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The .1% ROI on PPACA

July 30, 2011

CMS came out with an estimate of healthcare spending in 202o and opponents of PPACA have jumped on it to claim the law is raising, not lowering healthcare costs.

In fact the most egregious is Avik Roy at Forbes, a self proclaimed healthcare expert with zero background at any level of the industry. His analysis is simply dishonest, shallow and misleading.

CMS projects total US expenditures to rise from $2.6T to $4.6T or 5.8% annually compared to 5.7% without PPACA a whopping difference of $35 Billion.

THIS IS NOT A TYPO – .1% =$35 billion over a decade or $3.5B per year.

So lets look at the .1% from the perspective of an investment in America and what the ROI of  that is:

  1. 30-40 Million Americans with quality health insurance
  2. 300,000 lives will be saved by 2020 as no longer will 45,000 deaths occur annually for Americans without health insurance.
    1. The cost savings to society and social programs that would support the families of these victims alone will exceed the .1% let alone the human and family benefits
  3. No American can  be turned down for a pre-existing condition. 125 Million have at least one.
  4. High quality plans for all Americans that will eliminate medical bankruptcies (60% of all today)
    1. No annual maximums
    2. No lifetime maximums
    3. No exclusions/restrictions for pre-ex issues
    4. Preventive care for all to keep us healthier and reduce long term costs
  5. State based marketplaces that improve competition and options for small businesses
    1. Online enrollment, admin, communication in a common format will lower admin costs for businesses
    2. Allow employers to take advantage of federal subsidies for lower wage workers and contribute to coverage as well
    3. Insurers must accept electronic data for efficiency
  6. Consumer protection requirements on insurance companies, regardless of  the state:
    1. Operate at or above 80% or 85% for their medical loss ratios or provide rebates to customers
      1. This requirement forces insurers to get lean and mean  to maximize their profits and streamline operations and connections which will further cut transaction costs downstreamwith consumers, businesses and vendors/payors
    2. All rate increases be published online for review in a common format in all 50 states, including 10 that do no rate reviews at all today
    3. All plans use a common format to describe their details to make it easier to understand
  7. Accountable care organizations will be providing coordinated care for patients reducing duplication, errors and over treatment and using evidence based medicine to improve outcomes and lower costs
    1. Over 100,000 patients die annually die to improper care. How many will this save?
This is a partial list of the most obvious ROI for this modest .1% investment or increase in costs over 10 years.
Thats right .1%! That translates into a few billion dollars a year:
  • less than ethanol subsidies, or
  • tax breaks for hedge fund managers or
  • 10% of  the cost of oil company subsidies

none of which add anything to GDP or any ROI for the American people.

So what is the total ROI for the economy for this .1% investment?

CBO has never scored a dime of savings from reduced healthcare costs into their projections.

Nor has anyone put a price tag on the lives saved and the societal costs of lost wages, taxes, social programs for survivors etc.

Or the really important human costs of children growing up healthier, reduced infant mortality, families not losing loved ones , kids not losing parents et al.


What the NFIB Small Business Survey Says About Brokers

July 27, 2011

The NFIB has put out a very interesting survey of small businesses, defined as those with fewer than 50 employees, and PPACA. They surveyed 750 businesses:

  •  42% or 314 offer health insurance to their employees.
  • Only 78% purchased through brokers/agents and most of thes only had health insurance with their agent
  • 30% could qualify for full or partial small business tax credits.

Let’s do a quick summary. One year after enactment of PPACA, 42 percent of small businesses (<50 lives) offer employee health insurance.

This group fall into 3 distinct sub categories of size and often life cycle of a business:

              • <1o employee – 35 % provide health insurance
              • 10-19 employees- 56 % provide it
              • 20-49 – 80 % provide it

Small employers currently receive a substantial share of their information on health insurance from insurance agents and brokers.

Information is a cost that few small-business owners pay directly.  Instead, they pay that information cost through their insurance premiums. PPACA’s cap on insurer administrative expenses may change that. The cap requires curbs on administrative expenses with agent/broker commissions a likely target of insurer expense reductions.

