Healthcare Reform’s Policy Transparency Measures

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What does reading insurance policies have in common with eating spinach?

They’re good for you, but you dread them both. Being grossed out over spinach? Perhaps that’s something that fades over time. Being bored by reading your insurance policies? That’s something you never grow out of and will likely be something you dread forever. There’s no clever way of disguising what’s really inside insurance policies, and no crafty ways to disguise the bad taste insurance can leave in many people’s mouths.

Spinach is exactly what Mike Nickols, CEO of America’s Health Insurance, likens reading insurance policies to, and couldn’t put it better.

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“Health and Human Services wants people to read their health insurance policies like Mom and Dad want their kids to eat their spinach,” says Nickols. “How can we get people to do things that are good for them and will ultimately be very useful, but are boring, hard or unpleasant?”

It’s not an easy feat, but there’s perhaps one shot at making health insurance a little less dreadful. It doesn’t involve an enticing disguise that will lure you in, but thanks to the Affordable Care Act (ACA), it’s possible that once you start digging in, you’ll find you can stomach it a little more than before – especially since the end result is to hopefully put more money in your pocket.

Going Where No Man Has Gone Before

It’s not news people often don’t understand insurance policies, and the resulting frustration often causes policyholders to not even attempt to do so until they need to use their policies. The frustration mounts as they learn about policy exclusions and as their worst fear is confirmed – the policy doesn’t pay for as much as they thought. Or at least what they hoped it would when blindly selecting it.

This frustration only makes the financial waters of healthcare even murkier and deeper. How do you know if you’re spending your money on what you need if you can’t understand what you’re buying? The ability to do any comparison shopping is completely eradicated without policy literacy. As long as people don’t understand what they’re buying and don’t know what to prepare for financially when budgeting for healthcare, the wool can continue to be pulled over their eyes, resulting in financial strain. 62% of all bankruptcies are related to medical causes. Perhaps the most alarming fact is that out of those 62%, – three quarters had health insurance. These numbers give a frightening forecast of what the future could hold if consumers don’t have the right tools nor are given the ability to make informed decisions.

At the heart of it all, there can’t be a reform of anything if people don’t understand what’s being reformed. Glossaries, terms, dictionaries, and customer service representatives aren’t enough, and the ACA knows it. For years, there’s been disconnect between patients and providers regarding pricing and policy literacy, but the ACA is attempting to fix the information inequality facing consumers.

So how will healthcare reform address the issue of policy literacy and in the long run, the costs of healthcare? There are numerous transparency provisions in the ACA that attempt to do two things: Help policyholders understand what coverage they have or are considering, aka literacy, and secondly, to reduce healthcare costs for everyone.

Transparency isn’t just about understanding what you read – it’s about creating an efficient system that ultimately results in lower healthcare expenses for everybody.

ACA Policy Transparency Provisions

Uniform Summary of Coverage

Before anyone can save any money, they have to understand where the money goes, what it’s being spent on, and why. Buried deep within all the confusing jargon of the ACA are measures to, well, cut out some of the jargon. The first key transparency provision is the requirement for all health plans to provide a ‘summary of benefits and coverage’ (SBC) to each policyholder and applicant as plans are offered or come up for renewal. Both individual and group health insurance plan providers must provide this, and SBCs will include clear, concise information about what the policy will cover, exclude, and what cost-sharing aspects will be applicable.

You always received that though, right? The important part of this measure is that the ACA requires SBCs to be written in in an easy-to-read manner and completely free of fine print. Before the provision, it could be hard to understand how a plan would work in certain situations, but now, a comparison tool called “coverage examples” will illustrate out-of-pocket and covered expenses for typical medical events, like having a baby or a routine checkup. In the future, coverage examples will broaden and include benefit details for various surgeries, mental health care, or expensive therapies.

This measure isn’t likely to be taken for granted either. Being able to understand health insurance and how healthcare works as a whole is undoubtedly the likely ‘first wish’ on many Everyday Joes’ tongues, and a Kaiser tracking poll confirmed this hypothesis. According to the poll, the uniform summary of coverage requirement is the most popular provision in the ACA. Such polls are a clear indicator that you’re not alone if you don’t understand your health insurance policy, or even if you don’t understand the mechanics of the U.S. healthcare system.

If you haven’t stumbled upon yet, you might as well get familiar with it, because it’s a key component to helping policy literacy that you’ll likely visit often. The ACA called for a way for policyholders to be able to immediately obtain information, and is the answer. First launched in July, 2010, it provides information for individuals, families, and small businesses on a state-by-state basis to review coverage options from major private medical health insurance policies for both individuals and small group markets.

The website also provides coverage, cost, and eligibility information about the Pre-Existing Condition Insurance Program (PCIP), high-risk pools, Medicaid, and the Children’s Health Insurance Program (CHIP.) By using the site’s ‘Plan Finder,’ a list of individual insurance policies available within their area will be provided, and consumers can further narrow their search using enrollment information, carrier names, premiums, and other coverage options. Plan information for Medicaid and CHIP is available in the same format. For small employers, group policy information available in their areas can be searched as well.

