When is it no longer insurance?

In Health care we sometimes use the terms Health Insurance and Affordable Healthcare inter-changeably. It definitely appears that the current Healthcare Reform debate does this a lot.

I think it is useful to remind ourselves of the nature of Insurance and when we are no longer “Insuring” but instead doing something else.

Here is a useful definition of “Insurance” from the Internet: A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.”

If a young healthy individual were to establish a contract with a financial sound entity to make periodic payments against protection for health care coverage for the next 30 years then this would meet the definition of insurance.

However when a person has a chronic condition the situation is no longer one of an “unexpected future loss”. It is now an almost predictable future cost. If the individual is covered by a long-term insurance contract then the cost containment problem is owned by the insurer.

However if the person with a chronic condition did not acquire an insurance contract prior to acquiring the condition then the right financial tool is cost management and not insurance. It is useful to remember with any luck all of us will grow old, acquire chronic conditions along the way and then die. We will all have the opportunity to consume health care services for a long period -- this might actually be a key component of what's the "good life" circa 2009.

It appears to me the current US health care system mixes the two models. If we sold long term insurance contracts akin to life insurance contracts then both the insurance company and the insured could have greater predictability and protection. Of course this would require re-engineering how the insurance contracts are sold and paid for.

Secondarily if health insurers sold “cost management” contracts that allow un/under-insured people to partake of the cost management protocols available within large insurance companies – things like provider contract discounts, nurse health lines, disease management. This could produce large savings and provide increased access to health care. This has the further advantage of taking the insurance companies out of the “benefit management” process where they are denying “benefits” and thereby victimizing both the patient and themselves.

Finally provide a social safety net for people who can’t afford either option so that they can access high quality health care without destroying their finances or the finances of the health care providers. A social safety net makes sense for a large number of reasons including public health and social justice, and because eventually most of us will need one as our health care needs overwhelm our savings.

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In summary, my recommendations for a re-engineering health insurance market are we need a three tier health care financing model:

· Long term health insurance contracts acquired early in life (perhaps at birth)

· Cost Management products/services that can be acquired independent of health insurance to manage uninsured costs

· A social safety net that protects the health and finances of the population

What to do about people who choose not to get health insurance?

A good friend and observer of the Health Reform debate asked:

"Satish, How do you see the government enforcing mandatory coverage? The current example of how difficult it is to make people buy auto insurace comes to mind."

Some thoughts come to mind:
I think some of the "uninsured" are involuntary, i.e. they would get insurance if they could afford it. These folks will get insurance if it is available and affordable. I have dealt with this in other posts.

Others are "discretionary", i.e. they are treat health insurance as a discretionary expense and choose to spend it instead on some thing else.

Recent research in Human decision making suggests a good method to address this is by changing the default. If we make the default option for every person who files an Income Tax form registration in some health insurance option then people who have insurance can send a "Certificate of Credible Coverage" to get a waiver, others get some "default" insurance. Just add it to the "tax" bill along with any applicable subsidies. Give folks some process for opting out but make opting in standard.

Naturally we would need to work out how the defaults are defined, what happens to gaps in coverage during the year etc. However the model of asking people to take specific action to opt out seems to lead to a superior public policy outcome.

Who is afraid of the Public Option?

It appears from a quick read of the health care reform debate that a lot of people are afraid of the “public option”. In fact it appears the two threads with health care reform that a majority agrees upon are: We need health care reform; we don’t need the “public option”.

So I want to explore the issue by first looking at is there an unmet need, then looking to see how the public option might fit the need and finally evaluating the impact on the competitors and market.

Definition
First let me define the “public option” I am using for this analysis. The “public option” is set of tax payer subsidized insurance plans available to all Americans. The tax payer subsidy is assumed to be means tested on a graduated scale. The insurance plans will not be allowed to turn away any Americans due to their health or financial condition.

Is there an unmet need?
At least 44 million are uninsured. A much larger number could be uninsured if they loose their job or get sick. They are uninsured for a number of reasons but the broad categories of causes are:

• Health insurance is unaffordable
• Health insurance is unavailable due to pre-existing conditions
• Health insurance is considered a discretionary spending and not a chosen priority
  

Could a “public option” meet the need?
An insurance company that must provide health insurance without regard for pre-existing conditions addresses the 2nd problem. A sliding scale tax subsidy in association with a tax deduction could address the affordability. New federal “must carry” regulation – mandating every one buy health insurance – could address the third problem.

