Archive | May, 2011

Will my Social Security check stop if there is no increase in the debt limit?

31 May

Image by Third Way via Flickr

That is an interesting question; if you believe the far left politicians Social Security is never in jeopardy because there is a trust fund and it is backed by the full faith and credit of the federal government. In addition, it does not affect the deficit according to those same folks.

Will your (our) Social Security checks stop if the federal government can’t spend any more above its debt limit? The correct answer is no…for now at least. The answer you hear in the press depends on which side is trying to scare whom.

First, as of now the receipts (plus interest income) from the Social Security payroll tax are sufficient to cover the current benefits being paid so even if there is no increase in the debt limit, checks can continue. However, when we get to the point (not long from now) when the payments exceed current Social Security total revenue, we may face a different question.

Also, there is still general tax revenue flowing into the government (you did pay your “fair share” did you not?) and Social Security payments, because they are fixed by law, are high on the priority list of payments that will continue even if no additional debt can be incurred for a period of time.

The bottom line is that in 2011 at least, Social Security checks can keep coming.

However, that does not mean there is no problem. Read this short summary from the Social Security Trustees Report.

I find this discussion enlightening don’t you? The very fact that we have to ask whether Social Security can continue to be paid if the federal government can’t keep borrowing should tell us something about the fiscal state of our government. In fact, isn’t it a bit scary that current tax revenue can’t keep all government payments of any kind flowing for any period of time? Every day we spend more than we have.

Politicians, who keep assuring us that there is no problem with Social Security, should start being honest. There is a problem. There is no trust fund other than a considerable amount of paper representing Treasury Bonds that Social Security holds. The proceeds from the purchase of these bonds by has been used to run the government just like the proceeds from the sale of bonds to China, etc. When the Social Security Trust Fund needs to cash in those bonds to pay benefits, where does the Treasury get the cash to give to Social Security? Well, it sells more bonds to someone else and or it prints money.

That’s not a problem? Perhaps not for you and me, but it surely is for our children and grandchildren.

Memorial Day

29 May

Take a moment today to remember those we honor this Memorial Day.

Those names you hear in a roll call or see engraved on a monument, those headstones in seemingly endless rows at Arlington, Gettysburg or Normandy are not forgotten soldiers, they are sons and daughters, mothers and fathers, brothers and sisters, husbands and wives. They are the people who, while not all heroes in the traditional sense, accepted the responsibility and did their duty with the ultimate sacrifice.

I was walking in the woods at a state park in Brewster, Massachusetts a few years back and looking up a small hill I thought I saw an American flag. I walked to the spot to find a roughly outlined grave mostly covered in leaves. There was a small flag and a tiny well-worn headstone that read “Unknown Revolutionary War Soldier.” I stood there thinking about this unknown person and imagined how he came to this place so removed from any grand memorial. Strangely I think of this grave every Memorial Day and I am glad that somebody cared enough to honor his memory.

Fly your flag, show dignity and respect as their names are read, remove that baseball cap as the flag and veterans march by, sing the words of the national anthem. Explain to your children what this all means and why it matters.

Pray that someday this endless list of fallen soldiers has no more names added to it.

It’s the least we can do.

How IRA Owners Invest Their Assets

29 May

New Research from EBRI:

How IRA Owners Invest Their Assets

WASHINGTON—Where do individual retirement account (IRA) owners put their money? New research from the unique EBRI IRA Database finds that almost 40 percent of IRA assets are invested in equities, just over 20 percent is in money funds, 12 percent are in balanced funds, and almost 14 percent are in other types of investments.

These findings represent the first look at detailed IRA asset allocation information from the only database that is able to anonymously link individual IRA owners across multiple IRA providers. This allows for more accurate measurement of IRA assets and ownership, and the tracking of retirement assets as they move through different types of retirement plans.

The EBRI IRA Database is an ongoing project of the Employee Benefit Research Institute (EBRI) that collects data from IRA plan administrators, and currently contains information on 14.1 million accounts of 11.1 million unique individuals with total assets of $732.9 billion, as of year-end 2008.  The assets in the IRAs are broken down into equities, which include individual equities, equity mutual funds, and other 100-percent equity investments; bonds (individual, mutual fund, and other 100-percent bond investments); balanced funds, which include traditional 60 percent equities/40 percent bonds, as well as target-date funds; money funds (money market mutual funds, money market accounts, and certificates of deposit); and other investments, which include annuities, real estate, and other such investments.

