebelius would win that election handedly with 53% of the vote.
Despite her victory, she was a Democrat governing in a bright red Republican state. Nonetheless she reached across the aisle and signed several bipartisan healthcare reform bills in her first two terms. Her work increased the number of health professionals in underserved areas, expanded health coverage for children, and relaxed Medicaid eligibility rules covering more Kansan families. She also established the Kansas Business Health Policy Committee which found ways to the lower the number of the uninsured and increase the number of businesses that offered health benefits to their employees. The committee’s most important work however was the creation of a program that provided health premium assistance to low and modest waged employees ensuring affordability.

We’re not in Kansas Anymore

The Governor’s work on healthcare quickly caught national attention. She also publically supported Obama’s healthcare legislation prior to her cabinet post noting benefits the bill would have on her state. 13% of Kansas lacked health coverage but she believed those 360,000 Kansans could be covered through Obama’s bill. So it made perfect sense for Obama to have Sebelius continue her work on healthcare but on a much larger stage. Rather than worrying about the coverage of 2.8 million Kansans, as head of HHS, she now worried about 49 of the 308 million Americans that lacked insurance and the 40 or so insurance companies across the country she now had the power to regulate.
Sebelius brought along her expertise. Kansas had the prelude to health exchanges – the staple of the healthcare reform legislation. Health exchanges create a marketplace where individuals and small businesses can shop for coverage similar to the way they purchase airplane tickets from online websites. Subsides are also made available through these exchanges to anyone who cannot afford coverage. Exchanges must be in place by 2014 and will be equipped with navigators and a toll-free support line to assist with enrollment questions. HHS recently launched a 50 state version of such a website on November 21st (www.HealthCare.gov). As a former Governor, Sebelius realized that execution of exchanges would be a huge undertaking for the states though. So to nudge tem along, her office provided grants to states that act early. More than $241 million was awarded to seven states that were called early innovators. Secretary Sebelius’ own home state of Kansas was one such recipient; winning a $31.5 million grant

Ding-Dong Reform is Dead

After Sebelius’ departure from Kansas though, things quickly began to change. Her successor, Mark Parkinson, indicated he would not run in 2010. Sam Brownback, a Kansas household name, won the election convincingly with 63% of the vote. As a Republican Senator for Kansas prior to winning, Brownback was one of the strongest challengers to federal healthcare reform not only voting against the bill but calling for its repeal.  One of his first acts as Governor was a very public and symbolic gesture. He returned the $31.5 million grant Kansas received from Sebelius’ office prior to his election.  It was a politicized move that reiterated his firm belief that healthcare reform placed a heavy financial burden on states just like Kansas. The reasons are surprising.

Mandates Are Costly - Kansas already requires thirty seven different health benefits be added to every health plan sold in the state regardless if the consumer wants it or will use it. Mandates like the coverage for Alzheimer’s disease regardless of a person’s age, or the coverage of child annual check up’s for policy holders without children, increase the cost of healthcare for everyone. Additionally, in 2014 when exchanges are implemented; Kansas will not receive federal funds for any mandated benefits that exceed the federal ones. This could potentially be a budget crisis for Kansas if not managed properly. Brownback would prefer to have consumers build their own health plans allowing the free market to dictate what sells and what does not.

Subsidies Shift Costs to the States – Brownback also fears that exchange subsidies will spur employer ‘dumping’. There are about 70,000 businesses in Kansas but the healthcare reform law only requires that roughly 7,800 of them offer health coverage because they are considered large employer. The remaining smaller employers representing close to half a million Kansas workers will not have to offer coverage even though their employees will face financial penalties if they are uninsured. Since these employees will receive lower prices through exchanges, the incentive for small employers to offer insurance in the state will naturally decline, a worry for the Governor. Kansas already has one of the lowest unemployment rates in the nation at 6.2%. Yet the uninsured rate in the state is more than double that.  Kansans are already working for employers that do not offer insurance and exchanges have the potential to widen that gap.

As a result of these issues, Brownback has yet to introduce a health exchange bill for his state; but he’s not alone. Only 14 states currently have legislation passed. However inaction by a state could prove to be costly. Kansas runs the risk of defaulting to federally facilitated exchange which would essentially give power to Sebelius to create an exchange in his state. Brownback acknowledges this ironic twist of events in a letter sent to Sebelius’ office with signatures from 19 other governors stating that unless he receives complete flexibility in handling healthcare reform, he vows to not to act at all.
Brownback has even questioned whether the healthcare bill infringes on the rights of the people of Kansas. In another letter signed by 27 other governors, Brownback strongly requested President Obama to speed up the ruling from the Supreme Court on the constitutionality of the healthcare reform law. The court is due to make its ruling by next summer, but in the meantime the Governor has has taken matters into his own hands. On May 26, 2011, he signed bill HB 2182 into law. The bill created the Kansas Health Care Freedom Act which sets out to protect the rights of Kansas citizens to either participate (or not participate) in any healthcare system freely. It is clearly a preemptive move attempting to block the portion of the healthcare reform law that would require citizens of his state to purchase health coverage from a private insurance company.  Despite all these actions, Kansas has made some progress with regard to healthcare reform. A sanctioned work group of leaders from government and the private sector discuss the implementation of several provisions of the reform bill monthly.  Their work thus far can be view at http://www.ksinsurance.org/consumers/healthreform/hcr.htm.

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