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Things Are About to Get Ugly—-Republicans Plan to Defund the Health Bill Next Week

Word is that House Republicans will attach an amendment to the latest federal spending bill that will cut-off funding for the health care bill.

The last Congress never finalized a budget for the current fiscal year—the feds have been operating under a series of continuing resolutions. The most recent one will expire on March 4th. If another resolution is not agreed to, much of the government has to shutdown.

House Republicans, under heavy pressure from their base, have decided to take the Democrats on over the new health care law by cutting all remaining funding for implementation of the law in the current 2010 fiscal year (October to October).

Democrats, under the same heavy pressure from their base to protect the bill, aren’t about to let them do that. While the Republicans can accomplish this in the House—and will next week—they don’t have the votes in the Senate and they don’t have the President’s pen.

Now, I know the Republicans won the last election and they control the House. But what is their end game here?

Shut the government down until the Democrats agree to suspend the health care law? With Democrats under the same intense pressure from their base to protect the new law at all costs, they aren’t going to agree to do that.

With the polls showing the country evenly split on this law, about the only political outcome either side will accomplish is to show their base just how macho they are.

Just where might a compromise occur? HHS can have half the money it needs? That won’t make the Republican base happy.

Where will this end?

As George W Bush used to say, don’t get into a war unless you have an exit strategy.

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Will the Congress Change the Health Care Law During the Next Two Years?

No. But I expect the Patient Protection and Affordability Act to be “relitigated” in 2013, to one degree or another.

I recently posted on the controversy over the individual mandate. I suggested a number of alternatives to the mandate—including my own ideas.

I was asked if I really thought the Congress would change the individual mandate in the short term.

As I have posted before, it will be the Democrats who will be calling for repealing the individual mandate and replacing it with an alternative—particularly the vulnerable Senators up for reelection in 2012.

Ironically, it will be the Republican opponents to the new health law and the individual mandate who will block them. The Republicans are not about to take the Democrats off the political hook the very unpopular individual mandate represents for them. Republicans are also not about to remove the potential ticking Constitutional time bomb the mandate presents—it could take the whole law down.

Until we hear from the Supreme Court and get the results of the 2012 elections we are going to hear a lot of rhetoric from both sides but I don't see any changes to core pieces of the legislation. Yes, the Congress will likely repeal the peripheral revenue raising 1099 provision and there could be some current budget cuts HHS is going to have to work around.

But the early provisions of the bill—things like keeping your kids on your policy until age-26—will continue until we at least here from the Supremes.

But in 2013, I see the potential to revisit the law:

    * If the Supreme Court throws it all out—not likely but not impossible—we will have to start over.
    * If the Supreme Court overturns only the individual mandate—not likely but very possible—the imperative to fix that will open the entire bill up to changes as part of the bigger deal that will be required for both sides to come to agreement. The conservatives would want more in exchange for their votes than to just fix this one piece.
    * Even if the Republicans sweep the elections—the White House and both houses of Congress—I can’t see how they will have 60 Senate seats and compromise will be needed for some critical non-budget changes with or without a Supreme Court ruling.
    * If the Republicans only make modest gains or even lose seats (this election shouldn’t be taken for granted by either side), Democrats will still be facing an unpopular individual mandate and at least have some political incentive to do some fixing—most of those polled believe the law at least needs some improvement. Although, a big Democratic victory would likely mean no incentive for them to open the law up again in 2013 to any fundamental change.

So, yes, I don't see any changes to the individual mandate or any other core element of the new health care law before 2013.

But it looks to me like we are only two years away from some critical Congressional votes on the new health care law. In that context, the debate has begun and it isn't just a theoretical exercise.

In an earlier post, I outlined a number of areas where I thought Democrats and Republicans could eventually come to an agreement:

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Alternatives to the Individual Mandate—Some Are A Lot Better Than Others

With Constitutional challenges to the individual mandate now threatening the very life of the new health care law, Republicans aren’t the only ones that would like to see it jettisoned and replaced with something better.

And it isn’t just the Constitutional challenges that are prompting a second look. The mandate doesn't work politically and it doesn't maintain the integrity of the market because either most middleclass families in the individual market would be exempted from it anyway or have to pay fines that are a small fraction of the cost of the insurance.

That has led to discussion of a number of alternatives:

The Medicare Part D Approach
Increase the premiums for people who sign up after they are first eligible for the rest of their life.

But I doubt this scheme has a lot to do with the success of the senior drug program. The drug benefit is a huge value and it only costs seniors about $25 per month. As a result most have signed up and the risk pool has been a good one—irrespective of the penalty for late enrollees.

The problem with this approach for comprehensive health insurance is that health insurance costs a great deal more—perhaps $1,000 a month for a family. How much of a penalty would you charge for the rest of the person’s life? An extra $100? That likely wouldn’t be enough of a penalty to encourage participation—especially if people can opt in and out of the system whenever they get sick. $500 for the rest of their life? Not practical.

Would you only charge the penalty for a few years? Even charging an extra $500 a month for a few years wouldn’t come close to off-setting the cost of a major claim—people would quickly calculate they could make money waiting and gaming the system.

The old underwriter in me will tell you that you can never charge enough of an anti-selection premium. The more you charge for the risk that you will only get the sickest people, the fewer and the sicker the people who will sign up. It just becomes one big game and a vicious cycle.

And, what would prohibit people from just getting in and out of the system every time they got sick? How would you even keep track of the penalties each time they reentered?

This has the potential to become a heavily gamed system that would only lead consumers to become cynical about the whole process.

Limited Open Enrollments
Allow people to sign-up for guaranteed issue health insurance only once a year—perhaps each January 1st.

The problem here is that a person who doesn’t sign up on January 1 and then gets sick in September has only a three-month wait for coverage. Knowing that the insurance is available each January 1 creates an inequitable, and likely, insufficient system to encourage participation. This system would be open to being gamed instead of being a real incentive to become part of the insurance pool.

Create an open enrollment every two years? That would be criticized as too long a wait to have any kind of insurance—both for pre-existing conditions as well as coverage for new conditions. Create an open enrollment period on the first anniversary of the first time a person is first offered insurance? That would be an administrative nightmare.

Voluntary Health Insurance and the Ability to Sign-up Whenever You Like—But With Responsibility
A Mandatory and Uniform Waiting Period Before Pre-Existing Conditions Are Covered for Late Enrollees.

I have suggested this approach before. My sense is that this is the simplest to understand, easiest to administer, and most effective in terms of creating the broadest possible insurance pool.

Simply, people could sign up for guaranteed issue health insurance when they first became eligible for it at work or in the exchange. Buying health insurance would not be mandatory—no individual mandate.

