The Insurer’s Dilemma

The Insurer’s Dilemma

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Paul Levy

This has to be a very difficult time for insurance companies in Massachusetts. Notwithstanding that they are non-profits, they are under a lot of scrutiny with regard to reserve margins and profitability. Much of this is unfair, but I think that is just a sign of the times. Hospitals face a similar issue, too. Doctors are certainly next in line.

But the Massachusetts insurers have an additional problem. As we have discussed here, they have been participants in creating a very large disparity in payment rates among hospitals, rate differentials based mainly on providers’ market power. They are now under pressure to limit rate increases to hospitals, but the ones that come up for renewal are not necessarily the ones that have received higher rates.

Nonetheless, insurers are telling those who are up for renewal that they should expect no rate increase at all, or at best, an increase well below the rate of medical cost inflation. Those hospitals, by definition, are the ones without market power. So if the insurers hold them to low rate changes, the disparity between the have’s and the have-not’s will grow. This enhances the market power of their competitors, allowing them to poach doctors into their networks and gain still more market power. This increases the percentage of patients who go to the high-rate providers, aggravating the overall health care cost situation.

Thus far, I have seen no effort by insurers to cut this Gordian knot. One company promotes capitation, or global payments, as an answer to the problem. But capitation based on embedded reimbursement patterns does not solve the problem of rate differentials. Indeed, it perpetuates the problem.

Transparency with regard to rates could create a moral imperative that would help lead to a shift in the negotiations that would move things in the right direction. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to publish existing rates.

Transparency with regard to quality and safety could help create a marketplace for insurance products based on outcomes rather than market power. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to publish useful data on this front — or to use their own commercial authority to require such publication as part of their contracts with providers.

Properly constructed and implemented administrative rate-setting likewise could help resolve disparities over time. I see no move on the part of the insurance carriers, either individually or collectively, to ask the state to engage in rate-setting.

So, while I am sympathetic to the unfair attacks on insurers that are part of the political environment, I am left to wonder. What is it that they are in favor of to help resolve an uncontroverted problem, a problem that itself aggravates the very situation facing the insurance industry?

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36 Comments on "The Insurer’s Dilemma"


Guest
Apr 28, 2013

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Guest
Mike
Aug 26, 2010

This is a very difficult problem. I just went onto the commenwealth connector to check out current family plan rates for BCBS. I am 37 and my wife is 36 years old. A family plan for us with one kid is $1,362.21 per month with a $1000 per year deductable. Is that affordable? How about after another decade of price increases? Who knows what the answer is. At this point, I would like to just have a policy that covers my family from serious illness and is less than my current mortgage payment.

Guest

Thank you Paul! Great article, very insightful.

Guest
sara
Jul 30, 2010

It seems to me that costs could be cut if factors like these: 5 Strategies for Improving Employee Satisfaction in Healthcare
were looked into seriously. Thanks for your informative blog!

Guest
Peter
Jul 26, 2010

Nate, the MA model is not the solution for controlling costs or ensuring people don’t game the system. But how many providers outside MA “game” the system?
“excessive healthcare that is better for the economy then them buying a new TV.”
Tell that to the people who make and sell TVs. In fact if health costs keep rising as predicted then it won’t only be TVs that have to compete for dollars, it’ll be landlords, housing, autos etc. The operative word is “excessive” which can apply to usage (provider/patient driven) and costs(prices), mostly provider driven. Unless you’re Jay of course who doesn’t care about rising costs.

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Nate
Jul 26, 2010

I’m surprised we aren’t nearly as bad as I thought we where, I’m going to go turn up my AC and celebrate.
boy did I get sloppy, thanks for the corrections paolo
Peter some interesting stats I just got from a professional association;
Things are going badly in just about every way in the MA model. The State’s budget load for health costs have jumped from 16% of the state budget in 1990 to 22% in 2000, to 35% in 2010. Similarly, the average cost for health coverage for a family of 4 in MA is $14,723, compared to a national average of $13,027, and costs are rising faster than nationally. Many people are gaming the system by only signing up for coverage when they need it or opting for the fairly-low fine rather than pay for coverage.

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Paolo
Jul 26, 2010

“If someone wants to waste their money on excessive healthcare that is better for the economy then them buying a new TV.”
Well, most people get at least some small degree of positive utility or pleasure from having a new TV or a new gadget at home. I have yet to meet someone who enjoys having an unnecessary MRI or surgery. Unnecessary healthcare is worse than useless. It generates negative utility.

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Paolo
Jul 26, 2010

“Other countries have lower inflation becuase they have lower growth, if they were half as rich as us they would piss away $3500 each on healthcare to.”
Not true. There are at least half a dozen countries richer than the US (Norway, Switzerland, Denmark, …). No country surpasses the US in health care costs per capita.
“Curious our you ok with our per capita electricity usage, also by far the highest in the world?”
Far from true. The US is nowhere near the top in electricity consumption per capita. Even Canada beats us here.

