cost inflation for the business community."" title="Farell: "We have a trend of double-digit medicalcost inflation for the business community.""/>cost inflation for the business community."
UnitedHealthcare CEO cites state mandates
Stephen J. Farrell
Age: 43
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Position: Chief Executive Officer, UnitedHealthcare of New England
Background: Named chief executive officer this summer, following promotion
of Budd Fisher to President North Markets. A 15-year veteran of the health care
industry, Farrell will oversee all operations for UnitedHealthcare of New England.
He joined the company in January of 2001 as chief operating officer. Prior to
that, Farrell was with Aetna’s New England operations for four years.
Education: College of New Rochelle, New York
Residence: Stow, Mass.
UnitedHealthcare of New England serves approximately 480,000 members in Rhode
Island and Massachusetts. UnitedHealthcare is the largest business unit of its
parent company, UnitedHealth Group, a Fortune 100 company.
In this interview, Farrell discusses the rising costs of health insurance
premiums – and what businesses and individuals need to consider as a way to
combat them.
Q. What’s your biggest challenge in this new role?
A. We have a trend of double-digit medical cost inflation for the
business community. And they are having a hard time affording that. The challenge
is to get them the solution. It’s important for me to be out there and understand
the marketplace – to understand where the pressure points are and to affect
an appropriate change that is mutually beneficial. By being out there, I am
not reacting to anecdotes and hearsay. I am reacting to what is being delivered
to me personally.
Q. Do we as consumers of health care need to change our expectations as
to what things cost?
A. I think that change is well on the way, especially here in New
England where we have been parochial in our health care purchasing. We have
been a very broad HMO purchasing society. I say HMO because that represents
first-dollar coverage and very little individual – such as employee, member
or patient – interaction in the actual purchasing environment – so much so that
many employers tell me that they ask an employee: ‘Well, how much did that office
visit cost you?’ And the employee says $10 or $15, which is obviously the cost
of the co-pay. And they don’t understand that a true office visit costs much
more. Why is that important? We are now in a process of realizing that HMOs
used to try to intervene on behalf of the employee and decide what was appropriate
care and what wasn’t … with referrals and registrations and notifications and
upgrades and downgrades and changed facilities, to control the utilization of
health care. And the New England community, and the rest of the country, has
pushed back and said: ‘No, we don’t want the managed care community intervening.’
UnitedHealthcare was the first company in 1999 to drop all of those requirements
and become a proactive participant in the equation. Now where is the change?
The change now is how do we get the individual to be an active participant in
the purchase of health care, where they have information available to them so
that they know something about it. They have gone so long not knowing anything
about it. People know more about how to get their car fixed and who is a good
mechanic and the details about mufflers or carburetors than they do about the
intricacies of health care. They need to be educated. Clearly, that is our role
– in conjunction with the medical community … it’s not so much of us educating
them, but we have access to members so we can use that access to help them.
We can do that on the Internet, allowing each member to really manage his or
her own health care.
Q. Tell me about co-insurance and how it differs from a co-payment?
A. A co-payment is a flat fee. For an office visit you are going to
pay a flat payment. Co-insurance … it’s a bill or a contractual charge and you
are responsible for a percentage of that. The percentage or your out-of-pocket
payment varies because some services are more expensive than others. So there
is a lot more individual risk or out-of-pocket risk in terms of what you may
be spending in a co-insurance.
Q. Is this a trend that is taking hold here?
A. These are concepts that are actively discussed in health care decision-making
circles across the country. But an interesting phenomena here is that New England,
and especially Rhode Island, is slower to change to these types of plans than
the rest of the country. As I go out and meet with customers and members and
brokers and associations, I see that the community is very slow to make a large
movement toward these cost-sharing plans. The rest of the country is well ahead
of us. I look at our book of business and I can tell you how many people are
moving over and I’ll compare it to other states and we don’t have as many people
moving over. So as decision-makers tell me that they have cost problems and
they can’t afford the premiums, I’m telling them there is some benefit to continuing
to move the product selection down to these cost-share plans. Don’t feel pressured
that we aren’t going to be able to work with the individual. We’ll give them
the tools. But ultimately what they are missing out on is the behavior change.
Managed care isn’t in the behavior modification business anymore. Let the individual
take some accountability and responsibility.
Q. How much of a concern is it that if we put more of the cost of health
care on the individual, more people are simply going to decide they can’t afford
it and they are going to walk around without health care?
A. It’s something we deal with every day. But there’s more to it.
Anybody who gets out of the health insurance circle then puts a burden on society,
whether it’s Medicaid or free care that is written off by the provider hospital
community. Ultimately, they just come back and say: ‘We’re losing money on this,
so you, the commercial payer, need to subsidize us.’ So guess what? It’s not
gone for good. It comes back as a major component of driving the cost up for
everyone else. In the purchasing-of-health-care environment, we have to be sensitive
to not doing things to push people out. What I am hearing from the business
community is that it can’t afford the premium. So many of them decide that they
won’t offer benefits anymore. Well, let’s make sure we get options in there
so that the premium is affordable or if you are going to pass the premium on
to the individual, let’s give them some flexibility and choice so that they
can at least have some kind of coverage they can afford. Maybe they’re going
to have a larger responsibility in this, but they have it if they need it.
Q. What about mandated health benefits – what is the climate here in Rhode
Island?
A. In this past session, there were numerous – nearly 20 – mandated
health bills. Massachusetts, which is also among the higher-ranked states in
terms of mandated benefits, had none. I was shocked there were so many, given
the economic conditions and the general cost of health care.
Q. Would we all benefit from more health insurance competition here in
Rhode Island?
A. Competition is good. We would welcome it. The next question is:
Why don’t we have more competition? The answer is: the regulatory burden in
this state is second to none.
Q. We’re in an age of tremendous technological advances. With all the resources,
all of the information available to us, why aren’t we saving money or cutting
costs when it comes to health insurance?
A. We’re pushing for a technological solution for all of our transactions.
We’re a high-transaction business. We’re dealing with a broker and a customer
who is paying his or her premiums and there are the bills and the people change
every month … There are more transactions and with each transaction more paper
and mail … it is an enormous expense. So we’re putting it all online. And we’re
making it free. And because we are looking at reducing our costs this way, we
have an entire organization push in this direction. And the push includes making
sure that our benefits to employers are designed so that they meet our systems
perfectly well. And on the other side, the contracts that we have with our hospitals
and doctors fit into our systems perfectly well. So that the claims can come
in and be paid accurately and quickly. Payments can go out without problems.
For a paper claim, the process costs about $2 to $3. And it’s pennies, electronically.
And if it is paid wrong, it can cost $30 to $40. The point is, we’re doing an
awful lot to use technology to take the expense out of health care trends. But
your question still remains. Why isn’t it more affordable? Well, we’re taking
out what we can. But technology is a double-edged sword. Look at the drivers
of cost. Regulation and mandated benefits. Prescription drugs and an aging society.
Technology is educating our society so that there is more utilization. There
are new technologies. And with new technologies come great investments in capital
expenditures. We have higher expectations as a society.
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