Health insurance markets out of whack

The American Medical Association (AMA) has a very different perspective on health insurance markets from that reflected in the Federal Trade Commission (FTC)/Department of Justice (DOJ) report, A Dose of Competition, and in the January 2005 Physician News Digest interview with Mark Botti, an attorney with the DOJ. Our perspective is based on objective data and the experience of practicing physicians.

The AMA is very concerned that federal regulators continue to turn a blind eye toward the reality that in much of the country health insurance markets are not competitive. Health insurers have amassed significant market power through mergers and acquisitions but have received minimal scrutiny. Mr. Botti himself can point to just one instance where the federal agencies have challenged a health insurer merger: the 1999 Aetna/Prudential merger.

In contrast, physicians have been placed under a far higher level of scrutiny than is warranted by their comparative economic strength in today’s market. In April 2002, the FTC announced its intention to "find and bring" cases against physicians. Between April 2002 and December 2004, it brought 21 complaints against physician entities. Of these, 20 entities decided to settle rather than engage in a protracted and financially devastating legal battle with the FTC. This scrutiny is misplaced given that physicians are by far the least consolidated component of the health insurance industry.

It is important to remember that physicians play a critical role as patient advocates in an environment where health insurers have limited accountability for decisions that impact patients. The physicians’ role as patient advocate can be undermined when they have no leverage in negotiating contracts with health insurers. The AMA has found that in much of the country physicians face a true David and Goliath battle when dealing with health insurers.

The AMA has been studying health insurance markets in-depth for the past four years based on the most credible, publicly-available data. Our recently-released Fourth Edition of Competition in Health Insurance: A Comprehensive Study of US Markets used the Herfindahl-Hirschman Index (HHI), part of the 1997 guidelines used by the FTC and DOJ in reviewing the competitive impact of mergers. Markets that exceed an HHI of 1,800 are considered "highly concentrated" by federal regulators.

Most alarmingly, our study found that for the combined HMO and PPO markets, 86 of the 92 metropolitan areas had an HHI that exceeded the federal threshold of 1800. In addition, the study found that in 87 of the 92 markets, a single insurer had a market share of 30 percent or greater and that in 34 of the markets, a single insurer had a market share of 50 percent or greater.

The findings need to be viewed in the context of the unprecedented consolidation of the health insurance market during the 1990s. Between 1995 and 2004, there were over 400 mergers involving health insurers and managed care organizations. A new merger wave is underway. The 2004 acquisition of WellPoint Health Networks, Inc., by Anthem, Inc., (now known as WellPoint, Inc.) created the largest health insurer in the country, providing coverage to 28 million Americans. UnitedHealth Group has acquired four insurance companies in the past year, adding nearly four million covered lives, bringing its total to 22 million.

The ultimate consumers of health care – our patients – do not appear to be benefiting from the consolidation of health insurance markets. Instead, during this period of consolidation, health insurance premiums have risen dramatically and continue to rise without an expansion of benefits. Moreover, many of the large national health insurers have posted high profits over the past four years, even during times of economic slowdown. The primary beneficiaries of these mergers appear to be shareholders and the highly paid senior executives of these companies. The AMA believes that it is incumbent on federal regulators to take a hard look at whether consolidation in the insurance industry has harmed consumers.

Mr. Botti notes that "possession of market power is not unlawful." While correct, this statement does not absolve federal regulators from taking the next steps in the analysis. For example, evaluating barriers to entry is critical to antitrust analysis. If entry is easy, even a high market share will not necessarily translate to market power. If entry is difficult or takes a number of years, then a health plan with a strong market position is more likely to be able to charge high prices without the threat of competition.

Entry into health insurance markets is difficult. If entry into health insurance markets were easy, one would expect to see significant entry in response to the healthy profits posted in the past five years. However, that has not been the case. In fact there has been minimal new entry into health insurance markets in that time period. The fact that large insurers like WellPoint and UnitedHealth Group are acquiring existing plans in markets as opposed to developing their own networks and products is further evidence of substantial barriers to entry.

Significant barriers to entry include state regulatory requirements and the cost of developing a physician network, which the DOJ has acknowledged. In its 1999 challenge to the Aetna/Prudential merger, the DOJ noted that "effective new entry for an HMO or HMO/POS plan in Houston or Dallas typically takes two to three years and costs approximately $50 million."

