Cover: Finding the right fit

Wednesday, July 01, 2015 12:00 PM

Syncing gears in a competitive health care marketplace

by Kate Alfano, CMS Communications Coordinator

If there was ever any question about the competitiveness of the Colorado health insurance market, with insurance companies chasing market share and the lowest price point while also facing the challenges of radically different payment models, that uncertainty was dispelled with the Division of Insurance’s June 15 announcement of proposed plans for 2016.

A total of 1,221 medical plans were submitted. Of those, 425 are proposed to be offered through Connect for Health Colorado, the state’s health insurance marketplace created under the Affordable Care Act (ACA): 239 individual plans and 186 small group plans. Overall, 23 carriers propose to offer individual and/or small group medical plans in Colorado in 2016 and, of those, 11 propose to offer individual and/or small group medical plans through Connect for Health Colorado.

“As in 2014 and 2015, it is great to see so many carriers offering plans in Colorado,” said Commissioner of Insurance Marguerite Salazar in a DOI news release about the proposed plans. “We have such a competitive market, with many choices for Colorado consumers.”

Intense health plan competition comes with consequences, however, such as the move to narrow networks, without-cause physician de-selections, increased utilization and prior approval requirements, among others. A 2013 study conducted by the American Medical Association and the RAND Corporation found that physician workplace dissatisfaction is high and on the rise, and much of this dissatisfaction is the direct result of third-party payers making it difficult for physicians to provide good care. All of this makes the goal of achieving the Triple Aim of higher quality care, lower costs and a better experience for patients even more challenging.

The Colorado Medical Society is following these issues with public and private payers closely and actively participating in interim discussions on network adequacy to ensure physicians’ voices are heard. Read more on page 14 about CMS’s preparation for the interim discussions, which came about after debate in the 2015 legislative session on Senate Bill 259.

Breaking down the components
Taking a closer look at health insurance trends over the past few years since the ACA became law, it’s important to understand the different segments, cogs that work together to cover Coloradans: government plans like Medicaid and Medicare, the individual market, the small group market and the large group market, and within large group, fully insured and self-funded. Leo Tokar is senior vice president in the health care practice for Lockton Companies. He explained how each segment has been affected by the ACA and state-based health reforms.

Starting with the government plans, the Medicare insurance market has been largely unaffected, other than serving as a platform for experimental payment models. The biggest impact on Medicaid has been Colorado’s decision to expand the eligibility threshold, which created many more insureds. “That benefits not only individuals but also providers in the form of having less bad debt; receiving something, even in a lower payment rate, is better than receiving nothing while attempting to collect a higher payment rate,” Tokar said. “It has significantly helped boost hospital profitability and has generally lowered bad debt for providers.”

The ACA similarly reduced the number of uninsured patients in the individual market, standardized benefit offerings and helped eliminate gaps in coverage that were previously allowed. On the other hand, it eliminated the option for individuals to access “skinny products,” or true catastrophic health plans. “It has also greatly inflated the charges that we’re seeing for catastrophic cases, not just in the individual market but really across all commercial insurance,” Tokar said. “Where previously hospitals would limit their billings because they knew there were annual and lifetime maximums in policies that limited coverage, now you have a much higher prevalence of $2 million, $3 million, even $8 million cases because there’s a funding mechanism for it.”

At least in the short term, the small group market has not really been affected, Tokar said. The ACA pushed rates up somewhat because of added benefit mandates but it has also standardized the way groups have to be rated, which took away variation. As a result, rates have been squeezed toward the middle; groups that previously paid a much lower rate because they had a certain profile are now paying a higher rate, and vice versa.

The provision of the ACA that has affected the large group market the most is the employer mandate, Tokar said, which requires groups to be in the heath care financing game one way or another – either an employer provides coverage to employees or pays the penalty and funds health care through the government. “In combination with that, it has created many other rules, significant administrative burden, and that has been incredibly onerous.” He explained: While the mandate has expanded coverage to people working more than 30 hours a week, it created an incentive for employers to manage some workers’ hours to fewer than 30 a week so they don’t have to provide health insurance coverage for them.

“The biggest unknown is what is truly going to happen with rates in the individual market,” Tokar said. “The first two years of the exchange were to some extent the Wild, Wild West because it was a new marketplace and carriers didn’t have a sense for the risk pool of people that they would receive, and even for the second year they had little experience to base the second year’s rates off of. I think in years three and four there’s going to be a lot of pricing rationalization and shaking out of the market as insurance companies understand who actually enrolls.”

In some respects the rates have been lower than what they truly needed to be, he said. “Insurance is a very simple concept: It’s a pooling of risk. People pay in when they don’t need it and the insurer pays out when they do need it. No one can have a sustainable business by paying out more than they take in.”

