Minute Rant: On Healthcare Insurance Company Profits

Healthcare insurance companies are making enormous profits this year and they are all forecasting good times in 2014—at the same moment in time when providers are laying off employees or closing. Why are none of the talking heads yelling about that on television and radio? Here are the second quarter PROFIT numbers for the big five insurance companies: Aetna $536 million; Cigna $505 million; Humana $420 million; United $1.436 billion; and Wellpoint $1.231 billion. I say we all have a drink and celebrate their good fortune and then get back to work trying not to lay off a few more employees.

Reform Rant

Want to fix the ACA? Harry Reid admitted recently that the long term goal should be a Medicare for all, single payor system. If we had done so back in 2008, I believe the backlash would have been no worse and we would have a system worth fighting to preserve.

I've included a study (click here to view PDF) analyzing the economic impact of a universal Medicare program. It is based on HR 676—the Expanded and Improved Medicare for All Act—a bill introduced by Rep. John Conyers Jr. (D-Mich.). The bill has been proposed for 11 straight years. The bill is a mess. It gets involved on the provider side too much and, for that reason, would never pass—not should we want it. Reform can be accomplished solely on the payor side. Payment reform will drive provider reform without draconian and “socialistic” re-engineering providers (e.g., the bill would convert all providers to nonprofits—as if that status makes the provider less susceptible to greed?).

According to the study, the expansion of Medicare would save the U.S. healthcare system $592 billion in 2014 alone. The main savings would come from slashing "administrative waste" (profit) in the private health insurance industry and by using the government’s bargaining power to obtain cheaper pharmaceuticals. Over the next decade, the study said savings could reach $1.8 trillion.

Under HR 676, a single-payer system would be financed through several factors: increasing the personal income tax on the top 5 percent of income earners, instituting a progressive tax on payroll and self-employment, taxing capital gains and other unearned income, instituting a 0.5 percent tax on stock trades and other "progressive tax" financing efforts, according to the study.

Single-payer healthcare bills have generally been opposed by Congress. According to a recent polling data, a majority of physicians now support a single-payer system.

RAC from HDI

This summer, Ozarks Community Hospital was forced to restructure its inpatient behavioral health services (originally known as OCH Resolutions) due to RAC audits. While the hospital is still actively combating these claims, OCH no longer has the resources to continue providing the service through Resolutions. OCH now provides care to geriatric patients through OCH Inpatient Services.

In light of what happened to Resolutions, our inpatient geriatric psych service, you may be asking yourself:

What is a RAC and who the hell is HDI? 

A RAC is a Recovery Audit Contractor, a private, for-profit company empowered by the federal government to “recover” funds paid by Medicare to healthcare providers in the event the RAC computer or RAC “auditor” (whose last job may have been phone solicitor or bank teller) decides there was something wrong with the claim. The RAC gets to keep a percentage of all the money it recovers. The thing you need to know is that hospitals are winning over 75% of the appeals when reviewed by a neutral administrative law judge—a percentage which might lead one to conclude that the RACs are recovering more money than they should.

HealthDataInsights (When did businesses first start running their names together into one name with interior capital letters? I assume it is an outgrowth of web site naming conventions that eliminate spaces between words. It just looks silly to me and I wish they would stop.) HDI is a wholly owned subsidiary of HMS Holdings Corp. HDI began life as an entrepreneurial venture-backed company. HDI investors included Redhills Ventures, GRP Partners and Ticonderoga Capital. In other words, a bunch of venture capitalists with political connections but ZERO healthcare expertise helped create a company for the sole purpose of getting a government contract to make millions of dollars by “recovering” it from healthcare providers. The “word on the street” back then was getting one of the RAC contracts would be a license to print money—there was literally no way to lose.

Once the venture capitalists got the bid to be a RAC, they got HDI up and running until it was printing money as expected and then they sold it to HMS.

Who the hell is HMS?

HMS Holdings Corp. (NASDAQ: HMSY) operates through its subsidiaries including Health Management Systems, Inc. (HMS), AMG-SIU, IntegriGuard LLC, Reimbursement Services Group, Inc. (RSG) and HealthDataInsights, Inc. (HDI). It is the nation's leader in cost containment, program integrity, and coordination of benefits solutions for government-funded, commercial, and private entities. HMS is focused exclusively on the healthcare industry.

