Many years ago (ancient history for many, since it was in the last century) a certain Colorado Governor demanded the reform of Colorado’s health insurance regulations, or he’d bring a “single payor system” down on our heads. it was to be called, if memory serves, ColoradoCares. Reform happened, so it went away. But you know, the relentless need to have a government-run health care system never goes away with Democrats.

Well, its back, and it’s even worse. Here’s a quote: ” a “risky and untested state-run health insurance system.” State-run, as in, the state of Colorado, and financed with a whopping big tax increase, larger than the size of the entire Colorado budget. It will replace Obamacare. And no, that would not be the kind of replacement I’d be in favor of!

If you love Obamacare, you’ll love this – until you don’t.

Read the full story here.

Insurers have a new year of data and the numbers don’t look good. It will be very interesting to see what Colorado rate increases will look like. As usual, for those on subsidized policies, this news will be met with a shrug, since the “I got mine” mentality is in full swing. For everyone else, the rates increases, be they at the low end (say, 10%)) or the high end (say, upwards of 30%) will be particularly savage, and, as individual rates continue to resemble small group rates in all states, it will be increasingly difficult to absorb rate increases coupled with assessment fees to Connect For Health Colorado (on ALL health policies sold in Colorado), along with high deductible and out-of-pocket costs. The reaction I get from people with families looking for individual plans run the gamut, with “HOW MUCH??” and simply stunned silence the most common refrains.

More Health Insurers Seek Double Digit Premium Increases

Everyone’s aware of the infamous Gruber statements. Let me paraphrase: you’re all idiots – now pay me. Followed by an evil laugh.

Well, apparently the good folks over at your local Marketplace Exchange, Connect For Health Colorado, fell for it, too. (And I should add a disclaimer that I am a Certified Agent for C4H-CO, and I’m just reporting the facts, Ma’am).

Those pesky folks over at the Independence Institute, namely their Health Care Policy Center, run by the charming Linda Gorman, an economist by trade and a member of Colorado’s Blue Ribbon Commission on Health Care Reform, have published a very interesting piece of analysis titled “How The Gruber Model Failed In Colorado”. You can get it here. The bottom line assessment? “Its poor predictions will likely end up costing taxpayers billions of dollars”.

This is so good it’s hard to summarize: I think anyone interested in the effects of Obamacare and the lackeys employed to carry the water for it should read it, re-read it, and pass it around. And, if you know anyone in Vermont …

Seriously, I’m no economics expert (or anything else for that matter, except maybe good coffee) but for really educated folks to buy into Grubers’ predictions, as highlighted in the reports and analysis he got paid to do by Colorado, simply defies explanation. I mean, really: the idea that, based on somebody’s economic assumption, there wouldn’t be an almost catastrophic rise in Medicaid recipients is simply stunning. As almost anyone who’s been around the health insurance business knows, it isn’t the folks who can buy insurance and don’t who are the biggest problem, it’s the folks who couldn’t buy coverage at all due to extreme low-income or other circumstances. The farcical notion that many more people would get subsidies rather than a short trip to Medicaid says that no one really understood what’s been happening in Colorado. Guess what? Medicaid enrollment has exceeded expectations by 40%, and drastically overestimated the demand for subsidized policies (one-sixth of what was projected!).

Even unsubsidized policies are far below Grubers’ prediction. (And here’s an odd thing: why would anyone buy an unsubsidized policy through the exchange, anyway? There is simply no reason to buy an unsubsidized individual policy through the Marketplace exchange – something that comes as a surprise to many people.)

The reports go on to (laughably) suggest that insurance premiums would go down “27% on average”, with people buying richer plans because of their tax savings. I should send this to my clients who have a) had their premiums rise at least that much, b) their deductibles go up dramatically, and c) their networks and doctor choices curtailed, seeing that the market switched from PPO to HMO offerings almost immediately. That would be all of them, by the way.

