Category Archives: Insurance

Health Insurance Rates Up 16% Next Year

obamacareThe Affordable Care Act isn’t looking so affordable. Health insurance plans in the Affordable Care Act’s Virginia marketplace could increase in cost by an average of 16% next year, reports the Richmond Times-Dispatch. The numbers are based upon rate changes that insurers have submitted to the Bureau of Insurance ahead of a State Corporation Commission hearing.

The increases are roughly in line with the 11% average increase expected nationally based on a Kaiser Foundation survey of 14 major cities. Richmond, one of the cities surveyed, actually fares better than the state and national averages with an increase of benchmark silver plans of only 6%. Presumably, other parts of the commonwealth are faring worse.

What’s going on? In a word, adverse selection. Sick people who anticipate big medical bills are signing up while healthier people are paying the penalties (or taxes, depending upon your legal context) for not participating and then enrolling when they need the coverage.

Or as Doug Gray, executive director of the Virginia Association of Health Plans, put it to Katie Demeria with the T-D: “The problem is we haven’t gotten all the healthy people, but we have gotten most of the sick people.”

The problem was widely anticipated. Indeed, the Affordable Care Act attempted to forestall adverse selection by imposing penalties/taxes on uninsured Americans who declined to enroll. But it turns out that the incentives were not harsh enough. (It would be interesting to know how aggressively the Obama administration is enforcing the provision — strict enforcement could create a political backlash.)

Obamacare advocates said that other provisions in the legislation would keep costs under control. They don’t appear to be working. The big question now is whether the Affordable Care Act is in a death spiral — and what comes after it collapses. Does Virginia have an answer?

— JAB

More Visibility for Health Plan Mergers, Please

More sunshine -- always better

More sunshine — always better

by James A. Bacon

Virginia consumers are not particularly torqued about two proposed mergers between leading health care insurers — only 20% of respondents to a poll sponsored by Virginia Consumer Voices for Healthcare (VCVH) were even aware of the proposals — but that didn’t stop 87% from being “very” or “somewhat” concerned by the impending consolidations when told about them. So reports the Richmond Times-Dispatch.

Virginia Consumer Voices released the survey results as the State Corporation Commission and other regulatory agencies around the country study the impact of the mergers on competition in state health care markets. The consumer group and the Virginia Hospital and Health Care Association, among others, have expressed concerns that the mergers would reduce competition in Virginia, increase costs to patients and reduce innovation in the marketplace.

All four companies affected by the proposed mergers belong to the Virginia Association of Health Plans, which lists ten members. Anthem Blue Cross Blue Shield has proposed buying Cigna, while Aetna has proposed taking over Humana Health Insurance.

Virginia Consumer Voices says the mergers would create near-monopolies in certain segments of the health care sector:

These mergers would substantially reduce competition and create large overlaps in Virginia in a number of different insurance products including commercial, ASO, and Medicare Advantage. A combination of Anthem and Cigna would create an entity with just under 72% share of the Virginia ASO market, and a combination of Aetna and Humana would have 66% of all seniors with a Medicare Advantage plan in Virginia.

The mergers would also increase costs for consumers. The merging companies have requested significant premium increases within Virginia, and studies on health insurance mergers have found significant premium increases for consumers post-merger.

Anthem, the dominant health care provider in Virginia, has not been especially aggressive here in the Old Dominion in justifying the project. A website at www.betterhealthcaretogether.com seems more concerned with pitching the merger to shareholders than consumers.

However, in testimony before Congress, Anthem CEO Joseph Swedish argued that the role of health care insurers is changing.

Health care in our country is rapidly evolving, driven by the needs of consumers, who demand change from all sectors — providers and payers. … No longer is it enough for health insurers to serve as financial stewards in the health care delivery transaction; we must now assist consumers as they interact with the health care system. … We must go beyond paying claims, instead partnering with providers by offering human and financial resource support, actionable data analytics, and tools that further their efforts to focus on the health of their patients, while shifting from volume- to value-based payments. And above all, we must help all stakeholders — providers, consumers, employers and brokers — change from a system that has historically focused on sick care to one that promotes optimal health.

