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Will Association Health Plans Fix Our Ailing Healthcare ‘System’?

After at least six failed attempts to repeal and replace the Affordable Care Act (ACA), President Trump and some Republicans, notably, Kentucky Sen. Rand Paul, are poised to resurrect the quest to fix our ailing healthcare-cost conundrum. This new attempt, issued on October 12 through an executive order, discontinues cost sharing reductions for many low-income Americans, expands short-term, limited-duration medical plans, and expands access to association health plans (AHPs).

The AHP is really an old approach, shrouded in anecdotal arguments that sound hopeful – at least in theory.

AHPs would allow small-employer groups and individuals to join newly-created federal-certified associations based on certain types of professional, trade or interest groups – that offer insurance coverage to its members. The plans would be sold across state lines and have reduced state oversight. It should be noted that many states already have interstate agreements that allow their residents to purchase out-of-state plans. According to supporters, AHPs allow small employers to have more bargaining clout with insurance companies and be exempt from the ACA’s requirements on having to offer essential benefits. The argument is that AHPs will increase product options for insurance shoppers and, in doing so, lower health insurance premiums.

AHP History

The idea of AHPs has been around for decades, often cloaked in different names depending on how they are funded (fully-insured vs. self-insured). For example, ‘small business health plans’ are also known to be AHPs. These plans are proposed to operate outside state insurance regulatory authority and beyond the reach of state consumer protections and solvency laws. Another name given to AHPs in the past are multiple-employer welfare arrangements, or MEWAs. Self-insured MEWAs have a checkered past, largely due to having no clearly-defined regulatory authority. This caused a great deal of problems when multiple MEWAs went bankrupt and consumers had problems addressing financial responsibilities.

Adverse Selection

Opponents of AHPs are concerned with a two-word nemesis found in the insurance world – adverse selection. In health insurance, adverse selection happens when sicker people buy health insurance while healthier people don’t buy coverage. The American Academy of Actuaries, an organization that provides actuarial advice on risk and financial security issues for policymakers, is justifiably concerned that if AHPs are given preferential treatment on regulatory insurance rules, other individual and small group markets will be adversely impacted by having more costly Americans maintain coverage in alternative, non-AHP plans.

Through AHPs, young, healthy Americans would likely gravitate to acquiring cheaper, non-ACA insurance plans that would offer fewer comprehensive benefits. On the other hand, older, sicker Americans would desire to keep the more comprehensive ACA plans, thereby remaining with the alternative non-AHP plans. Over time, the insurance rates would increase for the older Americans and become more unaffordable. In the insurance world, this adverse-selection phenomenon creates a ‘death spiral’ that will eventually drive insurance companies out of the non-AHP markets.

Based on my past work in the benefits world, I have found AHP-type arrangements to be long on anecdotal promises, as mentioned above, but seldom provide the desired outcomes in a highly dysfunctional healthcare ‘system.’ Yes, removing some restrictive regulatory barriers may possibly shave a few percentage points off premiums, but this approach does little to nothing in reforming the complexities and inefficiencies found within the delivery of healthcare – where most time and energy must be spent to control costs and improve quality-of-care outcomes.

If AHPs can survive legal challenges from states and federal courts, AHPs may possibly serve one instructive role – the eventual demonstration that this ‘market-based’ silver bullet won’t fix the crux of our healthcare woes.  Broad competition currently happens between health plans, provider networks, hospital groups, physicians and clinics. How well has this level of competition ‘fixed’ our cost and quality problems? It has not.

In their 2006 book, Redefining Health Care, Michael E. Porter and Elizabeth Teisberg argue that the ‘right’ level of competition should be addressing particular medical conditions over the “full cycle of care, including monitoring and prevention, diagnosis, treatment, and the ongoing management of the condition.” The authors believe that if we want competition in healthcare, we must push for better ways for physicians and hospitals to compete – making them the best at addressing a particular set of medical conditions.

The value in healthcare comes from the delivery of the care, rather than relying on insurance approaches that merely attempt to carve up an already-bloated pie. The centric goal in healthcare should be to improve the quality of health outcomes per dollar spent. This is known as healthcare’s true ‘value.’

Embracing AHPs does little to address this value.

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Competition Matters – But at the RIGHT Level

Athletes At The Sprint Start LineWhen a fledgling insurance company in Iowa and Nebraska tanks after just one year of covering a small percentage of our population, one big question begs to be asked – and ultimately answered.

So just how important is it to have multiple health insurance companies competing in the same market? Two – perhaps five – maybe 20? The established logic many will use is that by having more competition, we will have better products, elevated services, and ultimately, more affordable prices.

In most industries, I would agree.

But my answer to the above question may be considered heretical thinking for some. You see, I’m not convinced this free-market belief works in our existing healthcare ‘system’ as we know it today – especially as it relates to insurance carriers.

At the time of this writing, the demise of CoOportunity Health in both Iowa and Nebraska is imminent. CoOportunity is a health insurance cooperative that originated from the Affordable Care Act, but was taken over by Iowa regulators on December 23 due to “insufficient capitalization.” On January 23, the Iowa Insurance Commissioner announced that he will seek liquidation of the insurance cooperative.

I will leave the discussion to others as to how (and why) this tax-payer-funded organization failed after only one full year. But suffice it to say, there was no federal appetite to perpetuate an organization that:

  • Does not have the financial leverage to negotiate favorable prices with health providers on behalf of private individuals and small group plans.
  • Grossly underpriced insurance products within the marketplace in order to gain more (and higher-risk) insureds.

