May
17-19, 2001
Conference Summary - Part 2
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Note:
A portion of the conference proceedings are available in streaming
video and audio, through the HealthCast network of Kaisernetwork.org.
The conference sessions can be accessed by clicking here. |
(To facilitate web access, the summary has been broken into 3 parts. Part 2 is below; the other parts are on separate pages, accessable through the main Table of Contents. Click on a topic below to go to that portion of the Part 2 conference summary, or click on the link above to go to the main Table of Contents.)
Part II: Four Forces That Will
Shape the Future of Managed Care
Force # 1: The Evolution of Private Health Insurance
Part II. Forces that will Shape the Future of Managed Care.
Patricia Powers
The Evolution of Private Health Insurance.
There is an insatiable demand for health care services, limited resources, and imperfect information taken to an extreme. Healthcare is a relatively young industry. The tax exclusion of benefits is only a half-century old. This presentation examined this history and explored possibilities for the next generation of care.
Powers believes there will be an evolution from paternalism to consumerism. With the recent history of mergers and acquisitions, much of corporate focus has been on staying alive, and less attention has been on health care.
The 1990s saw a booming economic environment, a tight labor market and reasonable health care costs. Corporations had no interest in curtailing benefits. In 2000, the economy is softening, the labor pool is loosening, and health insurance premiums are experiencing annual increases in the mid to high teens.
Corporations look at a skilled workforce as a competitive advantage. Even selfish altruism dictates a more global look compensation including: work environment, rewards, pay, benefits, and development opportunities.
The move from paternalism to consumerism will see restructured benefits more directly in line with the needs of individual employees. E-tools will increase employee self-sufficiency by providing immediate access to clinical information and plan benefits. There will be a greater use of defined contribution plans, outsourcing the human resources functions, and vouchers particularly for smaller corporations. National generalizations cannot be made and change at particular firms will vary by corporate culture, leadership, geography, unionization, work force education and a host of other variables.
Where in the 1990s survival was predicated on conversions and management consolidation, in the 2000s survival demands a wide variety of services and real time customized information. In the medical field, provider competition will be based more on reputation. Providers are going to have to act more like businesses, making price and quality more transparent.
There are a number of unresolved critical issues. Will employers move quickly in this new direction? Will traditional health plans adapt? Are workers ready to be empowered? Who "owns" a population and how will risk be spread? A tension remains between employers’ desire to spread risk, and plans that seek to segment risk. One option is that changes will occur rapidly, and another is a big bang shift of the $72 billion tax deduction from employers to individuals.
[back up to Part 2 presentations list]Nancy-Ann DeParle
Institute of Politics, JFK School of Government
This presentation drew from DeParle’s experience as former HCFA administrator in implementing the Medicare+Choice program and provider cutbacks as part of the Balance Budget Act of 1997 (BBA). She began by stating that Medicare+Choice should not be viewed as a failure if we learn from the experience. Part of the reason the program did not succeed was inconsistent goals and bad timing. The BBA had multiple goals including the ultimate goal of saving the trust fund through provider cutbacks. It was difficult to move on all these goals at once. The challenge was to save money and have managed care plans in Medicare.
The timing for rolling out Medicare+Choice could not have been worse. In itself, this was a major undertaking. Expectations were high, many new plans were to be added to the program, and the environment was uncertain. For example, no one predicted the sharp increase in drug prices. All the other things in the BBA and particularly the unprecedented cuts swamped Medicare+Choice.
Four major lessons came out of this process:
Medicare+Choice should continue as an experiment. Seven million beneficiaries are in the program and it is not acceptable to remove them. We need to preserve the existing infrastructure in order to test competitive models in the future. Price competition will help lay the foundations to determine if new models work. This program could also serve as a testing ground to help structure more quality into the program. Managed care plans can use data and institute quality controls programs better than tradition Medicare. Medicare managed plans could also better test the concept of centers of excellence. We need these plans, even if they do not save money now, as benchmarks for future developments. Further, there are things that managed care can do to prod HCFA into doing a better job. For example, these programs could provide HCFA with information to better design educational programs. Given the solvency of the trust fund, there may now be time to develop several competitive models, but sufficient time must be dedicated to getting them up and running.