Other findings in the EBRI IRA Database:

Allocation by Balance Size: As the account balance of the IRA increases, the percentage of assets in equities and balanced funds combined declines. For instance, among those IRAs with balances from $10,000−$24,999, 50.4 percent of the assets were in equities and 20.1 percent in balanced funds (70.5 percent combined), compared with 37.6 percent in equities and 11.7 percent in balanced funds (49.3 percent combined) for IRAs with account balances of $150,000−$249,999.

Gender Allocations: The asset allocation of male and female IRA owners is very similar across all age groups.  For instance, females and males under age 25 had 49.1 percent and 49.5 percent, respectively, in equities, while women had 33.1 percent and men had 33.6 percent in equities among those age 70 or older. Furthermore, a decreasing percentage of equities and an increasing percentage of bond and other assets were found as age increased for both genders.
Extreme Allocations (defined as having less than10 percent or more than 90 percent of the account balance in one particular asset):

               * Type: The most significant difference among the IRA types is that Roth owners are much more likely to have 90 percent or more of their assets in equities than those who own the other IRA types. Furthermore, Roth owners are correspondingly more likely to have less than 10 percent of their assets in bonds, money, or both. Traditional and SEP/SIMPLE IRA owners have relatively similar likelihoods of extreme allocations across the assets studied, while rollover IRA owners are much less likely to have 90 percent or more of their assets in equities and more likely to have larger allocations to bonds and money.

              * Account Balance: IRA owners with higher account balances are less likely to have extreme asset allocations. For instance, 38.3 percent of those with an account of $5,000−$9,999 had 90 percent or more of their assets in equities, compared with 5.9 percent of those with an account balance of $250,000 or more. Furthermore, these accounts with higher balances are less likely to have less than 10 percent combined in money and bonds.

“It’s interesting to note that IRA assets are invested in stocks (equities) at a level that’s very close to what’s in 401(k)s,” said Craig Copeland, senior research associate at EBRI and author of the report. The full results are published in the May 2011 EBRI Notes, online at

Specifically, Copeland said, the latest data from the EBRI/ICI 401(k) database, the largest of its kind, shows that 37.4 percent of all 401(k) assets are invested in equities. That matches closely to the equity level that was found in IRA accounts (38.5 percent).

“The next step in our research is to examine how IRA owners with more than one account allocate their assets across accounts.  The results could show that accounts with extreme allocations are only a part of an individual’s total portfolio instead of the only assets the owner has.”

The Employee Benefit Research Institute (EBRI) is a private, nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement, and economic security issues.

President Obama’s greatest asset may be his greatest liability

28 May
Abd al-Qadir al-Husayni leader of the Army of ...

Image via Wikipedia

President Obama’s greatest asset may be his greatest liability. His way with words is quite exceptional. He is a master at form over substance. His recent speech on Israel is a good example.

Forget for a moment whether or not you agree with his position and focus on his public words. You have to ask why the leader of the free world would say what he did about Israel’s borders in public. Doesn’t such a proclamation change the dynamics of negotiations for both sides? Doesn’t it create unrealistic expectations in one case and a hardening of position in the other?

Leader of the Army of the Holy War 1948

The fact is that any hope of a permanent resolution after nearly seventy years of conflict does require radically new thinking on both sides, assuming both sides are motivated to resolution. But that does not mean the President of the United States should be exercising his rhetorical skills on public specific suggestions.

I negotiated union contracts for thirty years and you quickly learn what to say and not say in public, at the bargaining table and in private meetings where the real work is done. You will not hear a CEO publicly state in advance of negotiations that union workers must pay 25% of health insurance costs, but rather that costs must be reduced and controlled. Proposals are exchanged in a comprehensive fashion so each party is able to see where compromise is and is not possible and what alternatives may be considered.

Whomever is advising our President needs a reality check in human nature and the world beyond the beltway.

P.S. Any real resolution of the Israeli/Palestinian conflict must include a country for the Palestinians which may well include changes in borders, but why limit that to Israel? Other Arab countries are equally responsible for this decades long mess, let them donate some land for their brethren as well.


The Ryan plan for Medicare is already in place

27 May

Does this sound like the Ryan plan for the future of Medicare?

The plan you join will provide all of your Hospital Insurance and Medical Insurance coverage. The plan may offer extra coverage, such as vision, hearing, dental, and/or health and wellness programs. Most plans include  prescription drug coverage.

