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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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36 replies »

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. “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.

  6. “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.

  7. 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.

  8. “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.

  9. “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.

  10. 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.

  11. “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.

  12. 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.

  13. “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.

  14. I don’t know why this matters, but i will indulge you. I pay for every penny—non tax deductible. You?

  15. “I pay for it.”
    Really, on the individual market where you pay all the non tax deductible premiums or through your business where the premiums are tax deductible, or maybe through your employer where you pay a percentage?

  16. “Nothing says employers have to choose only one hospital/insurer.”
    So, they could pick heart surgery coverage from one hospital’s plan and knee surgery from another’s? I can’t see why a hospital would want to sell partial coverage for different departments and how that would be cost/price effective. And just maybe the employer’s pick may not be the employee’s pick.

  17. I don’t see how Paul gets any ROI from this and 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. Furthermore, considering other IDNs, even big ones like Kaiser, I don’t see how the price differential for the consumer is significant enough to warrant the obvious inconvenience. I am also willing to bet that the other hospitals in the area will balance bill astronomic amounts to Paul’s insureds when they end up out of the one hospital network, which will be very frequently.
    I do agree with Barry that Government must step in and regulate this Darwinian environment, and yes decoupling all sorts of considerations from the actual cost of procedures will add transparency and clarity for everybody, including consumers shopping around. The only problem I have with a Maryland style pricing system is how do you account for expertise and convenience. Some hospitals have much better staff than others, better and newer facilities, more sophisticated tools and centers (in case something goes wrong), so should a procedure really be priced the same at Paul’s hospital and at a 100 bed rural hospital?

  18. “how would that provide choice of providers for patients?”
    Cafeteria plans have been around as long as I have been in the business. Nothing says employers have to choose only one hospital/insurer.
    People need to realize healthcare is very fluid, today’s solution usually has no relavvance tomorrow. Paul taking risk in his captive is a solution to todays problem. If he comes out and takes 10% of BC block that will force BC to change, if they change as Paul desires then he can get out of the insurance business. This is exactly why public health programs always fail and always are less efficient then private. It takes an act of congress to change anything, they will never be capable of nimbly managing a health plan

  19. In conjunction with price and quality transparency, patients also need financial incentives to choose the most cost-effective providers, and, probably, so do referring doctors. Insurers are starting to see more interest in narrow network and limited network products as small and mid-size employers are focusing more on affordability at the expense of lots of provider choice for employees and their families.
    I’m also a fan of tiered co-pays for in network providers. This concept works well in the prescription drug space. While it would be somewhat more complex to establish tiers for doctors and hospitals, I think it could be done, hopefully with lots of input from providers as well as the opportunity to rebut information that providers believe to be inaccurate.

  20. This is an issue that cries out for price and quality transparency. Insurers, I believe, are reluctant to disclose contract rates paid to hospitals and doctors because they think those who are paid less will clamor for more while those that are paid more won’t willingly reduce their rates. I think the Gordian knot needs to be broken by regulators. To the extent that insurers also believe that most hospitals and doctors don’t want contract rates disclosed either, if regulators force the issue, it will provide the insurers with political cover. They can say that the regulators made us do it.
    I wonder if Paul can shed some light on how a given hospital’s rates are determined today. Is it some percentage above Medicare or discount from chargemaster rates across the board or is it separately negotiated for each cost center or procedure? Longer term, rates need to reflect quality as well as the cost of running an efficient facility. To me, this means that if a given institution is particularly good at, say, heart surgery relative to its competitors, it should be paid a premium. For really complex procedures like liver transplants, there should be relatively few regional centers of excellence that performs most or all of these. At the other extreme, if just about every hospital in the area achieves similar (good) results when colonoscopies are performed there or every imaging center with competent techs and up to date equipment can do a good quality MRI, there shouldn’t be much difference in the payment rates for those. If there is, people should have a financial incentive to go to one of the less expensive hospitals or imaging centers.
    On the cost front, I think it would be helpful if teaching hospitals were paid separately by taxpayers for their teaching function rather than have those costs embedded in reimbursement rates. The uncompensated care issue should be mitigated as the number of uninsured is reduced as it already has been in Massachusetts. Eventually, it would probably make sense to have the federal government take over the Medicaid program from the states and adopt one set of rules around both the benefit package and eligibility criteria. Since states would really love this from a fiscal standpoint, they should be required to rein in their excessive pension and health insurance benefits relative to what generally exists in the private sector. If the states wind up with surplus revenue in the end, it should be returned to taxpayers as federal taxes will need to rise to accommodate the increased Medicaid burden.
    Overall, there is a lot of opportunity here if stakeholder groups would think more broadly and less selfishly.