Besides being able to sign up for insurance when they were first eligible, people could sign up for it any other time they wished—a month later, a year later, whatever—and they would be covered at standard rates.

But if they did not sign up for insurance when they were first eligible, their pre-existing conditions would not be covered for a minimum period—perhaps one or two years. Such a system would also have the advantage of providing coverage for any new health problems and would cover all members of a family--neither of which would be immediately covered under the two alternatives.

Such a system would be easy to understand—you can sign up any time but if you don’t do it right away your pre-existing conditions aren’t going to be covered for a long enough time that you are better off entering the pool right away.

Such a system would be relatively easy to administer—the insurance industry already knows how to administer late enrollments and pre-existing conditions provisions.

Such a system could be completely voluntary—no individual mandate and no Constitutional challenge.

Such a system would be far more popular than the individual mandate because it wouldn’t be mandatory and it would be equitable—sign up whenever you like but you will be responsible for your actions if you later get sick and expect immediate coverage.

Some have argued, are even continuing to argue today, that only the individual mandate can force people to buy coverage--particularly younger people.

But that misses two critical points:

   1. The individual mandate is in big Constitutional and political trouble--all of the academic arguments in favor of the mandate may not matter.
   2. The way to get people covered is to provide affordable coverage--which the new act does not do for too many.

We really don’t need a mandate if health insurance is affordable for everyone. There are no mandates today that people buy coverage when it is offered at work and we have an excellent and efficient risk pool--and that is true for even the youngest consumers. But that is because the employer so heavily subsidizes the cost of coverage that it is a great deal for consumers.

The problem with the Affordability Act is that the coverage is not affordable for most middleclass families would have to buy it on their own.

So long as that is the case, there is no alternative but to have a strong incentive to buy the coverage. But it does not have to be an individual mandate.

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Why the Republicans Lost

After six years of one-party government, things here in Washington were getting kind of boring.

That’s already started to change.

The November Election
In past years, I have told you that the chances the Democrats could capture the House of Representatives were low because of all the highly political gerrymandering of districts that took place in the wake of the 2000 census. That redistricting made the vast majority of House seats permanently safe for the party that controlled it. Because of all of this, perhaps only 45 seats would really be in play in any election year.

Those odds made the Democratic victory in the House this month all the more impressive.

But perhaps even more surprising is the Democratic sweep of Senate races giving them a one-vote advantage in that body.

The single issue that dominated the elections was Iraq but it goes even deeper than that.

Marlon Brando and the Republicans
There is this old Marlon Brando movie—“Zapata,” that’s the story of the Mexican revolutionary period at the turn of the 20th century. The movie starts out with the corrupt government shooting the peasants. The movie ends with Marlon Brando’s revolutionary character playing a key role its overthrow and with the new guys shooting the peasants.

The Republicans had their own revolution in 1994. They lost this election because they ended up shooting the peasants.

The Republicans forgot that 12 years ago the electorate threw the Democrats out because the swing voters came to the conclusion that after decades of control, the Democrats were out of touch (the Clinton Health Plan) and had been corrupted (the post office scandal, House Ways and Means Chair Dan Rostenkowski in jail, and various other problems) by their power after many years of unilateral control of the government.

In 2006, the Republicans got the boot because they were seen to be out of touch (Iraq) and corrupted (Folly, Abramoff, and “ear marks”) by the power coming from their almost complete control of the government.

In short, power did to the Republicans exactly what it had done to the Democrats by 1994, and the result was the same.

The toughest criticism of the Republicans has been coming from leaders in their own party:
• George Will on why Republicans lost the election in his weekly column on November 12: “Tuesday’s election results were fresh evidence that two events that profoundly shaped American politics during the last two presidencies were episodes of irrational exuberance unrelated to economic behavior.” Later in the piece, “The Democratic episode was the Clintons’ attempt to radically restructure and semi-socialize the 16 percent of the economy that is the health care sector. The Republican episode is Iraq.”
• Dick Armey, the former House majority leader and Gingrich chief lieutenant during the 1994 Republican takeover, in a October 29 op-ed in the Washington Post on why the Republicans were on their way to a loss: “The answer is simple: Republican lawmakers forgot the party’s principles, became enamored with politics over policy. Now the Democrats are reaping the rewards of our neglect—and we have no one to blame but ourselves.” Later in the same article, “Now spending is out of control. Rather than rolling back government, we have a new $1.2 trillion Medicare prescription drug benefit, and non-defense discretionary spending is growing twice as fast as it had in the Clinton administration.”

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The Democrats Will Change MedicareAdvantage

So, Now What?

Most observers don’t think the Democratic takeover will end up meaning a lot. It takes 60 votes do get anything done in the Senate, there is still a Republican presidential veto to contend with, and Democrats would be foolish to rollback the Republican tax cuts or repeal programs like the Part D Medicare drug benefit or the new private Medicare Advantage plans that now have millions of generally happy senior enrollees.

In fact, Goldman Sachs analyst Mat Borsch came out with a positive report on Humana, a company that has been particularly aggressive in the Medicare market. Borsch said that while it is possible Democrats would change the Part D program, “the odds of substantial change to the Medicare Advantage plan program (which is what really matters to Humana) are remote.”

Wrong.

Why Democrats Hate Medicare Advantage
Let’s review some of the history.

The profitability of MedicareAdvantage plans is what really matters not only to Humana but also to most major health players who have aggressively entered that business.

In fact, Humana’s government profit center reported that MedicareAdvantage enrollment grew to 993,000 from 489,000 a year earlier. Almost all of that growth was in the private fee-for-service product subset. Humana also reported a pre tax MedicareAdvantage profit of $207 million in the third quarter—up from $87.9 million in the same quarter of 2005.

Part D was always the thing the industry had to agree to in order to get the fantastic deal they have with MedicareAdvantage.

The Medicare Payment Advisory Commission recently said that private MedicareAdvantage plans get an average of 11% more for their seniors than the traditional Medicare plan gets for its enrollees. The Republican Congress did that intentionally in 2003 in order to attract private plans back into the private Medicare program after many either cut back or left it altogether in the wake of sharp cuts in the 1997 budget.

This “prime the pump” strategy made sense to Republicans who wanted to begin the reform of the traditional Medicare program by encouraging HMOs to bring market forces to bear on the exploding cost of the program.

But most Democrats hate the idea.

It gets down to a fundamental difference between the two parties. Republicans generally believe that a government-run plan and quality/efficiency are mutually exclusive and the value of market forces are at the core to any successful reform.

