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The Poorly Understood McCarran-Ferguson Act

It’s all enough to make you wonder if these jokers in Congress have any idea what they are doing … but then they pass another bill and remove all doubt. The most recent is the so-called antitrust bill against health insurers. The House passed HR 4626 on February 24 to exempt health insurers from the McCarran-Ferguson Act. For a while it looked like they were going to repeal McCarran-Ferguson altogether, but the property and casualty (P&C) industry informed them that it, too, was subject to Mc-F.

Oh! Well, we’re not mad at the P&C industry. We just hate those eeeeevil health insurers. A notice from the National Association of Insurance and Financial Advisors (NAIFA) expresses concern that forbidding the pooling of historical claims data would disadvantage smaller carriers and decrease competition, and that “health insurance was not defined by the bill. The upshot of that could be that long-term care, disability insurance, and medical provisions in auto insurance and even some aspects of life insurance could be construed by courts to be ‘health’ insurance.” NAIFA believes the latter concern was fixed but not the former one. It is not at all clear that there is support in the Senate for this legislation.

McCarran-Ferguson is poorly understood even by otherwise-bright people. On the MSNBC show Morning Joe, Joe Scarborough said it allows price-fixing between insurers. No, it doesn’t, as explained by National Underwriter, which writes, “the current antitrust exemption gives (insurers) no ability to join together to set prices or use acquisitions to build monopolies.” Insurers always have been subject to most federal antitrust provisions, including bans on price fixing, divvying up markets, and tying arrangements. They are also completely subject to state antitrust laws.

As NAIFA points out, the only thing that will be affected here is the ability of carriers to pool claims data for actuarial purposes. The result will be that small carriers won’t have enough historical information to project future costs. So they will not be able to determine how to price their products. So they will go out of business. So there will be less, not more, competition in the health insurance market.

These people seriously don’t know what they are doing.

Can Consumer-driven Health Care Be Killed?

Benefits Selling Magazine ran an article on whether the health reforms in Congress would “destroy consumer-driven health care as we know it.” It notes a Wall Street Journal editorial (subscriber link) that said Harry Reid “wants to kill consumer-driven health care.”

The article walks through the provisions, including a cap on FSAs and limits on using HSAs for over the counter drugs, but concludes that the alarm is probably overstated, and consumer driven health might actually do well under these reforms. It ends up quoting me as saying that even if passed the reforms will probably never be implemented and in the meantime, “employers have to deal with today’s reality. They look at prices going up, they look at the recession, they look at unemployment and how to retain the people they want to keep. The consumer-driven approaches are more attractive today than they have ever been and employers have to make benefit decisions now. They can’t let political happy talk get in the way. I’m very optimistic that ultimately, consumer-driven approaches are here to stay and will grow substantially.”

22% of Population in “High-deductible” Health Plans

The National Health Interview Survey (NHIS) from the Center for Disease Control is the Big Daddy of all of the national surveys, and it finds that now 22.7% of the under-65 population is in “high deductible” health plans. This is up from 19.4% just one year ago. This includes 6.4% of the population with a Health Savings Account, up from 5.2% last year. It does not separate out HRAs from other people with stand-alone high deductible plans.  The report also mentions that fully one-half of the individual market now has high deductible health coverage.

Disease Management Simply Doesn’t Work

Most of swell ideas for cost containment never work out. BusinessWeek had a devastating article about disease management saying, “Washington wants to pump big money into so-called disease management, though there’s scant evidence that it works …”

The article cites the experience of General Electric, which ran an ambitious program but, “didn’t see any compelling evidence that disease management saved money or substantially improved worker health.” The company decided not to continue the program, but, “Disease management–despite a series of studies finding that it doesn’t deliver what it promises–has caught on throughout the business world. Employers and government agencies are spending a total of $2.5 billion a year on the services.”

The article says, “outside analysts say the case for disease management–and the data its marketers emphasize–typically rely on exaggeration and ignore the cost of the service itself.” In fact the Rand Corporation “issued a report for the state of Massachusetts concluding that disease management could increase employer and government spending in the state by $6.7 billion over 10 years with little overall benefit.” And, “outside consultants hired by Medicare determined in 2008 that disease management used in a pilot for 200,000 patients raised spending but didn’t reduce hospitalizations, emergency-room visits, or death from chronic disease.”

