Whining about the thousand-dollar pill

Medicine is too expensive!

Medicine is too expensive!

When I saw Paying for the Thousand-Dollar Pill, an anti-Sovaldi op-ed in the Wall Street Journal by the health plans’ head lobbyist, it brought back memories from my childhood when I toured the FBI headquarters in Washington, DC. The tour guide started off by showing us a wall with pictures of the 10 most wanted fugitives in the country and asked for our help in tracking them down.

“If that’s their plan for catching these guys,” my dad whispered to me, “we’re in more trouble than I thought.”

The author, Karen Ignagni, complains that the prices charged for new drugs like Sovaldi don’t “reflect the cost of investment.” She worries that the government is giving drugs a monopoly through the patent system. And she fears that her cries for “transparency in the relationship between the price of a drug and the cost of its development” will lead to allegations of “price controls” –which the insurance industry doesn’t want. Boo hoo!

Rather than whining and complaining in the press, the insurance industry should do its job of containing costs and ensuring quality. The problem with Sovaldi, a novel drug that claims a high cure rate for Hepatitis C, is not that the per pill cost is $1000 or about $84,000 for a course of treatment. There are several drugs that cost a lot more than that and aren’t as effective against the diseases they target. The problem is that Hepatitis C is a common condition, and many, many cases that have accumulated over the years that can now be treated. That makes the total bill very high at least for the next couple years even though the total cost to the healthcare system as a whole may drop because there will be fewer transplants and fewer Hep C cases over time.

One way to deal with the problem Ignagni cites would be to move to a single payer system and global budgeting. Then the government could just dictate the price and be done with it. You don’t see the national health insurance systems in other countries quaking in their boots about Sovaldi. Instead, they’re negotiating prices and limiting the treatment to those with severe disease. Once competitors enter the market, access is likely to be expanded.

Clearly the US health insurance industry doesn’t want to put itself out of business so I don’t expect Ignagni to cheerlead for single payer. But I would expect closer scrutiny of the clinical claims being made for Sovaldi, which are not as airtight as they are typically presented. Plans could take a harder line on price negotiations, encourage some patients to wait for treatment, and more publicly critique the evidence beyond Sovaldi.

Meanwhile, I think it’s great that companies that come out with novel, useful drugs can make a ton of money.

The health insurance industry shouldn’t come crying to me or the rest of the American public if they can’t figure things out.
photo credit: ★ spunkinator via photopin cc

By healthcare business consultant David E. Williams of the Health Business Group


IT strategy for health plans: Interview with ikaSystems CEO Joe Marabito (transcript)

ikaSystem President and CEO Joe Marabito

ikaSystems President and CEO Joe Marabito

This is the transcript of my recent podcast interview with ikaSystems President and CEO, Joe Marabito, in which we discuss:

  • The impact of the ACA rollout on health plan IT needs over the past year –since our last discussion
  • The impact of delayed ICD-10 rollout
  • The unique challenges facing Medicare Advantage, Medicaid managed care and commercial plans
  • How Accountable Care Organizations (ACOs) are investing in health IT
  • Where population health and big data fit into the mix
  • Best practices of health plans that are staying ahead of the curve on capabilities, while also managing to tight budgets
  • Where ika fits into the ecosystem and how its customers are positioning themselves in the market
  • How ika has continued to evolve its offerings over the past year

David E. Williams: This is David Williams from the Health Business Blog. I’m speaking today with Joe Marabito. He is President and CEO of ikaSystems.

Joe, we spoke about a year ago about the complexities of information technology in the health plan world. And of course, that was before the rollout of the insurance exchanges under the Affordable Care Act. What sort of impact has the last 12 months had on how health plans think about their information technology needs?

Joe Marabito: Health plans’ thinking has evolved considerably in the last year. You’re correct in pointing out that health exchanges dominated their IT agenda and their thinking over the last year, but so did ICD-10. Most of the health plan IT agenda was focused really on those two things. And of course, both have now changed with the launch of the public exchanges as well as the delay in the ICD-10 go live date.

