Facts and Myths: Consolidated Health Insurance Markets

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1 Issue Briefing Sept. 14, 2009 Key Points: Facts and Myths: Consolidated Health Insurance Markets 1. Consolidated health insurance markets are not causing high premiums -- contrary to assumptions stated by President Obama in his address to Congress on Sept. 9, 2009, and in a report issued by an organization that favors a government-run health care system. 2. Misleading assumptions or reports that make such assumptions should not be accepted as a legitimate argument in favor of a government-run health plan option because no causal link has been established between consolidated markets and higher premiums or spending. And, there is contrary evidence suggesting lower-than-average spending and premiums occur in highly consolidated markets. Introduction: President Obama, in his address to Congress on Sept. 9, 2009, continued to promote as a health reform the concept of establishing a government-run public option health plan to compete against private insurers. As part of his rationale for such a government-run plan, the President said that in 34 states, 75 percent of the insurance market is controlled by five or fewer companies, which he characterized as being inadequate competition. And without competition, he said, the price of insurance goes up and quality goes down. And it makes it easier for insurance companies to treat their customers badly by cherrypicking the healthiest individuals and trying to drop the sickest, by overcharging small businesses who have no leverage, and by jacking up rates. The assumption that concentrated health insurance markets is a cause of higher premium rates also has been made by Health Care for America Now!, an organization that favors a government-run health care system. That organization issued a report in May titled, Premiums Soaring in Consolidated Health Insurance Market: Lack of Competition Hurts Rural States, Small Businesses. Its report notes that over the past decade, several health insurance corporate mergers have taken place. The group contends that the mergers have undermined market efficiency and competition and premiums have skyrocketed as a result. Nowhere in the President s remarks to Congress, the administration s proposals or in the organization s report is there any data or evidence demonstrating a causal relationship exists between consolidated markets and higher-than-average premiums. Yet, the assumption is stated as though it were a fact. And, it is most often cited as the fundamental rationale for introducing a government-run health plan option. The Health Care for America Now! Report particularly highlights Rochester, NY as one of the most concentrated markets of health plans in the country, as well as other upstate New York markets. These communities are the very same type of markets the President referenced in his address to Congress. What follows is factual information showing that consolidated markets like those in Rochester and other upstate New York communities actually have lower premiums than less consolidated markets, while maintaining high quality.

2 National and Upstate New York Comparison Cost: Among states with the top 10 insurance market concentrations, all but Rhode Island show lower than national average levels of Medicare spending per enrollee in 2006, according to the Dartmouth Institute for Health Policy & Clinical Practice. In fact, among seven of the 10 states, spending was at least 10 percent less, with one state 36 percent less than the national average. States with top 10 insurance market concentrations (2007) and their average Medicare spending per enrollee (2006) Insurance Market Concentration Ranking Medicare Spending/Enrollee Percent of National Average 1) Hawaii $5,311-36% 2) Rhode Island $8,557 +3% 3) Alaska $7,700-7% 4) Vermont $7,284-12% 5) Alabama $7,833-6% 6) Maine $6,952-16% 7) Montana $6,340-24% 8) Wyoming $6,591-21% 9) Arkansas $7,470-10% 10) Iowa $6,572-21% U.S. Average $8,304 Source: The Dartmouth Institute for Health Policy and Clinical Practice: Health Care Spending, Quality and Outcomes, February 27, 2009 In upstate markets that were singled out in the report as having high concentrated markets, Medicare spending per enrollee is also well below the national average. Medicare Spending by Enrollee Regional Comparison: 2006 Annual Spending Binghamton $6,579-21% Buffalo $7,306-12% Elmira $6,761-19% Rochester $6,794-18% Syracuse $6,863-17% Utica $6,761-19% U.S. Average $8,304 Source: The Dartmouth Institute for Health Policy and Clinical Practice: Health Care Spending, Quality and Outcomes, February 27, 2009 Percent of National Average 2

