Re-Designing Health Insurance Operations — For the People

The political realities indicate that private insurance companies will continue to play a significant role in the healthcare economy for the foreseeable future. Yet a systematic pro-consumer review by policymakers and industry of the way health insurance companies operate internally, and in particular how they treat their members, has never been done in the U.S. This document outlines a number of pro-consumer health insurance operational reforms that could be implemented either independently of or in parallel with larger healthcare reforms. While some of these reform opportunities apply only to either the fully-insured or self-funded segments, many apply to both. In addition, many of these reforms can be applied to existing public health insurance programs, such as Medicare and Medicaid, which in many ways are structured and operate like non-profit insurance companies. In the private plans, most of these reforms could be implemented by industry acting alone, though there are no such initiatives now. In both the public and private arenas, many of these reforms could also be achieved by federal or state regulation or administrative action, while others could require legislation.

All health insurance consumers deserve a free, independent healthcare advocate:

• Consumer coaching, advice on plan selection and navigation, and free, expert representation in appeals, resembling a Consumer Financial Protection Bureau (CFPB) for health insurance consumers. One model is the Connecticut State Office of the Healthcare Advocate, which has saved consumers more than $100 million since 2005, while relieving stress for families facing sickness and injury, and is funded by a small assessment on insurance carriers.

Stop second-guessing our personal physicians & other providers:

• No appeal fees ever — And plans should pay the patient’s costs and fees when a denial is reversed; also reinstate right to in-person appeals for high-dollar cases
• Trust our treating doctors — Treatment prescribed by rigorously screened in-network providers should be presumed valid, and seldom denied based only on differing judgments of medical necessity; shift burden of proof to the insurer
• No-Denial (or Low-Denial) Health Plans (“NDHPs”) — Eliminating or reducing claims denials & pre-authorization will end consumers’ single biggest frustration with insurance, and thereby provide plans with a major new marketing opportunity. At the same time, plans can reduce costly utilization review operations, while patients are guaranteed that prescribed services will be covered — if they use carefully vetted providers trusted by the insurance carrier.
• Give consumers financial credit for improper denials that are never appealed — Annual randomized audits of the large majority of denials that patients never appeal, with results extrapolated to give plan membership full credit for last year’s improper denial amounts via lower premiums next year.

Simplifying Health Insurance: Shopping for coverage

• Standardize plan offerings — Consumers need to be able to compare apples to apples
• Prohibit dominated plans — “Dominated plans” are always more expensive on an all-in basis compared to other offered plans, no matter how much or how little medical care is needed — i.e., never the best buy. Dominated plans should be banned, or at called out and de-emphasized during the shopping process.
• Better decision-support tools — Including estimates of all-in annual costs (not just premium, but also anticipated out-of-pocket costs).

Simplifying Health Insurance, ctd.: Navigating our plan

• End complicated patient out-of-pocket spending requirements — Eliminate co-insurance, and limit deductibles; (see “All-Inclusive Pricing” below)
• End all bills from healthcare providers to consumers — Providers should bill only the insurance plan, which should pay the covered charges in full, and then the insurance company itself should collect all applicable co-pays and deductibles from the member. No more turning healthcare providers into debt collectors against their patients.
• Stop using different medical necessity guidelines — Currently every plan establishes and updates its own criteria to decide what treatments are medically necessary. In addition to representing an expensive duplication of effort by hundreds of companies, this myriad of medical standards makes it much harder for healthcare providers and patients to navigate and contest denials and appeals. Move to one unified set of medical necessity criteria for all payers, based on generally accepted medical standards from professional medical societies or other independent organizations.

Simplifying Health Insurance, ctd.: Understanding our plan

• Readability standards — Marketing materials, plan documents, and explanations of benefits need to be re-written to a middle-school reading level

Simplifying Health Insurance, ctd.: Paying for our plan

• All-inclusive pricing — (WYSIWYG) what you see is what you get:

· Include employer-paid healthcare premiums on pay stubs.

· No more hiding the true cost of health coverage by advertising only monthly premiums, while concealing high costs in the deductible or other out-of-pocket patient responsibilities.

· Provide insurance shoppers with estimated all-in annual costs (i.e., annual premium plus likely out-of-pocket charges)

· Eliminate co-insurance, and limit deductibles

· Providing a patient’s likely all-in costs will expose the real cost of healthcare, resulting in sticker shock (but lower lifetime costs), so need to educate the public on this paradigm shift to all-inclusive, WYSIWYG pricing; and also should be paired with a comprehensive medical care price reduction strategy

Provide American businesses and patients with internationally competitive provider pricing

• Reference pricing — The prices paid by job-based insurance for medical care often are many times higher than the internationally competitive prices achieved by Medicare (with the notable exception of drugs). Leverage Medicare’s internationally competitive pricing very simply and without interfering in carrier-provider contracting by limiting commercial plans’ out-of-network reimbursement to some multiple of Medicare rates, such as 150%.

