Wednesday, April 07, 2010

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.

33 comments:

Anonymous said...

Paul, you may be correct on this, but the insurers are pursuing a poor strategy on this and they are playing right into the political trap that Governor Patrick has set. A better strategy would have been for the insurers to demonstrate their precarious financial standing and to warn about the consequences of politicizing rate setting.

In the eyes of the public, this just makes the insurers look "greedy", even though many of the big companies like BC/BS had big losses last year.

I'm no fan of insurance companies, and neither are most other people. The Governor understands this and are positioning them as the "bad guys". (Arguably, not a heavy lift.) The insurers should be battling that perception not helping the Governor perpetuate it.

Paul Levy said...

I'm not a lawyer, but I don't think they have any legal options to what they are doing.

Michael Pahre said...

Is it that the state's insurers, in your words, "can't write policies," or that they are deliberately choosing not to as part of a strategy to play hardball?

That all these insurers (except one, the new CeltiCare) would happen to take the same action (requesting delisting from the health insurance exchange) over a couple of days looks, to a casual reader, like classic monopolistic behavior.

Aren't there federal anti-trust laws that might regulate behavior like this by the health insurance industry? Aren't those laws not only civil but also criminal?

I suspect that, if the health insurance industry thinks that they can play hardball, then they haven't seen what hardball really is -- until the DOJ's antitrust division subpoenas health insurance executives' emails and phone records, and hauls them in to testify under oath in front of a grand jury.

Anonymous said...

I agree, insurers don't have any other option but to engage in a legal donnybrook. But, despite what they would like us to think, insurers certainly did have an option when they agreed to give some providers 14/15/16% increases year after year after year; while they gave little or nothing to many others. I do not think it is a coincidence that working class communities like Brockton, Quincy and Lawrence find themselves on the brink of losing their hospitals-- while the tonier zip codes of Newton, Hingham, and the North Shore have sparkling, thriving medical centers to serve those much wealthier residents. Yes, Paul, the insurers are non-profits; but they shave disproportionately directed their charitable assets and employer dollars to the wealthiest communities, and that is simply not consistent with the non-profit mission. Premium caps are bad public policy, but allowing Blue Cross to act as the state's de facto regulator is even worse public policy. They have enriched their executives and their risk reserves, all while creating an underclass of hospitals no longer able to adequately serve their communities. Now Blue Cross is putting the nail in the coffin of that underclass by once again overfunding Caritas, a system that serves far fewer poor and uninsured than those Blue Cross has continued to stiff-arm. Rather than posturing against insurers for political gain, the Governor urgently needs to address head on the distorted pricing policies the Baystate's largest insurer continues to promulgate.

Anonymous said...

They absolutely had the option of continuing to list the currently approved rates with the Connector. They made the decision to up the ante against the Governor and it's going to backfire on them. Unfortunately, that puts insurers squarely in the political realm, and on this important public policy issue that's bad for them and for the public.

Anonymous said...

What most of you don't understand is that the state/doi determines the amount of reserves a not-for-profit insurer must retain to cover claims for a financial drought. They set the high end or cap and the low end or minimum. Now they are mandating tthat insurers can only increase a rate X% when the the providers can increase what they charge and have no limits. This creates a significant disparity in what is received by the insurer vs. what they pay the provider. You don't have to be a math genious to figure out that a company can't stay in business very long if you are paying out 7 to 23% more thasn you are receiving...but it seems the governor and the state are having issues with their math. If they wanted to limit the health insurer's rate increases they should have also brought the provider's rate increase in line with those same limits. They failed to do so....this administration has failed as so many things this shouldn't surprise us at all. It was in the paper that Blue Cross posted a 148 or 149m dollar loss. How much longer will that company last if they are paying out 10% more on claims than they are receiving in premiums. Bash the insurance comapnies if you want but it's your government thsat has failed on this issue.

Barry Carol said...