At the 2003 FTC/DOJ Hearings on Health Care Competition Law and Policy, a former Missouri insurance commissioner testified that during the 1990s, he approved several mergers in the St. Louis market, in part based on arguments by the insurers that entry into the HMO market in St. Louis was easily achieved. However, subsequent events proved this not to be the case. He further testified that following these mergers, the St. Louis market became more and more concentrated and there has been no new entry since the mid-1990s. The facts bear out that entering insurance markets is simply not quick or easy and that consolidation has made it even more difficult.

Another key determinant in an antitrust analysis is whether health plans are charging "monopoly" prices. It is disingenuous for the federal agencies or the health insurance industry to dismiss the AMA’s findings and similar findings by others, including University of California Berkeley Professor James B. Robinson, by noting that without showing monopoly pricing, market share alone is meaningless. Because health plan pricing data is proprietary, this is an analysis that only the federal government can undertake through exercising its subpoena power. However, the federal agencies have not made any effort in this direction despite rising premiums and increased health plan profits.

The AMA is concerned that the United States is heading toward a commercial health insurance system dominated by a few publicly-traded companies that operate in the interest of shareholders, and not primarily in the interest of patients. It is time for the federal antitrust enforcement agencies to reexamine their enforcement priorities which have resulted in minimal scrutiny of health insurers and aggressive pursuit of physicians.

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Health Insurance Mandates Aren't the Answer to Uninsured

In an op-ed published in the Baltimore Sun a few months ago, I questioned Maryland legislators' interest in mandating individual health insurance coverage. I pointed out that Maryland already mandates that individuals buy auto coverage, yet the rate of non-insurance for auto is 12 percent, not much different from the rate of non-insurance for health, 14.9 percent.

I also pointed out in that article that part of the reason many people don't buy health coverage is because the legislature has made it unaffordable by enacting 59 benefit mandates. It is hypocritical of the legislature to pass so many laws raising the cost of coverage, then blame people for not buying what the government has made unaffordable.

Though my article didn't mention this, the case is even stronger in the 16 states where the rate of non-insurance is higher for mandated auto coverage than for voluntary health coverage. (See table.)

California Dreams

I wish California Gov. Arnold Schwarzenegger (R) had considered these issues before putting together his "reform" package calling for universal insurance coverage through a combination of individual mandates and state subsidies, announced January 8. His proposal seems to be a lot of misguided chatter with very little substance.

Schwarzenegger says "all Californians will be required to have health insurance coverage," but he doesn't say how he will enforce that requirement. Currently, California has a very high rate of non-insurance for health insurance (20.6 percent), which is not currently mandated, but an even higher rate for auto insurance (25 percent), which is mandatory.

In addition, there isn't a word about how he intends to define what kind of coverage is acceptable to meet the mandate. Is it the same coverage that is on the market today, which so few people can afford? Does he intend to keep all 49 benefit mandates in effect? Or will he allow people to buy the coverage they prefer, instead of what the government wants them to buy?

A political note is in order here as well. Schwarzenegger says nothing about using the "Connector" approach as was done in Massachusetts. The Connector is the state agency through which all health insurance enrollment in Massachusetts is being done. According to its Web page, "The Connector serves as a bridge between eligible individuals, small employers, and health plans to promote affordable private health insurance to uninsured residents of Massachusetts."

Unnecessary Compromise

The Connector levels the playing field between employer- and individually owned coverage, which is a good thing. Some free-market policy groups supported the Massachusetts idea because they felt getting the Connector in place was worth allowing mandatory coverage. But mandatory coverage isn't necessary for the Connector idea to work. By acceding to mandatory coverage in order to get the Connector, many free-market advocates surrendered a fundamental principle of freedom for political expediency.

Apparently, in California that process has translated into thinking mandatory health insurance coverage is not such a violation of freedom after all, so we'll do the mandate without bothering with this Connector thing. Bad idea.

Schwarzenegger would also tax, at 4 percent of payroll, all employers with more than 10 employees who do not provide coverage. Again, this is a principle the business community in Massachusetts went along with. But in Massachusetts, the assessment was a relatively low $295 per employee per year.

