30 September 2009

Mandated Health Insurance Squeezes Those In The Middle

Story from the Wall Street Journal

BOSTON -- President Barack Obama and his congressional allies have made insuring nearly all Americans a major goal of overhauling the nation's health-care system. One of their toughest challenges will be trying to cover people like Ron Norton of Worcester, Mass.

Mr. Norton, 49 years old, is an adjunct professor at a local community college who earns about $40,000 a year. He's also one of roughly 200,000 Massachusetts residents who remain uninsured despite a state law requiring residents to have health insurance.

"I can't use up all of my savings just to buy mandatory insurance," Mr. Norton says. It's like penalizing "the homeless for refusing to buy a mansion."

As lawmakers hammer out legislation aiming to extend coverage to the country's 46 million uninsured, one of the most sweeping proposals has so far stoked relatively little debate: a requirement that nearly all Americans carry health insurance, much like drivers are required to have car insurance.

All of the major health bills winding through Congress feature a so-called individual mandate similar to the one in Massachusetts. Mr. Obama supported the idea in his speech to Congress last week. Such a mandate, proponents argue, is necessary to keep premiums affordable: The healthy, who are relatively cheap to cover, help pay for the sick.

Subsidies for premiums would help low-income families gain coverage, while the prospect of fines would prod others to buy insurance.

But people like Mr. Norton show how difficult it could be to bring into the insurance pool the millions of consumers who make too much money to qualify for assistance, yet not enough to bear the full cost of new policies on their own.

Three years after Massachusetts's ambitious universal-coverage law went into effect, two-thirds of its previously 600,000 uninsured residents have coverage, according to state data. It has the lowest rate of uninsured in the country -- about 3% according to a state survey, compared with 15% nationwide. But the remainder -- many younger, male and fairly healthy -- has proved tougher to cover.

Costs to expand insurance coverage in the state are growing rapidly because of higher-than-expected enrollment in free and state-subsidized plans, and rising health-care costs. Critics say the Obama plan could face similar problems, contending it doesn't do enough to control costs.

In 2007 -- the first full year of the program -- the state exempted from the mandate 76,000 people it determined couldn't afford the cheapest plans available to them. An additional 68,000 had to pay a penalty for going without coverage -- a fine that has risen to $1,068 for the 2009 tax year.

On a national scale, pulling off an individual mandate could be more difficult. The Congressional Budget Office has estimated that as many as nine million legal American residents might still go without insurance under the initial House legislation released in July, despite its subsidies. The leading proposal in the Senate would place more restrictions on assistance, likely increasing the number who might go without insurance.

"If you're talking about millions of people who will have to buy insurance by themselves, this could be a difficult political issue," says Robert Blendon, professor of health policy and political analysis at Harvard University. "Unless subsidies are substantial, you're going to have middle-class resistance to this."

The current House bill calls for subsidies to individuals who earn as much as $43,000, or up to $88,000 for a family of four. That level is four times the federal poverty level. It would require many people who don't buy insurance to pay a 2.5% levy on their adjusted income.

A bill the Senate Finance Committee is drafting would limit subsidies to people earning as much as $32,500, or $66,000 for a family of four. That level is three times the federal poverty level. The bill would levy much stiffer penalties: from $750 to $1,500 a year for people earning less than the income cutoff point, and up to $3,800 for families that earn more than that threshold.

An independent contractor, Mr. Norton doesn't get benefits through the state-run Quinsigamond Community College where he works. His wife's employer, a dental practice, covers her, but not dependents. With a combined income of between $60,000 and $70,000, the family goes without cellphones for Mr. Norton and his teenage daughter, and a needed roof repair, but still makes too much to qualify for subsidies.

The cheapest plan available to him and his 16-year-old daughter costs $464 a month, or $5,568 a year, and comes with a $2,000 deductible per person.

"It's insurance you can't possibly use," he says, referring to the thousands of dollars he'd pay in premiums and deductibles before the coverage would kick in.

Mr. Norton says he worries about not having insurance for himself or his daughter, but so far they've been lucky. They pay for routine checkups, he says, and have had minimal health-care expenses.

Last year, Mr. Norton paid a penalty of nearly $1,000 for going without coverage, cutting into the family budget that includes a mortgage and $3,600 in recent years for his daughter's orthodontic bills.

A spokesman for the state said that while it has achieved near universal coverage, Massachusetts always recognized there would be "some people for whom coverage would not be considered affordable." He said that based on Mr. Norton's income, the state would likely waive the penalty for Mr. Norton if he appealed for an exemption. He hasn't done that.

When it became the first state to require residents to have health insurance in 2006, Massachusetts provided free or heavily subsidized coverage to people with incomes up to 300% of the federal poverty level.

The majority of its newly insured, or some 264,000, are in free or subsidized plans.