3 Looking at commercial premium comparisons also seriously challenges the assumptions of concentrated markets. Each year, the benefits consulting firm Milliman sends out a commercial PPO family product design for insurers across the country to price. The design has identical benefits and demographic factors and other assumptions. State averages are reported by Milliman for any state that had at least three prices submitted. What the survey produces is the closest apples-to-apples true comparison of costs of coverage based on identical benefits. What the survey shows is that the average cost of upstate New York coverage is significantly lower than the averages of 30 states in the country that had at least three prices submitted. Benefit-to-Benefit Premium Rate Comparison Family Monthly Premium Premium Percent of National Average Buffalo $ % Rochester $ % Syracuse/Southern Tier $ % Utica $ % U.S. Average $1, Source: 2008 Group Health Insurance Survey published by Milliman Inc. Comparison of premium rates for a uniform PPO benefit design with identical risk factor assumptions In addition to the Dartmouth Atlas and Milliman data already cited, there is further evidence of the upstate New York cost advantage through tracking surveys conducted by the Rochester Business Alliance. Although there are no similar surveys available for Buffalo, Syracuse, Utica and the Southern Tier, the upstate markets are typically comparable. Here is data showing Rochester s growing advantage: Health Insurance Costs Rochester vs. Other Locations in NYS & U.S Rochester Less Expensive 38% 42% Rochester More Expensive 24% 20% Source: Rochester Business Alliance annual health benefits survey of small and large businesses 3

4 Across upstate New York, a larger share of the insurance premium dollar is spent on medical benefits relative to administrative expenses and net income, or profits, compared to downstate and national averages. Medical Benefits as a Percent of Premium (2008) Upstate NY vs. Downstate NY and US Medical benefits as % of premium Upstate NY average 89.1% Downstate NY average 86.7% Average of 4 largest 82.0% national plans Source: NYS Department of Insurance for state data; quarterly financial statements for national figures related to United Healthcare, Aetna, CIGNA and Humana One of upstate New York s largest health insurance brokers, First Niagara Benefits Consulting, recently testified on June 8 before the NYS Assembly Committee on Insurance. The broker said: Health insurance products are priced competitively and health insurance companies compete for business in New York State. Our firm sees this competitiveness every day. Our clients, who number over a thousand, and in turn employ tens of thousands, continually want information on the plans with the lowest price, and the best benefits for the price. Clients will move their coverage for the sake of just a few percentage points difference in price between carriers. Quality: Contrary to the President s claim that fewer competitors leads to less quality, the facts about upstate New York show just the opposite. Upstate New York s health plans are well rated when compared to other plans nationally. In the U.S. News & World Report 2008 ranking of the best health plans in America, six of the seven upstate health insurers ranked in the top 50 of 239 plans in the commercial market. Upstate health plans also ranked well in the Medicaid and Medicare categories. U.S. News and World Report Best Health Plans: 2008 Commercial Medicaid Medicare CDPHP #14 of 239 #6 of 80 #9 of 150 Excellus BCBS #25 of 239 #3 of 80 #15 of 150 Health Now #59 of 239 #17 of 80 #31 of 150 Independent Health #17 of 239 #7 of 80 #26 of 150 MVP #29 of 239 NA NA Preferred Care #22 of 239 NA # 1 of 150 Univera Healthcare #44 of 239 NA #16 of 150 4

5 In addition to high quality health plans, upstate New York s health delivery system is also of high quality: Rochester Buffalo The University of Rochester Medical Center (URMC) ranked 25th in NIH grants compared to others research centers for fiscal year URMC is recognized as a national center of excellence by the National Blue Cross Blue Shield Association for a variety of transplants and the treatment of rare and complex cancers. Rochester General s Rochester Heart Institute, an affiliate of the Cleveland Clinic is the only hospital in Western New York ranked on the Solucient Top 100 list of heart hospitals and one of only 17 hospitals in the nation to have made that list for eight of the past 10 years. This ranking of the top cardio vascular care is based on data collected from 1,000 hospitals including the Cleveland Clinic and the Mayo Clinic. The Society of Chest Pain Centers has designated Buffalo General Hospital and Erie County Medical Center (ECMC) accredited Chest Pain Centers. Kaleida Health is certified as a Primary Stroke Center by the Joint Commission on Accreditation of Healthcare Organizations. Catholic Health is among the most efficient integrated healthcare networks in the nation, the 2009 SDI IHN 100. In addition, Catholic Health was named to the top 10 of hospitals in the Northeast Region in the SDI IHN Ranking. Roswell Park Cancer Institute, among the oldest National Cancer Institute-designated comprehensive cancer centers in the United States. Syracuse Community General Hospital was recognized one of 100 hospitals in the nation making the greatest progress in improving hospital-wide performance over five consecutive years with the 2006 Thomson 100 Top Hospital Performance Improvement Leaders. Crouse Hospital, along with St. Joseph s Hospital Health Center, has earned Quality Respiratory Care Recognition through the American Association for Respiratory Care. About 15 percent of hospitals in the U.S. applied for and received the award. The American Heart Association presented Crouse Hospital with the Get With The Guidelines Coronary Artery Disease Gold Performance Achievement Award. St. Joseph s Hospital Health Center received the Beacon Award for Critical Care Excellence for its medical intensive care unit, one of the top ICUs in New York state as well as the nation. HealthGrades Tenth Annual Hospital Quality in America Study ranks St. Joseph s as number one in the state and top five percent in the country for overall cardiac services, cardiac surgery and coronary interventional procedures. University Hospital is a Level-I trauma center and will open the region s only children s hospital in September. Its Joslin Diabetes Center is a NYS Center of Excellence, and its Epilepsy Center is a Level 4, the highest designation possible. 5