Democrats generally believe that Medicare has worked well and the market will only want to skim off the best risks and divide Medicare into two programs. They worry that the Republican “defined contribution” private market strategy will stratify Medicare enrollees by what they can afford to pay. Ultimately, they argue, the best quality plans will cost more and be affordable only by the well off. Those who won’t be able to afford premiums set by the market for the best plans will be forced to remain in what will become a second class Medicare plan, or plans that will look more like today’s Medicaid.

Many Democrats, and the House Democratic leaders in particular, believe that the universality of Medicare is absolutely critical. The logic is that you need to have the rich and powerful in the same pot as everyone else if you want to have equality in health care.

What many of these financial analysts on Wall Street don’t understand (Humana is trading at the highest price/earnings multiple in the HMO industry) is that, to the Democrats, this is not just about a fair funding level for private Medicare plans and whether they want to risk messing with them. It is about deep-seated ideological objections.

On top of all of this, just how Humana is making its extraordinary profits only compounds the Democrats’ ire. Almost all of Humana’s MedicareAdvantage growth this year has been in the Medicare fee-for-service product (MFFS). This is the product that does not allow insurers to negotiate lower provider reimbursement rates. To its critics, it is almost entirely an arbitrage play letting insurers take the 11% higher reimbursements, spend some of it on higher benefits for seniors to get them interested in the plans, and take the rest in profit. MFFS is hardly proof that the market can manage Medicare better than the government.

Industry logic that sees MFFS as a means to gradually transition seniors into more sophisticated products where insurers can apply medical management and provider negotiation hasn’t impressed the Democrats.

To a great many Democrats, and in particular their leadership, this is about throwing a wrench into the Republican vision of what Medicare will look like in the coming years—a vision that these Democrats see as a “Republican sell-out” of the longstanding Medicare entitlement promise and an “egregious example of taking care of their corporate friends.” They put Medicare fee-for-service right on top of their list.

To throw that wrench in the works, the Democrats don’t need to focus on a presidential veto threat or even worry about 60 votes in the U.S. Senate. They don’t even have to risk senior ire by outright trying to kill the new private Medicare plans.

They only have to look to Republican Newt Gingrich for their anti-market Medicare strategy. They just need to set it up to “whither on the vine.”

It’s the Budget, Stupid!
They can do that, rather easily as it turns out, in the budget process. A budget is not subject to the 60-vote rule in the Senate. A budget can be vetoed, but would Bush veto a gigantic budget bill over this issue? More likely he would compromise on the size of the cuts—not critical to a longer-term “wither on the vine” strategy.

The Democrats’ victory in the Senate turns out to be very important here. With just one slim vote, the Democrats now control the committees in both houses—and control any House/Senate conference on a budget.

Republicans used control of the conference structure to enable their leadership to dictate just what went on the table and which members got to be part of the conference. The minority party is almost always frozen out. Passing a bill in the House is one thing, passing a bill in the Senate is another, but controlling the conference, who gets to vote, and just what gets considered (even things that had not been passed in either house in the first place) is at a whole different level.

It is true that most of the new Democrats are moderate or even conservative Democrats on many issues. However, the budget is where MedicareAdvantage and Part D payment levels and benefits are decided and that process is one big black hole that will be controlled by the long-time liberal Democratic chairmen who just literally hate these programs. That’s where the likes of powerful Democrats John Dingell, the longtime Democratic Chair of the House Energy and Commerce Committee the last time around; Henry Waxman, who will have government operations oversight; Charlie Rangel who will lead Ways and Means; Pete Stark, who will head-up the Ways and Means Health Subcommittee; and Ted Kennedy, who will again chair the Senate Health, Education, Labor, and Pensions Committee, will control the agenda.

And, don’t forget oversight. These Chairmen will have the ability to nitpick these programs to death with their influence over the regulation of these plans and things like benefit schedules.

The only friendly Democrat the health plan industry has to talk to is the incoming Senate Finance Chair Max Baucus (D-MT). He worked closely with his friend, outgoing Senate Finance Chair Chuck Grassley (R-IA), to pass the 2003 Medicare bill in the first place and has defended it ever since.

Sure President Bush would veto any bill that did away with Part D, or MedicareAdvantage, or cut their financing.

But there won’t be such a standalone bill.

There will be some giant spending bill that will have lots of gives and takes in it. Maybe, Bush would risk a veto of the whole thing if it cut MedicareAdvantage plans by that 11%. But would he risk a veto of a big budget bill if it cut the HMOs by 5% and upped the benefit schedule in Part D and MedicareAdvantage? Not likely.

Not only do Democrats want to cut the private Medicare funds because they don’t like them, they need to cut them to find money to do other things.

One thing that is certain about Congress—Democrat or Republican—is that when it needs money it always comes looking to take some from the Medicare providers. How many times have we seen Republicans and Democrats cut doctors and hospitals to balance the budget—especially when either was seen as well compensated?

Now, HMOs are Medicare providers too and they are seen as fat with lots of great reimbursement. Just listen to Humana’s CEO talking about his profits tripling in the third quarter, “This quarter’s biggest takeaway is that our Medicare strategy is working.” That sounds great in the investment community but he’s asking for trouble in Washington.

It may get even more problematic for the HMOs in a way I wouldn’t have predicted just a few weeks ago. The current Congress has not completed its 2007 budget for the Medicare program. There is talk that Republicans may not even try to finish it and instead punt it to the new Congress. That means that instead of Democrats getting their first Medicare budget in late 2007, they may get their first whack at the HMO Medicare payments in January!

The HMO Medicare business is seen as highly profitable just as doctors are in a bind. Because of the Medicare Sustainable Growth Rate Formula, Medicare physicians are scheduled for a 5% fee cut on January 1, 2006. They are scheduled for a total of 40% in cuts over the next five years. Democrats, like Republicans, want to help the doctors out, and they need a place to get the money.

Beyond that, there is a $3 billion shortfall that has been identified to pay for the Labor/HHS spending bill the 2006 Republican House passed. There is a $5.5 billion gap on all unfinished appropriations bills.

Then there is the cost of fixing the Medicare physician fee cuts. Before the Congress adjourned this month, they took $7 billion from the MedicareAdvantage stabilization fund and used it to offset scheduled Medicare physician fee cuts.

The Democrats made lots of other election promises that cost money and those profitable HMOs present one terrific target.

The good news for the health plan industry is that it’s making loads of money in the MedicareAdvantage business.

The bad news for the health plan industry is that the timing for a Democratic return to power couldn’t be worse for them.

The first budget target was the MedicareAdvantage stabilization fund—originally budgeted to be $10 billion. Since it hasn’t been necessary to stabilize anything so far, that is easy money for the industry to give back.

With $7 billion of that already gone (and it was the Republicans that gave that back!), any more givebacks are going to be real money.

