Published by Ted Almon February 7th, 2006 in Articles.
A new report on charity care and bad debt rising at Rhode Island's hospitals should come as no surprise to employers like our company that have elected any of a variety of new health benefits described as "consumer-directed," soon to include the much-heralded health savings accounts or HSAs. The reason providers are having so much difficulty collecting is no mystery, and it has little to do with any substantial increase in care to the truly indigent.

Facing a premium increase of over 40 percent last year, which would have been the fourth such double-digit increase in five years, our company elected to adopt essentially a form of self-insurance, or - more accurately - a high-deductible ($2,000 for individuals) plan offered by a third party administrator (TPA).

Here's how it works: The employee is still responsible for the first $250 per year of covered care, just as in the prior plan. He also carries the well-recognized insurance card of the carrier for catastrophic coverage, widely accepted by providers. Unfortunately, the carrier is not able to advise providers in real time of the status of the subscribers' deductible, so in most cases the employee gets treatment by presenting the card the same as he always did.

It is once the provider's billing activity takes over that the real fun begins, starting with nearly all claims being denied for the reason of the subscriber not having met the deductible. (Only a handful of several hundred in our group have exceeded the deductible this year).

Once the carrier has denied the claim, the provider can bill the TPA directly if it participates in that plan, which most do not, or it can bill the employee.

Those who bill the TPA will find that the employee's share of the deductible is deducted from the payment, so the billing odyssey continues as they chase the diminishing returns. Any hospital or provider can attest that the collection rate on "private pay" receivables is abysmal. They could be worse off, though, if they billed the employee directly. Realizing that turning the bill in to the company or TPA will trigger their own deductible, some may choose to deep-six the bill, or at least wait for a more aggressive collection effort.

TPAs' fees for a group our size exceed five figures, and their value proposition depends upon selling their capability to "manage" the claims expense, since it is now our money, rather than the insurance company's, that is at stake. The technique, though, is pretty much the same: find some reason not to pay claims.

The cat-and-mouse reimbursement game for which health insurers are justifiably notorious is raised to an art form by a good TPA. In a summary report to management from our TPA, I learned that in the covered period, 74 claims had been received and 35 had been paid. Several of the claims paid were over six months old, making me wonder how many times they had been submitted. If you consider that our company is only part of a larger "trend" toward so-called sophisticated benefit design, I think the conundrum of the hospitals and other providers takes on some clarity. But what are we to do?

The question is complex, because there are all sorts of reasons why health care in this country is too expensive. Any discussion of the cost drivers will quickly induce an ice cream headache. Finding a way to push the costs onto another stakeholder within the system, which is all that "plan design" generally ever does, seems OK to most employers until the problem inevitably makes it around the cycle to them again. When will we be ready to discuss real reform?

Our system of insurance-funded, employment-based health coverage is doomed, if for no other reason that the reimbursement system, which is entirely non-value added activity, is so incredibly expensive. Forget what the insurers say about their administrative costs (and profits). Don't forget to add the employers' administrative costs. In addition to essentially paying our own claims, we now also pay fees to the TPA, the "flex spending" administrator (also five figures), the broker, and of course the catastrophic carrier.

Let's not even get into the hospitals' costs to collect their bills. It is clear the real costs across the entire system are staggering. These losses by the hospitals must be made up if they are to survive. Who exactly do we think will make them up?

Tax-based funding and single-payer reimbursement could produce immediate and enormous savings, giving us time to ponder the other cost drivers without the sharp pain in our forehead. It can't be that difficult. After all, the entire industrialized world does it the same way except for us. It may be great to innovate, but it can be prudent sometimes just to imitate.

Published January 2, 2006 in the Providence Business News as a "Guest Opinion" piece.