Bruce Bodaken – December 3, 2002

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Bruce Bodaken, Chairman, President & CEO,  

Given the way many people feel about HMOs, you might conclude that embracing universal health care is part of a clever public relations campaign to spruce up our image. But Blue Shield of California has, for 63 years, committed to a mission of providing access to affordable health care - so presenting this plan tonight to make sure every Californian has health coverage is a natural step for us.

I'd like to begin tonight with a few stories. They may sound familiar.

Sarah sells advertising for a travel magazine based in San Jose. Sarah's employer subsidizes the cost of health coverage for her and its employees, but she has always declined coverage. She can count on one hand the number of times she's been to a doctor; she prefers to spend her money on snowboarding vacations. Last winter, Sarah broke her leg in three places snowboarding in Tahoe. The billed charges for surgery, hospitalization and physical therapy came to over $50,000. Sarah had to liquidate her modest 401K account to pay part of her debt and pay this bill. Sarah's new economic reality means she won't be snowboarding anytime soon.

Joe works a press at a printing company. Joe has participated in the company's health plan since he joined four years ago. But after facing 40 percent premium increases amidst a sluggish California economy, Joe's boss pulled the plug on the company's health insurance. That left Joe and the firm's 16 employees and their dependents to fend for themselves. Joe makes too much money to qualify for Medicaid, and since his son Danny has asthma, he couldn't afford to buy a family health insurance policy that has high rates for people with pre-existing conditions. Joe is perfectly healthy, he has struggled to secure treatment for Danny's asthma, which had been held in check with an inhaler and regular pulmonary tests. But without insurance, Joe has not been able to keep Danny on that program. Now Joe routinely takes Danny to the emergency room when he has an acute attack, and he is being hounded by collection agencies to pay the bills for those emergency room visits he can't afford.

Anna cleans offices in a high rise downtown. Her employer does not offer health insurance. She is eligible for Medicaid, but when she tried to enroll once, she couldn't figure out how to navigate the system. She hasn't seen a doctor since her last child was born. She hadn't been feeling well for months, so she finally went to see a physician at a community clinic. She was referred to a gynecologist's office, where she was ultimately diagnosed with advanced cervical cancer. Had she been insured, Anna would have had an annual Pap smear that would have identified the cancer long before it became life threatening.

These stories are fictional, but the truth is that many Californians are one illness and one job away from never having health insurance again. Not having health insurance and access to good health care when we need it can be a life-altering tragedy. California can do better, and we must do better in preventing these tragedies.

The Best that Money Can Buy

In a report to the president last month recommending changes to the current health care system, the National Academy of Sciences said, "The health care delivery system is incapable of meeting the present, let alone the future needs of the American public." According to the Academy, the cost of private health insurance is increasing at an annual rate in excess of 12 percent and individuals are paying more out of pocket and getting fewer benefits. One in seven Americans is uninsured and that number is rising.

We all know that America has the best medicine money can buy. Thousands of people with serious illness are well and leading productive lives thanks to the genius of high-tech medicine and well-trained medical professionals. Yet in a paradox of our times, too many people still lack access to basic health care services. Health insurance is the key that unlocks the door to the health care system. For too many Americans - more than six million in California - that key is missing.

We need to find solutions to provide coverage for people like Anna who are eligible for public programs but can't penetrate that bureaucracy; for Joe and his son, who want coverage but can't afford it; and for Sarah, who represents what I like to call the "young immortals" - healthy people who can afford health insurance but choose not to purchase it. Some say that we can't afford to cover the uninsured, but the fact of the matter is we already pay for them. Americans, even many uninsured Americans, now spend thousands of dollars a year for the health care of others. According to a recent study, the average family of four pays over $7,000 a year for health care expenses for themselves, plus more than $9,000 to cover the costs of others through taxes that finance Medicare and Medicaid, and other health-related subsidies. Moreover, private insurance premiums paid by employers and individuals are higher than necessary because they subsidize other unfunded or underfunded care. Doctors and hospitals charge higher rates to private insurers like Blue Shield to compensate for the inadequate payments they receive from Medicare and especially Medicaid, as well as to subsidize the safety net that provides uncompensated care in emergency rooms, community clinics and elsewhere. We are charging the private health care system a hidden tax - a tax that can't be sustained by employers, the middle class or the working poor. And this cost shift is likely to get worse.

