Unlimited Health Insurance Benefits Will Cause Medical Overuse, Expert Says

6 May 2011 |

Anyone who has visited this blog before knows I believe that the Patient Protection and Affordable Care Act, sometimes called Obamacare, weakens the actuarial foundations of private health care insurance and will lead to its demise. Many people think this might be a good thing, or are ambivalent about it, but I disagree. Through the concept of shared risk, private health insurance has made the highest quality healthcare affordable for hundreds of millions of people. Undermining its sustainability will make healthcare in America worse, not better.

For Obamacare to work, large numbers of young and healthy adults who have made a choice to not purchase health care insurance will be forced, through fines and other mechanisms, to buy it. Because the law has cut the rates for older, sicker adults, the young people will pay higher premiums than they would if normal, actuarial science was employed to set rates. Supporters of Obamacare believe that forcing younger adult to enroll in health insurance will offset the costs of removing caps on benefits and restrictions on preexisting conditions. I disagree. Those who are forced to purchase health insurance are not going to simply pay their premiums and carry on as before. They will want to “get what they pay for,” so they will make much greater use of the healthcare system than they did when they were uninsured. That means there will not be a windfall of premiums to offset the losses through unlimited benefits. Those premiums will pay for the care the younger people receive: screenings, check-ups, care for minor injuries and common ailments. I saw a financial problem in this influx of new healthcare users. Rosemary Gibson, an expert on patient safety, sees a different problem.

Gibson, who has spent the last 16 years working for improve patient safety, believes mandatory health insurance exposes the younger generation health insurance consumers to the unscrupulous practices of some healthcare providers. Gibson, the author of The Treatment Trap: How the Overuse of Medical Care Is Wrecking Your Health, and What You Can Do About It, told Jordan Rau of Kaiser Health News:

Health insurance used to be about giving patients access to providers. That’s still true, but it is also about giving providers access to patients. The 32 million people estimated to be getting health insurance coverage when the law takes full effect will be exposed to overuse.

The health reform law also removes annual and lifetime caps. That can be an enormously valuable benefit to those who have a serious illness and need medical care; at the same time, it’s an open invitation for health care providers, device manufacturers, pharmaceutical companies and every other health care business to increase volume and price. It’s like a credit card without a credit limit. It’s as if we have this tsunami, this surge of tests, procedures and medication. With health reform, we will be merely transferring the bankruptcy of individuals to the eventual bankruptcy of the federal government.

Exactly!

In the interview, Rau suggested that using the word tsunami in the wake of the recent one that struck Japan was insensitive. Gibson stuck by her comparison. “There’s an estimated 8,000 deaths from the tsunami,” said Gibson, “and that toll is certainly going to increase. It’s a terrible tragedy. The National Cancer Institute estimates there are 14,500 deaths every year from cancer because of radiation exposure associated with diagnostic imaging. That’s just one example. In Japan at least they had a warning system; in U.S. health care we have no warning system about that potential harm of too much medical care.”

Gibson points out that even the effort to curb medical costs has the unintended consequence of exposing patients to medical overuse. “If we pay for episodes of care, suddenly we have a lot more episodes, particularly if we ratchet down the payment per episode. What we know in fee-for-service is if we reduce the payment per unit that creates the incentive to increase the volume.”

In other words, if you give people a free lunch, or at least a subsidized lunch, they will consume it—and that comes with risks.



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Why Supporters of Health Insurance Reform Say It Will Destroy Private Health Insurance

5 March 2011 |

They say politics makes strange bedfellows. Sometimes the law does, too. I have been criticizing the actuarial foundation of The Patient Protection and Affordable Care Act (PPACA), the national health insurance reform measure signed into law by President Obama one year ago this month, for more than an year and a half. Now my views have received support from the most surprising quarter of all: the supporters of the law itself.

