Dr. HSA

Guest Columnist, Martin Jensen

COO, Chief Analyst, Healthcare IT Transition Group

Do Banks Threaten Health Insurers?

December 2008 - Vol. 17

In the Gartner Group’s otherwise salutary 2007 report on the health insurance (payer) industry, “Predicts 2008: Insurance Competition, Data and Staffing Risks Dominate the Insurance Industry,” authors Annemarie Earley, et al., offer this curious prognostication: “By 2010, the fastest erosion of health insurance revenue will be due to invasion from banks.”

"Health insurance companies are managing less medical risk and are forced to compete on administrative transactions. Commercial off-the-shelf(COTS) applications, business process outsourcing (BPO) vendors and provider network access services enable banks to assemble health insurance products and couple these with financial services. Consumer trust in banks as service providers, their transaction accuracy and security is significantly higher than that for health insurers. Health insurers failing to transform to a business model that integrates health insurance with financial products will suffer the same fate — marginalization or departure from the market — as insurers that failed to move from indemnity insurance to managed care."

It’s clear that banks surely do stand to gain by providing financial services to patients and providers alike to accommodate the gross operational inefficiencies created by the consumer-directed healthcare (CDHC) phenomenon. However, it’s unclear why such financial institutions would move into the money-losing proposition of risk management, which is what “health insurance” is all about (even if it’s not the work that health plans are, increasingly, provisioning their resources toward).

The History of Risk Aversion

CDHC can be seen as the latest, but perhaps not the final, phase of an historical trend to pass the risk management buck.  Traditional indemnity plans were largely supplanted by various managed care options, including the Health Maintenance Organization model, whereby primary care providers accepted a predictable per-member/per-month payment in exchange for an agreement to withhold charging the plan for most procedures. Such capitation plans effectively shifted much of the responsibility for risk management from the payer to the provider.  Preferred Provider Organizations gave the patient more choice while substituting steep provider discounts on promises of patient volume in place of the HMO’s risk-burdened PMPM payments.  PPO structures are less explicitly provider risk arrangements but still represent a pooling of patient lives in a prospective cost/revenue load-balancing act.

As costs continued to spiral out of control, an increasing number of funders – particularly large employers – decided that the underlying problem was that they were paying the insurance industry for managing risk and letting the payers keep the bounty if they managed it well. Large employers, seeing their hundreds or thousands of employees as a predictable risk pool, thought to recapture this outlay via the self-funded health plan. In this approach, the employer ultimately takes direct responsibility for payments to providers while hiring a payer or Third Party Administrator for administering the claims adjudication process and handling enrollment and financial transactions. The insurance industry refers to this as an Administrative Services Only (ASO) model. Willingly or not, insurers had passed the bag of risk to employers.

Reading the Directions

Still, escalating costs, and the premise that patients protected from pricing were their proximate cause, led to the newest innovation: High Deductible Health Plans paired with Health Savings Accounts (HDHPs and HSAs). Such consumer-directed plans transfer the first-order portion of the risk to those who are arguably least equipped to understand or manage it – the patients themselves. 

“Should I keep filling this prescription at $100 a month or worry about heart disease later?” “Is that lump something I should have Dr. Welby look at?” “Gosh, did you see the price of that colonoscopy?” HDHPs put the onus onto the member to make such determinations.  While the structure of HDHPs allows them to cover certain aspects of preventive care, a lack of consistency between different plans makes the capture of such pre-deductible benefits elusive to providers and patients alike.

It’s easy to make a price-sensitivity case for choosing generic vs. name brand drugs at the prescription counter, but it’s a much harder call when more substantial and complex questions must be addressed. In particular, the long term outcomes of unguided care decisions and the management of multiple chronic conditions are known to be significant cost drivers that belie simplistic marketplace metaphors. The real world of healthcare decisions does not fit neatly in a grocery basket. The bill for the overstuffed sacks of resulting preventable and often uncompensated care has been passed from government plans to private insurers to employers to providers and now to patients. We might refer to this trend as the systematic amateurization of risk management, as we are essentially replacing actuaries with soccer moms and distracted dads in the name of consumer choice.