Again, this is the ol' foot-in-the-door trick: Get people to compromise on a basic principle with a small hit this year, then hit them harder next year.

It's also a good example of the ol' divide-and-conquer trick. Employers with fewer than 10 workers (80 percent of all employers in California) may support the idea because it doesn't affect them. But there are three major problems with it:

Employers with 10 or fewer employees are the source of most of the uninsured in the state, so exempting them will do little to solve the problem.

Even at 4 percent of payroll, the cost per worker is a whole lot less than the cost of providing coverage, so many employers who currently provide coverage may decide to drop it.

It won't survive a challenge based on the federal Employee Retirement Income Security Act (ERISA), which exempts employers who self-insure from state health insurance laws. Businesses in Massachusetts didn't bring an ERISA suit against the idea because the cost of complying didn't justify the cost of suing. That may be different in California.

Schwarzenegger has also proposed a new tax of 2 percent on doctors and 4 percent on hospitals, ostensibly to cover higher payments to the state for all the new users under Medi-Cal.

That sounds like another old trick: Rob Peter to pay Paul. What's the point of raising Medi-Cal payments if you turn around and take that money away in the form of higher taxes?

I guess funneling the money through Medi-Cal ensures getting federal matching dollars for it, but that just means the rest of the states will be taxed more to pay for Schwarzenegger's ambitions.

A whole lot of rhetoric, with virtually nothing positive in this stew.

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Cost Factors in Health Insurance

Cost Factors in Health Insurance

Recently, the Maryland legislature passed a bill requiring employers of 10,000 or more to spend at least 8% of payroll on employee health insurance or pay the difference to a state Medicaid fund. In Massachusetts, where job creation lags behind the nation, similar legislation is proposed for businesses with 10 (ten) or more employees. In his January 19 Washington Post column, George Will asserts that similar bills are pending in “30 or so other states.”

Such legislation discourages employers from locating, (or expanding), in those states. Wal-Mart was planning to build a distribution center on Maryland’s Eastern Shore that would employ at least 800. Wal-Mart is now reconsidering that expansion.

Requiring employers to provide health insurance may not be best for workers. To keep costs down, employers may choose to hire young workers rather than middle-aged or older ones. Businesses may also screen out those with health problems or a family history of them, (medical records aren’t completely secure). Some companies fire employees when off the job behavior of the employees or their spouses could increase insurance costs. Discrimination on the grounds of age or health status is hard to prove. Discrimination on the basis of “lifestyle” is permissible in some states. While some people may applaud such discrimination as a means of keeping insurance prices down, it could turn previously productive, taxpaying workers into a new class of unemployables who may end up collecting Welfare and Medicaid.

It would be best for both employers and employees if health insurance were purchased by individuals without employer involvement: The way life, auto and homeowners insurance are purchased. The high price of health insurance is the reason that can’t be done easily. Rather than rejecting the idea of health insurance as an individual responsibility, we should look into why the price is so high and how we can reduce it.

“All-inclusive” plans
One reason health insurance is expensive is “all inclusive” plans with low deductibles and low co-insurance payments. Such plans encourage people to seek treatment for minor, self-limiting or preventable conditions. An extreme example was described in Pia de Solenni’s May 23, 2005 National Review column, “Abortion on the Air.” The column reports a discussion on the Washington D.C. Elliott in the Morning radio show in which a caller reported 16 abortions by his first and second wives. When Elliot asked if the caller could have used a cheaper method of birth control, Elliot’s co-host said, “Insurance pays for it,” referring to abortion. Even the ardently pro-choice should be upset by that conversation: A surgical procedure for something that could have been prevented by a prescription or an over the counter (OTC) item is being paid for with everybody’s premiums. All inclusive, low deductible health insurance plans also encourage the use of insurance for services such as doctor’s office visits and vaccinations that are easily paid out of pocket without the administrative costs that accompany insurance. Many people see employer provided plans as “free” and don’t realize that higher premiums may mean lower wages.

The combination of cheaper high deductible health insurance plans and Health Savings Accounts, (HSAs), which use the insured’s pre-tax money might, encourage more careful healthcare spending. Some fear that high deductibles would lead people to defer seeking necessary care. It seems unlikely that the average person would endanger his health that way.

