Insurance companies will likely see belt tightening under reform

Anya Rader Wallack speaking to reporters on Tuesday. VTD/Josh Larkin

Anya Rader Wallack. VTD file photo/Josh Larkin

An order this month by the state’s board in charge of health care reform indicates to insurance companies that they will have to rein in costs, or at least be more specific about where their customers’ money is going.

Earlier this month, the Green Mountain Care Board, appointed by Gov. Peter Shumlin to oversee health care reform efforts, approved a 2.9-percent increase in “administrative costs” for Blue Cross Blue Shield of Vermont.

But it did so with some reservations — including concerns that the company was paying its employees more and offering bonuses at a time when many Vermonters are seeing their increased health insurance costs outpace their wages.

“Our review shows that the company’s 2012 administrative expense budget is more than 9% higher than its actual 2011 administrative expenses, and includes budgeting for employee wage increases and bonuses at a time when most Vermonters are not seeing similar, if any, increases in income,” the board’s order reads.

Anya Rader Wallack, the chair of the Green Mountain Care Board, said the board will be looking at all sorts of ways to control the constantly rising cost of health care as the state aims to implement a universal health care system by 2017.

“What you can expect to see is that we the board are going to take a hard look at all costs in the system as we implement our responsibility to try to make health care as affordable as possible,” Wallack said.

Under the federal Affordable Care Act, insurance companies are already required to spend the majority of their money on health care through what is called a medical loss ratio.

Wallack said Blue Cross Blue Shield of Vermont consistently meets this requirement, but the state is looking at all potential places where it can contain spending. Administrative expenses like employee bonuses for health insurance companies are just one example of those areas.

Wallack said that with the upward trend in health care costs, administrative costs have risen simultaneously.

Under H.559, which Gov. Peter Shumlin signed into law this week, the board will have 30 days instead of 10 to address rate increase requests by insurance companies once it receives a recommendation from the state Department of Financial Regulation (formerly known as the Department of Banking, Insurance, Securities and Health Care Administration).

BISHCA Commissioner Steve Kimbell. VTD/Josh Larkin

BISHCA Commissioner Steve Kimbell. VTD file photo/Josh Larkin

Steve Kimbell, commissioner of the Department of Financial Regulation, recommended approval of the rate increase for Blue Cross Blue Shield. He said the 2.9 percent increase is less than the company has been asking for in years past.

Kimbell said the rates of increasing health care costs, including administrative costs, are complex. Containing those costs may also be the linchpin of making health care reform affordable.

Under both federal and state health care reform laws, he said, insurance companies will likely see more scrutiny of their attempts to increase customer rates.

“It’s safe to assume that enhanced scrutiny of health insurance rate filings is one of the intents of the Affordable Care Act,” Kimbell said.

Kevin Goddard, vice president of external affairs and sales for Blue Cross Blue Shield of Vermont, said the insurance company welcomes the longer time frame for looking at administrative expenses.

“In terms of administrative expenses, we have worked very, very hard to control and reduce our administrative expenses over time,” he said. “We are eager to have the Green Mountain Care Board have more time to look at it and hopefully agree with our point of view.”

Goddard said the company has been under its 5 percent growth target it set a few years ago.

He said the longer time period will also allow the company to clarify issues such as increased compensation. Goddard said the company’s budgeted employee compensation increase is actually lower than the 3.8 percent average wage increase statewide between 2010 and 2011. He said the company does not offer bonuses per se, but it does allow salary-based incentive programs for employees.

Alan Panebaker


  1. Rep. Bob Bouchard :

    It looks like Blue Cross Blue shield will be the only player
    in the proposed health care exchange. It’s too bad that the exchange will not be opened up to the free market, where competition will assure that costs and expenses will be kept
    at a minimum, if a company wants to do business. The free market will always prevail in cost savings over a one
    company monopoly, or single payer system.

  2. walter carpenter :

    “The free market will always prevail in cost savings over a one
    company monopoly, or single payer system.”

