Health Reform Expected to Shake Up Insurance Industry

March 2, 2011 -- With healthcare reform on the horizon, the insurance industry stands at a pivotal point. Employers expect to see costs held steady, while, at the same time, more attention is focused on value-based medical care.

 

Jack Friedman, CEO of Providence Health Plan, takes that charge seriously. Removing the marginally effective medicine out of the system is critical – the 25 percent that doesn’t provide value, said Friedman, who spoke at a symposium sponsored by the Portland Association of Health Underwriters last month, a group that represents insurance brokers.

 

For example, one of Providence’s physician groups had a 287 percent variation in upper endoscopies to detect acid reflux disease, which was indefensible, Friedman said. After Providence initiated a pay for performance program, that variation started to come down.

 

“We were getting unwarranted variation that wasn’t adding value,” he said. “That’s what this is all about. Doctors want to do the right thing. They just need help knowing what to do and how they compare with others.”

 

It’s important to focus on delivery system reform, Friedman said, to manage the 90 to 92 percent of medical costs. “This is a much harder conversation to have because it’s about benefits and going after the not-for-profit hospitals and physicians. There’s an advantage to have more transparency about what’s administrative and what’s medical – if it helps us have a more honest conversation about what the challenges are.”

 

Friedman believes that 3 to 4 percent of this nation’s GNP being spent on healthcare needs to be redirected to education, food security and housing. “This will get us to a much better population. Spending another dime on healthcare is almost a sin given where we are today.”

 

The real question is how to remove the waste out of healthcare, said Sue Hennessy, vice president of strategic planning and healthcare services for Kaiser Permanente’s Northwest Region. “We need help to shape that conversation and remove some of cynicism so we can do the hard work.” It’s important, she said, to look at the value equation. “You can’t find value in a fragmented healthcare system.”

 

Employers should be more willing to talk about what they expect and the challenges facing them, to “drive home the discussion,” said Chris Blanton, CIGNA Healthcare’s CEO for the region that includes Oregon.

 

If the medical-loss ratio – what’s spent on healthcare – is less than 85 percent for large groups and 80 percent for small businesses – insurers must return those rebate dollars to their policyholders in 2012. 

 

 Self-funded Plans Escape Federal Reform

 

But this reform won’t impact self-insured plans, which are on the rise, with smaller employers heading in that direction, Blanton said.

 

“We hope to see more interest in self-funded products at a lower level,” he added. “We see this as an opportunity.” The majority of CIGNA’s national employers – 85-90 percent are self-funded. “I don’t see fully insured products going away.”

 

Friedman expressed dismay that more employers might shift to a self-funded model. “If that’s one of the unintended consequences of the medical loss ratio rules, to create more risk segmentation in the market, that’s a really bad idea, and it won’t get us to a sustained model in the marketplace.

 

“The medical loss ratio language is a perception of the public view – right or wrong -- that we’re spending too much money on healthcare in administration,” Friedman said. “If we’re brutally honest, we probably are.”

 

Particularly, he said, compared to single payer systems in other countries which spend far less on healthcare. “Single payer is not an ideal solution, and I don’t believe we should go there. But, our customers want to know that somewhere between 93 to 97 cents is going to healthcare and not something else including the distribution charges. As an industry, we need to learn live with less and demonstrate that vast majority of revenue is going to medical care. Having said that, medical care is what we need to reform.”

 

Government spending by Medicare and Medicaid is “shooting right through the roof,” said Majd El-Azma, president and CEO of LifeWise Health Plans. “And, it’s going to bankrupt us. We need to bend the trend. The key is sustainability.”

 

Friedman believes the Affordable Care Act didn’t go far enough. “Healthcare should become an essential part of citizenship. There’s also not enough language on cost controls and the delivery systems. Instead, it’s heavy on insurance controls.”

 

It’s also dangerous, he said, to start picking apart that bill. “It’s a package and there are good and bad things. We’re no longer going to be able to medically underwrite children. All underwriting goes away. If there’s no mandate, sick people will stay home and the healthy will go to the party. It saddens me to see efforts on repeal. If we slice it up, the whole thing falls apart, and we’ll be no better. This industry needs a major structural change to make this affordable to our clients.”

 

Employers are heading toward a defined contribution model, said Jared Short, president of Regence BlueCross BlueShield. “This will escalate, and there’ll be a shrinking employer market for the first five years,” he predicted.

 

The employer market’s been shrinking for three years, Friedman responded. “I don’t see any reason for the employer market not to shrink, but the explosion of Medicaid is going to be a double-edged sword, and a lot more people will get covered, but provider reimbursement rates are relatively low. I hope primary care doctors are willing to accept Medicaid.”

 

Of the 32 million people expected to flow into the insurance market in 2014, half will qualify for Medicaid

 

Turning to the health insurance exchange, which will give consumers and small businesses an opportunity to purchase coverage at a lower cost with higher quality benefits, Ken Provencher, president and CEO of PacificSource, believes insurers should have a seat on its governing board, while the Insurance Division should retain its regulatory authority to keep the market stable.

 

He also questioned why unnecessary barriers have been set up to enroll children in the Healthy Kids program, requiring them to go through the Oregon Health Plan.

 

“One-stop shopping sounds, but it’s not clear to them whether this is an Oregon Health Plan or a regular insurance product,” he said. “We need to evaluate the experience and whether it makes sense to screen people for Medicaid, and somehow do it in a way that’s really efficient and effective that doesn’t scare people away.”