Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Chronic Care in Healthcare Reform Insurance

with 2 comments

Frank Pasquale at Concurring Opinions argues in favor of the so-called Public Option partly because he believes it is needed to provide care for the chronically sick but insureds.  This may be true, but it is only true because the Exchange, by commoditizing insurance and encouraging annual elections, will weaken the effectiveness and incentives currently in the marketplace.

Currently, almost all, if not all, individual insurance is “guaranteed renewable”.  That means that as long as the customer continues to pay premiums, the insurance company is on the hook for medical expenditures, regardless of changes in the insured’s health status.  Insurers also do not rate for any single person’s condition; rather, they pool risk in various methods as required by the various states.

In practice what this means is that the chronically ill, once they obtain insurance, can stay on the particular health plan for the remainder of their lives.  This stability is ironically reinforced by the fact that switching to another carrier would require that they go through underwriting.

The net impact of these restrictions is a many-year or possibly lifetime commitment from the insurance company to the insureds who purchase individual insurance from them. The observed explosion in large case management, utilization and case review, disease management, health education and other programs is the logical result of this multiyear commitment.  Group insurance also has seen this explosion caused because of a similar multi-year commitment on the part of employers to the health of their workers.

Almost all healthcare reforms proposed today are designed to weaken multi-year insurance, along with the value of these programs to the insurance companies.  Specifically, the nature of the “Exchange” coupled with guaranteed issue restrictions means that sick individuals will be much more likely to shop.  In fact, most financial advisors will likely recommend a “stair-step” approach to Exchange insurance: buy the slimmest available plan as long as you are healthy and save the difference; this includes possibly avoiding the Exchange altogether (either via a grandfathered plan or an employer plan).  Once you get sick, switch to a rich Exchange plan.

Increased “benefit ratio” regulation will further decrease the incentives to private payers to continue to pay for costly management of chronic conditions, except to meet whatever narrow “quality” benchmarks are required.  The “quality” benchmarks will also likely only target prevalent conditions, meaning those will become the focus of management  in contrast to overall cost efficiency which is incented today (for carriers who are selling new issues or renewals and therefore want to keep premiums low).

My ideal healthcare reform approach would value and encourage multiyear commitments from healthcare financing companies to their members.  I see the Exchange as weakening that objective.  I find it especially odd to argue that a Public plan is necessary to accomplish that which is being discouraged elsewhere in the reform proposals.

Frank’s also concerned about plans being opaque.  I am not; at least I wouldn’t rate it as one of the top two or three issues for a public plan or healthcare reform to address.  Doctors voluntarily contract with insurers.  If an insurer becomes too cumbersome, they should refuse patients from that financing organization, or seek employment in an integrated delivery system where they don’t have to worry about that at all.  I’ll also note the irony in this criticism, since the main reason why payments are so “opaque” today is the absolute mish-mash that our beloved government has made of healthcare coding.  But that’s a post for another day.


Written by Victor

June 28, 2009 at 8:10 pm

Posted in Healthcare Reform

2 Responses

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  1. […] the rest of this great post here […]

  2. I advise on several health insurance boards such as http://www.benefitsmanager.net , http://www.bcbstx.info , and http://www.healthinsurancesource.net. I often quote the Switzerland health care system as an example of tough questions that we as a nation will have to answer someday, if we go down the path of nationalized government health care plan. We’ll have to at some point draw the line in the sand and refuse further care for patients receiving critical illness treatments, intensive care unit, trauma care, acute management services, disease management, neonatal intensive-care unit for newborns and seniors in extended care treatment nearing hospice stage . Did you know that premature babies are not resuscitated upon birth if they cannot draw breath in Switzerland? Did you also know that holds true with “senior care” experiencing system failure or multiple organ failures requiring support? Another example, they don’t extend the life of a senior via medical equipment such as intubation or respiration for multiple organ failures. Not to be morbid….they are unplugged and allowed to pass. Anyone in the business of paying claims knows that the single most expensive bill in what carriers call “shock loss” is within NICU for newborns and seniors in acute / intensive care / hospital in the last three months of life.
    The Swiss apparently made decisions made based upon cost vs. quality outcome. Are we as a nation prepared to make that type of decision or to define when to incubate, resuscitate a newborn or a senior? Are we ready to define the conditions and rules of medical procedures with organ failure? With a litigious society I think not. This is why we need TORT REFORM. Without TORT REFORM medical provider costs will never drop. Liability costs with medical providers are nearly half of operating expenses. Humana health plans state that their costs of medical liability and defensive medicine accounts for nearly 10 cents out of every premium dollar collected. Compare that to Humana’s reported pharmaceutical claims of 15 cents out of every premium dollar collected. Or better yet, 21 cents out of every premium dollar collected is paid back to physicians for physician treatments. The cost of litigation is only obvious with Humana health plans. I sit on the board with several other health insurance carriers. Their books all show similar costs. They basically insure a shrinking populace that is mostly made up of people that only buy insurance because they need it. So is mandatory participation such a bad idea?
    I don’t think we are hearing about TORT REFORM because most of the house and senate on the federal level are lawyers and have practicing law firm interest’s. In the healthcare system there is no total innocence. We hear about insurance executives with bonuses, doctors overbilling, hospitals overbilling because the street gang thug got dropped at their ER door with no insurance. The lawyers are there to stir the pot and promise lavish fortune at the end of the PERCEIVED misery chain. Am I saying we don’t need them? No, but I am saying there is clear and documented abuse of the legal system that awards outlandish claims in the millions for a questionable mistake. Are ambulance chasers not sociably recognized as being the most abusive? What about those that educate their clients on defraud and then use the legal system to pirate insurers?
    I sure wouldn’t want to be on the receiving end of these serious decisions that we will have to make. My senator claims that the government would be held blameless but what about the medical provider that has to make the call? What about the insurance payer that has to deny continued care for an infant that will not survive? Without serious TORT REFORM we aren’t going to get costs down or have good people make headway.


    June 29, 2009 at 11:34 pm

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