Regulating Health Insurance

The end

noreply@blogger.com (John Aloysius Cogan Jr.) — Thu, 15 Jul 2010 21:00:00 +0000

This will be the last entry for this blog, as I am moving on to another job in another state. I will leave this blog up for a while, but will only continue to post past entries I consider the best--the top twenty or so out of the hundred or so entries posted over the last few years. Thanks for reading.

New York Times Op-Ed

noreply@blogger.com (John Aloysius Cogan Jr.) — Fri, 21 Aug 2009 13:23:00 +0000

Yesterday, the New York Times published my Op-Ed discussing the need for readability standards for health insurance policies. The Op-Ed can be found here.

Making Health Insurance Forms Easier to Read-Interview by WRNI

noreply@blogger.com (John Aloysius Cogan Jr.) — Sun, 02 Aug 2009 11:11:00 +0000

On July 31st, I was interviewed by WRNI reporter Megan Hall about the new readability regulations that take effect next August.

Confidentiality and health insurance rate filings

noreply@blogger.com (John Aloysius Cogan Jr.) — Thu, 23 Jul 2009 14:54:00 +0000

Rate filings data, including trend data related to price, mix and utilization of inpatient, outpatient, med/surg and Rx, are now available to the public. The insurance carriers' arguments that such information be kept confidential have been rejected.

On May 15, 2009 the Rhode Island Office of the Health Insurance Commissioner (OHIC) received annual rate filings by Rhode Island's three major health insurance carriers. The filings, made by Blue Cross & Blue Shield of Rhode Island, UnitedHealthcare of New England, and Tufts Health Plan, cover both the large employer (more than 50 employees) and small employer (50 or fewer employees) markets. Rhode Island is the only state in the nation to require annual comprehensive rate and trend filings for the entire fully insured group market by major health insurance carriers. The details of the filings can be found here.

Second, we asked whether the APRA creates a general duty of nondisclosure. This question was posed because the carriers also assert that disclosure will violate the UTSA. In order to prevail in a UTSA claim, there must be a "misappropriation" of a trade secret.* Even if we assume that the documents contain trade secrets, there must still be a misappropriation for there to be a violation of the UTSA. Since the carriers do not suggest that the documents at issue were acquired under improper means** or by accident or mistake, and since the documents were obtained directly from the carriers, there can only be a “misappropriation” through disclosure if OHIC has a duty to maintain the secrecy or limit the use of the data forms or their contents.*** We concluded that no duty is created under the state's insurance laws, so we asked if the APRA created any general duty of nondisclosure. The AG indicated that it did not.

A copy of our letter to health insurers is here. A copy of our request for an advisory opinion is here. A link of the AG's opinion is here: AG Opinion Letter.

*R.I. Gen. Laws § 6-41-2(a) (“Actual or threatened misappropriation may be enjoined.”); Read & Lundy, Inc. v. Washington Trust Co. of Westerly, 2002 WL 31867868 at *8 (R.I. Super. Dec. 13, 2002) (“The UTSA proscribes the misappropriation of trade secrets.”); see also Deluxe Pattern Corp. v. Laser Design, Inc., 1995 WL 434433 at *5 (Minn. App. July 25, 1995) (“The uniform trade secrets act requires proof of an ‘actual or threatened misappropriation’ of the trade secret.”); Tubular Threading, Inc. v. Scandaliato, 443 So.2d 712, 715 (La. App. 5th Cir. 1983) (Injunctions may be issued in trade secret cases, but only if misappropriations are actual or threatened.).

**The UTSA provides that “’[i]mproper means includes theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.” R.I. Gen. Laws §6-41-1(1).

***R.I. Gen. Laws § 6-41-1(2)(ii)(B)(II).

Discount Health Plans/Discount Health Cards

noreply@blogger.com (John Aloysius Cogan Jr.) — Mon, 29 Jun 2009 11:20:00 +0000

A while back I discussed the Universal Health Card and discount health plans in general. Today, the Providence Journal published a front page article about scam discount health cards (including the Universal Health Card).

The combination of rising health insurance costs and the increased attention to health insurance reform has created a perfect atmosphere for scam discount health plans to proliferate. While some discount plans are legitimate, many others are not. A number of states, including Texas, New York, California, and Connecticut require discount health plans to be licensed or registered. Thirty-plus states currently regulate discount plans in some fashion. Rhode Island does not. Should Rhode Island consider regulating discount health plans?

Rhode Island proposes beefed-up coverage for smoking cessation treatments

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 22 Apr 2009 19:43:00 +0000

Rhode Island has just proposed a regulation that would mandate insurance coverage for all tobacco cessation treatments recommended by the most recent clinical practice guideline, “Treating Tobacco Use and Dependence: 2008 Update.” As far as we can tell, this is the first instance in which this clinical practice guideline has been used as a basis for an insurance coverage mandate. If adopted, this regulation would put Rhode Island at the forefront of coverage for smoking cessation.

The proposed regulation and a concise explanatory statement can be found here.

Currently, the only tobacco cessation treatment for which health insurance coverage is mandated in Rhode Island is nicotine replacement therapy combined with 8 half-hour counseling sessions. The proposed regulation expands the coverage mandate to include smoking cessation treatments recommended by the most recent clinical practice guideline published by the United States Department of Health and Human Services. The Guideline provides an evidence-based path to tobacco cessation.

Updated most recently in 2008, the Guideline recommends the use of seven medications to treat tobacco use, including five nicotine-replacement-therapies (NRTs) and two other medications, bupropion (also known as Zyban) and varenicline (also known as Chantix). The Guideline also recommends three types of intensive cessation counseling: (1) individual (defined as face-to-face) counseling, (2) group counseling and (3) telephone counseling. Each type of counseling can be provided by any suitably trained clinician and is often provided by tobacco cessation specialists. While the Guideline states that either cessation medications or counseling therapies are effective on their own, treatments are even more effective when used in combination.

Rhode Island proposes the highest health insurance readability standards in the nation

noreply@blogger.com (John Aloysius Cogan Jr.) — Thu, 26 Mar 2009 16:32:00 +0000

Rhode Island has proposed a new rule that would require all health insurance policies to be readable at the eighth-grade level.

Scholarship suggests that health care-related information is among the least comprehensible type of information and that this lack of comprehension can lead to poor overall health, less use of preventative care, and inflated health care costs.

No doubt, health insurance forms contribute to this problem. Although health insurance forms contain critical consumer information, they contain complex and highly technical language. This creates a barrier to comprehension by consumers with low literacy skills and can often be incomprehensible to high-level readers. For example, can YOU understand the following passage from an approved Rhode Island policy?

The following rules determine which is the “primary” program:
a) If the other program is not primarily a dental program, this program is primary.
b) If the other program is a dental program, the following rules are applied:
1. The program covering the patient as an employee or group member is primary over a program covering the patient as a dependent.
2. The plan covering the patient as a dependent child of a person whose date of birth occurs earlier in the calendar year shall be primary over the plan covering the patient as a dependent of a person whose date of birth occurs later in the calendar year provided. However, in the case of a dependent child of legally separated or divorced parents, the plan covering the patient as a dependent of the parent with legal custody, or as a dependent of the custodial parent’s spouse (i.e. step-parent) shall be primary over the plan covering the patient as a dependent of the parent without legal custody. If there is a court decree which would otherwise establish financial responsibility for the health care expenses with respect to the child, the benefits of a plan which covers the child as a dependent of the parent with such financial responsibility shall be determined before the benefits of any other policy which covers the child as a dependent child.
c) If neither (a) nor (b) applies, the program that has covered the patient longer is primary, except that a plan covering the patient as a laid-off or retired employee or the dependent of a laid-off or retired employee shall be determined after those of a plan covering the patient as an employee or the dependent of an employee. However, if the other plan does not have a provision similar to this provision, then this exception shall not apply.

According to the Flesch-Kincaid readability formula, this provision is written at the 20th grade level. 20TH GRADE!!!

Another contributing factor is the problem of low adult literacy rate. According to the Providence Journal, forty-seven percent of Rhode Island’s adult population reads at the sixth-grade level or below.

The purpose of this regulation is to protect the interests and improve the health of health insurance consumers by making health insurance policies easier to read and understand.

Recommendations for readability standards for health-related legal documents generally range from fourth to eighth grade levels.* A readability standard of the seventh- to eighth-grade level to certain health coverage-related documents has already been required in other jurisdictions.** Balancing the high level of adult illiteracy in Rhode Island and the burden of implementing a readability standard, the Office of the Health Insurance Commissioner has chosen to require a readability standard no higher than the eight-grade level for all health insurance policies.

The hearing on the proposed regulation is scheduled for April 30, 2009.
__________________________
*See, e.g., Michael K. Paasche-Orlow, Holly A. Tayor & Frederick L. Brancati, Readability Standards for Informed-Consent Forms as Compared with Actual Readability, 348 NEW ENG. J. MED. 721, 725 (2003) (suggesting that a fourth- to sixth-grade reading level is a suitable target for consent forms for institutional review boards); Sharona Hoffman, Symposium on Bioethics: Thinking About Biomedical Advances: The Role of Ethics & Law: Regulating Clinical Research: Informed Consent, Privacy, and IRBs, 31 CAP. U.L. REV. 71, 89 (2003) (recommending that informed consent documents be written at an eighth grade reading level); State Children’s Health Insurance Program (SCHIP) Renewal Process, U.S. Dep’t Health & Human Servs., Office of Inspector General, Rep. No. OEI-06-01-00370, at 3 (Sept. 2002) (noting that “[m]aterials written at the 7th to 8th grade reading level are the standard for what is readable by and suitable for the general public.”); Martha Williams-Deane & Linda S. Potter, Current Analysis of Oral Contraceptive Use Instructions: An Analysis of Patient Package Inserts, 24 FAM. PLAN. PERSP. 111, 114 (1992) (concluding that patient labeling should be drafted at the fifth or sixth grade level); T. M. Grundner, On the Readability of Surgical Consent Forms, 302 NEW ENG. J. MED. 900, 901 (1980) (suggesting that adult consent forms should be at a maximum of a seventh or eight grade level).