    If this were true then why do nations with single-payer systems (which is all the democratic/industrial/technological nations except us) have far lower costs and far better results than we do with our free-market and hodge podge system? If this were true, then why do we have the highest paid health insurance CEO’s in the world, with some 50 million Americans unable to get health insurance because it is too expensive — a problem that is unknown in the rest of the democratic world.

    The free market (if there is such a thing) drives costs up. It may lower costs for a time, but when the competitors start falling off, the ones still left will raise prices and cut services to maximize their CEO profits to a point where only a few can afford it. If we leave health insurance to this free market, only the 1% will be able to afford health insurance; the rest of us will just die off as fast as we can.

    • Jeanne Keller :

      Walt: I’ll add my voice to those asking you to please quit your misinformation about single payers. Not all democratic/industrial/technological nations have SINGLE payers.In fact, only three that I can think of have single payers – Canada, Taiwan and UK.

      The others have centrally regulated financial management, but they do not all have single payers. Examples of regulated multi-payer systems include: Germany, France, Japan, Switzerland, Belgium, Netherlands — need I go on to make my point?

      However, those countries do not have a rampant free market approach,either. The payers are treated more the way we in the USA treat energy companies – as heavily regulated public utilities, even though they are private. In Germany, the plans are like cooperatives – owned and operated by the very people they insure, but not by the government.

      One of the things that has made the reform debate so contentious and difficult in Vermont is the adherence to absolutist positions like they are the Golden Rule — be it “we must have a single payer” and “We must have an unregulated free market.” As long as people adhere to polar opposites like this, in the absence of evidence that either one can actually work in Vermont, we won’t succeed at what we all actually do agree on, and that is universal access to affordable health care that is financially sustainable.

    • Craig Powers :

      If you want health care reform to move forward then open your mind up to the possibility of systems other than “single payer”. The constant drone from the zealots that single payer is the only way does nothing to advance the cause of health care reform. There clearly is enough info available to see that single payer is financially unsustainable and has its own set of problems.

  3. Dan McCauliffe :


    You continue to confuse single payer health care systems with systems that offer universal health care access. Most “democratic/industrial/technological nations”, to use your terms, do not have single-payer health care systems like Canada, UK and Taiwan. Most of these countries have a mixture of payers including employer sponsored insurance, patient purchased insurance, self payments/co-payments, and government payments and subsides for the elderly and poor, much like the US.

    In some countries like France, the government through taxation, covers most of the health care costs, while in other countries like Singapore, the government only pays a small fraction of total health care costs. Many countries use government regulated not-for-profit health insurance companies to cover a portion of health care costs, as done in Switzerland and France.

    • Bob Zeliff :

      It is sort of humous to hear so many apply the tired, but incorrect, dogma that the current US health care system is a “free market”. Who among us has shopped for a Doctor on his performance and his costs? Who amount us has shopped for a hospital based on performance and cost? When you are diagnosed with Cancer, do you shop for your care? If we as individual do not do this we do NOT have a “free market” in health care.
      Let us remember in the early 60s Canada’s and the US’s health systems and cost were essentially identical. Canada decided it could do better. It formed a single payer system. It is working well for them. ALL Canadians have health care, no one goes bankrupt due to illness. In aggregate, Canadians are substantially healthier than us in the US. And their health cost are about 60% of what we pay.
      Mr. McCauliffe is correct, some Countries, Germany, Switzerland, etc have HIGHLY regulated insurance companies in services, performance, internal cost structures and premium rates as part of their health care system. He does not point out that these hybrid single payer/private companies have admin cost in the 7 to 10% range where true single payer have admin cost of 3 to 5%.
      If we Vermonters are going to make a change for the better, let’s do this right and go to the best performance lowest cost system. Vermont self insuring Vermonters, single payer system.