[back up to Part 2 presentations list]Rachel Block
Medicaid managed care
This presentation examined the current environment, reviewed recent developments and touched on prospects for the future of Medicaid Managed care. Medicaid managed care is widespread. All but two states operate some form of managed care program. Managed care is the predominant mechanism for providing services in the State Children’s Health Insurance Program (SCHIP). However, managed care is concentrated in certain parts of the country. The top ten states account for 57 percent total managed care enrollment. The top 20 states account for 80 percent of enrollment. Twenty states use Medicaid managed care exclusively, eight states use only primary care case management (PCCM) programs and 22 states have a combination.
Most state programs are unaffected by reduction of the number of participating plans. However, states like Vermont and part of Ohio have seen managed care options limited to one or no plans. In other states like Washington, Oregon and Tennessee, reduced choice may have an impact.
Several states are moving towards providing managed care options to people with disabilities and long term care needs. Minnesota already has an approved program and Massachusetts has a program that may be approved soon. Other states are also moving towards comprehensive long term care models that include people who are dually eligible for Medicaid and Medicare. Texas, Michigan and Florida are linking 1915(b) managed care waivers and 1915(c) home and community based waivers. States may also expand PACE programs with a state plan amendment. Two comprehensive managed care AIDS programs have been approved and four are pending.
Recent regulations relieve states of the requirement to keep to an upper payment limit (UPL). Some states were experiencing this as a cap. UPL will be replaced with more emphasis on detailed actuarial model with the use of risk adjustment. Currently nine states use risk adjustment. States have also been innovative in the use of carve-outs for supplementary managed care benefits.
Block concluded that states will continue to develop and adapt new managed care models. States are developing more sophisticated capacity to collect data and assure quality. New managed care regulations will require additional resources for states and health plans. This will create more pressure on states to get more value from health plans. One option is to guarantee continuous eligibility, and many states are taking advantage of this option. We need to help states come up with new payment models that are alternative to full risk models and a blend of cost and risk models. A stronger quality emphasis needs to focus on outcomes and share data with providers and plans for benchmarks and improvement. States will continue to move from regulators to purchasers holding plans more accountable for quality. This will necessitate better coordination and planning between goals and the service delivery infrastructure.
[back up to Part 2 presentations list]
Nancy Johnson
U.S. Representative from Connecticut
Chair, Subcommittee on Health, House Ways and Means Committee
Representative Johnson thanked Robert Wood Johnson, Stuart Altman and the Council for putting this conference together. She also complemented Nancy-Ann DeParle for her outstanding job as HCFA administrator in meeting a multitude of congressional demands.
It has become more difficult to get members of Congress to focus on increasingly complex health care issues. Medicare+Choice is important to the people enrolled in these plans. Payment problems have the potential to threaten institutions on which a number of our citizens depend. Providers need to be paid on a timely bases. Representative Johnson stated that home care providers in her state were on the brink of closing before congressional action help guarantee payment for their services.
New seniors will be different people from past retirees and have a more diverse set of needs and desires. We should not let the politics of Medicare reform stop us from action in this area. At the same time, we need to strengthen the fee-for-service program because it will continue to serve millions in the future. Representative Johnson said that with some reforms Medicare+Choice should be encouraged. The program should include an integrated prescription drug benefit. She mentioned a bipartisan letter to the HCFA administrator and Secretary of Health and Human Services suggesting changes. She said that we need to radically reform how bureaucracy does business. It is critical to bring providers into the regulation process early. Otherwise we risk destroying the small providers. She also suggested that long-term care insurance needs to be deductible.
Questions and Comments
Beauregard Stubblefield-Tave, Consultant: Asked if quality and value can be increased through cultural competency?
Block: Said that states are taking the lead on insuring that cultural competency goals in the Medicaid program are met.
DeParle: Under Medicare, cultural competence is required but it is not checked.
Albert Yee, Boston Regional Health Administrator, HHS: Asked if reducing Medicare+Choice connection to global capitation would result in reduced accountability of plans.
DeParle: The critical question is how do we provide incentives for plans to take care of sicker people? The answer is risk adjustment and adequate payment for sicker patients, but a number of years from being able to do this correctly.
Stuart Altman: Medicare+Choice was implemented in a budget constraining environment, but this is always the case. The history of the program may leave providers and health plans with a negative or skeptical impression of Washington. How do we get back their confidence?
DeParle: Risk adjustment can work and we should move forward even if it doesn’t save money. The problem was that it was supposed to save money. We slowed it down because it wasn’t adequate. The BBA gave HCFA discretion to do risk adjustment, and we used that discretion. Congress did not have enough confidence in data and HCFA shared this concern.
