Medigaps Going Up. What Happens to MA Premium?

[jdeasy]

Let me start with a big fat HELL NO, THAT'S NOT WHAT I SAID!!!

I want the entire payment structure gutted. No more $800+/month/member, maybe a $50pmpm to admin a plan, but all they're doing is paying the claims, tracking fraud, and maintaing cost effective provider networks like an ASO does. The actual claims would be paid out of the Medicare fund, the same fund that Original Medicare claims get paid out of. Well maybe not technically the same fund, but conceptually the same fund. The carriers can do a better job administering a plan than the government can, so why not pay them to administer the plan while assuming no risk rather than continually overpaying them to assume risk the government already has.

I didn't use to think that was a good business model, but I have come around. When I was a major tire company the outsourced our dental plan. They were paying the company 9% over whatever was paid in benefit as an administration fee.

I thought that was silly because if the plan authorized a $200 payment they made $18 when if they had authorized a $100 payment they would have only made $9.

Where was the incentive to reign in costs? The incentive was the big picture. If they didn't keep costs in line, they lost the whole contract.

There was also something about a "reserve fund" which I never understood either.

 

[Josh]

I didn't use to think that was a good business model, but I have come around. When I was a major tire company the outsourced our dental plan. They were paying the company 9% over whatever was paid in benefit as an administration fee.

I thought that was silly because if the plan authorized a $200 payment they made $18 when if they had authorized a $100 payment they would have only made $9.

Where was the incentive to reign in costs? The incentive was the big picture. If they didn't keep costs in line, they lost the whole contract.

There was also something about a "reserve fund" which I never understood either.

All excellent points.

On paper I think it looks good to say "we'll pay a percentage of claims as a service fee", but it gives them an incentive to pay extra. I like to believe that the folks I do business with are honest, but why tempt them? Why not pay a pmpm (per member per month) on the business and call it good. There should also be metrics to watch which carriers are letting bogus claims go through and that should be balanced against the quality of service ratings. You can't just deny claims to make your numbers look good, and you can just pay claims to get good customer service ratings, there is an incentive to be reasonable by structuring it that way. I most likely do not have the perfect solution to the problem, but I think my solution already draws and generally accepted accounting principles with more than enough history to demonstrate their viability and is lightyears ahead of what anyone else is suggesting. Hell, if we want to give everyone health insurance why not use a similar model. I'm not supporting the notion, but that would drive costs down and make the system more efficient rather than pouring more money into an already broken and at many levels corrupt system.

Most likely the "reserve fund" was in case the employer didn't cut the check for the claims. So Mr. Business, give us, XYZ health insurance company a check for $1,000,000 as a reserve and you can pay the claims as they come in, or we can pay it out of a check for $3,000,000 and when it gets low we'll let you know. I believe each carrier has their own way of handling that and probably offer flexible options for the different companies based on the size of their group and their claims experience, but the "reserve fund" was most likely related to that.

 

[azmedsupagent]

Oh, and I completely agree with you and as completely respect you. I just wanted to take the opportunity to get on my soap box and rant about the way I think things should be run in the MA world.

If they let plans ASO Medicare Advantage plans, I'd have no problem with continuous open enrollment too
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Yeah, it is bidding, but not the way you'd think. It's bidding, but it's not like bidding for a government contract to provide goods and/or services to the government and the lowest bid gets the deal, it's bidding to see if you'll get the contract to be able to sell your services, but everyone can "win" the bid. More like everyone is bidding to be able to bring their hot dog stand to the national mall and anyone that meets the guidelines can come vs businesses competing to be the sole hot dog vendor.

Ahhhh!! I see! That makes sense. Ive always been kinda foggy on how that whole thing goes down. So how are they planning on reducing these subsidies then? Is it just that they will reduce the subsidies that these MA companies are "bidding" to participate in? The number is like 130 billion they are looking to cut over 10 years right?

