The Mischief In Obama's $634B Health Care Fund

No man is exempt from saying silly things; the mischief is to say them deliberately. - Michel de Montaigne

Last week as reported in The Houston Comical Kelsey Seybold clinic announced plans to stop accepting Medicare patients except those enrolled in a Medicare Advantage Plan. The stated reason is that the reimbursement from Medicare is below the cost of actually providing that care. The article notes that in TX the percentage of physicians accepting Medicare is down from 78% in 2000 to 64% recently.

The WSJ reports today in an article by Laura Meckler that President Obama is proposing a $634B in new taxes as well as cuts in spending to fund a down payment on Health Care reform. The single largest spending cut is designed to come from Medicare.

The biggest chunk of savings in the budget proposal, estimated at $177
billion over 10 years, would come from changing the pay structure for private
managed-care plans that participate in Medicare. Under current law, payments for Medicare Advantage plans are set by a formula, and the result is that private
companies are paid, on average, 14% more to care for a Medicare patient than the
government would normally spend through the traditional Medicare plan.

So the bottom line is that for years physicians have been moving out of traditional Medicare due to poor reimbursement that has shifted costs to employers and individuals with insurance and cash payers which has fueled health care inflation and increased the number of uninsured Americans. Many have moved to Medicare Advantage where there remained an opportunity for a profit. That profit has now been targeted. Don't believe me? Managed care stocks with Medicare Advantage exposure are in free fall as pointed out here.

In a note today downgrading both HealthSpring and Humana, along with
$575 million Universal American Corp. (UAM)
to “Underperform” from “Market Perform,” BMO Capital analyst Dave Shove writes today that Medicare’s profitability growth “will all but disappear” as a result. Medicare programs will see “significant” reductions in enrollment in 2010 and a 1.5 percentage-point drop in profit margins, writes Shove, and the movement of many of the insured to public programs away from private Medicare coverage. The last time HHS “dealt a crushing blow to Medicare Advantage capitation rates,” in 2000, writes shove, “the program lost roughly 10% of enrollees in the first year, and bottomed out with 22% participation loss over a three year span.” (Bear in mind, the capitation rates statement is preliminary: final rates will be decided on April 6 and could potentially be higher, meaning, more
profitable.)

For decades the US government has shifted costs for entitlements like Medicare to the private sector leading to rampant health care inflation. As we move towards the promised land of universal coverage such policies will no longer work. I only hope the media will begin to point out the mischief when silly statements crafted as policy are reported. As for me I am not amused.

COBRA Changes in Stimulus Will Bite Employers

In my many years I have come to a conclusion that one useless man is a shame, two is a law firm, and three or more is a congress. - John Adams

IGoogle has a neat new feature that includes 3 daily quotes on my home screen and I chuckled at the one above because in these turbulent times the world needs humor and most of us enjoy using our attorney friends for fodder right?I stopped laughing when I read later today about the proposed reforms to COBRA being considered in the US Congress in the form of "The American Economic Recovery and Reinvestment Tax Act (H.R. 598). Namely, there are two potential components of the stimulus package relating to COBRA being debated which will have a serious impact on Employer Health Plan Expenses;

1. Having the taxpayer fund 65% of the cost of COBRA for employees who lose their job for 12 months or until new coverage is obtained.


2. A mandate for employers to make COBRA available until employees who are both 55 with 10 years of service are Medicare Eligible or secure alternative coverage.

The HR Policy Association has a nice summary of all the reasons such proposals would be estimated to expand COBRA costs by an estimated $65B as well as directly impacting employer health plan costs via adverse selection I strongly suggest you read.

By continuing to expand the scope of COBRA on the backs of the taxpayers and employers the Congress will quickly create just another Cost shift on those who work for a living. John Adams was a wise man.

Lies, Damn Lies and Statistics

I guess I have just been too busy to expose any PBM abuses lately but this article by Neal Lerner in Drug Benefit News does a nice job in reminding folks it does not really matter if your PBM says they are transparent if they lack a systematic process and plan design which moves your members to lower cost in class generics as appropriate.

Check here or here for my prior posts on PBM's.

I may be busy but Iam still watching you untransparent PBM's.

Sick Leave Entitlement

Here is an interesting story from the Washington Post on Sick Leave and the problems its creating at the IRS. Like most federal employees, IRS employees receive 13 sick days annually and use an average of 11. Since they cannot be cashed out at and can be carried forward the average IRS employee had 43 sick days at the end of 2006. Naturally, employees have an incentive to burn them all before retiring--hence the average 85% annual utilization rate.

