[Senate Hearing 111-960]
[From the U.S. Government Publishing Office]
S. Hrg. 111-960
ADDRESSING INSURANCE MARKET REFORM IN NATIONAL HEALTH REFORM
(ROUNDTABLE
DISCUSSION)
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
ON
EXAMINING ADDRESSING INSURANCE MARKET REFORM IN NATIONAL HEALTH REFORM
__________
MARCH 24, 2009
__________
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
EDWARD M. KENNEDY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut MICHAEL B. ENZI, Wyoming
TOM HARKIN, Iowa JUDD GREGG, New Hampshire
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
JEFF BINGAMAN, New Mexico RICHARD BURR, North Carolina
PATTY MURRAY, Washington JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island JOHN McCAIN, Arizona
BERNARD SANDERS (I), Vermont ORRIN G. HATCH, Utah
SHERROD BROWN, Ohio LISA MURKOWSKI, Alaska
ROBERT P. CASEY, JR., Pennsylvania TOM COBURN, M.D., Oklahoma
KAY R. HAGAN, North Carolina PAT ROBERTS, Kansas
JEFF MERKLEY, Oregon
J. Michael Myers, Staff Director and Chief Counsel
Frank Macchiarola, Republican Staff Director and Chief Counsel
(ii)
?
C O N T E N T S
__________
STATEMENTS
TUESDAY, MARCH 24, 2009
Page
Bingaman, Hon. Jeff, a U.S. Senator from the State of New Mexico,
opening statement.............................................. 1
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 2
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas....... 3
Brown, Hon. Sherrod, a U.S. Senator from the State of Ohio....... 4
Prepared statement........................................... 5
Hagan, Hon. Kay R., a U.S. Senator from the State of North
Carolina....................................................... 7
Trautwein, Janet, Executive Vice President and CEO, National
Association of Health Underwriters, Arlington, VA.............. 8
Prepared statement........................................... 9
Williams, Ronald A., MS, Chairman and Chief Executive Officer,
Aetna, Inc., Hartford, CT...................................... 19
Prepared statement........................................... 20
Pollitz, Karen, M.P.P., Research Professor, Health Policy
Institute at Georgetown University, Washington, DC............. 25
Prepared statement........................................... 25
Ignagni, Karen, M.B.A., President and CEO, America's Health
Insurance Plans, Washington, DC................................ 31
Prepared statement........................................... 32
Nichols, Len, Ph.D., Director, Health Policy Program at the New
America Foundation, Washington, DC............................. 41
Prepared statement........................................... 42
Baicker, Katherine, Ph.D., Professor of Health Economics,
Department of Health Policy and Management at the Harvard
School of Public Health, Cambridge, MA......................... 46
Prepared statement........................................... 47
Praeger, Sandy, Health Insurance Commissioner, State of Kansas,
Kansas City, KS................................................ 53
Prepared statement........................................... 54
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Senator Enzi, prepared statement............................. 90
Response to questions of Senator Hatch by:
Karen Ignagni, M.B.A..................................... 91
Sandy Praeger............................................ 92
Katherine Baicker, Ph.D.................................. 93
Ronald A. Williams, MS................................... 93
Len M. Nichols, Ph.D..................................... 98
(iii)
ADDRESSING INSURANCE MARKET REFORM IN NATIONAL HEALTH REFORM
(ROUNDTABLE DISCUSSION)
----------
TUESDAY, MARCH 24, 2009
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:05 a.m. in
Room SD-430, Dirksen Senate Office Building, Hon. Jeff Bingaman
presiding.
Present: Senators Bingaman, Harkin, Brown, Casey, Hagan,
Merkley, Burr, Hatch, Coburn, and Roberts.
Opening Statement of Senator Bingaman
Senator Bingaman. OK. Why don't we get started? We have a
few people here, and we thank everybody for coming.
Senator Enzi, I am told, is snowed in Appropriations
Wyoming and is not able to be here. Senator Roberts is going to
fill in for him and is on his way. But since we have several
Senators here, why don't we go ahead and get started?
Let me make a few comments here and then ask any other
Senator that wants to make comments to do so. Then we will turn
to our witnesses, and we have sort of set this up as a
roundtable discussion so that we don't have it as formal as
usually is the case with hearings.
This is the second in a series of hearings that were
designed to explore key issues surrounding legislation to
provide meaningful and affordable health insurance for all
Americans. Today's hearing focuses on the insurance market
reforms that are needed to achieve that goal. Particularly, it
is focused on small group and individual insurance markets, and
we thank all the panelists for being here.
Approximately 60 percent of Americans receive their
coverage today, their private insurance coverage from large
employers. That is employers with 50 or more employees.
Insurance offered through these employers include many
protections, such as requirements that insurance companies
provide coverage to all interested employees, the creation of
large risk pools to spread the cost of coverage, and
prohibitions on excluding coverage for specific pre-existing
conditions.
In contrast, the coverage in the individual market is much
less predictable, and regulations governing this market vary
considerably from State to State. Individuals may or may not
have important protections to ensure that coverage is
meaningful and affordable.
For example, individuals may have critical health
conditions that are excluded from coverage, or they may have
very high cost-sharing requirements or be excluded from
coverage altogether based on broad nonmedical characteristics.
For example, older individuals on average are charged six times
more for a policy than younger individuals, and women may be
charged as much as 50 percent more for coverage than their male
counterparts.
The National Women's Law Center indicates that it is still
legal in nine States for insurers to reject individual
applicants on the basis of having experienced domestic
violence. In the end, about 30 percent of individuals applying
to the individual insurance market are either denied a policy
or are forced to pay significantly more for coverage, and only
about 15 million to 17 million Americans purchase policies on
the individual market.
As to the small business or small group market, that is,
frankly, a market very relevant in my State, where most of the
employers are small employers. In this market, like in the
individual market, it is more difficult to spread risk because
of the small size. Similarly, small employers have less
bargaining power to negotiate affordable and meaningful
coverage.
In many cases, small businesses have found it difficult to
find affordable and meaningful coverage and have chosen not to
provide health insurance to their employees. According to the
Kaiser Family Foundation, less than two-thirds of small
businesses offer health benefits to their employees, and this
problem is apparently getting worse. Ninety percent of the
decline in employer-sponsored coverage has been attributed to
small businesses.
So we want to explore these issues with this group of
panelists. I was told that Senator Roberts was going to come
and stand in for Senator Enzi here. He is not here. Let me just
see if Senator Hatch--excuse me? Oh, here. He arrives right
now. OK.
Senator Roberts. What are you doing down there?
[Laughter.]
Senator Bingaman. Come on down here. We are waiting for you
to tell us what you know on this subject.
While I am doing that, I will just call on Senator Hatch
and any other Senator who wants to make any initial statement
here before we get into this.
Senator Hatch. Do you want me to go?
Senator Bingaman. Go right ahead.
Statement of Senator Hatch
Senator Hatch. Well, we welcome all of you experts here
today. It is very important because we know that insurance is
one of the most important issues that we have in all of
healthcare, and I don't believe you can do a healthcare bill
without resolving some of the problems that exist in the
insurance industry.
You folks, you do a lot of good for the industry, but there
are also a lot of things that are challenges and problems that
we have got to work out. Insurance market reform, there is no
question about it, is a critical piece of any kind of
healthcare reform if we are going to do it at all.
I think virtually everybody agrees that reform is
necessary, and the question is what reforms should be
implemented, both on the State and Federal levels? I am going
to be very interested in what you have to say here today. We
have chatted with a number of you in the past, and we are very,
very impressed with this panel.
We welcome you to the Senate. We look forward to hearing
from you.
Thanks, Mr. Chairman.
Senator Bingaman. All right. Senator Roberts, did you want
to go ahead?
Statement of Senator Roberts
Senator Roberts. Yes, sir. Thank you very much.
I apologize to the group for being late. I was just
finishing up finally reading the entirety of the stimulus bill.
That is a joke. That is not--well, it is not a joke.
Senator Bingaman. Please continue to tell us whenever you
do tell a joke.
Senator Roberts. Yes. OK.
[Laughter.]
OK. Mr. Chairman, I want to thank you for holding this
roundtable today, and I want to pass on Senator Enzi's thanks
as well for the members of the committee. I know he would like
to be here with us today, but the weather in Wyoming is not a
very good situation. The weather had other ideas. He is
starring in that movie, ``I Am Snowed In In Wyoming.''
I understand the staffs worked very closely to plan today's
roundtable, as well as set an agenda for two additional
roundtables in the future. This is a very good thing. I
appreciate that. I know Senator Enzi does as well, as does the
chairman.
I think we have a stellar panel. I am looking forward to
hearing from our experts and getting into the details of
insurance market reforms. I believe it is very helpful to hear
from people that have actually enacted policies in the real
world. This is called reality, a reality hearing. You can tell
us what you did right, what you did wrong, and how you would
improve things moving forward.
As a Senator from the State of Kansas, I could not be more
proud that one of these experienced people on our panel today
is Kansas insurance commissioner, former Kansas legislator, and
my very good friend Sandy Praeger.
Commissioner Praeger was first elected as the Kansas
insurance commissioner in 2002, went on to re-election in 2006.
Her health insurance expertise and her leadership abilities
have also been recognized at the national level. She is the
most immediate past president of the National Association of
Insurance Commissioners.
In addition, she has experience as a past mayor of the city
of Lawrence, no small task. Lawrence, that is the home of the
Jayhawks, right? Right. That comes from a Wildcat, Mr.
Chairman. You would have to understand that if you were from
Kansas.
A past member of both chambers of the Kansas legislature. I
am so pleased that Sandy could be here today to share her
considerable experience with health insurance market regulation
with this committee.
Thank you, Sandy, and thank you to all of our panelists for
taking time out of your very valuable schedule to be here
today. I look forward to hearing from you.
I hope the members of this committee can learn from all of
our witnesses and use that knowledge to better inform their
decisions on healthcare reform legislation. Healthcare reform
will be difficult. There will be tradeoffs with any policy we
devise. Insurance reforms all result in tradeoffs.
Rating rules are a perfect example. We must be cautious
when considering reforms that may result in unaffordable prices
for our young and healthy. We need those folks to participate
because they help keep costs down. However, ensuring access to
quality insurance for those struggling with health conditions
is, I hope, our top priority.
Our job here is to find a balance that accomplishes our
goals but doesn't create a disruption in our insurance
marketplace. While it is critical we get the policy of
insurance market reform right, I would be remiss if I didn't at
least mention the perils of the process. Without the right
process, we can't move forward on the best healthcare reforms
for the American people. I doubt seriously if we can do this in
100 days.
If those in the majority attempt to use the budget
reconciliation process to put healthcare reform through the
Senate--or a better word would be ``jam''--they will be sending
a clear signal that they are not interested in a truly
bipartisan effort.
With that, I look forward to our witnesses to make
recommendations on how we should shape policies of healthcare
reform.
Mr. Chairman, thank you again for holding this roundtable.
Senator Bingaman. Well, thank you again. Thank you.
Let me just see if Senator Brown or Senator Coburn or
Senator Hagan wish to make any statement?
Statement of Senator Brown
Senator Brown. Just a few comments. Thank you, Mr.
Chairman, for your leadership.
Thank you all, members of the panel, for your distinguished
service to our country and for being here today.
Recently, a couple of weeks ago, my office conducted a
seminar, if you will, for the five new Ohio House members
elected last year, bipartisan, some in both parties--new House
members from my State--to talk about case work and to sort of
help them work their way through these first months in office
in dealing with all the problems that people bring to our
offices. And obviously, one of the issues that comes up so
frequently is how do you deal with health insurance companies?
I think we all--our offices, if we are paying attention--
all of our offices spend an awful lot of time fighting with
insurance companies on behalf of our constituents. Insurance
companies that often, and probably the perception of many,
discriminate based on age and gender or medical history.
Insurance companies that seem to put restrictions on treatments
and prescription drugs that patients get, the wait for
reimbursement, the wait to pay claims, and pre-existing
conditions. All of the issues that we have disagreements on and
that it is our job as elected officials to fight for our
constituents to be treated fairly.
Let me share one real quick story about all of this that
may bring this home in some sense. A woman named Deborah from
Summit County, Ohio--the city of Akron is the county seat
there--she is one of the 50 million Americans left out of our
healthcare system because she lacks insurance, she can't get
insurance.
Her income is too high for Medicaid. Her pre-existing
condition--she has had two heart attacks. She has a spinal
injury. Those conditions disqualify her from finding private
insurance in the private market, her inability finding
affordable insurance in the private market--no surprise there.
She wrote to me,
``My only option is to start paying for my funeral.
While everyone on Capitol Hill argues the point, people
are suffering and dying. America proclaims itself the
wealthiest and most powerful Nation in the world. If
that is the case, why do we have people suffering and
dying for lack of simple healthcare?''
We know what we need to do this year, and I think Deborah's
words speak it certainly more persuasively than any of us
could.
Last point, Mr. Chairman, I think that the President is
right when he said there should be an option like the original
Medicare, some public option to bring competition. Competition,
as we hear from our friends in the insurance industry and hear
from people on all sides of political debates, competition is
the American way. It is healthy for our society.
I think competition in healthcare with a public option,
whether it takes the form of FEHBP in some case, some sense, or
a public, more Medicare look-alike option is a good thing, I
think, for the insurance industry. It is a good thing for the
country, and it is something that this committee I think should
and will pursue.
I again thank the chairman for having this hearing today.
[The prepared statement of Senator Brown follows:]
Prepared Statement of Senator Brown
I want to first thank the Senator from New Mexico for
holding this important hearing. He has been doing a great job
leading the HELP working group on coverage and I look forward
to working closely with him as our committee's effort to reform
the health care system moves forward.
I think we can all agree that the private health insurance
market in this country is broken.
Every day I hear from constituents who are frustrated:
with health insurance that is nearly impossible to
afford;
with health insurance that fails to protect them
from catastrophic health costs;
with health insurance that openly discriminates
based on their age, gender, location, or medical history;
with health insurance that puts onerous
restrictions on which providers patients can see and on which
treatments and prescription drugs they can get;
with health insurance that waits literally months
to pay claims, or requires enrollees to fight for every penny
the insurer owes;
and with health insurance that doesn't respond to
customers' questions, problems, and appeals.
Take, for example, Debra from Summit County, Ohio. She is
one of the nearly 50 million Americans locked out of our health
care system because she lacks insurance. Her income is too high
for Medicaid, and her pre-existing conditions--she has a spinal
injury and is recovering from two heart attacks--disqualify her
from finding affordable insurance in the private market. As a
result, she has piled up thousands of dollars in unpaid bills
and is in constant pain.
She writes, ``My only option [is] to start paying for my
funeral. . . .While everyone on Capitol Hill argues the point,
people are suffering and dying. . . . America proclaims itself
the wealthiest [and] most powerful Nation in the world. If this
is the case, then why do we have people suffering and dying for
lack of simple health care?''
Or then there are those, like Barbara and Allen from
Lyndhurst, Ohio, who have what is considered very good
insurance, but it was not enough to protect them from a rash of
bad luck.
Barbara was diagnosed with a rare form of muscular
dystrophy 15 years ago. She has insurance, but the payments for
the chronic disease management she needs are not sufficient to
ensure access. In fact, the local hospital sometimes refuses to
admit her because it would rather fill its beds with more
lucrative patients.
Allen developed stage 4 Non-Hodgkin's lymphoma while
working as a physician for a medical center in Cleveland;
though he recovered from the disease he was forced out of his
job and now is discriminated against by potential employers
because his medical status skews the risk pool that insurers
use to price their plans. Unfortunately, these stories are not
unique. They represent the experience of thousands of Ohioans
and millions of Americans who are being ill-served by the
private health insurance market.
And it is because of stories like these that I am skeptical
of any health reform proposal that relies solely on the private
insurance market to solve all of our problems.
It is private insurers who decided to experience-rate
enrollees and apply pre-existing condition exclusions, which
has skewed risk pools, forced Federal and State Governments to
cover more Americans, and enriched insurers by allowing them
not to do their jobs.
It is private insurers who have set ``reasonable and
customary'' reimbursement rates so low that balance billing has
become the norm and ``participating'' providers an endangered
species.
It is private insurers who instruct their claims personnel
to deny claims first so they can hold on to premium dollars for
as long as possible.
Private insurers have helped to create a system of winners
and losers, a system in which insured individuals can still be
bankrupted by health expenses and uninsured individuals can die
far too young because they can't get the care they need.
There are good insurers and bad insurers, but the private
insurance system is not, by any stretch, the complete answer to
any question in health reform.
Insurance reform is positive, insurance reform is
essential, but insurance reform is only a piece of the health
reform puzzle.
There are those who believe that health reform can be
achieved by tightening insurance regulation.
When the Medicare Advantage program was launched, private
insurers promised that taxpayers would get better coverage at a
lower price.
Medicare remains far more popular, with far fewer
complaints, than Medicare Advantage, and taxpayers are paying
significantly more for Medicare Advantage than they are for
Medicare.
Private insurance reform isn't a panacea. Regardless of
what insurance reforms we apply, President Obama is right that
there should be an option like original Medicare for Americans
to choose--the competition will be healthy, and those Americans
who want to avoid health plans tethered to profit targets
should have another choice.
I am looking forward to today's testimony and know it will
be helpful. Health reform is a puzzle we can solve; this is one
of the pieces that will help get us there.
Thank you, Mr. Chairman.
Senator Bingaman. Senator Coburn.
Senator Coburn. I will pass.
Senator Bingaman. Senator Hagan.
Statement of Senator Hagan
Senator Hagan. Thank you, Mr. Chairman.
I would like to welcome all of the panelists here.
I think this issue is one of the biggest issues facing the
Nation right now, the affordability, accessibility, and in
particular, the portability of insurance so that people can
change jobs, especially those with pre-existing conditions. I
think this roundtable will help bring some of this to light.
It is certainly a huge issue facing our country today, and
I am thrilled to be at the table.
Thank you.
Senator Bingaman. Well, thank you.
Let me just very briefly introduce this distinguished group
of witnesses we have here.
Janet Trautwein is the executive vice president and CEO of
the National Association of Health Underwriters in Arlington,
VA. Thank you for being here.
Ronald Williams is chairman and chief executive officer of
Aetna, a leading diversified health insurance company.
Karen Pollitz is a research professor at the Health Policy
Institute at Georgetown University. Thank you for being here.
Karen Ignagni--am I pronouncing that right? OK. President
and CEO of America's Health Insurance Plans, a trade
association that represents the Nation's health insurance
organizations.
Len Nichols directs the health policy program at the New
America Foundation and has a distinguished background in these
issues as well.
Katherine Baicker is a professor of health economics at the
Department of Health Policy and Management at Harvard School of
Public Health. Thank you very much for being here.
And Ms. Praeger was just introduced, Commissioner Praeger.
So we welcome you as Kansas's 24th commissioner of insurance,
and we appreciate you all being here.
I guess the idea here was to have you each take a couple of
minutes and tell us the most important things you think we need
to be aware of in trying to understand the issue and how to
proceed. I think that, at least from my perspective, the real
issue is what are the most critical reforms that we need to try
to enact in these areas?
Ms. Trautwein, why don't you go ahead? Then we will just go
down the panel, and after we have heard from all of you, then
we will have questions.
STATEMENT OF JANET STOKES TRAUTWEIN, EXECUTIVE VICE PRESIDENT
AND CEO, NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS,
ARLINGTON, VA
Ms. Trautwein. Thank you, Mr. Chairman.
I really am very pleased to be here today. This is a very,
very important topic. The rising cost of health insurance is a
problem that is driven by the rising cost of healthcare itself.
As a part of any health reform package, I just want to stress
that it is essential that we do everything possible to lower
healthcare costs.
Keep in mind that of every premium dollar, 88 percent
nationwide goes to cover claims, which is healthcare itself. I
do also believe and NAHU believes that any health reform
package should also include some very important health
insurance reforms and that we can do this in a way that is both
effective and affordable.
Now our members are benefit specialists. They help
individuals and businesses purchase coverage on a daily basis.
After the coverage is purchased, they also work with them
through any problems that come up, and we are very familiar
with what kinds of problems those are.
In fact, this service aspect of their jobs is the biggest
part of their jobs, and it is something that most people are
not aware of. There is a lot to do with not only getting
coverage in place, but keeping it in force.
It gives us kind of a unique ability, this very frequent
interaction with consumers, to understand what the greatest
issues are. I will share what some of those are very briefly.
The biggest response that we get from most people who are
covered by employer-sponsored plans, as you indicated, is that
they love their employer-sponsored plans. I would just start
off saying that we strongly believe that any reform package
should include employer-sponsored coverage as its core. That is
for large and small employers.
We do have, today already, about 14.5 million Americans
that are already in the private individual health insurance
market because either they choose to purchase individual
coverage or employer-sponsored coverage is just not available
to them. It is for this reason that we have looked very, very
carefully at the individual market, which we think is a key
place to start with reforms.
We have put together 10 very specific policy
recommendations, which I am happy to go through during the
course of our discussion today. But in general, what those
recommendations do is ensure that coverage is available to
everyone regardless of their health status, that everyone can
afford coverage that is not only there and available to them,
but they can pay for it, that it is affordable to them. I have
included a lot of detail in my written statement.
I would also say that some of our recommendations also have
to do with portability, and greater portability than what
people have today. They have to do with what happens when they
leave a group plan, and let us say they are going to start
their own business and what faces them and what are the options
in the event that they have a chronic health condition, but
they still are going to start this business? What is available
to them?
This is what our recommendations revolve around, and I do
just want to applaud you for putting this together. I think
this discussion is so important, and I think we have a lot of--
my fellow panelists are just excellent, and I think that we
will have a good discussion this morning.
[The prepared statement of Ms. Trautwein follows:]
Prepared Statement of Janet Stokes Trautwein
EXECUTIVE SUMMARY
The National Association of Health Underwriters (NAHU), a
professional trade association representing more than 20,000 health
insurance agents, brokers and benefit specialists nationally, whose
members help individuals and businesses purchase private health
insurance coverage on a daily basis, feels that we must keep private
individual health insurance coverage accessible and affordable for all
Americans. Although we strongly feel that any health reform effort
should be centered on employer-sponsored plans, it is critical that we
look first at the individual market to be certain that it functions
effectively and affordably for those who purchase coverage there. Since
each State's individual market is uniquely regulated, consumers in some
States are faring better than in others, but no State's individual
health insurance market is problem-free.
Americans deserve to see what can be done at the Federal level to
provide better access to individual coverage for everyone who needs it,
and great care needs to be taken when implementing these market reforms
on a national level so that coverage is affordable. No matter how
``fair'' a market-reform idea might seem on its surface, it's not at
all ``fair'' if it also prices people out of the marketplace.
NAHU has developed 10 specific policy recommendations to ensure
that all people, regardless of their health status and pre-existing
medical conditions, have the ability to purchase affordable private
individual coverage. It should be noted that some of these requirements
may need to be present only during a transition process to complete
guaranteed issuance of coverage. However, they still are quite
important to achieving the affordability of coverage so crucial to
getting everyone in the system. Our proposed requirements could either
be enacted as part of a transition process to complete guaranteed
issuance of coverage or they could be stand-alone requirements. Our
recommendations are to:
1. Require guaranteed access to individual coverage and with State-
level financial backstops for catastrophic risks.
2. Give pre-existing condition credit for prior individual market
coverage to ensure true health insurance portability from one
individual market policy to another.
3. Standardize State requirements regarding the consideration of
pre-existing conditions.
4. Improve Federal group-to-individual coverage portability
provisions so that people can transition directly from employer
coverage to individual coverage without hurdles.
5. Stabilize individual market rates by requiring more
standardization as to how individual market carriers determine pricing.
6. Increase consumer protections regarding individual market
coverage rescissions.
7. Make it easier for employers to help people purchase individual
health insurance.
8. Provide Federal financial assistance to keep individual health
insurance coverage affordable, including enhanced deductibility,
subsidies for low-income individuals, and Federal financial support for
qualified State financial backstop programs.
9. Ensure that all Americans have health insurance coverage.
10. Allow State implementation of enhanced consumer protections
with a Federal fallback enforcement mechanism.
NAHU urges Congress to carefully consider these ideas and we look
forward to working with policymakers to fill the gaps in our Nation's
coverage system and to make private individual health insurance
coverage more affordable and accessible for all Americans.
______
NAHU's Solutions to Create Accessible and Affordable Individual Health
Insurance Coverage Nationwide
The National Association of Health Underwriters (NAHU), a
professional trade association representing more than 20,000 health
insurance agents, brokers and benefit specialists nationally, feels
that American policymakers must do everything they can to keep private
individual health insurance coverage accessible and affordable for all
Americans.
As an association of benefit specialists who help individuals and
businesses purchase private health insurance coverage on a daily basis,
we know that the vast majority of Americans are happy to receive their
health insurance coverage through the employer-based system. Our
association believes that any health insurance market reform effort
should include the employer-based system as its core. But even though
it works well for many people, the employer-based system isn't an
option for everyone. Approximately 14.5 million Americans have private
health insurance coverage that is not connected with an employer-
sponsored plan.\1\
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\1\ Urban Institute and Kaiser Commission on Medicaid and the
Uninsured estimates based on the Census Bureau's March 2007 and 2008
Current Population Survey (CPS: Annual Social and Economic Supplements)
http://www.statehealthfacts.org/comparebar.jsp?ind=125&cat=3.
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BACKGROUND ABOUT INDIVIDUAL HEALTH INSURANCE COVERAGE
Since the individual market is so small nationally (only about 5
percent of the non-elderly population has such coverage) and each
State's individual market is separate, the ability of an insurer in any
given State to spread costs and risks across a large pool is very
limited. Individual-market risk spreading is even more complicated
because that market is prone to a phenomenon known as adverse
selection. Adverse selection occurs when a person delays buying an
insurance product until he or she anticipates an immediate need for the
benefit. Since individuals always know more about their own health
status than anyone else does, and because all of the cost of buying
individual health coverage is generally borne by the insured, the
amount of adverse selection and poor risk spreading occurring in the
individual market is very high. This has a direct impact on the pricing
of individual-market policies.
The States are the primary regulators of individual health
insurance policies. This is in contrast to the group health insurance
market, where fully insured plans are governed primarily by State law
but self-funded health plans are governed federally under the Employee
Retirement Income Security Act of 1972 (ERISA). Since each State's
health insurance regulatory requirements vary, State-specific
regulations often impact the types of individual policies available in
each State and their cost. The cost variance from State to State is
dramatic. Some of the States that have gone to the greatest lengths to
ensure equal insurance access actually have the highest coverage
costs.\2\
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\2\ For example, a PPO individual health insurance policy for a 37-
year-old male living in Haddonfield, NJ, (a suburb of Philadelphia)
with a $1,000 deductible and 80/20 percent coinsurance would be $514/
month for coverage beginning on February 1, 2009. New Jersey guarantee
issues all individual health insurance policies and prices them based
on a modified community rate. A comparable policy could be issued to
the same male living in Wayne, PA, (also a Philadelphia area suburb 22
miles away from Haddonfield, NJ) for $170 a month. Pennsylvania
medically underwrites its individual policies and imposes pre-existing
condition look-back and exclusionary periods.
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Our States have proven to be an excellent laboratory for health
reform and have given us some great examples of what does and does not
work when it comes to providing choice and affordable premiums for
individual health insurance buyers. Unfortunately, the great
innovations provided by the States have not produced much consistency.
Furthermore, State-level consumer protections have sometimes proven to
be inadequate, resulting in some people not being able to obtain the
coverage they need at all or at an affordable price.
COVERAGE FOR EVERYONE
One of the greatest problems with individual health insurance today
is that not all Americans are able to purchase coverage. In some
States, people with serious medical conditions who do not have access
to employer-sponsored plans cannot buy individual coverage at any
price.
One of the simplest ways to address the access issue in the
individual market would be to require that all individual health
insurance policies be issued on a guaranteed-issue basis without regard
to pre-existing medical history. However, in addition to being
accessible to all Americans, individual coverage also must be
affordable. It would be unwise to require insurers to guarantee-issue
individual coverage to all applicants unless a system where nearly all
Americans have coverage and full participation in the insurance risk
pool has been achieved. Due to their small size and the propensity
towards adverse selection, State individual health insurance markets
are very fragile and price-sensitive. Also, there currently is no
controlled means of entry and exit into the individual health insurance
market independent of health status, like there is with employer-group
coverage. Without near-universal participation, a guaranteed-issue
requirement in this market would have the perverse effect of
encouraging individuals to forgo buying coverage until they are sick or
require sudden and significant medical care. This, in turn, would
undermine the core principle of insurance: spreading risk amongst a
large population. The result would be exorbitant premiums like we
currently see in States that already require guaranteed issue of
individual policies but do not require universal coverage or have a
financial backstop in place.
Great care needs to be taken when implementing market reforms on a
national level to not inadvertently cause costly damage to the existing
private-market system. No matter how ``fair'' a market-reform idea
might seem on its surface, it's not at all ``fair'' if it also prices
people out of the marketplace.
recommendations to achieve near-universal coverage
To bring everyone into the health coverage system, NAHU believes
that Congress would be wise to look at our existing system for holes
and examine what the States have done to successfully fill those
coverage gaps. A few simple reform measures would go a long way toward
extending health insurance coverage to millions of Americans. State
small-group health insurance markets and consumers ultimately benefited
from the passage of Federal Health Insurance Portability and
Accountability Act of 1996 (HIPAA); a similar measure that preserves
State regulation and consumer protections for individual-market
consumers but would also make coverage options more consistent and
affordable is warranted.
Such requirements could either be enacted as part of a transition
process to complete guaranteed issuance of coverage or they could be
stand-alone requirements. In either case, NAHU believes that the
following policy recommendations would have a profoundly positive
impact on individual health insurance market access and affordability
nationwide.
Recommendation 1: Require Guaranteed Access to Individual Coverage with
Qualified State-level Financial Backstops for Catastrophic
Risks to Keep Coverage Affordable
Federal access protections in HIPAA ensure that small-group health
insurance customers and individuals leaving group health insurance
coverage under specified circumstances must have at least one
guaranteed-purchasing option. But these Federal protections do not
apply to everyone. People purchasing coverage in the traditional
private individual health insurance market who are not transitioning
from an employer's plan do not have Federal guaranteed-issue rights.
That means right now, in a number of States, there are people with
serious medical conditions who cannot buy health insurance at any
price.
Furthermore, in many of the 45 States \3\ that have independently
established at least one mandatory guaranteed-purchasing option for
individual-market consumers with serious health problems, there are
still access problems due to design flaws. For example, some States
have required that all people be guaranteed access to all coverage on
an immediate basis, without regard to health status. Unfortunately,
merely requiring guaranteed issuance of individual coverage has led to
adverse selection and, consequently, very high premium rates that
create a barrier to entry for most consumers. On the other hand, in
some States that allow for the consideration of health status, there
can be a great deal of inconsistency in what types of risks are deemed
to be uninsurable by individual carriers. Also, States with a high-risk
health insurance pool often have funding difficulties that can result
in high premiums and pool instability, both of which can be a barrier
to entry.
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\3\ The States without a guaranteed-access mechanism are Arizona,
Delaware, Georgia, Nevada and Hawaii. Furthermore, Florida's high-risk
pool has been closed to new applicants since 1992, so it effectively
also has no access mechanism for new medically uninsurable individuals.
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While the mechanism for access to health care coverage may vary
from State to State, access should not be denied to any American. The
Federal Government should immediately require that all States have at
least one guaranteed-purchasing option for all individual health
insurance market consumers. But, beyond that, the Federal Government
should also stipulate that a guaranteed-issue mandate, a designated
carrier of last resort or a high-risk health insurance or reinsurance
pool alone may not be a sufficient means of providing guaranteed
access.
The best solution is a partnership between the private individual
market and the mechanism for guaranteed access. A State's high-risk
pool or reinsurance mechanism could serve as a backstop to insulate the
traditional market against catastrophic claims costs. The Federal
Government should establish broad guidelines for qualified State-level
financial backstops (i.e., capped rates for high-risk individuals) to
allow for State innovation but also ensure consistency of access and
affordability.
Several States have been able to successfully combine a guaranteed-
issue approach with universal underwriting criteria for all carriers
and either a traditional high-risk pool or a reinsurance mechanism.
When establishing State guaranteed-
access requirements coupled with a financial backstop, four States in
particular should be looked at as potential models:
Idaho.--One of the most interesting arrangements is from Idaho. It
is a hybrid arrangement--the only one of its kind--known as an
individual high-risk reinsurance pool. Although the idea of reinsurance
isn't new, Idaho is using it in a manner that is different than what
has been done before. In Idaho, if a person's health status (based on a
uniform medical questionnaire that all carriers use) meets a certain
threshold, the carrier can cede a large part of the financial risk for
the individual to the reinsurance pool. Individuals who are insured in
this manner are still issued a policy through the insurer they applied
for coverage with, but must select one of four standard options. The
coverage is still comprehensive, but the more limited benefit choices
make administration of the reinsurance mechanism simpler. The carrier
pays a premium to the pool in exchange for the pool taking on the risk
of the individual's high claims. The individual consumer pays premiums
to the insurer and has coverage issued by that insurer, not the pool
itself. So the reinsurance mechanism is largely invisible to the
consumer, although the premium is somewhat higher than the consumer
would have otherwise paid. This program is funded through several
mechanisms. First, the State's premium tax, paid by all insurers in the
State, is the primary funding source and this is considered a stable
funding source since it is not a State appropriation. In addition, when
a carrier cedes risk to the pool, it pays a premium to the pool.
Finally, the pool has the ability to assess insurance carriers for
funding but, so far, it hasn't needed to do so. The Idaho pool is one
of the few State programs that has more than enough funds to operate on
a consistent basis.
Utah.--In Utah, health insurance carriers in the individual market
must offer coverage to everyone who applies, but if an individual's
medical costs are deemed to potentially exceed a set threshold
ascertained through a medical questionnaire, the carrier can refer the
person instead to the State high-risk pool. Of importance here is that
every insurance carrier uses the same medical questionnaire, so the
pool gets only the most serious health risks and the regular market
keeps other applicants. The current downside of the Utah arrangement is
that the excess funding for the pool comes from the State so, while the
benefits are extremely comprehensive, State budget limitations have
resulted in the need for an annual cap on benefits that are
troublesome. But the mechanism is interesting and could be replicated
and otherwise works well, if the funding issue could be resolved to
something more stable.
Washington.--The Washington State high-risk pool and guaranteed-
issue requirements work similarly to those in Utah although, in
addition to the consistent underwriting requirements, carriers are
limited to a set percentage of individual business that can be referred
to the pool. Since Washington's pool isn't State-funded, it does not
have an annual benefit maximum. It's another example of a partnership
with the private market and a public guaranteed-access mechanism that
works and could be replicated elsewhere.
New York.--Another twist on the reinsurance concept is New York
with its Healthy New York program. Small employers, sole proprietors
and uninsured working individuals, regardless of health status, who
meet set eligibility criteria and participation rules can purchase a
limited range of comprehensive coverage options offered through private
carriers and backstopped with a State-level reinsurance pool for
extraordinary claims. This is a different kind of reinsurance than in
Idaho, since it works on a retrospective basis, but it is a great
example of why a backstop can increase affordability. Although New York
is a guaranteed-issue State, it still uses this mechanism to spread the
risk of higher risk participants. If we compare the rates for similar
coverage in New Jersey, also a guaranteed-issue State but with no
financial backstop, it becomes clear that, although premiums are higher
than in non-guarantee issue States, the financial backstop provided by
the reinsurance mechanism has improved affordability there.