For the first half of 2013, HMS reported revenue of $242.4 million, an increase of 6.6% compared to revenue of $227.4 million for the same period a year ago. Net income for the first half was $17.4 million. You can pretty much double those numbers to see what they make in a year.

As President and Chief Executive Officer at HMS HOLDINGS CORP, William C. Lucia made $1,860,000 in total compensation according to proxy statements filed for the 2012 fiscal year.

It is nice to know we are helping with someone’s bottom line.

Why Missouri should expand the Medicaid program

Paul is hosting a series of community forums this July & August on Medicaid Expansion throughout Southwest Missouri. These forums will provide community members with an overview of what’s currently going on with Medicaid expansion and give real answers as to how the actions of the state legislature will directly impact Missouri employers, the local economy and individuals. For additional tour dates and details, visit: www.OCHonline.com. 

I strongly favor expansion of the Medicaid program in Missouri under the Affordable Care Act. I do not have the luxury of taking a principled position on purely political or philosophical grounds, but, if I did, I would still favor expansion. Expansion of the Medicaid program in Missouri will help people. It will help OCH care for more people. It will provide an economic benefit for OCH so that we can continue paying taxes and employing Missourians. Without it, due to reductions in payments from Medicare and Medicaid, OCH will struggle to survive, and if OCH fails, thousands of Missourians will struggle to find similar access to primary care.

The healthcare payment system in this country should not work this way. It should not be impossible to run a healthcare business on what the government pays for healthcare services, but it is. The few healthcare systems that manage to do it with a predominantly governmental patient mix depend on grants, donations or taxpayer support (in the case of government owned hospitals). Most healthcare systems manage to limit the percentage of governmental patients they treat so that they can shift cost to better paying commercial insurance patients. OCH cannot do so, because we have so few commercial insurance patients. In a way, OCH will serve as a test case for reform (or perhaps as the canary in the mine): we have no sources of income or revenue other than payments for services; and we almost exclusively care for governmental patients. If “reform” leaves government healthcare programs in a cockeyed mess, OCH will suffer disproportionately.

As I indicated, OCH favors expansion of Medicaid in Missouri because it is obviously in our interest. Why should anyone else? Before getting “redirected” by political posturing and economic rationalizations, I believe it is important to begin with certain fundamental principles on which we should all agree.

First, good health for everyone is a good thing for Missouri. We can only be a strong nation if we are a nation of healthy people—both physically and mentally. A healthy economy requires healthy workers. The consequence of poor physical health is too obvious to warrant discussion. The consequence of poor mental health to individuals and society at large should be just as obvious, but, in case it has escaped anyone’s attention, recent events have reinforced the point.

Second, regular access to healthcare promotes good health. I doubt anyone will object to that statement, but it gets a little tricky when the focus is regular access to healthcare for Medicaid and uninsured people. Let me put it this way: if regular access to healthcare will not improve the health of people on Medicaid, then there is little reason to believe that regular access to healthcare will improve the health of any other segment of the population—and we should start closing all our hospitals, clinics and doctors’ offices.

Third, healthcare insurance (including government programs like Medicare and Medicaid) improves access to healthcare. There should be little debate about this point. Without spreading the risk through insurance, the cost of healthcare would strain the pockets of all but the wealthy few. Since all people share the risk that they will experience an expensive health event some time in their lives, insurance works best if all people are included in the risk pool. Given the self-evident truth of the first two principles, one might expect the strongest nation on earth would want to protect and preserve that strength by ensuring regular access to healthcare for its people by requiring everyone to get into the “pool.” In point of fact, we did pass a law doing just that… sort of.

