As health care expenditures continue to rise from the current level of more than 16 percent of the GDP, the increasing cost of health care benefits will result in many employers declining to offer health insurance to their workers. The Futurescan National Survey published by the Society for Healthcare Strategy and Market Development predicts that by 2012, less than half of all employers will offer health insurance and that the cost of health benefits for employees will continue to grow at 5 to 10 percent per year.

A 2006 report by the Kaiser Family Foundation indicates that in 2005, 18 percent of those under the age of 65 (46.1 million) were uninsured, and only 5 percent (12.9 million) of the U.S. population is covered by individual health insurance plans. A continuing decrease in group coverage will add to the current pool of uninsured.

We believe that the newly uninsured from the group ranks and certain segments of the presently uninsured are a prime market for well-crafted, competitively priced, medically managed, individual health insurance plans. However, in order for these plans to be competitive, be profitable, and gain market share, close attention must be paid to the development, implementation, and management of certain critical components.

Product Development
Products should be affordable and attractive to individuals seeking health care coverage. They should provide a range of coverage choices along with built-in incentives for the insured to seek and receive high-quality, cost-effective care. Ill-conceived benefit plan offerings often result in higher-than-predicted costs, both for care and administrative overhead.

Accurate underwriting depends on benefit plans whose coverage is in sync with competitors’ offerings so as not to become a target for unique adverse selection. They must also allow medical management and claim adjudication to easily and effectively manage the utilization of health care resources. Such a plan will detail coverage parameters in specific and understandable terms: what is covered, what is excluded, and when does coverage begin? If these questions are not clearly answered, efforts at medical management are likely to be ineffective, and the premium established for that product will be insufficient.

Understanding the risk posed by the applicant has to be a primary concern, since the individual health insurance market tends to have a disproportionate number of high-risk persons as compared to the group market. Evaluation of the applicant’s clinical records by a physician experienced in medical management mitigates this risk and can deliver significant advantage in making waiver determinations and risk pool assignments, and in establishing appropriate premium levels. Premiums resulting from this approach will be competitive yet realistic. In states where the requirement for community rating leads to a risk pool that is skewed in its lack of low-risk, healthy applicants due to the higher premiums, one must rely on other means to gain competitive advantage in the marketplace.

Member Contracts
Clear, concise language that is unambiguous concerning covered services and the level of reimbursement for professional fees, facility charges, medications, and durable medical equipment (DME) is an absolute essential.

Including example claims and calculations helps to demonstrate how specific charges would be impacted by site of service, plan deductible and co-payment amounts, and the insurer’s contractual payment obligation. This tends to avoid subsequent misunderstandings and confusion by the insured when reviewing their explanation of benefits.

Payment levels for health care services should be established at plus or minus a percentage of reasonable industry standard benchmarks, not a discount off charges. Examples of such benchmarks include:

  • Medicare professional fee schedule based on the Resource Based Relative Value Scale (RBRVS);
  • DME reimbursement schedule for Medicare;
  • Average wholesale price (AWP) or wholesale acquisition cost (WAC) for drugs;
  • Manufacturers’ wholesale prices for hardware, such as artificial joints, pacemakers, and defi brillators; and
  • Medicare reimbursement levels for inpatient confinements.

While discount-off-charges reimbursement agreements are easy to come by, they supply a blank check to providers. A benchmark using usual and customary (U&C) data for professional fees is not a significant improvement. Since the vast majority of professional reimbursement levels are very closely aligned with the Medicare fee schedule, the U&C levels largely represent wishful thinking.

Network Contract
Whether you have a directly contracted network or rely on a rental network, there are certain important goals to be achieved. One is fixed costs that have some relativity to the reasonable price benchmarks cited above. Payment for access to a rental network is on a per-member, per-month (pmpm) basis, not a percent of savings. Also, reimbursement for covered services delivered by network providers is payment in full, and the insured is held harmless for balance billing.

Equally important is agreement that the insurer can employ standard medical management techniques, such as pre-certification, concurrent review, retrospective review, and industry coding and evidence-based guideline software. The insurer may also engage specialty companies to supply services and goods, such as utilization management, pharmacy benefit management, chiropractic care, home health care, and DME supplies.

According to the Rand study in 2005 commissioned by the California HealthCare Foundation, a major barrier for potential purchasers of individual health insurance is the perceived effort of obtaining information. Therefore, devising innovative methods of reaching the uninsured is likely to pay large dividends.

Potential insureds should understand the details and limits of the health care coverage being purchased. There should not be any marketing hyperbole or direct or indirect suggestions that any coverage other than what is stated in the member contract will be provided. This approach is not always popular with agents and marketing personnel, but it results in lower back-end administrative and care costs.

Medical Management
State statutes and mandates exert upward pressure on premiums and reduce opportunities to gain competitive advantage. Because the largest portion of the premium funds health care services for the insured, the management of these resources always allows a unique opportunity to create a sustainable competitive advantage. In order to capitalize on this opportunity, the insurer must employ knowledgeable, experienced medical professionals to oversee the delivery of clinical services to their members, with the focus being the quality as well as the cost-effectiveness of care.

Crucial to the success of the Medical Management Program is the medical director. The medical director must provide leadership, training, and mentoring to the other clinical personnel, take the lead in both development and acquisition of guidelines and policies used in making medical necessity determinations, and provide input and support across the organization. Medical management personnel—and the medical director in particular—must be capable of articulating certification decisions to physicians, institutional providers, and internal constituencies.

Claim Adjudication
Once a claim is presented, it is important that it be adjudicated according to the applicable benefit plan coverage, taking into account any medical management determinations and the appropriate reimbursement rate, all subject to benefit limits and applicable deductible and co-payment amounts. Special or extra contractual payments must require signed approval at a managerial level.

Development and execution of each of the aforementioned components are necessary to achieve profitability in the individual health insurance market. One cannot underestimate the importance of each component or fail to recognize the synergistic and codependent relationships among components. Such oversights will likely guarantee failure of the product.

The Nolan Company has helped clients develop, implement, and manage these components. Please feel free to e-mail or call if you have questions or would like more details.

Opportunity is knocking; are you prepared to answer?