Accounting for Coronavirus Risk

As Queen Elizabeth makes her emergency address to the British people from her safe zone in Windsor Castle, and as the U.S. Surgeon General Jerome Adams warns the American people of an impending “Pearl Harbor Moment,” is it reasonable to ask why governments and businesses were caught blindsided by the coronavirus catastrophe?

Perhaps it’s unfair to expect foresight in the face of such a menace. But why weren’t health care providers and other organizations prepared to respond promptly? Why the shortages of such basic items as face masks and nasal swabs? Where was the contingency plan to increase production of such essentials at a time of dire need?

If we review the reporting standards of the Global Reporting Institute (GRI), we can find disclosure requirements that address these readiness considerations. GRI Standard 204 on Procurement Practices, for instance, states that:

When reporting its management approach for procurement practices, the reporting organization can … describe actions taken to identify and adjust the organization’s procurement practices that cause or contribute to negative impacts in the supply chain … (these) can include stability or length of relationships with suppliers, lead times, ordering and payment routines, purchasing prices, changing or cancelling orders.”

Consider the many health care providers that rely on unstable Asian suppliers to provide face masks under terms that permit long lead times, uncertain ordering routines, and the imposition of extreme price increases when products are scarce. If they are required to disclose these procurement relationships under GRI Standard 204, we would be aware of the resulting social risk.

Likewise, GRI Standard 403 on Occupational Health and Safety states that:

The reporting organization shall report … whether the (occupational health and safety management) system has been implemented based on recognized risk management and/or management system standards / guidelines and, if so, a list of the standard guidelines.”

Consider the employees of our food and delivery companies who are now protesting that their employers are not providing satisfactory protections against the coronavirus. If the employers are required to disclose the standards and systems that they utilize to keep their employees healthy and safe, we would be aware of the extent of their preparedness (or lack thereof) in the face of pandemic threat.

There are other GRI Standards that come close to addressing pandemic concerns, but that fall just short of the mark. GRI Standard 201 on Economic Performance, for instance, states that:

The reporting organization shall report … risks and opportunities posed by climate change that have the potential to generate substantive changes in operations, revenue, or expenditure, including a description of the risk … a description of the impact associated with the risk … the financial implications of the risk … the methods used to manage the risk … (and) the costs of actions taken to manage the risk.”

Although Standard 201 refers to climate change, it would represent an ideal disclosure requirement for pandemic preparedness if the GRI simply adds the words “and pandemics” to “climate change.”

It may be comforting to know that disclosure defining entities like the GRI have issued standards that address our readiness to fight the current pandemic. But we cannot reap the benefits of these disclosure requirements if organizations simply ignore their reporting responsibilities.

Kentucky’s New Medicaid Program Imposes A Work Requirement. Is It Too Complex To Succeed?

Four days ago, published a blog post that praised the Commonwealth of Kentucky’s new Medicaid program for supporting the principles of flexibility and choice. And yet, with some trepidation, the post also suggested that the imposition of an “administrative deductible account” may make the program too complex to succeed.

Do you disagree? Do you believe, instead, that Kentucky’s deductible account is a manageable feature? Even if you do, you may wish to pause before expressing general support for the program. Regrettably, there is a different feature that is even more complex than the deductible account!

What is that feature? It is the work requirement that is imposed on Medicaid recipients. Although the Obama Administration refused to require employment as a precondition for receiving medical services, the Trump Administration has endorsed Kentucky’s decision to require it.

Reasonable minds may differ about the moral implications of requiring people with maladies to work for their medical care. But all reasonable individuals should be willing to agree that any work requirement — or any other requirement, for that matter — must be defined in a manner that isn’t hopelessly complex.

So … is Kentucky’s Medicaid work requirement too complex to succeed? Let’s review the guidelines of the HEALTH Program’s Requirements Specification and decide for ourselves.

First and foremost, because there is no way for the Commonwealth to guarantee the availability of work, the Program merely requires “Community Engagement” instead of work. At first glance, that sounds like a reasonable policy, doesn’t it?

But there’s a catch. To assess whether a Medicaid patient satisfies the Community Engagement requirement, program managers must complete a calculation. Thirty hours of employment per week may meet the requirement, but there are many reasons for claiming a “temporary good cause exception” from work. Inclement weather, for instance, is defined as a valid reason, although the guidelines do not explain how any particular storm would trigger an exception.

