Phia Group Media


Phia Group Media

Health Insurance is NOT Health Care

On March 23, 2017
By: Ron E Peck, Esq.

The Congressional Budget Office (CBO) has provided its assessment of the American Health Care Act, and already Congressional would-be supporters of the law are jumping ship. The CBO’s analysis resulted in what is being called a “devastating blow” to the proposed law.  Primary among the negative reviews is the CBO analysis that predicted about 24 million fewer people would be insured by 2026 under the GOP bill, and that premiums would skyrocket for low-income Americans and the elderly. Yet this is exactly what (some) supporters of the proposed law expected. You likely heard about White House budget director, Mick Mulvaney’s remarks, shared with ABC News chief anchor George Stephanopoulos.  He said that critics worry too much about “getting people coverage,” and that the purpose of the law should instead be, “… focused on getting people affordable health care.”

It’s as if the two sides are talking past each other. If you value securing health insurance for everyone in the nation, then the CBO’s report should scare you. If you care more about securing affordable, accessible, health care for everyone – then the whole discussion over “insurance” should be irrelevant to you. Why? Because Health Insurance is NOT Health Care.

President Obama knew this, once. On the evening of September 9, 2009, President Obama advised a joint session of Congress, that the amount spent on health care is the root cause of skyrocketing insurance premiums. He said, “We spend one and a half times more per person on health care than any other country, but we aren’t any healthier for it. This is one of the reasons that insurance premiums have gone up three times faster than wages.”

Yet… when the Patient Protection and Affordable Care Act (“PPACA,” “ACA,” or “ObamaCare”) was revealed, that fundamental problem was essentially ignored, in exchange for a law whose primary mission was merely to get everyone insured.

So… the money comes out of a different pocket, but what are we doing to reduce the amount actually being spent? Nothing. If I go to a baseball game with my wife, and I buy a beer for $10, whether I pay for it with my debit card, a wad of cash my grandmother sent me for my birthday, or my wife’s credit card (thanks honey), it doesn’t make it any cheaper. $10 for a beer is outrageous, but not as outrageous as the cost of health care.

Just as health insurance is not health care, so too health insurance reform is not health care reform.  Yet, because the ACA got so much press, and many previously uninsured individuals did secure insurance (giving us all the warm and fuzzies), the result was a nationwide misconception that affordable insurance equates with affordable health care. For many, ObamaCare is therefore viewed as a success because millions of uninsured Americans are now insured.

Yet, insurance isn’t a magical money-tree. Like a college student wielding his first credit card, a newly insured America forgets that “someone” has to pay, eventually.  What you buy – with your own money, or with insurance – and how much it costs, still matters.  Insurance just passes the buck – to other insureds, and to you, when the time comes to renew. It blows my mind.  People are involved in car accidents, get out of their vehicle, examine the minor damage, and agree NOT TO REPORT IT TO THEIR INSURANCE, because they DON’T WANT THEIR PREMIUM TO INCREASE! People actually choose to pay for car repairs out of pocket, because they fear insurance premium increases and want to save their insurance for “when they really need it.”  Yet, if we treated auto insurance the way we treat health insurance, we’d be outraged that insurance doesn’t pay for the air in my tires, or the dancing hula girl on my dashboard.

Providing insurance (meaning, digging into another pocket to pay for healthcare) didn’t reduce the cost of said care. In fact, in many instances, having new, direct access to deeper pockets incentivized providers to increase their rates – and why not? Instead of balance billing an uninsured patient, I now have direct access to the deep pockets of a carrier? Sign me up!

Steven I. Weissman, a former hospital president, stated that, “Rates must be published in a uniform format such as industry standard CPT codes or a percentage of Medicare rates. Every citizen would be empowered to search any medical procedure online and see pricing for all providers within X miles. It would be as easy and familiar as checking the price of any other goods or services;” (;

In addition to addressing the actual cost of care, we need to be honest about what insurance is, and is not; as well as what it is, and is not, meant to cover. Insurance only works when the insurer is allowed to assess risk, and through underwriting, quote premiums and offer limits adjusted to the individual policy holder. Forcing a carrier or health plan to accept $1,000 in premium for coverage that we know, with certainty, will cost the carrier $1,000 is outrageous and – in my mind – amounts to a form of eminent domain or a governmental taking.

When insurance is required to cover people without regard for risk, forcibly collecting money from all to pay for benefits afforded to some more than others; with limits placed upon carriers regarding how much they can charge, what they must provide, and more, insurance ceases to be insurance and becomes an agent of wealth distribution, a.k.a. a tax collector.

A promise to pay for all but certain future costs eliminates the entire reason to engage in the business of insurance. It’s the reason why auto insurance doesn’t pay for oil changes, tire rotations, or gas changes!

The time has come to be honest with each other and ourselves. What do we hope to accomplish with health care reform? What is the easiest, most direct way to achieve that goal? Do that.  Commandeering an entire private industry to camouflage a tax because politicians are too scared to openly admit that is what they are doing – taxing the nation to raise capital for the purpose of paying out of control health care costs – just doesn’t work for me.

Beating Medical Trend – Managed Care vs Reference Based Pricing

On July 6, 2015
MyHealthGuide Source: Bill Rusteberg, 7/2015, White Paper <>

The Problem

Medical inflation continues to rise. Facing rate increases year after year, plan sponsors, with their financial backs to the wall, have historically resorted to cost shifting. These continued failed attempts to control costs have driven some to seek alternate means to restore pricing sanity to health care. To many, the cost of health insurance can mean the difference between profit and loss.