One driver of the merger is big data. Stated Swedish: “Anthem’s proposed merger with Cigna will result in the aggregation of useful information that can then be applied to bringing a better, more targeted product to consumers, and ultimately, improving the care that providers are able to deliver parents.”

Bacon’s bottom line: File this under “Eyes Glaze Over… But Very Important.” Every Virginian with private health care coverage, including Medicaid and Medicare plans administered by private companies, has an interest in the outcome. Health care costs continue to rise, and consumers should worry that industry consolidation will give insurance carriers more bargaining power in the marketplace and fatten their bottom lines. On the other hand, the only way to improve the quality of health care without bankrupting the country is through innovation — and private health insurers have plenty of ideas on how to change the system.

Virginia Consumer Voices and other groups are calling for the SCC to give the public a platform for airing diverse points of view. I agree. The more openness, transparency and public participation the better. We’re talking about the future of Virginia’s health insurance sector here. That’s too important to decide in the shadows.

Virginia Obamacare Update

Anthem Healthkeepers, with 190,000 enrollees in Virginia, is filing for an average 15.8% hike in its 2017 Affordable Care Act premiums.

Innovation Health, with 61,000 enrollees, is seeking a 9.4% increase.

United Health, with 6,900 members, wants a 17.9% increase.

The overall weighted average increase request in Virginia, according to Investors Business Daily, is 17.9%.

I thought the cost curve for health care was supposed to bend downward, not upward.

–JAB

What Went Wrong with Long-Term Care Insurance?

Long-term care insurance information, form, Folders and stethoscope.

Long-term care insurance information, form, Folders and stethoscope.

by James A. Bacon

I am one of those schlubs who takes out insurance policies to protect against bad things happening. One eventuality I worry about is the need for long-term care. The longer you live and the more chronic conditions you develop, the greater the odds – about 50/50 for a 60-year-old today — that you’ll wind up bed-ridden at home or in a nursing facility. Feeling strong and fit at 53 when I took out a policy ten years ago, I was betting that I’d live longer than the average Joe and be more likely than not at some point in my life to benefit from having insurance. Signing up at a relatively young age would lock me in at an affordable rate. Or so I thought.

About two months ago I received a letter from my insurer, New York Life Insurance Company, informing me that my long-term care policy, which had remained stable ten years, was scheduled to increase 20%, costing me, in rough numbers, an extra $300 per year after a three-year phase-in. Three hundred bucks won’t bust the Bacon bank, but I was miffed — it was the principle of the thing. I had not been led to understand that my insurance rate would go up. And I bet there were other policy holders for whom $300 per year would cause real hardship.

Well, a look at my insurance policy indicated that, sure enough, New York Life was entitled to raise my fees. My bad. I should have read the fine print. Even so, any rate increase had to be approved by Virginia’s Bureau of Insurance, and I wondered — as I suppose an estimated 80,000 other long-term care insurance policy holders are wondering — what is the justification for jacking up our rates?

The letter referred vaguely to “longer life expectancies and an increased need for long-term care benefits.” Did the insurer mean to tell me that the people who are the world’s experts in demographic trends failed to anticipate that life expectancies would increase? And they miscalculated what percentage of the population would need long-term care? Really? That sounded lame to me, and I wondered if there was more to the story. In particular, I wondered if years of Quantitative Easing and low interest rates had depressed New York Life returns on insurance premiums below what the company had anticipated when it formulated the rates ten years ago. Could my higher insurance fee represent another $300 a year in tribute to Uncle Sam, just one of many ways in which low interest rates are invisibly transferring wealth from American citizens to its grotesquely swollen and indebted government?