6 Utica Community Memorial Hospital was presented with a 2007 VHA Leadership Award for Clinical Excellence in recognition of its low surgical complication rate and its efforts to reduce postsurgical infections. Community Memorial is also ranked among the top five hospitals in New York State for joint replacement surgery, and is the only 5-star rated hospital in total knee replacement in the region. St. Elizabeth Medical Center and Faxton-St. Luke s Healthcare were recognized as two of the nation s top hospitals in the Nation Research Corporation s Consumer Choices Awards for a fifth consecutive year. Faxton-St. Luke s Healthcare, along with Bassett Healthcare, are state-designated Primary Stroke Centers. In 2007, Bassett received the American Stroke Association s Get With The Guidelines - Stroke Initial Performance Achievement Award. Rome Memorial Hospital has consistently reported performing above average in patient safety ratings when measuring the avoidance of serious infection following surgery. CVPH Medical Center has received two clinical excellence awards for its cardiac program from Healthgrades, the nation s leading healthcare ratings company the Cardiac Care Excellence Award and the Coronary Intervention Excellence Award. Adirondack Medical Center s Hospital recently exceeded the state and national averages for quality of care on the Consumer Assessment of Healthcare Providers and Systems (HCAHPS) Survey, which measures patients experience of hospital care. Southern Tier Lourdes Hospital was awarded the Commission on Cancer Outstanding Achievement Award by the Commission on Cancer American College of Surgeons in Lourdes was also designated a Magnet Hospital for Nursing Excellence in 2007 and has been named Consumer Choice by the National Research Corporation for 8 years running. Arnot Ogden Medical Center has earned the Quality Respiratory Care Recognition (QRCR) and was a recipient of the U.S. Department of Health and Human Services (HHS) distinguished Medal of Honor, awarded in Modern Healthcare magazine listed St. James Mercy Health System as a 100 Top Performance Improvement Leader in Guthrie's Robert Packer Hospital was recently named a recipient of the Thomson Reuters 100 Top Hospitals : National Benchmarks Award. Robert Packer Hospital has also received Magnet designation for excellence in nursing services. United Health Services is the New York State-designated trauma, stroke, chest pain and newborn intensive care center in the Greater Binghamton region. Its cancer program has been awarded Approval with Commendation from the American College of Surgeons' Commission on Cancer. Access: With its high concentration of nonprofit health plans, the uninsured rate of 10.9% in upstate New York is lower than the statewide average of 13.4% and the national average of 15.4%. The upstate NY uninsured rate is lower than the uninsured rates in all but 11 other states. (Because Census data doesn t show uninsured rates at county levels, we cannot match uninsured rates to smaller markets.) 6

7 Uninsured rates for All Residents (Children and Adults) Average 30% 20% 10% 15.4% 14.6% 13.4% 10.9% 0% U.S. Downstate NYS Upstate Local Collaboration Upstate New York s exemplary performance on cost, quality and access has been achieved through collaborative community approaches involving local health plans, health systems, and the business community. These efforts include: Managing the capacity of the local hospital and technology centers through the use of the Community Technology Advisory Assessment Board and the Finger Lakes Health System Agency has helped the Rochester community avoid overbuilding of the local delivery system. Excess capacity drives up the cost of health care. Evidence of effectiveness here is found with the recent Berger Commission report that did not call for any beds in the Rochester area to be closed. Educating physicians, pharmacists and members to the benefits of appropriate prescribing, including greater use of generic drugs, help saved the upstate economy about $720 million from 2005 to The generic fill rate across upstate New York rose by nearly 15 percentage points during that time period. Upstate New York s hospitals are competing with larger metropolitan areas nationwide for talented physicians, particularly in practice specialties that have national shortages. Excellus BlueCross BlueShield pays more than $5 million annually in special grants to hospitals in Rochester and throughout upstate New York to help them retain and recruit physicians whose specialties are in short supply nationwide. To ensure retention of physicians, health plans have raised reimbursements to about 130 percent of Medicare with primary care physicians recently receiving inflationary increases larger than specialists. Advanced medical home demonstrations are also underway. 7