Medicare pays a fixed amount for your care every month to the companies offering these plans. These companies must follow rules set by Medicare. However, each plan can charge different out-of-pocket costs and have different rules for how you get services (like whether you need a referral to see a specialist or if you have to go to only doctors, facilities, or suppliers that belong to the plan for non‑emergency or non-urgent care).

Under this scenario the government (Medicare) provides a fixed amount toward the cost of the coverage you select, you pay the difference between that amount and the amount charged by the plan (a rare occurance).  You can select from a number of competing plans each year.  These plans offer different benefits, and different ways of providing health care.

Actually, the above summary is from the website and describes the existing Medicare Advantage (private insurer) plans in which about 20% of current Medicare beneficiaries are now enrolled.

Here is how the Ryan plan is described in the press:

Under the Ryan plan, Medicare would switch to paying fixed amounts to private health insurers instead of directly to hospitals and doctors beginning in 2022. Any increases in payments would be linked to the consumer price index. Beneficiaries would bear any costs above what the program provides. But current Medicare beneficiaries would not be affected.

Not only are Medicare Advantage plan participants subject to fixed payments based on the traditional Medicare costs, but under the health care reform legislation, payments to these plans were cut thus shifting more cost to the enrolled beneficiaries.  In other words, the politicians did exactly what they rant against in the Ryan plan.  They limited the government payment to save money and transferred that cost to individuals in the form of lower benefits and higher premiums.  [Note: Before the PPACA cuts, MA plans receive about 113% of the cost of traditional Medicare under a complex risk adjusted methodology including Congressional mandates.  However, beneficiaries receive higher benefits, including prescription coverage, and avoid the need for supplemental coverage which benefits many lower-income people.]

Granted a big difference in the Ryan plan is that payments by the government would be linked to the CPI, but if you don’t link payments to something other than self driving health care inflation, how do you control costs?   The fact is that you can manage costs in a transparent way or you can cut benefits and deny payment for services which is far less transparent.  The very reason many politicians oppose the Ryan plan (like the following from Sen Scott Brown) is the reason it makes logical sense and why MA operates the same way.  If you give a blank check to anyone, do you expect them to write a check for the same amount each year?

First, I fear that as health inflation rises, the cost of private plans will outgrow the government premium support— and the elderly will be forced to pay ever higher deductibles and co-pays. Protecting those who have been counting on the current system their entire adult lives should be the key principle of reform.

 Will the cost of Medicare Advantage plans outgrow the government premium support?

For those among us who fear turning Medicare into a private insurance program there is an alternative.  Just increase the governments per person cost each year by no more than the CPI and allow beneficiaries to use an alternative plan using the same amount.  What’s that you say, it’s just like the Ryan plan only with Medicare as it is today.  You bet it is, but isn’t the point to manage costs?

The next time you hear a politician or anyone rant and rave about the destruction of Medicare under a Ryan type plan, ask them about Medicare Advantage plans or better still ask someone who is enrolled in a MA plan.  You might also ask a physician.  Physicians are sometimes critical of MA plans because they scrutinize claims far more than traditional Medicare, imagine that.

Already politicians are positioning their positions not toward solving any problem, but toward their next election bid.

A new effort at malpractice reform-saving money on health care without shifting costs to anyone

26 May

The plaintiff is awarded four-hundred million dollars for emotional stress caused by the implantation of size C rather than size D

Have you heard of Federal proposed legislation HR-5?  Probably not, and neither had I until a few minutes ago, but I suspect you will hear more about this legislation, especially from trial lawyers and others who have a stake in malpractice awards.

HR-5 is a major reform of malpractice laws across the US. According to a recent Congressional Budget Office (CBO) assessment this legislation will lower health care costs in the US by 0.5%. A half a percent may not sound like a big number but multiplied by national spending on health care it’s a very big number. Since the US spends over $2.5 trillion each year on health care, that is a lot of money.  Ok, if you want to know, the potential savings in over $12,500,000,000 each year.   

In addition CBO estimates the legislation will lower the federal deficit by $57,000,000,000 in the next ten years and increase revenue by $10,000,000,000. How does reforming malpractice awards increase federal revenue? Because by lowering health care costs it lowers the tax-free premiums (tax-free income) in employer health benefit plans. There would be a decrease in federal spending of $48 billion over ten years on Medicare, Medicaid and federal employee health benefits.

