A Better CE

MANAGED CARE......................................................................................................................... 1 Section 1.......................................................................................................................................... 5 I. THE NATURE OF MANAGED CARE ................................................................................. 5 A. THE IMPORTANCE OF HEALTH INSURANCE .......................................................... 5 B. BASIC BUILDING BLOCKS OF HEALTH COVERAGE ......................................... 6 C. COMPREHENSIVE MAJOR MEDICAL POLICIES. ................................................. 6 D. ABOUT MANAGED CARE ......................................................................................... 7 E. Managed Care Is the System We Have Today ............................................................... 8 F. PURPOSE OF MANAGED CARE................................................................................ 8 G. THE OLD METHOD OF COVERING HEALTH COST............................................. 9 II. A NEW APPROACH......................................................................................................... 9 A. THE NEW METHOD OF COVERING HEALTH COST ............................................ 9 B. COST VS. CHOICE ..................................................................................................... 10 III. HOW THE SYSTEM OPERATES ................................................................................ 10 A. PROCEDURES IN MANAGED CARE...................................................................... 11 B. COORDINATION IN MANAGING THE CASE. ...................................................... 11 C. AHEAD OF THE CURVE........................................................................................... 11 D. BENEFITS OF MANAGING INFORMATION ......................................................... 12 E. MAKING THE DOCTOR RESPONSIBLE FOR HEALTHCARE DECISIONS ...... 12 F. GATEKEEPER, THE PRIMARY CARE PHYSICIAN.............................................. 12 G. CLAIM FORMS BY PROVIDER RATHER THAN BY PATIENT.......................... 13 H. PREVENTING AN ILLNESS IS A FAR BIGGER VICTORY THAT CURING ONE. ........................................................................................................................................... 13 IV. HEALTH MANAGEMENT ORGANIZATIONS ......................................................... 14 A. NEW CAPITAL FORMATIONS IN HEALTH CARE .............................................. 14 B. NATURE OF CONTRACTS WITH PROVIDERS: CONTROL VS. COST ............. 14 C. CONSUMER SATISFACTION BASED ON TYPE OF PLAN ................................. 17 V. COST CONTROL BY MANAGED CARE .................................................................... 18 A. THE SHIFT TO OUTPATIENT CARE ...................................................................... 18 B. CONTROLLING THE COST OF PHARMACEUTICALS........................................ 18 C. COST CONTROL FOR MENTAL CONDITION TREATMENT. ............................ 20 D. THE HISTORY OF “USUAL CUSTOMARY AND REASONABLE”..................... 20 E. INCENTIVES TO THE PROVIDER/CONTROL BY PREMIUM PAYER .............. 21 F. THE PREADMISSION REVIEW CONTROL............................................................ 21 G. CONTROLLING LENGTH OF HOSPITAL STAY................................................... 22 H. SECOND SURGICAL OPINION................................................................................ 22 I. LARGE CASE MANAGEMENT ................................................................................. 23 All Rights Reserved, Richard Levine 1

A Better CE J. ADDITIONAL MANAGED CARE ORGANIZATION SERVICES .......................... 23 K. 24/7/365 PATIENT SUPPORT HOTLINE ................................................................. 23 L. WORKERS COMPENSATION. ................................................................................. 23 M. MAKING SURE THE PROVIDER IS TRULY QUALIFIED................................... 24 N. HOW THE PROVIDER IS PAID................................................................................ 24 O. BETTER MANAGEMENT MEANS LOWER-COST ............................................... 25 VI. THE LEGAL STANDING OF MANAGED CARE ORGANIZATIONS .................... 25 A. THE LEGISLATIVE CLIMATE................................................................................. 25 B. MEDICARE AND HMOS ........................................................................................... 26 C. ADVANTAGES TO THE COVERAGE LIVES......................................................... 26 D. MANAGED CARE ORGANIZATIONS CAREFULLY CREDENTIAL PROVIDERS..................................................................................................................... 27 VII. VARIATIONS ON THE HMO THEME PREFERRED PROVIDER ORGANIZATIONS .............................................................................................................. 27 A. DESCRIPTIONS OF PREFERRED PROVIDER ORGANIZATIONS...PPOs ......... 27 B. VARYING FINANCIAL INCENTIVES FOR PPO PATIENTS................................ 29 C. THE MARKET FOR THE PLAN. .............................................................................. 29 D. EXCLUSIVE PROVIDER ORGANIZATIONS... EPOS ........................................... 29 VIII. POINT OF SERVICE PLANS....POS ......................................................................... 30 A. COVERED PERSONS UTILIZATION OF A PLAN................................................. 30 B. MORE STEERAGE ..................................................................................................... 30 C. ORIGINS OF THE POS PLAN ................................................................................... 31 D. SOME DISADVANTAGES OF POS.......................................................................... 31 E. A CONCERN FOR AGENTS...................................................................................... 32 IX. CREDENTIALING ........................................................................................................ 32 A. CREDENTIALING MCOs .......................................................................................... 32 B. CREDENTIALING PROVIDERS............................................................................... 34 C. AMERICAN MEDICAL ASSOCIATION (AMA) PHYSICIAN PERFORMANCE ASSESSMENT PROGRAM ............................................................................................ 35 D. NATIONAL PRACTITIONER DATA BANK ........................................................... 35 E. THE PHYSICIAN’S FINANCIAL PROFILE. ............................................................ 35 F. MANAGING BY RESULTS VS. MANAGING BY COST. ...................................... 36 X. EVALUATING THE PLANS ......................................................................................... 36 A. UTILIZATION REVIEW ACCREDITATION COMMISSION (URAC) ................. 36 B. AMERICAN ACCREDITATION PROGRAM, INC (AAPI)..................................... 37 C. JOINT COMMISSION ON ACCREDITATION OF HEALTH CARE ORGANIZATIONS .......................................................................................................... 37 D. UTILIZATION REVIEW ACCREDITATION COMMISSION... URAC. ................ 37 E. THE NATIONAL COMMITTEE FOR QUALITY ASSURANCE... NCQA............. 38 XI. MEDICAL SAVINGS ACCOUNTS ............................................................................. 39 A. DESCRIPTION OF MEDICAL SAVINGS ACCOUNTS......................................... 39 B. HISTORY OF MSA ACCOUNTS .............................................................................. 41 C. HIPAA AND MEDICAL SAVINGS ACCOUNTS. ................................................... 42 D. THE MSA CONFLICTS WITH MANAGED-CARE................................................. 43 All Rights Reserved, Richard Levine 2

A Better CE XII. THE INDIVIDUAL MARKET..................................................................................... 43 A. AGENT RESPONSIBILITY WHEN GROUP COVERAGE NO LONGER APPLIES TO A CHILD .................................................................................................................... 43 B. CATASTROPHIC HEALTH INSURANCE- WHO BUYS IT? ................................. 44 C. SHORT-TERM HEALTH INSURANCE.................................................................... 44 D. AN ETHICAL APPROACH........................................................................................ 45 E. OTHER OPTIONS FOR YOUNG PEOPLE ............................................................... 46 F. HEALTH REINSURANCE ASSOCIATION .............................................................. 46 G. NEW MARKETS FOR INSURANCE AGENTS ....................................................... 46 H. ACCIDENT AND HEALTH INSURANCE FOR HOME BUSINESS OWNERS.... 47 XIII. EMPLOYER ISSUES .................................................................................................. 47 A. THE RIGHT BROKER................................................................................................ 47 B. THE EMPLOYERS FINANCIAL EXPOSURE ......................................................... 49 C. EMPLOYER ISSUES IN SELECTING A GROUP HEALTH CARRIER. ............... 49 D. HEALTH SAVINGS ACCOUNTS ............................................................................. 50 E. EMPLOYER QUALITY PARTNERSHIP .................................................................. 50 F. WHO IS PAYING ATTENTION TO HEALTHCARE REPORTS? .......................... 51 G. REPORTS ON THE PHYSICIANS ............................................................................ 51 H. BUYING POWER FOR THE SMALL BUSINESS. PEOs ....................................... 52 I. COMPARING TRADITIONAL HEALTH PLANS TO PEOs .................................... 52 J. THE BUSINESS MANAGERS APPROACH.............................................................. 53 XIV. COMPARISON TO OTHER COUNTRIES................................................................ 54 A. COMPARISON TO CARE IN ENGLAND AND EUROPE ...................................... 54 XV. LAW REGULATIONS AND ETHICS ........................................................................ 56 A. WHICH HMO WILL THE ETHICAL AGENT PRODUCE FOR? ........................... 56 B. HOW WELL ACCREDITED IS THE HMO?............................................................. 57 C. HOW GOOD ARE THE PROVIDERS? ..................................................................... 57 D. WHO MAKES THE CARE DECISIONS? ................................................................. 57 E. ARE BENEFITS RESTRICTED?................................................................................ 58 F. FEDERAL OR STATE REGULATION? .................................................................... 59 G. ERISA AND HEALTH PLAN REGULATION ......................................................... 60 H. A GREAT DANGER FOR AGENTS AND INSURERS............................................ 61 Section 2........................................................................................................................................ 61 I. WORKING ETHICALLY WITH THE CLIENT ............................................................. 61 A. EMPLOYERS VIEW OF HEALTH INSURANCE:................................................... 61 B. CONSIDER HOW EMPLOYEES FEEL ABOUT THE PLAN ................................. 62 B. CONSIDER THE POLICY OF EACH ORGANIZATION ........................................ 63 C. CONSUMER REPORTS ............................................................................................. 64 D. THE SOUL OF AN HMO............................................................................................ 65 E. WHEN THE HOSPITAL BEHAVES UNETHICALLY............................................. 66 F. COBRA......................................................................................................................... 67 G. INITIATING COBRA COVERAGE........................................................................... 69 H. AGENT RESPONSIBILITIES AND COBRA............................................................ 69 I. ADDITIONAL COBRA RULES: ................................................................................. 70 All Rights Reserved, Richard Levine 3

A Better CE J. HIPAA: .......................................................................................................................... 71 K. EXCEPTED BENEFITS.............................................................................................. 74 L. THE HMO AND SENIOR’S HEALTH INSURANCE QUESTIONS........................ 74 M. BARGAINING POWER IN PURCHASING GROUP HEALTH COVERAGE....... 74

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A Better CE

Section 1
Why is it so important for the agent to see to it that his clients have health insurance? We have the best healthcare system in the world if you happen to be included, but what about the people who are not included? Let’s consider a person with an injured hand. At the time that he was injured he had no health insurance. He could not afford to have the hand properly repaired. As a result he could not get a good paying job with health benefits. The lack of health insurance when he needed it doomed him to lower paying jobs forever. Those lower paying jobs do not provide Health Insurance. Therefore, he just keeps getting poorer and sicker. The leading cause of personal bankruptcy in the United States is unpaid medical bills. Half of the uninsured owe unpaid bills to hospitals, and a third are being pursued by collection agencies. Children without health insurance are less likely to receive medical attention for serious injuries, or infections that don’t go away, or for asthma. Lung cancer patients without insurance are less likely to receive surgery, chemotherapy, or radiation treatment. Heart attack victims without health insurance are less likely to receive angioplasty. People with pneumonia who don’t have health insurance are less likely to receive x-rays or consultations. The death rate in any given year for someone without health insurance is 25% higher than for someone with insurance. Because the uninsured are sicker than the rest of us, they can’t get better jobs, and because they can’t get better jobs they can’t afford health insurance, and because they can’t afford health insurance they get even sicker. They have a higher rate of illness and death. Lack of health care when they need it can result in permanently lower earnings. Consider a rugged outdoorsman. One day his back was injured and he had no insurance. He said, “There are times when I should’ve gone to the doctor, but I couldn’t afford to go because I don’t have insurance, like when my back acts up I should’ve gone. If I had insurance I would’ve gone, because I know I can get treatment, but when you can’t afford it you don’t go. Because the harder the hole you get into in terms of bills, then you’ll never get out. So I just say, “I can deal with the pain”. That sums it up. All providers (hospitals, doctors, pharmaceutical companies) are required to play the Managed All Rights Reserved, Richard Levine 5

A Better CE Care game. They have a price for their service that is totally unrealistic and unbelievably high. This allows them to offer the Managed Care Organization a fantastic discount. Does anyone pay this very high fee? Yes! The poor person who needs treatment and has no health plan! Even people with a good income need a health plan to get the benefit of the discounted fees that doctors hospitals and pharmacists charge the Managed Care Organizations. When an employer buys health coverage, he is buying the deal, which is the lower price the Managed Care Organization gets. Without those lower prices, health care is unaffordable. This arrangement forces us all to buy the health plan coverage. We can not leave anyone without coverage.

There is a reason we start to discuss health insurance coverage in terms of building blocks. An agent who sells this kind of policy must always remember that selling this policy is for agents who want to understand the changes. This is an ever changing field. Coverages change, premiums change, the networks of physicians and hospitals change. The formularies, which are lists of pharmaceuticals a health care plan provides, are constantly changing. Even the approach is changing. Healthcare started out entirely physician directed. The doctor made all the decisions and carried them out the way he wanted to. With the rise of Managed Care, people who worked for the managed care companies made decisions about what care would be given. The latest change of approach is to allow the insured person to decide. He is given a sum of tax-free money to use for medical care. He may decide to have the care or skip the care. Always look for the changes. The building blocks do not change. There are deductibles and copayments. There are limits. There are services that will be provided and services that won’t be provided. There is always an organization such as an insurance company or a managed-care organization to collect the premium and make the decisions about what to pay. There are networks of providers. There is regulation at the federal and state level. These building blocks are always with us. But they are constantly being rearranged.

