Black Hats and CAD Stents

 

Top 10 Catholic Health Care Systems
Top 10 Catholic Health Care Systems (Photo credit: Wikipedia)

When Steve Brill released his recent Time magazine article, Bitter Pill – Why Medical Bills Are Killing Us,, it was an overdue chapter in a critical primer to educate the American public on the perverse incentives plunging our healthcare system and our nation into dysfunction and debt.  The Time piece was the first major media effort in some time to shine a light on the factors beyond the insurance industry that contribute to costs that now eclipse 16% of our GDP. 

Brill’s article clearly touched a clear nerve as the American Hospital Association immediately issued a multiple page press release refuting many of the writer’s observations and complaining that billing practices were an outgrowth of a cat’s cradle of cost shifting and an increasingly Darwinian landscape where only the best equipped, resourced and positioned hospitals will survive. 

Yet, Brill’s facts are hard to refute.  Many not for profit hospitals are paying seven figure executive salaries and posting double digit margins achieved through complex and imbalanced billing practices that rival Egyptian hieroglyphics.  Time’s expose demystifies the complicated calculus of hospital billing and alleges that the system of billing and reimbursement is hopelessly broken leaving the most vulnerable of victims in its wake – those earning too much to qualify for Medicaid but earning far too little to afford coverage.  The stories are gut wrenching and identify a range of misaligned financial and care motives across high margin practices such as oncology, imaging, lab, emergency and pharmacy services. The findings also tie to a June 2009 Harvard study that found that 50% of all US bankruptcies were directly related to medical bills and/or illness.

When I crossed the proverbial River Styx from healthcare consultant to regional CEO of a health plan, I was plunged into a bitter and high stakes battle with large hospital systems demanding and often getting double digit unit cost increases. The result was a zero sum game where in my resolve to try to control double digit trend, I would attempt to extract steeper discounts from smaller providers and community based hospitals – ironically providers who offered lower unit costs and similar quality than bigger systems.  However, consumers demanded big name brands. The daisy chain of cost shifting punished weaker players and slowly drove primary care and small hospitals to the edge of extinction.  Meanwhile, the uninsured paid the most for healthcare – often paying 200%-400% more for care in healthcare’s most expensive setting, the hospital emergency room.

In 2007, I watched two regional hospitals engaged in an arms race for membership through aggressive marketing and sub-specialty expansion. When the hospitals both sought to expand their cardiology programs, the practice of inserting post angioplasty stents increased by 300%.  While the risk of stents outweighed the benefits for certain patients with (CAD) coronary artery disease, cardiac interventionalists routinely placed stents in their patients, not because patients always needed them but rather because they could earn more money. It’s a familiar story: The doctor tells the patient they need a procedure. The patient, fearful and accustomed to the notion that more health care must be better, consents.  To the degree, any payer attempts to disallow a recommended procedure as unnecessary, the payer is accused of bureaucratic meddling or worse, jeopardizing the quality of care for the sake of operating profits.  Years later, we are finally beginning to understand that whoever regulates costs, access and necessity of treatment in the healthcare system – be it a payer or a governmental agency, is automatically fitted with a black hat and labeled the villain.

The Time’s article focusing on certain hospital billing practices are a subset of a nationwide game of cat and mouse as facilities seek to balance highly variable reimbursement from Medicaid, Medicare and commercial insurance.  The fight over the true cost of care is often invisible to those footing the bill – employers.  Many employers have no line of sight into the thorny negotiations between hospitals and their insurer.  To make matters worse, if a large healthcare system threatens to drop out of an insurer’s PPO network, employers often urge their carrier to resolve its contract differences with the hospital to limit disruption for employees.  The insurer, concerned over losing membership if the PPO network loses a flagship provider, quietly caves and the cost of inpatient healthcare trends continue to rise. To make matters worse, employers have consistently resisted implementing narrower PPO networks that might otherwise force billing outliers back toward the mean costs of delivering care. It seems employers want to fly first class but only pay for coach.

The insurance industry has committed its share of financial and public relations misdemeanors during the two decade run up of healthcare costs. Yet, insurers were uniquely singled out during the recent debate leading up to the Affordable Care Act.  Politically, the black hat payers were easier targets than other stakeholders who have abetted the demise of our system: consumers with unrealistic expectations, doctors using malpractice avoidance as air cover to oversubscribe services, drug companies and PBMs engaged in intricate and difficult to understand pricing practices, employers who have remained parochial and disruption averse, the food and agricultural industries for practices that promote products that adversely impact public health, the government for its serial under-reimbursement of providers through Medicaid and Medicare and a range of stakeholders who ineffectively advise and assist the industry in its quest for an optimal balance between quality and affordability.

Steven Brill’s thoughtful rendering is an inch wide and a mile deep as it illuminates the need for hospital payment reform.  However, he stops too soon in his expose, refraining from identifying the other accomplices that drive these billing behaviors — including a Medicare and Medicaid system that enjoys low administrative costs but presides over an estimated annual $100B waste and fraud problem arising out of unmanaged fee for service care.  Medicare is beloved by seniors partially due to the simple fact that it does not manage care.  What Brill also misses is the private sector’s apathy in aggressively punishing high outlier unit costs charges by taking on some of our most sacred players – large teaching hospitals and system oligopolies that now dominate many regional landscapes.  As consultants, we have failed to convince employers of the merits of eliminating open access PPOs, increasing consumer directed health plans, using scheduled reimbursements for elective surgeries and enforcing a bi-lateral social contract around good health by requiring workers to see a primary care doctor and receive age and gender appropriate testing to better manage health status.

As with any stakeholder that feels singled out, the AHA response to the Time’s article was swift and predictable.  I’m sympathetic. Laying our affordability crisis at the feet of any one group misses the entire point of our issues in the US. However, the need for reimbursement reform and billing simplification is irrefutable.  Our system is in crisis. The question remains: will we move towards a delivery model that allows market based reforms and affords consumers a greater role in driving quality and cost effective delivery or will we wake up in a decade to a single payer that rations access and peanut butter spreads reimbursement.  One could argue our entire healthcare system can be best summed up by the average US hospital bill – opaque, misunderstood and bearing little relationship to true cost of the services.

 

Wanted: CEO for Turnaround. Private Jet and Great Benefits

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I got a call the other day from a head hunter looking for a new CEO.

“Look, I’m not going to lie to you.  Acirema Incorporated is a blue chip firm but it is in deep doo-doo.  The succession planning is pretty complicated so they are looking now for a CEO that can take over when the current CEO retires in 2016.”

“It seems sort of far off but okay, what’s the deal?”

“It’s a classic turnaround.” He chirped enthusiastically. “The firm is essentially bankrupt and needs a strategy to get back in the black.  The company is spending about a third more than it is generating in revenues.  The line of credit with the bank is strained and getting worse as the firm comes close to violating some of the very liberal banking covenants.  The expenses are running over from two poorly conceived overseas joint ventures and a debt refinancing that went south.  The rest of the money goes to finance active and retiree benefits and pensions, new products, customer services and interest on debt the firm has borrowed.”

His voice got low and he was whispering into the phone.  “ I shouldn’t be telling you this but these guys have about an 8:1 debt to earnings ratio – which is alarming – but the bank that holds the debt has given loose terms and has not raised too much concern about the potential for default.  Acirema has a problem looming with its pension and retiree medical benefits as the CFO made bad assumptions about how much money they would have in the future to pay for commitments to current and retired workers.  Investment yields have been bad and the lower returns mean fewer dollars to pay without dipping into principal.  They now realize they made a massive accounting error when they assumed people would draw only three to four years worth of benefits before dying.  The average worker is now receiving benefits for almost thirteen years – six times what Acirema budgeted.  The new CEO is going to have to fix that.”

“How?” I asked

“That’s why they pay you guys the big bucks, I guess.  I’m just a head hunter on a commission.”

He continued having memorized the entire terms of reference. “So, the firm is underfunded in its medical retirement plan to the tune of almost twenty-five times our annual revenues.  Management can’t honor these commitments with the union and the new CEO is going to have to break the news to the collectively bargained groups who may threaten to strike.  There’s a lot of waste – endless committees and departments.  You can work at the firm twenty years and retire and get 90% of your former salary as a pension.  You can then come out of retirement and get a new salary AND your pension. It’s crazy.”