Facing budget shortfalls, many states are cutting Medicaid spending, the second largest item in most state budgets. States are changing eligibility rules so that fewer people qualify for coverage, reducing benefits for those who are eligible, and increasing co-payments for prescription drugs and other visits.

The combined effects of a prolonged economic slowdown and rising health care costs threaten to dump more middle-class Americans who currently have health insurance into the ranks of the uninsured. For every one percent increase in health care costs, 300,000 more people don't get coverage. Many of these people are far from poor. An article in November's New York Times said that out of the 1.4 million Americans who lost insurance this last year, more than half had incomes in excess of $75,000.

Health care costs are rising dramatically. Propelled by new technology, aging population and demanding populace, most studies project double-digit increases over the next year and over the next five years, doubling health care costs in the next five years. That would raise the percentage of GDP spent on health care to 18 or 19 percent by the end of the decade.

The Bleeding Edge of Health Care

In California, we're on the bleeding edge, with bigger-than-life problems that are getting worse. Only two states, New Mexico and Texas, have higher rates of uninsured. The state's budget deficit of $20-25 billion has imperiled public programs even more. Earlier this year, the governor postponed the expansion of the Healthy Families Program, which insures that children of low-income families who don't qualify for Medi-Cal would get coverage. Nearly $750 million was sacrificed because we could not meet our third of the cost for federal dollars. The Medi-Cal program ranks dead last among all states in Medicaid spending per enrollee. It pays physicians less than half of what they receive from private insurers like Blue Shield. Almost 50 percent of physicians now in California refuse to take Medi-Cal patients.

California now leads the country in the growth of hospital inpatient costs, which have supplanted prescription drug spending as the largest driver of overall health spending. Between 1998 and 2001, our inpatient costs reached 11.3 percent annually - four times the rate of inflation and double the national medical rate of inflation. We also have the lowest rate of employer-sponsored coverage, about 51 percent.

What are the consequences of being uninsured? According to the Institute of Medicine, more than 18,000 people die prematurely every year due to lack of health coverage. Uninsured newborns are one and a half times more likely to die than infants with insurance. The uninsured are less likely to receive routine preventive screening and testing that can lead to early detection of life-threatening illnesses such as cancer, heart disease and diabetes. While not having coverage can compromise a person's health, having dependable access to health care can impart benefits that go well beyond health. New research from the Children's Healthy Families Program found that children who were covered by the program improved their performance by 68 percent on educational measures such as paying attention in class and keeping up with school activities. There is even good evidence that lack of health insurance contributes to increased homelessness and even crime.

Who are the uninsured? In broad terms, they fall into three categories. About a third are eligible for public programs but not enrolled. In California, approximately 14 percent of uninsured adults, about 700,000, are eligible for Medi-Cal and two thirds of uninsured children, 930,000, are eligible for Medi-Cal or Healthy Families. Another 100,000 are high-risk individuals who have been denied coverage by a private plan, so they are likely eligible for coverage under the state's Major Risk Medical Insurance Program, but they're on the waiting list. The second category have annual incomes above 250 percent of the federal poverty level and may be able to afford coverage. But they may choose not to buy because they think they don't need it - the "young immortals" or indeed the free riders of the system. The final group can't afford coverage and don't qualify for public programs. The vast majority of them are part of working families - the so-called working poor.

