FACT CHECK: Health Plan Competition and Provider Consolidation
Posted by The Campaign on February 23, 2010 at 2:31 PM
Health insurance plans operate in highly competitive markets across the country and consumers have numerous choices in the types of plans and in insurers. To the extent that research has raised the question of competition as a factor in rising health care costs, it has pointed to consolidation among providers, not health plans.
Key facts about health plan competition:
· 
There are eight or more health insurers in each of the top 40 metropolitan statistical areas (MSAs) in the nation.
· Physicians contract, on average, with about a dozen health plans. Only about half of their practice revenues come from health plan contracts while the rest comes from the federal government through Medicare and Medicaid.
· Aggressive competition among health insurance companies has also increased the number of product options available to both consumers and their employers. New types of products—like consumer-directed health plans, or HSAs—afford more choices, in addition to the many and varied PPO, HMO, POS, and indemnity options, both fully insured and self-funded.
· The states which are allegedly the most concentrated actually have some of the lowest health care costs in the nation.
· The list of participating insurance plans that are available through every state insurance department show that there are a variety of choices for consumers.
Additional information on provider consolidation:
· Massachusetts Attorney General Martha Coakley recently issued a report on hospital consolidation in the state. According to a recent Boston Globe story, the report “points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs” and “found no evidence that the higher pay was a reward for better quality work or for treating sicker patients.”
· According to a new report in Health Affairs, Paul Ginsburg and Robert Berenson found that “providers’ growing market power to negotiate higher payment rates from private insurers is the ‘elephant in the room’ that is rarely mentioned.”
· A report from the Robert Wood Johnson Foundation found that hospital consolidation has contributed to rising health care costs. The report stated, “Research suggests that hospital consolidation in the 1990s raised inpatient prices by at least five percent and likely significantly more. Prices increase 40 percent or more when merging hospitals are closely located.”
· According to a brief from the National Institute for Health Care Management, “With only a few exceptions, results consistently demonstrate that hospital consolidations result in higher prices for hospital services. The magnitude of price increase varies by methodology and by the characteristics of the markets under study, ranging from low-end estimates of 5 percent price hikes to increases of more than 50 percent.”
· Recent reports show how much hospital consolidation has increased in recent years, indicating that:
o The vast majority (88 percent) of U.S. Metropolitan Areas have highly concentrated hospital markets.
o Hospitals markets have increased their concentration by 47 percent over 13 years.
Capps paper on AMA data
AHIP recently submitted a report to the DOJ and FTC on the Horizontal Merger Guidelines Review Project that calls into question the AMA data on concentration. The paper, “Federal Health Plan Merger Enforcement is Consistent and Robust,” written by Cory Capps, PhD, of Bates White, LLC is available here: http://www.ftc.gov/os/comments/horizontalmergerguides/545095-00009.pdf. In our cover letter we said the following:
“…the American Medical Association market share and concentration figures (“AMA data”), which have been offered by the AMA for a number of years, are plagued by a number of significant limitations and appear to be unreliable. Most critically, the data are incomplete and omit various competitive alternatives, with the result that the market share figures do not reliably reflect the actual state of competition in such markets. While market share data are only a starting point, the review of any merger, in any industry, depends critically upon the use of accurate data. Simply put, the AMA data are no substitute for the DOJ’s practice of relying upon actual data from actual markets, and the use of these data in advocacy efforts demonstrates the danger of detaching merger analysis from specific, and accurate, market facts.”
“…critics have offered no evidence that lower payments to healthcare providers or lower quality healthcare have resulted from health insurer mergers generally or from any specific health insurer merger. Indeed, the evidence reviewed in the Capps Paper suggests that increased payments to providers of healthcare goods and services account for all or nearly all of the premium increases over the last decade. While general facts do not determine the results of individual merger reviews, this fact may be informative as DOJ and the FTC determine where to focus their enforcement resources.”
