Reinventing Individual Coverage: Defining the Approach

In my previous post I suggested the current political environment provides more than sufficient inspiration for individual health insurance industry to reinvent itself. One of the challenges to actually implementing change is figuring out how to approach the problem. It’s often too easy to get caught up in the details without remembering the goal.

And the goal here is to deliver value to consumers who purchase their own health insurance coverage. This may seem obvious, but in too many cases, industry insiders and reformers at the barricades alike get so caught up in rules and regulations, processes and work flows, structure and platforms that they lose site of this simple truth: at the end of the day we either provide value to consumers … or else.

And it’s a truth that is agnostic as to whether the “we” is a private enterprise or a government agency. We either deliver or we go away.

So instead of structuring the gratuitous advice I intend to offer over the next several posts on specific items (dealing with rescissions, simplifying the application, etc.) I’m going to focus on a few general themes. Specifics may crop up as examples or to help amplify the themes, but it’s the overarching themes that provide a framework for change.

As of now, I’m inclined toward four major themes:

1. Executing the Basics
2. Making it Simpler
3. Sharing Technology
4. Earning Trust

Executing the Basics is all about the nuts-and-bolts of being a health insurer. Processing applications, issuing bills, paying claims, contracting with doctors, appointing agents, and answering the phone.

Making it Simpler recognizes that individuals are not businesses, even when they have the assistance and counsel of a qualified agent. Health insurance coverage is complicated enough. The process of getting and using it, however, shouldn’t be as complicated as it is. Nor should finding the plan that best fits a family’s need. Nor filing a claim. Nor … well, you get the idea.

Sharing Technology stresses that a carriers’ sales and member service technology shouldn’t drive consumers’ buying decision. A health plan’s benefit design, pricing, access to providers and the carriers’ customer service offerings should.  The industry could save millions of dollars by adopting standards that any and all technology providers can use for everything from accepting online applications, issuing online membership cards, processing claims, creating provider directories, etc.

Earning Trust may be the most important theme. After more than a year of every major office holder in the country calling the system broken, after endless legislative hearings, headlines and press conferences attacking the industry, consumer confidence in the industry is lower than its ever been. Worse, this only seems to inspire supposed industry insiders to pile on. The fact is there are problems in any enterprise, public or private. What’s needed is facing them honestly, not to score points.  Most of all, earning trust means raising the standards of behavior and meeting them.

These themes overlap with one another. What works in one area might well impact another. But they provide a general framework for discussing ways to reinvent individual health insurance. At least they are the themes I’ll be addressing over the next several days. Do you have others you think need to be considered? Are these off-target? Please let me know your thoughts by posting a comment. 

Reinventing the Individual Health Insurance Market

The health insurance industry has been under attack for years. There are those who would like to do away with it completely. While those voices have grown louder in recent years their political success has been limited at best. For evidence, just look at the campaign for the Democratic presidential nomination: no major candidate called for a government-run, single-payer system. The two remaining contenders have both explicitly taken such an approach off the table.

Yet there is one aspect of the industry that is under intense attack: the individual market. Again, this isn’t new. In the past, however, most of the attacks have been unfocused or ill-informed. Critics tended to ignore unique aspects of the coverage targeted at individuals and families buying insurance outside of work: it’s a voluntary decision. To maintain affordable premiums carriers must weed out potential buyers who are certain to incur substantial claims.

For example, carriers will often reject an applicant who is a regular user of a particular prescription drug. This strikes many as wrong, if not immoral. Just because someone needs a certain medication is no reason to deny them insurance.

Yet, when the monthly prescription costs exceeds the monthly premium, what else can the carrier do? Insurance is about spreading risk. In a voluntary market where people can choose when to purchase coverage, it means they need to buy insurance before their known risks exceeds the premium. Otherwise, they are simply asking other consumers to subsidize them. This dynamic, known as adverse selection, is at the root of much of the problems facing the individual market.

It’s not the only cause, however. Carriers exacerbated the problem by mishandling their approach to managing adverse selection. The most obvious mistakes involved how rescissions were handled. Even the industry’s most ardent foes admit carriers need to protect themselves from fraud. If an applicant knowingly and intentionally lies about material information on an application for coverage, the carrier should have the right to revoke the coverage.

It’s identifying when the misstatements are knowingly and intentionally that creates a gray area. Carriers chose to be aggressive in applying their right to rescind coverage. Now they’re paying a huge cost for this posture in the form of large fines, law suits and horrendous publicity.

The rescission issue is the hammer being used by lawmakers, regulators and pundits interested in reshaping the individual health insurance market. That their proposals would be more likely to do more harm (in the form of higher prices and less consumer choice) than good seems almost beside the point. They want change. They want it now.

While their changes are often off target their goal may not be. Perhaps the attack on the this market segment is what’s needed to prod the industry to reform itself. Perhaps it’s the motivation needed to reinvent the individual health insurance market, to make it stronger, more valuable and more respected than in the past.

I’ll be writing about the opportunities for reinvigorating the individual market over the next several days. I hope you’ll share your ideas, too. Please post your thoughts on ways to reinvent individual health insurance products, the way they’re sold, administered and used. By the end of this dialogue we’ll at the very least have built a list of alternatives to some of the misguided proposals currently being considered in Sacramento, Washington D.C. and elsewhere. At best, someone who can actually implement the changes may be inspired by your thoughts and meaningful change will follow.

