Section 8: Establish Fair and Transparent Insurance Markets

Texans are spending more money on health insurance each year but have no idea how the health plan is spending their premium dollars. Is their premium going toward their actual medical costs or to the insurer’s bottom line? Why aren’t they protected from questionable insurance tactics that result in loss of coverage and increased out-of-pocket costs? For many employers and their employees, yearly health insurance premium increases are unsustainable. No one feels this challenge more acutely than your local neighborhood businesses, such as family-owned restaurants, auto mechanic shops, and physician practices.

Although the U.S. Supreme Court upheld the constitutionality of the Patient  Protection and Affordable Care Act (PPACA), the law faces another test in the November presidential and congressional elections. If Republicans capture the White House and enough votes on Capitol  Hill to repeal the law, TMA recommends a few provisions in the PPACA for the Texas Legislature to consider as state law. These  provisions, which have  already proven to be effective, would not cost the state budget a dime,  but in fact may save the state money in the long run by allowing people with health insurance coverage to keep that coverage and keep it affordable. That would reduce the likelihood of their falling back  onto  the rolls of the uninsured.

Require transparent insurer medical loss ratios
To keep insurance companies accountable to patients, it is important to focus on the medical loss ratio (MLR), how it is calculated, and how the health plans report it. The insurance industry uses this number or ratio to show its profitability to its shareholders. The higher the ratio, the better for the insured; the lower the ratio, the better for the shareholder. So how the industry defines that share of the premium dollar that actually goes for health care becomes important.

In 2010, the five largest insurers collected $7.7 billion more in premiums than the year before, but they did not increase spending on patient care by nearly as much. Insurers have been free to spend as much of the premium dollar as they please on CEO pay, marketing, administration, lobbying, and a care-denial bureaucracy. The share of premiums Cigna spent on medical care in 2010 (the medical loss ratio) dropped to 80.1 percent from 83.9 percent the year before — a decline worth $709 million, according to a congressional report. Aetna also trimmed its health care costs, spending only 82.3 percent of premiums on patient care, down from 85.2 percent the year before. That change was worth $708 million for Aetna. UnitedHealth and WellPoint also reported lower spending on care. As illustrated in the table below, although the MLR change appears small, it translates into millions of dollars for the insurance companies. [99]  

  2009 Consolidated
Medical Loss Ratio
 
2010 Consolidated
Medical Loss Ratio
 
2009-10 Change
(in percentage points)
 
UnitedHealth 82.3% 80.6% -1.7%
WellPoint 83.6% 83.2% -0.4%
Humana 82.8% 82.8% 0.0%
CIGNA 83.9% 80.1% -3.8%
Aetna 85.2% 82.3% -2.9%

Note: Medical loss ratios as calculated by companies and in some cases restated for prior years. Consolidated medical loss ratios tend to camouflage low spending on patient care in commercial lines of business. 

The PPACA places much emphasis on health plans meeting certain MLR thresholds. Plans in the large-employer group market that spend less than 85 percent of their premiums on medical care and quality improvement activities, and plans in the small-employer group and individual markets that spend less than 80 percent, must give rebates to enrollees based on their 2011 MLR reports. To impose these thresholds, regulators had to agree on a standard definition of the term and specify how plans should classify spending on certain activities.

While TMA sees worth in the minimum MLR values set by the PPACA, we believe the real emphasis should be on standardizing both the definition and the reporting of this percentage. If  Congress repeals the PPACA, the Texas Legislature should require a consistent reporting of MLRs. A consistent reporting formula would allow employers and patients shopping for health insurance to more easily compare the performance of their health plan with other plans. The easier it is for employers to shop for economical insurance, the more likely they are to offer it to their employees. The formula needs to specify exactly what insurers can include as a medical cost versus an administrative cost, such as profit or expenses for items such as marketing, administration, and recruitment

Stop inappropriate insurer rescission and purging practices
The PPACA restricts two common anti-consumer practices of the health insurance industry. If the law is repealed, Texas legislators still could curb the swelling number of uninsured Texans by looking closely at and regulating rescission and purging. A number of insurers make a consistent practice of getting rid of enrollees they don’t want — the very people who need insurance — when they become a drain on profits. The widespread use of rescission and purging has made insurers one of the growing causes of the uninsured crisis.  [100]  