ICYMI: Seattle Weekly -- Washington State Offers Dismal Lesson for Federal Regulation of Premiums
Posted by The Campaign on February 23, 2010 at 10:21 AM
The health care reform debate has been focused recently on why premiums are increasing. What the data shows is that premiums track closely with underlying medical costs -- in fact the Department of Health and Human Services National Health Expenditure Accounts data shows this exactly.
Despite this data showing that underlying medical costs are driving premiums and health care spending ever higher, there continue to be arguments made that the federal government should play a larger role in regulating premiums.
However, the below two resources point out the exact problems with regulating (or dictating) premiums.
The news site Seattle Weekly points out "Practically, however, a rate board is unlikely to do much, judging by Washington state's experience with similar regulation...Stephanie Marquis, a spokesperson for Insurance Commissioner Mike Kreidler, says her boss's hands were tied. He has to go along with rate increases if insurance companies show that they are paying out more money than they are taking in. And the reality is, Marquis says, that insurance companies lose money in the individual market, which holds just a sliver of the total population, and one that tends to need a lot of expensive care." For more click here.
Several years ago, the California Healthcare Foundation and RAND performed an analysis on legislation in the California State Senate that would have regulated premiums. The study found "if health care costs continue to rise while premiums are frozen, stringent rate regulation could lead to undesired consequences." Click here for the full study.
MUST WATCH TV: Health Plans Talk About What is Driving Premiums Higher -- Underlying Costs
Posted by The Campaign on February 23, 2010 at 9:53 AM
Yesterday, AHIP's Karen Ignagni released this statement outlining the real reasons why premiums are going higher -- underlying medical costs; setting the record straight on profits; and talking about ways in which health care reform could truly contain costs.
AHIP also did several interviews on news shows outlining the same arguments as to why premiums are increasing and setting the record straight on various attacks on the health plan industry. Watch the segments below:
AHIP's Karen Ignagni on the Nightly Business Report:
AHIP's Robert Zirkelbach on BBC America:
AHIP's Mike Tuffin on CNBC:
AHIP Statement on the Status of Health Care Reform
Posted by Campaign on February 22, 2010 at 12:29 PM
AHIP Statement on the Status of Health Care Reform
Washington, D.C. – America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni this afternoon made the following remarks as prepared for delivery on the status of health care reform:
“There is an enormous amount of attention being paid right now to premium increases for people who obtain coverage in the individual insurance market – which represents about seven percent of those with private coverage today. This concern is understandable, especially at a time when people across the country are struggling to make ends meet and having to make tough choices in their personal budgets.
“The central policy question that should be asked is: what is driving these increases and whether the measures being proposed will work? Families are counting on policymakers to step up and address the problem so that costs are brought under control and all Americans have health security. Our members want that too.
“But there is a heavy dose of politics at work here. There has been a strenuous effort to focus on health plans because very few policymakers want to take on the real issue of why costs are rising. But they must take on these issues to assure American families and small businesses that health care reform will be affordable and sustainable.
“In addition, a weak economy is causing younger, healthier individuals to drop their insurance. As healthy people forego health insurance, the rates for those Americans who need coverage increases. That is why going into 2009 we advocated for robust insurance market reforms, including guaranteed coverage with no pre-existing condition exclusions or health status rating paired with an effective personal coverage requirement to get everyone covered.
“To suggest that cost containment can be achieved by singling out health plans ignores the very inconvenient truth that premium increases reflect increases in the underlying cost of medical services.
“Regulating premiums won’t do anything to reduce the soaring costs of medical care. This would be like capping the prices auto makers can charge consumers, but letting the steel, rubber, and technology manufacturers charge the auto makers whatever they want.
“There is also a lot of attention on health plans’ profits. The track record shows that this is an efficient, low-margin industry whose margins are consistently lower than other sectors in health care. According to Yahoo! Finance’s latest analysis of quarterly financial data, the net profit margin for the entire health care sector is 11%, while health plans’ net profit margin is 3.4%.
“In fact, out of every dollar the nation spends on health care, less than one penny goes to health plan profits. It is time to ask: what are we doing about the other 99 cents?
