Monday, July 15, 2013

Fwd: qotd: Insurers will continue to skirt regulations

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-------- Original Message --------
Subject: qotd: Insurers will continue to skirt regulations
Date: Mon, 15 Jul 2013 10:58:50 -0700
From: Don McCanne <>
To: Quote-of-the-Day <>

The Wall Street Journal
July 14, 2013
Insurers Seek Right Balance of Risk, Reward
By Anna Wilde Mathews

In the insurance business, some customers are more desirable than
others—and insurers will be seeking to woo them in preparation for the
health law's new marketplaces.

Customers not only bring revenue in the form of the premiums they pay.
They also come with costs, since the insurer will be on the hook for
medical expenses. Traditionally, that has made healthier people the best
insurance risk. Insurers often could decline to sell plans to people
with health problems, or charge them more.

Now, the health law is changing the rules of the game. Under its
requirements, insurers must sell plans to all comers, and the rates
can't be tied to customers' health. Less obviously, the law includes
mechanisms that are designed to ensure that individual companies aren't
punished if they draw a mix of sicker consumers.

Young and healthy people will still be needed to help balance out the
costs of sicker customers. But, in addition, some people who weren't
sought after in the past may become profitable because of the law's
payment structure. Among them: people who have chronic conditions such
as diabetes, but who can keep their diseases managed and avoid big costs
such as hospital visits, said Shubham Singhal, a director at consulting
firm McKinsey & Co. That is because insurers can be paid more to cover
consumers based on their diagnoses.

Since insurers can no longer pick and choose their customers, they will
employ a range of subtler tools, including marketing campaigns and
carefully designed plans aimed at the customers the insurers most want.

"They want to attract the right risk," said Siva Namasivayam, chief
executive of SCIO Health Analytics Inc. His firm helps insurers identify
customer types, such as "entry-level singles" and "healthy baby
boomers," each with projections on likely costs. The firm pinpoints, by
ZIP Code, where the different types tend to live, so the insurer can
target its marketing geographically.

Highmark Inc., a Pittsburgh, insurer, said it has around 100 targeted
campaigns aimed at particular types of consumers, including recent
college graduates and retirees not yet eligible for Medicare. It sends
walk-in tractor-trailers to college campuses and sets up booths at
community events such as charity walks. "We have to be more one-to-one
than we were historically," said Steven Nelson, a senior vice president
at Highmark.

Blue Cross & Blue Shield of Rhode Island also plans to aim at certain
populations, including young men. Last year, the insurer promoted one of
its low-cost plans with a campaign that included posters on the walls of
men's bathrooms in bars. "You don't need beer goggles to fall in love
with this health plan," one slogan said.

Comment: One of the great advantages of the Affordable Care Act was
that it would finally bring an end to insurance company chicanery in
which they were able to selectively insure more profitable healthy
individuals while keeping the more costly sick individuals out of their
plans. At least, that's what the new requirements for guaranteed issue
(they must sell the plans to everyone, not only the healthy) and
community rating (they cannot charge higher rates for the sick) were
supposed to do. But insurers have a much larger bag of tricks.

Although insurers can no longer reject applicants who fail medical
underwriting standards, they have learned to selectively market their
plans to healthier populations, and they will continue to do so. They
intensify their targeting to younger, healthier individuals while
avoiding marketing to higher cost individuals. As this article
indicates, an industry has arisen to help insurers select their targets
for marketing, based on the health of selected groups or on the average
health in geographical regions (ZIP Codes). This adds yet more
administrative costs to our system already tremendously overburdened
with administrative waste.

Not only do insurers market selectively to the healthier, they also are
taking advantage of risk adjustment. Since insurers who take on clients
with greater medical problems are paid more through these adjustments,
it is to their advantage to include individuals with unfavorable
diagnoses but whose health care needs are actually quite minimal. An
individual might technically be diagnosed as a diabetic but require very
little care, and yet the insurer can receive adjustments that are
designed for a more severe diabetic with multiple complications. So it
is to their advantage to enroll patients with just a touch of bad
disease. They are already doing this in the private Medicare Advantage

If an insurer misjudges and ends up with higher cost risk pools, they
can no longer dump only those with greater needs, but they can pull
their plans from the regions where they are experiencing high spending.

Insurers are masters at innovation. No matter how many laws and
regulations they face, they will always find other ways to work the
system. That's just plain old good business. And that is the problem. We
don't want our health care defined by what is good for the industry; we
want it defined by what is good for patients. We won't get that until we
establish our own public system dedicated to the primacy of patients.

And about that Blue Cross & Blue Shield of Rhode Island campaign that
included posters on the walls of men's bathrooms in bars with the
slogan, "You don't need beer goggles to fall in love with this health
plan." Although there are ten categories of essential health benefits,
insurers are allowed flexibility within each category. Those young men
would be well advised to read their plans carefully to see if they
exclude sexually transmitted diseases and injuries while intoxicated.
Insurers know no boundaries.

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