The lack of insurance is not an equal opportunity problem. In 2001, 28 percent of Latinos were uninsured, compared with 13 percent of Asians, 10 percent of whites and African-Americans. Family insurance coverage is strongly related to income. Nine out of ten families whose income is more than 200 percent of the federal poverty level have all members insured. Among families with the lowest income, only six in ten are able to obtain insurance for members of their family. The financial consequences of not having insurance are equally stark. Uninsured families pay more than 40 percent of their medical costs by themselves, including 88 percent of prescription drugs. The American public seems to be of two minds about universal coverage. In poll after poll, there is support for expanding health insurance to reduce the number of uninsured. But when it comes time to foot the bill, support wavers. The recent election sent conflicting signals. In Oregon, a single-payer, universal health care ballot measure failed by 4 to 1. In Los Angeles, voters approved a tax increase - with 73 percent voting in favor - to help the county's disintegrating trauma-care system.

Pillars of a Plan

We believe there would be public support for a practical plan that doesn't break the bank. As the facts clearly indicate, the current system for covering the uninsured is inefficient and unfair. Americans say they vehemently oppose health care rationing, but that's already happening based on one's ability to pay. The uninsured delay seeking medical treatment, receive inadequate care when they do get treatment and often cannot afford to fill prescriptions. Still, you might ask, Why should I care about the Sarahs, Joes and the Annas of the world who have the misfortune to lack health insurance at crucial times in their lives? Living in America certainly doesn't guarantee economic equality and no one is ultimately denied care. There are charity hospitals, clinics that operate on sliding scales, and of course, there's Medicaid for those who can't afford to get insurance and are poor enough. The system may not be perfect, but it works, doesn't it?

Well no, it doesn't. Anna's, Sarah's and Joe's stories aren't unique and unfortunately they are less rare and rare. And they indicate a breakdown in the principle of social insurance. Health insurance is built on an implicit communal social contract. Unequal access to health care represents a breach of that social contract - a breach that threatens to further widen the gap between the haves and have-nots, between the "worried well" and the "suffering sick" - and undermines the economic balance that's necessary to maintain the system.

Susan Sontag stated it very well when she wrote, "Everyone who is born holds dual citizenship, in the kingdom of the well and the kingdom of the sick. Although we all prefer to use only the good passport, sooner or later each of us is obliged, at least for a spell, to identify ourselves as citizens of that other place." The existing system of employer-based health insurance, which dates back to just post-Second World War, is the foundation of our health insurance system. Like all insurance, everyone shares the risk of paying for the misfortune of others under that system. With health insurance, those who are young and well and who utilize care infrequently subsidize the care needed by the sick: 10 percent of patients typically consume 70 percent of the nation's health care dollars. This system - if it works - preserves the opportunity to take care of the young and healthy when they need it: when they're old and sick. And just like other forms of insurance - auto insurance, home insurance, life insurance - we all gripe about paying for something we don't use, but we know deep down that one capricious change in our lives can move us from one side of that ledger to the other.

This system has functioned fairly well and is now in danger of unraveling because of three primary reasons. First, rising costs are threatening affordability of private insurance. Second, too many healthy people aren't purchasing insurance. Third, under-funded public programs don't enroll all who are eligible and pay too little for those who do enroll. If these trends continue, wealthier, older and sicker people will be left in an insurance pool that is prohibitively expensive - drained of the "good risks" that keep health insurance in balance. Countless others who want insurance will be unable to afford it. Eventually, the health insurance system as we know it will likely collapse. If we're going to solve the health care crisis in California, we need to do it ourselves here in California. We can't wait for a national program because the problems and the politics, as complex as they are in California, are even more complex and difficult at the federal level. We need to be the first responders to our state's health care crisis, crafting a solution that fits the California health care needs. Our challenge is to preserve the best elements of the current public and private system, while extending benefits to those who fall between the cracks.

What are the pillars of our plan that guarantees access to health care for all Californians? Universal coverage and universal responsibility. Under the program we propose the health benefits that the vast majority of Californians enjoy today would not be diminished. The universal coverage we're proposing would build upon the existing system, through which 60 percent of Californians currently receive their health coverage.