The list of predictions that were wrong read like a list of Obama statements, that’s for sure! Like Grubers’ predictions that people in grandfathered plans would “see no change in their premiums”. Actual fact: they rose by 37% by early 2014.

And we won’t even talk about how Obamacare wrecked a high-risk pool that was actually cheaper than it’s replacement (and rather than an HMO was an any willing provider network, to boot).

This, my friends, is what happens when common sense and good public policy get replaced with redistributive ideology: any argument works so long as it advances the political objective, true or not. And the essence of Obamacare wasn’t about “health insurance reform”, it was about federalizing the health insurance markets prior to a move to a single-payor system (that’s my own opinion, by the way, not anything taken from the report).

Best take-away quote: “.. substituting tax subsidies for direct payment does not affect the cost of health insurance”. Of course not.

Download it, have a good read, and discuss it. Better yet, share it with every Colorado legislator you can! Good job, Ms. Gorman!

One of the most frequently cited ways that insurers used to reduce costs for the new ACA compliant plans was to engineer new provider networks, primarily HMOs, with lower fee-for-service reimbursements, referred to as  per-member-per-month arrangements. These networks were reviewed at the state level for adequacy. In fact, the new networks were substantially smaller, as many physicians opted out of them due to reduced reimbursement rates or capitation necessitated by the new rules carriers must operate under due to Obamacare.

The federal government decided that this won’t be acceptable for 2015.  In a draft letter from the Centers for Medicare & Medicaid Services (CMS), insurers will be required to include 30% of “essential community providers” (ESPs) in their network.

ESPs serve primarily “underserved” populations, including community health centers, HIV/AIDS clinics, family planning clinics and children’s hospitals. From Insurance Business: “In order to assure this is the case, CMS plans to establish its own process for certifying adequate provider networks, cutting out the role of state regulators.” See the full story here.

CMS, in 2013, stated that, for 2014, they would “rely on state analyses and recommendations when the state has the authority and means to assess issuer network adequacy.” See the full text of the earlier guidance here. For 2015, with CMS expanding the ESP requirement,this will likely increase premiums further, due to an increase in network providers mandated by CMS.

Other changes that will have a cost effect on premiums include changes to stand-alone dental plans, and a new requirement to pay for a 30-day supply of any new drug that a new customer had been taking—even if the drug would not have ordinarily been covered.  For the complete 2015 guidance, go here.

Insurers are rightfully concerned about the new requirements, with America’s Health Insurance Plans (AHIP) already expressing its disapproval in comments filed on the proposed changes. Insurers have just weeks to present their changes, with some deadlines beginning in April of 2014.

Many people are puzzled by media reports that center on “the doc fix” and other aspects of the Medicare and Medicaid programs, and this is to be expected, given that media outlets do a spectacularly poor job of explaining any aspect of federal health care policy, in my opinion. I’m writing this article in an attempt to broadly illustrate a basic tenet of federal health care spending, namely, price controls, and the cost-shifting to private patients that occurs because of centralized price-fixing at the federal level. I submit that this centralized pricing, which purchases on demand and without contract, health care at below-market prices, is a hidden tax passed directly to all Americans who purchase health care, or health insurance, and is a major driver, if not THE major driver, in ever increasing health care costs.

[Disclaimer: federal health care spending is so complex and obtuse that it’s extremely easy for the average person to get “lost in the weeds”, a situation tailor-made for policy wonks who feel we are all too ignorant to draw basic conclusions without their help.  This article is intended to cut through the chaff and provide a common-sense rationale for much of the current premium pricing debacle that we face. Frankly, given the behavior of regulators at the federal level, it’s astonishing to me that private insurers aren’t forced to demand double digit premium increases yearly from private payors just to stay in business.]

