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Spinning the Web of the Plan Document

On July 7, 2017
By: Kelly Dempsey, Esq.

(No, this isn’t about spiders.)

The date was somewhere around August 25, 1999. The location was my 10th grade biology class. I remember taking in the scenery of a new classroom and looking at all the pictures and quotes my teacher had up on the walls. One in particular caught my eye:

“I know you think you understand what you thought I said, but I’m not sure you realize that what you heard is not what I meant.”

Once your head stops spinning, we can continue…

I’ve since learned this quote is attributed to the former head of the Federal Reserve Board, Alan Greenspan.  The context of this quote is still foreign to me, but I believe it can be applied to just about anything – so let’s apply it to plan documents.  

In general there are several entities involved in the process of administering an ERISA self-funded medical plan document, but ultimately the plan sponsor is responsible for ensuring the terms of the plan document meet the needs of the plan and its members. The plan administrator then has the fiduciary duty to administer the plan in accordance with the terms of the plan document. So when is the last time that you, the plan sponsor, have read the plan document cover to cover?  

Plan documents have to be reviewed and revised for any number of reasons, including regulatory changes – but sometimes plan documents are changed when the plan moves to a different claims administrator (i.e., hires a new TPA to administer claims, or moves from an ASO to a TPA or vice versa). The “rules” each claims administrator sets related to the plan document’s format may vary. Some TPAs will administer the document as-is. Some TPAs prefer to use their own plan document template, which the plan sponsor can either adopt from scratch or conform its existing benefits to.

I’ve written about “gap traps” before, and while this isn’t a really one of those as we typically use the term (which is most often relevant to gaps between a plan document and a stop loss policy), a type of gap arises if a restated document doesn’t mirror the prior plan document. For example, the prior plan document had an illegal acts exclusion that applies for any act that carries with it a potential prison sentence of one year. The restated plan document, however, doesn’t include this specific prison sentence limitation, which means the plan essentially will have to exclude more claims in order to comply with the terms of the plan document (such as, for instance, a DWI, which does not carry with it a sentence of up to one year, but is an illegal act!). While this would comport with the terms of the plan document, it is something for which plan members – and even the plan administrator – may not be prepared.

Another example is a situation where the prior plan contained a medical tourism program that includes many non-U.S. locations, so the plan did not include a foreign travel exclusion. When the two plan documents were “merged” such that the existing document and new format are combined, the new plan document accidentally contained both an international medical tourism program as well as a new exclusion for non-U.S. claims (because foreign travel exclusions are still fairly common). Needless to say, that type of contradiction can cause a slew of problems (including a potential gap with the stop loss policy).

The addition of a new exclusion, or even apparently minor verbiage changes within an existing exclusion (or definition, or benefit, or just about anything else, for that matter), can seem very insignificant, but has the potential for dire consequences if the intent of the plan is not reflected as clearly as possible.   

So, a few questions for employers, TPAs, consultants, brokers, and anyone else involved in plan document drafting:

•    Does the plan document actually say what the plan sponsor wants it to say?
•    Does it clearly outline what is covered?
•    Do the exclusions align with what the plan wants to be excluded?
•    If a plan document has been recently restated, have you confirmed that the terms of the new plan document are the same as the prior plan document?

It’s always best to triple-check these types of things.  Happy reading!

Altogether Now… But Not a Single Payer

On July 5, 2017
By: Ron Peck, Esq.

I have in the past remarked both that a single payer system would be harmful to patients and providers, and that it therefore behooves providers and benefit plan administrators to collaborate on an approach that ensures long term sustainability and viability of private benefit plans.

In response, I have been asked why a single payer system is bad for providers and patients, as well as why the current benefit model is not sustainable or viable long term.  While fully responding to both of these inquiries requires way more real estate than I have here, I hope in this blog entry to briefly explain.

WHY THE STATUS QUO CANNOT CONTINUE

I was recently asked to speak about our healthcare system.  I’d planned to talk about how PPACA (aka the ACA or Obamacare) only targets one-third of the healthcare system – that being payers (insurance), while mostly ignoring the other two-thirds: payees (providers) and patients.  