First, employers, with the exception of the smallest companies, would be required either to offer coverage or contribute the financial equivalent for an essential benefit package for their employees. Employees would be permitted to opt out and purchase coverage as they do today. Second, every eligible Californian would be enrolled in a Medi-Cal or Healthy Families program. The state needs to work with the private sector on creating an effective outreach strategy to achieve this goal of full enrollment. Third, all other uninsured Californians would be required to purchase coverage in the individual market on a guaranteed basis, with no one denied coverage based on a pre-existing condition. Those who can't afford that coverage would pay their fair share and be subsidized for the rest. Fourth, an essential benefits package defined by independent medical professionals would specify the minimum level of coverage, which would include preventive care, physician services, hospital care and prescription drugs. Some health plans today offer products that don't meet this minimum level of care. Those products would be eliminated, either voluntarily or through regulation.

You're probably thinking at this point, Sounds great, but how in the world are we going to pay for it? There are a variety of acceptable ways to finance this program. The Blue Shield of California Foundation will be financing an independent academic study to evaluate various financing options and release that analysis in the spring. In the meantime, we look forward to a vigorous debate on the financing question, as well as how the program we propose would be structured. What we can say is why we think the program will work. With new contributions from both individuals and companies not currently paying for insurance, the need for new taxes is not as great as we might think. This plan demands personal financial responsibility. It's designed to ensure that individuals who can pay for a substantial part of their care do so. It also ensures that cost sharing doesn't become a significant barrier to needed care. We expect to see additional savings from expanded preventive care, earlier and less costly treatment for the formerly uninsured, reduced use of emergency rooms, and administrative efficiencies resulting from more secure financing. With everyone enrolled in the system, we should also see reduced costs through expanded use of disease management programs that rely upon evidence-based care. These programs enable many patients, particularly the chronically ill, who are a big part of that 70 percent of the expenditure of dollars, to receive more preventive care and receive treatment therapies derived from the most current clinical research. While new individual premium payments and better, more efficient care will help pay for expanded access, this proposal is not fully self-funded. With that in mind, let's address universal responsibility.

The fairest and most politically palatable way to finance universal health care is through a broad-based tax or fee. This would ensure that the rate increase is relatively small and that everyone that can contributes. Among logical alternatives are personal income tax, sales tax, a health insurance premium tax or even a health care provider fee. It may make sense to use a combination; our instinct is that keeping it simple makes the most sense.

I suspect that many of you are asking, and rightly so, "What's in it for Blue Shield?" Our company will clearly benefit from the infusion of more money into the system. If six million more Californians are insured, Blue Shield will enroll our fair share. That said, Blue Shield is doing well under the current paradigm. Like many health plans in the state, at least the largest ones, we are having a good year and our profits are sufficient to enable us to reinvest in technology and capital reserves to grow our business. We're succeeding in the current environment, which allows us to decline coverage because of poor health histories and increase premiums to cover our costs. Our premiums, unfortunately, have increased just as fast as anyone else's, they have followed the skyrocketing of the health care costs. So Blue Shield today doesn't need radical change to do well. Some changes we are recommending are likely to reduce our income in certain areas. There are also profound uncertainties associated with creating a very different health care system. We could very well instigate a process that we can't control and, in the end, there may be reforms that sweep aside elements of the current system that are important to Blue Shield's success. Advocating employer and individual mandates, controversial issues and new taxes certainly may concern our constituents - for example, businesses and individuals who have to pay more.

We are willing to take these risks for a simple reason: the current system and its underlying economics are unsustainable. Our path leads to greater efficiency and fairness in obtaining a service that is essential to a decent life. Good health care coverage cannot be restricted, and should not be restricted to those few who are privileged by wealth or healthy genetics. Achieving universal coverage is a goal that I care deeply about. With health care at a crossroads, it's the right thing to do and the right time to do it.

Universal access to health care is no panacea. It doesn't solve poverty, poor nutrition, lack of exercise, violence, smoking and a host of other factors that impact costs. But expanding access is a critical first step in starting to solve those problems, and reaffirming that social contract that is the underpinning of the employer-based health insurance system.

