The theory of the moral hazard hypothesis goes something like this: moral hazard occurs when a party isolated (set-off) from risk may react differently than it would if it were fully exposed to the risk. In the case of risk aversion, insurers are stepping up concerns that families will seek coverage under new reform laws only after their children fall ill. They contend that the ability to keep this from happening will contain costs and premium increases.

The White House seemed to be waiting for the line to be drawn in the sand before responding to this potential reform-killing measure — that is, until Insurance essentially threatened ending children-only plans under reform altogether in some states.

Some state insurance commissioners expressed concern that, without an open enrollment period that was widely communicated, people might wait until their children got sick to enroll them in coverage, causing plans’ costs to increase. And we were concerned when last week, some indicated that insurance companies would choose to stop offering policies for children rather than cover kids with pre-existing conditions.

HHS has since clarified the administration’s position on this matter issuing an advisory stating the formation of open enrollment periods, outside of which coverage will not be provided. Now, the distinction between children with congenital and pre-existing conditions and those with acquired, high-cost diagnoses is more clearly defined — for the purposes of the insurance companies, that is. | LINK

Got a gripe with your health insurer? You may be in luck. Under the new reform law, President Obama is making it easier to file appeals and have them evaluated because of a rejected claim. Prior to reform, the appeals process differed among insurers, adding to the bureaucratic “justification” for the rather phlegmatic approach to such issues in the past.

Now, consumers will appeal directly to the insurer. If they’re denied a second time, they can go to an independent reviewer whose decision is binding. Health plans must pay the cost of outside appeals, and if they’re overruled, they must cover the disputed claim in full. Consumers can also use the appeals process if their coverage gets canceled. The program will benefit almost 90M policyholders by the law’s totality in 2014. | LINK

• It’s on. The mega union only needed 66%. They got over 80% ‘yea’. [LINK]
• At ninety days into the new reform law, Obama makes public safeguards inherent within. [LINK]
• FDA approves new diagnostic test that more rapidly detects antibodies and antigens. Excellent. [LINK]
• More controversy than there needs to be? The president’s pick to be new CMS chief engenders strong feelings on both sides [LINK]

Hospital executives who have worked with Dr. Berwick describe him as a visionary, inspiring leader. [..] Republicans are using the nomination to revive their arguments against the new health care law, which they see as a potent issue in this fall’s elections, and Dr. Berwick has given them plenty of ammunition. In two decades as a professor of health policy and as a prolific writer, he has spoken of the need to ration health care and cap spending and has confessed to a love affair with the British health care system.

If you can’t beat ‘em, join ‘em? The AMA just released its annual report card on insurers this week, and in the organization’s sights this time is the lack of accuracy in claims processing. Over $200B is spent annually on this mechanism, and the AMA says that 80% of the time, insurers matched payments to providers.

But can this benchmark be increased with greater physician input and cooperation? According to the AHIP, it must. The insurance lobby says the path to complete compliance in this area could go a long way in reducing overhead for Insurance, collectively. They contend that providers and insurers must share in the innovation invested on both sides to make this happen. | LINK

Former HHS Secretary from the Clinton Administration, Donna Shalala told a standing room only crowd at the AHIP convention in Las Vegas over the weekend that the recently passed healthcare reform bill’s ultimate utility will depend more on the influence of insurers and not of the government.

“The American people voted not for a government takeover of healthcare, but they committed themselves to the employer-based system and private delivery,” she told the insurance industry crowd during a session titled, “A Way Forward: Next Steps for America’s Health Care System.”

While “a great deal of money” will be spent on public insurance programs, including Medicaid and Medicare, the “basic core” of reform will involve private insurers, she said.

Kudos to Shalala for being honest in this assessment. Although many insurers have begun taking steps to work within the framework of changes that will begin within the next two to four years, the reality is that private insurers will always have a stake in healthcare delivery. The development of exchanges, private-public contracts, and other mechanisms will be the result of the necessity to create innovation to maintain a robust healthcare marketplace. | LINK

HHS Secretary Sebelius is warning insurers’ Medicare Advantage contracts not to increase premium rates for their beneficiaries. This is ahead of insurers’ submissions of plans to the feds yesterday. The memo also comes on the heels of many Congressional Democrats asking the government to evaluate thoroughly the cost of those plans.

The issue of overpayments to insurers by the government is of prime concern to Sebelius and the White House. But, not according to the AHIP — which is lobbying for increased rates at which the feds pay them. The AHIP says that stagnant rate schedules from 2010-2011 and pending cuts to the insurers who contract with CMS based upon the new reform law essentially forces them to push for greater payments. It’s a classic let-the-market-run-itself scenario versus the continued fleecing of the largest subsidized healthcare coverage program in the country; and there are probably elements of both at play at any given time. | LINK

Is the President waging an apparent one-man war as he still continues to gauge support for his nascent reform overhaul? As recently as a couple of days ago — as part of his weekly address — he renewed attacks on Insurance, noting that “For too long, we have been held hostage to an insurance industry that jacks up premiums and drops coverage as they please. But those days are finally coming to an end.”