Recommendation 2: Give Pre-existing Condition Credit for Prior
Individual Market Coverage to Ensure True Health Insurance
Portability
The issue of pre-existing conditions and individual market coverage
portability has been repeatedly identified as a problem. It's not just
a problem for people who have a serious medical condition when they
apply for coverage. People who have obtained individual coverage when
healthy and then acquired medical conditions over time can be limited
in their ability to switch coverage plans due to pre-existing
conditions and medical underwriting requirements.
HIPAA does provide individual-market consumers some protections,
but they don't go far enough. Current law requires that all health
insurance policies be guaranteed renewable unless there is non-payment
of premium, the insured has committed fraud or intentional
misrepresentation, or the insured has not complied with the terms of
the health insurance contract. In addition, most States require that
individual health insurance policies be renewed at class average rates
and prohibit the practice of re-underwriting (making people fill out a
new health questionnaire at renewal), provided that the policyholder
sticks with the same product.
The flaw in HIPAA is that it does not protect individuals who want
to change carriers or health insurance products within the individual
market. This is not only a problem for the individuals who want to make
a change, but it also stifles individual market carrier which in turn
has a significant impact on price.
To solve this problem, States should be required to adopt a
qualified access program so that no individual will be denied a private
health insurance option because of a pre-existing condition, as
described in Recommendation 1. In addition, individual market health
insurance carriers should be required to give individual health
insurance market consumers credit for prior individual coverage when
changing insurance plans, if there is no greater than a 63-day break in
coverage, just as is required in the group market by HIPAA. This means
that existing individual-market consumers who wanted to switch health
insurance products and/or health insurance carriers would be given
credit against any pre-existing condition look-back or exclusionary
periods equal to the amount of prior coverage they have. Furthermore,
NAHU believes that the 63-day coverage window provisions should be
amended to specify credit should be granted as long as the individual
applies for coverage within 63 days, to protect individuals in cases
where coverage cannot be issued immediately upon application.
However, to protect against adverse selection, a provision would
also need to be included to address situations where individual-market
consumers were substantially changing their level of coverage and/or
benefits. In these cases, while credit for prior coverage would be
applicable, carriers would still be able to assess for insurable risk
when determining initial premium rates.
Recommendation 3: Standardize State-Level Requirements Regarding the
Consideration of Pre-existing Conditions
Right now, State exclusionary and look back periods for pre-
existing conditions in the individual market range from none at all to
5 years. NAHU believes greater standardization could easily be achieved
in a similar way as was done relative to the small-group market in
HIPAA when a Federal maximum look-back window of 6 months and a 12-
month exclusionary period was established for the States. Having a pre-
existing conditions rule that is consistent in both the individual and
group model would also be much simpler for consumers to understand.
In the absence of a fully implemented and enforceable individual
purchase mandate, plans and high-risk options must be able to look back
at a new applicant's medical history and impose reasonable waiting
periods in order to mitigate adverse selection. Until implementation is
complete, greater standardization of limitations is necessary and
warranted.
Recommendation 4: Improve Federal Group-to-Individual Coverage
Portability Protections So That People Can Transition Directly
From Employer Coverage to Individual Without Hurdles
HIPAA attempts to provide individuals who are leaving group health
insurance coverage with portability protections to make it easier for
them to purchase coverage in the individual market. Unfortunately, the
protections are confusing and many consumers unintentionally invalidate
their HIPAA guaranteed-issue rights without realizing it and then risk
being denied coverage when they apply for individual coverage.
Under current law, individuals who are leaving group coverage must
exhaust either COBRA continuation coverage or any State-mandated
continuation of coverage option if COBRA is not applicable before they
have any group-to-individual rights under HIPAA. Once the consumer
exhausts these options if available, then he or she can purchase
certain types of individual coverage on a guaranteed-issue basis,
provided that there is no more than a 63-day break in coverage. Each
State was required under HIPAA to develop a mechanism for providing
this coverage. The two most common State elections are to either allow
HIPAA-eligible people to purchase coverage through a State high-risk
health insurance pool, or to require all individual market carriers to
guarantee-issue HIPAA-eligible consumers at least two products, which
are often priced higher than traditional individual coverage.
Most people who leave group coverage are unaware of all of the
stipulations required to receive Federal portability-of-coverage
protections. Faced with high COBRA or State-continuation premiums, many
individuals decline such coverage either initially or after a few
months. Then, depending on their health status or a family member's,
they may experience extreme difficulty obtaining individual market
coverage. To solve this problem, the HIPAA requirement to exhaust State
continuation coverage or COBRA before Federal guarantees are available
should be rescinded, and individuals leaving group coverage should be
able to exercise their Federal group-to-individual portability rights
immediately, provided that there is no more than a 63-day break in
coverage.
Recommendation 5: Stabilize Individual Market Rates by Requiring More
Standardization as to How Individual Market Carriers Determine
Pricing
Another inconsistency among State individual health insurance
markets is the way that premium rates are determined at the time of
application. In a few States they are determined merely by geographic
location (pure community rating) and in several others rating factors
are determined by the State but are limited in nature (i.e., age,
gender, industry, wellness, etc.), which is known as modified community
rating. However, even with States with modified community rating, the
rating factors and how they may be applied vary significantly by State.
It is NAHU's view that State individual health insurance markets would
benefit from greater standardization as to how premium rates are
determined.
The first step to greater standardization would be for States to
adopt a uniform application for applying for individual insurance
coverage. A clear and understandable uniform application would assure
full disclosure of accurate and consistent information when individuals
apply for coverage. It would also be easier for consumers when applying
for coverage with several different insurance carriers at one time.
In the vast majority of States, no specific rating structure is
required in the individual market, and carriers can assess for
insurable risk at the time of application and discount or increase
rates based on health status with few limitations. Full, accurate and
complete risk assessment has proven to be the most effective rating
mechanism because it has been demonstrated to lower overall premium
cost. However, the unlimited rating structure used in most State
individual markets is in contrast to most State small-group health
insurance markets and can create anti-selection issues between the two
markets. Most State small-group carriers are also allowed to assess for
insurable risk but have limitations on the amount of premium
adjustments based on health status. In addition to these initial
limitations, most State small-group laws require that premium increases
are limited on renewal. This means that the amount each small group's
premium can go up annually is based on the overall health experience of
the carrier's entire small-group pool and is limited by the State to
usually 10-15 percent plus an additional amount for inflation.
The Federal Government could require that States meet a minimum
standard of rate stabilization by imposing maximum rate variations for
initial applicants, as well as a cap on renewal premium increases, as
most States do for their small-group market. Another option would be to
allow a modified community rate. However, in order to protect against
runaway costs, the Federal Government should ensure that wide-enough
adjustments may be made for several key factors. At a minimum,
variations need to be allowed for applicant age of at least five to one
(meaning that the rate of the oldest applicant may be no more than five
times the rate of the youngest applicant). In addition to age,
variations in premium rates should also be allowed for wellness
factors, smoking status, gender and geography. Since we know that up to
50 percent of health status is determined by personal behavior
choices,\4\ in order to have effective cost containment, we need to be
able to reward healthy behavioral choices.
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\4\ Mercer Management Journal 18. ``The Case for Consumerism in
Health Care'' http://www.oliverwyman.com/ow/pdf_files/
MMJ18_Case_Consumerism_Healthcare.pdf.
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Recommendation 6: Increase Consumer Protections Regarding Individual
Market Coverage Rescissions
Under very rare circumstances, individual health insurance carriers
rescind an insurance policy based on a submission of fraudulent
information on an application or an intentional omission of required
information. Surveys of individual health insurance plans indicate this
happens to far less than 1 percent of individual market consumers
annually,\5\ but all individuals buying individual coverage deserve
assurances that they will not be subject to unfair policy rescissions
or pre-existing condition determinations.
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\5\ America's Health Insurance Plans. Comprehensive Health
Insurance Policy Rescissions in the Individual Health Insurance Market
Reported by AHIP Member Companies, 2007 Survey.
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All States should be required to develop an independent medical
review process to resolve disputes concerning policy rescissions and/or
pre-existing condition determinations. In addition, health plans should
be required to limit rescissions to only material omissions and
misrepresentations on the uniform insurance application. Health plans
should be responsible for reviewing all applications received for
clarity and completeness at the time of application and not after the
policy is issued. If a carrier does not conduct a review of listed
medical conditions on the application upon submission, it should not be
allowed to use any subsequently obtained health information as a
standard for a rescission, unless fraud or deceit has occurred. Health
plan consumers should be clearly informed of their rights relative to
rescissions and pre-existing condition determinations. Consumers also
should be informed of their obligation to provide complete and accurate
responses on health plan applications and to provide additional
information at the time of application upon request of the health plan.
Recommendation 7: Making it Easier for Employers to Help People
Purchase Individual Coverage
One of the biggest complaints about the individual market is that
coverage is too difficult to purchase independently, and one of the
greatest advantages of employer-group coverage is its ease of
enrollment and payment. Many employers would like to offer their
employees traditional health insurance coverage but simply can't afford
to do so under current economic conditions. Also, some employers have
an employee base that is difficult to cover under a traditional group
scenario. As an alternative, employers should be allowed to work with
licensed insurance agents and brokers to help employees purchase and
pay for individual coverage by setting up a Section 125 plan, deducting
premiums from wages, aggregating premiums and sending them to the
insurer, and possibly providing a defined contribution. This would be a
particularly appropriate coverage option for certain types of
businesses that are rarely able to offer benefits to all employees (for
example, restaurants and some small retail establishments) and for
employees who may not be eligible for an employer's group plan, such as
part-time or contract workers. This could help to draw many uninsured
individuals into the private health coverage system. In addition, it
could expand the size of the individual market, making it less fragile
and, therefore, less costly.
However, current Federal law requires that all individual health
insurance policies sold in a group setting are subject to ERISA and all
of the HIPAA consumer protections relative to group health insurance
plans, including the group guaranteed-issue and pre-existing
requirements and all nondiscrimination provisions. Under current market
conditions, practically no individual-market policies can meet all of
the HIPAA small-group protections since they are not designed for a
product that is marketed to individual consumers. In addition, the sale
of list-billed policies, which are individual policies where the
employer agrees to payroll-withhold individual health insurance
premiums on behalf of its employees and send the premium payments to
the insurance carrier but does not contribute to the cost of the
premium, is specifically prohibited by some States.
Congress should overturn State bans of the sale of list-billed
policies and clarify that individual health insurance policies
purchased by employees are not the same as group health insurance
policies and are not subject to the group insurance requirements
specified in HIPAA or ERISA but rather the newly reformed rules for the
individual market. In particular, the Federal requirements regarding
individual policies sold on a list-bill basis need to be clarified,
since even minimal involvement on the part of the employer could
trigger group health plan requirements.
Congress should also establish that all individual health insurance
policies sold under a list-billed arrangement are subject to all
insurance regulations governing the issuance of traditional individual
insurance policies in the State in which the policy was sold. This
would include rating requirements, issuing requirements and the
requirement that such products only be sold by licensed health
insurance producers, among other consumer protections.
Recommendation 8: Provide Federal Financial Assistance to Keep
Individual Health Insurance Coverage Affordable
The most critical problem that we see in State individual health
insurance markets is affordability, particularly for those individuals
who have medical conditions. The high cost of coverage for these people
often doubles as an access barrier.
There are clear broad-scale solutions that NAHU supports relative
to coverage affordability. The most important of these is acting on the
true underlying problem with our existing system: the cost of medical
care. Health care delivery costs are the key driver of rising health
insurance premiums, and they are putting the cost of health insurance
coverage beyond the reach of many Americans.\6\ Addressing the cost of
care and its impact on the cost of coverage is critical in every
market.
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\6\ PricewaterhouseCoopers. ``The Factors Fueling Rising Health
Care Costs, 2008.'' http://www.americanhealthsolution.org/assets/
Uploads/risinghealthcarecostsfactors2008.pdf.
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However, there are other affordability reforms that could be
crafted that would specifically help individual market health insurance
purchasers.
tax equity--enhanced deductibility of premiums
The most important step toward making individual coverage more
affordable would be extending tax equity to individuals and families
purchasing health insurance coverage on their own and equal tax
treatment for the self-employed. NAHU believes Federal tax laws should
be updated to provide the same Federal tax deductions to individuals
and the self-employed that corporations have for providing health
insurance coverage for their employees, although not at the expense of
the existing employer exclusion. Specifically, NAHU feels Congress
should take action to:
Remove the 7.5 percent of adjusted gross limit of medical
expenses on tax filers' itemized deduction Schedule A form.
Allow the deduction of individual insurance premiums as a
medical expense in itemized deductions.
Equalize the self-employed health insurance deduction to
the level corporations deduct by changing it from a deduction to
adjusted gross income to a full deductible business expense on Schedule
C.
Clarify in statute that employers implementing list-
billing arrangements for their employees may also establish Section 125
premium-only plans for their workers. This would enable employees to
pay for their individual policies on a tax-
favored basis. If an individual participated in a section 125 plan for
a list-billed policy, those premiums would not be eligible for
deduction as a medical expense under Schedule A.
SUBSIDIES
NAHU also supports targeted premium-assistance programs for low-
income individuals purchasing private coverage, and we feel that the
Federal Government should finance such programs. A subsidy program
could be national in scope or each State could be required to create
one that suits the unique needs of its citizens in partnership with the
Federal Government. Several States have already created successful
subsidy programs and their existing structures could be used as a model
framework for a national reform. I have included a chart at the end of
this statement that itemizes some of the State subsidy programs that
provide us with some good models on creative ways to help both
employers and their employees with the cost of health insurance
coverage. Two States in particular should be looked to as models:
Oregon.--The Oregon Family Health Insurance Assistance Program
(FHIAP) \7\ is one State program that could serve as a model. FHIAP is
an innovative State coverage initiative that subsidizes both employer-
sponsored coverage and individual insurance coverage. Eligible families
making over 150 percent FPL who do not receive cash assistance must
participate if employer coverage is available, and others can
participate on a voluntary basis. Licensed health insurance
professionals help both employers and individuals with enrollment and
participation. The program subsidizes coverage on a sliding scale
according to income. Subsidies range from 50 percent to 95 percent of
the premium. Individuals and families use FHIAP subsidies to pay for
insurance at work or to buy individual health plans if insurance is not
available through an employer. FHIAP members pay part of the premium.
They also pay other costs of private health insurance such as co-
payments and deductibles. Once approved for FHIAP, members are eligible
to remain in the program for 12 months. Three to four months before the
member's eligibility ends, FHIAP sends a new application and members
may re-apply. FHIAP provides direct premium assistance through the
insurer for people who use its benefits to purchase individual
coverage. For those with employer coverage, FHIAP reimburses employees
for the cost of their premium within 4 days of receipt of a valid pay
stub denoting the employee contribution. This program has been around
for a number of years and struggles each year with funding, but many
have benefited from it and it is a streamlined approach with little
administrative cost.
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\7\ http://www.oregon.gov/OPHP/FHIAP/.
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Oklahoma.--Oklahoma's Employer/Employee Partnership for Insurance
Coverage (OEPIC or Insure Oklahoma) \8\ is another very successful
State subsidy program that works with both employer-sponsored and
individual health insurance coverage for self-employed people, certain
unemployed individuals, and working individuals who do not have access
to small-group health coverage. In 2008, 9,923 employees and dependents
were directly subsidized by Insure Oklahoma, which is a 234 percent
increase from the previous year.\9\ Licensed insurance agents and
brokers help identify applicable participants and enroll people and
employers in the plan. Through the program, the employer pays only 25
percent of the premium of the low-wage worker, the employee pays up to
15 percent of the premium and the State pays the remainder. The
program's passage was supported by insurers, small employers, agents
and brokers and providers. It is funded by a State tobacco tax and
Federal funds based on a Medicaid Health Insurance Flexibility and
Accountability waiver. Twenty insurers participate, offering dozens of
qualified products that meet simple specified coverage standards.
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\8\ http://www.oepic.ok.gov/.
\9\ Blue Cross Blue Shield Association. ``Insure Oklahoma: Overview
and Impact.'' http://www.bcbs.com/issues/uninsured/background/insure-
oklahoma-overview.html.
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FEDERAL FINANCIAL SUPPORT FOR QUALIFIED ACCESS MECHANISMS
Finally, we support even more targeted means of providing Federal
affordability assistance to individual market consumers, particularly
to individuals with serious medical conditions. Since in any insurance
pool of risk a small number of insureds incur the majority of claims.
NAHU's access solutions alone, by guaranteeing that the highest-risk
individuals are covered in a financially separate private-market pool,
will help lower costs for all consumers. But even more could be done to
help lower costs.
Funding for high-risk health programs is a continual problem in
some States. When a pool consists of only sick people, there is no
spreading of risks, so premiums charged to policyholders are never
enough to cover expenses and additional funding mechanisms must be
created. A variety of funding sources are currently being used,
including using State premium taxes, direct State appropriations,
assessments to carriers that operate in the State, hospital taxes, or a
mixture of several sources. Current limited Federal grant funds for
high-risk pools have enabled a number of State high-risk pools to lower
premiums and even start low-income subsidy programs. NAHU believes this
funding should not only continue, but it should also be increased and
expanded to the new qualified access mechanisms outlined in
Recommendation 1.
The issue of affordability is key. A State should be required to
demonstrate that the funding source for whatever high-risk option it
elects will be both broadly distributed over as much of the marketplace
as possible and stable over time. CMS could develop broad criteria, and
this program could be administered easily with the career employees
already dedicated to the current high-risk pool grants. It would be
important when establishing criteria not to hinder State innovation
relative to funding sources as this is a key factor of ensuring
affordability. Furthermore, due to the high-needs population being
served, premiums alone cannot be considered a stable funding source.
Funding could be conditional upon a State's ability to meet
federally established broad criteria regarding the framework of a
qualified program. This may be the biggest bargain for Federal dollars
that exists. A small amount of funding will go a long way. The current
$75 million grant funding for high-risk pools has helped many pools
establish low-income subsidies, disease-management programs and other
important benefits for pool participants. New funding would be used to
help subsidize premiums for the high-risk beneficiaries because,
regardless of the backstop option the State creates, premiums alone in
a State high-risk option will never be enough to satisfy claims, and
premiums for participants in these programs must be at reasonable
levels to ensure adequate participation. Funding could also be used as
an additional backstop to State high-risk options that meet specified
requirements for those rare individuals whose medical expenses are so
great they would exceed high-risk pool lifetime caps.
Recommendation 9: Getting Everyone Covered
NAHU believes that implementing recommendations 1 through 8 will
bring our country much closer to all Americans having health coverage.
But an additional way to achieve the standard of near-complete coverage
that is necessary for stand-alone guaranteed issuance of coverage as
well as controlled entry and exit into the individual insurance market
is through the implementation of an enforceable and effective
individual mandate.
NAHU has historically approached the idea of an individual mandate
to obtain health insurance coverage with great caution. Similar
mandates for auto insurance coverage have failed to reduce the number
of uninsured motorists.\10\ Also, subsidies, as well as benefit
standards and enforcement mechanisms, would need to be created to
fairly implement such a mandate. However, if such barriers could be
overcome, enough people would be covered to mitigate the problem of
adverse selection and its resulting cost consequences.
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\10\ Insurance Research Council. ``IRC Estimates That More Than 14
Percent of Drivers Are Uninsured.'' http://www.ircweb.org/news/
20060628.pdf.
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If the Federal Government were to require an individual mandate to
obtain coverage, NAHU feels that it must be structured appropriately.
The following elements are crucial to an effective and enforceable
individual mandate:
While the mandate may need to be phased in over time,
starting with perhaps select populations like children age 25 and
under, ultimately it must apply to all populations equally.
An individual mandate must be accompanied by a national
qualified guaranteed-access mechanism with a financial backstop as
described in Recommendation 1 so that all individuals have cost-
effective private health coverage options available to them. This is
especially critical during the transition period when the mandate is
being put into place and the entire population is not yet insured.
An individual mandate should not be accompanied by overly
rigid coverage standards that would make coverage unaffordable and
inhibit private plan design innovations.
Subsidies in the form of direct private coverage premium
assistance or refundable advanceable tax credits for the purchase of
private coverage must be made available to low-income consumers.
An effective coverage verification system must be created,
with multiple points of verification.
An effective enforcement mechanism would need to be
implemented with multiple enforcement points and effective penalties
for noncompliance.
Each State must be responsible for enforcement of the
mandate for its own population. The United States is too large and
diverse a country for such a mandate to work otherwise.
Recommendation 10: Allow State Implementation with a Federal Fallback
Enforcement Mechanism
States should be given a finite timeframe of several years to
achieve these reforms through legislative or regulatory means. If a
State cannot adopt the necessary reforms in the timeframe allotted,
Federal enforcement through CMS should be the fallback, similar to the
way CMS serves as the Federal fallback enforcement authority for
HIPAA's small-group market requirements.
CONCLUSION
NAHU members work on a daily basis to help individuals and
employers of all sizes purchase health insurance coverage. We also help
clients use their coverage effectively and make sure they get the right
coverage at the most affordable price.
All of this experience gives our membership a unique perspective on
the health insurance marketplace. Our members are intimately familiar
with the needs and challenges of health insurance consumers, and they
have a clear understanding of the economic realities of the health
insurance business, including both consumer and employer behavioral
responses to public policy changes. We have had the chance to observe
the health insurance market reform experiments that have been tried by
the States and private enterprise, and we have based these individual-
market health reform policy recommendations on what we believe would be
the most beneficial changes for individual health insurance consumers.
The NAHU membership urges Congress to carefully consider these
ideas to improve individual health insurance coverage options for
consumers nationwide. Our private health insurance plans are
innovative, flexible and efficient, and our marketplace is up to the
task of responding to well-structured reforms. We look forward to
working with Federal and State policymakers to fill the gaps in our
Nation's coverage system and to make private individual health
insurance coverage more affordable and accessible for all Americans.
We appreciate this opportunity to participate in today's hearing
and look forward to the discussion with the committee and other
panelists.
Addendum: Chart on State-Level Private Health Insurance Subsidy
Programs for Low-Income Individuals
Senator Bingaman. Thank you very much.
Mr. Williams, please.
STATEMENT OF RONALD A. WILLIAMS, MS, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER, AETNA, INC., HARTFORD, CT
Mr. Williams. Good morning, Mr. Chairman and members of the
committee. It is a pleasure to be here and to see so many of my
colleagues I have had the privilege to work with over the past
few years.
I am Ronald A. Williams, chairman and chief executive
officer of Aetna, a leader in providing diversified healthcare
benefits.
As the healthcare system hurtles toward $4.3 trillion in
annual spending in 2017, we have an opportunity and an
obligation to achieve meaningful reform that guarantees access
and makes health insurance more affordable for all. You have my
commitment to work with you to transform the healthcare system.
It is worth noting at the outset that our industry, my
company, and the expectations of our customers and members have
changed a good deal over the past several years. Health
insurance is not about just paying claims anymore. At Aetna,
our spending on technology and innovation, more than $1.8
billion since 2005, and the composition of our workforce of
35,000, nearly 40 percent of whom are clinical and technology
professionals, are much different than they would have been
just 10 years ago.
Transforming our healthcare system will require us to work
collaboratively to address the key roadblocks that stand in our
way and build a sensible path to reform. That means building on
an employer-based healthcare model that already works for more
than 177 million Americans and accelerating our efforts to
harness the power of health information technology and
confronting the challenges associated with rising healthcare
costs.
In our view, the following are critical components of
reform. First, we need to get all Americans covered through an
enforceable individual coverage requirement combined with
subsidies and other changes to make coverage affordable. It
must be coupled with sliding-scale subsidies to ensure that
income is not a barrier for any individual, and we should offer
tax credits for small businesses to encourage them to offer and
subsidize employee coverage.
Second, we need to take steps necessary to bring affordable
coverage within reach for everyone. This begins by using health
information technology as a tool to bend the cost curve and
addressing our country's pervasive quality issues. We also need
payment reform because the traditional fee-for-service payment
structure often rewards physicians and hospitals for the volume
of services they deliver rather than the value of quality of
care they provide.
Third and finally, we need to engage consumers in their own
healthcare, focusing on prevention and wellness, and provide
them the tools to be good consumers. The healthcare system
needs fundamental reform, and that will require unprecedented
determination and collaboration across the healthcare system.
We are ready and willing to work with you because we know
that success will be rooted in a public-private cooperation to
create and implement practical solutions that drive systemic
change.
Thank you.
[The prepared statement of Mr. Williams follows:]
Prepared Statement of Ronald A. Williams, MS
Good morning Chairman Kennedy, Ranking Member Enzi and members of
the committee. Thank you for the opportunity to be here today. I am
Ronald A. Williams, Chairman and Chief Executive Officer of Aetna Inc.,
one of the Nation's leading diversified health care benefits companies.
I appreciate the opportunity to share my views with this committee and
to continue working with you to transform our health care system, which
we can all agree is in urgent need of reform. I believe our health care
system must provide affordable, high quality coverage for all
Americans.
My company is committed to taking part in the development of
meaningful, broad-based solutions, and I am convinced that we can help
move reform forward. Our views are shaped by our experience with the
36.5 million unique individuals to whom we provide products and
services in all 50 States; the 894,000 health care professionals with
whom we interact daily; and the thousands of employers for whom we
devise benefits solutions regularly and the 50 States and multiple
Federal entities that regulate our products.
Our industry, my company and the expectations of the people who are
our customers and members have changed a good deal over the past
several years. Insurance is not just about paying claims anymore.
Increasingly, our stakeholders expect us to be their partner, to add
value and to innovate. Employers want affordable, high-quality products
and services to enhance the health and productivity of their employees.
Doctors and hospitals want to give their patients access to medical
innovations and new technologies, with fewer administrative barriers.
Our members want access to our network of health care professionals,
tools to make informed decisions, transparency of price and quality
data, and access to the expertise of nurses and trained professionals
on issues ranging from chronic disease care to wellness and prevention.
At Aetna, our business model has changed significantly over time as
we work to meet these new expectations. We have been at the forefront
of bringing the information age to health care. That is why we have
spent more than $1.8 billion on technology and innovation since 2005.
Our innovations mean that we no longer simply process and pay claims;
now we have sophisticated systems that scan hundreds of millions of
interactions between our members and their doctors, hospitals and
pharmacies to alert them and their physicians to sometimes dangerous
interactions caused by errors or omissions.
Our workforce has changed also. Today, nearly 40 percent of our
workforce are clinical professionals or work in information technology.
The focus of all our employees is to improve health and ensure our
consumers get the best, most appropriate treatment possible, including
wellness and preventive care and managing their complex diseases. If
you are an Aetna member, you can reach a health care professional at
any time of the day or evening who can respond to your health care
needs.
As the health care system hurtles toward $4.3 trillion in annual
spending by 2017, we have an opportunity and an obligation to achieve
meaningful reform and improvement. Our experience and perspective tell
us that we are a nation and culture unique from the rest of the globe,
and we require a uniquely American solution that will enable the health
care system to meet the Nation's expectations for health care quality,
access and affordability.
To transform our current healthcare system into what it should be,
we need to work collaboratively to address the key roadblocks that
stand in our way and build a sensible path to reform:
It is essential that we realize real reform while
preserving and building on the employer-based health care model that
works for most Americans. We should avoid systemic disruption to the
177 million Americans who have employer-sponsored coverage, and instead
build upon the strengths and innovations of private health coverage for
the good of other populations. Together, employers and insurers are
driving innovations that are helping many Americans better maintain
their health, take advantage of helpful health care technology and
access safe, quality health care.
We need to accelerate our efforts to harness the power of
health information technology (HIT), which is so critical to addressing
cost and quality issues. Congress made a significant investment in HIT
in the American Recovery and Reinvestment Act, but the United States
still lags behind other countries in the use of electronic medical
records (EMRs). If 90 percent of all providers in the United States
were using EMRs, we could see savings of about $77 billion within 15
years.\1\ With the advent of sophisticated clinical decision support
capabilities, those savings, coupled with lives saved, could exceed
current expectations. At Aetna, we have made significant investments in
health information technology, and we are not finished. Our investments
are designed to help patients and doctors take action on their health
conditions and help patients get the standard of care they expect and
require.
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\1\ Modern Healthcare, ``By the Numbers,'' 2006-2007 Edition,
December 17, 2006, p. 66.
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We need to confront the challenges associated with the
rising cost of health care. Costs will rise from $8,000 per person this
year to more than $13,000 per person in the next decade. There is an
important, but often overlooked connection between health care costs
and the premiums people pay for health insurance coverage. Health
insurance premiums reflect the underlying cost of health care. So
unless we, as a nation, are successful in ``bending'' the cost curve,
we will see premiums continue to rise at a pace far faster than either
wage growth or inflation--which puts health insurance out of the
financial reach of a growing number of U.S. residents. If we do not
address the issue of costs, reforms made today to improve access will
not be sustainable. We all have a significant role to play in this
complex problem. This includes our industry, which is committed to
achieving new levels of simplification and reduced administrative
costs.
A SOLID FOUNDATION FOR REFORM
Many are questioning whether we can achieve meaningful health care
reform. I believe the answer is that we can reform our system and
simultaneously achieve the dual goals of improving access and making
healthcare more affordable. All of the players in health care--health
insurers, hospitals, physicians, employers, pharmaceutical companies,
consumers, legislators and regulators--will need to focus on achieving
both of these goals together.
As you consider how to structure reform, I urge you to build upon
the current employer-based system that today covers 177 million
people--60 percent of the American population. When given the choice,
82 percent of workers who are eligible for employer-offered coverage
participate in their employers' health plans.\2\
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\2\ Pickreign, Jeremy et al. ``Employer Health Benefits 2008 Annual
Survey,'' Kaiser Family Foundation and Health Research and Education
Trust, September 2008.
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Leveraging the strengths of the employer-based system would enable
people to keep the health coverage they have if they are satisfied. It
would also continue the innovation that has resulted from employers and
health plans working together over decades to improve quality and
value. We recognize that maintaining the basic structure of health care
coverage through the employer-based system is not enough. Our customers
are demanding that we make sound health care investments that
positively impact their physical and financial health. We have
responded to this imperative by:
Developing products and services that improve the quality
of health care and help control rising benefits costs;
Providing members with access to convenient tools and
easy-to-understand information that can help them make better-informed
decisions about their health and financial wellbeing;
Introducing new levels of transparency to the health care
system; and
Pioneering new ways to focus on wellness and prevention
programs.
We recognize that maintaining the current structure is not enough.
Reform efforts need to focus on access and affordability of insurance
for the 45 million uninsured Americans and those seeking coverage in
the individual and small group markets. A growing number of people,
nearly 18 million under age 65, are accessing insurance through the
individual market. In addition, coverage is often expensive and
unstable for the millions accessing coverage through the small group
market.
CRITICAL COMPONENTS OF REFORM
Getting all Americans Covered
Covering all Americans is imperative for fixing our Nation's health
care system. An enforceable individual coverage requirement, combined
with subsidies and other changes to make coverage affordable, is the
best way to ensure that all Americans have continuous access to
insurance coverage and high-quality health care. Since 2005, we at
Aetna have been speaking out in support of an individual coverage
requirement, as we believe it is the critical step for achieving
universal coverage.
One of the great, and often painful, challenges in our system is
that too many individuals often have difficulty accessing coverage in
the individual market. Insurers have relied on tools like medical
underwriting and pre-existing condition exclusions to maintain the
solvency of the current system, which lacks universal participation.
Insurance works best when everyone participates in the system
continuously, whether they are healthy or sick. Today's individual
market system does not reflect these principles and insurers face
adverse selection, wherein people enter the insurance marketplace when
they need coverage and healthcare services.
An enforceable individual coverage requirement solves this problem
better than any other proposed policy, because it allows us to bring
everybody--both healthy and unhealthy--into the insurance pool. By
using an individual coverage requirement to address the challenge of
adverse selection, we can transform our system into one where private
insurance is provided on a guaranteed-issue basis with no pre-existing
condition exclusions and a rating system that does not include health
status. We support allowing insurers to provide discounts on premiums
for those who engage in healthy behaviors to help increase incentives
for good health. These reforms would allow all Americans access to
coverage and would help people keep their health coverage as they go
through life transitions, allowing true portability.
An individual coverage requirement must, of course, be coupled with
sliding scale subsidies to ensure that income is not a barrier for any
individual's fulfillment of this requirement. In addition, we must
offer tax credits for small businesses to encourage them to offer (and
subsidize) employee coverage. We must create a rational regulatory
structure that is conducive to creating affordable coverage options. I
would encourage greater uniformity of State laws and regulations and
the development of a new Federal charter. Insurers with a multi-state
presence face costly administrative burden to comply with divergent
State laws and regulations, and these higher administrative costs are
passed onto the market at large through higher insurance premiums. A
national entity would need to determine a standard benefit package and
determine what types of actuarially equivalent plans could be offered.
Under a national framework, plans could cross State boundaries and be
offered through national, State or regional insurance exchanges that
create new pooling mechanisms.
We believe an individual coverage requirement, subsidies and
insurance market reforms create the best framework for addressing our
country's access challenge. Others believe a new public plan is the
silver bullet for the uninsured. I would submit that, for a number of
reasons, a public plan is not the best way to fix our system.
First and foremost, insurers bring innovation, value and choices
that allow individuals to choose a tailored approach to their
individual needs that a one-size-fits-all public plan just could not
achieve. With our unique capabilities in the realm of encouraging
wellness and prevention, providing care coordination and chronic
disease management, and empowering consumers and providers with health
information technology, we can offer health care that responds to the
specific needs of individuals. Health care is one area in which we must
leverage the agility of the private sector to provide continued
innovation and customization of health care plans.
Beyond recognizing the added value that private insurers can
provide, we must also be aware of the challenges a new public plan
would impose on the rest of the system. A public plan would most likely
employ the payment rates used in Medicare, which are far lower than the
rates paid by private payers. In fact, the average family of four with
private insurance spends an additional $1,788 on health care each year
because of Medicare and Medicaid underpayments to providers. On an
aggregate level, commercial payers incur approximately $89 billion more
in costs than they would if public and private payers all paid
equivalent rates.\3\ Expanding the use of low public payment rates
would mean expanded cost-shifting for our health care system.
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\3\ Milliman, Hospital & Physician Cost Shift, December 2008;
figures reflect 2006 and 2007 data.
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There is no doubt that getting all Americans into the health care
system is of the utmost importance. The best solution for our country
will not be to shift us over to a system for which the public sector
gradually takes more and more responsibility and competes with the
private market, but rather to engage in a public-private partnership
that allows each sector to focus on what it does best. Aetna is fully
committed to active participation in this partnership to create a
better system in which no one is left out.
Bringing Affordable Coverage Into Reach
If we want to ensure that all Americans have access to high-
quality, affordable health coverage, we must both slow the growth of
health care costs and get greater value out of our health care
spending.
The cost of health care in the United States is growing at an
unsustainable rate. National health spending will reach $2.5 trillion
in 2009 and by 2018, it is expected to reach $4.4 trillion and comprise
just over one-fifth (20.3 percent) of Gross Domestic Product (GDP).
This year, we can expect the top three cost drivers--hospitals,
physicians and prescription drugs--to comprise 73 percent of health
care spending.\4\
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\4\ Centers for Medicare and Medicaid Services, ``National Health
Expenditures Projections: 2008-2018.''
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If we fail to effectively address our Nation's health care cost
problem, which is ultimately driven by the increasing illness burden
borne by our population, we will find that access expansions will be
unsustainable. A case in point is Massachusetts, where the absence of
payment reform and more effective utilization threatens to undermine
the ultimate success of truly commendable access reforms. Investments
in health information technology and tackling payment reform are both
necessary to slow the cost growth and improve quality.