Nevertheless, all hours and exceptions must be registered through an online time accountability system. Various Forms are produced by the system, with Form 834 utilized to report deviations from the Community Engagement requirement.

How complex is the language that explains these guidelines? Clause represents a typical set of instructions:

MCO CE Communication.

Members CE status and required CE hours must be provided by MMIS to the MCO’s on the 834, on at least a monthly basis for the current month. The MCO’s may send communication and outreach to members based on CE status received from MMIS.

Information received by the CE module regarding member good cause exceptions involving incidents that may invoke third party liability (TPL) must be provided by MMIS to MCOs for purposes of pursuing TPL payments.

There are also time accrual guidelines, time exclusion guidelines, and non-compliance “curing” guidelines. In addition, there are program suspension guidelines, reactivation guidelines, and grace period guidelines. Not to mention the existence of a completely separate section of guidelines regarding time spent on Education and Training activities!

To reiterate the questions that we asked in our previous post regarding Kentucky’s deductible accounts feature: How many government employees will be required to manage this work requirement system? How many will even be able to explain the system to baffled Medicaid recipients?

Employment is undoubtedly a worthy goal. But if Kentucky’s work requirement is simply too complex to succeed, its Medicaid program will inevitably fail.

Kentucky’s New Medicaid Program Emphasizes Flexibility And Choice, But Is It Too Complex To Succeed?

Trump Administration officials have approved the Commonwealth of Kentucky’s request to increase the level of choice in its Medicaid program. Even critics will find it difficult to criticize the request too vociferously; after all, flexibility is a worthy principle.

But individuals on both sides of the political aisle may wish to scrutinize the manner in which the Bluegrass State will implement this principle in practice. Will their procedures be simple, efficient, and easily manageable? Or will they be so complex that state workers, medical providers, and recipients will struggle to understand them?

According to the program specifications, a $1,000 annual deductible will be imposed on each Medicaid health recipient. But it will not function as a standard deductible because Medicaid recipients possess extremely limited financial resources. They couldn’t possibly afford such costly burdens.

So who will finance their $1,000 deductibles? The amounts will be paid by government cash accounts, known as “administrative deductible accounts.”

The government, of course, will also pay the costs that exceed the deductibles. So why is the government bothering to create separate deductible cash accounts?

Because 50% of each recipient’s unused deductible dollars will be transferred into a My Rewards Account. And recipients will be permitted to select a variety of dental, vision, pharmaceutical, and gym membership services to be financed by those unused deductible dollars.

Could program managers have designed a less complex approach for providing Medicaid recipients with flexibility and choice? Indeed, they could have simply loaded $500 (or 50% of $1,000) in credit onto Medicaid identification cards, and then invited recipients to spend the credit on a menu of optional services. Such features are called cafeteria plans in the private sector; they represent relatively simple methods for offering flexibility and choice.

But instead of opting for a cafeteria plan approach, the Kentucky HEALTH Program chose to create a deductible that is not truly a deductible, but that is financed by a government account that is called a deductible, that in turn produces dollars that are multiplied by 50% and then converted to Rewards points, that in turn are spent on services.

How many government employees will be required to manage that system? How many will even be able to explain the system to baffled Medicaid recipients?

Indeed, in the health care sector, it is relatively easy to applaud Kentucky’s principle of flexibility. But if it is unable  to implement that principle in practice, its initiative is likely to fail.

A New Year’s Resolution For The United States: Let’s Reverse Our Declining Life Expectancies

Can an entire nation make a resolution when starting a new year? Given the current degree of polarization in the United States, it may be productive to encourage the American people to agree on a common goal for 2018.

If we agree to do so, here’s a suggestion for a suitable resolution. Perhaps we can strive to reverse our declining life spans.

Declining life spans? Isn’t that the type of problem that is found in emerging nations? Aren’t modern economies experiencing increases in life spans instead?

Generally, yes, but there are exceptions. The most extreme one may be Russia, which has experienced declining life expectancies since the fall of the Soviet Union. Alcohol-related heart disease is to blame for much of the decline, although other causes have contributed to it as well.

Recently, though, the Russian health system appears to be making progress. Conversely, the United States appears to be moving in the opposite direction.

Indeed, for the past two years, the world’s largest economy has actually experienced declines in life spans. The primary cause is the opioid epidemic, which has reached crisis proportions in many sectors of the American population.