This column is in direct response to a clients’ question: how is the federal government purchasing health care at below-market rates? The client asked me to send him additional information on this topic, since I brought it up in a meeting. I must first confess that I provided him with a statistic, incorrectly stated: I inadvertently transposed a percentage when detailing the true costs of  federal health care costs as compared to the costs related to the private delivery of health care. I’ll fix that with this post, and provide substantial ammunition to support the idea that it is imperative that the federal government get out of the business of centralized price-controls in the health care arena. Sadly, it is very unlikely that this will happen, as the two sides on the issue are separated by a divide the size of the Grand Canyon on the heart of the matter – how to pay for and deliver health care to the nation, and by extension either control health care delivery at the federal level via central planning, or allow the free-market, and private insurers, working in harmony (important consideration) with various regulators to provide solutions to the health care woes of the nation with insurance programs that avoid rationing and expand care.

On one hand, progressive Democrats view insurance as evil, and wish to have health care costs borne by a progressive system based on a social policy of wealth redistribution through the tax code, the word “insurance” not being in their vocabulary. Conservative Republicans view health care, on the other hand,  as a free-market product that insurers, using standard reserve techniques, can provide far more economically and efficiently, without the centralization or government control demanded by progressives in their march towards utopia (a rationed utopia, at that). And it should be pointed out that Democrats have done a superb job of forcing the market conditions that have created a health care system in which there is little if any competition, where the federal government pays substantially less than the true cost of care for its Medicare/Medicaid programs, and where continued market and pricing stresses, literally created by Democrats intent on their end goal of a single-payor system, provide the perfect excuse for the federal government to proclaim that it alone can save the day, when in fact they have created the very problem they will now take pains to “fix”. But we are getting into partisan waters here, and it’s best to stick to the facts, and answer my clients’ question.

That the federal government purchases a great deal of the nations’ health care is beyond dispute. According to the Department of Justice, federal, state, and local governments pay for approximately 45 percent of total U.S. expenditures on health care. This figure, first published in 2003, is likely higher today. The problem is that Congress, rather than any free-market mechanism, approves the reimbursement schemes for much of that care – and we all know how well centrally planned price-fixing schemes usually work out. And herein lies the true problem: the controversy concerning Medicare or Medicaid isn’t that it under-pays health care providers and facilities, but that the under-payment is over-stated, or even, depending on whom you are listening or talking to, non-existent or even irrelevant. In fact, there does appear to be two schools of thought, which, coincidentally, mirror the two different philosophies of the left & the right. The left views the “underpayment” of costs related to its share of health care costs as unimportant, even illusory, due to the scale of care they are “purchasing”, and point to the complex (and politically tainted) process of Medicare price-setting as proof that all’s well with the way the feds pay for care. To explain, Medicare’s physician and other fee rates are based on the relative cost of providing services determined by what’s known as the Resource-Based Relative Value Scale (RBRVS), a system of “comparable worth” in medicine, and is itself based on “the objective theory of value, one of the fundamental tenets of Marxist economics”. This cumbersome process, updated every 5 years or so, is guided by input from the AMA, as well as others, but is ultimately set by the federal government, under the Federal Health Care Financing Administration, part of HHS, and then submitted to Congress. In the words of Michael F. Cannon, director of health policy studies at the Cato Institute, “The Medicare bureaucracy is somehow supposed to divine the correct prices for more than 7,000 distinct physician services in each of Medicare’s 89 physician-payment regions (yep, some 623,000 separate prices). And – unlike market prices – these price controls don’t automatically adjust to reflect the value of goods and services.” Central planning, at its finest.

The conservative right enthusiastically supports a contrarian view, and points out that “the hydraulics of health care“, which the left takes great pains to vigorously support as somehow necessary and equitable, and at the same time labels as overblown, is real and impacts every non-federal health care transaction. This controversy serves the left well, as it obscures the true costs associated with below-market federal reimbursement. It is, indeed, the 800 pound gorilla in the room.

