Managing The Cost Per Service Of Medical Expenses in Health Insurance Coverage

1. Managing The Cost Per Service Of Medical Expensesin Health Insurance Coverage By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

2. 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, FSA Assisted by Shruthi Srinivasan, Student Actuary

3. 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 By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

4. 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 By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

5. Types of Risk • Morbidity Risk: Controlled by insurer • Incidence Risk: Impacted by insurer, providers, and insured • Propensity to use care • Intensity of care • Payment Level By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

6. 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 By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

7. Controls of provider expenses - provider payment methods Some of the common payment level controls are • None • UCR’s • Fee schedules : • Physician fee schedule • Hospital fee schedule By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

8. 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, FSA Assisted by Shruthi Srinivasan, Student Actuary

9. 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 basis By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

10. 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 fashion By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

11. Provider Payment Controls : UCR (cont) Weaknesses: • This only controls the rogue providers • Will allow for continued inflation By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

12. 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 time By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

13. 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. By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

14. 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. By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

15. Control of Provider Payments Through Selection and Benefit Design 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 By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary

16. Control of Provider Payments Through Selection and Benefit Design Some controls include : • Selection of insureds • Fixed benefit coverage • Copays • Benefit limits • Controls on place of treatment By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary