I spent some time during my holiday break helping my 11-year-old daughter with a social studies project on ancient Roman civilization. Besides learning a lot about papyrus (and being reminded how little I remember from my three years of middle school Latin), this experience made me realize that many Latin phrases and mottos are quite salient and useful for commenting on health care and health reform today.

Here are ten ideas about how Latin might be a new and more interesting way for us to talk about some current health care issues:

Parturient montes, nascetur ridiculus mus (Mountains will be in labor, and a ridiculous mouse will be born): Let’s hope this will not be appropriate to describe the end result of efforts to reform provider payment in Massachusetts…but we shall see…

Conlige suspectos semper habitos (Round up the usual suspects): If payment reform produces a mouse, good advice to those seeking to understand what happened.

Primum non nocere (First do no harm): Could be a useful motto or slogan in lobbying Congress not to undermine the Massachusetts’ health reform law in national reform.

Bonitas non est pessimis esse meliorem (It is not goodness to be better than the worst) Applicable in so many contexts: as a way to respond to those who claim that quality of health care in Massachusetts is high….or as a commentary on the Bridge program for legal immigrants eliminated from Commonwealth Care.

Durate et vosmet rebus servate secundis (Carry on and preserve yourselves for better times): Expression of sympathy and solace to advocates and state officials dealing with the state’s fiscal crisis

De asini vmbra disceptare (To argue about the shadow of an ass): A response to those who claim that mandated benefits are a major reason that health insurance is so expensive

Obscurum per obscurius (The obscure through the more obscure): An appropriate assessment of the argument that small group purchasing cooperatives are different from association health plans, and that they would reduce health insurance costs for small employers

Nudus Sit Aeger (Let the buyer go bare): A much catchier phrase than “consumer-driven health care” to describe the trend to more and more consumer cost-sharing in health insurance products

Draco Dormiens Nunquam Titillandus (Never tickle a sleeping dragon): Could be used as a secret oath whispered by providers when they talk among government getting more involved in overseeing health care prices. (Give yourself extra points if you knew this was the motto of Hogwarts!)

Contraria contrariis curantur (The opposite is cured with the opposite): What to whisper back about the best antidote to two decades of deregulation and market competition in health care.

Ad multos annos (To many good years). Happy 2010!

A recent report on the student health program (SHP) by the Division of Health Care Finance and Policy gives us one of the first detailed looks into student health insurance plans since they were mandated 20 years ago. And it’s not a pretty picture.

Some background: Most students in Massachusetts are required to have health insurance and colleges and universities are required to offer qualified student health insurance plans (QSHIP) that can be purchased by students to meet the state mandate. Only a quarter of students subject to the mandate (about 97,000 people) buy school-based insurance; most waive the school coverage because they have insurance through their parents, a spouse, or an employer.

We’ve always known that the minimum required benefits in student health insurance have some serious gaps, particularly for students who have serious medical problems. The plans were mandated as part of the state’s 1988 health reform law, with a primary purpose of getting students out of the state’s Uncompensated Care Pool. Since the state was mandating coverage, it wanted to keep premiums low, which it did by developing a minimum benefit package that would cover most of the needs of most students but not provide comprehensive coverage.

The minimum standards recognize the goal of making primary and preventive care reasonably available to students by mandating coverage and keeping the maximum annual deductible fairly low ($250). (Most schools have student health services at which students can obtain many primary care services that are financed directly by the schools rather than through insurance.)

But SHIP plans are permitted to impose limitations that are uncommon in most other types of health insurance in the state, including:

–Caps on total benefits per illness or injury of $50,000 (an annual cap of $50,000 is permitted in the state’s Young Adult Plan).
–Annual or per illness/injury limits on specific services. For example, some plans have an outpatient service cap of $1500 or a limit of $5,000 on surgeon’s fees
–No coverage is required for prescription drugs
–Limits on pre-existing conditions for up to 6 months

Many of the school plans also have complicated and high cost-sharing, especially coinsurance, which makes it very difficult for students to understand their potential liability.

Although it’s no surprise that most QSHIP plans have limited benefits, the DHCFP report provides information on the number of students affected by the limitations. For example, in the last three years, a fairly small number of students—92—exceeded the maximum benefit in their QSHIP plan but more than 4,000 students exceeded the outpatient maximums. While the numbers might seem small, students can incur significant medical debt because of these limits. And since one of the primary purposes of insurance is to provide financial protection if we get seriously ill, many QSHIP plans fail this test.

The concern that has always been expressed about improving the minimum QSHIP benefits is that any change would increase premiums, perhaps significantly, for some schools and their students. But the DHCFP report suggests we might be able to have our QSHIP cake and eat it too.

This is because the report shows that QSHIP plans are very profitable for most of the insurers that sell them. The average profit margin is 10%, or $11 per member per month, compared to a profit margin of 2% or $8 pmpm in other types of private health insurance. (The average monthly premium for regular health insurance is $343 compared to $104 for QSHIP). At a profit margin of $11 pmpm, QSHIP plans generate $13 million in profits annually for the insurers that sell them (or $10 million excluding Havard, MIT and Northeastern, which self-insure their student plans and so retain any surplus).