“We need to ask this question because new health spending projections released by CMS recently found that health care’s share of the economy grew 1.1 percentage points in 2009 – the largest one-year increase in health care’s share of the GDP since the federal government began keeping track in 1960. The report notes that the ‘two primary drivers of growth…are medical prices and utilization.’
“The Council of Economic Advisors last year modeled out the impact of reducing the rate of growth in health care costs by 1.5% per year for a decade. That is the kind of goal around which the nation should rally. But we won’t even achieve a small fraction of that goal by exclusively looking at health plan administrative costs and profits.
“Examples of unsustainable cost increases abound:
· A preliminary report by the Massachusetts Attorney General finds that some Massachusetts hospitals and doctors are paid twice as much as others for essentially the same patient care. The report points to the market clout of the best-paid providers as a main driver of the state’s spiraling health care costs.
· Forbes magazine just released the list of its most expensive drugs, including one drug that cost $409,500 for a year’s supply – meaning it costs more than $1,000 per day, every day, all year. And three more that each cost more than $350,000 for one year. The article notes that ‘biotech companies can charge pretty much whatever they want.’
· The New York Times reported last summer on the mystery of out-of-network charges. Our survey of out-of-network fees found that a patient in Colorado was charged $26,000 for gall bladder surgery when Medicare’s fee was only $681. A patient in California was charged $15,870 for cataract surgery when Medicare only pays $638.
· According to the International Federation of Health Plans, on a unit-cost basis the American people pay 50 to 60 percent more than every other industrialized nation for medicines, technology, and professional services. In other words, we are paying more – far more – for every doctor visit, every procedure, and every diagnostic test than our global competitors.
“The nation needs a systematic, comprehensive process to ensure that health care costs are brought under control and that coverage becomes and remains affordable for all Americans. That means looking closely and continually at all of the areas that make our health care system unaffordable:
- Sky-high unit-costs for medical services;
- Lack of transparency – which leaves patients and their physicians in the dark about which treatments are safest, best and most cost effective;
- Payment systems that reward volume rather than value;
- System-wide administrative costs;
- Inadequate support for prevention, wellness and chronic care management; and
- Out-of-control medical liability system.
“The refusal to fundamentally address underlying medical costs leaves policymakers with two financing options: cutting Medicare and raising taxes. The American people are understandably very concerned about that approach. They want—and our country needs—health care reform that reduces the rate of growth of health care costs.”
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America’s Health Insurance Plans – Providing Health Benefits to More Than 200 Million Americans
BREAKING NEWS: White House Releases Outline of New Health Care Reform Proposal
Posted by The Campaign on February 22, 2010 at 6:05 AM
This morning the White House released its health care reform proposal.
Click here to read the outline of the proposal.
ICYMI: AHIP Statement on Premium Increases
Posted by Campaign on February 18, 2010 at 8:08 AM
AHIP Statement on Premium Increases
Ignagni: “It’s time to stop the politics of vilification.”
Washington, D.C. – America’s Health Insurance Plans (AHIP) President and CEO Karen Ignagni today released the following statement regarding premium increases:
“It’s time to stop the politics of vilification and focus on what Americans need most: real health care reform that addresses the serious and urgent problems facing our nation.
“Increases in the cost of coverage in the individual market shine a spotlight on the urgent need to reduce the growth of underlying medical costs and to bring everyone into the system. If reform doesn’t address these pieces, it will not solve the serious problems that individuals, families, and employers face. That is why health plans have proposed fundamental reform of health insurance markets and a long-term strategy to reduce rising health care costs.
“Health insurance premiums are increasing in the individual market because of soaring medical costs and because younger and healthier people are dropping their coverage due to the economy. In 2009, according to a report from the Department of Health and Human Services’ Centers for Medicare and Medicaid Services released on January 5th, rising costs for hospitals, physicians, and prescription drugs led to the largest growth in health care spending as a share of GDP since the government started keeping track 50 years ago. At the same time, the portion of premiums that went towards health plans’ administrative costs and profits declined for the second year in a row.”
