Category Archives: Insurance

The Radioactive Donors In 2019? Healthcare

Money (And Hypocrisy) In Politics

By Steve Haner

The following is one of my “revise and extend” follow-up posts, this one adding detail to an exploration of the raging attacks on Republican efforts to offer alternative health insurance plans.  You can read the original post on the Jefferson Policy Journal.    

Not many months ago, it was a safe bet that by late October the campaign attack ads would focus on utility contributions. There is still time for that to appear. Dominion Energy clearly expected that, as evidenced by a full page, very defensive advertisement in Wednesday’s Richmond Times-Dispatch. Then there is its most cloying television ad yet.

You’ve seen it, of course – the lovely young lady whose Daddy is a deployed Dominion employee. Instead of wearing a U.S. Army or Blue Star cap, she sleeps and poses for school pictures in his Dominion Energy hat. Now, how could a company engendering that kind of love and loyalty be misbehaving?

Continue reading

Will These Insurance Ads Also Sway VA Voters?

“You Only Pay For What You Need”

By Steve Haner

As the state campaign debate rages about health insurance plan which are short term or less comprehensive than the Affordable Care Act, two  on-going national ad campaigns may cross-pollinate the debate.  They are bolstering the Republican position nicely.

The first are the spots with people saying they are worried about the various Medicare for All proposals. They express concerns about a more expensive one-size-fits-all approach. Well, isn’t that exactly what Democrats like Senate candidate Debra Rodman and other others are demanding in Virginia? One size fits all? In several districts they are attacking Republicans who voted to allow lower cost alternatives that didn’t offer all ACA features.  Continue reading

SCC Told It Lacks Authority to Limit Balance Billing

by Steve Haner

The arguments which have paralyzed Virginia General Assembly efforts to end surprise bills from medical providers are surfacing again in comments to the State Corporation Commission.  It is considering an internally generated regulation that requires advance consent from patients to be treated by someone outside their approved health plan.

As proposed in June and reported by the Richmond Times-Dispatch, the regulation addresses only elective medical procedures, not emergencies.  It is tied to legislation which passed in 2019 that requires written notice to patients of the possibility some provider on their care team might be “out of network” and thus send them a separate bill outside their insurance contract.  Continue reading

Health Insurance Check-Up; Migration to Medicaid

Number of carriers selling individual health insurance policies for next year by locality. Most places have only one or two. Source: SCC. Click for larger view.

The number of Virginians buying health insurance as individuals is shrinking and may shrink more, with two trends getting most of the credit:  Expansion of Medicaid eligibility and a change in the law that allowed those in business as sole proprietors to buy policies in the small group marketplace.

Individual coverage peaked at 418,000 Virginians in 2016 and dropped to 300,000 by March of this year.  The projection for 2020 is about 303,000 covered that way, the State Corporation Commission was told in a presentation on the health insurance market released July 18.  You can see the full presentation here. Continue reading

Long-Term Care: A Great Bet If Made Long Ago

It is just like your econ professor told you – insurance is nothing but a bet.  It is a bet you often don’t want to win, but in one field you had a great chance of winning simply by hanging around and continuing to breathe.  That field is (or at least was) long-term care coverage.

Two top executives from major insurers told the State Corporation Commission last week just how badly their companies calculated the risk on long-term care decades ago.  They were seeking to explain the major premium increases their companies are seeking here in Virginia and all around the country in a proceeding previewed (here) in March on Bacon’s RebellionContinue reading

Are PBMs Killing Pharmacies, Hiking Medicaid?

Stoney Creek Pharmacy, Nellysford, VA

A form letter mailed this month announced the death of another local independent pharmacy, this one in the bustling community of Nellysford.  Residents of Nelson County’s Rockfish Valley, including those in the large Wintergreen community, will join plenty of other rural areas in the U.S. without a pharmacy close by.  Continue reading

Boomergeddon’s Coal Mine Canary Sings Warning

Angry consumer complaints are starting to appear on a growing case record at the State Corporation Commission, which opened the case on its own authority to demand insurance company presentations on the long-term care product market and its history of massive rate hikes.

