POLICY/HEALTH PLAN: Yin and Yang – The wonderful world of health insurers

To find my mots de raison today, you’ll have to click over to Spot-on where I’ve been intruiged by the little legal challenges that Wellpoint’s now facing and spent some time thinking about Yin and Yang – The wonderful world of health insurers. Going back to read The Soul of an HMO article was indeed a trip in more ways than one.

As ever you can come back here to comment.

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  1. Matthew: kudos on the Spot On article. Really terrific.
    > But we need an objective party to do [managed care]
    Maybe that’s the role of the regional Quality Improvement Organizations in the future.
    > The other problem is, we’re a splintered bunch
    This is what I have wanted The Guild to address. Every doctor knows some other doctor who really ought to be in a different line of work. A well-functioning, un-splintered Guild could address this quietly, protecting everyone’s interests, not least this doctor’s (former) patients. But we have only half a Guild.
    > Now it is Medicare’s burden and the insurer
    > is off the hook!
    Right — term health insurance is a stupid idea. People need “whole life health insurance”.

  2. I’ve been keeping track of health insurer/managed care company financials. The data are from their Annual Financial Reports. As you will see, there has been a tremendous decline in medical costs as a percent of premium and consequently a significant rise in operating margins for health insurers. This is the result of two interrelated factors: 1. Adjusted for acquisitons, UHC and Aetna have significantly reduced their membership from 2002 levels; 2. Trend in states without a large not-for-profit competitor remains in the 12% to 16% range despite medical costs rising annually below 8% in recent years. The recent surge in in health insurer/ managed care company profits have come despite a lower membership with less insurance; it is from a tremendous build up of profit margins. Industry goals used to a loss ratio of 86% and profit margins of 4%. That is not the case any more.
    Medical Costs as a Percent of Premium (Also Loss Ratio)
    2000 85.36% 86.88% 88.37%
    2001 85.31% 89.96% 88.31%
    2002 83.05% 82.82% 85.29%
    2003 81.40% 76.58% 85.37%
    2004 80.61% 78.30% 82.48%
    2005 79.70% 77.45% 81.30%
    Operating Margins
    2000 5.68% 1.25% 2.83%
    2001 6.68% -1.50% 3.20%
    2002 8.74% 2.74% 6.07%
    2003 10.18% 8.02% 6.39%
    2004 11.02% 9.54% 6.93%
    2005 13.09% 10.43% 8.62%
    As you can see, when the insurers started to cut their unhealthy groups and individuals in 2002-2003, their margins skyrockted. When conservative bloggers state that insurers are only a conduit for payments, keeping 4% for themselves, that is certainly not the case. When McGuire(UHC)was asked on CNBC if health inurance premiums could continue to rise at these rates, he replied that they had tremendous success controlling health care costs (only a 6% increase in 2005). He didn’t indicate that they kept the savings–for trend in their group business averaged 14% in 2005.
    Here in Georgia, trend at the continues at the 12 to 16% range. The insurers compete only for the healthiest of group business. For example, small groups (under 51 eligible employee) must be offered group health insurance at +or- 25% (Group Experience Factor) of a state filed rated, adjusted for plan design, location and demographics. When trying to obtain quotes, a company’s group experience factor reflects health questionaires. Since 2003 group exprience factors have been 0.75 to 0.80 for very healthy groups and the max 1.25 for all others. This has led to large drop in small employers offering insurance in GA.
    Cost shifting has been tremendous in the last 18 months. While some has come from shifting more premium cost to the employee, most have come from significant changes in plan designs. At UHC 94% of their plans for companies with 150 or less employees had a $0 deductible in 2003; last year it was 6%. 54% of their plans had deductibles exceeding $1,000 in 2006, and 40%, exceeding $2,500.
    The higher deductible, higher maximum OOP plans, less employer provided coverage, coupled with the Bush Administration efforts to reduced planned Medicare/Medicaid payments to providers will lead to signifcant problems for providers, especially hospitals (more bad debt and lower gov’t. payments). This will inevitably lead to more pressure on private insurance rates and, at some point a death spiral for this type of coverage. The insurers will have brought it onto themselves.

  3. I agree that not being sued is a main motivation of HMOs, and so is saving money, but I don’t necessarily see those as bad things.
    My Managed Care experience comes in the behavioral health sector, where discharging a patient early can result in a suicide. Those are not pleasant lawsuits. But, if the HMO denies care on a patient who later commits suicide, they are liable, so they have to balance the risk with the cost of another day in the hospital. I guess my point is that you talk about risk management like it’s a bad thing, when in reality it’s the way to get to an optimal efficiency of any given patient-doctor interaction.
    I actually agree with the thrust of what you’re saying. I would also much prefer a system where the government decides what is covered and what isn’t (so that it can be decided somewhat democratically, and not with only profits in mind) and then healthplans would be given the freedom within that framework to make money by pleasing customers and by not denying needed care, which would get them sued.

  4. GH. You are totally right
    >It is probably best left in the hands of a group of expert physicians and public health officials who do not profit from billing for medical care and do not profit from denying medical care and are, instead, salaried to be stewards of evidence-based medicine and best practices.
    And they have that in the UK. It’s a political process, but no one is accusing NICE of being in it for the money.
    But in Mass you don’t (yet) have the risk pools you ened because it’s only a real risk pool when you force EVERYONE to be in it.