“Jesus” I said.

The recruiter laughed. “We wanted to offer him the job but could not find his number. Your two predecessors have really messed things up. Revenues are down and many want to raise the price of company services and cut the stock dividends to shareholders but management is not sure if shareholders will go for it.  If they don’t raise revenues, they have to cut dividends deeper and lay off staff.  Acirema is heavily unionized and cutting expenses could create huge problems – even an industrial action.

The board of directors is dysfunctional and divided.  The truth is they have never made money – only made a profit five times in fifty years – but the firm is deeply respected and has done more to influence our industry in the last two hundred years than any other peer.  The board has a low approval rating from our shareholders but they keep reelecting them.  We need a Chairman and CEO that can lead.

Shareholders don’t have a realistic understanding of the economics of the industry in which the firm is now entering.  The next phase is the proverbial “Fourth Turning” – an unraveling phase that precedes a winter crisis that will eventually open up everyone’s eyes to the need to change.  Whoever joins the firm as CEO in 2016 will most likely be grabbing the helm right when the wind is at gale force and the barometer is dropping.”

“Wow, Mrs Lincoln! ” I said sarcastically “Other than that…”

“Here’s the good stuff: The job pays $400k a year plus a $50k expense account. You get to use the corporate house for free and we have a luxurious, multi-acre estate  that is available to you for meetings and weekend getaways.  You get $200k as an annual lifetime retiree benefit.  The firm will give you use of the private jet and helicopter and unlimited vacation – although you will probably never take much.

Now I won’t lie to you.  It’s not for everyone.  You have to be ideologically strong and determined with the unions, employees, shareholders and the board.  Your job is to break up cartels of indecision, pay down the debt, create a blue print for 4% growth and do not let your competitors turn you into a silver medalist role in the industry. It takes guts, charisma and a slightly masochistic personality. What do you say?”

I did not have to think long.  “It sounds like a great opportunity but I am not sure anyone could fix that firm.”

He sighed. “Yeah, that’s what everyone else has said.  You’re the four hundredth guy in the private sector I have called.  No one wants to touch this one.  Could you give me any names?”

“Well”, I said.  “You need someone who will break eggs and not care about making friends. This requires a benevolent dictator.  A “Fourth Turning “ leader is less of a visionary and prophet and more of a commander and tough guy.  I’m too empathetic and right brain. You need a Lee Iacocca.”

“Hey, not a bad idea.” The recruiter said. “He’s still kicking, isn’t he. Do you have his cell number?”

Okay Dad, Hand Over The Credit Card!

English: Federal Debt Held by the Public by U....
English: Federal Debt Held by the Public by U.S. Presidents and party control of Senate and House, 1901 to 2010; source for debt data is Congressional Budget Office, “Federal Debt and the Risk of a Fiscal Crisis”, July 27 2010, http://www.cbo.gov/ftpdocs/116xx/doc11659/07-27_Debt_FiscalCrisis_Brief.pdf (Photo credit: Wikipedia)

The front door slams and a man with graying hair looks up from his book over rimmed glasses as he sits in an adjacent room. A young woman in her early twenties drops a duffel bag on the wood floor of a well-lit foyer.

Father: You’re home! How’s grad school?

(The girl looks irritated and says nothing)

Father: What’s wrong, baby?

Daughter: (The girl hesitates and then holds her hand out in front of him) Okay. Hand it over!

Father: What are you talking about?

Daughter: The credit card. You and your kick-the-can-down-the-road generation have bankrupted my future. (The girl drops a NY Times on the coffee table and becomes sarcastic) It says in here that the Fiscal Cliff has been averted. Ha! They might as well have announced that the Easter bunny is real. I just finished Michael Lewis’ Boomerang and Strauss and Howe’s The Fourth Turning and I’m depressed.

Father: Haven’t got to those books yet. Since November, I have turned to Merlot and escapism. I’m reading a bestseller about the 16th century. (Pointing to the newspaper, smirking) Cheer up! The Paper reports that the fiscal cliff is a bunny hill and Paul Krugman says spending our way out of the deficit is the only path back to prosperity. I hear Barney Frank may come out of retirement.

Daughter (looking incredulous): Are you kidding me? They only agreed to delay the debt ceiling discussion for 60 more days. Then they are going to ask Congress to raise my credit card limit. Even if the president got all the taxes he wanted, he’d have raised what, $80B of revenues? Where’s the other $15.92 Trillion going to come from? Government made a bunch of promises back in the 1960s in the form of Medicare that they no longer can keep. We’ve known it for a while, but we are hiding it like Enron. If the US government was a public company, the executives would be in jail for accounting fraud and the country would be in receivership. In the real world, you don’t pay as you go! There is bi-partisan dishonesty about the budgets and how dire our situation is. There is a deficit, all right. It’s a deficit of honesty, vision and courage in our public officials and it’s a deficit of public willingness to accept responsibility for managing a problem that has landed in their laps. Winter has arrived and you jerks keep spending the next few generations’ money to avoid a few cold nights.”

Father: It’s not us. It’s that damn Obama. He has created more debt in the last four years than all the Presidents that preceded him. He passed socialized medicine and now he wants to raid Medicare to pay for it. He’s added at least $7B of public debt and he wants to raise the debt ceiling and spend more money. He’s never worked a day in the private sector and can’t balance a lemonade stand.

Daughter: Dad, get real. The guy inherited a nightmare and a constituency that can’t face reality. This is about facing the fact that our healthcare system is broken and literally sinking the country. At some point, no one will lend you money. Congress and the White House have never shown fiscal discipline. We have recorded a budget surplus just five times in the last fifty years. Four of the surplus years came together from 1998-2001, President Bill Clinton’s last three years in office, and President George W. Bush’s first year in office. By the way, our publicly stated debt counts only current cash obligations. The real debt we are facing is more like $75 trillion dollars because we’re not adding in $45T in underfunding for Medicare. Every politician knows this but it is a radioactive secret. Both sides keep up their “Medi-Scare” rhetoric because they want support from retirees who fear they will lose benefits. Face it, Medicare is the biggest single drain on our budget and we have to deal with it.

Father (getting mad): There’s no damn way I’m going to let them raid Medicare to pay for nationalized Obamacare.

Daughter (smiling condescendingly): Dad, Medicare is unmanaged, fee for service, nationalized healthcare. The government controls Medicare costs by rationing reimbursement to doctors and cost shifting to the private sector. It’s the greatest generational rip-off from young to old in the history of the country. Medicare was established when there were 16 workers for every retiree and the average life expectancy was age 68. In 2030, we will have only two workers for every retiree and will have 80 million retirees, four times as many as today. The math does not work. Social Security is not the problem. We have to cut Medicare and make some tough decisions about how we deliver care in the last few months of life.

Father ( getting angry): Oh, now you want to euthanize me and your mother? This is not about Medicare. It’s about a socialist President who wants to redistribute wealth. We need to elect some fiscal conservatives. The Dems won’t make tough decisions. They are give-away artists who pander to Unions, illegal immigrants and anyone who feels they have gotten a raw deal. The GOP needs to win back the White House.

Daughter: Dad, don’t hold your breath. Try running on a platform of fiscal austerity when the new majority is being told that there was a big party from 1998-2008 that they did not attend but that they must now pay for. The demographics in America are changing and a large enough percentage of the GOP’s base has seen their standard of living decline that they have begun to identify with moderate Democrats joining an increasingly heterogeneous group of pro-Democratic voters. The GOP has not been able to convince non-Caucasian voters that they would benefit under their leadership.

Father: Jesus, you’re depressing. Do you have any good news to share?

Daughter: I’m taking Mandarin and I have a summer internship with an Indian microfinance firm that is trying to expand into China and Africa.

Father (trying to appear encouraged): Well, that’s great. Although it sounds like you are going to have a hard time finding a good cheese burger. (Looking bemused) My kid’s going to have to immigrate to another country to find a decent management job.