To say that there is a lack of any consensus would be an understatement, and this explains the lack of clarity when discussing the impact of cost-shifting. And there is plenty of evidence, outside of left-wing policy wonks trying to re-define “costs” and “shifting”, to support the notion that federal reimbursement is below-market. Much of the evidence, as illustrated by this report, is troubling: cost shifting as a percentage of premium more than tripled over a five year time period, and appears to me to be accelerating. In fact, “employers and consumers in California pay up to 10 percent more for health care coverage because of government underpayments”, according to data compiled by Milliman for Blue Shield of California a few years ago. Even the Colorado Division of Insurance, in its most recent Annual Report, acknowledges that “..members of..Medicaid and Medicare.. typically pay less than commercially insured populations” when discussing cost-shifting.

So, an acknowledgement that cost-shifting is real and has an impact on, at least, premiums. But, how much is that impact, and how much more do private carriers and health care facilities wind up paying? In this study, The Lewin Group addresses cost-shifting relative to Medicare and Medicaid reimbursement. Lewin defined “cost-shift” as “not simply a set of differential prices as seen in the airline industry, but rather higher prices (above cost) systematically paid by one payer group to offset lower prices (below cost) paid by another payer group”[italics mine]. The study goes on to show a payment “hydraulic” (payment-to-cost-ratio) of 1.22 for private payers, compared with .95 for Medicare and .92 for Medicaid (1.00 would be cost). With a cost advantage of 5 to 7% below cost, and private insurers obligated to provide a profit to physicians and carriers in response, this represents a 30% increase in private payor costs compared to federal programs. In another article, entitled “At the Intersection of Health, Health Care and Policy”, published in Health Affairs, the authors acknowledge the Lewin Study and make note of  “The Cost Shift As A Form Of Premium Taxation” :

• “The cost-shifting dynamic places hospitals in the unenviable position of playing the role of private-sector tax collectors, to maintain their financial solvency. To the extent that public programs are not adequately funded through general tax revenues and trust funds, and the uninsured get care for which they do not fully pay, hospitals must attempt to “tax” the privately insured to make up the shortfall. Some of this shortfall is absorbed by increased hospital efficiency or a decreased emphasis on hospitals’ social missions, but much of the difference eventually resurfaces in the form of increased health insurance premiums. Employers indirectly fund the cost-shifting tax through their purchase of health insurance. They bear not only the cost of health care insurance for their employees but also a portion of the under- and uncompensated care pool. This is one reason why—aside from the underwriting cycle—private-sector employers’ payments rise faster than underlying health care costs..”

This hidden tax is estimated at 32% by some observers (in 2007, hospital payments for the care of privately insured people were equal to about 132 percent of their actual costs of care; Shields, House Ways & Means hearings). And the “cost shift” appears to be increasing: In 2007, Medicare paid on average only 91 percent of the actual cost of hospital care for Medicare patients, as shown in the original Milliman report.

America’s Health Insurance Plans (AHIP), through a spokesman, goes further: “Right now, Medicare only reimburses hospitals about 85% of their cost. It’s employees and families that are paying $1500 a year to subsidize the Medicare program.” Given the 20% or higher differential that private payors, through their insurers, pay, this translates into an almost 40% differential between what Medicare reimburses and what private payors are expected to pay for the same services.

The consensus, then, is that, even if the left characterizes “cost-shifting” as an exercise akin to differential pricing with airline tickets or new cars, pricing hydraulics exist in health care, made all the more problematic by price controls that are neither realistic or flexible, and serve to exacerbate the current difficulty with fewer and fewer insureds paying a higher and higher tariff for more and more people who, by virture of mandated government cost-shifting in the form of reduced payments for services, are provided with services at less-than-cost, primarily to save the federal government from the true cost of its social welfare programs. This, then, is the “taxation without representation” present in your health insurance premiums.

I’ll address “the doc fix” is another post, since the reduction in Medicare payments for physicians services relates directly to the hydraulics of health care, and was a central feature in the purported “savings” that Obamacare was to provide in its first ten years – an estimate that has already been wiped out with further CBO estimates, not to mention Congress’ restoring the cuts to avoid political damage to a powerful lobbying group.