Plans have really turned to a lot of other pretty interesting opportunities. Among those, I mentioned, is expansion in other segments. I’ll talk a little bit about that later, because there are several new business expansion opportunities that health plans are pursuing. These include risk delegation, which is driven by the government’s lead in ACOs and bundled payments and also narrow networks, which many plans built to facilitate competition in health exchanges to meet the price point in a spreadsheet environment. And finally focus on individual and small group markets outside of health exchanges, which I would call a wholesale to retail transformation is an additional new opportunity that health plans are pursuing.

Williams: So, that’s quite an agenda for any industry. Previously you mentioned that the public exchanges going live and the ICD-10 not happening now were external factors that forced health plans to reevaluate IT strategies. Are there any other additional external factors that have forced the health plans to adjust their information technology strategies?

Marabito: Several, and those factors are going to continue. Health exchange is one industry phenomenon and one trend and one driver, but it’s actually indicative of a broader industry shift from selling to groups to selling to individuals. When you look at most plans and talk to most plans, especially those in the IT group, they are not ready to serve the individual market. It’s going to come in many, many forms outside of public exchanges. It’s going to come in the form of private exchanges. It’s going to come in the form of sales to large groups being fragmented over time and the move to defined contribution away from defined benefit.

And if you think about the implications for IT, there are new tools, new programs, and new approaches that need to be adopted, so they’re out shopping for those right now. That’s a pretty significant shift and one that I actually think is going to take much more time in reference to delegated risk in the form of ACO bundled payments. But there are also hundreds of new capitated arrangements and delegated risk arrangements outside of the government programs for delegated risk that the business people inside health plans want to promulgate, want to try, want to experiment with, and this is sending a modest degree of panic through the IT staff. If you invent a new risk relationship, there’s got to be some system and process to support it. The existing systems today are relatively inflexible to deal with those. So just the overall delegation of risk is another external factor.

Another external factor is performance based compensation in the form of Star Ratings and HEDIS, which is placing a greater need on managing the health of populations. That’s causing health plans to think differently about their business. Of course, the MLR requirements had been in place for a while. That has driven real focus and a set of activities around getting the admin cost portion down. That is not a recent trend but one that’s continuing to influence thinking.

One of the biggest external factors is just new business growth. So there are 10,000 agents a day in Medicare. Medicare Advantage Programs are a better deal for consumers compared to the Medicare Fee for Service Program, and so Medicare Advantage is taking share from the fee-for-service programs. A lot of states are privatizing their Medicaid programs, so a lot of health plans want to bid on that business. There are larger populations now in Medicaid than there have been in a long time.

Combining those two creates duals programs. There are duals pilots that are active across the country. Plans are very interested in that because they tend to be high revenue individuals, but they also tend to be very high-risk programs. So while there’s great interest, there’s great caution and the need to have the proper platforms behind that to monitor and manage that risk over time.

Finally there is continued margin pressure. With the advent of health exchanges, it emphasizes price over other qualities that health plans can offer. With the new network models and the continued consolidation of the industry, the larger payers are gaining more and more economic efficiencies, which puts additional pressure on the smaller health plans. Smaller implies everything below the very top tier of health plans and so, they need a way to compete.

They’re getting very creative about doing that. That has implications on the IT strategy, whether it’s maximizing economics or minimizing costs. Here’s a pretty common one that we see a lot, “I want to compete on member differentiation, member service, member interaction. We want the member experience to be better.” Most legacy platforms don’t enable that very well, so a lot of IT groups and health plan businesses are looking to rethink their strategies to support competing on things other than price.

Williams: Joe, you mentioned how Medicare Advantage is a good deal for patients and you’re seeing growth there. How do states, as they look to the Medicaid expansion, look to managed care plans? And then what about duals who’ve got both Medicare and Medicaid? As health plans think about their IT strategies, are there important differences that need to be considered among these different sort of populations? And if so, maybe you could give an example or two.

Marabito: There are critical differences between commercial plans and Medicare and Medicaid plans. And just for background, we serve commercial, Medicare, Medicaid, and health insurance exchange clients. We have live business in all four lines of business, which gives me an interesting perspective because I talk to the leaders of all of these plans. And when I talk to the senior executives that are running the Medicare and Medicaid plans, I hear over and over again, “My business is different. My business is different.”

