September 30, 2007

by Carl Mercurio “The leadership at AHIP (America’s Health Insurance Plans), headed up by Karen Ignagni, was surely leading the troops down the hallway with cartwheels all afternoon.” Carl McDonald, CIBC World Markets (New York), commenting on the release of Hillary Clinton’s healthcare plan. Hillary Clinton is no friend to the managed care industry. But that’s O.K. because health plan executives don’t like her too much either. So the industry will no doubt take a jaundiced look at Clinton’s newly released universal healthcare proposal. There are parts of this proposal that managed care companies won’t like—including calls for a minimum percentage of premiums to be spent on medical care (i.e., a minimum medical cost ratio) and plans for a Medicare-like government plan to compete in the individual market. While the industry will no doubt try to block these elements of the proposal, it shouldn’t lose sight of the fact that all told the Clinton plan is a gift to managed care—perhaps the best deal insurers could hope for in the universal healthcare debate. So here’s my advice to the health insurance industry. Get behind the Clinton proposal. Not convinced? Here are five reasons why this plan is good for managed care. 1. Membership growth opportunity. The plan mandates that everyone in the country purchases health insurance—with subsidies and tax credits provided for those too poor to pay. Large employers that don’t offer coverage will face penalties. Small businesses will be given tax credits to buy health insurance for their employees. All of this should help boost managed care enrollment— welcome news to an industry struggling with stagnant growth. There are more than 45 million uninsured in the U.S.—or 15% of the population—representing a considerable business opportunity. 2. Central role for managed care. The plan keeps intact the employer-sponsored health insurance model—ensuring managed care companies a continued central role in the provision of health insurance. People who like their current health insurance plan will be able to keep it. Most will. Those not enrolled in an employer-sponsored plan will have the option of buying coverage through a purchasing pool administered by the Federal Employee Health Benefit Program—the same program that provides coverage to government employees, including members of Congress. In fact, the menu of options offered through FEHBP would be the same one available to Congress, which includes hundreds of managed care plans. In addition to managed care plans, there would also be a public plan similar to Medicare. As previously mentioned, this is the part of the proposal the managed care industry will likely line up against. But managed care plans have always maintained that their products are better than government-run programs (e.g., the industry has long argued that Medicare HMOs are superior to traditional Medicare). So the industry should welcome an opportunity to go head-to-head with any public plan. Health plans that can’t compete on a level playing field deserve to be shown the door. 3. Expanded insurance risk pool. Health plans that participate in the purchasing pool will not be allowed to deny coverage or charge exorbitant premiums to people with pre-existing medical conditions—a potential problem for health plan profitability. The question is whether the universal coverage mandate will expand the insurance risk pool enough to act as an offset. I’m guessing the answer is yes. We know that a fair percentage of the uninsured are young and healthy people who don’t think they need health insurance. There’s also a percentage that are rich enough to forgo insurance. Adding these healthy individuals to the risk pool will act as a buffer against any spikes in medical costs as newly insured sick people finally get the opportunity to properly access the medical care they need. 4. Healthcare Delivery System Savings. Clinton wants to fund her plan—which she estimates will cost $110 billion—in part from savings through efficiencies in healthcare delivery, savings which for the most part aren’t negatives for managed care and in some cases could be beneficial to managed care. She’s expects billions of dollars in savings by allowing the government to negotiate Medicare drug prices with pharmaceutical companies and by reducing payments to hospitals for uncompensated care. No negative here for managed care. She expects even bigger savings from the modernization of certain elements of the healthcare delivery system. Her plan calls for increased use of information technology, a crack-down on misleading direct-to-consumer drug advertising, chronic care coordination, disease prevention, use of clinical best practices, reductions in medical errors, and increased use of generic drugs. There’s a lot there managed care can support. True, the Clinton plan calls for a $10 billion reduction in “Medicare overpayments to HMOs and other managed care plans,” but a lot of people have been calling for this—with or without the Clinton plan. 5. Political cover. If Hillary-Care Part Deux turns out to be a disaster, then managed care plans can say, “I told you so,” and use the failure to bury a political opponent. If it works, health plans will benefit from increased membership and an end to calls for single-payer proposals that would put the health insurance industry out of business. Am I being too cold-hearted and cynical? Well, I have news for you. Business and politics are cold-hearted and cynical. The truth is that the Clinton plan (and let’s face facts, her plan isn’t all that different from those of her rivals for the Democratic Presidential nomination) probably has the best chance of succeeding politically. It’s clear she’s learned some hard lessons from her failed universal healthcare effort of the 1990s and is now seeking consensus rather than conflict. The last thing the managed care industry needs is another ugly national debate that ends with nothing getting done. Even AHIP knows that a workable solution to the problem of the uninsured is a key to the industry’s long-term viability. Final note: The Clinton healthcare proposal is about universal coverage. But there’s another issue: that is when insurance companies refuse to pay for treatment for their own sick members—a topic tackled by Michael Moore in his movie Sicko and covered before in this column http://www.corporateresearchgroup.com/weekinhealthcare.cfm?ID=91 . It’s not clear to me how the Clinton plan solves the second issue, and I’ve seen nothing to suggest that the managed care industry has the good sense to come up with a solution on its own. ______________________________________________ Carl Mercurio is a leading healthcare industry analyst and the president of Corporate Research Group, which produces a variety of news and information on the healthcare industry. He is the host of Healthcare Week in Review and oversees the editorial content of the leading industry newsletters Managed Healthcare Market Report and HSA Market News.

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