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Enriched by the poor: Another example of why U.S. health ‘system’ is so expensive



Kaiser Health News

CHULA VISTA, Calif. — Norma Diaz and her husband, Joseph Garcia, have dedicated their careers to running a nonprofit health insurer that covers some of California’s neediest residents.

For three decades, they have worked for a Medicaid managed-care plan, Community Health Group, serving nearly 300,000 poor and disabled patients in San Diego County under a state contract funded entirely by taxpayers. They’ve earned above-average ratings for patient care.

And in the process, they’ve made millions of dollars.

Together, Diaz and Garcia made $1.1 million in 2016 and received more than $5 million since 2012, according to the health plan’s tax returns and company data. Diaz’s compensation as CEO exceeded the pay of several peers at bigger plans in 2016.

Garcia, married to Diaz since 1997, is an outside consultant who serves as chief operating officer. Their health plan, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

“This is not only a conflict of interest but egregious overpayments,” Frank Glassner, chief executive of Veritas Executive Compensation Consultants in San Francisco, said after hearing of the payments from a reporter and reviewing the tax returns. “It’s the family-and-friends plan.”

The arrangement at this midsize California health plan raises broader questions about government oversight as states award billions of dollars in public money to private plans to cover patients on Medicaid, the federal-state insurance program for the poor.

Evidence is mounting that Medicaid’s rapid expansion under the Affordable Care Act has far outstripped the government’s ability to monitor the taxpayer money it turns over to insurers. In California, for instance, some health plans have reaped outsize profits, so large the state is now trying to claw back billions in overpayments, a recent Kaiser Health News investigation found.

Medicaid enrollment has soared to 74 million Americans, from 58 million before the ACA rollout. About 75 percent of them are assigned to plans like Community Health

Group, which receive a flat monthly fee per person to handle their medical care.

Increasingly, states have embraced managed care in hopes of controlling Medicaid costs. Insurers could see further growth as the Trump administration and Congress seek to cut federal spending on Medicaid and shift more of the fiscal burden onto states.

These managed-care contracts can be highly lucrative for the companies involved and their executives, like Diaz and Garcia. Any money left over after spending on medical care and administration is profit or “surplus,” depending on whether the plan is nonprofit.

Federal auditors have warned for years about lax oversight of Medicaid money, a task that primarily falls to states. A 2017 report found that even as managed care has grown in importance, states have fallen behind in collecting essential data from plans.

In the past year alone, government auditors and consultants criticized Illinois, Kansas and Mississippi for poor supervision of Medicaid insurers. Illinois auditors said the state didn’t properly monitor $7.1 billion paid to Medicaid plans in fiscal year 2016, leaving the program unable to determine what percentage of money went to medical care as opposed to administrative costs or profit.

An examination of Community Health Group in California points to systemic flaws in oversight.

For instance, California officials said they do not examine the companies’ public tax filings. As a social welfare nonprofit, Community Health does not pay taxes, but it is required to file returns with the federal government, known as 990s, which provide basic information about operations and finances.

In a review of Community Health’s recent returns, KHN discovered that the company falsely denied — on the 2015 and 2016 forms — that it was doing business with a family member.

In response, the insurer immediately said that was an error and it was amending the returns to reflect its relationship with Garcia. The company had disclosed the relationship in earlier years.

California’s Medicaid agency, in a statement, said insurers are allowed to set their own conflict-of-interest policies. Asked specifically about Community Health Group, it referred further questions back to the health plan.

Likewise, the state’s chief insurance regulators at the Department of Managed Health Care said in a statement that insurers are not required to submit information on executive compensation and the state does not set standards for that. They do review the pay of outside contractors.

Diaz and Garcia, sitting together at a conference table in the CEO’s office on a recent weekday, said they were proud of their long record of helping disadvantaged people. The couple insists there’s nothing wrong with mixing work and family.

Community Health Group, with $1.2 billion in annual revenue, had a profit margin of 19 percent in 2016, the highest of any Medicaid insurer in California and more than six times the industry average.

