The Shell Game of Health-Contingent Insurance

Maret 30, 2013

According to a Kaiser Family Foundation poll earlier this month, it seems that three years after its passage, opinions about the Patient Protection and Affordable Care Act of 2010 (ACA) remain divided. Interestingly, since the fall elections, Republicans seem to be slowly warming up to the ACA, while Democrats and Independents are experiencing significant disenchantment. I wonder why… So what do people dislike most about Obamacare? Obviously the individual mandate to buy insurance takes first place, and in a typical Stockholm syndrome manifestation, the second most disliked Obamacare feature is penalties for large employers that do not provide health insurance. But there are lots of other things in the law that most people seem to like. They like tax breaks for small business, closing the “doughnut hole” for Medicare prescriptions, keeping adult children on parents insurance and they like subsidies to buy insurance on the new exchanges. People even like the Medicaid expansion, and of course they like the guaranteed issue insurance. President Obama himself feels very strongly about the guaranteed issue clause as he forcefully stated in his 2011 State of the Union address: “What I’m not willing to do -- what I’m not willing to do is go back to the days when insurance companies could deny someone coverage because of a preexisting condition”. Right. So I guess we’ll have to go back to somewhere else.

In November 2012 the Departments of Health and Human Services (HHS), Labor and the Treasury jointly released proposed rules to increase the permissible “rewards” for participation in a “health-contingent wellness program” from 20% to 30% of the cost of coverage (and up to 50% for tobacco use cessation programs). In other words, for group insurance markets, consisting of insurers and large employers, people can be charged up to 50% more for coverage, based on certain health contingencies. And what are these contingencies? In order to avoid the withdrawal of said “rewards”, one only has to participate, voluntarily of course, in “wellness programs that require an individual to attain or maintain a certain health outcome in order to obtain a reward (such as not smoking, attaining certain results on biometric screenings, or meeting targets for exercise)”. And if the employee has coverage for a spouse or children, the same “health-contingent” opportunities are available to the family, although no clear decision has been made whether to penalize the entire family, or just baby Kyle, if he fails to get his BMI under the evidence-based recommended standards. To protect “consumers” from something that looks very much like wanton discrimination, the proposed rule sternly (and ad nauseam) requires that these schemes must be “reasonable”.

To be fair, “absence of rewards” based on health-contingent wellness programs, have been permitted since 2006. The new rule just increases the allowed size of rewards that can be withdrawn by group plans from 20% to 50%. By the document’s own admission there is no evidence showing that these wellness programs are effective and the Departments do not expect too many people to actually enroll. The cost analysis in the proposed rule expects minimal benefits and minimal costs and transfers, falling mainly on individuals who fail to meet “standards”. So if the benefits are expected to be “minimal”, why are we promulgating new rules? Well, there is a little math that needs to be considered here. Prior to the brave new world of ACA, large employers and group plans were prohibited from denying coverage or jacking up prices based on an employee’s preexisting conditions, and as long as an individual and his or her family maintained continuous group coverage, preexisting conditions were not a material factor. Preexisting conditions were an onerous consideration for those shopping for health insurance in individual markets. Since the ACA prohibits insurers from severely overcharging a few sick people, perhaps we can slightly overcharge many people and still come out ahead. For this to work we need to find some acceptable criteria for overcharging people, and taking a lesson from Don Corleone, we need some “buffers” to scour HIPAA protected employee health information.

So how about being fat, or being a smoker, or being a non-compliant patient? Unlike being black, or being female, or being gay, which were all acceptable criteria for discrimination at one time or another, obese smokers who look bad and smell bad seem like a reasonable place to start withdrawing “rewards”. If this becomes acceptable, and if the financials look promising, we can move on to the other possibilities of a “health-contingent wellness program” (i.e. “A program that uses a biometric screening or a health risk assessment to identify employees with specified medical conditions or risk factors (such as high cholesterol, high blood pressure, unhealthy body mass index, or high glucose level) and provides a reward to employees identified as within a normal or healthy range for biometrics (or at low risk for certain medical conditions), while requiring employees who are identified as outside the normal or healthy range (or at risk) to take additional steps (such as meeting with a health coach, taking a health or fitness course, adhering to a health improvement action plan, or complying with a health care provider's plan of care) to obtain the same reward”). Now that we have a hunting license for previously forbidden grounds, we can take away “rewards” from people with not only preexisting conditions, but also from those with non-existing conditions that may develop into preexisting conditions at some unspecified future date. So for example, if your health risk assessment states that inability to sleep due to financial concerns is most likely to lead to depression when your wages are cut again, and if you refuse to comply with the Cymbalta plan of care dictated by a health care provider, or refuse to provide evidence of such compliance, or are unable to pay your high deductible for the drugs, no “rewards” for you.

According to the United States Census Bureau, there were over 120 million people employed in 2008 in the U.S., and over 61 million of them were employed by the 18,000 firms with more than 500 employees. In other words, over 50% of American workers are employed by the 0.3% of firms that are considered large employers. Other than this statistic being frightening on its own, it also illustrates the magnitude of potential returns from withholding small to medium “rewards” from workers not adhering to “standards”. A quick back of the napkin calculation (assuming 30% non-standard workers and dependents, not rewarded to the tune of $1000 per year) yields approximately $20 Billion per year transferred from increasingly poor working people to large corporations. It’s not a fortune when divided up between all corporate interests involved, but I bet it’s better than what they made from the preexisting conditions racket.

This takes care of the money, but how about saving lives? Is it possible that the “health-contingent” wellness games actually save lives? In an article in the March 27 issue of NEJM, several researchers funded by big corporations and holding equity in a very big corporation, argue that indeed “these policies may also save lives”, and not just the wellness rewards, but also flat out not hiring people who for example are smokers, because “in the long run, such policies may indeed be for their own good”. Yes, reducing already depressed wages, and unemployment in general, have been repeatedly shown to be good for you, in the long run, and to have most beneficial effects on your overall health. To paraphrase Marine Colonel Nathan Jessup in A Few Good Men, while grotesque and incomprehensible to you, these policies save lives! …and money. People who become unemployable due to legal, but very stupid, lifestyle choices will either end up on Medicaid, where taxpayers will pay private corporations for their care, or buy insurance on the new ACA exchanges, where taxpayers will subsidize their purchases from private corporations. Win-win.

Another NEJM article in the same issue, written by Dr. Ezekiel Emanuel and colleagues, attempts to bring ethical concerns into this purely financial conversation, and incidentally sheds some light on one implementation of the “health-contingent” shell game. The article ends with a heart wrenching appeal to employers to be compassionate and supportive of employees, if not for ethical reasons, then maybe just because “employees who feel supported will probably be more productive than will those who live in fear of penalties”. I thought it was our elected government’s job to make sure that law abiding American citizens, including those who work for a living, don’t live in fear, but times are changing, and with a substantially broader and more diverse base, we are back pretty much were we started:

“I hold then, that there never has yet existed a wealthy and civilized society in which one portion of the community did not, in point of fact, live on the labor of the other. Broad and general as is this assertion, it is fully borne out by history. This is not the proper occasion, but, if it were, it would not be difficult to trace the various devices by which the wealth of all civilized communities has been so unequally divided, and to show by what means so small a share has been allotted to those by whose labor it was produced, and so large a share given to the non-producing classes. The devices are almost innumerable, from the brute force and gross superstition of ancient times, to the subtle and artful fiscal contrivances of modern. I might well challenge a comparison between them and the more direct, simple, and patriarchal mode by which the labor of the African race is, among us, commanded by the European. I may say with truth, that in few countries so much is left to the share of the laborer, and so little exacted from him, or where there is more kind attention paid to him in sickness or infirmities of age. Compare his condition with the tenants of the poor houses in the more civilized portions of Europe--look at the sick, and the old and infirm slave, on one hand, in the midst of his family and friends, under the kind superintending care of his master and mistress, and compare it with the forlorn and wretched condition of the pauper in the poorhouse.” --John C. Calhoun February 6, 1837

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