    • Lee Russ :

      For what it’s worth–health care financing in France:

      1. About seventy five percent of the total health expenditures are covered by the public health insurance system. A part of the balance is paid directly by the patients and the other part by private health insurance companies that are hired individually or in group (assurance complémentaire or mutuelle, complementary insurance or mutual fund). Medical News Today, 6/8/09;

      2. “A study I would take more seriously is one published last year by Ellen Nolte and Martin McKee in the journal Health Affairs. They examined avoidable mortality — that is, deaths whose risk of occurrence would be far lower if the population had access to appropriate health care interventions. In that study, based on data for the year 2000, France was also ranked No. 1, with the lowest rate of avoidable deaths. The United States was last, in 19th place, with the highest rate of avoidable deaths.

      “It’s not government run but government financed. Like Medicare and Social Security, it is funded by compulsory payroll taxes with some income tax contributions. But doctors work predominantly in private, office-based, fee-for-service practices, and there is a mix of public and private hospitals. The main difference from Medicare is that the entire resident population is covered and the benefit package is more generous.
      “Almost the entire population has some degree of private supplementary insurance, too, much like Medigap policies for Medicare beneficiaries in the United States, to provide better coverage for certain services and to cover a portion of co-insurance.”
      Victor G. Rodwin, professor of health policy and management at the Wagner School of Public Service at New York University and co-director of the World Cities Project, International Longevity Center-USA, in the NY Times, 1/11/09;

  4. Ann Raynolds :

    I second Mr. Carpenter’s analysis of our “free market” for-profit national health insurance system. If the National Health Insurance Companies really cared either about providing health care or if they really cared to compete, we would see a very different picture. In Germany the health care system is managed through insurance companies but with governement regulations which not one big Health Insurance Comapny here would tolerate. People make a living there, they don’t make fortunes.
    To remind anyone who has forgotten, here are some of your Health Insurance Companies’ CEO salaries in 2009 provided by the Wall St. Journal:
    AETNA — $15,300,000.00
    WELLPOINT $12,800,000.00
    CIGNA — $5,600,000.00
    UNITED HEALTH GROUP — $9,500,000.00
    + $99,000,000.00 in stock options in 2008
    Just a sampling.
    If you have CIGNA and your strapped small human services organization decides to save money by buying a high-deductible plan for you, you may need to spend $2,400.00 or more in deductibles before you can ever touch the “benefits”. In other words you have catastrophic insurance, not health insurance. No, the present system needs to change.

  5. Lee Russ :

    On CEO salaries, you can add the head of little MVP here in Vermont and New York–more than $1 million in each of 2010 and 2011.

    That’s while the company is laying off people. In the Times Union, by the way, MVP claims the layoffs are due largely to falling profits, which are due largely to dwindling subscribers due at least in part to rising premium costs.

    The TU story appeared the very day that MVP sponsored health care reform forums in Bennington (free breakfast at Mt. Anthony Country Club) and Rutland (free lunch at one of the hotels).

    Dr. McCauliffe: Does it matter that several European countries which provide universal care don’t use a strict “single payer” approach? They all use subsidies or other forms of government involvement that clearly are intended to keep “market forces” from doing what market forces always do.

  6. The so-called “Free Market” mainly benefits the health insurance industry. To say that the free market, as Mr. Bouchard states, will always prevail in cost savings over “single payer” is ignoring the fact that here in the U.S. we spend approximately 18% of GDP on health care while the rest of the advanced countries (Single payer/Universal) spend about 9%. This still leaves us with 50 million uninsured and at least that many underinsured.
    As far as pure “single payer” goes, Dr. McCauliffe didn’t mention Japan and Australia who are in the top 10 when it comes to life expectancy while the the U.S. only ranks 50th!

    • Craig Powers :

      “But many health-care economists say Japan’s low-cost system is probably not sustainable without significant change.” Washington Post.

      “To keep costs down, Japan has made tradeoffs in other areas — sometimes to the detriment of patients. Some are merely irritating, such as routine hour-long waits before doctor appointments. But others involve worrisome questions about quality control and gaps in treatment for urgent care.