Calculating rates for 2016 and beyond
In general, individuals who have enrolled on the public exchanges since the ACA took effect have a higher risk profile and higher health care utilization than what was originally expected, meaning many insurance companies are losing money on these products. That indicates that as pricing rationalization takes place – where insurers more accurately match prices with consumers’ risk profile – that is going to put upward pressure on rates. “The press around the country is that insurance companies are filing rate increases for 2016 that are well into the double digits pretty consistently,” Tokar said.

At least in the preliminary announcement, Colorado appears to be an outlier. The DOI reported that some insurers in the state have requested lower rates and others are looking to single-digit increases. Tom Abel, head of DOI’s Rates and Forms section for life, accident and health insurance, said in the DOI news release: “Overall increases appear to be more than the average increases seen from 2014 to 2015; however these are just the premium rates requested by insurers, and are not the approved rates. Any requested rate has to be justified by the insurance carrier.” He attributed the increases to “the number and types of claims…as well as medical inflation.”

DOI staff will examine each plan to make sure it complies with ACA requirements and state and federal laws, and meets the federally defined tier coverage levels, and staff will review the information that carriers submitted to support and justify the proposed rates. They will complete their review and analysis by September.

“A key factor in the cost of health insurance is something that the division and insurance companies have no control over, and that’s the cost of health procedures and services,” Salazar said in the DOI release. “We all need to work together to figure out how we bring those costs down.” 

Shifting costs
As stated in a June 2015 report by the Colorado Health Institute, “Narrow Networks in Colorado: Balancing Access and Affordability,” the ACA has done away with many strategies previously used by insurers to set premiums. “Insurers in nearly all individual and group markets must sell plans to everyone, even people who already have health conditions. And they are required to extend many preventive services…with no out-of-pocket costs. Insurers in the individual and small group markets must offer a standard set of benefits. And they are allowed to charge higher premiums for only one health-related behavior – smoking.”

As a result, many health insurance plans purchased through the ACA marketplaces offer a limited selection of providers in their networks – so called “narrow networks.” CHI defined narrow network plans in the report as those contracting with 25 percent or fewer of the doctors and hospitals in the community. “Narrower networks are one of the tools available to insurers trying to lower their costs in order to compete for price-conscious consumers who are comparison shopping through the marketplaces,” the report’s authors wrote.

“We’re not driving towards narrow networks as the only network we see, which would have an adverse impact on all kinds of stakeholders,” said Robert Ferm, head of Hall & Evans’ Regulatory and Public Policy Practice Group in Denver. “This is a fully and highly regulated environment. There’s prior approval on all rates and there are limitations in terms of profit that carriers can hope to see if everything works in the appropriate way.”

“Maybe there is bigger concern than need be as to whether [narrow networks are] a real problem,” he said.

But CMS President Michael Volz, MD, said the rising prevalence of narrow networks is, in fact, a big problem. A 2015 report by McKinsey & Co. found that plans with narrow networks make up about half of all ACA exchange networks in the U.S., and about two-thirds of the networks in the largest cities.

“Insurance companies should be compelled to negotiate in good faith with physicians in order for them to provide appropriate and reasonable care to their patients,” Volz said. “Consumers need assurance that when they go out and purchase insurance they have adequate coverage and have access to the physician specialists they expect.”

“The larger issue is this: Insurers must be transparent in what they’re offering. Some patients truly want a narrow network plan for the lowest premium. However, some patients purchase these plans without fully understanding that they will lose access to their doctors or have to go to a hospital that is less convenient for them. In the most extreme cases, patients are forced to consider and act upon financial decisions that they thought were prearranged through their insurance coverage, shifting a significant burden onto patients at the time when they are most vulnerable.”

User error
Transparency and health insurance literacy remain real challenges in the effort to empower consumers to comparison-shop for insurance plans and then feel confident accessing health care services. Debra Judy, policy director at the Colorado Consumer Health Initiative, said that when choosing a plan, “consumers will look at their premium, whether their doctor is in their network and, if they take prescription drugs, what that looks like for them. That’s what they want to know: cost, doctors, drugs. We have a lot of education to do on health insurance literacy: in network, out of network, deductibles, coinsurance. We need to help consumers navigate these complexities.”

However, many physicians and their staff are already feeling the pressure of being asked to be “benefit counselors” for patients who just don’t understand their coverage; it is impossible for practice staff to recall or access up-to-date information at the point of care on the thousands of insurance plans available to their patients.