Diana Dennett, American Association of Health Plans: Health plans see risk adjustments as important, but also recognize the overwhelming data needed to support adequate adjustments. They are very concerned about accuracy. There needs to be a simpler way to implement risk adjustment. It is particularly challenging to get information from providers into HCFA systems. At this point it may not be worth it.
Nancy Johnson: The complexity of law is causing pain. Laws are distorted by efforts to get a good CBO score. The system is gamed in order to reach budgetary targets, and this leads to distrust of government. Laws become so complex that providers and plans have little ability to predict the outcomes of current policy.
Tom Scully, Nominee for HCFA Administrator: We try to fix everything and we end up messing things up. Stability is important.
Alissa Fox, Blue Cross & Blue Shield: Suggested that risk adjustment actually puts more instability into the system.
Arthur Lifson, CIGNA Corporation: We make budget projections but never revisit them. We need to try and figure out what accounts for this.
Altman: System costs need to be defined across the public and private sector. Government can pay less in FFS because it is government and this results in underlying cost shifting. For example, lower Medicare payment rates mean hospitals charge private payers more.
Luft: We need to rethink the role of managed care in the Medicare program. When Medicare+Choice was on the board, most people thought most beneficiaries would flock to it. Medicare+Choice plans were an innovation, and fee-for-service delivery to Medicare patients changed when managed care became a player in the area.
Steve Leiberman CBO: The Medicare perspective payment system was budget neutral, and TEFRA was initially budget neutral. Things have always been done for budget reasons. There is enormous uncertainly in making long range forecasts.
Tom Scully: Five and 10-year estimates can never be right. Triggers are good for tax cuts and for entitlements. One of the flaws in the budget act is that there is no look back provision to reassess estimates. Scully suggested that trigger devices may be appropriate to scale back tax cuts and for entitlements if revenue does not meet estimates or program costs are more than projected. They could be used to automatically scale back a prescription drug program in costs exceed projections.
Uwe Rienhardt: Suggested that we are being too hard on government. CBO and OMB estimates are great compared to Wall Street. Evidence of this is the "dotcom" debacle. We are holding government to a higher standard. Medicare is a good partner. Congress has under-funded HCFA to do its job, and it has done outstanding with the resources it has been afforded.
Bill Hsiao, Harvard: Congress is driven by the budget wants to make changes but also to protect providers and beneficiaries. Congress is in a difficult position. They want to live within the budget, but not hurt constituents. There is always this political tension.
Nancy Johnson: CBO is a huge help, and legislative work could not be done without them. We need the best estimates of economic impact. There is no other sector where the government action effects every provider’s survival. In other industries, we provide assistance for small providers to comply with government standards (i.e. OSHA requirements or environmental standards). We need to provide this type of assistance so that small health care providers can comply. Representative Johnson suggested that the slow down in risk adjustment was a good thing, and she will work to hold it off until there are better measures.
[back up to Part 2 presentations list]The Consumer Backlash
Drew Altman
Public opinion and Managed Care
Altman provided the latest polling data on the public’s perception of managed care. He concluded that the health care industry saw where the public was before politicians. Further, consumer protections was not the most important issue, but of significant concern to the public.
A considerable number of people reported having particular problems with accessing health services, so the problem is not just media hype. No one factor was responsible for the consumer "backlash." People have a fear that their plan will not be there for them if they get really sick. In general, three major variables account for peoples concerns about the current health care system: 1) Personal experience, 2) The experience of friends and family, and 3) Media coverage. The single strongest predictor of negative feelings toward managed care was having a problem oneself.
How does this translate into a movement for political action? As an issue, concern with managed care ranked below other big health care issues. Concern about the health care system in general ranked at the top of the list of concerns, near education, but different people had different concerns. Concerns were spread between Medicare prescription drug benefit, the uninsured, and problems associated with managed care.
Support for patient’s bill of rights legislation was strong and consistent. In total, 85 percent of the public favors a patient bill of rights. The sense of urgency has not diminished. This is the only big health issue where Democrats and Republicans share the same concerns. Support decreases when the results are tied to increased costs or employers dropping coverage. People in states with these laws do not know they exist.