So a “public option” could be part of the solution…

…so why the fear and opposition?
There are three primary categories of opposition to the “public option” and they need to be each evaluated carefully:

• It will cost a lot
• Government will screw it up
• It is not the proper role of government

It will cost a lot
This seems to me a perfectly sound argument. If this was cost free then it would most likely already been done. So the argument that needs to be bifurcated into two other arguments:

1. Is the underlying need worth investing in? Should we provide health insurance to all Americans?
2. Could the “public option” be cost effective?

I think the first point is a statement of values and the answer is likely to be different for each person. I believe access to good health care is critical to the pursuit of happiness clause in our constitution and should be viewed as fundamental as the equal opportunity clause.

As to whether the “public option” could be cost effective depends on how we design the system.

Government will screw it up
To some people this is almost a tautology. However we need to dig deeper into the various failure modes that can result in a “screw up” and see if any of them are so tied to the government sponsorship that they cannot be fixed by system design.

Screw up 1: Special interests will capture the system to extract enormous profits
Screw up 2: It will drive out innovation
Screw up 3: Customer service (patient care/insured services) will suffer

The only way I can think of to avoid capture by special interests is to increase the level of competition in the system so that there are a very large number of market participants with very clear regulatory boundaries and low barriers to entry.

In the current situation barriers to entry are very high resulting in health insurance oligopolies in many markets. It does not matter that some of the oligarchs are “not for profits” – they tend to raise prices, reduce innovation and lower levels of service.

Government programs can provide seed capital for innovation (remember the Internet). It again comes down how the system is designed. If the government involvement is oriented towards lowering barriers to entry, protecting consumers, increasing transparency and providing financial support to the people who need it then this could substantially increase the vigor and size of the health care market in the US.

Government incentives could drive a lot of needed innovation into lower cost and preventive therapies instead of the current incentives which are strongly biased toward very high cost/high intensity last ditch life saving interventions.

Customer service will suffer if the Government becomes a monopoly or oligopoly supplier. However if the Government acts an enabler, facilitator and financier (of last resort) for a vibrant health insurance market then we should see the opposite effect. Services for patients, families, providers and businesses should all improve as the various market participants compete for the new $$.

I don’t want to minimize the issue. Government can screw it up. Government has screwed it up in other areas. However history does not have to repeat itself. We can do better than our forefathers.

It is not the proper role of Government
This is again a value judgment. We have seen that market forces along with private charities are not able to step up and meet and clear and present need. It seems to me that this is precisely the role of government to act as a force multiplier to our best intents. To allow us to collectively solve a problem that we can’t solve individually, that is the proper purpose of a government by the people, for the people, of the people.

Impact on current market participants and the market
If the “public option” is defined as a combination of:

• Consumer protection laws – standardized base benefits, portable insurance, elimination of pre-existing condition requirements, elimination of maximums, increased price transparency
• Lower barriers to entry for new market entrants along with base regulation on financial solvency of the insurers
• Means tested sliding scale financial subsidy for health insurance buyers and tax policy support coupled with “must carry” laws.
  

Then:

• Consumers should benefit
• The health insurance market will grow as more consumers become available
• The health status of the US should improve as more people are covered and access appropriate levels of care
• Many current market participants (insurers, physicians, hospitals, etc.) will be able to increase their customer base.
• Some will loose as their oligopolies will be threatened and their competitive moats built using a tangle of regional regulations will be damaged.

However there are many other kinds of “public options” that don’t have these characteristics and could result in much different outcomes. So if you see a “public option” that is not like this perhaps you should be afraid.

A Healthcare Reform manifesto: 2009

Health care reform is very much in the news these days. It appears that every one wants Health care reform but it is not clear if every one wants the same reform.

Here is what I believe we need to accomplish with health care reform:

We need to …

1. improve the access to health care for every one in the USA; and
2. improve the quality (mean and variance) of the care; and
3. reduce the cost of health care; and
4. that honors and encourages the professionals that work in this important area of public service

Now to look in more detail at each of these components of health care reform:

Improve access to health care means

Every person in the US can receive the appropriate type of care in the most comfortable and convenient care setting as possible as close to their need as possible.