Here is one of the major parts of the bill:

Authorizes the award of punitive damages only where: (1) it is proven by clear and convincing evidence that a person acted with malicious intent to injure the claimant or deliberately failed to avoid unnecessary injury the claimant was substantially certain to suffer; and (2) compensatory damages are awarded. Limits punitive damages to the greater of two times the amount of economic damages or $250,000

Capping non-economic awards and punitive damages and limiting attorney fees will not be popular in some quarters. There will also be the argument that victims of malpractice (generally known as mistakes, sometimes bad mistakes) deserve more and their payments should not be limited but rather left to juries (sometimes emotionally charged and nearly always unqualified).  The time for those arguments has past. This is all part of the shared sacrifice we hear so much about these days.

Frankly, beyond any cost savings, we should welcome the possibility that we will all undergo fewer tests and procedures (sometimes risky procedures) now done in the name of CYA.

Vermont to implement public option for health insurance. How does a public option lower health care costs?

25 May

Don't tread on my entitlements!

It always befuddled me how many of the New England states, the center of the American Revolution, the home of the tough, frugal, independent Yankee ended up some of the most liberal states in the U.S. Vermont is a good example, electing a self-proclaimed socialist to the U. S. Senate. I suspect I need to bone up on my history of the region. Liberal Vermont is leading the way on health care reform these days. It is about to enact a public option (a step back from what it really wants-a public universal health plan).

According to the governor,

“For Vermont, it’s all about containing costs.” The annual cost of health care in Vermont has doubled to roughly $5 billion a year over the past 8 years, and Shumlin contends that “it’s killing small businesses” and “kicking the middle class in the teeth.”

So the solution to rising health care costs is a public option we are told (again). Perhaps we should look at the best example of a public option and see how that controls costs. Medicare, while not truly an option, is a public program so it is the best example we have. How does Medicare control costs…it doesn’t!  How does Medicare propose to control costs? Well, we are told it will attack fraud and waste, it will cut physician fees by 30% and it will make health care more efficient by placing Medicare beneficiaries into Accountable Care Organizations.

Medicare has been in effect for forty-six years (46) and now it is attacking fraud and waste? If a public option is so efficient, how did fraud and waste get out of control in the first place? Could it have anything to do with bureaucratic bungling or Congressional meddling? Medicare is often touted as having much lower administrative costs than private insurance and to some extent that is true although the “much lower” part is questionable. On the other hand, what do we get for that lower administrative expense, we get virtually no review or management of claims and we get forty-six years of growing fraud and waste.

Medicare has been planning to cut physician fees for a decade and each time, including in 2010, Congress has stopped the cuts. Even the 2011 Medicare Trustee report notes that such cuts while assumed in their future expense projections, are unlikely ever to occur. Is that how you contain costs under a public health plan?

Of course there is the matter of profit; a public option will not have an insurance company’s profit factored into its premiums. Let’s say for a moment that all profit is done away with and not replaced by other government costs and inefficiency, then what? Initially you can claim that premiums are lower, but then what changes the growth of health care costs in the future? Under PPACA, Medicare has a new panel set up to address that issue, but since it is prevented from raising premiums or cutting benefits, exactly how will it lower costs? Vermonters should be asking the same question. If “For Vermont, it’s all about containing costs,” how will that be accomplished?

The most politically correct response will be by creating competition in the insurance market. That assumes that insurance companies do not need to be competitive today. However, the real fallacy is that competition among more insurers is counterproductive because under a system that relies on negotiated discounts with health care providers, the greater leverage fewer insurers have over the marketplace the higher discounts they can demand. What will a public option do, set physician fees and require all providers to participate and accept the fees with no balance willing? I assume if that is the case, the citizens of Vermont know that and have considered the unintended consequences.

The health care system needs competition, but not between more insurers but rather health care providers. Competition based on quality, efficiency and cost. Will the addition of a public option accomplish that? What has Medicare done about that in the last forty-six years?

The fact is that insurers and third-party administrators for self-insured employer plans have led the way in trying to bend the cost curve. They have initiated case management programs, nurse help lines, disease management, medical necessity review, quality initiatives, tight claim adjudication, wellness programs, extensive education programs and more. Have they worked, to some extent, but on the other hand many patients and doctors see these programs as intrusive and interfering between patient and doctor and thus avoid participation whenever possible (just as happened with HMOs).