We’re going to begin with the building blocks found in Comprehensive Major Medical Policies. Those policies are seldom used anymore. These building blocks are used in different ways in today’s managed-care plans. All Rights Reserved, Richard Levine 6

A Better CE Comprehensive Major Medical policies are a system of sharing the cost of medical care between the insurer and the insured. The first $500 per person per year is not paid by the insurance companies: it is referred to as a deductible. The next $5,000 of medical costs per person is shared: the insured pays a 20% co-payment, and the insurer pays the remaining 80%. For most insured, the medical insurance year ends before he has $5,000 in medical costs. In the following year he starts all over again with the $500 deductible that he pays himself. However, suppose that during a policy year his medical costs are more than the $500 deductible and the shared $5,000 put together. The shared $5,000 means that the insured has paid a 20% co-payment or $1000 out of his own pocket, and the insurance company has paid the other $4000. So the insured has paid $1000 in co-payments and $500 in deductibles. He is out of pocket a total of $1500. When that happens he has reached the “stop loss”. It puts a $1500 ceiling on his payments. The insurance company pays everything above that amount, until the year ends and the cycle starts all over again. However, if he has an ongoing condition, he will not be subject to a repeated deductible for that condition. These were offered by insurance companies as insurance policies. The problem was that comprehensive medical policies treated a doctor visit or hospital stay or need for pharmaceuticals as a loss. Those medical expenses were treated the same way as a house fire or an automobile accident. The extent of the patient’s loss was the amount charged by the hospital, doctor or pharmacist. In the insurance industry hospitals doctors and pharmacists are referred to as “providers”. The provider could charge absolutely whatever he wanted to. All that the insurance company could do was raise premium.

Managed care organizations base their service plans on contracts with all providers. Every provider is required to enter into a contract with the Managed-Care Organization. Providers who do not contract with the Managed-Care Organization are simply not paid by it. The contract limited what the provider would be paid. When managed care first appeared it resulted in a reduction of premium because managed-care organizations paid out less than insurance companies pay for the same service.

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A Better CE

E. Managed Care Is the System We Have Today
We should first consider the size of the health-care industry. It accounts for almost 15 percent of the gross domestic product, which is the sum total of all the goods and services produced in the country. It accounts for nearly 10 percent of all jobs. Therefore any change in the healthcare industry will have a very widespread effect, as well as personally affecting each and every one of us. It is in industry with its own language. It is a rapidly changing industry. It has no place for those who want to learn what is, and not learn the changes. An agent who wants to stand out will stay on top of all the changes in health care plans, as well as changes he expects to happen! Most people find out about healthcare in the media: TV, newspapers, and magazines. The media does not always accurately describe the healthcare coverage or the changes. For example in the early 1990s when traditional indemnity policies were giving way to managed care, the newspapers attempted a comparison between the two. They spoke of one vs. the other. Indemnity is a payment system under which the insurance company pays whatever amount the doctor charges. Managed care is a system for delivering care under a contract between the doctor and the Managed-Care Organization. Under managed care the doctor will only be paid the amount specified in his contract. The press was comparing apples and oranges. An agent must understand the terminology, or how is the public going to understand one versus the other? Another Way of Contrasting HMO with Indemnity Care: HMOs are typically defined as providing both the financing and delivery of care. Again, the primary difference between an HMO and traditional indemnity is that the HMO arranges physicians in every specialty in a list from which a patient may choose. The old indemnity plans allowed the patient to find his own way around. That is still the greatest difference between the two.

The goal is to maintain the quality of care while controlling the cost of that care. This really means that several things have to happen at the same time. The proper care has to be delivered when it is needed, where it is needed, and the right amount of care must be delivered at the right cost. This means that the treatment must be appropriate for the patient’s medical condition. The care must be delivered early enough to solve the medical problem. The venue, where service is provided, must be correct. Should the care be delivered on an inpatient basis, outpatient basis, or All Rights Reserved, Richard Levine 8

A Better CE in a doctor’s office? The right provider of care must already be contracted to provide the service at the right price. That would be perfection. If it had already happened, every insurance program would work the same way. Because we have not yet arrived at perfect medical care, each plan makes its own attempt to balance cost and quality. If there was a perfect way to design a plan, every plan would use it. As of now, every plan must do the best job it can of balancing costs and benefits. Managed care has provided a wonderful opportunity to truly manage the care to provide a better quality of care at a better price. While the plans have reduced doctor and hospital income, there is another way to improve the treatment and the cost. This is in the management of the care and the establishment of better procedures. Much of this is already happening.

Let’s take another look at the comparison between the old indemnity plans, which are comprehensive medical plans, and the more modern managed-care system: Consider how things were done under the old indemnity plans. The patient had complete freedom to choose his own physician. He simply took himself from one doctor to another, with no knowledge of which was the better doctor. He could use his own judgment as to which doctor was better, or he could ask his friends. But none of those people were doctors. Suppose he were taken to the hospital after an accident. He might be x-rayed in the emergency room, x-rayed in the orthopedic department, and x-rayed prior to surgery. Other tests would be given. He would be the hospital for many days while all this was going on.

If he enters the hospital needing x-ray, he will not be x-rayed numerous times. Today’s x-ray technician knows exactly how to take an x-ray for each the department in the hospital. All of the x-rays are taken at one time. He is then sent to surgery, and home with a minimum of delay. During this course we will see many improvements in treatment that are a result of managed care. By reducing the amount of money allowed for care, the plans have forced the physicians and hospitals to find better, faster, and more efficient ways to deliver the care. Managed care is coordinated care. This is a great opportunity to outperform individual and separate medical decisions made by a series of doctors chosen by a patient who does not know which doctor to call on. Under managed care, each physician is credentialed by the plan. The patient is given a list of All Rights Reserved, Richard Levine 9

A Better CE qualified doctors by specialty. He could even call upon the plan for advice. The plan places limits on which specialist he can go to.

In order to reduce costs, the plans had to eliminate some things. The first thing that the plans eliminated was choice. The original HMO was a staff model. Under this model, the patient entered the HMO building and was assigned to his specific doctor. The plan called him a primary care physician. He became known as the gatekeeper, because the patient could not see a specialist without the primary care physician’s approval. This provided no choice, and the lowest cost. A little bit of cost was added with the introduction of the Independent Practice Association, or IPA. Here the patient could consult an independent practice that was on the list, that is, in the network of providers that the HMO would pay. A little more choice, a little more cost. Then the open HMOs were introduced, under which the doctor could see patients under an HMO contract, and the doctor could also see other patients. A little more choice, a little more cost. HMOs added a POS, or Point of Service plan. The patient could stay in network and only pay a small co-payment, or go out of network and have some coverage, but pay a deductible and a copayment. A little more choice, a little more cost. Insurance companies that offered traditional indemnity plans tried to reduce premium by offering a managed indemnity plan. A little more choice, a little more cost. The highest cost was always the traditional indemnity plan under which the patient had complete freedom of choice. The greatest choice, the greatest cost. As you can see, there was a cost involved in giving the patient a choice. The irony is that managed care reduced costs in the beginning, but is now faced with high and ever rising costs.

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A Better CE

A pre-selected group of providers is an element of a managed-care plan. It is true that patients choose the network that includes the physicians they want to use. For the producer it is important to give a small business owner the plan that includes the physicians he wants at the lowest cost available. These physicians and hospitals have agreed to work at a discounted price. Here is how the agent handles it Managed care organizations print booklets containing networks of hospitals and doctors that they pay, as well as the formulary of drugs that they pay for. Suppose that the producer is working with a small business owner who wants to provide managed care coverage for himself and his employees at the lowest cost, but also wants certain doctors and certain medicines for himself, his key people, and their families. The agent starts with the lowest cost plan to see if it covers the physicians and medicines that this group wants. If those providers and medicines are not offered by the lowest priced plan, the agent goes to the next lowest priced plan. The agent then provides the lowest priced plan that covers the providers and medicines that the business owner wants.

This is the great potential of managed care: Delivering care is no longer a disorganized process in which each physician tries to assert himself and the needs of his specialty. It is no longer necessary for the patient to try to remember and carry medical information from one physician to another. Duplication of care has been avoided. The results of one set of tests can be used by doctors in multiple specialties. One set of x-rays can be used for all the patients’ treatment by different specialists and in different settings. If the case is large enough to warrant it, a case manager is assigned and he/she will coordinate the care among the different specialists. The idea is to maximize care and manage costs at the same time. The plan might include which specialists are used, the number of days a hospital, and transfer of the patient to post hospital facility such as a skilled nursing facility, or rehabilitation center, or home health care. This leads to very important things for a client to think about: cost and the coordination of care between doctors.

Finding the illness and treating it before it becomes serious is the best management of care. Testing all patients for pre-cancerous conditions, and avoiding the illness is being done more and more under managed care. The health plans are doing this for profit motivated reasons. They hope that by spending money on pre- illness testing, they will avoid paying for a lot of expensive treatment later on. The patient benefits by avoiding the illness or being assured that he does not All Rights Reserved, Richard Levine 11

A Better CE have the illness. Under the old indemnity system, doctors did not routinely ask all of their patients to get all of the tests. Once the illness manifested itself, the doctors collected large fees for treating it.

Managed care also has a capacity to gather and process information in a way the doctor never could. For example, it was discovered that one Fortune 500 company spent an average of $960 per year for health-care costs related to smoking, and smoking alone. The firm then began education programs to convince people to stop smoking, and gave them other assistance in ending their smoking. Consider the cost of a heart attack. The risk of heart attack can be reduced 50 to 70 percent if a person gives up smoking. This produced a gain for the employee, the employer, and the plan. While preventive care is seen as money motivated, it does have the approval of most employees. After all, they would rather not go through expensive surgical procedures. People do almost anything to stay healthy. We attend exercise classes, watch our diet, and exercise as we have never done before. All that the health plans have to do is tap into our desire to be healthy.

He, who makes the decision, should be responsible for the cost. Doctors make the decisions for our healthcare, and doctors should be responsible for the ultimate cost. Doctors are now paid per patient or per illness. Either way, it is up to the doctor to find the most efficient way to treat the illness. If the doctor can treat it quickly his income goes up, and if he takes a long time to cure the condition, his income goes down. The doctor has also taken another calculated risk. He has gambled that by discounting his fees to the plan, he will take in more patients. He has his highest risk in a capitation plan. Here he is paid per patient per month. He is paid the same amount whether the patient is ill or well, regardless of how many visits are required to cure a condition. Ten years ago a capitation plan was considered to be a cheap plan. Agents would offer a capitation plan and the employer would refuse it. Today most plans are capitation plans. The doctor is paid a given amount per patient per month, or PMPM as it is known. He is paid this amount whether the patient comes in to the office or not. This is another indication of how employers and employees have come to accept the way the plans work. Ten years ago they rejected it, today they accept it..

The Primary Care Physician directs the patient’s treatment. The rapid growth of healthcare costs 10 to 20 years ago was the result of people going to a specialist for every ache and pain, and All Rights Reserved, Richard Levine 12

A Better CE often to the wrong specialist. Doctors were becoming specialists rather than general practitioners, because that was where the money was. Installing the gatekeeper, and referring to him as the Primary Care Physician, is the very first thing that HMOs ever did. This has curbed the tendency to over consult a specialist. Under managed care, the patient can only see a specialist, and have the plan pay for it, by referral from the Primary Care Physician. It has been said that primary care physicians control up to 80 percent of the dollars spent in the managed care plan. Of course this would include their own fees, the fees to specialists, pharmaceuticals, and hospital visits.

Managed Care has completely eliminated the claim form for the patient. The burden is now on the physician to submit the claim form and justify his charges. Simplifying the claims process eliminates errors and also saves money because it is quicker. Patients are pleased not to have to fill out claim forms under Managed Care. Under the old system patients had to fill out claim forms.

There was marked improvement in many areas. There were great improvements in the number of immunizations for both children and adolescents. Of course a profit minded health plan realizes that preventing a disease saves the cost of curing it. Most cardiac doctors would put a patient who suffered a heart attack on a type of pharmaceutical called beta blockers. In 1996, 62 percent of such patients covered by HMOs were on beta blockers. In 1999, that percentage increased to 85 percent. Screening for high cholesterol is an excellent way to prevent heart disease in the first place. In one year the number of screenings increased from 59 percent to 69 percent. In some areas, care ranges. The producer who wants to provide his clients with the best coverage wants to see what percent of covered people receive certain care. Mammograms for women in the last year only increased one percent to 73.4 percent. This should be compared to the National Committee on Quality Assurance’s benchmark of 90 percent. No plan seems to have reached 90 percent. We will study the National Committee on Quality Assurance later. Screenings for cervical cancer range from 83 percent of patients in one plan to 60 percent in another plan. Diabetic patients should receive an eye exam at least annually. Some HMOs provide this for 28 percent of their patients, others provide this care for 66 percent of their patients. That is a wide difference. There is also a great difference in the quality of the eye exam that different plans pay for. All Rights Reserved, Richard Levine 13

A Better CE Follow-up after treatment for mental illness improved from 67 percent to 70 percent in one year. When a treatment is provided in 70 percent of such cases it appears to plateau. The agent should find out what quality of care is offered by the plans he is providing. He should also understand which medical services his plans offer, and which medical services it does not offer.