8 An estimated 19,500 upstate New Yorkers acquired an infection during a hospital stay in 2004 and nearly a thousand deaths were likely to have occurred as a result, according to an Excellus BlueCross BlueShield analysis of hospital admissions data and projections from a national study on hospital-acquired infections. The impact on health care spending that year was projected at $157 million. Excellus BCBS is investing about $5 million to expand a multi-year partnership program with upstate New York hospitals to reduce hospital acquired infections. In 2007, eight pilot hospitals Excellus BlueCross BlueShield partnered with reduced their infection rates by 12 percent and then reduced the rate by an additional 13 percent in From a quality standpoint, the hospitals improved their overall care of patients and satisfaction as well as saved money. Insured patients saw both fewer infections and experienced less costly care by avoiding infections. The Greater Rochester Health Foundation is tackling the issue of childhood obesity and the Rochester Business Alliance is promoting wellness programs such as Eat Well, Live Well with local major employers such as Wegmans. Since the program began in 2006, more than 300 companies have joined in various events with more than 44,000 employees participating in this effort to make Rochester the healthiest community in America. Local nonprofit health plans like Excellus BlueCross BlueShield and Univera Healthcare also partner with schools, community groups and businesses across upstate New York to address unhealthy behaviors that contribute to heart disease, cancer, trauma and pulmonary conditions. These programs include 2Smart 2Start; Fun 2B Fit; Step Up; Take Steps; Genesis Health project; Hornell YMCA Get Fit, Stay Fit; and Get Healthy Tompkins. Key investments in the future have also been made: Both the Rochester and Buffalo markets are leading the way nationally with regional health information organizations (RHIOs) that are using a collaborative approach to adopting electronic medical records. In each market, the local insurers, the hospital systems, the medical society and the county health department are all actively involved in developing this community asset. Our health plan has contributed nearly $1 million to these RHIOs as part of the start up in advance of federal funding ($500,000 in Rochester and $470,000 in Buffalo). The local insurers and hospital systems have also been actively involved in assuring the allied health professional workforce is developed and properly trained through multi-year commitments to expanding the nursing program and the radiological technician program at Monroe Community College. In a five year period, the partners contributed more than a million dollars to expand these programs. Other upstate partnerships to address shortages in the health care professions include Bassett Healthcare s Partnership for nursing Opportunities, the Oswego County Nursing Shortage Initiative, the Central New York Area Health Education Center, and the Northern Area Health Education Center. Upstate Economic Concerns: Collectively, these facts about cost, quality and access should make it hard for anyone to conclude that areas of high concentration of health plans in places like Rochester and upstate New York is a cause for higher premiums and therefore demonstrates a need for a government plan option. Operating already with thin margins, nonprofit health plans in upstate New York would likely not withstand head-to-head competition from a taxpayer-financed, government-run competitor that can set all the rules. And, that result would have other consequences as well. 8

9 We believe that Excellus BlueCross BlueShield and Univera Healthcare are in jeopardy by such a plan. Consider the fact that their parent company employs more than 6,000 employees, had a 2008 payroll of $347 million and spent more than $325 million in direct purchases of running a health care company, not counting the $4.5 billion in medical benefit claims paid. It is just one company but many other regional health plans in upstate New York are in the same circumstance. Together, the economic impact of the regional health plans in the upstate economy is substantial. Add to that the economic damage that would occur to hospitals being paid low government payment schedules for a greater share of their patient mix. In what is already a weak economy, the notion of a government-run health plan option weighs unfavorably for upstate New York. Summing up: To put all the above in context, a key argument before Congress is how health care reform should be funded. If the rest of the country performed at least as well as upstate New York does, billions of dollars would be available for funding the balance of Americans who cannot afford coverage. 9