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Transparency Does Not End with Providers and Insurers – Benefits Brokers Are Next

On a sunny October day in 2004, I was expecting a phone call from a Wall Street Journal reporter who wanted to discuss the latest practices of insurance brokers steering their clients to higher-commissioned products. At the time, I was operating my employee-benefits consulting organization, assisting Iowa employers by obtaining and servicing their employee benefit plans. For the record, since October 2011, I no longer practice as a benefits consultant.

During 2004, New York State Attorney General Eliot Spitzer filed a civil lawsuit against insurance broker Marsh & McLennan, alleging it rigged bids and steered business to insurers who paid enticing commissions, even if the product and insurance company were not in the client’s best interest. It was a scandal that rocked the industry that I was part of at that time.

How this New York reporter became aware of my organization was somewhat of a mystery to me. She did mention that our website was ‘dripping’ with language that suggested “complete independence” from “outside influence” and that “we act in our clients’ best interest – always.” From her perspective, I presumed, maybe we were indirectly referring to activities in our industry that bordered being nefarious. She wanted to learn more.

Our firm, when possible, avoided such contracts with insurance vendors because our desire was to be paid directly by our clients. Unfortunately, for many of our smaller employer clients, insurers would not segregate commissions from the premiums they paid, so we accepted the commission but voluntarily shared with the client the amount we received on their behalf.

Cash and gifts quietly given to insurance brokers and consultants by vendors – in exchange for business – may create a conflict-of-interest that adversely impacts the ‘independent’ guidance employer clients expect to receive from their advisors. During that time, voluntary reporting of commissions and bonuses were seldom being practiced by others – both locally and nationally.

Unfortunately, the WSJ interview never happened as an unexpected priority required my immediate attention at the time.

Fast forward to now.

The $900 Million Stimulus Bill – Includes Broker Transparency Provision

Buried deep in the 5,593-page $900 million stimulus package that was signed into law on December 27 is a little-known provision that impacts the aforementioned conflict-of-interest issues. For brokers, consultants and employers, this provision can be found on page 4475, Section 202 BB of the stimulus package. I learned of this provision from a ProPublica article (January 6), aptly titled: “Lavish Bonus? Luxury Trip? Health Benefits Brokers Will Have to Disclose What They Receive from the Insurance Industry.” The title says it all.

Author Marshall Allen, whom I have corresponded with in the past, has written quite a bit about this subject. In fact, his 2019 article prompted senators to propose legislation that requires disclosure of such perks and payments. This legislation was never enacted until now.

Brokers – and Employers – Take Note

The provision requires brokers and consultants to share with their employer clients (in writing) the various forms of direct or indirect compensation they receive from vendors associated with the health plan purchased by the employer. Further, the disclosures must take place at the time the employer enters into the agreement with the broker/consultant – or when the plan is renewed. This requirement also includes brokers who sell individual health insurance coverage.

Additionally, any service provider acting as a consultant who reasonably expects to receive direct or indirect compensation relating to the development of the following services must also comply:

  • Plan design
  • Insurance or insurance product selection (including vision and dental)
  • Record-keeping
  • Medical management
  • Benefits selection
  • Stop-loss insurance
  • Pharmacy benefit management services
  • Wellness design and management services
  • Transparency tools
  • Group purchasing organization agreements and services
  • Participation in and services from preferred vendor panels
  • Disease management
  • Compliance services
  • Employee assistance programs
  • Third party administration services

The disclosure section of this stimulus package applies to a producer or entity expecting to receive more than $1,000 in direct or indirect compensation for selling or administering to ‘employer-sponsored health plans’ and ‘enrollees in plans on the individual market.’

Conclusion

The delivery and payment of healthcare is fraught with many incentives and disincentives that drive appalling behaviors, causing costs to soar. As a benefits consultant, I was a big proponent of disclosing any renumerations we received to each affected client. Philosophically, this behavior is similar to expecting hospitals, physicians and insurance companies to reveal the negotiated prices of medical services.

Brokers and consultants owe it to their clients to be open with how they are being compensated by various sources to assure the client is being properly (and ethically) served at all times. This behavior cements trust and can promote a strong bond between the buyer and seller.

It is simply the right thing to do.

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Another One Bites the Dust – Haven Ends Healthcare Quest

The medical industrial complex has claimed yet another innocent victim. But this is not just any victim.

Three years ago, an independent company, Haven Health, was formed by three powerhouse forces in the business world: Amazon, JPMorgan Chase and Berkshire Hathaway. Meant to transform healthcare, Haven was a very unique collaboration that put the healthcare industry on notice that a new sheriff would be in town to help clean up a messy and unruly industry dominated by legacy players.

The likes of Jeff Bezos (Amazon), Jamie Dimon (JPMorgan Chase) and Warren Buffett (Berkshire Hathaway) were serving as the newly-assembled sheriff that would instill both fear and respect by industry inhabitants.  When this marriage was announced in 2018, I wrote a blog about the likelihood of having three disruptive ‘outsiders’ force long overdue changes to healthcare practices. I ended this blog with one stark sentence: “Only time will tell.”

Time is Now Here

It appears the healthcare industry is more complex (and unforgiving) than even the sheriff had believed. This most recent development reminds me of what President Trump naively claimed while attempting to repeal and replace Obamacare in 2017: “Nobody knew that healthcare could be so complicated…”

On Monday of this week, Haven announced that it will end its mission of exploring healthcare solutions, such as “piloting new ways to make primary care easier to access, insurance benefits simpler to understand and easier to use, and prescription drugs more affordable.” According to the Wall Street Journal (subscription required), any collaboration between these companies will become less formal in the future.