The HMO is a brand new capital formation. This means that money has been invested or borrowed to fund a new organization. This capital is necessary so that it can operate. The problem with raising money from investors is that investors are waiting for dividends. It is generally believed that paying those dividends has been at the cost of providing good service. What happens when the HMO creates an incentive for doctors to keep costs down? One couple, covered by an HMO had this experience. The doctor assigned by the HMO refused to allow the woman to call an ambulance when her husband had a seizure. He refused twice. She finally called the ambulance at her own expense, but her husband was dead when the ambulance arrived. The HMO responded that it did not practice medicine at the expense of the patient. The HMO could have said anything. The Employee Retirement Income Security Act of 1974 treats an HMO as an employee benefit, and as such, the HMO is still protected from lawsuits. Can a former nurse, working for an HMO, make better medical decisions than a doctor? Can a general practitioner really decide if someone needs to see a specialist? The human body is so complex, and its condition can change so quickly, that it is hard to argue who is right or wrong.

1. STAFF MODEL HMO We spoke before of choice vs. cost. Let us now discuss HMOs in terms of control vs. cost. The staff model HMO exercises the most control and has the lowest costs. When the patient enters an HMO building he sees a doctor who is more than under contract to the HMO. That doctor is an employee on salary. The HMO has all of the medical records, and can most easily arrange the choice and cost of care. The best feature of this plan is how easily the HMO can All Rights Reserved, Richard Levine 14

A Better CE monitor the performance of each doctor. Sometimes we call this closed panel, because the doctor is closed off from seeing non- HMO patients. Also, referrals are not made to doctors who are not on the staff. 2. GROUP MODEL HMO Here the patient finds a more extensive list of doctors. The connection between the HMO and the Physicians is only by contract. The contract is between the HMO and the group of specialists. The HMO contracts with enough groups of specialists to cover all patient needs. The physicians share an office, and all of the support personnel and equipment in that office. All referrals are to doctors contracted to the HMO. This is still closed panel because a doctor who is not contracted to the HMO is not compensated by it. Control over the physician is less than with the staff model. He works for the practice, the practice contracts with the HMO. 3. INDEPENDENT PRACTICE ASSOCIATION OR IPA The Independent Practice Association is a separate legal entity from the HMO. The providers contract with the Independent Practice Association. It is an association of physicians maintaining their own practice. The doctor has his own practice. The list of physicians to choose from is even more extensive. The primary care physician is still used, and still controls referral to a specialist. Control by the HMO is even further reduced by the number of different offices. Because the list of physicians is more extensive, this type of practice has served an excellent purpose in introducing patients to Managed Care. That is because they are more likely to find the physician of their choice in the network. Because the number of provider locations is larger, the HMO has even less control. The independent practice association is referred to as open panel. That is because he can see HMO patients or anyone else who wants to use his service. A physician who has the qualifications will be credentialed and allowed to join. The physician is paid a rate that is negotiated between the independent practice association the HMO. The HMO pays the IPA, the IPA pays the physician. 4. NETWORK MODEL HMO This is the usual model that a patient encounters. This model has the least control that the HMO can exercise with a contracting physician. The difference is that the HMO contracts directly with the physician. The physician may contract with any number of HMOs. This gives the physician the broadest patient base. The network model is also open panel. The physician can see HMO patients or anybody else who wants to use his services. With all of these models, as control decreases, cost increases, and premium increases. Even though managed care has taken over health care financing, we still have the issue of cost vs. All Rights Reserved, Richard Levine 15

A Better CE control. 5. POINT OF SERVICE HMO. Under this plan, the patient will have the usual low co-payment if he uses physicians in the network. When he goes out of network he will have to pay an annual per person deductible and a co-payment. He has one other very important disadvantage when he goes outside of the network. The physician or hospital that contracted with a network is limited by contract as to how much it can charge. An out of network physician is under no such restriction, he may charge whatever he likes. He likes to, and he does. This provides a strong financial incentive to stay in network. At the same time, it provides the insured with some peace of mind that if he needs a certain specialist who is out of network, there is help in paying for the specialist. Of course when the insured goes out of network the HMO has the least control. 6. OPEN ACCESS HMO. Enrollment under this plan grew more than 20 percent per year in each of the first six years that it was offered. The plans market research indicated a high percentage of their patients felt that it was important to be able to directly access a specialist. It was now possible for the insured to be covered consulting a specialist without going through the Primary Care Physician. While this appears to be a reduction in control, the cost has been more than made up by a savings in administration and not having to pay for the primary care visit.

7. PATIENT ADVANTAGES OF AN HMO VS. TRADITIONAL INDEMNITY PLANS. Remember that the primary gain for managed care over indemnity plans is the contract reducing what the physicians and hospitals are paid. That advantage remains intact. There have been years when HMO premiums have actually declined. Once that fee was reduced, the patient could have more freedom to decide to consult a specialist on his own. Of course premiums today are on the rise. An all important provision of all managed care contracts is that the physician or hospital can only charge the amount stated in the contract. The physician or hospital not only agrees to accept what the plan pays, the physician or hospital also agrees that the patient is only required to pay the deductibles and co-payments stated in the contract. The physician or hospital can ask the patient for no more than the deductibles and co-payment spelled out in the contract! Also, the doctor is not paid per visit but rather per patient or per condition. The doctor may not utilize the HMO and charge for endless and unnecessary office visits. The HMO credentials the providers. If the physician is not up to the standard, he may not remain a member of the network. Use of the primary care physician provides organization and consistency of a patient’s treatment and consistency from one patient to the next. Managed care organizations engage in customer satisfaction surveys, and are also doing a much better job than traditional insurance companies in evaluating data about effectiveness of treatment. The HMO can measure the All Rights Reserved, Richard Levine 16

A Better CE outcome of a treatment method, as no insurer or physician ever could. 8. REGULATION AND THE HMO. HMOs collect premium and pay providers. In this way they do resemble insurance companies. HMOs have to meet standards for capital and solvency, as insurance companies do. AM Best and Company also rates HMOs. HMOs are in the unique position of being regulated by both the state and federal governments.

Of course every state has its own requirements. Before offering its services the HMO must provide the Insurance Commissioner with copies of corporate charters as well as bylaws. Background information on the founder’s directors and executive officers must be submitted to the insurance Commissioner. The Commissioner also wants the valuation of the legal reserves of the HMO. The Commissioner also wants to see copies of the contracts between the HMO and the doctors and hospitals. The agent should be certain that the HMO has the proper financial support behind it. The information that you need to determine the financial solvency of an HMO is a matter of public record. Just go online and check out A.M. Best, Moody’s or Standard and Poor’s ratings. Weiss ratings also have a lot to tell. Make sure the plan you sell has the financial wherewithal to pay claims readily. HMOs can apply for the added distinction of being federally qualified. While it is not necessary that they gain that distinction, it is very helpful to the agent in selling that company to an employer. It is also an assurance of good service. To be federally qualified the HMO has to offer a minimum package of benefits, have a provider network that is adequate to do the job and accessible to the insured. It must have an appeals procedure to handle member grievances, and must institute quality assurance programs. They must also set premiums by community rating to be federally qualified. Most plans underwrite the employer, rather than use community rating, because they can be more competitive. This keeps them from being federally qualified.

HMO vs. POS Although the Point of Service plan provides coverage outside of the network, while HMOs do not, consumer satisfaction has typically been higher for the HMO. It seems that the opposite would be true. After all, consumers say that they want choice. The problem for the POS is that the payments made for out of network service do not cover every dollar that the doctor or hospital wants to receive. Remember that when the member goes out of network, the provider is not bound by a contract to that network. The provider can charge his maximum rate. The POS plan on the other hand, may reimburse the out of network provider at a lower rate then the in network provider. This leaves the insured to pay the difference. This causes dissatisfaction with the POS. All Rights Reserved, Richard Levine 17

A Better CE Lately however, Point of Service plans have been closing the gap in satisfaction with HMOs. One year, 52 percent of HMO insured said that they were highly satisfied. That was a five percent drop from 57 percent. Point of service plans gained five percent, and ended the year at a 51 percent satisfaction rate, 51 to 52 percent. It is now very close. Point of Service plans intend to close the gap by improved performance in two measurements. 1. Overall quality of medical care is improved, and 2, improving the level of concern that the plan shows for the members’ well-being.

A hospital operates the same way as any other business. They have an expense for every bed that is available, every day that it is available. They recover that cost when they fill beds. In the days before managed care, everything was done to extend a hospital stay. Hospitals stays of a week or more were not uncommon. The idea was to admit a patient at the start of the weekend, and try to keep him in bed until he was nearly cured. Going into the hospital for tests was a very common method of selling bed space. Why does a patient have to lie in bed while his blood is being tested in a laboratory? To sell bed space. Managed care simply would not pay for these unnecessary hospital stays. The result has been the rapid discharge of a patient even after life saving procedures. A more visible result is the shift to outpatient testing. This can be seen in the construction that takes place at a hospital. Prior to managed-care, no more than 10 percent of the hospital was dedicated to outpatient care. Today it is not unusual for 60 percent of the hospital to be designed around outpatient care. The plans have demanded quicker and more efficient care. Because the plans control the money, they got it. Patients are pleased not to have to stay in a hospital. Medical science and technology are always finding ways to treat a patient better and faster. The best result of managed care is that these gains are converted to economy. Prior to managed care these gains would only have enriched the physicians. Nowadays, developers of medical equipment are developing technology that reduces cost, because that is what managed care demands. Managed care has improved health care by not paying for unnecessary and annoying procedures and practices.

Pharmaceuticals are perhaps the most difficult item of cost to control. All Rights Reserved, Richard Levine 18

A Better CE Drug prices can be volatile. The HMO contracts with a pharmaceutical manufacturer. These negotiations would be far more difficult than negotiating with a doctor. There are fewer and fewer pharmaceutical manufacturers and they keep getting larger due to mergers. There have been years when HMOs have seen their profits eliminated by increases in the cost of pharmaceuticals. One pharmaceutical manufacturer may be the only source of a popular drug. Pharmaceutical manufacturers spend more money advertising than they spend on research. They know that the patient will ask the doctor to prescribe a given pharmaceutical. There was a time when pharmaceutical firms would reduce prices hoping that the HMO would bring them higher volume. That time is past. Pharmaceutical firms know that HMOs have saturated their market and will not be able to continue delivering increased volume. Formularies are a list of pharmaceuticals the plan will pay for. HMOs created these lists to control costs of pharmaceuticals. Of course generics are used extensively. HMOs are also in a position to use their own statistics to determine the effectiveness of these drugs. Quality care can be delivered with controlled cost based on experience. However, it is not possible to isolate the cost of drugs and treat them separately from other costs. Experience has shown that the use of less expensive drugs can actually increase the cost of treatment. If the drug does not provide an immediate cure, the patient takes more medicine and may have to return to the doctor or hospital. With experience, HMOs have learned to provide the pharmaceutical at the lowest overall cost. Again, only an organization that controls drugs, doctor visits, and hospitalization can coordinate all three to provide the most cost effective cure. How does the HMO determine whether or not to pay for certain drugs? Let’s look of the questions that they have to ask. Let’s consider a man in his fifties who exercises and takes vitamins daily and avoids smoking. He finds his cholesterol at so high a level that he is at risk for heart disease. He hears about a powerful drug that reduces cholesterol and asks his doctor to prescribe it. The drug would cost $800 per year, but had been shown to be most effective in preventing heart disease. Will the plan pay for the drug? The question for the HMO is whether or not to save thousands of lives at a cost of billions of dollars. At what point does the cost outweigh the gain? The cost of cardiovascular care is so great that it consumes 12 percent of all the money spent in this country on health care. Should the health plan spend so much money because there is a chance of greater savings later on? There might be two or more years of paying for this drug before there is any return. By that time the patient might switch to another health plan, and there would be no return. In the short run, the plan must maintain a legally required level of reserves. Can a plan sacrifice in exchange for future gain? This is a question the health plan must answer almost every day. Of course if All Rights Reserved, Richard Levine 19

A Better CE they do not pay for these pharmaceuticals and other forms of treatment, will people stop insuring with them, with a resulting loss of revenue? One insured who was denied the use of a heart disease preventing drug went to a cardiologist who the plan did not cover, and who prescribed a drug the plan did not cover. What he obtained was peace of mind. When we recommend a plan we should ask if that isn’t what everybody wants. Should someone who wants to take an extraordinary precaution pay for it himself? We do not yet have the answer to that question. It appears that employees will be satisfied with a plan as long as the cost is reasonable. If the cost to them, usually just a co-payment, is low, they remain satisfied unless they have a problem. Employees just don’t see what the plan is doing unless they have a problem. It is doubtful that HMOs will reduce their prices much further. They have already achieved most of the gains possible by reducing provider fees. It seems at this point that doctors and hospitals have reduced a fee all that is possible. One problem is that hospitals merge and doctors form larger and larger practice groups to have better bargaining power in setting fees. Some HMOs are making themselves more attractive by providing the Point of Service option paying for care outside the network. Of course this would increase the premium. HMOs, like any insurer, are always trying to process information more efficiently. Processing information more efficiently is one of the few places were managed-care organizations can look to save money in the future. As improvements in computers or programming allow, they will do that. .

Placing someone in a hospital for treatment of a psychiatric illness or substance abuse problem is extremely expensive. Still in all, a good employee may have a child in need of this care. That employee would not be satisfied unless that care was paid for. HMOs have done everything possible to control the cost of that care. Cost is controlled by shortening the hospital stay. Hospitals stays for mental and nervous conditions are very expensive on a daily basis. Hospitals stays used to go on for months. The problem is that short hospitals stays just don’t work. The average stay nowadays is about a week, as opposed to three or four weeks or longer when these hospitalizations were covered by indemnity insurance. HMOs try to solve these problems with drugs (I mean the pharmaceutical kind).

