By NIRAN AL-AGBA MF, FAAP
In July 2009, the family of Massachusetts teenager Yarushka Rivera went to their local Walgreens to pick up Topomax, an anti-seizure drug that had been keeping her epilepsy in check for years. Rivera had insurance coverage through MassHealth, the state’s Medicaid insurance program for low-income children, and never ran into obstacles obtaining this life-saving medication. But in July of 2009, she turned 19, and when, shortly after her birthday, her family went to pick up the medicine, the pharmacist told them they’d either have to shell out $399.99 to purchase Topomax out-of-pocket or obtain a so-called “prior authorization” in order to have the prescription filled.
Prior authorizations, or PAs as they are often referred to, are bureaucratic hoops that insurance companies require doctors to jump through before pharmacists can fulfill prescriptions for certain drugs. Basically, they boil down to yet another risky cost-cutting measure created by insurance companies, in keeping with their tried-and-true penny-pinching logic: The more hurdles the insurance companies places between patients and their care, the more people who will give up along the way, and the better the insurers’ bottom line.
PAs have been a fixture of our health care system for a while, but the number of drugs that require one seems to be escalating exponentially. Insurance companies claim that PAs are fast and easy. They say pharmacists can electronically forward physicians the necessary paperwork with the click of a mouse, and that doctors shouldn’t need more than 10 minutes to complete the approval process.
To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates.
A senior executive for Wellpoint, which sells plans in 14 Obamacare exchanges, is quoted in a Reuters article telling Wall Street analysts there will be big rate increases in 2015, “Looking at the rate increases on a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be double digits.”
If the health plans do issue double digit rate increases for 2015, Obamacare is finished.
There are a ton of things that need to be fixed in Obamacare. But, I will suggest there is one thing that could save it.
The health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th. Any major modifications to the current Obamacare regulations need to be issued in the next month to give the carriers time to adjust and develop new products.
If the administration goes into the next open enrollment with the same unattractive plan offerings costing a lot more than they do today, they will not be able to reboot Obamacare.
Simply, health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won’t buy them any more enthusiastically next fall than they already have. See: Obamacare: The Uninsured Are Not Signing Up Because the Dogs Don’t Like It
Doubling the fines for not buying in 2015 will only give the Democrats more political problems––and it doesn’t look to me like they are going to enforce the fines anyway.
Health insurance plan executives are now faced with a daunting decision. How do they price the 2015 Obamacare exchange plans?
Even if the administration announces they have signed-up about 6 million people by March 31, the number of people enrolling would be well below expectations––only about 25% of those subsidy eligible will have signed up by the deadline. An enrollment that small guarantees the risk pool is sicker and more expensive than it needs to be in order to be sustainable.
But dramatically increasing the rates will only assure even fewer healthy people will sign up for 2015 and some of those who signed up for 2014 will back out over the higher rates. This is what a “death spiral” looks like.
The Medical Loss Ratio (MLR) policy written into the Patient Protection and Affordable Care Act (PPACA) requires health insurance companies to deliver more direct value to consumers by mandating that they spend a higher percentage of premium dollars collected on medical care, as opposed to administrative costs.
The new law requires that at least 85 percent of all premium dollars collected by insurance companies for large employer plans be spent on healthcare services and quality improvement. For plans sold to individuals and small employers, at least 80 percent of the premium must be spent on benefits and quality improvement. If insurance companies do not meet these goals because of administrative costs or high profits, they must provide rebates to consumers starting in 2012.
While much debate exists on if this is requirement is “fair,” those on both side of the argument can agree that any reduction in administrative costs is a step in the right direction, especially if it frees up dollars to be spent in areas that will directly impact members. Moving beyond politics and percentages, payers can save up to 30-50 percent in operating costs when working with a partner to streamline back office processes. Examples include:
- Claims processing, billing and provider maintenance: By outsourcing standard transactional services, payers can increase data quality and accelerate turnaround time on claims processing and lower costs.
- Enrollment processing: Payers can turn to partners to handle standard enrollment functions including setting up new member accounts, staffing call centers for member questions and issuing satisfaction surveys.
- Auditing solutions: Recovering funds from incorrectly paid claims is a service payers can outsource that can recoup funds by having an outsourcing partner track and even litigate wrongful payment claims on an insurance company’s behalf.
- Customer care: Using a partner to help communicate plan information and answer questions from members allows payers to focus on quality of care and new product introduction, while reducing costs and complying with regulatory demands.Continue reading…
A couple of related pieces caught my attention today: @HealthPlan: How insurers use social media and Insurers are scouring social media for evidence of fraud. Slowly but surely health plans and other insurers are stepping into the world of social media and it’s interesting to see how they are doing it.
Health plans seem to be following along the lines of other big, bureaucratic organizations that cause customers a lot of frustration through poor customer service. Here’s an example of a Twitter exchange between Humana and a customer:
Sept. 23, 2010
@MrAndrewDykstra: Dear Humana, you’ve ruined my day. Worse, my wife’s day. Way to CYA. I’m paying you to cover mine. #NotHappy
Sept. 24, 2010
@HumanaHelp: @MrAndrewDykstra I’m sorry to hear about your frustration, is there anything I can do to help out?
@MrAndrewDykstra: @HumanaHelp You were kind and didn’t give my wife the run around, I appreciate that. 3/3.
