Insight, analysis & opinion from Joe Paduda


Taxation of health benefits

The Presidential Panel on Federal Tax Reform heard testimony from two economists that “federal tax subsidies to employers and employees for health insurance, flexible spending accounts and new health savings accounts do not promote the expansion of basic health coverage and increase the number of uninsured residents.” (source California HealthLine)
The Panel, chaired by ret. US Sen John Breaux (LA) is working to assess the impact of the Federal tax deduction for health care benefits, which amounts to a $188 billion subsidy today and will reach $250 billion “in several years.”
The reasoning behind the testimony and hearings lies in the apparent disconnect between the subsidy and it’s impact on the uninsured. Simply put, higher income individuals benefit from the subsidy, while lower-income people are more often uninsured as their employers do not offer the benefit, they are marginally employed, or cannot afford their employer-sponsored coverage.
To address this disconnect, one of the economists testifying recommended “limited subsidies for health insurance in combination with refundable tax credits to help low-income and uninsured residents purchase coverage.”
Why is this important to you?
The President has promised to halve the Federal deficit over the next four years, and huge subsidies for health insurance are likely to be a leading target. The perception in Washington is that the subsidy works to minimize individuals’ concern about and focus on managing their health care; think “ownership society”.
If Bush is truly committed to deficit reduction and the ownership society, health insurance tax benefits are a likely target.


Medicaid Round Four

The Senate and House have very different ideas of what to do with Medicaid in coming years; this difference of opinion may deadlock the two bodies on overall budget negotiations.
Briefly, the Senate passed a budget with no cuts in Medicaid funding; the House version has $20 billion in budget reductions. The latest news indicates the Senate may be willing to compromise, but conservatives in the House appear to be less interested in restoring the funding the Bush Administration has axed from Medicaid.
As reported in California HealthLine;


Prescription Drugs in Workers’ Comp

HSA has completed the Second Annual Survey of Prescription Drug Management in Workers’ Compensation.
Respondents represented a wide range of payers, with annual prescription drug spends ranging from $772,000 to $156 million. Total estimated drug costs provided by the respondents amounted to $645 million, approximately 18% of the annual total workers’ compensation drug spend. Together, the carriers participating in the survey represent 35% of all private-payer workers’ compensation insurance in the United States.
If anything, awareness of this problem has grown significantly over the last year. In fact, 20% of respondents, mostly from larger payers, indicated that prescription drug costs were “much more” significant than other medical cost issues.
The results of this survey indicate a significant awareness of the importance of prescription drug costs in workers’ compensation, a focus on PBMs as the primary solution, but a lack of distinction among the PBMs themselves. Clearly, the workers’ compensation industry is looking for solutions that emphasize customer service, utilization control, seamless processes and assistance in working with and educating payer staff and their customers.
There is also a rapidly growing recognition that the treating physician is central to addressing this issue. This recognition has grown dramatically over the last year and although there is not consensus on how to address the issue, there is no mistaking the level of interest in doing so.
Copies of the Survey Report may be obtained by emailing me at


Vioxx lawsuits

Merck announced last week that almost 1400 lawsuits have been filed related to Vioxx to date. Many of these have been consolidated in US District Court in New Orleans, including over a hundred that are class-action suits.
Over 20 million Americans have taken Vioxx, and Merck expects the volume of lawsuits to increase substantially.
In comparison, Wyeth Labs’ “Fen-phen” diet drug has resulted in over 60,000 lawsuits as the company has reserved over $21 billion to cover the litigation.
Source Insurance Journal


Medicare pay for performance gets a push

Even though it’s just a small one, it is stilll significant. Rep Nancy Johnson (R) CT (my home state) is promoting a drastic change in the way Medicare pays physicians. Rep. Johnson is calling for a pay-for-performance scheme to replace Medicare’s fee schedule arrangement.
Details below, but in case you can’t read that far, think of this.
1. many state workers comp fee schedules are based on Medicare’s. What are the implications for state programs?
2. Group health reimbursement is often tied to Medicare as well…
3. Medicare is based on paying for services needed for and delivered to a population that is over 65. If the reimbursement arrangement changes, and it factors in some kind of “performance” metric, will it even be possible to adapt that to younger populations?
Now that your head hurts, here’s the details…
According to California HealthLine;
“Johnson said that, although physician performance measures and systems to collect data on performance are not perfected, lawmakers must move to address the issue because of scheduled reductions in Medicare physician reimbursements over the next several years. Elimination of the SGR (Sustainable Growth Rate) system “is the only possibility,” Johnson said, adding, “It’s unfortunate that we have to do this two years in advance of the technology.”
Johnson also indicated that lawmakers could enact “a one-year fix of physician payment while a more permanent system is being designed,” although she hopes to enact permanent revisions to the Medicare physician reimbursement system this year, CQ HealthBeat reports. She estimated that the replacement of a 1.5% reduction in Medicare physician reimbursements for fiscal year 2006 with a 1.5% increase would cost $11 billion over five years.”