Many of the Republican senators who threatened to vote against their party’s attempt to repeal the Affordable Care Act voiced concern about opioid addicts losing access to medical treatment services. Had those services been eliminated, it’s possible that life expectancies in the United States would have declined further.

That’s not to say, of course, that the Affordable Care Act is perfectly designed to address the opioid crisis. Indeed, if we citizens of the United States were to adopt the reversal of the decline in life expectancies as our New Year’s Resolution, we’d be compelled to develop new approaches to manage the brutal epidemic.

And if we eventually achieve our jointly shared goal? For starters, we’d live longer. And we’d also develop a fair amount of sorely needed social cohesion in the process.

Health Insurance and Personal Responsibility

Now that Senator John McCain has torpedoed the plans of his own Republican Party to unilaterally repeal the Affordable Care Act (ACA), what comes next? How can the federal government of the United States repair a national health care system in need of modification?

Senator McCain himself may have described a “way forward” when he called for Republican leaders to invite “input from all our members, Republicans and Democrats … (to) bring a bill to the floor of the Senate …

But is such a cooperative approach possible in an era of vicious partisanship? How can the two political parties bridge the chasms that divide their respective positions about health policy? If you believe that cooperation is an impossible dream, you might wish to ponder the bipartisan origins of the ACA and its doctrine of personal responsibility.

During the early ACA debates, President Obama repeatedly praised Republican Governor Mitt Romney of Massachusetts for leading the Bay State’s successful implementation of a universal health care law. Obama directed the designers of the ACA to adopt many core principles of the Massachusetts system.

And during its earlier development, the Massachusetts law had likewise adopted many core principles of a proposal by the Heritage Foundation. The deeply conservative policy organization had suggested the introduction of an individual mandate to purchase health insurance, as a means of supporting the premise of the value of personal responsibility.

But how does an individual mandate support this premise? Well, any individual who declines to purchase medical insurance may presumedly become a “free rider” if beset by an unexpected health crisis.

Why? Let’s consider a tragic case example. Any hospital in the United States, for instance, would perform surgery on an unconscious and critically injured person who arrives in the Emergency Room with severe brain and spine damage. Even though that person may have previously declined to purchase a health insurance policy, he would receive the costly medical service any way.

And who would bear the cost of that service? The American society and its government would do so, either through the direct application of government “charity care” payments, or through indirect private sector subsidization and cost-shifting arrangements.

The Heritage Foundation, Governor Romney, and President Obama all concluded that an individual mandate to purchase medical insurance would support the doctrine of personal responsibility by discouraging “free riders” on the public purse. They decided that individuals who refuse this mandate should bear a higher tax burden to reimburse society for the cost of guaranteeing emergency medical care.

That’s a fairly simple proposition, isn’t it? And it’s a bipartisan one as well, given that the individual mandate encompasses the philosophies of both political parties.

So please don’t despair when politicians claim that the Republican and Democratic parties are too far apart for cooperative action in health policy. Instead, it may be helpful to keep in mind that those very legislators already agree on the doctrine of personal responsibility. Perhaps, from that point of agreement, a bipartisan plan may spring.

Medicare: Who Bears The Risk?

What is the principal difference between a traditional pension plan and a contemporary IRA, 401(k), or 403(b) retirement account? For a senior citizen in the United States, the difference is a matter of the placement of risk.

In both situations, someone contributes a target amount of funds each year into his investment account. He then hopes to manage those investments in a manner that will produce sufficient returns to pay himself (or his retirees) a target amount of benefits in the future.

But what if the actual returns are insufficient to pay the target benefits? In that case, for traditional pension plans, the contributor is on the hook to make up the difference. That’s why we say that such plans are required to pay their “defined benefits.”

However, for contemporary retirement accounts, the retiree must either make up the difference or settle for less than his target amount of benefits. That’s why we say that such accounts are only expected to invest their “defined contributions.”

This distinction can help us understand what U.S. Speaker of the House Paul Ryan has in mind when he promises to convert the Medicare program into a “premium support” model. At the moment, Medicare is primarily a defined benefit plan, with the government required to spend whatever is required (beyond a relatively small retiree contribution) to pay for a target level of medical benefits.