**See, e.g., Minn. R. 9506.0400 (MinnesotaCare) (“A health plan shall provide each enrollee a certificate of coverage approved by the commissioner, a health plan identification card, a list of participating providers, and a description of the health plan complaint and appeal procedure. All written information provided enrollees must be understandable to a person reading at the seventh grade level . . . .”); Tenn. Comp. R. & Regs. R. 1200-13-1-.10 (requiring sixth-grade reading level notifications to Medicaid nursing facility residents); Centers for Medicare & Medicaid Services, Medicare Program; Criteria and Standards for Evaluating Intermediary, Carrier, and Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Regional Carrier Performance During Fiscal Year 2004, 68 FR 74613, 74615 (Dec. 24, 2003) (noting that letters, decisions, or correspondence that go to Medicare beneficiaries from a Medicare contractor should be written below the 8th grade reading level “unless it is obvious that an incoming request from the beneficiary contains language written at a higher level”); Minn. Stat. § 144.056 (“To the extent reasonable and consistent with the goals of providing easily understandable and readable materials and complying with federal and state laws governing the program, all written materials relating to determinations of eligibility for or amounts of benefits that will be given to applicants for or recipients of assistance under a program administered or supervised by the commissioner of health must be understandable to a person who reads at the seventh-grade level . . . .”). See also section 2.05.14.01 of the RIte Care contract, which specifies that the RIte Care member handbook must be written at no higher than a sixth-grade level.

Can a state Cafeteria Plan mandate work? Only with some help from the Feds

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 25 Mar 2009 21:19:00 +0000

The Rhode Island Office of the Health Insurance Commissioner (OHIC) just issued notice that it intends to adopt a regulation that interprets and applies Rhode Island’s so-called “cafeteria plan” mandate. There is a problem, however. In the course of developing the regulations, OHIC has concluded that implementation of HITI may conflict with certain federal statutes, including the Employee Retirement and Income Security Act of 1974 (ERISA), the Consolidated Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance Portability and Accountability Act (HIPAA).

What is a cafeteria plan?

A cafeteria plan is a tax-qualified plan under Section 125 of the Internal Revenue Code that allows employers to give their employees the opportunity to pay for benefits, such as health insurance, on a pretax basis. Pretax benefits lower payroll-related taxes for both the employer and employees. Reportedly, its name comes from the fact that it allows employees to choose between different types of benefits, similar to the choices available in a cafeteria.

Why does Rhode Island have a cafeteria plan mandate?

Employees who participate in group health plans through their employer already enjoy the tax benefits of a Section 125 plan. However, employees whose employer does not offer a group health plan, or employees who are not eligible for their employer’s group health plan, must purchase their health insurance in the individual market. Health insurance purchased by these employees in the individual market does not qualify for any tax subsidy. Thus, in 2007, the Rhode Island General Assembly established R.I. Gen Laws § 27-70-1 et seq., the Health Insurance Tax Incentive statute (HITI) to try to give these employees the opportunity to enjoy the same tax subsidy for their health insurance as those employees who participate in group health plans.

HITI requires employers with more than 25 employees to adopt and maintain a cafeteria plan through which employees and their dependents may purchase health insurance in the individual market. While HITI requires certain employers to establish a cafeteria plan, it neither requires employers to pay for or otherwise contribute to the cost of any health insurance purchased through the cafeteria plan, nor requires employers to set up or maintain a group health plan or take any action that affects an existing group health plan. The HITI implementation deadline for Rhode Island employers is July 1, 2009.

What is the problem with HITI?

In the course of developing its regulations, OHIC has concluded that implementation of HITI may conflict with several federal statutes. For example, HITI may be viewed as preempted by ERISA either because it creates an “employee welfare benefit plan” within the meaning of ERISA or because it “relates to” employers’ ERISA employee welfare benefit plans within the meaning of ERISA. Section 514(a) of ERISA states that ERISA preempts “any and all State laws insofar as they . . . relate to any employee benefit plan” governed by ERISA. 29 U.S.C. § 1144(a). If applicable, the ERISA preemption would render HITI unenforceable. While some researchers have opined that ERISA preemption is not likely, preemption remains an open question because the U.S. Department of Labor has not provided any direct and formal guidance or opinion as to whether a state law that mandates a cafeteria plan would be subject to ERISA preemption and no court has directly addressed the issue.

Also, COBRA may be an issue. COBRA requires employers with 20 or more employees offering health coverage to allow employees and their dependents who experience a “qualifying event” (e.g., job termination, employee death, dependent child aging out of group eligibility) to continue in the group health plan for 18 to 36 months by paying the full premium (plus up to 2 percent for administrative costs). The IRS definition of “group health plan” under COBRA is much broader than the common understanding of group health insurance and likely includes cafeteria plans, even cafeteria plans that only provide employees the opportunity to fully pay for individually purchased health insurance with pre-tax dollars and involve no employer subsidy of the health insurance premium (See Treas. Reg. 26 C.F.R. §54.4980B-2 (Q&A-1), (Q&A-8)(a)). This may mean that an employer that sets up a cafeteria plan for its employees so that they can purchase health insurance in the individual market may be subject to COBRA’s requirements for its employees’ health insurance, even thought the employee did not get its health insurance through the employer.

HIPAA also may cause problems. HIPAA shares COBRA’s definition of a group health plan. Thus, Title I of HIPAA, which among other things includes restrictions on preexisting condition limitations and prohibits premium differentials within a group based on health status, could also apply to individual insurance purchased through a cafeteria plan. Such restrictions and limitations would make the purchase of individual insurance through a cafeteria plan unworkable.

Other states, like Missouri, have expressed similar concerns. As a result of these potential problems, OHIC was forced to take a “wait and see” approach with respect to implementing HITI. OHIC has construed the requirements of HITI very narrowly so as to minimize the possibility of conflicts with federal law and has proposed a regulation consistent with its narrow construction. This means that the mandate does not apply to self-funded plans or plans that do not already have an employee benefit plan. This interpretation effectively guts the intent of the law--to make health insurance available on a pre-tax basis to those who must buy in the individual market. Unfortunately, OHIC had little choice. If it interpreted the law as broadly as possible, employers might have been forced to choose between violating the state law or possibly violating a federal law.

What can be done?

Only the federal government can fix this problem by either (1) telling the states formally that state cafeteria plan mandates will not conflict with ERISA, COBRA and HIPAA or (2) passing a law that expressly allows for the purchase of health insurance in the individual market with cafeteria plan dollars, with an express ERISA, COBRA and HIPAA exemption. This would be an excellent way for the Obama administration to start its push for health insurance reform.

Universal Health Card-consumers should beware

noreply@blogger.com (John Aloysius Cogan Jr.) — Sun, 23 Nov 2008 13:50:00 +0000

Have you seen this advertisement in your local paper? It has started popping up around the country and is getting a fair amount of attention from consumers, consumer groups and the media. Why? Because the so-called "Universal Health Card" does not appear to deliver what it promises.

Here is a sample of what others have to say:

Universal Health Card: Real or Scam? (WFAA, Hunstville, AL)

'Free health card' ad is confusing (The New & Observer, Raleigh, NC)

BBB Says Discount Card May Not Offer Consumers Many Savings (WAAY, Huntsville, AL)

Alarmist health card ad (The New & Observer, Raleigh, NC)

Universal Health Card--Money for Nothing (Consumer Blog)

Don't Get Duped (NY Better Business Bureau)

The RI Office of the Health Insurance Commissioner issued a consumer alert after this advertisement appeared in last Thursday's Providence Journal.

Why did we issue the alert?

1. The ad is misleading because it appears to be an article, but is not.

2. The ad is misleading because it suggests that the card is "free", but there is an $18 "registration" fee.

3. The ad is misleading because it attempts to veil the fact that the card costs $49 per month. The amount "$49" is never printed out, but is spelled out ("forty nine dollars") and is hard to find in this lengthy advertisement.

4. The card does not explain what the discounts are.

5. The advertisement alleges that thousands of health care providers accept the card, but several people who have looked into this have found that this is simply not the case. The card's website provided a list of local RI doctors and hospitals that allegedly accepted the card. I personally called a half dozen doctors and three hospitals. None had ever heard of the card and none accepted it. Someone from one hospital, Roger Williams, told me that they have contacted the Universal Health Card and have demanded to be taken off the company's list of providers.

The bottom line: The buyer should beware.

Cavalcade of Risk #63:The WABAC edition

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 22 Oct 2008 04:01:00 +0000

When trying to figure out what to include in this edition of the Cavalcade of Risk, I was overwhelmed by the many, many submissions, ranging from astrology tips (the risk of planets in de-alignment?) to make-up advice (the risk of bad eye shadow?)--and the submissions from (it seems) nearly everyone with a blog offering advice (from the very wise to the truly bizarre) on how to invest money in these bad times.

So, I thought I'd enter Mr. Peabody's WABAC machine and take a trip back to Hank Stern's very first CoR entry. My purpose was to try discern, applying an originalist interpretation (as this guy would surely do if he were hosting this edition of CoR), the original purpose of the CoR. Hank's first entry on June 5, 2006 read:

Monday, June 05, 2006

Cavalcade of Risk - Defined

Because, well, “Carnival” has been done.

The purpose of the C of R is to offer insights into the world of risk management; generally, this will be insurance-related, but that’s not a requirement. Our goal is to help folks understand what risk is, and how to manage it. It's about business and finance, of course, but it's also about risks in our everyday lives and personal relationships.

The purpose of the C of R is NOT to provide a forum for folks to simply advertise their services, or bash their competitors, or tout any one concept as a panacea.

Ideally, posts will help:

a) Others in the field to learn a new, or different, or perhaps better way of doing something;

and/or

b) Folks not in the field to learn a bit more about how insurance and other risk management schemes work.

I’d like to model this on the new and fascinating Health Wonk Review, which means that the C of R will:

a) Be published bi-weekly

b) Be limited to posts directly relating to risk management (not just insurance in general)

c) At least initially, all posts which do not violate item b will be included.

The first C of R is (tentatively) scheduled for Wednesday, June 7.

So, applying Hank's original understanding of the CoR, as I see it, here are this edition's posts:

Henry Stern, LUTCF, CBC at InsureBlog brings good news for wine drinkers who want to cut their risk of heart disease, but prefer white to red. Apparently, white wine can also help reduce your risk of a heart problem.

David Williams presents Getting past physicians biases to the correct diagnosis posted at Health Business Blog, saying, "If you're a woman --or old or obese-- there's a risk that your physician's unconscious bias will cause your diagnosis to be missed."

Jason Shafrin, everyone's favorite graduate student, at the Healthcare Economist notes that China is aiming for universal health coverage by 2020, with the even more amazing goal of covering 90% of the population within 2 years.

Matthew Paulson presents Insurance You Can (and should) Live Without posted at American Consumer News.