If regulators were really interested in trying to mitigate sharp increases in the cost of both healthcare and health insurance, they would vote to approve the disclosure of contract reimbursement rates for hospitals, doctors, imaging centers and labs. Then, referring doctors would be in a better position to steer their patients to the most cost-effective providers. Employers, employees and individual MA residents, for their part, could help the cause by showing more interest in narrow network products that exclude high cost providers whose high costs are attributable to their significant local or regional market power and not superior quality. Instead, customers want access to every provider for the same low co-pay and regulators demagogue and vilify insurers rather than tackle the root causes of the cost problem. Sigh.

Interested said...

The large, famous, prestigious integrated delivery sysytems in this market have a lot of clout. It's easy to say "don't give them sweetheart deals" and "what is this nefarious back-room handshake netting them so much money?"

But the reality is far less conspiratorial; if a plan does not accede to their demands for sweetheart rates, they will not participate. And if they do not participate, the plan not offering them is at a crippling competitive disadvantage; plan sponsors do not want a product that leaves off the prestigious world-famous heavy-hitters.

It baffles me that the state's position on this issue maintains any credibility whatsoever. Will they next be going after the letter carriers who deliver small business their mail? Maybe if they stopped receiving bills, they would not have to pay any premiums at all. Wouldn't that result in even more job creation than merely capping rates? Yet right now, those bills just keep coming. The letter carriers must be stopped! Won't someone please think of the children?

Keith said...

Paul-
Its easy to bash Partners (because be honest, that's who you're targeting) and say they get paid too much but I would argue that the culpability is equal with the insurance companies.
Technically Partners/BWH/MGH are non-profits too just as are the insurance companies and their margins would take a massive hit just as you say the margins of the insurance co's would. Is that a good thing?, I don't think so.
BC/BS didn't have to give Partners "the deal" several years ago, they could have said no and done public battle with Partners rather than battling the Governor now, but they chose not to.
Ellen Zane chose to fight BC/BS for higher reimbursement, she didn't say 'you know, our rate is ok at Tufts, everyone else should get what we get though to be fair and fix the system', she said "We hope that Blue Cross comes to their senses, the place has been grossly underfunded." (btw, I don't see Tufts eager to show off their quality of care metrics either.)
Be honest, go back to 2004, if you could have gotten the deal for BI (BIDMC now) that Partners got from BC/BS, tell me you wouldn't have taken it.

Paolo said...

If the insurers can band together and coordinate pulling out of the connector, why can't they band together and exert leverage to obtain better pricing from the most expensive medical providers?

Placing insurance premium caps is probably the wrong way to put pressure on prices, but somehow there must be a way to put the health care sector under a budget.

Anonymous said...

The governor's policy is short-sighted and places the blame on the insurers. However, the insurers in Massachusetts are non-profits. At least 90% of premium dollars paid to these insurers pay medical claims, not CEOs' salaries. They aim for a profit margin of 1-2%.

The increase in medical cost is mainly due to a large provider network that demands ridiculously high compensation. If insurers did not have a contract with this provider network, they are at risk of losing about 50% of their members.

If insurers are forced to implement the rates the DOI suggests, the insurers, who employ large numbers of us in the region, will be forced into layoffs, and in the case of one of the insurers, insolvency.

Paul Levy said...

Keith,

Check the chart in an earlier post. This isn't just about Partners. This is about an insurance rate scheme that is totally out of whack, as noted by a previous commenter (Anon 8:50).

I've always said that Partners executed their business plan beautifully. I'm not blaming them for being successful.

The AG's report has displayed these numbers now for the first time. She reached important conclusions. You make a good point about the role of the insurers in allowing this to happen.

Thus far, the policy makers are ignoring these conclusions.

Anonymous said...

You know why it's so easy to beat up on insurers?

1. From 2003 to 2007, Blue Cross' administrative expenses went up $300M; more than 10% a year. At a time when inflation ran far below that. Can't wait to see 2009 numbers.

2. Part of those "administrative" expenses were generous (tens of millions) endowments to their own "foundation" that they use as a political revolving door and to commission white papers to advance their political agenda. Wonder how small employers feel about Blue Cross using their money for such "charitable" purposes?