Most conversations about healthcare place people in one of three “coverage” groups: people covered by commercial insurance, people covered under a governmental program and people without insurance. We need to redraw that Venn diagram. People without insurance should be classified as people covered under a government benefit program. The federal government long-ago mandated universal access to care for anyone presenting at a hospital with an emergency medical condition (a mandate which, in most hospitals, has evolved into universal access to care for anyone with a medical condition who shows up in the ER); however, the mandate did not come with a corresponding mechanism for mandating payment. Some have referred to EMTALA as the equivalent of a universal healthcare program. If so, it is the worst kind of universal healthcare program one could imagine. In fact, it is one of the fundamental reasons the healthcare payment system in this country was so broken it needed something like the Affordable Care Act to try to fix it.

EMTALA has no reimbursement provision. Hospitals are required to guarantee the service but there is no guarantee of payment. This asymmetry has had a profound ripple effect on our national healthcare system. It created a culture of entitlement. It is my position that healthcare is an essential service; we can debate the issue in abstract terms, but the reality is the government has already established a universal “right” to healthcare. Furthermore, the government says we are entitled to it regardless of whether we pay for it. EMTALA conditioned people to see healthcare fundamentally in that light. Is it any wonder so many people feel conflicted about paying their medical bills and that so many are filing bankruptcy? As a private attorney many years ago, I counseled clients on personal bankruptcies. Though they seldom thought about why they felt that way, people with large medical bills were much more likely to feel justified in filing bankruptcy. They felt they had been saddled with a debt that was somehow really not fair. If healthcare coverage is a right and if that coverage is not “provided” through employment or otherwise, people do not feel pressure to buy insurance since there is “coverage” (through EMTALA) that does not cost anything.

Good health for everyone is a good thing for Missouri; regular access to healthcare promotes good health; and healthcare insurance promotes regular access to healthcare. Therefore, healthcare insurance for everyone would be a good thing for Missouri. The logic is inescapable; unfortunately, logic and politics are poor bedfellows, and political reality, to this point at least, dominates all other considerations. The expansion of Medicaid in Missouri will confer a number of significant economic benefits on the State of Missouri. Those benefits were disclosed, debated and not seriously denied during the last legislative session; so, I see little wisdom in repeating them yet again. The economic benefits are undeniably real; yet, they were not deemed sufficient to override political considerations—and the political landscape has not changed in Missouri.

However, the political landscape has changed outside Missouri, and that change presents a problem for Missouri. The Missouri legislation passed a dramatic tax cut while deferring debate on expansion of Medicaid. Supporters of the tax cut often cite competition from neighboring states as motivation for the tax cut: businesses will relocate to neighboring states with a more favorable business environment. Those who make that argument should recognize that the same rationale applies in favor of expanding Medicaid. Missouri is going to lose businesses and jobs to Arkansas which has adopted a program expanding healthcare insurance to those who qualify under the ACA.

OCH has a small hospital in northwest Arkansas, and I have spoken at a number of public events about Medicaid expansion in Arkansas. Businessmen who were adamantly opposed to the ACA in Arkansas have already begun making plans based on the fact that their employees will be getting insurance paid by the government. These employers are typically paying their employees $10-$12/hour. Their employees will qualify for coverage under 138% of the federal poverty level. Many employers who were worried about compliance with the ACA mandate are now realizing the expanded Medicaid provision will provide coverage at no cost to the employer. Arkansas will be attracting businesses and workers away from Missouri—at no expense to Arkansas. The economic boon Missouri missed by refusing to expand Medicaid will improve the economic vitality of Arkansas both within the healthcare industry and beyond it. It is already reality for OCH.

One of the rationales for delaying or declining the Medicaid expansion begins by stating that the Missouri Medicaid system is broken and that it makes no sense to expand a broken system. OCH is in a better position than most to know whether the Medicaid system is broken, and I can testify that it works. It does not work as well as I would like, but it is not broken. From my perspective, the commercial insurance “system” in our market is far more broken than Missouri Medicaid; yet, no one seems inclined to fix it. If there is a sincere desire to fix the Medicaid program in Missouri and not mere political gamesmanship to avoid adopting something that came from “Obamacare,” I believe the repair can be made quickly and efficiently. Contract with Medicare to process and pay claims for Medicaid beneficiaries as though Missouri Medicaid was Medicare. The ACA essentially requires that states provide the equivalent of Medicare coverage in order to qualify for 100% federal funding of the expanded Medicaid program. Why not simply adopt a Medicare look-alike? Anyone who suggests that Medicare is also a broken healthcare delivery and payment system is either being disingenuous or is simply uninformed. Medicare may not be perfect, but it is the backbone of American healthcare. Almost all commercial insurance companies now follow the Medicare reimbursement methodology by basing payments on a percentage of the Medicare fee schedule.