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The 2007 Congressional Health Policy Agenda

The Congressional Agenda—Old Business

The current Congress is leaving a lot of work undone:
• A Health Information Technology (HIT) Bill – The old Congress will not be able to complete work on the House and Senate versions of a HIT bill. Before the election, they had hoped to be able to finish it during the “lame duck” session. It is now clear that won’t happen and the new Congress will start from scratch on the issue next year.

That means the Congress has not implemented a requirement that payers and providers will have to use the new ICD claim-coding system by 2010. It also likely means Democrats will be more worried about privacy protections and less worried about giving hospitals more control over the development and financing of the new systems as the Republican House bill would have done.

The new Congress will start from scratch on a new HIT bill.

• Medicare Physician Fee Cuts – Republicans had hoped to find the money to waive the 5% physician fee scheduled to take place on January 1. Helping the docs out before January 1st is likely another casualty of the election. That is not to say the Democrats don’t want to help the physicians—they do. But the Democrats can’t get to it until early next year and when they do, it will be private Medicare plans that will likely produce the needed cash.

New Business in a New Congress
The old Republican favorites—expansion of health savings accounts, Association Health Plans, and medical malpractice reform—are out and new Democratic agenda items are in.

This is where many of the analysts are right—with a Bush veto and the 60-vote rule in a Senate that has 51 Democrats—it will be very difficult to do more than tread water on new non-budget health care proposals.

Here’s a look at the new agenda:

• Medicare and the Drug Companies – House Democrats say they will pass legislation enabling Medicare to negotiate drug prices directly with the drug companies in the first 100 hours of the new Congress. They will. And then the bill will likely languish in a more divided Senate. If it does get past the Senate—which is not likely but not impossible either—Bush will veto it.

• Drug Reimportation – This was a big Democratic issue during the election. I wouldn’t be surprised to see the Democrats couple drug reimportation and giving Medicare the power to negotiate drug prices into one bill all designed to attract a Bush veto for what are popular—if not controversial—proposals.

• A Patients’ Bill of Rights – You read it correctly. House Energy and Commerce Committee Chair John Dingell has this one on his list of things to do next year. Apparently, he didn’t get the memo this one is off the voters’ list of worries. It probably won’t get very far but there might be some HMO bashing hearings—perhaps focused on Part D issues.

• The Uninsured – Now up to 46 million, look for the Democrats to tackle this issue more directly. That effort was helped by a health insurance industry proposal from America’s Health Plans (AHP) that called for the expansion of Medicaid for the lower income (which the Democrats liked) and the creation of tax credits to help others (which the Republicans liked).

However, the AHP proposal has a $300 billion price tag and no strategy for cost containment.

While that specific proposal won’t likely go very far in the near-term, the AHP did itself well by jump-starting a discussion about incremental solutions that combine both a private and public effort.

By being incremental and building on existing programs and ideas that both sides can embrace, the insurance industry proposal may become the seed that started a constructive discussion for the longer term.

• Medicare Reform – The “Part A,” hospital portion, of Medicare is expected go into negative cash flow in just three years as the baby boomers begin to be eligible for the program.

Under Republican leadership, the likes of House Ways and Means Chair Bill Thomas have dominated the discussion with his market-based proposals and the 2003 Medicare bill.

Now, it will be the Democrats who will dominate the Medicare discussion with their agenda setting committee chairmanships. They give every indication of wanting to dive into the program and its various challenges from provider reimbursement to private plan payments.

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Part D Profits––Not Yet the Great Results the Industry Hoped For

Part D—Some Results Starting to Come In
To say the Part D business has been controversial this year would certainly be an understatement. It’s not news that many in the industry have questioned its sustainability as a business—including me.

During 2006, the profitability data hasn’t been credible. In fact, it will likely be another year before we get a good sense for what’s really going on. While the players had to bid their 2007 rates earlier this year, most of what they based them on was pretty soft.

However, the third quarter was supposed to be the quarter that Part D profitability would spike as the sickest seniors would be in the gap and Part D claim levels would therefore decrease for the rest of the year. There is evidence that is happening. But, is it happening enough?

The biggest Part D player is UnitedHealth. In the second quarter, they said, “The Part D business is well on track to provide positive contributions to earnings on a GAAP basis in the third and fourth quarter and meet its full-year operating margin target of 3% to 4%.”

But their outlook was less specific in the third quarter, “On a full year basis, management estimates that Medicare Part D will generate a positive operating margin, however as a result of the benefit design, generated a slightly negative margin during the first three quarters of 2006.” No more specific earnings estimates and no report of big Part D profits in the third quarter.

The second largest Part D insurer, Humana, was less oblique about its Part D results. Given that the third quarter was supposed to be the quarter that the “gap” turned Part D profits around and produced a profit, their results are somewhat startling. Humana reported that, The MER [medical expense ratio] for the company’s PDP [Part D] business was 93.0% for 3Q06, primarily driven by an MER of 133.0% in the company’s Complete [“gap” plan] PDP offering.” The expense factor for Part D plans is likely about 15%. That means that Humana’s Part D combined ratio in the third quarter, the quarter the profits were supposed to show up, was likely 108%!

It is clear that Humana blew it on its “Complete” plan that provides brand name drug coverage in the “gap.” It gets back to the anti-selection argument. Seniors had the ability to pick the plan they could make the most money on, and hundreds of thousands zeroed in on Humana’s rich offering.

Humana’s response has been to double the 2007 senior premium for this plan and stop covering name brand name drugs in the “gap.” They will continue to cover generic drugs in the “gap.” However, with a monthly price of about $80, seniors can find competing generic “gap” plans for about half of that price. Humana clearly intends to blow these much higher utilizing seniors not only out of this losing plan but also out of the company all together. Remember, I told you that the Democrats now have “oversight” powers? This one is going to be the subject of oversight hearing number one.

The great majority of the Part D renewal process appears to be running well. Most plans are increasing their premiums by less than $5 per month and most seniors are happy with their plan and will stay put.

But the Humana “Complete Plan” is going to get the attention. Any Democrat that wants point to some market warts on the way to justifying more regulation and lower payments to private Part D plans is going to point to Humana—a company that tripled its profits by getting into MedicareAdvantage and then used its price strategy to churn the sickest people out of its Part D program.

The longer term Part D concern for the health plan industry has to be that, in the first year, it is turning out to be marginally profitable at best (United) and a real profit loser at worst (Humana). Looking ahead to at least two years of Democratic budgets and oversight, it can only go downhill from here.

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Cost Trend..How Low Will it Go?

Health Care Cost Trends

Last month I asked, just how low will medical cost trend go?

Apparently, still lower.