Daughter (hugging her father and laughing): Not necessarily. We just have to show the resolve to confront healthcare spending and the weight of our entitlement obligations. If we do that, we can be competitive as a country. The way I see it, we have four choices: default on our debt, raise taxes that only delay the day of reckoning and slow down our economy, create a centralized rationing regime in the form of a single payer healthcare system or migrate to a defined contribution premium support model where people receive help buying public or private insurance. I don’t think we want number one or two. So that leaves three or four. We’ve got to get honest – fast and (looking stern at her father), we have to cut up your credit cards.

Father (grabbing his daughter’s bag): How in the hell did you get so smart?

Daughter (smiling and putting her arm around her father): Four years of economics. I have your ear for BS and Mom’s ability to balance a checkbook.

Father (nudging daughter with shoulder): So, you going to tell me who you voted for in the elections?

Daughter (grinning): Ron Paul, I wrote in

Father (making a face) : That was a wasted vote

Daughter (pretending to look offended): Hey, last time I checked, this was still a Democracy.

The Stages of Death and Dying, Employers and Health Reform

House Bill and Senate Bill subsidies for healt...
Image via Wikipedia

“Change, before you have to…” Jack Welch

We live in a society that loathes uncertainty – particularly the unintended consequences that sometimes result from a catastrophic event or in the case of PPACA, landmark legislation. Wall Street and the private sector crave predictability and find it difficult in uncertain times to coax capital off the sidelines when the overhang of legislation or geopolitical unrest creates the potential for greater risk. Despite our best energies around forecasting and planning, some consequences, particularly unintended ones – only reveal themselves in time.

In the last decade, employers have endured an inflationary period of rising healthcare costs brought on by a host of social, political, economic and organizational failures.  There was and remains great anticipation and trepidation as Congress continues to contour the new rules of the road for this next generation’s healthcare system. Optimists believe that reform is both a way forward and a way out of a mounting public debt crisis and a bypass for an economy whose arteries are clogged by the high cost of medical waste, fraud and abuse.  Cynics argue reform is merely a Trojan Horse measure that offers an open invitation for employers to drop coverage and for commercial insurers to “hang themselves with their own rope” as costs continue to spiral out of control — leading to an inevitable government takeover of healthcare.

Meanwhile, leading economic indicators are flashing crimson warning signs as recent stop-gap stimulus wears off and long overdue private/public sector deleveraging results in reduced corporate hiring, lower consumer confidence and increased rates of savings.  The symptoms of a prolonged economic malaise can be felt in unemployment stubbornly lingering around 9.2% and a stagnating US economy that is struggling to come to grips with the rising cost of entitlement programs.  Across the Atlantic, the Euro-Zone is teetering as Italy and Spain (which represent more credit exposure than Greece, Portugal and Ireland combined) stumble toward default.  Despite these substantial head winds, US healthcare reform is forging ahead – – right into the teeth of the storm.

Closer to home, states have begun to debate and propose legislative amendments to their own versions of reform as they attempt to reconcile a declining tax base with the soaring obligations of Medicaid and collectively bargained pension and long term care.  Should Congress finally agree to allow an estimated 28% of fee reductions in Medicare provider reimbursement to become law, the private sector could see as much as a 400bps increase in core medical trends resulting from cost shifting – pushing trends back into the mid-teens. Hospital systems, providers and healthcare agencies are bracing for cuts and potentially looking to the private sector as a source for more dollars.  All of this is building at a time when certain industries are nearing a “point of failure” – – an inflection point where healthcare spend as a percentage of revenues and operating profit will either consume earnings or completely erode employee take home pay.

Many are looking ahead to 2012 as a “burning bush” year – a seminal presidential and Congressional election where political results will help clarify the direction of reform – pivoting toward the reinforcement of employer sponsored healthcare as catalyst for market based reforms or merely a cementing of the incentives that seem to encourage the deconstruction of employer based coverage.  With 33 Democratic Senate seats up for reelection and 10 GOP spots up for grabs, the entire composition of our government could change – or perhaps not.  In the interim, the fiscal year 2012 will continue to show 44 states projecting budget deficits totaling $ 112B.

A recent controversial McKinsey study forecasted that as many as 30% of employers or 54m individuals covered under private healthcare would be “dumped” into public exchanges as of 2014.  This number is in sharp contrast to the 12.6mm assumed by the CBO (approximately 7% of 180mm privately covered individuals.)  The influx of 41.4mm unbudgeted insureds – all eligible for federal subsidies of as much as $5,000 – would upend the initial CBO estimate of $ 140B deficit reduction over 10 years and result in an increase in public debt in just six short years.  The ensuing debt arising out of PPACA over the periods 2020 to 2030 could easily eclipse $ 1T of additional public debt.

Any economist can confirm that all unsustainable trends eventually end.  Rising premiums, public to private cost shifting, perverse and unaligned incentives for care, rationing and a host of other stop-gap issues are all doomed to be replaced by a system that either drives efficiency through market reform or through the single payer procurement of healthcare.  It will take at least five more years and three election cycles for this marine layer of debate to lift.  Unlike 1996, there is graveyard silence arising from the private sector.  Employers seem to be stuck in one of the several stages – – often attributable to the dead and dying.

Denial — “This can’t be happening, not to me.” One could argue that this generation of business leaders has drawn the short straw when confronting the decisions we will need to make to keep our businesses viable in a period of sustained high unemployment and economic stagnation.  Many larger employers are nervous regarding reform but somehow feel that reform is more likely to happen to other people – smaller employers and the individual marketplace.

These firms do not want to believe that the myriad unintended consequences associated with reform could impact their bottom line. Denial has been a principle ingredient and willing accomplice to healthcare cost inflation in the last decade.  For many employers, the inability to confront the fact that many of their own business practices – insistence on open access PPO plans, less medical oversight and utilization review, limited appetite for employee disruption, inability to dedicate the time or resources to assess the health risks embedded within their own population of employees – – has them resigned them to a cycle where premiums are increasing faster than wages and corporate earnings. While costs continue to rise, many employers have simply focused on stop-gap year over year cost shifting.  Others prefer to abdicate to commercial insurers who have failed to drive affordability and improved access. It comes down to believing you can make a difference and a willingness to confront the hard choices – choices that could fundamentally drive market-based reforms.

Anger — Many find themselves simmering with resentment, hunting for villains whose feet they would seek to lay all blame: “It’s those damn insurance companies!” “It’s that Socialist in the White House!”” It’s the failure of regulators to do their job in managing the complexities of the healthcare delivery system. “It’s the big hospitals!” “It’s the drug companies!” It’s the rich and their lack of empathy” “It’s the poor and their lack of personal responsibility” The list of culprits could fill a thousand postal office walls.

A polarized Congress, pariah hungry media and a workforce unwilling to understand that access does not equal quality means that change cannot happen without some noses getting out of joint.  Yet, we understand clearly that if we want to reduce our exposure to the coming storm of public to private cost shifting, we must engage and move on from our own anger.  As 35m additional Baby Boomers increase the double the ranks of Medicare to 70mm by 2030, total health spending will near 30% of the GDP and Medicare costs are expected to eclipse $ 32,000 per enrollee up from $12,000 in 2010.  Facing the magnitude of these suffocating entitlement costs, we will either embrace private sector, market-based reforms that fundamentally realign the current delivery system or we will default into a more regulated, lowest common denominator system that will rely on rationed access and reimbursement as a means of controlling cost.

Bargaining —”I’ll do anything for a few more years.” The third stage involves the hope for postponement.   The lion’s share of stakeholders in healthcare can be found milling in this no man’s land of indecision.  While hope is not a strategy, a surprising number of firms are clinging to the dream of “repeal and replace” legislation. Others are merely expecting Washington to do what it does best – prolong debate and delay implementation long enough to afford them enough altitude to pass the problem on to someone else. The tea leaves do not look promising for fundamental legislative intervention that would disrupt the momentum of reform.  Repeal is unlikely. Employers must understand that 2014 will require certain decisions.  Fundamentally employers will have one of four choices:

Take the Money And Run – Do I drop coverage, pay the penalties associated with moving employees into the public exchange and pocket the difference?

