Deadly Spin

by Wendell Potter

  Rather than admit responsibility for the failures, insurance executives pointed the finger of blame at their customers, the “consumers” of health care, and, of course, the providers of care. In introducing the concept of their new silver bullet—consumer-driven health care—insurance executives claimed that the “real drivers of health care costs” (one of my CEO’s favorite expressions) were the people who sought care when they really didn’t need it and the doctors and hospitals who were all too willing to provide this unnecessary care. Sure, the aging population and expensive new technology were also factors, but the main culprits were people who just didn’t realize how expensive health care had become.

  There was one “mistake” that insurers were more than willing to admit to making, and this was that they had been charging HMO members way too little. Those modest ten-dollar copayments that once had been the centerpiece of HMOs’ marketing strategies actually made Americans irresponsible consumers of health care. “What didn’t work in managed care was that we separated the consumption of care from the cost of care,” Hanway said at the CIGNA Consumerism Forum. “People didn’t care what things cost anymore.”

  Hanway, who left CIGNA in 2009 at age fifty-seven with a $111 million retirement package,3 was a leader in what Yale University political science professor and author Jacob Hacker calls the “personal responsibility crusade”—a euphemism for pushing risks, and costs, formerly borne by institutions onto individual Americans.

  In his 2006 book, The Great Risk Shift, Hacker wrote that consumerism was part of that crusade, which grew during the administration of George W. Bush when Washington was “abuzz with discussions of Social Security privatization, Medicare reform, Health Savings Accounts, and scores of exotic new tax breaks to encourage families to set up private accounts to deal with economic risks of their own.”4

  Hanway, who gave ten thousand dollars to the Republican National Committee in 2003 and hosted a fund-raiser for John McCain during his bid for the presidency in 2008, rarely missed an opportunity to connect with his new personal-responsibility spiel. “The concept of consumerism … engenders personal accountability,” he told corporate-benefits managers in a 2004 speech in Washington.

  Another leader of the crusade was John Rowe, former chairman and CEO of Aetna, who left with a golden parachute of his own. “We are giving people some skin in the game,” Rowe told financial analysts in 2002. Having people put more “skin in the game,” Hacker wrote, is what the personal-responsibility crusade is all about. And the crusade leaders are well-paid CEOs and politicians.

  DRINKING THE KOOL-AID

  Consumerism in health care actually started in 1996, when the Republican-led Congress passed legislation creating a pilot project to encourage Americans to open medical savings accounts. The response was underwhelming. The bill’s sponsors had hoped that 750,000 people would open such accounts, but only about 100,000 ever did.

  Then in 2002, the IRS gave a new lease on life to what insurers would soon market as “consumer-driven care” when it ruled that the personal-spending accounts associated with these plans (called health savings accounts, or HSAs) were tax-exempt. The effect of that ruling was to turn HSAs tied to high-deductible, “consumer-driven” plans into tax shelters for people who made enough money to sock some of it away every payday. Proponents of HSAs argued that by spending their own money for care instead of relying on an insurance company, people would become more prudent “shoppers” of health care.

  During the recent debate on health care reform, Republicans in Congress and other allies of the insurance industry said that Congress should scrap the Democrats’ reform legislation and start over. When President Obama asked Republicans during his February 2010 bipartisan summit on reform what ideas they had to solve the country’s health care crisis, Senator John Barrasso of Wyoming said that Congress should do more to encourage people to set up HSAs, which by law can be used only with high-deductible plans.

  “John,” Obama replied, “members of Congress are in the top income brackets of this country, and health savings accounts, I think, can be a useful tool, but every study has shown that the people who use them are folks who’ve got a lot of disposable income. And the people that we’re talking about don’t.”

  Obama was right. Just about every credible study has concluded that high-deductible plans are best suited for relatively young and healthy people who have a few dollars left over after they pay their bills. For the rest of the population, they frequently turn out to be a very bad deal.

  At a leadership retreat I attended a few years ago, a vice president of a large insurer was trying to explain the benefits of consumer-driven care to about one hundred of his colleagues who were hearing about their company’s consumerism strategy for the first time. He was having a hard time convincing them that consumer-driven plans would be good for certain segments of the population.

  He was peppered with questions about how the plans could be a good deal for people with chronic conditions and people who didn’t have extra money to put in a savings account or otherwise meet high deductibles. After about thirty minutes of nonstop questions, he finally said, “Look, you’re just going to have to drink the Kool-Aid.”

  That was the end of the Q&A.

  HYPE THIS, HIDE THAT

  Knowing that studies on the underinsured like the ones from the Commonwealth Fund and the Center for Studying Health System Change would slow—if not halt—the trend toward consumerism, the big insurers began churning out their own “store-bought studies” to counter reality. As head of corporate PR, I was expected to hype CIGNA’s proprietary studies—so from the very first such study, in 2006, our objective was to create the impression that a vast majority of enrollees were saving money and leading healthier lives.

