What level of market competition exists in the current health insurance marketplace? Are administrative costs and underwriting margins in the individual and small group markets significantly higher than in the large group market? How does claim cost experience vary between the individual and small group markets?
In the past, these questions have been difficult to answer because insurance carrier financial experience was generally only reported on an aggregate basis rather than at the state level or for a specific segment of the commercial insurance market. Because of the introduction of a new financial exhibit that must be completed with each carrier’s year-end statutory filing, many of these questions can now be answered with greater clarity.
A new Milliman research report uses data reported in the Supplemental Health Exhibit (Part 1, Part 2, Part 3) for calendar year 2010 to focus on key premium, claim cost, and administrative statistics within each insurance market and discusses observed differences among them.
Click here to read the paper.
The latest Atul Gawande article examines how pilot programs in the Senate healthcare reform bill may help to moderate healthcare cost increases:
The bill tests, for instance, a number of ways that federal insurers could pay for care. Medicare and Medicaid currently pay clinicians the same amount regardless of results. But there is a pilot program to increase payments for doctors who deliver high-quality care at lower cost, while reducing payments for those who deliver low-quality care at higher cost. There’s a program that would pay bonuses to hospitals that improve patient results after heart failure, pneumonia, and surgery. There’s a program that would impose financial penalties on institutions with high rates of infections transmitted by health-care workers. Still another would test a system of penalties and rewards scaled to the quality of home health and rehabilitation care.
Other experiments try moving medicine away from fee-for-service payment altogether. A bundled-payment provision would pay medical teams just one thirty-day fee for all the outpatient and inpatient services related to, say, an operation. This would give clinicians an incentive to work together to smooth care and reduce complications. One pilot would go even further, encouraging clinicians to band together into “Accountable Care Organizations” that take responsibility for all their patients’ needs, including prevention—so that fewer patients need operations in the first place. These groups would be permitted to keep part of the savings they generate, as long as they meet quality and service thresholds.
The bill has ideas for changes in other parts of the system, too. Some provisions attempt to improve efficiency through administrative reforms, by, for example, requiring insurance companies to create a single standardized form for insurance reimbursement, to alleviate the clerical burden on clinicians. There are tests of various kinds of community wellness programs. The legislation also continues a stimulus-package program that funds comparative-effectiveness research—testing existing treatments for a condition against one another—because fewer treatment failures should mean lower costs.
Looking for more reading on some of these concepts? Try these:
Administrative costs are often mentioned as a source of waste in healthcare financing.
We asked Andrew Naugle to tell us what is driving spending and where savings may be found.
Q: How much do health plans spend on administration and can they reduce that cost?
Andrew Naugle: If a health plan gets a dollar in the door, it spends about 85 cents of it on benefits, about 12 cents on administration, and it gets to keep about 3 cents as profit or surplus. Those numbers come from a study I did looking at the annual statements of about 900 health plans. Of course there is some variability, but the numbers hold pretty true.
Health plans spend a lot of their time and attention trying to manage benefit costs. That’s not an unreasonable area to focus on if 85% of the premium dollar goes to pay for benefits. However, reducing benefit costs can be a real challenge, as it requires changing member and provider behavior—a tall order.
On the other hand, while administrative expense represents a much smaller piece of the premium pie, health plans tend to be in control of their own administrative spending. Managing administrative cost, therefore, ought to be easier, as plans need only change their own behaviors rather than the behavior of third parties that don’t appreciate being told what to do.
Too bad it’s not that simple, because managing administrative expense can be very painful for organizations for a whole host of reasons. Ultimately, I have seen clients achieve significant improvement in their administrative expense positions. However, real bottom-line impact requires a comprehensive strategy, management buy-in and commitment, and major investments of time and energy.