Accident & Health Insurance Industry Trends

Consolidation

Selective Insurance

Economies of scale in administration have pushed strong consolidation. Although managed care plans (MCPs) have proliferated at the local level, more are being sponsored by large for-profit companies that maintain separate entities in each state. Consolidation is also being pushed because large provider networks, difficult for smaller companies to assemble, are more attractive to customers. In some parts of the country, a few large companies now dominate the health insurance market, holding a combined HMO/PPO (preferred provider organization) market share of 30, 40, or sometimes even 50 percent. In Philadelphia, one insurer holds 55 percent of combined HMO/PPO market share.

The basic concept of insurance is that losses incurred by one party are paid by the other insured parties who haven't had losses. Insured parties are treated as though the risk of loss is the same for all. Insurers have found, however, that they can sufficiently assess risk to offer lower premiums to parties with lower risk. Nonsmokers, for example, are charged lower life insurance premiums than smokers. While this seems reasonable on the surface, it means that parties with a higher risk pay higher premiums, sometimes so high that they are essentially uninsurable, which is generally the case for people infected with HIV. Because of the rapid advances in medical knowledge, more people with preexisting medical conditions or genetically determined diseases may be unable to buy insurance, a prospect that has prompted public policy debate and may lead to more legislative action.

Tiered Hospital Plans

Privacy Concerns Increase

To control costs, some healthcare plans now charge patients more for care delivered at higher-cost hospitals. By shifting more of the cost decision to patients through higher co-payments for selected services, rather than by arbitrarily restricting services, healthcare plans are reintroducing market economics into decisions about medical care. This type of cost control is likely to become more popular with healthcare plans for other types of services, such as prescription drugs. Likewise, patients who use less expensive services have a lower co-payment or lower coinsurance.

As insurers get more information about consumers' medical and financial condition, consumers have become concerned that this information may be used to their detriment or to sell them other products. Provisions in the Health Insurance Portability and Accountability Act (HIPAA) and Financial Services Modernization Act (FSMA) require insurers to take new steps to safeguard the privacy of individual information. Consumer advocates are particularly concerned that new diagnostic information will be used by insurers to deny medical coverage to persons with genetically determined risk factors.

Bigger PPOs Get Bigger Discounts

Lower Investment Returns Prompt Higher Premiums

According to InterStudy Publications, large PPOs negotiate discounts that average more than 35 percent for medical services, while smaller PPOs get discounts that average just 30 percent.

During much of the last decade, the strong performance of the stock market and other investments allowed insurers to keep premiums low, even though losses and expenses often exceeded premium revenue, because their large investment portfolios more than made up the difference. But with interest rates lower and stocks moving sideways, investment revenue is down, and insurers are being forced to push up premiums.

Rewarding Physicians

No-Fault or Full-Tort

Nationally, health plans are shifting how they reward physicians. Most new incentive programs reward doctors for meeting certain quality-of-care standards, such as providing diabetics with regular eye exams. Some health plans now pay extra bonuses to the best-performing doctors, who provide above-average care at lower costs.

Under no-fault laws, motorists sue only for severe injuries and for pain and suffering if the case meets a legal threshold, the Insurance Information Institute (III) says. Because high-threshold no-fault systems limit litigation, they reduce insurance costs. States with low-threshold no-fault laws, however, can be just as expensive for insurers as full-tort systems because a majority of claims go to court. In a full-tort state, the incentive to file an insurance claim for even a minor auto accident is greater, due to the possibility that the insurer will settle with the claimant.

Pharmacy Benefit Managers (PBMs) Cut Drug Costs

Medical Malpractice Insurance

PBM programs, offered under managed healthcare plans, are reducing prescription drug costs for consumers. PBMs offer discounts by substituting generic drugs when possible, negotiating prices with drug manufacturers, and offering discounts at pharmacies.

The rising cost and frequency of malpractice claims are leading many medical insurers to stop offering coverage. Insurers say medical malpractice reforms are necessary to stop soaring medical liability insurance rates. Medical malpractice premiums in the US jumped 400 percent in the past 30 years. Insurers are pushing for tort reform legislation that, among other things, would cap non-economic damages in medical malpractice cases.

Preferred Drug Lists Gaining Popularity

Mixed Results for Managed Healthcare

To cut costs, many managed care companies are creating preferred drug lists to limit physicians from prescribing expensive drugs when an equally effective cheaper equivalent is available. The preferred list program has been so successful for private managed care companies that the federal government is considering using a similar plan for Medicaid. Many states have begun using a preferred drug list plan for government employees.

To contain the rapidly rising costs of healthcare, insurers have enrolled policyholders in managed care plans on the premise that healthcare can be delivered more efficiently if it contains systems for review of medical necessity. While managed care had early successes in reducing wasteful medicine, US healthcare costs have recently resumed high rates of growth, while patient and doctor dissatisfaction with the intrusion of insurance companies into medical practice has grown.