Wisconsin Provider Services (WPS) is the Medicare Administrative Contractor (MAC) which processes and pays all Medicare claims for a multi-state region that includes Missouri. Missouri could contract with WPS to pay Medicaid claims following Medicare methodology with funds provided by the federal government. The efficiency of such an arrangement should be immediately apparent. Hospitals and physicians have great familiarity with the Medicare system. In reforming Medicaid, the Missouri legislature should avoid at all cost any attempt to create a new, one-of-a-kind healthcare payment system from the ground up. Now is not the time to make healthcare in Missouri more complicated, and we should all fear the unintended consequences of legislative reforms of systems as complex as healthcare.

If the desire to reform the Missouri Medicaid program is sincere, there exists a quick, efficient “fix.” The real issue is whether Missouri should opt to expand Medicaid under the ACA. If the should is a moral, ethical, legal, logical or economic should, there is no question Missouri should expand the Medicaid program. If the should involves a political imperative, I urge politicians to consider the political consequences of losing momentum to neighboring states who acted when Missouri failed to act.

Another Installment of the War on Broccoli

During an interview on 60 Minutes, Romney was asked if the government had a responsibility to provide healthcare to million Americans who do not have it, and he replied: “We do provide care for people who don’t have insurance. If someone has a heart attack, they don't sit in their apartment and die. We pick them up in an ambulance, and take them to the hospital, and give them care.” When asked in an earlier interview on Morning Joe whether he believed in universal healthcare coverage, Romney said, “Look, it doesn't make a lot of sense for us to have millions and millions of people who have no health insurance and yet who can go to the emergency room and get entirely free care, for which they have no responsibility.” Romney can, of course, explain why his statements are somehow consistent with the Republican platform. Democrats can, of course, use his statements as an illustration of Romney’s lack of a true center, a flip-flopper.

My interest in those statements has to do with the broccoli mandate.

In making those statements, Romney was siding with the liberal judges on the U.S. Supreme Court who were of the opinion that, because uninsured persons must be provided care in hospital emergency rooms, the federal government had jurisdiction under the commerce clause to pass a law with a mandate requiring all people to maintain health insurance. It is not as though Romney was somehow not aware of the connection. He made the logical/legal connection as governor of Massachusetts and called it a personal epiphany: a) uninsured Massachusetts residents received healthcare because federal law requires hospitals to treat people with emergency medical conditions; b) the cost of treating uninsured patients was being paid for by insured patients; and c) insured patients would pay less for care if the cost of caring for the uninsured in emergency rooms was used instead to buy insurance for them so they would get care before acute conditions worsened.

Obviously, Romney was not the first to have such an “epiphany” but he deserves credit for being governor of the first state to translate the epiphany into legislation.

If Romney were somehow insulated from his handlers and able to speak his mind, I believe he would admit that the mandate in the Affordable Care Act was constitutional—under the commerce clause and not solely under congressional taxing authority a la Roberts. His problem with it is not legal; it is political and economic. The political problem is straightforward: it is Obamacare, a hot button that works with a certain constituency. He would have to be absolutely against it even if it worked better than advertised. The economic problem is more complex. I do not believe Romney’s statements that Americans already have a kind of universal healthcare—i.e., the emergency room—constitute some sort of flip-flop. His priorities have simply changed from when he was governor of Massachusetts. His epiphany was economically neutral. The theory was that the government would pay for universal healthcare by reducing the cost of uncompensated care in hospital emergency rooms. The same theory underlies the ACA and is being used to justify dramatic reductions in Medicare and Medicaid. So, what happened to the economic epiphany he had as Governor? Did new thinking prove the theory unsound?