  5. HMOs manage care according to 1) the balance sheet, 2) science which justifies the balance sheet, 3) the legal department, so as not to hurt the balance sheet, and then 4) other science. Most doctors manage care with the following considerations in mind: 1) what is best for the patient, as long as it does not increase the risk of being sued and is modestly reimbursed, 2) what is best for the patient, 3) what course of action would best protect against a lawsuit, and 4) what reimburses the best.
    It’s not just that the HMO #1 consideration is often in conflict with the Doctor #1 consideration. What is easily overlooked is that the HMO #2 consideration is often in conflict with our #3!
    Imagine a doctor saying to an insurance company rep whose job it is to pre-authorize expensive tests (based on “best practices”): “I know that this headache does not warrant an $2K MRI, but if there is something going on in there, and I do not find it, I know these people and they won’t stop until they have my car, house, wife and first-born!”
    The other problem is, we’re a splintered bunch, and there is a wide range in quality and all doctors do not always know what is best for a patient. We’re often misled by pharmaceutical reps and sampling practices, and rely on outdated or anecdotal information, because what constitutes “best practices” is a fast-changing thing.
    We do need managed care. I am the first to admit that. But we need an objective party to do it. It is probably best left in the hands of a group of expert physicians and public health officials who do not profit from billing for medical care and do not profit from denying medical care and are, instead, salaried to be stewards of evidence-based medicine and best practices.
    HMOs were vilified, and we are as guilty of this as any other group. But we see on a day-to-day basis the fact that they truly do not/did not manage care with science or a patient’s best interest in mind.

  6. But you can’t ignore how much the bad press from the ’90s went towards ending the quality care movement. Matthew has that exactly right. “John Q”, “As Good As It Gets”, etc. all villified HMOs for relying on things like science instead of dreams. Approving (and informing doctors of) best practices was great until an HMO told somebody with terminal illness that they wouldn’t pay for a treatment with anecdotal, but not scientific, evidence of its effectiveness. Then all of a sudden it was the big bad HMOs trying to kill people. The reason why HMOs don’t manage care anymore is because the customer won’t be told no and the customer is always right.

  7. You have to ask yourself, what motivates a health insurer? Does the health of its members motivate it? No. Is it a sense of fairness to its subscribers? No. Health insurance companies are no different than the corner laundry. As a business (not-for-profit or for-profit), it is motivated to take in as much more in premiums than expenditures as it possibly can. Period.
    Matthew talks about insurance companies as though they have an obligation to the nation’s wellness. They do not (or at least they do not believe the same), no more than the corner laundry has an obligation to keep stained shirts off the streets.
    Matthew says “Hospitals and doctors make their living off sick people—which is a problem in and of itself. Insurers ought to make their living off keeping them healthy.”
    Hospitals and doctors do, believe it or not, want to keep people healthy. Frequently this is in the mission statements of the not-for-profit hospitals and in the application essays of idealistic med students-to-be. But as a big NYTimes article pointed out a few months ago using diabetes care an an example, we lose money on preventive care, and make money on the care of the sick.
    As for insurers keeping the nation healthy, why should they? If they go so far as to deny everyone all preventive care, the average patient will do fine until they hit 65. Now it is Medicare’s burden and the insurer is off the hook! Preventive medicine will save money for the nation, but only costs insurers more.
    Insurance companies CANNOT, SHOULD NOT, WILL NOT manage care as long as their balance sheets are in the picture. The manage profits, and reluctantly reimburse for medical care.
    In Massachusetts we essentially have the risk pools Matthew describes, as insurers are not allowed to consider pre-existing conditions or underwrite the policies, byt state law. The only thing that is different here is that our insurance policies cost much more than those of residents of other states.
    I love this quote I read the other day: …more people are needed to administer Blue Cross Blue Shield in Massachusetts than to administer the entire health-care system of Canada.

  8. In 2005 the reality of medical insurance providers became quite clear. That was the year that I actually needed my insurer, which was BCBS of North Carolina. I required two cataract operations and attempted to understand my out-of-pocket expenses prior to the surgeries. BCBS would not divulge my net costs, that was just the start. The quote I got from University of North Carolina Hospital was only the full retail cost which was $8500 per eye, out-patient clinic. So much for consumerism solving heathcare costs. Anyway I decided to get the surgeries done in Canada for $2500 US$ per eye for which I knew up front exactly what my costs were to be. As a result of my decision to go outside “the system” , as there was no other explanation, BCBS put me through 6 months of hell trying to get them to pay my two simple claims. Either it was retribution or total incompetence or both. Letters to our State Department of Insurance only added to my paperwork as the department only acted as a middleman passing pieces of paper between us and not doing any critical analysis of the BCBS crap they were spewing out as to why they would not pay these claims. I also made an appeal to have my co-pay calculated at 20% instead of 30% for in-network equivalant for saving BCBS so much money. That appeal was denied. So much for encouraging prudent use of healthcare dollars. BCBS here in North Carolina does not have to divulge anything about how it calculates it’s rates or how it operates. As usual these companies operate for their own benefit not for the benefit of their clients. Following this experience and the 39% increase in my premiums for 2006 I cancelled BCBS and will now put my premiums into my own bank account as I am healthy and over the years with premiums and co-pays have paid for all my own health needs and then some. I contend that my 39% increase (still not clearly explained) is BCBS’s attempt to economically shed themselves of older clients. And just think that this is the way a, “not for profit” insurer acts. Yes, it’s quite some system we have. Basically it’s mining the bank accounts the insured.