The above programs cost money and that expense is reflected in insurance company premiums. If they were eliminated, premiums would reflect that lower expense but premiums would also reflect higher claims costs, more fraud and waste…just like Medicare.

So I ask again, how will a public option control health care costs?

Liberal politicians have an easy time attacking insurance company profit as a bad thing, especially “record profits.” However, profit motivates efficiency, innovation, competitiveness, concern for costs, customer service, etc. I submit that bureaucracy does none of that. Just look at the history of Congressional interference in Medicare, the virtual non-existent scrutiny of claims under Medicare (ignoring audit reports going back twenty-years questioning this practice) and the administration of Tricare (a program that has not raised premiums for retirees in over fifteen years despite out of control costs). Look at the management of health benefits in the various states where many are on the verge of bankruptcy in large part because of mishandling, caused largely by political interference, of health care benefits for active and retired workers.

A lot can be improved in the private health insurance industry (and yeah, some CEO salaries are outrageous although insignificant when reflected in premiums), far more efficiency is possible as is the case with the health care industry, but for those Americans and even Vermonters who think that a public option or a single payer system will control health care cost, the question remains…how?

If you know the answer and are okay with it, fine and dandy, please tell the rest of us.

Medicare reform will shift costs to Medicare beneficiaries (and everyone else) regardless of the approach taken

24 May

You can only squeeze so much

One thing most people agree on is that Medicare is a major portion of government spending and its costs are out of control.  Beyond that, on the surface at least, there appears to be a great deal of disagreement on how to fix the problem. The Ryan plan has drawn a great deal of attention and criticism.  The Obama plan is less controversial, and likely less effective.  However, in the final analysis both plans are quite similar, they both will shift costs to Medicare beneficiaries while limiting what Medicare spends.  You cannot limit what Medicare spends without shifting costs to someone and that includes health care providers, beneficiaries and the general public.  If anyone tells you otherwise they are…well let’s say they don’t know what they are talking about (or they are a politician).

An excellent analysis of this situation written by Professor Laurence Kotlikoff  appears on   I urge you to take a close look. 

Medicare beneficiaries, both current and future are going to pay more for their health care through a combination of higher premiums for both basic Medicare and supplemental coverage and higher out-of-pocket costs as well.  Physicians and other providers are going to receive less in payments and be squeezed to provide fewer health care services (as I have said many times before, not necessarily a bad thing). This means more cost-shifting to non Medicare patients and payers.

Whether it is a Ryan type change in the structure of Medicare or an Obama type less transparent reduction in coverage, Medicare is going to change.  The real question is which approach (or some other) most fairly distributes the burden among all stakeholders both present and future…and of course, which approach is truly effective.

2011 Medicare Trustees Report raises caution when considering “savings” generated by Patient Protection Affordable Care Act

23 May

As required by law the 2011 Medicare Trustees Report is required to project its costs based on current law, including the health care reform law.  That leads to some interesting conclusions and savings projections.  Those optimistic figures lead to good press and PR for the Administration.  What you don’t often see in the paper is what is behind the assumptions along with the reservations expressed by the Trustees.  Following is an excerpt from the introduction of the 2011 Trustees Report.  I provided the highlighting.  As with many assumptions required by Congressional action, the reality of the impact of PPACA on Medicare is likely to be much different from advertised.

As was the case with the 2010 Trustees Report, this report reflects the effects of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010. This legislation, referred to collectively as the “Affordable Care Act” or ACA, contained roughly 165 provisions affecting the Medicare program by reducing costs, increasing revenues, improving certain benefits, combating fraud and abuse, and initiating a major program of research and development for alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health care and reduce its costs to Medicare.

Although the long-term viability of some of these provisions is debatable, the annual report to Congress on the financial status of Medicare must be based on current law. In this report, the various cost-reduction measures—most importantly the reductions in the payment rate updates for most categories of Medicare providers by the growth in economy-wide multifactor productivity—are assumed to occur in all future years, as required by the Affordable Care Act. In addition, an almost 30 percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012 as required under current law, despite the virtual certainty that Congress will override this reduction.

In view of the factors described above, it is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report. We recommend that the projections be interpreted as an illustration of the very favorable financial outcomes that would be experienced if the physician fee reductions are implemented and if the productivity adjustments and other cost-reducing measures in the Affordable Care Act can be sustained in the long range—and we caution readers to recognize the great uncertainty associated with achieving this outcome. Where possible, we illustrate the potential understatement of Medicare costs and projection results by reference to an alternative projection that assumes—for purposes of illustration only—that the physician fee reductions are overridden and that the productivity adjustments are gradually phased out over the 16 years starting in 2020.