  A February 2, 2006, news release we sent out claimed that CIGNA’s analysis of 42,200 of the company’s first-time users of consumer-driven health plans—who were compared with users of HMO and PPO plans—found that they “generated an 8 percent reduction in medical costs” and “made positive changes in their behavior,” such as increasing their use of medications to treat chronic health care conditions.5

  The release quoted Michael Showalter, CIGNA’s head of consumerism, as saying, “These study results show that given greater choice and control, the right incentives and actionable decision support, CIGNA Choice Fund [a consumer-driven plan] members are becoming more involved in their health care and health care decision-making, while not compromising needed care.”

  This release, however, omitted important information that actually reinforced the studies it was seeking to refute. One thing not revealed in the release was that the CIGNA Choice Fund group was younger than the comparable HMO and PPO groups; another was that the CIGNA Choice Fund group had a 20 to 25 percent lower “illness burden.” In other words, the CIGNA Choice Fund group was younger and healthier than the older, sicker people who had stayed in their HMOs and PPOs. (In fairness, this information was provided in the appendix to the study, on page 17, deep in the Study Methods section.)

  And then, there was this: While the news release claimed that people who switched to a Choice Fund plan realized cost savings “across all categories, with the most pronounced savings occurring among medium and heavy users of care,” a more detailed analysis on page 8 of the study showed that heavy users actually fared worse. A graph on that page showed that the heavy users of care in the Choice Fund plan (those with medical claims of eight thousand dollars or more per year) actually paid more out of pocket than if they had been in traditional plans.

  Because a business communications staffer had written and disseminated the release (my corporate PR team and I didn’t have to approve all of the business units’ communications), I hadn’t noticed these differences between the study and the news release until after it had been sent out. While this certainly wasn’t the first time in my career that I had seen or been at least partially responsible for the selective disclosure of information to support a part
icular point of view, it was the first time I became concerned that my colleagues and I might have crossed what for me was an ethical line. I began to think about my days as a reporter, when I’d felt it was my duty to make sure that the stories I wrote were factual and honest. Had I become the antithesis of what I’d tried to be as a journalist?

  It was at that moment that I realized how much was at stake with the industry’s transition from managed care to consumerism. The business model based on managed care had failed, and the only way the insurers could continue to meet shareholders’ expectations was to find a new way to avoid paying for health care. The means now available to them was to shift costs to policyholders.

  From that point on, I was skeptical of all claims coming out of my industry about the appropriateness of consumer-driven plans for large segments of the population.

  As for that news release, while it didn’t get much media pickup, I knew it would influence reporters’ thinking even if they didn’t write about it. And that was part of the objective: to try to get the media to question the findings of studies like the one from the Commonwealth Fund. Not a single reporter called me with questions about the methodology of the CIGNA study or the apparent discrepancies.

  I wasn’t surprised. With cutbacks in newsrooms, there were fewer reporters covering the health insurance industry than in years past, and the ones who were left were often so busy that they had little time to probe. I was frequently amazed at how little media scrutiny there was of the industry and at how much my colleagues and I could get away with in dealing with reporters. More often than not, they were quite willing to settle for what we fed them, even if it was pabulum.

  NO SOLUTION FOR PEOPLE WITH

  LITTLE SKIN TO SPARE

  A few weeks later, I was looking for external studies to bolster the claim being made by the Bush administration and industry executives that the growth of consumer-driven plans would lead to a steady reduction in people without insurance. Instead of finding evidence that it would happen, however, I came across a report written by a highly regarded former financial analyst that completely debunked the notion.6 The author, Roberta Goodman, had covered for-profit health insurance companies for Merrill Lynch before starting her own consulting business. She got right to the point: “Consumer-driven health care cannot resolve the problem of the uninsured.”

  Goodman noted that 65 percent of the uninsured had an income below 200 percent of the federal poverty level. Few of these people would be able to afford the premiums of even a low-cost consumer-driven plan, she said, let alone fund an HSA. She also pointed out another fact: A significant number of Americans lack access to coverage because they are “medically uninsurable,” meaning that insurers refuse to sell them coverage at any price because of preexisting conditions. “Their costs would almost inevitably exceed high-deductible plan maximums, so any plan available to them would require extremely high premiums.”

  The sickest 10 percent of the population—including many of the medically uninsurable—generate two thirds of health expenditures in any given year, Goodman wrote. If given a choice of plans, these people would undoubtedly steer clear of consumer-driven ones. “While some [of them] might benefit from early intervention, care management and clinical pathways tools … their costs [would] rapidly reach out-of-pocket maximums, and cost often plays little role in the decisions of those facing critical illness.” (Emphasis added: Goodman’s point is just common sense. When you’re sick with a critical illness, shopping for a bargain is not a top priority or desire. So much for the theory that big savings can come from people being more prudent “shoppers” of care.)

  So, despite the hype from the health insurance industry, consumer-driven plans that shift more of the cost of care to individuals and families are not the silver bullet that will make America’s health care system more efficient and equitable.

  Sadly, many consumers who would have been better off remaining in their managed care plans discovered that insurers (and their employers) were starting to raise the premiums of those plans to unaffordable levels or dropping the plans altogether. Consumer-driven plans had become the only option for a growing number of Americans—regardless of their age, health status, or income bracket—by the time health care reform was enacted in March 2010.