 

[Josh]

Ahhhh!! I see! That makes sense. Ive always been kinda foggy on how that whole thing goes down. So how are they planning on reducing these subsidies then? Is it just that they will reduce the subsidies that these MA companies are "bidding" to participate in? The number is like 130 billion they are looking to cut over 10 years right?

Yes and no. For example, even if they left them at the same level, the cost of care keeps going up. So even a 1% increase in the reimbursement would have a net result of them having less money to cover more risk. The whole system is flawed and absurd. The subsidies (more accurately termed "compensation" or "premium", because they're not really subsidizing anything, they're paying a carrier for insurance, it's not a hand out) vary not only by the age, gender, and health of the member, but it varies by county. Those reimbursements are all over the place. That, along with the lengthy, cumbersome, and EXPENSIVE bidding process makes the whole system unnecessarily inefficient. Then congress comes along and says "clearly this isn't working, we'll just take it from here boys."

 

[brooks]

Let's say I wanted to start my own Medicare Advantage company. For discussion purposes, say the government gives me $1000 per month per person I signed up.

I enroll 50 people. I receive from the government $50,000 per month. ($1,000 x 50 people) I receive $600,000 over the course of the year.

Out of this $600,000 I have to pay claims and administrative expense. I am an HMO to control expenses.

Using my HMO system policy holder #1 incurs $5000 in hospital charges. He turns the bill into my company.

Does my company have to pay the $5,000? Or, does my company just pay the deductible and turn the rest of the bill over to the Feds.?

I'm assuming my company has to cover the complete $5,000 tab.

My company has a bad year. I incur $750,000 in losses. I'm down $150K.

I either ...

A. Charge the government more per enrollee
B. Try to negotiate lower prices with providers
C. Cover myself with co-pays etc.
D. Provide a junket to play golf at some exotic location to regulators/politicians?

 

[somarco]

Employers with as few as 500 employees are paying third party administrators to admin major medical and self insuring because they save money, what the hell do we think could be saved if the government did that with 43 million members

It is not as simple as you state.

Changing from a fully insured plan to self funded eliminates almost all of the premium taxes and allows plans to completely bypass state mandates which can add significantly to the cost of benefits.

 

[midwestbroker]

I agree with the apples and oranges statement.

Supps will look at their P&L sheet and make adjustments to premium since that is their only source of income.

MA's have to bid for their plans and the majority of their funding will come from Medicare.

If costs of MA plans go up, they will adjust co-pays, premiums, and benefits with in their control.

Looking at a HMO in my market, it was in the $50 range in the late 90's, early 2000's. Now it is $20 per month and was as low as $8 a few years back.

As long as supps go up in premium, this will make an increase to MA premiums not look that expensive.

 

[Josh]

It is not as simple as you state.

Changing from a fully insured plan to self funded eliminates almost all of the premium taxes and allows plans to completely bypass state mandates which can add significantly to the cost of benefits.

While that may all be true, it doesn't change the fact that there would be HUGE savings by using carriers as plan administrators rather than fully insuring the risk. It's asinine to be fully insuring that much risk.

 

[midwestbroker]

Very true. If carriers were only TPA (third party administrators) that very well could streamline the process.

The carriers are already considering this. When health care reform was passed, many of the carriers were drafting proposals to become TPA's to the government.

 

[somarco]

it doesn't change the fact that there would be HUGE savings by using carriers as plan administrators rather than fully insuring the risk. It's asinine to be fully insuring that much risk.

No argument that fully insured is more expensive than self funding for larger groups. However, most of the large companies still use carriers to administer their self funded plan under ASO arrangements.

The state of GA is self funded and administered by UHC. Before that, BX had the contract.

Medicaid and Medicare are very poorly managed self funded plans administered not by the govt or a TPA, but by carriers.

TPA's generally do a much better job on groups under 500 lives but that does not preclude them from having larger groups. But most of the larger plans are administered by carriers.

When health care reform was passed, many of the carriers were drafting proposals to become TPA's to the government.

Or rather, expanding their reach, since in addition to the govt programs mentioned above, they also pay Tricare claims.