These profits are going mainly to a small number of out-of-state health insurance companies. Four insurers–Aetna, Nationwide, Combined and MEGA– cover 60% of the students (and 82% of the students covered by insured rather than self-funded plans). This contrasts to the rest of the private health insurance market, in which local plans cover most people.

It’s hard to believe that we can’t do much better in providing decent health coverage to students at an afforable price. In addition to reducing profits, there are probably also real opportunities to decrease the 20% of premium that goes to administrative expenses (including broker commissions). The Connector, of which I am a board member, seems a logical agency to take the lead on developing new insurance products for students, working in partnership with DHCFP, which oversees the SHP in the state, and the Division of Insurance, which is responsible for overseeing insurance companies licensed in the state.

Students were the first group to be required to have health insurance in Massachusetts, but ironically, we’ve left them behind in our most recent health reform efforts. The DHCFP is to be commended for taking this hard and public look at the SHP program. Now it’s time for action.

Some bad ideas just won’t go away. We’re seeing an example right now as the legislature considers SB 446 and HB 3452, which would permit the reintroduction of Association Health Plans (AHPs) into the Massachusetts health insurance market. While the intention of the bills is good—to make health insurance more affordable for small businesses—they would actually have the opposite effect and increase premiums for most small employers. And, since the state’s 2006 health reform law merged the insurance markets for small employers and individuals, the creation of AHPs would also raise premium rates for people who purchase individual coverage. These premium increases for individuals and small employers would likely increase the number of people without health insurance in Massachusetts.

As envisioned by these bills, an AHP would be a health plan offered by a professional or trade association, chamber of commerce or other similar group. The association selling the health plan would need to have at least 100 members, have been in operation for over five years and have been established for a purpose other than providing health insurance. The association couldn’t deny membership or coverage to any individual due to a health condition, and it couldn’t charge higher rates to a member company than would otherwise be allowed under the existing small group law.

So, what’s wrong with this idea? The big problem is that AHPs would be allowed to operate outside of the requirements of the state’s health insurance law and so create two separate and very different markets for health insurance. One would be made up of AHPs, each of which would be rated on its own experience and operate outside the requirements and protections of the current small employer health insurance law. The second would consist of all other small businesses and individuals, whose experience would continue to be merged. The effect will be to pull lower cost and better risk employers into AHPs, leaving higher cost and higher risk groups and all individuals in the merged market, with higher premiums.

Why would this happen? In the current merged market, a health insurer must base premium rates for all small employers and individuals on the combined experience of all of its individual and small group members. This has the effect of creating large risk pools, which spread costs broadly and are stable and predictable. Insurers are not permitted to deny insurance coverage to any person, or to impose pre-existing condition restrictions or waiting period on individuals. While rates for an individual or small business can vary based on age, within strict limits, insurers can’t use most other factors, including gender, health status, claims experience, in setting premiums.

AHPs would be exempted from these rules. For example, AHPs would be permitted to base rates on health status and claims experience. This would work to the advantage of associations with favorable demographics. In fact, it would encourage the formation of AHPs by associations that have favorable demographics. AHPs would also be permitted to impose restrictions for pre-existing medical conditions and waiting periods on individual members. All of these differences would allow AHPs to operate in ways that would attract lower risk and lower cost employers into their health plans, leaving higher cost and higher risk employers and individuals in the merged market.

While the ability to get lower premiums would be an initially attractive feature of joining an AHP, this two-tiered regulatory structure would deprive members of AHPs of a range of protections under existing law, including the rating and underwriting limitations described above. While premiums for an AHP would likely be lower initially, many AHPs would be relatively small and therefore unstable from an insurance rating perspective. Their rates would be subject to significant rate increases if they had poor claims experience or added members with greater than average risk profiles. And, ironically, any AHP whose experience deteriorated in some way would be able–or even perhaps forced by an insurer—to rejoin the merged market whenever it could obtain lower premiums there than as a stand-alone AHP. This would increase rates in the merged market even more.

We must find ways to make health insurance more affordable, particularly for small employers and individuals. If we don’t, we’ll see a steady increase in the number of people without health insurance, eroding the progress we’ve made under the state’s health reform law. Small employers are right to be frustrated, impatient, and angry about our inability and unwillingness to take actions to deal effectively with rising costs. But AHPs are not a solution. Instead, we need to take actions that will contain costs, and not just re-allocate them in ways that are detrimental to most small employers and individuals. For me, these actions include payment reform, dealing with provider market domination, reducing insurer administrative expenses, rationalizing the use of medical technology, and encouraging healthier behavior. These changes are much harder to accomplish than letting some small employers go it alone in their search for more affordable coverage. But they are much more likely to be a longer-term solution for rising costs than destabilizing and fragmenting the entire market for small employers and individuals, as AHPs would do.

The report gives a very stark picture of the growing gulf between the “haves and have-nots” among hospitals in the Commonwealth.

I think the operating results are the most troubling and relevant, since they show financial performance without the effect of non-operating factors like investment gains or losses.

Among the findings in the report:

• 40% of Massachusetts hospitals had a loss from operations in Fiscal Year 2008.
• The top quarter of hospitals made a healthy 2.9% operating margin; the lowest quartile lost money, with an average negative margin of 1.1%.
• The gap between the financial performance of teaching and community hospitals is getting wider and wider: the median operating margin among teaching hospitals was 4.1%–by far the highest level in the seven-year-period shown in the report– while community hospitals barely broke even from operations, with an anemic 0.4% operating margin.

