Compiled by Scott Mertie*
December 23, 2009
Requirement For Americans To Get Insurance Is Central To Health Overhaul
But past experience suggests government mandates don't necessarily ensure compliance
By Phil Galewitz
December 21, 2009
If Congress passes a law that requires Americans to buy health insurance, Rebecca Antonelli already knows what she'll do: Just say no and pay a penalty instead.
"It comes down to an economic decision, and I'd be more inclined to save the money and take a risk of getting sick," says Antonelli, 46, a marketing consultant in Raleigh, N.C., who dropped her insurance policy last year when her business slumped.
Both the House and Senate health care overhaul bills require most Americans to carry health insurance or pay a penalty. Yet government mandates don't necessarily ensure compliance: Not all Americans buckle up, or get their children vaccinated.
Some health experts worry the proposed penalties are too low and that many younger, healthier people may agree with Antonelli, opting to pay the fee and gamble on their health. That could drive up the costs of covering older and sicker people.
"If you get too many young and healthy people who slip through, all the insurance market reforms start to unravel and the whole health bill unravels," says John Holahan, director of the Urban Institute's Health Policy Research Center.
Yet Congress risks a political backlash if penalties are too steep, particularly among those who earn too much to qualify for subsidies, Holahan says.
Under the Senate bill, people who don't buy coverage would face a maximum penalty of $95 beginning in 2014. That would jump in 2016 to $750 or two percent of their annual income up to the cost of the cheapest health plan, whichever is greater. In the House bill, violators would pay as much as 2.5 percent of their annual income up to the cost of the cheapest plan beginning in 2013.
When people buy health insurance on their own rather than through employers, the average cost in 2016 is projected to be $5,500 for an individual policy and $13,100 for family coverage, according to the Congressional Budget Office.
Both health bills would provide a sliding scale of subsidies to individuals who earn less than $43,320 or families of four who earn less than $88,200. The bills also exempt millions of people from the mandate, including for religious reasons and financial hardship.
White House budget director Peter Orszag says penalty size isn't the only factor in determining whether people buy coverage. He predicts the mandate will help create societal expectations that everyone gets health insurance, just as most people feel obligated to buckle their seat belts.
He points to Massachusetts, which in 2007 became the first state to require that most residents have insurance. Since then, the percentage of uninsured has declined to four percent from about seven percent.
The Massachusetts penalty for failing to buy insurance this year is $1,068--about half the cost of the lowest annual premium. About
96 percent of tax filers in the state in 2008 reported they had coverage; only one percent paid a penalty.
The nonpartisan Congressional Budget Office, which assesses the impact of legislation, says the number of people opting to pay the penalty instead of buying coverage would be "limited."
Others aren't so sanguine.
"Engineering social norms is hard," says Jeffrey Munn, a principal with the consulting firm Hewitt in Washington. "We may need to temper our expectations around what an individual mandate can actually accomplish."
A recent CBO report provides a few examples of Americans who don't follow existing mandates:
Most states have required seat belt use for about two decades, yet
18 percent of Americans still don't buckle up.
Schools have required children to get immunized for chickenpox since the 1990s, but 15 percent don't get vaccinated.
Nearly every state requires drivers to have car insurance, but 15 percent don't comply.
Views of the uninsured
The promise of health benefits could convince some of the uninsured to buy coverage, including Dulsi Beaslin.
Beaslin, 39, owns a nail salon in Holladay, Utah, and has gone without insurance for four years. She says she'd likely buy coverage under the mandate, particularly if it's subsidized.
"These new benefits will take the sting out of the mandate and help me to purchase coverage that I will want to have," says Beaslin, who hasn't been able to pay for insurance on her $30,000 annual income.
Others say they'll defy the mandate.
"I will not purchase the health insurance, and I will not pay the penalty," says Charles Moore, who does database programming in Houston and leads jeep tours in the Rocky Mountains. Moore, 54, hasn't had health insurance since leaving the Air Force in 1984.
"Everyone succumbs to some major illness at some point," Moore says, "and if I can't pay for it, then I don't want to stick my hand in someone else's pocket."