One practical, down-stream consequence is that current small-business customers of agents/brokers likely will  lose (or partially lose) the advice and assistance these suppliers now provide when customers evaluate insurance options,  procure health insurance, explain benefits to employees, etc.  That loss may not occur if agents/brokers now selling health insurance can shift their source of income to other  forms of business insurance sold to smaller firms. In other words, falling commissions on health insurance may be offset  by added commissions on other forms of insurance. A direct offset (cost-shift) assumes that small employers purchase health insurance from the same agent or broker that they purchase their other types of business insurance, such as property and casualty. For the most part, they do not.

Two-thirds (66%) who purchase their health insurance through an agent or broker claim to purchase no other business insurance from that agent/broker . The remainder do. But just 4 percent purchase all other business insurance from that person while 13 percent purchase “most” and 17 percent purchase “some”. The ability of agents/brokers to directly transfer lost revenue from health insurance sales to sales  of other insurance products therefore appears severely constrained. The implication is that what heretofore has been largely indirect costs for health insurance information will now become direct costs.

The larger issues are where small-business owners will obtain the knowledge about health insurance that they will need to be intelligent consumers if agents and brokers no longer have an incentive to provide it, and how will small-business owners pay for that information. These are questions that should be of general concern. The exchanges authorized in PPACA presumably will provide information. Yet, the exchanges almost assuredly cannot provide the personalized assistance now offered by the industry. The market response is likely to be creation of information substitutes, such as professional “navigators”.

One of the challenges with this, and nearly every opinion survey like this on PPACA is the level of knowledge the participants have of this complex subject. 18% feel very familiar with the law and 30% somewhat familiar.

“Few owners have a detailed understanding of these substantive topics, putting them in difficult straits when making costly decisions about such matters.”
  • Just 12 percent of small employers say that they are “very confident” they are obtaining adequate information about employee health care, health insurance,and the most recent legislative developments about them
  • Another 28 percent say they are “somewhat confident”.
  • 30 percent are “not too confident” and
  • 29 percent are “not at all confident”.

So of the 78% of employers relying on agents/brokers 12% feel really confident they are getting good information to help them deal with health care reform. Why is there this disconnect? Are their agents/brokers doing their jobs? Looks like they aren’t.

All the whining about the changes to commissions due to the MLR changes look pretty weak when customers do not seem to be getting what they need from their agent/brokers. Why wouldn’t they rely on tools from an Exchange and save money at the same time?

What the NFIB Report Really Tells Us

July 27, 2011

The NFIB has put out a very interesting survey of small businesses, defined as those with fewer than 50 employees, and PPACA. They surveyed 750 businesses:

  •  42% or 314 offer health insurance to their employees.
  • 78% purchased through brokers/agents.
  • 30% could qualify for full or partial small business tax credits.

Unfortunately the really interesting and valuable parts of the study are getting no attention but the headline grabbing sound bites that fit the anti PPACA meme are getting reverberated across the right wing echo chamber online.

Let’s do a quick summary. One year after enactment of PPACA, 42 percent of small businesses (<50 lives) offer employee health insurance.

This group fall into 3 distinct sub categories of size and often life cycle of a business:

              • <1o employee – 35 % provide health insurance
              • 10-19 employees- 56 % provide it
              • 20-49 – 80 % provide it

Approximately 10-12% of the firms surveyed have started are new in last 3 years and according to Denny Dennis at NFIB the annual “failure rate of businesses is in the same 10% range so this is a very dynamic and fluid part of the economy.

The main headline out there today is that because of PPACA 11.7% of these businesses report that their insurer has  terminated the specific health insurance plan they had, or have said they will in the near future.

When I spoke with Mr. Dennis, an expert on small business trends,  about this he agreed that plan terminations for this size employer are common but that this seems higher than in the past. He also commented that this rate of loss was consistent with what CBO had predicted might happen as the transition to PPACA occurred prior to 2014 and the Exchanges coming into existence.

The second breathlessly reported stat is that 20% of businesses expect to have to make plan changes this year to keep costs under control with the implication that this is due to PPACA. Of course this is total baloney as nearly every firm in the nation reviews their benefits every year due to ongoing healthcare cost increases.

