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Health Care Tour: “Seeking Patient-Centered Care”
BlueCross BlueShield of South Carolina
The Issue:
- As third-party payers, health insurance companies are often blamed for increased costs in health care. How does BlueCross BlueShield of SC contribute to the quality, access and cost of health care in South Carolina?
Findings:
- Ed Sellers, CEO and Chairman notes, “Health Care is without peer, the single most complicated, policy, economics, human, emotional, people industry in the United States. There is nothing that compares to the complexity of this monster.”
- The participants in the health care industry (insurance and government payers, doctors, patients, hospitals, lawyers, etc.) often have competing interests and use anecdotes about bad actors to justify their positions at the expense of other segments of the industry. Rarely will participants view their part within the larger context of the whole industry.
- Who is BlueCross BlueShield of South Carolina ( BCBS SC)?
- Diversified - BCBS SC is a for-profit mutual corporation that has 23 subsidiaries and operates 12 different businesses. Of these, only 2 relate directly to health care in South Carolina. BCBS SC has over 11,000 employees working in 10-12 states serving customers in 48 states.
- Big - BCBS SC processes more health claims in Columbia than any single site in the world (800 million claims by the end of this year). BCBS SC with its subsidiaries and businesses process 20% of all Medicare claims, 70% of all Medicaid claims, and 55% of all TRICARE claims in the U.S. In addition, 8 other Blues companies hire BCBS SC to process for them due to their processing speed and cost structure capabilities.
- Philanthropist - The BCBS Foundation is the largest private funder of free medical clinics in SC. It also funds school nurses and programs that focus on pediatric obesity and pediatric mental health.
- Financially Healthy - BCBS has $3.8 billion per year in revenues (plus $2 billion in premium equivalence for large companies who self-insure) and has had a 15% compound annual growth for 15 years. It is one of only 2 health insurance companies in the U.S. to achieve an A+ rating by the A.M. Best Company.
- Causes of Health Care Cost Inflation
- New technologies
- They can provide better quality and capabilities, but are more expensive. In addition, they are often layered on top of existing procedures. Instead of replacing old technology, they supplement it (i.e., after taking an X-ray, the doctor orders a CT scan).
- Direct to Consumer Advertising
- Advertising for pharmaceuticals is lucrative. Many consumers who see an ad for a specific drug actually do “ask their doctor if that drug is right for them.” These are not the cheap drugs.
- Increased Capacity
- Creating new medical facilities to provide new services also creates new demands. New overhead costs must be paid so utilization must increase.
- “Once you get past an appropriate capacity for a disease set for the population in a particular area, utilization increases with no increase in health status. That is the cause of inflation of health care in the U.S. more than any other thing.” - Ed Sellers
- Health Care Economics 101 - Increasing Cost of Health Care = A / B
- A = total cost (not prices) for the delivery of care
- Includes salaries, R&D, insurance, etc.
- B = size of a given population
- As long as A grows faster than B, the cost of health care goes up. If you don’t control A by various mechanisms, the costs continue to rise.
- How can you drive down the cost of health care?
- Denying services controls the cost growth of “A” by simply saying, “No.”
- In Canada, clinics are open and there are no restrictions for basic primary care.
- Canada will not pay for specialty capacities, so specialty care is understaffed and patients often come to the U.S. for these services.
- Regional Planning Agencies
- Set up independent agencies to manage needed (and unneeded) capacity within a region (similar to a Certificate of Need).
- Insurers could get tough and say no to unnecessary procedures and self-referral abuse. If an insurance company deems a procedure unnecessary and refuses to pay, they run the risk of litigation by the patient.
- Cutting reimbursement rates to providers is a matter of negotiation with the hospitals, which don’t have to accept any particular insurance.
- Do away with fee-for-service payment.
- Fee-for-service medicine is the fundamental structural problem that causes “A” (costs) to grow.
- If you replaced fee-for-service with salary-based physicians, excessive utilization would plummet.
- To ensure quality, you would have to put checks in place.
- Cost shifting
- As Medicare and Medicaid reimbursements decline, providers raise prices for health insurance companies (and individual payers) to offset lost revenue. This obscures the true cost of health care.
- Insurance companies must then pass this cost on through increased premiums, deductibles, and co-pays.
- The end result is that individuals and companies are bearing part of the cost of health care for Medicare and Medicaid patients.
- South Carolina and Federal law both demand continued coverage.
- An individual who has health insurance can stay on their policy forever. The rate will not rise beyond a set range (25% per year). BCBS SC cannot cancel coverage unless they cancel the entire book of business.
- Large companies that self-insure often add additional coverage (re-insure) to cover the large cases. They hire BCBS SC as a vendor and manager of their self-insurance services. This is a value that BCBS SC can deliver even in a consumer driven market.
- Individuals may get excluded from coverage for conditions such as cancer.
- Only 9% of the insured are individual plans. Few are turned down.
- From the viewpoint of insurers, signing up for a policy when you know you have a condition is not insurance. It’s an annuity!
- Some states have mandatory writing of individuals. Other states do not allow riders for any conditions.
- South Carolina ’s small group law limits annual rate increases to 25% of the average of the class of any group.
- Miscellaneous Comments
- Capacity to pay is the soft underbelly of personal responsibility. Asking people of varying incomes ($20k/yr vs. $100k/yr) to pay the same for care results in decisions being made based primarily on one’s ability to pay, not one’s personal responsibility.
- Health Savings Accounts – 40% of all new High Deductible Health Plans for small businesses are not being funded by the employer.
- 9% of BCBS SC premium dollars go to administration (national average is 14%).
- Health insurance isn’t like life insurance. With life insurance the cost is known (value of policy), and there are no multiple claims.
When: April 11, 2008
Where: 2501 Faraway Drive, Columbia, SC
Hosts: Ed Sellers (CEO and Chairman of the Board, BCBS SC), George Johnson (VP of Federal Affairs, BCBS SC), David Pankaw (President and COO for Private Health Business, BCBS SC), Will Shrader (Chief Actuarial and VP of Actuarial Department, BCBS SC), Judy Davis (EVP & CLO, BCBS SC)