Lawrance G. Lux offers a contrarian's take on the current financial crisis, arguing that lack of regulation has inherent risks.

How come we don't get paid a half million dollars to blog on risk? John Gapper of the Financial Times blogs on a risk management "conference" hosted by AIG, at our expense.

It had to happen: the blogger at Advocate’s Studio, a Boston area attorney, has news about the latest insurance "niche:" policies specifically for bloggers. Pay heed!

And apparently some bloggers need insurance. The Blog Herald reports on the risks of blogging: getting beaten up for something written on a blog.

At The Behavioral Medicine Report, clinical psychologist Christopher Fisher explains that women who smoke increase their risk of depression.

"I can't hear you!" The OSYS News Weblog reports on a recent study which found that those iPods (and other personal music gear) can increase one's risk of going deaf.

Sun presents Money-Market Funds May not Be As Safe As You Think posted at The Sun’s Financial Diary.

Wenchypoo presents Frugality as a Recession Fighter and Depression Killer (L-O-N-G) posted at Wisdom From Wenchypoo's Mental Wastebasket, saying, "How to avoid FINANCIAL risk."

nickel discusses increases in government coverage of deposits in FDIC Insurance Limits Increased to $250k posted at fivecentnickel.com.

Floyd Norris at the NYT’s Notions of High and Low Finance explains how Oklahoma State University didn’t see the risk when it thought it had a sure bet with $202 million and a hedge fund managed by T. Boone Pickens.

Even an employer’s wellness program is not without its risks, according to HR Benefits Alert. Employers with their own private gyms risk employee deaths and expensive lawsuits if they do not have lifesaving equipment on the premises or do not have personnel properly trained to use it.

In Business 101 for Joe the Plumber, Louise at Colorado Health Insurance Insider discusses the risks and benefits of the of the Obama and McCain tax plans and how those plans would affect the purchase of health insurance.

That's all for now. Look for the next CoR at My Wealth Builder.

Excessive compensaton: Maryland Insurance Commissioner cuts severance package for CareFirst's ex-CEO

noreply@blogger.com (John Aloysius Cogan Jr.) — Tue, 15 Jul 2008 21:30:00 +0000

I've previously written about why I think board members of nonprofit insurers should not be compensated. Today I ran across a story from yesterday's Baltimore Sun which further evidences the large salaries and severance packages paid to top executives at some nonprofit health insurers. For example, it was recently revealed that the president and CEO of Blue Cross Blue Shield of Massachusetts ended 2007 with total compensation of more than $3.6 million. This followed the company's disclosure that its outgoing CEO was paid more than $16 million as part of his overall retirement package in 2006 (see article in Boston Business Journal).

In this case, Maryland's insurance commissioner cut the $18 million severance package paid to former CareFirst BlueCross BlueShield chief executive William L. Jews by $9 million, saying the CareFirst board failed to restrain his compensation and the company "strayed significantly from its nonprofit mission." Nevertheless, Mr. Jews will still receive $9 million.

In 65-page order, Insurance Commissioner Ralph S. Tyler said the retirement package violated a 2003 state law that limits compensation at CareFirst to "fair and reasonable" pay. In a press release, the Commissioner explained his reasons for finding CareFirst’s proposed payment of nearly $18 million to its ex-CEO was unlawful and why a payment half that amount was permissible. The reasons reveal a disconnect between the former CEO and the so-called nonprofit mission of CareFirst. The Commissioner's reasons included:

• the public purpose mission of CareFirst;
• the inconsistency between the company’s statutory nonprofit mission and its proposal to pay its departing CEO $18 million;
• the fact that, under its departing CEO’s leadership, the company strayed significantly from its nonprofit mission;
• the failure of the CareFirst board to act to restrain the former CEO’s compensation;
• the fact that $18 million is almost seven times the former CEO's total annual gross compensation;
• the substantial compensation received by the former CEO (more than $16.5 million in his last six years as CEO, plus another $1.6 million in deferred payments);
• the former CEO’s mixed record of achievement, prominently including the failed transaction
which he championed to convert the company to a for-profit entity and have it acquired;
• the fact that some of the compensation that CareFirst proposed to pay is contrary to the practice at entities similar to CareFirst;
• the fact that CareFirst proposed to continue to pay the former CEO his base salary (approximately $1 million) for one year beyond the expiration of the non-compete provision in his employment contract;
• the fact that the former CEO held the position for 13 years; and
• the fact that more than $2.4 million of the $9 million is for previously deferred payments.

Do inflated compensation packages directly result in higher premiums? Not really. Blue Cross of Massachusetts' CEO's compensation in 2007 was only a minuscule amount compared to the company's total premium dollars in that year. In 2007, Blue Cross of Massachusetts reported $6.7 billion in premiums. So, its CEO's compensation amounted to .054% of those premium dollars. Thus, someone could argue that the direct effect of the CEO's compensation on an individual subscriber's premium that year was negligible--and they would be right.

But the real problem with excessive executive compensation may stem from the indirect effects generated by sky-high salaries and bonus. Nonprofit executives who are paid exorbitant salaries and bonuses may have little (or no) incentive to operate the company in a way other than as a profit-making machine. They may also have little (or no) incentive to engage in meaningful innovation, since the present system is the one that rewards them ever so handsomely. The real damage done by these exorbitant salaries may well be the skewed incentives they create for the executives who run our nonprofit health care sector.

Cavalcade of Risk #47: March Madness (Play at Your Own Risk)

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 12 Mar 2008 04:47:00 +0000

Welcome to the March Madness Edition of the Cavalcade of Risk. Using proprietary bracketology software, various blog ranking websites, the advice of a local sportscaster, darts, a Ouija board, a dowsing rod and random guessing, I have seeded the entrants for this edition of the Cav. At the risk of sounding brash, I doubt the NCAA Selection Committee could have done a better job! So, without further delay, let the tournament begin:

#1
Evaluating risk isn't always a "by the numbers" exercise. InsureBlog's Henry Stern reports in "Good News, Bad News, So What?" on a new Alzheimers' risk assessment that raises troublesome ethical questions as well.
vs.
#16
Do you know how safe your nano cosmetics are? In “Stating the Obvious: Nano Cosmetics Risk Assessment is Inadequate,” the Environmental Defense Fund Blog notes that current risk assessment procedures and methods applied to cosmetics, in particular nano-sized zinc oxide and titanium dioxide infused sunscreens, are insufficient.

#8
Moolanomy walks us through an analysis of the age-old question, "Should I Buy Whole Life Insurance?"
vs.
#9
Chris Sparling, blogging at That's Fit, reports in "B-9: You sank my cancer risk" on news that a simple vitamin may have profound effects on cancer risks.

#5
In "Mental Health Coverage in Health Insurance Policies," Louise at Colorado Health Insurance Insider weighs the pros and cons of the new measure voted for by the U.S. House of Representatives that requires health insurance companies to provide equal coverage for mental and physical illnesses when policies cover both.
vs.
#12
At the Modern Languages Blog, we learn in "Poor language skills 'pose risk'" that risk management can be as simple as speaking the Queen's English. Literally.

#4
In "Do vaccines cause autism?" David Williams of Health Business Blog reports on a case that is re-igniting the debate about vaccines and the risk of autism, whether thimerosal is the culprit or whether, in this case, the condition was triggered by a fever caused by the vaccine.
vs.
#13
What does your hair style have to do with flooding risk? Nicky Clarke, blogging at WaterWorlds, explains in "Why hairdressers have a low flood risk."

#6
Jason Shafrin at Healthcare Economist asks, "Should all children get flu shots?" The CDC now recommends that all children 0-18 years old receive a flu shot each year. Is this an effective use of medical resources? Jason weighs in.
vs.
#11
Scott at The Honey Stick Project discusses the risks of data breaches resulting from lost or stolen portable data storage devices in "Data never dies, and we’ve already told the aliens where we are..."

#3
Revolution Health's Dr Val Jones asks "Does Cancer Risk Really Linger After HRT (Hormone Replacement Therapy)?"
vs.
#14
At SoxFirst, Leon Gettler takes corporations to task for not taking fraud risk seriously enough in "Companies casual on fraud risk." Only 49 per cent of executives at Fortune 100 companies and large not-for-profit organizations say strategies for addressing fraud risk are well defined.

#7
Janeen at the Zum Family's blog has a disturbing post, "Allergy Medication And An Increased Risk Of Suicide?", that discusses the increased risk of suicide posed by allergy meds.
vs.
#10
In The Digerati Life, Silicon Valley Blogger discusses the basics of how to minimize your risk of identify theft and what to do if you become a victim in "Don’t Get Scammed! Reduce The Risk of Identity Theft."

#2
In a startling discussion of risk that hits a little too close to home (that is, close to my home), Jason at Healthcare Economist tells me that my risk of becoming overweight is about to increase in "Marital Status and Body Weight Changes." Got any other good news for me Jason?
vs.
#15
On the investment front, Living off Dividends asks "Is Gold A Bargain at $950/Oz?" With Gold ready to break $1000 per oz., is it time to get in or is the risk too great?

Thanks to everyone who submitted an entry. Be sure to look for the next edition at Insurance Yak.

If you would like to host the Cav, please send an email to the Cavalcade of Risk to reserve a date.

Should the board members of nonprofit health insurance companies be compensated?

noreply@blogger.com (John Aloysius Cogan Jr.) — Fri, 07 Mar 2008 12:36:00 +0000

A few days ago, the Boston Globe ran a story detailing the fees paid to the board members of Blue Cross Blue Shield of Massachusetts (between $47,400 and $53,900 a year), Harvard Pilgrim Health Care (between $20,000 and $30,000 a year) and Tufts Health Plan (between $11,500 and $29,000 per year). In response, Paul Levy of Running a Hospital questioned in a recent post why some health insurers compensate their boards:

I think we would think it somehow untoward if hospital board members were compensated. Going further, we would certainly be offended to learn that board members of other public charities like religious institutions, colleges and universities, day care centers, or town sports leagues were compensated. And yet, in each case, we expect those board members to meet a high standard of care with regard to their fiduciary responsibilities.

I do not write this to give any sense that I begrudge the insurance company board members their annual retainer and meeting fees, but I wonder how the custom evolved that they should be paid. Has it always been such, or is this a recent development? Is there is anything special expected of them in return for that payment that we do not expect of unpaid board members serving other non-profits? Looking forward, should we extend this compensation practice to other major non-profit organizations that demand a high standard of care from their board members?