“…appropriate type of care…” covers things like access to primary care doctors and specialists; access to medications; access to therapy; access to medical devices; access to surgical procedures and advanced equipment. What is appropriate should be decided by the patient (and their family) with their medical advisors within the boundaries of normal medical practice, ethics and the laws.

“...comfortable and convenient care setting…” encourages us to build a health care system that operates in the neighborhoods where people live, work and play.

“…as close to their need as possible.” We need to ensure there is sufficient capacity in the system such wait times are minimized. Most people access health care when they have a disease or an accident, either way they are in pain. A system that has long wait times is not compassionate.

Improve the quality of the care

It is typical for most processes to measure quality in with two broad metrics: the mean and the variance about the mean. If the mean is taken to measure the efficacy of the care provided in some combination of extending life, reducing discomfort and improving the quality of life, then the variance is how different incidents of care deliver on these three measures.

There is a lot of scholarly and popular literature that demonstrates that all measures of the quality of care are lower than what can be achieved. A simple sense of this is derived from the knowledge that if there is a large variance above the mean then that means there are some care givers who are able to some times provide care that is extraordinarily better than the mean.

When a quality oriented manufacturing firm sees data like this they immediately see an opportunity to raise the mean to the top end of the performance range and reduce the variance as much as possible. This provides the firm a fantastic competitive edge and gives the consumers beautiful products that were not possible before this kind of technique was applied.

We can and must do something similar in health care.

Reduce the cost of care

Health care is expensive for a number of reasons. There is waste. There is fraud. There is abuse. They are all significant. However a majority of the cost of health care comes from the need and use of health care.

We must not forget the value of health care. Human life expectancy would regress to the historical mean (about 40 years) absent health care intervention. Better diet, better hygiene, better protections from hazards is not and will not be sufficient to support the increases in life expectancy most people expect.

A lot of health care is used by people in the last years of their lives whenever that may occur. These years are as valuable to them and to society as their earlier years.

So we must reduce the waste, fraud and abuse. We must continue to evangelize diet, exercise, safety, life styles. Having done all that we must continue to invest prudently in life – both its quality and its longevity.

We must change the cost accounting of health care to value based accounting.

Honor and encourage the professionals in this area of public service

Health care is delivered by the people for the people. In all our reform discussions we seem to have lost the focus on the people on all sides of this equation.

• We have large and growing shortage of qualified nurses.
• We have a shortage of primary care / family practice physicians.
• Our doctors come out of medical school with crushing debt burdens.
• Malpractice insurance costs are so high in some specialties that physicians take home pay is so low that senior doctors retire much earlier than their health requires.
• Health insurance companies are laying off staff even as the needs of health care are growing
• Doctors complain that there is “no joy” left in the practice of medicine. Their day is sliced into so many little pieces that they basically doing battlefield triage instead of healing
• ER wait times are measurable only in hours

Every one in health care seems to defending their reason for existence. Is this any way to motivate the very folks who we need to save our lives? Save our financial future?

We need to invest in our health care professionals. We need to allocate at least some of the new funds for health care reform for more scholarships for nurses, physician assistants, lab technicians, physicians, medical coders and every other professional we need to have an efficient effective health care system.

We need to expand the capacity (supply) of health care professionals with more recruiting, training and opportunities for people in the health care system. We need to return the medical profession to the pinnacle of the public service pyramid it was on for a lot of known history.

We need to do this because we all use the health care system and I for one would like to know the smartest kid in class is the one who is working to save my life.

Why is implementing an EHR so hard?

This very topical and provocative question was asked on LinkedIn Health 2.0 group by Paul Roemer. I am editing and summarizing the discussion go here if you want to see it in the entire glory: (http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&gid=80236&discussionID=4467471&commentID=4576469&trk=NUS_DIG_DISC_Q_ucg_mr&goback=.hom#commentID_4576469)

As EHRs are entering the national health care agenda here are some difficult "factoids" that Paul quotes:
Studies suggest that 200,000 healthcare IT professionals are needed for EHR. The total number it healthcare IT professionals today is 100,000
• It’s not known which EHRs qualify for incentives under ARRA
• Less than 8% of non-VA hospitals have EHR in even a single department (this does not mean these pass meaningful use test)
• Only 1.5% have them in all departments
• Studies state that 1/3 to 2/3’s of implementations fail
• Implementation by small practices has been almost non-existent
• Small and individual practices will need a full service “wrap around” solution encompassing the following services:
o Project management
o Selection
o Implementation
o Adapting work flows
o Training
o Support
• Major reasons for not doing EHR are
o Up-front costs
o Lack of IT skills
o Ongoing support costs
• Hospitals and large providers usually use their own IT departments for EHR, none of which has ever implemented EHR. Hence for the most important project undertaken by a provider, they elect to do it with people with no experience, relying on the vendor
• Where will the EHR vendors find the IT expertise and project management resources to staff a national roll out?

