Affordability Myths
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An article in the Boston Globe on Thursday reported on last week’s Massachusetts Division of Insurance (DOI) public hearing at which health plans were asked to justify their business operations. The purpose of the DOI hearings is to try to determine why the cost of health insurance is so high for small businesses. At the direction of the Governor, DOI was asked to question insurers – insurers alone, not health care providers, for instance – about the causes of recent premium increases. The Globe’s coverage of the hearing perpetuates several myths that need dispelling.
The perspective of the article is that health plans are responsible for small business health insurance costs that are disproportionately high. While this may have appeal politically and emotionally, it isn’t supported by the facts.
I testified in person before the DOI several weeks ago that the ratio of Harvard Pilgrim’s medical costs to premium is very high for the merged small group-non group market. It is hard to understand how Harvard Pilgrim, the health plan, could be the problem when 90% of premium in this market is paid out in medical claims. The Globe article in question went on to cite an average rate of premium increase for small businesses of 20-40%. I don’t know which of our competitors this might refer to, but absent a radical shift in the age of a business’s employees Harvard Pilgrim’s average small group increases would not begin to approach this range.
The article also implies that when negotiating heath care provider rate increases health plans do not take into account the impact of provider rate increases on customer premiums. It would be fairer to say that health care providers do not take into account the impact of their requested rate increases on our customer’s premiums. Because a customer’s employees use multiple providers, it is not possible to know the impact of a given provider’s rate increases on a given customer’s premium, but we do attempt to keep aggregate provider rate increases as low as possible. As everyone knows, this can be difficult with the large, heavily branded systems preferred by many of our customers.
The article further accuses health plans of being unwilling to disclose the terms of their contracts with providers. While Harvard Pilgrim has long supported greater transparency regarding the amounts paid to providers, it remains a contracting staple that terms are confidential between the parties. A state agency, the Health Care Quality and Cost Council, is in possession of the actual amounts paid to providers by health plans and has the statutory authority to release to the public the average rates paid by health plans to providers. It has chosen not to do so. The Legislature could give the Council the authority to release provider payment information by provider and plan, as is done currently in New Hampshire and Maine. In the meantime, Harvard Pilgrim will comply with the DOI’s request to collect information through its special examination process.
A full understanding of what’s driving small group premium increases will require taking a closer look at the unintended effects of merging the non group and small group markets and making some mid-course policy corrections We are the only state in the nation that has merged these two markets, and the primary beneficiary has been the individual purchaser, whose average premium decreased 25% post-merger. Small businesses (and health plans) are paying for it. Add to this the absence of certain controls that were in place in the old non group market to prevent adverse selection (like waiting periods), and you start to have a real cost problem. Add the increasing rigidity of Commonwealth Connector policies in the areas of minimum benefit standards, product variation, and rating, and … well, you can see.
Ironically, state government itself has many of the levers to improve affordability for small business, if it chose to use them.
Bruce,
The main argument I hear from insurers as to why contract rates paid to providers should remain confidential is that disclosing them could actually drive overall rates higher and not lower. Since you say that provider contract rates are now available to the public in NH and ME, what has the impact been there on both overall provider rates and health plan premiums as compared to other states? Also, why hasn’t the MA Healthcare Quality and Cost Council disclosed average contract rates when it has the information? Are they less interested in controlling healthcare costs than sustaining providers’ income? It doesn’t make much sense to me.
Barry: I think the argument that transparency will cause rates to rise is short-sighted. Perceived differences between providers in the absence of transparency are often much greater than they are in reality, and are already part of contract negotiations. The key ingredient for transparency success is for there to be enough products in the market with enough cost-sharing to make subscribers care about their spending. Northern New England has a much higher percentage of such products than Massachusetts, a tenacious first-dollar coverage state. The impact of transparency on provider rates will always lag, because providers must ultimately conclude that it is not good for them to push the rate envelope, which affects volume. Providers will need to be shown this is the case, which goes back to having enough products in the market with sufficient cost-sharing for subscribers to vote with their feet. On the question of why the HCQCC does not release average plan rates to providers, I am not sure I know the answer except that, like the federal government, Massachusetts state government seems intent on ignoring the provider cost problem in favor of blaming health plans for premium increases.
Bruce, Instead of a taking a personal, defensive stand you must recognize there is a problem. It was not my read of the Globe article that health insurers were the sole point of contention. In negotiations to set rates and areas of service there are at least two sides involved. People were upset with the situation and yet you jump to the conclusion that they were saying insurers are the sole cause of rising premiums.
It is not the entities that are the source of consternation, but the process itself. If you negotiate in secret and hold one island of care more attractive than another the budget is thrown into imbalance. The clandestine nature of these deals never hold and are shortly revealed to those left out of the equation. So they get an upward revision in their contract also. This increases costs and promotes unnecessary redundancy.
The administrative structure to support this system then becomes very expensive. Skilled billers, negotiators, authorizers, managers, claims payers, claims adjusters become part of the mix to sustain this house of cards. This happens on both ends of the negotiations. Between 1970 to the present medical administration has increased 1500%, well out of line with the bill for medical care itself.