3. Oddly enough, Blue Cross' administrative expenses went up these huge amounts even on a per member basis despite the fact that their membership also grew 20% during this period. How can there be no economies of scale in a business that is basically a huge claims processing business? They're eager to point out that "only" 10% of the healthcare dollar stays with them; but why do their administrative expenses keep growing at about the same rate as medical expenses?? Shouldn't their share be going down?? Hmnnn...

4. Their outrageously arrogant culture has resulted in complete animosity with all but a few of their well-known pet provider organizations. They throw around "grant" money and buy the public perception of collaboration. The reality is far from that. The damage they have done to their physician and hospital relationships is irreparable.

They live in a very fancy glass house. And they've made themselves a target by parading around it in designer clothing while scolding everyone else for being wasteful. Where I come from, that makes you a deserving target.

Anonymous said...

Hey Mr. Levy,

I'm a healthcare admin student and big fan of healthcare op's management. I would love to get your feedback on the following...

MA seems to be a step ahead of the healthcare reform curve; passing a law requiring individuals to have health insurance, creating the healthcare payment reform commission you've highlighted in past postings, the recent findings of the MA AG's and - most recently - the rate increase rejection situation.

Politics aside, could it be that we are seeing true reform of the healthcare business model (a model in which private payors make up for the shortfall of gov't payors and healthcare organizations leverage market share to negotiate reimbursement) play out?

Could it be that we're moving towards a model in which financial issues for healthcare organizations will no longer be resolved by asking for more $ for private payors but rather by examining the front-line processes that produce costs which are above reimbursement levels? Do you think MA is headed in a direction in which the reimbursement for service x will be fixed at level $y, and it will be up to the organization to maintain a system in which $y will be enough to cover the costs of providing x service (I've heard this described as Ohno's equation Price[set by the market]= Cost + Profit)?

Thanks!

Hildebrand said...

"Disparity of reimbursement rates" was one of the reasons? Seems the Democratic thing to do would be to reduce all reimbursement rates to bring them into conformity, then impose new laws requiring all providers to continue providing health care service for less money. Equality at the cost of solvency.

Michael said...

This is a good conversation. I figure I should throw my two-cents in...

I work for one of the local not-for-profit health insurers in MA. My coworkers and I have been discussing why the AG's report has been all but ignored by the Governor, DOI and legislature. From what we can gather, we figure they believe going after providers such as Partners would be harder both politically and financially than going after insurers. We've decided that they seem to think it is easier to "dam the river" so to speak.

Since a) insurers are the source of a large chuck of the funds going providers, b) some of these providers have more market power than others to dictate prices, and c) insurers have to increase premiums in order to pay these increased prices dictated by certain providers, it follows that capping premium increases will provide insurers more leverage when negotiating rates with certain providers (i.e., they can simply say they cannot afford to pay providers what they deem necessary). It is also possible this will lead the provider community to seek other ways to contain costs.

Engineer on Medicare said...

Transparency and Competition!

The payers, including the state and large insurance carriers, need to take on the PROVIDERS!

As it stands now, the insurers have no incentive to control costs and payments to providers. Higher payments to provicers merely justify higher salaries and larger edifices for the insurers. That has to change.

Do a comprehensive audit of provider costs and establish a payment point at about the 50th percentile level of the providers in a market area. That is all the payers will pay and that is the basis for which the state will set insurance rates. All publicly paid charges will be limited to the set rates.

Institute a competitive auction among providers. The state could set its payment rate based on the bid that covers 50% of expected demand. The higher-cost providers will have to become more efficient or lose a lot of market share. Loss of share will force them to cut costs or go bankrupt. Low-cost providers will pick up share.

Audit the insurance companies and only allow overhead and administrative costs at around the 50th percentile of all carriers, or reasonable rates, whichever is less.

Make it clear to USERS that if they choose providers that charge more than allowed rates that they will pay the difference out of pocket.

Then let the market work.

The high-charging providers will bring their charges into line or they will lose share and they will not be able to compete. Insurers will bring their costs into line or they will lose share. Many large companies will self-insure and the published rates will be available to them.