HIT can live up to expectations: The use of health information
technology will not only be a powerful tool to bend the cost curve, but
will also help address our country's pervasive quality issues. The
United States continues to lag behind its peers globally in embracing
HIT solutions necessary to yield cost reductions and quality gains.
Compared to other developed nations the United States trails in its
overall use of electronic medical records (EMR), with an adoption rate
of only 28 percent.\5\ A New England Journal of Medicine survey
suggests that 83 percent of U.S. doctors have still not adopted EMR
technology.\6\ Consequently, Aetna continues to strongly support the
President's initiatives to accelerate HIT adoption and commends the
Congress' recent work to invest up to $22 billion to promote the use of
electronic health records that have clinical decision support capacity
as recommended by the Institute of Medicine.
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\5\ The Commonwealth Fund, ``2006 International Health Policy
Survey of Primary Care Physicians in Seven Countries,'' November 1-2,
2006.
\6\ The New England Journal of Medicine, ``National Survey on
Physician Adoption of Electronic Health Records,'' July 2008.
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Over the past 4 years, Aetna has invested more than $1.8 billion in
deploying health IT solutions that improve both the quality and cost-
efficiency of the care that is delivered to our members. In making
these investments, Aetna recognized from the outset that beyond its
other claims and care management technologies, robust clinical decision
support capabilities are essential to yielding the desired quality and
cost returns necessary to produce a return on HIT investment. This was
a key reason for Aetna's 2005 acquisition of Active Health Management
and its innovative Care Engine technology.
This unique technology provides a truly integrated solution for
providers to extend clinical decision support beyond the electronic
records platforms that may be contained in a physician's office or
hospital. Care Engine scans millions of lines of pharmacy, lab,
diagnostic, claims and other clinical data and matches them up to the
latest available medical literature. It can scan disease management
members' data for opportunities to improve care through enhanced
diagnostic and therapeutic precision, and then notify physicians and
patients with actionable information that can lead to improved outcomes
at the point of care. Among the providers and plan sponsors now
utilizing Care Engine, it has demonstrated that the technology's use
can generate a meaningful return on investment by measurably improving
quality outcomes (e.g., 19 percent reductions in overall
hospitalizations)\7\ while producing overall cost savings (e.g., eight-
fold ROI or 6 percent reduction in average charges).\8\
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\7\ The American Journal of Managed Care, ``Using a Claims Data-
Based Sentinel System to Improve Compliance With Clinical Guidelines:
Results of a Randomized Prospective Study,'' 2005;11:93-102.
\8\ The Journal of Health Economics, ``Information Technology and
Medical Missteps: Evidence From a Randomized Trial,'' 2008; 585-60.
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As we look ahead to ensure the public also receives a strong ROI
for this new national HIT investment, it will be important for the
Secretary and the Office of the National Coordinator within the
Department of Health and Human Services to reinforce expectations in
regulation and other guidance that: (1) providers meet measurable
targets focused on quality outcomes in their use of publicly financed
health information technology; and (2) that these technologies measure
up to standards that ensure their capability to assist providers with
clinical decision support that integrates pertinent data from all of
the critical points within the health care system.
Addressing Health Care Costs and Quality: A Critical Foundation
On an annual basis, the United States spends $650 billion more on
health care than peer OECD countries, even after adjusting for
wealth.\9\ The vast majority ($436 billion) of this ``excess'' spending
results from outpatient care. There are other factors that contribute
to the ``excess,'' including technological innovation, high levels of
utilization, misaligned incentives for providers, lack of transparency
and consumerism, higher prices and population health challenges.
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\9\ McKinsey Global Institute, ``Accounting for the cost of U.S.
health care: A new look at why Americans spend more,'' December 2008.
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We need to tread carefully when it comes to some of these cost
factors, as we do not want to stifle the innovation that drives
improvements in our ability to improve and save lives. We can, however,
work to ensure that technology is used appropriately to improve the
standard of care and drive better patient outcomes. We can also re-
align incentives in our system to ensure that quality and value serve
as the primary motivators for choosing specific treatments.
The American health care system is wrought with inefficiencies,
wasteful duplicative spending and poor performance. Understandably,
there is a strong concern that our inputs in health spending are not
yielding high enough quality output in care and outcomes, and the
impact of these quality disparities is brought to bear in very real
terms. In fact, between 35,000 and 75,000 avoidable deaths and $2.7
billion to $3.7 billion per year in avoidable medical costs can be
attributed to unexplained variations in care,\10\ underscoring the need
for widespread dissemination of evidence-based medicine and standards.
The guidelines must ultimately be applied at the individual member
level to mitigate variation and wasteful spending.
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\10\ National Committee for Quality Assurance, ``The State of
Health Care Quality,'' 2007.
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Payment reform will also be a critical tool to improve quality and
bending the cost curve: The traditional fee-for-service (FFS) payment
structure often rewards physicians and hospitals for the volume of
services they deliver rather than the value or quality of care they
provide. Aetna supports transforming the payment system into one that
aligns provider reimbursement incentives with the pursuit of high-
quality outcomes for patients. We need a payment system that works for
the patient, bringing them value--high quality at the right cost.
Reform needs to focus on promoting patient-centered care that
integrates the multiple aspects of the health care delivery system and
shifts the model from episodic, acute care to comprehensive, evidence-
based care. Yet equally important is that any attempts to enact
comprehensive payment reform include the input and support of the
multiple stakeholders that make up the system, including providers,
patients, employers and health plans. The managed care backlash of the
1990s taught us the valuable lesson that in order for payment reform to
succeed, providers need to participate in the agenda-setting and
metric-development process and patients need to know their interests
are being served.
We believe engaging consumers in their own health care is also of
critical importance in achieving greater value within our health care
system. As the leader in consumer-directed health plans (CDHPs), we
continue to help plan sponsors with empowering their employees to make
informed decisions about their medical care. In fact, the average large
employer saved more than $7 million per 10,000 members over the course
of 5 years when an Aetna Health Reimbursement Arrangement (HRA) or
Health Savings Account (HSA) was offered as a plan option. We also
found that Aetna customers with CDHPs were much more likely to use
online consumer tools and information--a leading indicator of employee
engagement. They were also more likely to use preventive services than
those enrolled in traditional health plans.
Congress has taken some important steps forward: I applaud the
members of this committee, the Senate and the House for their success
in passing several key reforms that will start to slow the growth of
our Nation's health care costs while improving healthcare quality. The
inclusion in the American Recovery and Reinvestment Act of 2009 of $1.1
billion in funding for comparative effectiveness research will help
ensure that we invest in treatments that truly offer added benefit to
the right patients. The commitment of $22 billion to investments in
health information technology infrastructure and Medicare and Medicaid
incentives for providers to electronically exchange patient health
information will not only help to advance quality of care, but will
help us to achieve long-term savings.
CONCLUSION
I believe that President Obama and this Congress have charted a
course of change, and I want to make clear that we too are committed to
expanding access, controlling costs and improving the quality and value
of care people receive. I hope this committee and the Nation as a whole
will view Aetna and our industry peers as partners in advancing these
shared goals. Our experience and effectiveness in developing and using
technology to drive quality improvements, for example, can inform the
larger discourse about health information technology and comparative
effectiveness. We will support those efforts aimed at addressing access
and affordability as well as the quality and value of health care in
America. Over the past several years, Aetna has tried to lead by
harnessing innovation and utilizing technology to serve people, and by
stepping out front on issues that we believe can truly make a
difference to our country.
The health care system needs fundamental reform, and that will
require determination and collaboration across the health care system
that is unprecedented. We are ready and willing to work with you--
because we know that success will be rooted in public/private
cooperation--to create and implement practical solutions that drive
systemic change.
Working together, I believe that the path forward is achievable and
that we will be able to bring a new approach to health care that
efficiently and safely gets people to their desired destination--
optimal health.
Thank you.
Senator Bingaman. Thank you very much.
Ms. Pollitz.
STATEMENT OF KAREN POLLITZ, M.P.P., RESEARCH PROFESSOR, HEALTH
POLICY INSTITUTE AT GEORGETOWN UNIVERSITY, WASHINGTON, DC
Ms. Pollitz. Good morning, Mr. Chairman, members of the
committee.
I am Karen Pollitz, and I direct research on private health
insurance at Georgetown University.
Very briefly, I think the challenges facing this committee
are daunting, but doable. I think the first thing that you need
to do to get health insurance to work the way you want it to is
to stop it from discriminating against people based on their
health status, their age, their gender. The cherry-picking,
lemon-dropping activities that are common in the insurance
market today need to end.
You also need to stop the sale of health insurance that is
inadequate. We have 57 million Americans who are struggling
with medical debt today, and most of them have health
insurance. Twenty-two percent of insured cancer patients
nonetheless burn through their life savings paying medical
bills.
These practices are defended because they make health
insurance cheaper, but it is not really a good kind of cheaper
because it makes protection flimsier. So we need to make
insurance affordable by providing subsidies for good coverage
and dependable coverage that is always there. To make sure that
these prohibitions on these kinds of bad practices are
followed, you are going to need an unprecedented level of
accountability and transparency in market practices so that you
can ensure that they actually stop.
Then I think you need to reorient the market and organize
it to compete in ways that we want it to. And in particular, I
think introduction of a public plan, a public health insurance
plan option in health insurance markets is a good thing. It can
cue the market to compete in the ways that you want it to, to
be a tough price negotiator, to be an innovator, and to share
those innovations widely, not just bottle them up as trade
secrets.
I think there will be a lot of talk about a public health
insurance plan today and sort of whether that is a fair thing
or not, and I would just encourage you not to get too caught up
in that. I don't think a public plan should be there to bully
private insurers, but I don't think it is there to prop it up
either.
I think you want the market to have very specific goals and
have an entity out there that is cueing the market to get it to
move in the direction of those goals.
Thank you.
[The prepared statement of Ms. Pollitz follows:]
Prepared Statement of Karen Pollitz, M.P.P.
Mr. Chairman and members of the committee, thank you for inviting
me to testify on opportunities to strengthen health insurance markets
in health care reform. My name is Karen Pollitz. I direct the study of
private health insurance and its regulation at Georgetown University's
Health Policy Institute.
A program of health reform to guarantee universal coverage
including through private health insurance will need to address several
key shortcomings of private markets today. These include:
1. Discrimination based on health status and risk selection;
2. Inadequate coverage;
3. Affordability challenges for low- and middle-income people;
4. Rising costs; and
5. Lack of transparency and accountability.
Part of the solution to these problems will lie in strengthening
and reorganizing private health insurance markets to produce the
coverage results we seek. A health insurance Exchange--sometimes
referred to by other names, such as ``Connector''--can be established
to pursue the goals of reform and to hold markets accountable for
progress toward those goals.
PROMOTE RISK SPREADING AND STABILITY
It has long been true that approximately 20 percent of the
population accounts for 80 percent of health spending. The sickest 1
percent account for nearly one-quarter of health expenditures. We rely
on health insurance to spread costs more evenly across the population
and protect all of us from the risk that we may find ourselves in need
of expensive care in any given year. Unfortunately the distribution of
medical care needs creates a powerful economic incentive to avoid risk,
not spread it. Discrimination based on health status is a problem for
all health insurance purchasers, although most pronounced in the
individual market today. Even consumers with mild conditions may be
turned down, charged more, or offered a policy with permanent coverage
exclusions. More expensive health conditions such as cancer, diabetes,
pregnancy, will always render a person uninsurable in medically
underwritten individual markets.
Risk avoidance practices continue even after coverage is issued.
Last summer, the House Committee on Oversight and Government Reform
studied problems relating to post-claims underwriting and rescission.
Individual market policyholders who make claims in the first year of
coverage may be investigated for evidence their health condition was
pre-existing or not fully disclosed during the initial medical
underwriting process. Claims may be denied or coverage cancelled or
rescinded as a result. Although these practices are intended to protect
against fraud, abuses have also been documented.\1\
Stability and long term affordability of coverage is also highly
problematic in the individual market today. Typically people remain
enrolled in policies for less than 2 years.\2\ High rates of turnover
result from several factors. In general, the individual market today is
a residual market and unsubsidized, so participants tend to leave as
soon as they regain eligibility for subsidized job-based or public
coverage. However, for those who must remain longer, various market
practices encourage churning or make it increasingly unaffordable to
remain covered.
Age rating makes it difficult to afford coverage over time.
Insurers typically charge people in their early sixties three to six
times the premium for people in their early twenties. The slope of this
age climb varies, but often age adjustments are modest for young
adults, becoming more pronounced for people in their fifties and early
sixties, not coincidentally, when the incidence of many high-cost
medical conditions also increases.
Durational rating is used by many insurers to increase premiums
based on the tenure of the policyholder. The predictive power of
medical underwriting wears off over time; policyholders who were young
and healthy when they first applied for coverage tend not to remain
that way. By applying tenure surcharges, insurers encourage those
enrollees who are still healthy to apply for new coverage, and resubmit
to medical underwriting, in order to hold premiums down. This practice
has the effect of segregating policyholders who have gotten sick,
forcing their premiums even higher.
In a related practice, insurers may introduce new policies into the
marketplace every few years, leaving older policies in force but no
longer actively marketed. With freshly underwritten applicants diverted
to new policies, the claims experience of the ``closed'' policies
deteriorates, driving up premiums. People healthy enough to leave the
closed block will do so, further escalating premiums for those with
health problems who are stranded.\3\
A recent health insurance survey of family farm and ranch
operators, who rely disproportionately on the individual health
insurance market, found high rates of financial burden due to these
kinds of market practices.\4\
How reform can help.--Congress can and must change the rules of the
health insurance marketplace so that insurers no longer compete on the
basis of risk selection, but instead, on the basis of efficiency and
customer service. All policies should be sold on a guaranteed-issue
basis.
Premiums should be determined based on community rating.* Pre-
existing condition exclusions should end. Federal minimum standards for
health insurance should be strengthened so that these protections apply
to all types of health coverage. Vigorous oversight to ensure
compliance is also essential.
---------------------------------------------------------------------------
* As an alternative, some have suggested modified community rating
that would allow premium adjustments for age but not health status.
Because income generally increases with age, it is argued, age
adjustments would be more equitable. However, income does not rise
nearly as fast with age as do health insurance premiums. For example,
median household income at age 55 is only 30 percent higher than for
age 25. By contrast, under age rating, a 55-year-old's health insurance
premium could be surcharged by a factor of 2 to 5. If modified
community rating is adopted and income equity is a goal, premium
subsidies will need to reach farther up the income scale for
individuals as they age. Age rating is also problematic because age
strongly correlates to health status. The incidence of many chronic
conditions increases steadily with age. As a result, age rating will
tend to disproportionately surcharge premiums for people with heart
disease, cancer, and other conditions. If age rating is permitted, at a
minimum, its impact on affordability of coverage for the chronically
ill will need to be closely monitored.
---------------------------------------------------------------------------
ASSURE COVERAGE ADEQUACY
Under-insurance is a serious and growing problem. In 2007, 57
million Americans lived in families struggling with medical debt--a 33
percent increase since 2003--and 75 percent of them had health
insurance.\5\ Policies that fail to cover key benefits, such as
prescription drugs, maternity care, and mental health care, can leave
people under-insured. Likewise, caps on covered benefits leave patients
at risk for catastrophic medical expenses. High deductibles, co-pays,
and other cost sharing are also problematic.
In an effort to offset rising premiums and stem coverage loss, the
content of coverage under many health insurance plans and policies has
eroded steadily. However, this strategy has proven to be ineffective.
Coverage erosion leaves the under-insured in circumstances very similar
to the uninsured--they forego or delay needed medical care due to
costs, experience poorer quality care, and suffer financial burdens.\6\
Coverage adequacy is particularly important for patients with
chronic conditions. Even modest co-pays for services can accumulate to
burdensome levels for patients who need medical care and prescriptions
on a regular basis. For example, a study of the effect of doubling
prescription drug co-pays--from $6 to $12 for generic drugs and from
$12 to $25 for brand name drugs--found that patients with diabetes,
hypertension, and depression reduced use of their respective
medications by nearly one-quarter.\7\ Failure to properly manage
chronic conditions often leads to the development of more serious and
expensive medical complications. Under-insurance among the chronically
ill should be viewed as a threat to public health. There is also
evidence high-cost sharing is exacerbating collections problems and
fueling bad debt for hospitals and doctors.\8\
How reform can help.--A key goal of health reform must be to ensure
that all people have adequate coverage. Minimum standards for what
health insurance covers must be developed and explicitly take into
account what insured patients will be left to pay out-of-pocket when
they need medical care. Research finds that when out-of-pocket spending
for health care services exceeds just 2.5 percent of family income,
financial pressures on families from medical bills increase
dramatically. Financial burdens arise for low-income families at even
lower levels of out-of-pocket spending.\9\ Accordingly, the design of
all health insurance plans and policies must consider the care needs of
patients with cancer, diabetes, heart disease and other serious medical
conditions. Coverage for care needs of people when they are healthy--
primary and preventive care services and maternity care--must also be
included. Cost sharing must be held to modest levels and further
subsidized for low-income individuals.
A condition of insurer participation in a health insurance Exchange
must be the offering of policies that meet minimum coverage standards.
The elimination of substandard coverage options will not only address
the problem of under-insurance, it will reinforce risk spreading. When
all policies provide adequate coverage, people will not sort themselves
by risk status across plans that offer widely varying levels of
insurance protection.
ASSURE AFFORDABILITY
Overwhelmingly, the uninsured lack coverage today because they
cannot afford it. Most uninsured have incomes below twice the Federal
poverty level. Significant assistance is needed to make coverage
affordable. As just discussed, artificially depressing premiums by
offering substandard policies will not help.
Affordability must be measured against the cost of comprehensive
coverage. Job-based group health plans offered by large employers today
suggest one benchmark for the likely cost of adequate coverage. Such
plans currently cost approximately $4,800 per year for self-only
coverage and $13,000 for family coverage.\10\
How reform can help.--Subsidies are essential to make coverage
affordable for millions of uninsured Americans. Defining affordability
will certainly entail some subjective judgments. However, economic
studies of consumer spending suggest health insurance may be affordable
for middle-income families as long as premiums do not exceed 4 to 8
percent of household income, with lower affordability thresholds for
lower income families.\11\ A similar standard has been adopted by the
State of Massachusetts in determining its premium subsidies and
affordability index, and as a result, subsidies for both premiums and
cost sharing are available for individuals and families with income to
300 percent of the poverty. Residents with income to 500 percent of
poverty are ineligible for subsidies but may receive a waiver of the
requirement to buy health insurance on grounds of affordability.
COST CONTAINMENT
Since 1999, employer-sponsored insurance premiums have more than
doubled, well outpacing inflation and the rise in earnings.\12\ In 2007
total national health expenditures reached $2.2 trillion, or more than
$7,400 per capita and more than 16 percent of GDP.\13\ All indications
are that unless we take action through health care reform, health
spending will continue to rise at levels beyond what families,
employers, and taxpayers can afford.\14\
In today's private health insurance markets, competition between
carriers does not help control costs. Quite the opposite, data show
there is a high degree of concentration among insurers, with just a
handful of carriers accounting for the majority market share in most
States. Insurers have not used their market power to negotiate
favorable provider rates or otherwise control costs as might be
expected; rather, they've passed on health care costs to consumers
while increasing profitability at the same time.\15\
How reform can help.--Health insurance markets can be better
organized to generate new forms of competition and more effective cost
containment strategies. First and foremost, once all policies meet
standards for comprehensive coverage, it will be easier for consumers
to shop on the basis of price prompting insurers to behave more cost
effectively.
As is the case in Massachusetts, the Exchange could also be given
authority to negotiate with health insurers over premiums and to
exclude the least efficient and effective carriers from participation.
The Exchange might also adopt minimum loss ratio targets, adopt
standards for broker commissions, and institute other expectations of
efficiency to lower health insurance administrative costs.
Importantly, a public health insurance plan option should also be
offered to heighten competitive pressures to contain costs. A public
health insurance plan can substantially influence market innovation by
investing in new approaches to disease management or more effective use
of information technology. Such innovations should be freely shared
with other insurers so they could adopt them at lower cost. A public
health insurance plan also could induce other insurers to be tougher
price negotiators with providers.
The issue of a public health insurance plan option has prompted
concern that it would constitute unfair competition with private
insurance companies, and might even result in the elimination of
private insurers over time. However, experts suggest a different
outcome seems as or more likely because a public health insurance plan
will face other unique constraints. In particular, health care
providers have been formidable in their exercise of political pressure
to oppose payment rate cuts under Medicare, as evidenced by Congress'
vote to prohibit Medicare from negotiating prescription drug price
discounts under the Part D program. While a public health insurance
plan will likely enjoy some cost advantages over private insurers,
political constraints will prevent it from exploiting those
advantages.\16\
In addition, it is important to remember how private insurers have
benefited from public programs by shifting costs to them. Thanks to
Medicare, the private market no longer finances most medical care for
the elderly and disabled, nor for patients with ESRD and ALS. Medicaid
eligibility categories now include women with breast and cervical
cancer who are under-insured for this care. Three-fourths of States
have opened high-risk pools for uninsurable residents whom private
insurers refuse to cover. In 2000, Minnesota's attorney general found
private health insurers were shifting to taxpayers the cost of mental
health care it contracted to provide its beneficiaries by forcing
policyholders, through claims delays and denials, to turn to public
programs for mental health care.\17\ Offering a public health insurance
plan option also ensures that the sickest patients will always have a
source of affordable, adequate health coverage in the event that some
private insurance companies do not immediately cease cost avoidance
activities.
TRANSPARENCY AND ACCOUNTABILITY
Finally, transparency of information is critical in a competitive
market where consumers have choices. Lack of transparency promotes
inefficiency and bias in consumer choices.\18\ Health insurance
policies are complex and confusing for consumers, who often do not
understand what type of coverage they have or how it works.\19\ One
industry survey found that less than one-fourth of consumers understand
the terminology in their health insurance contracts; and rather than
try to read their policy, most would prefer to prepare their income
taxes or go to the gym.\20\
Greater transparency in market behaviors will also be needed to
ensure accountability. Compliance with market rules must be closely
monitored and enforced if we want insurers to cease competition on the
basis of risk selection.
How reform can help.--In an organized marketplace, there can be
rules to ensure that insurance products are understandable. One
important task of an Exchange must be to provide more and better
information about health insurance than most consumers have today. The
Commonwealth Connector, for example, designates types of health
insurance plans as gold, silver, and bronze to make it easier for
consumers to compare across option. In addition, the Connector makes
available plan comparison tools that highlight differences in key plan
features such as deductibles, co-pays, and benefit limits.\21\ Members
of Congress and other participants in the Federal Employees Health
Benefits Program (FEHBP) have on-line access to full health insurance
policy language for each available plan option. Under health reform,
the Exchange should require all health insurance policies to be
available for public inspection at all times in order to promote
transparency.
If a goal of reform is to encourage health insurers to compete on
the basis of efficiency, this information must also be readily
available. In Washington State, for example, the Office of the
Insurance Commissioner (OIC) makes available a Health Carrier
Information Comparison tool with information about carrier loss ratios,
profit margins and other characteristics to help consumers see how much
of their premium dollars are spent on medical claims vs. administrative
costs.\22\ Health insurers should be required to disclose plan loss
ratios including detailed information about administrative costs by
type and amount. In addition, price transparency will help consumers
and providers see and compare variation in prices (charged and allowed)
for different health care services.
The Exchange should also collect data to hold health plans
accountable for compliance with nondiscrimination rules. Insurer
marketing, rating, and plan administration practices that might be used
to evade such rules must be monitored. Disclosure must include data on
applications, enrollment and disenrollment by plan, including
demographic and health status characteristics. Rating of policies at
issue and renewal must also be monitored. In addition, it will be
important to track claims handling practices, including payment denials
and delays, with detail disclosed on type of service and patient
diagnosis. Data on grievance and appeals procedures and outcomes will
also be needed.
In recent months, accountability and transparency have become
watchwords in our effort to strengthen financial markets and the
economy generally. These themes must also apply to health insurance and
guide your efforts on health care reform.
End Notes
1. See committee hearing transcript at http://oversight.house.gov/
story.asp?ID=2089. See also Girion, L., ``Health insurer tied bonuses
to dropping sick policyholders,'' Los Angeles Times, November 9, 2007.
2. ``Individual Health Insurance: An Update'' Henry J. Kaiser
Family Foundation, August 2004. http://www.kff.org/insurance/7133.cfm.
3. ``On their own,'' Consumer Reports, January 2008. Available at
http://www.consumerreports.org/health/insurance/health-care-on-your-
own-1-08/overview
/health-care-on-your-own-ov.htm.
4. ``2007 Health Insurance Survey of Farm and Ranch Operators''
Issue Brief No. 3, The Access Project, September 2008. Available at
http://accessproject.org/adobe/issue_brief_no_3.pdf.
5. Cunningham, P., ``Tradeoffs Getting Tougher: Problems Paying
Medical Bills Increase for U.S. Families, 2003-2007'' Center for
Studying Health System Change, Tracking Report No. 21, September 2008.
6. Schoen, C., et al., ``How Many Are Underinsured? Trends Among
U.S. Adults, 2003 and 2007,'' Health Affairs, Web exclusive (June 10,
2008).
7. Goldman, D, et al., ``Pharmacy Benefits and Use of Drugs by the
Chronically Ill,'' Journal of the American Medical Association, Volume
291, No. 19, May 19, 2004.
8. See for example, ``Hospital Strategies for Addressing Out-of-
Pocket,'' Healthcare Financial Management Association Roundtable,
October 1, 2008. Available at http://www.allbusiness.com/company-
activities-management/operations/11664702-1.html. See also Cash,
Cheryl, ``Adding up the cost of high-deductible health care plans:
Quality care, billing and collection challenges face many pediatricians
as more families switch to consumer-driven health insurance,'' AAP
News, Volt. 28, No. 1, January 1, 2007.
9. Cunningham, P. et al., ``Living on the Edge: Health Care
Expenses Strain Family Budgets'' Center for Studying Health System
Change, Research Brief No. 10, December 2008.
10. ``Employer Health Benefits 2008 Annual Survey,'' Henry J.
Kaiser Family Foundation and Health Research and Educational Trust,
available at http://ehbs.kff.org/pdf/7790.pdf.
11. Blumberg, L., et al., ``Setting a Standard of Affordability for
Health Insurance Coverage'' Health Affairs Web Exclusive, June 4, 2007.
12. Kaiser Family Foundation. http://ehbs.kff.org/pdf/7790.pdf.
13. http://www.cms.hhs.gov/NationalHealthExpendData/
02_NationalHealth
AccountsHistorical.asp#TopOfPage.
14. http://www.cms.hhs.gov/NationalHealthExpendData/Downloads/
proj2007
.pdf.
15. Robinson, J., ``Consolidation and the Transformation of
Competition in Health Insurance,'' Health Affairs, Volt. 23, No. 6,
November/December 2004.
16. Holahan, J. and Blumberg, L., ``Can a Public Insurance Plan
Increase Competition and Lower the Costs of Health Reform?'' The Urban
Institute, 2008. http://www.urban.org/UploadedPDF/
411762_public_insurance.pdf.
17. Hausman, K., ``Insurer Admits Errors, Agrees to Implement
Parity,'' Psychiatric News Vol. 36, No. 14, July 20, 2001.
18. Gabix, Xavier and Daibson, David, ``Shrouded Attributes,
Consumer Myopia, and Information Suppression in Competitive Markets,''
The Quarterly Journal of Economics, Volt. 121, No. 2, PP. 505-540, May
2006. http://www.mitpressjournals.org/doi/abs/10.1162/
qjec.2006.121.2.505.
19. Reschovsky, J., and Hargraves, J.L., ``Health Care Perceptions
and Experiences: It's Not Whether You are in an HMO, It's Whether You
Think You Are,'' Center for Studying Health System Change, Issue Brief
No. 30, September 2000.
20. ehealth, Inc., ``New Survey Shows Americans Lack Understanding
of Their Health Coverage and Basic Health Insurance Terminology,''
January 3, 2008, available at http://www.marketwire.com/press-release/
Ehealth-Inc-NASDAQ-EHTH-806855.htm.
21. See http://www.mahealthconnector.org.
22. See https://fortress.wa.gov/oic/hcis/public/
comparisonhome.aspx.
Senator Bingaman. Thank you very much.
Ms. Ignagni.
STATEMENT OF KAREN IGNAGNI, M.B.A., PRESIDENT AND CEO,
AMERICA'S HEALTH INSURANCE PLANS, WASHINGTON, DC
Ms. Ignagni. Thank you, Mr. Chairman, members of the
committee. It is a pleasure to be here.
Our members are providing health insurance services to over
225 million people through a diversified product mix. We are
committed to reform, as Mr. Williams indicated. He is a member
of our board of directors and has been a leading member of the
committee on the board that has worked to propose solutions to
the problems that you are talking about today.
Our members believe that health insurance reform needs to
be done this year. We want to participate with you in helping
to get legislation passed. We believe that the legislation
needs to have three parts--universal access, cost containment,
and modernization--to bring us into the 21st century and begin
to pay for value, not volume. We have offered very specific
proposals in each of these areas that are outlined in our
testimony.
In addition, as to the matter before you this morning, we
took the responsibility to look at the issues that affect our
industry. We have considered them very carefully, and we have
proposed major changes that can be made to ensure that no one
will fall through the cracks, that no one is discriminated
against because of a pre-existing condition, and that there is
guaranteed issue.
Second, today we have sent a letter to the committee to
outline jointly with the Blue Cross Blue Shield Association a
package of solutions that, if implemented together, can phase
out the practice of varying premiums based on health status. We
are committed to giving Americans health security.
There have been certain aspects of the market that has
caused it to work the way it does. We are very much interested
in engaging with you about what those issues are, how we
believe we can solve them, and how we can demonstrate to the
committee and to the Nation that our members can be counted
upon to offer transparent, equitable, safe, fair health
insurance products. We are delighted to be here this morning.
Thank you.
[The prepared statement of Ms. Ignagni follows:]
Prepared Statement of Karen Ignagni, M.B.A.
SUMMARY
AHIP's members believe that health care reform legislation needs to
be enacted and signed into law this year. Our Board of Directors has
devoted hundreds of hours to the development of policy proposals for
building a stronger health care system. From the outset, we have
committed to a series of proposals that would transform the health care
system. Our Board has made it clear that it does not view the status
quo as acceptable, and it is deeply committed to helping this
committee, the Congress, and the Administration achieve workable
reforms.
In December 2008, the AHIP Board announced a comprehensive proposal
for restructuring the health care system with these cornerstone goals:
achieving universal coverage, reducing the future growth rate of health
care costs, and improving quality of care. To ensure that no one falls
through the cracks of the U.S. health care system, our proposals
include insurance market reforms addressing guaranteed coverage for
people with pre-existing medical conditions, portability of coverage,
continuity of care, and other solutions for addressing the concerns we
heard during a nationwide listening tour we conducted last year as part
of AHIP's ``Campaign for an American Solution.'' Our written testimony
outlines specific proposals addressing three major priorities:
Insurance Market Reforms to Provide Affordable, Portable Coverage
to All Americans:
Improving the individual market.
Helping small business.
Strengthening the small group market.
Establishing an essential benefits plan.
Confronting cost-shifting.
Improving public programs.
Protecting Americans from bankruptcy.
Containing Health Care Costs:
Setting a goal for reducing the future rate of growth in
health care costs.
Steps for Creating a High-Value Health Care System:
Incentives for more effective and coordinated delivery of
care.
Prevention, early treatment, and coordinated care for
chronic conditions.
Uniform standards for quality, reporting, and information
technology.
Comparative effectiveness research.
Targeted investments in public health infrastructure.
______
I. INTRODUCTION
Senator Bingaman, Senator Enzi, and members of the committee, I am
Karen Ignagni, President and CEO of America's Health Insurance Plans
(AHIP), which is the national association representing approximately
1,300 health insurance plans that provide coverage to more than 200
million Americans. Our members offer a broad range of health insurance
products in the commercial marketplace and also have demonstrated a
strong commitment to participation in public programs.
We appreciate this opportunity to testify on solutions for
achieving health care reform and how insurance reforms are integral to
this effort. We believe that legislation needs to be enacted and signed
into law this year, and we are committed to playing a meaningful role
in this debate. To that end, we have worked hard to bring tangible
strategies to the discussion that will address market issues, make the
system more affordable, and facilitate the modernization that needs to
occur in the delivery of health care services.
In December 2008, the AHIP Board announced a comprehensive proposal
for restructuring the health care system with these cornerstone goals:
achieving universal coverage, reducing the future growth rate of health
care costs, and improving quality of care.
The AHIP proposal is the culmination of 3 years of policy work by
our Board of Directors, which has focused on developing workable
solutions to the health care challenges facing the Nation. It also
responds to the concerns and incorporates the ideas that were raised by
the American people during a nationwide listening tour we conducted
last year as part of AHIP's ``Campaign for an American Solution.'' This
listening tour included roundtable discussions involving Americans from
all walks of life, including people with and without insurance, small
business owners and their employees, union leaders and members, elected
officials, and community leaders.
Since June 2008, our Board has held eight in-person meetings and 11
conference calls, devoting hundreds of hours to the development of
policy proposals for building a stronger health care system. From the
outset, our community has committed to a series of proposals that would
transform the health care system. Our Board has made it clear that it
does not view the status quo as acceptable, and it is deeply committed
to helping this committee, the Congress, and the Administration achieve
reforms that work and become the building blocks on which a uniquely
American system can be built.
II. INSURANCE MARKET REFORMS TO PROVIDE AFFORDABLE, PORTABLE COVERAGE
TO ALL AMERICANS
As this debate moves forward, we believe all participants in the
health care system have a responsibility to play a leadership role in
identifying strategies in their sectors that will allow the Congress to
pass health care reform legislation that will work and that can be
sustained.
Rather than build on the existing regulatory structure, we are
proposing a fundamental overhaul that would bring all individuals into
the system, and allow major changes to be made that would ensure that
all Americans can obtain affordable health insurance and do so
irrespective of their health care history. We are proposing a series of
policy changes which, if implemented together, will ensure that no one
falls through the cracks, that coverage will be portable, and that
information will be given to consumers that they need and want. To
achieve these goals, the following steps are necessary:
Helping to Ensure Portability and Continuity of Coverage for Consumers
in the
Individual Market
Ensuring that no one falls through the cracks by combining
guarantee-issue coverage (with no pre-existing condition exclusions)
with an enforceable individual mandate: For guarantee-issue to work, it
is necessary for everyone to be brought into the system and participate
in obtaining coverage. Achieving this objective will require specific
attention to the mechanisms for making the mandate enforceable and will
require coordinated action at multiple levels of government.
Indeed, the importance of combining guarantee issue with an
enforceable individual mandate is borne out by research and experience
from the States. For example, a report by Milliman, Inc. found that
States that enacted guarantee-issue laws in the absence of an
individual coverage requirement saw a rise in insurance premiums, a
reduction of individual insurance enrollment, and no significant
decrease in the number of uninsured.
Ensuring fairness in the tax code: Currently, individuals
purchasing insurance on their own cannot deduct expenses for health
insurance coverage unless total health care expenses exceed 7.5 percent
of adjusted gross income. This should be corrected to promote tax
equity and help make health care more affordable whether coverage is
obtained through an employer or the individual market.
Ensuring a stable market for consumers: A broadly funded
mechanism which spreads costs for high-risk individuals across a
broader base needs to be put in place to ensure premium stability for
those with existing coverage.
