Stanley Feld M.D., FACP,MACE

The healthcare insurance industry is preparing to capitalize on a $40 billion opportunity to run Medicaid plans for states when President Obama’s healthcare reform act adds 16 million people to the Medicaid roles in 2014.

Do the math. $40,000,000,000 divided by 16,000,000 people is a net profit of $2,500 per patient after expenses.

“Medicaid, the state and federal program for the poor, has become a growth area for big insurers.”

Citigroup research group estimates that presently the overall healthcare insurance industry’s net profit is about $56.5 billion per year. The addition of 16 million enrollees will add $40 billion dollars in net profit to the healthcare insurance industry’s bottom line.

The positioning of both major healthcare insurance companies and smaller companies has been proceeding quietly, as they want to stay below the radar of public detection.

California will have 2 million new enrollees. Texas will have 1.9 million enrollees.

The healthcare insurance industry is preparing bids to provide administrative services for each state’s Medicaid program. Most states are experiencing budget crises and find it is cheaper to outsource the administrative services of their Medicaid programs.

“The healthcare insurance industry manage coverage of 70% of Medicaid enrollees, or 33.4 million people, up from 56% in 1999, according to Sanford C. Bernstein.”

States let contracts lasting five years. The states want to contract with vendors now so they do not experience disruptions in 2014 when the Medicaid expansion occurs.

The healthcare insurance companies are trying to customize their plans to win their bids.

“Medicaid is one of health insurers’ few bright spots, as their margins are pressed by regulatory crackdowns on premiums in their traditional policies. Gail Boudreaux, UnitedHealth’s executive vice president, told investors last month that: "The Medicaid space is a significant long-term growth opportunity for us. It’s a big market that’s getting even bigger." UnitedHealth pegs the value of new bids or expansions over the next three years at $40 billion.”

Many healthcare insurance companies are jumping in to capture the Medicaid business. UnitedHealth and WellPoint(Blue Cross/Blue Shield) are at the head of the class. Smaller companies such as Amerigroup, Centene and Molina claim their specialized focus gives them an advantage over the larger companies.

"Understanding the state as a customer is quite different than understanding what GE or IBM want as a purchaser," said John Littel, Amerigroup’s executive vice president of external relations.”

President Obama did not think out his plans for Medicaid very well. His healthcare reform act has done nothing to repair the problems in the Medicaid insurance system. In fact, the funding demanded of the states has resulted in a decrease in funding of vital safety net city and county hospitals.

What remains is an expansion of a system that has failed to provide adequate care over the last 40 years. The defective design of the Medicaid system is responsible for its failure. It makes no sense that by expanding the program by 16 million uninsured people it will produce a successful program. Expanding a failed system will not solve our universal healthcare goals. It will only expand our federal and state deficits and provide more profit for the healthcare insurance industry.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

Stanley Feld M.D. FACP MACE

The healthcare insurance industry did great with President Obama/Kathleen Sebelius’ new regulation to apply administrative expenses to benefit expenses.

You could never tell reading the disinformation published by the traditional media. The reports were confusing and not informative.

In my last blog I reported that the healthcare insurance industry is trying to influence the regulations for expenses to be counted as benefit expenses for the healthcare industry . The benefit expenses are subtracted from the premium revenue before the 80% medical loss ratio is calculated.

The expenses the industry wanted included are;

1. The cost of verifying the credentials of doctors in its networks.
2. The cost of ferreting out fraud such as catching physicians over testing patients or doing unnecessary operations.
3. The cost of programs that keep people who have diabetes out of emergency rooms.
4. The sales commissions paid to insurance agents.
5. Taxes paid on investments.
6. Taxes paid on premium income.

All these expenses are administrative expenses in my view. These expenses could create a competitive advantage to an individual company. If these expenses are permitted as benefit expenses, resources available for direct medical care would decrease from eighty cents to sixty cents.

Last week Kathryn Sebelius published a fact sheet outlining the details of the new healthcare insurance regulations. The new regulations are clearly to the advantage of the healthcare insurance industry.

President Obama declared;

“Today, many insurance companies spend a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing.  Thanks to the regulations , consumers will receive more value for their premium dollar because insurance companies will be required to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement.   If they don’t, the insurance companies will be required to provide a rebate to their customers starting in 2012.”

We saw previously that WellPoint had a Medical Loss ratio of 83% including the six expenses as benefit expenses.

The National Association of Insurance Commissioners (NAIC) was charged to develop uniform definitions and methodologies for calculating insurance companies’ medical loss ratios. The commission was to consider input from all stakeholders. The healthcare insurance industry made 160 comments. Consumer protection groups made only 30 comments.

These regulation will make the healthcare insurance marketplace to be more transparent and make it easier for consumers to purchase plans that provide better value for their money.

This last statement is fiction according to the details in the fact sheet. The healthcare insurance industry won. There was nothing in the traditional media explaining the significance of the regulations.

