Just when we thought the holiday season was over, the CMS Actuaries gave their biggest gift of the year to the White House, Senate, and House – an accounting change that reduced Medicaid expenses by $73 billion over the next ten years.
To be fair, and who doesn’t want to be fair when dealing with the Feds, the change was triggered when CMS determined that inflation in Medicaid for 2004 was 9%, not the 11% originally forecast. But let’s focus on the implications.
Recall that new HHS Sec. Leavitt was seeking to reduce Medicaid by some $60 billion by eliminating “accounting gimmicks” that states were using to get as much Federal money as possible to fund Medicaid (which is, by the way, a funding requirement placed on the states by the Feds…). The new numbers may make it a little tougher for the Administration to push through drastic changes to Medicaid.
CMS is downplaying the change, noting that “the revision would not affect administration plans to reform Medicaid in the fiscal year 2006 budget proposal that President Bush is set to release on Monday.”
So, any euphoria over the new found savings may well be short-lived. If nothing else, it will make for entertaining Hill-watching, as Governors, battling low state revenues and rapidly rising Medicaid costs, seek to maintain Federal funding. According to California HealthLine reporting on Congressional Quarterly’s story,
“Virginia Gov. Mark Warner (D), chair of NGA, said, “The cuts cause grave concern because the states are still reeling from the budget woes of the last five to six years. To have a major cost shift that simply passes costs from the federal government to the states will really slow the recovery that most states have started to experience” (Adams, CQ Weekly, 2/7).
And it’s not just Democrats…
“Sen. George Voinovich (R-Ohio), a former mayor of Cleveland, is leading a coalition of Republican former governors and local officials in Congress who are prepared to contest Bush’s Medicaid proposals. “We’re going to look at what he proposes. But we are not going to just slash funding for states. We’re not going to rip up the safety net,” Voinovich said. ”
Peter Rousmaniere passed on a very interesting graphic from the “Wall Street Journal” on group health insurnace claims processing errors.
The article referenced Towers Perrin audits conducted in 2002 and 2003, which indicated 3.3% of claims dollars were paid in error. More disturbingly, 6.6% of claims had financial errors. The Journal requires a subscription for access, thus no url links, but I’ll look for other info and pass it along.
A significant portion of the $75 billion increase in Medicaid expenditures from 2000-2003 is due to increased enrollment. This may be partially due to the drop in employer-sponsored health insurance and/or a decrease in the number of employees signing up for health insurance with their employers.
Regardless, it appears that the price controls put in place for Medicaid in the form of fee schedules, and the utilization controls in effect in many jurisdictions are helping to hold per-enrollee cost increases under that experienced by privately insured individuals.
The implication is a growing population “insured” by the government, fewer people covered by private insurance, and a de facto transfer of risk from employers to the government.
Of course, this leaves out the 45 million under-65 Americans who had no health insurance coverage at some point in 2004; as this population increases it will lead to rising cost shifting to both governmental and private insurers.
RIMS will release it’s annual review of the P&C market in March, and early indications are the soft market persisted throughout 2004, with two notable exceptions.
Across the board, prices declined in all lines of coverage except Employment Practices Liability and Workers’ Comp.
This has been good news for buyers and sellers alike; prices have come down, albeit modestly and without the cutthroat activity of the late nineties. This bodes well for insurers, as their overall returns on equity still are well below the S&P 500 and surplus levels are not excessive.
Interestingly, WC rates have not dropped, or if they have, not consistently or by very much in any jurisdiction. This despite improving loss ratios in many states and at many insurers.
This last note is encouraging. Medical costs in WC are still increasing at 12% annually, most insurers have not figured out how to address medical costs, and they are wisely (giving them the benefit of the doubt) choosing to not cut premiums. Here’s hoping this sanity is not temporary.
Oklahoma Gov. Brad Henry introduced a Workers Com reform program that calls for significant changes in the state’s workers’ comp laws.
