With the coming end of medical insurance underwriting in 2014 under the Patient Protection and Affordable Care Act (PPACA), payers are retooling their business models to enable them to manage medical risk posed by high utilization patients. These are people with complex, chronic conditions whose needs for care and medications rank them in the top one percent of all patients. In risk management terms, these are “catastrophic” risks payers will soon no longer be able to avoid. Instead, these patients will have to be managed to minimize utilization. Daniel Malloy of the healthcare consultancy IMS Health explains in this New York Times article earlier this week:
Insurance companies will be required to enroll millions of new customers without the ability to turn them away or charge them higher premiums if they are sick. They will prosper only if they are able to coordinate care and prevent patients from reaching that top 1 percent, Mr. Malloy said. “The insurance model is fundamentally changing,” he said.
The Times article notes insurers are becoming increasingly sophisticated at identifying high utilization patients and those likely to develop serious complications. “It’s important to know who they are and manage their conditions,” Dr. Pat Courneya, the medical director for the health plan offered by HealthPartners, told the newspaper.
Managing costs posed by these high risk patients could also require a holistic medicine approach that treats the whole person — both body and psyche. The Times article reports that “insurers are also still grappling with their understanding of human nature — why some people simply don’t take care of themselves or take their medicine or go to the doctor, even when it is clear that they should.”
In 2011, some health insurers were conceding the individual market was failing, entering the dreaded death spiral of adverse selection. But none went as far as Aetna CEO, Chairman and President Mark Bertolini at a Las Vegas conference this week in proclaiming the business model of health insurance broken and facing extinction.
“The system doesn’t work, it’s broke today” Bertolini was quoted as saying by HealthData Management in remarks to attendees of the HIMSS12 conference. “The end of insurance companies, the way we’ve run the business in the past, is here.”
A fundamental function of any form of insurance is underwriting the selection and rating of risks. With medical underwriting ending January 1, 2014 under the Patient Protection and Affordable Care Act (PPACA), it’s no wonder Bertolini sees the end of health insurance as we have known it.
The PPACA as well as other factors are forcing health insurers to reinvent themselves. But as what? Since Accountable Care Organizations (ACOs) being created by the reform law are risk sharing mechanisms that reward better patient outcomes and reduced treatment costs though more coordinated, more holistic patient care, Bertolini sees a role for insurers to help manage that risk. “We need to move the system from underwriting risk to managing populations,” Bertolini was quoted as saying. “We want to have a different relationship with the providers, physicians and the hospitals we do business with.”
What about state health benefit exchanges created by the PPACA that open for business in 2014? The exchanges are to serve as purchasing pools to help individuals and small businesses aggregate purchasing power to get better deals on health insurance than they would otherwise get negotiating on their own behalf. If health insurance is becoming a thing of the past as Bertolini predicts, what will they be buying? Bertolini foresees all-inclusive, branded “health systems” (perhaps similar to California-based Kaiser Permanente) that leverage health information technologies to put patients in charge of their health.
Obama administration cites health insurance crisis in Supreme Court brief supporting PPACA coverage mandate
The Obama administration last week filed its brief supporting the Patient Protection and Affordable Care Act’s (PPACA) requirement that every American be covered by public or private health insurance effective Jan. 1, 2014. Opponents of the requirement, referred to in the administration’s brief as the “minimum coverage provision,” contend it’s an unconstitutional exercise of Congressional authority over commerce and taxation.
The minimum coverage provision is the keystone of the PPACA and the product of a political tradeoff leading up to the 2010 enactment of the legislation to address what the brief terms “a crisis in the national health care market.” The provision was aimed at quelling opposition from health insurers who opposed the PPACA’s requirement to shift from their existing medical underwriting risk selection model to a community-rating model that requires all applicants be accepted and charged standardized premiums regardless of their medical histories. Unless everyone is required to be in the insurance market in some form or another, payers argued, they would be exposed to adverse selection because only those who needed coverage would purchase it, driving up claims costs. That would lead to adverse selection since the insurance pool would have a disproportionate number of sick people needing costly medical treatment while healthier people who go without coverage don’t contribute premiums to cover those costs.
The administration argues in its brief that this results in cost shifting in which those who have coverage end up paying additional premium dollars to pay for the uncompensated care of the uninsured, many of whom cannot obtain affordable coverage due to pre-existing conditions. “The Act breaks this cycle through a comprehensive framework of economic regulation and incentives that will improve the functioning of the national market for health care by regulating the terms on which insurance is offered, controlling costs, and rationalizing the timing and method of payment for health care services,” the brief states.
In sum, the administration asserts, the market needs community rating to sustainably provide coverage to all Americans. But it cannot work without what effectively functions as a community insurance requirement. Everyone gets in the pool regardless of medical history — and everyone pays to enter.