The Role of a Provider Initiated The Role of a Provider Initiated - - PowerPoint PPT Presentation

The Role of a Provider Initiated The Role of a Provider Initiated Managed Care Organization in Managed Care Organization in New York State New York State

and Some Actuarial Insights Into the Real and Some Actuarial Insights Into the Real State of Health Care There Circa 2004 State of Health Care There Circa 2004

Daniel W. Bailey, MAAA, IAA Daniel W. Bailey, MAAA, IAA

Overview of CDPHP

• 1984--Founded by physicians as a ‘non-profit’

community HMO. Two subsidiaries to cover 1) ASO and 2) Experience Rated (ExpRate) PPO & POS.

• Mission--Provide affordable high quality health care

and serve as a model for the finance. delivery, and administration of health care.

• Serves 24 upstate counties in NY state; not in NYC.

(NYS is 62 counties).

• Federal and dual state regulation (DOH & DOI)--

extent depends on line of business.

Overview of CDPHP (con’t.)

• New York is considered the most rigorously regulated

state in US for insurance. Strict Community Rating (CR) enforced for all small group business (l.t. 51 EEs) and for all HMO group health business.

• Commercial market is highly competitive--both for-

profit and non-profit carriers.

• Gov’t. programs--perennially under-funded, w/ varying

heavy-handed regulatory involvement & higher admin

• cost. Might break even financially in the long run.

CDPHP Members (as of 1/1/04): 368,000 Total

Commercial Programs (Private, Fully Insured): 237,000

Large Group HMO * (see note) 175,000 Small Group HMO ** (2 - 51 EEs) 50,000 Sole Proprietor (SG) ** (1 Employee) 500 Individual (Direct Pay) 1,500 Healthy New York (HNY) 5,000 POS/PPO Experience Rated 5,000 *

Includes 14,000 FEHBP members and 45,000 NYSHIP members.

** Down to 2 EE’s under HIPAA. NYS also mandates Sole Props--1 EE.

CDPHP Members (as of Jan. 1, 2004):

(con’t.)

Gov’t. Programs: (Public, Fully Insured)

81,000

Medicare + Choice (M+C) 10,000 Child Health Plus (SCHIP) 14,000 Family Health Plus (FHP) 7,000 Medicaid {TANF & SSI} 50,000 Self Funded (Private, ASO)

55,000

• Administrative Services Only. Larger groups have lower PMPM

than HMO community average. Employer (ER) assumes risk for

• cost. Not subject to benefit mandates, but cannot avoid NY HCRA.

Who Pays For Health Care?

• Commercial Programs (Private, Fully Insured)

Employer Groups: ER pays most, but EE “contributes” to

premium cost, & shares cost at or after time of service w/ copay, coins., deductible, or balance bill. Shift to Consumer Driven HP.

Sole Proprietor: Self-employed in NY may now purchase

small group health coverage directly and pay 120% of SG cost.

Individual: Purchased only by those who need it and can

afford it. Rich plan. High level of adverse selection! Member pays all, but NY health carriers usually take a loss due to rate

• regulation. Commercial groups must subsidize individuals.

Who Pays For Health Care? (2)

Healthy New York (HNY): Individuals, sole props, and small groups. Eligibility criteria. Former 2 pay 100%. State subsidizes SG. Mandated by NYS 2 years ago to help uninsured. NY has 40k HNY enrollees currently, but 3 million people are still uninsured in NY statewide.

NYS stop loss program helps health carriers pay portion of cost

• f large claims for HNY and Individual. Financed partially by

funds from tobacco corporations sued by Attorneys General.

Who Pays For Health Care? (3)

• Self Funded: Large ER assumes insurance risk, not
• MCO. Buys stop loss coverage to manage high

individual claims risk. EE usually contributes, also shares cost for services (copays, etc.) as in fully insured. ER avoids state mandated benefits and premium tax in most states. Over 1/2 of commercial in US is self- funded--increasing as MCOs offload insurance risk.

• Government Programs: Various funding sources--

federal, state, and county governments. Participating MCOs accept gov’t revenue in return for fully insured managed care program w/ MC advantages over FFS:

Who Pays For Health Care? (4)

• A. Medicare + Choice: For the elderly, blind, and
• disabled. Federal program under CMS (formerly

HCFA). Small monthly premium. Member cost

• sharing. Richer plan than FFS Medicare, depending on

MCO; may include RX. Title XVIII, federal law.