All but the smallest employers were required to offer employees insurance or pay toward the coverage of low-income residents. That helped push nearly 96,000 people into health plans sponsored by their employers, state officials say.

"The real success story is that neither the employer or individual penalties are that rigorous but they work," says Bruce Bullen, chief executive of Harvard Pilgrim, one of the state's biggest health insurers.

About 46,000 residents have bought full-price insurance plans on their own. About half purchased those plans through a program set up by the state to make it easier and cheaper for individuals to buy nonsubsidized health coverage.

Michael Kovner, a self-employed health-care technology consultant, is one of them. Mr. Kovner, 53, had been on the plan of his old employer, IBM, until benefits he maintained for a temporary period under the federal Consolidated Omnibus Budget Reconciliation Act, or Cobra, expired this year.

It took him half an hour to go online and purchase a plan for $442 a month -- slightly more than his Cobra premiums. "It was as easy as ordering from Amazon," said Mr. Kovner, plus, he didn't have to answer any questions about his medical history.

Nationwide, the average cost of an individual plan for someone of Mr. Kovner's age was $302 a month in 2007, according to the trade group America's Health Insurance Plans. But those typically carry higher deductibles and fewer benefits than what's required in Massachusetts, and exclude many people with medical problems.

In Massachusetts, rising health-care costs, already among the highest in the country, threaten the insurance mandate's long-term viability. The state's costs to expand coverage have swelled nearly 70% to an expected $1.75 billion in fiscal 2010 from a base of $1.04 billion in 2006, about half of which is supported by federal funds, according to the Massachusetts Taxpayers Foundation, a nonprofit policy research group.

Private health-insurance premiums in Massachusetts have been traditionally higher than the national average, fueled by the state's concentration of doctors and expensive academic medical centers, and continue to rise at 5% to 10% annually. State officials say the number of people who remain uninsured is small enough that their exclusion from the risk pool doesn't affect its costs.

As the state embarks on a revamp of the way doctors and hospitals are paid, state officials agree that the ability to control costs will ultimately make or break the universal-coverage initiative.

"If it's not affordable, it's not sustainable," says Jon Kingsdale, executive director of the authority that oversees the state coverage plan.

Already, rising premiums have started to push some out of the insurance pool.

Peter and Kirsten MacDonald of Brockton, Mass., are the kind of young, healthy individuals Massachusetts needs in the system to spread the risk and help pay for it. But the MacDonalds have calculated that they're better off without coverage.

They bought their own insurance in 2006, after Mr. MacDonald, a 39-year-old computer consultant, lost his job and began to work as an independent contractor. Insuring the couple and their four children then cost $650 a month, or $7,800 a year, and didn't include prescription-drug coverage. It was "a lot, but something we could afford," Mr. MacDonald says.

The next year, premiums rose to $750 a month and to about $900 a month in 2008. The MacDonalds say their actual medical costs hadn't come close to the premiums they were paying. "What are we getting for it?" Ms. MacDonald says they asked themselves before canceling.

Now they put aside $750 a month to cover medical costs as they arise, plus the $1,068 penalty each adult would pay for going without coverage. The biggest expense came last year, when their then 4-year-old son, James, fell and cut the bridge of his nose. The five stitches and care of a plastic surgeon cost $2,000, which the MacDonalds said they were able to pay from reserves they'd set aside.

Mr. MacDonald said he'd be inclined to buy insurance if he could buy cheaper catastrophic coverage, but such policies don't count in the Massachusetts plan.

The mandate hasn't always worked as intended. Early on, the state combined the small-business and individual insurance markets to lower the price of individual premiums in the program the state set up to make it easier for people to buy nonsubsidized care. Insurers agreed to eliminate waiting periods and pre-existing condition exclusions for individual customers.

Now, one insurer, Harvard Pilgrim, says it's discovered about 40% of people who bought an individual plan through the program in a 12-month period left after less than five months. While they had the coverage, they incurred an average $2,400 in monthly medical bills -- six times the plan's projections.

Harvard Pilgrim's Mr. Bullen isn't sure why the people dropped out or why their bills were so high. He suggests some people may have signed up for coverage to take care of known medical needs, then canceled after they received care. Others, he suspects, might have had insurance, but briefly doubled up to take advantage of broader coverage the state requires individual plans to offer, such as some fertility treatments.

Massachusetts has tried to prevent people from dropping private insurance for state-subsidized plans, something federal lawmakers also want to avoid. The state disqualifies people whose employers offer coverage from getting subsidies. That's caused another group of uninsured to fall through the cracks.

Nestor Nunez, a 53-year-old driver for a private bus company, earns between $35,000 and $40,000. That would qualify him and his wife, Aymara, for a state-subsidized plan with $232 in monthly premiums, something he could afford.