Diaz, 56, said her husband reports not to her but to a fellow executive, the associate CEO, and his consultant’s role was approved by the health plan’s board. “I don’t feel for me it’s a conflict of interest because he was here for many years long before we ever got married, so we got used to a working relationship,” she said.

Garcia, 66, served as the company’s on-staff chief operating officer for about 15 years and then switched in 2011 to the role of consultant (acting as COO), which ultimately raised his pay. He said the couple has never tried to hide their personal relationship from the state or anyone else.

“I understand from the outside someone might say ‘Oh my God. That’s a conflict.’ But it’s not. It’s irrelevant that I’m her husband,” he said. “I don’t see how it’s a misuse of public funds. The expense for a chief operating officer would be made no matter what, and my compensation is fair.”

His total compensation reached $487,386 in 2016, according to the insurer. From 2012 to 2016, the health plan paid him a total $2.3 million.

Under his consulting agreement, Garcia is paid $275 an hour and can make as much as $572,000 annually, according to documents obtained by KHN through a public records request. The health plan had requested the information be kept confidential, but the state released it.

In September, regulators at the managed-care department asked Community Health Group how Garcia’s pay was determined. The company submitted a pay range for chief operating officers that it said was drawn from industry surveys.

Community Health said it picked the maximum figure in the range, $442,863, to reflect Garcia’s “many years of experience in health plan operations.” It then increased his pay range by 30 percent because it said Garcia doesn’t receive benefits. The plan called his current salary — which in 2016 fell below the maximum allowed — “both fair and competitive.”

An agency spokesman said the state’s review of the matter is closed.

In early 2012, the insurer hired a new executive as COO, but he left the following year. Garcia stayed on as a consultant during that time at roughly $400,000 annually, then resumed his COO duties. His current consulting agreement runs through 2021.

“We don’t want to lose Joseph. He has a tremendous amount of knowledge,” said Albert Vitela, a retired San Diego police detective who is the plan’s co-founder and chairman.

As for Diaz, she has received $2.8 million in salary, benefits and other compensation over the five years ending in 2016. Her 2016 pay of $604,502 exceeded that of the CEO of the Inland Empire Health Plan in Southern California, which has four times the enrollment.

(Story continues below.)

Last year, federal auditors examined compensation for the 133 top paid executives at managed-care organizations in seven states, focused on health plans that get more than half of their revenue from Medicaid.

For 2015, the top executives earned $314,278, on average — more than double what state Medicaid directors earned, according to the report. Auditors didn’t find major differences in pay between for-profit and nonprofit Medicaid plans.

Executive compensation has risen as Community Health Group recorded hefty profits.

State officials had raised the rates paid to Medicaid plans in anticipation of the Affordable Care Act rollout in 2014, but the costs for newly insured patients weren’t as high as predicted. After the KHN investigation into insurer profits published in November, California’s Medicaid director, Jennifer Kent, vowed to recoup billions of dollars in excessive payments from insurers in coming months.

From 2014 to 2016, Community Health Group recorded profits of $344.2 million, according to state data obtained and analyzed by Kaiser Health News. Diaz said her insurer expects to return more than $100 million to the Medicaid program.

Robert Stern, a government ethics expert and former general counsel of California’s Fair Political Practices Commission, welcomed the scrutiny of Medicaid profits. But he said the business practices at Community Health Group suggest there is much more to be done.

“Taxpayer money should be spent as wisely as possible,” Stern said. “It’s not their money. It’s our money.”

Bill filed to create Calif. single-payer system


For Kaiser Heath News


Legislation introduced in the California Senate last week would set the state on a path toward the possible creation of a single-payer healthcare system ― a proposal that has failed to gain traction here in the past.

The bill, which is a preliminary step, says that it is the “intent of the Legislature” to enact a law that would establish a comprehensive, single-payer health care program for the benefit of everyone in the state. The legislation, introduced by state Sen. Ricardo Lara (D.-Bell Gardens), does not offer specifics of what the plan would look like, nor does it mention a timetable.

A single-payer system would replace private insurance with a government plan that pays for coverage for everyone. Proponents argue that single-payer systems make healthcare more affordable and efficient, but opponents say they raise taxpayer costs and give government too much power.