76 Degrees in San Diego said...

If you go to statehealthfacts.org, you will find a gigantic difference in the per capita expense between MA and CA. It is probably even greater in SD! So, small business, come and catch the waves out here! (our state needs you!). And, we like the Red Sox - some of our best players have come from your team!

Anonymous said...

I am unclear from Paul's post exactly what he thinks the "root cause" of the problem is. If it's this quote from the AG report:

"... 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"

then I don't see why that's the regulators' problem. It's the insurers' problem for not holding providers accountable for both of those two factors.

I agree with other commenters - I fail to see why BCBS has rolled over to Partners' and other's demands without protest over some years, and now cries foul over premium increase limitations. There are examples in the newspapers every single day throughout the country of battles between insurers and large hospital systems over whether or not the hospitals' large rate increase requests are reasonable, and threats to discontinue coverage.

I see much blame to spread around here, as Barry (as usual) astutely points out - don't just bash the regulators alone.

nonlocal

Paul Levy said...

Dear nonlocal,

At the hearings a few weeks ago, BCBS said that it did not have sufficient market power to offset that of Partners.

Anonymous said...

Yes, I know what it said. I just don't buy what it said. (One should never admit weakness in an adversarial negotiation, correct?) Its statement smacks of BCBS trying to get the state to do its hard work for it. Other insurers at least make these provider rate increase requests public and attempt to bargain, often with favorable results.

(Disclaimer: I don't read the Boston newspapers regularly so I don't know what happened with "the deal" between BCBS and Partners that you all always talk about.)

nonlocal

Anonymous said...

Sorry; I always think of these addendums later, but also recall that the Partners' CEO ADMITTED (this is a crucial development) at the hearings that Partners' had a cost problem - e.g. their costs were too high. As I recall, he said something like "are our costs too high? yes. Are we working on it? yes, but not hard enough."
Even more reason to fight them on their rate increase requests; now BC has the ammo. The other hospitals I am ignorant of.

nonlocal

Barry Carol said...

nonlocal,

If I remember correctly, the deal between Partners and BCBS was that if BCBS agreed to Partners’ rate demands, Partners would not grant more favorable rates to any other insurers in the market.

As I see it, the key problem from the insurers’ perspective is that employer customers felt it was absolutely essential to have Partners in their networks because that, presumably, is what the employees wanted. While narrow or limited network insurance products are quite well accepted in CA especially, it’s a different story in MA. Harvard Pilgrim, I believe, offered an insurance product that did not include Partners in the network but it didn’t gain much traction with customers.

This is why I keep coming back to disclosure of contract reimbursement rates and quality information to the extent that it’s measurable to help referring doctors steer their patients toward more cost-effective healthcare choices. I think that’s the best and most viable way to create countervailing power against Partners and other hospital systems with significant local or regional market power. Insurers could develop a mechanism to reward referring doctors who actually do this most effectively but they would need the price and quality information first. I think I know why insurers resist disclosure of contract rates but I don’t know why the regulators do.

Cleary Squared said...

Reading some of the comments here magnifies it away from the fearmongering and onto some really constructive discussion.

I think our vaunted press is giving us the sizzle but not the steak of what's going on. Yes, it's easy to pick on the non-profits and wish for their immediate abolishment, and it's easy for the non-profits to sue the government to allow them to raise rates. It does no good, however, as it's simply preaching to their respective choirs. In all this back-and-forth bickering, we're missing the cruxes of the argument, one of which has been greatly illustrated by Michael - that going after the provider groups, such as Partners, would be financially and politically tricky. (In the interest of full disclosure, I also work for a non-profit health insurance company.)

The providers, and the provider groups, like the idea that they can charge money to what they think is allowable and then submit claims in hope that the non-profits will pay them as much as they can. For example, they can submit a claim for a PT visit and bill for $125, and the non-profit will allow them $50; then when the copayment from the patient (say $25) the provider will receive $25. Or, a provider group can mandate that a member get 24 visits of PT and the non-profit, if they want to keep the provider group happy, will allow it.