To help meet profit expectations, the for-profit insurers that dominate the industry use a process called “rescission” to dump covered persons who are less profitable or who get sick. Rescission is the insurance industry practice of retroactively cancelling policies based on errors or omissions in the insurance policy application. However, the use of this practice has drawn negative reaction and publicity because insurers will rescind policies based on an innocent mistake or omission on the insurance application as opposed to intentional fraud by the applicant. Reports found that insurers will scour the medical records of covered persons who start filing expensive claims to determine if they can retroactively cancel their policies. Insurers are increasingly paying incentives and bonuses to their company employees who find omissions or mistakes in their lengthy and often confusing insurance applications.  [101]  

If an error or omission is found on the insurance policy application, no matter how innocently made, the insurance company rescinds the policy rather than continue to pay the patient’s medical bills. What is worse, the insurer treats the policy as if it had never existed and attempts to reclaim all previous payments made on the patient’s behalf to doctors, hospitals, and other health care providers.

The 2009 congressional investigation into the rescission practices of just three large insurers revealed that they had rescinded nearly 20,000 policies over a five-year period. Rescinding those policies allowed the companies to avoid paying $300 million in claims for life-saving medical care. [102] When members of Congress asked insurance executives if they would end the practice of rescission when a person makes an innocent mistake, they said they would not. That’s because dumping even a small number of enrollees can have a big positive effect on the bottom line. TMA supports the appropriate use of rescission as a response to true fraud; however, the legislature needs to prohibit and address the “gotcha” approach that leads to inappropriate rescissions by insurers.

Some insurers also wrongfully dump small groups by “purging” a group when its medical claims turn out to be larger than what the insurers’ underwriters projected. The purging of less profitable accounts through unjustified premium increases may explain why the number of small businesses offering coverage to their employees has fallen from 61 percent in 1993 to 38 percent in 2009, according to the National Small Business Association. [103]  

Promote real-time claims payment
Once medical claims are submitted for payment, insurers may take weeks before they finalize the claims and approve them for payment. Patients often are surprised by the amount they owe toward the remaining portion of a medical bill. Patients’ surprise is typically rooted in their policies’ copayment, coinsurance, and deductible requirements. Most physicians are unable to discuss actual payment information to patients because they don’t have real-time claims access to the patient’s current benefit status.

Instant health insurance claims processing offers a solution to these problems. A fully adjudicated claim in real time permits patients to know exactly how much they owe at the time they receive services. Physicians also would have the information necessary to fully inform patients on what they owe. Instant health insurance claim processing reduces the chance a patient will receive a surprise bill weeks after receiving care.

Promote direct patient-physician payment options for business health care plans 
Consumer-directed health care plans offer a promising option for improving efficiency by eliminating the insurance company from financing a large portion of routine health care services. Under these plans, businesses establish high-deductible insurance plans for their employees, coupled with accounts that employees can use to cover their family’s routine medical expenses with pre-tax dollars.

This approach improves efficiency if these plans bypass the usual process of submitting formal medical claims to insurance companies and waiting for lengthy review and payment. It strengthens the practices of primary care physicians who are particularly overburdened by the health plans’ demands that every small service pass through their scrutiny. To the employer, the employee, and the physician, the value of consumer-directed health plans lies in their simplicity.

To be successful, these accounts should be seeded with initial funds and allowed to grow with tax-free employee savings that roll over from year to year. Benefits should promote employees’ use of preventive health care services, such as cancer screenings, immunizations, and prenatal care. Administrative overhead should be minimized through the use of debit cards or other methods that limit transaction costs for all parties.

Promote fair contracting practices by government and private payers
Because of the imbalance in negotiating power between physicians and large insurance companies, and non-existent negotiation with government payers, physicians frequently wind up forfeiting a considerable percentage of charges for services they provide.