Not all community hospitals did poorly on operations. As usual, Sturdy Memorial Hospital, a community hospital in Attleboro was among the most profitable hospitals in the state, with an 8.5% operating margin. And a few teaching hospitals had losses, including Cambridge Health Alliance, Dana Farber and Tufts Medical Center.

But the financial results for Massachusetts hospitals look more and more like the overall income distribution in the United States: the wealthy, the poor and a rapidly vanishing middle class.

In case you’re wondering, this is not about health reform. The gap between well-off and struggling hospitals has been growing for the past 20 years. This is about public and private payment systems that don’t work. It’s about systems that reward providing more and more care, whether we need it or not and whether it improves our health or not. It’s about disengagement by government and a misguided romance with the market as a way to set payment rates for health care. It’s about the market power of some hospitals to extract excessive rates of payment—unrelated to quality or efficiency–while other hospitals are paid inadequately. It’s about politics.

Reform of provider payment is an essential step to get to greater equity among hospitals and affordability of health care for the Commonwealth and all of us. While we must listen respectfully to those who caution that we can’t just change payment methods or rates overnight, we can’t let the fact that change is hard and disruptive be an excuse for not taking aggressive and bold action now. Otherwise the gap will continue to widen between the well-off and struggling hospitals in the Commonwealth. And this growing gulf will be harmful to the health of all of us.

Nancy Turnbull
Harvard School of Public Health

The Globe today has a story about an “offer” from America’s Health Insurance Plans and the Blue Cross and Blue Shield Association, the two largest health insurer trade groups, to give up risk rating—the practice of varying premium rates by health status. Massachusetts did this back in 1990 for small employers and in 1996 for individuals. So, ho hum for our state. But the story did remind me that I’d been meaning to suggest that Massachusetts should think about abandoning the major discriminatory rating practice we do still allow, and that’s age rating. Our insurance laws permit health plans to charge older people as much as twice the premium rate as younger people for the same product. The classic argument in favor of age-rating has been that it’s necessary to have lower rates for younger people in order to convince them to purchase insurance. But this argument isn’t so convincing in Massachusetts any longer because of the state’s individual mandate, which requires most adults, including younger people, to purchase insurance. The ability of health plans to age-rate also creates a troubling inequity in the state’s affordability schedule at the highest income levels, where the schedule requires people to purchase insurance regardless of the cost. This requirement, combined with age rating, means that an older person with exactly the same income as a younger person might be required to pay as much as twice the amount—and therefore twice the percent of income—to comply with the mandate.

I can just hear the teeth gnashing about the suggestion of doing away with age-rating, particularly at insurance companies, small employers with younger workers, and by state policymakers who are concerned about keeping insurance as affordable as possible for younger people. But if we look back at the history of many insurance practices that were once common in the insurance market in Massachusetts but have been abolished—like rating based on race or gender, or not providing coverage for maternity care and mental health—we find the same initial opposition. We’ve done many innovative things under the state’s health reform law—let’s talk about whether eliminating age rating should be another one.

Thought #2

As reported here last month, the health insurers in the state recently filed their 2008 financial reports, including information about executive compensation. (Insurance Commissioner Burnes is to be commended for re-instituting the requirement that health insurers provide information about executive compensation, which was eliminated about ten years or so ago in another administration.)

At the state’s three largest health plans, BCBS CEO Cleve Killingsworth made $3.7 million, HPHC’s Charlie Baker made $1.7 million and Tufts CEO Jim Roosevelt was paid $1.1 million. Total compensation for BCBS’s top ten most highly compensated executives—which is what insurers must report—was $17 million and the company paid 18 board members a total of $1 million, for a total of $18 million. At Tufts, the total paid to the top executives was $6.1 million and the board was paid $420,000, for a total of $6.5 million. Harvard Pilgrim had not filed its executive compensation schedule when I got these data, so I don’t know the figure there.

So, what are we to make of this information? The press thinks executive compensation at the health plans is a newsworthy story (in response, the health plans often file the information on Friday so the story runs on Saturday, the day of lowest readership.) Many of us in health care community look at and gossip about the information. Health plans argue that executive compensation isn’t really an important issue, pointing out that the pay of their executives comprises a tiny fraction of total administrative costs, which comprise a small proportion of health insurance premiums. They also argue that their senior management needs to be paid well so that they can attract talented leaders. Leaders at Massachusetts health plans point out that they are paid much less than their counterparts at publicly traded health insurers. (For example, the president of Centene, a for-profit insurer that is partnering with Caritas Christi to offer a new Commonwealth Care plan in Massachusetts, was paid $8.7 million in 2007.)

At BCBS, the total compensation of $18 million works out to be about $6 per member per year. At Tufts Health Plan, the comparable figure is about $10 pmpy. If HPHC’s previous patterns of compensation are any indication, the per member per year figure is in the same range. Hardly a major contributor to the level or trend in health insurance premiums.

So, is this an issue we should worry or talk about? Certainly, the country’s economic crisis and the increased focus on executive compensation in other sectors gives it more salience than ever before. As someone who worked for a time for the foundation of one of the health plans, and was paid very well, here are a few questions I think about:

Are these amounts of executive and board compensation at odds with the status of the state’s largest health plans as non-profit, tax-exempt public charities? Should public funding, in the form of foregone tax revenues, be used to support these levels of executive and board compensation?