Here in Rhode Island, we addressed similar questions with our own Blue Cross--a nonprofit--a couple of years ago. We concluded that Blue Cross' board members should not be compensated. Here are a few of the things we looked at and how we reached our decision.

Prior to 2004, the Blue Cross board had been compensated, but new legislation required my office to approve any further board compensation. In 2005, Blue Cross submitted an application requesting board compensation that would have averaged about $25,000 per year per board member.

Blue Cross’ reasons for requesting compensation for their board centered on three arguments: (1) Blue Cross’ board compensation should be commensurate with the board compensation paid by other Blue Cross plans, (2) compensation was necessary to retain and recruit qualified board members, and (3) the level of work performed by Blue Cross board members is particularly complex.

Blue Cross submitted several analyses in support of its request: (1) a report by Michaud Economic Consulting, a consulting firm engaged by Blue Cross, (2) two surveys of board compensation by the BlueCross BlueShield Association and (3) an opinion letter by SpenserStuart, a consulting firm engaged by Blue Cross.

The Michaud report concluded that Blue Cross' board members were "entitled to annual compensation in the range of $75,000-$130,000" based on factors such as the complexity of Blue Cross’ business, the need to compare Blue Cross' board compensation with that of for-profit businesses, the potential liability of Blue Cross board members, the opportunity costs to board members of their service to Blue Cross and the high workload of board members, and the need to attract and retain quality board members.

We did not find the Michaud report particularly persuasive because it failed to address certain critical issues central to its conclusions, such as: (1) How is Blue Cross’ business is any more complex than that of other health care-related entities or nonprofits, such as hospitals, health systems or universities, which do not compensate their boards? (2) How much more difficult is the workload for Blue Cross board members than for the board members of other health care-related entities or nonprofits? (3) Since Blue Cross is a nonprofit entity, why should the compensation standards employed by for-profit entities be applied to Blue Cross’ board? Finally, the report provided no support for the assertion that Blue Cross would not attract board members without compensation. Blue Cross' board had, in fact, recently added new, quality members.

Blue Cross also provided two BlueCross BlueShield Association surveys that showed that most Blue Cross plans compensate their boards. We found this particularly interesting. It showed that most Blue Cross plans--including nonprofit Blue Cross plans--compensated their boards quite handsomely. Included among the results of these surveys were the following tidbits:

Of 39 Blue Cross plans responding to the survey, 37 expected to pay their board members in 2005. The average total cash compensation for board chairs of nonprofit Blue Cross plans in 2004 was $58,171 (range: $10,000-$272,500).

Average total cash compensation for board members of nonprofit Blue Cross plans in 2004 was $28,561 (range: $7,000-$63,333).

Average total cash compensation in 2004 for board chairs of Blue Cross plans of a similar size (by membership) to our Blue Cross was $47,040 (range: $24,400-$81,400).

Average total cash compensation in 2004 for board members of Blue Cross plans of a similar size (by membership) to our Blue Cross was $28,767 (range: $20,662-$64,400).

Although this data seemed to support Blue Cross’ argument for board compensation, like the Michaud report, it was not particularly convincing to us—mainly because it raised more questions than it answered. For example, while compensation of Blue Cross board members appeared to be the norm among Blue Cross plans—even nonprofit Blue Cross plans—nothing in the report answered our "whys?": Why are Blue Cross boards different from other nonprofit boards? Why are Blue Cross boards different from the boards of other health-related entities? Why do Blue Cross boards appear to pay so much more than other nonprofit insurers that do provide board compensation?

In addition to reviewing the materials provided by Blue Cross, we undertook our own analysis. We sought guidance from a number of outside sources, including information from local, large nonprofit organizations, and tried to identify generally accepted standards or guidance regarding nonprofit board compensation.

We first looked to large, regional (Rhode Island, Massachusetts and Connecticut) nonprofits (i.e., with assets or revenues in the millions of dollars). We obtained information about regional board compensation from a variety of sources, including telephone interviews, publicly available documents, and the internet. Based on this research, we determined that regional nonprofits generally do not compensate their board members. In fact, this appears to be the standard practice for Rhode Island, Massachusetts and Connecticut nonprofits. A partial list of Rhode Island, Massachusetts and Connecticut nonprofits that, at the time of our research (2005), did not compensate their boards included:

Boston College
Boston University
Brandeis University
Brown University
Bryant University
Care New England Health System
Fallon Community Health Plan, Inc.
Greater Providence YMCA
Harvard University
Johnson & Wales University
Lahey Clinic
Landmark Medical Center
Lifespan
Massachusetts General Hospital
Memorial Hospital of Rhode Island
Neighborhood Health Plan of Massachusetts
Neighborhood Health Plan of Rhode Island
Newport County YMCA
Providence College
Rhode Island School of Design
Roger Williams Hospital
Roger Williams University
Salve Regina University
South County Hospital
Tufts University
United Way of Rhode Island, Inc.
Yale University
YMCA of Pawtucket, Inc.

We also sought to identify objective, national standards or guidelines for board compensation in the nonprofit sector. Perhaps the most prominent source for such guidelines identified we found was The Panel on the Nonprofit Sector. The Panel, convened by the Chairman of the U.S. Senate Finance Committee in October of 2004, brought together thousands of people involved with charities and foundations for a thorough examination of the sector’s governance, transparency, and ethical standards. It held hearings in 15 locales, invited comments and discussed its recommendation with a committee of distinguished advisors from outside the nonprofit sector. In June of 2005, the Panel issued its final report, entitled “Congress and the Nonprofit Sector, a Final Report to Congress and the Nonprofit Sector on Governance, Transparency, and Accountability.” With respect to board compensation, the Panel found:

Although some charitable organizations reimburse expenses related to board work, the vast majority of board members serve without compensation. In fact, board members of public charities often donate both time and funds to the organization, a practice that supports the sector’s spirit of giving and volunteering. (p. 61)

In its recommendations the Panel stated that it

generally discourages payment of compensation to board members by charitable organizations. In cases where compensation is deemed necessary due to the complexity of the responsibility, the time commitment involved in board service, and the skills required for the particular assignment, among other factors, charitable organizations should, as a recommended practice, review information on compensation provided by organizations comparable in size, grantmaking or program practices, geographic scope, location and with similar board responsibilities (for example, number of meetings, length of terms, and number of domestic or international site visits expected) to determine the reasonableness of any compensation provided to board members. (p. 62)

Other organizations have taken a similar position. For example, the Minnesota Council of Nonprofits suggests that, “Board members should receive no monetary compensation for their board duties other than reimbursement for board-related expenses.”

Also, according to Board Source (formerly the National Center for Nonprofit Boards), nonprofit Board compensation “is quite rare. According to a recent survey conducted by NCNB and Stanford University, only 2 percent of the over 1,300 organizations completing the survey compensated their board members, and for the majority, the fees were nominal.” However, “[b]oard compensation is more common in particularly complex nonprofits, such as health care systems or large foundations.”

Finally, we compared the proposed Blue Cross board compensation to the board compensation provided by entities of a similar size (multi-million dollar), in a similar industry (health-related), with a similar level of complexity, and a similar location (regional). The results, at the time of our research (2005), were as follows:

Care New England Health System
• Rhode Island’s second largest health system, comprised of Butler Hospital, Kent Hospital, Women & Infants Hospital of Rhode Island, Care New England Wellness Centers and Care New England Home Health
• 6,526 employees
• $510 million in revenues (2004 figures)
• 30 board members
• No board compensation

CareGroup Health Care Systems
• Large Massachusetts health system, comprised of Beth Israel Deaconess Medical Center, Mount Auburn Hospital, New England Baptist Hospital, Deaconess-Glover Hospital, and Deaconess-Nashoba Hospital
• Over 13,000 employees
• 18 board members
• No board compensation

Fallon Community Health Plan, Inc.
• Nonprofit health plan based in central Massachusetts
• $679 million in revenues (2003 figures)
• 182,000 members
• 500 employees
• No board compensation

Harvard Pilgrim Health Care, Inc.
• Large Massachusetts health plan
• $2.3 billion in revenues (2004 figures)
• 785,387 members (2004 figures)
• 11 board members
• Average board compensation is $12,583 (2003 figures) (only non-salaried board members—excludes President/CEO, who is salaried and also on the board) • Board salaries range from $0 to $19,925 (2003 figures)
• One board member is not compensated and another is only compensated $1,300 annually. (2003 figures)

Lahey Clinic
• 295 bed hospital, located in Burlington MA
• $183 Million in revenues (2003 figures)
• 28 board members
• No board compensation

Landmark Medical Center
• 214 bed hospital
• $86 million in revenues (2002 figures)
• 19 board members
• No board compensation

Lifespan
• Rhode Island’s largest health care system, comprised of Rhode Island Hospital and its Hasbro Children’s Hospital, The Miriam Hospital, Bradley Hospital and Newport Hospital
• 10,597 employees
• $1.7 billion in revenues (patient revenues and research funding) (2004 figures)
• $1.6 billion in total assets (2004 figures)
• 16 board members
• No board compensation

Massachusetts General Hospital
• 893 bed hospital
• Operates the largest hospital-based research program in the United States
• Over 19,500 employees
• 14 board members
• No board compensation

Memorial Hospital of Rhode Island
• 294 bed hospital
• 10,597 employees
• $162 million in revenues (2003 figures)
• 18 board members
• No board compensation

Neighborhood Health Plan of Massachusetts
• Managed care plan (including Medicaid and commercial managed care)
• 120,000 members (2004 figures)
• 15 board members
• No board compensation

Neighborhood Health Plan of Rhode Island
• Medicaid health plan
• $136 million in revenues (2003 figures)
• 75,000 members (2004 figures)
• 13 board members
• No board compensation

Partners Healthcare System, Inc.
• Large Massachusetts health system, comprised of Brigham and Women’s Hospital, Massachusetts General Hospital, McLean Hospital, Newton-Wellesley Hospital and North Shore Medical Center
• 5 board members
• No board compensation

Roger Williams Hospital
• 162 bed hospital
• $125 million in revenues (2002 figures)
• 19 board members
• No board compensation

South County Hospital
• 100 bed hospital
• $66 million in revenues (2002 figures)
• 19 board members
• No board compensation

Tufts Associated Health Maintenance Organization, Inc.
• Large Massachusetts health plan
• $2.3 billion in revenues (2004 figures)
• 747,000 members (2004 figures)
• 11 board members
• Average board compensation is $17,000 (2003 figures)
• Board salaries range from $500 to $26,000 (2003 figures)

Tufts-New England Medical Center, Inc.
• A 451 bed private, nonprofit facility affiliated with the Tufts University School of Medicine.
• 8 board members
• No board compensation

Yale-New Haven Hospital, Inc.
• A 944 bed private, nonprofit facility affiliated with the Yale School of Medicine.
• 8 board members
• No board compensation

Based on this analysis, it appeared clear that Blue Cross’ request for compensation was outside the standard practice for large, similarly complex, regional, nonprofit health-related entities. On this list, we noted that two Rhode Island entities, Lifespan and Care New England Health System did not compensate their boards. Both are large, complex health systems. Both entities have thousands of employees, multiple facilities and annual revenues in excess of $500 million. Yet, neither entity compensated its board. Likewise, we noted that other regional nonprofit health plans, such as Neighborhood Health Plan of Massachusetts, Neighborhood Health Plan of Rhode Island and Fallon Community Health Plan did not compensate their boards. Finally, we did observe that both Harvard Pilgrim Health Care, Inc. and Tufts Associated Health Maintenance Organization, Inc. compensated their boards. Yet, we could find no reason why these health plans chose to compensate their boards and why others, such as Fallon Community Health Plan, Inc., chose not to compensate their boards. It appeared, therefore, that the practices of Tufts and Harvard Pilgrim, were not the norm.

