Manageing Cost Per Service Robert Prochnow

Managing The Cost Per Service Of Medical Expenses in Health Insurance Coverage By Robert Prochnow, FSA Assisted by Shruthi Srinivasan, Student Actuary... Slide 3 Considerations in what

Managing The Cost Per Service Of Medical Expenses

in Health Insurance Coverage

By Robert Prochnow, FSA

Assisted by Shruthi

Srinivasan, Student

Actuary

Slide

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

Slide

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

Slide

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

Slide

5

Types of Risk

a. Morbidity Risk: Controlled by insurer

b. Incidence Risk: Impacted by insurer, providers,

and insured

• Propensity to use care

• Intensity of care

c. Payment Level

By Robert Prochnow, FSA

Assisted by Shruthi

Srinivasan, Student Actuary

Slide

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

Slide

7

Controls of provider expenses - provider payment methods

Some of the common payment level controls are

1. None

2. UCR’s

3. Fee schedules :

• Physician fee schedule

• Hospital fee schedule

By Robert Prochnow, FSA

Assisted by Shruthi

Srinivasan, Student Actuary

Slide

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

Slide

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

Slide

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

Slide

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

Slide

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

Slide

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

Slide

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

Slide

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

Slide

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