• B. Medicaid {TANF & SSI}): For poorest adults and
• children. At least 50% (to 82% in poorest states) is

federally funded. State and county finance remainder; some counties spend most of property tax revenue on

• Medicaid. State administers. Tied to receipt of public

assistance (welfare). Title XIX.

Who Pays For Health Care? (5)

• C. Child Health Plus (SCHIP): Federal program

(Title XXI) implemented at state level in all states. For uninsured low income children that are not poor enough for Medicaid. State sets eligibility. Some split-funding--

• admin. nuisance! Financed with federal income tax.
• D. Family Health Plus (FHP): For parents of SCHIP

children in NY; adults in income strata above Medicaid. Federal and state income tax.

Who Pays For Health Care? (6)

Note: Gov’t pays providers less per service for gov’t programs, (Medicare & Medicaid), especially under unmanaged fee-for- service (FFS) basis (without MCOs). Providers, esp. hospitals, then make up for gov’t. under-funding by charging private payers more for the same care. Controversy over how much the uninsured pay. Managed care orgs (MCOs) promote market efficiencies and drive change in delivery and financing--eliminate redundancy and waste, contract with providers in “network”, promote quality care and affordability, control fraud & abuse, and effect administrative economies (that gov’t can not in traditional FFS programs). But gov’t funding to MCO is variable--funding may decrease during economic downturn. Need sufficient surplus (deep pockets) to withstand probability of ruin.

INSRD L.O.B.

Medical Only Drug

COMBINED

LG HMO $160 $45 $205 SG HMO $165 $40 $205 * Individual $380 $140 $520 HNY $120 $20 $140 M+C $544 $26 $570 Medicaid $150 n/a $150 SCHIP $100 $22 $122 FHP $190 $60 $250

• Exper. Rated POS

$148 $42 $190

PMPM CLAIMS COST OF HEALTH CARE

• Cal. Yr. 2003

Portion Paid by CDPHP--does not include member cost sharing

Competition For Preferred Risk

• Adds to admin. cost of health care; exacerbates

uninsured problem. Insurers covering sickest tend to be less profitable/competitive. Competition to avoid sicker members/groups. HMO must CR; PPO can ExpRate. Market segmentation into homogeneous risk classes.

• In the SG (<51 EEs) & Individual market, pooling

mechanism established in 1999 to level SG risk among NY health carriers. In April 2004, state has not yet finalized results for any year!! When will we know if it works? To be safe, some MCOs “cherry-pick”.

Competition For Preferred Risk (con’t.)

• LG HMO is community rated (CR) in NYS, but PPO and ASO

are not-- younger & healthier large HMO groups go PPO or ASO when they realize they are less costly than average. Competitors that understand the predatory pricing game compete for younger, healthier groups; some give poor service to costly groups. At street-level, the business of health insurance inevitably involves risk avoidance. Some HMOs allegedly drop doctors from network that have sicker (such as HIV+) patients, or avoid groups with sicker members.

• Gov’t regulators are at least one step behind in ongoing cat &

mouse game. State’s regulatory perspective is limited.

Why Participate In Government Programs?!?

• Non-profits do--often as matter of public health policy.

For-profits avoid it--”where’s the ROI?”, e.g., Medicare Risk.

• Annual application/negotiations with state over SCHIP for 14k

members consume as much time & energy in Actuarial as Commercial program with 240k members. State has limited pre- budgeted funds to distribute among par health carriers. We ask for less than we need, and we receive less than we ask for.

• Dual state regulation--DOI and DOH. Additional federal

regulation on M+C by CMS.

The Bottom Line

• 15% (12% to 18%) of the population is uninsured in our

service area--as in rest of nation. Health wants & needs gratified for those with insurance. Irrational rationing?

• Is too much spent for lost causes? Cost of 1 episode of

IC buys preventive care for many... Is there a medical ethicist in the house?

• By starting their own HMO, Albany docs achieved

greater control--public health is as improved here as it is elsewhere, and still has a long way to go everywhere.

• Local competition has positive and negative effects...

The Bottom Line (2)

• Members are happy if they have choice of providers,

claims are paid promptly, and they are serviced fairly without bureaucracy. Want to avoid poor quality care.

• State’s regulatory ability is highly imperfect!…
• Media contributes to the “baby-in-the-well” mentality.
• Perpetual Tension--Trust democracy to resolve issue

by argument from every direction. Special interests can undermine the common good.