So, Mr. Levy, as to your question, we never did figure out why some nonprofit health insurers compensate their board. We did, however, figure out the following: (1) many nonprofit health insurers don't compensate their boards, (2) most nonprofit health-related organizations don't compensate their boards, (3) several organizations have addressed this issue and have concluded that compensation is not appropriate for nonprofit board members, and (4) no one could sufficiently explain to us why the Blues are any different with respect to their complexity or mission or any other factor so as to convince us that Blue Cross boards merit compensation when most other nonprofit boards are not compensated.

Should we be focussing on the individual health insurance market?

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 06 Feb 2008 12:46:00 +0000

As noted in my last post, a lot of my time lately has been devoted to the pending Direct Pay rate filing. Direct Pay, offered by Blue Cross & Blue Shield of Rhode Island, is the only individual market product available in Rhode Island.

In general, enrollment in Direct Pay has decreased, prices have increased at a rate greater than general inflation and the Direct Pay products include more cost sharing. This is not news to anyone--Blue Cross, consumers, my office or anyone who follows health insurance. In fact, these trends generally mirror what is going on in the larger employer-based health insurance market. Therefore, it is probably safe to say that the individual market suffers from many of the same problems that afflict the employer-based market.

Nevertheless, there has been growing nationwide focus on the individual market. Proposed tax credits, new Section 125 rules, Section 125 mandates, a connector and coverage mandates, all directed toward the individual health insurance market, seem to be springing up all over the place. Yet, a recent report issued by the Kaiser Family Foundation suggests that the individual market has its own unique problems, some of which may be potential impediments to trying to boost overall health insurance coverage by focusing on this market.

The report examines how often people at different income levels buy individual market coverage in the absence of access to employer or public coverage. Using information on income and health insurance coverage from the Medical Expenditure Panel Surveys' Household Component for 2000 through 2003, the study looked at adults aged 19 to 64 (who were not eligible for employer-sponsored health coverage or public insurance programs such as Medicaid or Medicare) who faced a choice between going uninsured and purchasing individual market coverage.

The report found that relatively few people at lower incomes purchase individual market coverage. Among those with incomes at the federal poverty level (currently, this would be $21,200 for a family of four in the continental U.S.),* only five percent purchased individual market insurance. As income increased, though, the percent of those covered increased. However, even at four times the poverty level (currently, this would be $84,800 for a family of four in the continental U.S.), only about a quarter of individuals purchased coverage. Among those with incomes at least 10 times the poverty level, only about half purchased coverage in the individual market.

What is perhaps more interesting, though, is that a similar pattern emerged among people without other coverage options who are self-employed, who typically are able to deduct their health insurance premiums from their taxable income. The analysis found that coverage rates were higher for the self-employed at all income levels, nevertheless most remained uninsured until incomes exceeded four times the poverty level.

The report does not include any analysis as to why people do not purchase individual market insurance. Reasons could include a lack of affordability, a lack or awareness about health insurance options, a perceived lack of value, a conscious decision to remain uninsured, health status restrictions imposed by insurers or some other factors we are not even aware of. None of this seems particularly surprising.

The Kaiser folks suggest that subsidies or government exchanges may be needed to encourage increased participation in the individual market:

These findings show that policy makers considering ways to encourage more people to purchase non-group coverage face a daunting challenge. Non-group insurance does not appear to be a very popular product, and policy makers may need to make significant changes to improve its attractiveness if non-group coverage rates are to improve dramatically. The current low coverage rates, even at fairly high income levels, suggest that subsidies may need to be fairly substantial in order to encourage a large uptake in purchase, and may need to extend higher up the income scale than some policy makers may prefer. Other proposed market interventions, such as creating purchasing pools or public exchanges to simplify the process of purchasing coverage, could potentially play a role in improving market participation. Massachusetts has implemented such an approach and other states are considering it. (emphasis added)

Yet, while calling for subsidies or the creation of government "connector" agencies may appear to be attractive strategies to pump up enrollment in the individual market, the MEPS data remind us of just how little we know about this market or what might drive take-up.

Compared to the attention we as a nation have showered on the employer-based health insurance market, the individual market has effectively languished on the back burner. The individual market has simply been a residual market--one where folks went when they had no other options. Sure, there has been tinkering, with high risk pools, mandated rating mechanisms and the like. But these effort have not yielded insights that allow us to discern whether we should be trying to bolster the sagging employer-based market or strike a new path by pushing folks toward (or into) the individual market.

Furthermore, even if we do not consider the impending recession,
which will surely put a damper on government action, financing problems loom large (as discussed here and here and here) and may be a significant barrier to an infusion of significant government subsidies or the creation of government exchanges in aid of the individual market. In addition, the MEPS data suggest that tax incentives may not work so well to encourage take up. For example, in the 350%-399% FPL range, take-up is 23% for non self-employed vs. 30% for self-employed--a difference of only 7 percentage points. As the report observed, individual market insurance is simply not a popular product.

I guess we'll simply have to wait and see how all this attention on the individual market shakes out. Will it really make a difference, or are we just taking yet another opportunity to avoid addressing the issue of rising medical costs, which is the main reason why increasing numbers of folks don't have health insurance?
________________________________________________________________
* Current FPL levels (for 2008) are:

Persons in Family or Household	48 Contiguous States and D.C.	Alaska	Hawaii
1	$10,400	$13,000	$11,960
2	14,000	17,500	16,100
3	17,600	22,000	20,240
4	21,200	26,500	24,380
5	24,800	31,000	28,520
6	28,400	35,500	32,660
7	32,000	40,000	36,800
8	35,600	44,500	40,940
For each additional person, add	3,600	4,500	4,140

The Lifespan-Care New England merger gets a pass from the FTC

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 19 Dec 2007 12:45:00 +0000

According to the Providence Business News, Lifespan and Care New England, the two largest hospital systems in Rhode Island, announced earlier today that the Federal Trade Commission (FTC) will not conduct any further inquiry into their proposed merger--essentially giving the merger the green light. The Providence Journal reported that the merger would create a “not-for-profit” mega hospital system with 17,600 employees, $2 billion in patient-care revenues, and control of two-thirds of the state’s hospital services.

The hospital groups filed an application with the Federal Trade Commission (FTC) a few weeks ago for a review of the merger’s potential effect on hospital competition in the “relevant market”. Determination of the relevant market is a key antitrust issue. Lifespan and Care New England take the position that this merger would not be anticompetitive because the relevant geographic market at issue is a greater Boston-Providence area market, not solely a Rhode Island market. In other words, Lifespan and Care New England think that we should view the economic impact of this merger in terms of its effect on a much larger Boston-Providence market (including competition with Boston hospital systems), rather than its effects on a smaller and more contained Rhode Island market.

The FTC’s decision not to conduct any further inquiry into the proposed merger seems somewhat at odds with a recent advisory opinion, issued by the FTC on April 1, 2003, concerning the acquisition of Slidell Memorial Hospital by Tenet Healthcare Corporation in Slidell, Louisiana. In that case, the FTC analyzed a fact scenario that is somewhat similar to the one here and concluded that control over the Slidell market by Tenet would be anticompetitive.

The proposed Slidell acquisition involved Slidell Memorial and Tenet's NorthShore Regional Medical Center, the only two hospitals in Slidell. The FTC analyzed Tenet's proposed acquisition of Slidell Memorial looking at the effect it might have on the two health insurance insurance plans available to the residents of Slidell. The FTC found, among other things, that Slidell employers were unlikely to select health insurance plans that did not include the two hospitals in their network. Therefore, control over the city's hospitals by one entity would have given that entity the ability to raise prices after the merger:

Tenet’s proposed purchase of Slidell Memorial raises serious competitive concerns because it would combine the only two full-service hospitals in Slidell. As explained more fully herein, it appears unlikely that a significant number of employers and Slidell residents would be willing to select a health plan that does not include a Slidell hospital. Tenet’s acquisition therefore may be expected to result in increased prices because health insurance companies could not use competition between Slidell Memorial and NorthShore Regional to keep prices down. (emphasis added)

Based on the reasoning of this memorandum, one might have thought that the FTC would have taken a harder look at the proposed Lifespan-Care New England merger. The proposed merger would include Miriam, Bradley, Newport, Rhode Island, Hasbro Children’s, Butler, Kent, and Women & Infants hospitals. Although this would leave six hospitals remaining, two (South County and Westerly hospitals) are in the southern most part of the state, far from the state's major population center. The financially troubled Landmark is north of that population center in Woonsocket. The three remaining hospitals (Memorial, Roger Williams and St. Joseph) are in the greater Providence area, but only have a combined total of 873 beds. Finally, the only two non-publicly owned psychiatric hospitals in the state (Bradley and Butler) would be part of the merged system.

This leads to the inevitable conclusion that Blue Cross and United would have no choice but to include the newly merged hospitals in their network. To crib from the quote above, it appears unlikely that a significant number of employers and [Rhode Island] residents would be willing to select a health plan that does not include [the merged Lifespan and Care New England] hospitals. If the insurers don't keep the merged hospitals in their network, they will risk losing customers. This gives the merged Lifespan-Care New England system significant market power in Rhode Island and the ability to drive up health insurance prices for Rhode Island employers and residents through higher prices charged to Rhode Island health insurers.

