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May FTAC Meeting: How does a health plan figure out the cost of its product?

by Consuelo Echeverria

This month, the Finance Technical Advisory Committee (FTAC) dove into a consideration of how much it costs Washington state to deliver health care.

The presentation by FTAC member David DiGiuseppe, Vice President of Healthcare Economics for the Community Health Plan of Washington, began with the disclaimer that he was speaking not in that capacity, but as an individual. Nevertheless, his presentation was largely an explanation of how insurance plan administrators structure their product, as he explored how Benefit Design [what services are covered] + the cost structure [the cost of providing those services] = cost of care for the state.  He proposed a few very broad models to visualize the cost of care for the state as a framework for an actuarial study. There are five models: 1. self-funded model, 2. large group, small group, and individual insurers, 3. Medicare, 4. Medicaid, and 5 the Single Payer model as outlined in bills proposed by Whole Washington (SB 5335) and Health Care for All-Washington. 

Mr. DiGiuseppe stated that utilization and prior authorizations also impact the cost of care, because obviously if prices go down, more people are more likely to use a service. Prior authorizations then can be used to control utilization. The other thing that we have to think about is who we serve and how a change in the demographics of a population, for example aging, pregnancy, etc., impacts utilization, benefit design and cost structure. Finally, we came to the market dynamics impact on costs and the individual decisions on price, network, benefits, and services for consumers.

His presentation is worth listening to as he lays out a very nice framework for looking at various health care models and we can start to play with the various components to visualize what health care might look like in WA. As you watch the meeting, please note that the figures he uses are rough estimates as he did not drill down to get the true amounts. His presentation on the video is from 29:40 to 1:44:00, including a very good discussion after.

A highlight of the meeting was the memo submitted by FTAC member Roger Gantz, Senior Research Manager (retired) at the Dept. of Social and Health Services.  It clearly provides an excellent framework for the actuarial analysis that will soon, we hope, be undertaken as requested by the Universal Health Care Commission. His memo was referenced at approximately 1:00:00 into the recording and is included in the meeting materials, (p. 51-57).

Other highlights

  1. Bring key legislative staff into the modeling discussion to bring a degree of credibility and understanding of the strengths and weaknesses of various options when it is brought to the legislators. 
  2. The impact of eliminating cost-sharing on the state’s total cost of care was discussed

Join us as we track the next meeting of the UHCC next Tuesday, June 4, 2024, 2-5 p.m.

We encourage you to:

In his update from the Health Care Cost Transparency Board HCCTB), the Health Care Authority’s Ross McCool explained that in 2019,  the total health care expenditure in the state was $48 billion. Medicaid per member per year spending increased by about 11% to 11.5%  that same year, while commercial per member per year spending increased by about 6% to 7%.  However, commission members jumped in to point out that was because in 2019 behavioral health was brought into Medicaid. Furthermore, ​as more patients enter Medicaid the percentage in overall costs will increase, but that does not mean that the cost of care for each individual has increased. That is very important to keep in mind as Medicaid has low administrative costs. I wonder why….  


Other drivers of cost were dismissed.

  1. Administrative expenses including, Billing Insurance Related (BIR) costs, preauthorizations and claims denials were not discussed, even though years of research have shown administrative activities can contribute up to 25% to 35% of the costs, impacting the total cost of care for the state. Health policy researchers Woolhandler, Campbell, and Himmelstein in their 2020 paper comparing Canada to the USA concluded the gap in health administrative spending between the two countries is large and widening, and reflects the inefficiencies of the U.S. private insurance–based, multi payer system. The prices that U.S. medical providers charge incorporate a hidden surcharge to cover their costly administrative burden. Himmelstein, Campbell, Woolhandler. Health Care Administrative Costs in the United States and Canada, 2017. Ann Intern Med.2020;172:134-142. [Epub 7 January 2020]. 

    The impact of BIR on doctors was also highlighted in the 2022 October presentation to the HealthCare Cost Transparency Board on The Cost of Administrative Burden with Dr. Sinanan and Jeb Shepard. They pointed to the results of the 2022 WSMA Economic Impact Survey of Physician Practices that ranked administrative burden as the top priority out of a list of 30 issues. They stressed that time spent on such things as insurance approvals, coding and billing, and practice management has resulted in less time spent with patients and increased practice and treatment costs as well as burn out.   
  2. Medicare Advantage programs were brushed over even though HCA’s own data showed capitation, bundled payments, and performance incentives are the leading cause of growth in expenses.
  3. The Fee For Service (FFS) model was downplayed as a strategy for cost containment as the old bugaboo that it is a driver of over usage has been completely bought into. “The general consensus is that FFS payment is an evil practice leading to overprovision, inefficiency and uncontrollable health expenditures. However, physicians have historically been paid FFS and it continues to be the dominant method in most countries. The most notable exception is the United States, where the task has been mostly left to private health insurance plans and providers. This has resulted in cost escalations, inequity and high administrative costs as each player has tried to game at the expense of others, while its health outcomes remain mediocre compared with other high-income countries.” Ikegami N. Fee-for-service payment - an evil practice that must be stamped out? Int J Health Policy Manag. 2015 Feb 

  4. The single-payer model preferred by the Universal Health Care Work Group (UHCWG) was not discussed at all, even though it showed a savings of $8 billion over time. In fact, HCM consultants dismissed the model as having “broad assumptions''. This is despite the fact that the CBIZ Optumas Universal Health Care Financing Modeling Report (September 21, 2022)  for the Oregon Health Care Authority shows that approximately $1.4B can be saved when Oregon adopts their universal health care plan, (table 6, pg. 17). For example, Optimus found $758M in savings just by eliminating insurance company margins.

    It is unbelievable that a single payer model was summarily dismissed as free-at- point-of-service healthcare is the system that most countries in the world use.  In the face of global monopolies overtaking and monetizing every facet of our existent, free or highly subsidized universal health care is offered in 73 countries, from Singapore to Sri Lanka. The USA is in the company of Nigeria, Yemen, South Africa, Egypt, Afghanistan, Pakistan and Iran as being one of 7 countries in the world with no free-at-point-of-service healthcare.

  5. What is interesting to note is the pervasive use of market driven language, for example calling patients, clients. An outcome of framing healthcare as a market as opposed to as a service. And of course, when you frame it as a market, profit is assumed, whereas if you frame healthcare as a service, profit is not a thought driver.

Moving money around is the least important part of a healthcare system. Universal coverage is what matters and that is what is missing from this discussion of the minutiae of health care cost.

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