20th Century Health Plans in a 21st Century

It’s almost kind of shocking to realize that we’re fourteen years into the new Millennium; doesn’t Y2K seem like a long time ago?   On the face of it, it would seem that health plans have never had so much change thrown at them as they have in just this decade of the new Millennium – mostly but not entirely due to ACA -- yet sometimes I worry that the changes they are going through are more like trying to put jet engines on a biplane instead of taking the time to truly redesign the plane.  It might work, but chances are it’s going to crash. 

It’s high time we rethink what health plans are and what they do.  I’ll give an example later on.

Let’s face it, health plans are not often known for speedy processes or use of the latest technology.  A recent report by HealthEdge (which, it must be said, has a vested interest in the topic) highlighted the continued use of “antiquated legacy technology.”  The health plans surveyed overwhelmingly saw the need to automated manual processes (81%) and increase auto-adjudication rates (56%).  It’s easy to look down on CMS for what happened with healthcare.gov, but if anyone was to probe very deeply into health plans’ technology, I suspect they’d have more than their fair share of embarrassing examples as well.

Health plans are trying hard to change.  They absorbed the requirements to cover dependent children, have started to live with the new medical loss ratio (MLR) standards, have revamped their benefit designs to fit the ACA standards (which, of course, resulted in the wave of cancellations that hurt ACA almost as much as the healthcare.gov debacle), and have totally changed their rating and underwriting processes in the individual market.  Those are huge changes, but are only the beginning.

The exchanges and the individual mandate have woken insurers up to the realization that health insurance is going to be retail in a way we have never seen before.  Aetna CEO Mark Bertolini predicts all this will cause health insurers to spend billions on consumer marketing (which, of course, will impact those MLRs).  Many health plans saw that future well before ACA.  Florida Blue opened its first retail store in 2006, and not only have they subsequently added more stores but numerous other health plans have followed suit – e.g., Highmark, Kaiser and United Healthcare.  Aetna has its own retail approach, partnering with retail chains like Best Buy and Costco.

The payor consumer strategy is not only bricks but also clicks -- Chilmark Research just released their Payer Benchmark Report 2013, and one of their key findings was how health plans’ use of consumer tech to engagement with members has exploded.  A PWC report reached the same conclusion, noting that health plans especially need mobile options to win the highly desired “young invincibles.”

Despite the health plans’ efforts, consumers’ opinion of health insurance companies remains largely negative – a Kaiser Foundation poll found only 43% had a favorable opinion (and, frankly, I’m surprised it was that high).  Worse yet, consumers with more recent experience with a health plan only had 35% with a favorable opinion.  Health plans seem to shoot themselves in the foot when it comes to dealing with consumers.

I think they’re doing it again by the explosion of narrow networks in the exchanges.  The idea, of course, is that health plans can offer lower premiums by limiting their networks to lower cost providers, assuming (correctly) that consumers are highly price sensitive when looking at premiums.  It also may be a not-so-subtle way of getting around the guaranteed issue requirements; consumers with more complex health problems may be more likely to be associated with higher cost providers, such as academic medical centers, and the exclusion of such providers from the narrow networks may well keep those sicker patients from enrolling in plans utilizing them.  

It’s a double win for the health plans – able to offer lower premiums due to including only lower cost providers and by attracting lower cost patients – but one that may prove short term.  I think it’s a short term strategy, because neither providers nor patients are stupid. 

Health plans tried narrow networks, and tight utilization management techniques, in the early 1990s, and they were successful in reducing cost increases, but a combination of provider consolidation and consumer backlash forced them to back off.  How long until the same happens in the exchanges?

I think we should move past the concept of networks entirely, and that’s an example of how I would revamp health plans.  Instead of managing a network – deciding which providers are in and out, negotiating reimbursement contracts with each of them, etc. – why couldn’t the health plan act as a “provider broker” for consumers? 

In this approach, the health plan’s role is to help consumers find the right provider for them, based on cost, quality and other consumer preferences, rather than to select the set of providers consumers need to pick from.  And I don’t mean giving them, say, a selection of ACOs or other integrated delivery service and then locking consumers in to one of them in for all services.  I mean, given a specific health need, helping the consumer get to the right provider(s) for that need.  Just because an ACO is best at caring for diabetics doesn’t mean anyone should also get their heart transplant there.

All of a sudden the health plan would go from being seen as limiting choice to being seen as enabling choice.

Current transparency efforts by payors or the many vendors that have popped up in this space really only help consumers find providers within the network of the health plan they are already enrolled in, which is very different than helping them find the “best” provider anywhere.

To facilitate comparisons, the costs would have to be all-inclusive, bundled rates for specified sets of services.  Providers would probably have to bid on their rates (which may not vary by payor), and coordinate between the various required providers.  To avoid the local monopoly problem, available options should include providers in other areas, especially for high-risk, non-emergency types of care. 

In this role, if the health plan still has financial responsibility – and I do not take that as a given that they would – I expect they would have to use a reference pricing approach, so that consumers could choose whatever provider they wanted but would be liable for any amounts providers charged over the reference price.  That will make both providers and consumers price sensitive very quickly.

Health plans sell an extremely complicated product that consumers don’t understand, don’t like, and think is too expensive.  Providers also see them as administratively burdensome and with a penchant for interfering with care delivery.  So who is it that wants to keep health plans structured as they are?  Surely in 2014 we can do better.  Let’s stop tweaking an outdated structure and rethink the entire approach.