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August 22, 2014

A Positive Comment (Finally) on Obamacare

Summary:

Community healthy plans known as "medical captives" are letting the law meet the goals of quality and low cost.

Photo Courtesy of Adrian Clark

Healthcare reform is certainly receiving its share of abuse. Whether the conversation is local or national, private or public, one is sure to hear how Obamacare is nothing but bad news — job destruction and the end of one’s ability to direct personal healthcare. Rarely do you hear a positive comment.

Until now, that is.

Read on to learn more about a market development that actually looks consistent with Obamacare’s objective of making healthcare delivery more efficient and less expensive.

Quality

One of the changes found in the voluminous law is the requirement for the government to begin considering the quality of care when making reimbursements under its insurance program, Medicare. A section of the law creates incentives for providers to pay more attention to the quality of their care, to receive a greater payment for their services. These incentives encourage what has become known as accountable care organizations, or ACOs. ACOs are not necessarily new legal entities, but rather are descriptions of healthcare delivery systems that place an emphasis on quality of care to reduce expense.

Seems like a reasonably good idea, but how do these same quality efforts work in the private commercial market? Not so well.

First, how can the initiatives be tracked when the patients are insured by third-party carriers? Who is rewarded when a provider does a good job, limiting readmissions and health costs? Who even knows when they do a good job? Second, how does community rating distinguish between those providers applying quality low-cost care and those running up the tab to enrich their bottom line?

Fast answer: Quality-care incentives being encouraged by Medicare are largely lost, and certainly not encouraged, when patients are covered by a fully insured or fixed-cost insurer.

What about high-deductible plans that match with the providers’ quality, efficiency and health efforts? No, these, too, are limited by rules imposed by Obamacare on the fixed-cost insurance market.

Community health plans

If the door is shut on providers trying to apply ACO strategies to the fixed-cost commercial market, what can be done? After all, if providers have reworked their businesses to focus on quality and efficiency, it seems illogical to apply these efforts in only the Medicare reimbursement market.

Fortunately, innovation is finding its way to provider systems, under the name of “community health plan.” A community health plan is a network, established by a regional medical provider, offering members of its community superior and affordable healthcare through a plan using only that provider or other like-minded regional providers. These new community health plans overcome the obstacles found in the fixed-cost insurer market and enable all the quality-care efficiencies to be applied in the commercial market.

Think about it: Community health plans were first developed because providers wanted traction with their local communities. They wanted local patients and buyers to call and buy from them first. That’s why many have already adopted a community health plan or at least looked into one years ago.

What providers found, however, was mountain-sized red tape, inconsistent application to their objectives and new rules related to Obamacare that made the idea of a community health plan a bad one.

Enter the stop loss group captive, or “medical captive.” A medical captive is a reinsurance vehicle that pools a layer of self-funded health benefit risk.  The medical captive solution enables providers to offer their community a health plan immediately. No regulatory red tape. Provider have a commercial market health plan where quality-care initiatives can be objectively monitored so cost savings and efficiency is not a guess or lost to a third-party insurer. Cost-saving rewards arising from quality and efficiency can be measured quarterly if not monthly under the medical captive approach. A provider’s cost-saving ideas receive real-time feedback.

The medical captive is built on a self-funded chassis that also delivers benefits over the traditional market. The post-Obamacare insurance environment includes community rating and restricted plan designs, but self–funded insurance programs avoid these potholes. Put another way, a self-funded insurance program fits nicely with the provider’s ACO efforts and allows most of the Medicare-inspired initiatives to be realized in the commercial market. So long as the medical captive is the financing vehicle being used by the provider’s community health plan, the disconnect between Obamacare’s quality initiatives and the commercial insurance market are resolved.

Who?

Hospitals are attracted to the medical captive as a form of community health plan for several reasons. First, the narrow network is gaining ground as a viable solution for keeping medical expenses under control. Employers and employees are now receptive to limiting choice to the local provider in exchange for a lower price. This is good news for the hospital without an existing health plan that is looking for traction with its local employers. The hospital-sponsored narrow network is an approach that is simple to implement with the medical captive. In addition, hospitals with existing community health plans of the fixed-cost variety now are looking to add the medical captive as another choice. Frequently, the hospital’s investment in claim paying services, network and, of course, ACO strategies seamlessly integrate into the medical captive.

Larger physician practices find themselves in a place similar to that of many hospitals in their quest to retain and grow their customer base. Offering a health plan with a capitated physician service component (with a set fee per person, no matter what care they need) is easily accomplished with a medical captive. Physician practices can quickly distinguish their practices from the rush of hospitalists with a health plan that incorporates much of their treatment philosophies, including ACO solutions. The flexibility of the medical captive built on a self-funded platform enables creativity in plan design and buyer incentives that mesh nicely with efforts by physician practice efforts directed at reducing high-cost diseases. Hospital services can then be delivered to the buyers through the health plan on a contracted basis. Measuring the effectiveness of the physician practice efforts at cost control is readily verified by reference to the medical captive underwriting results. It’s not hard to understand why larger physician practices are quickly moving to the medical captive as part of the solution for reinventing healthcare delivery.

Shared objectives

Everyone agrees with the objective of lowering the cost of healthcare. Not everyone, however, agrees with or understands what goes into the cost of healthcare. The cost and purchase of healthcare is more complicated than buying a pair of shoes, unfortunately. Most consumers do not see what it actually costs to receive a medical procedure or purchase a medicine. This is because many do not directly pay or see the cost of the care, but rather the buyers pay a fixed cost or premium and then enter a buffet of healthcare providers. Cost efficiency is a low priority and only mentioned at renewal time or when the overall price trend for the fixed cost interferes with the buyer’s budget.

Looking at Obamacare, we should be encouraged that healthcare providers are growing closer to the financing of care. If the law is encouraging the formation of new healthcare financing mechanisms that offer objective and immediate feedback on quality, cost-saving solutions, we are starting to reach our shared objective.  When buyers and sellers take even one step closer to achieving the same goal, healthcare starts looking more like buying a new pair of shoes.

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About the Author

Michael A. Schroeder is president of Roundstone Management, based in Westlake, Ohio. He has more than 20 years of insurance industry management experience, with responsibilities in the captive market, self-insurance trusts, publicly held insurance companies and the regulatory environment.

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