Has the composition of health plans boards—now comprised largely of people from for-profit businesses that bring their for-profit values and experiences about executive compensation into health plan board rooms—distorted executive and board compensation for these not-for-profits?

Now that most of the public has to buy the product that health plans sell—because of the state’s individual mandate–does this change the public’s right for accountability about how health plans are using our money, including how much they are paying their executives and boards?

Do health plans undermine their credibility and ability—with the public, providers and others– to take on rising health care costs when they pay such large amounts to their executives and boards?

Should we think about regulating health plan compensation? We could limit it to $500,000 per year, as has recently been done at the federal level for executives of financial institutions receiving TARP funding. It’s hard to imagine that health plans could not still attract excellent leaders for this amount. Lots of very talented people in the Commonwealth get paid a lots less (Governor Patrick, all of the members of his cabinet, Senate President Murray, Speaker DeLeo, and Attorney General Martha Coakley are just a few who come to mind…not to mention the people running most of the other health non-profits health care organizations in the state).

Should we allow the members of health plans to vote on executive and board compensation above some level—this is similar to proposals to allow shareholders to vote on the compensation of executives at for-profit companies.

We should not kid ourselves that executive and board pay is more than a symbolic factor in the problem of rising health care costs. But sometimes addressing symbols is very powerful and important, particularly if it would improve the ability of health plans to do all they can—and should—to control health care costs.

Nancy Turnbull, Harvard School of Public Health

Our collective behavior in dealing with rising health care costs in Massachusetts shows many of the classic symptoms of addiction: denial (“health care costs aren’t really a problem…”costs aren’t really higher in Massachusetts”); rationalization (“our quality is higher so our higher costs are justified”…. “health care is the only growth industry in the state”); blaming others (“providers who aren’t doing well are just whining”….”we insurers can’t really do anything about rising spending”….”mandated benefits are the real problem”….”consumers are too fat, smoke, don’t get enough exercise, and don’t have enough ‘skin in the game”); the need to use more to get the same effect (“the suburbs deserve high quality care too”….”the health care industry in Massachusetts is a treasure that must be preserved at any cost”); and, an inability to meet other responsibilities because of our addiction (just look at how rising health care spending is crowding other important forms of public and private investments).

Members of my family and many others have benefited from the 12-step approach to different types of addiction. Maybe it’s time for a similar approach to our health care cost problem. Here are my ideas for an economical, 6-step program for health care cost control:

#1: Admit that health care costs have become unmanageable: Costs have been a “crisis” for as long as I have worked in health care. We have brief periods of sobriety when costs moderate, but then we relapse. This behavior is typical in families with addiction problems. We need a “health care cost intervention,” perhaps with Governor Patrick as the facilitator. We need to confront the problem and talk openly about how it affects us, and the role that each of us plays in contributing to the problem, be it as deniers (providers), enablers (insurers and employers), rescuers (consumers), or martyrs (government).

#2: Embrace a greater power to help restore us to sanity and strength: The market and deregulation have failed in health care. More of the same will not solve our problems. We need active engagement by and a much stronger role for government.

#3: Examine past errors with the help of experienced people: I would like to see Governor Patrick convene an independent body to help develop a health care cost control action plan over the next 90-120 days, one that will make a real difference in moderating costs over the next few years. Part of this plan should be to go back to the drawing board on the Health Care Quality and Cost Council, which has been well intended but ineffective. A better approach might be to give responsibility for action on health care cost control to a state agency, with assistance and oversight by a small independent board that has a carefully focused charge and a composition that makes sense.

#4: Admit the nature of our wrongs and make amends to those we have harmed: This includes admitting that health care is a scarce resource and that rising health care spending, particularly public spending, has an opportunity cost—we must forego other ways of spending the money when we spend more on health care. We need to talk about the harm that unbridled spending does to the strength and vitality of other important services, particularly at a time of financial crisis for the state. This harm includes lower investments in public health, education, income supports, job training, roads and bridges, environmental programs—ironically all areas where more spending would likely improve population health more than additional spending on medical care.

#5: Learn to live a new life with new behaviors: My list of recommendations includes:

• Develop a comprehensive statewide uniform provider payment system: Our current provider payment system is a major reason for rising costs. Many parties are working on provider payment reform, but in a piecemeal, uncoordinated and slow manner, and with no ability to deal effectively with dominant providers and no attempt to include Medicare, the most important payer. The state’s new commission on payment reform, which will finally meet for the first time next week, must move swiftly and boldly to recommend fundamental payment reforms, including approaches such as having the state set uniform rates of payment for the same risk-adjusted service and pursuing a federal waiver to allow Medicare to participate in any new system.

• Reinvigorate centralized planning to restrict and rationalize capital investments: The Globe series makes clear that we need some supply side controls on the proliferation of capacity and technology in our health care system. These controls must consider existing as well as new capacity, and both inpatient and ambulatory facilities. Massachusetts might consider a process similar to New York’s independent commission on health care facilities, which made recommendations about which facilities were not needed and should be closed.