The Bottom Line (3)

• Health care is not a free market; confidence is declining

in market’s ability to solve cost/access/quality problems. Fix market structure. Is “Medicare For All” inevitable?

• Mass confusion over health care as a right vs. a
• privilege. Minimal distinction between health care

wants and needs. We want it all, now, for free!

• Administrative cost over 10% of claims in 2004 is unfair

allocation of scarce resource. As medical trend outstrips inflation, admin. percentage should decrease!

How To Improve US Health Care System

• Strengthen market forces by changing structure and tax
• incentives. Give individuals incentives to choose value

and “shop” for cost-effective quality care.

• Use national pooling mechanism for large claims--expert

federal regulatory body would audit bills in accordance with agreed hospital reimbursement--resolve public to private cost shift; effect financial efficiency of hospitals.

• Establish widespread use of fee schedules for doctors,

non-physician care, drugs, and supplies/equipment. Apply regional and risk population adjustments.

How To Improve US Health Care System (2)

• Allocate hospital & medical equipment reasonably by
• region. Stop the “Medical Arms Race”.
• Create a “Health Fed” (do not just upgrade CMS);

must work with regional agencies to be viable.

• Do not use “rich” FEHBP ‘Cadillac plan’ as basis of a

“Congressional Plan” and solution to national health care problems in US. Basic coverage for all.

• Reported death of managed care is highly exaggerated.

How To Improve US Health Care System (3)

• Stop competition for preferred risks now! Billions of

$ diverted from care into admin. as health carriers compete to avoid risk.

• Continuous quality improvement--the history of medical

care is littered with discarded technology.

• Disease manage chronic & catastrophic conditions.
• Use Outcomes Assessment. Is 30% of care unnecessary?

“Pay for performance”--define “performance”.

More Questions Of Probity

• Can gov’t-regulated universal health cvg. work in US?

Is gov’t up to challenge? What form & infrastructure?

• Will vested players or special interests ruin it? Consider

state mandated benefits, e.g., parity of chiro. care w/ physicians’; Democracy vs. command & control--“the camel is a horse designed by a committee.”

• Single Payer? = Massive systemic change in US!! But

is it an opportunity to “reengineer” the fundamental processes of healthcare finance & delivery for a fragmented patchwork system that some say is broken?

More Questions Of Probity (2)

• Is health care a basic human right? If so, how much?

“Basic” (essential) only? Define “basic”.

• How should public systems, for basic health care needs,

interface with private ones, for additional wants? Works well in some nations now.

• How much value do brokers & agents add? 0 - 15%?
• Are non-profits more effective than for-profits? Compare

MLRs--high 80’s vs. high 70’s/low 80’s. Evaluate what care the groups/members actually get--they’re not sure.

• Economy vs. Diseconomy of Scale: Is bigger better?

How Do We Measure What We Get For Our Health Care Dollars?

• Health statistics--life expectancy, infant morality,

immunization rates, remission rates, etc...

• Differential between rich & poor in OECD nation is

reputed predictor of overall effectiveness of its health

• system. 5 (Life expectancy post age 80 is higher in US.)
• Richest people in every society do have access to more

care, but more is not necessarily better. The question remains--does everyone in a society have all their most basic health needs satisfied? And, if so, who pays?

How Do We Measure What We Get For Our Health Care Dollars? (2)

• Average DALE Attained by different nations’ health

systems is an excellent metric for absolute comparison

• f overall health, but DALE reflects fact that societies
• differ. Use other statistical “moments” for skewness &
• variability. US is bimodal--insured vs. uninsured.
• Quality adjusted life years gained is an excellent metric,

especially for specific interventions; more complex to calculate, thus impractical at present.

In Closing

• Docs like QALE gained. Health economists like

DALE attained. DALE is most practical measure to compare macro-systems.

• Improved US diet could increase DALE. Who should

pay for it? Prevention is good for society later, not private insurers now. Investing in society’s future health hurts insurers’ quarterly statements in near term.

• In several centuries, will our health care finance &

delivery systems circa 2004 seem as antiquated as trepanning?

Special Thanks To

• my extraordinary colleague, Dr. Terry Flannery M.D.,

lifelong learner, without whose books, tutelage, and encouragement this paper would be less, and

• my erudite wife, Dr. Kerry Driscoll, Ph.D., who shows

me that critical thinking is a lifelong journey, as is the craft of expressing that act in words.