  FOLLOW YOUR INSURER’S LEAD

  To set an example for their corporate customers, a few years ago a number of the big insurers began forcing all of their own employees into high-deductible plans. CIGNA and UnitedHealth Group were among the first to eliminate all other options for their own employees, thus encouraging their corporate customers to do the same—which insurers call “going full replacement.” The new reform law will not stop employers from doing this.

  Many health care experts anticipated that this would happen and warned about the likely adverse consequences of consumerism on our society. John Garamendi told reporters in 2005, while serving as California’s insurance commissioner, that consumer-driven coverage would eventually result in a “death spiral” for managed care plans. This would happen, he predicted, as consumer-driven plans cherry-picked the youngest, healthiest, and richest customers while forcing managed care plans to charge more to cover the sickest patients. Garamendi’s crystal ball, sadly, was clear.

  While consumer-driven plans have always featured higher deductibles than traditional managed care plans, insurers initially kept the deductibles at levels ranging from one thousand to three thousand dollars. Once they had attracted or forced millions of people into these plans, however, they began moving aggressively to increase the deductibles—and in many cases raised them to levels far beyond the annual incomes of many workers. While doing this, insurers created the illusion that they were keeping the cost of coverage affordable—but in reality, they were playing a shell game.

  My son, Alex, was one of thousands of other southeastern Pennsylvania residents who fell victim to this game. When Alex’s policy came up for renewal at the end of 2009, he was notified by his insurer, Independence Blue Cross, that his monthly premium would increase by just $2.54—but, as is so often true with insurers, the devil was in the details. Alex’s premium would increase by just $2.54, all right, but only if he switched out of his plan with a $500 deductible—which, by the way, was being discontinued—and into the company’s new Personal Choice Value HSA with a $5,000 deductible. If he wished to stay in a “basic” plan similar to the one he had been in, his premium would increase by more than 65 percent.

  In its cover letter to Alex and many of its other customers, Independence said that because both the cost and the usage of medical services had been going up, “we found it necessary to change the benefits structure of our Personal Choice plans to keep premiums as affordable as possible.” The letter didn’t mention the 65 percent increase—Alex had to do the math himself to figure that out—or that the increase was many times the rate of medical inflation.

  What happened to Independence Blue Cross enrollees also happened to millions of Americans across the country. WellPoint, the largest U.S. health insurer, sent out similar notices to millions of its customers from California to Maine. According to a February 12, 2010, report issued by Maine’s Bureau of Insurance (BOI), about 88 percent of enrollees in individual plans marketed by WellPoint’s Anthem subsidiary in the state had deductibles of five thousand dollars per year or higher—with nearly 37 percent covered by policies with fifteen-thousand-dollar individual deductibles and thirty-thousand-dollar family deductibles.

  Think about that and what it really means for a minute. The median household income in Maine was $46,419 in 2008, according to the U.S. Census Bureau. A family with that income would have to spend 65 percent of its total annual earnings on out-of-pocket expenses before its insurance company would pay any medical claims. And that’s for a family earning more than half of the rest of the population. Thousands of families in Maine earn less than $30,000 a year. Imagine the ruinous number of medical bills one family could have before getting one penny of help
from their insurance company. And those out-of-pocket expenses are over and above what a family would be paying in premiums. The average premium per person for individual coverage in Maine was $299 a month (approximately $3,600 a year) in 2008, according to the BOI report.

  Even with that level of cost shifting from insurer to policyholders, Anthem requested approval from state regulators to raise premiums for individual plans an average of 18.1 percent in 2009. Maine’s superintendent of insurance, Mila Kofman, considered the proposed increase excessive and approved a 10.9 percent increase instead. (Maine is one of the few states that give their insurance commissioner the right to reject or reduce an insurer’s planned rate increases.) Contending that this would not guarantee the company the profit margin it wanted, Anthem sued the state. In an all-too-rare victory for policyholders, the Maine Superior Court affirmed Kofman’s decision on April 21, 2010.

  Unfortunately, cost shifting will continue, even with the enactment of reform. In a 2005 news release announcing the results of a survey of employers on the subject, which showed that more than three quarters of all U.S. companies planned to shift costs to their employees, Sandy Lutz, director of research for PricewaterhouseCoopers’s Health Research Institute, said, “Shifting a greater share of spiraling health care costs to employees is a trend that is likely to continue.” She added the caution that “if employers push too far, workers may opt out of coverage altogether.”7

  A separate study by benefits-consulting firm Hewitt Associates showed that the average employee contribution to company-provided health insurance increased by more than 143 percent between 2000 and 2005, while average out-of-pocket costs increased by 115 percent.8

  SELLING THE ILLUSION OF COVERAGE

  Yet another scheme to shift costs to consumers and away from insurers and employers is to enroll them in limited-benefit plans. The big insurers have spent millions of dollars acquiring companies that specialize in these plans, often providing such skimpy coverage that some insurance brokers refuse to sell them.