I was actually surprised this figure was not higher but smaller firms in standardized plans may not have the full array of options available to them that larger companies do.

66% of  insured firms (314) used an HSA/HRA and another 11% a  sec. 125 tax favored account which means many of them are already pushing the envelope on plan funding.

The final talking point that is revving up PPACA haters is that 57% (180) of the 314 employers with plans responded that they would “likely” terminate their plans if employees had other options like the Exchanges but this depended on whether all or a large number left the corporate plan for one in the Exchange.

The real message that has gotten no attention is that 57% of firms responded positively to this question which describes what can be done under the law once Exchanges are in place, ie defined contribution plans they contribute to:

“Suppose you had a new option to purchase health insurance. Under the new option, employees would purchase health insurance in the open market and the business would send a tax-excluded contribution to the insurer to help employees pay their premiums. The business could send as much or as little as it liked. If this proposal were to become law, how likely would you be to consider substituting it for current your health insurance plan (OR as appropriate) paying a portion of your employees’ health insurance premium? “

So 57% of all 750 firms – or 454 – responded that they would likely participate in a defined contribution plan for their employees.

This actually represents an increase of nearly 50% over the 42% providing plans today that could provide some form of employer funding to their employees.

So pre PPACA 42% are providing coverage and post PPACA 63% would likely provide a defined contribution style plan to their employees.

This looks to me like the law may actually work as intended to close the coverage gap for the <50 market and especially under 20 employee market.

Click the graphic above to download the study for yourself.

State Exchange and PPACA Lawsuit Map

July 25, 2011

This map overlays several items of interest those keeping track of the PPACA debate.

  • States in the PPACA lawsuits are highlighted by dots below and
  • State colors denote the status of Exchanges
It is no surprise that the states with the worst overall health ratings from the Kaiser Foundation lead the way on both lawsuits and fighting setting up exchanges.
Sadl, most of these are in the deep south which is no surprise.

The Biggest Lie Ever on PPACA Debunked

July 24, 2011

One simple question to start:

How do we measure job growth every month?

  • The new jobs report that every media outlet publishes

What is the worst month of growth we have had since growth turned positive?

  • last month , 18,000 jobs. April was 300K or so.…

Since job growth turned positive over 3M jobs have been created.

So what does this chart below measure?

The average CHANGE, month to month of growth – NOT the total growth – by the periods it established to try and make a point.

  • So if on month 1 100K jobs were created then the change from the prior month were zero were created would be 1ook.
  • If month 2 101K were created the change is – 1K and so on.

So what does this chart mean? NOTHING.

There is no correlation with  the passage of PPACA and the idea that there could be stretches credulity to its breaking point.

To believe that there is a connection all of a sudden in April 2010 every business owner in America, regardless of industry, region, P&L, size et would have had to fallen into a trance magically making business decisions on a law that wouldn’t take full effect for nearly 4 years.

I could make a chart like this for anything. And did right here!

Heck in May the end of the world was supposed to have happened and guess
what the number of new jobs was only 18,000. People worrying about that
must have ceased hiring.

It is really sad that people have to congrive this type of nonsense with made up numbers with no meaning or correlation to the reality of PPACA and healthcare reform..


Monthly Unemployment Rate Decreases Since April 2010 Due to PPACA

July 24, 2011

The “average rate of unemployment rate change per month” has been reduced approximately 290% since PPACA was passed showing the power of the new healthcare law!

If you look at the “average % change in the unemployment rate per month “ from the financial crisis of 2008 until 6/2011 you will find:

  • From 9/2008 (6.2%)  thru 4/2010 (9.8%) the unemployment rate averaged a .18% increase / month
  • From 5/2010 thru 6/2011 the unemployment rate averaged a .064% decrease
A recent Heritage Foundation post claimed that PPACA was the culprit in the decrease in “average job gains” per month as compared to period 2/09 – 4/10 before it was enacted. Actually this stat is completely wrong, besides being totally made up.
See our comments on it here.
But our meaningless stat is also compeletely bogus just to prove how easy it is to lie with numbers.

