Understanding the Accountable Care Organization

25 May

2013

Is an ACO in your future? Is that good, bad or does it matter? As they say, seek and ye shall find and in this case the answer is yes.

The Accountable Care Organization is only a few years old, but Obamacare is counting on the concept for delivering health care to help control Medicare’s costs. Even in the private sector ACOs have formed to better coordinate and manage patient care … and to save money while improving quality. Where have we heard that before?

If you are on Medicare or if your employer begins to sell this great new health plan, you may want to learn more about the ACO. Not a bad idea to ask your doctor as well.

Here is an excellent article that discusses the pros, cons and concerns about Accountable Care Organizations.

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Low interest rates; just one factor in the disappearing traditional private pension

24 May

We all know the painful truth that traditional defined benefit pensions (never covering a majority of Americans) are fast disappearing … except for public employees, let me say that again, except for public employees.

The Pension Benefit Guarantee Corp., the federal agency that insures private-sector pension plans (for considerable premiums paid by plan sponsors), reports that the number of plans it insures for individual employers decreased from 112,208 in 1985 to 25,600 in 2011.

The decline in pensions is due to several factors; they are expensive to maintain and fund, are highly regulated and costs are unpredictable because many of the factors associated with funding and accounting for liabilities of the plan are beyond the control of the sponsor.

Investments go up and down as do interest rates. Low interest rates are bad for pension funds because they increase the liability calculation that affects a company’s financial results from an accounting perspective. The current low interest rate environment is directly causing the freezing or termination of private pension plans.

Remember how I like to talk about unintended consequences? Well in the case of pensions, government policy and regulation from 1974 (ERISA) intended to provide more security for pension plans has been a major factor in their demise. Government policy to help the economic recovery by keeping interest rates low has hurt seniors by harming pension plans and their fixed income investments.

All this begs the question; how can government alone afford to maintain what in many cases are generous pension plans for public employees while they disappear for everyone else?

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Health insurance exchange application Part II

24 May

2013

In a previous post I said the revised application form from HHS was improved. I may have spoken too soon or too naively. While it is shorter, there is a bit of a trick because some pages must be copied for dependents, plus the on-line version is longer.

But what recently caught my eye was the Appendix requiring people to provide information about their employer coverage. Good luck with that!

Based on my experience, there isn’t a worker this side of Guam who could provide this information about his employer coverage. Plus, the form seems to assume all employers use health insurance when in fact, many, many employers are self-insured.

Take a close look at the questions asked of average Americans on these forms. Could you answer them?

Does your employer offer a health plan that meets “the minimum value standard?” Do you know what that is?

Look at questions 15 and 16 and tell me if you know the answer or can even find the answer.

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Most voters believe free market competition will reduce health care costs… really?

23 May

2013

From Rasmussen:

Voters have consistently said for years that cost is their biggest health care concern, and most still believe the free market, not government control, is the best way to keep those costs down. A new Rasmussen Reports national telephone survey finds that 59% of Likely U.S. Voters think free market competition would do more to reduce health care costs than more government regulation. Only 23% disagree and believe more government intervention in the health care market is the better way to go. Eighteen percent (18%) are not sure.

This got me to thinking, do people even understand what free markets and competition mean or how it would apply to health care? Today insurance companies compete for business both in the individual and group markets, pharmaceutical benefit managers compete for business and heaven knows with all the ads on TV and radio hospitals want to attract your business not to mention most Americans have a wide choice of physicians. So what’s all this competition stuff, who needs to compete for what? And what do we want most from competition, lower costs or higher quality? While high cost does not translate to high quality, neither does lower cost.

Perhaps what we are talking about is eliminating all insurance and just let people shop for each health care procedure or maybe we set up health care malls where nurses ride around on Segway’s.

Seriously, free market competition and health care are a contradiction. You can not, repeat can not apply traditional market and competition principles to health care… because you don’t want to shop for health care, you want to get well first and foremost.

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Health care claims higher than anticipated with lower then expected enrollment, so just cut what you pay doctors and hospitals! Is this where health care is going?

21 May

2013

400,000 expected to enroll; five billion to pay claims and then reality sets in; 125,000 enroll and the $5 billion is nearly gone seven months before the program ends.

That is the temporary program for people with pre-existing conditions under Obamacare. Do these Americans need health care, certainly they do, but what we don’t need is politicians making unrealistic promises based on absurd assumptions. The short-term solution for the Administration is simply to cut payments to doctors and hospitals treating these people. The long term solution; well that is to have the people using the health insurance exchanges along with federal tax credits pick up the bills.

The New York Times (May 20, 2013) has an excellent article on this significant problem and concludes with this:

When the federal program for people with pre-existing conditions ends on Jan. 1, 2014, many of them are expected to go into private health plans offered through new insurance markets being established in every state. Federal and state officials worry that an influx of people with serious illnesses could destabilize these markets, leading to higher premiums for other subscribers.

