Learning from the Massachusetts experiment in universal coverage

We’re learning a lot from Massachusetts’ experiment in universal coverage – and some of the lessons are rather enlightening.

According to Bestwire, Lora Pellegrini, president of the Massachusetts Association of Health Plans, said something along the lines of “That’s the problem with the new U.S. health care reform law … it offers millions of uninsured Americans access to health insurance but doesn’t address underlying medical costs, which are contributing to costly premiums.” [not a direct quote]

Wait.

Isn’t that your job? In return for getting millions of new members, aren’t health plans supposed to figure out how to manage care and control costs?

If health plans rely on the government to help control costs, exactly what value do they deliver?

In fairness, Ms Pelligrini noted the market share of some provider groups is a significant factor in insurers’ inability to negotiate favorable rates. There’s no question negotiating power has shifted back towards providers, and that shift is contributing to higher costs for health plans.

Doesn’t seem to be hurting profits, though; the industry is enjoying a stellar 17.4% return on equity after seven publicly traded health plans reported earnings above expectations.Try as I might to sympathize with insurers, their complaints are besides the point.

Suppliers in any business seek to maximize profits. Smart buyers will figure out how to find more cost-effective suppliers, develop alternative supply chains, or in very tight supply markets even resort to vertical integration, setting up their own suppliers.

I see no reason health plans can’t do the same. There’s far too much ‘old thinking’ among health plans; they remain overly concerned with the size of their network directory, believing large provider networks are essential to success.

Clearly, nothing could be further from the case. Some health plans are beginning to experiment with smaller, more exclusive networks, and I have no doubt the lower costs will make them much more attractive than the ‘old school’ huge networks with high costs due to broad access. No, success will come to those payers who creatively figure out how to work closely with selected providers, establishing partnerships, paying fairly, sharing information, and providing feedback.

Otherwise they’re just administrators, and not very efficient ones at that. If health plans are going to rely on the government to control costs, what, precisely, are health plans for?

Joseph Paduda is the principal of Health Strategy Associates, and blogs at Managed Care Matters.

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