Monday, August 16, 2010

qotd: Is WellPoint's business model viable?

American Medical News
August 16, 2010
Big and beleaguered: WellPoint's bad image
By Emily Berry

Thus far, WellPoint and insurance trade group America's Health Insurance Plans have responded to criticism about rate increases with variations on the same theme: Medical costs, driven by physicians and hospitals, are rising so dramatically that insurers cannot avoid raising rates.

The argument doesn't appear to work if WellPoint and AHIP are trying to elicit sympathy or understanding from the public or policymakers.

As it went on the defensive using studies demonstrating higher medical costs, WellPoint reduced payment for physicians in most of its markets by double-digit percentages for certain procedures, and the cuts were across all specialties, said Susanne Madden, CEO of the consulting firm Verden Group in Nyack, N.Y.

"They've done a spectacular job destroying customer loyalty and physician loyalty at the same time, and they're not making any friends in government," she said. "They don't seem to have a grasp on the fact that if they do not have physicians as allies in some way, shape or form, they're going to have a hard time."

If it cannot raise rates, WellPoint -- and other national insurers -- will have to cut costs, experts said. This is where physicians might be affected. WellPoint is likely to cut costs by further reducing payments for hospitals and physicians and restricting networks, experts said.

Comment:  WellPoint's phenomenal business success has been largely due to its ability to offer competitive premiums by limiting what it has had to pay out in health care benefits. Will WellPoint's business model continue to be viable?

It has targeted its marketing to the healthy workforce and their young, healthy families, and to the portion of the individual market that can pass underwriting standards. Under the Patient Protection and Affordable Care Act (PPACA) WellPoint will no longer be able to exclude individuals with greater health care needs, neither by favorable selection nor by retroactive rescissions. Without other innovative cost controls, premium increases will be inevitable.

Under PPACA, WellPoint will also be required to provide a standard package of benefits, preventing them from reducing health care spending by cutting benefits. They will also be required to provide plans with tiered actuarial values, prohibiting them from requiring ever greater out-of-pocket cost sharing by the patient. Thus premiums will have to reflect the actual increases in health care costs.

It would be possible for WellPoint to slash reimbursement rates for physicians and hospitals, but that would be a terrible business decision wince it would risk a massive exodus from their provider networks.

It is likely that WellPoint and other insurers will establish more restrictive networks with providers who are willing to accept payment reductions in exchange for greater volume, but that loss of choice would certainly further alienate their plan subscribers, also threatening their market.

The plans may search for other innovations, including some of those in PPACA, but at this time there is little prospect that cost savings could be achieved without creating greater animosity amongst patients and providers. 

To comply with PPACA, WellPoint will have to increase premiums and market primarily plans with low actuarial values of 60 or 70 percent, leaving excessive out-of-pocket costs for those with health care needs. The subsidies in PPACA are too small to prevent financial hardship, and there is little political will to expand the federal budget by increasing the subsidies.

The situation can only grow worse with time. The WellPoint model will inevitably end up in the trash heap of failed policies as it is replaced with a single payer national health program - a program that would meet the needs of patients and their health care professionals.

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