When I performed a web search to find pictures of the three for my slide deck, (insurance, providers, and patients), almost all of the available stock photo images associated with each were as follows: Provider; a wise, grey haired, caring doctor gently comforting a sick child – someone we could trust.  Patient; a desperate looking otherwise average person, clearly in pain and needing help – someone we could relate to.  Insurance; a sleazy looking businessman in a fancy suit, with a slick grin and pockets full of cash – someone we could hate.

Call it a scapegoat, or something else, but of the three players in healthcare, insurance is the villain.  Small wonder, when you consider that they are the ones that employers blame when rates go up; they are the ones siphoning salary from your paycheck; and they don’t provide anything useful.  I mean – providers save lives.  Insurance ruins them, right?  Insurance profits off of others’ suffering, right?  Insurance can charge whatever they want because the alternative is death, right?  Wrong.

Health insurance is routinely ranked beneath the pharmaceutical industry, medical products and equipment, and even some hospital systems, when it comes to profitability; (https://www.forbes.com/sites/liyanchen/2015/12/21/the-most-profitable-industries-in-2016/#12b660035716).  Now – I understand that “profit” means your revenue to cost ratio is great… and that it’s absolutely possible that insurers are taking in way too much revenue, and simply fail to address costs (resulting in poorer profits), but regardless of the reason – the national belief that insurance is printing money, is misplaced.

As I’ve said many times before, insurance isn’t healthcare – it’s a means to pay for healthcare.  This idea that insurance can strong-arm people into paying whatever they want, because people can’t say no – because not having insurance means certain death – assumes that without insurance there is no healthcare.  Yet, the truth is that healthcare would exist with or without insurance; we’d just need to find a different way to pay for it.  People “need” insurance – not for its own sake – but to pay for healthcare, because healthcare itself is too expensive.  

Imagine the following scenario:  Oil changes for your car jump to $1,000 per oil change.  Rather than be outraged with the price, we turn around and demand that auto insurance start paying for it.  We then get outraged when auto insurance rates increase.

Insurance isn’t without blame.  Indeed, I believe strongly that some forms of benefit plan are the only types that should be allowed to exist; that others are too profit driven, and/or force insureds to pay the cost when they make mistakes or act inefficiently.  Yet, with that said, blaming those actors (even the bad ones) for all the problems facing healthcare is a huge mistake.

Health insurance is not a behemoth, stomping around, forcing its will on insureds and providers.  In fact, the opposite is true.  Problems with the status quo arise not from the strength of the insurance market, but rather, their weakness.  This weakness, which we’ll next dissect, would be abolished by a single payer system – at the expense of medical service providers.

Presently, insurers (try to) negotiate with hospitals and drug companies on their own.  To do this, many rely upon preferred provider organization (PPO) networks or other such programs, whereby someone (the insurer itself or a network acting on a plan’s behalf) negotiate deals with providers, which then allows the provider to be deemed “in network.”  

In exchange for agreeing to the network terms, providers are promised prompt payment, and reductions in (or elimination of) audits and other activities payers otherwise engage in when dealing with medical bills submitted by out of network providers.  Indeed, benefit plans unilaterally calculate what the covered amount is when paying an out of network provider (usually resulting in the “balance” being “billed” to the patient).  When paying an in-network provider, however, benefit plans are required to pay the network rate (the billed charge minus an agreed upon discount), regardless of what pricing parameters they’d usually apply to out of network bills.  This is agreeable to the payer, meanwhile, because it means they get a discount (albeit off of inflated rates), and – more importantly – the payment is payment in full… meaning patients aren’t balance billed.

Due to the payer’s size (or lack of size) and number of payers present, competition between payers and networks, and other elements present in our market, payers cannot “strong arm” providers.   Compare this to markets where there is a single payer; when providers must agree to terms controlled by the payer, since it’s their way or no way.  