Saving on your auto insurance

22 May

I was hoping to lower my car insurance premium so I first switched to Gecko to save $350, then I switched to Regressive to save $325, then to Somestate for another $452.  That wasn’t good enough so I moved on to State Ranch for the promise of another $330 in savings.  After all my hard work I now receive an ad in the mail from AAPR showing me that if I switched again more savings were available from its insurance plan underwritten by The Buttford.

If I can go from A to B to C to D to E and back again and save about the same from each move, aren’t they all charging the same amount?  Or better still, if all this is true why is anyone insured with other than Gecko, Regressive, Somestate, State Ranch or AAPR?

I think what we really need is a high deductible auto insurance plan with an auto savings account.  I have to go, time to watch another commercial.

Medicare enrollment is mandated, what’s the big deal?

21 May

Today many Americans are obsessed with the mandate under the Affordable Care Act to carry health insurance. However, there are forty-five million or so Americans who should see it as no big deal. The penalty for not enrolling in health insurance is insignificant when compared with the penalty that seniors who want to drop out of Medicare face. That penalty is loss of ones Social Security benefit. Yikes, that hurts.

But the issue is moot because the law prevents anyone from selling insurance to replace Medicare. So, unless you are super wealthy or just dumb, it is unlikely you want to drop Medicare anyway.

The rule causing loss of Social Security was promulgated in 1993 under Clinton administration … did you ever hear of it?

There are other mandates too. If you are 65 and still working with health insurance, your employer plan (more than 20 employees) is mandated as primary over Medicare. In others words, you don’t use Medicare until you actually stop working. The benefit to the seasoned citizens is they don’t need to enroll in Medicare Part B while working and suffer no penalty for late enrollment when they enroll after stopping work.

Does the phrase “much ado about nothing” ring a bell? It seems the mandate to carry health insurance left the station long ago. Lets worry more about the cost and quality of health care, I sure do.

Controlling “unreasonable” premium increases – Feds issue new rules

20 May

 ”The rule requires insurance companies to provide consumers with easy to understand information about the reasons for unreasonable rate increases and post the justification for those hikes on their website as well as on the HHS Affordable Care Act website, .”

Who but the government could write something like the above? Let’s see, the reason we are asking for an unreasonable rate increase is so that we can drive away customers, report outrageous profits and pay our executives pensions in line with government workers. That should cover it.

For now, unreasonable means anything above 10% . In typical fashion the following press release links premium increases to “highest profits in years.” The logic that one of the reasons for high profits is that medical care costs have not risen as much as projected sounds good until you think about it carefully. 2011 premiums (established in 2010 based on historical data) are designed to cover the cost of health care throughout all of 2011 and obviously we don’t know now what those costs will be. We don’t know what insurance company profits will be either at this point. Let’s say the last half of 2011 turns out to be a very bad year. When that happens 2011 premiums that were deemed unreasonable, may end up being too low or 2012 premiums will be substantially higher than “reasonable” just to make up the difference. The point is that there is a lot more to setting premiums than maximizing profits not to mention that some insurers are non-profit entities.

Who knew a 16% increase was higher than a 10% premium increase?

Perhaps I am unique or just strange, but if I received an unreasonable premium increase from my auto or home owners insurance I would shop around for a better deal. Given the elimination of virtually all underwriting for health insurance under PPACA, making changes in health insurance is just as possible. With all the regulation now in place eliminating denial of coverage, requiring who to cover and for how long and defining the coverage to be offered, the real question to be asked is why is any government agency regulating premiums. Let the efficient, customer focused insurers thrive and the others fall by the wayside. Put the customer in charge.

A lot of the things we pay for seem unreasonable, $7.99 for a hot dog at a Disney resort is fresh in my mind. Is the profit a small physician group makes unreasonable? Is the cost of a cat scan unreasonable? Press releases such as the following seem an obsession with this administration which from the start tried to focus public attention on insurance companies rather than the cost and utilization of health care. These pronouncements are not helpful, perhaps are politically motivated and certainly do not give the full story or present all the facts.

To better understand premium increases you might want to read Anatomy of  a Thirty Percent Premium Increase.   And if medical costs are expected to rise by 9% in 2011, is a 10% premium increase unreasonable? 