Facts about rising health insurance premiums
- In every state, health plans have to provide actuarial justification for any premium increases.
- Federal government data confirms that rising health care costs are driven by increased spending on hospital care, physician services, and prescription drugs.
- AHIP recently sent a letter to Capitol Hill to highlight the key factors contributing to increases in health insurance premiums. These factors include:
o sharp increases in provider rates;
o increased cost-shifting as providers seek to offset the costs of treating more Medicaid patients;
o an increase in uncompensated care costs;
o consolidation among hospitals and other health care providers;
o a wide range of new state laws, including benefit mandates, regulations, and premium taxes; and
o economic factors that have caused some people to drop coverage resulting in a risk pool that is more heavily weighted with older, less healthy persons.
- According to National Health Expenditure Accounts, health plan administrative costs have fallen over the past two years from 12.8% in 2006 to 12.5% in 2007 to 11.7% in 2008. (See Table 12)
Facts about health plan profits
- Fortune 500 puts the health plan industry profits at 2.2%, 35th on its list of profits by industry sector. This is below other sectors of the health care industry.
- According to Yahoo! Finance’s latest analysis of quarterly financial data, the net profit margin for the entire health care sector is 11%. Using the same index, health plans have a 3.4% net profit margin.
ICYMI: Politico digs into the unintended consequences of repealing McCarran-Ferguson
Posted by Campaign on February 16, 2010 at 8:50 AM
Politico reports that some policymakers are beginning to understand some of the unintended consequences that repealing McCarran-Ferguson will have. A few excerpts are below:
· “But Democrats look like they’ll scale back the legislation to protect insurance companies that offer malpractice coverage to doctors and other health care providers.”
· “‘Certainly, [the bill’s provision] should be narrowed,’ said Ben McKay, a senior vice president of federal government relations for the Property Casualty Insurers Association of America. ‘It’s overly broad. There are consequences that reach far beyond just the health care industry into the property-casualty industry. This will have an impact on auto and home insurance.’”
· “‘Health insurance is one of the most regulated industries in America at both the federal and the state level,’ said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans. ‘The McCarran-Ferguson Act is extremely limited in scope and has nothing to do with competition within the health insurance industry. The focus should be on addressing the underlying cost of medical care, which is the key driver of rising health care costs.’”
· “Last October, the Congressional Budget Office said, ‘State laws already prohibit issuers of health insurance and medical malpractice insurance from engaging in practices such as price fixing, bid rigging and market allocations.’”
· “And earlier this year, the Congressional Research Service predicted that a repeal of McCarran-Ferguson would result in more lawsuits and might force smaller companies that rely on pooled data ‘to leave the market.’”
“In the CRS report, researchers noted that ‘further consolidation in the insurance industry as small insurers merge in order to gain the competitive advantage of additional information is a likely, albeit an ironic, possibility.’”
For the full story, click here.
Fact Check: Putting Health Plan Profits In Perspective
Posted by The Campaign on February 12, 2010 at 12:10 PM
Facts about health plan profits:
- Analyzing 9 of the 14 health plan companies on the Fortune 500 list from 2009 (these 9 have filed their initial year-end financial statements with the SEC) the profit margin for these 9 companies averages 3.9 percent for 2009 -- for 2008 it was 3.1 percent for these same 9 companies.
- Five of the nine companies actually saw a decline in their profit margin – averaging a decline of 47.2% in profit margin from 2008 to 2009.
- For the five largest health plans (determined by market cap), the average profit margin for 2009 is the second lowest from 2005-2009 - 2008 was the worst year.*
- 2009 - 5.2% (4th)
- 2008 - 3.2% (5th)
- 2007 - 5.6% (2nd)
- 2006 - 5.4% (3rd)
- 2005 - 6.4% (1st)
- According to Yahoo! Finance’s latest analysis of quarterly financial data, the net profit margin for the entire health care sector is 11.1%. Using the same index, health plans have a 3.4% net profit margin – 226% less than the entire health care sector.
