Category Archives: health care

Health agents keep on fighting

Health insurance agents were probably the notable losers in the debate over Obamacare’s rules on the medical loss ratios. Their last minute plea to exempt their commissions from the definition of premium failed.

But all is not lost. Late last month, the NAIC announced a special task force to “address potential adverse impacts on the role of licensed health insurance agents and brokers resulting from the new federal health care reform law.” Quoth Kevin McCarty, Florida’s insurance commissioner.

With the recent issuance by HHS of the medical loss ratio (MLR) regulations to be imposed on insurers, there is a very real possibility the role of health insurance agents will be impacted in a negative way. Health insurance is a complex product and experienced and licensed agents are a valuable resource for consumers. We intend to work with the agent community and our colleagues at HHS to maintain that resource.

I’m sympathetic to anyone working in health care – at the doctors’ office, in the hospital, at the pharmaceuticals. Health care reform will have wrenching changes as we try to squeeze the gross inefficiencies out of the system. And I don’t expect anyone to quietly accept a fate dealt by others.

Nevertheless, the gravy train is over. Every player in health care is going to feel pain in the coming decade, if Obamacare is going to work.


The medical loss ratio game

The Department of Health and Human Services largely rubber-stamped the NAIC’s recommendations for medical loss ratios. Recall these are the rules behind calculating that health insurers spend 80 cents of the premium dollar on providing medical services (85 cents for group health plans). Insurance Journal summarizes here.

Unhappy are the insurance agents. They wanted commissions left out of the formula, since that essentially caps their income. You can hear their complaints here. Though I wouldn’t be surprised if they find a way to, at least in some states, add placement fees. Agents routinely charge these in nonstandard auto markets (where the hard-to-insure find policies with low limits and low premiums).

Also, more people will be buying individual policies, so while commission rates may fall, agency revenues may actually increase.

You may think I am not too sympathetic to the agents’ plight, and you’d be right. Our health care system is so bloated that to fix it, everybody is going to have to take a financial hit – hospitals, doctors, insurers and, yes, agents.

How bloated? Well, yesterday the International Federation of Health Plans published its annual comparison of health care costs across countries. Here’s a typical slide from the pdf:

We pay twice the going rateYeah, we pay twice as much as anybody else for an appendectomy.

And passes along the latest Commonwealth Fund report showing, basically, that we have the worst health care in the world:

Americans are the most likely to go without health care because of the cost and to have trouble paying medical bills even when insured, a survey of 11 wealthy countries found Thursday.

“The US stands out for the most negative insurance-related experiences,” the New York-based Commonwealth Fund, the private foundation that carried out the study, said in an accompanying statement.

The study found that a third of US adults “went without recommended care, did not see a doctor when sick, or failed to fill prescriptions because of costs,” it said.

That compares to as few as five to six percent in the Netherlands and Britain, according to the study.

Just remember as the next phase of the health care debate rolls out – any repeal of Obamacare returns us to this status quo.


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Health-care rant(s): Treat our kids better

Write about health care long enough, and you get to post a first-person rant. Here’s mine.

My wife and I are moving our kids to new pediatricians. We were concerned about privacy. A few weeks ago, the front office was discussing what happened in the doctor’s office during my 8-year-old’s check up. My other daughter, sitting in the waiting room, overheard them.

So my wife sent a letter saying we are leaving and explaining why. Yesterday she got the response: Cheerio, it said in essence, and that’ll be $75 for your kids medical records.

  • Rant #1: Doctors have no idea, I think, how much business they lose because of their front offices. My wife and I have both left doctors we liked because the front office couldn’t find records, mis-scheduled appointments, screwed up billing, etc., ad infinitum and nauseum. These days, I don’t rate the doctor. I rate the front office. That’s who I deal with most of the time. If the front office is lacking, I get a new doctor.
  • Rant #2: $75 for my kids’ medical records? How’d you squeeze that one under the Hippocratic Oath? Don’t doctors think about (in ERM lingo) reputational risk?
  • Rant #3: Don’t give me any jive like this:

Businesses that provide medical services, including your doctor, are required by law to maintain those records for 7 – 10 years.  They can not give you the original copies of your record.  They must find your record (sometimes stored outside their office) and go to their copy machine and make all the copies.  Depending on your medical history this could be a few or a great many pages.  The doctor pays the people who do this work and is entitled to recover some of the cost involved.  You don’t work for free, why should he?