• Force collaboration and standardization among payers: Our competitive health insurance system results in enormous administrative complexity and costs. There is little value in the proliferation of different insurance products, disease and utilization management programs, payment methods, and quality improvement initiatives. For example, imagine how much progress we might make in the management of chronic diseases if we had uniform approaches, including payment, across the system. Efforts to simplify the administration of the system are moving too slowly. Let’s lock the health plans in a room with supervision by the Attorney General until they come up with a comprehensive and speedy plan to take administrative complexity and costs out of the system. And while they’re at it, let’s understand and address the reasons why health insurance costs so much more for smaller employers and individuals and what role insurers, and others, need to play in addressing this problem.

#6: Have a spiritual awakening and lead the way for others: If Massachusetts had unique advantages when it came to expanding coverage (e.g., a lower uninsurance rate), we have unique disadvantages in seeking to control costs (e.g., higher costs, more teaching hospitals, more jobs in health care). This means that success in moderating health care costs here would be a more extraordinary and inspiring achievement to others than our success in expanding coverage.

As with any form of recovery, confronting our addiction to more and more health care spending will require willpower and, what my uncle, sober for 20 years, calls “want power.” I believe we could develop an achievable state action plan to moderate health care costs. Only time will tell if we have the collective “want power” to do what must be done.

Nancy Turnbull
Harvard School of Public Health

Back in 2006, I knew the policy arguments for the inclusion of the IM in our reform law. In particular, the Urban Institute had shown in its Roadmap to Coverage project for the Blue Cross Blue Shield of Massachusetts Foundation that a voluntary insurance system would not get us close to universal coverage, even with a much stronger employer pay or play requirement than was ultimately included in Chapter 58. Without an IM, many people would not take up employer coverage that was available to them and others would not purchase individual coverage even if it were affordable, particularly younger people. In addition, the IM would play a role in helping to make coverage more broadly affordable, since in a voluntary health insurance system people with lower than average medical expenses (e.g., young people) are less likely to purchase coverage. It was also important to cover as many of the uninsured as possible to reduce spending on uncompensated care, since reallocation of money from the Uncompensated Care Pool was a major source of financing for the new Commonwealth Care program.

I also understood the political role of the IM as an important leg of the “shared responsibility” stool. The federal government would like it, as an innovative “market oriented” approach to expanding coverage, which would help gain approval of the federal waiver and the continuation of federal financing required for coverage expansions. So I realized that the IM seemed to be a necessary compromise to get the MassHealth restorations and expansions and the Commonwealth Care program.

Still, I couldn’t shake my long-standing belief that the IM was, at its core, a policy created and pushed by conservative think tanks. The rhetoric about creating a “culture of insurance” in Massachusetts made me very uneasy. I thought the most important policy and political task ahead was to make sure that it was implemented in a “first do no harm” manner in order to blunt its potential negative effects.

Well, two-and-a-half years later, it’s hard not to argue that the IM has turned out to be a very important component of the coverage expansions in Massachusetts. In particular, it is likely the most important reason why more than a third of the newly insured—159,000 of 439,000 newly insured people–are in employer-sponsored plans. Instead of the feared “crowd-out”—the replacement of private coverage with public coverage—we seem to have had crowd-in (to use the words of MIT economist and Connector board member Jon Gruber). And the IM probably explains why a larger percent of Massachusetts employers are offering health insurance now than in 2006—79% according to the latest survey. These increases in Massachusetts are occurring at the same time that employer coverage is eroding nationally. And the IM has no doubt helped contribute to the rapid growth of Commonwealth Care, particularly among income groups that are required to pay a premium for CommCare coverage. It’s difficult to explain why coverage trends in Massachusetts—particularly in employer-sponsored coverage– are so different from those in the rest of the country without giving due credit to the IM.

Many national health policy experts—including those who advised President-elect Obama– have dismissed the importance of the IM. But I for one have been forced to concede that the IM does matter. It has been a more important part of expanding coverage in Massachusetts than I—and I think many others–expected. So, what lessons can the country learn about the IM from our experience here? I can think of many, but here are four big ones:

First, any IM must be coupled with major initiatives to make insurance more available and affordable, particularly for people with low and moderate income people. The expansions of MassHealth and the creation of Commonwealth Care have been essential to coverage gains here (more than half of the newly insured have obtained coverage through these public programs). We can’t obligate people to buy health insurance unless we make coverage more broadly available and affordable, and we will never reduce the number of people without insurance in any significant way without a major expansion of public programs (and federal funding to help pay for them).

Second, the country will need to make major reforms to the regulation of the private health insurance market—particularly the individual and small group segments– if the IM is to achieve its goal of making coverage more broadly affordable by pulling more young people into insurance pools. Massachusetts has long had among the most stringent regulation of these markets, with guaranteed issue and renewability, modified community rating, and requirements that ensure larger more stable rating pools. Thousands of young people have bought coverage through the Connector and directly from insurers and our regulatory structure for the individual and small group market ensures that everyone in these markets benefits when lower risk people participate in the system. This is not the case in most other states, which still permit rating and underwriting practices that were abolished in Massachusetts nearly 20 years ago. To most people, insurance regulation is boring and arcane (hard to believe, eh?) but it’s a critical issue in national reform.

