Maybe I’ve had too much free time while on vacation in Wyoming (where 18% of adults and 10% of kids are uninsured), but I’ve been thinking about transparency. The latest infatuation of many pundits in health care, transparency is the notion that if consumers have more information on costs and quality, they’ll become a potent new force for improving care and moderating health care spending. Although I am deeply skeptical that transparency will have any real impact on costs (a topic for another blog entry), I think consumers should know much more about the quality and cost of their health care. But while we’re pushing transparency in health care, let’s not forget about health plans. In the new world of health reform, there’s lots more we need—and are entitled —to know about where our health insurance dollars are going.
Health plans are perhaps the biggest “winner” in Chapter 58: they are likely to get hundreds of thousands of new members, both from the expansions of public coverage through Medicaid and Commonwealth Care and from a growth of private coverage because of the individual mandate. Most people in the state are now required to purchase health insurance or pay tax penalties. Since buying health coverage is no longer really voluntary, the public has a right to know much more about the health insurance system. And health plans should expect to be subject to a much higher level of accountability to us for the prudent use of our money.
Licensed health plans in Massachusetts have long been required to report a variety of information to the state Division of Insurance. Other public entities, including Medicaid and the Group Insurance Commission, get regular reports from the health plans with which they contract. The Attorney General also requires health plans that are public charities to file annual “community benefit” reports. All of reports contain useful and important information (although synthesizing data from so many disparate sources is difficult and frustrating). But even with all of this reporting, there are many critical gaps in what we know about health plans in Massachusetts.
Here are a few ideas for what I’d like to see reported regularly (perhaps by the Division of Health Care Finance and Policy, which already produces a variety of other monitoring reports?), and in a format that’s readily accessible to the public.
How many people are covered by each health plan? This seems like such an obvious and simple piece of data. But most of the licensed health plans in the state do not report the total number of people they cover in Massachusetts to any public agency. Instead, most plans report only the number of people covered by insured (as opposed to self-insured) plans). For many years, health plans did report their total membership but this requirement was eliminated by the state Division of Insurance a number of years ago, for reasons that never made any legal or policy sense. It’s high time to require all plans (including the Boson Medical Center HealthNet Plan and Network Health) to report their total membership.
Financial results by line of business: We’ve long known that different types of customers have different levels of negotiating power with health plans. Large employers have the most clout, and generally get the best financial deal. Smaller employers don’t do as well, and individuals who have to buy coverage directly from health plans fare worst of all. In recognition of the lack of market power of individuals, the state used to regulate nongroup premium rates. But in the 1990s, as part of our romance with competition, we effectively eliminated any real oversight of premium rates. I’m a supporter of bringing back much more oversight in this area. But at the very least, we should be able to examine how profitable each line of business is for each individual health plan: the new merged individual/small group market (including results for products sold inside and outside the Connector), the market for larger insured groups, and the self-insured market. If most of us are going to be required to purchase health insurance, we have a right to know who’s subsidizing whom, or being subsidized, and by how much.
Health plan profits: In 2006, the combined profits of the health plans operating in Massachusetts exceeded $430 million. In the three year period 2004-2006, aggregate health plan profits were more than $1.2 billion. At the end of 2006, the aggregate reserves/surplus of the state’s health plans exceeded $2.6 billion. By any measure, that’s a lot of money. Every major health plan in Massachusetts is a state-based, not-for-profit entity. Because of this, and the new requirements that most of us buy health insurance, it’s appropriate that we develop a better understanding of the financial performance and condition of health plans, so that we can have a long overdue public conversation about the accountability of health plans to use their substantial resources for the benefit of the public. While many health plans have undertaken laudable initiatives in a range of areas, it’s likely that we could make greater advances in health improvement by working together than by having each health plan work individually on its own favorite project, be it improving the quality of medical care, promoting transparency of cost and quality information, improving care for members with certain chronic illnesses, funding greater adoption of electronic medical records, or even expanding health coverage.
Understanding the reasons for premium rate increases: We all know health insurance premiums are rising at annual rates that far exceed overall inflation. But it’s almost impossible to get any regular credible detailed public information from any Massachusetts health plan to help us understand why premiums are increasing: is it increases in prices and/or use of inpatient hospital services? Outpatient care? Physician services? Prescription drugs? Imaging? Administrative expenses? This lack of information makes it impossible to know the causes, let alone any potential solutions, for rising health insurance costs. Since most of us experience health care costs most directly through our health insurance premiums, this type of information could help us become more engaged participants in a much needed public discussion about approaches to controlling health care costs. As a place to start, the Connector could begin providing detailed information, in a standardized format, about components of premiums (including detailed information about administrative costs), and the causes of premium increases, for Commonwealth Care and Commonwealth Choice products.
Health plans are among the most enthusiastic advocates of transparency in health care. As health reform continues to be implemented through the imposition of a mandate on most of us to purchase private coverage, this same level of transparency should be extended to health plans, too. With more understanding and public accountability, about where our health insurance dollars are going, we might really begin to be able to dig into the difficult but critical task of moderating cost increases so that we can sustain the progress we’re making on expanding health coverage.
