Providers and insurers are at odds over how health plans should be able to spend member premium dollars—a hotly debated issue that will be decided soon in forthcoming regulations from HHS.
Medical loss-ratio definition needed by HHS
Not only are insurers' profits at stake, but also some providers say the regulations could determine how care coordination evolves and how administrative waste and inefficiencies are tackled.
Under the new health reform law, starting next year insurers must spend at least 85% of subscriber premiums on medical costs in group coverage plans and at least 80% of premiums on medical costs for individual plans. Insurers that don't meet this requirement must give the dollars back to members in the form of rebates.
This medical loss-ratio provision is designed to prevent insurers from overspending on administrative costs such as marketing, salaries, underwriting, claims processing and overhead.
But the law, as written, allows for certain categories of expenses to be counted in that 80% to 85% ratio. For instance, “activities that improve healthcare quality” are included. Now, it is up to the HHS to define these activities. The National Association of Insurance Commissioners is expected to issue comment to HHS by June 1.
Leading provider groups—including the American Hospital Association and the Federation of American Hospitals—say this category should consist only of programs or activities that directly improve patients' quality of care.
But America's Health Insurance Plans and the Blue Cross and Blue Shield Association, in public comments to HHS, list at least 13 categories of activities that they say should, at minimum, be put in the quality improvement category (See chart, p. 9).
The two insurer groups say these activities are consistent with the Institute of Medicine's definition of quality, or that they contribute to ensuring quality, based on criteria developed by the Agency for Healthcare Research and Quality.
Insurers warn that classifying these programs as administrative expenses could cause their demise. “These important activities, which are often done in concert with the provider community, would likely be squeezed out or eliminated altogether if not considered quality improvement and plans are forced to cut back on services to meet the minimum-loss ratio requirements,” Alissa Fox, senior vice president, office of policy and representation, for the Blues, wrote on May 14 in the group's 19-page public comment letter to HHS.
“I don't think the solution to the problem is to pack into the patient-care side every activity they (the insurers) want because then, at the end of the day, nothing changes,” said Chip Kahn, president of the Federation of American Hospitals. “You have to draw the line somewhere or there's not going to be much money left over for doctors and hospitals.”
The AHA is recommending HHS use a “decision tree analysis”—a series of questions probing whether the activity's core purpose is to truly improve quality, or simply reduce costs and utilization—to determine which programs make the cut.
Do nurse call lines help patients make crucial treatment decisions, or do they simply schedule appointments, for instance? “Unfortunately, some of these activities intermingle,” said Ellen Pryga, director of policy for the AHA.
Providers point to insurer case management. “A lot of case management is reviewing whether you should stay in the hospital another day,” Pryga said. “It's not really a quality issue; it's a risk-management issue.
Meanwhile, there is also debate over what should qualify as an administrative expense. The Medical Group Management Association wants claims payment administrative expenses incurred by providers to be included as an element of the insurer's administrative costs.
It's unclear how many health plans already meet the minimum loss-ratio thresholds because there are so many details in the regulations that could push insurers over or under the line. “If plans do need to track loss ratios by state, rather than by employer group, they will need to create an entirely new administrative structure, or spend a lot of time reworking existing systems to provide the required data,” wrote Carl McDonald, senior analyst at Oppenheimer & Co., in an investor note.
The medical loss-ratio requirements could help improve care coordination and transparency while helping reduce unnecessary spending, providers said.
“We feel there is way too much time, energy and money devoted to administrative expenses theses days,” Pryga said. “If you can move those administrative expenses into the clinical category, you reduce the pressure to remove waste and inefficiencies from the system.”
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