What Others Say About Health Plan Profits
- Ezra Klein: “...it’s hard to see how [health plan profit margins of 3.3%] are a primary driver of health-care spending, much less the growth in health-care spending.”
- Henry Aaron, Brookings Institution: “Insurance company profits in the large picture have very little to do with the overall rising cost of health care.”
- Dr. Peter Kongstvedt: “The insurance companies are not the major drivers of cost inflation…”
- Kaiser Health News: “With the nation’s health care spending estimated at $2.5 trillion this year, even the elimination of insurers’ profits and executive compensation would lower health care spending by just 0.5 percent.”
*Source: Analysis of SEC Data
FACT CHECK redux: The Facts About Health Plan Profits
Posted by The Campaign on February 11, 2010 at 7:05 AM
Health plan profits continue to be a source of debate in the larger conversation about health care reform. While there has been focus on the levels of profits, many independent experts continue to note that health plan profits are not a key driver of increasing health care costs. Below are some key points on health plan profits and fact checks setting the record straight:
Fortune 500 puts the health plan industry profits at 2.2%, 35th on the list. This is below other sectors of the health care industry. Click here for the full list.
For every dollar our nation spends on health care, less than one penny goes towards health plan profits. A sincere cost-containment discussion would focus on the other 99 cents. Check out this document which sets-the-record-straight about health plan profits.
ABC News reports on the attempt of some to vilify health plans by focusing on health plan profits, but as this article points out profits are neither as high as some claim nor are they the main driver of health care costs.
- “…the companies' profits still represent a miniscule percentage of the $2.5 trillion Americans spend every year on health care.”
- “‘Insurance company profits in the large picture have very little to do with the overall rising cost of health care,’ said health care expert Henry Aaron, a senior fellow at the Brookings Institution.”
The AP does a quick fact check on the claims about health plans’ profits. The article notes that many of the claims being used in the debate are misleading and in some cases wrong. - “Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They're all more profitable than the health insurance industry.”
- “Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.”
- “…in pillorying insurers over profits, the critics are on shaky ground.”
According to Ezra Klein, a blogger for the Washington Post:
- "The insurance industry is not a particularly profitable industry."
- Health plans are "...the 86th most profitable industry as measured by profit margins, with an average margin of 3.3 percent."
- "...it's hard to see how [health plan profit margins of 3.3%] are a primary driver of health-care spending, much less the growth in health-care spending."
BREAKING NEWS: Health plans collaborate to streamline health insurance paperwork in New Jersey
Posted by The Campaign on February 11, 2010 at 4:50 AM
The New York Times today reports on the announcement by health plans in New Jersey to launch a pilot program to “offer doctors and hospitals the ability to use a single Web portal to check a patient’s coverage and track claims”. A few excerpts are below:
• “As part of the discussion last year over how best to overhaul the nation’s health care system, the insurance industry promised to do its part by tackling the burdensome paperwork involved in paying medical claims. Despite the health care legislation’s impasse in Congress, the insurers say they still plan to make good on their promise.”
• “The effort is aimed at one of the most vexing problems in the nation’s insurance system: hospitals and doctors spend enormous amounts of time and money trying to determine whether a patient has coverage or why a claim was denied. Tens of billions of dollars each year are said to be wasted because of such administrative inefficiency.”
• “’The pilots are a great example of the industry’s commitment to voluntarily make progress eliminating the administrative hassles that physicians face,’ said Ronald Williams, the chief executive of Aetna.”
• “The promise to produce significant savings through streamlining paperwork was made as part of the industry’s discussions in June with the White House. But the pilot project effort has taken place parallel to the general discussions over the health care legislation, said Karen Ignagni, the president of America’s Health Insurance Plans. The move by the insurers to develop standards and systems to make it easier for doctors to determine a patient’s coverage and get paid will continue regardless of the status of any federal legislation, she said.”
• “’We wanted to make sure we were taking a leap,’ said Ms. Ignagni, who said the two state projects were a way for the insurers to test different Web systems and see what technology worked best for the hospitals and doctors before eventually beginning other efforts.”
For the full article, click here.