At the Internal Revenue Service, one employee over a two-year period took sick leave on 13 of the 14 Tuesdays after a Monday holiday

Pretty sweet huh?Sick Days are an entitlement. There is no way to manage an entitlement except to limit its scope while incenting the behavior you seek. Too many private sector firms have sick leave programs with similar charactersistics as the federal sick leave program

Stepping Over The Line

Yesterday evening I met an individual who works in management at a local ford dealership who gave me a business card and invited me to call him if he could ever be of assistance. He was a very gracious individual until told the following; I drive a Ford F-150 today but I informed him my next truck was likely to be a Toyota Tundra. Over the next few minutes I listened to a discussion of the myriad quality problems Toyota is experiencing. This is not particularly surprising. We expect car salesmen to talk up their own products and talk down the competition.

In the vendor selection and contracting for employee benefit service providers an employer however has the expectation they will receive unbiased and objective guidance from a consultant. I mean none of us would be stupid enough to hire the Ford Salesman to guide a selection of a new truck and expect objective opinions about the Chevy, Dodge, Nissan and Toyota alternatives, right?

Consider the curious case then of Hewitt Associates which guides employers in the selection of vendors and carriers for their employee benefit programs in addition to providing HR and Benefit Outsourcing Services. Hewitt has announced the acquisition of LCG Consulting a provider of total absence management solutions.

Does this mean Hewitt will cease vendor selection consulting jobs in the field of absence management? Did I miss that press release? How will they maintain any objectivity in evaluating absence management capabilities of companies and vendors who compete with Hewitt and why on earth would these companies ever want to allow Hewitt Consultants to obtain an insiders perspective of the systems, services and processes they utilize to deliver absence management solutions?

Is it not interesting how what is a clear conflict of interest for the car salesman is somehow justifiable in the world of consulting?

Lose or Limit Sickdays to Boost Productivity

Yesterday I met with a bright CFO who was considering how to balance being the employer of choice to attract and retain the very best professionals via benefits with a slowing economy reeling from sub prime woes that is slowing new contracts as financing gets squeezed. This firm gave employees 7 sick days annually. Sick days used to be use them or lose them but this led to a very unproductive November and December as employees used them all up during the holiday season. This led to a policy which allowed sick days to accumulate up to 14 days maximum along with a carryover.

When times get tough look closely at the design of your sick pay plan and ask some hard questions. Here are yesterdays questions and answers for a group with 250 employees and an average salary of $60,000

1. What did the sick days/personal days cost in 2006 and 2007? What was the year to year trend? Not sure of the cost but the trend went from 7 days used to an average of 6 days.


2. How many sick days/personal days do employees receive and how many do they use on average? 6 days was average use.


3. What type of return on labor is targeted in your industry? 3-1 is goal.

A $60,000 annual salary equates to $5,000 monthly.

There are 21 working days in the average month excluding weekends and 2 weeks vacation.

$5,000/21 working days = $238.10 as the direct cost of a sick day.

Since the company is seeking a 3-1 return on labor they are actually out the $238.10 in direct costs plus the value of a days pay to the firm which is 3 times the daily wage or $714.30

So the actual cost of a sick day to the firm is $238.10+$714.30 or $952.40.

250 employees using an average of 6 sick days generates an annual cost of $1,428,600
$1,428,600 is 9.5% of payroll.

A reduction for this firm of one sick day represents $238,100 annually or $952.40 per employee. Folks that's enough to buy major medical for an entire family in my market.

What is truly sad is that this employer like many believed they had insured the real risk which was long term disability which has a cost of less than 1% of payroll. Not to mention there is a gap between day 14 when sick days end and day 90 when LTD benefits begin.

Some may say there is no way to get a reduction of one sick day without taking away benefits or the cost of sick days is not a real expense since its buried in payroll anyway. Really? This is the black hole of STD I have previously written about. I would point such naysayers to what innovative and truly lean companies do to reward perfect attendance. Did you know Toyota employees with perfect attendance can win a free car?

The reality is that sick days are an entitlement. You do not manage entitlements. You do limit their scope and put into place incentives to drive the behavior you are seeking. It helps to have a benefit design aligned with your business objectives and that's precisely where our firm assists employers. We will assist this employer with a design that not only lowers costs but eliminates benefits gaps.

An ounce of prevention

I was visiting a client yesterday when several employees stopped to visit with me in the lobby. One employee in his early 50's said hello and shared he had just scheduled his annual physical. He told me of one cousin who had recently been diagnosed with early stages of cancer caught during a physical. Another cousin was admitted directly to the ER following a routine physical where after checking his highly elevated blood pressure the nurse called an ambulance. The nurse was amazed the man had been able to walk into the appointment his blood pressure was so high.