Media reports have highlighted cases where policyholders discovered after purchasing a plan that their provider was not in their network, that providers in the plan were not accepting new patients, or that they had limited access to specialists at sought-after medical centers. A 2014 survey by McKinsey & Co. found that 26 percent of those purchasing a plan through a marketplace did not know whether they had bought a narrow or broad network plan.

“It is clear that many Coloradans are more than willing to trade wider provider networks for lower premiums,” said the authors of the CHI report. “For example, 40 percent of Colorado’s marketplace enrollees in 2014 opted for the lowest-price bronze plans, a rate second only to Hawaii. It is likely that many of these plans have narrower networks. It is also likely that some of the bargain shoppers may not be fully aware of the trade-off they are making.”

Citing a 2014 Kaiser Family Foundation Health Tracking Poll, CHI asserted that customers shopping for coverage through the marketplaces prefer narrow networks that cost less to broader networks that cost more, and that these cost-conscious consumers are more likely to be low-income and uninsured compared with the total population.

Elisabeth Arenales, director of the Colorado Center on Law and Policy’s Health Care Program, identified other trends in health insurance that she finds concerning for consumers, including the rising number of people covered by high-deductible plans; cost-sharing for access to high-cost drugs, which she said “virtually every plan in Colorado” moved to in 2014; and strategies she’s seeing among the plans to try to control utilization of services in the interests of controlling costs.

“We certainly have continued to see an increase in high-deductible plans, high levels of cost-sharing, and I think it’s a struggle we’re going to have about what the balance is between creating a low-cost premium which then has a very high out-of-pocket obligation,” she said. “Frankly, I think we need to have a conversation in the state about high-deductible plans and whether there are any policy interventions that would be appropriate to tackle the question of their affordability. High-deductible plans have consequences for physicians, hospitals and patients, and it’s an increasing problem.”

Ferm said there have always been high-deductible options in the marketplace and they have served as a vehicle for entry into the health care system. “Pre-ACA, for lots of people who are first-time entrants into the system, the most affordable potential product they could buy has always been a high-deductible product. That’s something that has been in play pre-ACA and now with the ACA.”

Tokar said, “All of these things are meant to change the dynamics of health care delivery, understanding that insurance companies don’t deliver the care but at the same time they’re a gatekeeper to the financing of the health care in many respects. They get pressure from everyone – the consumers, the employers and the regulators – to manage costs. But since insurance is a pooling of risk, what they’re doing, aside from administrative costs, is just reflecting the cost of care in the provider community and in the patient base. All of these developments, like narrow networks, are an evolution that’s driven by the absence of tools that can help manage the cost side of the equation.”

The new machine, in practice
All of these factors put tremendous pressure on consumers as they are being pushed to make good choices without necessarily having all of the information or understanding how to use the information. “Everyone can price shop when it comes to buying milk but when you’re talking about health care, it’s traditionally been a fairly black box when it comes to price,” Tokar said. While many new tools provide information for consumers to choose between providers and services, “they find it difficult because it’s just not something that they’re accustomed to and there isn’t necessarily clarity on what types of trade-offs they’re making.”

Providers, in turn, are being asked to support trends in transparency and quality measurement, and are similarly under pressure to develop processes to help inform some of these trends. Arenales said stakeholders in Colorado have to come up with ways to measure performance in a way that’s meaningful to policymakers and to “real people” who are using the system – both for physicians and for hospitals. “Right now it’s very hard to get meaningful data.”

Judy said there are opportunities to educate consumers on health insurance trends and terms at the point of care, and that the responsibility to do so falls on everyone – consumer advocates, carriers and providers. “If there’s an opportunity we should be helping consumers understand what [a service] means in terms of their health insurance and what it’s going to cost them.”

She continued: “I think we’re on that wave as people are learning more. That’s where we need to have that conversation for consumers: How do we weigh all these variables and what kind of tools are out there to help people pick the right plan for them? I think there is a lot of interest but we’re not quite there yet. We’re trying to figure out what is the information that consumers can take and run with to make the right decision for them.”

Regardless of which cost-cutting approach takes the lead in the rapidly evolving health insurance marketplace, there are two approaches to take, Tokar said. “Either resist or figure out how you can support it and come out ahead in those trends. That requires investment in systems and processes, or alignment with other providers. It’s definitely requiring different business models than providers are traditionally accustomed to.”

This is where the Colorado Medical Society comes in. “Physicians are going to need help developing different variations of business models that can help them continue to care for patients with these different financial scenarios like narrow networks and ACOs, as well as standardizing quality measures,” Tokar said. “I think it’s very difficult to have individual or small practices figure this out. CMS is in the perfect position to be a convener, to identify different models, to create partnerships that can help docs figure out how they align with other practices, share data, or identify efficiencies and manage risk.”