According to TMA surveys, 72 percent of all Texas physicians work in small practices of eight or fewer physicians. [104] Small practices have little, if any, leverage in negotiating with health carriers. When insurance carriers make an offer, they are generally too big and too busy to discuss with doctors what insurers believe to be minutia. Insurers, to ease their costs, want to administer “national paper.” The physician may have only two options: to take it or leave it. Artfully drafted, these contracts and related business practices often put physicians’ offices at the mercy of health carriers.

The above, coupled with increasing hassles and frustration with administrative policies and procedures imposed by health carriers, hurts the practice environment and affects physician recruitment, retention, and decisions relating to early retirement.

Texas’ 2003 prompt pay legislation addressed a number of physicians’ grievances regarding fair contracting in the regulated insurance market. For example, Texas requires timely payment when a physician submits a defined clean claim, and policies on bundling and downcoding are available on request. However, a new market has arisen since 2003.

The health care market has spawned a secondary market in physician contracts. The lack of regulatory oversight in the preferred provider organization (PPO) industry has resulted in the proliferation of entities that are engaged in the business of buying, selling, and leasing physician agreements and contract rates to any number of payers. These entities are called “rental network PPOs” or “lease network PPOs.” When the physician discount is shared without authorization from the physician, the arrangement is referred to as a “silent PPO.”

Other entities, called “repricers,” exist solely to find and apply the lowest discounted rate for its clients, usually without express authorization from the physician. The activities within this market, and the entities engaged in these activities, are virtually unregulated in Texas.

In retail, when a shoplifter takes a five-finger discount, it increases the cost of goods for everyone. The same is true when PPO networks take a discount that the physician has not agreed to offer.

The secondary market in physician contracts has gained national attention. In November 2008, the National Conference of Insurance Legislators (NCOIL) adopted a model law to regulate rental network PPOs. NCOIL’s model was the result of an effort among national associations of networks, physicians, and insurers. In Texas, in 2011, TMA introduced a bill based on the NCOIL model and negotiated heavily with a number of parties representing hospitals, insurers, and PPOs. Unfortunately, the legislation failed to pass. TMA believes the legislature should revisit and pass bills that address this deceptive practice.

Offer incentives to businesses that contract with the state or receive state economic development funds to provide employee health insurance 
Texas needs to expand its efforts to address the problem of the uninsured. Whenever the state uses taxpayer funds to attract business, the business must be committed to offering existing and new Texas employees health insurance coverage.

The Texas Enterprise Fund (TEF) has been used to fund a variety of economic development projects around the state. Before funds are awarded, the governor, lieutenant governor, and speaker must agree that state funds can be used on a project.

According to the Governor’s Office, the TEF is used primarily to attract new business to the state or assist with the substantial expansion of an existing business as part of competitive recruitment.

To be eligible for TEF funds, a project undergoes a review process that considers many factors, including job creation and wages. Health insurance coverage should be added as one of the requirements these businesses must meet to be eligible for TEF funding.

Promote, preserve, and protect workers’ compensation gains
Texas employers pay the 12th-highest workers’ compensation premiums in the country, about 17 percent more than the national median.  [105] They expect their employees’ work-related injuries to be treated appropriately and efficiently. Injured workers should be able to obtain clinically appropriate, cost-effective health care in a timely manner and within reasonable geographic proximity. Any system providing health care to injured workers should be clearly defined, fair, simple to understand, accountable, and easily accessible by all parties involved.

The Texas workers’ compensation system has undergone significant changes since 2001 and more so since the passage of House Bill 7 in 2005. The Texas Department of Insurance’s Division of Workers’ Compensation (TDI-DWC) has taken steps to reduce and/or stabilize costs and improve injured employee outcomes (such as quality of care, access to care, and return-to-work outcomes), and minimize administrative complexities. These initiatives include the adoption of:

  • Fair fee guidelines for professional services, inpatient and outpatient hospital services, and ambulatory surgical center services;
  • Evidence-based treatment and return-to-work guidelines for non-network claims;
  • Certification and monitoring of workers’ compensation health care networks;
  • Rules and processes to streamline dispute resolution;
  • Performance-based oversight, which assesses the performance of insurance carriers and health care professionals in meeting key regulatory goals; and
  • Consensus-based stakeholder rulemaking procedures.

