Consumer Power Report #143

There has been a new flurry of worry about HSAs, prompted by a couple of articles in the mainstream press. The first is a Wall Street Journal article by Vanessa Fuhrman about WellPoint’s difficulties. WellPoint’s share prices are down 40 percent and earnings are down 17 percent this year so it is raising premiums and trying to slough off its least profitable business. As a result it has lost some enrollment, but more important is the damage to its reputation in a time of political volatility.

Ms. Furhman, who was never much of a fan of consumer-driven health, focuses her article on WellPoint’s Lumenos HSA. She says the company underestimated how funding the HSA would encourage people to use the health benefits they are paying for. She quotes one broker who says his clients are getting a 38 percent premium hike. She also quotes CHCC member Richard Taw, MD who “decided against switching to a Lumenos plan after learning premiums would jump 32 percent. He is staying with his Blue Cross of California plan from WellPoint.”

So, what’s going on? Well, a couple of things.

First, the current WellPoint is a merger between Anthem and Wellpoint, which were each in turn mergers of several local Blue Cross Blue Shield plans, each with its own corporate culture, legacy systems, and clunky procedures. The company’s growth-through-merger strategy never addressed the fundamentals of integrating these old and inefficient systems.

Second, the company thought that sheer market size could wrest greater and greater cuts in provider payments. But there is a limit to that approach. Providers cannot, should not, and will not accept payments that are less than their cost of doing business. And the clunky systems mentioned above actually increased provider overhead costs. There was no efficiency, just the opposite.

Third, WellPoint completely botched its acquisition of Lumenos. Here was a lean, efficient national organization that fully understood how consumer empowerment works. WellPoint brought it into its organization and applied all of the stuffy old Blue Cross bureaucracy to what used to be an entrepreneurial company. It voided any advantage Lumenos provided and refused to learn the lessons that Lumenos offered.

Finally, WellPoint never “got it” when it comes to CDHP. It retained all the crushing administrative infrastructure it developed for first-dollar PPOs and applied it to HSAs. The fact is that premium income drops considerably with high-deductible plans. A smart carrier will cut its administration accordingly. It does not have to process and adjudicate every $50 claim. In fact, it shouldn’t be processing anything until a customer starts to approach the deductible. That means the carrier should be cutting its administrative costs by 75 percent or more. WellPoint is doing precisely the opposite. The Wall Street Journal article says, “The company has since bolstered its claims-examining staff.”

WellPoint’s fumbles should present a pretty substantial opportunity to more entrepreneurial companies out there.

United Benefit Advisors (UBA) also has published the results of an employer survey. This is a massive national survey of nearly 13,000 employers sponsoring 18,000 benefit plans, conducted annually. The headline of the UBA press release is, “New Survey Shows Consumer-Driven Health Plans Continue To Grow.”

UBA finds “that Consumer Driven Health Plans, or CDHPs, increased by 43 percent from last year, and now comprise nearly 13 percent of all plans offered by employers. The percentage of employees enrolled in these plans nearly doubled, from six percent in 2007 to 11.2 percent this year.” It also finds that CDHPs are about to eclipse HMOs in market penetration. “Health maintenance organization (HMO) participation continues to slip, and now represents just 21.3 percent of plans offered, with only 13.3 percent of employees enrolled.”

UBA spokesman Bill Stafford is quoted as concluding, “Across the board, we’re seeing a trend toward employee empowerment and participation when it comes to health care. They’re taking more control over health care expenditures, by increasing participation in CDHPs, and they are also realizing that there are financial benefits — in addition to health benefits — of participating in wellness programs.”

Editor’s note: The following article was written by David McKalip, MD. Dr. McKalip is the founder of Doctors for Patient Freedom and an officer with the Florida Medical Association. It is particularly timely due to the massive advertising campaign sponsored by “Divided We Fail,” which distorts the truth in order to create hysteria in the country and stampede the public into supporting greater government intervention in health care. It is a tragedy that our friends at the NFIB are associated with these lies. — Greg Scandlen

Myths:
1.85 million bankruptcies a year from Medical Bills?
Millions of bankruptcies a year?

