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It’s Easier to Beat Up the Insurers

Things are playing out just as one might predict in the Massachusetts small business and individual insurance market. The Insurance Commissioner turned down proposed rate increases, the state’s insurers appealed to the courts, and now they can’t write policies.

Meanwhile, policy-makers ignore the underlying causes of the problem:

Just a few weeks ago, the Attorney General issued a report, after months of study, that explained that insurance price increases in the state were the result of two factors, the underlying increase in health care costs and a disparity of reimbursement rates that paid some providers substantially more than other providers.

As noted by my colleague Ellen Zane, in remarks consistent with the findings of the AG, “The funneling of dollars disproportionately among hospital and provider groups serves to warp the overall system balance.”

Taking a page from the debate on national health care, local officials seem to have decided that it is easier to beat up on the unpopular insurance companies rather than address the root cause of the problems. Here, though, the insurers are non-profits. If they are forced to charge prices below those that are based on actuarial determinants, there are no shareholders to absorb the losses. The most direct result is a reduction in capital reserves, a key metric the Division of Insurance is statutorily charged to protect.

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  1. Do you remember the Juicy couture bag Spring/Summer 2010 collection-if not here’s a refresher-the runway show took place in a barnyard and featured the literal, physical manifestation of a model-filled romp in the hay. It is of little surprise then that the Juicy couture handbags for Spring/Summer 2010 look like they have gone on a trip through the fields.
    http://www.juicy-bags-sale.com

  2. Yeah right, it’s easy to beat up the insurers. I’ve had a living hell with these insurance companies since my accident a year ago. I can’t even go anywhere anymore.

  3. Yeah right, it’s easy to beat up the insurers. I’ve had a living hell with these insurance companies since my accident a year ago. I can’t even go anywhere anymore.

  4. Yeah right, it’s easy to beat up the insurers. I’ve had a living hell with these insurance companies since my accident a year ago. I can’t even go anywhere anymore.

  5. Yeah right, it’s easy to beat up the insurers. I’ve had a living hell with these insurance companies since my accident a year ago. I can’t even go anywhere anymore.

  6. Would be nice if everyone had access to revenue codes and chargemaster amounts. Another example of how this system is so screwed against the individual insured market and the uninsured market. Here in NC even the state hospital charges the uninsured close to chargemaster prices. But Nate shows us that price controls are good and not best left up to the providers. I support price controls, except that I think everyone should have access to them.

  7. I would agree with most of what Barry says except the large commercial carriers are 140-150% from what we see. On big name hospitals they are even higher.

  8. Peter – While Paul or one of his finance people can probably speak to this more accurately than I can, at least for BIDMC, my understanding is that payment equal to 125% of costs is in the range that large commercial insurers pay hospitals on average. Hospital chargemaster rates (list prices) are largely arbitrary multiples of cost which can range from under 2X to well over 10X depending on the item though insurers generally pay on a case rate or per diem basis, not for each line item including tissues and aspirin. Under the Maryland all payer system, I’m not sure how costs are defined, particularly as they relate to uncompensated care, but my understanding is that even the uninsured are not billed more than roughly 125% of costs. If we’re talking fully allocated costs, including capital costs and uncompensated care, then a payment rate of 125% of cost should be more than adequate. Chargemaster rates are arbitrary and grossly excessive pure and simple which is yet another reason why I think insurer contract rates should be publicly disclosed.

  9. “our partners audited the bill by revenue code, looked up what they report as their cost to deliver that service then only allow 125% of the total.”
    So was the hospital gouging? How did you determine that 125% above cost was appropriate? Why did the hosptial rollover for the $140,000 “loss” or was the employee on the hook to pay the hospital the difference? Who do you think the hospital now has to upcharge to make up the difference as you’re always saying how Medicare shifts costs to private payers?

  10. our partners audited the bill by revenue code, looked up what they report as their cost to deliver that service then only allow 125% of the total.

  11. “I don’t think we can wait for prices to be brought under control by tweaking the present system with fine-tuning methodologies.”
    I took over a poorly ran health plan for a trucking company 7/1/10. They were with a large local insurance carrier. I immediatly reduced their fix cost 40% or so. The 6 months or so since then we have easily cut their claim cost 20-30%. This didn’t involve any massive cost shifting to employees. It was just doing things smarter, cutting waste, and not paying every bill that came in from providers. We had a $230,000 bill for placing a defib, we cut it back to 90K.
    It wouldn’t take more then a couple years and no major government action and this entire cost issue could be solved. That would solve the uninsured issue itself. We honestly don’t need all this intervention.

  12. not to mention the costs with every worried chest pain patient and the ever out of control mental health patient and related expenditures.
    MD as HELL, please explain what you mean by “the ever out of control mental health patient?” The snippet sounds sort of offensive to me, so I’d like to make sure that I understand what you mean before I judge too harshly.