Medicare, the federallyfunded health coverage for the elderly, is often held up as a model of what a single-payer system might look like.

Lara said in an interview late last week that the state needs to be prepared in case the Affordable Care Act is repealed, as President Trump and congressional Republicans have promised.

“The health of Californians is really at stake here and is at risk with what is being threatened in Congress,” Lara said, as the debate continued in Washington about the future of President Obama’s signature health law. “We don’t have the luxury to wait and see what they are going to do and what the plan is,”

Lara noted that while the Affordable Care Act expanded health coverage for many Californians, it left others uninsured or underinsured. He said the single-payer bill builds upon his “health for all kids” legislation, which resulted in coverage beginning last May for 170,000 immigrant children here illegally.

“I’ve met many children who have asked me point blank, ‘What about my mom? What about my dad?’” Lara said.

He recently withdrew a request to the federal government, based on a bill he had introduced, that would have let  illegal adult immigrants buy unsubsidized health plans through Covered California, the state’s insurance exchange.
No state has a single-payer health system. Perhaps the best-known effort to create one was in Vermont, but it failed in 2014 after the state couldn’t figure out how to finance it. Last year, Colorado residents rejected a ballot measure that would have used payroll taxes to fund a near universal coverage system.  According to the text of the Lara’s bill, a single-payer system would help address rising out-of-pocket costs and shrinking networks of doctors.

In California, voters rejected a ballot initiative in 1994 that would have established a government-run universal health program. Gov. Arnold Schwarzenegger later vetoed two bills that would have accomplished the same goal.

It’s difficult to create consensus on single-payer plans because they dramatically shift how health care is delivered and paid for, said Larry Levitt, a senior vice president at the Kaiser Family Foundation (California Healthline is produced by Kaiser Health News, an editorially independent program of the foundation.)

“Single-payer plans have lots of appeal in their simplicity and ability to control costs,” Levitt said. “But what I think has always held back a move to single-payer is the disruption they create in financing and delivery of care.”

The problem, Levitt said, is that even if they end up costing less overall, single-payer plans look to the public like a “very big tax increase.”

The California Nurses Association, the primary sponsor of the new bill, is planning a rally in Sacramento this week in support of a single-payer system. Bonnie Castillo, the group’s associate executive director, said the goal is to create a system that doesn’t exclude anyone and helps relieve patients’ financial burdens.

“Patients and their families are suffering as a result of having very high co-pay and premium costs,” she said. “They are having to make gut-wrenching decisions whether they go to the doctor or they stick it out and see if they get better on their own.”

Castillo said that with so much uncertainty at the national level, California has the ability to create a better system. “We think we can get this right,” she said.

Charles Bacchi, president and CEO of the California Association of Health Plans, said he hadn’t yet seen the bill, but the trade group has opposed single-payer proposals in the past.

“It’s hard to tell until you know the details,” Bacchi said. “But past studies have shown [single-payer systems] are incredibly expensive and would be disruptive.”

He said health plans, doctors, hospitals and others are “laser-focused on protecting and enhancing the gains we have made in coverage” under the Affordable Care Act and ensuring that California continues to receive critical funding. “We think that’s where the focus should be,” he said.

One possible concept of a single-payer system in California would be to bring together funding from several sources under one state umbrella: Medi-Cal, which covers the poor; Medicare, the federal program that covers older adults, and private insurance.

Lara said he has not yet figured out the financing, saying that it is still early in the legislative process. But he said that even as California continues to defend the Affordable Care Act, it is time to put forward an alternative.

“I think we’ve reached a tipping point now that we haven’t had before,” he said.

This story was produced by Kaiser Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.

Some Calif. Medicaid patients struggle to get a PCP


Public option being eyed for California


California State Capitol.


For Kaiser Health News

With  some major insurers retreating from the federal health law’s marketplaces, California’s insurance commissioner said he supports a public option at the state level that could bolster competition and potentially serve as a test for the controversial idea nationwide.