We will be able to inform the national conversation in this area even better when we find out more about the nearly 100,000 people who reported on their 2007 tax filings that they had access to affordable coverage but paid a tax penalty instead of buying it. I suspect a disproportionate number of these people were younger. The larger penalties this year might change the purchasing behavior of these folks, but since the penalties will still be much less expensive than buying coverage, it might not. If it doesn’t that will be another important insight about how difficult it is to get younger people to buy health insurance, even with an IM.

This brings me to my third lesson: Congress will need to design and implement any IM with great care and caution in order to sustain public support. This includes developing a transparent and publicly accountable process for setting benefit and affordability standards, reasonable penalties, and generous waiver policies, as the Legislature designed and the state has implemented here. I got an earful last week from some very well known national health policy figures who opined that the IM penalties here are too low and that the IM itself isn’t being enforced aggressively enough. They were particularly concerned about the lack of any penalties for people who don’t file state income taxes, and they had lots of ideas about how to reach this group (including not renewing driver’s licenses without a valid health insurance card and not allowing people to enroll their kids in school if the adults can’t prove they are insured). If these types of highly punitive enforcement measures were ever to become part of an IM, we would rightly have a swift and successful public movement to repeal the mandate

Finally, the expansions of employer coverage we’ve seen in Massachusetts are unlikely to happen on the national level unless a national coverage plan includes much greater obligations on employers to provide, or finance, coverage. A much greater proportion of employers in Massachusetts offer health coverage to their workers than in the rest of the country, and this base of employer coverage has interacted with the IM to expand the number of people with employer-sponsored insurance. If we want to see similar gains from an IM on the national level, we need to find ways to expand employer coverage. A fair share assessment of $295 per worker per year certainly won’t be enough—we’ll need a much more significant employer pay or play provision or, better yet, a national requirement that employers provide health insurance.

So, I’m still on a journey with the individual mandate. I’m not a true believer but I do think a national IM might be a purgatory on the way to something better (which for me would be a uniform national health insurance system, financed by a broad-based progressive tax). Purgatory isn’t heaven, but at least it’s temporary and it beats the alternative.

Nancy Turnbull
Harvard School of Public Health

One of the goals of Chapter 58 is to make health insurance more affordable for people who buy it directly from insurers. The market for people who buy their own coverage (referred to as the “individual market” or the “nongroup market”) has a troubled history of expensive premiums, limited benefits, and lack of coverage for people with preexisting health conditions. In the 1990s, Massachusetts, like many states, enacted reforms to the individual market to improve availability and affordability of coverage. These reforms included requiring carriers to sell coverage to all applicants regardless of health, adopting standardized benefit packages, and placing limits on permissible rating factors and rate variation.

Chapter 58 continued this history of reform by merging the individual and small employer markets (so that premium rates in the individual market would be based on a larger and more diverse pool of people) and encouraging the development of range of new products.

So far, the only data I’ve seen about how these reforms have affected the individual market is one PowerPoint slide that compares the cost and comprehensiveness of coverage for a 37-year-old before and after reform. The slide shows that this 37-year-old can now get much better coverage for half the cost (a deductible of $2000 vs. $5,000, drug coverage, preventive and emergency care before the deductible, and a monthly premium of $175 vs. $335 before reform). Impressive progress indeed.

But after seeing this PowerPoint slide yet again at a conference out-of-state, and presented yet again by a national health policy person who had no connection to Massachusetts, I decided it was time to add at a few more data points to the discussion about the individual market reforms in Chapter 58. I hope there’s a study underway that will provide a more rigorous and detailed evaluation of this aspect of reform. But until then, here are my quick and dirty methodology and results.

To get a baseline for pre-reform premiums in the nongroup market, I used a Division of Insurance report on the individual/nongroup products and rates that were available in Massachusetts on December 1, 2006. Since individual premiums in the individual market vary by age and geography, this report shows sample premiums for 3 different ages and family configurations in the Boston area: a single 25-year-old; a married couple with 2 children (both spouses are 35-years-old); and an older couple (one person is 63 years old and the other is 60 years old). In 2006, the products in the nongroup market were standardized and quite comprehensive, although several carriers had obtained DoI approval to offer products with higher cost-sharing and fewer benefits.

Then I went to the Connector’s website and got current Commonwealth Choice premium rates for these same family configurations as of October, 2008. Four insurers (Blue Cross Blue Shield HMO Blue, Harvard Pilgrim Health Care, Neighborhood Health Plan, and Tufts Health Plan) offer Commonwealth Choice products in Boston. Each carrier offers Bronze, Silver and Gold products. I took the premium rates for the least costly benefit package for each product type for someone living in the 02108 zip code. The results are shown in the table below. (Only Bronze and Gold are shown in the table. I didn’t include the Young Adult Plans because they have limited coverage and nothing similar was available in 2006.)

As you can see, in almost every case premium rates are much lower in 2008 than in 2006. The best apples-to-apples comparison is between the standardized products from 2006 and the Gold product since both have comprehensive coverage with relatively low cost-sharing. In almost every case, the 2008 premium rates for Gold are lower than the rates in 2006. This result is all the more impressive because we’ve had nearly two years of inflation in health insurance cost in this period. If inflation is factored in, the differences are much more dramatic. The last column in the table shows the change in premiums assuming that the 2006 premium rates would have risen at 8% per year—perhaps a somewhat conservative assumption given actual inflation in health insurance rate.

