III. PRIVATE HEALTH INSURERS AND COST CONTAINMENT The nation's insurance companies have a crucial stake in containing medical care costs. The reason is simple: most Americans have private health insurance to help pay their hospital and medical bills, with hundreds of insurers competing to provide that service. The more effectively insurers control costs, the more competitively can they price their products for the public. Insurance companies have made strenuous efforts to achieve cost and quality controls, including: • Improved benefit plan design and administration. • Involvement in new types of health delivery systems. • Aggressive support of a variety of other controls, including Plan Design A. PRESENT COST CONTAINMENT PROGRAMS Plan design is one of the key components of insurance which help to control claims costs. Four features of plan design which appear effective in containing medical costs—and thereby holding down the premiums paid by the public-are: 1. Deductibles. The deductible-the amount an individual must pay before insurance benefits commence—is a reasonable deterrent to unnecessary care. In addition, deductibles have the effect of eliminating many small claims which are budgetable, and thus they help to reduce the cost of health care insurance. There is no conclusive evidence that modest deductibles have prevented individuals from getting necessary care. Some 82 per cent of group major medical insurance certificateholders have deductibles of $100 or less. 2. Coinsurance. Coinsurance is that portion of a covered charge for which the insured individual is responsible. This, too, serves as a necessary cost control, giving individuals a financial stake in assuring 14 that the care which they seek or have prescribed for them is both necessary and reasonably priced. Some 96 per cent of those under group major medical coverage have coinsurance of 20 per cent or less. To keep coinsurance payments from becoming a financial burden, many major medical policies place a dollar limit on the total amount of coinsurance an individual would have to pay in any given year. 3. Coordination of Benefits. Coordination of Benefits (COB) is a provision included in virtually all private group health insurance contracts. Simply stated, COB prevents the insured individual from being reimbursed for more than 100 per cent of the cost of care when two or more group insurance contracts are in force. It thus serves as a deterrent to patients seeking unnecessary care in order to make a profit on their claim. A Health Insurance Association of America (HIAA) survey of insurers showed that the responding companies had experienced a 5 per cent reduction in claims costs attributable to COB. 4. Comprehensive Benefits. As health insurance has expanded to include more and more benefits without restrictions on where the service may be provided, physicians have been able to use the most appropriate mode of treatment. This helps to avoid costly unnecessary hospitalizations just to collect insurance benefits. Plan Administration In addition to plan design, insurers use special administrative procedures in order to control medical care costs. Sophisticated computer technology and an HIAA developed data base have made it possible for insurers to determine the usual and customary charges for a geographical area. This permits abnormally high charges by an individual physician to be spotted and action to be taken. Insurers also review claims closely to detect unnecessary treatment or even possible fraud. Development of New Delivery Systems Inasmuch as ambulatory care could probably be safely substituted for inhospital care a large percentage of the time and thus save billions of dollars, insurance companies have stepped up their direct involvement in new health delivery systems. Most recently, life and health insurance companies have agreed to invest $45 million in some 60 new community hospital-sponsored primary care group practices that have been launched through $30 mil lion in grants from The Robert Wood Johnson Foundation. No Federal or state funds are involved in the overall effort. Insurers have been active investors in ambulatory care facilities for a number of years. Over $60 million has been invested in more than 30 Health Maintenance Organizations (HMOs) in the form of grants, loans, and mortgages. Since 1972, 55 insurance companies have had some degree of involvement in more than 70 HMOs throughout the country. In addition to financial support-mortgage money and grants-insurers have helped market and administer HMO plans, served as consultants, provided for hospitalization coverage, and other functions. Reimbursement under health insurance plans is also being provided to ambulatory surgical centers where minor surgery can be performed on a walk-in, walk-out basis, thus significantly reducing the need for costly hospital beds. Support of Other Cost and Quality Controls Health insurers have encouraged the establishment of medical society review committees and hospital utilization review committees to examine the type and quality of care patients receive. For many years insurers have submitted questionable claims for peer review when direct contact with a provider proved fruitless. On the whole, this program has been useful. Not only have charges been reduced in many cases to a reasonable level, but medical societies have taken action against