Humphrey Taylor, Chairman Harris Poll: Part of the reason for the backlash is that doctors badmouth managed care, and the media is hard on them. This combination has a huge effect. However, people rate their own health plans about the same as they have done in the past. Plans must improve image with consumers and physicians.
Nancy Johnson: Asked the group if patient’s bill or rights legislation was important enough to pass without the liability provisions. Most of the group indicated that this provision should not hold up passage of the bill.
Chris Jennings: Said that the main issue is how the liability provisions are shaped. He suggested that the legislation would not be valuable without an enforcement mechanism. He added that the ability to sue managed care organizations enjoys wide support, and that some people are using this as a political issue to hold up the entire package.
Marsha Gold: The question isn’t right. Our legal system is not set up to deal with these types of issues. The courts are excellent at protecting individual rights, but sometimes court action geared toward a particular individual can diminish everyone’s rights.
Allen Dopson, The Lewin Group: What is going to be the real backlash when prices go up and up?
Stuart Altman: Individuals view systems costs in line with their out-of-pocket costs. Many ascribe rising costs to fraud and abuse, and "bad guy insurers." It is not inconceivable to relive the 70s with increased government regulation. People have some real fears about what might happen when they really get sick.
Humphrey: Agreed with Altman that the more rapidly out-of-pocket cost rise, the more people have with the system. Currently, people see managed care as the people who say "no." Increased direct costs will be seen as increased barriers.
Stuart Altman: Made the point that people want more access, but don’t want to pay any more.
Humphrey: Said that 10 to 12 percent of the population would be willing to pay more to get more.
Tom Scully: Made the point that liability reforms pit trial lawyers against doctors. He noted that doctors have become more liberal and are moving away from the Republicans towards Democrats. This political reformation could be a major legacy of managed care.
Karen Ignagni: Lamented that in Washington things are either black or white. She challenged Chris Jennings’ earlier statement that the patients’ bill of rights needed federal court remedies to have meaning. She pointed out that the existing ability to bring suit already exists in state courts.
[back up to Part 2 presentations list]
Tom Scully
HCFA Administrator (nominated)
Current Status of Federal and State Regulatory Legislation
This presentation outlined the challenges facing the Medicare+Choice program. It examined the impact of Medicare cuts in the BBA and the interplay between the public and private sectors. Finally, Scully offered some possibilities for getting the program back on track.
Medicare+Choice along with the rest of the goals in the BBA of 1997 were a daunting task. There were 179 new contracts covering 5.6 million Medicare beneficiaries, with annual payment exceeding $38 billion dollars. The top five plans are publicly traded, and all plans suffered financially. Non-renewals resulted in 1.6 million beneficiaries being dropped from the program the last three years. The number of available plans continues to decrease, as does the percent of Medicare beneficiaries with access to one of these plans. Rural areas in particular have had access to a managed care plan drop by 33 percent between 1998 to 2001.
The number of Medicare+Choice plans offering prescription drug coverage also decreased from 19 percent to 8 percent. The number of zero premium plans also went way down. The result is that fewer people are getting drug benefits and paying more for them. A disproportionate share of Medicare+Choice dollars were put in rural areas, where the program never really took hold.
More needs to be done to educate beneficiaries about the program. Currently, there is a web site and an 800 phone number, but information of this type is often best shared "porch to porch," which is more difficult and more expensive. Scully agreed with DeParle about the difficulty of instituting program cuts and trying to provide incentives for people to move to managed care. The program turned out not to be a good business for people to get into, and industry would not be wise to increase their role. Most managed care plans have been getting out pretty quick.
One cannot compare managed care and FFS; they are different entities. Until the mid 1990s, hospitals were fat and happy. BBA cuts to hospitals were significant. Hospitals pushed backing by charging more to the private sector including managed care organizations. Government can set prices high and let the private side receive low prices or it can set prices low and let the private side take a hit.
The question is what to do? There will not likely be another BBA give back this year. We need to convince health plans that we feel their pain and understand their predicament. We can reduce the regulatory burdens and make payments more predictable. We can become a more reliable partner. We need to provide for greater flexibility in plan design, and quit comparing managed care to the fee-for-service program. Also, more needs to be done to educate seniors about choices. The result should be a return to managed care holding 25% to 30% of the Medicare market share.