A typical comment so far: “This frankly, appears to be a ploy of the insurance providers to raise rates so high that they will be completely unaffordable, everyone will drop their policies and the insurers will be able to exit the long term care industry. Consumers must be protected from these predatory practices and these rate hikes must be denied by the SCC.”  Others (the record is here) detail years of steady premium increases and benefit reductions.   Continue reading

More Medical Insurance Mandates on the Way

Kara Murdoch. Photo credit: The Virginia Mercury

Kara Murdock, 28, lost her right hand and forearm five years ago due to a blood clot, and she has been trying without success to get a prosthetic. Her health plan turned her down when she was covered by her parents’ insurance, and now that she’s on Medicaid under the Medicaid-expansion program, she wants to make sure that her new coverage will include prosthetic devices. So reports The Virginia Mercury in an article about proposed legislation to require all health plans operating in Virginia, including Medicaid, to cover prosthetics.

Murdock’s case is a tragic one — read the story for painful details — and I have no doubt that legislators will be moved by her plight. A bill to mandate prosthetics coverage has been forwarded to the Health Insurance reform Commission, where all new mandates must be studied before the General Asssembly can pass them.

But the argument for a mandate gets complicated. Continue reading

Republicans Endorse Autism Bill. In Other Business, They Buy Pig in Poke

Bacon as beast

Republican leaders in the House of Delegates have endorsed a bill to expand coverage for children with autism. Existing law requires health insurers to reimburse autism treatments for children between 2 and 10 years old only. The proposed law would eliminate the cap.

The expanded coverage, which would help an estimated 10,000 people, would cost the state about $237,000 in additional healthcare insurance premiums, according to the Washington Post. Neither the WaPo nor Richmond Times-Dispatch provided an estimate of how much the measure would cost all Virginians, not just state employees. Continue reading

Filling Virginia’s Flood Insurance Gap

by Lisa Miller

A new Federal Emergency Management Agency report is shocking: 69% of Virginia homes in high risk flood zones do not have flood insurance. Another report reveals 17% of Virginia properties should be listed in high risk zones – but are not. Congress’s continued failure to reform an increasingly expensive National Flood Insurance Program (NFIP), coupled with last year’s record-setting floods and now Hurricanes Michael and Florence, has created an urgent need to improve the availability and affordability of flood insurance. The Virginia General Assembly and legislatures in other states can help address this dangerous situation by encouraging a larger private flood insurance market.

There is only one private insurance company writing primary flood insurance in Virginia, defined as up to $250,000 in coverage. Although 106,000 Virginians have NFIP coverage, FEMA’s report, “An Affordability Framework for the National Flood Insurance Program,” found that only residents with higher incomes are buying it, leaving an ever-growing majority of others unprotected.  While FEMA studies the situation, the private market is moving ahead and delivering more affordable flood insurance where it can.

New catastrophe models are allowing insurance companies to better understand risk and thus accurately price flood premiums – down to the individual property – providing greater consumer choice and alternatives to the federal NFIP. When state government encourages it, a vibrant, competitive environment emerges as it has in Florida where, in just 3 years, almost 30 companies are offering better coverage at a cheaper price. In Miami-Dade County, ground zero for Hurricane Andrew in 1992, one private insurer’s average premium is $677 compared to the NFIP’s $980 average.

Catastrophe models, model law. The use of catastrophe models in setting rates isn’t new. But it’s usually used together with claims data, something the NFIP hasn’t been willing to share, citing privacy concerns. Also, greater consistency is needed among individual state insurance departments on how catastrophe models may be used in submitting rates.

The National Conference of Insurance Legislators (NCOIL) has begun reviewing a simple two-page proposed draft law, based on Florida’s, whose concept is, “If you build it, they will come.” The draft law permits companies, as an example, to test market rates in order to promote competition and choice, with the regulator approving policy language if a state requires a review (some do not) to ensure policies meet or exceed NFIP coverage.

The model law also ensures that insurance agents educate consumers about the dangers of going without coverage, and that insurance commissioners certify that policies are adequate to meet mortgage banking requirements. The safeguards in this simple model law will reduce our reliance on federal flood insurance.

Some in the insurance industry are concerned that this proposed regulation is overreaching or unnecessary. It is nonetheless designed to provide suggestions to regulators and those regulated on how to work together to launch and grow a successful market. What isn’t in dispute is private flood coverage’s cost savings, improved benefits, and greater consumer choice.