I can now see why people clamor for a single-payor, government run insurance system: as being the only payor of resort, they can negotiate with provider groups and either (a) allow them far less than what the non-profit will pay, (b) flatly deny ("ration") care in the interests of saving money, or (c) give the providers financial rewards for encouraging a beneficial outcomes for their patients and financial sanctions for those providers who don't toe the line. For example: a provider who used to have 24 visits approved for PT when they negotiated with the non-profit will now be mandated to have 12 visits per year or 48 visits per lifetime; if the patient succeeds rapidly with their progress, the government will reward the provider group for a successful outcome. If they go beyond the 48 visits, then the government will withhold payments.

From a financial standpoint, single payor would appear to save trillions. The tradeoff is that the government would be calling all the shots - hence the massive resistance to single payor, despite propaganda that claims to support it. I do not support single payor UNLESS it were for basic, preventative care.

In the meantime, the non-profits and the Governor, instead of sniping at one another and suing one another like crazy, should channel their energies and ask WHY health costs are so high and WHERE the source of the money sink is. They say sunshine is the best disinfectant; why not let it shine?

I apologize for the long post.

Anonymous said...

Barry;

I understand and agree with your point about transparency but I just don't know enough about the legal and political aspects surrounding it. As for physicians, I hate to say this but, if the patient wants to go to Mass General, no doctor I know would fight them on that unless there were very significant reasons - and if those reasons were financial incentives, I supppose the docs could be accused of conflict of interest. This is not an easy situation.

My frustration is with the way in which everyone involved - providers, insurers, employers, regulators, and patients - points to everyone else as 'the problem'. If each one of them proactively took some responsibility for concrete actions to decrease medical costs on their own, I think it could add up.

Providers: learn to practice/deliver care more efficiently at lower cost.
Insurers: work to incentivize providers to lower costs and resist exorbitant demands for price increases. Try to act more as a patient advocate instead of a cost-pass-through claims processor. (In my view, BCBS just plain rolled over without even a token fight. Even if they knew Partners dominated the market, didn't mean they couldn't publicize the exorbitant request, point out the high costs in the Partners' system, and be clear they are being dragged into compliance - and then don't whine about it later.)

Regulators: Paul has covered this one.
Patients: accept you don't have to go to a teaching hospital for a herniorraphy. Or be told so.
Employers: educate and incentivize employees along the above lines.

Spinning one's wheels deciding who is "THE problem" and complaining is getting us absolutely nowhere.

Sorry for a Health Care Blog- length comment! (:

nonlocal

Paul Levy said...

From Facebook:

John: It will be interesting to see the governor and his insurance commissioner defend their proposed rate caps in court. None of the five insurers who joined together to sue the state made any money in 2009. So now we can add the cost of supporting litigation to both our premiums and our tax bill.

Anonymous said...

A couple of points: Without getting into the politics or policy of the insurer rate debate, I imagine the admininstration is focusing on insurer rates because that is one of the few areas where the administration has existing statutory authority to do something--no changes in the law are necessary. If the governor wanted to do something about provider rates, other than use the bully pulpit and cajole, he needs new statutory authority, which he's requested from the legislature in the jobs bill he filed and, may request more of more of if he files a provider payment reform bill.

Just a small note to Paul: Not all the health plans lost money in 2009. Harvard Pilgrim made $24 million and Tufts made $14 million. A significant portion of the losses at a few of the other plans related to investment losses, not operations, which means that premiums were adequate to cover underwriting results. At the biggest plans, the losses had virtually no effect on underlying solvency based on the most common measures used by regulators.

Nancy

Barry Carol said...

nonlocal,

I appreciate your point about the difficulty most doctors would have in discouraging a patient from going to a particular hospital. I also understand the potential conflict of interest issue if there are financial incentives involved. This is why I also support tiering, especially for hospitals. If the patient were subject to an additional co-pay of $1,000 or even $500 to go to a high cost hospital, it might be enough to get his or her attention. However, to take Mass General as an example, with respect to conditions for which it earned a Center of Excellence designation, it could be a Tier 1 hospital for those but a Tier 2 or 3 for other care. The tradeoff here is increased complexity around insurance coverage as compared to narrow network products in exchange for broader choice.