No. Romney has simply embraced a more fundamental economic priority: reducing taxes on wealthy taxpayers. Everything else is secondary—one might even say expendable.

Broccoli and Healthcare Mandates

Nearly two years have passed since the Affordable Care Act was signed into law by President Obama. Since then, you may have noticed a lapse in my updates. This is simply because I had no reason to comment further. Now that the individual mandate is on the verge of being overturned, the time has come for me to comment again.

In a bold use of the persuasive reductio ad absurdum logical tactic, the US Supreme Court seems poised to declare that healthcare is the same as broccoli. Since the Supreme Court does not believe government should have the constitutional right to mandate that people eat broccoli, it follows that the government should not mandate that people buy healthcare insurance.

In Citizens United, the Supreme Court declared that corporations have the same constitutional rights as people. Ozarks Community Hospital is a corporation. Therefore, OCH has the same constitutional rights as a person.

Since OCH is a person, OCH is entitled to the same right as a person to be free from governmental mandates regarding broccoli and healthcare. Therefore, if the Supreme Court rules that the healthcare mandate is unconstitutional, OCH will post signs in its emergency rooms that the Supreme Court has declared that patients have no more right to healthcare than broccoli.

We believe that these signs will be in violation of the governmental law known has EMTALA that requires all hospitals to provide healthcare to all persons regardless of their ability to pay. This law has resulted in the enactment of a number of regulations--one of which would prohibit hospitals from displaying a sign such as the one just described. When OCH is fined by the government for displaying its "no right to broccoli; no right to healthcare" sign (below), OCH will appeal all the way to the Supreme Court where it will assert its constitutional right to be free from mandates regarding broccoli and healthcare. If the government does not have the power to create a system that requires people to be responsible for the cost of healthcare, then the government does not have the power to create a system that requires hospitals to provide healthcare to people who do not pay.

Hospitals are people too.

Quod erat demonstradum.

Paul Taylor, J.D.
CEO
Ozarks Community Hospital

Health Insurers Making Record Profits as Many Postpone Care

What is wrong with this picture? It is enough to drive a rational man to irrational behavior. The healthcare system in this country is the evolutionary product of the exercise of brute, political force over time. There is nothing rational about it.

For some reason, a line from Conrad’s Heart of Darkness keeps replaying in my mind. Marlow was reading a “white paper” typewritten by Kurtz, the epitome of what was then the best and brightest political system in the world—the European empires of the 19th century. Kurtz was in Africa bringing “civilization” to the natives while raping them for ivory. He had written the white paper for publication back in Europe. Marlow noticed that there was a handwritten note at the end:

"It was very simple, and at the end of that moving appeal to every altruistic sentiment it blazed at you, luminous and terrifying like a flash of lightning in a serene sky: 'Exterminate all the brutes!'"

I am tired of being raped by the lords of money and power while puppet politicians promise reforms to benefit the peasant class.

This article written by Reed Abelson appeared in the May 13, 2011 edition of the New York Times.

The nation’s major health insurers are barreling into a third year of record profits, enriched in recent months by a lingering recessionary mind-set among Americans who are postponing or forgoing medical care.

The UnitedHealth Group, one of the largest commercial insurers, told analysts that so far this year, insured hospital stays actually decreased in some instances. In reporting its earnings last week, Cigna, another insurer, talked about the “low level” of medical use.

Yet the companies continue to press for higher premiums, even though their reserve coffers are flush with profits and shareholders have been rewarded with new dividends. Many defend proposed double-digit increases in the rates they charge, citing a need for protection against any sudden uptick in demand once people have more money to spend on their health, as well as the rising price of care.

Even with a halting economic recovery, doctors and others say many people are still extremely budget-conscious, signaling the possibility of a fundamental change in Americans’ appetite for health care.

“I am noticing my patients with insurance are more interested in costs,” said Dr. Jim King, a family practice physician in rural Tennessee. “Gas prices are going up, food prices are going up. They are deciding to put some of their health care off.” A patient might decide not to drive the 50 miles necessary to see a specialist because of the cost of gas, he said.

But Dr. King said patients were also being more thoughtful about their needs. Fewer are asking for an MRI as soon as they have a bad headache. “People are realizing that this is my money, even if I’m not writing a check,” he said.