The fact that Lifespan and Care New England consider their relevant market to be larger than just Rhode Island does not alter the conclusion that Rhode Islanders may face higher health insurance prices as a result of the merger. As the FTC also noted in the Slidell opinion letter:

Tenet and Slidell Memorial have stated that they believe the proposed merger does not violate the antitrust laws because the Slidell hospitals face competition from hospitals throughout New Orleans and the North Shore. This contention appears to be based on the argument that any attempt by Tenet to increase prices after acquiring Slidell Memorial would fail because higher prices would cause patients, particularly those from outside of Slidell, to switch to other, lower-priced hospitals. This would appear to be an unlikely scenario, however, if it is true that Slidell Memorial and NorthShore Regional cannot be excluded from a health plan that markets to employers with employees residing in Slidell. . . .

Patients rarely, if ever, choose among hospitals in their health plan's network based on which hospital has the lowest prices. In fact, because the health plan pays for most hospital costs if a hospital is in its network, patients have little reason to find out how much any particular hospital charges for its services. Rather, patients generally go to the in-network hospital they prefer where their physician has privileges or, in cases of serious diseases or injuries requiring specialized medical treatments, to the hospital with the necessary specialty care. Once a hospital is in a health plan's network, the prices it charges the health plan have very little impact on patient choice. Consequently, the realities of how patients select their hospitals do not support Tenet's and Slidell Memorial's contention that increasing the prices charged to health insurance plans would cause patients to select lower-priced in-network hospitals.

Now that the FTC has given Lifespan and Care New England a pass, it is up to the Department of Health and the Attorney General to ensure that the proposed merger is carefully scrutinized and, if the merger is to be approved, to impose conditions on the merger that prevent market power price increases and resulting health insurance rate hikes for Rhode Island residents and employers.

The steady march of diabetes and costs we all bear

noreply@blogger.com (John Aloysius Cogan Jr.) — Tue, 11 Dec 2007 12:30:00 +0000

A CDC study released yesterday showed that during the period January-June 2007, 7.5% (95% confidence interval = 6.96-8.05%) of American adults (aged 18 years and over) have been diagnosed as having diabetes. Although the figure is not significantly different from the 2006 estimate of 7.8%, it is too early to tell whether the increasing numbers of diagnosed cases of diabetes have begun to level off, or whether the upward trend will continue. From 1997 through 2006, there was an increasing trend in the percentage of adults diagnosed with diabetes, from 5.1% in 1997 to 7.8% in 2006.

What does this mean for health insurance? According to the National Diabetes Information Clearing House, a service of the National Institutes of Health, the direct medical and indirect expenditures attributable to diabetes in 2002 were estimated at $132 billion.

Direct medical expenditures alone totaled $91.8 billion. This whopping figure can be broken down further (see source article):

$23.2 billion went for diabetes care, $24.6 billion went for chronic complications attributable to diabetes, and $44.1 billion went for excess prevalence of general medical conditions);
The three major expenditure groups by service settings were inpatient days (43.9% of spending), nursing home care (15.1% of spending), and office visits (10.9% of spending);
51.8% of direct medical expenditures were incurred by people under 65 years old;
Per capita medical expenditures totaled $13,243 for people with diabetes, versus $2,560 for people without diabetes; and
If per capita medical expenditures for populations with and without diabetes are adjusted for differences in age, sex, and race/ethnicity, folks with diabetes had medical expenditures about 2.4 times higher than expenditures incurred by the same group in the absence of diabetes.

So how does this affect health insurance costs? As both medical costs and the number of those diagnoses with diabetes have increased, the direct medical costs of this disease have certainly passed $100 billion annually and may very well now be $150 billion. These costs are either paid for by private insurers and folded into health insurance premiums or absorbed by Medicare and Medicaid (and other federal programs) and passed on in the form of taxes. The bottom line is this: we all pay for this epidemic one way or another.

There is something that can be done. Clinical studies suggest that, for those diagnosed with diabetes, prevention activities, quality outpatient care, and greater patient self-management (e.g., taking medications appropriately, controlling blood sugar levels, and managing diet with regular exercise) may prevent or reduce the prevalence of complications, such as cardiovascular disease and lower extremity amputations, as well as the incidence of multiple hospitalizations—and ultimately lower healthcare costs. For those not yet diagnosed, the risk of developing Type 2 diabetes can be reduced through maintenance of a healthy weight, a proper diet and regular exercise.

Prevention and better basic treatment ought to be a priority for state and federal lawmakers, policymakers, insurers, and healthcare providers. The goal ought to be to minimize the incidence of diabetes, medical complications resulting from diabetes and the overall costs of the disease. This can be accomplished through encouraging better use of primary care physicians; increased monitoring of those diagnosed with diabetes and those found to be at risk for the disease; and undertaking increased intervention activities for more vulnerable populations with diabetes, particularly racial/ethnic minorities, patients with public insurance coverage, and patients living in low-income areas. The return for these relatively inexpensive initiatives will be well worth the investment.

State Mandates and Health Insurance Pricing--mixing apples, oranges and cranberries

noreply@blogger.com (John Aloysius Cogan Jr.) — Sat, 08 Dec 2007 23:20:00 +0000

Over at Boston ERISA & Insurance Litigation Blog, Stephen Rosenberg discussed a post he found over at the State Policy Blog (SPB). The SPB post suggested that government regulations, such as coverage mandates and guaranteed issue rules, alone make health insurance substantially more expensive in Massachusetts than in Colorado.

In support of its argument, the SPB post gives three examples of monthly health insurance premiums in the individual market for a forty year-old man and three similar examples for a ten year-old child. One of the examples is from an unnamed guaranteed issue (i.e., the plan takes all comers) Massachusetts plan with a $2000 deductible. The monthly premium for the Massachusetts plan is $246.10 for the forty year-old and $193.81 for the ten year-old. The other two examples are from Colorado -- one from an unnamed medically underwritten plan (i.e., the applicants are screened for medical problems) and the other is from a plan referred to as “Cover Colorado guaranteed issue”. The rates for these plans are listed as $172.00 and $250.18, respectively, for the forty year-old and $102.00 and $125.30, respectively, for the ten year old.

Without setting out any other information, the post’s author then suggests that Massachusetts has higher health insurance prices because its health insurance market is more heavily regulated than that of Colorado.

Incredulous, Stephen Rosenberg noted:

The author’s intent is to demonstrate that state mandates and state regulation drive up pricing, but I am not convinced that the simple comparison of pricing demonstrates this at all. Initially, I can’t vouch for the actual data, or for the author’s characterization of the Colorado market in comparison to the Massachusetts market. But even if you take the numbers at face value, they threaten to prove nothing more than the truth of the old saying that there are three kinds of lies - lies, darn lies and statistics. This is because, as discussed in prior posts such as this one, Massachusetts has very high costs of actual medical care compared to other regions of the country, for reasons that may very well be unique to Massachusetts and possibly as well to the few other areas of the country that, like Massachusetts, have a particularly high concentration of major teaching hospitals. Its been years since I have been to Colorado, but I don’t think, to my recollection and on my general reading, that its health care and health insurance market fits that description. As a result, comparing Colorado health insurance pricing to Massachusetts’ health insurance pricing is simply comparing apples to oranges - or maybe, given the states we are talking about, to cranberries - and tells you nothing about the effect on pricing of state mandates such as the one recently enacted in Massachusetts.

Stephen is absolutely correct about the strength of the comparison and the conclusions drawn by the SPB post’s author. Medical cost differences between Boston and Denver will affect premium prices significantly. However, there is an even more fundamental problem with the SPB post’s analysis -- a problem that is seen all to often in the positions taken by so-called (or self-appointed) health policy experts: oversimplification. In this case, no conclusions can be drawn regarding the effects of government regulation solely from the premium amounts set out in the SPB post for the following two reasons:

The three plans are not equivalent. One of the plans is a state-created, state-subsidized high risk pool. The other two are not.

One of the plans used in the comparison is the CoverColorado plan. What the author of the SPB post doesn’t tell you is that CoverColorado is a state subsidized high-risk pool that provides comprehensive health insurance for Colorado’s so-called “uninsurable” residents. These are the folks who are (1) ineligible for public health insurance programs (such as Medicare and Medicaid), (2) do not have access to the group insurance market (because they are self employed, unemployed, or they work for an employer who does not offer health insurance), and (3) have difficulty obtaining or affording insurance in Colorado’s individual insurance market because they have a serious pre-existing medical condition.

Unlike the two other plans listed in the SPB comparison, premiums paid by CoverColorado participants are subsidized by the state. The premiums collected from participants only cover about 60% of the program’s costs. The state funds the remainder of the program costs through allocations from an unclaimed property trust fund, federal grants, premium tax credits, and occasional assessments on insurance carriers. Thus, more rather than less state involvement, is responsible for the rates in that plan. For a recent, complete description of CoverColorado (including support for the facts I’ve set out), see this.

No details are given about the other two plans, other than that they have a $2000 deductible.

The other two plans listed on the SPB post for the forty year-old man are priced at $172.00 for a Colorado $2000 deductible plan and $246.10 for a Massachusetts $2000 deductible plan -- a $74 difference. But is this a fair comparison? Maybe. Maybe not. We simply cannot tell. Both plans have a $2000 deductible, but the rest of the plan details are a mystery. Does this matter? You bet.

Different plans have different benefits. Different benefits result in different costs. Yet, even when two plans offer the same basic set of benefits, the benefits may be offered with different limits, different caps, and different copays. Each of these differences will affect the price of the plan because each difference will create a different incentive (or disincentive) for the use of a particular benefit. In other words, under two different plans with a $2000 deductible, a consumer’s sensitivity to the price of his or her direct healthcare costs will affect how much he or she will consume, all other things remaining the same (such as the consumer’s health status). This price sensitivity has an effect on how much the product will cost the insurer, and in turn, how much a product will cost a consumer.

Want to see a concrete example? Using the Massachusetts connector website, I accessed information about individual health plans. Following the instructions, I submitted the following information on 12/8/2008: zip code 02215, male, dob 1/1/65, industry code 8111 (attorney), and set the effective date of coverage as 1/1/2008.

