Health Insurance – Profits, Benefits, Inefficiencies, and Errors

Preface: The following post is NOT meant to make a statement about whether we should or should not have private health insurance or a single payer system.  Rather, I am meaning to point out some of the inefficiencies in our health care system as run through private insurance companies that are quite concerning.  Health insurers must make an effort to reform health care just as the federal government is making efforts through innovations in delivery of care and looking for increased efficiencies in government programs like Medicare.  Again, I’m NOT saying that we should get rid of health insurance companies.  I am also NOT advocating for them to continue.  This post is not that debate.  The discussion below is about a focus on profits instead of improved health care and wasteful inefficiencies.

By 2014, Americans will be required to purchase health insurance under the Affordable Care Act (ACA).  While I’ll pass on whether there should be a mandate or not, I think it’s important to discuss the actual insurers whose plans we’ll be buying.  Much can be said about health insurance companies, but this post will focus on some recent news  including the profits health insurers are making, the errors they make in processing claims, the benefits they’re meant to start providing for free, and their inability to manage public health benefit programs like Medicaid and Medicare.

According to the Kaiser Family Foundation, about 160 million nonelderly Americans have employer-sponsored health insurance, and another 13 million purchase insurance directly from an insurer or HMO.

The New York Times reported in May that many health insurers were reaping in their third year of record profits. UnitedHealth Group, WellPoint, Aetna, and Humana are all within the top 100 most profitable companies in 2010 according to Forbes 500.  UnitedHealth saw a 28.4% increase in profits over the past 2 years, WellPoint saw a 90.5% increase in profits, Humana a nearly 61% increase.  Cigna’s profits jumped nearly 346%.

Yet, while their profit margins bloat, many postpone care because health care is too expensive.  I already talked about people skipping their medications because of expense in a previous post.  The same is true for all health care costs.  In a time where money is tight for all, having to pay a deductible for an MRI or even a co-pay to see the doctor may be too much for many when that money could be going to the increase in gas or food prices.  According to a Kaiser Family Foundation report cited in the NYT article, in 2010, 10% of people covered by their employer had a deductible of at least $2,000 (up from 5% in 2008).

As individuals are spending more out of pocket for their own care, they are also paying their health insurers more.  Many insurers aren’t just asking people to pay higher deductibles, co-payments, and co-insurance but also higher premiums.  As the NYT report notes, Regence BlueCross BlueShield in Oregon asked for a 22% increase for policies sold to individuals.  Insurers requesting these double digit rate increases are common in other states.  Now, the increase in premiums may be partly paid for by an employer (which creates other issues for the economy), but the lion’s share of any premium increases are left for individuals to pick up.

Insurance companies justify these increases citing rising health costs, new mandates on which benefits insurers must cover and the minimum level of coverage under the ACA (such as essential health benefits discussed below) and under state laws, and in preparation for the individual mandate.  Yet, it seems they aren’t hurting…

I will admit that health care costs are rising and providing more benefits to customers are outside the insurers’ control and understandably they would want to compensate for that.  Also, right now, without a mandate, many people forgo purchasing their own health insurance – especially if they are young and healthy – resulting in adverse selection, with less healthy populations in the insurance pool and thus higher costs to the insurer.  Still, the profits seem to show that they could still provide extra benefits without hurting their bottom line.  And by providing these benefits, ultimately health care costs WILL decrease in the long run – which will increase their profit margins when they aren’t paying for multiple hospital claims because a diabetic doesn’t get their blood sugars tested.  Additionally, as more people are covered risk will be spread out – no more adverse selection.

So what benefits must insurers fully cover?  As of September 2010, they must cover 45 preventive services without charging you a copayment, co-insurance or have you pay for it under your deductible.  These include:

  • Blood pressure, diabetes, and cholesterol tests
  • Many cancer screenings, including mammograms and colonoscopies
  • Counseling on such topics as quitting smoking, losing weight, eating healthfully, treating depression and reducing alcohol use
  • Routine vaccinations against diseases such as measles, polio or meningitis
  • Flu and pneumonia shots
  • Counseling, screening, and vaccines to ensure healthy pregnancies
  • Regular well-baby and well-child visits, from birth to age 21

The full list can be found here

By providing these benefits free of charge, the hope is that more people will take advantage of them and their health will improve and hopefully resulting in lower health care costs in the long run.  For instance, if a cancer is caught early, a patient may avoid a long battle with cancer and complications that arise from treatment.  These benefits are a good thing for insurers to provide, but because of initial costs, they use this requirement to pass along the cost to consumers in higher premiums.

And what are “essential benefits”?  These are the minimum level of benefits insurers must cover in their plans that they offer in health insurance exchanges and State Medicaid must cover by 2014.  Under the ACA, the categories of benefits that insurers must provide include:

  • ambulatory patient services;
  • emergency services;
  • hospitalization;
  • maternity and newborn care;
  • mental health and substance use disorder services,
  • including behavioral health treatment;
  • prescription drugs;
  • rehabilitative and habilitative services and devices;
  • laboratory services;
  • preventive and wellness services and chronic disease management;
  • and pediatric services, including oral and vision care.

Additionally, starting with plan years or policy years that began on or after September 23, 2010, health plans can no longer impose a lifetime dollar limit on spending for these services. However, the same problem applies – insurers will use this mandate to justify rate increases, as they try to pass costs for these services to consumers.