Answers to Written Questions from the Floor:

Q: With an aging population, is it even possible to provide all the health care that people will need at a cost that is affordable to business owners, taxpayers and individuals? Shouldn't we be really honest in talking more about the rationing of health care?

A: We're already rationing health care, but we're discriminating based on the ability to pay over the luck of the draw. We're talking about essential benefits, not defined by insurers, but defined by competent medical professionals. We'll still have the opportunity to buy up if we have the good fortune of having some money in our pocket. But there is money that's being used poorly; as much as thirty percent is wasted. We don't know what the essential benefits package looks like yet. There's nationwide discussions about what are the critical lists of prescription medicines, for example, that are needed for 95 percent of ailments that affect all of us. There's other things about the basic health services, such as physician services, hospital services, prescription drugs and even mental health services that could be part of the package. There will be co-payments, there will be co-insurance.

Q: Can the opposition of universal health care be identified? And what measures would assist in litigating such opposition?

A: There are at least three controversial elements of this proposal. There's this notion that as Americans we can do what we want. We require auto insurance; we don't seem too concerned about that, but people somehow feel this is different. We don't think so. Anytime you start talking about new taxes or new funding resources people get concerned; obviously it's got to be moderate. The Oregon health care system was going to increase income tax to 17 percent. The employer mandate is controversial. Asking employers to step up, particularly small employers who are struggling. But we started with the notion and we end with the notion that if there isn't some sacrifice on the part of all parties, this problem doesn't get solved. Incremental, piecemeal solutions only will work for a while and ultimately the system that we know - and frankly a very good system of public and private care - will collapse.

Q: Should California adopt an Oregon-style health plan, provide universal health coverage for basic medical services while limiting coverage for costly and sometimes unproven high-tech care?

A: The Medicaid system in Oregon has a list of services and there's an eligibility requirement; there are some services that may be medically necessary that you will not get because you don't qualify, either by age or by the fact that it's not going to have a real improvement to sustain your life, either because you're too old or because the technology has not been proven. We all want the best when we're sick and when our family is sick. There's going to have to be some choice here, and there still is going to be some economic inequality. We're not going to erase that entirely. Those that have a few more bucks are probably going to get some services you might say are not really necessary. But if they're paying out of their own pockets, so be it.

Q: Regarding the vote in L.A. County to subsidize the health care system - people seem to have voted for it because it could affect them. When will that happen on a broad basis, people voting to pay for their health care?

A: As an individual, employer, taxpayer, we're already affected. We don't see the direct effects. As Medicaid and Medicare pay less for physicians in hospitals, for them to survive they charge the private sector more. We pass that through to employers. As employer's rates go up 15 and 20 percent, a good portion of that is in fact paying the public health care bill. People will act in their own best interest and one of the things we're trying to do is educate, not only people inside health care, but particularly employers and other groups, that in fact there's already a hidden tax that can be fairly distributed.

Q: What about cost control? Mandating coverage without controlling the premium increases will bankrupt the system. All purchasing alone will not cure this problem. What are you proposing for incorporating hospital and physician accountability for quality, trust, efficiency and patient satisfaction?

A: Premium increases. What will limit premium increases is a competitive market, and again one of the things that is, maybe not unique, but certainly, in its comprehensive form, that we're really espousing here is: Use the private market. It's working in some respects. It's not working in other respects. So let's fix the respects where it doesn't work, and let it survive and do its job. There is no reason that if there's a number of competitive health insurers that anyone is going to charge more than they need to if they want to grow market share.

I've been at this for 22 years. I started in the staff-model HMO, in which physicians were employed and we owned our own hospitals. We've got the issue of, making sure that there are incentives within the provider community to do the right thing for patients, and to do it in a way that is as efficient as we can understand it. That's why when we talk about the essential benefits package being defined by medical professionals, that's a package that is something that really meets the needs, and when we talk about evidence-based medicine what we're talking about is using those technologies that are effective and efficient, but not using them where they aren't going to work. Defining provider accountability has to come from the provider community. I've been in this debate far too long to think that health insurance executives or employers or anyone else without providers participating are going to define the future.