Because that leads me to……..

    • Rant #3a: The best paid doctors in the world feel the need to nickel-and-dime.
    • Rant #3b: Paper records? Medical records should have been digitized years ago. It’s not my fault that doctors are technological Luddites, joining the information revolution as eagerly as a dog approaches a vet. Doctors are digitizing only now, and only because the government is paying them to do it and will soon be fining them if they do not.
  • Rant #4: All this ranting started because I do not think the pediatrician’s office is sufficiently concerned about privacy. Ergo:

Flyer and Khokar
36 Park Av.
Verona, NJ 07044
(973) 239-7001






Malpractice reform: a bright idea

Via The Corner, Former Obama budget director Peter Orszag proposes exempting doctors from malpractice liability if they follow prescribed standards of treatment.

I’ve never been able to wrap my mind around the idea that doctors don’t have best practices. I, a meager casualty actuary, have a professional standard to on-level premium, trend and develop losses and select a loss ratio within the range set down by my work. A doctor need not do likewise.

Orszag’s proposal addresses the cost of defensive medicine in health care, which the CBO estimated drove up health care costs $7.5 billion in 2009. (I wrote about that here, pg. 21.) Granted, that’s not a huge savings, but to control health care costs we will have to squeeze down on all areas of the system. Malpractice is part of that.

Orszag notes that doctors have been lukewarm in the past:

[A] little-known provision in the Social Security Act amendments of 1972 provides immunity from malpractice liability to doctors who treat patients in conformity with the standards set forth by so-called quality improvement organizations — nonprofits under contract with Medicare that work to improve care. The provision remains in force, though those organizations have yet to set such standards.

I also think it could help address the shortage of doctors and surfeit of nurses in this country. Many times a person visits the doctor with a minor ailment, like a cold, mainly to make sure it’s not something worse. Nurses, treatment standards in hand, could handle most of these, at lower cost.


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NAIC formally OKs medical loss ratio rules

Via NAIC News Release.

A lot of hand-wringing in the media over today’s vote, but my sense was things were pretty well set up weeks ago.

Now HHS must formally accept.

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NAIC OKs medical loss ratio rules

NAIC News Release: MLR Passes. The rules go to the fed for the final verdict.

Model regulation here.

NAIC letter to the feds is here.

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Chart of the Day: Health care inflation

Apropos of nothing, I offer up this:

We're not No. 1!This is the average annual increase in spending on health care per person over 30 years, drawn from data downloaded from the OECD, a consortium of the world’s wealthier nations.

In some ways, this shows how well a country has controlled its health care costs. (There are other forces driving this, notably the aging of the population.)

I look at this and see some good news.

The United States (red bar) isn’t No. 1 in a metric measuring health care spending. Costs in the U.S. have risen an average of 7.8% a year – close to the top, but not No. 1 with a bullet as we rank in most measures of health care profligacy.

And we aren’t that much higher than the 7.0% average (black bar). [Actuaries: Netherlands is the median at 6.9% a year.]

I should acknowledge we are talking about interest rates compounded over 30 years, so a small annual difference builds into a big absolute difference. So the fact that we are just 0.8% above average per year implies a 30% difference over 30 years.

Still, this implies that our system hasn’t grown bloated over the last 30 years. It was bloated to begin with, but the lack of costs controls over three decades meant our system just got crazy expensive.

Second, this tells me that over the long haul, corrections to the system don’t have to do a lot to bring costs back into line. We don’t have to halve the medical inflation rate. Just bringing it down a little more than a point will, over a couple of decades, make an enormous difference.

The bad news goes to people who think we’ll straighten out health care costs overnight. To do so – shrinking to 8% of GDP from 16%  in just a year or two – would devastate the economy, as if we had cut everybody’s paycheck around 9%.


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Actuarial tidbits: health care


More for less


A lot of folderol floating about on health care the past couple of weeks. I thought I’d hit it all at once.

