managing the cost per service of medical expenses in health insurance coverage

Managing The Cost Per Service Of Medical Expensesin Health Insurance Coverage

By Robert Prochnow, FSA

Assisted by Shruthi Srinivasan, Student Actuary

Premise of Risk control through payment structure

The basic premise of risk transfer in an insurance system is:

• transfer the risk to the party who controls the risk

• but not to exceed the amount of risk they can hold.

By Robert Prochnow, FSAAssisted by ShruthiSrinivasan, Student Actuary

Considerations in what controls on medical payment to apply

• Match the method to the risk

• Make sure you can administer the control method

• Do not set up too many mechanisms to control the same risk

• Different controls can achieve different payment levels

• Make sure the system can be monitored


Medical Expense Charge Levels Vary by

• The service itself

• The provider

• The place of service

• Whether the patient has insurance coverage

• Whether the insurer has any tariff structure


Types of Risk

a. Morbidity Risk: Controlled by insurer

b. Incidence Risk: Impacted by insurer, providers,

and insured

• Propensity to use care

• Intensity of care

c. Payment LevelBy Robert Prochnow, FSAAssisted by ShruthiSrinivasan, Student Actuary

Who Controls the Payment Level?

• Insurance companies control the level of benefits and allowable fee levels

• Physicians control their charge levels and which hospitals used

• Hospitals control charges and type of room

• Insureds control what care is provided


Controls of provider expenses - provider payment methods

Some of the common payment level controls are

1. None

2. UCR’s

3. Fee schedules :

• Physician fee schedule

• Hospital fee schedule


Provider Payment Controls: None

Prevalence: Primary model currently in place in India.

Philosophy: insureds are given a benefit that they can use at any properly credentialed provider.

Strengths:

• Easy to set up

• Customers used to that

• For a time, payment levels may not become unruly

• Unlimited access to providers By Robert Prochnow, FSAAssisted by ShruthiSrinivasan, Student Actuary

Provider Payment Controls: None (cont)

Weaknesses:

• Over time, providers will charge more and more

• No structure

• Only benefits and selection can control costs

• The cost of insurance will be far greater than the actual risk cost

Impact on provision of care:

• Pays professionals on a piece-work basisBy Robert Prochnow, FSAAssisted by ShruthiSrinivasan, Student Actuary

Provider Payment Controls : UCR

What it is: Usual, Customary, and Reasonable limits on the fees paid for a service. Such limits generally agreed and based on typical payment levels.

Prevalence: Not really used in India.

Philosophy: The free market should control charges but there should be limits.

Strengths:

• relatively loose

• understood and accepted

• adjusts to the charge levels in a controlled fashionBy Robert Prochnow, FSAAssisted by ShruthiSrinivasan, Student Actuary

Provider Payment Controls : UCR (cont)

Weaknesses:

• This only controls the rogue providers

• Will allow for continued inflation


Provider Payment Controls : Fee Schedules

What it is: Agreed payment levels between the insurance company and the provider

Prevalence: Moderately used in India at some hospitals for a small subset of services and are regularly circumvented

Philosophy: The provider is a vendor for the insurance company and this is the payment for services that has been agreed

Strengths:

• logical way to do business

• allows for changes over timeBy Robert Prochnow, FSAAssisted by ShruthiSrinivasan, Student Actuary

Provider Payment Controls: Fee Schedules (cont)

Weaknesses:

• Contracts must cover a tremendous number of facilities and physicians in all markets the products are sold in.

• The tariffs must cover a long list of medical services.

• Updating schedules is an intensive and ongoing.

• Claims processing must track each contract .

• For services and providers not covered, some other method of payment level must still be applied.


Control of Provider Payments Through Selection and Benefit Design

This is designed to impact the pricing behavior of

providers by giving the insured a share of the costs.



Insureds can keep the costs down through:

• Which provider

• Whether to get treatment, what services to get

• The charge level

• The accuracy of the provider’s bill

• Any fraudulent excess billing



Some controls include :

• Selection of insureds

• Fixed benefit coverage

• Copays

• Benefit limits

• Controls on place of treatment


managing the cost per service of medical expenses in health insurance coverage

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