Health care cost trends have been falling for a number of years since peaking in 2002 at around 14%. Recent reports have annual commercial health plan trend as low as 5.5% to 6.5% in a few places.

The good news about lower health care cost trends continued as publicly traded health plans reported their third quarter results. Most health plans reported falling medical cost ratios on a constant basis, favorable claim development from prior periods, and pricing trend continuing to outpace actual pricing trend.

Once again for the third quarter WellPoint reported that the trend they are pricing into their contracts is greater than the actual cost trend they are experiencing: “Commercial premium yield exceeded total cost trend…resulting in an increase in underwriting margin.” Coventry reported the same thing saying, “Commercial premium yields showed a favorable price-to-cost spread in the third quarter.”

This month, the Federal Employee Health Benefits Program (FEHBP), which covers eight million federal workers, retirees, and their families, said it would increase overall premium by an average of only 1.8% in 2007.

The federal program has historically tracked with private sector costs—albeit at slightly lower levels. The FEHBP saw increases of 12.7% in 2002, 11.3% in 2003, 9.5% in 2004, 7.4% in 2005, and 6.4% in 2006. Granted, some of this is reserve adjustments from prior years but this is still surprisingly low.

A leading employee benefits firm, Hewitt Associates, LLC, also said that their survey of employee benefits costs found that employer costs would continue to moderate in 2007. Hewitt projects employer costs will rise 7.7% in 2007—7% for PPO plans, 8% for HMO plans, and 9% for point-of-service indemnity plans.

However, the drop in trend is not uniform around the country. Hewitt reports trend increases as low as 2.5% in Minneapolis, 5.7% in Philadelphia, and 6.5% in New York City. They also report trend rates as high as 13.1% in San Antonio, 12.8% in Hartford, and 10.5% in San Francisco. Last month, the Boston Globe reported Massachusetts would see at least a 10% trend rate for the seventh year in a row.

Third quarter publicly traded health plan results confirm that health plans continue to rack-up record profits on the heels of declining claim cost trends. The health care cost trend profit windfall, coming from cost trends falling faster than pricing trends, continues on.

From the Hewitt survey, it is clear that not all employers (and their employees) are benefiting from the full benefit of these declining trend rates.

While the news about trend rates is improving, that doesn’t mean health care costs are any more affordable for workers. The Kaiser Family Foundation annual survey of health insurance now pegs the average cost of family health insurance at $11,480 per year.

Even with the relatively moderate rise in health care costs for 2007 employer health care costs will have doubled since 2000.

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Why is Health Care Cost Trend So Low?

In my last two posts (below) I pointed out that commercial medical cost trend has been reported to be as low as 5.5% to 6% with most employers reporting 2007 increases in the 7% to 8% range.

While employer trend rates are at this level, health plans are reporting even lower internal trend rates with commercial profits remaining strong and virtually all of the plans reporting rate increases ahead of actual costs (see article below).

Which raises a question: Why is health care cost trend as low as it is?

In past years, higher rates of trend tended to reflect high rates of utilization that made up perhaps two-thirds to three fourths of the trend rate. The remaining trend was made up of pure price trend. So, if trend was 12%, perhaps 4 points of that was pure price trend and 8 points was utilization––in round numbers.

Could it be that the actual trend rates being experienced by the health plans today are made up of perhaps 4 points for price inflation and 2 points for utilization––again in round numbers?

Are we seeing lower trend rates because we are experiencing lower rates of increase in utilization?

After years of high increases in utilization by providers––particularly in the wake of the "provider backlash" (or patients' rights rebellion) in the early part of this decade and a slower rate of new technology and drug introductions––are we seeing a fundamental slowing in health care costs?????

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MetLife Latest to Pay for Contingent Commissions

MetLife is the latest to settle with New York Attorney General Spitzer for its use of contingent commissions. With UnumProvident and Prudential Financial already paying millions in fines and restitution to customers, MetLife will now pay $16.5 million to policyholders and $2.5 million in New York penalties.

What is amazing is how long all of this has gone on. For years after the scandal first broke, the contingent and unreported commission practice has continued. Smaller benefits brokers and benefits consultants continued to insist on these behind the scenes incentives to put more business with a particular company long after one would have thought the threat of embarrassment and common sense would have prevailed.

The ERISA required form 5500 always required full disclosure. Yet the industry ignored it. Insurers paid, brokers and consultants collected, and employers looked the other way.

Things have been particularly bad for my old company––UnumProvident. They not only got caught up in this as the benefits commission payment poster child for sleeze, but paid another set of fines and settlements to state insurance departments for even sleazier claim practices.

The chickens always come home to roost!

Anyone still on the take with these back room commission deals would be wise to pay attention.

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Has the Florida Judge Stopped the New Health Care Law in Its Tracks?

    The last issue to be resolved is the plaintiffs’ request for injunctive relief enjoining implementation of the Act, which can be disposed of very quickly.

    Injunctive relief is an “extraordinary” [Weinberger v. Romero-Barcelo, 456U.S. 305, 312, 102 S. Ct. 1798, 72 L. Ed. 2d 91 (1982)], and “drastic” remedy [Aaron v. S.E.C., 446 U.S. 680, 703, 100 S. Ct. 1945, 64 L. Ed. 2d 611 (1980)(Burger, J., concurring)]. It is even more so when the party to be enjoined is the federal government, for there is a long-standing presumption “that officials of the Executive Branch will adhere to the law as declared by the court. As a result, the declaratory judgment is the functional equivalent of an injunction.” See Comm. On Judiciary of U.S. House of Representatives v. Miers, 542 F.3d 909, 911 (D.C. Cir.2008); accord Sanchez-Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir.1985) (“declaratory judgment is, in a context such as this where federal officers are defendants, the practical equivalent of specific relief such as an injunction . . .since it must be presumed that federal officers will adhere to the law as declared by the court”) (Scalia, J.) (emphasis added).

    There is no reason to conclude that this presumption should not apply here. Thus, the award of declaratory relief is adequate and separate injunctive relief is not necessary.

Presumably, this applies only in the 26 states that brought the suit. And, of course we should expect the Appeals Court with jurisdiction over this judge to rule on his finding--including the possibility of an emergency order keeping the law in effect during the appeals. But what happens to the early benefits of the law in the meantime?

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Now We Have Real Uncertaintly--The Entire Health Law Ruled Unconstitutional!

We all knew the question of the constitutionality over the new health care law was going to be taken up by the Supreme Court.

We knew that because the law inexplicably lacked a severability clause a judge could throw the whole thing out if the individual mandate were to be found unconstitutional and critical to the legislation.

And, we expected this Florida judge would likely rule against the law in some way.

Up to today, we knew that one federal judge had ruled that only the individual mandate was unconstitutional while two other federal judges had upheld the law.

