There’s something missing from the debate/argument/shouting surrounding Wellpont’s rate increase announcement; nowhere, in any statement I could find, did the company or it’s critics address the core issue, Wellpoint’s inability to control costs.
Isn’t that what healthplans are supposed to do? Isn’t that a core part of their reason for existence?
If they can’t control costs they aren’t much more than transaction processors and provider contract aggregators.
Wellpont did make statements about the need to raise rates to address medical inflation and an aging population; what wasn’t presente was their solution to the problem.
Why not? Doesn’t one of the largest healthplans in the nation know how to control costs?
There’s no evidence that Anthem or United or Coventry or Aetna or Humana have any ability to manage medical care such that quality is high and costs aren’t. What is evident is their ability to raise rates to stay above medical inflation.
And therein lies the problem. Health plans, health insurers, both for- and not-for-profit, haven’t controlled costs. And outside the relatively minor investments in disease management and nascent provider profiling efforts, there is no evidence they are even working hard to figure it out.
I’m having a hard time understanding how the private sector is going to solve the health insurance crisis. Truth be told, Medicare’s blunt and clumsy approaches, for all theirany problems, have been more successful than any private plan.
What does this mean for you?
When costs get unaffordable, health plans will have no one to blame but themselves if they find their role reduced to administering a single payer program.
Feb
24
Joe– How in the real world can any mere private corporation hope to make a dent in the twin juggernauts of Organized Medicine and the Aging Population? These are enormous forces, far larger than any health insurance company. The health insurers only look large. They are actually pretty fragile organizations operating on razor thins margins with no power to mandate or enforce. As you suggest, they are paper tigers who administer but who do not control. Yes, some form of single payer backed by the Feds’ power to command and punish is the only solution. The real question is whether we will get a decent single payer system or a Frankenstein patchwork of political compromises that works no better than the private payer system we have now? Anyone want to place a bet?
The ability of health insurers to hold down total health care spending has been way oversold. Managed care discounts have actually been counterproductive. The top 2-3 insurers in each market just fight for a slight advantage in discounts. They don’t really care how much overall costs rise as long as they can claim their discounts are a few percent better than the other guy’s. They also don’t bother selecting the most efficient providers. Pretty much everyone is in their networks.
Managed care discounts have done very little other than concentrate market share among insurers and providers. Of course a single payer system is where we will eventually end up. In the meantime we should require hospitals and docs to charge all their customers the same amount (including the uninsured), use standard billing practices and publish all their fees and rates on the internet. Let insurers compete using utilization controls, more selective networks, customers service, greater efficiency and lower profit margins.
For several years now I have seen the the relationship between Insurance Carriers and Providers as similar too The Automakers and their unions. The carriers want to limit competition so they give the providers whatever they wan’t. There is too much greed in the system. Is this the next bubble to burst?
Joe, As long as the recipient of care is removed from the purchasing event it is going to be really hard to control medical costs. When I first looked into RK for my eyes the price was $2500 per eye I said glasses are fine. When I checked back and it was $750 per eye I justified that in eight years the surgery would pay for itself.
I think you forget that as a for profit within a for profit etc. Their CEO’s only obligation is to the fiscal responsibility and the board…that is, to make a profit. While they may promulgate they are there to help control costs, which is done by ever decreasing UR and reimbursement to providers (different article by you I hope) if you were to ask the CEO what is his legal duty. It is to the shareholders and they are there to make money……
It’s the problem with a for profit system, not really the fact that some make money in it. But that there’s so much obligation to profit and so many hands in the cookie jars.
I side mostly with Chris M. on this one. I actually think the way Medicare Supplemental insurance is sold is the right model, with a dash of the cell-phone-service business model thrown in.
Med Supp is basically 12 different plan designs, all clearly defined and limited by the government. An insurer can offer any or all of 11 of the designs in a chosen state, as long as if offers the 1 Basic Plan. The plans’ actuaries establish their rates, and they compete on price and customer service, since the “network” for all of them is the same — any doc or hospital that already accepts Medicare A & B patients.
Why not sell commercial insurance the same way? Everybody has a basic plan, and the government regulators establish a menu of x number of other, richer plans, allowing insurers to compete on price and service, and perhaps network too, a la the cell phones. And like the cell-phone industry allow the insurers to lock customers into a two-year contract period during which you can’t drop without penalty, after which time you are a free agent and can drop at any time . . . and lock into a new 2-year contract with someone else.
The only problem with comparing the cell-phone model to health plans is that your 2-year lock-in ostensibly pays for your “free” handset at the beginning. What incentive plans could offer at sign-on to justify a two-year lock-in is something I haven’t thought through, but I’m sure somebody could come up with something. Free Health Risk Assessment or something maybe.
David
thanks for the comment. Your observation re the motivations of a for profit exec are of course accurate but I’d suggest a health plan that did a better job controlling cost would, in fact, be more profitable and thus deliver a better shareholder return.
Paduda
Gary – there’s any number of ways a private insurer can control costs. Start with a small, limited network built on data mining, provider profile analysis, and outcomes evaluations. Select one hospital or system in an area. Require all members with chronic conditions to get their care from a multi-specialty group. Take benefits away from those who don’t comply.
The health plans will moan about their members’ and prospects’ desire to have a broad provider network – let them. You can have control or broad access, but not both.
Paduda
Paduda,
true about controlling costs but let’s not forget their biggest argument is that they work on a small margin ie. 3%. Granted it’s a small margin but of a huge actual dollar amount and I believe they have a perverse motivation to keep costs high so that the margin equates to big profit. If they control costs and their cost goes down then so wouldn’t their profit or are we destined to allow them billions regardless of costs? how does a CEO justify allowing profits to go down?
David – no, if medical costs decline than payers’ margins increase – same as in any other business. The plans that control costs then shadow price the competition and make money hand over fist.
See the history of HMOs killing off indemnity plans in the nineties for real world example.
I worked in the managed care industry for many years. In the late 1980s and early 1990s as enrollment grew rapidly, we actually had a couple of years where national health spending grew at a very slow rate. Then we had a tremendous, anecdote driven provider and legislative backlash. Managed care companies basically gave up, figuring it was easier to just pass along provider price demands and ignore excess utilization than to get beat up. Watching the current political circus you can see why. Everyone who looks at the data has known for years that the underlying cause of most of the growth in health spending is provider pricing–not utilization, pricing. That has very recently been confirmed by the Rhode Island report on hospital payments, the Massachusetts AG report, the recent article in the American Journal of Managed Care on causes of geographic variation in private payer spending and the very recent Health Affairs article on hospital pricing power in California. Until policymakers have the courage to tackle that problem, don’t expect health care spending to go down even to the rate of general inflation or GDP growth.