For someone like Shannon Hardin of California, whose hours at a grocery store have been erratic, there is simply no spare cash to see the doctor when she isn’t feeling well or to get the $350 dental crowns she has been putting off since last year. Even with insurance, she said, “I can’t afford to use it.” Delaying care could keep utilization rates for insurers low through the rest of the year, according to Charles Boorady, an analyst for Credit Suisse. “The big question is whether it is going to stay weak or bounce back,” he said. “Nobody knows.”

Significant increases in how much people have to pay for their medical care may prevent a solid rebound. In recent years, many employers have sharply reduced benefits, while raising deductibles and co-payments so people have to reach deeper into their pockets.

In 2010, about 10 percent of people covered by their employer had a deductible of at least $2,000, according to the Kaiser Family Foundation, a nonprofit research group, compared with just 5 percent of covered workers in 2008.

Doctors, for one, say patients’ attitudes are changing. “Because it’s from Dollar 1 to Dollar 2,000, they are being really conscious of how they spend their money,” said Dr. James Applegate, a family physician in Grand Rapids, Mich. For example, patients question the need for annual blood work.

High deductibles also can be daunting. David Welch, a nurse in California whose policy has a $4,000 deductible, said he was surprised to realize he had delayed going to the dermatologist, even though he had a history of skin cancer. Mr. Welch, who has been a supporter of the need to overhaul insurance industry practices for the California Nurses Association union, said he hoped his medical training would help him determine when to go to the doctor. “I underestimated how much that cost would affect my behavior,” he said.

Dr. Rebecca Jaffe, a family practice doctor in Wilmington, Del., said more patients were asking for the generic alternatives to brand-name medicines, because of hefty co-payments. “Now, all of a sudden, they want the generic, when for years, they said they couldn’t take it,” she said.

The insurers, which base what they charge in premiums largely on what they expect to pay out in future claims, say they still expect higher demand for care later this year. “I think there’s a real concern about a bounce-back, a rebound, in utilization,” said Dr. Lonny Reisman, the chief medical officer for Aetna.
Because they say they expect costs to rebound, insurers have not been shy about asking for higher rates. In Oregon, for example, Regence BlueCross BlueShield, a nonprofit insurer that is the state’s largest, is asking for a 22 percent increase for policies sold to individuals. In California, regulators have been resisting requests from insurers to raise rates by double digits.

Some observers wonder if the insurers are simply raising premiums in advance of the full force of the health care law in 2014. The insurers’ recent prosperity — big insurance companies have reported first-quarter earnings that beat analysts expectations by an average of 30 percent — may make it difficult for anyone, politicians and industry executives alike, to argue that the industry has been hurt by the federal health care law. Insurers were able to raise premiums to cover the cost of the law’s early provisions, like insuring adult children up to age 26, and federal and state regulators have largely proved to be accommodating.

But 2014 and 2015 are likely to be far more challenging, as insurers are forced to adjust to the law’s greatest changes, like providing coverage to everyone regardless of whether they have an expensive pre-existing condition. “I think they’re going to go through a winter,” said Paul H. Keckley, executive director of the Deloitte Center for Health Solutions, a research unit of the consulting firm Deloitte.

And while the slowing down of demand is good for insurers, at least in the short term, the concern is that patients may be tempted to skip important tests like colonoscopies or mammograms. The new health care law will eventually prevent most policies from charging patients for certain kinds of preventive care, but some plans still require someone to pay $500 toward a colonoscopy.

In recent times, insurers have prospered by pricing policies above costs, said Robert Laszewski, a former health insurance executive who is now a consultant in Alexandria, Va. The industry goes through underwriting cycles where the companies are better able to predict costs and make room for profits. “They’re benefiting from a very positive underwriting cycle,” he said.

“Maybe managed care is finally working,” he said. “Maybe this is the new normal.”
Still, he emphasized, health care costs, even if they are rising at 6 percent or 7 percent a year, are increasing at a much faster pace than overall inflation. “We haven’t solved the problem,” Mr. Laszewski said.