A bitter pill to swallow

First published in ITIJ 104, September 2009

reform1The impact of possible healthcare reforms in the US on international travel insurers is being hotly debated in the industry, but what could the true knock-on effects be? Milan Korcok analyses the potential for change

America’s healthcare reform debate has turned ugly, with beneficiaries of private insurance fearing erosion of their existing coverage, and proponents of a government subsidised ‘public health’ option – chief among them President Barack Obama – demonising private insurance companies as plunderers who have ‘reaped windfall profits from a broken system’.

Instead of the vaunted ‘bipartisan solution’ that Obama promised early in his term, the road to healthcare reform is strewn with hostility, contradictions, and an animus not seen in Washington for years. Politicians home for the holidays have literally had to bring in police and security guards to keep their ‘town hall’ meetings on healthcare from yielding casualties or maybe even fatalities.

Though the president’s target for much of this hostility has been the private health insurance industry that drives America’s employer-based health insurance system, international travel insurers have much at stake in the way this debate plays out and in any health reform package that emerges for the president’s signature – assuming one does.

Convoluted care

Without alliances with domestic health insurers, provider networks, and cost containment and managed care companies, foreign travel insurers would be virtually defenseless in dealing with the labyrinthine American healthcare system. Alone, they don’t have the ability to refer significant numbers of patients, ergo the bargaining power, to demand discounts, or even the ‘usual, customary and reasonable’ fees that sustain the health system reimbursement structure.

When lawmakers get back to work in September, after their summer recess, they will resume work on the five different health reform bills now working their way through Congress. Somehow they will have to cobble them together, drop certain items and add others before they can present the president with a bill he can sign – he hopes before the end of this year. To date the various bills have yielded an outline of what the core of reform might look like: requiring all individuals to have health insurance (currently some 47 million Americans do not), requiring all businesses to offer health insurance to their employees, barring all insurers from imposing pre-existing limitations on applicants, imposing tax penalties on businesses that don’t comply, and dozens of other guideposts to allowing Americans fairer and easier access to care.

"the road to healthcare reform is strewn with hostility, contradictions, and an animus not seen in Washington for years"

But it is the inclusion of a public, government-run and subsidised health insurance plan, modeled after Medicare (which insures the elderly), that has polarised public opinion and forced Obama to move back his deadline for health reform. The arguments, as simplified by proponents on each side, go something like this:

(a) Without a public health option, which would offer cheaper government-subsidised insurance, private insurers will continue on their errant ways, cherry picking healthy applicants, raising premiums at will and leaving millions uninsured;

(b) On the other hand, it is argued, the availability of a cheaper tax-subsidised insurance option will drive private insurance (which now covers two thirds of Americans) out of business and deprive those who now have private insurance with which they are quite happy to migrate to the cheaper, poorer quality, rationed type of single-payer system that exists in Canada.

International impact

Soraia Lynch, executive with Florida-based GMMUSA, a cost containment company serving international insurers, emphasises: “Plain common sense tells us that we cannot add an additional 47 million people to the health insurance scheme and not expect the programme to cost more money.”  In this, she is backed up by the government’s own Congressional Budget Office (CBO), which has projected that any of the bills now working through the legislative process will shift the healthcare cost curve sharply upwards, not downwards as the president has repeatedly promised. The CBO has projected that the current health reform plans with their public health option will cost well over one trillion dollars – an assertion that virtually paralysed many of the legislators who had backed the public health option earlier. 

Lynch also makes the point that the inclusion of a public health option, based – as it is now projected – on existing Medicare rates (which hospitals and doctors say don’t cover their costs,) will inevitably lead to cost shifting – moving unpaid costs along to those who  do pay, i.e. private insurers. This kind of cost shifting has been a reality of the American health system since the advent of managed care in the 1980s and has seen America’s healthcare bill run to almost 17 per cent of gross domestic product – much more than any large nation on earth. International travel insurers have long considered themselves victims of this kind of cost shifting.

When private domestic insurers are forced to pay more to compensate for underpayers, such as Medicare patients, so are international insurers, who increasingly piggy back their deals with hospitals on the contracts of domestic insurers and managed care companies.

President Obama, and his accomplices in Congress, see the public health option operating on a Medicare fee structure – which means than healthcare providers are paid rates set and regulated by government (given local variations, wage scales, costs of living, etc.) These vary wildly from community to community but are subsidised to give tax-paying American consumers a break. And though international insurers sometimes try to peg their reimbursements to these levels, hospitals and doctors say that’s not good enough. They say these rates are meant for American taxpayers not foreigners who do not pay US taxes.

reform2The insurance conundrum

Recently America’s Health Insurance Plans (AHIP), the national association representing private health insurers (including not-for-profit companies) released a study showing that many California hospitals would face substantial net losses if there was a large scale shift of patients with private coverage to a government-run plan that reimburses providers at Medicare rates or Medicare plus 10 per cent (an index sometimes used by domestic or foreign insurers as a negotiating baseline).

