Posted Aug 4, 2008

Guest Column:
Ted Almon

Employers in Rhode Island who believe that more competitors in the health insurance market here will relieve their spiraling health-benefit costs should be happy to learn of the decision by Tufts Health Plan of Massachusetts to enter the market, probably sometime this fall.
But those whose expectations include long-term relief from persistently rising rates from the new entrant, or the leader in market share, Blue Cross & Blue Shield of Rhode Island (BCBSRI), or UnitedHealthcare of New England (UHC), are likely to be disappointed. In health coverage, the market just doesn’t work that way.
Even in the face of a complete lack of any relation between more carriers and lower rates, (e.g. Massachusetts has far more competing health plans than Rhode Island and higher average rates) Americans in general, but perhaps businesspeople in particular, seem to share a fervent belief in the magic of competition. Indeed it is a powerful motivator, driving the antagonistic forces of higher quality and lower prices together in numerous commodity channels. But health care is decidedly different.

We are not really paying for insurance in the classic indemnity sense. Rather what we are actually doing is sharing the known and nearly certain cost of providing health care to the community of which we are a part – more like a prepaid expense – a social program not a business risk.
I think very few business people truly understand this. The insurers are merely fiscal intermediaries between us and the various health care providers. They serve to even out individual variation, but ultimately pass on the underlying cost of providing needed care, over which they have very little control. Their only basis for what we would consider classic competition would be their own administrative expenses and profit, enough to create a worthy savings opportunity in the short run, but ultimately meaningless in the face of ever- rising health care costs. Forced to compete aggressively, they resort to artificially dividing the marketplace in search of the most favorable health risks – not a type of competition that benefits the consumer.
So am I saying that Tufts’ decision to enter our market is a bad thing? Not exactly.
Tufts by all accounts is a well managed, socially responsible, administratively competent nonprofit. We may well learn from its approach. Paring a few percentage points from the overhead of the perhaps flabby BCBSRI or the glittering profits of UHC certainly couldn’t hurt. The real danger is that this will be heralded by opponents of more fundamental health care reform as some sort of solution. It is not. When it comes to providing health care, competition is as much a part of the problem as it is the solution.
In order to contain or reduce the cost of health insurance, we must affect the cost of delivering the care itself. To do that, we will need to fundamentally re-engineer the delivery system around the needs of the patients in the community, not the competitive financial requirements of providers and provider organizations, and certainly not insurance companies or their brokers. This metamorphosis of the delivery system will be driven by reform of a reimbursement system that has given it its present redundant and inefficient form. Gaining control of reimbursement as part of a comprehensive, coordinated health-planning process is only complicated by more payers/insurers.
And so I welcome our friends at Tufts Health Plan to our beautiful state, but with a caveat to those who may expect too much from their arrival. In a pure business analysis, the insurers are at an element of the health care cost equation that isn’t value-added, in that they really don’t provide any care. They might suggest that theoretically, as aggregators of claims data, they could add value as a database for evidence-based practice, but most reform experts believe that role best resides in a public Health Information Exchange (HIE), such as that being built in Rhode Island in a project headed by the Rhode Island Quality Institute.
Instead, insurers must be seen as a necessary expense – someone has to pay the providers. As such, we need them to operate as efficiently as possible and for their payment methods to be transparent and based upon incentives to promote the health of the community according to established best practices. These should be determined by the HIE, not the insurance companies.
So how cost-effective insurers are is a function of the competitive nature of the industry; yet the more insurers there are, and the more vigorously they compete, the less value each can achieve through their diminishing claims database. In other words, they cannot by themselves reform the health care system. We must do that ourselves by moving forward with coordinated health planning as already provided in legislation. But they are certainly welcome at that table.

Ted Almon is the president and CEO of The Claflin Co., a medical equipment supplier, and is an active participant in the debate over health care in Rhode Island.