Medicaid, Round three

It appears that Medicaid is safe, at least in the Senate, from Pres. Bush’s attempt to cut $14 billion over five years. Smith, Republican Sen. of Oregon, claimed to have enough votes to pass an amendment restoring the dollars, and creating a Commission to study Medicaid.
According to California HealthLine,
“Smith said at least six Republicans support the amendment. A vote is expected as early as Wednesday. According to the Post, the budget resolution’s current language prevents lawmakers from filibustering legislation to implement entitlement cuts, allowing it to be approved by a simple 51-vote majority (Washington Post, 3/16).
Smith said, “I’m afraid of the consequences for the disabled if we do Medicaid reform in a hurry,” adding, “I’m specifically … concerned about how Medicaid cuts are first made against mental health coverage” (Schuler, CQ Today, 3/15).
However, the House may be a different story. Representatives are not sanguine about the possibilities of reaching agreement on a budget compromise if the amendment passes the Senate. In fact, HealthLine goes on to state:
“The House Budget Committee on March 9 proposed a FY 2006 budget resolution that would require the House Energy and Commerce Committee, which has jurisdiction over Medicaid, to find $20 billion in savings over five years ”
This bout may be a long one.


Medicaid Round Two

In what may prove to be a critical indicator of the future of Medicaid funding, a bipartisan group of senators has introduced an amendment that would restore the $14 billion in Medicaid funding cuts in the President’s budget proposal. The senators expect a vote on the amendment tomorrow…
According to California HealthLine, 14 sponsors and co-sponsors:
“have introduced a bill that would create a commission of experts to evaluate Medicaid and recommend improvements before lawmakers cut funding or make changes to the program. The commission would be made of experts to be appointed by the president, Congress, governors, and state and local officials. Commission members would hold public meetings and deliver recommendations on how to improve Medicaid (American Health Line, 2/10).
The amendment’s sponsorship is important, as it indicates the Senators have listened to their states’ governors, who were all but unanimous in their protest over the cuts. Clearly, the Administration’s desire for a quick resolution to the Medicaid budget issue will not be satisfied. In fact, many governors are actually asking for additional funds, as Medicaid expenses continue to grow at rapid rates.


Coventry’s plans for work comp

Coventry Healthcare’s acquisition of FirstHealth (closed 1/28/05) was viewed with some concern by FirstHealth’s workers comp payer customers. Several of Coventry’s key management staff came from organizations that had divested workers comp managed care SBUs, causing speculation (on this blog as well as among present FH customers) about the future of WC at Coventry.
Indications now point to a commitment to the WC business for at least the near and mid-term. Sources indicate Coventry senior management has met with some of FH’s key customers to discuss past issues, get input on future directions, and assure customers of Coventry’s commitment to the business. While this last point (assurance) may be viewed with skepticism, Coventry’s moves appear to indicate it is more than a platitude. These include
–Coventry’s search for a senior leader for the FH WC business, which will be separated from the group health business (now directed by Skip Creasy). They are looking for the right person with the right blend of credibility, understanding of the WC industry, and insights necessary to move the WC business forward.
–seeking input from present customers on general and specific topics ranging from candidates for the top job, to bill review technology, to gaps in systems, operations, customer service, and network coverage
–early indications the company is rethinking the acquisition and expansion strategy implemented by the old management staff.
–some evidence of increased flexibility in regards to customer requests for specialty managed care carve-outs and the like.
Perhaps most notably, Coventry’s decision to lop off the top managers at First Health sent a clear notice that big changes were to come.
I believe that is good news for present customers, as well as the rest of the market. A reinvigorated First Health may actually bring new approaches, new ideas, and a more flexible attitude to the industry, all of which are desperately needed.


Small managed care plans disappearing

A new report indicates what many have perceived for some years; the world of health care insurance is increasingly dominated by larger payers. Conning & Co.’s report indicates that larger insurers/managed care firms are buying up smaller ones in an effort to grow market share.
This is consistent with HSA’s own experience; as the larger plans seek to keep their stock prices moving up, revenue growth becomes increasingly important. Their growth choices are pretty limited –
1. grow organically by taking market share from a competitor by cutting price (a really bad long term plan) or
2. buy up other plans.
The acquisitions of FirstHealth, Oxford, Connecticare, et al are all indicative of this trend. Good news if you own a smaller managed care firm; bad news if you are a provider or employer operating in an oligopoly environment.
The health care market is rapidly maturing, and will come to be dominated by a selection of large players – Aetna, UHG, Anthem, and a few others.


WCRI CompScope reports published

The Workers’ Comp Research Institute has just published the latest edition of CompScope, their annual report on trends and comparisons across 12 states.
CompScope is used by regulators, managed care firms, and WC payers to assess the market environment in individual states. Some of HSA’s clients use this publication when determining market strategy, as it provides an objective comparison of key markets for comp.
WCRI also publishes their Anatomy reports, which are more detailed analyses of the medical and other aspects of WC claims in individual states. The Anatomy report has proven to be quite useful for claims execs and managed care professionals in the business.
WCRI charges for both publications.
Yes, I’m a fan of WCRI, but have no other affiliation.

Joe Paduda is the principal of Health Strategy Associates



A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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