FOR IMMEDIATE RELEASE                                                               Contact:  HHS Press Office
Thursday, May 19, 2011                                                                                           
Affordable Care Act helps fight unreasonable health insurance premium increases
New rules bring transparency, lower costs to consumers by requiring review of large insurance rate hikes
Today, The Department of Health and Human Services (HHS) issued a final regulation to ensure that large health insurance premium increases will be thoroughly reviewed, and consumers will have access to clear information about those increases. Combined with other important protections from the Affordable Care Act, these new rules will help lower insurance costs by moderating premium hikes and provide consumers with greater value for their premium dollar.  In 2011, this will mean rate increases of 10-percent or more must be reviewed by state or federal officials.
“Effective rate review works – it does so by protecting consumers from unreasonable rate increases and bringing needed transparency to the marketplace,” said HHS Secretary Kathleen Sebelius.  “During the past year we have worked closely with states to strengthen their ability to review, revise or reject unreasonable rate hikes.  This final rule helps build on that partnership to protect consumers.”

Starting September 1, 2011, the rule requires independent experts to scrutinize any proposed increase of 10-percent for most individual and small group health insurance plans.  States will have the primary responsibility for reviewing rate increases.  While most states will take on this responsibility, HHS will serve in a backup role in states that don’t have the resources or authority to review rates. HHS has awarded $44 million in Affordable Care Act grants to states to help strengthen their oversight capabilities. An additional $200 million will continue to be available to states under the Act.

Starting September 2012, the 10-percent threshold will be replaced by state-specific thresholds that reflect the insurance and health care cost trends in each state.  The final rule clarifies that HHS will work with states in developing these thresholds. 

Publication of the final rule comes as health insurance companies have reported some of their highest profits in years.  One cause for these profits is that actual medical costs are growing more slowly than what insurance companies projected when they set their 2011 rates last year.  However, many of the rates consumers and small employers pay today don’t reflect these lower costs. 
The rule requires insurance companies to provide consumers with easy to understand information about the reasons for unreasonable rate increases and post the justification for those hikes on their website as well as on the HHS Affordable Care Act website, . 
 “Strong and transparent rate review processes are necessary to help bring down costs for consumers,” said Steve Larsen, director of the Center for Consumer Information and Insurance Oversight. “Rate review will ensure that increases are based on reasonable estimates and real-time data on medical cost trends and health care utilization.” 
The regulation issued today finalizes proposed rules issued in December 2010. The final rule has several additions to the proposed rule, including a requirement that states provide an opportunity for public input in the evaluation of rate increases subject to review.  This will strengthen the consumer transparency aspects of the new rule.  HHS is also requesting comment from the public on applying the rule to individual and small group coverage sold through associations, which is sometimes exempt from state oversight.
For more information about recent trends in health insurance rates and the final rule, visit:

Health care cost and quality, how did we find the solution?

18 May

For at least the last fifty years politicians (and others) have been trying to solve the health care issue. Doesn’t it seem curious that all of a sudden they have the answers at both the federal and state levels?

I recall in the 1980s when HMOs were the solution supported by the government. Today it is Accountable Care Organizations and who knows what else. Vermont and Massachusetts are toying with capitation payment schemes for health care providers or by default headed toward a government-run single payer system. Some politicians think denying premium increases is the answer. It may be, if your goal is driving insurers out of business

On one hand patients are promised total freedom and on the other more managed care.

The federal government is “saving” Medicare by becoming more efficient and eliminating fraud and waste, a renewed effort first identified eighteen years ago. We are told that more competition is needed, but we don’t know exactly who should be competing with whom and we don’t understand the relationship between competing health insurance organizations and our convoluted discount network payment system.

What all the strategies have in common is the promise of affordable, high quality health care for all while not spending more money, indeed lowering costs and the future cost curve. We seem to have solved one other eternal conflict; how to have your cake and eat it too.

Meanwhile employers have convinced themselves that more cost sharing is the answer, cut benefits, raise deductibles and coinsurance or use a high deductible health plan. Employees need to care more about the cost of health care. Hey, wait a minute, if health care is not affordable now, how does making it less so help? Oh, I get it, first you have to figure out affordable to whom…the federal government, the states, your employer or lastly to you.

It all makes you wonder how the solution is so apparent now when scores of past schemes at all levels have failed miserably. We should be asking, “What’s’ different today?” Why will current ideas work?

