A couple weeks ago I started what was going to be a discussion of how we should ‘fix’ health reform that was intended to run on consecutive days – only to have that sidetracked by goings-on in the health, political, and financial worlds that pushed reform to my back burner.
Let’s get back to reform.
First, the easy part. There’s no question Congress has to address the 1099 issue – the requirement that all businesses have to inform the IRS when they pay anyone more than $600 over a year. As a small business person myself, I have zero time to send out 1099s to my cell phone, internet access, web hosting, legal, accounting, admin support and other suppliers. No brainer.
Here’s a much harder one. Medical loss ratios (MLR).
For politically-obvious reasons, the Senate included requirements that health insurers spend a set percentage of their premiums on actual medical costs and quality improvement activities; at least 80% for individual/small group policies and 85% for larger group coverage. If an insurer’s admin expense (all costs EXCEPT medical costs are higher than 20%/15%, policyholders get a refund/rebate of the ‘extra’.
The rebate requirement kicks in on January 1, 2011; insurers are already scrambling to figure out how to identify, aggregate, and report costs; lobbying HHS and the National Association of Insurance Commissioners to consider medical management and prevention expenses part of the medical cost category; and crunching numbers to figure out what their medical costs will be in 2011, and based on that, what premiums they can charge.
The MLR requirement is going to require health plan execs to spend an inordinate amount of time and energy figuring out what costs go where and how they need to report those costs to HHS. If they screw up and their medical costs and quality improvement expenses are below the threshold, they have to pay a penalty.
While one can make a rather superficial argument that this is all to the good as it improves transparency, I’m hard pressed to understand how this ultimately benefits anyone.
Health plans that do a great job managing chronic conditions may well be ‘penalized’ for that success. Plans that contract with providers who deliver excellent preventive care, ensure expectant moms take their vitamins and don’t smoke, and get their tubby patients to drop a few pounds may find they are cutting checks come MLR audit time. Payers channeling patients to hospitals with low infection rates and few re-admissions will be in the same situation, as would those that carefully monitored potential diabetics’ health status and clinical signs.
These programs are costly, many have unproven benefits and/or won’t pay off for some years, and therefore the cost of the programs today (if they don’t qualify as ‘quality improvement’) will add to expenses, driving down the MLR.
While I‘m not a believer in the infinite wisdom of the free market, I do know that the health plans that deliver lower costs – over time – will have a major competitive advantage over their less-capable competitors. While insurers and providers need very, very close watching when it comes to risk selection, rescission, underwriting, and care authorization, we don’t need to waste their time – and ours – worrying about their MLR.
Dec
1
One of best statements on absurdity of medical loss ratio legislation that I have read…
I belive this whole rebate thing is much Ado about nothing. The very first position I had in employee Benefits some 40 years ago was doing experience statements on Large Accounts for CNA Insurance. Do not expect the carriers to be pricing for the desired MLR, it’s better to give a rebate than come-up short! Once you come-up short , your history!
The health insurance industry should be refocused by Healthcare Reform on one thing: efficient insurance services. This industry has proven itself completely incapable of managing health improvement or improving the value equation (more health / dollar).
The fundamental flaw is how health care providers are paid by insurers, for “encounters” and procedures that are easy for accounts to measure, not for improving health status at a low cost.
As healthcare finally transitions to a digital industry, the digital outcomes data should drive the value process, incenting those who produce more health at lower cost.
Each community should manage this process, not the insurance industry.