Our company is still negotiating the annual renewal of our health coverage. According to the insurer’s rate filings, we should probably expect an increase.
We know any increase will undoubtedly further erode take up (the number of employees who participate) among our employees who bear 25 percent of the cost. Dropouts will be among the younger and healthier of course, so the increase in premium may not prove profitable for the insurer.
I have been actively studying the health-insurance market and participating in the public debate for 20 years now. Over that period health-insurance rates have increased at double the rate of inflation.
This raises the question of whether it is a proper mission of a health insurer to produce an affordable product, or even to exert any influence over rates. Obviously if that is what we expect of them they are failing – but why?
I believe the reason has most to do with the way the insurers pay providers. Traditional fee-for-service reimbursement creates perverse incentives that have driven costs inexorably upward.
In the fee-for-service model any licensed provider can bill the system independently and get paid. No one is actually responsible for the outcome the patient experiences, and even more important, no one is paid to coordinate his care. The result is a health care system in which there is no accountability for the health of the patient.
Let’s just glimpse at the way private insurers pay hospitals, where about 40 percent, by far the largest portion of expense, is incurred.
Recently, the OHIC released its 2012 Hospital Payment Study, a much expanded effort more than a year in preparation.
Keep in mind that negotiating rates with hospitals is a key performance metric bearing upon insurers’ profitability. If they pay hospitals less than their competitors, they can have lower premiums, a competitive advantage, or they could simply retain more as profit. So this is not a function insurers take lightly.
A team of top-paid executives manage the process, usually headed by, or including a medical doctor. It is equally important to the hospitals, so they also must utilize highly paid experts. Since there is a vast list of prices, the process can really drag on and get contentious.