In addition to impacting their own respective workforces, the collaboration also intended to influence and disrupt the payment and delivery models currently in place. Reading between the lines, however, when their appointed chief executive, Dr. Atul Gawande, stepped down from his role in May of 2020, perhaps the proverbial ‘flywheel’ lost any inertia it may have gained.

Lesson Learned

Going forward, it will take more than three highly-respected leaders and their innovative organizations to mildly disrupt a system that desperately needs disruption, but has largely resisted meaningful changes. Many have tried to reform this massive industry, but up to this point, there has been very limited success.

In healthcare, bold changes may only come after America experiences an unimaginable crisis beyond anything we’ve ever encountered before.  But then again, only time will tell.

–Update on Hospital Price Transparency Requirement

My Tuesday blog on the new hospital price transparency mandate revealed that two major Des Moines hospitals have not posted the required pricing information despite a national mandate to do so – beginning January 1. The penalty for noncompliance is, quite frankly, small potatoes for at least larger hospitals – just $300 a day. To learn more, the CMS issued a FAQ on December 23.

According to POLITICO Pulse just one-third of the top 20 hospitals have posted visible price lists as of New Year’s Day. Politico reports, of those hospitals that have posted, the information is often vague or hard-to-decifer. More to come in future blogs on this subject.

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Would Having More ‘Blues’ Make Us Happier?

Many of you residing in Iowa reading this post are probably covered by a Blue Cross and Blue Shield health insurance policy. Most likely your health plan is insured by Iowa-based Wellmark, Inc. or Wellmark Health Plan of Iowa.

Using data from the Iowa Insurance Division, a recent Des Moines Business Record article reported that both Wellmark plans “account for roughly 78 percent of the large group market in Iowa and 81 percent of the (Iowa) small group market.” Additionally, the individual market in Iowa has Wellmark companies accounting for 45 percent of individual health policies in the state.

Overview

For decades, Blue Cross and Blue Shield (BCBS) plans located in each state, Iowa included, did not compete with ‘sister’ BCBS plans in other states. Wellmark BCBS was, in essence, protected from competing with other Blue plans for Iowa business.

However, there was one large exception to this friendly competitive arrangement. Other Blue insurers can compete for large national-account business ONLY if the home state Blue plan chose to “cede” the client to them. As an example, if Hy-Vee, headquartered in Iowa, wished to use a larger BCBS plan, such as Anthem, Inc. – the largest of all BCBS plans – Wellmark would need to ‘cede’ this Iowa-based business to the desired Blue plan. Employers really had little recourse on fighting this arrangement, other than threaten to choose a non-Blue plan such as United Healthcare, Cigna, Aetna, etc.

It is important to mention that within the Blues system, if a large, Iowa-based organization is enrolled with Wellmark, they gain access to the BlueCard® PPO for their out-of-state employees – which offers any additional negotiated arrangements made by each state’s Blue plan. This is a big advantage to large national accounts, and has worked reasonably well for decades. However, if the employer was, for some reason, unhappy with the services provided by that ‘home’ Blues plan, they would need to apply leverage to move to another desired Blue plan outside that state. As a result, the pursuit for seamless customer service was rather ‘clunky.’

In 2012, a national class-action lawsuit was brought on behalf of employers and individual policyholders with Blue coverage. The lawsuit alleged that anticompetitive behavior among BCBS plans who conspired to divvy up markets and avoid competing against one another, consequently drove up customers’ prices.

Tentative Antitrust Settlement on Blues

In September, a tentative deal was reached whereby the BCBS Association agreed to pay $2.7 billion to settle the claims and curtail competitive practices that limited competition among all 36 BCBS insurers – which includes Wellmark, Inc. According to the Wall Street Journal, the deal is not yet final, as U.S. District Judge R. David Proctor of Birmingham, AL, who presides over the case, must approve the arrangement. Additionally, the boards from each of the 36 BCBS plans must endorse the settlement.

Under the draft settlement, each of the 36 BCBS insurers can no longer be restricted to a little-known rule that required two-thirds of each Blue plan’s national net revenue from health plans and related services come from Blue-branded business. This rule limited each company’s ability to expand and open new growth pathways for each insurer. Theoretically, each Blue plan could maximize profits both in and out of their assigned service areas, causing greater competition in new territories, if desired.

As for the $2.7 billion settlement, the BCBS Association and all 36 independent Blue plans have agreed to chip in money to settle antitrust charges. Presumably, the amount will be apportioned based on the size of each Blue plan.

What Will This Mean to Iowa and Elsewhere?

Assuming the settlement is approved by Judge Proctor and all 36 Blue plans, there could eventually be more consolidations between Blue plans and non-Blue companies. Additionally, the largest of Blue plans, Anthem and Chicago-based Health Care Services Corp., would likely expand into other territories that were otherwise off-limits to them in the past.

In addition to having access to Wellmark products, eligible Iowa-based employers would have access to other Blue plans desiring to enter Iowa. Wellmark, on the other hand, could expand into other states, hoping to grow new members and revenue. Conceivably, Wellmark could purchase other smaller Blue or non-Blue organizations, or possibly be acquired by a suitor.

With this settlement allowing more Blue plans to enter new territories or states, insurance premiums in those markets could possibly fall. But it’s unclear whether increased competition will push larger discounts from local hospitals and health systems. Over time, this settlement may prompt enough consolidations that some geographical markets could become less competitive, not more.

Healthcare providers, specifically the American Hospital Association and American Medical Association, will have keen interest in how this settlement will eventually affect the revenues and practices of their own respective members at the local level. Additionally, how will state and federal exchanges be affected by this settlement?

In the end, will having additional Blue plans competing in Iowa make us happier because of increased competition? I’m not quite sure. Any unintended consequences will need to be thoroughly assessed as this settlement plays out over time.

With that said, this will be one interesting situation to follow in the months (and years) ahead.

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