And yet disease management remains popular with politicians who are grasping at straws to “fix health care.” The article says, “Congress and the Obama administration are poised to commit billions of Medicare dollars in coming years to a health care solution that may do little good. ‘We have already wasted a lot of money on disease management,’ says Randall Brown, director of health research at Mathematica, a for-profit research firm in Princeton, N.J., that studies preventive care on behalf of government agencies. ‘I’m worried we could throw more money down the drain.’”

RAND Proposes 12 Ways to Control Costs; Omits the Consumer

So now in Massachusetts they are pushing for a global system of capitated fees that will rachet down over time. An editorial in the Boston Globe supports this effort saying, “But for such a global system to hold down costs, that annual amount has to go on a diet, with each year’s increase ratcheted downward.” Now, it escapes me how a state government feels it has the authority to dictate how a private insurer pays a private provider for a private service. But this is Massachusetts, after all, and Attorney General Martha Coakley is one of the biggest proponents of doing this.

Massachusetts hired the Rand Corporation to estimate the cost savings that might come from different approaches. The result is a curious mix of wishful thinking and selective perception. The study says it started with “an initial set of 75 broad approaches to cost containment,” from which it culled a subset of 12 options “for which there was some evidence of savings potential and some available data for making projections.”

Curiously omitted from the analysis is any form of consumer-driven health, despite evidence aplenty of dramatic cost savings.  Rather, Rand looks solely at the flavor-of-the-week fads such as “bundled payments.” This despite there existing absolutely zero experience with bundled payments in real-world conditions or any evidence that it saves anything.

Rand is not deterred by any lack of evidence and estimates that bundled payments would save between 0.1% and 5.9%t over a 10-year period. Now that is quite a range, but Rand covers itself by saying, “the estimates of savings from all 12 options are very tentative, because none has a proven history of reducing spending.”

Let’s repeat — none of the 12 options has a proven history of reducing spending. Rand goes on, “the amount of the reduction is highly uncertain, as indicated by the spread between the high and low savings estimates in the figure.”

But Rand does not let the lack of data get in the way of its optimism. It says, “If health care spending could be held to the rate of growth in the state’s GDP, then health spending in the state would be only $107 billion by 2020, representing a cumulative savings of 8% between 2010 and 2020.” Why, yes indeedy. And as my mother used to say, “If wishes were horses, beggars would ride.”

And you wonder why American public policy is in such a mess?

Guaranteed Issue, Community Rating Lead to High Premiums

Reason Magazine takes a look at the dismal track record of state “reform” efforts to date. It cites New York as “exhibit A” for its guaranteed issue and community rating provisions. It says, “In 1994 just under 752,000 individuals were enrolled in individual insurance plans, about 4.7%  of the nonelderly population. This put New York roughly in line with the rest of the U.S. Today that figure has dropped to just 0.2%. By contrast, between 1994 and 2007 the total number of people insured in the individual market across the U.S. rose from 4.5% to 5.5%.”

It adds Washington state as another example.”In 1996 similar reforms in Washington state preceded massive premium spikes in the individual market. Some premiums increased as much as 78% in the first three years of the reforms-10 times the rate of medical inflation.” And it cites a Health Affairs study as saying, “in addition to Washington and New York, the individual insurance markets in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, and Vermont “deteriorated” after the enactment of guaranteed issue.”

It also notes about Massachusetts that, “Health insurance premiums in the Bay State have risen significantly faster than the national average, according to the Commonwealth Fund, a nonprofit health foundation. At an average of $13,788, the state’s family plans are now the nation’s most expensive.”

Georgia Legislature Considers Interstate Insurance Sales

Georgia is taking the unprecedented step of allowing interstate sales of health insurance. This has never really been a federal issue. States are free to allow out-of-state companies to market products in their states. An article in the Rome News-Tribune reports that a bill has been introduced in the House that “would allow individuals and families to buy health plans that have been approved for sale in other states.” Governor Sunny Perdue is a big supporter, saying, “This legislation will open up the individual insurance market and allows consumers to find the plan that best fits their needs. It will also help the uninsured find a plan that works for them.” Similar legislation is pending in the Senate.