For this reason, federal and state officials say, they will try to recruit large numbers of healthy young people to buy insurance. Their premiums would help pay for the care of less healthy people.

I urge you to read the full NYT article and also to read this recent Quinnscommentary blog post on this subject.

You see, adverse selection is very real. People who have foregone insurance and now have serious illness spend a great deal of money on health care which, contrary to popular myth, is why insurance companies charge more and limit coverage and also why employer plans make people wait a full year if they don’t enroll upon hire. When these people can’t be denied coverage or charged more all other insured in the group will pick up the burden of these claims … just so you know.

If you are a healthy young person, take notice, government officials expect you to buy insurance you are unlikely to use in order to help pay for those who do use health care … a lot.

Don’t get me wrong, I think the responsible thing to do is to carry insurance, but if federal officials are counting on this, they are in for a shock.

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Your 401(k) plan and your retirement income stream – know your numbers

21 May

2013

Under Section 105 of ERISA, as amended by the Pension Protection Act (PPA), defined benefit plans (traditional pensions) must provide a benefit statement every three years (with an annual notice alternative) while defined contribution plans (401k) that permit participant direction must provide the statement quarterly. However, individual account plans that do not allow participant direction must only provide the statement annually.

Accordingly, the Department of Labor is considering the following requirements in benefit statements:

1. A lifetime income illustration converting the participant’s current balance as if the participant (or beneficiary) had reached normal retirement age under the plan, even if he or she is much younger;
2. Another lifetime income illustration using a projected balance to normal retirement age, based on assumed future contribution amounts and investment returns;
3. Both income streams would be (1) presented as estimated monthly payments based on expected mortality, and (2) if the participant is married, include a projection based on the joint lives of the participant (or beneficiary) and spouse (based on a 50% survivor annuity); and
4. An “understandable explanation of the assumptions” behind the illustrations and a statement that projections and lifetime income stream illustrations are estimates and not guarantees.

The move toward providing this information is important because the most difficult task Americans with defined contribution plans have is determining their realistic income stream during a long retirement. The most secure way to do that is through an annuity. However, there is understandable reluctance to turn over ones life savings to an insurance company. That means the task falls on the individual who may have no idea of the potential income possibilities from an account balance.

For example, a male age 65 with $1,000,000 to invest may expect an annuity with no inflation adjustment and no survivor benefit of about $5544.00 per month. Providing a 100% survivor annuity to a spouse the same age provides a monthly income of $4527.

If this type of information is provided regularly to workers it may serve to improve retirement planning and expectations and hopefully encourage higher saving rates.

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Big trouble if younger, healthier people don’t enroll for health insurance . . . you pay more! To encourage enrollment communicate, communicate, communicate

20 May

English: Zeke Emanuel outside his office in th...

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2013

One of the greatest risks for the new health insurance exchanges (and for employer plans offering a choice among health plans) is adverse selection. That is, people who are high users of health care are likely to buy the best coverage and those who feel invisible will forego insurance or take the least generous coverage. This risk is very real; people act in what they perceive as their best interest … even when they are wrong.

Dr Ezekiel Emanuel has a good op-Ed in the WSJ on this subject pointing out the risk and correctly noting that to the extent this adverse selection occurs, premiums will rise for everyone, including the government in the form of higher subsidizes. This may start a high cost cycle as the higher premiums go, the fewer healthier people will buy coverage. The fact is health insurance or any insurance for that matter, needs people who pay premiums, but have no claims … that’s why it’s insurance, a group pooling resources to protect against substantial financial risk . . . for a relatively few .

To illustrate this problem, consider the cost and tax credit offered through the exchanges for a 27-year-old with income of $35,000 a year. The estimated annual premium for silver level coverage (one up from the lowest level) is $3018.00 per year. There is no subside in this case because income is 300% of the poverty level. So, if you are healthy, have incurred few, if any medical expenses in the last several years and don’t expect to, do you spend the $3,000 or pay the penalty for not carrying health insurance.? That fee in 2014 is $95.00, or 1% of income if greater, in 2015 $325 or 2% of income if greater, and in 2016 $695 or 2.5% of income if greater.. NOTE: Under the Law certain people based on their income are not subject to the mandate to carry insurance and therefore not subject to the penalty for not doing so thereby adding to the adverse selection problem.

In his plea for strong and ongoing communication to educate individuals about carrying health insurance, Dr Emanuel notes that part of the message should be personal responsibility to carry coverage because of the adverse affects of not doing so will have on others. He may be right, but that’s a hard sell, because that adverse affect has been with us for years. The picture may change somewhat for individuals who receive a hefty tax credit to carry coverage, but as in our example above, if the decision is purely financial, doing the right thing may not be a strong incentive to carry coverage.

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