Democrats Move To Regulate How Insurers' Spend Customers' Money
By Julie Appleby
December 20, 2009
Amid all their squabbling over health care legislation, Democrats staunchly agree on the need to regulate how insurers spend their customers' money.
Both the House measure and the newly recast Senate bill would force insurers to spend the vast majority of premium revenue on medical care for their customers, reducing the amount available for profits, executive salaries, sales and administration. The Senate bill would require insurers to spend at least 80 percent on medical care and quality improvements, while the House bill specifies 85 percent. Insurers that don't comply would owe rebates to customers.
Congressional supporters say those provisions would pressure insurance companies to be more efficient and help restrain price increases. But even some advocates say companies could game the system by broadly defining medical costs, for example. And spending limits alone may not stop insurers from raising rates. When New York State tried to limit non-medical care spending, many insurers companies complied--but still instituted double-digit rate increases.
"By themselves, such limits are not enough," said Kevin Lembo, who heads the state Office of Healthcare Advocate in Connecticut. Regulators must carefully define medical costs, and use other means to help curb premium increases, consumer analysts say.
Regardless of how well they'd work, the limits could be short-lived: House lawmakers call for them to end in 2013, when new insurance marketplaces, called exchanges, open. The newly revised Senate bill released by Majority Leader Harry Reid, D-Nev., continues the limits indefinitely. Reid expects the bill will be approved by Christmas.
Concerns about the legislation's effectiveness don't faze House supporters like Rep. Jan Schakowsky, D-Ill., who said setting minimum spending requirements for medical care would ensure that insurance buyers "get their money's worth."
A major Senate supporter, West Virginia Democrat Jay Rockefeller, said consumers should know how insurers are spending their money. "Gone are the days of health insurance companies running rampant without oversight and accountability--now they must be accountable to consumers and spend more of their hard-earned dollars on actual health care and not on filling their coffers," he said Sunday.
New Rules For Insurers
The Senate bill sets an 85 percent minimum for plans sold to large groups and 80 percent for policies marketed to small groups and individuals. The House bill's 85 percent requirement applies to all insurance categories. The remaining revenue would go for expenses such as marketing, claims processing, executive salaries, commissions to sales agents and profits. Certain nonprofit insurers that spend at least 92 percent of their revenue on medical care would be exempt from an excise tax the Senate bill levies on insurers.
Currently, insurers spend an average of 87 cents of every premium dollar on direct medical care, says the industry's trade lobby, America's Health Insurance Plans. Other estimates--including some from Wall Street analysts--put the average spent on medical care in the low 80s.
Regulation of what industry analysts call "medical loss ratios" has long been controversial. Insurers oppose them, saying they could prompt some health plans to cut administrative costs by reducing prevention and wellness programs, along with investments in computer systems, electronic medical records and other efforts that could save money.
Others have concerns about how the legislation would be implemented. Key details, such as the definition of medical costs and how insurers would be required to calculate them, would be drawn up after the legislation is approved. The House bill calls for the Secretary of Health and Human Services to write those rules, while the Senate amendments specify the National Association of Insurance Commissioners, which represents state regulators. Those regulators, who in either event would be responsible for applying the restrictions, would have to scramble to put them into effect--as early as next year in the House bill and in 2011 in the Senate bill.
What Is Medical Care?
How medical care is defined is critical. Would disease management programs be considered medical care or an administrative cost? How about gym memberships offered to policyholders?
"Insurers can make their (medical care numbers) look pretty darn good if they add in some things we might not consider part of claims" for medical expenses, said Sandy Praeger, the Kansas insurance commissioner.
States' experiences offer clues to the possible impact of such regulation. Nationally, at least 15 states have set medical spending requirements for insurers selling policies to individuals, ranging from 50 percent of premium revenue to 80 percent, according to the insurance industry.
Fourteen states set a similar range of limits for policies sold to groups, five of them requiring rebates to consumers if insurers fail to meet the rules.
One of those states is Maine, where insurers must spend an average of 78 percent of premium revenue on medical care. If they don't, they must rebate excess amounts to policyholders. In 2008, $6.6 million was returned to small businesses--and more than $4.6 million to individuals.