I then selected “Bronze plans” and chose the two least expensive plans with prescription coverage and a $2000 deductible. The premiums for those plans are $246.10 (for Neighborhood Health Plan’s NHPThree Select) and $300.26 (for Tufts Health Plan’s Advantage HMO Select 2000) -- a difference of $54.16. How can that be? Aren’t they both $2000 deductible plans covering the same person, at the same risk level, from the same geographic pool? Sure, but their premiums vary because their benefits and benefit limits vary. Check it out for yourself.

***

The foregoing analysis does not prove that the conclusion of the SPB post -- that higher state regulation alone results in higher premiums -- is incorrect. Instead, it simply demonstrates that the conclusion drawn by the SPB post could not have been drawn from the overly simplistic data set presented.

If the folks over at SPB want to advocate for a particular policy position (e.g., limited government intervention in healthcare financing mechanisms), they should do so in a way that adds something to the public discourse, rather than simply making spurious arguments.

How much does guesswork figure into rate setting for private health insurance?

noreply@blogger.com (John Aloysius Cogan Jr.) — Sun, 18 Nov 2007 23:54:00 +0000

Sometimes a lot, especially when the Medicare Part B physician fee schedule is involved.

A few weeks ago, the Centers for Medicare & Medicaid Services (CMS) announced its final regulation for the Medicare Part B physician payment formula for 2008. This regulation finalized a payment formula proposed last July. The final regulation reduces Medicare physician payments by an average of 10.1%. Why does this matter for private health insurance? The answer is simple. Medicare supplemental health insurance, usually referred to as "Medigap" coverage, is private insurance that bases its physician payments on Medicare-established rates. This means that Medicare's physician payment schedule is critical for the calculation of Medigap premium rates. The problem, however, is that we have no idea when that schedule will be final. Thus, in order to set rates now, we have to guess what the final schedule will look like, set Medigap premium rates accordingly, and hope that the final schedule is not too different from our guess.

The 2008 Medigap filing and our guesswork in action

In Rhode Island, Blue Cross & Blue Shield submits its Medigap rates to our Office for approval in the late summer. They do this because their annual Medigap renewal cycle begins in February. They need rate approval by no later than mid-December so that they can get rate information out in time for renewals. Also, if seniors want to compare rates for traditional Medicare plus Medigap coverage to rates for Medicare Advantage, Blue Cross needs the Medigap rates even sooner—by late October. The annual coordinated election period for Medicare Advantage is November 15 through December 31.

Since CMS proposed its 2008 physician payment schedule last July and finalized that schedule recently, the physician payment schedule should not be a problem for our rate approval process, right? Wrong. For the last few years, the physician payment schedule has been set by CMS in regulation (usually in mid-fall) and then readjusted by Congress (usually early- to mid-winter). This means that a final physician payment schedule is usually not available until mid-December at the earliest. Hence the need for guesswork. But why does it work this way? Because the Medicare payment system is broken and the method Congress came up with to fix the broken system—the so-called sustainable growth rate formula (SGR)—has been broken by Congress' own meddling.

Medicare SGR and the lack of political will

The SGR is designed to annually update reimbursement for all Medicare-reimbursed physician services in order to control total physician costs. The system works like this: under the SGR, CMS estimates an expenditure target for physician services in a given year. The expenditure target is determined by medical inflation, the gross domestic product, increases in the number of beneficiaries for fee-for-service Medicare and changes in SGR law and implementing regulations. The SGR system attempts to limit spending by comparing the accumulated amount of actual physician-related spending to a specified target level. If actual cumulative spending exceeds the target cumulative spending level, then future physician payments will be reduced (on a per service basis) so that future actual expenditures will be lower and ultimately reach the target amount. Thus, if actual spending on physician services is greater than the expenditure target, physicians receive a payment reduction in the next year's payment schedule.

As you might have guessed, actual physician-related spending has exceeded the target spending levels since 2001. SGR-mandated adjustments (as set by CMS regulation) have been negative since 2003 and are expected to remain negative every year through at least 2016. However, Congress cannot seem to help itself and usually steps in at the last minute (or sometimes even later) with a one year “fix” to get rid of the decrease imposed by CMS (which CMS is obligated to make because of the SGR system put in place by Congress). Here is the catch, though. Congress does not materially change the SGR formula or process, it simply overrides the physician payment reduction for another year.

From 2003 to 2007, scheduled physician payment reductions were overridden by Congress. But from 2003 through 2006, Congress not only increased the actual physician spending, it also specified that the overall target level of spending would not be increased to match. This meant that the spread between the actual and target spending levels under the SGR methodology increased significantly during that time period—making it harder for CMS to match the target spending level to the actual spending level. The 2007 legislative change to the physician conversion factor increased both the actual and target spending levels, but required the 2008 factor be determined as if the 2007 factor had not been changed. Why? Who knows. The effect on physician payments, as expected, is large. The 2008 physician conversion factor is now -10.1%.

In a nutshell, here is what CMS proposed to take and what Congress gave back during 2003-2007:

YEAR.....CMS REDUCTION.....CONGRESSIONAL OVERRIDE
2003............-4.4%................................+1.6%
2004............-4.5%................................+1.5%
2005............-4.5%................................+1.5%
2006............-4.5%................................+0.0%
2007............-5.0%................................+0.0%
2008...........-10.1%...................................?

How does this ridiculous process mess-up Medigap ratemaking?

Since the Medicare reimbursement level for physician services is a component of the Medigap rate determination, accurately accounting for this figure is critical to a proper rate evaluation. When Blue Cross made its 2008 filing, it only had CMS’ proposed reduction (of -10%) and past history to work with when trying to guess what the actual, final 2008 physician conversion factor would be. Since Congress has stepped in and adjusted the reduction every year since 2003, Blue Cross figured that Congress would do the same again this year. Therefore Blue Cross calculated its proposed 2008 Medigap premium rates based on an anticipated 1.5% increase in physician payments. Why a 1.5% increase? This is what Congress did in 2004 and 2005. Yet, while the assumption of a 1.5% increase is not unreasonable from an actuarial perspective, Blue Cross' guess is simply that—just a guess. It did nothing to help our Office make its decision.

Blue Cross’ assumption of a 1.5% increase in physician payments accounted for about .75% of the overall 6% rate increase it sought. If we were to cut the expected physician payment increase to 0% (because this is what Congress did the last two years) the proposed rates decrease by .75%. This is what we did. After we made a few other cuts, the Office approved an overall Medigap rate increase of about 4%.

So why is this a big deal? Because if Congress leaves the physician rate reduction at -10.1%, then Blue Cross’ premium rates will be too high—the 4% rate increase we authorized should instead be a 1% rate decrease. Seniors will take it on the chin. Likewise, if Congress gives physicians a rate increase (because physicians have not had a rate increase since 2005), then Blue Cross will take it on the chin—the premium rates will be too low to cover costs. That means that Blue Cross’ surplus will have to cover the 2008 cost overruns and the 2008 rate deficiency will have to be included as a component in next year’s rate filing, making next year’s rates seem even higher to the seniors who buy Medigap insurance.

I hope that our guess was correct. The rate decision went out on October 15th. And by the way, if anyone wants to know why I waited a month to write about this, see page 10 of the decision.

Is Canada really that different from the U.S.?

noreply@blogger.com (John Aloysius Cogan Jr.) — Fri, 02 Nov 2007 15:16:00 +0000

Mark Rabnett is a hospital librarian at the St. Boniface General Hospital in Winnipeg who blogs about “some of my professional hits and misses, with the occasional infusion of humour, while avoiding both ideological truculence and plodding nugacity” at Shelved in the W’s. He recently commented on a Canadian Medical Association Journal study that highlighted Canadian lawmakers’ lack of knowledge about that country’s funding for health research:

The men and women who set government funding priorities and vote annually to determine the budget of the Canadian Institutes of Health Research (CIHR), "were poorly informed about health research activities, benefits and costs in Canada." In fact, only 22% of participants were aware that CIHR is Canada's leading federal funding agency for health research, supporting the work of more than 11,000 researchers and trainees in universities, teaching hospitals, and research institutes across the country — and 32% knew nothing about its role. Although they valued health research in the abstract, participants did not seem to appreciate fully the impact of health research on the economy, nor did they understand research's role in the promotion of healthier lifestyles and the improvement of health care delivery. The study concludes: "Many of these knowledge gaps will need to be addressed if health research is to become a priority."

Rabnett also points to the fragmented political system in Canada as an impediment to progress on the issue of healthcare reform:

Part of the difficulty in achieving any kind of national solution is the way health issues often fall between the cracks in Canada's fragmented federal system, a situation in which achieving reform makes solving Rubik's Cube look easy. This is the subject of John Lavis's study of political elites and their influence on health care reform:

Who are these political elites, and how do they influence the prospects for change and for improved cooperation in bringing about change? The elites can include government officials at both the federal and provincial level who are engaged in constant finger pointing over health care, with federal government officials repeatedly saying to their provincial counterparts "administer the system better" and with provincial government officials responding "give us the money we need to run the system properly." Meaningful reform of any kind is difficult to achieve amidst such a dynamic, which some have called the "politics of blame avoidance."

Couldn't all of this could have been written about the U.S.? Absolutely. Whether you're talking about Canada or the U.S., a fragmented political system with legislators who may not be on top health policy issues is a recipe for stagnation (at best) and disaster (at worst). At least we're not alone in this mess.

What goes into the cost of health insurance?

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 31 Oct 2007 16:45:00 +0000

There are many common misconceptions about the cost of health insurance. One of those misconceptions is that health insurance premiums are comprised mostly of profits and administrative costs (e.g., executive salaries). While profits and salaries indeed factor into premiums, the single largest component of your health insurance premium is medical costs. In order to show you exactly how much medical expenses drive the cost of health insurance, consider the following, which is based on premium data taken from taken from the OHIC’s December 2006 report, “The Effectiveness of the Small Employer Health Insurance Availability Act in Promoting Rate Stability, Product Availability, and Coverage Affordability.”

What costs factor into the price of health insurance?

The price of health insurance can be separated into three broad components:

(1) medical costs—sometimes referred to as “claims expense,” medical costs are the costs incurred by the insurance company when it pays claims for medical care. These costs often include indirect costs associated with the provision of medical care, such as quality assurance monitoring, case and disease management programs, and utilization review.

(2) administrative expenses—these include all non-medical costs incurred by the insurer, such as salaries and benefits for employees, commissions and fees paid to brokers, advertising, rent, marketing, enrolling members, billing, processing claims, provider contracting, network management, legal costs and all other services required to maintain and keep the insurer operational. Essentially, these are all the non-medical operating expenses of the insurer.