Let me share little bit of history with you. Before Medicare became law and while Congress was debating it, the American Medical Association was alarmed about physicians treating patients who were over 65, the Medicare beneficiaries, at a price set by the government. The president of the AMA said, “we do not want Doctors punching a time clock for the federal government.” Because congressmen and senators receive campaign contributions from the AMA, Congress very quickly replied “we did not mean that, we meant that the physician would be paid his usual All Rights Reserved, Richard Levine 20

A Better CE customary and reasonable rate”. “Usual customary and reasonable” was written into the Medicare legislation. As soon as doctors found out they could charge Medicare patients usual customary and reasonable, they very quickly began to charge all of their patients usual customary and reasonable. It was the first time in history the doctors ever collected usual customary and reasonable! Between 1967 when Medicare was introduced and 1969, medical incomes tripled. Over time, HMOs and PPO’s have been working very hard to reduce medical compensation. Starting in the mid-1990s, doctors saw their incomes severely reduced as most of their patients were covered by a health care plan, and the plan reduced payments every year.

Utilization management means placing limits on how many times a doctor may utilize the plan as a source of payment. It does no good to limit the amount of payment per visit, only to have the doctor increase the number of visits. Utilization management tells the doctor how many times he can utilize the plan. That is, how many visits will be paid for. How many visits will be paid for each ailment. Large employers can actively control the amount of service paid for, rather than just pay for it. A large employer can design a plan to pay for so many doctor visits, and no more. Utilization management covers the full range of services: large case management, second surgical opinion, discharge planning, emergency admission, all treatment, preadmission review, etc.

This is the familiar requirement of authorization before a hospital stay will be paid for by the plan. Prior authorization is needed for any nonemergency admission. The doctor or the patient can request authorization, but has do so several days ahead of time. A clinical evaluator then determines if the hospitalization is appropriate, whether the visit will be on an inpatient or on an outpatient basis, and will predetermine the length of stay. If it is not clear that hospitalization is required, utilization review personnel may suggest outpatient treatment. That could include preadmission testing. This is done strictly on an outpatient basis. Prior to health plans becoming established, the patient would be admitted to the hospital for several days. He would line in a bed while tests were being performed in the laboratory. How ridiculous and unnecessary it seems today to have a patient lie on a hospital bed while tests are being performed in a laboratory. This is a very clear demonstration of the changes brought about by the plans. Today the patient enters the outpatient facility, or goes to another facility, where blood is drawn. He goes about his business, and the plan saves money. All Rights Reserved, Richard Levine 21

A Better CE Overnight stays are also eliminated by the use of outpatient surgery. Where outpatient surgery is all that is required, and there are no complications, the plan will not pay for inpatient procedures. Patients generally enter the hospital on the day of the surgery. They may very well go home the same day or the following day. But suppose the patient needs a more involved surgery? If the patient is admitted for emergency conditions, it is not necessary to obtain prior authorization from the plan. It is necessary to provide notification by the next business day, or within 48 hours if the admission is on a weekend. If the condition is serious, the plan wants to be able to start large case management immediately. That is one of the underlying reasons that prompt notification is necessary.

While a patient is in a hospital, a concurrent review coordinator who works for the health plan visits the patient every day. She is probably a former nurse. She reads the patients’ chart carefully. The health plan has its’ set of carefully designed standards. An example of a standard would be that when a patient’s condition clears up, it is time for him to go home. When a patient reaches that standard, it is time for the patient to go home, because the plan will stop paying the hospital. She negotiates with her opposite number, who is the discharge planning nurse employed by the hospital. The discharge planning nurse determines on behalf of a hospital when the patient should be discharged. They discuss the patient’ s condition. The concurrent review coordinator makes the final decision about payment. However, if it is not possible discharge the patient, there is a continued stay review. In extraordinary circumstances the plan will pay for some extra time. The discharge planning nurse also determines where the patient is to go after the hospital. It will be to a less expensive facility. It might be a nursing home or a rehabilitation center, or the patient’s own home. Provisions might be made for nurses to visit the patient at home.

Health plans have long required that a second surgeon determine that surgery is necessary before the health plan will pay for it. The purpose of this is to prevent unnecessary surgery. Prior to managed care plans coming into being, most surgery was not necessary. The second surgical opinion interview might steer the patient to a non-surgical alternative. Sometimes the need for surgery is so obvious or urgent that time cannot be wasted in seeking a second opinion. In this case the plan will waive the second surgical opinion requirement. This also saves the plan the cost of a second opinion where the operation would be performed anyway. Of course the PPO staff will be happy to guide the patient to a physician who can offer a second opinion. Sometimes a third opinion is needed as a tie breaker. All Rights Reserved, Richard Levine 22

A Better CE It is all a matter of costs, and only costs. The two major costs to the insurer are payment of the provider’s bills and administration. When insurance companies discovered that the cost of administration of a second surgical opinion was greater than the cost of unnecessary surgery, the need for a second surgical opinion was dropped by many carriers.

Health plans generally set a dollar threshold such as $10,000. Any case requiring care that cost more than the threshold amount, will be turned over to a large case manager. Cases such as AIDS, spinal cord injury, massive trauma, highly complex surgeries would be turned over to a large case manager. Treatment protocol is reviewed with hospitals and doctors to determine the most medically effective and the most cost-effective treatment.

Many additional services have been negotiated by employers. For example: enhanced pregnancy treatments. The additional service is to examine women early in the pregnancy and identify cases with a potential to be high-risk and also high cost. The idea is to prevent problems. It is very successful in reducing the number of Caesarian section births and premature births. Women are urged to contact the plan early in the pregnancy.

This patient support is not intended as a cost control, but rather as an added service to induce employers to purchase the plan. One-third of all emergency room visits are not necessary. If the patient could have reached a medical professional and discussed the situation, the visit could have been avoided. For example, a man saw a bat on his screen door. As a reflex action, he hit it. He did not break his skin, and bats were not rabid in that area. Then he began to worry. He tied up an emergency room physician assistant for 30 minutes discussing absolutely nothing. Other visits could be avoided if the patient sought advice earlier on, and went to a regular physician’s office sooner. Nevertheless, calling the patient support hotline could control cost if patients use it properly.

Medical benefits in Workers Compensation are based entirely on the employer's liability. When an employee is injured, the employer is liable for every cent of medical benefits. They are paid without limit as to time or dollar amount. No deductible, no co-payment. Managed care is used, but all care must be available and paid for by Workers Compensation. They include everything from transportation to the emergency room to services of the doctor or surgeon, every bill a All Rights Reserved, Richard Levine 23

A Better CE hospital renders, nursing services, medication, equipment, or prostatic devices. Connecticut leaves the choice of provider to the injured worker. Other states restrict this choice. The Managed Care concept has been particularly successful. Managed Care techniques have reduced inappropriate utilization and improved the quality of care.

Managed care organizations actively promote the quality of the medical service that is provided. They carefully select the providers. Some do not go beyond verifying licenses. But most managed care organizations examine the hospital admitting privileges of the doctor, look for malpractice history, and the extent of liability coverage. They also look for board certification. Managed Care Organizations also monitor the performance of the utilization review nurses. Denied cases are reviewed. Readmissions are carefully reviewed because they indicate questionable treatment or premature discharges. Also reviewed are average lengths of stay, and outpatient admission vs. in hospital admission.

The relationship of the Managed Care Organization to the provider has always been one of each side seeking an advantage. Managed Care Organizations negotiated discounts. The discounts did not work because they were discounts from established fees. The doctor simply raised his rates every year, as did the hospitals, prior to giving a discount. The Managed Care Organizations then introduced the relative values scale which paid a fixed percent of the areas Usual Customary and Reasonable fees. Still fees rose, and discounts were from higher fees. Managed Care Organizations then introduced fee schedules. This system applied to both doctors and hospitals. These paid a fixed dollar amount for each procedure. With the introduction of the schedules, medical costs rose much more slowly. Then Managed Care Organizations introduced another reimbursement system which was more effective in transferring the cost risk to the hospital or doctor. First came the per diem reimbursement, paying the hospital a fixed rate for each day of the stay. This controlled the daily rate, but not the number of days of hospitalization. Then the “per case” system was introduced. The hospital was now paid based on the patient’s diagnosis. The hospital was paid the same amount regardless of how long the patient remained in the hospital. Of course it is necessary to be reasonable. For a particular diagnosis a hospital knew it could cure most patients within a given number of days, or for a given cost. Any given patient could develop a complication of his condition. This could result in his treatment costing ten times as much as the hospital is paid under the contract, or more. The hospitals negotiated a protection known as “stop loss”. This meant that in special circumstances, where the cost exceeded the All Rights Reserved, Richard Levine 24

A Better CE negotiated amount, the hospital would be paid a sufficient additional amount. If you consider the principles of risk management, this is a very fair arrangement. For most cases, the hospital can control the cost. Therefore the hospital should be responsible for the cost in most cases. However, sometimes the patient brings a physical condition that neither the hospital nor the plan foresaw. He is admitted to the hospital for one condition, and it turns out that he has a far more complicated condition that nobody knew about. Now the plan, which really has a function as an insurer, is a better position to handle the risk of the added cost .

A 1995 survey of average length of stay in the hospital made a very interesting comparison. For surgical admissions, the average stay in a loosely managed hospital was 60 percent longer than the average stay in a well-managed hospital. For a medical admission, the average stay in a loosely managed hospital was 40 percent longer than in a well-managed hospital. Management makes all the difference in cost.


Legally, it is still not possible for an employee to sue an HMO. The Employee Retirement Income Security Act of 1974 classified an HMO as an employee benefit, and essentially immune from lawsuit. Many cases have revolved around death due to delay. For example, a doctor prescribes a test that the HMO refuses to pay for. The patient dies because he’s not diagnosed and treated soon enough. And surviving family members sue, claiming that more timely treatment would have saved the patient’s life. A similar lawsuit blamed an HMO for delay in treatment because it would not pay for an ambulance. By the time an ambulance was called, paramedics found the patient dead. The HMO defended itself in public by claiming it is not responsible for the quality of medical care because they do not give medical care, they only pay for it. Malpractice suits are on the rise. There have been numerous out of court settlements. While the HMO cannot be sued based on the standards of care, skillful attorneys have found other grounds on which to bring suit. A California jury awarded actual and punitive damages of $89 million to the surviving family members of a woman who died of breast cancer because the HMO refused to pre-certify treatment, claiming that the treatment was experimental. All Rights Reserved, Richard Levine 25

A Better CE The physician’s contract with an HMO states that the physician is an independent contractor. In fact, he must follow HMO guidelines. The HMO would not be responsible for the actions of an independent contractor. However, an independent contractor is usually allowed to decide how we will provide services. Under that same contract the doctor will not be paid unless he follows HMO guidelines and methods. Whether someone is an independent contractor, an employee, or something else is not a matter that the parties can agree to. The law decides if someone is an independent contractor or something else. Did the HMO control the doctor? That is a question of fact to be decided by a jury. Jury sympathy obviously favors the individual rather than the HMO. HMOs claimed that medical malpractice suits are actually declining because of the presence of Managed Care. After all, they do screen providers and they do determine which methods of treatment work best. Also, since HMOs pay the doctor a monthly fee per patient rather than on a per treatment basis, doctors do not engage in unnecessary or unwanted procedures. Those procedures had been grounds for malpractice suits under indemnity plans. A few years ago New Jersey went so far as to cover HMOs under consumer protection regulations. HMOs had to disclose their physicians incentive plans. Members were given a choice of specialists. Staff doctors were given the responsibility for denying requests for medical treatment. This discretion was taken away from nurses and non medical people. HMOs have to undergo state evaluation every three years. An ombudsman in the form of a utilization review panel will now hear member appeals. Legislators are also concerned that HMOs have not paid their share for research and education. For example, if the HMO only purchases generic drugs, they have not paid the pharmaceutical firm that developed the drug in the first place. If they will not pay higher fees at a teaching hospital, they are not paying to develop the next doctors.

With the large cost savings that HMOs have provided in medical care for the under 65 population, managed care was certainly going to be used in Medicare Supplement policies. If the senior citizen uses Medicare alone, he still has a choice of physicians. If he goes with a Medicare Supplement Plan, also .known as Medigap, he will be restricted to physicians in the network. He has probably become accustomed to this before he turned 65.

Individuals covered by the plans sometimes regret that medical decisions are made on a business basis. There is something that they should find comforting. If the doctor is skillful and efficient, he will cure the condition before it gets worse. This should provide the lowest cost. If the doctor is ineffective, the patient may get worse and the cost of care can escalate. It is therefore in the best interest of the managed care organization that the doctor be effective. Managed Care All Rights Reserved, Richard Levine 26

A Better CE Organizations keep track of how cost-effective doctors and hospitals are. Doctors and hospitals that are not cost-effective may find they are no longer included in a plans’ network.

The doctors training, board certification, and other qualifications are reviewed. On the negative side, plans look for medical malpractice claims, and other actions against the doctor. If the doctor does not measure up, he will not be included in the network. The plan will not pay him. This should be some assurance to the covered person. Using an in network provider is highly advantageous. Under the contract with the plan, the doctor or hospital can only charge the plan the agreed-upon amount. Furthermore, the doctor or hospital can only charge the patient the copayment agreed to in the plan. The patient never pays more than that. This guarantees the patient a small out of pocket cost. Today most plans have a wide choice of physician, and the patient may access any one in a broad network. This is only restricted where there is a gatekeeper. Many plans are discontinuing the use of gatekeepers.