Ensuring that coverage is affordable for lower-income
individuals and working families: Refundable, advanceable tax credits
should be available on a sliding scale basis for those earning less
than 400 percent of the Federal Poverty Level (FPL), as discussed
below.
Helping Small Business Provide Health Care Coverage More Affordably
Small business owners find themselves in an increasingly difficult
marketplace for health insurance because of constantly rising health
care costs and the limited ability of most small businesses to bear
risks, contribute a substantial share of costs, or support
administrative functions. On March 9, AHIP's Board of Directors
approved a policy statement outlining solutions to help small business
based on the following three core principles:
Affordability
Essential Benefits Plan: As discussed below, we propose
the creation of new health plan options that are affordable for small
employers and their employees. These ``essential benefits plans'' would
be available nationwide and provide comprehensive coverage for
prevention and wellness as well as chronic and acute care. In addition,
these plans would be subject to State regulation, but would not be
subject to varying and conflicting State benefit mandates that result
in increased costs to small businesses (and that do not apply to the
generally larger employers that enter into self-funded health care
coverage arrangements).
Tax Credits or Other Incentives to Assist Small Business:
We support the establishment of tax code incentives or other types of
assistance that encourage both small business owners to offer coverage
to their employees and employees to take up coverage. We recognize the
special challenges, both administrative and financial, that small
businesses face in offering contributions toward their employees'
coverage. Providing assistance can encourage these contributions and
help enable employees to take up coverage which improves predictability
and stability in the small group market.
Improving Coordination of Private and Public Programs
Strengthens Small Group Coverage: Premium or other assistance offered
to low-income individuals and working families can be applied to and
work with employer-sponsored coverage. This is important whether the
assistance is provided through Medicaid, the Children's Health
Insurance Program (CHIP), or other expanded programs designed to help
individuals and families obtain coverage. Improved coordination allows
workers to take up coverage offered by small businesses by leveraging
both public and private sources of assistance, and benefits the firms'
employees as a whole by increasing rates of participation in the small
group plan.
Flexibility
We are committed to working with the small business community to
ensure that small businesses have access to a range of options and
tools that better assist them in helping their employees obtain health
care coverage. One-size-does-not-fit-all, as the needs of diverse small
firms vary greatly.
Micro-firms: As an example, ``micro-firms'' (those with
fewer than 10 employees) face special challenges in offering coverage.
Statistics show that only about one-third of these firms offer
coverage. This reflects the administrative, financial, and logistical
challenges many micro-firms face in setting up and establishing plans
and offering and contributing to their employees' coverage. To help
these firms meet these challenges, enhanced tools could be developed
that would allow those micro-firms that have found it impractical to
offer coverage, to contribute to coverage purchased on a pre-tax basis
by individual employees. As part of comprehensive health care reform,
employees could then use these contributions to help purchase coverage
in a reshaped health care system that combines an individual
requirement to obtain coverage with reforms in the individual market.
One-stop information source: All small firms will benefit
from collaborative efforts between health plans and the public sector
(e.g., insurance commissioners) to ensure that small employers and
individuals have one-stop access to clear, organized information that
allows them to compare coverage options. This one-stop shop could also
allow individuals to confirm eligibility for tax credits or other
assistance and even provide a mechanism to aggregate premium
contributions from multiple sources. By providing a mechanism to
combine even modest contributions from multiple sources (public and
private), this new one-stop shop could be especially helpful to
employees who may hold multiple jobs.
Simplicity
Small businesses may find the current system difficult to navigate
with a lack of simple, streamlined information about multiple coverage
and care options and related assistance programs. We propose
modifications to introduce greater simplicity to the system through
technology and regulatory reform and the creation of a one-stop
information source as described above. These proposed efforts will
benefit all participants in the health care system, including the small
business community.
Technological advances: In our December 2008 Board
statement, we emphasized that any health care reform proposal should
include recommendations to streamline administrative processes across
the health care system. Success will require advances in automating
routine administrative procedures, expanding the use of decision
support tools in clinical settings, and implementing interoperable
electronic health records. Using technology to help streamline
administrative processes will improve care delivery, enhance the
provider and patient experience, and speed claims submission and
payment. Done right, streamlining can also help reduce costs
systemwide, leading to improved affordability.
Regulatory reform: Regulatory structures should be
rethought so that they work better and provide for a more consistent
approach in areas such as external review, benefit plan filings, and
market conduct exams. In a reformed market, policymakers should be
driven by striking a balance between the traditional roles of the
Federal Government and the States, and the objectives of achieving
clearer and ``smarter'' regulation that promotes competition and avoids
duplication of existing functions. Greater consistency in regulation
and focusing on what works best will enhance consumer protections
across States and help improve quality, increase transparency, and
increase efficiency leading to reduced administrative costs.
Strengthening the Large Group Market
We support building upon the existing employer-based system, which
currently covers 177 million Americans according to the U.S. Census
Bureau. It is a key part of our economic fabric. Although the employer-
based system faces challenges, more than 90 percent of employers report
that offering high-quality coverage is important to their ability to
recruit and retain valuable workers and enhance employee morale. Thus,
as a first priority, the Nation's reform agenda should be committed to
a policy that ``first does no harm'' to that system and limits
strategies that would reduce employer coverage. Focus should be placed
on retaining a national structure for the large group market that
continues to promote uniformity and ensures the smooth functioning of
the employer-based system.
At the same time, the Nation's economic uncertainties and job
losses underscore the need for new strategies to assist individuals who
become unemployed or are transitioning from job to job. While a
Congressional Budget Office (CBO) study found that nearly 50 percent of
the uninsured go without coverage for 4 months or less, additional
protections are still needed. We propose ensuring that tax credits are
available to individuals on an advanceable basis to help them through
job transitions along with access during these times to more affordable
coverage options consistent with our proposal for a basic benefits
plan.
Establishing an Essential Benefits Plan
Individuals and small businesses should have access to an
affordable ``essential benefits plan'' available in all States that
provides coverage for prevention and wellness as well as acute and
chronic care. To maintain affordability, the essential benefits plan
should not be subject to varying and conflicting State benefit
mandates.
An essential benefits plan should include coverage for primary
care, preventive care, chronic care, acute episodic care, and emergency
room and hospital services. Alternatively, it should include coverage
that is at least actuarially equivalent to the minimum Federal
standards for a high-deductible health plan sold in connection with a
health savings account, along with the opportunity to include
enhancements such as wellness programs, preventive care, and disease
management.
Allowing benefit packages to vary based on actuarial equivalence is
crucial to ensure that any package can evolve based upon new
innovations in benefit design and the latest clinical evidence.
Confronting the ``Cost-Shifting Surtax'' Currently Imposed On Employers
And Consumers Purchasing Health Care Coverage
As part of any national health care reform initiative, Congress
must address the fact that reducing outlays in one area inevitably
means shifting costs elsewhere. Underpayment of physicians and
hospitals by public programs shifts tens of billions in annual costs to
those with private insurance. A December 2008 study by Milliman, Inc.
projects that this cost shifting essentially imposes a surtax of $88.8
billion annually on privately insured patients, increasing their
hospital and physician costs by 15 percent. This study concluded that
annual health care spending for an average family of four is $1,788
higher than it would be if all payers paid equivalent rates to
hospitals and physicians. The transfer of these costs to those with
private coverage cannot be sustained and is critical to addressing
concerns over affordability.
The impact of cost-shifting is dramatically illustrated by the
tables below, which use real data showing that hospitals in California
recorded significant losses in 2007 by serving Medicare and Medicaid
beneficiaries. These losses are offset, however, by higher costs
charged to commercial payers. This cost shifting translates into higher
premiums for working families and employers.
Hospital Net Income Figures in California
[In millions]
----------------------------------------------------------------------------------------------------------------
Medicare and Commercial Total
Medicaid ---------------------------------------
Year --------------------
DSH Non-DSH DSH Non-DSH DSH Non-DSH
----------------------------------------------------------------------------------------------------------------
2001................................................ 256 (1051) 137 1621 (825) 853
2007................................................ (914) (4292) 790 6230 (1450) 1852
----------------------------------------------------------------------------------------------------------------
Hospital Payments to Non-DSH Hospitals Relative to Costs in California
[In Percent)
------------------------------------------------------------------------
Year Commercial Medicare Medicaid
------------------------------------------------------------------------
2001.................................... 117 98 67
2007.................................... 142 85 56
------------------------------------------------------------------------
Non-DSH Hospital Margins in California
[In Billions)
------------------------------------------------------------------------
Year Commercial Medicare Medicaid
------------------------------------------------------------------------
2001.................................... 2.0 (0.2) (0.9)
2007.................................... 6.2 (2.4) (1.9)
------------------------------------------------------------------------
In addition, the U.S. currently spends approximately $50 billion
each year to provide health services to those without coverage, leading
to high levels of uncompensated care. This too results in cost-shifting
to those with coverage in the form of higher premiums and other related
costs. According to a 2005 Families USA study, the cost-shift due to
uncompensated care adds $922 annually to family premiums. When these
costs associated with uncompensated care are combined with the cost
shifting that results from the underfunding of Medicare and Medicaid,
the impact for families with private coverage is an overall surtax of
$2,710 annually due to cost-shifting.
Improving Public Programs
For health care reform to succeed, we also need to improve the
public safety net. We strongly supported the funding that is committed
to this priority by H.R. 2, the ``Children's Health Insurance Program
Reauthorization Act of 2009'' (CHIPRA). We also support extending
Medicaid eligibility to all individuals with incomes at or below 100
percent of the FPL. In addition, adequate support should be provided to
community health centers, recognizing the critical role they play in
providing access to services for vulnerable populations and to ensure
they can continue this role in the future.
Protecting Americans from Bankruptcy
To guard against medical bankruptcy, a system of tax credits should
be designed for lower-income individuals and working families that
would cap their total health care expenses (to include spending on
premiums and cost-sharing) as a proportion of income. Achieving the
goal of universal coverage is also critical to preventing medical
bankruptcies, as research shows medical expense related bankruptcy is
most prevalent among those without health insurance coverage.
III. CONTAINING HEALTH CARE COSTS
A broad consensus is emerging that reform of the system--that
covers all Americans and provides safer and more effective care--is
possible if we can contain the future growth in health care costs. At
present, U.S. health expenditures are rising at an unsustainable rate,
placing unaffordable burdens on families and small businesses, and
hampering our competitiveness as a nation. In order to confront these
issues, all stakeholders need to be challenged to innovate, perform
better, and come to the table with solutions.
Health plans are leading the way by pioneering disease management
and care coordination programs, promoting prevention, wellness and
early intervention, and implementing innovative payment strategies that
reward performance and outcomes. We are committed to working with the
Administration, Congress and other stakeholders to advance strategies
that promote effective, efficient, and high value health care.
At the same time, efforts to make our health care system more
affordable for the long run will succeed only if the Nation as a whole
makes a strong commitment to reducing the future rate of increase in
health costs and we all work together to achieve it. The critical link
between reducing costs and increasing quality should help guide this
effort. Spending more on health care does not necessarily equate to
better quality; rather, the opposite has been shown. In particular,
many regions of the Nation with higher spending actually have poorer
quality of care and exhibit wide variations in practice and treatment
patterns.
Recognizing the need for bold action, we are encouraging Congress
to consider setting a goal for reducing future health care costs over a
10-year period and designate a public-private advisory group to develop
a roadmap to reduce projected growth by 1.5-1.7 percentage points. The
importance of such an effort cannot be overstated, nor can the
responsibility that each stakeholder group must assume. Leaders in each
sector know best about how to reduce future cost trends, and we are
proposing a strategy where each of the key groups would be expected to
take the lead in outlining a blueprint to reduce future cost growth in
their sector.
The value of launching such an effort is illustrated by the chart
below, which shows the dramatic impact of reducing annual increases in
the projected growth of national health expenditures by 1 percentage
point, 1.5 percentage points, or 1.7 percentage points. The aggregate
cost savings under any of these scenarios would be very large, with the
third scenario--achieving a reduction of 1.7 percentage points--
yielding savings of $3.5 trillion over 10 years, or more than $700
billion in 2018 alone.
Reducing cost trend in this manner would strengthen the Nation's
economic position relative to the global economy, provide significant
relief to individuals and employers, and improve the solvency of the
Medicare trust fund. Moreover, cost savings of this magnitude could go
a long way toward ensuring that every American has access to
affordable, quality coverage and care. These savings could help finance
part of the costs of providing coverage to the uninsured, as well as
reduce costs for those who are currently covered.
The impact on the U.S. economy is particularly important, as the
chart below shows. Modest reductions in cost trends would have a
dramatic effect in holding down future projections of national health
care spending as a percentage of our Nation's gross domestic product
(GDP).
A financially sustainable and affordable health care system can
only be achieved by bringing underlying medical costs under control. If
health care costs are allowed to continue rising at rates far exceeding
economic growth, they will stall all efforts to expand coverage and
improve care. Meeting specific affordability goals will require
leadership from all stakeholders. Health plans are prepared to step up
and meet that challenge and participate in a fast-track process with
other stakeholder groups.
IV. CREATING A HIGH-VALUE HEALTH CARE SYSTEM
The goal of containing costs can only be realized if it is coupled
with parallel efforts to improve the ability of our health care system
to deliver high-quality care that is in line with best practices and
addresses the disparities in care experienced by cultural and ethnic
minorities.
The fragmented U.S. health care delivery system is wasteful and
unsustainable. Patients across the Nation fail to receive high quality
care on a consistent basis, while the system overpays and encourages
the overuse of costly specialty care, yet underpays primary care which
fosters care coordination and chronic care management. About 18 percent
of Medicare hospital admissions result in re-admissions within 30 days
of discharge, accounting for $15 billion in spending and $12 billion in
potentially preventable re-admissions.
The total costs of preventable medical errors that result in injury
are estimated to be between $17 billion and $29 billion--of which over
half represent health care costs. Additional research demonstrates that
there is an alarming gap between what is recommended by scientific
evidence and what is actually practiced, including a 2003 RAND study
which found that only 55 percent of patients receive treatments based
on best practices.
To address these challenges, we need to focus on several critical
areas to create a high-value health care system.
Updating and recalibrating the Medicare physician fee
schedule. The current process for determining physician payment across
different specialties under the Medicare program should be overhauled,
and a transparent, public process should be created. Payment levels
should be adjusted for cognitive and procedural services as well as
account for gains in efficiency and provider productivity.
Recalibrating the value of professional services will create renewed
interest in important areas such as primary care.
Setting standards and expectations for the safety and
quality of diagnostics. The 2001 Institute of Medicine's landmark
report, Crossing the Quality Chasm, recommended setting and enforcing
explicit professional and facility standards through regulatory and
other oversight mechanisms, such as licensure, certification and
accreditation, that define minimum threshold performance levels for
health care organizations and professionals. Standards will hold
providers accountable for ensuring a safe environment in which patients
receive care.
Promoting care coordination and patient-centered care by
designating a medical home as well as supporting other primary care
delivery models. The patient-centered medical home is a promising
concept that would replace fragmented care with a coordinated approach
to care. By providing physicians with a periodic payment for a set of
defined services, such as care coordination that integrates all
treatment received by a patient throughout an illness or an acute
event, this model promotes ongoing comprehensive care management,
optimizes patients' health status, and assists patients in navigating
the health care system. Other models which utilize nurses and other
professionals to coordinate and manage patients' care also should be
explored.
Linking payment to quality. Payment incentives which
reward physicians that practice both efficiently and consistently with
clinical practice guidelines should continue to be promoted. The next
generation of pay-for-performance models will move beyond the current
focus of ensuring that processes of care are followed and performance
metrics are reported, and instead, reward providers for achieving
results including better clinical outcomes, improved patient
experience, and lower total cost of care. Similar incentives which
apply to hospitals also may have potential benefits.
Bundling payments for better management of chronic
conditions across practitioners and facilities. Bundled payments could
allow for better management of chronic conditions by providing a single
prospective payment for all providers involved in the management of a
patient's condition. Under this model, providers would have shared
accountability and responsibility, and thus be motivated to
individually provide quality care in more efficient ways as well as
work with other professionals to improve collective performance.
Redesigning acute care episodes. Global case rate models--
which typically provide an all-inclusive payment for a defined set of
services, regardless of how much care is actually provided--may be a
beneficial payment approach for procedures and conditions which have a
relatively clear beginning and end.
Refocusing our health care system on keeping people
healthy, intervening early, and providing coordinated care for chronic
conditions. Additional proactive steps need to be taken to identify
individuals at risk for chronic conditions, help them access care, and
encourage them to maintain healthy lifestyles. A proactive approach
that keeps people healthy and productive needs to: (1) address the
growing shortage of physicians and nurses in selected disciplines,
including primary care and general surgery; and (2) reward providers
for spending time with patients and coordinating their care.
Improving care nationwide by adopting uniform standards
for quality, reporting, and information technology. AHIP strongly
supports the investments in health information technology that were
enacted as part of H.R. 1, the ``The American Recovery and Reinvestment
Act of 2009.'' This legislation lays the groundwork for steps that must
be taken to ensure that health care providers, consumers, payers, and
policymakers have access to consistent and useful data on the quality
of care delivered.
Investing more in research to better understand which
treatments and therapies work best. We need to close gaps in research,
organize information on practices yielding the best outcomes for
patients, and diffuse this information among practitioners and
patients. H.R. 1, the ``American Recovery and Reinvestment Act of
2009,'' provided $1.1 billion in Federal funding--which we strongly
supported--to support research that will advance these important
priorities.
Creating accountability for consistently delivered, high-
quality care based on the best evidence. All stakeholders should
promote the delivery of the best clinical outcomes and patient
experience while ensuring the most effective and appropriate
utilization of health care services. To accomplish this objective,
investment in the development of new and improved measures that assess
episodes of care and efficiency must be fast-tracked as part of health
care reform.
Making targeted investments in our public health
infrastructure. Our public health infrastructure needs to be better
positioned to implement strategies that prevent or ameliorate health
care concerns and promote well-being and healthy lifestyles as part of
health care reform. We advocate a new, targeted national initiative to
increase public awareness of the links between preventable conditions
and chronic illness and to support new and existing prevention programs
in our schools, worksites, and communities. Health plans are committed
to working directly with communities to promote safe and healthy living
and provide models for targeted investments in public health across the
Nation.
The visual on the following page shows that many of the initiatives
that have been implemented in the private sector today are paving the
way for future innovations under a reformed health care system.
Existing programs listed in the left column provide a valuable
foundation for the tools and strategies of tomorrow's health care
system.
v. conclusion
AHIP appreciates this opportunity to outline our suggestions for
enacting meaningful health care reforms. We are doing our part to
advance new strategies, and we are strongly committed to working with
committee members and other stakeholders to develop solutions for
ensuring that all Americans have access to high quality, affordable
health care coverage.
Senator Bingaman. Thank you very much.
Dr. Nichols.
STATEMENT OF LEN M. NICHOLS, Ph.D., DIRECTOR, HEALTH POLICY
PROGRAM AT THE NEW AMERICA FOUNDATION, WASHINGTON, DC
Mr. Nichols. Mr. Chairman, it is a real honor to be before
you and to work with this storied committee today.
My name is Len Nichols, and I direct a health policy
program at the New America Foundation.
I am here to say that our insurance markets are failing us.
They lead to inefficiency, unnecessary human suffering, death,
and loss of productivity from that premature death and
prolonged morbidity. But it is important we recognize that the
fault lies not with the people who run the insurance companies.
The fault lies in the rules we have set for them.
By and large, they follow the rules, and those rules are
stupid. We need to acknowledge that smart rules can make
markets more efficient and work better. They can make markets
more efficient and more fair.
The role of policy, in my view, is to set rules that
channel self-interest to serve the public interest. Our goal
should be to create marketplaces wherein insurers that adopt
socially responsible business models will thrive.
The obsolete business model that has led to all this
inefficiency and human suffering is centered on aggressive
underwriting and risk selection. So the simple thing to do is
outlaw it. We want insurers to compete on price, clinical
value-added, and consumer satisfaction, not on avoiding the
sick and strategically denying valid claims.
Therefore, to that end, I think it is very clear you need
to think about rules that would end discrimination based on
health status. You have heard a lot about that. Sounds like we
got a consensus. Let us just do it this afternoon. End
discrimination based on health status.
Guaranteed issue. Sell to all comers. Guaranteed renewal.
Some kind of modified community rating so you don't use health
as a discriminating factor.
Then I would say you need to avoid adverse selection. You
have to have an individual mandate to require people to
purchase that insurance. If you are going to ask insurers to
take all comers, you have to make sure the population they are
covering is the full population and not just the sick.
Thank you very much.
[The prepared statement of Mr. Nichols follows:]
Prepared Statement of Len M. Nichols, Ph.D.
Chairman Kennedy, Ranking Member Enzi, Senator Bingaman and other
distinguished members of the committee, thank you for inviting me to
testify today on this central topic of health reform and how best to
organize insurance markets. My name is Len M. Nichols. I am a health
economist and direct the Health Policy Program at the New America
Foundation, a non-profit, non-partisan public policy research institute
based in Washington, DC, with offices in Sacramento, CA. Our program
seeks to nurture, advance, and protect an evidence-based conversation
about comprehensive health care reform. We remain open-minded about the
means, but not the goals: all Americans should have access to high-
quality, affordable health insurance and health care that is delivered
within a politically and economically sustainable system. I am happy to
share ideas for your consideration today and hereafter with you, other
members of the committee, and staff.
Insurance markets are a great place to focus on early in your
inquiries. We know that having quality health coverage is literally a
matter of life and death. The Institute of Medicine (IOM) estimates
that over 18,000 Americans die every year because they do not have
access to the timely and necessary care that health insurance
affords.\1\ Many of us in this room take this kind of seemingly routine
care for granted, yet I know that securing access to health insurance
for all is a moral obligation that many members of this committee
share.
---------------------------------------------------------------------------
\1\ Institute of Medicine, Coverage Matters: Insurance and Health
Care, (National Academies Press: Washington, DC, 2001).
---------------------------------------------------------------------------
The truth is many insurance markets do not work very well for many
of our fellow citizens. Small employer groups with fewer than 50 or 100
members lack bargaining power, administrative economies of scale, and
the ability to self-insure. As a result, they pay very high prices for
coverage.\2\ Perfectly healthy and higher income individuals do
satisfactorily well in the non-group market most of the time. However,
those with health conditions, even fairly minor ones, often encounter
carriers who refuse to sell to them at all or only at a greatly
inflated price.\3\ The non-group market can never work well for those
with serious health conditions and modest incomes.\4\
---------------------------------------------------------------------------
\2\ The ``price'' of insurance is the ``load,'' the difference
between the premium paid and the amount of money paid to medical
providers for health services. Individuals pay loads between 30-40
percent, small groups pay 25-30 percent, and large groups pay 6-15
percent.
\3\ Karen Pollitz and Richard Sorian, ``Is the Individual Market
Ready for Prime Time?'' Health Affairs Web Exclusive, October 23, 2002;
Karen Pollitz, Richard Sorian, and Kathy Thomas, ``How Accessible is
Individual Health Insurance for People in Less-Than-Perfect Health?''
Kaiser Family Foundation, June 2001.
\4\ Mark V. Pauly and Len Nichols, ``The Nongroup Insurance Market:
Short On Facts, Long On Opinions And Policy Disputes,'' Health Affairs
Web Exclusive, October 23, 2002.
---------------------------------------------------------------------------
Even large group markets are not working all that well. Large
employers are increasingly focused on cost and quality issues as much
as and in some cases more than everyone else. Most large employers
self-insure because they concluded long ago that they were not getting
value for the risk-bearing services they were buying from insurers.
Today, many large employers just buy claims processing and provider
contracting services. Furthermore, many employers actually engage in
benefit design and care management efforts themselves, sometimes in
concert with insurers acting as third-party administrators, but often
alone.
Thus, insurance markets need to be reformed--and some people must
be given substantial subsidies--for us to reach the goal of covering
all Americans in a sustainable way.
I will get specific in short order, but I prefer to start with a
big picture perspective. To reform our health system generally and our
insurance marketplaces specifically, we must re-align incentives quite
profoundly. The role of policy is to set the rules so that self-
interest is channeled to serve the social interest. We have not done
this very well with regard to insurance regulation, either at the
Federal or State levels. We can do far better.
Our goal should be to create marketplaces wherein insurers who
adopt socially responsible business models will thrive. The obsolete
business model that has inflicted so much inefficiency and human
suffering on so many is centered on aggressive underwriting and risk
selection. Under this model, insurers compete to insure the best risks
and avoid the sick at all costs. Americans will be much better served
by rules that make it unprofitable and illegal to continue these
strategies.
It is necessary to institute rules that will encourage insurers to:
interact with enrollees efficiently, respectfully, and transparently;
help us get and stay healthier; identify outstanding and efficient
providers and use information tools and incentives to help them deliver
better care; and, structure payments to providers so that continuous
quality improvement is embedded in every care process, regardless of
whether the care is being delivered in the physician's office, the
hospital, or elsewhere. In other words, we want to create markets
wherein insurers compete based on price, clinical value-added, and
consumer satisfaction, rather than on avoiding the sick and
strategically denying claims.
NECESSARY REFORMS
The following reforms are necessary to create an insurance market
that is accessible and affordable for all:
A new marketplace that extends the advantages of large group
purchasing--large, balanced risk pools and administrative economies of
scale--to all. This new marketplace or ``exchange'' could be organized
nationally. But insurance markets, like health service markets, are
inherently local. The conditions on the ground vary quite a bit across
the country and even within States. For example, integrated health
systems, large multi-specialty physician groups, and effective and
responsive local non-profit health plans are not as widespread as most
of us would prefer. Therefore, creating several marketplaces or
exchanges on a regional, State, or sub-state level (or some
combination), would be preferable to a single national marketplace.
However, and this should be made abundantly clear, the most
important rules that govern the new marketplace must be uniform across
the country. We cannot serve all Americans well with a regulatory
patchwork that reflects local lobbying disparities more than good
policy sense.
The responsibility for enforcing the new insurance regulations
should remain with the States. As a result of their current role,
States have more functional knowledge about regulating insurance
companies and of the local nuances of local markets than the Federal
Government. However, the Federal Government will need to invest in
back-up regulatory authority if States fail to act consistently with
the intent of Federal legislation.
Initially, the new exchanges should subsume today's small group and
non-group markets. This will enable people who are not eligible for
Medicaid (or Medicare) who work in small firms or are without access to
employer-sponsored coverage to enter right away. No residual market
outside the exchange should be allowed for these small groups and
individuals. This will eliminate risk selection once and for all. Over
time, large (currently self-insured) groups might be allowed to enter
into the market, perhaps starting with State and Federal employees.
Care must be taken to protect against risk selection, however, so large
groups should be allowed to come in only as a result of employer
choice, not the choice of individual employees.
The marketplaces should be governed by a balanced, non-profit board
of directors appointed by political leaders. Insurers will need to meet
specific standards in order to participate. They should be required to
report data (for comparative performance purposes) and abide by the
marketing rules and open enrollment period policies set by the board.
Prohibit discrimination based on health status. No American should
be denied coverage or charged differential premiums because of their
health status or family history. To achieve this goal, the following
reforms are absolutely necessary: guaranteed issue (all insurers must
sell all products to all people within the exchange and outside the
exchange large employers must allow all workers to join their plans at
group rates), no exclusions based on pre-existing conditions (once
virtually all Americans are covered), guaranteed renewability (plans
cannot refuse to continue covering individuals or differentially change
their premium as a result of changes to health status), and modified
community rating (premiums may not vary based on health status, but can
vary by age, geography, and family size).
Minimum benefit package. All Americans should have coverage that
protects their health and financial needs. Therefore, Congress or
another authority should require a minimum level of benefits to
guarantee the quality of coverage being offered in the marketplace and
protect against adverse selection that could result from wide
variations in product design.
The minimum benefit standard could be designed as a specific
minimum benefit package or an actuarial value target. An actuarial
value test, while not as effective for market competition as a specific
benefit minimum package, would nevertheless preserve some flexibility
for benefit and cost-sharing design and still guarantee quality
coverage. If done carefully, this strategy could also protect against
extreme adverse selection.
Risk adjustment (distributing payments to insurers based on
differential risk profiles) will be necessary to help reduce the
consequences of adverse selection as well. Insurers should also be
permitted to sell supplemental products; however, these packages must
be priced and described separately to allow consumers to easily compare
different choices and create transparency regarding cost and value.
Subsidies. Health care costs have risen faster than wages for some
time. As a result, health insurance and health care have become more
unaffordable for more and more American families every day. Therefore,
we will need to devote substantial subsidy dollars to make health
insurance and health care affordable for all Americans. However,
affordability has two dimensions--for households and for governments.
Ultimately, the final definition of affordability will reflect
political judgments about what households and governments can afford.
This definition may evolve over time, as will delivery system
efficiencies, demographic trends, and economic growth.
Reform proposals should include sliding scale subsidies for
individuals and families who need help affording coverage (again,
defined by the community). Subsidies could be available for both
premiums and cost-sharing requirements (depending on the design of the
minimum package) and made available directly or through the tax code.
We should keep in mind that the Federal Government already spends
more than $200 billion per year subsidizing insurance through the tax
treatment of employer-provided health coverage. Economists, analysts,
and courageous policymakers have argued for years that the income tax
exclusion for employer premium payments is both regressive and
inefficient relative to other ways to subsidize insurance coverage. The
current employer tax exclusion is a poorly targeted subsidy that we
could and should use to make our health system both more efficient and
more fair. Therefore, as we think about how to finance coverage
expansion and necessary subsidies, we should remember that some of the
resources we have dedicated already could be targeted far more
efficiently.
Requirement to purchase coverage. No one suggests an individual
mandate because they want to ``make'' people buy insurance. Rather,
when combined with the reforms described above, a requirement to
purchase coverage is necessary to make the insurance market function
efficiently and fairly. Without a purchase requirement, insurers will
legitimately fear that only the sick will buy health insurance (adverse
selection). That fear will produce higher premium bids, which will cost
people and governments more money. Purchase requirements will guarantee
that the population seeking care represents the entire population. As a
result, insurers will bid lower in a competitive context. Massachusetts
has seen this happen in real life.
Once insurance is accessible (through the newly reformed
marketplace) and affordable (through subsidies), all individuals should
be required to purchase coverage to make sure everyone pays their fair
share and reduce the costs shifted to the insured by free riders. A
free rider is an individual who could afford to purchase coverage, but
does not enroll. Ten percent of the uninsured make more than four times
the Federal poverty level.\5\ Often when a free rider gets seriously
ill they visit a hospital emergency room and indicate that they cannot
pay for the services provided to them. Their costs are shifted to the
insured in the form of higher provider prices and in turn higher
private insurance premiums. Roughly 16 percent of our uncompensated
care expenses for the uninsured go to people who make more than 400
percent of the poverty level.\6\
---------------------------------------------------------------------------
\5\ Kaiser Family Foundation, ``The Uninsured, A Primer:
Supplementary Data Tables,'' October 2008.
\6\ Sarah Axeen and Elizabeth Carpenter, ``Who Receives
Uncompensated Care,'' New America Foundation, March 2008.
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In addition, 25 percent of people eligible for public coverage at
little to no cost do not enroll.\7\ While these individuals are not
free riders, they still contribute to the cost-shift or ``hidden tax,''
which results in higher premiums for the insured. An individual mandate
would necessitate effective outreach and enrollment efforts to minimize
the number of people who are currently missed by the system and ensure
this vulnerable population is taking advantage of available coverage.
In the long run, this should help them get healthier and become more
productive citizens.
---------------------------------------------------------------------------
\7\ John Holahan, Allison Cook, Lisa Dubay, ``Characteristics of
the Uninsured: Who is Eligible for Public Coverage and Who Need Help
Affording Coverage,'' Kaiser Family Foundation, July 2007.
---------------------------------------------------------------------------
Finally, as a condition of living in a community that helps
individuals afford insurance and care, everyone has a personal
responsibility to maintain their own health. Value-based design
features in the minimum benefit package that encourage healthy eating,
exercise, and lifestyle behaviors will help give Americans some of the
tools they need to achieve this goal. In addition, part of taking
responsibility for our own health includes a requirement to access
appropriate health care services when necessary. This is possible only
if a person is insured. Therefore, a requirement to purchase or enroll
in available coverage represents one part of an individual's personal
responsibility to the larger community.
Transparency for insurers. In general, we must increase
transparency within our insurance markets to engender fair competition
and give consumers the information they need to make informed choices
about the insurance products that are right for them. Insurers should
be required to report information on the quality of care their
enrollees are getting, as well as patient satisfaction indicators that
will be made public by the exchanges. The Healthcare Effectiveness Data
and Information Set (HEDIS) measures, which are continually updated by
the National Committee for Quality Assurance (NCQA), seems like a
reasonable place to start. Also, exchanges will want to help the public
compare administrative efficiency by making available the ratio of
premiums collected versus dollars spent on patient care. The risk
profiles of enrollees will need to be reported for exchange-wide risk
adjustment as well.
OPTIONAL REFORMS
The reforms described above could achieve satisfactory performance
from a market comprised exclusively of private health insurance plans.
Yet, I admit that there are few real-world examples that prove this
kind of system would function as anticipated, though reforms in
Massachusetts are making great strides. (Since Massachusetts remains a
work-in-progress I will not analyze it in detail in the written
testimony but will gladly discuss my impressions of what we know so far
in the hearing itself, or later). While my personal views lead me to
believe that private insurers alone could enable our new marketplace to
deliver excellent performance in the future, I understand profoundly
that many advocates and citizens are skeptical that regulations or
contracts will be able to ensure that private insurers actually comply
with all reforms for all people.
Several leading reform proposals recommend allowing consumers to
choose between public and private health plans. Therefore, it is worth
exploring how to design an insurance marketplace wherein private and
public plans can compete fairly.
Public plan. Let me be crystal clear: if the playing field is
level, it is possible for public and private health insurance plans to
compete and deliver value for consumers without distorting the
insurance market. This policy question should not create an impasse or
stall reform efforts.\8\
---------------------------------------------------------------------------
\8\ For further information on my thoughts about a competing public
plan, see: Len M. Nichols and John M. Bertko, ``A Modest Proposal for a
Competing Public Insurance Plan,'' New America Foundation, March 2009.
---------------------------------------------------------------------------
Fair competition, however, will require separating the oversight of
the public plan from that of the managers of the marketplace or
exchange(s). It will also require that all rules of the marketplace--
benefit package requirements, insurance regulations, and risk
adjustment processes--apply to all plans equally, whether public or
private.
More than 30 State governments offer their employees a choice
between traditional private health insurance products and a plan self-
insured by the State. This experience combined with historic
competition between public and private plans in both the Medicare
program and California Public Employees Retirement System (CALPERS)
serves as proof-of-concept: plans operating with politically appointed
managers can compete with plans run by private managers if the rules of
engagement are structured properly.
Again, State employee plans offer an excellent model for how we
could structure a choice of a public health insurance plan. More than
30 State governments offer their employees a choice between traditional
private health insurance products and a plan self-insured by the State.
In the case of the self-insured product, the State or a third party
administrator (TPA) negotiates provider contracts and performs
administrative functions. While the State may pay a TPA (usually the
resident ``Blue'' plan) to handle some tasks, the plan is publicly
owned and the State bears the insurance risk. If claims outpace
premiums in a given year, the State pays and is at risk for the
difference. Likewise, if the TPA collects more premiums than it pays
out in claims, the surplus dollars are usually allocated to a premium
stabilization fund or remain with the State's general revenues. Neither
the TPA nor the State plan's managers profit from stinting on care.