Under ACA, insurers have to change how they spend the money we pay them, which may give them another excuse to raise rates.   Each insurance company operates with a medical loss ratio (MLR).  This means that of the money they collect for premiums, they pay a certain percentage in health care expenses.  The rest of the money may go to salaries, bonuses, marketing, advertising or overhead.  Soon, insurance companies will have to ensure that 80-85% of the premium paid on health care services and health care quality management.  Basically, the money you spend will now go to your actual health care instead of an executive’s pocket.  This doesn’t mean that health insurers won’t be able to make profits; it does mean that they have to ensure your money goes to your care and a better health care system.  And if they do not meet this requirement, they must give rebates to you, the insured.

Currently, health insurers are wasting a lot of money on administrative costs and not doing their job correctly.  A report out by the Commonwealth Fund this June found that publicly traded (i.e. private insurance companies, which are all for-profit plans) Medicaid plans have lower MLRs than their nonprofit counterparts.  Many states choose to contract with insurance companies like Amerigroup, Aetna, Humana, UnitedHealth Group, and WellPoint to manage Medicaid.  As of 2009, the Centers for Medicare and Medicaid Services (CMS) reported that about 72% of the Medicaid population is managed by such arrangements.  Unfortunately, these companies are wasting money on administrative costs.  the perform worse in providing preventive care and chronic illness care and in customer satisfaction.  This seems very wrong.  Many complain about the costs of public benefit programs like Medicaid, yet we are wasting money by using for-profit companies to manage care for those covered by Medicaid who aren’t even doing a good job. (I might also note reports children on Medicaid wait twice as long as kids with private insurance to see a specialist according to a Reuters report. Some may see this differently, but I would argue that these for-profit companies are not managing care correctly (doesn’t mean they can’t manage it correctly, it just means they aren’t doing so right now)).

Beyond Medicaid, insurers are still wasting money, about $17 billion annually, by incorrectly processing more than 19% of medical claims (up from 17% last year) according to research by the American Medical Association (AMA).  Only UnitedHealthcare showed improvement from the previous year, but still incorrectly processed more than 10% of their claims.  But then Anthem Blue Cross Blue Shield processed more than 39% of claims incorrectly.  Simply appalling.  Considering the hassle it is for both providers and patients to work their way through the insurance system to ensure their benefits are covered properly, this is unacceptable.  In fact, it’s not just a hassle, it’s a really big deal – especially when patients don’t know how to advocate for themselves and thus may not receive the care they need.  And providers then are also hurt with their offices spending an average of 10-14% of their operating costs daeling with insurance companies, time and money that takes away from patient care.  In addition to the mishandled claims, the AMA also found that insurers were asking for many claims to undergo prior authorizations wasting more resources in administrative costs and delaying care.  From the above, I would not a pattern – insurers taking in more money, justifying this by citing new mandates, and yet spending this money inefficiently.

However, maybe there is hope.  Blue Shield of California announced last month a pledge to limit its profits to 2% a year and give back anything over that amount to its health care providers and policyholders.  (Which seems odd given that the LA Times reported Blue Shield of California sought rate hikes up to 59% for individuals earlier this year).  Additionally, they are applying this policy retroactively to income earned in 2010, when Blue Shield’s net income exceeded the 2 percent target by $180 million. This money will go back to consumer who will get a credit $25-$415 (depending on family size and other factors), to California hospitals and physicians so they can participate in Medicare’s ACO pilot program, and to some non-profits.  This is truly an incredible step and I commend this company for taking such a step – setting an example for other insurers.  I will be interested to see how this pans out.  Though to be honest, I doubt other insurers will make such a commitment.

In all, the system needs to change.  It will not change overnight or in such dramatic ways as to get overly frantic about.  Any changes proposed or enacted will certainly face much scrutiny – particularly in our partisan political games.  The point isn’t whether we need to ration care or have “socialized” medicine.  It’s not whether we privatize all health care.  The point is improving health.  The government is encouraging ideas like ACOs, patient-centered medical homes, health information technology, and other efficiency measures to find ways to improve coordinated care, decrease hospital and physician errors, ensure better quality care, etc.  The private sector needs to step up too.  Health insurers need not focus on their profit margins at the expense of providing affordable care to those who keep them in business.  Their profit margins are fine, their efficiency is not.  Of course the benefits insurers must provide like preventive care will cost more now, but they will prevent increased costs later.  Of course insurers don’t want to be mandated to cover certain benefits because that costs more too, but this is part of the marketplace – just as putting seatbelts and airbags in cars are mandated.  Of course insurers don’t want to increase their MLRs, but that is YOUR money and it should go toward YOUR health care, not someone’s bonuses.

Insurers are not helping the problems with the health care system.   Medicaid managed care plans and incorrectly processed claims show us this.  Instead, they are charging more and not doing their job while complaining about initiatives that will ultimately work in their best interest.  However they can help the health care system by committing to work with others on health reform measures and by changing their business practices.  If these companies will focus on goal of improved health outcomes instead of focusing on profits or fighting mandates or turning a blind eye to inefficiencies that waste money, everyone will win.

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2 Responses to Health Insurance – Profits, Benefits, Inefficiencies, and Errors

  1. […] people skipping their medications because of expense in a previous post. …Read the full story here Previous Topic: Deciding Vote: Pension and Health Care Reform Bill Heads to Assembly – […]

  2. […] Health Insurance – Profits, Benefits, Inefficiencies and Errors and in A Culture of Change, I talk about the interaction between doctors and insurance companies.  […]

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