PPOs were started in order to offer consumers a choice. HMOs restricted patients to in network physicians, and paid nothing out of network. PPOs started off by offering the typical low copayment for it in network service. Here is the big difference between HMOs and Preferred Provider Organizations: PPOs also provided some payment out of network. Under HMOs or PPO’s, the patient is free of filling out the claim form. The doctor or hospital does that. The agent must understand how important it is to a patient to be able to see a doctor he or she prefers and to have a health plan pay for the office visit. Sometimes an out of network doctor is needed. The agent should be familiar with the expression OON which means “out of network.” All Rights Reserved, Richard Levine 27

A Better CE Insured always want to know what coverage they would have if they had to go out of network. When HMOs were first introduced, it was very painful for the patient and his family to have to change doctors because the old doctor was no longer in the network. It is very important to remember that many health care plans have what is called “plan instability”. This means that the plans reduce compensation to the doctors and hospitals to a point where the doctors and hospitals refuse to see patients covered by the plan. Now a patient who has been seeing that doctor has to switch to one who is still covered by the plan. This provides a dissatisfied employee. Plan instability is the leading reason for short term doctor-patient relationships. Preferred Provider Organizations provide some coverage for a doctor who is out of network. This increases the employee’s chances of being able to stay with the same doctor or hospital year after year. People have come to realize that they will be covered by plans and have to abide by plan rules. Because the out of network payments involved a high annual deductible and a large co-payment, the patient learned to stay in network. This is called steerage. Steerage is very important to the in-service provider because it provides him with patients. Steerage works mainly by being far less expensive for the patient. Also the preventive care that most patients want is only available on an in network basis. There are minor steerage techniques such as the “eight hundred” phone numbers to call for in network referrals, the fact that the provider will be listed in the plan’s directory, and newsletters to members. It is best to think of a Preferred Provider Organization as slightly different arrangement from HMOs. . It is made up of medical providers who agree to discount their fees. The preferred provider organization collects the premium and pays the providers. PPOs control the use of the plan through utilization review, pre-certification, large case management, credentialing, and physician profiling. The full spectrum of health care is provided. In those ways they are very similar to HMOs. The provider benefits by prompt payment and by having no collection problems. There is also simplicity of administration because of standardized payments and co-payments. The overall strategy in day-to-day operation has much in common with an HMO. The PPO selects medical providers on the basis of cost effectiveness which means their willingness to work for a fee and to get the job done with a minimum of office visits. The provider’s reputation is important and so is their malpractice history. The provider must be willing to accept negotiated rates that are below the normal UCR-Usual Customary and Reasonable. The provider must subscribe to utilization management. This means they may not over utilize All Rights Reserved, Richard Levine 28

A Better CE the plan. It is no benefit to have a doctor discount his fee for an office visits by 20 percent, and then have twice as many office visits. We would say the doctor was “churning”. Does that phrase sound familiar?

There is one financial incentive for lower premium plans, and another financial incentive for higher premium plans. The higher premium plans reimburse the provider at 100 percent for in network service. They reimbursed the same percent for out of network claims. There are also deductibles and copayment. The low premium plans reimburse at 80 percent in network, and 60 percent out of network. They also have deductibles and co-payments. PPOs have had rapid growth because of out of network payments. There is the fear that a patient will need care when he is outside of the plan’s geographic network. There is also the concern that a family member might need a specialist who is not in the network. In one two year period the number of employees insured in a PPO grew from 23 percent to 38 percent of persons covered by health insurance. There is assurance that some payments will be made for care by doctors and hospitals outside of the network. That is very important to people covered by the plan.

HMOs have been most successful in markets populations greater than 500,000. As they have saturated those markets they looked to the smaller markets. While it is difficult for someone in the Northeast to imagine this, most people actually live in those smaller markets. Those smaller markets have been where Preferred Provider Organizations have been more successful. However, a smaller number of providers, and mergers of doctor groups and of hospitals, have made it difficult for HMOs to reduce cost, and attract members. Even in a market dominated by Preferred Provider Organizations, which did better in the smaller markets, one study indicated that a community would need a population of the least 180,000 people and three managed-care plans in order to have enough competition

Exclusive provider organizations are not the usual health plan. These are health plans that use very exclusive providers. The credentialing process only allows very few physicians to qualify. Many EPOs provide for no out of network coverage. In this way they seem to resemble HMOs. There is one very important difference. These plans use a gatekeeper arrangement. Referral to a specialist by the primary care physician is required, even if the specialist is a part of the EPO All Rights Reserved, Richard Levine 29

A Better CE network. A specialist can be used as a primary care physician. Some EPO plans provide out of network coverage, but the benefits are even less than a PPO, as low as 50 percent of the in network benefit. Subscribers to an EPO make very little use of out of network providers. EPOs are regulated under standard insurance law. HMOs are regulated under laws designed only for HMOs.


Just to go over the history again very briefly, HMOs began by offering very little choice of physicians within the plan and absolutely no coverage outside the plans. PPOs were therefore founded to give the insured person more of a choice of physician. He could be covered by an in network physician for a low co-payment. Preferred Provider Organizations however also gave some coverage if covered persons saw a physician outside the network. The HMOs responded to this by offering out of network coverage. It was only offered as a rider at extra premium. This is a plan which may be attached to an HMO. It is an optional feature. Preferred Provider Organizations do not need this option, as out of network coverage is already a feature of a Preferred Provider Organization. The point of service means the time of service. At that time, the insured or his family member may seek treatment in network or out of network. They make this choice each and every time they need medical service. If they remain in network all costs are covered except for a small copayment. If they go out of network they will have to pay a large deductible that is probably $750 per person per year. There is also a 30 percent co-payment. Out of network coverage very often has a stop loss. At the stop loss point the insured no longer has to pay out of his own pocket. The insurer pays all cost above the stop loss. The stop loss will be high for out of network coverage. This steers the insured into using only network doctors and hospitals.

If the insured goes outside of network, there is no need to see the gatekeeper. The insured will choose the physician. He will pay the high deductible and high coinsurance. Because he is not seeing the doctor under a plan, the doctor is by no means limited in what he can charge. The insured will begin with that doctor’s highest rate before paying the deductible and coinsurance. That is why the vast majority of patients covered by point of service plan remain in network. All Rights Reserved, Richard Levine 30

A Better CE This is also called steerage. The high cost of going out of network steers them back into the network. However the POS plan has historically proven to be a great approach to introducing employees to managed care. Remember that in the old-fashioned indemnity plans, the insured had deductibles and coinsurance, and paid the doctors highest price. Here he has a choice of very low co-payment in network, or deductibles and coinsurance with an out of network physician. He quickly becomes comfortable staying in network. This is all the more true today as all doctors are involved in health plans, and the choice of physicians in the network is as wide as possible.

Point of Service plans were first introduced to cover traveling employees who needed care outside of the service area of the plan. For example employees who were covered at their place of work in the Northeast would never find in network coverage in California or Florida.. Of course the widest use of the Point of Service plan is by employees and their families who needed care of a specialist within the coverage territory. It also resolves a fear that many employees have, that they or someone in their family will need the world’s greatest specialist or hospital at one point or another. There are other advantages. For example, the employer could offer a single plan to all of his employees. The employee would know that he had a low co-payment in network, but still there would be access to a specialist. On the other hand, an employee choosing a straight HMO without POS option would be locked into the list of providers for a full year. Employee satisfaction has been increased by the introduction of the POS option.

If there is a disadvantage to the point of service plan, it is the increase in premium. It is difficult for the actuary who determines the premium to predict cost. He does not know how many employees will go out of network, or how often. Many employees who are new to managed care do not understand that all visits to a specialist must first be authorized by the primary care physician. They are surprised to find that visits to a specialist are not covered because they were not pre authorized by the primary care physician. They are especially surprised because they chose the specialist from among network physicians. This leads to dissatisfaction in the early days of a plan. Insured who are new to managed care do not understand the difference between emergency care and urgent care. Under some plans, a medical emergency simply means that the patient must be driven to the hospital right away, but a ride in a passenger car is enough. Medically urgent means that it ambulance is necessary. Plans do not pay for an ambulance ride unless the care was medically urgent. What if a visit to the emergency room turned out to be not medically All Rights Reserved, Richard Levine 31

A Better CE necessary? For example, a man saw a bat on the door of his house. He instinctively struck it. He then wondered if the bat was rabid. He went to the emergency room and was told that he could not possibly have a problem. If he had not consulted his primary care physician in advance, payment would have been denied. For others, the denial of payment for an ambulance is a very expensive lesson. They don’t understand that they are required to notify the primary care physician whether the care turned out to be urgent or emergency. The result is that benefits could be denied. This leads to dissatisfaction early on, but eventually they learn how to work within the system, and they are quite satisfied.

Many agents tell the clients that a Point of Service Plan is just an improvement over a Preferred Provider Organization. While this may work as a sales presentation, employee dissatisfaction may set in. This is a result of the difference between how these plans compensate out of network providers. In a Point of Service plan, out of network reimbursement may be based on what would be paid to an in network provider. By contrast, the Preferred Provider Organization pays on a usual customary and reasonable basis. Therefore the POS will probably pay less than the PPO out of network. Insured employees should be prepared for this. Which pays better out of network? There is no firm answer. Sometimes the HMO with Point of Service option pays better than a Preferred Provider Organization. Sometimes it is the other way around. It is up to the agent to compare individual plans to see which one pays better out of network.


Managed Care Organizations have a credentialing concern of their own. They’re concerned about accreditation from the National Committee on Quality Assurance, the American Association of Preferred Provider Organizations, or the Utilization Review Accreditation Commission. As an agent you can check with every one of those credentialing organizations on the Internet. Health care organizations that do not have a favorable rating from those groups have a harder time selling their plans.. Agents must exercise care in recommending a policy: Some group health plans set artificially low limits on the maximum payment. Make sure the policy you choose offers at least $1 million of coverage, since costs for treating catastrophic illnesses can easily reach these astronomical amounts. Also, watch out for low reimbursement levels. Some policies pay a set maximum per procedure, which can be far less than what physicians in your area actually charge. If All Rights Reserved, Richard Levine 32

A Better CE the claim payment falls short of the bill, the patient can be left paying the difference. To avoid this, you may want to check with a physician’s bookkeeper to see if reimbursement levels are within the normal billing range. If you are evaluating PPOs or POSs, avoid overpaying for the flexibility they offer through high deductibles and co-insurance. Be wary of policies that require patients to co-insure more than 25 percent of the cost of treatment or that continue to charge coinsurance for costs in excess of $10,000. Coverage and features Virtually all group health plans cover hospital care and emergency care. Most also cover outpatient care, which includes routine exams, lab work, and office visits. But group health plans can vary significantly in other areas. You may find that some do not include treatments such as prenatal and postpartum maternity care, prescription drugs, and ambulance service. They may have very different deductibles or co-insurance fees in these areas. Pay particular attention to provisions for long-term treatments such as mental health or substance abuse. Some group health plans offer insufficient coverage in these areas. Also check provisions for long-term illnesses and restrictions for pre-existing health conditions (such as diabetes or asthma).

Doctors The quality of physicians participating in the network can be the most difficult area to assess, although it is arguably the most important. Inquire about the screening process that is used to sign up physicians. A screening process should ideally include checks of the doctor's background, including analysis of any previous malpractice issues. Also ask how many physicians in the network the American Board of Medical Specialties has certified. To be certified, a physician must demonstrate competency in a specialty by passing tests or meeting training requirements. Ideally, 85 percent or more of the physicians should be board-certified. Though it is not unusual for HMO and PPO networks to be enormous, some group health plans sign up doctors simply to boost their numbers. To get a better sense of the actual availability of doctors in the network, ask what percentage of its doctors actually accepts new patients. A final statistic to evaluate is the physician turnover rate. This can give you a good indication of the likelihood that you will be forced to switch doctors. The turnover rate can also indicate how satisfied physicians are with the rules for treatment and reimbursement within the network. Better programs usually have a turnover rate of 3 percent to 5 percent. Grievances Save your employees many potential problems by researching how the insurers resolve grievances from plan members. Quality organizations should have a set procedure in place for airing disagreements before a grievance board. A clearly outlined appeals process gives members a way to protest unfair reimbursement levels or other problems. Consulting the state Department of Insurance, which keeps records of patient All Rights Reserved, Richard Levine 33

A Better CE complaints, may shed some light regarding patient satisfaction. If there are a lot of outstanding grievances from current plan members, a warning flag should go up.

Managed care can improve quality rather than reduce it. This is done first by credentialing providers. HMOs have actually been found liable for their failure to thoroughly credential providers. The courts found that Managed Care Organizations have a duty to reasonably investigate the reputation of participating physicians. The court felt that if unqualified or incompetent physicians were used, that would be an unreasonable risk of harm to the patient.

1. CREDENTIALING PHYSICIANS The credentialing process for physicians is very straight forward. After determining that the physician is properly licensed and has acquired the proper medical education, the managed-care organization looks to see if he has a Drug Enforcement Agency certificate enabling him to dispense narcotic drugs. You may be surprised to learn that many physicians do not have that certificate. What do the hospitals think of this doctor? Have they given him admitting privileges? This is an important indicator because the doctor will need to admit patients to a hospital. More importantly, other doctors who are familiar with his work review it before granting admitting privileges. Patients would certainly take board certification to be an indication of the quality of a physician. There is an interesting division of opinion in the medical profession. Many take the obvious path of reason that a physician who has gotten himself certified must be a better physician. Others feel the board certification is a measure of excellence, meaning more knowledge and ability to express that knowledge. They doubt it is a measure of competence. Health plans are interested in the competence of the doctor. Competence refers to how quickly he can provide a cure. Board certification is no measure of treatment outcome. Treatment outcome has an obvious economic effect. All an agent has to do to check physicians is to conduct an internet search. Type “Credentialing Physicians” in the search box( I used Google) and several web sites will be available. Health Grades or Choice Trust gives a complete report on any doctor, for a slight charge. State medical Boards also provide this information free of charge. 2. CREDENTIALING HOSPITALS AND OTHER PROVIDERS JCAHO, The Joint Commission on Accreditation of Health Care Organizations, evaluates hospitals, long-term care facilities, and even walk in clinics for how well they perform. Their web site is called Quality Check.org. The managed-care organizations and anyone else can see how well those facilities perform. All Rights Reserved, Richard Levine 34

A Better CE It is possible to look up hospitals, nursing homes, outpatient care facilities, laboratories, officebased surgery facilities, and even the Managed-Care Organizations such as HMOs and PPOs.

