True Competition a Myth in the Private Health Insurance Marketplace, Part 2

My last post was about the fact that there is no true competition among health insurers because there are so few of them, in most markets one insurer dominates. On the consumer end of the spectrum, there is no true competition either, because there is no way to evaluate exactly what it is you are getting when you buy health insurance. There is no standard against which you can measure what you are getting and how it will perform and no transparency in how health insurance works. We need a choice of public health insurance that will set that standard.

"Drive it around and kick the tires" has become a metaphor for savvy consumerism. Consumer Reports has been around since 1936, making a science out of smart comparison shopping for consumer products. They "drive around and kick the tires" of everything from refrigerators, vacuum cleaners and dishwashers to exercise equipment and, yes, cars.

But the best they have been able to do to help us compare health insurers is a survey of Consumer Reports readers to gauge their satisfaction with their health plan.

Let's be clear. Consumer Reports puts consumer products through rigorous tests in its National Testing and Research Center, in Yonkers, N.Y. They measure how good a vacuum cleaner's suction power is, how durable a treadmill is, and how well a car performs "avoidance maneuvers." They do collect satisfaction surveys on all the consumer products they test, but these are "to supplement laboratory testing."

Yet, for the private health insurance industry all Consumer Reports can do is what they consider "supplemental" for everything else they test.

That is not the fault of Consumer Reports. That is the problem of a broken health insurance market that allows insurance companies to hide their practices behind a wall of proprietary information--also referred to as "business trade secrets." For example, you cannot know how the plan defines medical necessity for a certain treatment, the very foundation of health coverage. That is what determines whether the plan will pay for a covered service. Yes, the booklet from your health insurance company may say that MRIs are covered, but it may not be covered for you when you need it if the company does not consider it medically necessary for you and your condition.

The public Medicare plan, on the other hand, makes its coverage determinations (the medical circumstances under which it will cover various treatments and equipment) available to the public on its web site. It even asks for public comments on its draft coverage determinations before they are made final.

You also don't know how much a private insurance company will pay for a service, so you don't know how much of the bill you will be stuck with. You also have no way of knowing how they determined that rate. Since there is no transparency in how they set their provider payment rates, it is easy for insurance companies to swindle us.

Thanks to the New York State Attorney General we now know that insurance companies were in fact swindling members who sought out-of-network care. Several insurance companies, including United Healthcare, CIGNA and Aetna, have agreed to pay millions of dollars to settle an investigation into how they set the rates for out-of-network care. It turns out the provider rates the insurance companies were claiming to be "usual and customary" were much lower than what providers were actually charging, leaving patients to pay a much higher portion of the bill.

New York Attorney General Andrew Cuomo said:

"Americans have been under-reimbursed to the tune of at least hundreds of millions of dollars... This is a huge scam that affected hundreds of millions of Americans [who were] ripped off by their health insurance companies. This was unethical, and it robbed vulnerable patients of insurance reimbursements they deserved."

Lack of transparency can also be found in how the insurance companies set their premiums. Did you know they are not required to disclose that information? An article in the May 2008 issue of Texas Medicine, the magazine of the Texas Medical Association, speaks to the importance of transparency in health insurance premium setting:

"A little known law passed [in Texas] in 2007 gives employers the right to ask their health plans exactly how much of their premium dollar is spent on health care. This information is a health plan's "medical loss ratio," and organized medicine is teaming up with small business representatives to urge employers to ask questions...

"When the Harris County Medical Society (HCMS) requested its medical claims history from Blue Cross after large premium increases in both 2005 and 2006, it too was unpleasantly surprised.

"'We've had some very large increases the past two years,' said Executive Vice President Greg Bernica. 'We got copies of our actual experience from them [Blue Cross], and it just does not seem to justify the level of increase that they have provided to us.'

"HCMS offers its 21-member staff a choice between a PPO product and an HSA. In 2006, the society was jarred by a 22.4-percent increase for its PPO and a 21.7-percent increase in HSA premiums. That, Mr. Bernica says, was despite the fact that Blue Cross paid out only 67 percent of premium dollars for care under the PPO, and only 9 percent under the HSA during the previous year.

"The following year, premium dollars spent on health care fell to 51 percent in the organization's PPO, but premiums still rose 12.4 percent, Mr. Bernica says.

"Adding insult to injury, when the Houston Chronicle asked Blue Cross officials why Harris CMS's premiums rose so much, they could not or would not be specific as to how the renewal premiums were calculated. They said the rates likely were affected by several factors involving the society's own employees, as well as trends involving 19,000 other companies with which it was grouped for rating purposes. Just which companies and where those companies are located wasn't disclosed either. Blue Cross officials also said factors such as employees' ages and the type of medical claims filed also may have influenced premium rates.

"The law passed in 2007 only requires insurers to disclose actual health claims paid, not how rates are determined."

The way the public Medicare program sets it premium, on the other hand, is completely transparent.

That is another reason we need a choice of public health insurance to compete on a level playing field with the private insurance companies. A public health insurance plan will set a high standard of transparency and if the private insurance companies don't meet it, we can take our business elsewhere.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future