Naturally, this message was directed to WellPoint, the California insurer which came under fire during the latter stages of the reform bill fight in Congress; it was accused of raising premiums to astronomical levels, establishing a fighting target and kicking off a newfound confidence in the President in getting his plan passed into law.

WellPoint’s CEO specifically responded to Obama and essentially told him to stop the attacks.

WellPoint Chief Executive Angela Braly fired back. In a letter Sunday addressed directly to Obama, she noted that policy changes were underway nationwide, and she called on him to stop his attacks on the industry. It will take cooperation between the industry and government to implement the new healthcare reform law, she said.

WellPoint also backed down and pledged its own internal investigations when recently accused of rescinding coverage to previously covered policyholders obtaining breast cancer treatments. HHS Secretary Sebelius and, now, Senator Diane Feinstein (D-CA), are urging for more discussions with the CEO and others to address this issue. Of course, this all begs the question — as insurance companies are supposed to be working with the President before the law requires them to specifically do so — can’t they all just get along? | LINK

When I was much younger — college age, to be exact — I could count on the fact that my parents’ health insurance policy generally covered me adequately…but only until age twenty-one. Under the provisions of the health reform law, the extension of that coverage has lengthened, covering policyholders’ dependents until age twenty-six. Although this coverage does not specifically require insurers to participate until September, may are choosing to roll out the extended coverage much sooner.

New provisions also mean regulatory mechanisms. With respect to this coverage, adult children beneficiaries of policyholders must receive coverage and benefits equal to those who did not lose coverage because of the cessation of their beneficiary status. This may translate into higher costs to implement the plan on a larger scale. HHS has termed these benefits as “essential health benefits”. Of course, the plan would subsidize care for parents who fall within poverty line guidelines (income within 400 percent of poverty) or via cost-sharing (for incomes of up to 250 percent of poverty). | LINK

Are they doing this out of the goodness of their hearts? A number of insurance companies are opting to provide agreed upon provisions as part of the healthcare reform bill much earlier than they need to. Among the benefactions are the cessation of the practice of policy rescission (denying previous coverage after claims scrutiny) and the extension of dependents’ coverage as part of guardians’ plans.

“Our focus right now is on implementing these reforms in a way that’s going to minimize disruption and provide greater peace of mind for the more than 200 million people we serve,” Robert Zirkelbach, a spokesman for the industry group America’s Health Insurance Plans, said Thursday.

Peace of mind for patients from Big Insurance? What about the primary care physicians who have to deal with these changes on top of the administrative roadblocks they now so adeptly navigate? If this NYT column by Pauline Chen is any indication, Insurance’s newfound goodwill is PR cover for the physicians who act as middlemen in making sure that their patients continue to receive the care they were trained to provide amid all these changes. An unforseen by-product of health reform may be the quixotic notion of insurance companies’ benevolence which belies the angst of so many physicians who simply want to continue to provide the best care for their patients.

The House may have closed the current chapter on health reform, but, as far as the discussions on the implications of the trajectory of the legislation (it goes to the Senate next) are concerned, the parties most excoriated by the House bill’s mandates^[1] want relief — without filibuster politics.

The focus on the Senate’s policymaking is most important, if only for the possibility of using delay tactics to keep Obama from capitalizing on his perceived victory from the House vote. With the usual suspects (Pharma, AHIP, small business) criticizing Saturday’s vote as a referendum on reckless healthcare spending, it is no secret that the push is on for final merging of the Senate bill to resemble the Finance Committee version — the most fiscally viable for these groups. And the public option? Although many of its foes admit that any inclusion therein is unpalatable, the realization of the American public’s desire for some form of social reform as one that cannot be dismissed is stimulus enough for — at least — an olive branch^[2] to be thrown in the direction of progressives.