This program is designed to certify physicians. The program is designed to be acceptable to all Managed Care Organizations. It should no longer be necessary for each managed care program to evaluate each physician. This will have a cost-saving for the plans, and provide a uniformity of physician standards across the various plans.

This data bank allows Managed Care Organizations to check with all other states to verify whether or not this physician has ever been sanctioned by Medicare or Medicaid. The plans also check for criminal history or board disciplinary action. The National Practitioner Data Bank records reveal if a doctor ever been sued for malpractice, or sued successfully. While this data bank can not be used by the general public, it can be used by an attorney or anyone suing a doctor or hospital. This data bank was created by an act of Congress in 1986. Its purpose was to discourage bad medical practice and to encourage good medical practice. It covers reports about doctors, hospitals, dentists and other health-care professionals. The data bank is operated by the Department of Health and Human Services of the federal government Insurance companies paying medical malpractice claims against medical professionals or hospitals are required to report payment of the claim to the National Practitioner Data Bank and to the state Insurance Department. Actions taken by professional licensing boards are also reported to the National Practitioner Data Bank. Hospitals which suspend doctors operating privileges or admitting privileges are also required to report this fact to the state medical board as well as the National Practitioner Data Bank. Hospitals are required to check with the National Practitioner Data Bank whenever they grant privileges to a doctor. They are also required to check with the Data Bank every two years thereafter. The National Practitioner Data Bank can only be accessed by insurance companies or attorneys.

This asks a number of important questions about the cost-effectiveness of this physician. He will be compared with other physicians for the percentage of his patients who are referred to specialists, as well as how many patients are provided lab tests and x-rays. The plan is also All Rights Reserved, Richard Levine 35

A Better CE interested in knowing how many hospital admissions by type of diagnosis and length of stay. The actual claim cost to treat patients is measured. The physician is truly profiled for the quality and cost of the care he provides.

Managed Care Organizations attempt to deal with outcomes management. This means managing the result. However, traditional methods of reducing cost often interfere with outcomes management. There were two hospitals for cardiac treatment in an area served by a regional Managed Care Organization. Gotham Hospital had a mortality rate of 1.7 percent for heart bypass cases. University Hospital had a mortality rate of 2.7 percent for heart bypass cases. The plan had been paying for people to use Gotham Hospital. The plan then entered into an agreement with University Hospital to steer thousands of patients to it, and designate University Hospital as the treatment center of choice. Did this lower the quality of care in the interest of economy? Notice that when we compare the mortality rates we are measuring outcomes. The plan stated that its job was doing the best for the patient, including finding the best cost. Should an agent believe that changing from a hospital with a 1.7% mortality rate to a hospital with a 2.7% mortality rate is doing the best job for the insured persons? Agents must consider this in evaluating any plan.


Initially each Managed Care Organization developed its own utilization review. Doctors and hospitals were concerned with the wide range of standards between different Managed Care Organizations. Therefore the Utilization Review Accreditation Commission was developed and charged with developing the actual accreditation process. This was done to avoid legislation, and to allow the standards to be developed in the industry. This allows accreditation standards to change as medicine changes. If standards had been developed legislatively, it would have been very difficult to change them to keep up with the times.

URAC is made up of representatives from all groups that are involved: consumers, providers, employers, regulators and industry experts. Today, over 500 committee volunteers and 30 paid staff help run the organization. However, it is not controlled in any way by the insurance industry or any managed-care organization. As an agent you can look up the accreditation of any health care plan that you are selling as well as the accreditation of any doctor or hospital or other health-care organization or provider. You can do this at no charge. All Rights Reserved, Richard Levine 36

A Better CE

This is the leading accreditation program for Preferred Provider Organizations. Each organization is graded every two years based on a 100 point scale. The PPO is graded on its financial stability, the effectiveness of its quality assurance program, and the effectiveness of utilization management. The plans are also graded by how the providers are selected and evaluated.

(JCAHO.) This is America’s predominant accrediting body for health care providing organizations. They accredit nearly 20,000 hospitals and clinics throughout the United States. JCAHO accredits Managed-care Organizations including Health Maintenance Organizations and Preferred Provider of Organizations. Assisted living residencies and behavioral health care organizations also receive accreditation. They also accredit home health care organizations. They even evaluate clinical laboratories. They also accredit general hospitals as well as hospitals for children and hospitals for rehabilitation, and psychiatric hospitals. JCAHO also accredits ambulatory care facilities. The method of operation is an onsite survey at least once every three years. JCAHO accreditation is an important symbol of quality. JCAHO has developed the standards by which these organizations are accredited.. What does this mean to the producer or the health care buyer? JCAHO has a WebSite entitled Quality Check. It lists 20,000 health care provider facilities and their accreditation status. Individual reports are available for each accredited organization. This allows the buyer of a health plan to check out the facilities included in that health plans network JCAHO released the status of testing a number of health plans. In one year, 29 percent received a full three-year accreditation, while 41 percent received a one-year approval. This accreditation is only bestowed on the best plans. Agents can check on the status of a plan by asking for a CDROM disk or going to their WebSite. The agent can check on both health care providers and plans on the JCAHO website.

URAC accredits managed care plans. This accreditation organization recognizes the importance of change and improvement and the importance of a dynamic marketplace. They have therefore All Rights Reserved, Richard Levine 37

A Better CE avoided a “one size fits all” standard. They have chosen the far more difficult route of a modular approach. It set standards, yet it is flexible. This allows a managed-care organization to seek accreditation using a different standard for each aspect of its operation. Accreditation is based on the services that are offered, rather than a fixed list of services. URAC uses standards developed by bringing together experts from across the country and determining what standards are appropriate at the time. URAC begins by asking the health care organization to document their compliance with the standard. URAC carefully checks to make sure that the documentation fits the facts. Managed Care Organizations seek to be accredited because they want to demonstrate to their customers that they are impartially reviewed, and have been found to be up to the standard. Managed Care Organizations can also improve their quality because URAC identifies areas were improvements may be needed to keep up with changes in the rest of the industry. Finally, Managed Care Organizations seek accreditation because state laws require them to be independently reviewed.

HMO quality is improving. The National Committee for Quality Assurance is an independent, non-profit organization that certifies physician organizations, and Accredits Managed Care Organizations and Preferred Provider Organizations. NCQA’s accreditation program represents the most rigorous standards of their kind. NCQA- the National Committee for Quality Assurance rates the performance of HMOs. In fact, the quality gains are the largest ever measured. More than half of HMO patients give the plans high marks for customer service and claims processing. NCQA bases its reports on data submitted by 466 health plans which cover 51 million lives. There is still a lot of room for improvement in the treatment of diabetes and depression. NCQA ratings are highly significant because many employers will not deal with an insurer that does not have accreditation from NCQA. This is very important for individual purchasers of health insurance also. That is because plans have open enrollment every year. Individuals may apply during this time, and may not be declined. The employee would do well to look up the NCQA rating of a plan before enrolling. Seventy-five percent of the people enrolled in HMOs are in plans that have been accredited by NCQA. Accreditation is strictly voluntary, and applies only to health plans, not traditional insurance. NCQA developed in important body of information called HEDIS- Health Plan Employer Data and Information Set. NCQA requires HEDIS information for accreditation. As the name suggests, this is information that employers look at in evaluating managed-care plans. All Rights Reserved, Richard Levine 38

A Better CE HEDIS The Health Plan Employer Data and Information Set uses 25 criteria to analyze an MCO plan. This includes operating cost, member satisfaction, number of employees enrolled and disenrolled, frequency of treatment and average cost of treatment, types of treatment provided, to what extent inpatient vs. outpatient treatment is used, financial condition, and premium trends. There are six categories NCQA looks at during the accreditation process. This information is reported in HEDIS. 1. What is the health plan doing to improve the quality of patient care? 2. What are the credentials of the health care providers? 3. What preventive programs are offered? 4. Utilization review issues: how does this plan make decisions about covering treatment? 5. How good is its medical record keeping system? 6. How does this plan treat member’s rights and responsibilities? This refers to the process the plan has put in place for a member to appeal a claim which has been denied. Another part of this issue is how the plan discloses its policies and procedures to members. The next part of this issue is whether or not this plan has a “gag clause”. This clause prevents doctors from discussing treatment not covered by the plan, or treatments the plan does not wish to pay for.

Many of the larger employers require that any health plan they offer to employees must carry the NCQA accreditation.

Medical savings accounts are an approach to cost control. It is driven by the idea that people will spend less when they are spending their own money. The structure is high deductible insurance, combined with a savings account. Unused funds accumulate to be used against future medical expenses. Interest on these funds accrues tax-deferred. There is flexibility to use these funds for expenses that the medical plan does not cover, such as vision and dental cost. Essentially, the savings account for medical care is tax deductible, and the policy is high deductible. This provides savings in health care costs because employees will start off spending their own money. All Rights Reserved, Richard Levine 39

A Better CE THE BEST VERSION OF MEDICAL SAVINGS ACCOUNTS– HEALTH SAVINGS ACCOUNTS! Health Savings Accounts are the best and latest version of Medical Savings Accounts! The new Health Savings Account legislation was signed into law by President Bush on December 8, 2003. The new HSA is really the "next generation" of MSA plans. Although some aspects of the program remain the same, there are some important changes. Very few people fail to qualify for a Health Savings Account. Most of those who fail to qualify are simply persons who are listed as dependents on someone else’s tax return. Think of Health Savings Accounts as an improvement over Medical Savings Accounts. Here are the improvements: Policy deductibles can now be as low as $2000 for a family and $1000 for single person. Under Health Savings Accounts the full deductible can be contributed every year. That is quite an improvement over Medical Savings Accounts The best way to explain a Health Savings Account for client is that it is very much like an IRA except that any distribution from it must be earmarked for a medical expense. It is tax sheltered in the same manner as in IRA. Earnings grow untaxed. One hundred percent of the amount that a client deposits into a Health Savings Account is tax deductible. Paying medical bills out of the account is easy. Just write a check. There will be no tax on the money from a Health Savings Account that is spent on medical care. This is very good for the self-employed. What if medical expenses are greater than the amount deposited into the Health Savings Account? The other part of a Health Savings Account is a catastrophic health insurance policy. Catastrophic means that the deductible is high. Because the deductible is high, the premium is low. For example, a self-employed individual can use the savings from buying a low premium high deductible account to fund his Health Savings Account. Also be familiar with the term HDHP which means high deductible health policy. Larger medical expenses are covered by a low-cost, high deductible health insurance policy. What is not used from the tax advantaged savings account each year stays in the account and continues to grow interest on a tax-favored basis to supplement retirement. The funds can also be used in retirement to cover medical expenses. The older people get, the more they spend on medical care. Having this money saved for future medical expenses is very good planning. The client will get a number of advantages from replacing the traditional health plan coverage which has become very expensive. All Rights Reserved, Richard Levine 40

A Better CE He will not be restricted by an HMO network. When he has to use his plan he relies on a large network of physicians. Using a preferred provider organization plan he will have access to a large number of physicians. Also, he can use his Health Savings Account to pay for dental expenses and other medically related expenses which his health plan does not cover. There is no limit to the amount of money that can accumulate in his Health Savings Account if he does not withdraw from it. Like an IRA, all the earnings in the account grow untaxed. Of course the money may eventually be taxed if it is withdrawn for non-medical purposes or is eventually inherited by children. The balance left in the account at death can be willed to someone else, although it may be taxable in the estate.

Medical coverage is always changing. Each change is a reaction to a problem. The idea of MSA’s was to give the employee control over his own medical expense. Remember that we started off with the doctor in control of medical expenses and charging very high fees. We all applauded when managed care organizations began to reduce medical incomes and lower the overall cost of medical care. But then we saw managed care premiums rising to levels many businesses and individuals found unaffordable. The idea was born that if we gave the employee some control over expenditures, he would spend less. The medical savings concept was developed by an insurance company, but not for its clients. The idea was developed for its own employees! Each of the four accounts about four separate employers that follow demonstrates different evidence that medical savings accounts work. They illustrate the high level of employee satisfaction with the plan. 1. This leading health insurer added a medical savings account option to it’s own employee benefits program. The deductible for an individual employee was $1000, the deductible for an employee with family was $2000. If the deductible was satisfied, the plan paid 100 percent of benefits over the deductible. The incentive was that unused funds from these accounts would be returned to the employee at the end of the year. In the first year the plan returned an average of $603 per employee. The following year it returned an average of $1002 per employee. The insurer/employer brought in an outside firm to survey employee satisfaction. Nearly all of them were satisfied with the plan, and intended to stay with it. Furthermore they saw it as an important part of health care reform. 2. A hospital in the Northeast introduced a similar plan. It was in force for 10 years. The plan experienced a reduction not only in the cost of health-care, but also a profound reduction in the number of sick days. Unfortunately, the plan was dropped due to regulatory concerns. After the plan was dropped, health-care costs doubled. It is important to note that the employees handled the money in their savings accounts in a very responsible way. All Rights Reserved, Richard Levine 41

A Better CE 3. An employer in the Middle Atlantic states offered their employees a choice between a high deductible plan and a low deductible plan. Most employees chose the high deductible plan. The plan came in 31 percent under budget, and each employee qualifying with low claims received an average of nearly $800. 4. In the mid-1980s, a large publishing firm was experiencing nearly $5000 per employee medical insurance costs. The first thought was that even though employees were paying part of the premium, the company wanted to reward employees who were filing small amounts of claims. The offer was that if an employee filed less than $500 in claims, he would receive the difference between $500 and the claims he filed. The difference was doubled. An employee filing $300 in claims would receive a $400 bonus, and the employer paid the tax on the bonus. There was a 23 percent reduction in claims per person in the first year. There was a $400,000 reduction in claims paid, and a $30,000 administrative savings. $125,000 in bonuses were paid to employees. This plan did not even have a medical savings account for the employees. Even though it was just an out and out bonus, it was highly successful. An early analysis of these plans showed reduced health-care spending, as employees and their families became more involved in their healthcare decisions. The use of preventive services increased. This shows that the employees were not only showing restraint, but common sense as well.