All the current efforts have one thing in common. They fail to understand the emotional and psychological aspects of being sick, receiving and paying for health care and they fail to consider that we long ago abandoned any concept of true “insurance.”

With several states going off in their own direction, Republicans trying to sink Obamacare, states coming to the realization they can’t pay for their employee and retiree health care promises, employers slashing as much as they can and the ability to dump workers into the new health insurance exchanges on the horizon, we may have created the perfect storm… Oh wait, not yet, Medicare beneficiaries haven’t seen their next premium increase or learned what an ACO may mean.

How much do Americans spend on health care?

17 May

Listening to the political rhetoric these last few years, one could conclude that American families are going broke paying for health care.  While that may be true for some households, it is not the norm.  In fact, the average American spend 5.9% of income on health care expenses.  If that still sounds high to you, consider that it is less than is spent on eating in restaurants. 

Ironically, if we spent less on eating out, we might also spend less on health care.

As this chart shows the amount spent on health care rises with age, but the older you get the greater your level of protection against these expenses

Trends in employee health benefits, not a pretty picture

16 May

If you look at this issue from an employee or retiree point of view get ready for:

  • Less choice
  • Higher out-of-pocket costs and greater cost sharing
  • Less flexibility as to where you receive health care
  • More management of the health care and services you receive

If you are an employer, here is where you are headed in health benefits:

  • Universal use of High Deductible Health Plans and Health Savings Accounts (HSA). Among large employers this is likely to remain a choice among one or two alternatives. However, for employers with 3,000 and below employees the HDHP is likely to be the only choice within five years or less.
  • Narrow networks, that is, smaller physician and hospital networks within a plan on the basis of higher discounts, but also higher quality from the participating providers – details on how to define that to follow (we hope)
  • Greater use of carved out care management. That is, stronger management over prescription drugs, mental health care and even other areas such as radiology.
  • While most large employers have it now, you will see an expansion of health advocates and nurse advice and help lines.
  • Wellness and prevention will continue high on the list (even though any true ROI is questionable at best).

Take a step back and what do you see? You see much that is contrary to what was promised under the guise of health care reform. Employees will have less, not more choice, they may not be able to keep their doctor (without paying considerably more), their costs will go up, not down and someone will frequently come between them and their doctor.

To be clear, all this is not being caused by enactment of the Patient Protection Affordable Care Act. It is caused by one thing alone…the cost of health care and thus the cost of providing workers with health benefits. To be sure PPACA added to those costs for employer plans, but all of the above steps would have occurred nonetheless.

Employers are faced with limited choices; drop health benefits altogether, restructure the benefits as indicated above or move to a pure defined contribution approach whereby the employee receives a set amount each year to cover health benefits and any cost above that is the employee’s responsibility.

Few large employers will drop coverage, virtually all will embrace the above strategies and some (with the number growing as time passes) will take the third option. That third option, the defined contribution approach, will become more attractive and more feasible in 2014 when the health care exchanges are operational. Smaller employers especially will quickly see that providing each employee with a set dollar amount toward health benefits, and paying the fine for not offering coverage is a far better financial deal than continuing to provide coverage with uncontrolled costs and accompanying premium increases. Large employers may continue to offer various options, but also may see that a fixed contribution is the only way to control employer costs just as a 401(k) is far better at that then a defined benefit pension.

While all these strategies may save employers money, most are shifting costs to employees. Without some real way to manage the cost of health care, the burden on most people will become intolerable even with health insurance.

Where we are headed with health benefits cries out for one thing; a massive education and communication effort. When employees see what is happening to their benefits, to their shrinking freedom in seeking and receiving health care and to their wallet, it is not going to be a happy workforce. Employees must understand the issues and options, why changes are being made and what the real impact may be, and lastly the facts about whatever change is made. Communicating without all of these elements is not communications, it’s reporting.

To a great extent this health care cost mess we are in is income insensitive. That needs reassessment. Can we realistically expect a $40,000 a year worker to cope with these changes as well as one earning $100,000? Any kind of cost shifting, including high deductible health plans, disproportionally burdens lower-income workers. We can’t solve that problem merely by having income tiered premiums. For many it is the out-of-pocket costs that will break them.

Changes they are a coming and you will be affected. Cost is the culprit and unfortunately dealing with that cost requires a new view of the way we all receive health care and pay for it. If we are not willing to change, someone will make the changes for us. For now, it will be employers.

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