Risk Comes Home to Roost

This penultimate toss of our now-flaming bag of risk may turn out to be beneficial, both from an economic and a human standpoint. The patients we have thereby stuck with the bill seem to have realized that they are also voters capable of acting in their collective interest. If we cross our fingers, we might actually end up with a system of universal coverage with competition based on clinical outcomes rather than the dispensing of pills, the performing of procedures and the execution of elaborate cost-shifting maneuvers. Eventually we may even see per capita costs as a percentage of GDP start to trend toward the rest of the industrialized world, which has long realized that sick people are more expensive to treat than relatively healthy ones. The paradigm shift of treating health as a national asset rather than a personal liability may be a difficult one, but economic imperatives have a way of dislodging even the most entrenched ideologies

Yesterday's Bill Comes Due

But for providers, the impact of CDHC in general and HDHPs in particular are immediate; the impacts on payers are less direct, but may also arrive sooner than expected.

Providers hit with increasing burdens of bad debt will come back next year demanding contract concessions in the form of higher reimbursement rates, which will prove inflationary, at least to the extent that payers are able to pass along such costs through premium increases. The self-insured employer will likewise find it difficult to find ASOs to arm-twist providers on their behalf in a market where primary care docs are too busy making retirement plans to be bothered with granting much in the way of price discounts. The additional departure of some physicians and clinics due to economic pressures created by non-paying HDHP patients and the uninsured (a cascading effect which might be referred to as Medical Bankruptcy 2.0) will leave the remaining providers in an advantageous position, especially in underserved markets.

How big a deal is this? According to a report published by the Association of Health Insurance Plans, the number of people with HSA/HDHP coverage rose to 6.1 million in January 2008, up from 4.5 million in 2007, and 3.2 million in 2006. January 2009 should see another substantial jump as enrollees and recession-crunched employers continue the migration to the slightly lower monthly fees assessed by HDHPs.

Banking on Assistance

Thus, in terms of the banks vs. payers issue, the push of the financial responsibility to individual patients actually represents the creation of a ballooning new market for financial services, not a consolidation of the existing market for risk management and claims processing.  From the provider perspective, HDHPs create "a thousand points of nonpayment” -- in their view, insurers may be demanding, arbitrary and difficult to deal with, but they only have one phone number, their mailing address tends to stay the same and they are required by law to keep some money in their accounts. As large chunks of provider revenue migrate from the health plan reimbursement bucket to the patient responsibility category, tremendous inefficiencies and uncertainties are created for provider revenue collections.  Companies that help make that collection process more efficient – and, especially, more reliable -- will stand to gain as they serve to arrest the impact of that revenue erosion process on behalf of the providers who engage them. Banks are positioned to facilitate real-time collections, 360-degree remittance management (by facilitating access to both payer remittance data and self-pay transaction details) and provide both IT and revenue management skills that providers will find increasingly necessary to maintain solvency.

Insurers reliant on the growth of ASO contracts and HDHPs are not necessarily threatened by banks or other companies (software vendors and financial services firms, for instance), who create such products and services. In fact, it is in the payers’ interest to help providers manage their non-payer revenue. Payers might, as the Gartner study suggests, be missing out because they are not setting up the HSA accounts when they enroll members in qualifying HDHP plans, but that is an opportunity cost, not a threat to existing revenue.  (An April 2008 report by the Government Accountability Office suggests that about 40% of those eligible to open HSAs fail to do so.)

Installing the Cash Register

A case can surely be made for payers to assist banks, software vendors and financial services firms in order to facilitate some of the more difficult tasks that put providers at risk. For example, payers and clearinghouses can enable real time adjudication of claims, which, if coupled with real-time collection facilitated by banks or financial service firms, should be an easy sell to cash-crunched providers. At the very least, those consumer directions ought to be able to tell patients what the actual price is, and give providers the tools to ask them if they would kindly make arrangements to pay it.

But risk management? Any extent to which banks may be entering the health insurance market might best be chalked up to hubris rather than strategic acumen.

Whoever gets caught holding that bag is not going to win a prize.

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About the author. ..

Martin Jensen is COO and Chief Analyst at Healthcare IT Transition Group, consulting with providers, payers and software vendors to better understand and implement the opportunities created by healthcare IT. His HIT Transition Weblog (http://blog.hittransition.com) offers an insightful and often humorous take on HIT policy, standards and trends.