  13. “that unless they shifted some of the responsibility for changing how health care was actually delivered to the care system”
    Shifted “some” of the responsibility, but did not abandon overall control. I don’t think we can wait for prices to be brought under control by tweaking the present system with fine-tuning methodologies.

  14. Our new ideas would work well here too, if we had the tools Peter mentioned and if our system’s imperative was patient care instead of profit margin.
    Price controls may be blunt to start out with, but if the care system is allowed to mold and sharpen them, they end up being effective.

  15. No, Peter, the Germans discovered the limits of negotiated rates and hospital budgets, and realize that unless they shifted some of the responsibility for changing how health care was actually delivered to the care system, they were just going to be in a political tug of war with (effectively) unionized physicians over their incomes, and not really change anything in the health system, or improve efficiency.
    Uwe Reinhardt had an excellent interview a few years ago in Health Affairs with the German Health Minister that’s worth reading. Price controls are a blunt instrument.
    If you want to improve either efficiency, or the standard or care itself, they just don’t get it done . . .

  16. “cowardly private payors”
    Cause nothing screams efficiency like useing member premiums for attorney fees spent on defening yourself. Who cares if capitation was illegal before the government rewrote the laws; a real lion would have taken his jail time proudly. UR, case management, disease management, etc etc aren’t being considered for this measurement of cowardice correct?

  17. Did Germany learn form us on this method of controlling prices/budgets?
    “The federal government decides the global budget and which procedures to include in the benefit package. The National Association of Sickness Funds and the National Association of Physicians also help to form which benefits are included in the sickness fund benefit package. The state government regulates physicians and sets physician reimbursement rates.”
    Oh that we would have the NHS that we might try some U.S. capitation methodology.

  18. Medicare starts the innovation process, and cowardly private payors follow, as they did w/DRGs, RBRVS, RBM’s for radiology, etc. They benchmark not only on Medicare payment amounts, but methodologies.
    Germany has copied not only Medicare’s DRG payment, but used risk adjustment methodologies developed here to try and change how their sickness funds pay for care. The British National Health Service basically copied our primary care capitation methodology for their “budget holding” experiments under Tony Blair. Alain Enthoven, the managed competition advocate, has been all over Europe singing his song about health plan contracting, and has been influential both in Holland and Switzerland.
    Depressing but true. The flow of new ideas about how to pay for care is West to East, not the other way round.

  19. “So at what point is “somebody” going to take on the Hospitals'”
    Margalit if I had a theme song and white horse I would have been there for you. Unfortunently the government outlawed theme songs and revoked my license to ride a white horse. We have ways of knocking hospitals down a notch or two, the problem is everytime they start to work congress repeals them as they claim to be reforming the system to control cost. Eliminating lifetime max and annual out of pocket is going to make it even worse. Nothing caps their spending now.
    I’m scared to publish this as some politician might be reading THCB and run back to his office to out law this but our latest tool is to audit hospital bills as reduce them to 125% of their cost as reported to CMS. So far its pretty effective, see how long till Congress fixes that.

  20. tcoyote, if you’re trying to preserve markets, as an investor would naturally try to apply to healthcare (incorrectly I think), then who is going to initiate, set the rules, organize, and oversee episode-based and relationship based care? Do you think insurance companies are going to do this so that it will have universal and consistant application across the country? Do you think providers are going accept this any better than anything else? And if an episode is atypical (probably more the norm) who pays for the additional cost?
    As for other countries looking to the U.S. for innovative solutions on healthcare payment I’m in the not-believe-it until you can point me to some specifics.

  21. Peter, the way to control utilization is not to freeze prices (and markets), but to change how we pay for care to eliminate the do-more-make more incentives of fee for service payment (the methodology overwhelmingly relied upon by other countries).
    I’m a big advocate of episode-based and relationship-based, rather than
    unit-of-service-based payment. I also think that patients should have incentives to use the most efficient providers, and have significant but manageable stake in the cost of their own care.
    Other countries look to the United States for innovative approaches to healthcare payment, believe it or not. Capping the rate of growth in physician fees or hospital rates is a 1970’s solution to a 2010 problem.

  22. “Price controls on providers aren’t going to do a damned thing, except create more clerical and legal employment.”
    tcoyote, if you don’t want to control utilization or impose budgets and price controls then you’ll just have to suffer with an out of control cost system where the only mandated provision is on individuals to buy overpriced insurance and where the political fights will be for higher subsidies. Other countries do it by universal budgets and controlling prices but the U.S. thinks it knows better as usual.

  23. Peter’s seven year old article and year old recapitulation are both accurate as far as they go: the absolute level of health spending in the US is higher than other countries because of higher unit payments- which are comprised of much higher incomes for hospitals, doctors, etc and much higher intensity of clinical encounters. However, Peter, we are talking about cost GROWTH, not the absolute level, and there, shockingly, our rate of per capita cost growth is actually a tenth of a point LOWERl to that of the OECD countries. Wish there was room to post the actual data in the comment thread. Go to OECD’s website and look for yourself.
    Agree with the thrust of Levy’s comments: the insurers are simply “standing and waving” (an ineffectual basketball defense) at health costs. We barked at them when they actually termed provider contracts or tried to impose Milliman’s clinical guidelines based on actual clinical benefits. SO now they are simply passing through last years costs unrecouped and also the costs of the huge risk shift taking place in their insured risk pools, and getting hammered by the Dems for it. They are targets, but, per Levy, not the main reason for the problem. Price controls on providers aren’t going to do a damned thing, except create more clerical and legal employment.