One of the advantages of being a blogger is the ability to pick up the phone and call anyone with a decent chance that someone actually will answer. When I called New York Life to find out what the heck was going on, company spokesperson Terri Wolcott put me in touch with Aaron Ball, vice president and head of the Long Term Care business, who, as coincidence had it, lives in good ol’ Richmond, Va.

Low interest rates were a factor in the rate increases, Ball says, but not a decisive one. He candidly admits that the industry screwed up key underwriting assumptions.

We Underpriced the Policy. Sorry about That.

“When you apply for coverage, it can be 20, 30 or 40 years before you make a claim,” says Ball. “We set up reserves to pay claims 20 to 40 years in the future. We’re earning interest on those investments, and we assume what those interest rates will be.” Ten years ago, carriers were assuming earnings in the 5% to 6% range (conservative assumptions that were lower than what most pension funds were assuming at the time). “Today, they’re assuming in the 3% to 4% range. The low interest rates have put pressure on the portfolios.”

Higher returns on the company’s investment portfolios might have offset the negative experience, tempering the need for a rate increase, Ball says, but the bulk of the blame goes to actuarial miscalculations regarding other key variables.

Morbidity. The first the key variables is morbidity — how sick will policy holders get, and what will be the appropriate venue for treating them? When projecting 40 years into the future, getting this assumption correct can be harder than it looks. The things that put people into long-term care change over time. Ten years ago, frailty issues predominated — hip fractures, cardiovascular problems, and the like. Today, the driver is cognitive claims — Alzheimers and other forms of dementia. Also hard to predict is the setting in which people will be given long-term care. “Back in 1988, there was no such thing as an assisted living facility,” says Ball. As it turned out, New York Life’s morbidity assumptions were close to the mark. Other insurers got these assumptions wrong, and they’ve had to make upward adjustments in their premiums.

Voluntary lapse. When people buy policies, some continue to own the policy and eventually collect benefits, while others let their policies lapse voluntarily. The “lapsers” pay premiums that don’t get refunded, effectively underwriting the cost of the policy for others. When long-term insurance was getting off the ground about 20 years ago, there was no basis for determining how many policy holders would let their policies lapse, so carriers made the best guess they could. In most cases, those guesses were wrong.

New York Life assumed in pricing its premiums that policies would lapse at an annual rate of 2% after four years, but actual experience showed that the rate trended downward to about 0.5%. More people hung onto their long-term care insurance policies than the company expected.

Mortality. The rate at which policies lapse due to the policy holder’s death is another major variable. “We now expect twice as many people to be alive at age 90 compared to what was assumed when the product was priced,” says Wolcott. “Longer life expectancies generally result in additional claims because more people utilize long-term care services at older ages.”

The explanation made sense. I didn’t like it, but it made sense.  New York Life blew two of its key assumptions (though not as badly as many other insurers did) and low interest rates depressed investment turns. Accordingly, to maintain the actuarial viability of the policies, the company had to jack up rates.

But the explanation raises a new set of questions. If policy holders sign a contract with an insurance carrier to provide a certain set of benefits for a certain price, why isn’t the carrier obligated to eat the difference when they make bad decisions? I’ve never heard of carriers filing to reduce premiums if their assumptions turn out to be too optimistic. Maybe it happens, but I haven’t heard of it. No, they keep the profit. Given the way the incentives are structured, aren’t insurance companies encouraged to low ball premiums, knowing that they can come back later and jack up rates? Continue reading

The Rise of the New Artisan Class

Botanical etching made by oak and mimosa leaves

Botanical etching made from oak and mimosa leaves. Photo credit: Tracery 157

Cathy Vaughn took the big leap a couple of years ago of going into business for herself as an artisan working in copper. While fabricating trellises, tryptics, candelabras and chinoiserie, she developed a new technique, which, as far as she knows, is a first — creating images upon copper plate from the chemicals found in leaves. The result has been a series of extraordinary images, as seen above, that look as if they could have been lifted from a modernist New York art gallery.

