Factors affecting the cost of delivering medical care
Nationally
- HIPAA legislation mandating carriers to offer coverage to all groups with
2-50 employees
- Reduced Federal reimbursement of Medicare (30% shortage on cost of
services) - Hospitals and physicians pass along these losses to private-pay
insurance customers.
- Aging population - Although we're living longer, we're utilizing more
expensive medical care.
- Demand - Consumers want treatments and diagnosis "now". They
want all of it with no limitations.
- Malpractice litigation
- Technology is helping to save lives and improve the quality of life; but
it is extremely expensive.
- Prescriptions - Nationally Rx costs are increasing at a rate of
approximately 18% per year. Pharmaceutical advertising and marketing
stimulates demand for expensive drugs and "me too" lifestyle
changes (Viagra).
Colorado
- Over the last ten years, Consumer friendly legislation has hurt insurance companies' ability to
manage and underwrite risk. Carriers have to guarantee issue medical coverage for all groups
with 2-50 employee. However, Colorado House Bill 03-1164 allows
more rating flexibility. As of 9/04, insurance carriers are now able to discount healthy groups up to 25% and "rate up"
unhealthy groups up to 10% from their filed rates. This piece of
legislation appears to be helping rate stability.
- Business Groups of One (BGOs) - BGOs have
traditionally had high claims experience (averaging 120% of premiums paid).
Insurance companies can't exclude pre-existing conditions. And, a healthy
BGO can opt to go to the less expensive individual health market.
Thus, the group carriers have been burdened with the unhealthy BGOs
resulting in higher losses. There is much legislation surrounding BGOs
that attempts to deal with these issues. For example, BGOs can only be
guaranteed issue the state mandated plans and only at certain times of year
(31 days after the BGO's birthday).
- Healthy workers left the Small Group market
over the last 5-8 years and enrolled in
less-expensive individual plans leaving the Small Group pool with a less
healthy population and higher claim ratio's.
- Insurance Fraud - Up until a year ago, Business Groups of One didn't need
to show much documentation for proof of business. This led to fraud and some
very high claims. Now, there is plenty of documentation necessary for all
groups to qualify and to meet participation requirements.
- Doctors and hospitals are no longer accepting capitation agreements. They
now contract on a discounted fee for service basis. Capitation was one of
the biggest tools HMOs used to use to control costs. It failed.
- There is a very serious nursing shortage in the state and country.
Hospitals are paying huge salaries to temporary nurses to stay properly
staffed.
- Network Adequacy in rural areas - Physicians and hospitals in rural areas
won't join networks; yet, legislation required the carriers to cover these
providers at in-network benefits without any kind of cost control. Many
carriers left the rural market. The legislation has addressed this issue in
2002.
Tussey & Associates
921 Main Street • Louisville, CO 80027 •Phone:
303/604-2440 • Fax: 303/604-2291