In a brief submitted to the U.S. district court, defending the PPACA in a lawsuit brought by 26 states, supporters of Obamacare argued that the provisions of the law guaranteeing coverage to people with preexisting conditions undermine the actuarial foundation private health care insurance and ensure its demise. The judge in the case, Roger Vinson, summarized the argument this way:

Oversimplified, the defendants’ argument on this point can be reduced to the following: (i) the Act bans insurers from denying health coverage (guaranteed issue), or charging higher premiums (community rating), to individuals with pre-existing medical conditions (which increases the insurers’ costs); (ii) as a result of these bans, individuals will be incentivized to delay obtaining insurance as they are now guaranteed coverage if they get sick or injured (which decreases the insurers’ revenues); and (iii) as a result of the foregoing, there will be fewer healthy people in the insured pool (which will raise the premiums and costs for everyone). Consequently, it is necessary to require that everyone “get in the pool” so as to protect the private health insurance market from inevitable collapse.

According to the lawyers for the Obama administration, the recipe for economic poison contained in the PPACA can be transformed into an elixir of life simply by the addition of the individual mandate, a potent ingredient that requires every person in the U.S. to “get in the pool” by purchasing private health insurance, whether they want it or not. Only by compelling the public to buy health insurance through the threat of fines and imprisonment can the economic chaos created by the bill be averted. There is something odd, even perverse, about this kind of logic, especially when it is the lynchpin of the argument supporting the constitutionality of the act. Judge Vinson wrote that lawyers offering support to the states that brought the lawsuit observed that this kind of reasoning would give Congress license to pass bad legislation then tack on a palliative measure, claiming it is constitutionally acceptable under the Necessary and Proper Clause because, without it, the measure will wreak financial havoc. Vinson wrote:

One of the amicus curiae briefs illustrates how using the Necessary and Proper Clause in the manner as suggested by the defendants would vitiate the enumerated powers principle. It points out that the defendants’ are essentially admitting that the Act will have serious negative consequences, e.g., encouraging people to forego health insurance until medical services are needed, increasing premiums and costs for everyone, and thereby bankrupting the health insurance industry—unless the individual mandate is imposed. Thus, rather than being used to implement or facilitate enforcement of the Act’s insurance industry reforms, the individual mandate is actually being used as the means to avoid the adverse consequences of the Act itself.

Judge Vinson continued:

Such an application of the Necessary and Proper Clause would have the perverse effect of enabling Congress to pass ill conceived, or economically disruptive statutes, secure in the knowledge that the more dysfunctional the results of the statute are, the more essential or “necessary” the statutory fix would be. Under such a rationale, the more harm the statute does, the more power Congress could assume for itself under the Necessary and Proper Clause. This result would, of course, expand the Necessary and Proper Clause far beyond its original meaning, and allow Congress to exceed the powers specifically enumerated in Article I. Surely this is not what the Founders anticipated, nor how that Clause should operate.

Since Judge Vinson had already found the individual mandate to not be covered under the Commerce Clause of the Constitution, he could only conclude that the Necessary and Proper Clause could not salvage its constitutionality. “The individual mandate is outside Congress’ Commerce Clause power,” wrote Vinson, “and it cannot be otherwise authorized by an assertion of power under the Necessary and Proper Clause. It is not Constitutional.”

The same argument about negative consequences of the law also convinced the judge that the individual mandate could not be “severed” from the rest of the law, because, as the defendants themselves argued, without it the whole system would collapse. Since the individual mandate could not be severed from the main law, Judge Vinson had no choice but to declare the entire act unconstitutional, which he did.

The ruling, of course, is being appealed. Ultimately the U.S. Supreme Court will decide if Judge Vinson’s finding is correct.


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Federal District Court Judge Rules Obamacare Unconstitutional

19 February 2011 |

Two weeks ago, Roger Vinson, a federal district court judge in Florida, struck down the Patient Protection and Affordable Care Act, also known as “Obamacare,” as unconstitutional. Ruling on a lawsuit brought against the Department of Health and Human Services by more than half of the states (Alabama, Alaska, Arizona, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Nebraska, Nevada, North Dakota, Ohio, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, Wisconsin, and Wyoming), Judge Vinson declared that the provision that requires individuals to purchase private health insurance violates the “enumerated” powers clause of the U.S. Constitution.