According to the analysis, if half of patients with private coverage moved to a government-run plan that paid Medicare fee-for-service (FFS) rates, many Californian hospitals would be forced to operate at a net loss, some facing a loss of as much as nine per cent.  If all patients moved to a government-run plan that paid Medicare FFS rates, virtually every hospital in California would be forced to operate at a net loss, with some hospitals facing losses of as much as 34 per cent.

This same study showed that government programmes such as Medicare and Medicaid (for the poor) in California cover only 81 per cent of hospital costs, which means that shortfalls get passed through the healthcare system to the consumer, employers and all other insurance payers through higher premiums, co-payments and out-of-pocket fees. It concluded: “As more people move to the government-run plan, there would be fewer people with private coverage to offset these costs, causing premiums to increase even further. This would ultimately lead to a ‘death spiral’, resulting in a mass exodus from private insurance to the new government-run plan.

AHIP itself has been particularly active in advocating a major recasting of private insurers’ roles: ending cherry picking, ending pre-existing conditions limitations, and extending health insurance to all Americans. But it has continued to be vilified by President Obama who told the American Medical Association in June: “The days of cherry picking who to cover and who to deny, those days are over. I know you see it in your practices and how incredibly painful and frustrating it is – you want to give somebody care and you find out that the insurance companies are wiggling out of paying.” He followed this up a declaration to the powerful advocacy group, the American Association of Retired Persons, with the promise: “The idea behind reform is No.1 is we reform the insurance industries so they can’t take advantage of you.” Not exactly a conciliatory posture to an industry Obama earlier claimed would be a partner in the coming healthcare reform.

On the other hand, some analysts have postulated that if the public health option is realised and Medicare rates become the accepted baselines for paying hospital and doctors’ fees, some standardisation of ‘usual, customary and reasonable’ (UCR) fees might be achievable – a goal that foreign insurers have long sought. It is the erratic nature of US hospital charges and billings that has frustrated foreign insurers trying to make sense of what is a fair and reasonable price to pay a hospital for a given service.

Containing costs

Nick Fitzsimmons, vice president of Quebec-based Global Excel, says he can’t imagine any government plan agreeing to pay ‘abusive billings,’ (a reference to the retail non-discounted rates charged by many hospitals). And there are studies, he says, which show that if there is a cheaper public health option it may result in a mass exodus of plan beneficiaries away from commercial insurance. In such cases he “would not be surprised if some form of standardised payment measurement (UCR) be adopted.” But he adds: “If we do see some level of clarity (coming to) UCR fees, will it apply to non-Americans? Will providers not continue to cost shift to international insurers?”

"Plain common sense tells us that we cannot add an additional 47 million people to the health insurance scheme and not expect the programme to cost more money.”

Mike Starko, managing director of British Columbia-based OneWorld Assist, agrees that if a public option plan structured like Medicare was advanced,  it would likely favour increased regulation for the insurance industry in general and that would  allow more consistent reimbursement rates that would not vary by provider. “This would seem to be a positive for our industry as long as those rates are accessible by foreign payors. If not, we could see a continuation of cost shifting onto our industry as a way for hospitals to make up some of their shortfall for the lower reimbursement rates they are receiving (elsewhere).”

Another scenario, one that has the commercial insurance industry being pushed out of business totally, would leave foreign insurers completely exposed to hospital and physician network demands: no surrogates, no one to run interference, no shadow contracts won by bigger players. Many see this as unlikely as private, employer-sponsored insurance is so deeply ingrained in American healthcare – a two and a half trillion dollar industry – the biggest industry in the country, employing millions of workers.

Alain Blancard, CEO of British-Columbia based Mega Assistance, says that the cost containment and discount culture that exists in the US is big business. “I do not see it vanishing at any time soon. Foreigners carrying insurance have, in all countries, been treated as an opportunity by the healthcare industry to grab some extra dough.” But in defense of the cost containment industry, he adds: “Assistance and quality network relationships turn re-pricing into an effective and natural process without antagonism.  That will not change irrespective of reforms to healthcare in the US.”

GMMU’s Lynch emphasises that the impact of healthcare reform on the cost containment business is hard to predict, “But it could well be good for the containers and bad news for underwriters (in that) with healthcare costs going up, cost containment will be that much more important.”

Though the healthcare debate will continue to rage over the next few months, and likely beyond, some type of healthcare ‘reform’ is likely to emerge at the end of the tunnel.

President Obama and his Democrat majorities in Congress can’t come out of this empty handed. It’s worth noting that the debate started out as ‘healthcare’ reform. The president and his disciples have changed it to ‘health insurance’ reform and that has implications not only for primary domestic health insurers but their international associates as well.