If Speaker Ryan has his way, though, Medicare will become a defined contribution plan. The government will contribute a target amount of funds to care for each senior citizen, but if the cost of medical benefits exceeds a senior’s contribution, the citizen will need to make up the difference or go without care.

Ryan calls this approach a “premium support” model because each senior citizen is responsible for financing the cost of his own medical care. Although Ryan’s proposed government program will offer a target amount of financial support to make the premium (i.e. the cost) more affordable, there will be no guarantee that this support will cover the full costs of care.

Thus, both traditional pension plans and the current Medicare program assign the risk of investment shortfalls to plan sponsors or the federal government. Under most circumstances, as long as these entities remain solvent, a retiree will bear no risk of possessing insufficient funds to meet his needs.

However, both contemporary retirement accounts and Ryan’s proposed new Medicare program assign the risk of investment shortfalls to senior citizens. Whether or not employers and the federal government remain solvent, a retiree will bear the full risk of possessing insufficient funds.

Is that fair to the retirees? For many of us, the question is a moot one in the investment industry. After all, many have already gravitated into contemporary retirement plans.

But for almost all American retirees, the question is a critical one in the health care industry. Speaker Ryan has not yet attempted to implement his plans, and a concerted effort to lobby (for or against) his proposal may result in the preservation or extinction of the existing Medicare program.

Presidential Debate: The Glaring Omission

Did you watch the U.S. Presidential Debate a couple of nights ago? NBC News moderator Lester Holt promised viewers that the candidates would “explore three topic areas tonight: achieving prosperity, America’s direction, and securing America.”

That’s an incredibly broad set of topics, isn’t it? As promised, Mr. Holt’s subjects focused on everything from the global economy to the natural environment to the sources of social strife.

There was one subject, though, that wasn’t even mentioned during the ninety minute debate. Did you notice what former hot-button topic was completely omitted from the conversation?

It was the Affordable Care Act, commonly known as Obama Care. In fact, there was no reference to any element of health care policy whatsoever. The omission was surprising, given the controversial dominance of the subject in prior elections, and considering the central importance of the industry sector to the American economy and society.

So what are we to make of it? How should we interpret this startling lack of interest in America’s system of health care? Especially given the continuing controversies over the level of access to medical products and services, and the cost of that access, throughout the United States?

One possible explanation is that the very nature of the Affordable Care Act that made it so difficult to implement in the first place is now making it easy to accept in the minds of the American public. As you may recall, although the Act was initially described as a comprehensive reconstruction of the entire health system, its primary beneficiaries were to be the relatively few individuals who desired insurance coverage but who couldn’t obtain it.

Disrupt an entire nation’s system of care to benefit a mere 24 million individuals? In a nation of 300 million citizens? Opponents of the Act portrayed such an venture as a high risk, low benefit leap into the unknown. In retrospect, it was no surprise that so many citizens shrank from it.

But now that the Act has been in effect for six years, it has become the status quo. And guess what? The health care system hasn’t crashed. It’s still plagued with problems, to be sure, but now any future modification to the industry sector can itself be portrayed as a high risk, low benefit leap into the unknown. And that may be why the possibility of repeal or significant revision has vanished from America’s political debate agenda.

Indeed, individuals who wish to engender comprehensive reconstructions of other industry sectors may take heart from the current status of the Affordable Care Act. What lesson does it teach them?

Don’t settle for small, incremental, evolutionary changes. Instead, take a deep breath, swing for the fences, ride out the inevitable backlash, and focus on integrating the changes into the industry sector so deeply that they become inseparable from the status quo.

At that point, the elements of reconstruction may simply become part of the economic and social landscape of the nation. And the public may then simply accept the changes and divert its attention to other concerns.

Et Tu, Aetna?

What a difference ten months makes! In October 2015, after United Health announced its intention to minimize its participation in the online exchanges of the Affordable Care Act (ACA), Aetna vowed to continue its participation in them. Its CEO Mark Bertolini declared, “We view it still as a big opportunity.”

So how long did his view last? Not even a full year! Last week, Aetna reversed its position and announced its intention to follow United’s withdrawal strategy.

Why? Aetna claimed that, after reviewing its recent fiscal data, its executives decided that the firm could no longer afford the costs of care for members inside the ACA exchanges. And yet the insurance giant had previously announced that it had “achieved record annual operating revenue and operating earnings in 2015, and delivered full-year operating EPS that was above (its) most recent projection.” And they produced these results while participating in the exchanges.