State mandated coverage
Some state regulations make insurance costly. New York and New Jersey have “guaranteed issue” requirements that allow previously uninsured individuals to purchase health insurance after becoming seriously ill. Normally, companies use money paid while people are healthy to cover their costs when they get sick. In a “guaranteed issue” situation, rates must be increased to cover ill customers. The high rates generated by “guaranteed issue” shrink the risk pool by discouraging young, healthy people from purchasing insurance. Those two states also require “community rating” which prohibits charging different rates to customers of different ages and health status. While charging more to people who are elderly, ill or have other risk factors may sound unfair, insurance works on the basis of risk: Those more likely to use the insurance pay higher rates. In Congress, Representative John Shadegg sponsored a bill giving grants to states that form high risk pools. While the bill involves the use of tax money, it keeps high risk individuals from being uninsurable and should keep their coverage from raising all customers’ rates.

Lobbying from special interest groups led to state mandates that all policies sold in a state cover their services: Massage therapy in four states, acupuncture in 11 and chiropractic in 47. One reason obesity has been classified as a disease is pressure from weight loss clinics to mandate coverage of that service. Some may applaud that as encouraging healthy habits, but how effective will a weight loss program be for someone who can afford it, but only participates if insurance pays?

An eHealthInsurance.com study found that the price of a health insurance policy for a family of four with a $2,000 deductible and 20% co-insurance ranged from $172 per month in Kansas City, MO to $1,200 per month in New Jersey. State mandated coverage and issue regulations account for the difference. Last summer, Representative John Shadegg introduced a bill allowing people to purchase health insurance from any of the 50 states. That free-market approach will enable people to save by buying only the coverage they need.

Prescription prices
Overall, prescription drugs save health care dollars. According to Doug Bandlow’s March 2, 2005 Washington Times column, “The Costs of Health Care,” Columbia University’s Frank Lichtenberg estimates that every $1.00 spent on prescriptions lowers hospital spending by $3.65. However, there is room for savings on prescriptions. Theresa Agovino’s October 25, 2005 AP article, “Generic Drugs Could Have Saved Us $20B,” summarized a survey by Express Scripts of approximately three million of their commercial customers that examined six classes of drugs including cholesterol lowering medications and antidepressants. The survey found that generics cost an average of $60 less per monthly prescription than brand name drugs. The survey estimated that approximately $2 billion could be saved annually if generic drugs were dispensed when available. According to Marc Siegal’s book, False Alarm, surveys by the FDA and Kaiser demonstrated that 20% to 30% of patients ask their doctors about advertised drugs. Doctors, who receive samples of these drugs, have no incentive to prescribe generics or older drugs that may on insurers’ “preferred” lists. Additionally, some plans charge only slightly lower patient co-insurance prices for generics than for brand names leaving customers unaware of the actual price difference. People might be more cost conscious if prices, rather than just the co-pay amounts, were prominently displayed on the patient information leaflets.

The uninsured
Hospitals that accept federal funds, including Medicare, are required to provide emergency treatment to those who can’t pay. Some costs of unpaid services are recouped with tax money and some is passed on to other patients and insurers. This was the rationale behind the Maryland bill, but it is misdirected. A RAND Corporation study found that about 20% of illegal immigrants have health insurance through their employers and virtually none purchase their own. The illegal immigrant population in the U. S. is estimated at 8 to 12 million. If the RAND study is correct, we have 6.4 to 9.6 million uninsured illegal immigrants. In his article, “Catastrophe in Care,” that appeared in the June 2, 2005 issue of Tucson Weekly, Leo W. Banks states, “Nationally, American hospitals lose $1.45 billion a year” treating illegal immigrants.

One ignored uninsured population consists of those who can afford insurance, but choose not to. This group includes some whose employers offered them the opportunity to partake in workplace health plans. Many of the voluntarily uninsured are young, healthy people who feel they don’t need it until that case of appendicitis or that skateboarding accident happens. Massachusetts recently enacted a law requiring that all who can afford health insurance purchase it. That should be a personal choice. However, legislation making it easier for hospitals and state Medicaid programs to collect payment for treatment from uninsured individuals who could have afforded health insurance would be a step in the right direction.