But he has access to coverage through his employer. The problem is, those premiums would cost between $381 and $588 a month, more than he can pay, he says, so he goes without coverage. "The state doesn't make me pay a penalty, so they admit I can't afford this," he says of the automatic waiver he gets based on his income and the premium he'd have to pay.

Now, Mr. Nunez pays for his diabetes and blood-pressure medication on his own and reports results of his daily at-home blood-sugar tests to his doctor to avoid lab fees.

Still, he recently got a $1,010 bill for other lab work, and the Nunezes aren't sure how they'll pay it. They've begun using less air conditioning and cutting down on small luxuries, such as the elaborate cakes Mrs. Nunez often bakes. "Now we need to watch every penny, because we don't know when we're going to really need it."

29 September 2009

Medical-Device Makers Scramble to Avert New Fees in Health Bill

Story from the Wall Street Journal

WASHINGTON -- The $100 billion medical-device industry is scrambling to reverse billions of dollars in fees proposed by the Senate Finance Committee, but it faces trouble because its reluctance to offer concessions alienated some lawmakers.

A draft of a broad health-overhaul bill in the Finance Committee calls for device makers to pay $40 billion in fees over 10 years, with the specific amount based on each company's market share.

The relatively high fees resulted from a lobbying move that some senior congressional aides and industry officials say represented a strategic error on the device industry's part.

Device makers were among the health-related industries that went to the White House this spring to volunteer financial concessions as part of an overhaul. They were then asked to offer a dollar amount in savings, representatives of the device industry and congressional aides said. Instead, the companies suggested that the government levy a tax on their adversaries: hospital-purchasing groups that negotiate for lower prices on medical supplies and some devices.

Some senators, including Finance Committee Chairman Sen. Max Baucus (D., Mont.), were troubled that the device makers were "offering up other people's money," said a person close to the negotiations. This person cited a line that has come to represent the maneuvering among health-care industries, the White House and Congress: "You either come to the table early, or you end up part of the dinner."

Mr. Baucus is planning to make public his bill on Tuesday, and aides said the new fees on device makers' revenues are likely to remain part of it. According to a letter sent to Mr. Baucus by the Advanced Medical Technology Association or AdvaMed, the main device-industry group, the proposal would assess all manufacturers at a rate, based upon their U.S. sales, necessary to generate $4 billion annually beginning in 2010. Industry representatives are lobbying senators to trim the fees.

Michael Mussallem, president of heart-device maker Edwards Lifesciences Corp., said the $40 billion tax would cut into research and hurt companies' ability to add jobs. "We were working overtime to come up with ideas. When we learned about the tax over Labor Day, we were shocked," he said.

He said the tax details are too vague. "What is 'market share?' Whose market? What is the base year for comparison?" asked Mr. Mussallem. Senate Finance aides said those details are being worked out.

Device companies that make imaging and X-ray equipment are already upset at the health-overhaul legislation, because most versions include significant cuts in Medicare reimbursements for diagnostic imaging such as CT scans and MRIs. At General Electric Co., about $10 billion of the health-care division's $17 billion in revenue comes from imaging-related products and services.

A GE spokesman, Peter O'Toole, said the company is negotiating with senators and their staff. "We're optimistic," said Mr. O'Toole. "We want to ensure that patient access to these critical, life-saving technologies is maintained."

A person close to the negotiations argued that device makers will get "huge benefits" from an overhaul, because wider insurance coverage will bring them more customers. As a result, the White House wants savings commitments to help pay for the package.

After the White House and Senate Finance Committee sent requests for concessions this spring, the first group to step forward was the pharmaceutical industry. It proffered $80 billion in savings in June, including helping more seniors get prescription drugs. Hospitals offered concessions worth $155 billion a few weeks later.

But device makers didn't suggest a specific number. Lobbyists at AdvaMed urged the Senate to tax the group purchasers for hospital chains, telling negotiators that the purchasing co-ops could then "pass through" some or all of that tax to the device makers.

AdvaMed President Stephen Ubl, a former Senate Finance staffer, said his group did its part by suggesting ideas that would count as "scorable" by the Congressional Budget Office, meaning the agency could estimate their effect on federal spending. "We did not walk away from the table," said Mr. Ubl. "We put forward a policy that would have produced billions in scorable savings which the committee did not accept."

The Health Industry Group Purchasing Association, representing purchasers, reacted angrily in a letter in August to AdvaMed. "Advocating proposals that affect another industry to the benefit of your own...can not be considered real beneficial healthcare reform," its president, Curtis Rooney, wrote. He said AdvaMed didn't respond to the letter.

The savings would come from companies such as MedAssets Inc. of Atlanta, which negotiate bulk purchases of equipment for hospitals, lowering hospital costs.

In an interview, MedAssets Chief Executive John Bardis criticized device prices as "inflated" and added, "More importantly, their pricing is not transparent to buyers."