All important questions... here is the key feedback from other respondents

• Mark Tumblin mentioned the adoption is slow and problematic because there is no positive incentive and lots of negative incentive to adoption.
• Kim Ewer noted that when she implemented an EMR in 2006 in a geographically distributed practice they experienced system stability and support issues. Raising the question around the maturity of this technology and the support processes.
• Lauren Blumenthal mentioned an implementation requires more than IT professionals, it requires clinicians and folks with strong domain expertise.
• Cameron Lewis suggested an EHR implementation is no different than a large scale SAP implementation. Change is hard.
• Ernie Chang raised the question of cost vs. benefits of an EHR/EMR. The physicians bear the costs and the benefits are targeted towards others.
• A number of folks raised the issue of older doctors being averse to change (expanding on Ernie's earliest comment).
• Satish Nagarajan pointed out that effective Change Management could easily overcome the change resistance of clinicians. Lauren and Larry Ozeran concurred with additional insights.

Overall this group of interested knowledgeable people agree this is going to be a BHAG (Big Hairy Audacious Goal) to get a nationwide adoption and rollout of EHRs. However this discussion has sourced some excellent ideas and I am optimistic we can get it done.

How will Public and Private Health Plans compete?

A twitter friend @jaymefanucci asked the question "How will the proposed Public and current Private Health Plans compete?"

I made a previous post on June 12th asking this question and the emerging wisdom seems to be in two camps:

WSJ Health Blog (http://blogs.wsj.com/health/2009/06/25/separating-fact-from-fiction-on-health-care-reform) says private health plans are worried that the public plan will under-cut prices and margins because the public plan does not need to make a profit. The counter-point is I once heard the then CEO of Trinity Health (a large non-profit Catholic IDN) say "no margin, no mission".

A friend and astute health care insider at a large very successful mid-western hospital says "the government is basically incompetent at providing this kind of large scale service and so will just act as a Financial back-stop while leaving all the juicy bits to private health insurers".

Either way this works out I expect there will be substantial opportunity and risk in the coming change.

Healthcare Reform June 2009 Summary

Here is a summary of the Health Reform debate as of June 2009.

1. Every one should have health insurance
2. Some one will have to pay for this (read new taxes)
3. There should be a health plan that will accept all comers regardless of health condition

There seems to be relative consensus on the above. What is still pretty contentious is:

a. What will this cost?
b. How will this be paid for?
c. Will this be done by creating a new public health plan or by regulating current health insurers?
d. Will people be subsidized?
e. What will this do to the competitive landscape?

Are Health plan CEOs really saying pay less for services?

An organization called Health CEOs for Health Reform has come out with its ideas for health care reform (http://www.newamerica.net/files/DeliverySystem2pager.pdf). While they have a number of recommendations they can be summarized into three primary points:

1. Medicare needs to fix health care...
2...this is best done by bundling payments instead of payment for services, and...
3...having medicare evaluate and manage quality and utilization.

These are interesting thoughts especially given the source...these are health plan CEOs. One possible take is they are asking for Medicare to provide "political cover" for doing the hard work of the reform -- remember the backlash to HMOs and managed care from a decade ago?

The other way to think about this is to interpret this as "Medicare is causing the health cost inflation by undermining the great work of the health plans and they should cease and desist."

Either view is likely controversial, but definitely very interesting.

Universal Insurance = High Premiums?

Forbes has an Article today "ObamaCare could punish you for being healthy" at http://www.forbes.com/2009/06/11/obama-health-care-reform-insurance-business-healthcare-obamacare.html.

The gist of the article is if we had to insure every one and had to give every one the SAME rate then the cost of the insurance for healthy people is going to be greater than that for sick people.

This of course is a true statement. The deeper question is to evaluate two things:

a. Are insurance premiums a strong incentive/dis-incentive for healthy/unhealthy behaviors?
b. Is health insurance like car insurance or is it more akin to utility?