  21. “Peter,Why don’t you move to Spain or Russia?”
    Ah yes, the love it or leave it argument. I was wondering Jay as to how you get your healthcare coverage now?

  22. “I’m not going to debate the issue of salaries and numbers of executives beyond saying that our Board of Directors reviews that matter in great detail with every annual budget and with every annual performance review.”
    Part of the problem, hosptials don’t want to “debate” their part in out-of-control healthcare costs and like everyone else in the system points the financial finger at someone else.
    Mr. Levy, will you tell me how many VPs your facility has?

  23. “They didn’t like paying premium to carriers and felt they were overcharged. They were the ones providing the care, all insurance did was take money from one pocket and give it to the other.”
    “…providing care better and cheaper than the bad guys”
    “Evil insurance company, lets call it CBSB, takes money from local employers, invest it, then sends not enough of it to providers like you and too much to hospitals like Singles. Nothing they do is terribly complex or hard to duplicate, except sleeping at night knowing how they rip people off.”
    Glad to see you coming around to my point of view Nate.
    If hosptials offered their own insurance and tied employers/employees to that facility, how would that provide choice of providers for patients? Something everyone wants in healthcare. Where would the portability be? And if independent providers outside the hospital overhead system could do it for less how would patients get access to that if the provider didn’t want to be a part of the hospital system?

  24. Your hung up on an insurance license. You don’t need one. If you take this and run with it you owe me dinner.
    I assume you have reinsurance now, probably really high like $100,000 or more. Your current reinsurer already has a license to sell stop-loss. The policies are sold under their license.
    The fact you already have a captive just cut your cost to nothing and means you could have this running in 2 months.
    Lets call your reinsurer NO Re, catchy I think. NO Re sells policies to normal employers out in the market struggling to afford insurance. These are small employers so they buy coverage at $10,000 or some amount based on their size. As a condition of receiving your competitive stop loss they must use the new Paul PPO, finiest hospitals and docs at a fair price.
    Nate Re cedes the risk to your captive that is already set up. Your captive then reinsures itself at 100,000 or some higher amount you are comfortable with. This results in BIDMC Captive being liable for claims that fall between 10,000 and 100,000. Any claims over 100K Nate Re picks them up.
    The reason this works so great for hospitals is for claims of that size you really control them. What does an insurer really do for large claims except hammer the hospital for discounts. If your charge master or net reimbursment is 20-30% lower then other hospitals on 40% of the total cost that is a significant price advantage. You could pass half that on as lower premium and keep the rest as additional revenue.
    I would wager your captive already holds enough in reserves to do this with no additional funding. I don’t do a lot of business in MA but I come across employers and I don’t think I have ever heard anyone say they love Blue Cross, people are with them becuase they have no choice. If you could offer them not only a choice but a more affordable one you have a great opportunity for success.
    St. Marys and the public hospital in Reno both had/have plans. Aultman in Canton has their own. Hospital in stark county has a big one but I forget the name, Summa Care. There are dozens of hospitals with far less resources doing it all over the country.
    If you don’t take on Blue Cross do you expect things will ever change? If you want to blow up the system why not be the one to set the charge? Even the threat of hospitals competing against them would probably be enough to get higher reimbursements.
    Correct me if I am wrong but we don’t need an insurance company to deliver healthcare, we do need a hospital though.

  25. Hi Nate,
    We do have a captive insurance company for malpractice and the like, which is a consortium of all the Harvard hospitals. And yes, I know of other hospitals around the country who also run health plans (e.g., Geisinger). But the market is such in Eastern MA that it would not make sense for us to attempt what you say and try to sell into a market dominated by Blue Cross and two other insurers — as well as a provider market dominated by a large network anchored by MA General Hospital. It is a long way from self-insuring your own workers (about 6000 FTEs) to selling into that market. The potential government clients you mention are strongly embedded into the existing companies, both the the insurers and the competing providers. As a business proposition, raising the capital required under MA regulations and expecting a reasonable return of and on that capital would by very difficult. (This is why, by the way, the national insurers have been reluctant to enter the MA market, too.)