The 2010 Sunset Review of TDI-DWC contained many recommendations to further strengthen the agency’s ability to administer and enforce the system effectively. These recommendations, addressed in HB 2605 during the 2011 legislative session, cover such issues as dispute resolution, enforcement, the Medical Quality Review Panel, designated doctors, and nonsubscriber compliance with reporting requirements.

Require transparency in the insurance marketplace
Texans pay premiums with the expectation that they will receive a benefit that is worthwhile. Texas insurance companies design and sell insurance products that offer increased benefits when the insured person obtains medical or health care services from a preferred provider. If an insurance company promises increased benefits for preferred provider services, it must actually deliver a panel of preferred providers for the patient’s benefit. Insurance carriers must be held accountable for the representations they make and the products they offer. To ensure that, strict governmental oversight is prudent.

In 2007, the legislature directed TDI to collect charge and payment information from Texas insurers then  disclose to the public the costs of the health care services it receives. TDI has collected the data over the past few years and is poised to make  it public in 2012. Texas patients deserve to know the charges for their health care as well as the payments insurers make  to physicians and others to better  understand their out-of-pocket responsibility. Texas physicians hope that this disclosure will bring the costs of health care to patients’ attention.

Require transparent insurance rulemaking
The 2011 legislature disbanded and eliminated from the Insurance Code a large number of specific stakeholder workgroups. In January 2012, TDI proposed eliminating hearings in cases where the public asks the agency to adopt, modify, or delete a regulation. Public participation in government gives a voice to patient and physician concerns. With guidance from the public and stakeholders, appointed and elected officials are better able to make informed decisions on tough choices they may face. Transparency is key in avoiding perceived favoritism among various stakeholders. A streamlined stakeholder process with full participation of stakeholders would help avoid unnecessary delays due to impracticalities in proposed regulations.

TDI is proposing to amend previously adopted regulations on network adequacy that would weaken important consumer protections. The regulations currently require insurers to report to TDI the adequacy of their networks. If an insurer doesn’t meet the regulations’ requirements, the insurer must present a plan on how it would ensure the availability of physicians and bring the product it sells into compliance. Safeguarding these patient protections is important in achieving a fair and transparent marketplace for consumers.

Recommendations: 

  • Require health insurers to regularly report their medical loss ratios in a standardized format to the Texas Department of Insurance (TDI) as well as to purchasers and enrollees upon request.


  • Require insurers to notify patients that rescission of their policy is under consideration, and why, before the actual cancellation.


  • Prohibit health insurers from providing incentives to employees or contractors based on the number of rescissions they recommend.


  • Allow Texas’ small businesses to challenge health insurance premium quotes, and require insurers to provide information to justify a premium increase.


  • Enact tax breaks or other incentives for employers who offer appropriately structured, consumer-directed health plans to their workers.


  • Direct the Employees Retirement System of Texas to offer appropriately structured, consumer-directed health plans to state workers.


  • Require health insurers, at the time health care services are delivered, to pay patients’ and physicians’ claims immediately and calculate patients’ out-of-pocket responsibility.


  • Prohibit third-party and discount brokers from trading physicians’ contracted payment rates without physicians’ knowledge and consent.


  • Require health plans and third-party administrators that sell, lease, or share physician contract rates to report this activity to TDI.


  • Establish tax incentives for businesses to provide health insurance for their employees.


  • Require employers that directly receive Texas Enterprise Funds to offer insurance to their employees.


  • Require TDI to collect data concerning health care charges and payments and disseminate aggregate, regional information in a uniform format.


  • Require health plans to develop appropriate provider networks with appropriate in-network or out-of-network benefits based on the product the employer or enrollee is purchasing.


  • Protect and support TDI Division of Workers’ Compensation (DWC) policies that reduce administrative hassles in preauthorization requests and peer review scheduling.


  • Guarantee payment for an injured worker’s initial examination, which is used to determine compensability.


  • Protect TDI-DWC due process procedures and make certain that physicians subjected to peer review are reviewed by professionals with the same training, education, and licensure as the physician being reviewed. A determination of maximum medical improvement or a disability rating should mirror such peer review principles.

 


 

Healthy Vision 2020

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