And with the the 10,000 age-ins a day, there’s great interest for commercial plans to expand into Medicare risk, Medicare Advantage, the Part C program, the Part D program or both. Most of those plans don’t understand the risk that comes with the program. It’s an attractive program for most health plans because it’s large and growing and per member revenue is attractive. But there’s also an opportunity to lose money. Unless you have the proper business approach, the proper expertise and the proper platform to administer that business, you could be at risk.

The senior executives that are running those businesses understand it. I don’t know how many times I’ve been told, “Joe, my management team wants me to use my commercial platform for my Medicare business and it just won’t work. And I’m trying to convince them, can you help me convince them?” There are so many unique aspects of it.

A simple example is the enrollment process. The enrollment process has hundreds of regulations around what has to be done and when. If you violate those regulations, you’re going to get some response from CMS, which could result in a sanction, which is pretty scary to not be able to enroll new members when that’s your business.

Just the RAPS (Risk Adjust Payment System) and EDPS (Encounter Data Processing System) Reporting is another huge impact on profitability. So the way those scores are reported directly impacts the revenue that plans have. And of course, the Star rating is now even more important than ever before on the amount of revenue that is received and even small changes in a plan’s Star rating drives large changes in their margin. Small changes in revenue result in a pretty dramatic impact on the bottom line.

So unless you’re on top of your HEDIS scores, your member satisfaction and all the other attributes that drive Stars, you’re going to be running blind. So you’ve got to have the system to do that. Here’s a simple example. We have a product we call Prospective HEDIS. HEDIS has always been a retrospective measure. You measure it this year as well as the impact for performance from last year. Wouldn’t it be nice if you knew where you were today and could take action on your HEDIS score if it was not doing very well today? And so there is software that’s unique that we have that help Medicare Advantage plans manage that risk.

Those are just three small examples of the significant differences between those plans.

Williams: Joe, we’ve been talking about how health plans are having to adjust their strategies in order to cope with all these changes that are going on in the market. At the same time, there are some new players that have not traditionally been health plans but are accountable care organizations, which are taking on the role of a health plan. Are these ACOs also having to deal with all these information technology challenges? Are they making the investments?

Marabito: Yes, they are. And there’s quite a bit of activity among the players in the ACO market. It’s very different though if you think about accountable care organizations or organizations here that haven’t generally been in the risk management business. And so, it’s not just a matter of “I need a new software package” or “I need to hire somebody that used to work in a health plan.” They need to build a whole new business.

And generally, what we’re seeing is that there are two approaches to that. The large sophisticated ACOs are buying the pieces of that business from different vendors like ourselves and they’re assembling it. The smaller players can’t really afford to do that, don’t have the time, or the wherewithal to do that. They’re looking to go to intermediaries to enable them to manage risk in that business.

And so for companies like us, there’s not only a lot of activity talking to the ACOs directly, but there is a lot of activity in talking to the intermediaries. These intermediaries need a low-cost platform that is flexible enough to serve what looks like a subscale health plan. Big ACO’s would have 20,000 members, which to a health plan that would be a subscale plan. How do you offer a price point that’s attractive that enables that ACO to compete? They need a platform that can scale down. The legacy platforms don’t do that. So it’s driving quite a bit of market activity in the cloud-based software and service solutions.

Williams: When I walked around the very large exhibit hall at HIMMS this year, it seemed like many booths and vendors were talking about population health. I think back to a year ago when we last spoke, we were hearing a lot about big data and are still hearing about that. But how does population health and talk about big data fit in to what health plans do with information technology?

Marabito: Well, population health is critically important when your revenue is increasingly dependent upon the health outcomes that your populations achieve. So it’s appropriately getting a large amount of attention and focus from health plans. And the big data is related to it obviously because the data is what powers the population health management.

While it’s fun to talk about opportunities to find wisdom in unstructured data, I think there’s a lot of progress to be made leveraging the benefits of the structured data. And by that I mean, historically, the industry has bought best of breed department by department and tried to sew pieces together. What you end up with is a bunch of systems that don’t talk to each other, which is antithetical to managing populations because you need to know everything within your reach about your populations.