inappropriate practices of physician members. In addition, encouragement has been given to expanding medical and health care foundations established by physicians to monitor and evaluate health care. A number of insurance companies are helping to develop these new management systems or are working with existing ones-providing funds, manpower, and data-in an effort to reduce hospital admissions or length of stay. Support has also been given to bills designed to improve the health care system, including such enacted laws as: The National Health Planning and Resources Development Act of 1974 (P.L. 93-641); The Health Maintenance Organization Act of 1973 (P.L. 93-222); and the Social Security Amendments of 1972 (P.L. 92-603) requiring the establishment of Professional Standards Review Organizations (PSROs) to monitor the quality and necessity of care provided Medicare and Medicaid patients. Additional innovative steps which the health insurance business has supported include: prospective rate review of institutional charges; certificate-of-need legislation; increased use of ancillary personnel to provide routine medical services; and expanded programs of preventive care and health education to motivate people to adopt good health habits. B. FUTURE DIRECTIONS The health insurance business believes further steps should be taken in several areas-including plan design, peer review, prospective rate review, health planning, data collection and creation of a sound national health insurance program-to control increases in health care costs. Plan Design Traditionally health insurers have assumed the legal position of limiting reimbursement to rendered or prescribed services by licensed providers. In order to exercise still further control over costs, insurers seek legislation that would permit reimbursement on the basis of the least expensive treatment consistent with accepted medical practice. Peer Review Insurance companies urge the extension of peer review under the PSRO system to all classes of patients rather than just government beneficiaries. In addition, where practical, review should be made of proposed treatment rather than rendered treatment in order to avoid the cost of unnecessary services. For example, a second medical opinion prior to some types of surgery might actually avoid an operation. While after-the-fact review by a medical society and subsequent denial of payment lowers claims costs, the cost to the patient is not necessarily reduced. A review system is needed which reduces the cost for the patient as well as for the insurance plan. Health Planning Long in favor of comprehensive health planning-both through financial support, and service by insurance representatives on planning agency boards and advisory councils-insurance companies seek to work closely with the Health Systems Agencies being created under P.L. 93-641. The goal is to assure a more equitable, efficient and economical allocation of health care resources in each community. There are many activities in the planning area in which the managerial capacities of insurers could be effectively employed. 70-411 O 76 pt. 3 41 Prospective Rate Review The health insurance business has urged that legislation regulating hospital costs be based on reasonable standards which are equitably applied and responsive to provider needs. As pressures for these controls accelerate at the state level, it is essential that the legislative solutions be soundly conceived and preserve a proper balance between government and the private sector. Uniform Data Collection There are many legitimate needs for health data from a variety of sources. Institutional providers in particular are being pressed for such data at considerable cost which is passed on to patients and providers. Insurers, therefore, propose that regional uniform data systems be established on an independent basis to meet the requirements of PSROS, health planners, health insurers, government, and other concerned institutions. Insurers of all types should share claims data on an equitable and uniform basis. National Health Insurance Since 1969, the health insurance business has advocated a national health insurance program based upon private enterprise and government working together -each making use of its unique abilities-to solve the serious problems of the health care system. The business seeks a program which will make available comprehensive health insurance benefits for every citizen, as well as take action to improve access to health care services, contain costs, and upgrade the quality of care. The program supported by the business is sponsored in the Congress by Representative Omar Burleson (D-Texas) and Senator Thomas J. McIntyre (D-New Hampshire) as The National Health Care Act. The National Health Care Act would minimize government spending by using additional tax monies only to finance health care for low income groups-thereby permitting more government funds to meet other social needs which affect health status. Private health insurancewith benefit standards set by government-would meet the needs of most of the population. Cost and quality control is stressed throughout with provisions that would: • Provide comprehensive benefits for all forms of preventive care, health maintenance and ambulatory treatment (though also protecting against catastrophic expenses with virtually unlimited maximum benefits). |