In this week’s installment of Healthcare Week in Review, Oppenheimer analyst Carl McDonald and I discuss the prospects for Medicaid health plans. As bad as things look for Medicare plans, McDonald says, that’s how good they look for Medicaid plans. From the Nasdaq Market Site in New York.
Let’s assume, for argument’s sake, that a government-run health insurance option is part of the healthcare reform package that ultimately gets enacted (note: this also assumes that any healthcare reform package gets enacted). The health insurance industry is worried that the government plan will siphon off business. Well, I know four things health insurers can start doing right now to ensure they win big even in the face of a government option.
1. “Developing products and services that improve the quality of health care and help control rising benefits costs.”
2. “Providing members with access to convenient tools and easy-to-understand information that can help them make better-informed decisions about their health and financial wellbeing.”
3. “Introducing new levels of transparency to the health care system.”
4. “Pioneering new ways to focus on wellness and prevention programs.”
Coincidentally, these four quotes appeared in Congressional testimony given this week by Aetna chairman Ron Williams, pointing to investments his company is making to positively impact the physical and financial health of its customers.
Williams, like the rest of the insurance industry, is still against the government-run option. But he has mapped the road to success: it’s called innovation.
Health insurers opposed to the Obama Administration’s plan for a government-run health insurance exchange for individuals and small businesses should give a careful read to this month’s Congressional testimony by Karen Davis, president of The Commonwealth Fund.
Davis cites research suggesting that a healthcare exchange, along with other reforms, “could slow the growth in national health spending from a 6.7% annual rate of growth over the 2010–2020 period to 5.5%.”
The result would be $3 trillion in savings through 2020. Employers alone would save $231 billion, state and local governments $1 trillion, and households $2.3 trillion (or $2300 per family in the year 2020 alone). Furthermore, she notes, the number of uninsured would drop to less than 1% of the population by 2012.
These are the kind of numbers that get people’s attention.
I spoke to Davis this week, and the challenge she threw down to the health insurance industry was basically as follows: Can you get to 5.5%? In other words, can the insurance industry control costs? Considering that managing costs is supposed to be among the industry’s reasons for being, you’d think it would have a ready answer.
What exactly would a government-run insurance option look like? Below is a chart included in Davis’ testimony showing what the benefit design might include. Also below, a couple of additional Commonwealth Fund charts on projections for healthcare costs and the uninsured before and after reform.
The pharmaceutical industry is experiencing a serious innovation deficit.
It’s not all the industry’s fault. After all, it’s very difficult to discover a new drug. Finding one that deals with the various causes and conditions associated with chronic diseases like diabetes, heart disease, cancer and Alzheimer’s a is a huge challenge.
So the industry strives for important, if incremental, progress: e.g., eradication of acute infectious diseases and duodenal ulcers, increased survival rates for blood and lymph cancers, reduced incidence of coronary heart disease through use of statins.
What more can be done? What’s needed is a system that fosters exploration and development of new and important scientific observations.
The truth is that we can no longer rely on large organizations with thousands of scientists who have little room for creativity and serendipity among their ranks. While the National Institutes of Health is an excellent organization, its scientists often lack the knowledge of the drug development process to push a new drug idea forward. More and more universities are involved in biotech start-ups, but only few have the wherewithal to pull it off. Nor can we rely on investors to provide biotech funding in these difficult economic times.
Here is where government should step in with vigor. I suggest a “500 new drug ideas” initiative through NIH in which 500 start-up companies are granted $1 million each for drug development.
This is exactly the type of effort needed to foster innovation, allowing plenty of room for serendipity to kick in. The initiative would also create thousands of jobs with a relatively modest investment. Furthermore, many potential cures, now languishing in under-funded start-ups, might have a chance to see the light of day.
We need only to get five new drugs (perhaps even fewer) out of this investment to make the initiative worthwhile. With large chunks of recent government spending going to failed or underperforming institutions, this combination of potentially winning drugs and economic benefit (i.e., jobs) is a no-brainer.
Interesting data from Nielsen Online showing consumer use of top healthcare web sites, compared to consumer use of top social networking communities. CRG has a study coming out on the topic shortly.
In our weekly video with Carl McDonald of Oppenheimer, we discuss the rumors that Aetna might be interested in acquiring Humana. From the Nasdaq Market Site in New York.
This is the battle we knew the health insurance industry would fight, so it’s no surprise to see it in black and white.
“Creating a new government-run plan would thwart the ability of the health care sector to implement meaningful delivery system reforms, exacerbate the cost-shift from public programs to consumers and employers in the private market, and destabilize the employer-based system. In fact, studies show that more than 100 million people who currently have private coverage would move to the new government-run plan.”
So writes Karen Ignagni, chief executive of America’s Health Insurance Plans, and Scott Serota, chief executive of the Blue Cross Blue Shield Assn., in a joint letter March 24, 2009, to ranking members of the Senate Finance and the Health, Education, Labor and Pension committees.
The government-run plan in question is part of Obama’s healthcare reform package to reduce the number of uninsured in America. Health insurers oppose it because, well, 100 million people might pick it over a private health plan. Instead, the industry favors tax credits to help people buy insurance along with Medicaid and the expansion of SCHIP.
In exchange for no government plan, the industry is willing to guarantee it will provide insurance to anyone regardless of health status. It will also “phase out the practice of varying premiums based on health status in the individual market.”
The industry only asks for a mandate requiring every individual to purchase health insurance. It also wants to reserve the right to vary premiums based on age, geography, family size and benefit design, and to provide discounts for people who don’t smoke and participate in wellness and disease management programs.
Of course, I’m willing to bet the insurance industry would cave in on nearly all these conditions if it could vanquish the government-run option for the uninsured. The problem is, I also think the government-run option is as close to non-negotiable as you can get for the Obama Administration.
So it’s going to be interesting to see who wins this showdown. Right now, it’s advantage Obama. The very fact that the industry keeps suggesting compromises suggests it’s nervous. But I wouldn’t count out the insurance lobby; it’s pretty savvy.
My take on the government-run option is “why not?” As I wrote in an opinion piece in 2007: “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.”