This is history. Medical Savings Accounts have been updated and are now Health Savings Accounts. The changes are significant. What is important is that you understand the changes that have taken place. This shows the framework of this approach to health insurance. A four-year pilot program was established for firms having 50 or fewer employees. Many rules benefited the employee. Among them was one that the account was a tax-exempt trust or custodial account, which is a bank account dedicated to medical expenses. It is established for the benefit of the employee, and it is portable. The employee can take another job, and the fund remains his. We are reviewing history because clients may remember it that way. The regulations required catastrophic insurance policies with deductibles for individuals ranging from $1500 to $2250. For families, the deductible had to range between $3000 and $4500. The stop loss for individuals was $3000 per year, $5500 per year for families. Annual contributions to these funds could not equal the full deductible. That is because the amounts were allowed to accumulate tax deferred year after year. Annual contributions for an individual could be no more than 65 percent of the deductible in any one year. Annual contributions for families could be no more than 75 percent of the deductible in any one year. Up until age 65, there was a 15 percent penalty for any funds withdrawn for a non-medical purpose. The only exceptions were death and disability. All Rights Reserved, Richard Levine 42

A Better CE The plan is triple tax leveraged! The employer deducts the contribution, the employee does not pay tax on it, and the funds grow tax deferred. The contributions are not subject to COBRA. Medical Savings Accounts have been greatly improved by Health Savings Account legislation.

A competitor to the publisher just referred to printed an article describing MSAs as a giant step backwards. That is because managed-care organizations make the decision. Under MSAs, the employee decides which physician to consult and when. How was care to be managed when the individual makes his own decisions? Under the Medical Savings Account system, the healthcare insurer loses control over the insured employee until the deductible is reached. There is also the open question of whether or not employees will play the system. They might say “I will gamble. If I get better I keep the money. If I really get sick, the insurance pays”. Time will tell. Managed-care organizations have their own response to these plans. They are offering high deductible network plans. This would reduce the premium, and allow the employee to assume some of the risk. In fact as we have seen from the four examples, employees are very responsible with the plan money.

Group or family health insurance covers a child to age 23. If the child is not a full-time student, coverage may end as early as age 18. What then for the child? If the child is covered by a colleges’ health plan, he is no longer eligible when he graduates. Suppose that upon graduation, he or she accepts employment with an employer who does not provide health coverage, or does not provide it right away. Suppose he or she does not even find employment right away? Health insurance is always available. Anything is available at a price. The question is whether or not it is affordable. Too many people in their mid ‘20s choose to go without it. The problem is that they cannot afford to be without it. All it takes is one accident while in a car or on a skate board, one surprise illness, or one broken ankle on the ski slope or basketball court. A serious illness, the cost of which is not covered by insurance, can leave a young person in debt for years. There is a full range of coverages available. They begin with basic hospital insurance, which only pays in case of hospitalization and might cost $20 a month. The young person can also purchase a comprehensive health plan coverage that will cover not only hospitalization, but physicians and All Rights Reserved, Richard Levine 43

A Better CE prescriptions, and more. Maternity, always a risk for youth, is not covered. The young man or woman can purchase catastrophic coverage. As the name implies, the deductible is very high and the maximum benefit is in the millions. In some cases the deductible is as high as $15,000. While the premium is only $38 a month, what youngster could afford that deductible? Doctor visits would not be covered, and neither would a visit to the emergency room for a few stitches. Ten days of intensive care, following an accident on the ski slope or in a car would be covered. The pregnancy might not be covered, but complications of the pregnancy would be. Some of the larger companies offer deductibles ranging between $500 and $2500, with an 80/20 coinsurance option available. The stop loss limit is $10,000, with a $2 million maximum. Premiums range from $50.22 per month for the $500 deductible plan to $26.04 for the $2500 deductible plan.

This is characterized by a high deductible, in exchange for which the insured gets a low premium. The typical buyer is not married and has no dependents. Otherwise, he could not afford the high deductible. The health insurance buyer has to decide if he is more comfortable with the high deductible or the higher premium. If someone can only afford a $25 premium, how is he going to pay the deductible?

This insurance is only to fill a short-term need. The recent graduate who has just been discontinued under his parents plan, or the person between jobs can find coverage here. Unlike most accident and health policies, there is no provision for renewal. The plans are designed to provide coverage similar to an HMO. Everything from office visits to hospital care to diagnostic testing to pharmaceuticals is covered. One advantage of these plans, is that while they provide benefits as an HMO might, the insured is not restricted to doctors in a network. It is in that way more like an indemnity plan. The rates compare favorably with those of the indemnity plan. Younger people choose a lower deductible. Older people choose a higher deductible to offset higher premiums. It is important to notice the way the deductible works. It is a per claim deductible. The deductible must be met each and every time there is a claim. After the deductible 80/20 coinsurance applies. This is true no matter how short the term. All Rights Reserved, Richard Levine 44

A Better CE Eligibility is also a problem. Any applicant who has ever been denied health insurance will not be issued a short term policy. This is understandable when we consider the enormous adverse selection risk. Uninsured with all kinds of health problems would be seeking this coverage. For the same reason, anyone with a pre-existing condition would be automatically denied. The usual look back for pre-existing conditions is five years. Pregnancy is not covered, but complications of pregnancy usually are. People working in hazardous industries or who play professional or amateurs’ sports will also not be covered. These policies are not renewable. To continue coverage, the insured would have to fill out a new application. Suppose the insured is looking forward to a job and health benefits, and he does not get the job? He has no right to renew. He may only reapply and hope to be accepted again. If he used the policy, that would mean he now has a preexisting condition. He would not be eligible for a new policy. If the need for insurance arises because the insured has left a job that has coverage, COBRA is available. If the employed parent loses a job, the child can be left without insurance. We think of COBRA as a law under which an employee whose position is terminated may continue to be insured under the employers plan. The employee could continue the coverage for 18 months, or 24 months in Connecticut, reimbursing the former employer for the cost of coverage. The important point here is a dependent, spouse or child, may continue that coverage for 36 months. What we are concerned with is whether or not that is a good decision. COBRA should not be recommended if the child is healthy. That is because the premium is much higher than an individual policy or a short term policy for a young person. It could be several hundred dollars a month for COBRA versus the $25 to $50 range for the short term or individual policy. Therefore short term health insurance is the first place the agent should have the child apply. That is because it will cost a lot less than COBRA. Of course if the young person has a health problem for which individual or short-term policies would be declined, then he would be better off with COBRA. COBRA allows terminated employees to continue coverage. A college student is not an employee, and therefore may not have COBRA coverage under a college health plan after graduation.

It would be hoped that young people purchase health insurance. The idea of these policies is to spread risk over the population and over time. The premiums that young people pay represent the risk that they bring the pool. The same is true of older people who bring a greater risk, and pay a higher premium. Healthy young people do send money to the pool and help keep costs down for insured of all ages. All Rights Reserved, Richard Levine 45

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The recent college graduate can look to his alumni association which may offer coverage. Individual policies are for those in relatively good health, and who have no other choice. Most states offer a health insurance plan to those in the “high-risk pool”. These plans are very expensive and may have a long waiting period or other gaps in coverage. Short term Health coverage is preferable for the child who recently became too old to be covered under a parents plan. It is cheaper than COBRA.

Many states have an arrangement whereby people who cannot obtain health coverage in the regular market, may obtain coverage in a pooling arrangement. Connecticut is typical of a number of states in requiring licensed health care insurers to provide coverage for those who are not able to obtain it in the regular market. A young person with a health problem could apply to a health reinsurance association. Health Savings Accounts combine a high deductible health policy with a tax sheltered savings account. To qualify for a tax deductible Health Savings Account, the recent graduate would have to be self-employed or working for an employer who has such a plan. Here the insured may contribute all of the policy’s deductible to a tax sheltered savings account. If the young person finds himself impoverished, and can prove it, Medicaid will cover the health costs. There are also free clinics for those who can prove low income status.

In the year 2001, New York State began a subsidized health insurance program. People in nontraditional jobs will be able to purchase health insurance. These people include employees of start-up companies as well as people engaged in the theater. What is especially important is that this law provides insurance coverage for workers who lose eligibility for employer sponsored coverage due to a change in job category. This could also mean that they have been shifted from full-time to part time. This allows workers who are self-employed to get insurance at regular rates. Previously they paid much more because they did not qualify for group rates. Premiums are expected to be less than All Rights Reserved, Richard Levine 46

A Better CE what small employer’s pay, but there has been a scaling back in benefits. HMOs in the state are required to participate. Perhaps your state will have this someday.

The home business owner can purchase coverage in an individual policy if he qualifies. Individual policies are medically underwritten, group policies are not. He might qualify to purchase the coverage as group insurance. This is true as small a group as he or she is, even a group of one! What makes the choice of group coverage even better is that group plans have to meet state and federal guidelines that are stricter than individual plans. To qualify in Connecticut with a certain leading health insurer, the home business owner would have to show proof that he is indeed a legitimate home business. He will have to show state and federal tax forms. The other requirement is that he works at least 30 hours a week at his home-based business. He has to have been in business for at least three consecutive months. These requirements will vary from company to company, and state to state. The producer will have be alert because there are numerous places that the home business owner can go to for his coverage. He can go to his local Chamber of Commerce, or another business group, but will have to pay fees. The agent can usually produce the coverage for less. Of course if the prospect for insurance goes to a trade group, he may not have the coverage options that a producer can show him. The group will probably have one plan. He could go directly to an insurance company, but the agent can offer a choice of companies. That is the independent producers’ greatest strength. The agent can also give guidance about how much of a deductible the home business owner can afford. Younger people might be able to afford the deductible because they don’t have many health charges during the year. Older people might be able to afford a larger deductible because they have had time to accumulate the cash reserve. A lot depends on how the client feels about it. Some are comfortable with the higher premium, others are comfortable with a high deductible and a lower premium.


Most businesses fail to find the right insurance broker. The right broker or agent is the answer for healthcare costs and all the rest of their insurance needs. Eighty percent of benefit managers to turn to their broker first for advice, seventy percent say that the broker greatly influences their decision. All Rights Reserved, Richard Levine 47

A Better CE Is the broker suggesting ways to cut costs? Is the broker discussing legislative changes that affect the cost of health care? Has the broker discussed cafeteria benefit plans or anything else that would save the employer money? Has he suggested Health Savings Accounts? The businessman should always remember that the broker is getting a commission. Is he working for it? The first thing the employer should be concerned with is the financial standing of the insurer. If that is good, he should then consider the doctor bills and co-payments and whether his employees will be satisfied with the drug formulary. The employer should always check the finer points of the plan. Here is an example: One employer found that he was paying for a bigger network than he needed. Some of the doctors in the network he was paying for were too far away for the employees to get to. Now he is paying less premium for a smaller network having only eliminated the doctors who were too far away. Another cost saving feature for employers is multi tier hospital coverage. Hospitals are rated in tiers. A tier 1 hospital offers standard services and is good for most procedures. A tier 2 hospital is more highly rated and covers more sophisticated procedures. Tier three is top of the line. A tier 1 hospital would have the lowest co pay in the plan. A tier 3 hospital would have the highest co pay in the plan. This saves the employer money. Of course we have the old standbys of raising deductibles and co pays. And of course today many employers are requiring the employees to pay a share of the premium. But where does all this leave the employee? It leaves him paying part of the premium or large co payments or deductibles. Many employers are now being careful not to cover the spouse of an employee if that spouse has coverage where he or she works. Some of the larger employers have been saving money through self-insurance. Some of the money that would have been paid for premium is used to pay employee health costs. What if health costs are particularly high in a bad year? The employer buys stop loss insurance. Stop loss pays if the claims per employee, or total claims for the year, exceed a certain point. This is done because the stop loss premium is a lot lower than a regular health insurance premium. Some employers have simply joined with other employers to form a pool. This saves money by insuring a larger group of employees. The savings come from the fact that the larger the group the smaller a percentage of the premium goes for administrative costs. If you insure just a few people, as much as 40% of the premium may be taken up in administrative costs. If you ensure a thousand people, administration only cost 5% of the premium. Creating a pool gives those savings. Some employers save money by using a Professional Employer Organization. They handle all of the benefits, payroll etc. They purchase insurance for many employers. This puts many employers in the same group, which saves administrative costs and provides lower premium. Finally we have the good old insurance technique of avoiding or preventing losses the first-place. All Rights Reserved, Richard Levine 48

A Better CE Give the employees an incentive to get healthy. One employer gave his employees a 5% bonus if they measured up to certain standards. The employees had to work out regularly in the company fitness center, and keep their cholesterol under control and avoid smoking. The employer may have saved more then he spent on the program. Of course these wellness programs only work where you have a low turnover in the workforce.