  • McDonald’s went through the media spin cycle because it wanted an exemption from the minimum 85% loss ratio requirement for its health plan. Their employees can buy something called mini-med, which is a policy with so-low-they’re-silly ($2K) limits. These policies exist mainly so Mickey D’s can tell applicants that their job comes with benefits beyond that of wearing a paper cap ringed with arches. Above, I cop the graph Kevin Drum built based on numbers that The Incidental Economist ran. The red bar is how much McDonald’s employees pay for coverage today. The other five bars are how much they would pay for coverage under Obamacare, the difference being the current limit is $2,000 while under Obamacare, benefits will be limitless. NY Times makes the same point.
  • To show no one is picking on McDonald’s, USA Today notes that 29 other companies, including Jack-in-the-Box, have similar plans and seek similar exemptions.
  • More worry that consolidation of hospitals drives up health care costs. I’ll keep saying Obamacare boils down to hospitals vs. insurers until someone listens.
  • Group health cost to rise 8.8% next year, most since ’05. And federal employees’ premiums will climb 7.3%. Oddly, when coverage expands, prices do, too.
  • Obamacare sez you can’t discriminate against kids when rating. To avoid adverse selection, some health insurers are refusing to insure kids at all. I can see the concern, but wonder how much those companies are thinking about reputation risk, viz.: Congressman: “Why won’t you insure this child?” Health CEO: “He gets sick too much?” Gone viral, will that help business or hurt it – especially since the company will be forced to write that same risk in 2014.
  • Another alternative is to dump the business altogether.
  • A lot of people think the solution is to dump the current “solution.” Their day in court approaches, but there’s been an early defeat.
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Health care reform: Careful whom you bash

BusinessWeek chronicles CT AG Richard Blumenthal’s election season bashing of health insurers rate hikes.

“The public has a right to expect a thorough examination of all proposed rate increases that go far beyond the pale, such as those requested by Aetna and Anthem,” said Blumenthal.

[Insurance Commissioner Thomas] Sullivan said in a Sept. 22 letter to Blumenthal that the Insurance Department held the line on a rate request from Anthem last fall. The agency pared a rate request by between 39 percent and 58 percent from what had been requested, he said.

BTW, Blumenthal is running for Senator. Could you tell?

In more thoughtful analysis, the Incidental Economist examines how market power – either from hospitals or insurers – can drive costs. Quoting

Hospitals with the most clout command payments two to three times higher than the lowest-priced hospitals. And hospital costs overall continue to soar.

Meanwhile, insurers with market power are better for consumers, but worse for hospitals and doctors:

According to theory, consumers get the best deal when the health insurer has considerable market power (monopsony or market share concentrated in very few insurers) and when the insurer is a nonprofit entity (as would be the co-ops recently proposed by Senator Kent Conrad). Nevertheless, a monopsony insurer reduces producer surplus (and therefore overall welfare) by extracting prices from providers below those of a competitive market.

So here’s the deal: When hospitals are powerful, prices rise. When insurers are powerful, prices are held in check. Quiz time:

  1. If you want to hold prices in check, do you bash hospitals or insurers?
  2. If you cravenly seek votes, do you bash hospitals or insurers?
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Medical loss ratio – finish line approaches

An NAIC subpanel lays the groundwork for approval of health care reform’s medical loss ratio requirement, The Hill reports. Issues that remain:

– Aggregation: The draft regulation calls for the medical loss ratio to be calculated for each company by state. The large-group health plans want to be able to aggregate nationwide, Webb said;

– Taxes: The draft calls for deducting most taxes from premiums when calculating the ratio, but Democratic committee chairmen in Congress have requested a more restrictive definition that would lead to a higher effective ratio;

– Fluctuations: Commissioners want to allow adjustments over several years for smaller health plans, to avoid penalizing them if they have a bad year with unusually large pay-outs.

To interject:

Aggregation: Companies like aggregation because its easier and results in smaller fines. Regulators dislike aggregation because a company could conceivably get away with posting a low loss ratio every year in a state (especially a small one) and never pay a fine. And the extra revenue makes them happy, too.

Taxes: I think the Hill blogger has it backwards. A more restrictive definition would leave more tax dollars in premium, which is the denominator of a loss ratio. A bigger denominator lowers the loss ratio. So a more restrictive definition would lead to a lower effective loss ratio.

Fluctuation: They’re talking about credibility here and multi-year calculations. (I think the reporter has it backwards again. A company with an exceptionally bad year isn’t penalized. The bad year raises its loss ratio, meaning it won’t be fined for having a low loss ratio.)


A larger panel is scheduled to vote Oct. 14, and if the definitions are accepted the regulation could come before the NAIC’s executive/plenary session at the Fall National Meeting in Orlando for final approval on Oct. 21.

Just to add: I’m pretty sure feds have to approve what NAIC OKs, so there’s another step after Oct. 21.

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