But state regulators say those limits aren't sufficient to slow rate increases. In New York, regulators want legislation empowering them to review premium increases before they go into effect and to reject excessive ones. That oversight was lost in late 1999, when new laws allowed insurers to raise rates without review so long as they spent at least 75 percent of their premium revenue on direct medical care.
Premium increases, which averaged 5 percent to 7 percent a year from 1996 to 1999, jumped to an average of more than 13 percent from 2000 to 2008, according to a report from New York's insurance department.
"Based on our experience, we have found (the limits) alone are subject to abuse and don't necessarily help everyone they are intended to," said John Powell, assistant deputy superintendent for health.
To be truly useful to consumers, the limits need to be coupled with strong oversight of premium increases--and additional information such as how often insurers deny claims, according to Lembo and some other policy experts and regulators. But, for the most part, stronger oversight of premiums wouldn't occur until after the exchanges open several years from now.
"I see more good than harm if it's done thoughtfully," Lembo said of the restrictions in the House and Senate bills. "A lot goes back to the definition (of what is included in medical expenses), who is monitoring it and how aggressively they do so."
Once the exchanges open in 2013 or 2014, additional regulation of insurers would begin, including rules barring them from rejecting applicants because of health conditions and increased oversight of their annual premium increases.
Under the House bill, a federal health commissioner would have the power to reject premium increases deemed excessive. The Senate proposal would require exchanges to consider premium increases when deciding which insurers to allow in.
"The thought is that the exchanges will create real competition that will drive out insurers (with inadequate spending on medical care)," said John Rother, AARP's executive vice president of policy and strategy. While that remains to be seen, Rother says Democrats have a real selling point when they push insurer spending requirements.
"If you're going to talk with the public about cost control, then upping the medical loss ratio (the amount spent on care) is a powerful way to communicate that," said Rother.
As Health Debate Heats Up, Public Opinion Appears To Cool
By Jessica Marcy
December 18, 2009
New polls this week are consistently finding that although many Americans still support efforts to overhaul the nation's health care system, a growing number are less likely to see those reforms benefitting themselves or the country.
A tracking poll released today found that a majority--54 percent--say it is now more important than ever to pursue health reform. Forty-one percent said the country couldn't afford it.
According to the poll, which was conducted by the Kaiser Family Foundation, the number of Americans who say they will be better off if a sweeping health overhaul passes dipped to 35 percent in December, down from 42 percent last month. In addition, 27 percent say they will be worse off if the reforms are enacted. Thirty-two percent don't expect to see much of a difference. (KHN is a program of the foundation.)
In a similar breakdown, 45 percent expect the country to be better off if health care reform passes, down from 54 percent in November. Thirty-one percent say the country will be worse off and 17 percent do not expect to see an impact. "Our poll shows that a majority of the public still supports action on health reform, but the more contentious and lengthy the debate, the more the public will get anxious about change," Kaiser President and CEO Drew Altman said in a statement.
Nonetheless, 59 percent describe their feelings about the pending overhaul plans as "hopeful." Fifty-seven percent report feeling frustrated.
The telephone survey was conducted Dec. 7-13 and has a margin of error +/- 3 percentage points.
Earlier this week, NBC News/Wall Street Journal poll found the percentage of people who believe the president's health care plan is a good idea dropped to its lowest level--32 percent. Another 47 percent say it is a bad idea. And, NBC reported that, for the first time in the survey, a plurality--44 percent to 41 percent--preferred maintaining the status quo to reform. And overall, the challenges associated with the health bill are being linked to Democratic problems. "For Democrats, the red flags are flying at full mast," Democratic pollster Peter Hart, who helped conduct the survey, told the Journal.
And a Washington Post-ABC News poll's findings underscore the political risks faced by President Obama and the Democrats. Less than half--37 percent--believe the quality of care would be better under an overhauled system, compared to 50 percent who view it as better under the current system. And in this month's poll, 51 percent said they were opposed to proposed changes, while 44 percent approved of them.
10 Experts Weigh In On Plan To Replace Public Option In Health Bill
By KHN Staff
December 14, 2009
Can a spinoff of the Federal Employee Health Benefits Program, which is the health insurance coverage for eight million federal workers and their families, as well as members of Congress, help some of the country's uninsured?