Regardless of what the state’s dominant insurance company did (or did not do) within Iowa, this was not a recipe for long-term success.

Harvard Business School professor, Michael E. Porter, is a leading authority on marketplace competition, both in the U.S. and internationally. Porter, along with Elizabeth Teisberg, wrote an important book on healthcare competition in 2006, “Redefining Health Care – Creating Value-Based Competition on Results.”

One big takeaway from this book, at least for me, is that competition in U.S. healthcare operates at the wrong level. According to Porter and Teisberg, our competition is too broad and too narrow:

Competition is too broad because much competition now takes place at the level of health plans, networks, hospital groups, physician groups, and clinics. It should occur in addressing particular medical conditions. It is too narrow because it now takes place at the level of discrete interventions or services. It should take place for addressing medical conditions over the full cycle of care, including monitoring and prevention, diagnosis, treatment, and the ongoing management of the condition.”

What we pay in our health insurance premiums are primarily the health costs that were incurred due to the poor lifestyle choices we make, which ultimately includes physician, hospital, medical devices and prescription drug services. We also pay a relatively smaller portion of our premium for administration costs tacked on by the insurance carriers who process our health claims. To be fair, when looking at various metrics in other countries, it can certainly be debated that these administrative costs are inflated.

Yet many agonize about the lack of competing carriers here in Iowa, believing that increased carrier competition will serve as the Holy Grail to control costs. This is wishful thinking. We unwittingly treat healthcare as a commodity – which it certainly is NOT! By doing so, we assume that all providers are equivalent when it comes to medical outcomes – another dangerous, erroneous assumption. Until we break past the commoditization of healthcare services, we are doomed to repeat the horrid cycles of the past.

According to a recent report in the journal Public Health, obese people run up an average $1,360 in additional healthcare expenses each year compared with the non-obese. Smokers, on average, incur an additional $1,046 of healthcare expenses each year, compared with non-smokers. These two examples only serve to portray the real problems we are confronted with regarding costs – and having multiple carriers will not address these issues in any marketplace.

As stated in previous blogs, health insurance premiums are a derivative of healthcare costs. Somewhere between 30 – 40 percent of the costs we pay are inflated costs, due largely to waste, fraud and a host of other issues that cannot be eradicated because we have multiple insurance carriers. We simply have an inefficient healthcare ‘system’ that has not been adequately addressed by the Affordable Care Act. Steven Brill makes this point numerous times in his recent book, “America’s Bitter Pill.”

If we are to believe that American ingenuity will solve the cost conundrum in healthcare, we first must ensure that true competition is emphasized at the right levels within our markets. Otherwise, we are merely prolonging a long, slow death march to higher costs and mediocre care for all.

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Voices on Hospitals: Transparency in Medical Outcomes

Time To ImproveIn my mind, the Holy Grail of healthcare is having information on each provider’s medical outcomes – in other words, having transparent outcomes.

How many of us desire to use a doctor or hospital who demonstrates marginal or poor outcomes? No one, I’m quite sure. Yet we have little, if any, verified qualitative information that consistently benchmarks one provider with another provider for the same medical procedure within any geographical area. This is actually a great gig for those medical providers who underperform the services they are handsomely paid to deliver to patients.

Needless to say, this MUST change — and it cannot happen soon enough.

In healthcare, we know that recommended care is delivered about 55 percent of the time, yet our costs continue to rise despite the poor outcomes delivered. Why does this happen? Because the medical ‘establishment’ is much louder (and active) in Washington D.C. than the majority of us who innocently assume that others have our best interest in mind.

Since a majority of healthcare providers fail to track outcomes or cost by medical condition, it’s imperative that a systematic measurement process is established to improve healthcare outcomes. During those times when measurement does occur, they’re typically easier process measurements that determine levels of compliance with practice guidelines. Unfortunately, these measurements may not adequately address the quality metrics needed to advance “value” in healthcare. Performing these measurements serve nothing more than a mirage of what we REALLY desire to have – improved medical outcomes.

Indicator #10: Transparency in Medical Outcomes

The jig is up. Iowa employers have sounded off about how they view hospitals regarding transparency in medical outcomes. Statewide, Iowa hospitals received an anemic score of 6.1, or a grade of ‘C-minus’ for their efforts on being transparent with their outcomes. When segmented into five regions using size-weighted scores, four regions ‘fail’ while only the northwest region received a ‘high-D’ grade.

Polk County hospitals, graded by 144 employers, received a score of 4.3 (failing), while Johnson County (home of Iowa City) received a 5.8 score, or ‘high-D’ grade. A few other notable counties with large populations include Linn County (5.6) and Dubuque County (4.8), grades of ‘D’ and ‘F’ respectively.

Regional - Transparency in Medical Outcomes Map-Master

According to Michael E. Porter and Thomas H. Lee, M.D. of Harvard, “The only true measures of quality are the outcomes that matter to patients. And when those outcomes are collected and reported publicly, providers face tremendous pressure – and strong incentives – to improve and to adopt best practices, with resulting improvements in outcomes.”

Iowa employers have found their voice, now it is time to raise it to unprecedented decibels.

In next week’s blog, we’ll review how Iowa employers graded hospitals on our final two performance indicators: ‘Cost Transparency’ and ‘Keeping Cost Reasonable.’

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