Q: Blue Shield and many other plans have pulled back from Medicare coverage. Is there any hope that Congress will fix the payment mechanism for the Medicare HMO program?

A: I hope so, but I don't know. There are some indications that after the Congress reconvenes in January that there will be some kind of give-back, perhaps for physicians or health plans. Blue Shield and most other health insurers have pulled back because payments from the government are going up two percent and your costs are going up 15 percent, it's hard to make those numbers meet in the middle. We can't continue to subsidize that coverage. But this is a great opportunity for us to think about this again more comprehensively. Public systems have to pay their fair share, and we recognize that in this day and time the $20-25 billion state budget deficit and hundreds of billions of dollars deficit at the federal level, that may sound like nonsense. The reality is that there is a legal obligation for the federal government, for the state government to pay for those that are eligible for these programs; we've got to figure out how to make that happen. These are not new programs, we've just got to make sure that they start working the way they were intended.

Q: How will this program be administered and by whom? How do you see the federal government with its rigid laws and regulations being able to fit in what you feel is needed?

A: We don't know how much administration is going to be necessary. We're relying on existing public programs, existing private programs. There is going to have to be some documentation of need that doesn't exist today and making sure that when people show up they have health coverage if they can afford it. If we get people who are dedicated to making this work, that have no vested interest one way or another politically, we'll get better results, and our hope would be in that regard. This doesn't work unless you ultimately end up with a federal solution. We think it needs some state experiment to see what works and what doesn't. And California, while a pretty big laboratory, is a great opportunity given the number of folks we have that are uninsured, the need, and frankly we've got all the problems that the federal system has with ours.

Q: Have you seen the California recession impact the levels of uninsured in California?

A: We've seen both anecdotal and real information that it's growing. Small group employers are starting to drop coverage because it's too expensive. We won't see statistics probably for another year, but we know that's starting to happen. Individual coverage is receding. There are only three individual players that sell individual insurance in California: Kaiser, Blue Cross and Blue Shield. None of us have grown much over the last eighteen weeks.

Q: What is your opinion on the Healthy Kids initiatives of Santa Clara, San Francisco and San Mateo Counties, which cover undocumented folks, 300-400 percent of the Federal Poverty Level?

A: We think those programs are great, and there's so many programs like that around California. Blue Shield is now engaged with the San Francisco Health Plan to provide support and services to expand their market. Those programs should continue, and in fact our private foundation will probably be supporting those programs over the next several years. But by themselves, they're only part of the solution.

Q: Of people that qualify for Healthy Families, a large percentage do not enroll. Why? What can be done to improve enrollment?

A: We can be critical of government in lots of ways, but this is a great program that covers generally hundreds of thousands of kids, but it needs to cover the other hundreds of thousands of kids eligible. The form and the bureaucracy were difficult to overcome; that was simplified. It's still difficult. Particularly for people who are not used to being in the health care system and dealing with that bureaucracy. I once asked someone who was applying for a job with us, who had an MBA and was educated, What kind of health care coverage do you have? He couldn't tell me. This is a complex system. We need to make sure that it is as simple as possible. One of the things that we would hope, and we participate in, is expanding outreach in schools. We've worked with the California Teachers Association as have other health plans across the state to expand the outreach in schools. But we need to do more, and I think there are folks in the wings, in the health insurance industry, outside the health insurance industry that can increase the outreach and increase the marketing, if you will, of this program. It's got to be balanced; it's got to be regulated. There's no reason why, if we make a concerted effort - we won't be able to catch everybody - but we should be able to catch most of them just by doing what we do every day in the rest of our business, which is to do a pretty good job of identifying our targets in marketing, and bringing them into the system. If you think about these folks, who in some cases are paying nothing to just a couple of dollars, there's no reason why they shouldn't be covered.