The LA Times had an article this weekend about how patients were leaving HMOs to go PPOs which were essentially high deductible plans. The article claims that the new trend is leaving HMOs in an Unstable Condition: as Members Bolt to Other Plans.

Ignoring the fact that it’s the same corporate parents who provide both types of insurance product, so the HMOs per se (with the possible exception of the still highly profitable Kaiser) are not exactly becoming "unstable", there are two connected but somewhat obscured issues here. The total cost of treating an HMO patient is still somewhat cheaper than treating a comparable PPO patient, but much more of that cost is now pushed onto the consumer/employee so the premiums are cheaper for the employer/payer. Where Blue Cross’ new high deductible plan called Tonik and other low price (but not low cost!) plans come in is that they are an attempt by one insurer or another to favorably  slant their overall risk profile — as insuring healthy people is a much easier way to make money than taking proper care of sick ones. This is not new. Prior to its sale to Aetna in 1996 US Healthcare was expert at paying off brokers to find them better risk groups in the early 1990s. Aetna forgot to use that technique when they bought them, but certainly has rediscovered how to improve their risk profile in the last five years. All plans have been playing this game forever, this is just a new variant. Look for the coda at the end of this article for more information about brokers being paid off by plans. (In the case of Aon, the pay-offs were allegedly at the insistence of the broker but you can imagine that they weren’t being paid bribes to deliver the groups with the worst risk profiles! Eliot Spitzer for one has noticed).

Meanwhile the AMA’s wet dream of an HSA with the consumer paying (a price of the doctors choosing!) at the point of service is plain wrong. I’ve been hearing this fantasy from physicians in focus groups since 1994! But the truth is that, even with the high deductible plans, payment will still go through the insurer and all the rigmarole that they put the providers through to get paid will still exist. It’s just for the high deductible plans the money will now come out of the consumer’s bank account.  In fact it’ll be harder for the provider to collect from those consumers without an HSA linked directly to their health plan’s account (which my guess is over 90% of HSA holders presently).

I know. I have one of these plans and when I had surgery last year I made all my providers wait several months until after my plan finished totally messing up my deductible calculations and finally got the amounts right before I paid out a penny! The providers still had to send in all the medical notes, I still got (mostly wrong) EOBs, I still had to spend hours and hours on the phone with confused and beleaguered customer service reps, etc, etc. The only difference was that when all was said and done the providers had to come after me for a big share of the money. Luckily I had the money set aside. How many Tonik members — supposedly young and relatively poor extreme-sports types — will be able to say the same?

Funnily enough I’m not even sure that the games pay off that well for the plans. In 2003 I was offered an underwritten PPO that was originally quoted at $63 a month for a $2000 deductible/$3,000 max out of pocket.  When they found out about my previous knee surgery the premium quote went up to nearly $400 a month! Instead I bought a short term plan (from a subsidiary of the same company!) for about $70 a month. And then when, as their underwriters had guessed correctly, I needed more surgery it all eventually cost (in terms of actual money paid out to providers) about $7000.  That would have been roughly the same as my original premium payments ($4,500) plus my maximum out of pocket ($3,000).  In other words for the original plan a $7,500 patient would have been one on which they’d have broken-even  but as I went with the non-underwritten plan that I assume is similar to Tonik, which didn’t quite cover so many conditions (e.g. no pregnancy coverage, and excluded diabetics, cancer patients, etc up front) , I paid about $3000 less in premiums.  So they lost money on me!  Were there no "bare-bones" short term plan available, aimed primarily at younger healthier people, I’d have probably ended up paying up for the more expensive version.  (Luckily I’m in a buying group now that gets me the $400 premium plan for closer to $200!)

Of course if all the health plans get this right then, while the risk pool will continue to fragment overall, more consumers will end up holding the bag. But it’ll eventually be a zero sum game for the insurers as they all have to figure out how play the risk-avoiding game as well as their competition, which will end up with all their risk profiles the same. Then they’ll have to think of the next bright idea to get a competitive edge! I smell consulting dollars….

CODA: Meanwhile if you want to know a little more about the games played by health plans to get the better risks, or perhaps to make sure that they don’t get stuck with the worst ones, take a look at this article that I swiped from Managed Care Week. (They don’t put out an online version but they sometimes reprint articles in AIS Health Business News.

Complaints filed by five state agencies against one of the nation’s largest insurance brokers offers a behind-the-scenes look at how insurers allegedly compensate brokers for steering insurance business.
Connecticut Attorney General Richard Blumenthal (D), Illinois Attorney General Lisa Madigan (D) and New York Attorney General Eliot Spitzer (D), along with state insurance commissioners in New York and Illinois, on March 4 said they reached a $190 million settlement with Aon Corp. for "soliciting and accepting kickbacks to steer business to favored insurers." The complaints outlined alleged payments made by health insurers including Aetna, Inc. and WellPoint, Inc. subsidiary Anthem Blue Cross and Blue Shield of Connecticut to Aon Corp. in order to win business from Aon’s clients.
The case never went to trial, and Aon said it admitted no wrongdoing or liability in the settlement.