This credible reassurance seems to be what most advocates for the
choice of a public health insurance plan seek.
Therefore, I believe the type of public plan I describe above can
achieve many of the goals of public plan advocates, while preserving
fair and effective market competition, negating the risk of excess
cost-shift, and avoiding any kind of inevitable progression toward a
single payer health system. Yet, this approach will require us to
systemically address delivery system reforms that can deliver more
value and lower cost growth trajectories over time. But that is a
subject for another day.
CONCLUSION
Insurance market reforms are an essential part of re-making our
health system into one that works for all Americans in the 21st
century. Comprehensive health reform must also include efforts to
improve quality and reduce cost growth. But the foundation of a health
system must be coverage. Without coverage, tens of millions of
Americans will never have access to appropriate care and health-
enhancing interventions.
There is a compelling collective interest in making sure coverage
is a reality for all Americans: the economic loss we suffer as a result
of the uninsured exceeds the cost of covering everyone.\9\ Also, we
must cover all Americans to allow the information system and quality
innovations, that we desperately need, to work successfully. Therefore,
making insurance markets work for all is a crucial step on the road to
real reform, the kind of reform your committee has long sought and that
our Nation desperately needs. I hope this testimony is useful and I
remain, as always, eager to answer any questions.
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\9\ Health Policy Program, ``The Case for Health Reform,'' New
America Foundation, 2009.
Senator Bingaman. Thank you very much.
Dr. Baicker.
STATEMENT OF KATHERINE BAICKER, Ph.D., PROFESSOR OF HEALTH
ECONOMICS, DEPARTMENT OF HEALTH POLICY AND MANAGEMENT AT THE
HARVARD SCHOOL OF PUBLIC HEALTH, CAMBRIDGE, MA
Ms. Baicker. Thank you.
It is an honor to be here to talk with you about the
crucial issue of making our health markets work better. Our
system should provide both high-quality care and high-value
insurance, and those aren't necessarily the same thing,
although they are surely related.
High-value healthcare would end the overuse of intensive
procedures of questionable value and the under use of
procedures of high health value and usually low intensity that
we see in varying degrees across the country. There are parts
of the country that spend two or three times as much money as
other parts to deliver care that is of no higher value to the
recipients.
High-value health insurance would deliver protection
against the risk of needing expensive healthcare not only this
year, but against the risk of developing conditions that would
require much more expensive healthcare in years to come. Market
reforms can make that kind of high-value health insurance more
widely available to everyone, but they work best when everyone
gets insured early because insurance is about that risk.
We don't need health insurance because healthcare is
expensive. We need health insurance because healthcare is
uncertain and expensive, and that is when we value health
insurance the most.
Health insurance can do a good job in the private market of
redistributing money. If you want to redistribute money to high
health risk people, you need to also include a bundle of social
insurance to wrap around private market insurance, and that
social insurance need not be socialized. It can be a risk-
adjusted voucher or other mechanism to ensure that vulnerable
low-income, high-risk populations also have access to the
lifesaving healthcare that their insured counterparts enjoy.
Thank you.
[The prepared statement of Ms. Baicker follows:]
Prepared Statement of Katherine Baicker, Ph.D.
My name is Katherine Baicker, and I am a Professor of Health
Economics in the Department of Health Policy and Management at the
Harvard School of Public Health. I would like to thank Senator Kennedy,
Senator Enzi, and the members of the committee for giving me the
opportunity to speak today about how we can address the crucial policy
challenge of health insurance market reform. This testimony is derived
in large part from recent academic work with my colleague Amitabh
Chandra that appeared in the journal Health Affairs. I summarize that
work here.
This morning I would like to discuss several general principles
about the nature of health insurance. Misunderstandings about these
principles have the potential to impede the development of a much-
needed consensus on how to engineer reform. Uncovering the kernels of
truth that underlie these misperceptions can help focus reform efforts
on the critical challenges facing our health system.
A key distinction should be made between health care and health
insurance. Insurance works by pooling risks: many pay a premium up
front, and then those who face a bad outcome (getting sick, being in a
car accident, having their home burn down) get paid out of those
collected premiums. The premium is the expected average cost of
treatment for everyone in the pool, not just the cost of treating the
sick. Because not everyone will fall sick at the same time, it is
possible to make payments to those who do fall sick even though their
care costs more than their premium. This is also why it is particularly
important for people to get insured when they are healthy--to protect
against the risk of needing extra resources to devote to health care if
they fall ill.
Uncertainty about when we may fall sick and need more health care
is the reason that we purchase insurance--not just because health care
is expensive (which it is). Many other things are expensive, including
housing and college tuition, but we do not have insurance to help us
purchase them because they are not uncertain in the way that
potentially needing very expensive medical care is. The more
uncertainty there is, the more valuable the insurance is.
THE PROBLEM OF THE SICK AND UNINSURED
Insured sick people and uninsured sick people present very
different issues of public policy. People who have already purchased
insurance and then fall sick pose a particular policy challenge:
insurance is not just about protecting against unexpected high expenses
this year, but also about protecting against the risk of persistently
higher expenses in the case of chronic illness. This kind of protection
means that once insured, enrollees' premiums would not rise just
because they got sick, but this is not always the case today. In fact,
insurers have an incentive to shed their sickest enrollees, suggesting
a strong role for regulation protecting them. Nor are insurers held
responsible when inadequate coverage raises the costs of a future
insurer, such as Medicare for those over 65. These problems highlight
the limited availability of true long-run insurance offerings, a reform
issue that is often glossed over in the conflation of health care and
health insurance.
Uninsured Americans who are sick pose a very different set of
problems. They need health care more than health insurance. Insurance
is about reducing uncertainty in spending. It is impossible to
``insure'' against an adverse event that has already happened, for
there is no longer any uncertainty. If you were to try to purchase auto
insurance that covered replacement of a car that had already been
totaled in an accident, the premium would equal the cost of a new car.
You would not be buying car insurance--you would be buying a car.
Similarly, uninsured people with known high health costs do not need
health insurance--they need health care. Private health insurers can no
more charge uninsured sick people a premium lower than their expected
costs. The policy problem posed by this group is how to ensure that
low-income uninsured sick people have the resources they need to obtain
what society deems an acceptable level of care--and ideally, as
discussed below, to minimize the number of people in this situation.
This highlights one of the many reasons that health insurance is
different from car insurance: the underlying good, health care, is
viewed by many as a right. Furthermore, we may want to redistribute
money from the healthy to the sick, in the same way that we
redistribute money from the rich to the poor. This kind of
redistribution is fundamentally different from private insurance--it is
social insurance, and it is hard to achieve through private markets
alone.\1\ Medicare, which insures the aged and disabled, is an example
of a social insurance program. Private markets can pool risk among
people starting out with similar health risks, and regulations can
ensure that when some members of those risk pools fall ill, insurers
cannot deny them care or raise their premiums, but transferring
resources to people who are already sick and uninsured or transferring
resources from lower health risk groups to higher health risk groups
requires social insurance.
How then do we provide the sick and uninsured with socially
acceptable care? Private health insurance alone is unlikely to achieve
this goal: no insurer will be willing to charge a premium less than an
enrollees' likely health costs. Instead, they could be provided with
health care directly or a premium subsidy equal to their expected
health care costs. Alternatively, we could force sick people and
healthy people to pool their risks, such as through community rating
coupled with insurance mandates (to preclude healthy people from opting
out of subsidizing sick ones). These kind of transfers are based on
social choices about redistribution.
The advantage of social insurance programs, including a
nationalized health care system, is that they can achieve
redistribution that private markets alone cannot. They may also provide
benefits with lower administrative costs (although, in the case of
moving to a single payer system, the size of administrative savings
relative to overall health care cost growth is likely to be small).\2\
There are, of course, costs associated with social insurance programs
as well. First, there is the drag on the economy imposed by raising
revenues to finance them. Second, there is the loss of competition,
diverse offerings for diverse preferences, and market discipline that
private provision brings--and that promote higher value and innovation.
This means that the social insurance program may be both expensive and
inefficient--and thus impose an even larger burden on already strained
public budgets. These pressures have, perhaps unsurprisingly, spawned
additional misconceptions that suggest that the costs of expanded
insurance are lower and the benefits higher than the data support.
THE COST OF COVERING THE UNINSURED
A common and deceptively appealing argument for expanding insurance
coverage is that we could both spend less and achieve better health by
replacing the inefficient emergency room care received by the uninsured
with an insurance plan. Unfortunately, this argument finds little
empirical support. ER care for the uninsured is indeed inefficient and
might have been avoided through more diligent preventive care and
disease management. Diabetes treatment is a good example; it is much
cheaper to manage diabetes well than wait for a hospitalization which
requires a leg amputation. Having health insurance may lower the costs
of ER and other publicly provided care used by the uninsured through
better prevention and medical management. But empirical research also
demonstrates that insured people consume more care (and have better
health outcomes) than uninsured people--so universal insurance is
likely to increase, not reduce, overall health spending.\3\
Why does insurance cause greater consumption of health care?
Insurance, particularly insurance with low cost-sharing, means that
patients do not bear the full cost of the health resources they use.
This is a good thing--having just made the case for the importance of
the financial protections that insurance provides--but comes with the
side-effect of promoting greater consumption of health resources, even
when their health benefit is low. This well-documented phenomenon is
known as ``moral hazard,'' even though there is nothing moral or
immoral about it. The RAND Health Insurance Experiment (HIE), one of
the largest and most famous experiments in social science, measured
people's responsiveness to the price of health care. Contrary to the
view of many non-economists that consuming health care is unpleasant
and thus not likely to be responsive to prices, the HIE found
otherwise: people who paid nothing for health care consumed 30 percent
more care than those with high deductibles.\4\ This is not done in bad
faith: patients and their physicians evaluate whether the care is of
sufficient value to the patient to be worth the out-of-pocket costs.
The increase in care that individual patients use because of insurance
has even greater system-wide ramifications. R&D in new medical
technologies responds to the changes in aggregate incentives driven by
health insurance. While these technologies may improve welfare, they
also raise premiums because of larger armamentarium of treatments
available to the sick. There is evidence of these system-wide effects:
when Medicare was introduced in 1965, providers made spectacular
investments beds in high-tech care, and hospital spending surged over
25 percent in 5 years.\5\
Even increases in preventive care do not usually pay for
themselves: in general prevention is good for health, but does not
reduce spending. Some preventive care has been shown to be cost-
saving--such as flu vaccines for toddlers or targeted investments like
initial colonoscopy screening for men aged 60-64--but most preventative
care results in greater spending along with better health outcomes.
Indeed, some money spent on preventive care may not only cost money,
but may be no more cost effective than some ``high-tech'' medical care.
For example, screening all 65-year-olds for diabetes, as opposed to
only those with hypertension, may improve health but costs so much
(about $600,000 per Quality Adjusted Life Year) that that money might
be better spent elsewhere.\6\
All of this suggests that insuring the uninsured would raise total
spending. This doesn't mean that it would not be money well spent
(which I believe it would be). Spending more to attain universal
insurance is not a problem if it generates more value than it costs,
and the view that health care is a right is not inconsistent with this
framework. First, and sometimes overlooked, is the security that
insurance provides against the uncertainty of unknown health care
expenses. The value of this financial smoothing alone is estimated to
be almost as much as the cost of providing people with insurance.\7\
Second, much of the additional health care that the newly insured would
receive is likely to improve health. (But this is by no means
automatic, for as discussed below, being insured is not enough to
guarantee good health care.) Extending health insurance coverage is
worth it for these reasons--but not because it would save money.
GETTING HIGH-VALUE CARE
Having insurance may increase the quantity of care patients
receive, but it is no guarantee that they will receive high quality
care. A recent study found that Americans received less than 60 percent
of recommended care, including preventive, acute, and chronic care, and
including such low-cost interventions as flu vaccines and antibiotics
for surgical patients.\8\ Beginning with the work of John Wennberg at
Dartmouth, an immense literature in medicine and economics has found
that even among Medicare enrollees, there are enormous differences in
the quality of care received: in fact, in areas where the most is spent
on Medicare beneficiaries, they are the least likely to get high
quality care. The use of mammograms, flu-shots, beta-blockers and
aspirin for heart attack patents, rapid antibiotics for pneumonia
patients, and simple laboratory tests to evaluate the management of
diabetes are all lower in higher-spending areas.\9\ Higher spending is
not even associated with lower mortality, which suggests that more
generous insurance provision does not necessarily translate to better
care or outcomes.
When these results showing the lack of relationship between
spending and quality were first reported there were two predictable
responses by skeptics: that high spending areas had sicker patients who
were (appropriately) less likely to receive these therapies, and that
patients in high-spending had higher satisfaction even if their
measurable health outcomes were the same. Neither claim is supported by
the evidence.
What, then, do patients in high-spending areas get? Evidence
suggests that this higher intensity is driven by greater use of
procedures with questionable clinical value--that may even be
associated with under-use of high value, less-intensive care. Patients
in high-spending areas are no more likely to receive surgery, but see
more specialists more frequently, have more diagnostic and imaging
services, and get more intensive care in the end of the life--none of
which has been shown through clinical trials to improve health.\10\
``Coordination failures'' in delivery may both raise costs and lower
quality, even among the insured.
Thus, while health insurance increases the quantity of care
patients receive, being insured alone is not sufficient to ensure high
quality care. Insuring the uninsured will give them access to the sort
of health care that the rest of us receive: a combination of valuable
care, overuse of some costly interventions with little proven benefit,
and under-use of some vitally important therapies, care that is
sometimes coordinated but often fragmented. This is better than no
care, but it highlights the problem of collapsing the entire debate
about U.S. health care reform down to the issue of uninsurance: health
insurance alone does not guarantee good health care.
THE ROLE OF EMPLOYERS
Employees ultimately pay for the health insurance that they get
through their employer, no matter who writes the check to the insurance
company. The view that we can get employers to shoulder the cost of
providing health insurance stems from the misconception that employers
pay for benefits out of a reservoir of profits. Regardless of a firm's
profits, valued benefits are paid primarily out of workers wages.\11\
While workers may not even be aware of the cost of their total health
premium, employers make hiring and salary decisions based on the total
cost of employment, including both wages and benefits such as health
insurance, maternity leave, disability and retirement benefits.\12\
They provide health insurance not out of generosity of spirit, but as a
way to attract workers--just like wages. When the cost of benefits
rises, wages fall (or rise more slowly than they would have otherwise),
leaving workers bearing the cost of their benefits in the form of lower
wages.\13\
The uncomfortable arithmetic of this wage-fringe offset is seen in
other contexts--for example, workers bear the costs of workers
compensation, and mandated maternity benefits primarily reduce the
wages of women of child-bearing age.\14\ When it is not possible to
reduce wages, employers may respond in other ways: employment can be
reduced for workers whose wages cannot be lowered, outsourcing and a
reliance on temp-agencies may increase, and workers can be moved into
part-time jobs where mandates do not apply. These adjustments are
neither instantaneous nor one-for-one for every person (depending, for
example, on wage rigidities, how much individuals value the insurance
benefit, and how heterogeneous the employees' income and health are)--a
fact that obscures the underlying connection. This also means that the
claimed connection between health care costs and the ``international
competitiveness'' of U.S. industry is murky at best: higher health
costs primarily lower current workers' non-health compensation, rather
than firms' profitability (although the same trade-off cannot operate
in retiree health benefits, making their effects more complicated).\15\
Why, then, do we have a private health insurance system based
primarily on policies offered through employers? There is a preference
in the tax code for premiums paid by employers relative to premiums
paid by individuals or direct payments for health care. This tax
preference drives both the predominance of employment-based policies
and the prevalence of policies with low cost-sharing, because care paid
for in the form of higher employer premiums comes at a lower after-tax
price than care paid for out-of-pocket. Of course, this tie between
employment and insurance comes at a well-known cost: workers who leave
or lose a job risk losing their insurance or facing much higher
premiums, sometimes forcing them to stay in a job to retain health
insurance.\16\
This is not to say that there are not important advantages to
getting insurance through an employer instead of on the individual non-
group insurance market (especially given the current state of
individual market), including better pricing and risk pooling. The
employer market is the primary mechanism for maintaining cross-
subsidization from low-risk populations to high-risk ones, with tax
subsidies adding an element of social insurance (albeit one that is not
particularly progressive).\17\ It is these benefits that are the main
advantages of access to employer policies, not the fact that employers
nominally pay part of the premium.
EFFICIENT INSURANCE
Greater patient cost-sharing could help improve the efficiency of
health care spending, but it is not a cure-all. It is certainly true
that first-dollar insurance coverage (that is, insurance coverage for
the first dollar of health care expenditures or insurance with very low
cost-sharing more broadly) encourages use of care with very low
marginal benefit and that greater cost-sharing would help reduce the
use of discretionary care of questionable value. But there is also
evidence that patients under-utilize drugs with very high value when
confronted with greater cost-sharing (whether because they lack
resources or information). Worse, there is evidence that even $5-$10
increases in co-payments for outpatient care can result in some
patients getting hospitalized as a result of cutting back too much on
valuable care, offsetting the reduced spending.\18\ Capping total
insurance benefits is also short-sighted and imprudent: not only does
evidence suggest that such caps result in adverse clinical outcomes,
worse adherence, and increased hospital and ER costs, but the presence
of caps means that patients are not insured against catastrophic
costs--exactly what insurance is supposed to protect against the most.
There is no reason to think that the optimal insurance structure
would look like the typical high-deductible plan. Rather, it might
subsidize high-value care such as treatments to manage diabetes or
asthma, while imposing greater cost-sharing on care of lower value,
such as elective surgeries with limited health benefits. People would
choose the insurance plans that offered them the best benefit mix--
trading off higher premiums for plans that covered care of diminishing
marginal value. Of course, what may be valuable to one patient could be
wasteful for another, and the key challenge for ``value-based insurance
design'' policies is to differentiate these cases. Many firms are
experimenting with these plans.\19\ Focusing exclusively on high-
deductible plans that rely on a blunt structure of patient cost-sharing
and perfectly forward-looking patients may forestall the development of
even more innovative plans.
This does not mean that competition and cost-sharing have no role
in driving higher value spending, however. Competition between insurers
to offer plans that have the mix of benefits enrollees find most
valuable could drive the kind of innovative plans described above.
Increased cost-sharing such as that promoted by high deductible
policies coupled with health savings accounts can also be an important
tool for improving the value of care. As the evidence from the RAND HIE
discussed above shows, the low-cost sharing plans fostered by the
current tax treatment of health insurance (which look more like pre-
paid health care than true insurance) promote the use of care that is
of limited health benefit. While most spending is indeed done by people
with very high total costs, well-designed cost-sharing programs could
still have substantial effects on spending decisions. Most spending is
not done in emergency settings, and even limited cost-sharing can have
an effect on a substantial share of total spending.\20\ This suggests
that carefully designed incentives could have a big effect on improving
the value of care delivered.
CONCLUSION
We know that our health care system is not delivering the
consistently high-quality, high-value care that we should expect. While
there are many open questions in the design of the ideal system, with
millions uninsured and rising costs threatening to swamp public and
private budgets alike, we cannot afford to wait to act.
Focusing on the underlying issues discussed here suggests that the
fundamental problems facing our health insurance system are unlikely to
be cured by the extremes of either a single payer system or an
unfettered marketplace. On the one hand, the unregulated marketplace is
unlikely to provide long-run stable insurance. Private insurers will
always have an incentive to try to shed their highest cost enrollees,
so without regulatory safeguards even the insured sick will be at risk
of losing the insurance protections to which they are entitled. Private
insurance fundamentally cannot provide the kind of redistribution based
on underlying health risk or income that social insurance can. On the
other hand, a single payer system does not automatically provide high
quality care: the provision of low-value care is as pervasive in the
single payer Medicare system as it is elsewhere. Single-payer systems
are also slow to innovate--as suggested by the fact that it took
Medicare 40 years to add a prescription drug benefit, long after most
private insurers had done so. Nor do calculations of the costs of a
single-payer system measure the utility loss from forcing people with
different preferences into a monolithic health insurance plan. The
private facilities that have sprung up in Canada to meet the demands of
those who want more health care than the public system provides
fundamentally undermine the ``single payer'' nature of the system.
How one balances these trade-offs is likely driven as much by
philosophy as economics, and any reform will involve tough choices
between competing values. Serious reforms would focus not exclusively
on lowering costs, but on increasing the value that we get from health
insurance and health care.\21\ Reforms that promoted higher-value
insurance could both extend coverage so that more people benefit from
the protections that insurance affords and ensure that those
protections are secure for those who fall ill. These reforms would not
be enough to achieve uniformly high-quality care, however. The frequent
failure of the use of best practices and the tremendous geographic
variation in the use of costly care of uncertain medical benefit are
often obscured in the focus on the uninsured. That many nations,
including both the United States and Canada, struggle with these
challenges suggests that reforms of the payment system alone are
unlikely to solve all of these problems. A comprehensive reform
proposal that aimed both to extend insurance protections to those who
lack them and to improve the value of care received by those who are
insured would be more likely to succeed at each goal than proposals
that focused on just one.
Thank you again for the opportunity to meet with you. I would be
happy to answer any questions that you might have.
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1. Jonathan Gruber, Public Finance and Public Policy (New York:
Worth Publishers, 2007).
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United States and Canada--Questionable Answers to a Questionable
Question,'' New England Journal of Medicine 349, no. 8 (2003): 801-803;
Steffie Woolhandler, T. Campbell and David U. Himmelstein, ``Costs of
Health Care Administration in the United States and Canada,'' New
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Sinaiko, ``Can Multi-Payer Financing Achieve Single-Payer Spending
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``Covering the Uninsured in 2008: Current Costs, Sources of Payment,
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Evidence from the Introduction of Medicare,'' Quarterly Journal of
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J. Gottlieb, F. Lee Lucas and E.L. Pinder, ``The Implications of
Regional Variation in Medicare Spending. Part 1: The Content, Quality
and Accessibility of Care,'' Annals of Internal Medicine 138, no. 4
(2003): 273-287; ___, ``The Implications of Regional Variation in
Medicare Spending. Part 2: Health Outcomes and Satisfaction with
Care,'' Annals of Internal Medicine 138, no. 4 (2003): 288-298.
11. Lawrence Summers, ``Some Simple Economics of Mandated
Benefits,'' American Economic Review 79 (1989): 177-183.
12. Janet Currie and Brigitte Madrian, ``Health, Health Insurance
and the Labor Market,'' In Handbook of Labor Economics, edited by Orley
Ashenfelter and David Card. Amsterdam: Elsevier Science, 2000.
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Mandates and the Risk of Unemployment,'' Risk Management and Insurance
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Chandra, ``The Labor Market Effects of Rising Health Insurance
Premiums,'' Journal of Labor Economics 24, no. 3 (2006).
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Provided Insurance: Lessons from Workers' Insurance,'' Tax Policy and
the Economy 5 (1991): 111-143; Jonathan Gruber, ``The Incidence of
Mandated Maternity Benefits,'' American Economic Review 84 (1994): 622-
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15. Len Nichols and Sarah Axeen, `` Employer Health Costs in a
Global Economy: A Competitive Disadvantage for U.S. Firms,'' New
America Foundation Working Paper (2008).
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Mobility: Is There Evidence of Job-Lock?,'' Quarterly Journal of
Economics 109, no. 1 (1994): 27-54.
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Regulation: Policy and Reality in Today's Individual Health Insurance
Market,'' Health Affairs 26, no. 3 (2007): 770-779.
18. John Hsu, M. Price, J. Huang, R. Brand, V. Fung, R. Hui, B.
Fireman, J.P. Newhouse and J.V. Selby, ``Unintended Consequences of
Caps on Medicare Drug Benefits,'' New England Journal of Medicine 354,
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McKnight, ``Patient Cost-Sharing, Hospitalization Offsets, and the
Design of Optimal Health Insurance for the Elderly,'' NBER Working
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``Value-Based Insurance Design,'' Health Affairs (Millwood) 26, no. 2
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Spending: Properly Designed Health Spending Accounts Can Be a Major
Step,'' Business Economics (2006); Katherine Baicker, William H. Dow
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Extended Hospital Medical Staff,'' Health Affairs 26, no. 1 (2007):
w44-57.
Senator Bingaman. Well, thank you very much.
Ms. Praeger, go right ahead.
STATEMENT OF SANDY PRAEGER, HEALTH INSURANCE COMMISSIONER,
STATE OF KANSAS, KANSAS CITY, KS
Ms. Praeger. Good morning. Thank you, Senator.
It is always a pleasure to see my own Senator Roberts, and
thank you for that nice introduction.
And it is a pleasure to be here, representing the Nation's
insurance commissioners. I am optimistic after what I have just
heard from this very distinguished panel that there is an awful
lot of agreement among the panel members about both the problem
and I think some potential solutions.
I just have four points I want to make on behalf of our
national association. First, any solution, as we have all said,
must address the rising cost of healthcare, and you cannot
expect the insurance mechanism, which is the payment system, to
fully address the rising cost. I think that is going to require
some aggressive action on the part of you all at the Federal
level.
Whatever solutions are proposed, we certainly hope that
consumer protections will still be in place and enforced at the
State level. States have already taken great strides in putting
in place patient protection legislation, solvency standards for
companies, fraud prevention programs, and oversight mechanisms
that enable us to answer those questions that Senator Brown
talked about in his opening comments.
When consumers feel that they are being unjustly treated by
their insurance company, it is our insurance commissioners
across the country that are on the ground day in and day out
with those consumer protections. So we hope that any solution,
first and foremost, recognizes those important elements of
consumer protection.
It is easy, as we look at solutions, to create an
opportunity for adverse selection. We would just obviously
caution against that. I think rating reforms are necessary. I
also agree that rating based on health status should be
eliminated.
I think individuals should be required, all people should
be required to have coverage, but there needs to be consistency
across markets so that if you have different rating rules at
the State level and you have a national plan that does
eliminate health status rating, then you will get adverse
selection into that national plan, which will make it
eventually very costly and unaffordable. So avoiding adverse
selection is critically important.
Again, I would just emphasize the importance of preserving
a State role in the process. I think we recognize that States
alone cannot solve the problem. It will require working
collaboratively with the Federal Government on a number of
issues--sliding-scale subsidies, for example, for low-income
folks.
Assisting us with a reinsurance mechanism for the high-cost
utilizers. We have in place the high-risk pools. Congress has
helped us through grants back to the States for high-risk
pools, but that is another area where certainly State and
Federal cooperation and collaboration is important.
And I would point out that our national association has
expertise here in Washington ready, willing, and able to assist
in hammering out the details of any legislation that is put
forward. We have been actively involved with Senator Durbin.
His SHOP Act, I think, has some very good components. Several
years ago, we were actively involved with Senator Enzi of this
committee.
So we want to be a resource. We want to assist. We know the
system is broken, and it is time to address it.
[The prepared statement of Ms. Praeger follows:]
Prepared Statement of Sandy Praeger
INTRODUCTION
The NAIC represents the chief insurance regulators from the 50
States, the District of Columbia, and five U.S. territories. The
primary objective of insurance regulators is to protect consumers and
it is with this goal in mind that the members of the NAIC submit these
comments today on the health of the private insurance market.
To begin, we recognize the failures in the current market, they are
well documented. Over 15 percent of Americans, almost 46 million
people, go without coverage. For most, coverage is simply too
expensive, a result of medical spending that has run out of control and
consumes 16 percent of our economy. For others, those without coverage
through an employer and with health problems, coverage is not available
at any price. For Americans lucky enough to have insurance, premiums
take ever larger bites out of the monthly paycheck, even as rising
deductibles and co-payments shift more of the financial burden of
sickness to the patient. Insurance Commissioners see this every day,
and we welcome Congress' interest in helping the States tackle this
challenge.
State insurance commissioners believe it is important to ensure
that affordable, sufficient health coverage is available to small
business owners, their employees, and individuals. The NAIC offers its
full support in developing Federal legislation that will reach this
goal--a goal that can only be attained through Federal-State
coordination. We offer the experience and expertise of the States to
Congress as it attempts to improve the health insurance marketplace.
STATE EXPERIENCE
States led the way in requiring insurers to offer insurance to all
small businesses in the early 1990s, and the Federal Government made
guaranteed issue the law of the land in 1996 \1\ for all businesses
with 2-50 employees. Federal law does not limit rating practices, but
48 States have supplemented the guaranteed issue requirement with laws
that limit rate variations between groups, cap rate increases, or
impose other limitations on insurer rating practices. These rating laws
vary significantly in response to local market conditions, but their
common objective is to pool and spread small group risk across larger
populations so that rates are more stable and no small group is
vulnerable to a rate spike based on one or two expensive claims.
---------------------------------------------------------------------------
\1\ 42 U.S.C. 300gg-12.
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In addition to requiring insurers to pool their small group risk,
many States have established various types of purchasing pools and have
licensed associations to provide state-approved insurance products to
their members.
States continue to experiment with reinsurance, tax credits and
subsidies, and programs to promote healthier lifestyles and manage
diseases as they pursue the twin goals of controlling costs and
expanding access. These state-based reforms are, of necessity, very
distinct--based on both the specific needs in the marketplace and the
strengths and weaknesses of the marketplace. For example, the State of
New York implemented the very successful ``Healthy NY'' program, a
reinsurance-based program that addresses many of the problems
identified in New York's individual and small group markets, but
utilizing its strong HMO networks. Likewise, the Commonwealth of
Massachusetts has implemented broad reforms built on past reforms and
the unique insurer, provider and business environment.
As always, States are the laboratories for innovative ideas. We
encourage Federal policymakers to work closely with their State
partners, as well as with health care providers, insurers and
consumers, to identify and implement reforms that will make insurance
more affordable to small businesses. And remember, all significant
reforms will have significant consequences--both positive and negative.
KEYS TO REFORM
Based on the experience and expertise of the States, we encourage
Congress to consider these four keys for successful health insurance
marketplace reform:
Address Health Care Spending. Any effort to increase
access to insurance will not be successful over time unless the
overriding issue of rapidly rising health care costs is also addressed.
While the health care challenge in this country is generally expressed
in terms of the number of Americans without health insurance coverage,
the root of the problem lies in the high cost of providing health care
services in this country. According to the most recent National Health
Expenditures data, health care spending reached $2.2 trillion in 2007,
16.2 percent of GDP and $7,421 for every man, woman and child in the
United States.\2\ This level is twice the average for other
industrialized nations.
---------------------------------------------------------------------------
\2\ Centers for Medicare and Medicaid Services, National Health
Expenditures.
---------------------------------------------------------------------------
This level of health care spending has badly stressed our health
care financing system. Health insurance reform will not solve this
problem, since insurance is primarily a method of financing health care
costs. Nevertheless, insurers do have a vital role to play in reforms
such as disease management, enhanced use of information technology,
improved quality of care, wellness programs and prevention, and
evidence-based medicine--all of which have shown promise in limiting
the growth of health care spending. Whatever is done in insurance
reform should be done in a manner that is consistent with sound cost
control practices.
Protect the Rights of Consumers. States already have the
patient protections, solvency standards, fraud prevention programs, and
oversight mechanisms in place to protect consumers; these should not be
pre-empted by the Federal Government. As the members of this committee
know all too well, the pre-emption of State oversight of private
Medicare plans has led to fraudulent and abusive marketing practices
that would have been prevented under State law, bringing considerable
harm to thousands of seniors. In similar fashion, the Employee
Retirement Income Security Act of 1974 (ERISA) severely restricts the
rights of millions of employees covered by self-insured plans. We urge
Federal policymakers to preserve State oversight of health insurance
and avoid pre-empting or superseding State consumer protections.
Avoid Adverse Selection. Any program that grants consumers
the choice between two pools with different rating, benefit, or access
requirements will result in adverse selection for one of the pools. For
example, if a national pool does not allow rating based on age or
health status, while the State pool does allow rating based on those
factors, then the national pool will attract an older, sicker
population. Such a situation would be unworkable. While subsidies or
incentives could ameliorate some of the selection issues, as costs
continue to rise and premiums increase, the effectiveness of such
inducements could erode.
Preserve a Strong State Role. Congress must carefully
consider the impact of any new Federal reforms on the States' ability
to be effective partners in solving the health care crisis. In
developing a national direction for health insurance reform, we
encourage Congress to preserve the role of the States in tailoring
reforms to meet the specific needs of consumers and to promote a
vibrant marketplace. We also note that States can, and should, play a
key role in deciding how reforms will be phased-in to ensure the least
amount of negative disruption.
In addition, the NAIC urges Congress to review current Federal laws
and regulations that hinder State efforts to reform the health care
system. For example, ERISA curtails consumer protections and supersedes
State laws, and inadequate reimbursement payments in Federal health
programs have resulted in higher overall costs and decreased access for
many consumers. Such Federal policies can limit the ability of States
to implement broad market reforms.
CONCLUSION
Years have been spent talking about broad health care reforms that
will ensure that all Americans have access to affordable health
insurance coverage and the peace of mind that goes with it. Action is
long overdue and we stand ready to assist in whatever way we can.
The NAIC encourages Congress and the members of this committee to
work with States and learn from past reforms. Together, we can
implement successful initiatives that will truly protect and assist all
consumers.
Senator Bingaman. Thank you all very much.
Senator Hatch has to go to the floor to manage a bill, and
so why don't I call on him first for any comments or questions?
Senator Hatch. Well, thank you so much, Mr. Chairman.
We are delighted to have all of you here. You are just
wonderful leaders in this area, and we appreciate the time that
you have taken to come and discuss these matters with us.
Let me just ask one question before I leave, and that is
although the term ``enforceable mandate'' is often mentioned in
our healthcare reform discussions, I have a sneaking suspicion
that the definition of the word ``enforceable'' varies
depending upon the stakeholder group.
I would like each one of you to tell us your definition of
the term ``enforceable individual mandate,'' if you would?
Mr. Williams. I will go first. I think, simply put, it is a
way by which the Congress, should it choose to implement such a
law, would assure that we got everyone into the insurance
mechanisms that were deemed appropriate. I think we can look at
Massachusetts as one example of how it has been done through
the tax system. I think there may be other models that people
choose to do as a way to achieve it.
The notion, simply put, is that we have the ability to
offer insurance to everyone on a guaranteed issue basis, as
long as everyone is in the insurance pool.
Ms. Pollitz. Senator Hatch, I think in its simplest form,
an enforceable mandate is also an entitlement. People are
entitled to coverage, and they are obligated to have it. You
can certainly track people's enrollment and have them report on
their insurance status throughout the year and then assess a
penalty for not complying with that.
I think, more importantly, a mandate is only enforceable if
it is reasonable. So, to tell people that they need to go out
and buy an insurance policy, which will be expensive, you need
to make a lot of subsidy money available. Health insurance,
good health insurance that covers people when they are sick is
always going to be expensive, even if we succeed beyond our
wildest dreams in cost containment.
It will always be expensive, and I have had cancer. It is
expensive to be sick. And to have coverage that pays those
bills will cost a lot of money. So people are going to need
help to afford good coverage, and I think they are going to
need assurances that the coverage will really take care of
them.
That is why I think transparency and accountability
throughout the marketplace, policies that are simple, that are
understandable, that are straightforward, that behave, that pay
claims when they are supposed to, that don't accidentally lose
people along the way once they start making claims--all of that
needs to be provided for as well for you to have an enforceable
mandate.
Ms. Ignagni. Senator, I think Mr. Williams and Ms. Pollitz
have said it exactly right. We need a mandate that is
enforceable so that we can build a system, as you indicate in
your opening remarks, that really meets the test of what every
American wants, which is it is fair, it is equitable, it is
transparent.