[back up to Part 2 presentations list]
Karen Ignagni
President and CEO, American Association of Health Plans
Industry Response to Consumer Backlash
Ignagni began by asking if the regulatory structure we have created is going to be adequate for the future. She suggested that the environment and regulatory context was a kin to a "creature without a head." Decades have been spent building an extensive state regulatory structure, and now we are building an extensive federal regulatory structure. The problem is that regulations are additive and do not take into consideration what already exists.
New federal legislation will not lead to a better functioning system. In the U.S., we think about things in extremes (i.e. public vs. private and federal vs. state). We do not think of complete systems and interactions. There is no breathing space for unbiased opinions based on real data and evidence. Health plan data requirements made by states, the federal government and private industry are all different and this creates unnecessary costs and inefficiencies. Further, confidential assurances are widely supported, but physicians are using these protections to withhold data from managed care organizations. It is time for a conversation about creating a cohesive regulatory framework that reflects appropriate tradeoffs and balance between quality, access, and cost.
She suggested that rationing is already going on. Senators wanted to hear about private sector cost control measures for prescription drug coverage. This puts them in the business of limiting access.
Ignagni suggested that in assessing the regulatory framework, cost-benefits tests of regulations are essential. Another concern is the extent to which we let courts set policy. Discussions are often in silos and do not take into consideration the larger picture. How do we balance responsibilities without leaving harder issues to another day. she asked.
Resolving issues of liability through the courts often does not take into consideration accountability or shine light on major problems. Are there strategies that we could take for more uniform standards that promote innovation? What to do is not clear, what not to do is clear. Often policy comes about without any overall strategy. We come to a fork in the road and we take it. More integrated policies need to be developed based on new research and analysis.
Questions and Discussion
Ed Grossman, Legislative Council, House of Representatives: BBA cut back on money and increasing drug prices led plans to drop or scale back this benefit. This took away significant positive aspects of Medicare+Choice. Why should anyone be optimistic about this program?
Tom Scully: There is not a big rush in Congress to put more money into Medicare+Choice, but there are ways we could make the life of participating health plans easier. The goal is to keep participating plans in the system. The addition of a prescription drug benefit supported by President Bush may be a step in the right direction. There is a demand for these types of plans. Specifically, lower-income people would choose tighter benefits for less out of pocket.
Cybele Bjorklund, Democratic Staff Director, Ways and Means Subcommittee on Health: Commented that the simple answer to Karen Ignagni’s complex regulatory chart is single payer system. She agreed that there is a lot of interest in cost effectiveness, but pointed out that the Republicans abolished the Office of Technology Assistance. Everyone supports external reviews and thinks it will mitigate litigation. Nevertheless, both Houses support increased liability for health plans. The issue is not as simple as state versus federal government with the courts playing a big roll.
Ignagni: Responded that there is room for agreement and an opportunity for progress. She feared that some important issues have gotten lost. She reemphasized that more thought, research and analysis needs to be given to regulatory reform.
Scully: Made the point that considerable political capital has been spent on patient protection and that it has been taken from other important issues such as the uninsured.
Ignagni: Do we have the right structures to deal with problems? Capital Hill has no source for objective analysis and has to listen to impassioned concerns on one side. We have had a five-year conversation about managed care, but not much discussion about quality and providers.
Scully: Everyone wants to do measurement. HEDIS was supposed to be published down to hospital and doctor level. AHCPR was going to collect and publish data. When this does happen it will make real change in the system.
Mark Miller, HCFA: Noted that there are competing notions of quality that complicate this issue.
Scully: Made the analogy to crash testing cars. The technology was not perfect but it concentrated more emphasis on safety, and had positive results.
Ignagni: There is a myriad of state and federal requirements but no real strategy.
Gary Claxton: Brought up concerns about the science of risk adjustment. All providers claim to see sicker patients, and risk adjustment is essential to understanding quality.
Scully: The California HMO model that made its way east was fought along the way. Now we are seeing a market driven equilibrium with less structured HMOs. During this process, hospitals are strengthened, managed care organizations are hurt, and doctors might be hurt the most.
Ignagni: Government should create a regulatory framework where multiple types of delivery systems can compete. Strategies need to be developed to better assess regulatory burden.
David Abernethy, HIP Health Plans: Regulations are not without cost. Standards based on prudent lay person standards for emergency room care, required 48-hour maternity stay, and others are fine, but people should be clear the cost of these mandates just gets passed through in the form of higher premiums. The monetary implications of regulation are significant.
Click here for summary part III: Health Insurance Models of the Future