A top-down cost-allocation approach may help developing countries set appropriate bundled rates for providers to participate in universal healthcare coverage. Such an approach focuses on averaging the costs of current utilization and actual expenses for hospital groups. One advantage of this practical approach is that it is feasible in situations with limited data.
In this new paper, Milliman consultants discuss their experience utilizing this top-down approach under India’s Meghalaya Health Insurance Scheme (MHIS). The following excerpt highlights the scheme’s objective:
In its first phase of rollout, the Meghalaya Health Insurance Scheme (MHIS) had limited benefits. The government wanted to expand its scope to better serve the population by providing a wider breadth of procedures, including tertiary care specialist procedures in oncology, neurosurgery and cardiac surgery. However, to make its second phase a reality, the Meghalaya scheme needed greater participation by private healthcare providers offering such specialist services. The state needed to offer realistic pay rates to private healthcare providers to attract participants.
Milliman helped the state identify the potential demand and gaps in benefits by conducting an extensive review of hospital utilization data, publications about disease burden and disease registries in the state. This was the basis of recommendations for additional surgical procedures that needed to be included in the scheme to ensure comprehensive coverage.
Milliman was asked to develop indicative prices for recommended additional surgical procedures under expanded benefits. To determine rates, Milliman used a top-down cost-allocation approach to estimate the cost of each procedure, using local hospital utilization and financial information. We developed specific tools to collect data from a representative group of hospitals.
Here are the outcomes and important considerations:
Using the top-down costing approach, we were able to estimate the costs of the following:
• Per-bed-day department cost for the five hospitals in the study
• Cost of 20 common surgeries in MHIS Phase I as a reference point for comparison with existing package rates
• Cost of 160 surgical and 20 medical conditions for tertiary care benefit expansion in Phase II
Developing the final package rates involves additional parameters, making adjustments for inflation trend, capacity utilization, quality, profit margins and specific variations among the participating hospitals. MHIS will need to apply various adjustments for these parameters to arrive at the final cost of each procedure for the social insurance scheme.
If providers are not keeping reimbursements in line with their expenditures to manage a clinical condition, there will be a tendency to pass on the shortfall to the members and deny or avoid admissions for procedures, potentially compromising the quality of care. This makes it critical that frameworks for costing are regularly updated. These frameworks also need to seek wider participation from providers. Apart from recurring medical inflation, wider provider participation and cost impact of new practices should be consolidated in updates.
The head of the White House Office of Healthcare Reform stoked some controversy this week by suggesting that a Medicare-like model is not the only way to go when it comes to a public healthcare option:
There are different breeds of public plans that could be part of this.”
Not to mention ideas from overseas. The Dutch system has drawn a lot of attention; see the interview below for more information on that.
A wholesale change seems less likely than something incremental, but perhaps there are things to learn from other countries. Either way, it is simply too early to handicap this race.
For profit, for everyone: Exploring the Dutch healthcare system
The Dutch healthcare system is the world’s only private system of basic healthcare insurance operated by insurance companies for profit. We asked Dutch healthcare actuaries Roeleke Uildriks and Ji Kwen Ng to explain.
The Los Angeles Times published an editorial today about the growing consensus among health insurers over the need for universal coverage. While some might find this puzzling, there are sound insurance principles that support the broadest possible coverage.
This interview with Bruce Pyenson offers a primer on adverse selection, a topic germane to the question of broad coverage.
Q: How do you define adverse selection?
Bruce Pyenson: Adverse selection describes a situation where an insurer enrolls an unexpectedly higher concentration of less healthy individuals. Of course, the idea of insurance means the insurer will lose money on some people and make money on others. But people, like insurers, naturally make choices that maximize their own financial interests, and certain insurance product characteristics and market conditions may create situations that result in a greater concentration of less healthy (or more expensive) individuals covered under an insurance policy. In its most severe form, adverse selection is the insurance equivalent of a run on a bank.
If this seems unclear, consider the 80/20 rule. Something close to the 80/20 rule applies to healthcare—about 20% of the people generate about 80% of the cost. Adverse selection can happen because not all of us are average from a health cost perspective; as a matter of fact, almost none of us are average. Most healthcare costs come from relatively few people. In any year, the people who are low cost may not feel they need good coverage, if any at all. The people who are high cost really need the financial protection of coverage.
The Wall Street Journal today reported on the impending political showdown over a public healthcare plan. Many existing federal health programs will be referenced as part of this discussion, especially the Federal Employees Health Benefit Program (FEHBP). Milliman Principal Tom Snook provides perspective on lessons learned from this program throughout its five decades of existence.
Milliman has worked with the Federal Employees Health Benefit Program (FEHBP) since its inception in 1960, when Wendell Milliman presented a report to Congress.
We asked Tom Snook for insight on this much-talked-about program.
Q: Many politicians have suggested extending FEHBP to cover populations other than federal workers. Is this viable?
Tom Snook: FEHBP has provided healthcare benefits to federal employees for more than 40 years, so it’s no wonder that many have looked to this program as either a candidate for expansion or as a potential model for universal coverage. But just because FEHBP works in its current context does not mean it can or ought to be used to fix what’s wrong with the current system.
Actuarially speaking, the FEHBP has worked in spite of design issues and inherent inefficiencies that could have prevented success. FEHBP offers federal employees an array of health plan choices, which are provided by the Blue Cross/Blue Shield Association (BCBSA) and by other commercial entities (including Humana, Aetna, Coventry, and various regional HMOs). The choices vary from one location to another, with Washington, D.C. offering the most options since it has the largest concentration of federal employees.
Jim Schibanoff, Editor-in-Chief of Milliman Care Guidelines; Ron Sims, King County Executive; and Mike Kreidler, Washington State Insurance Commissioner, give their final thoughts at Healthcare Town Hall.
Q: We just have a few minutes left. I’d like to use them to ask you to think for a moment: Is there anything here that you think is important to say about electronic health records that didn’t get said or any final thought you’d like to leave our audience with here in the hall and on TVW?
Jim Schibanoff: Well, I don’t think we’ve touched on the research potential of the electronic health record databases. At huge institutions like Kaiser and the VA, they use EHR as a research tool to look for things like complications of drugs. The best example is, there was this new pain medicine, COX-2, C-O-X 2, that replaced a pain medicine that caused intestinal bleeding. So these COX-2 inhibitors were the great development in pain relief. At Kaiser, they found that, with their very large databases, they found that COX-2 inhibitors caused heart attacks, and most of them were taken off the market. And it was through the power of these very large databases that they became a tremendous research tool, and I think this whole field holds great promise for our research frontier.