|Medical Insurance Plans: Challenges and Opportunities for Managing Costs
The present shift by employers offering, and/or individuals purchasing, high
deductible, or consumer-driven health plans, either with or without the new
Health Savings Accounts or Health Reimbursement Accounts, has created a renewed
— and mainly positive — interest in the health insurance marketplace. And for
good reason. The primary goal of the High Deductible Health Plans (HDHP) and
Consumer-Driven Health Plans (CDHP), versus the more traditional health
insurance products, is to directly engage the consumer in all of the
decision making aspects of their medical care; from selection to utilization,
and ideally to the actual cost. This, of course, is accomplished through a more
significant personal financial incentive defined as first dollar medical claim
“risk” up to approximately $5,000 for an individual and/or $10,000 for a family.
This incentive reflects an effort to rein in our country’s runaway healthcare
costs. If this experimental model is successful, the end result will be a
sustainable growth economy via more affordable healthcare coverage for all. We
all have a vested stake in seeing this succeed.
Educating the Masses
The level of success of this grand experiment, however, also depends on the
consumer becoming educated about the medical care that they need, require or
desire. Several entrepreneurial organizations are quickly trying to fill the
void for relevant medical information by delivering various medical diagnoses
and medical treatment options through integrated decision support tools
delivered directly to the consumer.
This new financial incentive on each consumer created by the HDHP and CDHP
will make the public more informed about the appropriate insurance needed. As a
result, this will finally address the over utilization of medical services in
our country, and lower our overall costs in the near term. There are currently
too few decision support tools or accessible information sources that consumers
can rely on to manage their healthcare costs.
Simply stated: competitive pricing will fill the void as it relates to the
purchase of medical care. Unfortunately, due to the nature and complexity of our
third-party payer and healthcare delivery system, there is no easy, intuitive
way to provide competitive pricing on medical treatment. Even if pricing
transparency can be defined and implemented, it will still not be enough.
Under the traditional insurance products, consumers were never interested in
the actual price charged or reimbursed to a particular medical provider. Neither
did they know or care that the medical provider they chose was reimbursed two to
three times that of another similar medical provider also in their network who
provided the same treatment across town. The primary reason was that the
consumer only paid a relatively small deductible and the rest of the
reimbursement was made by the insurance company. Given that scenario, why would
the average consumer think twice about pricing? The tendency is to focus more on
convenience, reputation and the perception of quality; the last point really
being an unknown.
Price Schmice. They’re All the Same Anyway, Right?
As both employers and consumers, we have assumed if similar medical providers
are in the network, they charge and are reimbursed the same amount. After all,
they deliver the exact same service in the exact same market. This is a wrong
assumption to make, and is not even close to reality. The laws of supply and
demand, coupled with the need for certain medical providers to be “in the
network” in order to have a marketable health care plan, have severely altered
this misguided perception. Remember, each provider contract is a negotiation,
not an ultimatum. If the insurance company/network needs a provider more than
the provider needs the insurance company/network, then the one-price theory
starts to break down.
In our present medical marketplace, what do we really know about price? Can
all the tools available to the consumer help them make smarter, more cost
effective choices on their medical treatment decisions? Are all the tools and
resources used by insurance companies to lower their medical claim expenses and
medical loss ratios going to be readily available, or even provided when it is
not the insurance carriers’ direct risk? The reality is that only a portion of
the cost management programs will be provided by the HDHP and associated
Insurance carriers offer two types of programs to lower their medical claim
- Integrated services
- Non-integrated services
Integrated services. Third-party provider programs, such as
HMOs and PPOs and medical management function — like utilization reviews and
case management — are used to create economies of scale. Integrated services are
built into the cost of the premium; as opposed to the non-integrated services
that are generally charged as a percentage of the savings on a claim-by-claim
basis. These services
are easy to administer and have a direct, positive impact on the medical claims
expense because premiums are reduced; and the reduction is greater than for
Non-integrated services. These are commonplace programs, such
as claim-by-claim negotiation; hospital bill review and auditing; fraud and
abuse; medical claim recovery; and clinical bill review. Combined, these
services represent a thriving market estimated at $40 to $50 billion. As it
relates to this article, the difference between the two services is how they are
delivered, how they are paid for and by whom.
With traditional insurance, both of these services are easily administered,
and both services directly impact the health plans’ medical claim expense. They
indirectly impact the members’ cost in a positive manner by theoretically
lowering premiums. With an HDHP, the health plan will continue to provide the
integrated services, but the non-integrated services become a more difficult
undertaking, because the cost of the service and service fees are all shifted to
the member, who in the end will derive the direct benefit.
The issue of pricing will create an increasingly larger void as more and more
consumers pursue an HDHP for purposes of lowering their annual premiums, in
exchange for higher personal medical claim risk. Over the last decade, the
insurance carriers have figured out how to use these non-integrated cost
management services for their direct claim risk. Now, it is time for the
consumer to start doing the same. To address this void, the market needs to be
cultivating forward-thinking organizations that are committed to creating unique
business models, tools and services designed specifically to deliver these
non-integrated cost management services directly to the consumer.
As employers, we need to accept the challenges and limitations of our present
benefits programs and actively pursue and endorse business partners who can
assist in managing these marketplace imperfections to the betterment of our
employees’ health, attitude and pocketbook. What is a fair price to pay for
medical treatment? If you can answer that one, you are way ahead of the pack.
It’s certainly something to think about.
About the Author
Timothy E. Cahill is the managing director of My Medical Control, LLC, located
in Prospect Kentucky. He is a former medical industry executive with over 10
years experience in the design, development, and marketing of non-integrated
cost management services that are presently deployed by over 450 insurance
companies. He has extensive knowledge in medical claim cost management and
present market-based pricing strategies. Tim can be reached at