The Obama administration had argued that the “individual mandate” contained in the unpopular national health care insurance law passed constitutional muster via the “Commerce Clause” of the Constitution. Lawyers for the Department of Health and Human Services argued that an individual’s decision to forego the purchase of health insurance was an economic decision of the sort that Congress was empowered to regulate. Judge Vinson disagreed. He declared that the federal government’s argument turned the whole idea of economic  “activity” upside down:

I conclude that the individual mandate seeks to regulate economic inactivity, which is the very opposite of economic activity. And because activity is required under the Commerce Clause, the individual mandate exceeds Congress’ commerce power, as it is understood, defined, and applied in the existing Supreme Court case law.

Fearing just such an outcome, the lawyers defending Obamacare also argue that Congress was empowered by the “Necessary and Proper” clause of the U.S. Constitution to mandate the purchase of private health insurance. Judge Vinson rejected that argument as well. His logic in this part of the case fascinated me as a health insurance professional. I will explain more in my next post.

Kicking Cuts in Medicare Health Insurance Payments Further Down the Road

6 December 2010 |

Two events occurred this week that cast further doubt on how and, ultimately, if taxpayers will be able to pay for government-controlled health care insurance programs in the future.

First, Congress once more prevented cuts in payments to doctors by Medicare, the taxpayer-funded health insurance program for seniors, for the eleventh time since the cuts were authorized by Congress in the 1990s. It was the fifth time this year that the mandated cuts were delayed. And there no doubt will be another vote to delay the cuts later this month.

“This bill is a stopgap measure to make sure that seniors and military families can continue to see their doctors during December while we work on the solution for the next year,” explained Congressman Frank Pallone, a Republican from New Jersey who is the chair of the House Energy and Commerce health subcommittee.

The extension is only good for one month. Another cut in Medicare payments to doctors is scheduled for January 1, 2011.

If Congress had done nothing, Medicare payments to doctors would have been reduced by 23% on December 1. With the delay, doctors will continue to receive the full amount.

The cuts were part of the vaunted balanced budget that Congress passed in the 1990s, however this key provision has never gone into effect. The same law would have reduced payments to doctors by 21% in June (see previous post). The gradual step-down in payments would reach 25% with the January 2011 cut.

When Congress prevented the June cut to take effect, President Obama criticized lawmakers in both parties for “kicking cuts down the road.” The delay, Obama declared in June, just wasn’t “an adequate solution to the problem.”

The concern among members of Congress was that doctors would stop seeing Medicare patients if their pay was cut. If Congress keeps intervening, Medicare will pay out $300 billion in unbudgeted expenses over the next ten years, offsetting three fifths of the $500 billion in Medicare savings that the Congressional Budget Office (CBO) said would go toward paying for the national health insurance reform bill passed in March.

That bill, the Patient Protection and Affordable Care Act, was projected to cost the $788 billion over ten years and help reduce the deficit. Unfortunately something happened on the way to deficit reduction. Just a couple weeks after the bill was signed into law by President Obama in March, the CBO revised the cost of the legislation to $940 billion. The addition $152 billion was not covered by new taxes or savings, so it wiped out the $140 billion in deficit reduction that was supposed to occur. Then, in May, the CBO revealed that the implementation of the program would cost another $115 billion, also unfunded. That would put the program $127 billion in the red over ten years. If Congress continues to keep doctor payments were they are, that will mean that healthcare reform will run $427 billion in the red.

The other event that occurred this week also concerned the deficit: President Obama’s deficit reduction commission voted 11-7 to pass the panel’s recommendations on bringing down the deficit, but that fell short of the 14-vote super-majority needed for sending a package to Congress for a vote. Five of the six U.S. senators on the commission backed the plan, but only one of the six House members did so. This does not bode well for a deficit that is expected to hit $10 trillion over the next decade. The commission’s plans of cutting Medicare and Social Security by increasing the eligibility age, raising taxes, and cutting the defense budget, would have trimmed $4 trillion off the deficit.

Some people believe Congress will take up deficit reduction plans anyway, but if Congress doesn’t have the will to let Medicare cuts from the 1990s ever take effect, how will it ever get serious about cutting Medicare in the future?

Side note: Medicare is currently having open enrollment, a time to switch plans. Open enrollment closes on December 31, so if you or a loved one needs help deciding what to do, contact us now.