      “Japanese hospitals experience a “crowding out” effect, with space for emergency care and serious medical conditions sometimes overwhelmed by a flood of patients seeking routine treatment, said Naohiro Yashiro, a professor of economics and health-care expert at International Christian University in Tokyo.” Washington Post

      Your constant argument that there are better outcomes elsewhere should be viewed with a grain of salt. Vermont cannot go down this path alone.

      • Lee Russ :

        “Japan has about the lowest per capita health care costs among the advanced nations of the world, and its population is the healthiest. That is largely due to lifestyle factors, such as low rates of obesity and violence, but the widespread availability of high-quality health care is also important. Everyone in Japan is covered by insurance for medical and dental care and drugs. People pay premiums proportional to their income to join the insurance pool determined by their place of work or residence.
        “Japan is egalitarian and medical bankruptcy is unknown. An individual’s income influences the quantity and quality of medical care probably less than in any other country. Premiums and out-of-pocket costs are minor concerns for most, and low-income people and the elderly receive subsidies to afford care.
        “Second, the Japanese system is quite good for chronic care, particularly because it has so many older people. Along with appropriate medical care, Japan also provides long-term care to all older people who need it through a public insurance system that started in 2000.’
        John Creighton Campbell, professor emeritus of political science at the University of Michigan and a visiting researcher at the Tokyo University Institute of Gerontology; 8/25/09 NY Times;

        In the she same interview, professor Campbell acknowledges that there are problems in Japan, but the problems are not the norm. There will be problems in any system.

        That is certainly not a reason to abandon reform. Once implemented, we need to pay attention to how the reformed system is working and address the problems as they arise.

  7. No one said the Japanese or any any other system is perfect! However compared to ours, Japan’s results are better at about half the cost. Many in this country can’t afford to seek treatment due to high deductibles and/or lack of coverage. Moreover the Japanese, Australians,Canadians, etc.etc. never face “medical uninsurability,” “medical bankruptcy,” and dependence on their employer for coverage.

  8. Walter Carpenter :

    “I’ll add my voice to those asking you to please quit your misinformation about single payers.”

    Jeanne. Thanks for your post. I did say “systems,” rather than system. Like yourself and a good many on here, I have studied these “systems” before. I have even lived in one. Whether it is a more or less pure single-payer, such as Britain, Canada (or our Medicare), or a public-private hybrid like France, Germany, Switzerland, Taiwan, or others it is a still a single-payer type system. We can discuss the semantics of this for the next thousand years and it will still be the same.

    “You continue to confuse single-payer health options with systems that offer universal health access.”

    Dan, thanks for this. I am not sure if it is confusion, however, since all single-payer systems like the ones mentioned above and then some offer uninversal health access, something that our system cannot claim for itself. Most of these are single-payer type systems iin how they finance their systems; the structures and the hows and ways that this works and how payments are dispersed are different, of course, with each country doing it their own way.

    “such as hour long waits before doctor appointments.”

    Craig, there were times when I was sick when I thought an hour-long wait was a short time. I once waited four hours. Several times, I was even completely forgotten in the waiting room; the only way I got to see the physician three or four hours after my appointment was to go and find the doctor to remind them that I had an appointment and all but drag them in to see me.

    Ann, thanks for providing the list of health insurance CEO salaries.

  9. Rep. Bob Bouchard :

    So, the question is, what are we doing in little ole Vermont.
    We are creating an exchange that will feature 1 company to shop from. Already you can see from the article above that the Green Mountain Care board is trying to manage them. What I am saying is that if we have an exchange system, would it not be best to have some choices? I would understand that the rules have to be set in place, such as everyone has to be covered, no prior existing conditions exemptions, and so on.
    If we are a retail store with no competitors, guess what happens to the price.
    We Vermonters have one the highest tax rates in the country, and this system will very likely move us to the top. Of course a method of how this will all be paid for
    has not forward yet. But when it does, watch out!



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