“I think we should strongly consider a public option in California,” Insurance Commissioner Dave Jones said in a recent interview with California Healthline. “It will require a lot of careful thought and work, but I think it’s something that ought to be on the table because we continue to see this consolidation in an already consolidated health insurance market.”

Nationally, President Obama and other prominent Democrats have revived the idea of the public option in response to insurers such as Aetna Inc. and UnitedHealth Group Inc. pulling back from the individual insurance market and many consumers facing double-digit rate hikes.

The notion of a publicly run health plan competing against private insurers in government exchanges was hotly debated but ultimately dropped from the Affordable Care Act when it passed in 2010.

Most of the discussion surrounding a public option, however, has focused on a nationwide plan, not one emanating from a state. In July, Democratic presidential nominee Hillary Clinton said she would “pursue efforts to give Americans in every state in the country the choice of a public-option insurance plan.”Health insurers have long opposed the idea, and other critics fear it would lead to a full government-run system.

Jones offered few specifics on what a public option might look like in the Golden State.

“I don’t want to begin to prejudge it,” said Jones, an elected Democrat serving his second term as head of the state Department of Insurance, one of two insurance regulators in California. “I don’t know whether you would start in certain areas of the state and expand from there. I think there would be significant reservations about the state running it. There would be a wide variety of governance models you could come up with.”

Politically, the proposal may gain more traction in Sacramento than Washington with Democrats firmly in control of the state legislature and many lawmakers eager to go beyond the boundaries of the federal health law. Depending on what form it took, a public option would require state legislation, some type of federal approval and some source of funding.

The idea of a California-style public option drew mixed reaction. Some consumer groups say they welcome another run at the public option after a disappointing outcome in 2010.

“We’re certainly very interested,” said Anthony Wright, executive director of Health Access California. “This is something we advocated for in its most ambitious form during the debate over health reform and there are elements of the proposal that could be adapted for California.”

Some health-policy experts questioned whether the proposal would backfire, ultimately reducing competition.

“I don’t know what would compel other insurers to stay in the market, so the public option could quickly become the only option,” said Katherine Hempstead, who directs the Robert Wood Johnson Foundation’s work on health insurance coverage. “I think that is only a clear win when the alternative is nothing.”

State Sen. Ed Hernandez (D.-West Covina), chairman of the Senate Health Committee, said a public option could make sense in some underserved areas. But he said it may not address the problem of large health systems dictating high prices, and it could interfere with the progress made by the Covered California insurance exchange.

Covered California said 7.4 percent of its 1.4 million enrollees will only have two health plans to choose from for 2017. The state’s biggest markets of Los Angeles, San Francisco and Orange County all feature six to seven insurers.

“I don’t know if a public option will create a lower price [for] the consumer,” Hernandez said. “Covered California has done a good job of keeping rates fairly stable and it has enough plans.”

Health insurers agreed. “Covered California has arguably one of the strongest and most stable exchanges in the country. There is robust consumer choice so we don’t think we need to mess with something that isn’t broken,” said Nicole Evans, a spokeswoman for the California Association of Health Plans, a trade group.


For years, Jones has criticized the lack of competition in Covered California, and more recently he has opposed the mergers proposed by industry giants Anthem Inc. and Aetna Inc., saying they’re anticompetitive.

Anthem wants to acquire Cigna, while Aetna is trying to merge with Humana, but the U.S. Justice Department has sued to block both deals.

Covered California has fared better than many states in terms of insurer competition. Eleven health plans are participating in the state-run exchange for 2017, but UnitedHealth is dropping out after just one year in California’s individual market.

Consumer advocates had hoped UnitedHealth would become a strong rival to the state’s four largest insurers. Anthem, Blue Shield of California, Kaiser Permanente and Health Net (now a unit of Centene) account for 90 percent of the state’s exchange enrollment.

After modest 4 percent rate increases in 2015 and 2016, Covered California premiums are set to climb by 13.2 percent on average next year.

Jones said he anticipates that critics will cite the failure of numerous co-ops across America as evidence a public option won’t work. But he said that criticism is unjustified because the Republican-led Congress eliminated crucial funding that many of the co-ops were depending on.