And so, to try to offset that weakness, what plans have done is to layer on data warehouses. Some have spent upwards of a billion dollars on data warehouses, with mixed results. I think the opportunity in population health management lies more in taking the structured data that already exists, putting it together, but more importantly, putting it together in an actionable way. So it’s not sufficient to just have the data and know what your health experience has been for your members. You’ve got to identify where there are gaps in care and then you’ve got to be able to do something about it.

So population health management is in the near term anyway not going to be well served by big data, but by better leveraging the structured data that exist in plans today.

Williams: We’ve been talking a lot about the challenges and some about solutions for health plan IT strategy. What would you say are the few best practices that you would put out there for those health plans that want to stay ahead of the curve and also maintain flexibility for future changes that seem likely or certain to occur, and to cope with the reality of tighter budgets and medical loss ratio requirements that put a damper on what the spend can be on the administrative side?

Marabito: There are a couple best practices. One is to partner with the business side. I don’t know how many times I’ve talked to a CIO who will say “My IT cost for this platform is so many dollars per member.” And I always ask the same question, how much does it costs your business partner to operate that platform? Plans need to be looking at the all-in cost because all systems aren’t created equal from a delivery efficiency perspective.

As an example, we replaced a legacy system at a large Blue Cross Blue Shield plan and they cut their admin cost in half. The system cost was a little higher but the overall cost was lower because the system was more efficient at administering the business. And so, I think the executives in IT need to understand the bigger picture of how their choices affect the competitiveness of the business.

The second best practice is “don’t make it worse.” That may sound glib but a lot of the existing systems just don’t have the flexibility to administer new businesses. We were approached by several very large health plans in the US that said, “We want to become more effective in a certain segment of the business. We don’t think that our existing platforms can accommodate the new models that we’re thinking about.” So health plans are re-inventing themselves. New benefit designs, new ways to interact with members, new relationships with providers, new risk arrangements, new compensation arrangements. They look at their old systems and they say, “We can’t do it on our old systems.”

So they face a choice. They can retrofit their existing systems that were designed 20+ years ago and were never designed to deal with what health plans are doing today. Or they can put on a new adaptable, flexible platform. My advice as a best practice is don’t make it worse by retrofitting. Just put it on a new platform that can serve the business as envisioned, because otherwise, you’re just going to have to convert it later.

And the third best practice is get smart on cloud/SaaS. Integrated platforms running on cloud technology offered as a software-as-a-service model is the way health plans are going to do business in the future. It’s just a better model. It’s more economical to run, it gets better business results. If you’re in an IT department and you’re not using cloud technology, you’re behind. If IT groups are not gaining the skills, not gaining the expertise then they will be competitively disadvantaged.

Williams: We’ve been talking about business strategy and best practices within health IT. You’ve hinted at least at some aspects of how Ika fits in here. Can you describe, what is Ika’s place in the ecosystem?

Marabito: I think we’re fortunate to be in the right place at the right time. One of the industry analysts late last year predicted a slowdown in systems selections. And we’ve actually seen quite the opposite. Our pipeline has never been more robust, the volume of inquiries has never been coming in faster. We had a record here, record number of customers, record customer satisfaction ratings, record revenue, record earnings and transaction process. We serve clients that administer 20 million lives.

I’d say there are two things about our solution that are attractive to buyers now. One is it is flexible. It’s a highly configurable system and it’s flexible to implement these new models that help health plans transform their businesses.

Secondly, it’s economical. It’s just economical to run. If you’re forced with all the margin pressures that we talked about earlier in the discussion, you need to optimize your cost, economics, efficiencies, and minimize your cost structure.

Williams: You talked about large Blues plan but I heard you describe some smaller plans as well. How do you define your target customers? Is it a particular size? Is it a particular line of business, a particular legacy system they have? Where do you fit in terms of who your best prospects are?

Marabito: Good question. I’d say three things: health plans looking to reliably transform their businesses, health plans seeking to expand, and those that need to improve their cost structure.

On the first, health plans looking to reliably transform their businesses into a modern platform. Of all the vendors offering such a platform, we’re the largest, we’re the most experienced, we’re the most proven. We have demonstrated scale; we have three large Blues plans that we serve and three prominent integrated delivery systems. We serve the number one plan in the country ranked for quality and member satisfaction, as well as the largest health plan in the country.