Sept. 27, 2010
@HumanaHelp: @MrAndrewDykstra Thank you, let me know if you need any customer care.
One aspect of religious dogma that has entered the medical world is that fee-for-service pricing of medical services is bad and should be replaced by a capitated, or global, arrangement that establishes an annual budget for care for different risk groups of patients. Like other religious beliefs, this is often offered without rigorous analytic support. Some insurance companies are particularly pleased with this approach because it shifts risk from insurers to providers and makes it easier for the insurers to create budgets and price their products.
Don’t get me wrong. This may be the right way to go, but the topic is worth more time and discussion than it has received.
It may be illustrative to think about other sectors of our economy and see which of them are characterized by global payments. Not many. Sure, there are products like cellular phone service that are sold in monthly fixed dollar amounts. But that is because it is a high fixed-cost product, where the marginal cost of additional phone calls is essentially zero. Fixed prices offer revenue stability to the vendor and a way to recover those fixed costs.
But most other goods and services in our economy are sold on a piece-work basis. Think of groceries, automobiles, electricity, gasoline, televisions, and clothing. Why is fee-for-service pricing appropriate for these? Or, in economists’ terms, why does such pricing lead to a reasonably efficient solution? The answers are pretty straightforward. Other markets are characterized by open entry and exit and by transparent information concerning quality, value, and pricing. Consumers can make more or less knowledgeable choices based on that publicly available information. New firms enter the market when they see an opportunity. Successful firms grow. Other firms fail.
We now know how many people have the problem most often cited as the reason for last years’ health overhaul legislation. Answer: 8,000
No, that’s not a misprint. Out of 310 million Americans, only 8,000 people have the problem given as the principal reason for spending almost $1 trillion, creating more than 150 regulatory agencies and causing perhaps 150 million or more people to change the coverage they now have.
Alert readers will remember the White House summer of 2009 invitation to all Americans to send in their horror stories describing health insurance industry abuses. Although the complaints were many, the vast majority were about pre-existing condition limitations. Then, on the eve of the ObamaCare vote, every member of Congress who appeared on television to defend the legislation was able to cite by name an individual or family in his or her state or Congressional district with a heart wrenching story.
Gone was any interest in “universal coverage” or “insuring the uninsured” or “helping poor people get health care.” The case for change was focused almost exclusively on protecting the middle class from miserly insurance companies.
I don’t mean this in a partisan way, but it is really distressing to read this New York Times article about Republican plans to dismantle parts of the recent health care bill by using the appropriation powers of the House of Representatives. I say this because of the unintended consequences that will result if they are successful in this approach. Let me give an example.
I think one of the most important aspects of the law is “guaranteed issue” of health insurance: Insurance companies will no longer be permitted to use pre-existing medical conditions as a bar to coverage. A concomitant of guaranteed issue is the individual mandate, the requirement that all people purchase health insurance. Why?
Left to their own, insurers will impose pre-exisiting conditions types of restrictions because they understand the moral hazard aspect of insurance. Healthy people provide an actuarial balance to sick people. If people only buy insurance when they need care, the risk profile of the insured population rapidly swings, upsetting the actuarial calculations used to establish premiums. So, if these restrictions are outlawed, everybody needs to be in the risk pool. Accordingly, you have to ban optional insurance.
But look at this quote from the article cited above:
Republican lawmakers said, for example, that they would propose limiting the money and personnel available to the Internal Revenue Service, so the agency could not aggressively enforce provisions that require people to obtain health insurance and employers to help pay for it.
I think the Republicans know that guaranteed issue is popular with Americans, and so they do not directly want to repeal that provision of the new law. But what will happen if healthy people start to opt out of getting insurance, only to return when they get sick? The system will quickly get out of balance. Ironically, this will only cause premiums to rise. I don’t understand why the Republicans would want that to happen, and I fail to see a strategic political advantage arising from that result.
This makes me wonder if they have thought this through completely and whether they understand the unintended consequences of their proposed actions.
Paul Levy is the President and CEO of Beth Israel Deconess Medical Center in Boston. Paul recently became the focus of much media attention when he decided to publish infection rates at his hospital, despite the fact that under Massachusetts law he is not yet required to do so. For the past three years he has blogged about his experiences in an online journal, Running a Hospital, one of the few blogs we know of maintained by a senior hospital executive.
We are losing patients. Certain insurance companies are trying to “play hardball” with doctors, unwilling to negotiate with us over their outlandishly low rates. We have lost patience.
So the signs went up in the exam rooms today:
As of the start of the year, we will only accept X, Y, and Z Medicare advantage plans, and we are presently negotiating with A and B insurance companies. Please consider this when enrolling in plans.
It is highly likely we will drop one of the insurance plans altogether, and we are one of the last practices in our town to accept them.
Patients are distraught. Some of them who have seen us for years are now going to have to go elsewhere, while others that just joined our practice because their previous doctors dropped out of the plan will once again have to find a new doctor. Patients aren’t mad about this, just sad. The conversations go like this:
“So you are dropping X insurance?”
“We will if they don’t change. They are paying us significantly less than other plans.”
“That’s crazy. We just left a doctor because of the same thing. Now we have to move on.”
“Yeah, I am very sorry about that. I just want to see patients; I don’t want to do this kind of thing.”
“Well, I don’t blame you. They pay $1000 for an ER visit for an ear infection, and they won’t pay you what you charge?”