She arranges leaves upon the copper, wraps them in cellophane and sets them aside for about two weeks. Leaves from different species of trees have different chemical signatures, which interact with the copper to leave a wide array of colors. Art meets science as Vaughn arranges different species of leaves in varying patterns to create novel effects.

cathy_vaughn

Vaughn in her studio. Photo credit: Tracery 157

It’s too early to tell if the “botanical etchings” will become a big moneymaker, Vaughn told me at a recent arts and crafts exhibit in Richmond, but early signs are encouraging. I’m no art critic, and I’m not even a fan of modernist art, but I found many of her creations visually arresting, even beautiful. Given the fascinating narrative behind her creations, I would venture to predict that she will enjoy considerable success — not just in Richmond but far beyond.

Richmond is hardly unique in having a vibrant arts community — Charlottesville and Staunton craftsmen were well represented at the particular event I attended — but the arts and crafts movement is growing. Many Richmond-area artists have a connection with Virginia Commonwealth University’s school of the arts, while others with a graphic arts background come from the advertising/ marketing sector. Budding artists are supported by a soft infrastructure: numerous art galleries, an artists’ guild, the Art Works and Plant Zero artists’ studios and the Richmond Visual Arts Center.

It’s easy to be dismissive of arts & crafts as an engine of economic growth — the term “artsy fartsy” suggests eccentricity and dilettantism — but a fundamental shift in consumer preference to “mass customization” suggests that artists, craftsmen and the so-called “makers” are a rising economic force. Not only will the revival of artisan create employment opportunities in a slow-growth economy, there is an inherently egalitarian aspect to the movement. Artists, craftsmen and makers are self-employed. They could become the new yeoman class of the post-industrial economy.

An analogy that I draw, and other observers readily accept, is with the beer industry. A couple of decades ago, three or four monster brewing companies dominated the U.S. beer market. The main competition came from major foreign brands. Then the micro-brewery phenomenon took off as consumers revolted against the sameness of the national brands and embraced the individuality of home brews, with their novel tastes, feisty branding and personal connection with consumers. The Brewers Association counted 1,871 microbreweries, 1,412 brewpubs and 135 regional craft breweries in 2014. That year saw the opening of 615 new breweries and only 46 closings. Craft brewers provided 115,469 jobs, an increase of almost 5,000 from the previous year.

The efflorescence of the beer industry is matched, in Virginia at least, with a veritable explosion in the number of wineries, not to mention artisinal producers of meats, cheeses, breads, seafoods, pastas, dressings, sauces, and confections. The Virginia’s Finest website lists 43 categories of made-in-Virginia products from herbs and honeys to soups and nuts.

The revolt against mass standardization is nothing new. The so-called “arts and crafts” movement originated in the late 1800s in reaction to machine production, and it never disappeared. But arts and crafts appear to be undergoing a resurgence, fueled by the growing hunger for unique, hand-crafted products and the rise of the Internet as an inexpensive distribution and marketing channel. In the future, inexpensive 3-D manufacturing will open up new fields for creative expression and the invention of entirely new products.

The rise of the arts-and-crafts economy is something devoutly to be wished for. Politicians will be tempted to jump on the bandwagon and “help” by doling out subsidies of some kind or another. Arguably, the fastest way to kill the movement is to make it dependent upon government largess. However, public policy probably can contribute to the movement by enabling artists, craftsmen, artisans and makers to form co-ops and mutual assistance societies to provide for common needs such as health care, disability insurance and the like. Tax policy should cease discriminating against the self-employed by extending the same tax breaks for health care provided to corporations, labor unions and other large entities.

For the most part, though, we just need to leave the artisans alone. They are creative people, and we should trust them to figure out what’s best for themselves.

Surfing the Data Tsunami

You can either ride the wave...