Consumer-driven Plans in Action: Costs Down 26%

Cigna has released the latest of its reports on the experience of its consumer-driven health plans. It issued a press release saying, “As overall medical costs continue to increase by double digits annually, medical costs for individuals in account-based consumer-driven health plans (CDHPs) went down 26% over four years.” And it adds that this happened, “while levels of care for their preventive medicine, chronic disease management and evidence-based treatments were higher than their counterparts in traditional PPO and HMO health plans.”

More specifically the study of 655,000 Cigna enrollees found:

• Immediate and sustainable cost savings: CDHP medical costs are 14% less than traditional plans the first year, cumulative cost savings rise to 19% in the second year, 23% in the third year and 26% in the fourth year.

• Higher levels of care: People with CIGNA Choice Fund received recommended care at compliance rates that were similar to or better than those covered by traditional CIGNA health plans. Key indicators such as use of preventive care, evidence-based care, and disease management program participation were measurably better among those in CIGNA CDHPs than those in PPOs and HMOs.

• Less cost for those with chronic conditions: Medical cost trend was substantially less for CIGNA Choice Fund customers with hypertension (27% less), joint disease (21% less), and diabetes (15% less) than for individuals with either of those diseases in traditional CIGNA health plans. According to the study data, these cost savings were achieved without sacrificing care.

The press release quotes Chris Policinski, president and CEO of Land O’Lakes, Inc., as saying, “Offering consumer-driven health plans to Land O’Lakes employees is helping to keep health care costs in check, while maintaining or improving care quality. For Land O’Lakes, this approach supports our commitment to employees, while at the same time ensuring that we remain highly cost efficient.” Eight out of ten workers at Land O’Lakes are choosing the CDH plan over traditional managed care plans.

Deal with the Devil, Get Burned

In one of the most amazing turnabouts ever in Washington, PhRMA went from full-throated opposition to ObamaCare to full-throated support–in just a matter of months.

On November 14, 2008, just a week after the election, the Washington Times reported, “The nation’s largest pharmaceutical lobbying group is preparing a multimillion-dollar public relations campaign to tout the importance of free-market health care and undercut an expected push by the Obama administration for price controls of prescription drugs.” The article went on, “the stakes are especially high for drugmakers, which stand to lose as much as $30 billion in revenue if President-elect Barack Obama’s plan to let the federal government negotiate Medicare drug prices is implemented.”

Just nine months later, in August 2009, the publication Medical Marketing & Media was reporting just the opposite: “PhRMA will launch a big advertising push for health care reform later this week, with TV spots airing in key states and on cable channels nationally.” The story continues, “News outlets including The New York Times and the Associated Press put spending on the ads in the range of $150 million–a figure that PhRMA SVP Ken Johnson called speculative.”

What happened? The story quotes PhRMA president Bill Tauzin, “We were assured [by the White House]: ‘We need somebody to come in first. If you come in first, you will have a rock-solid deal.’”

Apparently, PhRMA agreed to $80 billion in cuts aimed at filling the Medicare drug program’s “donut hole” and to spend $150 million in advertising to support Obama in exchange for a pledge that the White House would oppose price controls and re-importing drugs. This was probably the best deal of the lot. There was a direct quid pro quo and each side got what it wanted–for now.

Problem is, of course, that these deals don’t last. Deals with the Devil never do. There is already pressure from the left to scuttle this one, as witnessed in a report that ran on Air America that called the deal the “absolute fascist nightmare.” And meanwhile, the rest of us are left in the dust, subject to all the mandates, taxes, and penalties of the rest of the legislation.

Jumping on the Execution Bandwagon

During the Bolshevik revolution Lenin reportedly said that capitalists would sell him the rope by which they would be hanged.

More recently in 1971, Chicago’s Saul Alinsky wrote in Rules for Radicals, “I feel confident that I could persuade a millionaire on a Friday to subsidize a revolution on Saturday out of which he would make a huge profit on Sunday even though he was certain to be executed on Monday.”

Alinsky is, of course, the radical community organizer that Barack Obama studied when he was organizing in the same city twenty years later. The lesson was not lost on him.

The most remarkable thing about the health reform battle of the past year is how all the powerful interest groups have jumped on the bandwagon to their own execution.

In some cases there are short term gains that perhaps have addled their thinking, but in other cases there is no gain whatsoever for their members, but still they have supported, or at least not vigorously opposed, the legislation.

Read how AARP, the American Medical Association (AMA), harmaceutical Research and Manufacturers of America (PhRMA), and the National Association of Health Underwriters have responded to ObamaCare.