  24. Agree with rbar and MD as Hell. My own 10K deductible has made me a very chary consumer of medical care. The difficulty with the current system is you can’t know prices ahead of time very well. The patient just has to have some sort of skin in the game; there’s no other motivation as strong.

  25. All of you beware of careglobe / shivsans ltd. They are real cheaters. Unprofessional people. Never give them money to process any immigration issues. You will never get through any of the issues…

  26. Peter,
    There was no data in this latest link. rbar has said it pretty well. The missing link has always been the patient is disconnected from the cost of the service he consumes and from paying for it. There is no limit to the public’s appetite for free cheese or healthcare.

  27. Peter and hellMD,
    I think it’s both, and you can certainly quibble which is more important.
    There were people already writing in the early 80s that medical care costs can only go upward, because medical progress makes people live longer, but also in a sicker state. It’s pretty obvious: go a few hundred or more years back, and you would only encounter a lot of healthy young people, some middle aged folks and the one or other person making it into the 70s or 80s. If you had a significant disease, you died rather quickly. Today, we have millions of people with diabetes, kidney failure, certain cancers … and that’s what medicine is for. But sicker people living longer means higher costs.
    You can observe over decades (or nowadays, sometimes even over half decades) how standards raise. In the 70s, medical specialists were the “gold standard”; now, we are living in an area in which SUBspecialty care booms. That has to do with medical and technical progress. And given the generous allocation of ressources into the HC sector, everything that is doable gets done (and paid, at least for some), even if there is minimal to no bang for the buck (Medical economists have pointed out for decades that medical services tend to get used once they are offered, regardless of the benefit they provide).
    Malpractice litigation plays a role here. Since a lot of litigation is “failure to diagnose”, what incentive does a doctor have not to order a test (as long as it is noninvasive and therefore no risk involved)? But even with meaningful tort reform (I am all for that), I am honestly unsure how many US docs could practice ressourceful medicine in today’s climate of test- and scanhungry patients.
    In other words, more and more is done as per patient, and as long as you don’t control the cost benefit ratio, services will increase forever. And that’s happening everywhere.
    Now, medical costs in the US are high, probably among the highest anywhere. Docs make the most, I believe only Switzerland and, weirdly, British docs come close (some German proceduralists/radiologists are also doing very well). But this is probably negligible compared to greatly higher costs for drugs and devices.

  28. The elephant in the room is malpractice reform. As long as the trial lawyers run roughshod, standards of care will be determined by the latest mega-millions jackpot verdict. Perhaps, patients who develop cancer from too many ct scans can sue the oxymoronic American Association for Justice aka the Trial Lawyers for tortious interference.

  29. Peter,
    Your reference is 7 years old. No telling how old the data is.
    I promise you my volume is going up faster than my reimbursement per patient. Also standards of care have shifted to expensive tests for falls, abdomenal pain and bumps on the head, not to mention the costs with every worried chest pain patient and the ever out of control mental health patient and related expenditures.
    Get real.

  30. Why is the assumption always that it’s per-unit costs that are going up rater than number of units consumed, when we know people take more pills, use more procedures, and are seen by more medical professionals than ever before?

  31. Oh by the way, do you support price controls in your hospital Mr. Levy? Bet not. Think your prices could be “the underlying increase in health care costs”?

  32. “the underlying increase in health care costs”
    That would be lack of price controls and universal budgets.
    “and a disparity of reimbursement rates that paid some providers substantially more than other providers.”
    Is that not done by the insurers themselves?
    “Here, though, the insurers are non-profits.”
    Yea, lets feel sorry for BCBS.
    “If they are forced to charge prices below those that are based on actuarial determinants, there are no shareholders to absorb the losses.”
    No, I guess only millions in bonuses. Anyway, how long do you think “shareholders” would “absorb” losses? There’s something wrong with healthcare policy that continues to worry about health insurance companies “profitability” and their “shareholders” above healthcare patients and their ability to pay for this. Why are we so concerned about corporations that add no value to the collection and distribution of money.

  33. No one will take on hospitals, diagnostic labs, big pharma, and facilities owned by the doctors who refer patients to them unless and until there is the political will to redesign campaign finance in a way that does not allow these groups to “pay for” the legislation and regulation they want.

  34. Yes, as Henry Aaron has said, by and large insurers are not driving health care inflation. They’re just passing along the growing cost of care. And the reform legislation is not a “boon” for insurers. See “Myths & Facts about HealthCare Reform” posted on http://www.healthbeatblog.org yesterday.

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