A few weeks ago, I gently chided Robert Pear of The New York Times for touting the introduction of "free" diagnostic screening tests as part of the new federally-mandated health insurance plan. Coverage which isn't subject to deductibles and co-pays isn't free; it's just being paid for in a different way.
An article in the Wall Street Journal last week demonstrated how the "free benefits" chicken have begun to come home to roost. The article is here http://finance.yahoo.com/insurance/article/110602/health-insurers-plan-hikes?mod=insurance-health. It reports that insurers are raising prices between 3.4 and 9 percent above their average planned rate increases to cover the cost of new benefits mandated by the insurance reform measure which have already been, or soon will be, effective for individual and small group consumers.
Those benefits include the elimination of "lifetime caps" on insurance coverage, elimination of pre-existing conditions exclusions for children, continuation of family coverage for dependent children up to age 26, and elimination of co-pays for diagnostic and preventive care.
There have been the expected expressions of outrage from The White House and consumer groups, who accuse insurers of using reform as an excuse to gouge customers. What the situation really illustrates is that any promises of greater access to coverage for more people, expanded benefits AND cost reductions are...well, a misstatement...and one Democrats don't need in advance of the November elections.
There IS a legitimate issue regarding HOW the additional rate increases are being calculated. There are suggestions that insurers are padding their rates excessively; insurers react with shock and horror.
Here's the real story: Insurers are like the house in Las Vegas; they never lose, because they're playing with your money. Insurers ask their actuaries to calculate the cost of these additional benefits, and the actuaries respond with an estimate which is as conservative (that is, favorable to the insurers) as possible.
And most states don't have the expertise or wherewithal to review these estimates. Insurers conceal their formulas as "trade secrets" to protect them from oversight. And most states' insurance departments have as their principal charge the protection of insurers' financial solvency, not consumer protection. So all insurers must do is say "we need these rates," and insurance departments have no choice but to say "okay."
Problem is, if their estimates are wrong...that is, if those rates are overstated...there's no mechanism for going back to recapture the overage and return in to consumers, whether directly or in the form of premium reductions or adjusted renewal rates. If the insurers guess high, and are wrong, they get to keep the money.
As is the case with most issues related to health insurance, the big need in the small group and individual health insurance markets is for someone on the consumers' side knowledgeable enough, and powerful enough, to challenge these rating assertions and negotiate something fair and accurate. Will exchanges play this role? Will state regulators? The federal government? Absent some smarts and power on the purchasers' side, consumers will continue to face "take it or leave it" pricing propositions, insurers will load rates to assure a very hefty profit, and health insurance rates will continue to increase at a rate up to three times the rise in actual health care costs.
Monday, September 13, 2010
Tuesday, September 7, 2010
What Goes Around Comes Around: Insurers Re-Discover Selective Contracting
Insurers and employers are turning to a once-popular, then-demonized strategy to reduce and control health care costs: creating closed networks of providers.
"Brand name" insurers such as Aetna, Wellpoint/Anthem and UnitedHealthcare are experimentally rolling out health plans which save participants money by limiting the hospitals and physicians they can see, and severely restricting...or even denying...benefits when they use non-network providers.
For those with a grasp of ancient history, HMO's and Preferred Provider Organizations (PPO's) were a foundation of the "managed care" movement of the late '80's and mid-90's. Insurers would assure selected providers of increased patient volume in exchange for favorable reimbursement rates. Providers which would agree to the rates usually did experience an increase in business, usually at the expense of providers not in the preferred networks.
Selective contracting is one of the relatively few broad strategies which could be proved to save consumers money over time. But they were not popular with two groups. The first group consisted of providers who didn't win contracts with insurers. The second group was insurers which didn't have the market share to enable them to develop favorable contracts with hospital and physician networks.
By the late 1990's, selective contracting was under assault by these interests, cloaked in the guise of "limited consumer choice." The steady drumbeat of this criticism, together with the move toward provider consolidation in most local markets, succeeded in undermining the effectiveness of selective contracting as a cost-containment strategy.
(The case could be made that a major impetus for the evolution of "health systems"...hospital and physician networks...was a backlash against insurers' success in using selective contracting to control costs. In communities like Cleveland, with significant excess capacity, selective contracting was a demonstrably successful cost containment strategy. But in an environment of provider consolidation, restricting insurers' contracting options to two or three instead of 25 or 30 helped providers keep their prices up.)
But with employers' concerns over hyperinflation in health costs, and with increasing pressure on Medicare and Medicaid to control health care cost inflation, insurers are betting that consumers will be willing to accept some limitations on provider networks as a way to keep some control over costs.
And with insurers facing new restrictions on plan design, especially limitations on deductibles and co-pays, look for products featuring limited provider networks as The Next Thing in cost containment. It worked 25 years ago, and it'll work today.
"Brand name" insurers such as Aetna, Wellpoint/Anthem and UnitedHealthcare are experimentally rolling out health plans which save participants money by limiting the hospitals and physicians they can see, and severely restricting...or even denying...benefits when they use non-network providers.
For those with a grasp of ancient history, HMO's and Preferred Provider Organizations (PPO's) were a foundation of the "managed care" movement of the late '80's and mid-90's. Insurers would assure selected providers of increased patient volume in exchange for favorable reimbursement rates. Providers which would agree to the rates usually did experience an increase in business, usually at the expense of providers not in the preferred networks.
Selective contracting is one of the relatively few broad strategies which could be proved to save consumers money over time. But they were not popular with two groups. The first group consisted of providers who didn't win contracts with insurers. The second group was insurers which didn't have the market share to enable them to develop favorable contracts with hospital and physician networks.
By the late 1990's, selective contracting was under assault by these interests, cloaked in the guise of "limited consumer choice." The steady drumbeat of this criticism, together with the move toward provider consolidation in most local markets, succeeded in undermining the effectiveness of selective contracting as a cost-containment strategy.
(The case could be made that a major impetus for the evolution of "health systems"...hospital and physician networks...was a backlash against insurers' success in using selective contracting to control costs. In communities like Cleveland, with significant excess capacity, selective contracting was a demonstrably successful cost containment strategy. But in an environment of provider consolidation, restricting insurers' contracting options to two or three instead of 25 or 30 helped providers keep their prices up.)
But with employers' concerns over hyperinflation in health costs, and with increasing pressure on Medicare and Medicaid to control health care cost inflation, insurers are betting that consumers will be willing to accept some limitations on provider networks as a way to keep some control over costs.
And with insurers facing new restrictions on plan design, especially limitations on deductibles and co-pays, look for products featuring limited provider networks as The Next Thing in cost containment. It worked 25 years ago, and it'll work today.
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