But, I will suggest that the market's uncertainty about implementing the Affordability Act just went up exponentially with a second federal judge ruling against it. And, there is nothing like the whole thing being thrown out in a suit 26 states have brought.

It will likely be 18 months before we get a final Supreme Court ruling--not to mention a number of Appeals Court Rulings in the meantime. Will they uphold the entire law, throw it all out, or just the individual mandate? Four federal judges have put at least those choices on the table.

If you are a provider, do you now spend millions of dollars developing an Accountable Care Organization? Do you build that new building or make a big technology purchase? If you run an insurance company do you make a big strategic bet on exchanges or now marginal markets?

We really don't know any more this afternoon then we knew this morning.

But the uncertainty index just took a huge jump!

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"Quit the RUC"

Brian Klepper and David Kibbe have a notable column at Kaiser Health News arguing that the American Medical Association's Relative Value Scale Update Committee (RUC) is specialist dominated and steers health care resources away from primary care:

    Not surprisingly, the Committee’s payment recommendations have consistently favored specialists at the expense of primary care physicians. More striking, however, is CMS’ rubber stamping of about 90 percent of their suggestions, even though, in their last three service reviews, the RUC urged payment increases six times more often than decreases.

    This arrangement has played out well for specialists, but the health system consequences have been catastrophic. One significant result has been a primary care shortage. Specialists now earn, on average, $135,000 a year and $3.5 million over the course of their careers more than their primary care colleagues. The income disparity has driven all but the most idealistic medical students away from primary care.

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It Will Be Democratic Senators Leading The Charge To Fix Or Improve The New Health Law

I wrote this Kaiser Op-Ed before today's federal court ruling, that held the entire health care law unconstitutional because of the individual mandate. Now that two federal judges have held the individual mandate unconstitutional, this one overturning the entire law because of it, I have to wonder just how long the Democrats are going to wait before they try to amend the Affordability Act in order to jettison the individual mandate that threatens the whole thing.

When the House of Representatives roll was called Jan. 19, only three Democrats joined with House Republicans in voting to repeal the new health law. This development was notable in that it meant most of Democrats who voted against the overhaul the first time around, and were reelected to Congress in November, voted not to repeal it this time -- evidence that they may be sensing that support for the health overhaul hardening. A quick examination of public opinions offers evidence as to why this idea might be taking hold.

First off, recent polls have shown public perception of the overhaul may be improving. Although the country is still evenly divided in its overall feelings toward the new law, a recent Washington Post-ABC News poll found that less than one in five want the whole thing repealed. Similarly, a Kaiser Family Foundation poll released the day of the President's State of the Union address found that, though about half of Americans remain opposed to the measure, most aren't as supportive of repealing, replacing or defunding it as congressional Republicans are. (KHN is a program of the Kaiser Family Foundation.)

Another recent poll, this one by Fox News, found only 27 percent of those asked wanted the whole law repealed while 34 percent wanted parts of it repealed and 20 percent wanted it expanded. And within Fox's collection of numbers, one specific finding jumped out. Only one in seven of those polled by Fox News want the health law to remain as it is. In other words, for now at least, the country seems to be settling on "fix or improve" attitude toward what we have.

Backed by findings like these, Democrats in Congress seem just as convinced defending the bill is a winning issue as Republicans are certain they have the high ground in trying to scrap it.

But what do voters want in the run-up to the 2012 elections? Cooperation.

A recent USAToday poll found that 80 percent of those asked said the President Barack Obama and the Republicans should work to pass legislation they can agree on -- even 70 percent of Democrats agreed with that. Eighty-three percent said that it is extremely important for House Republicans to pass legislation that both parties agree on -- including 77 percent of Republicans.

More than another bitter and protracted health care debate in 2011, what Americans want the Congress to focus on is policies that will lead to more jobs. While I expect a number of House committees to hold lots of health care hearings in the next few months, I also expect Republicans to begin to move on to other issues rather than spend the whole year on health care.

Back home, most House Democrats are not on the defensive over the new health care law. But that is not always the case with Senate Democrats. With a disproportionate number of their seats in play in 2012 -- and with Sen. Kent Conrad, D-N.D., already deciding not to run again -- it will be the Senate Democrats up for reelection who most want to look like they are being the constructive ones. The individual mandate may be one of the areas on which they focus their attention.

My sense is that what many Americans, particularly swing voters, want to hear most about health care is that Democrats and Republicans found a way to work together to make the new law better -- not repeal it, but not leave it as it is either.

Ironically, I expect it will be these vulnerable Democratic senators, not Republicans who still think they have a winning issue bashing the new law, who will be the most eager to fix or improve the measure.

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The House Health Care Repeal Vote, the National Debt, and the Imperative for Democrats and Republicans to Compromise

This week's House health care repeal vote is little more than a political stunt--everyone knows the effort will die in the Senate.

But, when the day is done the only way for the Republicans to do anything with the new health law will be to work out a compromise—repeal before the 2012 elections is impossible and it isn’t very likely after the 2012 elections. Even if the Republicans sweep the White House and both houses of Congress in 2012, it is highly unlikely they will have the 60 Senate votes needed for a full repeal.

So, in the end, a compromise will be needed.

During the past week, more than one Democrat has indicated an interest in at least looking at compromise amendments to the health care bill—particularly on the individual mandate. But so far, Republicans are showing no signs of being interested in fixing what they say is a bill so bad it should only be repealed.

The House vote will take place against a backdrop of increasing debt and enormous fiscal challenge. In recent days, the national debt passed the $14 trillion mark—that is $45,300 for every person in the country!

Half of our national debt was added in just the last six years. The debt was “only” $7.6 trillion in January 2005 and $10.6 trillion the day President Obama was inaugurated just two years ago.

Last year the deficit was $1.7 trillion and the estimate is for the deficit to be $1.3 trillion this fiscal year—40% of this year’s budget is unpaid for.

The estimate is that the federal government will hit the statutory debt ceiling by the end of March or early May. Lots of newly elected conservatives want to use the required vote to increase it as their first salvo against deficit spending. The problem is that we are going to need to raise the ceiling or face default on our debt.

This debate will be a thorny one for both sides: “The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance the government's reckless fiscal policies.” That was a statement on the Senate floor by Senator Obama on a prior debt-ceiling vote (to $9 trillion) in 2006.

It is not possible to have a conversation about getting America’s fiscal house in order without talking about health care—the single largest driver of federal spending. How both sides get around to talking about health care cost containment having punted on that issue for the last two years will be interesting to watch.

And, neither side can deal with the national debt until they are willing to get serious about working together on the health care entitlements.

In a recent post, I listed a number of places both sides could compromise on improving the Affordability Act:

1. Eliminating the individual mandate and replacing it with freedom of choice with responsibility – The existing mandate gives many families the choice of paying a fine they can't afford or paying even higher and more unaffordable insurance premiums. Because the penalty doesn't apply when family premiums reach 8 percent of income, which will be the case for many, it isn't even a very effective individual mandate.

Instead, a compromise could make guarantee issue health insurance entirely voluntary. If it is purchased when the consumer is first eligible -- such as when the exchanges are first available or at the time of a new job -- the consumer would not be subjected to underwriting or preexisting condition rules. The compromise, though, should let consumers purchase and use their health insurance at any other time. But if they didn't purchase coverage when they were first eligible, any preexisting condition would be subject to a two-year waiting period.

2. Eliminating the benefit mandates in the new law and creating a free market of health insurance choices, but with a standardized baseline for ease of comparison – Eliminate all of the benefit mandates in the new law requiring individual market and exchange consumers to purchase only plans that are yet to be outlined in what will be hundreds of pages of regulations. Instead, a compromise could have only two new benefit requirements. One could be a standard plan, which would take the law's existing "silver plan" and use it as a baseline. Every insurer would have to offer this coverage on the exchange or in the individual market. But insurers could also offer consumers any other plan design, so long as they told consumers the relative actuarial value the other plans had to the standard plan. The second would be a health savings account. Every insurer would have to offer an HSA-style program and state its value relative to the standard plan. Consumers who would be eligible for premium subsidies would have any premium savings deposited in a health savings account.

3. Eliminating the "Cadillac" tax on high cost health insurance plans and introducing elements of a conservative defined contribution approach to the existing liberal defined benefit legislation – With exchange premium subsidies already based upon the value of the new law's silver plan (and they should continue to be), the compromise could limit the employer deduction for health insurance, as well as the individual income tax exemption for employer-provided health insurance, to the cost of the standard plan (currently the silver plan) in any year. Phase this limit in over a period of seven-years -- to 2018, when the "Cadillac" tax was to take effect. As a result, tax policy would continue to support comprehensive coverage but also provide real incentives for consumers to buy wisely.

4. Using the budget gains from limiting the existing health insurance tax preference to pay for such things as improving the now inadequate insurance subsidies for the middle-class, permanently fixing the Medicare physician payment issue, or for reducing the deficit. In 2008, the CBO calculated a 10-year savings of $450 billion by limiting health plan tax preferences to the 75th percentile of premiums then paid by employers.

5. Letting states have the flexibility to experiment with alternatives by enacting the proposal by Sen. Ron Wyden, D-Ore., and Sen. Scott Brown, R-Mass., that would move up to 2014 the year in which states can submit proposals to the Secretary of the Department of Health and Human Services to implement their version of health care reform. The law already allows states to petition the federal government to use the overhaul's money to enact their own plans so long as they cover as many people as the new law would have -- but not until 2017.

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Strong Evidence A Bipartisan Agreement on Health Care Was Possible in 2009

Readers of this blog have often heard me say that a bipartisan agreement on a health care bill was possible in 2009--driven from the Senate Finance Committee. I have continually made the point that the two sides were much closer than is commonly believed--or partisans are willing to concede.

Every time I post this, the overwhelming reaction is that I am wrong--with one side inevitably blaming the other for a lack of good faith in the discussions.

Bara Vaida had an interview in Friday's Kaiser Health News with Mark Hayes, who was the lead Republican health staffer on Senate Finance at the time and had a "clear view" of the negotiations.

Here are the key excerpts:

    Q: [Vaida] Key Democrats, including Senate Majority Leader Harry Reid, D-Nev., recently said their biggest regret was allowing the Senate Finance Committee leaders, your former boss Sen. Grassley and committee chair Max Baucus, D-Mont., to spend so much time trying to forge a bipartisan compromise on health care. What do you think about that criticism?

    A: [Hayes] We really devised much of the health care framework even before the Gang of Six Senate (Finance Committee) leaders started meeting. In the summer of 2008, Sens. Grassley and Baucus held a summit and we were chugging along with planning our roundtables and it is my understanding that the leadership was frustrated with us that we were moving too quickly and they wanted us to slow down. We got agreement on 80 percent of the framework even before the Gang of Six started meeting to take on the remaining 20 percent. People were naturally impatient but the complexity of the job, connecting the dots and making the model work is a huge challenge so those who pushed for it to be done quickly were watching the clock and likely didn't have a full appreciation for the issues we were attempting to resolve. The idea that the health care law could be done quickly and be done right is like saying you can go to the moon on the first try.

    Q: [Vaida] What were the pieces that had been agreed to and what was the remaining 20 percent?

    A: [Hayes] We agreed on the structure of the exchanges, state regulation, insurance reform, delivery system reform, the creation of the innovation center and financing mechanism. The last pieces that needed to be resolved and became problematic were the amount of funding, the offsets and the way the individual mandate would be implemented.

This was a huge missed opportunity. Partisanship--particularly from the Congressional leadership and the White House--overwhelmed what could have been a bipartisan agreement.

Even then, I doubt any of the players foresaw the degree of political and market uncertainty, as well the national division over the new law, that ramming this thing through has caused.

Why does anyone ever think partisanship is superior to bipartisanship? Yet, a year later the Congress is more polarized than ever with many of the more bipartisan members from 2009, like Bob Bennett of Utah, in forced retirement.

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Improving The Health Law In 2011: Realistic Ways To Reach Bipartisan Compromise

The new health care law can be changed in ways that would make it acceptable to a bipartisan majority in the new Congress -- and, therefore, to the American people. But to find this elusive middle ground requires consideration of the competing philosophies at the heart of the nation's political divisions regarding this sweeping measure.

For starters, liberals want a health insurance system in which everyone is covered in a more equitable health insurance pool, but conservatives argue the individual mandate used to accomplish this goal is an unconstitutional encroachment on individual freedom.

Liberals also want a standardized competitive marketplace for health insurance ensuring consumers get comprehensive benefits, but conservatives argue that this would destroy choice and the free market, and create hundreds of pages of rules about what people can and can't buy.

And liberals want every citizen to be entitled to a comprehensive health insurance plan -- a defined benefit. But conservatives want individuals to have incentives, including tax incentives, to purchase and use coverage responsibly -- defined contribution health insurance.

However, there are ways to modify the new health law so that it includes the key elements both sides see as central to moving toward covering everyone and doing it in a way we can better afford.

The key elements of such a compromise could include:

1. Eliminating the individual mandate and replacing it with freedom of choice with responsibility – The existing mandate gives many families the choice of paying a fine they can't afford or paying even higher and more unaffordable insurance premiums. Because the penalty doesn't apply when family premiums reach 8 percent of income, which will be the case for many, it isn't even a very effective individual mandate.