Drop Them But Ensure A Safe Landing – Do I drop coverage, grossing all employees up to my current level of subsidization so all might afford coverage in the public exchanges?

Create a Consumer Plan of Your Own – Do I move to a private exchange or defined contribution approach to financing my medical benefits to cap expenditures but remain involved as a sponsor of my benefit programs?

Control Your Own Destiny – Do I continue to offer group based private insurance believing that employer sponsored health coverage is more likely to experience lower trends if properly managed and that medical coverage remains a fundamental part of my company’s ability to attract and retain employees.

Depression — “What’s the point?” The problems we face as a nation and in business can feel overwhelming.  We have the misfortune of having to confront $38T in underfunded Medicare liabilities, $ 14T in public debt, and a potential double dip economic recession arising out of any number of black swan events – – credit defaults abroad, domestic hyper-inflation or a slowing of Chinese GDP.  It seems inevitable that we must head into a period of profound austerity.  Facing the potential of sustained uncertainty can burden any decision maker to the point of inaction.  While some period of reflection is healthy to any organization, people must take a position, plan around the certainty of change, grieve over the passing of an epoch and move forward with a renewed conviction to address the challenges that lay ahead.

Corporate depression may manifest itself in a lack of willingness to engage in the discussions or conduct financial modeling required to understand what scenarios will best benefit your organization.  It is a strange period where we express grief knowing that the traditional employer/employee social contract has changed forever in a hot, crowded, global marketplace.

The sense of urgency to explore alternatives to traditional employer sponsored coverage will led by retail, agriculture and hospitality while professional services, technology and collectively bargained public sector plans may feel more obligated to remain on a course of employer sponsored coverage.  Planning prior to 2014 is essential to be position a firm to react to opportunities that may present themselves.  Should a key industry competitor choose to discontinue coverage and use operating overhead reductions to drive down prices, what will you do?  Many have promised to not be first but not be third in line to change.

Acceptance — “I can’t fight it, so I better prepare for the inevitable.”  2014 will mark the beginning of a movement toward or away from employer-sponsored healthcare.  It is more likely that most will be carefully weighing election results, the first two years of public exchange performance and the actions of their competitors to determine a course forward.

2014 is forcing discussions over the will of the private sector to drive market-based reforms, and the review of decades-old beliefs regarding direct and indirect compensation plans.  Employers that have navigated these phases of change and are now aggressively accepting the new normal of healthcare and will most likely end up as self insured, in touch and aware of their own population risks, directing patients to primary care based system that reward providers based on quality and efficiency and are committed to driving healthier behaviors and personal compliance with to reduce chronic illness.  Employers will realize returns on these efforts as aggressively managed plans will likely experience lower single digit medical trends.  These firms will be reticent to abdicate management of healthcare costs to a public exchange but instead focus on educating and activating their workforce to the personal and corporate dividends of change.

Some employers may convert to defined contribution plan designs such as cafeteria plans to allow for a more diversified workforce to allocate finite dollars to purchase coverage that make most sense for their unique needs.  Health benefits may become part of an overall defined contribution approach to retirement and benefit planning – affording each employee to allocate their dollars to their circumstances and in doing so, accept their circumstances more freely because they have choice in where they spend their dollars.

Reform is a process and like many of the vagaries in life, every person and each business will react differently to the stimulus of change.  Every problem is a disguised opportunity and with it, comes the added dividend of using change as a catalyst for reassessing your strategies to attract and retain employees. It’s about making decisions by commission rather than omission.  And, the sooner an employer navigates these stages of change, the more likely it is that healthcare reform will happen for them – instead of happening to them.

Be Careful What You Wish For America – The Debate Over Minimum Essential Benefits

President Barack Obama's signature on the heal...
President Barack Obama's signature on the health insurance reform bill at the White House, March 23, 2010. The President signed the bill with 22 different pens. (Photo credit: Wikipedia)

The Affordable Care Act is officially under construction.  The framework for the minimum mandatory levels of benefits offered through state exchanges is now being researched and will soon be ready for prime time debate.

The Institute of Medicine, a non-partisan research group, has been retained by Health and Human Services to conduct public and private planning sessions to help shape final recommendations on what standard levels of benefits should be required as a “floor” for all health plans.

The queue of industry and special interest groups increases daily as stakeholders wade in to offer personal perspectives on why certain levels of benefits should be considered as “essential”. The stories will be heart wrenching as individuals plead for broader coverage terms and looser definitions of medical necessity to cover a range of therapies treating orphaned or difficult conditions that do not neatly fit into today’s definitions of coverage.  The unfortunate fact also remains that the average consumer expects “essential coverage” to be synonymous with open access, comprehensive coverage, minimal out-of-pocket cost sharing and an affordable price tag.  In effect, everyone wants a Cadillac when the nation can barely afford a Corolla.

As the IOM solicits perspectives from a range of medical, academic, public and private stakeholders, it is gaining valuable insights into the opportunities and land mines associated with attempting to define a basic level of benefits that can guarantee affordable, sustainable and high quality healthcare.  Those states that have already walked the path of attempting to define mandatory benefits are perhaps the best leading indicators of the intended and unintended consequences of setting benefits levels too high or at more minimal levels.  States such as Maryland, Massachusetts and Utah have struggled and led efforts to set up universal and affordable benefits anchored by standard benefits and medical necessity protocols.  In determining what should be covered by commercial insurance and Medicaid, these and other states can offer valuable lessons to legislators seeking to establish the boundaries of the coverage requirements under ACA.

As the IOM and subsequently HHS consider the flood of opinions from stakeholders, a few unenviable considerations loom large:

Essential benefits will dramatically impact the future level of benefits many employers choose to offer.  Essential benefit levels will determine whether employers continue to offer healthcare and/or what benefits are no longer subsidized. Many believe that if HHS establishes a “national” level of essential benefits, it will become the floor as well as the “mean” to which many employers will gravitate their current medical coverage levels.

A national essential benefit design that establishes lean levels of benefits will prompt some states to consider mandating levels of benefits above and beyond those required in a national essential benefits design. A national design that is too rich could accelerate the budget crisis in states as more employers drop coverage sending employees into exchanges and expanded Medicaid pools increasing the financial burdens already crushing state coffers.

States will naturally argue for the flexibility to administer their own versions of essential benefits, largely because of fear over escalating obligations under Medicaid, legacy coverage and provider issues, the recognition that healthcare is local and that there is no such thing as a “one size fits all” plan.  Legacy budget deficits, the unique nature of each state’s demographics and healthcare delivery systems (single hospital towns vs. large healthcare systems, urban vs. rural care ) and the political mood of its constituents will figure heavily in determining the appetite of each state to advocate a richer or leaner level of mandated essential benefits

While fiscal hawks fear an essential benefit plan that is too comprehensive and therefore too expensive, there is the potential that more pragmatic designs could prevail leading to an essential benefits plan that is less expensive and better designed than many current plans in the market.  Plans anchored by primary care based gatekeepers, value based plan designs, effective cost sharing to promote personal responsibility and consumerism, and network tiering to ensure plans only reimburse at the highest level those providers that practice efficient, high quality care – are likely to run at significantly lower medical trends and in doing so, be able to support lower premiums over a longer period of time.

Change Behavior or Ration Access – Nationalized, single payer health plans offer rich preventive and catastrophic care but suffer the reputation of rationed access issues when delivering elective or non-emergency care. In a political environment where there is often no will to change the underlying behaviors of those utilizing the healthcare system, the only way to control the costs that arise out of unlimited demand and finite resources is to ration access and reimbursement.

CMS may soon be dealing with similar issues if delayed Medicare cuts are ratified by the 112th Congress. Medicare and Medicaid recipients may find themselves with rich benefits but fewer providers willing to accept reduced levels of reimbursement as payment for services. If the provider does accept coverage, the coverage will undoubtedly carry longer waiting times. Providers will either limit the number of recipients they treat or continue down the path of the “triage” encounter as they attempt to make up in volume what they are losing in unit cost.