Stay tuned.  

Debating Medical Cost Controls in Massachusetts

The folks in Massachusetts are engaged in a lively debate over health care reform. Seems their widely touted reform plan, complete with Connector and individual mandate, is running into some unintended consequences. Among them, higher costs than anticipated and a lack of primary care physicians. The good news is the wide-ranging debate has moved beyond the politics and mechanics of the Massachusetts health plan to encompass controlling health care costs.

Consider the dialogue occurring on the Commonhealth blog (published by 90.9 WBUR, Boston’s NPR station), between Dr. David Himmelstein, Co-Founder of Physicians for a National Health Program, and Eric Shultz, President of Fallon Community Health Plan. Dr. Himmelstein kicked things off with a post claiming “With spiraling costs threatening to derail Massachusetts’ health reform, politicians and health policy wonks are rounding up the usual cost-control suspects. Unfortunately, the tired ideas they’re trotting out have virtually no chance of success.”

Dr. Himmelstein then runs through why computerization, prevention, disease management, and cost sharing won’t restrain medical costs. He believes the only way to reduce costs is to eliminate the “middle men” in the system — what you and I call the insurance industry — and to limit the profusion of expensive high technology facilities. Leaving aside a moment the public policy of a government-run system, Dr. Himmelstein fails to explain how eliminating insurance companies, insurance agents and purchasing pools curtails the rate of medical cost increase. Once they’re gone, they’re gone. Eliminating private bureaucracies and delivery systems simply shifts is a one-shot savings, not a long term solution — and that doesn’t include the offset created by the need to create a government bureaucracy and delivery system in its place.

Dr. Himmelstein’s call for fewer CAT scanners and other technologies might be more substantive, although his approach to controlling them is chilling. “So long as we leave health planning to the market, the expensive medical arms race will continue.” The implication being that only the government can control costs. Dr. Himmelstein fails to provide any examples where that has worked. I wonder why?

In any event, Mr. Shultz responded in a post with a warning that “Discussions about who pays — whether it’s a single-payer or otherwise — are, fundamentally, discussions about cost-shifting. But cost-shifting does little to get at the relentless underlying drivers of health care costs. And what’s driving up health insurance costs are skyrocketing medical costs, which consume roughly 87 cents of every health insurance dollar.” While allowing that Dr. Himmelstein’s identifying the need for limits on expensive high tech facilities is “well taken,” Mr. Shultz rejects the single payer approach. Citing a Rand study, he notes that “only half of all health care dollars are spent on appropriate medical care.” 

This reality can only be addressed, according to Mr. Shultz, by first requiring that “all players within the health care system have quality and cost information, combined with innovative health insurance plans.” Mr. Shultz goes on to refute Dr. Himmelstein’s dismissal of disease management and smoking cessation programs as ineffective, instead calling for continued focus on prevention and disease management efforts “to ensure the most optimal results are achieved.”

There’s more to the Fallon post. The reality is that controlling medical care costs is a far from easy task. It requires saying “no” to patients demanding inappropriate or ineffective care, “no” to facilities and other providers seeking a market advantage by deploying the latest technologies, “no” to health plans who are less than clear on what’s covered — and what’s not — in their plan designs, and a whole lot more.

What’s significant is that the struggles facing Massachusetts’ health care reform plan is sparking a fulsome debate on what’s needed to restrain health care costs. That may be an unanticipated outcome of the reform effort, but it’s useful and welcome nonetheless.

Why Health Care Reform is So Complicated

As Senator Barack Obama puts it when talking about health care reform, “If it was easy, we’d have done it by now.” For proof of how complex things can be, take a look at Massachusetts. Insurance agent Bruce Benton passed along a New York Times article describing the challenges some patients in the state face in finding a family physician.

Massachusetts’ health care reform plan strives for universal coverage. Since being implemented last year, about 340,000 of the 600,000 uninsured in the state have gained coverage. The strain on the state’s budget was widely anticipated. Of the newly insured, 176,000 have government-subsidized coverage and another 55,000 have enrolled in Medicaid according to The Boston Globe. The strain on the state’s budget is serious. But again, these kind of cost problems were predictable and aren’t really surprising.

What was apparently overlooked was how the influx of newly insureds into the system is straining the pressure on family doctors and other primary care physicians. As a result there’s waiting lists for some non-emergency treatment that stretches for months in some communities. The Times article recounts one physician in Amherst that is now scheduling physicals for early May — of 2009.

The problem is a serious one. By coming into the system, through subsidized coverage or not, residents of Massachusetts anticipated having access to basic health care services. Yet there’s just not enough primary care physicians to go around.

The United States will need 40 percent more primary care doctors by 2020, according to the American College of Physicians, to accommodate the aging population. It’s hard to see where they’re going to come from. The reasons are many. As the Times story reports, factors include reimbursement rates by Medicaid, and the attraction of a specialist’s practice among them. What’s ironic is that Massachusetts ranks significantly above the average in the per capita number of all doctors and primary care physicians.

Which does one little good if you need a doctor and can’t get one to see you. And none of this means attempts to achieve universal coverage should stop. It just underscores how tough a challenge it will be to make any reform package work.