Politics & Policy | California Law Requiring Private Health Plans To Cover Interpretation Services Takes Effect

I am often hear from clients that they are unhappy to have to pay for services that they would never use. They have to realize that the health insurance companies are often mandated to add these services, here is an example:

[Jan 05, 2009]

A law requiring California health, dental and specialty insurers to provide members with interpreters took effect Jan. 1, the Sacramento Bee reports. Of the 37 million people living in California, more than 40% speak a language other than English, and one-fifth of the population say they cannot speak English "very well," according to the Bee. Federal law requires health plans to provide interpreters for beneficiaries of Medi-Cal and Healthy Families, the state's Medicaid and SCHIP programs, and many hospitals offer interpreters. However, until the law took effect, many patients lacked guaranteed access to an interpreter.

The legislation (SB 853) was signed into law in 2003, but Gov. Arnold Schwarzenegger (R) imposed a moratorium on it when he took office. Insurers had expressed concern about how to balance the need for access to care with cost. Insurers estimate that the law will cost about $25 million. Many insurers plan to contract out for interpretation services.

Anthony Wright, executive director of California Health Access, said, "This law has been a long time coming. Our big concern now is whether people have adequate notice of their rights and can actually use them." The state intends to launch a campaign in the next few weeks to publicize the law.

Cindy Ehnes -- director of the state Department of Managed Health Care, which will oversee implementation of the new law -- said that testimony given at hearings on the issue "was an incredible eye-opener to me." She added, "Often these people who can't speak English are told to go home unless they bring somebody who can. It was like being treated by a system as if they had no consequence" (Caina Calvan, Sacramento Bee, 1/3).

Reports Examine Economic Burden of Health Care Costs on Medicare Beneficiaries

Comment: A recent report by the Kaiser Family Foundation shows that Medicare is accounting for a bigger percentage of it's users expenditures.

As the Congress continues to hammer out an economic recovery package to help families affected by the recession, President Obama has promised to focus on the serious financing challenges facing the nation’s entitlement programs, including Medicare.

Medicare provides a relatively stable source of insurance coverage and financial security for 45 million seniors and younger Americans with permanent disabilities. However, new work by Kaiser Family Foundation researchers shows that Medicare beneficiaries’ out-of-pocket health care costs comprise a significant share of their household expenses and consume a growing share of their incomes over time.

A new report, Health Care on a Budget: An Analysis of Spending by Medicare Households, finds that in 2006, out-of-pocket health care spending accounted for 14.1 percent of all expenditures for Medicare households – less than housing (34.1 percent) but about the same as transportation (15.0 percent) and food (13.6 percent). And, one in four Medicare households devotes more than one quarter of total household expenditures to health care. This group includes a disproportionate share of Medicare households that are low- and middle-income, have older members (age 75+), and are living in rural areas.

Revisiting ‘Skin in the Game’ Among Medicare Beneficiaries, a data update, finds the financial burden of out-of-pocket health care spending by Medicare beneficiaries increasing between 1997 and 2005. During this nine-year period, median out-of-pocket spending as a share of income for people on Medicare climbed to 16.1 percent in 2005, up from 15.6 percent in 2004 and 11.9 percent in 1997. For some beneficiaries, the spending burden was even greater, with 25 percent of people on Medicare spending nearly one-third or more of their income on health care. The analysis does not capture the effects of the Medicare Part D drug benefit, which began in 2006, because the data are not yet available.

The analysis of out-of-pocket health care spending as a share of Medicare beneficiaries’ income updates a paper previously published in Health Affairs and coauthored by Tricia Neuman and Juliette Cubanski of Kaiser, with Katherine Desmond and Thomas Rice of the University of California- Los Angeles.

Taken together, the new analyses highlight the effects of rising health care costs on Medicare beneficiaries, who tend to have greater medical needs and higher health care spending along with lower overall incomes than other Americans.

HIGH MEDICAL COSTS, LOW PRICING HURTS MANAGED CARE

Comment: I am often asked why health insurance is so expensive? This article discusses a few factors that effected insurance companies last year.

The Associated Press - Jan. 3: Indianapolis - Managed care stocks were hammered in 2008, as higher-than-expected medical costs burned up health insurers' profits and skittish investors wrung their hands over the companies' potential exposure to failed investment banks.

The nation's largest health insurers saw their stock prices fall an average of 58 percent in 2008, with Cigna Corp. shares tumbling a whopping 70 percent. The biggest U.S. players, WellPoint Inc. and UnitedHealth Group Inc., saw their stocks fall 52 percent and 54 percent, respectively.

Those declines were steeper than the 45 percent drop seen in the Dow Jones U.S. Healthcare Providers Index, a broader category that also includes hospital chains and smaller insurance companies. Managed care stocks also fell more than the 39 percent drop suffered by the S&P 500 and the 40 percent decline in the Dow Jones Total Market Index.

Insurers set themselves up for a rough 2008 by pricing premiums too low to cover medical cost outlays. That was likely a result of misreading claims data from 2007, said Dave Shove, an analyst for BMO Capital Markets.

Competition also led insurers to take risks by pricing coverage low, said Stifel Nicolaus analyst Thomas Carroll. "Because of the desire to maintain business, I think the managed-care company was more willing to gamble with lower price increases," he said in a recent interview.

Insurers saw higher-than-expected claims levels in areas like Medicare Advantage products, and claims processing problems forced WellPoint to cut its 2008 outlook in March. The insurer's stock plunged 28 percent the next day, and the change rattled investors throughout the sector.

"Going into 2008, WellPoint was considered the safety stock in the group," Carroll said. "It was like a big disconnect in the market, and I think was what triggered the violent reaction in the sector. It was the quick conclusion that, 'Gee, if WellPoint is seeing underwritng pain then it must be pervasive across the sector.'"

Wall Street also lost confidence in management, said Citi analyst Charles Boorady. "There was a lack of trust because (they) said they were pricing at or above cost trend when they were actually pricing below cost trend," he said.

And by early summer, Stifel's Carroll had started hearing concerns about insurance investment portfolios. People worried about health insurers' exposure to troubled companies like Lehman Brothers. Investors grew nervous that insurers would have to raise money by issuing stock or diving into expensive debt markets for capital due to investment hits.

"As a result you had investors absoutely staying away from the group," he said. "In reality, it turned out to be about 1 1/2 to 2 percent of investment portfolios were exposed to what we would call questionable investments."

Humana, for example, recorded a loss of $108.3 million in its third quarter due to a downturn in the company's investment and securities lending porfolios and the sale of distressed financial institution securities. While the loss hurt quarterly results, it was just a fraction of Humana's more than $6 billion investment portfolio.

The outcome of the presidential election also hung a question mark over health insurance stocks, as the specter of a national health care plan that might drain insurers' pricing power loomed. Despite the rough year, analysts think health insurers can rebound in 2009. BMO Capital's Shove noted that the pricing miss is something insurers can correct.

For his part, Carroll feels the industry bottomed out in 2008. He noted that earnings expectations will be low heading into the new year, and a still-ailing market may view managed care "as a place of outperformance."

"I tend to think that the managed care group in 2009 is going to be a good bet," Carroll said. However, managed-care companies can expect to lose business as large corporations cut jobs in a slow economy, reducing health insurance membership. Standard & Poor's lowered its credit outlook for U.S. health insurers to negative from stable last month due to slowing growth prospects and a weaker 2009 economic forecast.

On the other hand, some say the weak economy will prompt many people to cut down on doctors' visits and delay medical procedures, which would keep health insurers' costs down and help their profit margins.