As part of the agreement, Aon CEO Patrick Ryan apologized and acknowledged that some Aon staff members engaged in improper conduct. But he also said he did not agree with several allegations in the complaints.
The settlement was unveiled five months after Spitzer filed lawsuits against a major broker and four insurers in the property and casualty industry. That suit kicked off a nationwide probe into how brokers are compensated for steering business to one insurer over another.
According to Blumenthal’s complaint, employers paid Aon a fee to select "the best insurance coverage for the best price." But Aon made it clear to Aetna, Anthem and other insurers that their products would not be selected unless the insurers made additional "back-door" payments that "were folded into the overall premiums paid," the filing said.
These payments — which Blumenthal derided as "kickbacks," — "have the potential to compromise Aon’s objectivity and improperly influence its brokerage and consulting decisions by directing business to insurers that pay overrides and withholding business from those that do not," the complaint asserted.
The complaint also charged that Aon did not report the commissions, overrides and other payments to clients, and pressured insurers to omit such payments from their reports to employers on Internal Revenue Service Form 5500 and other documents.

Blumenthal’s complaint offered the example of Manchester, Conn., which paid Aon an annual fee of $14,350 to help it select health insurance for employees. The town’s request for proposals "specifically insisted that the winning broker only accept a commission from the town." Meanwhile, according to the complaint, Anthem was paying Aon over $1 million per year in various commissions, overrides and other payments. The complaint charged that "the steering evidently worked for, interestingly, Manchester, and every other Connecticut municipality that retained Aon Consulting for its health coverage, ended up with insurance from Anthem Blue Cross Blue Shield."
Aetna initially resisted paying override commissions to Aon, the complaint alleged. It quoted several internal Aetna e-mails and company managers. One e-mail said, "[Aon] made it clear that the lack of an override puts us at a severe disadvantage. That is evidenced by the fact that we haven’t written a case with them in several years." Another described a meeting in which one broker told the Aetna staff member, "You guys just don’t get [it], price and ease of administration is not the issue…it’s my compensation."
According to the complaint, Aon brokers said the solution was simple: Aetna should "load the rates for additional comp[ensation] and you’ll start to get the business. If the comp is right, they will sell the rates," according to an Aetna manager quoted in the Blumenthal complaint. "He told us to load our rates 5-10% (give him 1/2) and we’d get all his business."

Such arrangements were successful, the complaint alleged. "As one Aetna executive put it, overrides have the potential to ‘take away the objectivity consultants are so protective of.’"
Blumenthal’s complaint indicated that Aetna eventually "began to adapt," developing payment structures that allowed the insurer to pay Aon commissions that were not reported to employers.
Brokers Allegedly Wanted Payments Hidden
The Connecticut complaint asserted that brokers continued to insist on concealed arrangements even as regulators stepped up scrutiny into commission payments. The filing quoted an e-mail sent by a broker to Aetna. "As the discussion around disclosure of override contracts heats up we want to position these as arrangements as profit sharing of the overall book and not tied to a specific account."
Spitzer’s complaint outlined similar experiences in New York. Herkimer County, N.Y., which purchases benefits for 1,000 employees, paid Aon more than $78,153 over a five-year period to help it buy "stop-loss" coverage for protection from catastrophic health claims.
"In 2001, the lowest bidder for the Herkimer business would have been [Excellus] BlueCross BlueShield," Spitzer’s complaint said. "But since the coverage offered by Blue Cross would not have generated a 15% commission for Aon Consulting, it never gave Blue Cross the chance to bid." When Herkimer eventually demanded that the Blues plan be permitted to bid on business, "Aon altered it [i.e., the Blue Cross bid] by adding the 15% commission without disclosing the change to Herkimer," it alleged.

As part of its settlement, Aon agreed to create a $190 million fund to compensate eligible U.S. clients with policies begun or renewed between Jan. 1, 2001, and Dec. 31, 2004. It also promised to commit to "new business practices that include heightened disclosure of remuneration and the elimination of practices that may have posed conflicts of interest."
Anthem spokesperson James Kappel said he could not comment on the suits since Anthem was not a target. But, he added, "As a company, we do not engage in the practice of bid rigging or any other improper bidding practices. Any bonuses that are paid to brokers are based on persistency [the percentage of clients that renew coverage] and the growth of their overall book of business."
"Aetna firmly believes that disclosure of compensation arrangements with brokers is in the best interest of our customers, the broker community and the insurance marketplace," the insurer said. "In 2004, we began requiring brokers to inform their customers about compensation agreements, and we have recently published our expectations regarding disclosure of compensation on our Web site."
(Reprinted from the March 21, 2005, issue of MANAGED CARE WEEK)