Interestingly, the governor linked the WC reform to his efforts to reduce uninsurance in the state. According to the ClaimsGuides article;
“Gov. Henry believes a new health insurance program for small business will work in concert with the reform package to help drive down comp costs. Approved by Oklahoma voters in November, the Oklahoma Health Care Initiative includes a premium assistance program that will help business owners provide insurance to their employees. Industry observers believe Oklahoma’s high percentage of uninsured residents increases comp claims because uninsured employees are more likely to seek medical treatment through their employer.”
Key elements of the initiative include:
–revised network standards and provider eligibility/recruitment along w employee choice within the network
–adoption of treatment guidelines
–increased use of Independent Medical Exams
–faster implementation of insurer rate changes
–adoption of a Medicare-based fee schedule
–require use of generic drugs when possible
–require preauth on some medical procedures.
Remember, this is just the first salvo in what will likely be an ongoing and cumbersome process of redoing WC laws in OK. We can only be sure that whatever the final result is, it will not be identical to Gov. Henry’s proposal.
A recent Congressional Budget Office report indicates the Medicare trust fund will be insolvent by 2019, a full 23 years before the earliest projections for the Social Security fund. And, problems will abound well in advance of that potentially fateful date.
As reported by California HealthLine;
“According to (CBO Director) Holtz-Eakin, Medicare and Medicaid currently consume 4% of the U.S. gross domestic product, but that proportion could rise to 20% in the next 50 years if changes are not made (Reuters/Arizona Daily Star, 2/1). He also estimated that prescription drugs will make up 20% of all Medicare spending within 10 years (CQ HealthBeat, 1/31).
Among the potential solutions to the Medicare/Medicaid crisis (all of which are politically treacherous) are cuts in benefits; increase in retirement/eligibility age, reducing payments, increased provider competition, and the old favorite, eliminating waste.
Watch what happens with Medicaid this year to get a sense for where the Administration is heading on Medicare in the future.
Pres. Bush’s plans regarding health care are receiving quite a bit of attention as of late. Perhaps the most comprehensive overview is in the 1/31 edition of the LA Times.
The “net” is a fundamental shift from an employer-based health care payment system to an individually-based system.
The rationale behind the move appears to be based in the so-called ownership society concept. To quote the article:
“Supporters of the new approach, who see it as part of Bush’s “ownership society,” say workers and their families would become more careful users of healthcare if they had to pay the bills. Also, they say, the lower premiums on high-deductible plans would make coverage affordable for the uninsured and for small businesses.”
Not enough time to write up a full report; for those interested, the Times article is well worth the read.
California HealthLine has an excellent summary of two stories. One is related to Sec. Leavitt’s (HHS) recent pronouncements and possible future plans; as Medicaid comes under budgetary scrutiny, Leavitt may find himself squaring off against Republican governors over Federal budget cuts in the program. (Leavitt was the Republican governor of Utah)
The other article examines several states’ possible actions on Medicaid, specifically related to dental coverage. It appears several states, including Ohio, are considering reducing or altering dental coverage for Medicaid enrollees. One wonders if the recent press re dentists’ incomes exceeding those of some MDs is contributing to this.
Coventry’s management has added an old colleague, Skip Creasy, to the executive team. Creasy worked with many of the present Coventry team in a prior life at Travelers’ Health Company; Shawn Guertin, Harv DeMovick, Tom McDonough, CEO Dale Wolf, and others were all affiliated with either Travelers, successor MetraHealth, or UnitedHealthCare after UHG acquired MetraHealth.
According to the press release, Skip “Creasy will be responsible for the development of Coventry health plans in new markets, including those markets to be added in the pending acquisition of First Health.”
Perhaps Eliot Gerson is next?
The long-awaited acquisition of First Health by Coventry for cash and stock totaling $1.8 billion or so has closed. The “old” FH management (Wristen, Dickerson, Dills et al) has departed as of 1/28/05, leaving Mary Baranowski as the remaining SVP and Art Lynch as VP Workers Compensation.
Now, the only question is what will McDonough et al (Coventry exec tasked w managing the acquisition) do with the various pieces of First Health.
We’ll be paying close attention, as FH is the dominant player in the WC managed care business, has a major presence in the group health world, and has several ancillary businesses.