Stop rewarding insurance companies for spending more on medical care — End contingency fees for health insurers based on medical spending.

• We need to change the way we pay insurance companies. Carriers’ compensation all too often increases with medical spending. The most obvious example is the straight percentage of anticipated medical spending that is paid to fully-insured plans (capped at 17.6% or 25%, depending on plan type), but many self-funded plans likewise receive significant ancillary compensation based on volume, spending, prices, or billed charges. Move all compensation for all plans, fully-insured and self-funded alike, to per member per month administrative fees, with possible performance bonus for price (not cost or volume) improvement.
• These hard-wired medical spending contingency fees for insurers are a by-product of the ACA’s Medical Loss Ratio (MLR) rules, which require carriers to spend a specific amount of each premium dollar collected on medical costs (either 80% or 85%, depending on plan type). A plan that retains an administrative fee of 20 cents for every 80 cents the plan spends on medical claims practically speaking is being paid a contingency fee of 25% on each dollar it spends on medical care (20-cents retained/80-cents spent = 25%), and an administrative fee of 15% of premiums collected is equal to a medical spending contingency fee of 17.6%. Thus, the easiest way for plans subject to the MLR rules to increase their own take-home is by increasing medical spend, including by acquiescing to higher medical prices.

End the self-funded/stop-loss policy end-run around pre-existing conditions protections for small employers

• Since the ACA added pre-existing conditions and other consumer protections to fully-insured plans, carriers have been aggressively moving ever-smaller employer groups into the pre-ex unprotected self-funded segment by pairing self-funded plans with catastrophic loss policies (called “stop-loss policies”). The self-funded market before the ACA as a practical matter was limited to large employers (500+ FTEs). Large employers do not need pre-existing conditions protections because their groups are big enough to induce carriers to cover all employees regardless of the pre-existing conditions of a few. But by developing expanded stop-loss plans that are being marketed to micro-groups as small as five employees, the insurance industry has opened for itself a back door to resume the carriers’ historic pre-ACA practices like refusing to sell insurance to small employers who have one or two employees with a pre-existing condition, or jacking up next year’s premiums or refusing to renew small business policies when a single small-company employee or family member does fall ill. Because insurance companies have developed this stop-loss work-around allowing them to resume discrimination against small and tiny employers based on pre-existing conditions, small businesses that have only healthy employees save 15% to 20% on premiums (at least until someone gets sick), while competitor companies with even one unhealthy employee or family member are segregated into the pre-ex protected fully-insured ACA marketplace. The result is that ACA premiums of course need to rise because all the unhealthy small employers can only go into ACA plans. In order to create a level playing field for all small and tiny businesses to be able to compete with larger businesses, as the ACA intended, the ACA’s pre-ex and other consumer protections need to be extended to all arrangements where a self-funded plan is paired with a stop-loss policy.

Extend healthcare spending discounts to non-wealthy people — Currently wealthy people and employers in effect pay much lower healthcare prices than the rest of us do; these discounts should be extended to all patients, regardless of income levels

• Because contributions to Health Savings Accounts (HSAs) are tax-deductible, people who have an HSA in effect get a large discount on their out-of-pocket medical expenses, with people in the highest tax bracket receiving the biggest discounts. Employers also get unlimited deductions for the premiums they pay for their workers. All others pay full price. To level the playing field, all out-of-pocket healthcare spending must be made fully tax deductible & refundable.
• Other High-Deductible Health Plan (HDHP) reforms:

· We should only have to pay one high deductible per year: People who get a new job and switch from one HDHP to another mid-year should not have to pay the full second deductible, but rather should get credit for any amounts they paid to their last plan earlier in the year

· Pro-rate deductibles for less than one year of coverage: It is unfair to subject folks who join a plan late in the year to the full annual deductible

Multi-year plans:

• Individuals and small group insurance policies are sold on a single-year basis. This is the result of convention and historical practices. One-year plans are not required by statute or regulation, nor are one-year plans necessary for any actuarial or other industry operational reasons. In fact, larger companies already typically sign multi-year health insurance contracts. Only multi-year plans give enough time for the insurer or employer to reap the rewards of investments in their members’ health, such as gym memberships or wellness programs — investments that will not pay off in just one year. Insurers should offer the same choice to, and make the same long-term investments in, their individual and smaller customers.

Contact: State of Connecticut Office of the Healthcare Advocate Ted.Doolittle@ct.gov / 860–331–2441