Whenever I conduct enrollment meetings I try to emphasize the importance of annual wellness physicals. I suppose my appearance in the lobby yesterday was a reminder to this employee to schedule his own physical. I wonder how many adults in the US could benefit by treating themselves as they treat their children--you know scheduling a checkup around every birthday and getting a full physical? How hard is that?

On Monday one of my clients, lets call him John, called to thank me for prodding him into getting his physical for additional life insurance. His PSA was elevated and his Dr had ignored it but the life insurance company did not and refused coverage until he was examined. MRI showed a tumor and the biopsy revealed prostate cancer. He starts radiation next week and due to being caught early the odds are in his favor.

Last week another client called to tell me his partner and he had decided to go ahead with life insurance to address a business buy-sell problem identified over two years ago. His 51 year old brother in law had died unexpectedly and he found himself scrambling trying to run his own business while taking on responsibility for his in-laws business.

What is it about our nature that requires us to experience a hurricane before we buy flood insurance or a death in the family before we buy life insurance?

Rx Plan Design & Diabetes

An interesting story from The Chicago Tribune on employers eliminating co-pays for diabetes medications is here.

After years of raising co-payments and deductibles for prescription pharmaceuticals, some employers are taking an unorthodox approach to lowering health-care costs in an experimental program by -- get this -- paying for diabetes drugs and consultations.

For patients the savings could amount to $2,000 a year.

If the program proves successful it could be expanded to include other common diseases and chronic conditions such as asthma, depression or arthritis and extended beyond its one-year pilot phase, according to the Midwest Business Group on Health, a Chicago-based coalition of employers that is coordinating the program.

Nationally, more than 30 employer groups are rolling out similar programs this year in cities including Milwaukee, Pittsburgh and Los Angeles.

I have written on the Black Hole of STD as well as Lowering Rx Co-pays to reduce costs so here is a related item which focuses on the connection.

Results from a model project launched in 1997 by the city of Asheville, N.C., show a 50 percent reduction in sick days and no worker's compensation claims filed by the diabetes patients in the program between 1997 and 2003.

Asheville has expanded its program to people with asthma and high blood pressure.

So far, Chicago-area employers Pactiv Corp., the City of Naperville and the Jewish Federation of Metropolitan Chicago have agreed to participate in the program.

"Employers are beginning to realize that cost-shifting by itself will not change behaviors," said Larry Boress, chief executive of the Midwest Business Group on Health. "This is not just an isolated incentive where you are giving away trinkets or dollars but is part of a change in employee-benefits strategy to move people away from an entitlement mentality. The idea is that in order to change employee behavior and change the attitude in the way employees manage their health, employers are moving to value-based benefit designs."

Direct and indirect costs of diabetes to the U.S. health-care system are more than $130 billion a year, including emergency room visits, extended hospital stays and absenteeism, the Chicago group said, citing national studies. Some 20 million people have diabetes, including 600,000 in Chicago.

The Answer is Blowing In The Wind

Great summary from Roy Blount, III at Health Plan Law on the implications of Fraud Lawsuits against Pharamaceutical Companies for Health Care Reform here.

In this recent opinion, the district court denied the defendants’ motion to dismiss, thus permitting the plaintiff-relator’s case to go forward on all but one count of California’s False Claims Act. This case serves to illustrate several points.

First, it provides an overview of how state False Claims Act statutes may be employed to challenge costs imposed on Medicaid programs.

Second, the case serves as an object example of why specific attention to pharmaceutical company business practices must be a central component of any serious health care reform proposal.

Third, the case sheds light on the often clandestine profit vectors associated with the sale of pharmaceuticals.

Throw in a presidential election year, the volatility of seniors discovering their Medicare dough nut hole and 2008 could see the brushfire threaten the ammo dump that is the pharma-industrial complex not to mention the powder keg of health care reform in the employer sector as Hillarycare II gets under way. There are Santa Ana winds heading for this little brushfire.

Who ya gonna call, Ghostbusters!

The work that I do is serious but it does have its moments of levity. I have spent a lot of time on disability in my career and have seen a few claims that are out there.

I was once involved in a discussion with a client and their disability carrier and we were reviewing claimants who might be good candidates for vocational rehabilitation. The vocational rehabilitation specialist for the carrier spoke up about one claimant who had already begun efforts to establish a Bed & Breakfast which was set in a home which was reportedly haunted where she planned conduct seances and communicate with the spirits using technigues she was studying from another ghostbuster. No one was really sure what that job paid but I can tell you that 40% of all long term disability claims have mental illness as a secondary diagnosis and the behavior which it produces is not always conducive to rehabilitative employment, except maybe in California. Just kidding. Partially.