Many Senate Democrats are betting it would and have proposed that the Office of Personnel Management (OPM), which manages the FEHBP, oversee national health plans as part a Senate health bill compromise reached late Tuesday to replace the public option.
Although the specifics of the proposed spinoff have not yet been released and could change, it would likely include at least two national plans from private insurers. These plans would be administered by OPM.
Trying to apply the FEHBP model to expand insurance coverage has been suggested before. Kaiser Health News staff writers contacted health policy experts about the advantages and disadvantages of such a plan and whether it would help control costs. Here are edited excerpts from those interviews:
Robert Moffit, the director of the Heritage Foundation's Center for Health Policy Studies and former assistant director of the Office of Personal Management during the Reagan administration.
It would ironically transform OPM into something very different than it is today. The only thing OPM really does [now] is to make sure the premiums the plans offer reflect the benefits. Let's look at what OPM is likely to do. They will likely determine the benefits that are offered. The crucial question is: how they will set premiums? We don't know if they'll reflect the free-market rates. Or will they reflect the health policy agenda of the White House?
I was in OPM during the Reagan administration. When [Ronald] Reagan became president, he wanted to tighten up benefits. During the Clinton administration you had the imposition of a lot of mandates that increased the cost. The Bush administration introduced health savings accounts aggressively into the program. [OPM's] philosophical approach is going to reflect the policy of the White House. These [legislators] don't realize it's kind of a two-edged sword. They have the Obama administration, but you may also have the Palin administration.
Jacob Hacker, political science professor at Yale University who first developed his signature idea of a "public option" while a graduate student a decade ago.
As a stand-alone policy idea, it may have potential merit, but as a substitute for a public option that produces major savings, it's a joke. There's no prospect that there would be serious savings from an OPM private managed plan idea. OPM is not--without substantial additional resources--equipped to be able to regulate adequately a national plan. And, a national plan delivered through existing private insurers can't be judged as a substitute for a public option.
In terms of whether it can actually be set up and run, I think it's quite likely that one or more large national insurers would be willing to do this, particularly the Blue Cross/Blue Shield Association, but it will depend in part on how onerous or significant the regulations on that plan are.
Gail Wilensky, an economist and a senior fellow at Project HOPE, an international health education foundation, and a former administrator of the Health Care Financing Administration (now the Center For Medicare & Medicaid Services).
I don't think the public option was a critical or key component to begin with. So any strategy that allows the process to move forward, in my opinion, is a good thing.
One of the real questions, and I haven't seen enough specificity to have a good feeling about it, is: how much variation in the benefit structure will actually be allowed? When you look at FEHBP, you've got the $5,000 a year Mail Handler plan, and you have standard Blue Cross Blue Shield, which is $12,000-$13,000 a year. Those are pretty big differences. The issue is what are you going to set up: a skinnied down plan with a tight network that would allow it to be low cost, or whether you insist on a very expansive plan in terms of benefits with few exclusions. The question is going to be the nature of what these plans are supposed to look like.
Jonathan Gruber, professor of economics at the Massachusetts Institute of Technology and director of the health care program at the National Bureau of Economic Research.
I think it makes a lot of sense. FEHBP has been very successful about keeping cost growth down. It really integrates nicely with the idea of exchanges in the Senate bill. These local exchanges could have local plans, so it would provide a national plan to compete with the local plans. So I think it sounds like a sensible addition.
I don't think it's going to matter a whole lot in terms of cost containment. More competition is good, so I think if you have a nationally run competitor in these exchanges, that will help. Especially in areas that don't have a whole lot of insurance options. But I don't believe that one more insurance competitor is going to matter a whole lot for what happens to health care costs.
Walton Francis, economist and policy analyst, author of "Putting Medicare Consumers in Charge: Lessons from the FEHBP."
What this plan brings is an organization that is expert in sensible, enrollee-friendly health insurance administration into the mix of providing privately-run health plans--and I hope it's plural, not one--that would be offering their services on a competitive basis to people so they can choose from among multiple offerings. Hey, that's called competitive markets. That's called the FEHBP. It's why it works. It's very consumer friendly. There's all kinds of positive results. . . . My book is all about comparing the almost
50-year performance of Medicare to the almost 50-year performance of FEHBP. . . . The FEHBP has won hands-down on cost control, benefit improvements, preventing fraud, preventing pork barrel spending, good governance. It outperformed Medicare hands-down on all dimensions.