Although I didn’t include these results in the table, the cost of less comprehensive coverage has also fallen significantly. Both HPHC and HMO Blue offered “low-option” products in the nongroup market in 2006. These plans had more cost-sharing and less comprehensive benefits (in some cases, no coverage for prescription drugs). I calculated that the 2008 premiums for the Bronze products, which all include drug coverage, are 20-30% lower than the 2006 premiums for the low-option plans. When inflation is factored in, the Bronze products are 30-40% less expensive.

In addition to lower premiums, consumers have a much wider range of products and prices available, not only through the Connector but directly from insurers or through brokers. Finding out about options is also much easier since the Connector’s website, and those of some carriers, makes it easy to compare plans and premiums. The only comparative information that was available in the past for those shopping in the nongroup market was the Division of Insurance report, which was a start but didn’t provide age-specific premium rates or detail about products.

So, the market merger, the development of new products, the Connector’s role as a negotiator and facilitator, and the individual mandate seem to be making a huge difference in the products and premiums available in the nongroup market. The individual mandate is an important factor in helping to moderate premiums by bringing new people into the insurance market.

But despite this progress, it’s certainly worth noting that nongroup premiums are still extraordinarily expensive, particularly compared to the amounts that most of us pay to get coverage through our employers.

A couple of questions I think are worthy of more discussion:
Why are there such large price differences for Commonwealth Choice products with the same actuarial value? There is a difference of 20-30% in the premiums that different insurers charge for the Bronze product for the same family configuration, and 25-40% differences for Gold. Are these differences related to differences in risk pools, rating methodology, costs of doing business, or profitability? Given that these rates are now based on the combined experience of each insurer’s entire small group and nongroup business, both inside and outside the Connector, it’s hard to understand why the premium differences are so large for products with the same actuarial value.

Is it time to talk about community rating? While nongroup coverage may be less expensive, it certainly isn’t affordable, at least for families and older people and those who want comprehensive products. One reason is age rating. Massachusetts law wisely limits the rate variation that can be imposed because of age to a factor of 2:1 (i.e., an insurer can’t charge the oldest person more than twice the rate of the youngest person for the same type of coverage). This is better than in most states but it still creates affordability problems for older people simply because of age. The classic rationale for age rating in the nongroup market is that it makes coverage more affordable and attractive for younger people, who would be less likely to purchase insurance voluntarily if they had to pay the same premium as older people. But the individual mandate has now eliminated health insurance as a voluntary choice for most people. Those of us who are fortunate enough to have employer coverage don’t pay higher premiums as we get older. Now that we have an individual mandate, should we reconsider allowing age rating in the nongroup market?

Nancy Turnbull
Harvard School of Public Health

At the time these increases were approved, there were assurances that this was just the first stage of increased “shared responsibility.” We were told that while consumers, and particularly those with low and moderate incomes, were the first to be asked to do more, employers, health insurers and providers would soon follow in order to help address the financing challenges of health reform.

Well, it’s three months later….and we’re still waiting for any new responsibilities to be imposed on employers, providers and health plans. I hope we’ll see some action soon since time is running out in this legislative session. But lest I criticize others for inaction when I am guilty myself, I admit that I never produced the update on health plan financial results for year-end 2007 that I mentioned on this blog back in February. I thought I’d link the two issues of health plan financial results and shared responsibility, just in case anyone is having trouble thinking of ways that health plans could be asked to do more for health reform. So, I’ve put together some health plan financial numbers for 2007, ranked in order of how many Commonwealth Care members could be covered for the same amount of money.

Some preliminary notes on the data:

The information is from the 2007 annual report that licensed health plans filed with the Division of Insurance. I included the major licensed health plans based in Massachusetts: Blue Cross Blue Shield, HMO Blue, Fallon, Harvard Pilgrim, Health New England, Neighborhood Health Plan and Tufts Health Plan. I excluded out-of-state health plans (i.e., Aetna, Cigna and United) because their financial results include mainly business outside of Massachusetts. The number of members these plans have in Massachusetts is so small that ignoring them doesn’t change the numbers much. I could not include the Boston Medical Center Health Plan and Network Health because they do not file reports with the Division.

The average cost of a CommCare member, $352 per month, or $4,224 per year, is from a presentation by Connector CFO Patrick Holland at the June 12, 2008 Connector board meeting.

Surplus notes are excluded from statutory net worth. As required in the DoI reports, net worth is calculated using statutory accounting, a more conservative approach than generally accepted accounting. The combined GAAP net worth of the plans is much greater.

The information on medical expense and administrative expense trends is for non-Medicare, non-Medicaid products, adjusted for any changes in member months.

The size and performance of individual health plans varies widely. Since Blue Cross Blue Shield (including HMO Blue) is so much bigger than any other plan, in most cases Blue Cross Blue Shield accounts for more than half of the total number shown. For example, BCBS has 58% of the total net worth figure shown, and 65% of total net worth that exceeds 60 days of operating expenses.