  26. Paul, you guys really don’t think outside the box there do you? I’ve worked with 10 bed rural hospitals more progressive then you. If your self insured your already an insurance company. You don’t need any capitalization or government approval at all. With your current self funded plan and a line of credit for a couple hundred thousand you could be writing business direct with employers and cutting out the insurance companies that are screwing you.
    Have you guys done anything with captives for P&C or other liability? You don’t take any risk on physician malpractice liability?
    I would be interested to hear how you define an insurance company or what it is you think they do that you’re not suited to. At least three different times in my career we had blocks of rural hospitals as clients. They didn’t like paying premium to carriers and felt they were overcharged. They were the ones providing the care, all insurance did was take money from one pocket and give it to the other. So these small hospitals got together and formed their own pool.
    These situations would usually grow to include other public entities like city and schools. Again, why did the local public entities need to send $1.20 in premium out to beg for $1.00 back?
    Some hospitals, keep in mind I’m talking hospitals 1/50th your size here, would open it up even further and include local businesses. Think through the entire process of what insurance is. Someone goes to local employer and sells them a product, usually based on price and network. Brokers do this for a living, all you need to do is pay them. Next someone collects premiums, issues ID cards, and pay claims. They call us TPA and again for not much money we’ll do this for you to. Next you need the insurance, this is done by reinsurers, like the one you already have most likely, and for a price they will cover any large claims from your employees or employees of those companies you sign up.
    So far the only expertise you need is setting up a network of quality doctors, providing care better and cheaper than the bad guys, and asking someone like me to put a plan together for you. If small rural hospitals can pull this off I think BIDMC should be able to.
    Evil insurance company, lets call it CBSB, takes money from local employers, invest it, then sends not enough of it to providers like you and too much to hospitals like Singles. Nothing they do is terribly complex or hard to duplicate, except sleeping at night knowing how they rip people off. You can hire someone to do everything they do and do it at a lower cost and do it better. As long as you can convince people you can deliver as good of care as Singles and charge less you will find takers.

  27. Dr. Jones;
    While BIDMC’s computer systems do indeed work well (I know a former patient there with extensive experience), it is because they are largely home grown and heavily customized by one of the brightest health IT guys on the planet (Dr. Halamka). Such is not available to a community hospital with an off-the-shelf system having inadequacies which we have discussed ad nauseum in previous posts.
    However, I fail to understand yours and others’ dire “do not buy” warnings. You are dreaming if you think EMR’s are going to go away; a far better attitude would be to wade in and get your voice heard to improve them.
    Otherwise you are just resisting inevitable change and risk being left behind, as well as being stuck with the current clunky systems.

  28. Dear Bill Jones,
    I don’t know why you say this: “wasting money on unusable HIT systems (rather than nurses and training) that improve your bottom line but do not improve the care of your patients.” Our HIT systems actually work very well in improving the quality and safety of patient care. Check John Halamka’s blog at http://www.geekdoctor.blogspot.com for lots of examples of that.
    I’m not going to debate the issue of salaries and numbers of executives beyond saying that our Board of Directors reviews that matter in great detail with every annual budget and with every annual performance review.
    Nate,
    Hospitals would not be well suited to start insurance companies, at least in MA. The capitalization requirements and other regulations make that prohibitive, plus the hospitals have no expertise to do it well.
    BIDMC is self-insured, like many large employers.

  29. How is BI insured? What network do they use and how is their reimbursement under the network compared to the facilites that were getting preferential treatment? Are they rewarding one of these guilty networks/insurers with their business just adding to the problem?

  30. If there is a group of hospitals that are already reimbursed at rates substantially below other hospitals in the same service area and the insurers are still beating them up why don’t they just go around the insurance companies?
    They could build their own slim PPO, back up their own stop-loss MGU and write business direct. They could have the whole thing up and running in 3 months and a couple hundred thousand dollars. They could be writing business for 1/1 effective dates, get meaningfully higher reimbursements, and still drastically undercut the competition. I’ll even give them a great deal to administer it for them.
    I would be interested to see how many of these hospitals complaining are insured by the very same carriers they are complaining about. Simple solutions are available people just need to take advantage of them.

  31. I agree that hospitals (except for those treating mostly indigent) are bloated with unnessessary overhead and exagerated salary/bonuses for “managers” as well as too many “executives” (not to mention specialists compensation), but in a system designed to lure paying customers and CEOs who demand “competitive” compensation and the opportunity to “empire build” it’s no wonder it costs so much to be treated in that setting with that mind-set. In single-pay the playing field is leveled and charges are the same at every hospital and prices are transparent because they’re all public facilities with the focus on providing healthcare not satisfying Taj Mahal mentalities. As this “reform” progresses players will find the good old days can’t be sustained, but we won’t get there relying on insurance companies and hospitals and their entrenched market protection practices. Healthcare should be a public service like fire protection, police, water and schools.

  32. Paul, Your hospital is as bloated with high paid administrators as any of them, wasting money on unusable HIT systems (rather than nurses and training) that improve your bottom line but do not improve the care of your patients. Insurance carriers too are bloated with over paid executives who hijack their clients for all they got. Massachusetts wants its people to be insured and its doctors to be indentured. Yes, quite a dilemma.

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