Grace-Marie Turner, president of the Galen Institute.
It's just such a nutty idea. [OPM] is such a small, little organization . . . that takes a very hands-off approach. They say: "here's what the benefit plans are going to be next year, now, let's negotiate your rates." The plans themselves come forward with their prices, and they know that if they offer outrageous prices, they're not going to be [accepted]. The Office of Personnel Management is (A) not equipped to do this, (B) it's not the expertise they have, and (C) it's just another massive new government bureaucracy. It's not a real solution. It's just fiction.
When the Centers for Medicare and Medicaid Services--which is a vastly larger organization--was trying to set up a similar model for the Medicare Part D plan, it was a heroic undertaking. They pulled the trigger on
Jan. 1, 2006, and it was incredibly difficult for them to do this. OPM isn't going to be able to do what Congress wants them to do.
Joseph Antos, a scholar at the American Enterprise Institute and former assistant director for health and human resources at the Congressional Budget Office.
The operation of the FEHBP is something of a model. If they feel that premiums are going up too high, they put some pressure on the plans. But basically they don't tell the plans how to run their business or limit costs in particular. They say "we have this problem, you solve it." I think that's a good model. But you have to look at all the other aspects of the reform bill, which in my opinion is [too] highly regulatory. Instead of using OPM in the way the federal program uses it, which is with a very light regulatory touch, with this program OPM will be enforcing a lot more regulations at a finer level of detail then they've previously had experience with.
I don't see any [advantages.] It's a gimmick. It's purely a gimmick.
Frank McArdle, principal and manager of the Washington research office of Hewitt Associates LLC, a global human resources services company. He worked as a Senate staff member and for the Social Security Administration.
One issue is going to be how much negotiating power is given to the OPM, and what are the terms of that negotiation. Right now, under the FEHBP you can't really exclude any particular health plan that wants to play. But under this proposal, OPM would have to be given legislative power to be more aggressive about who will get in and who won't, and more aggressive about the terms. If it were more like the current situation, where the national plan were to have to accept all bidders, that would be far less effective than if the national plan had the legal power to say [for example], "We're only going to admit, 2, and that you're going to have to compete aggressively for that, and we will negotiate aggressively with you." They would have more leverage than they have even now.
I advocated an idea like this 14 years ago, so I think it has potential. . . . Politically this plan has a distinct advantage. Its roots are in same plan that members of Congress have right now, and that has appeal to it. In terms of breaking the deadlock, it appears to have the potential to do that. In that sense, its political attractiveness has enhanced over the years.
Marilyn Moon, vice president and director of the health program at the American Institutes for Research.
There needs to be a lot of oversight. Those private plans aren't necessarily doing what is best for the population. They're doing what they think is best for their own competitive environment and other criteria. So the question is how are you holding plans accountable? From that standpoint, if you're really finding a way to hold them accountable I think that would be an improvement.
The other thing that a public option was trying to do was [offer] something different than what might be available in an area of the country that's dominated by one or two private plans. So that it's not so clear to me how you offer competition to those private plans and whether the FEHBP approach is really a solution to that.
Michael Tanner, a senior fellow at the Cato Institute who heads research into a variety of domestic policies with a particular emphasis on health care reform, social welfare policy, and Social Security.
This is a way of saving face to some degree, and having something that's got some degree of government control so they can call it a public option. But, this I think is largely a meaningless thing. . . . The question's going to be who is going to play in the system. We know that in the FEHBP itself that some insurance companies are dropping out. If they set up this new parallel system, I don't know how many companies are going to be part of it.
This information was reprinted from kaiserhealthnews.org with permission from the Henry J. Kaiser Family Foundation. You can view the entire Kaiser Daily Health Policy Report, search the archives and sign up for email delivery. © Henry J. Kaiser Family Foundation. All rights reserved.
*We would like to thank Scott Mertie, Esquire (Kraft Healthcare Consulting LLC, Nashville, TN), for selecting the articles for this week's update.