I also fully agree with you and share your frustration when every interest group points fingers at others and wants the problem(s) solved at someone else’s expense rather than own up to their own responsibility, share ownership and offer constructive solutions that might cost them money or power in the short term in exchange for a more affordable and sustainable healthcare system over the long term.

In the four years that I’ve been commenting on healthcare blogs, one of the biggest surprises to me is the role of real and provider perceived patient expectations in driving utilization. One of our challenges is to keep pounding away until patients understand that more care and/or more expensive care is not necessarily better care and that there is a clear connection between patient expectations, healthcare utilization and the rapidly rising cost of health insurance. Employers can play a significant role here as well.

Anonymous said...

Just as Ellen Zane said, it is a VERY warped system, and the "bad, bad" insurance cos. are taking the heat. What is never presented is the other side of the picture. How the hospitals entice their doctors to perform unecessary or above and beyond procedures in order to produce more revenue for the hospital who then kick back a "bonus" to the doctors. Talk about conflict of interest.

This all happens without respect to the actual patient involved, who commonly treat doctors as gods and rarely challenge their medical advice, and view Boston hospitals as "untouchable". PLEASE - let's get serious. We all know that hospitals and doctors/providers have to run a business as well, profit or non-profit.

In addition to that, the rising costs of these "superior" technologies which keep Boston ahead of the curve treatment-wise have to be absorbed somewhere.

I have worked on both sides of this debate, and I truly believe that yes, Ellen, the system is warped, but please don't turn your back on Tufts and other hospitals' and providers' responsibilities to be on the up and up. This is a huge conflict of interest which only hurts the consumer, the patients, and businesses in the end. It is NOT a problem caused by the insurance companies.

76 Degrees in San Diego said...

I seriously doubt that hospitals "entice" doctors to order tests in Boston. I think that there are few, if any, "kickbacks". If you think so, the OIG would look into any evidence quickly, I am sure. Patients have preferences. They tell their employers. The employers want to stay in business and keep their employees content.
So, I guess everyone needs to have more "skin in the game".

Anonymous said...

a few thoughts.

Engineer--you are proposing rate setting along the lines of the successful program in Maryland. Nobody seems to love it, but it is accepted as fair and reasonable.

Market power--in the '90s, we got rid of rate regulation. Why? Because the payers had the clout, not the providers, and they could handle the issues of cost containment at least as well as regulators. It worked spectacularly well for 5 years. For 2-3 years we had almost zero medical inflation.

Tables turned--the follow up is that providers closed, others consolidated, and now they have more clout than the payers. There is a critical reason why providers will remain more powerful than the commercial payers. It's that public payers are about half their revenue. It doesn't matter that United is huge nationally--they are a bit player in many of their markets.

It's not clear if BCBS of MA has or had enough clout to take on Partners. But they made a very wise business move. They recognized that their competition wasn't partners, it was the other insurers. BCBS really doesn't care how much they pay, as long as they are not disadvantaged relative to THP and HPHC. They still get to collect their (increasingly large) 10%. Of course, in doing so, they abrogated what I see as their fiduciary duty to their customers. A very clear conflict of interest, indeed. (Remember, THP was the only insurer to seriously try to put a brake on Partners, and they lost big time.)

Consultant

Anonymous said...

Oh trust me, I have been in very confidential financial meetings in hospitals, and indeed, they DO request doctors to perform tests that costs more money, and they DO pay them a "bonus" based on what they bring into the hospital. Let's not keep blinders on. Whether the doctor/provider is swayed by monetary incentives is up to the individual doctor. Some are ethical, others are "ethical" if paid so...

Anonymous said...

Anon 1:56:

The behavior you describe is illegal, although it may be disguised sufficiently to appear legal. I agree with 76 Degrees above that such behavior should be reported to the OIG or your state authority. If you have actual evidence or can point the way to the evidence, whistleblowers are protected. Health care fraud is high on the radar these days.

Although I don't understand your comment "paid to be ethical." It seems to contradict your assertion.

nonlocal MD