I will outline the categories in the new regulations. I will describe the defects in detail in the future. President Obama has made another complicated mistake that will destroy the medical care system.

1. Establishing Greater Transparency and Accountability

This information will provide consumers with meaningful information on how their premium dollars are spent, clearly accounting for how much money goes toward actual medical care and activities to improve health care quality.

Right off the bat, the government has permitted the healthcare insurance industry to count activities it categorizes as improving healthcare quality as a benefit expense decreasing the funds available to direct medical care.

2. Ensuring Americans Receive Value for their Premium Dollar

This is an unsubstantiated statement.

3. Providing Rebates to Consumers

Insurance companies that are not meeting the medical loss ratio standard will be required to provide rebates to their consumers.

This will not happen because the healthcare insurance industry still has a high percentage of overhead as a benefit expense counte toward the medical loss ratio.

4. Insurer Reporting Requirements

Beginning in 2011, insurance companies that issue policies to individuals, small employers, and large employers will have to report the following information in each State it does business:

· Total earned premiums;

· Total reimbursement for clinical services;

· Total spending on activities to improve quality; and

· Total spending on all other non-claims costs excluding federal and State taxes and fees.

Unacceptable expenses are not defined.

5. Activities That Improve Health Care Quality

· Following NAIC recommendations, this regulation specifies a comprehensive set of “quality improving activities” that allows for future innovations and may be counted toward the 80 or 85 percent standard

There it is. The healthcare insurance industry can count bogus profit activity in the benefit expenses counted against premium dollars to be spent for healthcare. This is the place of obscene salaries.

6. Timing of Reporting and Rebates

· The first report, containing calendar year 2011 data, will be due in 2012

· Insurers will be required to make the first round of rebates to consumers by August 2012 based on their 2011 medical loss ratio. 

· Expatriate and mini-med plans that report separately will be required to report data to the Secretary on an accelerated basis.

The delay in reporting provides time for modifications of the regulations to the advantage of the healthcare industry

Treatment of Taxes in the Rebate Calculation

• The regulation will allow insurers to deduct federal and State taxes that apply to health insurance coverage from an insurer’s premium revenue when calculating its medical loss ratio. 
• In the case of non-profit plans, assessments they are required to pay in lieu of taxes may be deducted.

The healthcare insurance industry was able to maintain most of its non-value added expenses to its benefit expense column.

The healthcare insurance industry won. Consumers lost and were once more deceived by President Obama.

There were also multiple accommodations made to the healthcare insurance industry in the name of the consumer.

Accommodations to Ensure Continued Access to Coverage by Consumers

Accommodations to Avoid Market Destabilization

President Obama faked us out once again. The press coverage sounded as if the healthcare insurance industry would not be in a position to take advantage of consumers anymore.

I predict consumers will be very upset with the results.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

Stanley Feld M.D.,FACP,MACE

As soon as President Obama’s healthcare reform law passed, rules and regulations had to be made by non-elected state regulators to interpret the new law.

For the healthcare insurance industry, the fight is now over the details. The healthcare insurance industry has graciously volunteered to help regulators craft these regulations.

Senator John D. Rockefeller IV, Democrat of West Virginia, sent a letter to regulators expressing his concern that the insurers could have too much influence on how the regulations were being drafted.

“The health insurance lobbyists failed to beat the health care reform bill in Congress — but with billions of dollars at stake, we cannot and we should not expect them to throw up a white flag and start looking out for the livelihoods of American families,” Senator Rockefeller said in a statement. “They’re working every angle of the implementation process to shirk their obligations under the new law.”

As stated in my last blog entry, the healthcare insurance industry is already increasing premiums without justification for a rate increase except actuary anticipation.

The individual State Boards of Insurance are supposed to regulate rates. The State Boards of Insurance have acted as if they are impotent in the past few years. President Obama has just given State Boards grants to regulate the new law.

“Senator John D. Rockefeller IV fears that insurers are affecting how regulators interpret the recent health care legislation.”

“The new law requires health insurers to spend at least 80 cents out of every dollar they collect in premiums on the welfare of patients, a critical issue for the companies’ bottom lines.”

State regulators are drafting the new regulations to reflect the laws mandate that 80 cents of every healthcare dollar be spent for patient care. This should result in a decrease in healthcare insurance rates.

In the past, Medical-Loss ratio meant a percentage of the healthcare dollars applied to medical care after the healthcare insurance industry’s administrative services expenses.

The healthcare insurance industry wants to keep it that way. They are going to do their best to help state regulators do the same.

Consumers are being ripped off. The healthcare insurance industry loads administrative services expenses with creative bookkeeping. The actual expenses are opaque. In 2008, administrative expenses in Minnesota were 65 cents of every premium dollar. After administrative expenses, if the healthcare insurance industry spent more than 90% of the remaining 35% of the healthcare dollars for medical care, the healthcare industry was permitted a rate increase by the State Board of Insurance.