But, is criticism of the House bill more a PR issue than a strict policy issue? What exactly is the magnitude of harm that can be done to third parties that stand to otherwise profit more easily? Some say not much at all…that the degree of damage to healthcare industry bottom lines is more about maintaining political allegiances than predicting a dire future for healthcare financing out of genuine concern for the healthcare consumer. The easiest way to keep that status quo is not to let up on influencing Senate vote; Insurance and Pharma wouldn’t have it any other way. | LINK to provisions of the House bill

1. Insurers balk at government competition; Pharma winces at drug rebates  and reimbursements payable to the federal government over the next decade. [↩]
2. opt-out or -in clauses for individual states, for example [↩]

President Obama just wants to make everyone happy. At least that was the impression he put forth on the campaign trail: unity among all in the desire for change. Ten months into his first year, he’s had to make much in the way of compromise. On his top domestic policy issue – from contentious townhalls to circumspect senior citizens — Obama has had to rely heavily on his immense powers of articulation more than any other president in recent memory to straddle to the tightrope of public opinion to get his heatlhcare reform ideals passed. His efforts to marry apparent discordant entities (i.e., the role of insurance companies in a public option provision) within the reform debate have been stressed lately on the heels of his recent address to Congress on healthcare reform. As the president knows, it will take more than just a kumbaya approach to reform if one is serious about calling health reform what it is and what it isn’t — insurance reform.

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By now healthcare policy watchers everywhere know that the Baucus Senate Finance bill passed and that Olympia Snowe’s (R-ME) moderate voice was the lone Republican modicum of support. Next up — no more than two weeks (according to Harry Reid [D-NV] — majority leader) of debate before the final floor bill. Besides keeping busy with the pending debate, possible reconciliation, and floor vote; senate Dems are busying themselves with another cause. The deer in the health reform headlights is none other than Insurance itself.  Whatever the reason, the eleventh hour report the industry’s lead lobby — the AHIP — rapidly rolled out on the eve of the Baucus bill vote has complicated matters for themselves. If the AHIP thought that this move would help their cause by drawing a line in the sand, it’s done nothing but inflame all three (four?) sides of the healthcare debate: the Republicans, Democrats, Obama & the WH, and the healthcare beneficiary.

It’s the latter demo that the other three have to contend with over the next crucial 14 days before the most sweeping changes in 65+ years in healthcare delivery occur. Vitriolic townhalls may be a thing of the recent past, but the public’s ire over what is now seen as insurance reform (as opposed to true grassroots healthcare reform) is sure to grow over the next few days – in part due to the latest stirrings by the AHIP. Obama’s spearheading of the reform debate up to this point has generally been heralded as positive, if not mildly successful. But that victory may be a pyrrhic one if many see this detour on the road toward reform as beholden in some part to Insurance.

As the blending of the House and Senate versions of the reform bill coalesce for a vote on its passage, Democrats (who, let’s not forget, own the majority in both houses) must continue to frame the debate on reform as one of guaranteed access that won’t bankrupt the “system” by skewing risk pools, as the AHIP’s report suggests.^[1] Sound fiscal arguments persuasive enough to woo and keep moderate Republican interests like Sen. Snowe are the Dems’ best shots at melding a bill that will please many at the expense of a dilute public option.

1. The AHIP says that young healthy ‘invinvibles’ will not gravitate toward coverage and spread the risk pool, causing an incentive for the sickest, oldest, and neediest to clamor for it — driving up costs. [↩]

This morning’s vote on the health reform bill is as anticlimactic as it is divisive. After weeks and months of speculation, townhall harangues, and political incivility, the Baucus bill^[1] and its more liberal cousin^[2] will merge and go the floor. It’s a foregone conclusion that the bill will be more notable for what it does not contain than for what it does — mainly a so-called public option provision that is enough to satisfy Obama’s more politically Left base.

Fueling the the events today was the release of a report on Sunday (which the White House denounces as a political ploy at influence peddling) from the AHIP lobby detailing the rapid increase in premiums [PDF] if Baucus’s plan saw the light of day. No matter, according to Baucus — as he has the votes to pass his version. Responses are coming out of the woodwork on the heels of today’s vote. A few:

• A leading hospital lobby seems to be backtracking on recent total support of the Baucus plan. The hospitals, which agreed to contribute $155 billion in savings over 10 years toward an overhaul effort, have said that not enough new people would be covered by the finance committee’s final version.
• Some physicians who practice in highly technological subspecialties feel unfairly targeted — as they have complained about provisions in the legislation, including a measure that would penalize physicians in the top 10 percent of spenders. Additionally, some medical device makers oppose a tax provision in the Senate Finance bill that would require them to pay $40 billion annually.
• The AHIP (the organization at the center of the current Hill firestorm) considers the Finance committee’s measure to be one it generally supports but still retains concerns over the ability for insurance companies to reach “higher coverage targets”.

Although there are key differences the White House says Insurance completely ignores, like the utilization of healthcare exchanges to ensure future cost savings; there is generally broad bipartisan agreement on issues of the abolition of preexisting condition provisions, preventive care initiatives, and EHR implementation. The road to complete agreement on how to spend dollars to achieve these goals is a different matter altogether, however.

1. so named as its chief architect is also the Finance Cmte. chair [↩]
2. courtesy the Health Employment Labor and Pension Committee [↩]