What will be the biggest trend in the health insurance business over the coming years? A tendency to shift risk from the insurance companies to the public.
How fitting for a sector that was created to manage risk to do this.
Why is it happening? Even before the recent health care legislation in the US, insurance companies were looking for a way to shift the rising cost of medical care to others.
This trend will grow because of provisions in the new law for benefit mandates, floors on medical loss ratios, guaranteed issue, and medical underwriting represent a challenge for payer balance sheets. Insurers will want to shift those risks away.
And -- as we have discussed -- so will employers, who will want to shift their insurance obligation for current employees and retirees to others.
Who's left? Ironically, it is the participants in the health care marketplace who are most unsuited to bear risk -- individual doctors and consumers. This will come in the form of global payments, higher deductibles, and higher co-pays.
These will be portrayed as means to greater efficiency and consumer-directed health care. And perhaps they are. But they are also a veneer that hides the fact that a large portion of the actuarial risk of care will be shifted to individuals. The insurance industry was designed with reserve requirements and a capital structure that acted as a shock absorber for the vicissitudes of risk. Consumers and doctors do not have that back-up.
Alan MacDonald, head of the MA Business Roundtable, makes this shift clear in a discussion about Governor Patrick's proposed legislation:
Up until now, where the insurer in the health plans accepts the risk of making sure the payment is there to cover the expenses. When we have a global payment, a payment is made to the organization, and that accountable care organization is responsible for the care. They've received the payment already, and so the risk is that more care is required than is covered by the global payment, so they would have to have a reserve to take care of that. (Dig Boston, Volume 13, Issue 8). Emphasis added.
There has been no talk of reducing the capital requirements of insurance companies in return for this shift in obligation to individuals. Are they going to be permitted to maintain large capital reserves, on which they earn money, while their liabilities diminish? Who will ensure that the savings that insurers gain from these changes will be passed through in lower rates to consumers?
On a lighter note, comedian Brian Donnelly is quoted in the same newspaper -- perhaps displaying greater insight that he knows:
I've been looking at the new health care proposal and I'm not sure what's going on. Most of it feels like that part in the "Star-Spangled Banner" where no one knows what it is and you sort of mumble through. I feel like there could be magic involved.
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And with larger public risk, the issue of drug/service pricing would become even more contentious!!
Dear Dr. Paul,
Your explanation of the 'shift of the risk' from the insurance company to the holder of the policy was the clearest I have read, so far. Thanks for the perspective and for the humorist's quote on magic in the air. I am wondering what this risk would look like in the car or home or life innsurance business. What do you think?
Carol Trust
Paul –
I suppose there is plenty of room for difference of opinion as to what is the right allocation of risk between individuals and insurers. I would argue that, historically, individuals have been too insulated from the cost of their care which makes them less price sensitive than they probably should be. I think if the tax preference for employer provided health insurance were phased out in favor of lower marginal income tax rates and a higher standard deduction, people would opt, on their own, to assume more financial risk. Health insurance should be there to protect against catastrophic expenses, of course, and cost-effective preventive care could be included for a zero or nominal co-pay and outside the deductible.
In the early 1970’s, during the Nixon Administration, Congress almost passed national health insurance. According to Paul Starr, in his Pulitzer Prize winning book, “The Social Transformation of American Medicine,” Democrats proposed a comprehensive insurance plan with a $1,000 deductible while Republicans proposed a $1,500 deductible. Multiply those numbers by about five to translate them to today’s dollars. Organized labor prevailed upon Senator Kennedy to kill the bill because it thought that it could push through a single payer approach over a Watergate weakened President Nixon. Of course, Nixon resigned in August, 1974, a severe recession set in and there was suddenly no money for a new entitlement program. So, we wound up with nothing.
As for ACO’s and the need for financial reserves to cover above budget claims costs, we may ultimately move toward the Kaiser model with both insurers and providers as part of the same organization
It has never been more vague to the public of how information between insurer and provider flow. The old model (circa 2010) was assumed provider bill, insurer pay what they feel like. The individual unit of consumption - the subscriber/patient never negotiates, and rarely pays except a nominal service fee (or mortgage, if so unlucky).
Now, we call it 'Accountable'- ACO - but the insurer doesn't really 'insure,' and the provider moderates service without patients being aware of the matrix of their health outcomes being provided to the insurer. Who doesn't insure.
I get a letter from my insurer stating that I did not fill a prescription. Therefore, I am non-'compliant'. Actually, I didn't like the doctor. Or the way I was treated. I didn't like the medicine. Or the way it made me feel.
But I'm not going back, to see the doctor that I didn't like. I'm not giving up a morning off of work to explain to a doctor (who has known me for 15 minutes) why I want another medicine, and another doctor.
Because I have to spend another morning finding a doctor, who makes me feel, in the 15 minutes, like I am someone who is equal. And who will ask how it is that I spend my day, and what I do, so they will know how a medicine might make me feel.