(3) profit or contributions to surplus (or reserves)—insurance companies typically build profit and/or contribution to surplus (i.e., the company’s retained earnings) into their proposed rates. To the extent that expected profits and surplus are built into rates, the insurer must also include an amount to cover income taxes (and other premium taxes, if applicable). An offset for investment income is also typically reflected in the rates.

What percentage of my health insurance premium is each of these components?

Medical costs—The medical cost component is by far the costliest part of your health insurance premium. A recent study of the Rhode Island small employer market (employers with 1 to 50 employees) revealed that medical costs for Blue Cross & Blue Shield of Rhode Island (“Blue Cross”) were approximately 84% of total premium. This means that in the small group market, 84 cents of every premium dollar paid to Blue Cross goes toward medical expenses. At UnitedHealthcare of New England, Inc. (“United”), the same study showed that approximately 77% of total premium went to pay for medical costs.

Administrative expenses—In the small employer market, United’s administrative expenses are approximately 18% of premium. At Blue Cross, approximately 14% of the premium is required for administrative expenses.

Profits/contribution to surplus—In the small employer market, United’s administrative contributions to reserves and profits are approximately 5%. Blue Cross’ contribution to reserves is approximately 2%.

How does this breakdown translate into dollars and cents?

These percentages can be seen in the following 2005 small employer market premium data. In 2005, Blue Cross’ small employer base rate was approximately $399/month. United’s was approximately $392 during the same period.

These premiums break down as follows:

Blue Cross—$399 ($335.16 for medical expenses, $55.86 for administrative costs, and $7.98 for contribution to surplus)

United—$392 ($301.84 for medical expenses, $70.56 for administrative costs, and $19.60 for profits/contribution to surplus)

The real culprit here is medical costs. Even if Blue Cross and United had slashed their 2005 small employer market administrative costs and profits by one-third, their base rates for 2005 would have still been quite high. Blue Cross' rate would have been $377.30/mo. and United's would have been $361.35/mo. It is the cost of medical services that is driving the cost of health insurance higher, not administrative costs.

In my next few blog entries, I will discuss the issue of rising medical costs and current approaches to medical cost control.

Rhode Island Superior Court recognizes governmental agency's deliberative process privilege

noreply@blogger.com (John Aloysius Cogan Jr.) — Thu, 19 Apr 2007 16:04:00 +0000

On Tuesday, Judge Silverstein of the Providence Superior Court issued a decision in Heritage Healthcare Servs., Inc. v. The Beacon Mut. Ins. Co., C.A. No. 02-7016 (April 17, 2007), that recognizes the deliberative process privilege in Rhode Island. If upheld on appeal—and it will likely be appealed—this decision is good news for the state’s governmental officials because it affords Rhode Island agencies the same governmental privilege recognized by the federal courts and the courts of a dozen-or-so states.

The deliberative process privilege shields certain predecision, deliberative governmental writings from disclosure absent a demonstrated compelling need. The deliberative process privilege covers memoranda, emails, reports and other written materials that contain or reflect deliberations, opinions, recommendations and the thought processes of government officials and their agents created in the course of their official duties. Dep’t of the Interior v. Klamath Water Users Protective Ass’n, 532 U.S. 1, 8-9 (2001). The privilege rests on the “obvious realization that officials will not communicate candidly among themselves if each remark is a potential item of discovery and front page news, and its object is to enhance the quality of agency decisions by protecting open and frank discussion among those who make them within the Government.” Id. (internal quotations omitted)(citations omitted).

In the Beacon case, the issue of governmental privilege arose during a discovery dispute in a lawsuit filed against Beacon Mutual Insurance Company, the troubled Rhode Island workers comp carrier. The plaintiffs, several employers who had purchased workers comp insurance from Beacon, seek damages from Beacon as a result of allegedly improper pricing practices. The document they requested was a draft, 300-page confidential examination report generated by the state’s Department of Business Regulation. The report, resulting from DBR’s examination of Beacon’s business practices, was compiled under the state’s insurance company examination statutes (R.I.G.L. 27-13.1-1 et seq.). Such reports remain confidential until made public 30 days after completion. The drafts and work papers of these reports are never disclosed.

In this case, the Plaintiffs seek a version of the report that is still undergoing revisions. Rather than wait for the final report, the plaintiffs sought immediate production of the current draft of the report as well as any edits to the report made by DBR. Beacon and the DBR opposed the request.

The arguments made by all parties to Judge Silverstein were based largely on the examination statute. However, Judge Silverstein, noting the draft examination report had been provided to Beacon—as is the common DBR practice—so that Beacon would have a chance to address “errors and oversights” by the examiners, found that the transmittal of the report from DBR to Beacon rendered the examination statute’s confidentiality provisions inapplicable to the report in Beacon’s hands. Yet, Silverstein nevertheless determined that the DBR’s examination report should not be produced to the plaintiffs because the report is subject to the deliberative process privilege. Noting that the Rhode Island Supreme Court recognized the privilege in In re Commission on Judicial Tenure & Discipline, 670 A.2d 1232, 1235 (R.I. 1996), Silverstein remarked, “the purposes of the deliberative process privilege are directly applicable to this case, and justify denying the Plaintiffs’ motion [to compel]. The Court finds that ordering Beacon to disclose the Draft Report, before . . . [DBR] has had an opportunity to act on a verified report, would unduly interfere with the examinations process.” Beacon, slip op. at 15.

Although any claim of governmental privilege should be balanced against the public’s need for access to government documents, the privilege will, according to the U.S. Supreme Court, “prevent injury to the quality of agency decisions,” Nat’l Labor Relations Bd. v. Sears, Roebuck & Co., 421 U.S. 132, 151 (1975), and protect the integrity of the state’s decision-making process by ensuring that agency officials do not operate “in a fishbowl.” EPA v. Mink, 410 U.S. 73, 87 (1972).

We’ll see if it stands up on appeal.

The evolving role of the health insurance regulator

noreply@blogger.com (John Aloysius Cogan Jr.) — Wed, 28 Mar 2007 20:39:00 +0000

UnitedHealthcare temporarily withdraws $36.8 million dollar extraordinary dividend request

Over the last few years, the role of the health insurance regulator has evolved in response to the changing nature of the health insurance industry and the expanding health care system. Until not too long ago, health insurance was viewed as essentially similar to other types of insurance (e.g., property and casualty, etc.) and was largely regulated just like those other types of insurance. State insurance departments typically focused on a few key activities when regulating health insurance, such as monitoring the financial solvency of the insurers, ensuring that the insurers met their legal obligations with respect to the language and terms contained in their certificates of coverage or policy forms, and providing consumer protection services to address consumer complaints. Now that private health insurance is no longer strictly an indemnity product designed to protect against large losses, but instead provides more comprehensive coverage (e.g., coverage for office visits, prescription drugs, diagnostic testing, etc.), health insurance is no longer strictly "insurance," but is now best viewed as a financing mechanism for the nation’s health care system (along with Medicare and Medicaid). In response to this change, the role of the health insurance regulator has changed as well.

This new role of the health insurance regulator is evident in the recent events surrounding the request of the Rhode Island-based UnitedHealthcare of New England, Inc. (UHCNE) to transfer $38.6 million in profits to its corporate parent in Minnesota, United HealthCare Corporation. (See Providence Journal article) A few years back, the regulator’s analysis of a similar request would have been based solely on solvency standards. In other words, the regulator would have asked, "Would this transfer of surplus profits hurt the financial solvency of UHCNE?" Under the old regulatory scheme, the request likely would have been approved.

Now, however, Rhode Island’s health insurance commissioner is bound by statute to evaluate UHCNE’s request in light of new standards that more closely address the problems of the new health insurance paradigm. The decision to grant or deny UHCNE’s request must take the following into account: (1) UHCNE’s solvency; (2) the interests of consumers; (3) whether health care providers are being treated fairly; and (4) whether UHCNE’s actions advance the welfare of the public through overall efficiency, improved health care quality, and appropriate access. Under this standard, the outcome is very different. (See statutory standard)

After UHCNE filed its request, a public meeting was convened by the health insurance commissioner to address some of the concerns expressed by the pubic and health care providers about UHCNE’s conduct in the Rhode Island market. After a contentious public meeting (See Providence Journal article), UHCNE has opted to withdraw its request. In its withdrawal letter, UHCNE indicated that it plans to resubmit a request in the near future. (See health insurance commissioner's press release)

I don’t think I’m going out on a limb by stating that insurers probably do not like the new standards. However, the realities of our dysfunctional health care system are such that a simple solvency-based analysis of the UHCNE request would be a disservice to the citizens of Rhode Island and the health care system that serves those citizens. UHCNE finances a significant portion of the Rhode Island health care system. The full measure and effect of that financing cannot be evaluated solely by checking to see that UHCNE has adequate reserves to protect against insolvency. The full measure of UHCNE's impact on the health care system is best evaluated by asking the people who are served by UHCNE and the providers who participate in UHCNE's financing system whether they believe that UHCNE's contribution is positive or negative. This is the new reality of health insurance regulation.

Insurance for the frail and elderly — Second verse same as the first

noreply@blogger.com (John Aloysius Cogan Jr.) — Mon, 26 Mar 2007 21:27:00 +0000

In my last posting I briefly noted the heavy fine levied against Blue Cross of California for dumping its coverage of policyholders after they became sick or pregnant. In today’s New York Times, the shenanigans of insurers are detailed with respect to long term care policies. Here are a few excepts from “Aged, Frail and Denied Care by Their Insurers”:

Tens of thousands of elderly Americans have received life-prolonging care as a result of their long-term-care policies. With more than eight million customers, such insurance is one of the many products that companies are pitching to older Americans reaching retirement.

Yet thousands of policyholders say they have received only excuses about why insurers will not pay. Interviews by The New York Times and confidential depositions indicate that some long-term-care insurers have developed procedures that make it difficult — if not impossible — for policyholders to get paid. A review of more than 400 of the thousands of grievances and lawsuits filed in recent years shows elderly policyholders confronting unnecessary delays and overwhelming bureaucracies. In California alone, nearly one in every four long-term-care claims was denied in 2005, according to the state.

“The bottom line is that insurance companies make money when they don’t pay claims,” said Mary Beth Senkewicz, who resigned last year as a senior executive at the National Association of Insurance Commissioners. “They’ll do anything to avoid paying, because if they wait long enough, they know the policyholders will die.”

This story needs no additional comment.