We tried to tell ’em, but no one on that side of the aisle listens: health reform inevitably drives health insurance rates even higher due to mandates and required coverage benefits on every policy (in Colorado, this was made worse by action at the state, not federal, level, when the Democrat ‘super-majority’ passed mandatory maternity coverage for every individual health policy sold or renewed in the state). This year, the average premium nation-wide rose 9 percent, higher than the last two years combined.

Want the whole story? go here.

And, before you think this report is biased, read this: the Centers for Medicare and Medicaid Services (CMS) estimates the growth in health insurance costs will increase 10 extra percentage points in 2014 because of health reform – a 14 percent increase, versus 3.5 percent without the law.

In a bulletin issued March 15th, 2011, the Colorado Division of Insurance has “changed its interpretation” of their previous bulletin, issued in December of 2010, regarding maternity coverage for individual health policies issued in Colorado.

The controversy stems from a difference between the “applicability clause” in the enabling legislation, HB 10-1021, and the statute, as enacted. The applicability clause states that maternity coverage was to be provided for both issued and renewing policies, while the statute, as enacted, calls for maternity coverage to be provided only for “issued policies”. The Divisions’ initial guidance under the previous Bulletin did not require the coverage on renewal policies.

In it’s new bulletin, the Division, after “further statutory review”, finds that, in its opinion, the provisions of HB-10-1021 does indeed require coverage for maternity expenses for issued and renewing individual sickness and accident insurance policies and health care coverage contracts, reversing in toto it’s previous position, without showing any specific reason or legal basis for the change in its position.

Now, it’s no secret that this Bill was controversial, rammed through a Democrat-controlled legislature without any input from either the industry or the minority, and signed by the Governor post-haste. While touted as a “reproductive services” bill that ensured fairness, in actuality there is no fairness in requiring males of any age, children, and females of non-child bearing years to pay for this expansion of maternity coverage. Certainly, purchasing individual health insurance with maternity coverage was available in Colorado – so, what was the point of the legislation?

Colorado’s Democrat legislators have been attempting to recast the individual health insurance market as the mirror image of the small group market for years, and this legislation is one result of that thinking. The downside to this, and the biggest problem, is the cost to such a policy. Anyone who looks at group coverage, as compared to individual coverage, is aghast at the price, a point most Democrats seemingly ignore, and which has contributed to the decline in Colorado’s small group insurance pool, especially since the repeal of risk-based premium provisions in the small group market.

A quick analysis of the rates now being charged for individual health policies shows that the legislation has, indeed, made individual health insurance policies more expensive, and will have a negative effect on new policy issuance in Colorado. One wonders if that was the intent of the legislation – after all, with higher premiums, a certain segment of the population is locked out of the market, just simply based on price. If one can only buy Cadillacs, rather than something cheaper, does one simply not buy? This has the effect of increasing the pool of un-insureds in Colorado,  rather than expanding the pool of covered individuals, regardless of what the PR coming from Democrats would suggest.

Let’s not forget that Colorado residents lost a strong carrier when Aetna withdrew from the Colorado market due to this legislation. Will we have others withdraw, as well? One only needs to look at the disastrous outcome of the Kentucky health insurance market (and others, notably New Jersey) to see what will transpire as more and more carriers flee the state because of their inability to expand the risk pool because of high premiums, mandated benefits, and hostile regulatory and legislative actions.

Of course, Democrats have us covered there, too: their real solution is to get rid of all carriers and saddle the residents with a single-payor system. I shudder to think what that will cost in higher taxes and job loss.

Lastly, to add insult to injury, the Division, in its decision requiring maternity coverage in all policies renewing after January 1st, 2011, has authorized carriers to retroactively charge additional premium for the coverage, assuming the carrier has filed and has approved such premium. Even if the carrier has not filed for rates relative to renewal maternity coverage, the Division will allow such retroactive charges, once rates are approved, to the policyholder.

I’ll research and comment on the average rate increases this latest exercise in “fairness” will cost the average Colorado health insurance consumer in another post, assuming that such information is even available.

