The Patient Protection and Affordable Care Act does a great deal to address insurance industry practices. The new health care reform law, however, has been rightly criticized as failing to directly and forcefully attack rising medical costs, the primary driver of insurance premiums. Yes, the new law establishes.
The PPACA has a number of pilot projects, demonstration programs, and studies buried in its provisions that could, in time, lower overall cost spending. And supporters of the bill will argue that the Medical Loss Ratio provision is aimed at keeping down the cost of coverage. (Ironically, the MLR limits may have the unintended consequence of raising insurance costs. Administrative costs are usually fixed and independent of the premium paid. The cost to have a claims representative process a claim is the same whether the coverage cost $1,000 or $3,000 per year. But the $1,000 policy makes only $200 available for administrative expenses under the medical loss ratio calculation; the $3,000 plan makes $600 available. In other words, because the MLR rules apply percentages, carriers have an incentive to eliminate low-cost plans).
Carriers need to educate lawmakers and the public about the elements that go into a premium rate. Yes, profit and overhead are a part of the cost. But the biggest driver of health insurance premiums is the underlying cost of medical care. And the carrier community may have begun this educational process.
America’s Health Insurance Plans, the industry trade association, released a study showing that, in California, hospital charges increased 150 percent between 2000 and 2009. The Sacramento Bee, quotes AHIP spokesperson Robert Zirkelbach as observing “What this data shows is that there needs to be much greater focus on the underlying cost of medical care that is driving those premium increases. At some point, people will have to address these underlying cost drivers if health care costs are going to come down.” In other words, you’ve taken your shot at the insurers, now, if you’re serious about reducing costs, let’s look at the hospitals.
Interestingly the AHIP report acknowledges that hospitals and other providers of medical care need to make up for underpayments by government health programs. In California, between 2000 and 2009, hospitals charges to health plans rose by 159 percent. This is more than twice the rate of increase for Medicare and eight times the increase hospitals received for Medi-Cal – the state’s version of Medicaid.
Needless to say the hospitals didn’t appreciate AHIP pointing this out. “It’s really tough for a pot to call a kettle black,” the Sacramento Bee reports Scott Seamons, the regional vice president for the Hospital Council of Northern and Central California. I don’t know if Mr. Seamons intended to acknowledge that hospitals are at least as much at fault for rising insurance premiums as carriers, but if the insurance companies are the pot and the hospitals the kettle, that is what he’s saying. If so, that would be a refreshing dose of frankness to the dialogue. Meanwhile, consumer groups, not unexpectedly, accused the AHIP of trying to shift the blame for rising premiums. Apparently they can’t accept that anything other than insurer greed and profiteering drives insurance premiums. Any correlation with hospital charges or medical inflation are merely accidental.
All of this rhetoric and accusing is standard issue among advocacy groups and trade associations. And if all that comes out of the report are fingers among these usual suspects pointing at the usual places, then this report will have done little good. If, however, the study represents the beginning of a concerted effort to bring to the public’s attention what drives their insurance premiums; if it leads lawmakers to ask “why” hospitals needed a 159 percent rate increase over 10 years; if it gets people thinking about the monopoly position some hospital chains enjoy – and employ – in parts of the state, that’s something altogether different. Because if these possibilities become reality, the AHIP report may be seen as an important start to what will be a long, but critical, educational effort.