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The Midterm Election and Health Insurance Reform

11 November 2010 |

Americans voted last week, and the returns surprised even those who anticipated that the balance of power in the House of Representatives would shift from the Democrats to the Republicans. The GOP gained more than sixty seats in the House of Representatives, six seats in the Senate, and more than 650 seats in statehouses across the nation. As was the case in the special Senate election held in Massachusetts a few months ago, the federal health insurance reform law was a major campaign issue. Nearly all the insurgent Republicans promised to repeal the Patient Protection and Affordable Care Act if elected.

After the results made it clear that the Republicans had regained control of the House, the likely new speaker of the House, John Boehner of Ohio, was asked about the fate of the health care insurance reform bill, known as the Patient Protection and Affordable Care Act. Boehner replied:

The health care bill that was enacted by the current Congress will kill jobs in America, ruin the best health care system in the world, and bankrupt our country. That means that we have to do everything we can to try to repeal this bill and replace it with common-sense reforms that’ll bring down the cost of health insurance.

The Republicans fell short of regaining control of the Senate, but Mitch McConnell, the minority leader in the Senate, promised to bring up repeal of health care insurance bill. He cautioned, however, that President Obama would not go along with the effort. “On health care,” McConnell said, “that means we can — and should — propose and vote on straight repeal, repeatedly. But we can’t expect the president to sign it. We’ll also have to work, in the House, on denying funds for implementation, and, in the Senate, on votes against its most egregious provisions. At the same time, we’ll need to continue educating the public about the ill-effects of this bill on individuals young and old, families, and small businesses.”

 For his part, President Obama did not see the midterm elections as a rebuke of his bill:

 I think we’d be misreading the election if we thought that the American people want to see us for the next two years relitigate arguments that we had over the last two years.

With respect to the health care law, when I talk to a woman from New Hampshire who doesn’t have to mortgage her house because she got cancer and is seeking treatment but now is able to get health insurance, when I talk to parents who are relieved that their child with a preexisting condition can now stay on their policy until they’re 26 years old and give them time to transition to find a job that will give them health insurance, or the small businesses that are now taking advantage of the tax credits that are provided — then I say to myself, this was the right thing to do. 

President Obama does not seem to realize that the benefits he touts—unlimited medical benefits and access to care regardless of pre-existing conditions—are not sustainable, according to the laws of actuarial science. The Republicans, by contrast, understand that in its present form, the health insurance reforms will bankrupt private insurance. Will they succeed in educating the public about the issue? We shall see.


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Critical Thinking and Health Insurance

23 October 2010 |

Last week the U.S. House Committee on Energy and Commerce published a report on the findings of the committee’s investigation into the denial of health insurance coverage to individuals with pre-existing medical conditions. The report, “Coverage Denials for Pre-Existing Conditions in the Individual Health Insurance Market,” states:

From 2007 through 2009, the four largest for-profit health insurance companies, Aetna, Humana, UnitedHealth Group, and WellPoint, refused to issue health insurance coverage to more than 651,000 people based on their prior medical history. On average, the four companies denied coverage to one out of every seven applicants based on a pre-existing condition.

Janet Adamy, a reporter with The Wall Street Journal, discussed the findings in an article entitled “Insurers Denied Coverage to 1 in 7.” No one was shocked that the committee produced a report criticizing private health care insurance and supporting of the health insurance reform legislation passed in 2009 and signed into law by President Obama in March of this year, I found it surprising that a reporter for The Wall Street Journal simply summarized the committee’s report without critically examining it.

The “news” of the report was statistical in nature, but statistics need to be evaluated carefully, because they can so easily be manipulated to promote a point of view, as American novelist and humorist Mark Twain pointed out with his famous quip, which he attributed to British Prime Minister Benjamin Disraeli:

There are three kinds of lies: lies, damned lies, and statistics.

The first thing that jumped out to me about the report was the time span covered: three years. 651,000 sounds like a large number, but that works out to less than 220,000 per year. Not quite as impressive of a number as 651,000. The authors of the study grouped the coverage denials of last three years to make the number larger. Why not group the last four years? The last ten?

