Insurance execs: Stop lining your pockets

December 21, 2007

In the debate over rising healthcare costs, some see managed care as part of the solution, and some see it as part of the problem.

In the debate over rising healthcare costs, some see managed care as part of the solution, and some see it as part of the problem.

Industry representatives, to no one's surprise, place themselves squarely in the first camp. They blame rising costs on a gaggle of factors not of their own doing-overconsumption by consumers, physician overutilization, and poor-quality care, to name a few. To bring high-quality, cost-effective healthcare to all Americans, the industry has sought to tame these runaway drivers.

The industry isn't alone in seeing managed care as part of the solution. In an editorial late last month, The New York Times included managed care among the solutions to the cost crisis. Properly employed so as not to trigger another backlash, the Times editors suggested, it still has a role to play in keeping a lid on things.

"Rather than controlling cost, and making healthcare affordable for all, managed care companies are setting the price and increasing it every year," says Susanne Madden, a former executive with United Healthcare and now president and CEO of The Verden Group, which assists providers in navigating the managed care industry.

Fattening the bottom line

To back her claim, Madden distinguishes between two typically confused terms-healthcare cost and healthcare spending. The first, she says, is what individuals, employers, and other payers shell out for their healthcare, mostly in the form of insurance premiums. The second term denotes what managed care companies actually spend on medical care, largely in the form of provider fees. The major health plans, says Madden, have done a good job of driving down the percentage of premium dollars spent on reimbursing providers-their so-called medical cost ratios-but have balked at holding down premiums, resulting in fatter bottom lines. And while the rise in premiums for employer-sponsored health insurance has dipped in recent years-which some see as the result of larger employers shifting more of their healthcare costs onto their employees-it's still projected by publicly traded health insurers to be 7.5 percent in 2008, more than twice the current rate of inflation.

MCOs drive down their provider spending, Madden says, through a variety of tactics. The most obvious way is by slashing provider fees, especially in areas where one company dominates the market. Beyond this, companies also lard their provider contracts with self-serving provisions, deny or mismanage claims, and enact lopsided policy changes that favor them and disadvantage doctors.

Madden illustrates the last tactic by citing one plan's policy change, involving routine pediatric vision screenings. At one point, she says, the plan mandated that such screenings would no longer be covered as a separately billable service, as they had been in the past, but rather as a component of a well-child visit. There was a rub, however. Not only was the former value of the screenings not added to the visit reimbursement rate, doctors were also barred from charging their patients directly for the test, since the plan still deemed it a covered service. Madden estimates that this one policy change alone might have saved the company as much as $58.3 million a year.

Madden isn't against all managed care. She points to Kaiser Permanente, for example, as one company that does it the right way.

"But for companies like United Healthcare, Aetna, Cigna, and WellPoint," she says, "it's about how much of the premium dollars they can hold onto, healthcare itself be damned."