Instead, a compromise could make guarantee issue health insurance entirely voluntary. If it is purchased when the consumer is first eligible -- such as when the exchanges are first available or at the time of a new job -- the consumer would not be subjected to underwriting or preexisting condition rules. The compromise, though, should let consumers purchase and use their health insurance at any other time. But if they didn't purchase coverage when they were first eligible, any preexisting condition would be subject to a two-year waiting period.

2. Eliminating the benefit mandates in the new law and creating a free market of health insurance choices, but with a standardized baseline for ease of comparison – Eliminate all of the benefit mandates in the new law requiring individual market and exchange consumers to purchase only plans that are yet to be outlined in what will be hundreds of pages of regulations. Instead, a compromise could have only two new benefit requirements. One could be a standard plan, which would take the law's existing "silver plan" and use it as a baseline. Every insurer would have to offer this coverage on the exchange or in the individual market. But insurers could also offer consumers any other plan design, so long as they told consumers the relative actuarial value the other plans had to the standard plan. The second would be a health savings account. Every insurer would have to offer an HSA-style program and state its value relative to the standard plan. Consumers who would be eligible for premium subsidies would have any premium savings deposited in a health savings account.

3. Eliminating the "Cadillac" tax on high cost health insurance plans and introducing elements of a conservative defined contribution approach to the existing liberal defined benefit legislation – With exchange premium subsidies already based upon the value of the new law's silver plan (and they should continue to be), the compromise could limit the employer deduction for health insurance, as well as the individual income tax exemption for employer-provided health insurance, to the cost of the standard plan (currently the silver plan) in any year. Phase this limit in over a period of seven-years -- to 2018, when the "Cadillac" tax was to take effect. As a result, tax policy would continue to support comprehensive coverage but also provide real incentives for consumers to buy wisely.

4. Using the budget gains from limiting the existing health insurance tax preference to pay for such things as improving the now inadequate insurance subsidies for the middle-class, permanently fixing the Medicare physician payment issue, or for reducing the deficit. In 2008, the CBO calculated a 10-year savings of $450 billion by limiting health plan tax preferences to the 75th percentile of premiums then paid by employers.

5. Letting states have the flexibility to experiment with alternatives by enacting the proposal by Sen. Ron Wyden, D-Ore., and Sen. Scott Brown, R-Mass., that would move up to 2014 the year in which states can submit proposals to the Secretary of the Department of Health and Human Services to implement their version of health care reform. The law already allows states to petition the federal government to use the overhaul's money to enact their own plans so long as they cover as many people as the new law would have -- but not until 2017.

The Republican House of Representatives will almost certainly vote to repeal the new health care law early this year. But everyone knows that is for show -- the Democratic-controlled Senate will not go along, nor will President Barack Obama.

On the current partisan political track, we are destined to have a stand-off for two years with Democrats and Republicans blaming each other for gridlock while uncertainty over the new health law, and its 2014 deadlines, has consumers, employers, and health industry stakeholders unable to plan for the future -- only providing another burden of uncertainty in an economy trying to regain its footing.

If the Congress waits until after the 2012 elections before seriously considering changes to the law, it will be 2013 and less than a year before key elements of the legislation are due to take effect.

Or, we can recognize that both sides can get a lot of what they really want by agreeing to a few key and carefully placed changes to the existing law.

Liberals can improve even further the promise that consumers will have access to comprehensive health insurance while still bringing down the cost and underwriting barriers.

Conservatives can significantly move toward their goal of a free market for health care by expanding choices and crafting new incentives for people to make more efficient health care purchasing decisions.

And, these objectives can coexist, giving the American people the confidence we really have accomplished something.

Or, both sides can play a cynical game in the run up to 2012 and the people can be the losers.

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Karl Rove’s Criticism of AARP Was a Cheap Shot and Uninformed

Readers of this blog know that I am willing to call AARP out when I think they deserve it. Witness my recent post criticizing their reaction to the chairs of the Deficit Commission and their preliminary report when AARP acted more like a narrow minded advocate than an enlightened organization that understands the inevitability of fundamental reform to the entitlements.

And, I have never been comfortable with their advocacy for both the Republican Part D program as well as the Democratic health care bill when a big share of their revenue comes from health insurance commissions.

But Rove’s recent column in the Wall Street Journal claiming the Obama administration was giving AARP a pass from the new health law’s regulations because the organization is a political ally is just an uninformed cheap shot.

Rove cites recent Obama administration regulations that exempt Medigap plans, a big seller for AARP, from rate review and other mandates such as the minimum loss ratio rules. Medigap plans were exempted because the entire Medigap industry argued they should be—and for good reason. Medigap premiums are only a fraction of the premium of traditional health insurance or Medicare Advantage plans—the same loss ratio rules simply wouldn’t work there. The benefit structure of Medigap plans is already highly regulated and it wouldn’t make sense to try to stretch the new law’s insurance rules to that market segment.

AARP didn’t get anything the rest of the Medigap industry did not get and for good reason.

Rove also points out that AARP is exempt from the cap on insurance industry pay that can be deducted for tax purposes and argues this is another pay-off to an Obama political ally. But AARP is not an insurance company and therefore was never going to come under this provision. AARP is an insurance agency and no insurance agency is subject to this limit.

Rove also argues that AARP gets a break from the Obama regulations because it doesn’t have to pay the new insurance company premium tax—again it is not an insurance company. None of the nation’s insurance agencies will pay the tax.

AARP’s insurance company partner, the real insurance company in the AARP senior product offering, will have to comply with all of the insurance company requirements such as tax caps on its executive pay.

There simply aren’t any special AARP exceptions.

I find it more than ironic that the same Karl Rove that drove the Medicare Part D benefit during his time in the Bush White House, that added $8 trillion to the long-term Medicare unfunded liability—because none of the new program's cost was paid for—and had AARP issue a pivotal last minute endorsement of that Republican initiative, would now criticize the senior group.

In 2003, I thought it inappropriate that AARP, part of it a giant senior insurance agency that had a great deal to gain by selling the new drug benefit, provided an endorsement most observers felt at the time put the Republican legislation over the top.

There are lots of things to be critical about in this new health care law and how it was passed.

I am troubled by AARP’s recent unwillingness to use its influence to educate its members on the necessity of entitlement reform and the sacrifices everyone will have to ultimately make. AARP should be a leader on this front—not just another self-serving special interest.

But I will also suggest that Karl Rove, or any of us, could provide a better service by getting the facts straight and minimizing the self-serving hypocrisy.

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