More importantly, three years is adequate time for a person denied coverage by one health insurance company to reapply and be denied by another, and another. It is possible that the 651,000 denials do not represent 651,000 individuals. Since four health insurance providers were studied, it is possible that the same people applied to all four health insurance companies and were denied four times. That would reduce the number of people denied by a factor of four: from 651,000 to 162,750 over three years.

Another source of duplication in the numbers comes from people who applied to the same company more than once and were denied more than once. For example, a person may have been denied coverage because of high blood pressure, then re-applied when the blood pressure was under control, yet been denied again for another reason. Any duplication of numbers throws into doubt the number of people being affected.

So the real question is: If an applicant in the study received a denial from one health insurance provider, did he or she apply to another, or reapply to the same one? If so, how often did this occur? This is the type of question I would have expected a Wall Street Journal reporter to ask.

After all, the implication of the report is that there are 651,000 people walking around who wanted health insurance but could not obtain it, and that the health reform legislation solved that problem. The committee wrote:

The insurance company practices described in this memorandum are those that exist in today’s market. In all likelihood, they would continue unabated in the absence of federal health reform legislation. One of the major benefits of the Affordable Care Act, which was signed into law on March 23, 2010, is a ban on the practice of denying coverage based on pre-existing conditions.

The report tried extrapolate the sampling from the four largest health insurance companies to the rest of the market, stating that “approximately 15.7 million adults under 65 received their health care coverage through individual health insurance policies.” Keep in mind, that while 15.7 million people seems like a large number of people, it represents only 5 percent of the U.S. population. The other 95 percent of the population cannot be denied health insurance coverage due to preexisting conditions, because it is against the law for group plans and government programs to deny coverage based on preexisting conditions.

Nor does the report state that 15.7 million people applied for health insurance coverage during the three-year period covered by the report, only that they comprise the individual health insurance market. For the number of denials of coverage to have any meaning at all, the report should have said how many people applied for individual insurance over the period covered by the report.

The report did say that 1 out of 7 applicants was denied coverage, and that 651,000 people were denied coverage by the four companies. That means that the four major insurers received 4,557,000 applications over three years. We already know, however, that the number of applicants denied coverage could be as much as four times greater than the number of people denied coverage, due to duplication of applications. When the group is widened to all people seeking individual coverage, it is possible that some people with preexisting conditions applied to more than the four largest health insurance providers, and were denied more than four times.

For the sake of argument, however, let us assume that each person in the study with preexisting conditions was denied coverage four times in three years. Then the number of individuals denied would be 1 in 28, rather than 1 in 7. Let us also assume that some but not all of the 15.2 people in the individual market applied for coverage in the three-year period. Since 4.5 million applied to the largest four companies, let us say that half of the entire individual health insurance market—7.6 million—applied for coverage during the three-year period. That would mean that 271,428 individuals were denied coverage nationwide over the last three years, or 90,474 per year. That seems like a large number until you realize that in a country of 310 million people, it represents less than three ten-thousands of the population.

As I have written before, if American taxpayers want ensure that those denied individual health insurance coverage are able to get coverage, our elected officials could set up a superfund cover their excluded medical bills. This would be much less costly and far more efficient than undermining the private health insurance industry with unsustainable mandates for coverage.


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Changes to Health Insurance Coverage Now in Effect

5 October 2010 |

In my preceding post, I described a vital change to health insurance coverage that went into effect on September 23 due to a mandate of the Patient Protection and Affordable Care Act: the end of lifetime caps on health care insurance benefits. For the first time in the history of private health insurance, insurers will not be able to place limits on how much they spend for an individual’s health services, such as hospitalization, maternity and newborn care, emergency care, chronic disease management, ambulatory patient services, laboratory tests, and prescription drugs.

The end to benefits caps was not the only mandate of the new health care insurance reform legislation that took effect on September 23. Here is a quick review of other required changes that could impact your care or the care of members of your family:

Removal of Annual Benefit Caps
Health insurance companies must begin to phase out annual benefit caps for health insurance plans renewed or sold after September 23. By 2014 annual caps will be abolished.