The co-ops are nonprofit insurers backed with federal loans and designed as an alternative to commercial health plans.

UnitedHealth bailing out of Calif. insurance exchange



For Kaiser Health News

UnitedHealth Group Inc. is leaving California’s insurance exchange at the end of this year, state officials confirmed May 31.

The nation’s largest health insurer announced in April it was dropping out of all but a handful of 34 health insurance marketplaces it participated in. But the company had not discussed its plans in California.

UnitedHealth’s pullout also affects individual policies sold outside the Covered California exchange, which will remain in effect until the end of December.

“United is pulling out of California’s individual market including Covered California in 2017,” said Amy Palmer, a spokeswoman for the state exchange.

It’s expected that UnitedHealth will continue offering coverage to employers in California and to government workers and their families through the California Public Employees’ Retirement System.

Representatives of UnitedHealth didn’t immediately respond to a request for comment Tuesday. In April, UnitedHealth’s Chief Executive Stephen Hemsley said the company was unwilling to keep losing money on the exchange business overall.

“The smaller overall market size and shorter term, higher-risk profile within this market segment continue to suggest we cannot broadly serve it on an effective and sustained basis,” Hemsley said in a conference call with investors in April.

UnitedHealth just joined the California exchange this year, and it only had about 1,200 enrollees so the immediate impact on overall coverage numbers is minimal. The number of individual policyholders outside the state exchange wasn’t immediately known.

Palmer said UnitedHealth policyholders will know their options for 2017 coverage when health plans and rates for next year are announced in July.

Critics of the Affordable Care Act have seized on the company’s exit, state by state, as further evidence that the health-law insurance exchanges aren’t sustainable financially and that premiums will rise even higher for consumers.

The Obama administration has countered that the number of health plans offering exchange policies has increased since the 2014 launch, and that it expects the individual market will continue to stabilize as adjustments are made.

Many consumer groups welcomed UnitedHealth’s arrival in Covered California in order to give people more choice and inject more competition into the market. The top four insurers in the exchange, led by Blue Shield of California and Anthem Inc., control more than 90 percent of Covered California enrollment.

The state exchange had limited UnitedHealth to selling exchange plans in several smaller markets for 2016 because it didn’t participate the first two years. Those areas are predominantly rural counties in Northern California, but they also include Santa Barbara, Ventura and San Luis Obispo counties.

In February, Covered California’s executive director, Peter Lee, criticized UnitedHealth for blaming the federal health law for its heavy losses instead of taking responsibility for its own business mistakes.

Lee said UnitedHealth made a series of blunders on rates and networks that led to steep losses on individual policies across the country.

“Instead of saying, ‘We screwed up,’ they said, ‘Obamacare is the problem and we may not play anymore,’” Lee said in a February interview with California Healthline. “It was giving an excuse to Wall Street and throwing the Affordable Care Act under the bus.”

Lee had also previously knocked UnitedHealth for sitting out the first two years of Covered California before joining in 2016.

In April, UnitedHealth said it had nearly 800,000 enrollees on exchange plans across the country. It expected that number to fall to about 650,000 by December as people drop off coverage or find other insurance.

New York and Nevada have said that UnitedHealth will participate in the individual markets there and the company has filed plans to sell similar plans in Virginia.



How Calif. slows premium increases

Here’s a look by into how California has been able to slow rises in health-insurance premiums better than than any other state.

Governing says:

“California’s system is unique thanks to its rigorous vetting process for insurers that want to participate in its marketplace. At the onset of the ACA, the state hired a team to look over health plan proposals from insurance companies and excluded any that it deemed uncompetitive. Unlike in any other state, every plan in California has identical benefits, so enrollees are ‘choosing a plan basically just for the network,’ said Shana Charles, faculty associate with UCLA’s Center for Health Policy Research. 

“Because the state chooses the plans, insurance companies are under pressure to offer lower rates.”

“’It’s an example of good governance,” Ms. Charles told the publication. ”Government is taking a referee role and telling these insurance companies, ‘This is the minimum standard, so show us what you’ve got.’”

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