There’s naturally some degree of caution when thinking about totally renovating your technology strategy in shifting to this model. One way to mitigate that risk is to partner with somebody who’s got a track record of success, and of those offering that model, we’re clearly the farthest along.

Health plans looking to expand is the second target customer for us. Few want to do it on their existing platform. There’s a recognition of the limitations. I also think frankly a frustration of over the year’s modification on modification on modification, workaround on top of workaround that cumulatively lead to an inefficient inflexible and not very effective system.

So, interestingly, what we’re seeing is that most plans will try us for a line of business, but not to that end solely. It’s to the end of “Well, maybe this is the platform we want to use for all of our lines of business. Maybe this is the replacement strategy.” So gone are days of spending four years and $400 million or whatever the number is doing a Big Bang system replacement, where a switch is flipped on January 1st, 2018 and fingers are crossed in hopes that it works. Health plans are not doing that anymore. It’s too expensive, too high risk and doesn’t deliver business benefits quickly enough.

They’re taking more of a segmented strategy and our solution is ideal for that. Because you can implement one module or 20 modules and you can do it by one line of business or by groups of lines of business. Health plans that are looking to expand but also reinvent their IT strategy are an ideal target customer for us.

Also plans seeking to just reduce their cost structure, which would apply to any plan really. Especially those that are most stressed such as mid-tier plans that have to compete with large national players who are very good and very cost-effective. And as price becomes an even greater purchase criterion, plans that don’t have the scale need to essentially rent the scale, and one way to do it is in the software-to-service model.

Williams: A lot of these changes and challenges that have come up over the past year are things that you have anticipated. Some are related to trends we talked about a year ago, but I’m also sure that there are some things that you as ikaSystems had to change as well over the last year. Any particular things that you would point to?

Marabito: Well, if your business is growing as fast as ours, you have to make changes and evolve. And so, we’ve made changes in several areas across the board.

Recently, Gartner issued a report on all vendors in our industry and it rated the functional capabilities of every platform including ours. I was pleased to see that we came out on top. They rated us fully capable on every single category, the only vendor to have achieved that. Not a surprise to us because we’ve been investing in the capabilities and we know where we are, but it’s nice to get some external recognition.

Incidentally, that report also showed us as second in the industry in number of members, second only to a legacy player that has decades of lead time on us in the industry, so I feel pretty good about that. We’ve launched new software modules, software to facilitate the health exchange business, software to facilitate our population health management, and software to capitalize on the fact that we have an integrated platform and we capture all the data in real time.

We’ve also invested in what I call the second “S”. Software-as-a-Service has two S’s, the Software and the Services. Our software has proven to be the best amongst our peers. We have the service to match it and have been investing hard in the service aspect of our solution to make sure it does match the quality and effectiveness of the software.

Part of that is just scaling the technology and scaling the business. We’ve added several new leaders and a lot of experts in specific functional areas in their lines of business. We’ve upgraded our IT infrastructure. We’ve expanded our testing. We’ve brought in experienced industry implementation staff and created a new product management organization to guide our product portfolio and product evolution going forward.

Williams: This is David Williams. I’ve been speaking today with Joe Marabito. He’s President and CEO of Ika Systems.


IT strategy for health plans: Interview with ikaSystems CEO Joe Marabito

ikaSystem President and CEO Joe Marabito

ikaSystems President and CEO Joe Marabito

Health plans are investing in new information technology capabilities to meet the requirements of the Affordable Care Act and to differentiate themselves from the competition. Slowly but surely they’re moving from inflexible legacy, mainframe based systems to modular cloud based solutions that are more flexible and less expensive to maintain.

In this podcast interview, ikaSystems CEO Joe Marabito and I discuss a variety of IT strategy issues that health plans are facing. I first met Joe years ago when he was an executive at Medco, and have always been impressed by his combination of deep subject matter expertise and an ability to explain things clearly to a broad audience.