No Medical Cancellations
Health care insurance companies are barred from retroactively cancelling a policyholder’s coverage due to medical conditions. The health insurers may continue to cancel policies because of nonpayment of premiums or fraudulent claims.

Full Coverage for Preventative Healthcare
Health insurance companies must cover any preventative healthcare that has been recommended by the Centers for Disease Control (CDC) in full. Cost sharing such as co-payments, deductibles, and co-insurance are banned for CDC-backed tests, treatments, and care. Preventative healthcare services for infants, children, and women that have been recommended by the Health Resources and Services Administration also must be covered without cost-sharing.

Extended Coverage of Adult Dependent Children
Health insurance providers must extend coverage to the adult dependent children of policyholders up to age 26.

End of Exclusions for Pre-existing Conditions in Children
Health care insurance providers cannot exclude children age 19 and below from coverage because of any pre-existing medical condition. (This requirement does not apply to some existing health insurance plans.)

Selection of a Primary Care Provider
Health insurers no longer can limit the selection of Primary Care Providers (PCPs). The policyholder has the right to choose any PCP accepting new patients. In addition, policyholders can designate pediatricians and OB-GYNs as their PCP.

No Pre-Authorizations for Emergency Medical Care
Health insurance providers no longer can require pre-authorization for emergency health services. Health insurance plans must cover emergency services at the same rate, regardless of whether they were obtained inside our outside a network of preferred or participating healthcare providers.

Internal and External Appeals
Health insurance companies offering group plans must give policyholders a process of appealing claims that conforms to regulations of the U.S. Department of Labor. Health insurance providers offering individual insurance plans must give individual policyholders a process of appealing claims in line with regulations of the Secretary of the Department of Health and Human Services (HHS). All health care insurance plans must include an external appeals process comporting with existing law or the NAIC Uniform External Review Model Act.

All of these changes benefit consumers. I encourage my clients to take advantage of them. At the same time, I am mindful that these mandates will cost health insurance companies untold billions of dollars in claims over the coming years. Those costs are far too great to be paid for with reduced profits or slashed executive salaries: The increased risk will be shared by the members of the insurance pool. In other words, premiums will go up. But even increased premiums might not be enough to off-set the mandated costs.

Open-ended benefits have never existed before because they do not conform to the actuarial model of private health insurance. Caps on benefits were not adopted because insurance providers are greedy or hard-hearted. They were adopted as a means of keeping risks low, costs low, and premiums low. Without them, private health insurance—the mechanism that has delivered high quality health care at an affordable price to millions of Americans—is at risk.


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Health Insurance Providers To Remove Lifetime Caps on Benefits This Week

19 September 2010 |

Health insurance providers must remove lifetime caps on benefits from all health insurance policies they renew or sell, starting September 23, 2010, according to a provision of the health care insurance reform legislation signed by President Obama in March.

The elimination of lifetime benefits caps means that people afflicted chronic medical conditions will no longer have to fear that they will exhaust the health care insurance benefits they otherwise are qualified to receive.

Currently, most health insurance companies cap the amount they will pay in benefits somewhere between one and two million dollars. The logic is simple: Leaving benefits open-ended increases the risk of enormous losses; as a result, policies covering such risk would be extremely expensive and, thus, uncompetitive in the marketplace. To make insurance affordable for the vast number of people who never incur million-dollar losses, insurance providers limited risks by capping benefits.

It might sound improbable that one person could possibly cost an insurance provider millions of dollars in losses, but it is not. Consider the case of Edward Burke, a hemophiliac who lives in Palm Harbor, Florida. Julie Rovner of National Public Radio profiled Burke this week to put a face on this provision of the Patient Protection and Affordable Care Act.  A doctor diagnosed Burke with hemophilia when he was a toddler in 1960. In the early part of the 1970s, drug researchers developed factor eight, a substitute for the blood factor that makes normal clotting possible, but that hemophiliacs lack.

Burke says factor eight is a medical miracle, allowing him and other hemophiliacs to lead somewhat normal lives. A bruise that normally would require a week of  treatment with ice packs and bed rest would heal in 24 hours with factor eight. The  wonder drug was not cheap, though. “It was easily about $900,000 a year for me to take factor eight prophylactically, as what we were told to do, to prevent bleeds from happening,” Burke told Rovner.

