Data from several sources, including Farrah and Associates (got to love a company that is located in Maine) indicates group insurers were able to reduce medical trend to 4.9% last year. That’s the best result, in, well, further back than I can remember.
Coventry’s recent Q2 2010 earnings call indicated their results were comparable, and med loss trends were pretty close.
Aetna’s numbers are comparable, as are the reasons for the improvement. According to a WSJ piece, “Aetna and its peers are reporting lower utilization of medical services this year. [President Mark] Bertolini attributed the trend to the weak economy, a less severe flu season, harsh weather in the first quarter and some wearing off of Cobra coverage for people who were laid off their jobs.”
How’d they do it? Can you do what they did?
First, let’s deconstruct the reasons for the happy news.
The flu season wasn’t a) as bad as predicted and b) insurers, burned by the previous flu season, probably over-reserved.
Members covered by Cobra are notoriously expensive; people don’t sign up for Cobra unless they think they’ll need it, and in most cases they are right. Loss ratios for Cobra tend to be well above 125%; thus the expiration of Cobra helps dump unprofitable business. Expect this to continue to aid MLRs for several quarters to come.
Many health plans now have higher deductibles and copays, cost-sharing arrangements that may well be causing members to avoid seeking care. (research suggests the care avoided may be necessary or unnecessary). Coventry Allen Wise mentioned this in his earnings call as a possible contributor.
From a purely speculative perspective, it is possible that employers who were faced with high premiums due to poor experience rating, older populations, or other factors, have dropped their coverage at a higher rate than in the past. This might contribute to lower utilization. I’d also note that rate increases may have the opposite effect; employers that really need coverage will hold their noses and pay up, while employers who don’t think it’s worth it (read – don’t expect to need insurance) drop out.
We’re left with results driven by benefit design, demographic changes, and one-time events.
Don’t get me wrong, the numbers are good, but the drivers aren’t what we need to really gain control over costs over the long term.
Fortunately, some health plans are already taking steps to do just that with smaller, tighter networks and limited access out of network.
If you are a workers comp payer in California, chances are your results were a whole lot worse, as medical costs are once again back up to pre-reform levels. According to this piece in Risk and Insurance;
“…looking at first-year payments on lost time claims, researchers found that since hitting their post-reform lows, average amounts paid per claim for treatment have increased 41 percent; average amounts paid for pharmaceuticals and durable medical equipment are up 69 percent; [emphasis added] average amounts paid for med-legal reports are up 79 percent; and average amounts paid for medical cost containment are up 86 percent.”
Of course, this simply means reform cut costs dramatically over the last few years, and only now, several years after reform’s implementation, have costs returned to the levels seen in 2004.
That said, comp payers can’t fiddle with benefit design, out of network contribution differentials, cost sharing, and the like.
What does this mean for you?
a) a temporary hiatus from structural trends, or a pause to show us what the future may hold if we get serious about containing cost.
b) for comp payers, the recent moves to smaller networks should be a big wakeup call.
Aug
2
I’ll take you to task on the Cobra part. Studies I have read in the past indicated that Cobra runs at about a 150-160% loss ratio. We tend to forget that starting 4-1 of 2009 there was a Cobra Subsidy, Uncle was paying 65% of the Cobra rate. Suddenly continuation Coverage was affordable. In fact Family Coverage may have been cheaper under Cobra than it was before based on what I have seen in the past. What might have been a $1000 premium was now $350. They couldn’t individual Coverage cheaper.
Even then the carrier is Collecting $12,000 a year. The other item they won’t mention is Rx savings. A large number of Drugs went to generic last year and Generaic usage is increasing. While both brand and Generic cost are increasing the switch to generics is lowering the overall costs.
Donald – thanks for the comment.
We’re discussing without the benefit of real data, so it’s a bit tough to determine who’s ‘more correct’. I’ll grant that more folks signed up due to the subsidy than would have without it; htat said, $4000 is still a lot of money for someone on unemployment. As both Bertolini and Wise noted Cobra terminations contributed to lower costs, I’ll use that as my ‘data point’; health plans ALWAYS track loss ratio by type of plan, and Cobra loss ratios are closely monitored.
Paduda