The MLR, Broker Commissions and the “Stockholm Syndrome”

July 24, 2011

In 1996 when we first started Employease, the first online benefits administration and  enrollment platform, insurers were eager to meet with us. As it turned out they were not interested in the efficiencies and customer service value we could bring. In fact the main area of interest in every meeting was simply- “How can this help us get rid of brokers”.

The odd dynamic that exists between the product manufacturers – insurers  and healthplans – and their independent sales team, brokers and consultants, has been at work  for at the least the 35 years I have been in the industry.

They are symbiotic enemies like the Road Runner and Wily Coyote. Neither side likes the other at all, even though without agents, brokers and consultants  insurers would fail miserably and without insurers brokers would have nothing to sell. In fact the current system of employer delivered health insurance  would not exist if the insurers had to deal directly with the employer and consumer.

They are  not equipped to deliver their products or services in a way that does not need a 3rd party  guardian like a broker.

Fast forward to 2010/2011. Healthcare reform (PPACA) imposes expected Medical Loss Ratios on healthcare insurers to make sure that employer and consumer’s premium dollars go to care and reimbursement not wasted overhead and high executive salaries.

What do the insurers do first to meet their legally required goals? Either drastically reduce commissions to brokers or cut them entirely (Aetna), making the broker responsible for negotiating service fees that the insurer will then add to their monthly bills.

And of course they blame it all on the MLR rules of PPACA.

Meanwhile they try and ram through rate increases that are not justified again blaming PPACA and have the best year ever for profits.

The NAIC – the 50 state insurance commissioners-  have reviewed the MLR rules and unanimously supported them and refused to exclude commissions from them because sales costs are part of any insurance product’s overhead.  A working group had commended changing this but was not approved but has said working via HHS for a solution is the best option. SO stay tuned.They are dead right on this.

Instead of using their clout to fight the insurers industry groups like NAHU, CIAB, UBA, NAIFA, the Big I and others have inexplicably joined forces with the health insurers to try get commissions excluded from the MLR first via the NAIC (they failed) and now through Congress. Articles vilifying the new healthcare law rife with misrepresentations and hyperbole abound from these groups, especially NAHU who has bought the insurers line completely with lines like this:

“In fact, the health care law is not only causing many businesses to drop or scale back their insurance plans — it’s also preventing them from creating jobs.” “Unfortunately, there’s not much fat to trim from insurers’ budgets. The health insurance industry posted a slim 2.2 percent profit margin in 2008 — one-fifth the margin enjoyed by the securities industry, and one-tenth that of the pharmaceutical sector.”

Yet while CEO salaries have increased (UHC +$10MM) and stock option packages have been enriched (Humana,+73M, Aetna former CEO, $50M) those same insurers have eliminated (Aetna) or cut broker’s commissions (all others) at the same time convincing the brokers that Obama and the big bad government were to blame not them. You can see the details for the major insurers here for the last 5 years. 

The enemy here is not the healthcare reform law but the complacency and dependency that insurers have lulled brokers into with ever higher commissions based on ever higher rates.

Do they really believe the insurers should be able to remain fat dumb and happy, have record profits and CEO salaries and not tighten up their wasteful organizations as long as their commissions do not hurt the insurers MLR calculations?

The real question here is are these brokerage groups really that blind to the reality here or are they simply suffering from Stockholm Syndrome –  “… a term used to describe a paradoxical psychological phenomenon wherein hostages express adulation and have positive feelings towards their captors. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors as an act of kindness.”

After all the years of dealing with the insurer’s incompetence but still having their incomes go up every year as premiums have increased at double-digit rates this is the only answer I can come up with.

The real enemy are the insurers and their actions, not PPACA, and the sooner brokers realize that and use their collective leverage accordingly to force the insurers to get more efficient the better for them and their clients.

This change alone is estimated to cost consumers $1.4B in 2014 and with that large a number at stake the brokerage community and its lobbying groups need to look like whiners trying to get Federal help to bail them out and use their sollective efforts to prove the value they bring t their customers.