DOUBLE CLICK ON EACH FIGURE TO ENLARGE

Figure 1 Sixty five percent of private insurance dollars in Minnesota went to administrative services including brokerage fees. Only 15% went to physicians and 20% to hospitals. Figure 2

Figure 2

"The social contract for medical care should be between the physician and patient. Private Insurers aggregate 32.6% of the dollars that Americans pay in the hope of getting care, and insurers pay out only 4.9% of the money collected from the nation’s Consumers to physicians. Insurers pay out only 6.5% to hospitals.  Administrative service fees could not possibly add 15% value to the care of a patient. The administrative service fee can and must be reduced markedly."

http://www.state.mn.us/mn/externalDocs/Commerce/Blue_Cross_anfd_Blue_Shield_of_Minnesota_051606085017_BCBSM.pdf

Figure 3

Figure 4

The math is complicated. As pointed out by a reader, government officials are not anxious to uncover the creative bookkeeping for good reason.

“No career politician (Republican or Democrat) would touch attacking the Insurance lobby. Both the Democrats and the Republicans like the campaign donations from healthcare Insurance companies. Neither will the media attach the healthcare insurance industry because it biggest revenue comes from political advertisement. Who pays for this political advertisement in an era where the “media is the message.”

The healthcare insurance lobby and Big Pharma contribute heavily to political campaigns.

The good news is the traditional media is losing its impact on consumers in the era of You Tube, texting and Twitter. The cynicism is justified. Politicians are not interested in listening to the needs of the people.

As soon as a politician is sincerely interested in consumers’ needs, he will win. Many thought President Obama was that man. Unfortunately, he has another agenda.

What are the healthcare insurance industry’s administrative expenses it wants to include in the new regulations before it has to spend 80 cents for every healthcare dollar.

1. The cost of verifying the credentials of doctors in its networks. This cost is opaque. It is automated but the healthcare insurance industry wants to charge full price year after year.

1. The cost to ferret out fraud by identifying doctors performing unnecessary operations,
   procedures, and tests. Who should decide on unnecessary treatments? Peer physicians in local hospitals and local communities should decide. These physicians are usually not paid and are supposed to be immune from liability.

1. The cost for programs that keep people who have diabetes out of emergency rooms.

The healthcare insurance industry should not be doing this. It should be paying physicians to develop Diabetes Care Teams to teach the patients to self- manage their disease. The healthcare insurance industry has not universally paid for Diabetes Education. The help desks maintained by the healthcare insurance industry are not effective. These help desks are not an extension of the physicians’ medical care. They tend to undermine physicians and the physician patient relationship.

1. Healthcare insurers insist that typical business expenses should not be considered part of the Medical-Loss Ratio. The healthcare industry is not satisfied with a 20% profit on every healthcare dollar. It has managed expenses to receive 65% of every healthcare dollar by loading the administrative expenses.

1. The healthcare insurance industry believes it should be entitled to expense sales commissions for insurance agents. The expense is already built into the premium. It wants to continue to expense the sales commissions.

1. It wants to expense taxes paid on investments. These tax expenses should be subtracted before the 80% is calculated.

It is bizarre because the insurance industry bought the investment with profits. The profits were then leveraged with mortgages. Now it wants deduct the taxes as well as the interest paid on the mortgages. This is an excellent example of Wealth building 101.

1. The healthcare insurance industry wants to expense the insurance reserves. What are the rules for calculating insurance reserves? There is a line in the financial statements reporting outstanding accounts payable. Are the outstanding accounts payable the difference between what physicians billed and the physicians’ reimbursement? Our regulators are not protecting consumers.

1. It is essential to the healthcare industry to influence the rules for calculating for the Medical-Loss ratio.

The new law requires the healthcare insurance industry to provide a refund if it does not spend 80 cents on each healthcare dollar after administrative expenses. If the industry can achieve proper administrative accounting rules, it can continue to expense 65 cents of every healthcare insurance dollar.

Medicare and Medicaid do not escape this 65% administrative fee. President Obama claims Medicare’s administrative fee is only 2.5%. CMS’s administrative fee is 2.5%. The 2.5% is the fee to administer the outsourcing of administrative services to the healthcare insurance industry. Medicare pays 65 cents of every dollar to the healthcare insurance industry for these administrative services.

It sounds complicated. It is complicated on purpose. The goal is to keep the taxpayer stupid. The healthcare insurance industry can then blame hospitals and physicians for the rising healthcare costs. Hospitals and physicians become the healthcare insurance industry’s scapegoats.

I think Americans are starting to wake up.

If you’ve let your President and Congressmen know how you feel, tell them again and again-and again. It might help.

https://writerep.house.gov/writerep/welcome.shtml

http://www.senate.gov/general/contact_information/senators_cfm.cfm

http://www.usa.gov/Contact/Elected.shtml

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.