Furthermore, Aetna had threatened the federal government that it might withdraw from ACA exchanges if regulators failed to approve its mega-merger proposal with Humana. After the Department of Justice refused to approve the merger, Aetna announced its exchange withdrawal plans.

For obvious reasons, some critics charge that Aetna’s withdrawal represented a decision to “make good” on an inappropriate threat. Whether or not you believe that the insurer acted appropriately, though, it might be helpful to ponder a more fundamental question.

Namely, why should we believe that any large, for-profit health insurer would remain committed to the ACA exchanges? Indeed, why would such firms find it profitable to sell policies to individuals at any time?

Think about it. Large health insurers were never eager to sell affordable policies to individual families before the ACA was passed into law. That’s why individuals who were unable to access health benefits through their employers were often forced to purchase extremely limited plans with very large premiums.

Then and now, major health insurers prefer to contract with large employers that maintain Departments of Human Resources. These Departments employ teams of professionals to help insurers manage their administrative and communications responsibilities with their enrollees, i.e. with corporate employees.

Thus, insurers can achieve significant economies of scale by insuring many employees through each group contract. They cannot possibly achieve such cost efficiencies in the individual market.

So was there ever any reason to believe that the ACA would alter this fundamental economic reality? It’s hard to understand why any large national insurer would maintain a long term commitment to the individual market under any regulatory system.

Of course, this doesn’t necessarily mean that the exchanges should be shut down immediately. For the eleven million individuals who obtain health insurance through the ACA each year, an insurance policy with a non-profit or small for-profit insurer is undoubtedly preferable to no insurance policy at all. Such insurers may remain interested in growth strategies that rely on the individual policy market.

Nevertheless, ACA supporters who are excoriating Aetna for its withdrawal decision may wish to hold their fire. Whether or not they have a point about the ethicality of Aetna’s choice, it may be difficult for them to dispute the inevitability of it.

A Republican Obama Care?

They’ve done it! Paul Ryan, the Speaker of the House of Representatives, has been promising to produce the Republican’s alternative to the Affordable Care Act (ACA) for years. Finally, late last month, he unveiled what he called the Patients’ Choice Act (PCA).

And guess what? It appears to be very similar to the ACA! For instance, two of the most prominent concerns raised by opponents of the health care law involve price controls and the mandate to purchase insurance. So how does the PCA resemble the ACA in regards to these two concerns? And how does it differ?

First, let’s address price controls. The ACA stipulates that the premiums charged to older enrollees cannot be more than three times the costs that are charged to younger enrollees. The purpose of this three-to-one ratio is to place a cap on the premium costs paid by older enrollees, even if it results in higher premiums for younger ones.

Republican lawmakers have long criticized this provision as a government price control on a private service, i.e. a regulation that imposes terms that would better be established by the competitive market. So how does Paul Ryan’s plan affect this price control?

Believe it or not, the PCA simply tweaks the ratio by raising it from three-to-one to five-to-one. Despite this tweak, Ryan’s plan allows the price control to remain in our health care system.

Second, let’s address the ACA’s mandate to purchase insurance, which is possibly the term of the current law that is most reviled by Republican politicians. According to the ACA, the mandate employs the tax code to impose a financial cost on individuals who do not sign up for a health plan. At first glance, the Ryan plan appears to eliminate this burden.

But the PCA introduces an alternative burden that does not exist within the ACA. At the moment, health plans are not permitted to deny care to consumers if they are suffering from pre-existing medical conditions at the time they shop for coverage. Such denials would effectively refuse coverage to individuals who need it the most.

Under Ryan’s plan, however, such denials of care would only be forbidden if individuals maintain continuous coverage. In other words, although consumers without health insurance couldn’t be penalized by the tax code under the PCA, they could be denied coverage if they ever experience a need for medical care — and thus for medical insurance — in the future.

Is the threat of losing access to all medical care in the future equivalent to the burden of a tax penalty in the present? That question is a debatable one; reasonable opinions can differ about it. What is not debatable, though, is that the threat of losing access represents a type of mandate to purchase health insurance, even if it exists in a different form than a tax penalty mandate.

In other words, the PCA contains a significant price control. And it contains a mandate to purchase and maintain a health insurance policy. Conceptually speaking, isn’t it simply a Republican version of Obama Care?