In two weeks, I receive a survey in the mail that asks me how I like my doctor. And if he communicated well. And if I waited long, and if I am 'satisfied'. And it sits by my bills, and other mail that I will get through, if I do.
So I am non-compliant. And get another letter from my insurer. Saying that I am not taking my medicine when I should. And I wonder what other information my doctor (who has known me for 15 minutes), shared with my insurer. And I am feeling very non-compliant.
The capital requirements aspect of ACOs is (will be) a little different than is the case for insurance companies.
Insurance companies do not generally directly provide care. So unless they have managed to shift 100% of the utilization risk to their contracted providers via capitation contracts, they pay additional cash out of pocket for at least some portion of all "unexpected utilization," i.e., beyond actuarial projections and/or the budget implicitly built into the premium received.
But an ACO isn't necessarily paying 100% cash out of pocket for any unbudgeted utilization. Most of its services are going to be provided "in network," and many of its costs are fixed, not variable. A salaried physician gets $X regardless of whether he/she works an expected 55 hours or an unexpected 70. (At least in the short-run; in the long-run, equity and/or voting with the feet come into play.)
So from the point of view of the cash-flow risk, and ability to continue on-going operations, everything else being equal, the capital reserve requirements of an ACO are lower than for a traditional, state-licensed insurance company.
It's also worth noting that reserve requirements are in place to protect the public interest and consumers. And health care is, arguably, somewhat different that other forms of insurance, such as life and home.
In the majority of cases, if your health insurance company were to fail, as a consumer, you or your employer would be out one month's premium, and you'd have to shop for a new insurance company, and maybe a doctor in the new network too. An event, it is worth noting, that many many health care customers have to do too often now, as insurance companies get into markets and products, and then abruptly drop them as unprofitable. (Medicaid managed care, anyone?)
It could be argued that reserve requirements for ACOs should be reduced even more compared to insurance companies, because the harm potential to consumers is relatively low, and the upside potential of innovation in bending the cost curve is a socially desirable goal.
d.d.
Dear Non-Compliant:
You ARE non-compliant, in the sense of not making good decisions that impact your own health care. And at some point in the spread of accountability, you'll have to expect that you will be held accountable for that.
You wrote: "I'm not giving up a morning off of work to explain to a doctor (who has known me for 15 minutes) why I want another medicine, and another doctor. But I'm not going back, to see the doctor that I didn't like.
Because I have to spend another morning finding a doctor, who makes me feel, in the 15 minutes, like I am someone who is equal. And who will ask how it is that I spend my day, and what I do, so they will know how a medicine might make me feel."
I'm sorry you were not happy with the quality of interaction with your last encounter with a physician. And I am sorry that the medicine he/she put you on made you feel bad.
But given the reality that we cannot change history, you ARE going to have to spend time searching out a new doctor. Or go back to the same one and try to have a more productive discussion.
Unless you choose to give up care altogether, you are going to do one of those two options, sooner, or later. And the longer you delay, the more likely that YOUR health is affected by your choice of avoidance as an expression of dissatisfaction.
It is reasonably likely that your interactions with a new doctor will also be unsatisfactory to some degree, for the most part they all have the same 5 to 8 minutes per patient allotment/schedule to keep. And most of that time is necessarily used for the doctor to get information from you.
It is also fairly likely that a new doctor will make the same drug recommendation based on your condition, even with full knowledge of the side effects you were experiencing, because those are less threatening than the conditions they're treating.
But more importantly, it is very likely that unless you re-acquire medical care soon, your health will be affected, and bad things could happen to you that could and should have been avoided.
Please, please, please re-seek medical care ASAP.
Chances are good that your doctor did not specifically rat you out to the insurance company. They're increasing good at putting 2 and 2 together and drawing conclusions. You had a billed encounter with some diagnosis code indicating some condition the insurance company is trying to pro-actively manage, and they also received a billing claim for a prescription commonly used to treat that condition. But that prescription has not been re-filled or replaced with an alternative. So their backroom analytics tell them you have a condition for which you are not keeping up with the treatment ... i.e., you are non-compliant from their vantage point.
And they care because this makes you vulnerable for a bad outcome, and/or someone is watching over their shoulder for "metrics" on the care they're delivering for this condition, and/or it will be expensive for them if the condition progresses without care. So they've invested in nag-technology, to reach out and touch you.
You should care too ... because it's you, your health, and your quality of life that's at stake.
---
We'll all more or less familiar with FICO credit scores, that lenders use to gauge the riskiness of borrowers.
Insurance companies have been granted some rather broad anti-trust exemptions that allow them to shave information on insured parties.
As accountability grows, I envision that the held-accountable industry will develop some kind of "Insured Party Noncompliance Score" that they will share via some clearing house. And people with a track record of non-compliance with best medical advice will find it very hard to find insurance companies and care-takers willing to take them on a customers.
"Your history says you're going to ignore advice, harm yourself, and make me look bad; I'm just not willing to take that risk."
d.d.
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