Ms. Pollitz is absolutely right that we need to think about
subsidies to make sure that people have a helping hand so they
can afford coverage. But at the same time, and I know we will
get into this discussion, we also need to have a very specific
strategy on containing underlying costs, in addition to
providing subsidies.
So we agree with both comments that have been made, and we
think that with those pieces in place, those building blocks,
you can change the rules to be the kinds of rules that the
American people are telegraphing they want. We have done a
great deal of work, and we are looking forward to talking about
that.
It is with that idea of taking responsibility to look at
when you change the rules what is possible and under what
circumstances, and that is the way our board has proceeded in
its activity and a very significantly deep dive.
Mr. Nichols. Senator, I believe individual mandate is about
having everyone pay their fair share, but no more than their
fair share. So there have to be subsidies, as Karen said. But I
also think it really is possible to use modern technology to
help us enforce it in a way that it might not have been so easy
15, 20 years ago.
Let me give you an analogy from car insurance. I grew up in
rural Arkansas, and my brother taught me the time-honored
tradition of going to buy your car insurance, register your
car, driving home, calling up and cancel your car insurance so
you don't have to pay your premium anymore.
Well, it turns out that leads to about half the States not
doing such a good job of enforcing car insurance mandates, as
you know. It turns out some States have figured this out.
Georgia, for example, which is not known as a ``big brother''
place, figured out that the insurer could send an e-mail to the
DMV and tell the DMV that Len Nichols just canceled his car
insurance, at which point the DMV will mail a letter to the
insured and say, ``We understand you just canceled your car
insurance. You just lost your driver's license. Have a nice
day.''
So it turns out if you share information in a very feasible
way across settings, you can find out who is and who is not
paying their fair share. We can enforce this, in my opinion,
sir. Look at how Georgia went from 78 percent compliance to 98
percent compliance in 2 years with this kind of technique. You
can do this and make it completely enforceable in our world.
Ms. Baicker. Just a quick note that the lines between the
carrots and the sticks that we are talking about are more
blurred than one might think that they are. I don't think
anyone is suggesting that people who don't comply with an
individual insurance mandate should go to jail. The usual
penalty is something like not being able to get a tax benefit
that you would otherwise be entitled to.
On the other side, if you are trying to design a carrot,
the way many of the carrots are designed are giving you a tax
benefit if you are insured. So removing a tax benefit if you
are not insured versus giving a tax benefit if you are insured
might have very similar effects if the dollars at stake are
similar, although there are clearly psychological issues.
Placing a mandate really changes the way people perceive
the obligation, the responsibility on them. So they could have
different effects, but it is not such a bright line, I think.
Ms. Trautwein. Can I just comment on that real quickly?
Because I think all of us think that we have to get everybody
into the system if we are going to be able to effectively make
these reforms and that they will actually save money. Not to
throw a wet blanket on the whole discussion, but I think we
have to be realists about how easy it may or may not be to
enforce a mandate.
I agree with Len that we have technology that we haven't
had before, but this mandate and making it effective and
enforceable is going to take a long time. We have 300 million
people in this country. We are not the size of Massachusetts or
one of the European countries that have been able to enforce
it.
It is not that we don't want to do this. I think we just
have to look and see what we need to do during this time in
which the mandate is becoming more enforced because we will
have to figure this out. There are going to be multiple
checkpoints we will have to do.
One of the things that we have talked about in our
recommendations is that we have to make sure that there is some
system of risk adjustment or modified reinsurance arrangement
to make sure that during this time when we don't really have
everyone in the system yet that we have adequate means so that
we haven't made coverage more expensive and done something that
is exactly opposite than what we set out to do.
I just want to mention that it is not that we disagree, but
we also need to say, yes, we need to do this, and we also need
to do this other thing, too, just in case it takes us a while
to get the hang of it.
Senator Bingaman. Ms. Praeger, did you want to make----
Ms. Praeger. I just want to add, too, that eventually we
have to have everyone insured. We will never get our arms
around the rising cost of healthcare if we don't have everyone
in the system.
I think Massachusetts has set a good example in terms of
their program that phases in the individual mandate. There are
some penalties, but the penalties are fairly minor initially.
So, any kind of a mandate ought to be phased in, recognizing
the impact that it is going to have on individuals and small
groups.
I don't think we can mandate people have something they
can't afford. So we have to--hand in hand goes both subsidies
and cost reduction measures.
Senator Hatch. Mr. Chairman, as you said, I have to leave.
But if each of you would take time and just write to us and be
even more specific than you have been here. This is a very
tough issue, as you know. It is not easy to resolve, although
it may be easier than some of us think.
I would like to have each of you take time and give us the
best that you can give us on this. I would personally
appreciate it very much. I have a lot of other questions, but I
will submit them for the record. OK? We hope you can answer all
of the questions that we submit.
Thanks so much. I am sorry I have to leave.
Thanks, Mr. Chairman.
Senator Bingaman. Thank you very much.
Let me ask one question and then just open it up to anyone
else who wants to ask questions here.
This letter, Ms. Ignagni, you referred to the letter that
you and the president and CEO of Blue Cross Blue Shield
Association sent, and you have this is dated today, sent to
Senators Kennedy, Baucus, Grassley, and Enzi, saying that:
``By enacting an effective and forceful requirement
that all Americans assume responsibility to obtain and
maintain health insurance, we believe we could
guarantee issue coverage with no pre-existing condition
exclusions and phase out the practice of varying
premiums based on health status in the individual
market.''
That seems to me to be a significant part of what Dr.
Nichols was advocating we need to do in the individual market.
Let me just perhaps ask Dr. Nichols if he thinks that gets the
job done?
Mr. Nichols. Well, sir, first I would have to say the
statement that came from AHIP in that letter is such a long way
from where we were as a Nation in 1993, we should all take a
deep breath and have a round of applause. There is no question
about that. This is real progress. I mean that.
I would say it is no question that what we want to do is
end health status rating across the board. I would not limit it
to the individual market. When you began your remarks, you
mentioned the fact that two of our markets aren't working very
well. One is small group and the other is individual.When a lot
of us with gray in our beard and losing hair on top think about
this a long time, we think maybe there is no better way to get
these things fixed than to put them together.
I wouldn't want to have one set of rating rules for the
small group market and one set of rating rules for the
individual market. In my view, you want to put them together.
The economies of scale are never going to be achievable
that we want for everyone if the small group market continues
to buy in groups of 10, 20, 7, 4, whatever. So you want to put
them all together.
What I would say is it is a great way to start. What you
want to do is have a goal of moving toward the end of health
status rating across the board. I mean, I would ask Mr.
Williams and Aetna, when they do the big employers, which is a
large part of their business, as I understand it, they don't do
health status rating. They do basically community rating across
the board for those big groups.
Why not have the same kind of thing for everybody else?
Therefore, we can move to a world where you make a new
marketplace for small group and individual, and in that
marketplace, you have the same rules for everybody, and the big
guys can leave them alone because the big guys are doing fine
relative to everybody else.
Mr. Williams. I would comment on that by saying I think
there is a general misunderstanding that small groups are
really not rated on their own health experience as a group.
They really are part of a small group insurance pool that
represents all of the small businesses in that geography that
Aetna would aggregate together.
That an individual case has no credibility in an actuary--
our underwriter would not attribute the experience of that
group to its premium until a group is well over close to 400
employees or so.
When a small group gets an increase, that increase is not
the result typically of the health experience of the
individuals in that group. It is a reflection of the healthcare
cost in that geography for all the small businesses pooled
together.
Now I think there are opportunities to create one-stop
shopping, and there are other things that we can do working
with perhaps the brokers and others, other agencies to simplify
the purchase process. But I think there is a misunderstanding
about the pooling nature of the small group market.
Senator Bingaman. I believe Senator Roberts had a question.
Senator Roberts. Dr. Nichols, in your written testimony,
you have discussed two options for assuring that all Americans
have adequate health insurance benefits. First, a minimum
benefits package requirement, which you have just talked about,
and then an actuarial value target. Can you tell me who does
that? Would that be done by States, or would that be done by
something called a national actuarial exchange?
The pros and cons of this, I think, are obvious, but I
don't want a national actuarial exchange morphing into a CMS in
regards to the insurance industry. Would you care to comment?
Mr. Nichols. Sure. Fair question. I would say, Senator, the
basic idea behind having a minimum benefit package that
specifically specify--let us just take a concrete example of
the Federal employees? Blue Cross Blue Shield Standard, which
is kind of a benchmark that a lot of people know. The idea
behind specifying that is to say that is the package we want
all insurers to make their initial bid upon so we can compare
apples to apples and see how their efficiencies rate.
Then the idea, at least in my head, is to allow insurers to
offer supplements above that as long as they are priced
separately. An alternative way to think about setting that
minimum benefit package to permit apples-to-apples shopping is
instead of saying Blue Cross Blue Shield Standard with its
specific deductibles and its specific co-pays and all that
stuff, allow insurers to offer another plan that would be
actuarially equivalent.
You could say the actuarial equivalence of Blue Cross Blue
Shield Standard, but that would, for example, allow people who
wanted to offer higher deductibles with different kinds of
health savings accounts arrangements. It would allow HMOs that
might want lower deductibles and more access to care, but they
expect to do more care management. It allows the marketplace in
many ways to breathe.
What I believe and my actuarial colleagues have convinced
me is that if we define that actuarial target appropriately
enough, sir, it would allow the marketplace to actually be more
competitive and allow more freedom of choice with some risk of
adverse selection being created. However, if you define the
target appropriately, most actuaries I know, the people I
listen to, believe it is actually manageable. So that is the
idea.
The idea is not to impose some standard from God. I would
suggest that, in fact, what you want is----
Senator Roberts. I wouldn't refer to CMS as God.
Mr. Nichols. Well, neither would I. Sorry about that.
Senator Roberts. Well, you might have it sort of described
in between there with some words in between God, but that is
beside the point.
[Laughter.]
Mr. Nichols. I will let you go ahead. But what I would say
is--what I believe you want, sir, is a set of Federal rules
about the way all markets will work. But I could not agree with
my colleague Sandy Praeger more. It has to be enforced at the
State level, and you probably want to let States have some
breathing room out there.
Senator Roberts. Well, that was my next question. I just
don't--pardon me for the noise. A Federal one-size-fits-all
approach to this issue, we have to preserve State flexibility,
consumer choice. To be frank with you, the rural healthcare
delivery system, Senator Coburn knows this--Dr. Coburn knows
this firsthand. I am just trying to save what we have and
improve upon it.
But every provider out there is getting reimbursed 70, 80
percent, and then choices are being made in regards to Medicare
that are not good. We are rationing healthcare, and it scares
me when we get into the individual mandate stuff.
So thank you, sir.
Senator Bingaman. Thank you.
Senator Brown.
Senator Brown. Thank you.
Mr. Williams, your comments about fee-for-service and the
difficulty of the cost of fee-for-service took me back to
something Senator Harkin said at the White House summit on
healthcare, where he said that you pay for quantity, you get
quantity. You pay for quality, you get quality.
Would you each talk about how we can manage costs better
than we have? That it is pretty clear we--Doctor, I remember my
first year in the Congress was 1993, and we brought in an
orthopedic surgeon to speak to the Subcommittee on Health in
the Commerce Committee, which I sat on. And he said,
``If I have 10 people come to see me with lower back
pain, what I should do is say take a couple of aspirin,
go home, get some rest, come back in 2 weeks if you
still have pain.''
He said,
``But what I do is I order tests. I order tests for
three reasons. One is I make more money if I order
tests. Two, if I don't order tests, I might get sued.
And three, if I don't order tests, the patient will go
to another doctor.''
It is a bit simple, but not too far off perhaps.
Just your comments generally, Mr. Williams, since you have
made me think of it. Start with you, but I would like to hear
all of your thoughts on when you pay for quantity, you get
quantity.
Mr. Williams. Well, I think that there is a huge
opportunity to re-align the incentives in the system, both at
the physician level as well as at the member level. What I mean
is that the best investment we can make is in how we manage the
chronic conditions--the asthma, the diabetes, the hypertension.
Because the most effective thing we can do is avoid the health
event so that we don't have to pay for the activity.
What we need is a healthcare system that emphasizes primary
care, emphasizes prevention. If you look at the way the values
are set for what physicians are paid, the system that has been
put in place utilizes something called the RUC Committee. It is
a committee of the AMA that operates under legislation of
Congress, as I understand it.
That committee has 26 physicians on it. Twenty-three of
them are specialists, and three are primary care. What happens
is the reimbursement for primary care is at the low end of the
spectrum, and the reimbursement for procedures is greater.
What that means is as a system we are not paying primary
care, family practice, pediatricians to invest the time to help
the patient understand their condition and stay healthy. So we
need to change the system in terms of paying for activity to
really paying for more managing of the population.
I think also we do have to address the tort reform issue in
the sense that we need to recognize bad things do happen.
People need to be compensated. But replacing a physician in the
place, as your colleague described, they are going to be put on
the witness stand and asked, ``Was there any other test you
could have conducted, no matter how remote the indications were
for that patient?''
And that physician wants to say, ``No, I did every
conceivable test.'' And that drives cost.
So, we need to think about the evidence base, the
guidelines, and give physicians some way to say that they are
practicing consistent with evidence-based guidelines and
applying their own clinical judgment. That if something bad
happens, there is a way, through health courts or other
mechanisms that States have come up with, to give us an
opportunity to deal with that.
Senator Bingaman. Ms. Pollitz.
Ms. Pollitz. Senator, I think that was very excellent, and
I would add that we need to also look at some very basic design
elements of our insurance policies with respect to chronic
conditions. We have to remember that people who have chronic
conditions use care all the time for a long period of time,
sometimes for their whole lives.
Research shows that even little co-payments, things that we
would think--you know, $6 co-payments for a prescription--will
confound the ability of many patients with chronic conditions--
diabetes, asthma, arthritis, depression--of taking the drugs
that they need. They don't fill their prescriptions as often.
They split pills. They get by. Because it is not just $6, it is
$6 times 3 prescriptions that they have to fill every week.
We need to really focus, I would agree very much, on
chronic conditions. That accounts for 75 percent of our medical
spending. We need to take down barriers, including barriers
that we build into our insurance policies, and not keep dinging
people a little bit here, a little bit there. It really adds
up.
I think we need to examine, back to Senator Roberts's
question, when we look at the design of our health insurance
policies and what should be covered and what is minimum
credible coverage, in addition to any actuarial standard that
we may decide upon that we feel sort of lives within our
overall budget goals--I know this is going to be hard to
afford. We need to line up those policies against what the very
specific care needs will be for people who have chronic
conditions and say how much are they going to be left to pay
out-of-pocket?
If it gets very high, we need to recognize the fact that
they won't be able to manage their conditions. However much we
may pay doctors to try to do a better job, they just won't be
able to afford the cost sharing.
Senator Bingaman. Senator Coburn.
Oh, did you have more? Oh, go ahead.
Senator Brown. I wouldn't mind hearing from others, if that
is OK?
Senator Bingaman. Yes, you could give a brief answer so we
could get on to that other question, too.
Ms. Ignagni. Yes, sir. I think Senator Brown has asked a
very important question. And quickly, there are three buckets I
think you want to look at.
A number of the stakeholder groups have been working
together on quality performance and how we can make
recommendations to all of you. We have conferred with your
staff about how you map all of this, and so I won't spend too
much time, but to say there needs to be uniformity of
performance measurement so physicians and hospitals aren't
frustrated that many different payers, whether public or
private, use different systems.
They need to be very oriented toward what are the goals,
what are we measuring, No. 1? One bucket.
No. 2, there is a very significant need to--there has been
underinvestment in research. The Institute of Medicine has
repeatedly pointed to this. This is very important as we
transition to a 21st century system. How do we get that
research diffused into practice? That is a second issue in that
bucket.
Third bucket----
Senator Brown. Is that comparative effectiveness?
Ms. Ignagni. Well, it is not exclusively comparative
effectiveness. Comparative effectiveness will talk about the
effectiveness of drug-to-drug, drug-to-device, drug-to-bio,
drug-to-therapy. What the investment in research, in addition
to what I am talking about, is that the Institute of Medicine
has pointed to gaps in research in specific areas.
So we need to have not just more evaluation of what works.
That is very, very important. But in addition, research the
gaps in evidence. How do we get the best practices, that the
professional societies are coming up with, very importantly
diffused into practice? Atul Gawande has talked about an
``institute of best practice.'' There are many things in that
area.
Third bucket--and I know, Senator, you want to move on, so
I will be very quick about this--the whole idea of moving away
from paying for a particular body part to be treated. Bundling
services, episodes, global payments, capitation, a range of
issues that were brought out in the 1990s, and from a health
plan perspective, we understand what caused abrasion with
physicians in the 1990s. And we have worked very, very hard.
Now in the area of imaging, for example, you have
physician-to-physician conferring about what is being ordered
and what would be better based on physician practice
guidelines. There is much more sophistication about this. That
is just one example.
But care coordination, as Karen said, is--Ken Thorpe has
done terrific work here--how we can bundle things more
effectively, do early intervention, keep people healthy. So I
know, Senator, you want to move on, but those are just the
highlights of the buckets, and we could provide more
information.
Mr. Nichols. I will be very brief as well. I just wanted to
point out there are two dimensions I would say, and I agree
with everything that has been said so far, on how to reduce
cost.
In the insurance case specifically, if you outlaw
underwriting and aggressive risk selection and you make it not
profitable, they will stop it. When they stop it, you will get
money back.
The difference between a premium and the claims costs, that
is to say medical gloss ratio, is made up of a lot of
activities, all of which are designed to make money for the
company or help it break even. If you take away that incentive
to do that, that will save a bunch of money.
That is a fundamental difference between their load, by the
way, in a large employer and a small employer. Ron is right.
They don't risk rate individual employers when they are small,
but they do put them into classes. There are a bunch of
classes.
What is interesting is the load they pay in that small
group market is much higher than in the large group market.
What we want to have is a country where all of us get the large
group load.
The second way is everything Karen just said about buying
smart. The way I would put it, we want to re-align incentives
so that hospitals and clinicians, and I mean across all sites
of care, including drugs and devices, all of them should be
aligned with the payers and the patients. We want high-quality
care the first time, the best kind of care the first time. We
want everybody to pay their fair share, but we want the docs
and the hospitals to have the same interest in achieving that
level of efficiency. To do that, you have to bundle.
There are a lot of experiments going on right now. A lot of
us are thinking about this really hard. A lot of smart people
are working on it. I would just tell you to stay tuned. But I
do think you have to move toward paying for a bigger bundle of
services than not.
Senator Bingaman. Senator Coburn.
Senator Coburn. Thank you.
First of all, let me thank you for being here. There are a
lot of approaches for us getting to where we have a broad
insurance market. I am convinced we don't have a market today.
I don't think there is one that is really out there.
The idea of stopping cherry-picking. If, in fact, we had a
real transparent market, a truly transparent market where
everybody could see, and we had true risk adjustment based on a
penalty, based on what that risk is, why would that not work in
terms of averaging out the cost to everybody and averaging away
from the cherry-picking? Having real interest where we spread
the cost of this all over everybody, including the highly sick
and the highly well, why would that not work?
Ms. Baicker. Let me give a 30,000-foot view and then let
the experts weigh in. One of the reasons the small and nongroup
market, I think, works so badly is the different risk rating
that goes on in large groups versus small groups. If there is
an opportunity for low-risk people to move across markets and
see their premiums drop, then you have a devolution of risk
pooling that is always churning underneath.
How could you avoid that? Well, if each individual person
were paying his or her expected costs, and sick people were
paying a lot more and healthy people were paying a lot less,
you wouldn't have any incentive for insurance companies to
cherry-pick, and you wouldn't have any churning between
markets. But we don't find that acceptable because we don't
want sick people to have to pay a lot more for their healthcare
than healthy people.
There are ways to get around that, such as the risk-
adjusted vouchers I mentioned, where individuals are
contributing the same amount to their healthcare regardless of
whether they are high or low risk. But then insurers are
getting paid more if they have a sicker pool and less if they
have a less sick pool.
Senator Coburn. That is what risk adjustment does.
Ms. Baicker. Exactly. That, I think, would both undo the
incentive for cherry-picking and would also undo the pressure
that destabilizes market pooling. That could be done through
side payments between insurers, or it could be done more
centrally through public funds being paid out to higher risk
groups and taxes being levied on lower risk groups.
Senator Coburn. OK.
Senator Bingaman. Anyone else want to comment on that?
Mr. Williams. Yes, I would just comment briefly. I would
first say that I think that there is an insurance market,
particularly in the commercially insured sector where we have
177 million people in that sector and where the purchasers are
incredibly innovative.
For example, one of the things that we are working on with
our clients is a value-based insurance design that recognizes
that for a person who has cancer, their medication has a very
different implication for them than someone who is taking a
convenience drug that you can do without based on their
physician's judgment.
And for the patient who needs that medication, their co-pay
may be zero. In some instances, we have clients we are thinking
about paying them to take the medication. So, the level of
innovation that goes on in the commercial sector is much
greater than goes on in other sectors.
I think transparency is enormously important. But I think
we focus a lot on transparency in the insurance component of
the sector, but consumers need transparency at the physician's
office.
Mr. Nichols. You bet.
Mr. Williams. They need it in the hospital. For example, at
Aetna, any one of our members can go online and find out what
the Aetna negotiated rate is for their physician and understand
what they are going to pay for those top 30 procedures before
they go see the physician.
Now we also would love to enrich the level of quality data
that we have, but we do believe there should be national
standards and should be easy for physicians and quality data
that physicians believe is clinically meaningful.
I think what you miss is the level of innovation I
mentioned. We have spent, one company, $1.8 billion, which is
almost 10 percent of the entire amount that we are committing
to health IT in the country. And so, the question of what do
for-profit companies do?, we invest in innovation that really
is about managing healthcare.
Two-thirds of our customers are self-insured Fortune 100
companies who very much have a population, long-term point of
view. Their interest is, I have the employee now. I am going to
have them mid-career, and they are going to work for me up
until they retire. And so, there is just an enormous amount of
innovation that goes on that would be missed.
Senator Coburn. Well, let me just say in follow-up we spend
twice as much as any nation per individual on healthcare. The
closest to us is Switzerland. They are 25 percent below us. I
don't think we need to put another dollar into healthcare. What
I think we need to do is let market forces truly work, and we
can do that through universal access. We can have everybody
covered, and we can still get great quality healthcare.
The idea of adding another $80 billion or $90 billion a
year to enhance that, all that was going to do is make our
problem worse. It is not going to make it better.
I appreciate so much the idea that we have incentivized
subspecialization in this country to a lot of benefit. There is
no question. But we have disincentivized primary care to a
tremendous disbenefit to everybody in this country. We are
never going to get the prevention dollar savings until we start
incentivizing primary care.
Senator Bingaman. Senator Merkley.
Oh, yes, did you want to make a comment on that?
Ms. Ignagni. Could I just make one comment? I think Senator
Coburn said something very important here, and one of the
issues we have been working very closely with is the specialty
societies are the primary care area, and it is very clear that
there are shortages of slots in medical schools for primary
care physicians. There aren't enough medical students going
into primary care.
The one thing the committee might consider as it constructs
its recommendations is giving very significant help, if not
free tuition, for the best kids to go through in primary care,
a sort of National Merit Scholar Program.
Senator Coburn. That doesn't solve the problem. Here is how
you solve primary care: you pay them what they are worth. You
pay for prevention. We have a pay differential where a
pediatrician makes a third of what the average physician in
this country makes.
Ms. Ignagni. I agree.
Senator Coburn. If you want people to go into pediatrics,
you have to pay them.
Ms. Ignagni. I agree. We totally agree with that.
Senator Coburn. That means you may have to decrease some on
the top side.
Ms. Ignagni. Right.
Senator Coburn. But to incentivize them to go there, when
they are not going to be able to pay the med school loans
afterwards, they are not going to stay there. That is what
happens. We have internists all the time. Two percent of the
medical school graduates this year went into primary care. That
is 1 in 50. Forty-nine went into specialization or
subspecialization, and it is going to accentuate our costs. It
is going to drive the costs higher, much like the orthopedics.
Ms. Ignagni. Senator, you just hopped in right before I
took the breath to say exactly what you did, which is that I
think you could attack this on two ends very productively. But
a small investment in the beginning of the pipeline could help
considerably, in addition to exactly what you have just said.
Senator Coburn. We did it with the stimulus package. The
fact is, it is not going to work until you make payment
equitable.
Ms. Ignagni. We have to make payment equitable.
Senator Bingaman. Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair.
Some of you have touched on this, but I want you to try to
address it straight on. That is incentives or adjustment in the
structure of insurance related to health smart behaviors.
We had the CEO of Safeway here a few weeks ago, and he has
really been driving the concept in their organization of
addressing issues of smoking, of weight. I believe exercise was
somehow incorporated into the model.
Individuals see financial rewards, if you will, for
behavior that reduces the healthcare impacts, thereby making
their quality of life higher and the costs for the organization
much lower. I just wonder if you all would like to address the
appropriateness of this in a broader healthcare strategy?
Ms. Pollitz.
Ms. Pollitz. I would absolutely agree that prevention and
wellness is an overwhelming public health issue, goes way
beyond the bounds of insurance coverage. Having worked in my
younger days at the Department of Health and Human Services and
having come to appreciate the unsung heroes in the Public
Health Service and how difficult it is to promote public
health, I think the more you can invest in that, the better.
I would add, though, that you will need to be very careful,
and here is another area where accountability and transparency
in your insurance products is going to come into play. You are
going to need to be very careful about designing insurance
products in ways that promote wellness or penalize non-
wellness.
The Bush administration rewrote the rules. Congress passed
a rule in 1996 that said group health plans may not
discriminate against members based on their health status.
Everyone in the group is the same. They get treated the same.
They get the same benefits. They pay the same.
There was a small exception for modest premium surcharges
or discounts that could be provided for wellness, but those
were very much hemmed in. So that you could get a discount, for
example, a wellness discount on your insurance premium if you
took a smoking cessation class, but not only if you could quit
smoking. Because they didn't want to kind of cross the line
into treating people differently based on how healthy they
were.
The Bush administration rewrote those rules and said that
now group health plans can have penalties as big as 20 percent
of the entire cost of the health insurance premium for people
who not only don't enroll--who enroll in wellness programs, but
who actually meet healthcare targets.
Days after this regulation took effect, new products came
on the market that offered to small employers now who had been
buying, say, a $500 deductible for their group, to give them a
$2,500 deductible and then require all the employees to come in
for a health screen. And every time you pass a test, you get a
$500 reduction in your deductible.
So if you reduce your blood cholesterol, if your body mass
index is the right amount, if you don't use tobacco products,
if your blood pressure is not high, then you get a low
deductible. But if you can't pass those things, now you are in
a $2,500 deductible.
The effect of that is to split up the pool, and it puts the
sick people in the high deductible plans, and it puts the
healthy people in the low deductible plans. That may be a
wellness incentive, but it also makes it hard for people who
have high cholesterol all of a sudden to afford their
cholesterol medication because it is subject to a $2,500
deductible.
When you look at the Web site of the company that is
offering this, right on their Qs and As for employers, how can
you save money with this? It says some of your sick people will
go somewhere else. They won't like it. They will sign up for
their spouse's plan that doesn't have this.
I think we want to create opportunities for wellness. Many,
many opportunities for wellness. Make it hard for people to not
lead healthy lives. But we want to be very careful about
penalizing them in their health insurance and in particular in
their deductibles and co-pays and charging them more when they
get sick because that has now crossed a line into
discrimination, and it is going to be counter to good public
health.
Senator Bingaman. Ms. Praeger, did you want to comment?
Ms. Praeger. I would like to comment on that because it
does go back to the re-alignment of payment incentives. A
primary care physician can be a great partner in helping a
person achieve wellness, but they get no reimbursement. They
get no reimbursement for spending the time that would be
necessary to help counsel that person.
So re-aligning the payment mechanism I think is one of the
real keys to achieving some overall--maybe not cost reduction,
but certainly slowing down this escalating rising cost where
the payment incentives are just----
Senator Bingaman. Ms. Ignagni.
Ms. Ignagni. Yes, Senator, the plans in your area that I
know you know have been doing path-breaking work with primary
care physicians. They are paying them significantly over the
Medicare rates to actually take responsibility to help
coordinate the care and support these healthy choices.
There is great data. So we would be happy to provide it to
you. But you have some path-breaking things going on in your
State that you should be very proud of, particularly in the
area of Medicare Advantage.
Senator Bingaman. Mr. Williams and then Ms. Trautwein.
Mr. Williams. Just a couple of comments. I would agree
wholeheartedly that this area is a slippery slope. But I think
that we see a tremendous level of enthusiasm among the employer
community to implement well thought out, appropriate programs.
I can tell you from our own experience with 36,000 employees,
our medical costs went up 3 percent last year.
The reason it went up only 3 percent was because our
employees engage in wellness and fitness strictly on a
voluntary basis, and each employee had an opportunity to earn
an incentive based on their participation in exercise and
wellness and fitness and really doing things that they were
very comfortable with. Strictly voluntary basis.
We see this among a large number of employers, and I think
given the obesity epidemic we have in the country and the
tremendous problems with chronic conditions, it is very
important.
Now one final comment is, again, another example with
innovation. We are working with five large employers and with
President Clinton's foundation and actually working with
pediatricians so that children who are obese do not have to be
diagnosed with a particular health condition in order for Aetna
to pay for nutritional counseling, extra income for the
pediatrician, and counseling sessions for the family with the
dietician so that the family can have the dietician who is
culturally appropriate to their background and can help them
figure out what they need to do. It is another example of
innovation really tackling what we all, I think, would agree is
a fundamentally important problem.
Senator Bingaman. Ms. Trautwein, and then Senator Burr had
a question.
Ms. Trautwein. I just want to mention one more thing on the
wellness and just to add on to what everyone else has said
here.
You can set up these wellness programs, and most of them
are set up based on a patient deciding what their own
objectives are, and any rewards that they might receive are
based on the plan that they have put together. So certainly
someone that is in a wheelchair will have different objectives
than someone who runs marathons, and that is critically
important to know that the plan is not the same for everyone.
Now I really don't think that we do enough to encourage
employers today to put these programs together. I think our
incentives should be greater, not less. That they should be
able to provide bigger incentives, and some of them have
nothing to do with insurance. There are all kinds of things
that employers can do, and I think engaging employers is the
key to making this whole thing work because, in fact, that is
where most of the people are every day.
Senator Bingaman. Senator Burr.
Senator Coburn. Mr. Chairman.
Senator Bingaman. Yes?
Senator Coburn. Will we be allowed to submit written
questions?
Senator Bingaman. That is fine with me, if the witnesses
are willing to answer them.
Senator Coburn. Thank you.
Senator Bingaman. I think it is a good idea.
Senator Burr.
Senator Burr. Thank you, Mr. Chairman. More importantly,
thank you for taking some written questions because I certainly
have more than the chairman seems scheduled to take.
Let me just make a comment on this last question, and that
is that individuals who receive some benefit participate in
wellness and prevention programs at a much higher rate. Self-
insured employers have proven it, and they don't have to be
punitive in the way they apply it.
But if you want prevention and wellness to be a centerpiece
of healthcare in the future, then you have to make sure the
individual feels the financial benefits of the decisions that
they make. It is tough to run 2 miles in the afternoon. But
when you see a financial benefit come to you for doing it, you
are more inclined to do that and then to diet in conjunction
with it because that might benefit the cost of your overall
healthcare plan as well.
Now prior to the last two questioners, I was somewhat
dumbfounded by the words that I hadn't heard. I read them in
your testimony, but I didn't hear them in the verbal
testimony--medical home, prevention and wellness. I was
beginning to think maybe we were going to miss out on some
things that I thought were absolutely staples of reform.
The words that I did hear the most often, subsidies and
incentives. That is troubling because it sort of suggests right
at the beginning that you can't change the model so it works
without subsidies or incentives. I remember when Dr. Coburn and
I offered an alternative to the SCHIP proposal a month or so
ago that covered all children under 300 percent poverty, and it
did it some $100 billion cheaper than the proposal. It didn't
pass.
You can, with the right level of creativity, offer expanded
coverage from the standpoint of the population and do it for
less money. But you have to be willing to change what you are
willing to try to achieve and how you are willing to structure
that.
I want to move to Ms. Pollitz for just a minute because I
think if I heard you correctly, you insinuated that co-
payments, especially as it related to chronically ill patients,
would alter whether they would get care. It may force them to
get less care. It may force them not to get the preventive care
that they need.
The Rand Health Insurance Experiment found that people that
paid nothing for their healthcare consumed 30 percent more than
those who had some skin in the game--co-payment, deductible. So
how do we balance between what the Rand Corporation went out
and found, and that is that when we have no skin in the game,
there is a 30 percent higher rate of consumption by those
individuals. When you require some degree of responsibility for
payment, you begin to have at least less care delivered, and I
think their conclusion was, more appropriately, the care that
they needed versus the care that they just wanted?
Ms. Pollitz. Well, I think the finding, Senator, of the
Rand experiment was that cost sharing is a blunt instrument,
that it deters people from seeking necessary care as well as
from seeking care that they could do without.
Senator Burr. Well, as a matter of fact, what it found was
a greater consultation with their doctors about the care that
they did receive, that it was appropriate, that it was needed,
but more importantly, that it would benefit their health
outcome. I think that is the conclusion they came to.
Ms. Pollitz. Well, and to go back to your opening about how
much incentives versus how much medical homes, I think you are
right. We need to find a balance.
But at the end of the day, once someone has been diagnosed
with diabetes, they need to test their blood four times a day.
They need to take their insulin and their diabetes medications.
They need to have regular physician checkups, labs, eye visits,
check their feet. They need these things. This is not optional
care. This is what it takes to manage diabetes well.
And when they don't get that, they develop severe and
expensive and life-threatening complications. They lose their
eyesight. Their kidneys fail. Our ESRD program on Medicare,
that is the most expensive healthcare program that is out there
when people's kidneys fail, and half the people who are
enrolled in that program have diabetes.
So when we try to save money, you know, just pay me a
dollar every time for a co-pay for every one of your things,
every one of your doctor visits, every one of your medications,
all of your diabetes supplies, we are erecting barriers to
people getting that care because some just can't--they just
can't do it.
I think we need to examine the role of co-payments and
financial incentives and say for things that we know are tried
and true, or as Mr. Williams said, once somebody gets cancer, I
want them to take their antiemetic so that they can complete
their chemotherapy course. I don't want them to pay for the
cost of $1,000 drug.
Senator Burr. I think what Aetna's experience has been is
that once they educate their beneficiaries on why they follow
the path that Aetna and the healthcare professional lays out
that, No. 1, the outcome is better and, No. 2, the amazing
thing is the cost is less. So it actually suggests that if it
takes co-payments to get people in a different conversation
with their healthcare professional, that is probably a good
thing.
Now you did say as well in your testimony that the public
plan--I guess it is this public competition that we are talking
about with the private sector--should be a tough negotiator. Is
Medicare and Medicaid a tough negotiator?
Ms. Pollitz. Well, Medicaid I think is an example of a
strapped program that is underfunded.
Senator Burr. OK, let us just talk about Medicare.
Ms. Pollitz. It absolutely underpays, and we should fix
that. Is Medicare a tough negotiator? Medicare pays what it
pays.
Senator Burr. Do we adequately address prevention and
wellness in Medicare?
Ms. Pollitz. Oh, I think we have improved over the years
coverage of certain preventive services, but, no, I think we
could do a better job.
Senator Burr. Certain preventive services, maybe six of
them that we added----
Ms. Pollitz. Exactly.