Guest
Nate
Jul 26, 2010

Not a consistant opinion with your attacks on Medicare.
Medicare is not discretionary, its paid with other people’s taxes. If someone wants to waste their money on excessive healthcare that is better for the economy then them buying a new TV.

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Peter
Jul 26, 2010

“And which single pay country has controlled cost?”
All of them if you look at what their GDP health spending is compared to us. That’s not to say their costs are also not rising, but their in a better positon to control them.
“Curious our you ok with our per capita electricity usage, also by far the highest in the world?”
Where did you get I’m ok with that!? By the way electricity prices are government regulated – are you ok with that? Look what happened when they were deregulated.
“Our Per Capita burger consumption is also off the charts.”
Part of our healthcare cost control problems.
“Healthcare is probably one of the best money holes we could choose to spend it on.”
Not a consistant opinion with your attacks on Medicare.

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pcp
Jul 25, 2010

“Nonetheless, insurers are telling those who are up for renewal that they should expect no rate increase at all, or at best, an increase well below the rate of medical cost inflation. ”
As a physician who hasn’t seen a rate increase in over 15 years, I have absolutely no sympathy with your whining.

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Bill
Jul 25, 2010

State government can encourage transparency of provider payment rates as part of the authority they have to monitor health plan rates and solvency. While they certainly can’t alter private contracts between health plans and providers, they can at least provide public insight into those types of situations where wide disparaties in payment rates exist without any corresponding differences in patient acuity, quality of care or outcomes.

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Nate
Jul 25, 2010

“I don’t see how people choose a plan with one hospital and a skinny network of physicians, assuming one can be created, when all other networks include dozens of hospitals and a huge “partnership” with ambulatory facilities conveniently located everywhere.”
That is why your not running a healthplan or a hospital Margalit. There are functioning examples all over the country. If you want a clear example to wrap your head around;
https://www.aultcare.com/portal/pls/portal/AULTCARE.INDEX_HOME/
This is owned by Aultman hospital. Middle of Cleveland Clinic and University and Summa they have carved out their own little niche. There are example just like this in almost every state.
“Furthermore, considering other IDNs, even big ones like Kaiser,”
Kaiser has like 10K lives in Ohio, whats so big about that?
“I do agree with Barry that Government must step in and regulate this Darwinian environment,”
So only government can solve the mess they created? Interesting, I would disagree 100%. Government is not capable of solving any of this, as seen in the last 45 years od reform.

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Nate
Jul 25, 2010

I can fly to Spain or Russia (as you suggested) or Canada or India for cheaper healthcare.
Costa Rica is Di Jur
all because no one in the healthcare industry is interested in controlling costs
I find this offensive and hyperbolic
“So I’m not for “free”, I’m for cost control.”
And which single pay country has controlled cost? It’s perfectly ok to be for something just be careful you don’t turn into Don Quiote. Have you seen the decentrailzation NHS is discussing? Other countries have lower inflation becuase they have lower growth, if they were half as rich as us they would piss away $3500 each on healthcare to. Curious our you ok with our per capita electricity usage, also by far the highest in the world? Our Per Capita burger consumption is also off the charts. I think we each own 2 TVs if I remember correctly. The thing about being really F’n rich Peter is you sometimes find ways to spend money just for the sake of spending money. Healthcare is probably one of the best money holes we could choose to spend it on.

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Peter
Jul 25, 2010

“You?”
But it does matter, because that’s what may drive your opinion. As you I pay with no tax deduction and I’d love to get at least a tax write-off just like employees get a non taxed benefit. But I don’t know why you may think healthcare costs are ok (the love it or leave it comment), if you do is 20%+ GDP acceptable for you? I really don’t know if you get premium inceases every year, but hell, maybe you’re a trust fund baby and don’t care. But you seem to assume I don’t want to pay and expect the government to pay, in fact I do want to pay and I don’t need a subsidy and I think everyone should pay something. I’ve also got options, I can fly to Spain or Russia (as you suggested) or Canada or India for cheaper healthcare. Trouble is at this healthcare inflation rate there won’t be much wiggle room for other industries in the economy to get their prices/profits for their products, so you may have to accept less for the sale of your house for example so the buyer can afford to pay for his healthcare – all because no one in the healthcare industry is interested in controlling costs cause they’re making so much f***ing money and most people get their costs subsidized either through employment or through Medicare/Medicaid or through free or through bankruptcy where they let their creditors eat the costs. Not many people who are forced to pay for their own healthcare can say they don’t mind the compounded increases every year. So that’s where government comes in – it actually controls costs (or should), just like single-pay countries that pay 1/2 what we do and still provide good healthcare to everyone. So I’m not for “free”, I’m for cost control.