If Burke started taking factor eight in 1975 at the cost of $900,000 a year (adjusted for inflation), then he would have used $31.5 million worth of the drug by now. If he lives to 85, roughly another 35 years, he would add another $31.5 million to his claim, generating a total claim of $63 million all by himself.

At $900,000 a year, Burke could reach his lifetime benefit cap in just over a year. To stay on the drug, Burke would jump from one employer and to another. “After two years, you’d have to leave the company you were with, or go on—if you had a spouse, go on theirs, because you capped out,” Burke explained. This was something Burke did twice in the last seven years. (Note that he did not say he was denied coverage for his preexisting condition; as I have written before, by law group plans must accept enrollees regardless of preexisting conditions.) Burke said he might have switched jobs more often, but as it turned out the companies he worked for were the targets of takeovers and mergers. “The companies kept changing names and being acquired,” Burke explained, “so you started over again, or I would have capped out four or five times.”

Burke is thrilled that the new healthcare law eliminates benefit caps “The fact that they can’t cap me out is a huge blessing, if you ask me,” he said.

I can understand Burke’s relief, but I can’t help but think it’s short-lived. Open-ended benefits are unpredictable, unpriceable, and unsustainable, using the private insurance model.

As I have written before in this space, the foundation of insurance is shared risk. It can be expressed as an equation:

C = P ÷ L

where:

C = The average per capita claim

P = The total payments in a period

L = The number of insured individuals

According to the U.S. Centers for Disease Control, there are an estimated 20,000 hemophiliacs living in the United States. If each of those hemophiliacs uses $900,000 of medication a year, that expenditure will add $18 billion a year to insurance losses, increasing the per capita claim of 100 million policyholders by $180. If the number of insured individuals stays the same or drops, then the total payments must also rise to cover the cost of the new, open-ended benefits being paid to hemophiliacs. This means the cost per person—the insurance premium will rise significantly.

Of course, hemophilia is not the only chronic disease that can generate costs that will surpass the previous lifetime benefit caps. Heart disease, the many forms of cancer, rheumatoid arthritis, HIV AIDS—these are just a few of the chronic medical conditions that, fully treated, can surpass $1 million in treatment over a lifetime.

The private health insurance model cannot sustain such losses, because it would make individual premiums unaffordable for all but the superrich. The only solution is to spread the risk among the entire population, not simply those who voluntarily consent to pay premiums. Compulsory taxpayer funding is the only way to pay for open-ended benefits. That way, the risk is spread among more people, and some—the “rich”—can be forced to pay much more in taxes than they would ever consent to pay in health insurance premiums.

Perhaps this is the direction the country should go. The trouble is, that is not how the health care insurance reform was sold. President Obama repeatedly told consumers that if they were happy with their private insurance, nothing would change. The debate should have been about whether or not we wanted to eliminate private health insurance and replace it with taxpayer funded, government-controlled healthcare.

I suspect that is a debate we will soon have.

I suggest that the mandate to eliminate lifetime caps be repealed and private insurance be preserved. If we as a people feel it is important to provide all care at all costs, the government could set up a taxpayer funded superfund to handle all health insurance losses that exceed lifetime benefit caps. That way, private insurance would continue to function as it does now for the vast majority of people who do not have million-dollar medical conditions, and those who do have such conditions will get help without adding a huge bureaucracy to our already bloated government.

Even the government will not be able to pay for open-ended benefits forever. At some point it will have to limit, or ration, care. At that point, government analysts will look for the places they can save the most money while affecting the fewest people. Edward Burke shouldn’t be surprised if he is among the first to see his benefits limited again. At that point, however, there would be no private insurance for him to turn to.



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Preexisting Conditions Health Insurance Pool To Open

15 July 2010 |

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act—the national health insurance reform legislation—into law. The PPACA contains a provision requiring the federal government to establish a temporary high-risk health insurance pool no later than 90 days after the bill was signed to insure people who have been denied coverage because of preexisting conditions.