Nancy Turnbull, Harvard School of Public Health
It’s great to hear someone else talk about transparency for health plans. In fact “payers” of health care dollars (consumers, employers, taxpayers) deserve full transparency from all “receivers” of health care dollars (insurers, hospitals, doctors, etc.). Insurers should be mandated to make fully public the average cost of typical coverage for all types and sizes of purchasers. For instance, small group employers with 5 covered lives, should know how much that same plan costs on an average basis with employers of 50, 500, or 5000. Indeed, we are now moving to put cities and towns into the GIC. Let’s make it fully public how much those plans cost on an “apples to apples” basis versus what small businesses must pay. And let us not forget that the law currently discriminates against small groups. Unlike big government and big business, small employers are not permitted under the law to pool their purchasing power. The GIC saw only a 5% increase this year, far less than the average small employer double digit increase in the 15-30% range. While the Connector is doing good work for the uninsured, it is not necessarily the best solution for small businesses. It is individually rated (not group rated), and they must use the rates filed by the insurers with the Division of Insurance. For health care reform to work in the long term, premiums for everyone must be controlled. But equally important is that rates for small purchasers must drop and be equalized with those of big business and big government. That can only come with more insurer transparency and competition, or more rate regulation–or a combination of both. In this new day of mandated coverage, it is no longer economically or politically feasible for small purchasers to subsidize the costs of big purchasers and the profits of insurers through higher premiums.
Jon Hurst
Retailers Association of Massachusetts
Whoa. Great points, Nancy. I’m guessing your blog was partly inspired by seeing Sicko. I agree that it would be beneficial to hold all participants in the health care business ACCOUNTABLE for doing right with their portion of the health care dollar and health plans in Massachusetts should be no exception – even if we do have the best health plans in the country, which by most measures, we clearly do. It’s worth noting that the Medicaid/Commonwealth Care MCOs – including Network Health and BMC HealthNet Plan have detailed filing requirements with MassHealth and the Connector, so there’s pretty good transparency out there already. The truth is, other than health care policy “wonks”, most people wouldn’t know what to make of this information relating to health plans’ costs, any more than consumers today know how to benefit from the massive amount of information already out there about hospitals and providers. That being said, I believe that looking behind the curtain and promoting discussion around best practices of health plans can only improve the performance of us all.
Leanne, I wrote my blog entry long before seeing Sicko. The movie inspires a very different reaction–more like getting busy brushing up on my French and getting my daughter some lessons so that we could move to Paris. Or Montreal.
As to your comment that only “wonks” would know what to do with more information about health plans, that’s certainly true unless we think of better ways to distill, present and discuss it. But, as with provider transparency, I don’t think the general public is really the important target audience. If provider transparency has any impact, it’s going to be because it makes providers change their behavior, both out of pride/shame/competitiveness and in response to public reporting of information, with some help from some purchasers, policymakers, the media and the small but important percent of the public that pays attention. Same with health plans–more and better information about health plan performance wouldn’t be of any interest or use to most consumers, but it only needs to spark more discussion and understanding among enough people.
And I certainly agree with your point about accountability for all (although perhaps not the capitalization).
Nancy,
I think you’re right, moving to Canada makes more sense than buying into this universal insurance mess!
[...] Nancy Turnbull turns the transparency table on Health Plans and cites four categories where more transparent [...]
As one of the biggest proponents of more transparency in health care, I thought it would make sense to respond to Nancy’s comments on health plan transparency. First of all, I agree with her observations about membership reporting. We all report aggregate membership numbers – including self-insured and Medicare business – in our quarterly financial announcements, and having the plans report on all membership – including out of state membership – to the Division of Insurance is useful and appropriate. I don’t know why the Division of Insurance moved away from this standard to require reporting on just fully insured membership in Massachusetts, but I think it would make sense to have the plans report on their entire membership when they/we file our annual financial statements.
That said, I’m not sure what public purpose is served by her request for profitability data on each line of business. Our pricing is already regulated in the small group and individual markets, and any employer, individual or broker who wants a price quote from a carrier can get one. And in a state where the aggregate margins of the health insurance carriers are pretty small – somewhere between 2-4% of all revenue across all lines of business, it’s very hard for me to see how this information would add anything to the public debate. Some employers pay more for health insurance, and some pay less, but that’s almost always based on the relative medical costs of their employees, not on big differences in health plan profit margins.
As far as where the premium dollar goes, I think the Division could already calculate and prepare reports that would answer this question based on what is currently filed. New Hampshire does that each year with the information it gets from the plans, and its filing requirements aren’t materially different. If the Division needs more information to report on where the money goes in MA, requiring the plans to submit data that would make it easier to do so is a good idea.
In the end somewhere between 85 and 90 cents of the premium dollar goes to health care services, not health plan administration, and it is the increases in the cost of health care that are driving the increase in health insurance premiums. As I’ve said before, more public information on what’s driving medical expense trend is a good thing, and that’s true here, too. However, I would urge us to avoid having multiple efforts geared at the same thing going on at the same time. The new Health Care Quality and Cost Council is also supposed to begin collecting information to answer the “where’s it all going?” question. Maybe we should start there.