In other words, in a pure single-payer system, there is only one payer available – and you play by their rules, or you don’t play at all. Currently, in the United States, Medicare and Medicaid are the two “biggest” payers, and thus, it should come as no surprise that they routinely secure the best rates.

So – when you ask why the current system can’t survive, look at the prices.  Yes – instead of focusing on getting everyone enrolled in an insurance plan, and hoping that will somehow make things less expensive, instead look at what we’re actually paying.  As with the $1,000 oil change, sometimes the simplest answer is the right answer.  Healthcare is too expensive because healthcare is too expensive.

A 2011 study (http://content.healthaffairs.org/content/30/9/1647) found that reimbursements to some US providers from public payers, such as Medicare and Medicaid, were 27% higher than in countries with universal coverage, and their reimbursements from private payers were 70% higher.  This tells you two things – private plans pay way more than Medicare, and Medicare pays way more than “single payer systems.”

What does this mean?  If providers fail to offer private payers better rates soon, they will bankrupt the system.  If that happens, Medicare will go from being the “biggest” payer to the “only” payer… and the rates they pay will drop accordingly.  This then, brings us to the next chapter…

THE ISSUES WITH A SINGLE PAYER

Businesses need to stay profitable to stay afloat, and medical providers are no different.  In a single payer system, usage increases (because – from the “consumer” perspective [aka patients] it’s free), and reimbursement to providers decreases (for reasons discussed above).  That means providers are expected to do more with less.  Naturally, this results in decreases in quality, and longer waiting times (assuming access is available at all).  

To counter this natural shift, many nations with single payer systems also implement strict central planning.  This moves many healthcare choices from individual patients and providers, and instead allows the government to set the rules.

Months to have a lump examined?  Hours upon hours sitting in a waiting room?  Death panels?  The “horror” stories we hear from other nations with single payer systems are not shocking – they are expected.  Yet, those who support a single payer system do so because the current system is too expensive.  Thus, to avoid a single payer system, we need to make healthcare less expensive.  How do we do that?  Reduce the cost of healthcare, and reduce the cost of health insurance accordingly.

IDEAS FOR THE FUTURE

First, many have argued (and I tend to agree) that health insurance pays for too many medical services.  Routine, foreseeable services should not be “insured” events.  Insurance is meant to shift risk, associated with unforeseen catastrophic events.  A flu shot doesn’t fall into that category.  If people paid for such costs out of their own pocket, hopefully the cost of insurance would decrease (adding cash to the individual’s assets with which they can pay for said expenses).  Likewise, hopefully providers would recognize that people are paying for these services out of their own pockets, and reduce their fees accordingly.  If an insurance carrier wanted to reimburse insureds for these expenses (promoting a healthy lifestyle and avoiding some catastrophic costs insurance would otherwise pay) or employers want to cover these costs as a separate and independent benefit of employment (distinct from health insurance) so be it; (cough*self-funding*cough).

Next, we need to refocus on primary care as the gatekeeper.  I’ve seen a movement towards “physician only” networks, direct primary care, and other innovative methods by which benefit plans and employers promote the use of primary care physicians, and I applaud the effort.  They provide low cost services, identify potential high cost issues before they multiply, and steer patients to the highest quality yet lowest cost facilities and specialists when needed.

Lastly, I’ve seen benefit plans attempt to remove themselves from traditional “binding” network arrangements and instead contract directly with one or two facilities in a given geographic area.  By engaging with the facility directly, they can find common ground, and identify valuable consideration not previously considered.  Between increased steerage, true exclusivity, electronic payment, prompt payment, dedicated concierge, and other services payers can offer hospitals – above and beyond dollars and cents – some facilities are able to reduce their asking price to a rate that will allow the plan to survive… and thrive.

From ACOs to value based pricing… from direct primary care to carving out the highest cost (yet rarest) types of care – to be negotiated case by case – many innovative payers are trying to cut costs and ensure their survival.  The next step is getting providers to agree that such survival is good for the provider as well.  Compared to the alternative, I hope they will not cut off their noses to spite their faces.