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The Insurer’s Dilemma

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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Guest

It’s just like you study my mind! You seem to find out a great deal of about this kind of, such as you wrote the particular e-book from it as well. I have faith that you can do by incorporating s. d. in order to electric power the material home slightly, even so other than that, it is wonderful web site. An amazing read. I’m going to unquestionably come back.

Mike
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Mike

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.

Ankylosing Spondylitis Blog
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Thank you Paul! Great article, very insightful.

sara
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sara

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!

Peter
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Peter

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… Read more »

Nate
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Nate

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… Read more »

Paolo
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Paolo

“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.

Paolo
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Paolo

“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.

Nate
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Nate

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.

Peter
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Peter

“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.”… Read more »

pcp
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pcp

“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.

Bill
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Bill

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.

Nate
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Nate

“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… Read more »

Nate
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Nate

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… Read more »

Peter
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Peter

“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… Read more »