Facts:
Bankruptcies in U.S. in 2007: 822,590
– share of bankruptcies due to medical bills: 5 percent
– increase in bankruptcies for persons with Medicare (universal coverage): 125 for the 65-year-old age group, 433 percent for the 75-year-old age group.

There are many statistics being used and abused to justify various forms of health system reform. We need to evaluate these statistics and provide data that determines their basis in fact and how the numbers influence the debate. The first statistic we will evaluate is the claim on the number of bankruptcies due to medical expenses.

When organizations offer such statistics, they must be sure they do not mislead the American public. Misleading facts and myths lead to a crisis mentality and create opportunity for irresponsible health policy formation. Sadly, it appears the statistic on the number of bankruptcies reported by the group “Divided We Fail” fails this test and in fact does mislead the public.

Divided We Fail was formed over the past two years as a joint effort of AARP, SEIU (unions), National Federation of Independent Businesses (NFIB), and Business Round Table (BRT). These ostensibly disparate groups have come together to begin a PR campaign designed to drive a health reform agenda that has not yet been completely released. While the group is spending considerable funds to outline the problems, it does little to offer actual detailed solutions. Its platform focuses on increasing affordability of health care, improving health and wellness activities, and increasing prescription drug coverage. Unfortunately, they offer misleading statistics to justify their positions.

Here are examples of a misleading — or perhaps blatantly false — “facts:”

• “23 percent of Americans have problems paying medical bills, and millions go bankrupt every year because of medical costs.” (Divided We Fail Web site — www.DividedWeFail.org)

• “1.85 million Americans declare bankruptcy due to medical bills in one year.” (Divided We Fail television ad — year not given).

The problem is that there were not that many total bankruptcy filings in all of 2007! Thus Divided We Fail exaggerates the number of annual American bankruptcy filings, not to mention the numbers that are actually due to health expenses.

In addition, the study that served as the basis for these assertions (David Himmelstein – see below) has been debunked! It appears that bankruptcy due to medical bills occurs in fewer than 5 percent of bankruptcy cases, according to another study released this year (Zhu – see below).

According to Bankruptcy Court statistics, total “non-business” filings for bankruptcy (all chapters) was 822,590 in 2007. Bankruptcies peaked at about 2 million in 2005.

According to Himmelstein et al., in Health Affairs, only HALF of bankruptcies in 2001 were due to medical bills (about 700,000 — a number disputed below). Himmelstein claimed this affected 2 million Americans if you count all dependents, but he forgets that bankruptcy also occurs from many other causes that are not medically related and affect just as many people. The claims asserted by Himmelstein and a co-author Elizabeth Warren were widely disputed in multiple responses to the study, noting the leaps of logic required, faulty assumptions, study errors, and other concerns. For instance, any of the 931 surveyed respondents in the study who had more than $1,000 in outstanding medical bills associated with a bankruptcy or had a two-week loss of work due to an illness were labeled a “medical bankruptcy.”

Finally, many of the people with medically related bankruptcies had health insurance. Thus, merely being “insured” didn’t necessarily equate to being protected as so many in the “universal coverage” movement advocate. In fact, Elizabeth Warren published a study this year that demonstrated the bankruptcy rate had fallen for those under 55 since 1991 and gone up in age groups 55-64, and especially in Medicare age populations (65-74: 125 percent and over 75: 433 percent.) Clearly the universal coverage of Medicare did not protect these seniors from bankruptcy.

A recently released UC Davis Study showed that 50 percent of bankruptcies were due to personal debt from mortgages, credit cards, and overspending, with only 5 percent due to illnesses and medical bills. This study is online in a 2008 version from Dr. Ning Zhu.

So why would “Divided We Fail” offer such skewed statistics? Their motives will have to remain their own. However it is clear that politicians prefer to govern “by crisis.” By allowing the propagation of a crisis mentality, Divided We Fail makes it far too easy for politicians to invoke bad policy. In this case, politicians can claim that we must mandate health insurance or increase public financing of health care to rescue people from bankruptcies that don’t actually exist, or are grossly exaggerated, or are from completely unrelated causes of spending beyond a person’s means for luxury goods.