Understanding the cost of health care is directly related to what we agree to pay; more and more employers are questioning managed care contracts upon which their health care costs are based. Many are discovering the truth for the first time. Secretive contracts between health care givers and third party intermediaries contain provisions that guarantee continuous and systematic cost increases. Shared savings side agreements and other schemes found in the health industry economic chain help fuel raging health insurance costs.

Known as medical trend, cost increases have proven to be consistent and predictable. The expected rise in the cost of medical services over time is expressed as an annual percentage increase and is an important element in underwriting future risk. Medical trend is a dominant cost driver in rate making. The annual compounding effect can double or triple health care costs over time.

“For managed care plans, the medical care inflation part of trend is a function of the changes in provider reimbursement rates that are negotiated. To the extent that such negotiations entail factors such as outliers and provider bonuses, the trend rate may be materially more than simply the weighted average increase in fees.” Kevin Gabriel, MBA, FSA, MAAA, Chief Actuary of Sierra Berkshire Associates, Inc.

The Solution
Moving away from managed care contracts, more and more employers are embracing a myriad of reference based pricing models. These models can vary in scope and reach; however all share certain common characteristics in conformance with prudent business practices. Price transparency and claim benchmarking are key elements.

In 2007 — 2008 we approached several of our clients to suggest something different to control costs. The concept was simple. Eschew managed care contracts in lieu of claim benchmarking off multiple data points such as Medicare reimbursement rates. Removing managed care contracts, i.e, PPO, and paying providers quickly, fairly and directly had an immediate impact on claim costs.

After 15 months we performed a study by running 100% of claims back through the prior PPO network reimbursement rates. This exercise proved a net savings of 43% above and beyond the PPO discounts we would have otherwise experienced. Instead of doing the same thing year after year, our client did something different and it worked.

It has been seven years since our first client exited the managed care world. Subsequently more clients have embarked on the same journey, most with equally good results. None have returned to the world of managed care.

The Evidence

Skeptics may ask “How have your clients fared over time? Have they won the battle against medical trend?” The answer may be found by reviewing the experience of four of our clients who have been on a reference based pricing model for five years or more.

Our study is based on actual paid, mature medical claims through succeeding plan years starting in the first year on reference based pricing benchmarked off the prior year under a managed care plan. All claims above stop loss levels have been excluded.

This abbreviated analysis does not recognize changing demographics and plan changes. For example the leveraging effect of higher deductibles will increase trend factors. Of particular importance it should be noted that plan changes occurred in each case through improved benefits supported by prior year claim savings. This study includes medical claims only.

One must understand that medical trend is just one of the factors used to calculate renewal rates for health plans and stop loss insurance. Each year carriers set their own trend level based on various factors, including the current health care inflation rate, analysts’ forecasts and their own experiences. However, our clients are self-funded and thus bear most risk with actual trend directly affecting costs without the benefit of pooling to any significant degree.

“Over the past several years, trend rates have consistently run 8-10% nationally, though certain regions have seen significantly higher or lower figures. Prescription drug trends (which are a component of this) have been more volatile. In the early 2000’s these trends were above 15%. They then fell back to single digit levels. But they have now returned to the teens,”  said Gabriel.

In comparing our client’s experience with average medical trend, we relied upon Heffernan Benefit Advisory Services — 2013 Trend Report; Historical Trend Factors. Based on this report, we are using 9.615% as average annual medical only trend factor.

Political Subdivision — 400 Employee Lives
This case has been on RBP for 7 years. They experienced poor claim years in 2010 and 2012. In 2012, for example, there were 14 large claims that approached or exceeded $125,000. Medical PEPM for 2014 and 2015 (to date) is less than 2008. Benefits have been improved; no deductible or co-insurance features with all benefits subject to co-pays only. Funding increase over seven years has been 15.6% or 2.23% per year.

[Political Subdivisoin]
Public School District — 900 Employee Lives
This case has demonstrated a consistent downward claim trend. Current PEPM (2015) is less than 2008-2009. No benefit reductions. Some benefit improvements. Plan funding has remained essentially static for the past five years.

[Public School District]
Medical Industry — 280 Employee Lives
Plan year 2012-2013 experienced an outlier year with several large claims and 34 pregnancies. Current medical PEPM is 16% higher than under managed care plan in 2008-2009, representing a 2.66% increase per year (sans outliers). This illustrates that higher utilization and outlier claims will result in increasing cost which would occur under either managed care or RBP model. However, RBP trend factor continues below industry benchmarks.

[Medical Industry]
Retail Business — 818 Employee Lives
This case has consistently been well below medical trend. Current medical PEPM is significantly lower than plan year 2008-2009. This case has not raised plan contributions in seven years.

[Retail Business]
Managed care has failed. Medical costs continue to soar. Providers are charging more and we continue to agree to blindly pay up through secretive contracts negotiated by vested interests. Medical trend has, and continues to be, consistently at double digits or close to it.

Cost plus insurance / reference based pricing is a proven method to maintain and even improve comprehensive coverage while at the same time keeping costs reasonable, predictable and consistent. Industry sources estimate reference based pricing plans represent 10% market share and rising. An east coast hedge fund, seeking opportunities in reference based pricing models, predicts reference based pricing will gain 60% market share within the next five years.

“What moves things is innovation. But it’s not easy to innovate in stagnant, hyper-regulated, captured sectors” – Max Borders (<> ) Cost shifting under the Affordable Care Act will continue to fail to control costs.

Reference Based Pricing represents the last frontier in innovation to control health care costs in a tightly regulated and controlled market.

Plan sponsors can reasonably expect to reduce their health care costs below medical trend without benefit reductions or cost shifting of any kind.