You can either ride the wave…

by James A. Bacon

Data Crush is coming, and it gives us a once-in-a-lifetime opportunity to transform aging and decrepit institutions, designed for the mid-20th century. As futurist Chris Surdak argues in the previous post, the “digital trinity” — mobile computing, social media and advanced analytics — is sweeping all before it. Digital-driven innovation is outpacing the ability of our ossified structure of government, laws and regulation to keep up. Insofar as antiquated institutions are failing us, this is a good thing. But Surdak, an evangelist for the digital future, warns that every silver cloud has a dark lining.

Either you're riding the wave, or you're crushed by it.

…or be crushed by it.

Insurance companies have the capacity to collect, store and analyze unprecedented volumes of data. At present, they utilize their own data to advance limited aims such as negotiating rates with hospitals and configuring networks of low-cost providers. Soon they will supplement internal data with social media and other sources to gain insights into sociological and behaviorial  dimensions of healthcare, and then with masses of data from fitness trackers such as FitBit and Jawbone that record pulse, blood pressure, and blood chemistry metrics like glucose levels. While these technologies raise privacy concerns aplenty, consumers seem more than willing to barter away their rights in exchange for the benefits provided by these technologies. By the time politicians and lobbyists begin to grapple with these issues, Surdak argues, entire industries will be disintermediated and transformed.

Virginia can either ride the wave or let it wash over us. We can either anticipate the data crush and seek to guide it in socially positive ways, or we can accept whatever comes.

Right now Virginia’s political system is locked in a 20th-century, zero-sum debate over how to allocate the costs of health care — should Virginia expand Medicaid? Should we scrap the Certificate of Public Need regulatory process for hospitals? Almost no one is thinking about how to make the system work more efficiently to drive down costs and improve incomes in a way that would benefit everyone. (When I say “almost no one,” I have to acknowledge exceptions like Del. John O’Bannon, R-Henrico, a prime mover behind Virginia’s all-payer database, and former Virginia Secretary of Technology Aneesh Chopra, co-founder of Hunch Analytics, which applies Big Data to the educational and health care sectors.)

To my knowledge, no other state is taking the lead in thinking about the public policy implications of the Data Crush. No other state is trying to visualize the future, much less to grapple with the legal and ethical issues created by the tidal wave, much less how to ride the wave and re-shape first the insurance industry and then, leveraging the power of insurance, the health delivery system. Remember, despite the intrusion of the Affordable Care Act into the health insurance marketplace, private health insurance is still regulated by the states. Virginia still controls its destiny for private insurance.

Yes, the health care system is mired in the quicksand of subsidies, cross-subsidies and over-regulation that makes it hopelessly wasteful and unresponsive. But the Data Crush is inexorable. The potential exists to create powerful win-win-win social outcomes. Let us take advantage of this opportunity if we can.

How the Digital Trinity is Transforming Health Insurance

surdakby Christopher Surdak, JD

In his recent post, “The Politics of Big Data,” my friend and colleague Jim Bacon asked some pertinent questions regarding how our government, and our society at-large, can put data to use for the common good. In a fairly short discourse Jim hit on a range of explosive topics, from privacy, data sovereignty, property rights, Universal Service, government regulation and legislation, universal health care, Obamacare and Medicare/Medicaid, predictive analytics and preventative medicine, and more. Each of these could fill a book in their own right; I should know, as I’m working on those books right now!

Of all of the issues raised by this discussion, the one that immediately came to mind was that of the use of our individual data to support the effective delivery of healthcare. As I have written and spoken of extensively in the recent past, healthcare stands to be the industry most disrupted by the application of Big Data in the coming decade. (Indeed, I’m keynoting a discussion on exactly this disruption at the American Health Information Management Association information governance conference this week.) In no other industry is so much valuable information put to so little use, for so little gain, at so much cost, thereby leading to suffering, the waste of human life, and the ineffective expenditure of so much treasure.