Financial Measure	Total-All Plans	How Many Commonwealth Care Members Could Be Covered for a Year?
Net worth/surplus	$2.7 billion	646,800
Net Worth/surplus >60 days of medical and administrative expenses	$756 million	179,000
Net income (profits)	$396 million	93,700
Medical expense growth in excess of the 4.9% increase in nominal GDP in 2007	$285 million	67,500
Net investment income	$179 million	42,400
Commissions paid to brokers and others	$174 million	41,200
Profits on Medicare products	$106 million	25,100
Advertising and marketing expenses	$40 million	9,500
Total compensation of 10 highest paid employees	$36 million	8,400
State and local insurance and premium taxes	$32 million	7,600
Profits on Medicaid products	$27 million	6,400
Administrative expense growth in excess of 1.9% increase in CPI in 2007	$7 million	1,600
Compensation to boards of directors	$4 million	1,000

I’ll leave it mainly to you, the reader, to draw your own insights and conclusions about the numbers. A few musings from me:

• As I and others have noted before, health plans, and particularly BCBS and Tufts, have significant net worth. As an ex-insurance regulator I understand well the importance of reserves and the need for that health plans to be well capitalized. But I think we should talk about whether it would be appropriate to use some amount of the considerable reserves of the state’s not-for-profit health plans to make investments that would benefit the public’s health and help moderate health spending (e.g., collaborative cost containment initiatives and prevention and wellness programs) rather than just letting plan reserves grow and grow and grow.
• Reducing the rate of increase in medical costs would produce tremendous savings—even in just one year. The overall rate of increase in 2007 in per member per month medical expenses for non-Medicare and non-Medicaid plans was 8.6%, compared to an increase in nominal GDP of 4.9%. (The medical cost growth rate at individual plans ranged from 5% to 10%.)
• Aggregate plan administrative expenses increased much more slowly than medical expenses last year. This is a very welcome change from the trends I noted on this blog last December. The overall rate of increase in per member per month administrative expenses across the seven plans was 2.7%, slightly higher than the 1.9% increase in the CPI for the Boston area. However, the success of individual plans at controlling growth in per member administrative expenses varied widely.
• Medicare products have been very profitable for health plans in Massachusetts, and across the country. It’s no wonder there is so much discussion in Congress right now about reducing payment levels for these plans (and so much push-back from the health plans). But if Medicare premiums are reduced, this will likely increase the pressure on premiums for other lines of business.

I hope others will add some ideas and thoughts about how employers and providers can do more, so that we can develop a balanced proposal for additional sacrifice from all three of these important groups. Consumers may have gone first but they cannot be left alone to share new responsibilities for sustaining health reform.

Nancy Turnbull
Harvard School of Public Health

We will all need to interpret the DoR data with caution. Any tax information that is released soon will be preliminary. It won’t give us a complete picture of how the IM is working because so many people don’t file tax returns, either because they don’t have to do so, or because they break the law. According to national estimates, as reported by Jonathan Gruber at a recent Connector meeting, 10-15% of people do not file taxes. The percent could be higher or lower in Massachusetts but the important point is that it’s a big number. Most of the legal non-filers probably have relatively low incomes, so they are more likely to be at risk for being uninsured. Who knows about the tax scoff laws? Not having information from both of these groups creates a real hole in our understanding of who may still be uninsured. Then there will be a gap because lots of people likely requested extensions for filing their taxes. The IRS estimates that 7-8% of tax filers nationally request extensions, so this is likely to be another big number in Massachusetts. National data indicate that people who get extensions are more likely to have higher incomes than average, and hence are more likely to be insured. Together, these factors create a significant hole in the information that will be available, and mean that we won’t be able to get a full picture from the tax filings about many uninsured people remain in the state, and who they are.

But even with this important caveat, the tax filings will help us begin to answer some important questions. Here are a few:

How many tax filers were exempt from the IM?: Adults are required to purchase health insurance only if they have access to coverage that is affordable based on the state’s affordability schedule. We will begin to get a much better sense of how many people do not have access to affordable health insurance, and who they are, by income, age, geography, employment status and other characteristics. One important issue here is how many people with incomes below 300% FPL (the income standard for Commonwealth Care) were eligible for employer-sponsored coverage that costs more than the Connector’s affordability schedule? This information will help the Connector in its continuing discussion about whether, and how, to permit lower-income people with access to employer-sponsored coverage to join Commonwealth Care.

How many tax filers asked for a hardship waiver? People who have access to affordable coverage but don’t purchase it can ask for a waiver from the IM tax penalties, if they can meet certain hardship criteria. By learning more about how many people have a financial hardship, and who they are, we will understand more about when and why “affordable” coverage is actually not affordable.

How many tax filers paid the tax penalty? The penalty for failing to comply with the IM in 2007 was fairly low, only $219. Some taxpayers probably paid a penalty because they didn’t know about the IM until they filed their taxes. But I think it’s likely that many more people choose to pay the penalty because it was much cheaper than buying health insurance. We won’t know from the tax filings why people didn’t buy health insurance. But we will know who didn’t. I am particularly interested in knowing the age, gender, and income level of people who paid the penalty. This information will either confirm or dispel some of the assumptions people are making about who will, and won’t, purchase health insurance when the penalties for not doing so are quite low.

The tax filings will help us learn more about how the IM worked in its initial year as a means of expanding health insurance. And the information will undoubtedly provide lots of fodder for both proponents and critics of the IM to use as Chapter 58 moves into its third year of implementation. Who knows what surprises lie ahead?

Nancy Turnbull
Harvard School of Public Health