Start the conversation. NFIP premiums are rising an average of 8% this year but in some areas by 18%,the maximum annual increase allowed under law. So it just makes sense for state legislators and regulators to begin the conversation to fast-track the growth of a private market, which has the added benefit of spreading the risk to private insurers and away from U.S. taxpayers.

Too many Virginians are unprotected from the hazards of flood waters. There’s an urgent need to improve the availability and affordability of flood insurance so more homeowners are able to buy protection for their property and families. While Congressional paralysis stymies needed NFIP reforms, we must work toward model private flood insurance legislation to let Washington know “we got this.”

Lisa Miller is a former Florida Deputy Insurance Commissioner who served as an advisor on passage of Florida’s key laws encouraging a vibrant private flood insurance market. She is CEO of Lisa Miller & Associates, a Tallahassee, Florida-based consulting firm. @LisaMillerAssoc

Local Governments’ Alarming Capital Spending Ratios

Reinvestment ratios for Virginia cities and counties have been declining in recent years. Source: Moody’s. (Click for larger image.)

I’ve been strenuously making the point over the past several months that there are many ways for state and local governments to run hidden deficits. One of those is deferred maintenance — an issue that has played out most prominently in the debate over aging, run-down school buildings. What I never realized is that there is a way to measure the extent to which local governments kick the maintenance can down the road. It turns out that we can track what Moody’s calls the “median capital asset reinvestment ratio.”

I cannot find an exact definition of this ratio, but, generally speaking, it expresses a local government’s capital investments as a ratio of its assets. A higher ratio indicates that local governments are spending more — building new buildings and infrastructure and/or renovating, retrofitting and otherwise updating older facilities. A lower ratio is a tip-off that a local government might be falling behind on repairs and maintenance.

The chart above shows that Virginia localities had healthy capital asset reinvestment ratios a decade ago, but those ratios have declined sharply in recent years — barely reaching replacement value for Virginia counties. As Moody’s writes in a recently issued report on the credit quality of Virginia localities:

The condition of capital assets has suffered from a lack of investment. Asset quality will likely improve if local governments make capital investment a priority. But funding will be a challenge, given the already above-average fixed-cost burdens many Virginia local governments carry.

A slowdown in capital investment is reflected in another statistic, the median age of capital assets.

Median age of capital assets, Virginia cities and counties. Source: Moody’s.

As this graph shows, the average age of Virginia’s capital assets is steadily and relentlessly increasing for both cities and counties. Needless to say, there is variability between jurisdictions. Some localities do a better job of maintaining the level of capital investment than others. The Richmond Public School System is noteworthy for doing a particularly poor job — keeping open more schools than justified by the number of students and scrimping on maintenance and repairs. But the problem goes far beyond the City of Richmond.

Growth Ponzi scheme. In past posts I have discussed Charles Marohn’s concept of the “growth Ponzi scheme,” a malady afflicting fast-growth counties. Under the logic of the growth Ponzi scheme, counties encourage inefficient growth (low-density, autocentric, segregated land uses in contrast to walkable, mixed-use projects) to get a quick hit of revenue from new development. Typically, developers pay for their own roads, water and sewer, plus proffers and impact fees, and then turn the assets over to counties for maintenance, so counties have only modest up-front costs. After 20 or 30 years, however, the assets need replacing and aging and tax-inefficient projects now cost more than they reap in revenue. Counties have kept the system going by soliciting more growth.

Eventually, the Ponzi scheme sputters and stalls. Counties run out of new land to develop. Recessions put an end to growth. We can see this happening in the top chart. In the go-go days of the early 2000s (not seen on the chart) and even in the recession, Virginia counties dedicated considerably more to capital investment than did cities. They built a vast, costly infrastructure of roads, utilities and other public amenities. Since then, maintenance has consumed an increasing share of capital spending. Absolute levels of capital spending may look robust compared to past levels, but as a ratio of assets, they’re not.

If you think Richmond Public School buildings are a blight, just wait twenty years and see what happens to the infrastructure quality of Virginia counties as they continue to under-invest in capital spending.

Essential ratios. There are undoubtedly complexities and nuances to the capital spending I’ve discussed here. And a general statement that applies to one locality may not apply to another. But these ratios are critical to evaluating the fiscal health of local government. Every city and county manager should have these ratios at their fingertips. Every council and board member should know them by heart. If they don’t, they have no idea what they’re doing, and they should be booted out of office.

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