Why is this so? Why is our health system so sickly when compared to that of other countries? Why does healthcare seem to extract so little value from information, when compared to other industries? Is it from too much government regulation, or too little? Is it from the influence of commercial special interests such as the payers, or the professional special interests of practitioners, such as the AMA? Is it because our technologies cannot meet our needs, or is it because we are not prepared to accept the implications of those technologies? I would argue that all of these factors are at play in this discussion; that all of the ranting that accompanied Jim’s post were all equally spot on, and all completely off the mark.

All of these positions are equally accurate, and equally pointless in the real world. Whether healthcare providers put patient data to work for the common good or their own good is irrelevant; it will be put to work in any event, with significant unintended and extremely disruptive consequences. Whether special interests or patients will benefit from the use of data is not open to question. The answer is: both will. Whether or not our privacy will be sacrificed or not is also a pointless question; of course it will. And finally, whether or not we will willingly give up our privacy in order to gain these benefits from our data is a further pointless question; we already have.

Disruption in Insurance: The Canary in the Coal Mine for Healthcare

The best example I can give of what WILL happen in healthcare over the next decade, equally in Virginia as with the other 49 states, can be seen in what is rapidly taking over the insurance industry across the country. Insurance is an old-school, highly-regulated, data- and money-intensive industry. Insurers have both access to massive amounts of very private information on all of us, and intense motivation for putting that data to use. The potential for profit, and hence abuse, is exceedingly large.

But, the motivation for using our data isn’t necessarily nefarious. Insurers look at each of us to determine our risk profiles so that they can both make money (that is, remain solvent so their checks to benefactors or debt holders don’t bounce) and provide coverage to all segments of the population at affordable prices (or at least the perception of affordability).

The regulatory framework that governs the insurance industry is well over a century old. It is state-based, state-enforced, and is designed to provide universal coverage to people from all walks of life. If you drive a twenty-year-old pickup truck, you probably pay proportionately less than someone who drives a new European sports sedan. If you’re a 60-year-old who smokes a pack a day and loves Miller Time, you’re likely to pay more for your life insurance than a 24-year-old jogger and yoga nut. Our regulatory framework has been designed to try to make insurance available and fair for all, and to ensure that insurers remain profitable, but not excessively-so.

Despite all of this, insurance is going through a fundamental, massively disruptive, and permanent transformation right before our eyes. This transformation is being driven by what I call the Digital Trinity of mobility, social media and advanced analytics. These three technologies trends are completely transforming how we live, work, play, and interact with our world, and they are causing enormous unintended consequences across our entire society. These changes are comprehensive, and old-school, hard-line, heavily regulated industries such as insurance are the MOST likely to be disrupted, rather than the least likely.

To see these disruptions consider this. Car insurers have deployed smartphone apps that allow them to track the driving behaviors of their customers in real-time, turn by turn. These apps keep track of how fast you accelerate, how hard you brake, how fast you drive down the residential streets of your neighborhood, and whether or not you text or talk while driving. These apps create huge amounts of extremely sensitive data, they are massively invasive of your privacy, they provide an enormous source of information for discriminating against you in setting your insurance rates; and they are massively popular.

If I told you three years ago that car insurance companies soon would be tracking all of this information on the drivers that they cover, you might think I was crazy. If I then told you that customers would sign up for such apps by the tens or hundreds of thousands, in order to gain a discount in their rates, you’d probably think I was certifiable. Americans are voluntarily giving up extremely intimate details on their behavior, surrendering their Constitutionally inalienable rights, and opening themselves up to all manner of government and commercial scrutiny in order to save 15% on their car insurance? Yes they are, in droves. You may think this sounds crazy, and you’d be right.

Yet, this is exactly what is going on right now. Innovators such as Progressive Insurance started these behavior-tracking apps, providing discounts to drivers who demonstrate good behaviors. These apps have been so successful, that now all insurers are scrambling to deploy similar apps with similar capabilities, while they still have time. Continue reading