The primary incentive for being healthy is you live longer and in less physical pain. You are less restricted for longer in doing whatever activity you want to engage in. Healthy behaviors extend the healthy state, and unhealthy behaviors shrink the period we are healthy. I don't think using the insurance premium as a incentive or penalty gets you much "utility".

Now people have mentioned that in auto insurance if you drive poorly (unhealthy behavior) your rates go up; if you drive well and have no claims (healthy behavior) your rates stay low. The logic extreme of course is there comes a point at which insurance is no longer affordable and you don't (should not) drive any more. So when your health insurance does not become affordable we would say the person should not...?

I think health insurance is not a category similar to other risk insurance. Health insurance is by definition risk pooling and socializing of costs. So you are better off creating population sized pools (I am not advocating single payer) -- but create large pools such that the costs reflect the population costs and then treat it is a tax -- everybody pays an equal share. Some people get subsidized because they can't afford it otherwise.

To make it fair and market oriented we should try to allow lots of fair competition with clear standards, opportunities for profit, price and quality transparency and lots of choice. We do this in lots of other industries without this crazy runaway inflation and terrible quality record.

How about quasi-public health plans?

Senator Kent Conrad has an idea (http://voices.washingtonpost.com/ezra-klein/2009/06/has_kent_conrad_solved_the_pub.html?hpid=topnews). Lets create non-profit coops which will act as health plans in addition to the current health plans. This is meant to be a compromise between single payer government model and just market based model.

It is not clear why the coops of 2010 are different than a Blue Cross or Blue Shield plan of 50 years ago. If we are really injecting competition why don't we lower barriers to entry? There are lots of companies in "nearby" industries who could enter this market if it was made attractive.

Apparently coops will be sized to reach 500,000 members. A 500,000 member plan will be one of smaller participants in most markets. It is not clear to me what savings such a small plan will achieve either in administrative costs or demand management.

I hope the senate can come up with something more transformative.

Will Universal coverage displace current health insurance policies?

The Wall St. Journal had an article on June 12, 2009 (http://online.wsj.com/article/SB124476642576608477.html) that indicates health plans are worried that a Government run health plan will displace them.

So whatever the Government does is fraught with opportunity and risk. The opportunity is the millions of uninsured will become potential customers, growing the market for health insurance. The risk is what if instead of creating a floor the Government options end up displacing some of the products offered by existing plans?

I am sure this will create enormous lobbying opportunities in the short-term and market and strategy options in the medium term. Government entering/expanding its role in the market is similar to boulder falling into a pool, we are going to have waves not ripples. Some plans are going to ride the waves and others are going to be lost...

What's missing in the Healthcare Reform debate

I applaud our political leadership for starting a serious debate on health care reform. This is over due and it appears this time to be getting more traction than the previous attempt under Hillary Clinton. The primary ideas that seem to be floating around this version of the reform debate seem to be:

a. Socialize the cost of care by spreading it around
b. Expect a quality improvement by investing in lots of new back-office technology
c. An acknowledgment that costs are too high and getting higher but no real consensus as to how to reduce them.

What seems to be missing is the traditional tools we have used in other markets:

1. Price transparency -- Imagine what the cost of clothing would be if you could go to the store and pick up a pair of jeans but did not find out the total cost for 45 days and only 20% of this unknown cost came from your pocket at that time.

2. Quality information -- Using our clothing analogy; imagine the retailer can't advertise and there is no way to evaluate quality. You are told it is all too complicated to understand. Plus the retailer will tell you which jeans are appropriate for you, you don't get to pick.

3. Competition -- a highly regulated industry that seems to use regulations to raise barriers to entry instead of reducing costs and improving quality.

4. Access and Availability -- what good is all this "insurance" if you can't get access to high quality care when you need it where you need it?

The states are trying different experiments, its just I don't see anything fully comprehensive.

Introduction

Hi,
My name in Satish Nagarajan. I am a Healthcare and Healthcare IT strategy consultant. I work mostly on the health insurance side, but I am familiar and interested in the devices and provider sides too. I will be using this Blog to consolidate and comment on the news and happenings in healthcare and healthcare IT.

I will be following:

* Health care reform
* Health plans
* Electronic Health Records
* Health care cost and quality

I invite your comments and feedback.