This type of setting prices does not allow the kind of consolidation necessary to bring down outlays. I have noted before that the medical system has to shake out the excess unnecessary personnel to truly bring down what we spend on care. Naturally various stakeholders will fight for their turf but somewhere the conscience must be pricked that people are dying(45,000 a year) because they can not obtain health insurance.
In summary all parts of the system must do better. If insurance is cut by a quarter or even a third, this is money in the pocket for all. Those who are displaced from the industry would need to be transitioned to other parts of the economy but any plan should provide for this. No one said reform is an easy matter but unless all sides take some responsibility instead of continuing with unenlightened self interest we will stay in our present downward spiral for years to come.
The present situation is creating exactly what people abhor. With more uninsured it will be the government that will take up the slack and actually force people into government programs paid for disproportionately by taxpayers. The latest studies show a non increasing percentage of uninsured since a significant number were absorbed into Medicaid. This is the devil’s bargain and will not change until there is a true change in attitudes. At present it is sorely missing.
The theory behind price transparency raising costs in the Massachusetts market is that the poorly-reimbursed providers would demand increases, but there’d be few levers to rein in the highly-reimbursed providers.
Hi Bruce, The market merger may have increased average rates slightly for small employers, as it was predicted to do, but I haven’t seen anything to suggest that the merger is really a significant factor in the level or rate of increase of health insurance premiums for small businesses. While I think your points about rising health care costs, and your focus on the role of rising provider rates, are right on point, I’d love to know why you’re focused on the market merger. This feels to me like the historical focus of health plans on mandated benefits: an easy target since mandates are out of the control of health plans, but really not a significant factor in overall costs (unless you’d advocate for eliminating maternity, mental health and preventive care services, the only mandates that account for any significant share of premiums). I support transparency as a means to an end: getting purchasers and/or government riled up enough to actually demand change. But I am not optimistic that this is going to happen any time soon, given that it’s quite well known publicly now that there are 2-3 fold differences in rates paid for the same services in Massachusetts and nothing is happening. What do you think it would take for this to change?
Nancy
Nancy: Thanks for the comment. A combination of merged market factors is contributing to small business rate increases. Yes, it was predictable that giving individual purchasers a 25% discount would increase small group rates marginally (2%), but the “in and out” problem of short-term individual enrollments in order to access expensive services was unanticipated. The impact of these short-term enrollments has been to drive MLR’s for individuals well above 100%, and this worsens the merged market rating pool. Also unanticipated was the impact of Connector policies, like MCC, on market-wide costs for small businesses. Each of these may be marginal in impact, but taken together on top of normal medical trend (which has not been affected by health reform) they have impact. We will try to quantify. On transparency, it would be a good first step if Massachusetts followed New Hampshire and Maine and had the HCQCC release average health plan rates to providers. A lot of anecdotal speculation occurs now, why not just release the information? The state has the authority to do so. Health plans are constrained from doing so by contractual terms. Perhaps a reason for not releasing the information is to shield consumers from actual variation in the cost of care, so that health plans can continue to be convenient targets when premiums go up?
Bruce - what is your reaction to Howard Dean’s commentary on “Good Morning America” that the current version of health care reform is “an insurance Company’s dream”. Also, that if he were a US Senator, he would not vote for it insofar as it is not real reform, but rather expands “private insurer monopoly” ? Or, is Mr. Dean no longer a voice or force to be heeded or reckoned with in this arema?
John: I think he is upset that the public plan option is apparently not in the bill, therefore he assumes it is good for private health plans. For reasons I have stated in previous blog postings, the bill is not good for private health plans or their customers, since it is financed through taxes on the health care system itself (which will raise prices), relies on a requirement to purchase that is too weak and will drive adverse selection (which will raise prices), and contains no meaningful health care containment provisions (which will raise prices).
Bruce, this is an interesting post. I agree that pricing information should be made public.
In order to solve the problem with the high prices (or quasi monopolies) of some provider brands, would it be possible to offer insurance products with tiered co-pays/co-insurance. So for example, the co-insurance for a low-price medical provider could be 10%, while the co-insurance for a Partners provider would be 40%. This is similar to what happens with tiered pricing for prescription drugs.
Is there a legal or contractual reason that prevents Harvard-Pilgrim or other MA insurance companies from offering this type of tiered pricing for medical services? This would allow subscribers to have access to the expensive providers, but would only use them when absolutely necessary.
Paolo: There is no particular legal reason we could not offer such tiered products. There are some complexities however. We currently offer tiered specialty copay products that sell quite well, but these products are not specific to provider group, just primary versus specialty services. The state Group Insurance Commission offers state employees a product that tiers providers, and we have commercialized it, but with little success so far. A particular difficulty is that state DOI regulations require that for fully insured accounts the provider tiers remain the same for the entire plan year. This means, practically speaking, that unless we only sell accounts that have the same annual start date (say, July 1), we run the risk of having providers in different tiers for different accounts (a nightmare for providers) depending on the account’s plan year start date.
Just another example of how little leeway exists in the regulated market to innovate. The market generally however has been less than enthusiastic about tiered or limited network products, which have been tried periodically over the past ten years and have not sold.