The battle continues to be sure that close-to-universal health care doesn’t break the state budget and the budget of small businesses –and there have been three interesting developments over the past week.
- The state Division of Insurance, which rejected proposed rate increases for dozens of small group policies, is playing hardball. It threatened fines if health plans did not return to writing small group and individual policies at 2009 rates – and a judge rejected the health plans’ request for an injunction. Most of the health plans have complied – although Harvard Pilgrim and Fallon again submitted rates higher than the state wants (stating that other policies with these rate increases had been approved earlier in the year.
The DOI is in a bind – if it is successful at forcing these lower rates on the health plans, they will lose substantial amounts of money – and the DOI’s other job is to be sure the health plans are adequately capitalized so there is no risk they will collect premium revenue and not be around to pay for related claims. The health plans are in a bind, because they’ve negotiated multi-year deals that lock in their unit costs in fee for service contracts – so they’ll need lower utilization and/or concessions from providers on unit price to make this sustainable.
- Partners (Mass General, Brigham and Womens and others) announced that it would give insurers rebates of a total of $40 million this year to support selectively lowering rates for small business. Interestingly, Children’s Hospital did something similar – announcing a price rollback in exchange for some up-front payment to build infrastructure, in fall, 2009. Other hospitals are figuring out their next steps – Partners and Childrens are both paid rates higher than other providers – so these rebates probably still don’t level the playing field, and it will be hard for the lower-paid facilities to match this.
- State Senate President Therese Murray outlined her plan to control health care costs, with initiatives including
· Insurers would gain approval of their proposed rate increases as long as they pledged to have “medical loss ratios” of at least 90%. This means that 90 cents of every dollar would go to paying medical claims – the other 10% would include all administration costs including marketing and profit (or reserves for nonprofits).
· Allowing insurers to change rates based on age (rather than 5 year age group), which will mean no huge rate increases when someone turns 50, for instance). Also, allowing insurers to increase base rate if necessary to prevent a “rate shock” to a specific subgroup
· Annual enrollment (to prevent people from coming into the insurance system for an elective procedure, and then leaving again)
· Prohibiting those eligible for employer plans from entering the individual market (to avoid adverse risk selection)
· High risk reinsurance pool
· Require narrow network products with lower cost.
· Give a 5% discount to employers who establish a wellness program
· Ask for $100 million in contributions from providers in good financial shape
· Establishing a purchasing coalition for small groups through the Connector
· Review all mandated benefits every four years
In my opinion, the most important effort here is the narrow network option. This has the potential to substantially lower unit cost – in part because narrow networks encourage providers to compete on price (There is no reason for providers to try to deliver a lower price to an all-inclusive network, as they maintain very high leverage when every health plan needs every provider). The Globe today offers some evidence that narrow networks are starting to gather some momentum.
Avoiding adverse risk selection is critical (article in tomorrow’s NYTimes shows what happens if the healthy opt out of purchasing insurance.) Therefore, it’s important to require an annual enrollment only, as well as to guard against employers sending a few sick individuals into the small group market.
Small businesses overestimate the savings they’ll get from group purchasing – the larger groups are less expensive because there are genuinely lower administrative expenses for insurers to enroll 25,000 covered lives all at once, rather than as 1000 separate 25 person companies, and because there is less opportunity for adverse selection in a large company than with multiple small companies. I did a more complete review of the reasons why small companies pay more in Fall, 2009.
Wellness programs are not likely to save 5% in the first year or more when they are implemented. Therefore, a mandate to offer small businesses with wellness programs a 5% discount will raise the cost of health insurance for all. It’s not a bad idea – and might lead to better, healthier lives. However, this is not going to help us control health care costs over the next 1-3 years.