This should really not come as any surprise to anyone who has followed Aetna and it’s on-again/off-again history in Colorado:

“Aetna retrenches in Colorado” – read, exit, stage left, once again.

Perhaps a quick look at the not-too-distant past is in order. Aetna, in a snit to this observers’ mind, left the Colorado market with the first whiff of “reform” that passed through Colorado in about 1995; this was the same period, more or less, marked by Roy Romers’ threat to put all of Colorado on a single-payor system unless the legislature enacted health insurance reform. And a bunch of recalcitrant, big name insurers (and a non-profit, if memory serves) had to be dragged, kicking and screaming, into the small group market, which they had avoided like the plague for eons. Exit number one for Aetna.

Then, in 1997, Aetna decided to come back into the state with the purchase of Frontier Community Health Plans, Inc., a small and fragile managed care company based here in Colorado. Known back then as Aetna U.S. Healthcare, they made quite a thing of being able to offer a variety of HMO-based products in Colorado – just before the crash-and-burn of HMOs and “managed care”.

And now, we have exit number two. Unless they buy someone (again), Aetna will be barred from re-entering the Colorado market for five years.  (By that time, individual plans will look, and cost as much, as small group plans do now. Care to guess how many people will be forced to drop their coverage?)

To its credit, Aetna grew its individual business here, eventually becoming the sixth largest provider of individual health plans. With its decision late last year, in the wake of health care reform, which mandates a minimum loss ratio for small and large group carriers, to leave the  small group market, Aetna set the stage for the abandonment of the Colorado insurance market once again, just as it did in the mid-nineties.

Now, don’t get me wrong – I have no problem with any private sector corporation doing what it needs to do to survive in a bad economy. But from this agents’ perspective, Aetna always seemed more interested in protecting their bottom line the easy way, rather than stay and slug it out in a “competitive” environment, like some others have – Anthem, United Healthcare, and Assurant Health, to name three. Even some that aren’t particularly competitive in terms of product or premium make up for those weaknesses with superior service and other products – or they remain as admitted carriers who aren’t actively in the market, as any veteran of the health insurance biz in Colorado will attest to.

Unfortunately, we have less and less competition in the group or the individual market in Colorado than ever before, and much of the blame for that can be laid directly at the feet of the legislators who feel that doing everything they can to make things “fairer” is the answer to controlling costs (hint: it isn’t). One only has to look at the cloistered relationship between legislation/regulation and admitted carriers to understand that, to a degree, existing carriers in Colorado don’t really want more competition, and legislators, at least on the Democrat side, are all the more interested in making it harder to compete here in any event, thereby strengthening the hand of the existing carriers at the expense of any other carrier who wants to do business here but can’t or won’t risk insolvency for the privilege of serving Colorado and its shrinking small business and other health insurance base. Certainly, mandating “reproductive services” (mandatory contraceptive and maternity coverage) for all new individual policies sold in the state, in the name of equality and fairness, won’t attract any new carriers, and likely played a hand in Aetnas’ exit, as well.

Hint: That individual policy you have, right now? It just became a whole lot more valuable.

On one hand, I wish Aetna had stayed – we need the competition. By the same token, leaving when things get , well, tough, isn’t endearing, either. Maybe Aetna just needs to admit that it can’t live on the paper-thin profits of the health insurance industry – after all, when was the last time Wall Street was bullish on health insurance? Especially with the individual mandate, the dubious gift hailed by John McCain, Mrs. Clinton, and by POTUS Obama, all but dead and gone for now, skewered on the sword of a Federal Judge who understands the constitutional mandate of limited federal power. Too bad that no one thought of that before they passed the bill – so that we could read what was in it, of course.

An excellent article posted at Patient Power, the health care policy blog at The Independence Institute. The Colorado Division of Insurance is claiming that, for small group policies in 2010, premiums will climb an additional 5% due to the effects of new Federal requirements, while individual plans will climb up to 7.8%.