AdvaMed spokeswoman Wanda Moebius said a recent industry study showed that "price transparency would actually raise prices." She said device prices are highly competitive.

Eli Lilly & Co. Set To Cut Jobs As Patents Expire

Story from the Wall Street Journal

Eli Lilly & Co., confronted with the possibility of a steep revenue decline because of looming patent expirations, on Monday said it plans to reduce its work force by nearly 14%, or 5,500 employees, and revamp its operating structure.

The job cuts and other measures would reduce Lilly's costs by $1 billion by the end of 2011, excluding planned strategic additions in emerging markets and Japan, the Indianapolis-based company said. Lilly expects its work force to decline to 35,000 by the end of 2011 from 40,500 today and 46,000 at its peak in 2004.

Between 2010 and 2013, drugs accounting for more than half of Lilly's current revenue will face generic competition as U.S. patents expire on four of its five top-selling products, including the blockbuster antipsychotic medication Zyprexa. Sales of those drugs -- nearly $11 billion last year -- could decline by as much as 80%.

Lilly, which doesn't have the product array to offset the lost revenue, also had some notable setbacks in recent weeks in its efforts to bring new drugs to market.

In August, the company discontinued development of arzoxifene, an experimental osteoporosis drug, because of side effects and a lack of effectiveness in a clinical trial. A few weeks earlier, Lilly said the experimental multiple-sclerosis drug dirucotide, which it licensed from BioMS Medical Corp., didn't help patients significantly in a clinical trial. Analysts had estimated that each drug had the potential to exceed $500 million in annual sales.

Chief Executive John Lechleiter, in an interview on Monday, said the drug-research setbacks "certainly were part of our consideration" in the restructuring, but he said Lilly probably would have made significant changes even if those drugs hadn't failed. He noted that Lilly faced both internal and external challenges, including higher standards for regulatory approvals of new drugs.

Rival drug makers, including Pfizer Inc. and Merck & Co., have engineered large-scale acquisitions to address their challenges, but Mr. Lechleiter has eschewed a large deal in favor of smaller purchases. On Monday he reiterated his intention to avoid a large-scale combination, saying such deals "provide short-term relief but don't fundamentally address the issue of innovation and how to make pipelines more productive."

Still, if Lilly sidesteps a large merger, it probably would need to pony up billions of additional dollars on midsize acquisitions or drug-licensing deals to fill its pipeline gap. J.P. Morgan analyst Chris Schott said that while Lilly's moves are a step in the right direction in addressing costs, the company doesn't have a research pipeline sufficient to offset revenue losses from patent expirations.

The job cuts will be spread across the company, both in the U.S. and abroad, a spokesman said. Lilly hopes to achieve some of the reductions through retirements and voluntary departures but can't rule out layoffs.

The company will reorganize its operating structure into five global business units: oncology, diabetes, established markets, emerging markets and the Elanco animal-health unit. Lilly expects the new structure to be in place in January.

Lilly also created a development center within its research arm, which it hopes will help streamline drug development.

Lilly has had some research success. In July, the Food and Drug Administration approved Effient, an anticlotting drug Lilly co-developed with Daiichi Sankyo Co., of Japan.

27 September 2009

Russia Denies Swine Flu Death

MOSCOW — Russia's health authorities Monday vehemently denied that the country had recorded its first fatality from the A(H1N1) virus, contradicting a top doctor's claim that a woman had recently died of swine flu.

"Not a single case that had a fatal conclusion -- in other words, death -- has been recorded on the territory of the Russian Federation," said Deputy Health Minister Veronika Skvortsova, quoted by news agencies.

She said that the woman, a 46-year-old Russian doctor who recently returned from Bulgaria, had died of pneumonia aggravated by a heart condition and not swine flu.

Earlier Dmitry Lvov, head of the Russian Academy of Sciences' Institute of Virology, said that not only had Russia recorded its first swine flu death but that the number of cases could be in the tens of thousands.

"We immediately diagnosed (the woman with) swine flu," Lvov was quoted as saying by the Interfax news agency.

"We could not take any measures because she died the very next day."

Lvov also warned that the total count of people infected with the virus could be much higher than the 381 cases that Russian health authorities had acknowledged so far.

"By my count, it can be as high as the tens of thousands. I cannot prove it yet, but in a few weeks I will be able to and will say so," Lvov said.

"The time when we could say that our border was secure is past. For the flu virus it is a sieve," he added.

The Russian authorities have been pointing out that the country remains relatively unaffected by the virus and have urged citizens to take strict precautions when travelling abroad.

The World Health Organisation announced on Friday that the global flu death toll has reached 3,486, up 281 from a week ago.

Experts have previously predicted that about one third of the world's population of more than 6.5 billion people could be affected by the A(H1N1) virus, but they stress that so far most victims are suffering only mild symptoms.