It is important to note that access does not equal quality.  Yet, many Americans currently believe access is synonymous to quality. In a two tiered public/private system, access is as much a privilege as it is a right. The single payer country determines the pace of one’s access based on medical necessity. The ability to pay for the right to opt into private alternative delivery is the only way of bypassing a payer’s medical necessity and access protocols. While many argue that today’s current for profit system already functions in this capacity, the majority of medical necessity issues arise out of insured individual and small business coverage issues where there is no purchasing leverage and scarce clinical data to support broader coverage.  Individuals working at larger, self insured organizations generally do not have these issues as employers act as plan fiduciaries and have the ability to make the final decisions on medical necessity and reimbursement.

Larger Employers Still Offer The Best Coverage and Most Balanced Cost Sharing – In the last ten years, employee out-of-pocket health cost sharing has risen 149% while wages have only risen 37%. According to a recent Towers Watson survey, the composite cost of healthcare per worker was $ 10,212 in 2010. The average cost sharing contribution per employee was $2,292. The average American worker makes $ 40,000 a year.  The total composite cost of health care per worker as a percentage of salary is 25%.  Employees currently share approximately 22% of coverage cost but only 5.5% of the total cost of this coverage as a percentage of their own gross earnings.

These numbers do not tell a complete story.  Cost sharing is greater among individuals working for smaller organizations as most small employers tend to subsidize less coverage and have less flexibility to affordably purchase more generous plans.  In addition, the average median wage for individuals working for employers of fewer than 50 employees lags those working for larger employers.  The crisis of affordability has been most acute among those who can least afford it.

At the same time as small employers are dropping coverage or fatiguing under its costs, as many as 75% of employees in a recent PWC survey, said that they would prefer to be paid salary in lieu of benefits – opting to purchase healthcare as individuals through newly established exchanges.  It is interesting to note in this PWC study that many of these same employees grossly overestimated what they believed their coverage was worth in additional salary. The question remains for many employers and for those watching healthcare reform develop – can affordable and sustainable essential benefits be established that can incent smaller employers to maintain and even potentially, rejoin those offering coverage?

As many as 70% of Americans earn less than 400% of the Federal Poverty level – the current cut off for ACA offering pro rata subsidies to purchase healthcare through exchanges. If essential benefits begin to eclipse those benefits currently offered by employers and subsidies net a savings to consumers, we may witness a larger migration of employees and their employers out of employer sponsored plans. It then falls to the Congressional Budget Office to recalculate whether the larger base of exchange participants and subsidy recipients has turned a modeled $ 140B reduction in public spending into a massive drag on the national deficit.

A more basic level of affordable essential benefits could induce employers back into the market as well as usher in a return to defined contribution style cafeteria plans – An essential benefits plan anchored by 100% coverage for primary care, shared responsibility through a health savings account, tiered networks, centers of excellence for chronic care, primary care delivered through medical homes and/or gatekeepers and compliance incentives could achieve cost savings while offering coverage  greater than bare-boned mini-med coverage.

A lower level of mandated essential benefits could also prompt employers to reduce richer coverage to a new, more affordable common denominator.   In aligning their benefit plans to a national norm, employers could adopt a defined contribution benefits approach – choosing to fund up to the level of benefits required by law and then grossing up individuals’ salaries one time to afford them the opportunity to spend dollars as they see fit e.g. greater take home pay, purchasing of voluntary benefits, upgrading to more generous medical designs etc.

Better Coverage Does Not Translate To Better Health – Coverage and consumer advocates will be pushing for expansion of coverage definitions to include diseases and medical conditions that have historically been excluded from private insurance.  The definition of medical necessity will be debated as advocates argue that comprehensive coverage will translate into improved public health. One has only to look at financially distressed municipal and collectively bargained plans that offer rich, first dollar coverage combined with broad open access networks to see that better coverage does not translate to better health.

To define and mandate essential coverage is to walk a mine field of ethical, moral and social issues. Some therapies may not necessarily improve the status of one’s health condition but may prevent it from becoming worse.  The unenviable task of establishing a process for determining medical necessity is the first step toward the difficult process adopted by other countries who have wrestled with the cost/benefit of determining what gets covered and what does not.

The UK’s National Institute of Clinical Excellence which determines medical necessity and establishes the basis for reimbursement of certain therapies is often maligned for the difficult choices it makes regarding palliative care and determinations surrounding when and how it may pay for experimental therapies. This is the unenviable role of any payer. Whether it is government making the call or a for profit insurer, any thing that falls to the unreimbursed side of the ledger will be viewed as a diminishing coverage and ultimately public health.

Now is a time for austerity – The dangers of creating unsustainably rich benefits plans are real. Not unlike Medicare, a rich essential benefit plan that drives higher medical trends will contribute to rather than reduce the public debt. If employers choose to drop coverage and more consumers receive federally subsidized coverage, the market will reach a tipping point where federal expenditures for healthcare outstrip the government’s ability to pay.

Aside from raising taxes and increasing assessments for failure to cover employees, the government will want to pressure the provider side of the market to reduce the costs of its services.  If the private insurer market can not reign in the costs of a rich essential benefit design (and they will not), there is a strong possibility that there will be a renewed call for a public option.  Once enough individuals join a cheaper, taxpayer subsidized public option, the public option payer will begin to ration reimbursement to providers as CMS has done with Medicare.  While single payer advocates argue that doctors and hospitals would have no choice but to accept reduced single payer reimbursement, most industry professionals argue that price controls as a means of controlling costs will lead to diminished quality and reduced investment in innovation. This is happening today under Medicare and Medicaid.

The table is being set for another food fight around health reform.  As healthcare impacts every American, we can expect 300 mm opinions on what “essential benefits” should cover.  It is a critical argument at a historic time for our country.  Without introducing fiscal restraint and evidence based medicine into this debate over essential benefits, we may end up with a rich and totally unsustainable level of healthcare.  As a nation we are already suffering from the palpitations of fiscal heart disease and the obesity of public debt. Offering too generous essential benefits could very well induce a budget coronary from which it will be hard to recover.

Be careful what you wish for, America. You may get it.

Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners.  Turpin can be reached at Michael.Turpin@usi.biz

The War Between The States

US House of Representatives Voting Map for HR3962
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Christmas is the time when kids tell Santa what they want and adults pay for it.  Deficits are when adults tell government what they want and their kids pay for it.  ~Richard Lamm

The day after a mid-term tidal wave of anti-incumbency sentiment swept through Congress resulting in the GOP reclaiming a controlling majority in the House and closer parity in the Senate, a seemingly contrite President Obama took personal responsibility for his party’s dismal showing at the polls. In a carefully worded conciliatory message, the President shared that, “the American people have made it very clear that they want Congress to work together and focus their entire energies on fixing the economy.”

Newly minted House Majority leader, John Boehner, subsequently reconfirmed that the GOP would not rest until Congress had reined in government spending.  This would be partly achieved by deconstructing the highly unpopular and “flawed” Patient Protection and Affordable Care Act – a “misguided” piece of legislation that would actually increase costs for employers thereby reducing the nation’s ability to jump-start an economy that relies on job creation and consumer spending. In Boehner’s mind, government is not unlike the average American, overweight – it’s budget deficits bloated by the cost of financial bailouts, Keynesian stimulus spending and failure to discuss the growing burden of fee for service Medicare.

The President’s failure to acknowledge healthcare reform in his speech was interpreted by many as deliberate and only served to cement the perception that in Washington, it will impossible to have constructive dialogue around the imperfections and potential unintended consequences of PPACA. The White House’s resolve to defend its hard-fought healthcare legislation is likely to extend the polarizing partisanship that has come to characterize Congress. The impasse may very well spark a two-year period of bruising, bellicose finger-pointing over how to fix rising healthcare costs.

The absence of a veto proof majority leaves the GOP in a position of holding high-profile hearings and tendering symbolic legislation designed to expose PPACA’s limitations and its failure to address the core problem – medical inflation and its principal drivers.  The Obama administration and a Democratic Caucus will work to redirect legislative attention to the economy while working to protect the core elements of their health legislation – expanded and subsidized access for some 30M Americans, tighter regulation of insurance coverage and underwriting and an ambitious expansion of the role of Health & Human Services as a national oversight agency.  It seems that “reforming” reform may end up unlikely inside the Beltway setting the stage for regulatory skirmishes across state legislatures. We may very well look back on this period leading up to the 2012 Presidential elections as “The War Between The States”.