This high-risk pool will last only until December 31, 2013. Beginning January 1, 2014, all health insurance providers will be required to cover preexisting conditions. (To see what I think the long-term effects of this provision will be, please see my previous posts.) In the mean time, Kathleen Sebelius, Secretary of the Department of Health and Human Services (DHHS) sent a letter to the governors of the fifty states, asking how each state will administer the temporary high-risk pool. Health care insurance consumers who have been denied coverage for preexisting conditions can begin to enroll in new “high-risk” health insurance pools administered by the Department of Health and Human Services.

On April 29, 2010, Governor Arnold Schwarzenegger indicated that California would contract with the federal government to operate a temporary health insurance program of currently uninsured individuals with preexisting medical conditions. The governor stated that California would operate the temporary high risk pool alongside the state’s high risk pool, the Major Risk Medical Insurance Program (MRMIB), using the same operational framework. The MRMIB is a public-private partnership that uses contracted vendors monitored by the MRMIB to provide health insurance coverage through a variety of programs, including California’s Health Insurance Program (CHIP), also known as the Healthy Families Program.

The eligibility criteria for the temporary high-risk plans will be different than those for existing programs. Here is an overview of the temporary high-risk insurance program:

Who is eligible? Eligibility is limited to American citizens or legal residents who have not had health insurance for at least six months because they were denied coverage because of a pre-existing medical condition. You will need a letter from a private health insurance provider stating that you were denied coverage altogether or for a specific condition.

How much will health insurance from the high-risk pool cost?

California has yet to choose the vendor whose plan will be implemented, but even with the federal subsidy premiums are expected to range from $400 to $1,200 per month, depending on factors such as age and gender. As with typical plans, the high-risk policies will have annual deductibles that could range as high as $3000 for individuals and $6000 for families.

Can the states afford to cover everyone?

The Congressional Budget Office (CBO) estimates that the PPACA will cost taxpayers $1.05 trillion over the first 10 years, but less than one-half of one percent of that—a mere $5 billion—has been set aside to fund the high-risk pools. The CBO estimates that the program will run out of funds in two years, depending on demand. The Department of Health and Human Services has the ability to move money from states that do not use all of their allocated funds to those states that need more, but right now the Obama administration has no plans to seek additional funding for the high-risk program.

How do I sign up?

Those who have been denied coverage because of preexisting conditions should visit the federal government’s health insurance Web portal at http://www.healthcare.gov. This site offers an online form that leads to links for application information specific for each state.


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Short-Term Fix for Physican Pay from Medicare Health Insurance

30 June 2010 |

As predicted in my preceding post, the U.S. Congress passed and President Obama signed into law an amendment to the federal health insurance overhaul bill that halts the mandatory 21 percent reduction in the fees paid by Medicare to physicians who provide care to Medicare patients. Both parties supported the “doc fix” as the legislation is known: the Senate passed the bill on a voice vote and the House voted 471 to 1 to pass the bill. The law is retroactive to June 1, ensuring that there will be no disruption in payment amounts.

This was the tenth occasion in the past eight years that Congress has stepped in to prevent the payment reductions scheduled in 1997. Like the preceding measures, this is a stop-gap fix, preserving the health care insurance payment amounts only through the end of November. Unless another doc fix is passed, Medicare physician payments will automatically be cut by 23% in December and another 7% in January 2011.

Although the need for long-term reform is obvious, Congress was reluctant to permanently modify the calculation of Medicare payments to doctors. President Obama expressed frustration with the temporary doctor fix. “Kicking these cuts down the road just isn’t an adequate solution to the problem,” declared Obama. Nancy Pelosi, the Speaker of the House, agreed, criticizing the bill as “totally inadequate.”

The reason Congress did not address the long-term structural problem of Medicare payments is simple:  It does not want to add to the unprecedented deficits it has already created through the unfunded economic stimulus package and the healthcare reform package that the Congressional Budget Office (CBO) has recently admitted is underfunded by $127 billion. Last year, the CBO estimated that a permanent fix of physician payments would cost $245 billion over ten years. With voters exasperated by deficit spending, Congress was in no position to add to the deficit in an election year. Instead, congressional leaders postponed long-term action until after the November elections and actually raised taxes and cut Medicare payments to hospitals to offset the cost of the stop-gap measure.


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