Defensive medicine
Doctors, fearing malpractice suits, often request additional diagnostic tests and referrals to specialists that aren’t medically indicated. Insurance pays for this. Patients and insurers also pay for malpractice insurance in the form of higher fees for service. Courts should focus on actual negligence rather than failure to foresee a remote outcome such as failure to test for an extremely rare disease. The AMA also needs to take strong disciplinary action against doctors who are actually guilty of malpractice. Some doctors who lose their licenses in one state because they were found guilty of malpractice simply relocate, get sued again and cause malpractice insurance rates to increase. Something like a national registry might help prevent bad doctors from practicing.

There is no single, simple answer for reducing health insurance costs. Legislating that employers pay for health insurance isn’t the answer. If costs continue to increase and businesses contend that they can’t stay in business if they provide health insurance, government may step in with some form of “universal” coverage. If individuals purchased their own health insurance, people would have more flexibility than employers or government can provide. It also allows health insurance portability that isn’t available with employer sponsored plans. It may also reduce the costs of health insurance and health care because people often aren’t cost conscious when someone else pays the premiums.

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Health Insurance Is The Focus of Latest INQUIRY Journal

"How Do Households Choose Their Employer-Based Health Insurance?" by Jean- Marie Abraham, William B. Vogt, Martin S. Gaynor -- This study found that price influences workers' selection of employer-based health coverage, and that price sensitivity varies depending on marital status, wealth, and the number of employer coverage offers a household has. Results indicate that as wages increase, households are more likely to opt for complete household coverage; alternatively, lower-income households are less likely to choose plans with coverage for all family members. Op-out payments -- compensation offered by employers to not take health coverage -- also influences choice and switching from one employer plan to another, when an alternative is available.

"Money and Mandates: Relative Effects of Key Policy Levers in Expanding Health Insurance Coverage to All Americans," by Jeanne M. Lambrew and Jonathan Gruber -- This analysis examined scenarios -- involving an employer mandate, individual mandate and tax subsidies -- to gauge their impact on expanding health coverage to all Americans. Results suggest that only a mandate requiring individuals to obtain insurance would cover all the uninsured; neither an employer mandate nor generous subsidies alone would be adequate, and even together they would not achieve universal coverage. An employer mandate would shift coverage to the employer system, and some could lose their employer coverage if a new, voluntary purchasing pool and generous subsidies were introduced. Federal costs would be highest with combined employer and individual mandates. Universal coverage could be achieved with lower subsidies and an individual mandate, but would mean higher out-of-pocket costs for individuals.

"Effects of Public Premiums on Children's Health Insurance Coverage: Evidence from 1999 to 2003," by Genevieve Kenney, Jack Hadley and Fredric Blavin -- Using 2000-2004 data from the Current Population Survey, this study found that raising premiums for public health insurance programs reduced enrollment in those public programs. While this could generate savings for states, and some children who forgo public coverage would have private insurance instead, other children would end up uninsured. Findings show that premiums had the greatest effect on lower-income families.

"Insurance Premiums and Insurance Coverage of Near-Poor Children," by Jack Hadley, James D. Reschovsky, Peter Cunningham, Genevieve Kenney and Lisa Dubay. This analysis showed that higher public premiums are associated with a lower probability of near-poor children being enrolled in public insurance programs. Additionally, it found an association between higher public premiums and a greater probability of near-poor children being uninsured or having private coverage. Results imply that increases in both public and private premiums are likely to leave more near-poor children without any insurance.

"Effects of Premium Increases on Enrollment in SCHIP: Findings from Three States," by Genevieve Kenney, R. Andrew Allison, Julia F. Costich, James Marton, and Joshua McFeeters - Examining enrollment in the State Children's Health Insurance Program in Kansas, Kentucky and New Hampshire, this study found premium increases associated with lower caseloads in all three states and earlier disenrollment in Kentucky and New Hampshire. Premium hikes led to greater disenrollment among lower-income children in New Hampshire and nonwhite children in Kentucky.

"Access to Health Insurance, Barriers to Care, and Service Use among Adults with Disabilities," by Anna S. Sommers - This study looked at adults with various levels of disability and found all disabled groups reporting more unmet need and higher medical service use than non-disabled adults with the same insurance status. Low-income adults who were less disabled, but still work-limited had the greatest problems with access to health coverage, and more than one-third were uninsured.

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Why take out world health insurance - a true story?