Healthcare civil war will result in intense competition for dollars.  Internecine fighting will flare across all lines – – between primary care physicians and specialists, community and teaching hospitals, brokers and insurers, employees and employers, as well as state and Federal regulators. Every stakeholder believes they are part of the solution, adding integral value to healthcare delivery.  Meanwhile consumers cling to the notion that the best healthcare is rich benefits delivered through open access networks where no administrative obstacle gets in between the consumer and the care they believe they need. The question becomes who is fit to referee and regulate this highly radioactive food fight.

PPACA MLR Regs May Reduce Competition – Recently promulgated Minimum Loss Ratio (MLR) legislation will spark a fundamental shift for insurers as they are forced to underwrite locally and account for profits exclusively by license and by state.  In higher loss ratio markets, insurers will need to price to their true cost of risk creating the potential for market volatility. In the past, regional and national insurers routinely redirected profits from lower loss ratio markets to subsidize higher MLR markets. This was particularly true when carriers were entering expansion markets in an attempt to create more competition.  New markets generally meant poorer medical economics for insurers who did not have enough membership to negotiate favorable terms with providers. This led to premiums priced to higher loss ratios and lower profit in an effort to gain market share and increase competition.

With final MLR regulations imminent, competition in certain markets may diminish as smaller market share insurers no longer have the patience or economic staying power to build membership.  If the threat of high loss ratios persisting in markets where rate increases cannot be approved, an insurer may attempt to withdraw from less profitable lines of business or a particular geographic market prompting a rebuke from a local insurance commissioner or HHS.  Insurers will now be constantly weighing the cost/benefit of a public fight that may taint their ability to do business in an entire state.

A New Type of Non Profit Insurer ? – In the Midwest, a different battle is brewing as Health Care Service Corporation (HCSC), the powerful Illinois based non-profit Blue, is drawing criticism from consumer groups over its $6B war chest funded by accumulated reserves – reserves that some claim are well above the necessary statutory limits and should be used to reduce premium increases.  Within historical market cycles, non-profit insurers and their reserves have played an important role in moderating medical costs as a non-profit can spend down excess reserves and in doing so, initiate a competitive pricing cycle that squeezes for profit competitors in select markets. Wall Street analysts closely follow insurer pricing cycles often portending lower managed care industry profits when non-profit insurer reserves reach too high a multiple of required reserves.

As hospitals and doctor groups consolidate and the supply side of healthcare repositions in the face of inevitable changes to reimbursement, non profits are recognizing that size and bargaining power matters. In a departure from normal excess reserve driven pricing, HCSC is building reserves, perhaps out of conservatism over an uncertain future or because they are looking for an opportunity to acquire another non-profit.

Should HCSC use excess reserves – essentially profits accumulated in four states – to potentially acquire a non-profit in another state, some regulators and consumer groups may argue that these reserves should be rebated to policyholders.  When a non-profit chooses more conservative reserving,  they give for profit competitors a potential pass from the pressure of having to moderate premiums.  Non-profits play a vital role but are not without their perceived warts. While clear exceptions exist in many markets, criticism of non-profit insurers is often leveled at their utility-like behavior – – limited innovation, bureaucratic insensitivity to customer service and waste.   As these non-profits become tougher and more formidable, they will begin to emulate certain for profit behaviors intensifying the debate in state legislatures over the nature of for profit and not-for-profit insurance.

Some states may condone non profit excess reserving practices – especially if there is a plan for non-profit to for-profit conversion. In these cases, a trust is established to convert the non-profit’s reserves to state control, presumably to be used to impact areas regarding public health.  Given that 80% of every state’s budget is dedicated to either “education, incarceration or medication”, a non-profit conversion can be a boon for a cash strapped state.   Losing a non-profit local insurer to for profit status is hard to explain to consumer advocates pushing for more competition among insurers but easier to ensure reelection by using one time windfalls to finance staggering state budgets.

Medicare Cost Shifting – As reform imposes restrictions on insurer loss ratios, it is also poised to shift more costs to the private sector through Medicare fee cuts – cuts that are expected to generate $ 350B of the estimated $940B of revenues required to cover the $800B price tag of PPACA. Congress, nervous over mounting evidence that added underfunding of Medicare reimbursement would only reduce access to medical services for seniors, has chosen to further delay these cuts in legislation.  The stop-gap delay on cuts known as “Doc-Fix” will challenge the upcoming lame duck session of Congress.  The moratorium on cuts expires in November, 2010, leaving the newly comprised Congress to wrestle with the highly unpopular consequences of further cutting Medicare.  Given that fee for service Medicare costs continue to spiral out of control, each month that Congress fails to pass these fee cuts reduces revenues earmarked to offset the costs of reform – – potentially turning PPACA from a bill that sought to reduce the public debt by $ 140B to a bill that would further increase our national debt by as much as $ 300B.

Regulatory Debates Over Premiums for Indivduals and Small Business– Healthcare civil war will further inflame as public spending in Medicare and Medicaid reimbursements are reduced – causing providers to cease accepting patients, ration access and/or cost shift more to commercial insurance. Medicaid already reimburses providers less than 70% of retail costs of care followed by 80-85% by Medicare. Commercial insurance picks up this cost shift currently paying $1.25 for similar services with the most disturbing costs of $2.50 being charged to any uninsured patient uncovered by public or private care. With the new public spending cuts, commercial and uninsured care costs are likely to rise higher. Some insurers estimate unit costs likely to increase to as much as $1.40.

As rising unit costs result in higher medical loss ratios, insurers will raise rates – prompting more state conflicts with regulators seeking to manage the optics of rising insurance premiums for individual and small business. New MLR regulations will require extraordinary underwriting precision as conservative pricing will result in lost market share or the potential for large premium rebates while under-pricing premium will result in the need to raise rates higher and in doing so, risk high-profile battles with regulators as they weigh the political optics of allowing proposed increases. In at least half of US healthcare markets, states have prior approval rate authority allowing them to effectively prevent insurers from collecting premiums required to cover loss ratios in excess of the newly mandated 80 or 85% loss ratio limit. History has taught us that price controls are effective political but ineffective economic levers to address underlying cost inflation.

The first shots of the rate adequacy debate have already been fired in California, Colorado, Maine and Massachusetts — all markets who represent a perfect storm of rising medical costs, budget deficits and a firebrand belief that insurers should be highly regulated, non profit utilities. The result has been a rising war of words over the right balance between rate regulation and historical profit margins of insurers.

The seeds of civil war were buidling for a decade prior to the passage of reform. Some industry observers attribute the ill-timed efforts of Wellpoint California to collect a requested 39% increase on its individual lines of business as the spark that rekindled Federal reform.  While the loss ratios in their Individual Medical line of business had clearly deteriorated as a result of declining economy and a loss of healthier membership, Anthem/Wellpoint failed to think across its entire book of business – an insured multi-line block where small group, Medicare Advantage and other lines of business were all generating profits.  The failure to correctly understand the enterprise risk of raising rates – despite their actuarial justification, cost Wellpoint/Anthem and the insurance industry dearly as calls for reform rekindled across the US.  Wellpoint has subsequently resubmitted lower requested rates, accepted higher loss ratios in its individual line of business and taken a hit to earnings.

A Social Contract with States – The for profit insurer conundrum is clear. Providing health insurance carries with it an implied covenant within every market in which an insurer does business.  This social contract suggests that insurers and other for profit stakeholders must be actively demonstrating community stewardship, andthat they are improving the health system, not merely benefiting by its dysfunction. Responsible stewardship is also in the eyes of the beholder – – in this case, regulators, politicians, pundits, consumers, and a range of stakeholders. In the upcoming battles that will wage within each state, it will become increasingly relevant in the court of public opinion that how one makes money in healthcare is as relevant to policymakers as to how much one makes.