Senator Burr [continuing]. In the 1990s, and we fought
tooth and nail to get that.
Ms. Pollitz. Right.
Senator Burr. But when you look at those six services and
you talk about prevention and wellness, they fall so far short
from a standpoint of what is coverage, and that is a public
plan. That is the U.S. Government. That is CMS. That is
basically a plan that has been unlimited from a standpoint of
what they could spend, but I think an example of a serious flaw
in architecture compared to exactly what all of you have
described today the architecture of the future.
Mr. Nichols. Sir, if I could jump in, I would just say that
I agree with you----
Senator Bingaman. Why don't you give that answer, and then
I will call on Senator Hagan?
Mr. Nichols. OK, sir. I agree with you. We have essentially
tied Medicare's hands from becoming a very prudent purchaser, a
value-based purchaser, and there is a lot of discussion about
how to make Medicare a better buyer. But it ends up kind of
making your fundamental point that is motivation and incentives
are all part of this. But at the end of the day, we need to
recognize it is in our interest if the chronically ill get
appropriate services early, and that is really what Karen is
talking about. She is talking about ways to try to figure out
how do we make that happen.
I remember Ron talking about how in Aetna now they have a
product where they are actually going to have zero co-pay for
certain things, maybe even pay people to do certain things
because we are all better off if those diabetics manage their
care with their condition absolutely appropriately and stay out
of the hospital. That is really what we are all trying to work
toward here, I think.
Senator Burr. Thank you, Mr. Chairman.
Senator Bingaman. Senator Hagan and then Senator Harkin.
Senator Hagan. Thank you, Mr. Chairman.
I had the privilege to sit on the State employee health
plan for the State of North Carolina, where we covered about
800,000 people. What we are talking about right now is the fact
that so much of the cost is really for chronic disease--
diabetes, cardiac failure. That is where so much attention
needs to be given, wanting to be sure people take their
medication on a timely basis.
What I really wanted to ask about right now has to do with
cost, and Mr. Williams, this question is addressed to you. So
many of the physicians that I talk to say that if health
insurance plans have a standardized format, that is just the
standardization of forms, they could save so much money in
their individual offices from just handling the forms. Why
can't we do that?
Mr. Williams. I would say that I think there are important
and significant opportunities to administratively simplify so
that physicians are spending less time on paperwork. We have a
major initiative across the industry, that I am chairing,
taking a look at what we can do to standardize processes and,
most importantly, also automate processes.
For example, in our plan, we get over 80 percent of our
claims electronically. Over 26 percent of the physician
inquiries are handled over the Internet, where a physician gets
the data they need electronically. We are trying to put in
place a multipair portal so the physician can go one place and
reach out to any health plan and get eligibility data.
I think it is a fair criticism, and I think it is an
opportunity for the industry to really work hard to
administratively simplify what we do.
Senator Hagan. And to the whole panel, do you think this is
something that Congress should weigh in on? Yes.
Ms. Ignagni. Senator, I think you should expect stakeholder
responsibility. Mr. Williams said it very well. He is chairing
a major effort that we are undertaking with the Blue Cross Blue
Shield Association together to look at every area where we can
simplify administrative processes and costs, and reduce costs.
I think you should expect us to come forward and identify
that, talk about what the Government in a healthcare reform
effort could facilitate as you move forward in developing
legislation, what should be expected in the private sector. We
hope by doing so, that might start a series of stakeholder
responsibility conversations about the area, the broad area of
cost containment and the opportunity to take a point or a point
and a half off future growth.
We gave you a chart in our testimony if we were able to do
that as a society, just over 10 years, if you took 1.7
percentage points off future rate of growth, the projections,
you are talking about savings in the neighborhood of $3.5
trillion. Those are quite significant.
But you should expect us to come forward and identify that.
Senator Hagan. I do think with the initiative that we have
from the health IT perspective that it is going to drive quite
a bit of the standardization of these forms.
I had one other question having to do with the minimum
benefit package, and I know a lot of regulation has to go on at
the State and the Federal level. Many States have different
individual requirements on benefits that they mandate that are
covered at the State level.
This question has to do with how would a minimum benefit
package be put together that would be available across all 50
States? Dr. Nichols, that was directly in one of your
statements.
Mr. Nichols. I would say that the way you want to think
about this, first of all, let us all get the same set of facts
in our heads. A lot of discussion about the cost of benefit
mandates out there, a lot of empirical work that would show, in
fact, benefit mandates don't really add that much to cost. The
serious econometric work that is in my profession suggest 3
percent to 5 percent. CBO has concluded that.
The State of Texas Department of Insurance, not a noted
left wing organization, concluded 3 percent in the State of
Texas. And by the way, they include in-patient adult rehab and
alcohol counseling. So it is serious benefits there.
The point is this, how we pay for and manage care is far
more important than the benefits that are covered. The reason
those econometric studies find there is very little net impact
of specific benefit mandates is because they compare the small
group pockets where those things are relevant to the large
group pockets. The large group pockets are uniformly more
generous, and yet they have lower cost.
So let us ask ourselves how do they do that? A, they do
what Ron said a moment ago. The big employers really have the
time and potential in resources to work with the third-party
administrators to try to be smarter about what they buy, and
they also negotiate better contracts with the clinicians
because they have buying power.
The point is we need to extend that bargaining power and
that information utilization potential to all of us and not
just some of us. So I would say the one thing Congress could do
in the short run is to mandate transparency about how different
activities are spent. That will encourage the industry and the
clinicians to work together.
But on sort of selecting the benefit package itself, I
would come back to at some level it has to be a Federal
decision. You don't want 50 different benefit packages around
the country.
What you do, however, want is to allow the market to
breathe. You do not want this to be something that is
absolutely written in stone and force, say, very efficient
integrated health systems who are very good at managing care
and patient satisfaction, you don't want to force them to a
certain kind of deductible.
Similarly, you don't want to force folks who manage care
differently to have a particular product. So, in my view, you
want an actuarial value standard and let the market go.
Senator Hagan. Ms. Pollitz.
Ms. Pollitz. I would just add to that that while I agree
you need to set a Federal standard--I mean, if people need
coverage, they need coverage. It doesn't matter where they
live.
To the extent that you are going to allow some flexibility
through an actuarial equivalent standard, and I appreciate
Len's stress on sort of the positive implications of certain
kinds of different benefit designs, but I think you need to be
very careful, and two actuarial equivalent plans might on
average cover the same thing. But this plan covers 100 percent
of what cancer patients need, but nothing of what diabetics
need. This one, 100 percent of what diabetics needs and
nothing----
We can't just sort of say actuarial equivalence is close
enough. I think in the quest for transparency and monitoring
this over time, you will also need to develop some better
measures of uncompensated care and medical debt and check those
frequently.
To the extent that we find that our actuarially equivalent
plans that are meeting our standards are still leaving people
in medical debt, and check them by conditions, then you need to
go back and tweak it. But I think we buy health insurance in
case we get sick. So the standard that you set needs to take
care of people when they have cancer and diabetes and heart
attacks and when they get pregnant, and it can't leave them
with thousands of dollars of medical bills every year that they
have to keep paying in addition to what we are asking them to
pay for their premiums.
Senator Bingaman. Senator Harkin.
Senator Harkin. Thank you, Mr. Chairman.
I have been trying to get my head around how insurance is
utilized more effectively in the field that everyone has
mentioned here earlier, and that is in prevention and wellness.
How do we get insurance involved in that?
Just a couple of observations, 75 percent of all Medicare
spending is on chronic illnesses, most of which are
preventable. So the old saw, you cut where the fat is the
thickest.
I saw a picture, a PowerPoint that Dr. Dean Ornish put up
one time, and the first picture was of a sink that was
overflowing with water, and you had people on the floor mopping
it up. His point was that for most of our healthcare today, we
are mopping up the floor, but no one is shutting off the sink.
It seems to me that is what insurance is. The insurance is
paying for mopping up the floor, but not paying much to think
about shutting off the sink. So, I have been trying to figure
out how do we make it so?
Mr. Williams, your company, you have to pay your
shareholders. Your obligation is to your shareholders. You have
to make a profit. All insurance--well, except maybe mutuals.
But that is a different situation.
We all know about prevention and wellness. Everyone has
mentioned it. We have to focus more on that. What is the role
of insurance in insuring people for engaging in healthful
lifestyles, for businesses to be involved?
I can figure out the taxing system. I mean, I can figure
tax incentives for businesses and individuals that can
motivate, provide financial incentives and things like that.
That is not a heavy lift.
Please explain for me how we get the insurance companies
involved in this.
Mr. Williams. Sure. I would first start off by describing
our business model today versus a number of years ago. A number
of years ago, we were a financing mechanism. We paid the
claims, and we provided customer service.
Over the past 10 years, we have transformed and added a
whole set of prevention and wellness and clinical support in
health informatics functions and capabilities, and I will be
more specific. Twenty percent of the people who work at Aetna
are nurses, doctors, pharmacists, behavioral health
specialists, and 20 percent more are IT professionals.
Senator Harkin. IT.
Mr. Williams. IT. What the IT professionals do is help us
identify from the claims data, the pharmacy data, the lab
values, the health risk assessments, patients or members who
are on the path to becoming a diabetic or on the path to
becoming a hypertensive.
Now our job is not to treat them. Our job is to identify
them and offer them on a voluntary basis education,
information, counseling support so that when they go see the
doctor, they are in a position to really fully engage in
understanding their health status. Because if you are a
diabetic and you take better care of yourself, there are fewer
claims.
Senator Harkin. Pre-diabetic?
Mr. Williams. Pre-diabetic. Well, even if you are in an
early stage of being a diabetic. What happens is most of these
conditions are progressive. You start out ``pre.'' You enter
the early. You go through the mid-stage, and then you go
through the late stage.
What we spend our time doing is first identifying people
who have the condition, understanding the stage they are at,
and trying to make certain they are educated and understand
what they need to do to slow down the progression through that
process.
Senator Harkin. Let me ask one question. Medicare right
now, Medicare will pay for nutrition counseling if you are
diabetic.
Mr. Williams. Right.
Senator Harkin. But they will not pay for nutrition
counseling if you are pre-diabetic. Well, that doesn't make
sense.
Mr. Williams. Well----
Senator Harkin. Now let me ask you, does your insurance
company, do you have policies that say to your policyholder
that if you go in and get tested and you meet certain indices
for being pre-diabetic, we will pay for you, we will cover you
to go get nutrition counseling?
Mr. Williams. Yes, we do have. Yes, the short answer is
yes.
Senator Harkin. You have policies that do that? Covers
everybody?
Mr. Williams. That is correct. Yes.
Senator Harkin. Or is it a special thing that you have to
get in a policy?
Mr. Williams. Well, what would happen is the policy choice
is always the employer's choice. But I would say the vast
majority--and let me answer more broadly. There is a set of
recommended prevention guidelines recommended by the U.S.
Preventive Services Task Force.
Senator Harkin. I am very familiar with it.
Mr. Williams. We cover it, period. If it is recommended as
a preventive service, we cover it.
Then there are a set of things that relate to chronic
conditions, and we have the flexibility to identify what we
believe is a good investment to slow down the rate of increase.
So we would pay for nutritional counseling. We pay for a whole
host of things that would be appropriate services to slow down
the rate of progression through a chronic condition. At our
heart, our business is today managing that.
Senator Harkin. That would be a minimum benefit in every
one of your policies then?
Mr. Williams. Yes.
Senator Harkin. And you have a smoking cessation, anything
that is on the U.S. Preventive Health Task Force, the A or B?
Mr. Williams. Yes, we would typically cover. I mean, there
would be rare exceptions. But I mean, just to be clear, I would
easily--just sitting here today, I would say 85, 90 percent
would easily cover everything.
Senator Harkin. Right now, only 7 percent of employers
offer wellness and prevention programs to their employees.
Seven percent offer some form of wellness and prevention
programs to their employees. So we have a long way to go to get
in business.
Now again, we can figure that one out. With tax incentives
and things like that, that is not a heavy lift. We can figure
that one out. I still wonder about getting up front on the
prevention side because a lot of what you are dealing with in
insurance is the result of something that happens before
insurance ever kicks in.
For example, Mr. Williams and Ms. Ignagni, I mean,
representing the two insurance industries here, you should be
in the forefront of the fight to get sugary sodas out of our
schools and junk food out of our schools and getting kids
exercise in schools, you know? You have to be in the forefront
of that because kids learn their bad habits there.
What do we say to our kids when they go to school and they
see soda machines and vending machines with all the junk food?
What message are we sending to them? That is OK, fine. You go
ahead and do that.
Again, this is not in your insurance realm, but it would
seem to me as an insurance company, you ought to be in that
battle, in that fight to have better--and also advertising to
kids. Right now, a kid, a child--I am a little off here now--
between 7 and 12, somewhere in that neighborhood, 5 to 12, sees
an average of I think it is pretty close to 200, maybe in the
thousands of ads on TV every year. OK, it is in the several
thousands of ads they see every year for food. Just food ads.
How many of those ads are for fruits and vegetables and
good eating and nutrition? None of them. They are all for
sugar, starches, sodium, things that just lead to bad habits.
Well, you know, if we don't correct that, we are mopping
the floor, and your insurance companies are paying for mopping
the floor. I, as a policyholder, am paying more for mopping the
floor, and I don't want to pay anymore for that.
So, I just urge you to get engaged in that. Now I didn't
mean to give a speech on that, but every one of you mentioned
prevention and wellness as part of this battle. Well, it seems
to me we have to do both. We have to figure out how the
insurance companies handle that later on and then how we move
up forward and start early programs.
I don't know how insurance is at all--you have just got to
do it as a public policy thing? Well, maybe there is a bottom
line. Looking ahead, there would be a bottom-line benefit for
you if less people became obese or less people smoked and less
people had chronic illnesses. It would be better for your
bottom line, too, I guess, now that I think about it.
Let me ask one more question. My time is running out. I
want to ask about a public plan. I think Senator Brown brought
it up.
Can a public plan co-exist with private insurance plans?
That seems to be a question I am getting all the time. Can we
have a health reform that has all these private plans and then
have a public plan? What do you think? I don't know.
Mr. Williams. My opinion is, no, it cannot.
Senator Harkin. It cannot.
Mr. Williams. The public plan, Medicare does not negotiate.
I have not yet met a physician who has negotiated with Medicare
or a hospital that has negotiated with Medicare. It sets a
market rate, and that is the rate.
It is extremely difficult for any one entity to be both the
referee and a player in the game. I think that there are many
opportunities to improve the market by having the Federal
Government play a role in the context of regulator and referee,
which we have talked about extensively today.
I think that the problem we are trying to solve, which is
making certain that everyone has access to healthcare services,
can be addressed through the guaranteed issue, no pre-existing
exclusions, and some of the other reforms that we are
describing. I also believe that when we look at why private
insurance costs so much, we must confront the data I have seen
that suggest private employers are paying $90 billion more than
they would otherwise pay because of the cost shift from
Medicare to the private sector.
To the extent that we create a public plan that exacerbates
the cost shift, we are on the slippery slope, and I would say
it probably would have been greased to accelerate our momentum
toward a single payer system.
I believe that the innovation that the private sector
represents is extremely important. I think we have 177 million
people in that sector that is working well, and I think if we
can address the limitations we have to make certain that
everyone has access to healthcare without pre-existing
conditions and that we are not looking at health status as a
means of rating, that we can solve the problem in a way that
would address the underlying issues.
Senator Harkin. Ms. Trautwein, do you have--I am just going
to go down the line. Do you have any views on that?
Ms. Trautwein. Yes, I would just add to that, and I also
don't think that it is possible for a public and private sector
to compete on a level playing field. I don't see any way that
is possible, given the nonrate negotiation that Ron was talking
about.
I think when you don't have a level playing field, what
happens is one entity or the other is selected against. So I
suppose the public program could be set up so that it gets all
the bad selection, but more likely what is going to happen is,
as Ron said, the private programs will be selected against even
more than they are today, and the cost shifting would be
exacerbated even more than it already is. I just think that is
a recipe for disaster.
Senator Harkin. Ms. Pollitz.
Ms. Pollitz. Private health insurance and public plans co-
exist today. Almost half of our healthcare spending is covered
by public programs today.
When you talk about the cost shift, we have had to develop
public programs because private insurance won't take care of
people who are vulnerable. That is why we created the Medicare
program because private insurance wasn't taking care of people
who are elderly or disabled or when their kidneys failed or
when they got ALS. So we had to create a public program for
that.
Two-thirds of the States have high-risk pools.
Senator Harkin. Say that again.
Ms. Pollitz. Two-thirds of the States have high-risk pools,
public plans when private insurance won't take care of people,
won't cover them because they are uninsurable. We have come up
with this concept of uninsurable. So we had to create public
plans to take care of that.
Our latest eligibility category for the Medicaid program
was underinsured women who have breast and cervical cancer.
That is now a reason that you can get into the Medicaid program
to get treatments because the private sector isn't providing
good coverage that takes care of what people need.
Of course, they can co-exist. They do co-exist. The cost
shift overwhelmingly goes in the direction of the public plans.
They do get--they get all of the expensive vulnerable cases
that private insurance won't take care of. Now granted, as Len
said, we need to change the business model and change the way
markets compete so that we can try to get private insurers to
begin, for the first time, to compete to take care of people
when they are sick and not just to avoid them.
But I think, given that the track record on that is pretty
sparse, it is very helpful to have a public plan that you
create for that very purpose. It cues the market. It says this
is the kind of behavior we want, and you can charter that plan
so that it doesn't just compete. It certainly won't compete to
maximize profits.
But you can charter that plan to be an innovator, not to
crowd out other private sector innovations, but to be where
public plans brought us DRGs and RBRVS and a lot of innovations
that we have in payment that have been widely adopted by
private carriers.
A public plan can do that and can be tasked in its charter
with sharing what it learns and what it gains from that
investment and not just trying to keep all those secrets for
itself. I think it is absolutely essential.
Senator Harkin. Very good.
Ms. Ignagni. We started our work from the proposition that
the status quo was not acceptable. Everything we have proposed
today and all the work we have done over the last 2 years is
designed to change the market as it exists today. So we hope
that you don't make judgments about what is the case today and
what is to be the case tomorrow based on what are the rules
today.
If we get everyone in, we can change the system
dramatically to guarantee issue, to deal with the health status
rating, to make the system more transparent and consistent
across 50 States, and to create the kind of system that we
believe the American people want. To have a system, we do have
significant amount of cost shifting.
We have provided some data based on California, which is
the best data system in the country, that shows you real cost
shifting as Government continues to underpay both in Medicaid
as well as Medicare. So this is a very significant issue in
terms of ever establishing a level playing field.
Second, all of the work that is being done in disease
management, care coordination, medical homes that are working
right now, pay-for-performance, upside, downsides, and real
measurement to actually do it in the way that all of you have
suggested, all of that is being done and pioneered in the
private sector.
We have data that is beginning to come in, and it is very
impressive. It is going to be shared. It will be researched. It
will be third party verified. So we have a lot to report about
what is happening.
Clearly, the market today doesn't work because we don't
have everyone in. Everything that is now in existence in terms
of the regulatory structure works through that prism. When you
change that and you create subsidies, there are a package of
things you can do that will change everything.
What we have done is proposed an aggressive system of
Government regulation that would supervise private sector
competition and the competition that I think the people want.
Mr. Nichols. Senator, you asked a great question, and I
would say in some ways, it is sort of the question of the week
or month at least. I would say there really are two ways to
start answering it.
The first is, to build on what Karen just said, the market
is broken now. It is not working, and the consequence of that
is that a lot of people have lost their trust. They have lost
their trust in our ability to change the rules in such a way
that all insurers will behave the way most of us think they
would if you change the rules.
That lack of trust is real and that need for, if you will,
reassurance of some other kind of plan being available is a
real, profound, I would say, demand out there.
The second thing that we need to keep in mind is that if we
just decide to put everybody into Medicare, except for the
private plans that would survive for maybe 3 years--I will give
Ron that--we are going to end up with a system that is
basically going to be run from Washington and Baltimore. I
don't think many of us are in favor of that either.
So what I would propose is you think about a public plan
model more like what State employees do. Maybe we should ask
Senator Hagan how it worked down there in North Carolina? But
in general, States, 34 of them today, decided to have a self-
funded plan for which the State bears the insurance risk. That
is to say the State has appointed the leaders of the plan. They
don't profit in any way from the hint of denying care. They
can't.
Senator Harkin. Thirty-four?
Mr. Nichols. Thirty-four. Yes, sir. We can give you names
and so forth. What they do with that plan, sir, is they let it
compete with the private insurance industry, and in most cases
where they have been doing this, they have been doing it more
than 15 years. I am not making this up. This has been going on
for a long time.
So what is the deal? The deal is they wanted a plan where
they had basically--it is typically a PPO type arrangement--
larger providers. They typically hire a private insurer to
process claims and negotiate with contracts with the providers.
So they got a big network. They compete head-to-head on a
fairly level playing field.
Now it turns out we wrote a paper just last week, and we
would be glad to send it to you and talk with you about it,
that would outline kind of how you could do this. We would
suggest even stronger firewalls between the people who run the
new marketplace and the people who run the plan.
But the point is these States have been doing it without
the kind of firewalls we would recommend you consider, and
still it functions effectively and has led to, in many cases,
better performance in that part of the insurance market than
any other part of a lot of States. So I do think there is a
model between Medicare and nothing that could get us where we
need to be.
Senator Harkin. I would like to see that paper.
Ms. Baicker. Very briefly, I agree that in theory there
could be great gains to having a public plan, and I worry that
in practice one ends up doing more harm than good. So it very
much depends on the implementation details.
With your indulgence, just one sentence or two on your last
question about why we don't see more investment in prevention
and wellness by insurers. I think there is an upstream problem
and a downstream problem that as people age onto Medicare, the
problems that they develop in middle age they bring with them
to another insurer. So private insurers may not have the
incentives to invest in wellness when the cost--or benefits
accrue much further down the line.
Similarly, a lot of the problems that private insurers
inherit happened at a time way before they had any control over
what was going on, and that is a key case for public policy
intervention that when we are talking about health reform, not
just health insurance reform, but health reform to get all
Americans access to better health through a lifetime, that has
to be investment in wellness, in the availability of healthy
foods.
If you go to poor neighborhoods, there aren't supermarkets
in a lot of places, and that is a matter of public policy.
There aren't green spaces to exercise in. That is a matter of
public policy. So I think we have to look at health reform as a
much broader endeavor, and that may be much more cost effective
than anything we can do within the healthcare or health
insurance system.
Thanks.
Ms. Praeger. Thank you, and I just have to comment on the
supermarket. If you go to a supermarket in an affluent
neighborhood, the fresh produce is like you are in an art
museum. It looks gorgeous. It is beautiful. It is perfect. If
you go into low-income neighborhoods, if they have fresh
produce at all, it doesn't look very good, and it is kind of
expensive. So it is no wonder the diet issue is a problem.
The public plan, and I have read Dr. Nichols's report. It
is a good read and a fast read, and I think he makes some very
good points.
Senator Harkin. You mean we could probably understand it?
[Laughter.]
Ms. Praeger. Well, I could, so, yes.
The public plan, if it is competing on a level playing
field with the private marketplace, I think there can be some
benefits to it. But I think, first, you need to make sure that
that public plan is charging a premium that is sufficient to
pay the claims, and that is critically important for the long-
term viability and for the competitiveness of it.
The public plan should comply with all of the State
regulations that are in force in that State where that public
plan is offered, and Kansas is a State that has a State-run,
State public plan for its State employees, and it does work
side by side with the private market plans.
Then the payment system should be based on a negotiation
and not just dictated that this is what providers will be paid.
So if you have equal rules and are treating the public plan the
same as the private plan, it can help drive market changes
because of the ability to perhaps bring some standards across
the States, and I think eventually there are areas where
standards set at the Federal level are pretty important.
Some of the things that we have done through State
regulation that we are advocating should happen in all States
are things that would address some of the administrative costs
that Senator Hagan referred to a few minutes ago. Utilization
review ought to be standardized, and we have worked with our
health insurance plans to get model legislation drafted so that
utilization review is handled in the same way so that companies
don't have to comply with different rules in different States.
External review, the same. Rate and form filing. We have a
system for electronic rate and form filing through our national
association, and that needs to be extended to health insurance
as well. So uniform standard. So there are a lot of things that
the States are working on that could benefit and inform and
perhaps lead to greater uniformity by those things being
adopted at the Federal level.
Senator Bingaman. Senator Casey is the only one who hasn't
had a chance to ask some questions. Go ahead.
Senator Casey. Thank you, Senator Bingaman.
I appreciate and it was interesting to listen to that line
of questioning that Senator Harkin was propounding to the
witnesses. I appreciate that. Whenever Senator Harkin is
speaking, we listen and we learn. He has a lot of wisdom.
And I have you for the next 2--no, I am only kidding. I was
going to say 2 hours.
[Laughter.]
We have some time here. I wanted to pick up on--I am
serious about one of the lines of questioning that Senator
Harkin focused on. I will deal with two things. One is the
question of what we are going to do going forward on the
individual market and small group markets. But before I get to
that, I wanted to get back to prevention because he asked some
important questions.
Dr. Baicker, I wanted to start with you. So many Americans
today understand what we are talking about here when we talk
about prevention and wellness. They get it. We may not practice
it enough. The statistic about 7 percent of employers having it
in place, even if that were tripled, it wouldn't be enough.
I think people understand it, but they also understand that
we are not there yet. Tell me two things, if you can--and I
will ask anyone else to chime in--what are the strategies on
prevention and wellness that we know work, that it is
irrefutable that the strategy works?
And second, tell me the mechanics of getting there. It is
great to have something that works. We can point to programs
that work. We can point to strategies that work and a whole
series of whether it is healthcare or other parts of our
economy, but we have to put in place a strategy that we know
will work. We also have to have the mechanics to make sure it
gets implemented so that it actually will work and not just
theoretically work.
But tell us about that. Tell us what we know that--and not
that it is a Democratic idea or a Republican idea, tell me what
we know about the consensus of what works strategically for
prevention and wellness.
Ms. Baicker. That is a great question, and I wish I could
give you a complete answer. But I am not sure we have a
complete answer. I will give you my best answer.
Senator Casey. In other words, let me just interrupt for
one second. If you had a magic wand and you had total control
over what the U.S. Senate does on healthcare, what are the
three things you would do on prevention and wellness? What
would you put in the statute?
Ms. Baicker. You are going to want to take the wand back.
[Laughter.]
Senator Casey. Give it a try. This is not a real formal
hearing. Give it a try.
Ms. Baicker. I know there is no wand. I would like to
unbundle the idea of prevention or wellness as a monolithic
thing because I think there are many different things with
different implications for cost and effectiveness that
frequently get bundled up together, and I think that damages
the debate.
Senator Casey. OK.
Ms. Baicker. We talk a lot about should preventive care be
coverage and preventive care have no co-payment. Shouldn't we
invest more in preventive care? By and large, preventive care
does not save money. There are lots of chunks of preventive
care that are cost effective, meaning you spend some money and
you get a lot of health for it.
The best, most cost-effective items in what we generally
call preventive care do save a little bit of money. Flu shots
for toddlers. There are some interventions that when you spend
money on them, you actually reduce healthcare spending over the
short run, but there are very few.
Senator Casey. Let me stop you there for a second. Tell me
about the ones that--preventive strategies that are helpful to
the individual but don't save money.
Ms. Baicker. There is a great article on this in the New
England Journal of Medicine----
Senator Casey. It is still the idea of the----
Ms. Baicker [continuing]. That I would love to send your
way, not authored by me. That there are a chunk of tests that
yield life savings at a reasonable cost. So the metric that I
am using is how much does it cost to save a life year? For the
most cost-effective things, flu shots, you actually save money
and save a life year.
Then there is a chunk of things that cost money, but buy
you life years at a very reasonable rate, at a rate that we
think, boy, that is worth the money spent on it instead of
spending it on other things besides healthcare. So things like
screening people who are at risk of hypertension or who are at
risk of diabetes or other complications.
Now that same screening procedure that is done on a person
who has risk factors, if, instead, you do that on a much older
person or a person without those risk factors, it becomes cost
ineffective. So the very same procedure is cost effective for
some people and not cost effective for others based on the
underlying risk, based on the individual circumstances.
Some of the innovation that Mr. Williams was talking about
at Aetna is how do you tailor your insurance design to promote
the kind of consumption that is high value while not promoting
the kind of consumption that is low value? That is tricky when
the same procedure sometimes falls into one category, or
sometimes falls into the other.
Now there are some procedures that are almost never cost
saving, or never cost effective, that are still preventive, but
they are tests that really yield very low returns in terms of
health. Those you probably don't even want to think of as
preventive care.
How do you get there for preventive care? Then I will do a
quick recap on wellness. On preventive care, value-based
insurance design is one promising angle, where you pay people
to get the care that is of high value and you charge much
higher co-payments for the care that is of lower value. Lots of
things are going to fall differentially along that spectrum
based on the individual patient's risk characteristics.
That makes for a very tricky contract, and the logistics of
how you write that down in a way that promotes stretching our
healthcare dollars as far as possible while not being
discriminatory or unenforceable or tricking people into
thinking that they are getting protections when they aren't,
that is an important regulatory question.
On the wellness side of things, I think the reason we are
seeing a rising roll of employers in that market where you
would naturally think why aren't the insurers doing this is
that employers often have a longer-run relationship with their
employees than insurers have with their covered lives.
If you are going to be at an employer for a decade, your
health and productivity matters more to that employer than it
does to the insurer when you might only be in their plan for a
few years. Employers also accrue some of the benefits of having
you be more productive in terms of being a more productive
worker.
So we would like to think that individuals should just do
this on their own for their own health, but there are all sorts
of barriers to individuals being able to successfully implement
a lifelong wellness program, where an employer might be able to
step in with an environment that promotes it 8 hours a day
instead of the few interactions that you have with your insurer
or even with your physician.
So what works on the wellness front, evidence is still
coming in on that. But I think there is strong evidence that it
matters a lot that there be day-in, day-out enforcement of
health behaviors, re-
inforcement of good health behaviors, and the workplace is one
place for that. Communities are another place. You want
integration of community efforts and employer efforts. Again,
that is a matter of public policy, not one that I think
insurers can implement on their own.
Senator Casey. Let me stop you there for a second and put
you on the spot with regard to employers. Give us a large
employer example of the strategy just on wellness that is
working.
Ms. Baicker. I am hesitant to name a particular employer,
but Len said Safeway.
[Laughter.]
But there are----
Senator Casey. What do you say?
Mr. Nichols. Pitney-Bowes.
Ms. Baicker. That is another good example.
Senator Casey. Tell me what they did. In other words,
around here, there aren't always a lot of original ideas in
Washington. We borrow all the time, and there is nothing wrong
with being a copycat if it is a good idea.
Tell me--if you don't want to specify a company--what the
elements are that are in place for those big companies that we
should put in the bill.
Ms. Baicker. Those are two different questions, and I think
it is a key distinction. The things that seem to work are
highly integrated efforts where it is not just a class once a
week or once a month. It is not a bonus at the end of the
quarter if you have reached a goal.
It is every day at lunch there is a class. Every morning
there is stretching exercises. You have time off from work to
participate in those activities. The employer provides----
Senator Casey. There are lots of opportunities.
Ms. Baicker. So it is an environment. It is not just a
limited program. Now those are the things that work.
Senator Casey. A culture, right?
Ms. Baicker. I hesitate to say that you can legislate a
culture that way. I don't know how you would write down a bill
that promoted that kind of culture without----
Senator Casey. Right. OK.
Ms. Baicker [continuing]. Being so prescriptive that you
shut down the innovation that you are trying to foster.
Senator Casey. Good point. OK.
Ms. Pollitz. Senator.
Senator Casey. Yes? And we have others.
Ms. Pollitz. I would just add I think an investment in
public health is so important. That tens of billions of dollars
that you just invested in IT, you should at least match that
for new investment in public health.
Prevention may not score savings, but public health does
save, and we underinvest in public health more than just about
any other developed nation. The root cause of so much of our
healthcare spending is in junk food, as Senator Harkin said,
gun violence, speed limits, people who don't wear helmets, lack
of family planning, food safety problems. I mean, I am not
buying peanut butter still.
So we need to invest in public health in a big way. And
with Senator Harkin here--I think you are still on
Appropriations, right? So you can authorize the spending here
and send him next door to make the money available in the
budget. But we do underinvest.
I know you are a champion, Senator, of our Public Health
Service agencies, and I know they always eat last at the trough
after everybody else comes in. But we need to stop that, and
that is such a cost-effective investment, and it will just
embrace all of these other things that we are talking about. I
just think that has to be a priority in this legislation.
Senator Casey. I want to go to the other question, but
anyone else have anything on----
Mr. Williams. Yes, just quickly on----
Senator Casey. Mr. Williams, you have been dealing with
this at the insurance company level.
Mr. Williams. We deal with it quite extensively, and I
think that the large employers we work with, which I described
earlier is two-thirds of our almost 19 million medical members,
are very focused on this fundamentally as a productivity issue
in the context of their employees. Smoking cessation is
absolutely critical.
I think the other area that we haven't talked about, which
I think was addressed through the mental health parity bill, is
the undertreatment of depression and being certain that the
whole issue of depression is thought about holistically and
that we don't send the person over here for their medical care
and over there for their behavioral health but is thought about
holistically.
The person who has a heart attack is screened for
depression because they may very well be depressed. They might
not take their medications. They might not engage in their
rehabilitation. And therefore, their recovery is prolonged. So
I think that is a huge area.
Ms. Ignagni. Senator, just a footnote on that. Fifteen
years ago, there was a lot of discussion about managing care
that went out of favor, but the concept--we threw the baby out
with the bathwater. Clearly, over the last 15 years, our plans
have been re-inventing the tools, and now care management is
about doctor-to-doctor, using specialty society guidelines,
best practice, etcetera.
We are about to issue a study on disease management and
care coordination for Medicare Advantage participants, many in
your area, and we can show a reduction, significant reductions
because of disease management in ER usage in days per
thousands.
So, as Mr. Williams said, there are phases of
intervention--early, middle, and late. But if you get the
chronically ill organized into care systems that are supported
by physicians, organized by physicians, you can see some major
implications here that are quite productive.
If you marry that with the kind of public health investment
that Ms. Pollitz is talking about, I think particularly in the
area of obesity, we attack smoking in a very significant area.
A number of decades ago, the surgeon general stood up before
the American people and said we have to attack this. Similarly
for obesity because it runs through every chronic illness.
The area of disparities. There are a number of things that
we put in our testimony that Congress can do now in addition to
what is being done in the private sector. Our health plans are
monitoring disparities. In some cases, we can't collect data or
there are barriers at the State level from doing that. That
should be addressed.
We now can target early individuals who are at risk of
certain things. So we can go on and on, but there is quite a
body of evidence and experience now to really begin to answer
your question of where do we intervene, how do we do it, and
how do we do it in the way that is most effective, cost
efficient, and provides the highest value?
Senator Casey. Thank you.
I know we are running out of time. Senator Harkin may say
we are out of time. He is in charge now. We have to be
cognizant of that.
But just a few more moments. I wanted to--and at the risk
of being redundant here because I know I missed the first 45
minutes or so--with regard to one topic and one example. The
topic is the individual and small group market for insurance,
and the example is Massachusetts. What, if anything, have we
learned from their experience with the exchange concept?
Well, A, what have we learned? And B, no matter what we
have learned, can we apply that lesson to what we do in a
Federal or a national sense? Anybody want to try a take on it?
Doctor?