This provision is just one example of how transparency provisions can ultimately save money in addition to providing information and promoting consumer literacy. One of the prime examples is that economists estimate that the inability for employers to effectively comparison shop from both cost perspective and quality perspective cost small businesses approximately $35 billion a year. Previously, it’s been incredibly difficult for employers and individuals to find accurate information about pricing and coverage, which becomes a hindrance to competition and thus increases prices passed onto individual policyholders, regardless of whether they’re insured privately or through group coverage.

Transparency in Coverage Disclosures

Think of these disclosures as Angie’s List for health insurance providers, except instead of Everyday Joes’ opinions about companies, they are cold, hard facts from the companies themselves. Perhaps one of the more ‘telling’ provisions for consumers, this requires all providers – even non-grandfathered health plans, regardless of whether they’re from a healthcare exchange or not – to disclose information essentially helping consumers determine how ‘reliable’ a provider is. All plans must disclose certain information publicly, accurately, timely, and best of all – in plain language, including for those with limited English proficiency.  Some of the information includes:

  • Policies for claims payments
  • Enrollment data
  • Claims information including number of claims denied
  • Policies for payments in relation to out of network coverage
  • Any other information deemed necessary by the ACA

This provision essentially ‘lifts the veil’ on things providers may not prefer to put on display. Consumers want to know if a plan is likely to deny claims for MRIs, for example. They want to know if plans tend to have ‘high turnover’ rates, with plan participants dropping like flies every time they’re up for renewal. No longer will price be the bottom line when choosing an insurance policy – this provision gives consumers the ability to basically see what they’re truly ‘getting for their money’  and comparison shop like never before.

The Effective Rate Review Program

This program requires all insurers to submit requested rates increases of 10% or more to a rate review program. These programs are normally established by the states, but if a program doesn’t exist, the federal government reviews requests. While many states had rate review programs before the ACA, procedures were varied, but the ACA can do nothing but strengthen them.

The ACA aims to streamline the rate review process by setting minimum requirements for all reviews and making the information publicly accessible. Best of all, the rate review provision seems to be achieving desired effects so far, although at first, many thought insurers would just ask for the highest increase they were able to, and stretch their ‘inch’ to a ‘mile.’ The opposite happened. In 2012, the actual rate increases implemented by insurers were 2.8% less than what ones were actually requested by insurers for rate review, resulting in lower premiums for almost 800,000 customers.

A Kaiser report credited rate review with lowering premiums for one out of every five policyholders.  As of 2012, based on rate requests at 10% or more and for the individual market, 547,000 consumers saw lower increases than what insurers had even requested. For the small group market with 10% or more rate increase requests, 242,000 consumers received lesser rates than what insurers originally requested.

Such results are hopefully future indicators that by making information more accessible, a trend may be encouraged among providers to request more modest rate increases, thus making extreme rate hikes subject to greater scrutiny by consumers and federal and state government.

Medical Loss Ratio

As of September, 2011, the medical loss ratio provision, also known as the 80/20 rule, requires that all insurance companies spend at least 80% of premiums on health care benefits, and no more than 20% on other costs, such as administration expenses. They must reveal what their administration costs total to each year, including things like salaries and bonuses. If they haven’t adhered to the 80/20 rule, policyholders must be issued a rebate.

The idea with the 80/20 rule is to make sure that your dollar is actually spent on healthcare, and not the CEO’s bonus. Final 2012 results showed that 13 million Americans received $1.1 billion in rebates as a result of the 80/20 rule. Without this provision, it’s possible many wouldn’t have known $1.1 billion paid in premiums was possibly allowing providers to spend over 20% on administration costs.

When the medical loss ratio provision (aka the 80/20 rule) was combined with rate review and accountability provisions, the numbers didn’t lie. As of 2012, consumers saved approximately $2.2 billion in just one year once the provisions were implemented, and according to the Department of Health and Human Services, 50% of consumers either received lower rate increases or sometimes no increases at all.

ACO Methodology

An accountable care organization (ACO) works within the same theory of a PPO or HMO plan. Within the network, various providers work together to make sure each patient is receiving the right amount of care at the right time.

ACOs receive federal funding, and payment is based on performance and cost-containment, which provides incentives for keeping patients healthy. To make sure standards are met and prices are affordable, the varying organizations must develop transparent policies and working systems, which ensure information can easily be moved back and forth.

The Power of Information & The Big Picture

The transparency provisions aren’t just an effort to out everyone who’s been lining their pockets with green at the expense of the taxpayer. The tenet behind these new measures is that information is a powerful tool, and when everyone has access to it, a more efficient healthcare system is introduced. This applies to consumers, doctors, health plans, insurance companies and employers. So how do all of these transparency measures work together to deliver desired results of literacy and lower costs?

Smaller case studies on efforts at transparency have proven that public reporting increases patient care. Take the Ellsworth Medical clinic as an example. Upon implementation, the clinic found that 47% of its patients had only received the recommended vascular tests. “The clinic empowered its lab technicians to check for missing tests, receptionists to contact patients about needed visits or screenings, and care coordinators to follow up with patients.” The following year, 68% of patients received optimal vascular care.