A low pressure system is already building over New York, California, Rhode Island, Massachusetts and other blue states as they begin to re-assert their regulatory authority to support federal oversight of healthcare.  Red and blue politics now matters as states will be either guided by an ethos of  “healthcare is a public/private partnership anchored by employer based healthcare and consumer market forces that drive quality and efficiency” or a mindset that “healthcare is in need of radical reform – reform that begins with PPACA and most likely ends with a single payer system acting as the catalyst to drive the least politically palatable phase of healthcare — rationing of resources.”

A Ray of Sunshine ? – There may prove to be a silver lining if certain states become incubators for successful alternative models of delivery. States quick to embrace medical home models that  expand the role of primary care providers may make faster strides to control readmission rates, formulary compliance and emergency room overtreatment.  Additional local regulatory reforms could include all payer reimbursement reform which levels in-patient reimbursement among all payers. There is a need for expanded malpractice reform and a tolerance of compliance based designs that hold those seeking access to subsidized care accountable for greater personal health engagement.

The battles will wage up to the 2012 Presidential elections – – a vote that could very well determine the future of healthcare in America. A Democratic administration is likely to cement basic reforms into place and further placing near term faith in expanded access highly regulated insurance exchanges, rate regulation and the potential trigger of a public option if private plans are unsuccessful in taming medical inflation.  A 2012 GOP win would likely mean revocation of individual mandates, a scaling back of the role of exchanges, greater incentives to preserve employer sponsored healthcare and a focused but modest expansion of Medicaid to cover those most in need of a core level of coverage. The GOP and Democrats alike face a common challenge of tackling soaring fee for service Medicare costs and the eventual need to reshape a healthcare delivery system that is rewarded for treating chronic illness not preventing it.

Most states will be agnostic to the presidential elections, choosing to continue to pass regulations if they feel reforms are falling short of dealing with local access and affordability issues. Only larger employers in self insured health arrangements will avoid the crazy quilt of shifting multi-state regulations.

Robert E Lee once remarked, “it is good that war is so horrible, ‘lest men grow to love it.”  As with war, the politics of reform is a zero sum game.  Achieving savings means someone in the healthcare delivery system makes less money.  The war over healthcare reform will not be popular nor easily understood. Every American will be impacted. Fear and misinformation will rain over the battle field like propaganda. Yet, if we could agree on a guiding vision – improvement of public health, personal responsibility, elimination of fraud and abuse, torte reform, the digitalization of the US healthcare delivery system, the preservation of our best and brightest providers and a system built on incentives to reward quality based on episodes of care, perhaps we may achieve a public/private détente where we focus less on vilifying and more on healing a system, it’s consumers and our unsustainable appetites.

Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners.  Turpin can be reached at Michael.Turpin@usi.biz

Turkey Bowl

Thanksgiving postcard circa 1900 showing a tur...
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Turkey Bowl

Lucy van Pelt: Charlie Brown, I’ll hold the ball and you run up and kick it.

Charlie Brown: Hold it? Ha! You’ll just pull it away and I’ll fall flat on my back and kill myself.

Lucy van Pelt: I wouldn’t do that. It’s Thanksgiving.

Charlie Brown: What does Thanksgiving have to do with anything?

Lucy van Pelt: One of our most cherished traditions is the Thanksgiving football game.

Charlie Brown: Gee, I guess if it is a tradition, it would be an honor. She wouldn’t pull it away if it is a tradition. This time I’m gonna kick that ball clear to the moon!

[he runs to kick the ball, but Lucy pulls it away]

Charlie Brown: Aaauuugh! [falls flat on his back]

Lucy van Pelt: Isn’t it peculiar how some traditions just fade away?   – Charles Schultz, “A Charlie Brown Thanksgiving”

The Thanksgiving Day football game is a rich side dish served on a day where each American consumes an average of 16,000 calories while at the same time giving thanks for life’s simplest pleasures.  On this gilded holiday, we are reminded of the blessings that we often take for granted such as proton pump inhibitors, analgesic heat rubs, knee braces and a gluteus minimus that does not swell into a gluteus maximus after a long touchdown run.  The Turkey Bowl is a ritual whose championship trophy is forged from silver bragging rites and golden nostalgia.  It’s principle ingredients are any ambulatory human aged 6-60, a beat up football and most importantly, mud – – caked, brown malleable clay, a symbol of our temporal toil and a timeless tribute to our agrarian DNA.  As Americans, we landed in the mud, we rose out of the mud, we fought in the mud, eventually we hired other people to work for us in the mud and then we invented Tide to eliminate any evidence that we ever actually consorted with mud.  But, each Thanksgiving morning, we return to the peat bogs of our past to refresh old rivalries and lay claim to another year of bragging rites and hyperbole.

In California, Thanksgiving arrived unceremoniously on a warm desert wind sweeping down across silent, vacant freeways and empty schools.  Our house fashioned out of Marine Corps dogma and the testosterone of five men grew restless at the percussion of chopping knives and the regular entreaties for someone to “please peel the potatoes and green beans.”  The low dulcet tones and punctuated spikes of laughter from a generation of kitchen matriarchs mixed with the reassuring aroma of sautéed onions and baking turkey.  A football suddenly bounced off the den window.  Outside, a boy in sweats had appeared, grinning in a tear away shirt and cleats.  There was a sudden rush of motion as we mustered outside ready to bike the two blocks to our local junior high school where a sea of jerseys and baseball caps pitched and argued over the balance of talent and rules of engagement.

The local Turkey Bowl was a one time annual opportunity to run with the larger dogs of our neighborhood – – siblings home from college and older kids that would normally look right past you as too small or too insignificant to join them in any sport.  Yet, on this day, a spirited tackle or timely body block might win a rare compliment from an older idol that would be gratefully deposited in one’s shoebox of memorabilia and taken out many times over a lifetime of self reflection.  There were broken bones and stitches – -badges of honor and fodder for the bragging rite debates that would ensue later in the winter.  As in life, there were broken plays, personal fouls, selfless acts, winners and losers.  There was instant acceptance when one was picked to play on a team.  It was a Christmas morning thrill to watch as an older teenager opened his muddy, catcher’s glove palm and designed a play, especially for you – “Turp, go five yards out and turn around.”  It was the old button hook and it was my play, designed exclusively for me like a jewel encrusted Faberge egg.  Me! – a mere 11 year old paramecium was deemed worthy of possibly receiving a pass from this multi-celled seventeen year old God.  Just one problem, I was being guarded by a sixteen year old with bad acne, mood swings and suborbital ridges that suggested that someone in his family was discovered by Dr Leakey.

“Ready, set, you bet, go Charlie go, hike!”

As I sprinted to my spot, the older defender shoved me roughly to the ground like a rag doll.  “Sorry kid” he flipped with a smirk.  Back in the huddle, everyone was hissing that they were open. I was busy rubbing the dirt out of my eyes. Each down, I was repeatedly tossed to the ground unable to complete my “button hook.” By the fourth quarter, I had eaten more mud than an earthworm. The score was tied 49-49.  I had not touched the ball.

Someone’s sibling rode up with a summons from home and there was talk of ending this year’s grudge match in a tie. “That’s like kissin’ yer sister” someone yelled.  Another shouted,” One more set of downs!”  I was once again lined up against my delinquent tormentor but instead of running my assigned button-hook, I turned suddenly and sprinted long as if the devil himself was chasing me.  I screamed and waved my hands.  The ball was launched in my direction and my heart leapt as I stumbled through the mud never taking my eye off the spiraling pigskin. My opponent had fallen down and I was alone behind the defense.  The pass seemed to hang in the autumn air for an eternity.  It fell into my arms and bounced off my chest careening away from my body.  I dove forward grasping like a drowning man, my arms and fingers straining for the deflection.  My fingers clawed under the muddy ball preventing it from hitting the dirt.  I fell awkwardly feeling a white flash of pain in my knee.  But I held on.  Celebratory screams from down field confirmed my reception and as I rose grimacing, I spiked the ball.  With the TD, the game disintegrated. But, our team had won.

As I limped to my bike, I heard the deep baritone of the seventeen year old icon, “great catch, Turp”.  I blushed with self conscious satisfaction and weaved my way home, tossing the ball in the air and catching it.  Later, as I donned my dreaded holiday dinner ensemble, the shirt collar did not feel so tight, and the gray wool slacks did not itch so much, and the hand me down loafers did not bite my heels   That night, turkey never tasted so good.  The mashed potatoes melted on my tongue like butter on a hot skillet. The pumpkin pie seemed snatched straight from the open window sill of an Amish farmhouse.

On this day, I had much to be thankful for.  I had entered the pantheon of Turkey Bowl heroes, scoring the winning touchdown.  Me, the single cell amoeba.  Perhaps, I was on my way to evolving into something bigger, and more noble.  Alas, I would have to wait until next Thanksgiving.  Only 364 days to go.

Hard Times

(The Depression) The Single Men's Unemployed A...
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Hard Times

“Gore Vidal uses the phrase, the United States of amnesia. Well, I say United States of the big A — Alzheimer’s, because what happened yesterday is forgotten today.” Studs Terkel

Studs Terkel will forever be remembered as an apostle to our past. The actor, radio host and biographer dedicated his life to chronicling diverse aspects of our American experience so that we might not lose sight of ourselves.  Terkel lived the images that he projected – – a child of Russian immigrants, a student of journalism and theatre, a blacklisted artist who would not inform on friends and a present day Tom Joad, advocating for the disenfranchised, bullied and under represented.  In an interview just before his death, Terkel lamented our sound bite society’s inability to reflect and learn from even our most recent current events.

In his award winning oral history of the Great Depression, Hard Times, Terkel conducted a symphony of history – trumpets, trombones and saxophones of the 1920’s, the melancholy deep bass of the Black Tuesday stock market crash and the chaotic syncopation of economic and social hardships of the 1930’s.

Terkel left us more than narratives, he guided us through heartache, human endurance and history and through this experience, we learned to sing a richer anthem about American living and learning.  His recording of American’s personal Depression stories revealed not only our failings but our triumphs and the human instinct to persevere in the face of great crisis.    Immigrants, minorities, investment bankers, union activists, musicians and working class families all related the ordinary and extraordinary circumstances that carved deep psychological lines into the rouged, youthful cheeks of a nation emerging from the prosperity of the early 20th century.

The Blues of our current economic uncertainty are not unique sounds to our generation.  Every society faces periods of uncertainty that threaten prosperity.  These challenges in hindsight often become the defining moments for a generation.  Those that choose to dismiss the factors that precipitated the Great Depression as singular and unique ignore the past.  CS Lewis referred to this indifference as a “snobbery of chronology”, a syndrome where descendents armed with hindsight often view themselves as impervious to replicating the missteps of their predecessors.  The arrogance that develops as a culture achieves advances in medicine, technology and science often impedes our spiritual and social progress.  The lack of heavy lifting tends to atrophy the muscles of character that people need in times of challenge.

In 1929, the stock market crashed.  Entire fortunes were lost.  People committed suicide rather than face the humiliation of total material ruin.  In the late 20’s, the Dow was soaring. Everyone became a stock speculator and could indulge their irrational exuberance with easy credit and margin purchasing of equities.  Gains were kept of the table to double down on even bigger bets. Consider the echoes of Martin Devries, a prominent Chicago and NY broker as he reflected on Wall Street in 1928.

“There were a great many warnings.  The country was crazy.  Everybody was in the stock market, whether they could afford to be or not.  You had no governmental control of margins, so people could buy on a shoestring.  And when they began to pull the plug..you had a deluge of weakness.  You also had short selling and a lack of rules.   It wasn’t just the brokers involved in margin accounts.  It was the banks.  They had a lot of stinking loans.  The banks worked in as casual a way as the brokers did.”

Herbert Hoover and the Republican party held the White House and governed with laissez faire fiscal policy and a populist view that periodic downturns were the natural fires that needed to be allowed to burn themselves out within the forests of our endlessly promising economy.

By raising taxes at a time of tight unemployment, the US government took more money out of the hands of consumers thereby reducing consumer consumption – which is critical to economic growth.  The Fed’s reaction to the crisis was to tighten policy and drive a kind of Darwinian cleansing of weaker financial institutions.  Confronted with the embarrassment of a sudden financial tailspin, the government under reacted and then overreacted.  When banks failed, the Fed did not lend the failing bank money or afford additional money to other banks to compensate for the shrinkage in money supply.  The Fed instead squeezed monetary policy and tore at the deep fissure in the economy. Lack of credit led to banks failing at an astounding rate. Frenzied queues of depositors attempting to withdraw their savings from uninsured banks “ran” to withdraw savings that were either illiquid or nonexistent.  The lack of liquidity caused mortgage defaults, bankruptcies and financial ruin.

To add insult to injury, in 1932, a Democratic Congress and a worried, willing Republican Hoover administration passed the largest peacetime tax increase in history.  According to web based financial writers Gold Ocean, “Marginal income tax rates were raised from 1.5% to 4% at the low end and from 25% to 63% at the top of the scale. A huge tax increase by any measure.”  As US consumption shrank and unemployment rose, Smoot Hawley was passed to stimulate jobs at home by reducing imports, This lead to a global trade war that debilitated the world economy.  Most historians agree that it was only WWII that got us back on the economic track.

The level of financial hardship was unprecedented. There was no place to hide as our parents and grandparents were pulled down into an economic sink-hole that stretched from China to Chile, and New York to Melbourne.  Families were fractured as fathers left to try to find employment in far off cities.  Some families were never reunited.  Mothers went back to work doing odd jobs while older siblings raised younger brothers and sisters.  Aunts, uncles, and grand parents moved in to offset expenses.  People became infinitely more dependent on one another resulting in stronger, more tightly knit communities of common interest.There was a gracious humility in many towns that hung like the sweet smell of lilacs in spring as people accepted life on life’s terms and understood that gifts were to be shared with those closer to the abyss of poverty.

Life was about making ends meet.  Basic necessities were rationed and would remain precious indulgences for over a decade.  A new sense of social justice emerged in America as dust bowl minstrel Woody Guthrie and social activist/writer John Steinbeck chronicled the inequities and humanity that blossomed in the miasma of depression. The anvil of hardship pounded an entire generation and out of it, there emerged an alloy of American values – – resilience, dedication, community, empathy and equity.  These attributes would be put to good use in 1941 as a generation rose up to defeat global fascism, stand up to communism and to form the foundation for a benevolent world power.  The lessons of the depression taught those who endured it to live within their means, and not take on massive amounts of personal debt.  They understood it meant relying on your own initiative to solve personal problems, not abdicating this responsibility to large government.

We now find ourselves in the midst of another financial crisis.  We are worried.  Oil is at an all time high.  People are losing jobs.  The Dow teeters each day like a four foot Jenga stack.  Most do not remember that it took the Dow until 1954 to match its high of 312 that it had held in 1929.  Credit is tight. Those who watched the missteps of the Fed in the 1930s know that the supply of credit is the issue, not money supply.  We have learned that there can be abundant money in the system, but if a conservative paranoia swings the pendulum too far to where banks hesitate to lend, business can’t expand. With over massive and ever expanding public debt and an economic recovery shored up by rotten timbers of cheap creidt , we know there is more pain to come and that scares us.  Anxiety and lack of faith opens up the Pandora’s box of society’s self interest.  Self-centered fear triggers many character defects – the penchant to hoard, to be selfish, to be ignorant of others in need and to prioritize oneself above all others.  The exact opposite of how history has taught us to survive catastrophe.

If Studs were sitting with us by a summer camp fire, he would surely tell us of hard times and hobos, migrant workers, dust bowl farmers and soup lines.  He would also reassure us with personal stories of compassion and love, attributes that he believes are the ties that lash the broken boats of any society and help protect against the ravages of indifferent dark passages.  He may even suggest as Dickens once mused, that we are in for “the best of times and the worst of times”.  The question is whether we can find critical perspective, strength and wisdom from the words and actions of others who survived the Great Depression or whether we dismiss these personal memorials as trite, gilded nostalgia.  Terkel would urge us to faithfully learn from the past, carefully nurture the present and actively participate in making the future.  Sometimes, he would argue, the things we fear most, are the things we most desperately need.

Character, after all, is found in the hard times.