Topics for this interview include:

  • The impact of the ACA rollout on health plan IT needs over the past year –since our last discussion
  • The impact of delayed ICD-10 rollout
  • The unique challenges facing Medicare Advantage, Medicaid managed care and commercial plans
  • How Accountable Care Organizations (ACOs) are investing in health IT
  • Where population health and big data fit into the mix
  • Best practices of health plans that are staying ahead of the curve on capabilities, while also managing to tight budgets
  • Where ika fits into the ecosystem and how its customers are positioning themselves in the market
  • How ika has continued to evolve its offerings over the past year

By healthcare business consultant David E. Williams of the Health Business Group


Health insurance premium increases in Massachusetts: More ways it can happen

Last week (ACA rollout hits some Massachusetts businesses harder than expected) I described how the implementation of Obamacare caused one small businesses’s Blue Cross Blue Shield of Massachusetts premium to jump by 29 percent for the upcoming renewal. The main issue was family size –previously only the first two kids were counted when calculating premiums, now it’s the first three kids. This group, with lots of kids, is paying the price.

After that I heard from two other BCBS MA customers who were experiencing big premium hikes. One is a two-family partnership where one family has two kids and the other has none. Their premium is up 17%. The second is a non-profit organization where the number of kids also shouldn’t be a deciding factor. Their premium increase is 26%.

Here’s what BCBS MA told me about these two:

The first group was a new customer entering its first renewal year. Initially, BCBS rated the company based on the expected –rather than actual– number of dependents. The rate was based on ~1.5 kids for one family and 0 for the other. (Something tells me they probably knew 1.5 was either too high or too low and not right on!) In any case, in a small group that is enough to make a significant difference in rates. With the ACA, health plans have to gather the dependent info even for new customers.

For the non-profit organization, the number of members covered declined from 12 to 7, which pushed them into a more expensive rate per member. (Even though rating based on group size is being phased out, it’s still a significant factor.) In addition, the group’s prior year increase had been tempered under a state law that limited the rates of increase for renewals. The ACA overrides the state’s rule and BCBS tells me they are unable to cap this year’s rate increase.

For what it’s worth, BCBS tells me that the median rate increase in the merged (individual + small group market) this year is 5-6%, which means these three examples are outliers. They also tell me that rate increases a year from now should be in the low single digits for all three of these customers and others like them.

I’d be interested in hearing from other Massachusetts customers of Blue Cross and other plans. Have your rates jumped? Are they steady? Did they fall? Do the explanations above seem to account for what’s happened to you?

Leave a note in the comments or mention on Twitter @HealthBizBlog.

By healthcare business consultant David E. Williams of the Health Business Group

Actually, there are clinical trials for health information technology

HIT research: Has to be in there somewhere!

HIT research: Has to be in there somewhere!

The New York Times Bits blog (The Lessons Thus Far From the Transition to Digital Patient Records) concludes its post on the ups and downs of health information technology by asserting the following:

In health information technology, there are no clinical trials or tests with randomized controls, as there are for drugs, for example. True, digital data does not go into the body, but it can increasingly guide what does.

Actually, high-quality studies of medical decision support tools are quite common. For example, here’s the abstract of a recent study (Evidence-Based Decision Support for Neurological Diagnosis Reduces Errors and Unnecessary Workup) published in the Journal of Child Neurology:

Using vignettes of real cases and the SimulConsult diagnostic decision support software, neurologists listed a differential diagnosis and workup before and after using the decision support. Using the software, there was a significant reduction in error, up to 75% for diagnosis and 56% for workup. This error reduction occurred despite the baseline being one in which testers were allowed to use narrative resources and Web searching. A key factor that improved performance was taking enough time (>2 minutes) to enter clinical findings into the software accurately. Under these conditions and for instances in which the diagnoses changed based on using the software, diagnostic accuracy improved in 96% of instances. There was a 6% decrease in the number of workup items accompanied by a 34% increase in relevance. The authors conclude that decision support for a neurological diagnosis can reduce errors and save on unnecessary testing.

The government and healthcare providers are investing a fortune in health information technology. A lot of time, effort and cash has been spent on installing EHRs and getting the initial data into them. But the real clinical and financial value will come from using the information in electronic health records for better communication and clinical decision making.

The Times does readers a disservice by asserting that high quality clinical trials aren’t and can’t be done.

photo credit: dullhunk via photopin cc

By healthcare business consultant David E. Williams of the Health Business Group

Narrow networks: Get used to it

Narrow but workable

Narrow but workable

Many health plans unveiled “narrow network” plans recently as part of the Affordable Care Act. These plans cover a limited number of doctors, hospitals and other providers and often pay nothing for out-of-network coverage. Predictably, some members are upset as documented today by Kaiser Health News (Limitations of New Health Plans Rankle Some Enrollees.)  Some consumers are upset that they can’t see specific doctors who they may have seen in the past and that the list of available providers isn’t terribly long.

Insurance commissioners and lawmakers are hearing complaints and some are considering taking action. And while it definitely makes sense for regulators to take an interest in network adequacy and to prevent abuses, in my view narrow networks have become a crucial part of healthcare affordability and need to be maintained.

Here’s why they’ve become prevalent: The Affordable Care Act prevents health plans from using many of their traditional tools for limiting costs. They can’t reject sick or high-risk patients, can’t charge them more, can’t cap annual or lifetime benefits, and have to provide a set of proscribed services. At the same time, the plans are subjected to apples-to-apples comparisons on health insurance exchanges by price-sensitive buyers. The result is that plans take the main remaining step they can to be control costs: limiting their networks to providers willing to accept lower reimbursement rates.

Most shoppers care mainly about price so this is a very sensible approach for the health plans. And for many customers it’s a way to afford insurance that provides a wide array of benefits. In some markets (including Massachusetts) narrow network products that exclude the highest priced, largest healthcare systems provide very substantial discounts while still delivering high quality providers.

Narrow networks are becoming increasingly important. In 2010, before the Affordable Care Act, I wrote Narrow networks. Nice idea but no panacea. I listed six reasons why such networks were having a limited impact. Some of these factors are still present, but others are less prominent. For example, the development of integrated delivery networks mean that health plans can contract with these larger entities and get essentially all the providers they need, the emergence of risk-sharing through ACOs and similar arrangements aligns incentives, and in general there is more price sensitivity. At least a few provider organizations are now positioning themselves as value players, ready to address an emerging market segment.


photo credit: coolmonfrere via photopin cc

By healthcare business consultant David E. Williams of the Health Business Group

ACA rollout hits some Massachusetts businesses harder than expected

Like many, I’ve been surprised that the rollout of the Affordable Care Act has had such an impact on Massachusetts. After all we already had near universal coverage, an exchange/marketplace, lots of mandates, guaranteed issue and community rating. Obamacare is based on Romneycare. But somehow Massachusetts screwed up the rollout of the Obamacare exchange, which is costing $100 million to fix, and at least some Massachusetts small businesses are getting hit with big rate hikes as they renew.

One small business I know got hit with a 29 percent premium jump, almost all due to the ACA. Here’s how a Blue Cross actuary explained it:

  • Blue Cross has alway developed its rates for the merged individual/small group market by rating each member based on age and location. Industry and company size have also factored in
  • However, prior to 2014 Blue Cross only counted the first 2 kids plus adults when doing the rating
  • The ACA mandates a similar approach, but now Blue Cross has to count the first 3 kids in the family. In addition, if a son or daughter aged 21-26 remains on the plan, that individual is counted as an adult along with up to 3 kids
  • For this particular business with the 29 percent jump, the shift in the counting of number of kids boosted the premium by about 25 percent
  • The other 4 percent was mostly related to aging of the members plus the inclusion of pediatric dental benefits in the medical benefit, again as required under the ACA
  • The ACA requires Blue Cross to phase out its reliance on company size and industry rating factors over time. That effect was basically neutral for this customer, whose premium rose about 3 percent based on the phase out of the industry factor and went down 2.5 percent based on phasing out of the company size factor

The silver lining, if any? There shouldn’t be any serious changes in premium for next year’s renewal.

I’d heard about similar premium increases for other small businesses and non-profit organizations, including those that I don’t think are facing the family size issue. But maybe I’ve just heard from those who’ve been hit hard and others are not seeing increases.

Is your Massachussetts small business healthcare premium skyrocketing next year? Is it staying flat? I’d love to hear from you in the comments or via Twitter @HealthBizBlog.

By healthcare business consultant David E. Williams of the Health Business Group