Even performance reports among health plans help promote higher quality care. The Center for Information Technology Leadership claims that “standardized health information exchange among health care IT systems could save $86.8 billion annually.” We’ve all worked with a new system that seems like a foreign language. Your healthcare information should be easily read and understood by any provider so that you don’t receive care that you don’t need. Currently, one in four healthcare dollars goes towards unnecessary medical tests and treatments.

In addition to more detailed reporting concerning both patient and hospital activities, the ACA hopes to create a more consumer friendly pricing model.

“Transparency can empower their consumers to make their hospitals accountable and make the practice of medicine more honest,” says Marty Makary, author of Unaccountable.

So how does comparing prices lead to the revolution of an entire industry? It may not be as easy as you think.

Blinded by the Light: Unique Challenges of Healthcare

In a report published by The New England Journal of Medicine, it’s acquiesced that publishing pricing information is a good way to lower prices and decrease the range between either end of the spectrum. Consumers can then shop smarter, and selection of low cost providers will force pricier providers to lower their prices to remain competitive.

That’s what happens when shopping for a house or a car, right? But healthcare is a little bit different. You can cook a turkey in your mid-priced oven just as well as the one that costs $1,000 more, but do you really feel like haggling for a heart surgery?

Even if pricing information is made available, other shifts must happen to induce the desired effect. The first problem is that many people are insured. Even once the state exchanges take place in 2014, the majority of Americans will be insured through group insurance plans. If you only have to pay a $500 deductible, no matter the price of the procedure, why worry about comparing prices? The more expensive provider is obviously better, right?

Determining the quality of various healthcare providers is hard to do, especially since minimum guidelines for reporting are just being implemented. In some cases, the more expensive provider may, in fact, be worth the price but, even then, it’s hard to provide a ball park figure for open heart surgery. Each patient is different and may require different services, and the initial cost saving figure you chose might be more than you thought.

The Pros, the Cons, and the End Game

Some claim the challenges presented by transparency are enough to ditch the effort and that it’s not resulting in the full desired effects legislation had hoped. And although measures like the Uniform Summary provision have helped, there are some key components left out that may be extremely beneficial to some people, similarly to the way everyone has a different learning style.

Chris Peck, CEO of CBP, one of the largest privately owned health insurance brokerage firms in the country, points out a missing component that has perhaps become a thing of the past no matter what the subject — face to face communication. According to Peck, that’s just as, if not more, effective than some of the policy transparency measures.

“It has been our observation that they are no better than what we have typically used when communicating the benefits to employees,” says Peck.  “Someone still needs to walk employees through their benefits and answer their questions, especially for smaller employers who don’t have a robust HR Information System.”

Peck doesn’t necessarily discredit the idea and its intent though, even though he believes it’s not the one answer to a problem that’s been plaguing us for so long. He believes some things may always stay the same.

“While the concept is a good one, and the main goal of some consistency is achieved, there is still confusion about deductibles and coinsurance and what services are subject to those,” points out Peck.

Others are in favor of the ACA’s provisions, even if it requires some tweaking, citing that insurers and other big players like large hospitals make money by hiding charges and discouraging comparison shopping, and that the money they make is coming from patients, taxpayers, and employers.  While it’s still not apparent whether or not price comparison will really work, the overall effort of transparency can help patients acquire better information and encourage a healthcare system rewarded for healthy patients.

But are there any unintended consequences of transparency? In a 2008 Congressional Budget Office brief, Director Peter Orszag said there might be. It depends on the competitive nature of the market. He argues that in very concentrated markets, higher prices would be easier to maintain because each provider has access to pricing information. Talk about market versus the consumer!

However, he later wrote, “Whatever the effect on average prices, more transparent prices would probably reduce the range of prices.”

They say ignorance is bliss, but when it comes to healthcare, that couldn’t be further from the truth. This temptation is also where consumer responsibility comes into play. Previously, policyholders would cite not understanding their policies when, to their surprise, a claim was denied. Even then, insurers often shrugged and the response was often a resounding ‘you should have read your policy.’ If insurers took that stance then, imagine what they’ll say now that there’s simply no good excuse anymore to ‘not understanding coverage.’  Nickols points out that this may be one of the biggest realizations every policyholder needs to grasp before it’s too late.

“The final impediment to reading the policy is you cannot claim ignorance when arguing that you were not treated fairly if you understood the rules fully.”

So what does a patient do with all this newfound information? With the ACA, insured patients will have access to affordable out of network care. This means being able to go to the hospital that offers a low-priced, high quality procedure. Since hospitals and clinics have new measures of reporting, self-regulation will be encouraged in order to save money. This should help reduce the overall costs of healthcare — in theory. It will be interesting to see how much of an effect transparency has in saving money over time, but then again, how long can we really wait? At least in this proverbial waiting room though, the reading material will now be easier to understand.

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