How About Some Transparency for Health Plans, Too? by Nancy Turnbull
Great post. Thanks! I’ll add a link to your post.
Charlie,
Thanks for your thoughtful comments in response to my posting. A few thoughts in return:
Glad you agree with the suggestion about reporting membership. Love to see MAHP and the plans take the lead on this.
I’ve been out of town for a few weeks so I might have missed the return of rate regulation to the nongroup and small group markets. If it happened, I’m delighted. But I suspect not. Plans certainly are subject to a range of limits on the rating methodologies they can use, and there are some toothless token limits on rate increases. But there’s been no detailed public review of premium increases for years. There’s not even really much detailed public information on rates. I might be able to call HPHC or another plan and get a premium quote, but that doesn’t tell me anything about the components of the rates, let alone that the rates are regulated in any way.
I’ll look at the New Hampshire report to see what they analyze and whether we could produce something similar in Massachusetts from what’s filed here. I know that I don’t find the health plans reports detailed or standardized enough to produce any meaningful comparisons of spending, beyond medical expenses and administrative expenses, and even there the comparisons aren’t really comparable because different plans pay and record capitated payments to providers in different ways.
I think there’d be enormous value in having more public information about profitability by line of business. It would help shed light on which lines of business are most profitable, and who’s subsidizing and being subsidized. The average profit margin for most of the plans is in the 2-4% range, as you note, but there’s lots of variability across lines of business. For example, I’m intrigued (as are MedPac and others) about how much money most of the plans are making on Medicare Advantage, and how these profits are in some cases subsidizing group business. Here are my figures for 2006 for three of the big plans in Massachusetts:
HMO A: Margin on group: -0.4% Medicare margin 5.9%
HMO B: Group margin 1.6% Medicare 3.4%
HMO C: Group margin 0.6% Medicare margin 6.7%
(And this is just underwriting margin with no allocation of investment income.)
I’d love to see a comparable comparison for nongroup, small group, large group and self-insured businesses. But there are no data with which to do these comparisons at the moment. Maybe there are in fact no big differences in medical expense ratios and profitability across lines of business, but I will remain a doubter until I see the information.
Finally, I agree completely that most of the premium dollars are in medical expenses. As I often say, even if we eliminated all administration expenses from health plan premiums, with current trends the rates would be back at the same level in less than two years. So finding ways to control costs is essential. Wish I had politically viable and culturally compatible answers to that challenge. Transparency is a place to begin the conversation but it’s not going to be the solution.
Best regards, Nancy
Nancy – Three observations. First, no one, as far as I can tell, is calling for line of business profitability reporting for hospitals, physicians, or any other group associated with health care reform. And when I talk about price and quality transparency, I’m seeking “price” transparency – which anyone, as I’ve said before, can get from any one of the plans for any of our products. Second, margins on each line of business can vary a lot from one year to the next. A “great” account one year can be an “underfunded” one the next, and vice versa. That’s insurance. And in some cases, a higher margin one year is merely a reflection of the volatility and risk in a particular line of business. Historically, non-group in MA has been a very risky business, primarily due to the way it’s regulated (guarantee issue, etc.). As a result, BC/BS and Harvard Pilgrim have been the only carriers offering non-group coverage. Our margins in that business have been all over the place over the past five years. Third, the cost of administering health plans in MA, as you point out, is small potatoes in the grand scheme of things. The big money’s in health care delivery, and while transparency isn’t the “final answer,” it does provide, for the first time, the possibility of an informed, open conversation about what to do about cost and quality going forward.
Charlie, if not profitability reporting on various lines of your business as Nancy has appropriately proposed, how about–at the very least–average pricing disclosure for your products on an “apples to apples” basis for very small businesses, medium size businesses, the GIC, self-insured clients, etc? If you are reimbursing the providers the same amount for the same procedures no matter whether I work for a firm of 5, or a firm of 15,000, how else can we tell if the little guy is getting a fair deal on their premiums and not subsidizing your big business and big government clients?
Jon Hurst
Retailers Association of Massachusetts
[...] entry in recent months to the Commonhealth blog was submitted by Nancy Turnbull on July 9, titled “How About Some Transparency for Health Plans Too.” If you missed that entry, I strongly recommend that you go back and read Nancy’s common sense [...]
[...] #3: Where is the public health? We know that much of the increase in health care costs over the past decade is rooted in problems like rising rates of obesity, which require public health strategies. So, the best ways to improve health and reduce medical spending have little to do with providing more medical care, however high the quality, or promoting the adoption of electronic medical records, or even expanding health coverage. There’s a lot in Chapter 58 that is directed at improving public health but we’ve still got a long way to go to reverse the budget cuts that have occurred over the last decade, let alone to invest the level of resources in prevention and health promotion that are needed to achieve optimal levels of health. Some public-private partnerships in this area might be a fine use for some of the health plan profits I wrote about last month…. [...]
[...] 2008 Connector Board member and former First Deputy Commissioner of Insurance, Nancy Turnbull has written often about how health insurance companies are doing under Massachusetts’ healthcare [...]