Mr. Nichols. Senator, I would certainly start by saying
what we learned is you can achieve bipartisan agreement on how
to reform a health system. Let us go back to Governor Romney,
who was at the time a Republican presidential aspirant, willing
to use the word ``all.'' And you had a Democratic legislature
maybe among the bluest on the planet willing to accept the word
``limit.''
That was an appropriation bill. Not an entitlement. So what
you had there, I think, is a very good lesson for how you all
can move forward.
Senator Casey. Good point.
Mr. Nichols. Second, I would say what they have done
technically is they were, believe it or not, even though it was
Massachusetts, they were humble. They didn't try to do it all
in 60 days. They tried to do it all over a couple of years.
They phased it in, and they were very intentional about
signaling where they were going.
We are going to essentially eventually meld the individual
and small group markets. We are going to build on what we have
now. We are not going to blow up the employer system. We are
not going to do away with Medicaid. In fact, we are going to
strengthen both.
But we are going to move into a world where we absolutely
outlaw discrimination based on health, and we encourage people
to buy and we are going to give them incentives to buy. We are
going to give them subsidies to buy. But we are going to
require them to fulfill their part of the bargain, which is to
make sure they achieve the level of coverage so that they can
get the care they need so there are no more free riders.
They exempted people they thought couldn't afford it. So
they were mindful of the affordability. That is a very small
number in Massachusetts, but it is nevertheless a very
important principle.
Then I would say the final thing they did was they made it
clear that we are going to have a penalty on not buying
coverage, but we are going to phase it in. So we are going to
take Janet's point, you can't move there in a very fast way.
You have to be cognizant of human nature. At the same time,
made it very clear where they are going, and I think it is a
very interesting model.
Senator Casey. So you think it is readily applicable to
what we are trying to do here?
Mr. Nichols. I think all of those things are readily
applicable. The details will certainly have to be different.
Massachusetts is not Utah, or Pennsylvania, or Iowa, so you are
going to have a little bit of different things on the ground in
those places.
But at a minimum, that structure is a very good structure
to go with, yes.
Senator Casey. Thank you.
Anybody else?
Ms. Praeger. Senator, I think the healthcare costs will
need to be addressed because I do think it is becoming
increasingly more expensive. So I think any reform again has to
address the underlying increasing costs of just the healthcare
delivery system.
I want to re-emphasize also the point about public health.
I think public health is a critical component. We all have the
opportunity in our States to advocate for clean water, clean
air, healthy schools, and healthy environments for our schools.
We need to partner with the schools to get junk food out of
school cafeterias and out of the vending machines.
There are just a lot of things that we can do from a public
health standpoint that I think will serve us well for the next
several generations.
Senator Casey. I know we have to wrap up. Anyone else who
didn't have a chance here? Yes?
Ms. Ignagni. Senator, I think that I agree with my
colleagues, the observations they have made. This point about
proceeding to line up cost containment and universal access
together.
I don't think they did enough in Massachusetts early on,
and I think that most people there would agree with that now,
and they are trying to catch up and figure out what to do. So
that is point No. 1. This is the hardest thing to do, to
actually achieve consensus on cost containment.
The second thing is to the extent that you have the kinds
of rules, aggressive rules and robust rules that everyone on
the panel is talking about, to what extent do you need
purchasing through a connector, or is that connector there to
supervise, provide information about plan selection, track
subsidies, et cetera, et cetera?
I think there will be a lot of important discussion around
that principle.
Senator Casey. Well, unless anyone else--Ms. Pollitz.
Ms. Pollitz. I would just add I am not sure if I am
disagreeing with Karen or I misheard her, but I agree that you
need to address getting everybody coverage and addressing
rising costs. But I wouldn't, I absolutely wouldn't urge that
you wait to cover everybody until you have figured out how to
cover the costs.
I think we have been doing that for decades, and we need to
cover everybody now because people are in need, and we do need
to figure out how to control costs. I think, as Sandy Praeger
said earlier, that will be easier to do once we have everybody
invested in the system.
Senator Casey. Well, thanks, everyone.
I don't have the gavel near me, but I am going to bang the
gavel. Hearing adjourned.
[Additional material follows.]
ADDITIONAL MATERIAL
Prepared Statement of Senator Enzi
Mr. Chairman, I want to take a few minutes to express my
very sincere gratitude to Senator Bingaman and his staff. They
have worked very closely with my office to plan today's
roundtable as well as set an agenda for two additional
roundtables in the near future. Senators Kennedy and Baucus
have laid out very aggressive schedules for moving forward on
health care reform legislation and Senator Bingaman's job of
working on the coverage piece is so vital to the larger health
reform debate.
I also appreciate how much Senator Bingaman's staff worked
with my staff to come up with the list of witnesses before us
today. I think we have a stellar panel and I am really looking
forward to hearing from our experts and getting into the
details of insurance market reforms. I have said many times how
helpful it is to hear from people that have actually enacted
policies in the real world who can tell us what they did right,
what they did wrong, and how they would improve things moving
forward. I hope the members of this committee can learn from
our witnesses and use that knowledge to better inform their
decisions on health care reform legislation.
I travel back to Wyoming almost every weekend and lately I
have been really worried by what I am hearing. Most people
think that once Congress moves forward on health care reform,
their health care will be free. This worries me; nothing is
free. The humorist and writer P.J. O'Rourke once noted, ``If
you think health care is expensive now, wait until you see what
it costs when it's free.''
Even more disturbing than misunderstandings outside of
Washington about free health care are the reports of the
hospitals, physicians, drug manufacturers, health plans, and
others who don't think that Congress should pay for health care
reform. They see a price tag of over a trillion dollars and
say, charge it. This thoughtless disregard for the long-term
economic health of our Nation, and for the future of our
children and grandchildren, is reckless and irresponsible.
These health care stakeholders all seem determined to
ignore the fundamental problem that plagues the U.S. health
care system. The truly difficult challenge that Congress must
address is how to get control of America's exploding health
care costs. Simply throwing more money at the problem is not a
solution.
The fact is health care isn't free and there will be
tradeoffs with any policy we devise. Insurance reforms all
result in tradeoffs. Rating rules are a perfect example. We
must be cautious when considering reforms that may result in
unaffordable prices for our young and healthy--we need those
folks to participate because they help keep costs down.
However, ensuring access to quality insurance for those
struggling with health conditions is, I hope, a priority for
all of us. Our job here is to find the sweet spot that
accomplishes our goals but doesn't create a disruption in our
insurance marketplace.
I have a few ideas about ways we can reduce costs--some of
them pertain to getting better value out of every dollar we
spend on health care by reforming the health care delivery
system. Other ideas include making the health insurance market
function more efficiently by encouraging insurance companies to
compete and offer the best plans at the most affordable prices.
I look forward to hearing suggestions from our witnesses about
ways to reform the health insurance market.
While it is critical that we get the policy of insurance
market reform right, I would be remiss if I didn't at least
mention the perils of process. Without the right process, we
can't move forward on the best health care reforms for the
American people. The first real test of whether the new
Administration and Senate leaders are serious about developing
bipartisan solutions will be how the upcoming budget addresses
healthcare. Reconciliation cuts off most avenues for real
debate in the Senate and is intended primarily as a tool to
reduce the deficit. If those in the Majority attempt to use the
budget reconciliation process to jam health care reform through
the Senate, they will be sending a clear signal that they are
not interested in a truly bipartisan effort. I urge President
Obama to stand by his promise to work on health care in a
bipartisan way by pledging that he will not support passing
reform through reconciliation.
With that, I will look to our witnesses to make
recommendations for how we should shape the policies of health
care reform. Mr. Chairman, thank you again for holding this
roundtable today.
------
America's Health Insurance Plans (AHIP),
Washington, DC 20004,
March 27, 2009.
Hon. Jeff Bingaman,
Hon. Orrin Hatch,
Senate Committee on the Budget,
U.S. Senate,
Washington, DC 20510.
Re: Response to Senator Hatch's question submitted for the record
regarding the
implementation of an enforceable individual mandate.
Dear Senators Bingaman and Hatch: On behalf of America's Health
Insurance Plans (AHIP), I appreciated the opportunity to testify and
participate in the roundtable discussion hosted by the Senate Committee
on Health, Education, Labor and Pensions on March 24, 2009. AHIP is the
national association representing approximately 1,300 health insurance
plans that provide coverage to more than 200 million Americans. Our
members offer a broad range of health insurance products in the
commercial marketplace and also have demonstrated a strong commitment
to participation in public programs.
We are responding to a question Senator Hatch submitted for the
record regarding how the panelists would construct an individual
mandate to purchase health insurance coverage. AHIP's Board of
Directors is continuing to examine this issue as a part of our effort
to bring tangible strategies to the discussion that will address
specific problems in the health insurance market. In response to
Senator Hatch's question, we offer one potential method to construct an
enforceable mandate for individuals to obtain and maintain coverage.
We believe that an enforceable individual mandate is an essential
reform to bring everyone into the system. An individual mandate
combined with other market reforms, including guarantee-issue of
coverage and removing health status as an allowable rating factor in
the individual market, are important building blocks in constructing a
21st century health care system. Achieving universal participation with
an individual mandate will require specific attention to the mechanisms
for making the mandate enforceable and will require coordinated action
at multiple levels of government.
First, an effective individual mandate must be supported with
premium assistance for lower-income individuals and working families.
Refundable, advanceable tax credits should be available on a sliding
scale basis for those earning less than 400 percent of the Federal
Poverty Level (FPL).
Second, individuals need access to affordable, quality health
insurance. To this end, AHIP supports the ability for health insurance
plans to establish ``essential benefits plans'' that are available
nationwide, provide coverage for prevention and wellness as well as
acute and chronic care, and are not subject to varying and conflicting
State benefit mandates. The coverage under an essential benefit plan
must be at least actuarially equivalent to the minimum Federal
standards for a high-deductible health plan sold in connection with a
health savings account, along with the opportunity to include
enhancements such as wellness programs, preventive care, and disease
management.
Third, the verification and enforcement of an individual mandate
may be achieved through the Federal tax code. The Federal tax return
could ask for any applicable information, including affordability or
financial hardship standards, the availability of employer coverage,
and eligibility for government subsidies. Individuals would then
indicate their insurance status over the course of the year. A
financial penalty should be imposed for all breaks in coverage or an
allowance could be made for short breaks in coverage. Such penalty
could equal 100 percent of the premium for the essential benefits plan
offered in the individual's geographic area. The financial disincentive
must be close enough to the actual cost of coverage in order to deter
individuals from foregoing health insurance coverage until a
significant medical need arises.
Last, individuals should have the opportunity to enroll in health
insurance coverage during an initial open enrollment period (after
enactment of health care reform) without the imposition of a
preexisting condition exclusion. Individuals should face disincentives
if they elect health insurance coverage after this initial open
enrollment or after a significant break in coverage.
We appreciate the opportunity to offer suggestions regarding the
implementation of an enforceable individual mandate. AHIP believes that
health care reform will only occur when individuals and stakeholders
bring concrete solutions to the table, and we are doing our part to
advance new strategies.
Sincerely,
Karen Ignagni,
President and CEO.
______
National Association of Insurance Commissioners
(NAIC),
Washington, DC 20001-1509,
April 20, 2009.
Hon. Orrin Hatch,
U.S. Senate,
Washington, DC 20510.
Dear Senator Hatch: During the HELP Committee Roundtable Hearing on
health insurance reform on Tuesday, March 24th, you asked each witness
to describe an ``enforceable'' individual mandate. Since time was not
sufficient for a verbal response, I am happy to provide my answer via
this letter.
To begin, let me say that as a State regulator I can see great
benefit to an effective individual mandate. If our goal, as a nation,
is to make quality health care accessible and affordable to all
Americans, then making comprehensive insurance coverage available to
every American is critical. However, if only those in need of medical
care purchase insurance, then the insurance market could become
unsustainable. An individual mandate that ensures the young and healthy
participate in the marketplace will allow the risk to be spread over a
broader population and stabilize the insurance pool.
This, of course, brings us to your question, ``What is an
enforceable mandate?'' State regulators look at this question from two
different perspectives.
First, an enforceable mandate must have sufficient penalties and
oversight to ensure compliance. As has been seen with some automobile
insurance laws, low penalties and/or lax oversight can lead to low
compliance. The penalties must be high enough to make purchasing
insurance the better option and there must be constant oversight to
identify those who are noncompliant and ensure that people remain
compliant. We can look to States' experience with auto insurance, and
to Massachusetts with health insurance, to craft an effective
enforcement plan.
Second, an enforceable mandate must provide affordable options so
people can comply with the mandate. If consumers are required to
purchase a ``Cadillac'' plan that they cannot afford, and subsidies are
insufficient, then people will be forced into noncompliance. This is
probably the trickiest, and certainly the most expensive, part of
developing an enforceable mandate. Some flexibility at the State level
may be the best approach.
As I stated in my testimony, years have been spent talking about
broad health care reforms that will ensure that all Americans have
access to affordable health insurance coverage and the peace of mind
that goes with it. Action is long overdue and State regulators stand
ready to assist Federal lawmakers in whatever way we can.
The NAIC encourages Congress to work with States and learn from
past reforms. Together, we can implement successful initiatives that
will truly protect and assist all consumers.
Sincerely,
Sandy Praeger, Chair,
NAIC Health Insurance & Managed Care Committee,
Commissioner of Insurance, State of Kansas.
______
Response to Question of Senator Hatch by Katherine Baicker, Ph.D.
According to a study published in 2007 by the National Bureau of
Economic Research, an employer mandate of $9,000 for family coverage
would reduce wages by $3 per hour and cause 224,000 workers to lose
their jobs.
Your colleague, Dr. Chandra, himself in the past on employer
mandates has stated that ``The populist view is this will only come out
of profits. But, ultimately, the money will come out of wages. And,
worse, for some people, it can't come out of wages.''
Question. What are your thoughts on imposing an employer mandate
during current conditions on your labor sector and economy in general?
Answer. The effectiveness of a mandate depends both on the ability
to enforce it and on the size of penalty imposed. The ability to
enforce requires the existence of and access to administrative data on
compliance (such as centralized data from insurers). The size of the
penalty depends on the dollar value of the fine (assuming the penalty
is a fine and not a jail sentence) and, just as importantly, the
frequency with which it is imposed. A mandate that is ``enforceable''
but rarely enforced would not likely meet with universal compliance.
Response to Questions of Senator Hatch by Ronald A. Williams
Question 1. Our goal in health reform is to provide affordable and
meaningful health insurance for all Americans. Assuming this is our
goal, many health policy experts have identified significant problems
in the American health insurance markets, particularly in the small
group and individual market. As a result, they have proposed
significant health insurance reforms. What are the most critical
challenges we face in American health insurance markets (if any) and
what are the most critical reforms needed to address these challenges
(if any)? Are there any reforms that have been discussed that concern
you?
CRITICAL CHALLENGES FACING HEALTH INSURANCE MARKETS
Answer 1. There are a number of critical challenges we face in
American health insurance markets:
Lack of universal coverage creates an expensive,
inefficient system. Individuals often have trouble accessing insurance
coverage in the individual market. Insurers who offer products in the
individual market face adverse selection--wherein only those who are
sick or anticipate needing expensive medical treatment choose to buy
insurance. For these people the costs of the medical care they need can
greatly exceed the costs of insurance premiums they would pay. In other
words, those who join the system late are not purchasing ``health
insurance,'' but rather ``pre-paid health care,'' which is something
health insurers cannot provide in an economically sustainable way.
Therefore, insurers need to employ preexisting condition exclusions and
medical underwriting to encourage people to become and stay insured
even when they are not sick, keep the population of insureds balanced
between sick and healthy people, and keep premium costs stable. As a
result, high-risk individuals who are not covered through the employer-
based system face challenges accessing individual insurance in many
States. In those States where they do not have trouble accessing
insurance--States with guaranteed issue and community rating--healthier
individuals often go uninsured as they are reluctant to purchase
coverage before they need it because of its high cost. The differences
in premiums for nearly identical products in the neighboring States of
New Jersey (community rating and guaranteed issue) and Pennsylvania
(medical underwriting) is illustrative, with premiums for a 35 year-old
male purchasing a standard HMO product being 158 percent to 368 percent
higher in New Jersey than in Pennsylvania.\1\
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\1\ Based on comparison of quotes derived on
www.ehealthinsurance.com on July 11, 2008 for an August 1, 2008 start
date. The percentage range is based on the premium in Pennsylvania
reflecting 100 percent to 150 percent of the standard (quoted) rate,
depending on medical underwriting.
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With people unwilling or unable to participate in the individual
market, we have a universally acknowledged access problem that affects
both the uninsured and the insured. The uninsured face decreased access
to health care and expensive medical bills for the care they do
receive, while the average insured family pays an additional $922 in
premiums (or 8 percent of total premiums paid) each year as a result of
cost-shifting from care being provided to the uninsured.\2\ This does
not even consider the cost-shifting from government programs.
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\2\ Families USA, ``Paying a Premium: The Added Cost of Care for
the Uninsured.'' Publication No. 05-101, June 2005. Available at
www.familiesusa.org.
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Chronic illness can be exacerbated, and its expense
multiplied, by delays in care. Uninsured and under-insured individuals
with chronic illnesses often wait until an acute episode to seek
medical care or insurance coverage, as discussed above. This increases
costs for everyone in the system and results in poor quality and
possibly worse outcomes for those who are forced to wait. Greater
attention must be placed on prevention, wellness and chronic disease
management, and on getting these people early and continuous access to
the health care insurance system.
Cost inflation results in part from misaligned incentives
in our payment system. The current system is filled with incentives to
offer more services, typically failing to discriminate between services
with high and low value. Health insurance premiums directly reflect the
underlying costs of health care, with premiums rising because of
increasing doctor, hospital, drug and other medical costs. In fact, in
2007, health care costs grew at an annual rate of 6.4 percent while the
cost of health insurance premiums increased at an annual rate of 6.1
percent.\3\ If we want to ensure the affordability of coverage, we have
to address health care costs, and without effective payment reform the
cost of health care will continue to grow.
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\3\ PriceWaterhouseCoopers, ``The Factors Fueling Rising Healthcare
Costs 2008.'' Prepared for America's Health Insurance Plans, December
2008.
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Divergent State laws and regulations add complexity that
increases costs. The complex and duplicative web of 50 State insurance
laws and regulations is administratively burdensome and unnecessarily
increases healthcare costs and premiums for health insurance.
TYPES OF REFORMS NEEDED TO ADDRESS CHALLENGES
Individual Mandate. We at Aetna, believe that an
enforceable individual coverage requirement is the key to addressing
our country's access challenge because it allows us to bring
everybody--both healthy and unhealthy--into the insurance pool. By
using an individual coverage requirement to address the challenge of
adverse selection, we can transform our system into one where private
insurance is provided on a guaranteed issue basis with no preexisting
condition exclusions and a rating system that does not include health
status.
Subsidies. We believe that an individual coverage
requirement must be coupled with sliding scale subsidies to ensure that
income is not a barrier for any individual's fulfillment of this
requirement. In addition, we must offer tax credits for small
businesses to encourage them to offer (and subsidize) employee
coverage.
Health Insurance Exchange and Federal Charter. We believe
that we must create a rational regulatory structure that is conducive
to creating affordable coverage options. Our system would be best
served by a Federal regulatory structure for health insurance, with
regulation enforced by State insurance departments. A national entity
would need to determine a standard benefit package and determine what
types of actuarially equivalent plans could be offered. Under a
national framework, plans could be offered through a national exchange,
or through State or regional insurance exchanges that create new
pooling mechanisms. At the very least, we would encourage greater
uniformity of State laws and regulations and the development of a new
optional Federal charter. Today, insurers with a multi-state presence
face costly administrative burdens to comply with divergent State laws
and regulations, and these higher administrative costs are passed onto
the market at large through higher insurance premiums.
Payment Reform. Payment reform will also be a critical
tool to improve quality and bend the cost curve. The traditional fee-
for-service payment structure often rewards physicians and hospitals
for the volume of services they deliver rather than the value or
quality of care they provide. Aetna supports transforming the payment
system into one that aligns provider reimbursement incentives with the
pursuit of high-quality outcomes for patients. We need a payment system
that works for patients, bringing them value-high quality at the right
cost. Reform also needs to focus on promoting patient-centered care
that integrates the multiple aspects of the health care delivery system
and shifts the model from episodic, acute care to comprehensive,
evidence-based care.
Health Information Technology. The use of health
information technology (HIT) will not only be a powerful tool to bend
the cost curve, but will also help address pervasive quality issues.
The United States continues to lag behind its peers globally in
embracing HIT solutions necessary to yield cost reductions and quality
gains. Aetna continues to strongly support the President's initiatives
to accelerate HIT adoption and commends the Congress' recent work to
invest up to $22 billion to promote the use of electronic health
records that have clinical decision support capacity as recommended by
the Institute of Medicine. If 90 percent of all providers in the United
States were using EMRs, we could see savings of about $77 billion
within 15 years.\4\ With the advent of sophisticated clinical decision
support capabilities, those savings, coupled with lives saved, could
exceed current expectations. At Aetna, we have made significant
investments in health information technology, and we are not finished.
Our investments are designed to help patients and doctors take action
on their health conditions and help patients get the standard of care
they expect and require.
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\4\ Modem Healthcare, ``By the Numbers.'' 2006-2007 Edition.
December 17, 2006, p66.
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TYPES OF REFORMS THAT RAISE CONCERNS
Public Plan. First and foremost, insurers bring
innovation, value and choices, allowing individuals to choose a
tailored approach for their own needs that a one-size-fits-all public
plan could just not achieve. Health care is one area in which we must
leverage the agility of the private sector to provide continued
innovation and customization of health care plans. We believe that this
incentive to innovate will be stifled if a public plan is put into
place.
A new public plan could also have negative repercussions for those
who are already privately insured. A public plan would most likely
employ the payment rates used in Medicare, which are far lower than the
rates paid by private payers. In fact, the average family of four with
private insurance spends an additional $1,788 on health care each year
because of Medicare and Medicaid underpayments to providers that result
in cost-shifting to the privately insured. On an aggregate level,
commercial payers incur approximately $89 billion more in costs than
they would if public and private payers all paid equivalent rates.\5\
In other words, while the government saves money with underpayments,
the 200 million Americans with private insurance are paying for it.
Expanding the use of low public payment rates would mean expanded cost-
shifting for our health care system, with providers charging higher
rates to privately insured individuals, ultimately raising their
insurance premiums and decreasing the affordability of their insurance.
Moreover, a public plan is not the most direct or precise policy
intervention to reduce significantly the number of uninsured. The
Massachusetts health reform plan, for example, does not include a
public plan and has achieved near-universal coverage.
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\5\ Milliman, Hospital & Physician Cost Shift, December 2008:
figures reflect 2006 and 2007 data.
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Finally, there are some who argue that a public plan is the only
way to ensure access to coverage for all Americans, regardless of
health status. However, it is important to remember that in the absence
of an individual coverage requirement, a public plan would face the
exact same selection problems that private plans face today. As such, a
public plan is not the silver bullet for the guaranteed issue of high-
quality coverage. With the right regulations in place, however, private
plans can provide guaranteed access to coverage for all Americans,
while fostering innovation in the realms of wellness and chronic
disease management and providing a suite of coverage options designed
to respond to the unique needs of different people. A new public plan
is not only an unnecessary use of public dollars, but also not the most
effective policy response to the problem at hand.
Elimination of Employer-Sponsored Health Insurance. We
should avoid systemic disruption to the 177 million Americans who have
employer-sponsored coverage, and we should build upon the strengths and
innovations of private health coverage for other populations. Many
Americans are satisfied with their current employer-sponsored coverage.
According to a survey performed by the National Business Group on
Health, 67 percent of employees believe their health plan is excellent
or very good, and 75 percent consider a health plan to be the most
important employee benefit. Eighty-three percent of employees surveyed
would rather see their salary or retirement benefits reduced than their
health benefits if an employer needed to reduce their total
compensation.\6\ Among workers who are offered health insurance
coverage, 82 percent elect to participate in their employers' health
plans.\7\ Instead of disrupting a system that works for many
individuals, it would be more effective to explore ways to extend
coverage to those currently not in the system.
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\6\ National Business Group on Health, ``Employer-Based Health
Benefits Survey.'' April 2007. http://vww.businessgrouphealth.org/
pressrelease.cfm?ID-87
\7\ Pickreign, Jeremy et al. ``Employer Health Benefits 2008 Annual
Survey.'' Kaiser Family Foundation and Health Research and Education
Trust. September 2008.
Question 2. Individual health insurance markets are regulated both
at the State level and Federal level. Should regulations be reformed at
the national level, State level, or some hybrid? Additionally, if you
think that regulation should occur to some degree at the national
level, is it necessary for Congress to consider a phased-in approach or
some other mechanism to address the diversity of initial regulatory
conditions in each State?
Answer 2. We must create a rational regulatory structure that is
conducive to creating affordable coverage options. Today's system of 50
divergent sets of State regulation imposes unnecessary and costly
administrative burdens on our existing system. As such, I believe our
system would be best served by a Federal regulatory structure for
health insurance, with regulation enforced by State insurance
departments. Given the current diversity in State regulation, a phased
approach will be necessary to provide Americans with a seamless
transition over to a new system.
As we make the system more accessible to all Americans, it is
important to consider the 18 million people currently enrolled in the
individual market whose initial premiums are based on health status.
The transformation to the new system would result in a larger pool that
would include previously uninsured, high risk people who, in a
community rated system, would likely increase premiums for the already
insured persons.
Question 3. Thus far, Massachusetts is the only State to
successfully achieve a near universal expansion of health insurance.
Before implementing the following reforms, Massachusetts had already
made significant reforms to its insurance market and stood to lose
Federal Medicaid dollars if they did not enact additional reforms. The
2006 Massachusetts insurance reforms focused on: (1) developing a
statewide exchange that pools the small group and individual markets,
(2) developing a minimum coverage standard, (3) mandating that all
individuals secure health insurance, and (4) including subsidies for
low-income individuals. Do you believe the Massachusetts' reform could
serve as a model for national reform? What aspects of the reform are
most promising (if any) and what aspects raise the most significant
concerns (if any)?
GENERAL COMMENTS ABOUT MASSACHUSETTS HEALTH REFORM
Answer 3. One of the key issues in insurance reform is determining
how to disperse risk across a group of people. The Massachusetts health
reform plan has demonstrated that creating an insurance exchange is an
effective mechanism to spread risk while ensuring that everyone has
access to coverage. The Massachusetts Connector creates a level playing
field for offering and purchasing health insurance for those unable to
access coverage through an employer. The exchange also offers many of
the same efficiencies as a large group market.
While the basic components of the Massachusetts model could serve
as a national model for health reform, there are several key issues
that should be addressed before implementing this type of plan at a
Federal level. In particular, we need to fix our current volume-based
payment system and address the growth of health care costs. Not doing
so will greatly impact affordability of health insurance and
sustainability of efforts to achieve universal coverage. In addition,
increasing the role and supply of primary care providers will be
essential.
KEY COMPONENTS OF MASSACHUSETTS' HEALTH REFORM PLAN
The Connector Exchange
What works well: The Connector creates a centralized location for
individuals and employees of small businesses to purchase health
insurance. This type of insurance pooling also helps to expand the risk
across these different market segments. Additionally, the Connector
does not have a public plan.
Opportunities for change: The Connector limits participation to six
insurers who must bid for a spot on the exchange. In any future
adaptation of the Massachusetts plan, we believe we must provide for
open competition, allowing consumers to be the true judges of
``winners'' and ``losers'' among companies providing insurance
coverage.
Individual Mandate
What works well: Requiring individuals to purchase health insurance
is critical to reforming the healthcare system. An individual mandate
is an effective method of ensuring all people--healthy and sick--are
included in the system, thus avoiding adverse selection where people
only seek insurance when they need it and when their health care costs
are higher. Massachusetts redirected money previously spent on
providing care to subsidize new insurance options for the uninsured.
Opportunities for change: In Massachusetts, the individual mandate
was not enforceable until 2008, 2 years into the program. For an
individual coverage requirement to be effective, it has to be enforced
as early as possible. Also, if Congress phases in an individual mandate
nationally, effective risk adjustment mechanisms must be explored to
help offset the risk of adverse selection and keep individuals'
premiums affordable.
Insurance Regulation
What works well: Even before Massachusetts' health reform plan was
enacted, the State required guaranteed issue and renewal, prohibited
medical underwriting, limited preexisting condition exclusions and had
modified community rating rules. By adding an individual mandate and
subsidies to help lower-income people afford coverage, the
Massachusetts reform plan stabilized the market and the exchange more
effectively pooled risk than the market did prior to reform.
Opportunities for change: Particularly if there is a phase-in of
the individual mandate, there needs to be risk adjustment provisions to
help offset the costs of adverse selection and keep the system and
individual premiums stable. Importantly, a well-enforced individual
coverage requirement with risk adjustment or reimbursement provisions
will enable insurers to provide access to insurance on a guaranteed
issue basis without exclusions for preexisting condition or rating on
the basis of health status, similar to the regulation in place in
Massachusetts.
Premium Assistance
What works well: The sliding scale subsidies available for those
under 300 percent FPL is an effective method of ensuring low-income
individuals and families can purchase insurance.
Opportunities for change: Many of the insurance products available
are still unaffordable for those under 400 percent FPL. Insurance
providers should be given the flexibility to create a variety of
benefit packages that meet consumer's expectations. Available subsidies
should be generous enough to allow low-income individuals and families
to purchase insurance.
Financing and Cost-Containment
What works well: Creating viable opportunities for the uninsured to
access health insurance is a start to reducing the cost of providing
care to individuals currently accessing the healthcare system at
expensive points of entry (e.g. emergency rooms) and with potentially
untreated and complicated medical problems.
Opportunities for change: Massachusetts' health reform has done
little to address the issue of cost containment. A Massachusetts-like
program implemented at a Federal level must include payment reform and
further investments in HIT and comparative effectiveness to bend the
cost curve. Without changes to improve the value of healthcare, reform
efforts will quickly become unaffordable.
Benefit Package
What works well: Massachusetts established actuarial equivalence
for the plans offered through the Connector, allowing insurers the
flexibility to design their benefits within a set of requirements.
Opportunities for change: The minimum benefit package levels under
the Massachusetts plan are very comprehensive, requiring people to
purchase plans that may be richer than what they truly need. It would
be more cost-effective for minimum benefits levels to be set at a more
modest level (e.g., only cover catastrophic and preventive services),
allowing individuals to purchase other coverage as they see fit.
Expanding Public Programs
What works well: Massachusetts expanded Medicaid eligibility to all
those under 100 percent FPL. This not only expands coverage to a
vulnerable population, but ensures that cost-sharing is not a deterrent
for care for low-income citizens. Aetna supports this expansion of
Medicaid, as those living beneath the Federal poverty level would be
very unlikely to be able to pay for or access another source of
insurance coverage.
Question 4. How should an individual coverage requirement be
enforced?
Answer 4. Aetna believes an individual coverage requirement should
be enforced through the tax system, with verification conducted through
annual income tax forms. Under a prospective enforcement system,
individuals would be expected to provide proof of government or private
coverage--or demonstration of financial hardship, the standards for
which would need to be determined in advance. Those individuals not
complying with the individual coverage requirement would need to pay a
penalty equivalent to the cost of an essential benefits plan in their
geographic area. With a penalty set at this level, there would be a
lower incentive for noncompliance, with most individuals likely
calculating that their dollars are better spent on a health insurance
policy than on an equivalent penalty. The penalty could be delivered
either through reduction of the individual's tax refund or as an
additional tax liability.
Enrollment in insurance coverage should also be facilitated at the
point of health care service, with uninsured individuals enrolled in
either a government program, if eligible, or in a basic essential
benefits package.
Response to Question of Senator Hatch by Len M. Nichols, Ph.D.
Question. What is an enforceable individual mandate?
Answer. Considerable evidence suggests that an individual mandate
is enforceable. This is fortunate because an individual purchase
requirement is absolutely necessary to make private insurance markets
work for all Americans. Insurers must be required to sell to all comers
regardless of health status. However, insurers must also be assured
they will get to insure the entire population, not just the sick, to
make the market work efficiently and fairly. Relevant research and our
moral compass also tell us that the first step toward making a mandate
enforceable is making the cost of compliance affordable. Therefore, in
order to enforce a mandate we must first ensure that health insurance
is accessible and affordable for all.
The key to an enforceable individual mandate is combining and
integrating a number of approaches. Enforcement methods in a U.S.
context should include:
Information sharing: Electronic information sharing
between citizens and the institutions they come in contact with,
including: insurance marketplace managers, (i.e., those who administer
enrollment for the ``exchange''), employers, health providers, health
insurers, schools, department of motor vehicles, and government
agencies. This does not mean turning schools, hospitals, etc., into
enforcers. These institutions need never be asked to deny care or
service. But they would be asked to inform the authority responsible
for enrollment records that a particular individual does not appear to
be insured as of a particular date. The uninsured person would then be
contacted by the exchange administrator's office and either enrolled in
a plan of the enrollee's choice or possibly levied with a penalty and/
or a requirement to pay back premiums.
We would need to allow insurance administrators to systematically
review and monitor enrollment. Increased information sharing of this
sort would also help identify people who are eligible for public or
subsidized coverage but who are not enrolled. Information sharing has
proved particularly effective in raising the rate of compliance with
car insurance mandates.
POLICY SPOTLIGHT: GEORGIA CAR INSURANCE
In 2001, Georgia's uninsured motorist rate was 20 percent.
Legislators recognized that individuals were purchasing car insurance
in order to register their vehicle, but were cancelling their insurance
when the registration process was completed.
To address this problem, Georgia requires all insurers to report
policy enrollments and cancellations to a central database. This
information is then cross-referenced with the car registration
information. If after 30 days the system finds a motorist with a
cancellation entry but without a new policy enrollment, a set of
penalties (including fines and registration suspension) is put in
motion. This process reduced Georgia's uninsured motorist rate from 20
percent to 2 percent in less than 2 years.
Proof of insurance on tax returns: Many uninsured
Americans could be identified through the tax system. While not all
low-income individuals file tax returns, this could be a useful
mechanism to identify middle- and high-income uninsured Americans.
Almost 20 percent of uncompensated care in the U.S. is delivered to
people who make more than four times the Federal poverty level.
Auto-enrollment/insurance checks at point of service:
Individuals who do not sign up for their own insurance (or if eligible,
do enroll in a government program) would be automatically enrolled in a
health plan by an insurance administrator. When they seek medical care
from a doctor, hospital or clinic, their insurance status would be
checked. Unpaid premiums would be reported to the insurance exchange
administrator. A payment schedule would be identified, based on the
uninsured person's income and ability to pay, to pay the overdue bills.
The idea is to create a seamless system and normative expectation
that all citizens would have and maintain coverage. The net result of
these information conduits is to make sure each person/family pays
their fair share and no more. We do not need nor recommend criminal
penalties. Monetary penalties should suffice. Remember, most people buy
insurance today without a mandate, and the vast majority of the
uninsured are in that situation because they cannot afford health
insurance. Most uninsured are likely to buy as soon as we make it
accessible and affordable.
No one suggests an individual mandate because they want to ``make''
people buy insurance. When combined with insurance markets and
subsidies, an individual requirement to purchase coverage will actually
help the market function more efficiently and fairly. In addition, a
more sustainable health system will be a shared responsibility between
individuals, employers, providers, and governments. A requirement to
purchase or enroll in coverage represents one part of an individual's
responsibility to the larger community.
[Whereupon, at 12:24 p.m., the hearing was adjourned.]