The tour bus from the Danish tour operator turned into the car park in front of the hotel, which was our drop off point in Hurghada, Egypt. I left the tour bus, said my goodbyes to the others and jumped onto a local bus home to downtown Hurghada – a trip of about

20 minutes. As I walked up the hill on the final stretch to my apartment, it felt good to be home, both in general and in particular in relation to my beautifully clean toilet. But I had barely stepped inside, when it all started... I spent the period between midday and 6 pm commuting between the bed and the toilet, first in a relatively controlled manner but diarrhoea and vomiting escalated all too quickly. Then came the stomach cramps, almost as if my intestines were being cut with a barber’s knife. The sweat poured off me, my pulse raced and, when I discovered blood in my vomit, something had to be done.

My flatmate wasn’t home, and the nearest hospital was in the next town of El Gouna, about a 30-40 minute taxi ride from Hurghada. But I knew there was no way I could stay in the apartment on my own any longer. Fumbling, I grabbed my belongings and stumbled down to the main road like a drunkard. The taxi driver was not entirely sure whether to take me or not, but my pleading mixture of pigeon English and Arabic made him realise that I was not drunk, just desperate to get to a hospital.

The trip seemed to take forever, until we finally arrived at El Gouna hospital, one of the most modern hospitals in Egypt, with a 24-hour emergency ward. I was shown into the preliminary examination room, and from then on things happened quickly. Barely an

hour later, I was admitted and found myself alone in a 2-bed room with – an important point – a separate toilet. I was given a drip and pumped full of fluid andelectrolytes. A steady flow of doctors and nurses examined me, took samples, administered medicine, etc. I found out that I could expect to remain in hospital for a couple of days.

A couple of days…. It felt immediately reassuring, as if I was in safe hands, but what about payment...? Would my world health insurance policy cover the costs and would I have to pay up first then wait for reimbursement? All treatment in Egypt requires payment in cash by the patient, which is completely fair in such a poor country. But diving instructors are not millionaires.... I reached for my mobile phone and congratulated myself on always keeping the details for my IHI world health insurance card in my wallet. So, armed with the emergency telephone number and my policy number, I sent a text message to a friend in Denmark and asked her to contact IHI’s 24-hour emergency service in Denmark on my behalf. Even the effort of this simple task made me slump back into the pillows exhausted, where I dozed off thanks to the cramp-relieving and pain-killing medication I had already been given. Not long after, my mobile phone rang. “Hello Heidi, this is Thomas from IHI

in Denmark. I heard from your friend that you need some help down there?”.

Rarely have I been SO happy to receive a call on my mobile! Thomas asked me about the symptoms, where I was, telephone numbers, fax numbers, the doctor responsible, etc., and surprisingly quickly he ended the call with a “Take care of yourself, and we’ll set the wheels in motion at our end. I will just speak to one of our consultants, but it sounds like a clear cut case to me. Just tell the hospital’s accounts department that you are covered by world health insurance and we will arrange for payment to be made directly to them, unless I call you back within half an hour. OK?”. Relieved, I put the mobile phone down and drifted back to sleep, secure in the knowledge that the financial side of the matter was under control.

2-3 days later, I was discharged from the hospital in El Gouna, still resembling a drowned rat but improving rapidly. After a week in bed at home in my apartment, I was back at the diving centre and again fully occupied training new divers or guiding experienced ones. This was what I had travelled all the way from the cold north to Egypt to do during my sabbatical year away from the normal job market.

The matter was finally closed when in April 2003 I returned to Denmark and sent in the original receipts to my contact person at IHI. The service was again streamlined and personal and even extra expenses for transport and other things, which in a country such as Egypt are difficult to get receipts for, were no problem. I was able to give amounts and a couple of bills written in Arabic and a reference to standard practice in the country, and that was that.

I have travelled quite a lot in my 31-year life and had already learned to take out travel insurance before the trip to Egypt. But I have never before dealt with an organisation as professional as IHI. They did what was most important at the time the crisis arose. They took the burden off me, handled everything based on my input and let me concentrate on getting better. I didn’t have any idea of what was going on behind the scenes, that was just fixed. Professional, personal and extremely efficient.

I would like to thank everyone at IHI who was involved in my case – you made a difference. I know where I will advise my friends and family to get their world health insurance......

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