Another exposure is financial frustration for the employee. Never forget that while the employee receives health coverage, the employer is buying employee satisfaction. A rational employer wants to get the most employee satisfaction that he can for every health insurance premium dollar that he spends.

Let’s consider a Washington D.C. law firm that found rising health insurance premiums with a major carrier, and decided to save 30 percent by switching to local HMO. One of the partners found out that the particular HMO had been denied accreditation by the National Committee for Quality Assurance (NCQA). The law firm decided not to use the HMO, but instead to enroll with a Preferred Provider Organization. They were promised only a $15 co-pay for office visit. Technically, that was correct. However, employees were required to pay the entire fee at the time of visit, and wait a long time for reimbursement by the PPO. That is because doctors got tired of waiting for that particular PPO to pay them. The employer did not obtain the employee satisfaction that he thought his premium would buy. Producers of this coverage stress price, but they should balance it with service and quality. Remember that what the employer wants to buy with his premium dollar is employee satisfaction.

The first step would be to make sure that the health plan has the financial capacity to carry out its promises. Many HMOs are rated in A.M. Best & Co. Checking ratings in Standard & Poor’s, and Moody’s would be an essential step. While a summary of benefits is very important, the question is what is behind the summary. Very often the employer does not receive those details until he has already purchased the plan. He could demand those details in advance, and he should. Two competing plans might offer a five dollar co-payment. But which plan has the better formulary? Some plans have a closed formulary, and will only pay for certain pharmaceuticals. Other plans have an open formulary, and will cover all pharmaceuticals. Many plans are in between those two extremes. If the employer is a small one, it would be good to check if pharmaceuticals needed by his family members or key employees are covered. Does the plan have other limits that might present problems later on?

All Rights Reserved, Richard Levine


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Employers could do their employees a great service by setting up Health Savings Accounts. The employers’ contribution to the employee’s account is entirely tax deductible to the employer. The employee does not have to pay any income taxes on the employers’ contribution. The money grows tax-deferred. The employee pays no tax when he withdraws money from the account for medical expenses. Remember that the employee can also withdraw money from the account for dental expenses or eyeglasses as well as medical expenses that the health plan itself do not cover. Also, there is no limit to the amount of money that may accumulate in the employees Health Savings Account. The point is that this tax feature also goes a long way toward providing the employee satisfaction that the employer is purchasing with his premium dollars.

This organization helps employers find health plans. It suggests questions that the employer should ask before selecting a health plan. Here are some of the questions. How quickly does the plan pay claims, and how long does an appeal take? HMOs minimize paperwork, some PPOs require the employee to file claim forms for reimbursement. Suppose an employee needs emergency treatment. Does the plan require prior approval in all cases? Or does the plan use the “any prudent lay person” standard? This would pay for emergency treatment if a prudent lay person would seek it, without prior approval. What out of pocket expenses will the employee have? Are there deductibles? What is the copayment? Do out-of-pocket expenses vary from one benefit to the next? For example, would mental health benefits have a higher co-payment? Is there an extra high co-payment for brandname prescription drugs, as opposed to generic drugs? Is the plan the subject of too frequent complaints with the State Insurance Department or Better Business Bureau? If the employee appeals the denial of the benefit, who decides? Is there an internal appeals process in which the plan makes all the decisions? Is it an external process, where an outside party makes the decision? Is third party arbitration provided for? How does the appeals process work on an overall basis? How long does it take to settle a problem? Does the plan have limitations and exclusions on certain procedures and treatments such as transplants, infertility, mental health, drug therapies, durable medical equipment? The wise employer will ask for the names of other employers who have used the plan. The same questions are also good to ask about individual plans.

All Rights Reserved, Richard Levine


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NCQA, the National Committee for Quality Assurance reports that only six percent of employers use its Health Care Employer Data and Information Set. This is called HEDIS. Even so, it has a very wide impact. When we buy most things, we find that quality costs more. This is not necessarily the case in choosing an HMO. Plans that achieve full NCQA accreditation, actually cost a few percent less than other HMOs. This is because accreditation forces the plans to work hard at the designing and delivering their services. The employers who have less than 5000 employees, the ones producers are most likely to see, consider cost because it is nearly the only thing that they understand. The smaller employer does not have the time or the resources to fully analyze the plans or the providers. They do understand accreditation. Many an HMO has lost employer accounts after losing accreditation. Employers do understand what employees want. In the labor market that we have, employees are likely to get what they want. Provider choice is always near the top of the employee’s wish list. That is why Point of Service plans are becoming so popular. Employees want satisfaction from their plan. Satisfaction to most employees comes from knowing that they are covered by a plan that has in excellent reputation. Many report cards are based on satisfaction issues rather than the performance of the plans providers. The importance of HEDIS is that it is based on performance. Employers care about quality. They are just not getting the information that they need. It is very difficult to compare outcomes from one plan to another. The average employer and employee simply do not understand how the plans work. That is why they are more likely to think about cost rather than quality.

The average employee is much more interested in how well his physician performs the than in how well his health care plan performs. Some plans have begun issuing report cards on the performance of medical groups. This has great potential to improve performance. Health Net in California has a member satisfaction report on “quality of care” indicators such as thoroughness of exam, time spent with physicians, outcomes, access to treatment. Doctors are compared with others in their area. These report cards allow plans to say to the employer “we can provide a high level of service”, and “we can improve your workers level of productivity”. For example, one plan was able to reduce time lost due to asthma with better healthcare. That definitely got the employers attention. This gives us the all-important competition between plans on the basis of care delivered. That is what employees really want to see. There is a movement to establish a “quality index”. This would take away a lot of the complexity and mystery, and give the public a simple method of comparison between plans. Health Net, a California Provider, tied doctor reimbursement to report card performance. That provides competition between providers on the basis of quality. All Rights Reserved, Richard Levine 51

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Many small businesses today lack the buying power needed to obtain affordable coverage. They need affordability more than big business, but cannot obtain affordability by themselves. Consider a typical small business that cannot afford even a low premium. Perhaps a member of the businessman’s family has a health condition that makes individual policies unobtainable. Sooner or later someone in the business family has a hospital procedure with an overwhelming cost. One small construction company drastically reduced its health care premiums by placing itself in the hands of a PEO. That is a Professional Employer Organization. Professional Employer Organizations enter into contracts with small and medium-size businesses. Under those contracts the PEO manages human resource and personnel functions for the small business. The PEO will not only pay wages, but report collect and then pay in all payroll related taxes. They handle all reports. They manage coverage and claims for workers compensation. They ensure safety as well as compliance with all regulations relating to employment. They go so far as to hand out employee hand books. For the health insurance producer, there is the question of what the employer is willing to do. Is he willing to what let the PEO become a co employer of his employees? That is exactly what happens. The employer retains ownership of his business. However, he becomes an employee of the PEO. While the owner of the business does not give up his independence in operating the business, he certainly gives up the feeling of independence. Some employers will do this, and some will not. The employer is independent enough to set salaries, but the PEO is responsible for payment. PEOs have grown greatly in the last twenty years. They allowed the purchase of health coverage in a single package for every employee they cover, regardless of how many firms are involved. They can offer a minimal package of benefits or a maximum package of benefits. Either way, the employer is better off then if he tried to purchase the benefits himself. They can offer an HMO, with or without a POS, and are planning to offer PPOs. Dental and vision plans are also available. Some PEOs offer retirement savings plans, credit unions, disability insurance, life insurance. Some even provide behavioral health assistance, education benefits, and more. The small employer would have great difficulty in matching any of those benefits.

A producer seeking to compete with a PEO would have to mention that they charge an administrative fee of 2 to 5 percent of payroll, and sometimes as much as 20 percent. He would also mention a loss of a feeling of independence as the employer is technically now an employee of the PEO. The PEO actually has power under the contract to hire and fire employees. The PEO also resolves disputes regarding employees. The PEO can even transfer an employee from one company to another. All Rights Reserved, Richard Levine 52

A Better CE The PEO does not reduce the cost of benefits, but rather enhances the benefits. The package that is offered might be too rich for some companies. Also, PEOs do not work well with part-time or seasonal workforces. Additionally, PEOs are not required to be licensed in Connecticut or New York. There have been cases of PEOs operating unscrupulously by failing to provide workers compensation and healthcare benefits for enrolled employees. A dishonest firm simply pocketed the premium and departed. Some are undercapitalized, which also leads to financial disaster. Clients can well be advised to hire an attorney. The PEO will also be very careful about the businesses it becomes involved with. It will review the employer’s financial records, workers, claims and safety records, and more. It will review risk management plans, and whether taxes are paid on time. They also analyze the payroll to determine the rate of employee turnover. The PEO has no obligation to retain any specific employee. Also if the employer fails to pay the PEO, the PEO can sue.

There is the story of one woman who owns an advertising agency with 25 employees. She heard that her premium was going to go up 19%. She was also faced with the problem that a flu epidemic was coming and the vaccine was in short supply. Her answer was simply Clorox wipes. Every surface that people touched from desks to telephones to light switches was constantly germ free. You can say what you like, but none of her employees lost any work time due to the flu. The number of companies with 200 or fewer employees who offer health benefits is actually down. It was 68% in 2001, and 63% in 2004. How did things get this way? One of the answers is that in the 1990s when help were very hard to get and very hard to keep, employers improved health care benefits with low co-payments and of course would not ever have fought to make the employees share in paying the premium. Employees are easier to find in now and possibly even fewer employers are offering company paid health benefits. The trend is for the employee to pay more and more of the premium. We have employees running for antibiotics when they get the sniffles and insurance carriers ready to pounce with higher rates when one of the employees get sick. Can’t the employer catch a break? Breaking out the Clorox wipes is a Band-Aid defense. The first thing an employer should do is shop around even in good years. Insurance companies always warn against doing this, but it is the best thing for an employer to do. According to the Kaiser report, last year 57% of small businesses shopped for a new plan. Out of those businesses, 31% switch carriers and 34% change their health plans. What are you going to do for your client? Employers should consider Health Savings Accounts. It reduces the cost to the employer. All Rights Reserved, Richard Levine 53

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Europe covers everyone for health care on taxpayer funds. That only happens in the United States if you are over 65. Everyone over 65 is on Medicare. All your medical costs are covered with several exceptions. You can buy insurance to cover those exceptions. That insurance is called Medigap. It covers the gaps in Medicare. In America, all of your medical expenses are covered after you become 65 years of age. In Europe and England all medical expenses are covered from birth. Medicare Part A covers your hospital stays and all related hospital expenses. It covers medical care in a skilled nursing facility but only medical care. Long-term care because of aging is definitely not covered by Medicare. Home health care is covered including intermittent nurses and durable medical equipment such as wheelchairs. Hospice care is covered. There is a premium for Medicare Part B which is $88.00 in 2006. The initial enrollment period is three months before you turn 65 and three months after. Part B. Essentially covers doctor bills and laboratory tests. It also covers home health care. An American’s Adventure with British Medical Care. An American in London happened to be struck by a taxi going about 15 mph. He was thrown up onto the hood of the taxi and rolled onto the ground. He was shaken up but not seriously injured. However, he did not know the extent of his injuries. The taxi driver took him to a well-known London hospital. In America every hospital has an emergency room. That is not the case in England. This hospital did not have an emergency room. The patient was left in a minor injuries ward. He sat there for four hours. A nurse came in and asked if he could waive his arms over his head and wiggle his fingers. That was the extent of his medical care. He never saw a doctor. When he returned to the United States his friends thought he had been treated in a Third World country. In fact he got exactly the treatment that he needed at no cost to himself and very low cost to the British health-care system. This explains why the British system costs 6% of their economy and our system costs 15% of our economy. Consider what would have happened if that same accident occurred in the United States. An ambulance would have been called; there would have been emergency room charges, x-rays, a All Rights Reserved, Richard Levine 54

A Better CE separate bill for the attending physician in the emergency room as well as a separate bill for an orthopedic surgeon. It would have cost thousands of dollars. In America everybody wants to consult a specialist. We have more specialists than other countries. Specialists cost money. In Britain and Europe it is as if everyone is on Medicare from the day they are born. All medical expenses are covered for everyone. It is actually is simple as that. Although of our medical care system requires 15% of our economy, the British system requires only 6% of the British economy. Britons actually live a little bit longer than we do. The key is prevention. Any British citizen can walk into a doctor’s office anytime he or she wants to, day or night. While our system claims to emphasize prevention, we don’t seem to do it as well as the British or Europeans. Under managed care today we are doing a lot better than we did under our old indemnity system, but we still have a long way to go. We rely on extensive medical treatment and the latest advances. England and Europe rely on prevention. Oddly enough, the result is that the United States has the lowest satisfaction rate of any Englishspeaking country! It is ironic that the HMO or health-maintenance organization started out as a method of controlling and reducing costs and is now the most expensive system in the world and all but unaffordable. The original idea was to emphasize preventive medicine. The insured was given absolutely no co-payment of any kind. The thought was that he would immediately take a minor condition to the doctor before it became a major illness and a larger expense. As we shall see this was done by imposing very tight controls. Not only was the doctor put on salary as a staff member forbidden to see non-HMO patients, but the patient could not consult a specialist without the gate keeper physician signing off. The plans also negotiated what they would pay for pharmaceuticals and how much they would pay a hospital. What went wrong? Hospitals doctors and pharmaceutical companies resisted working for less and less any way that they could. Doctors underwent a radical cashectomy, but when have you ever met a poor doctor? Ten years ago you saw a doctor in his own office. Now he is part of a twelve member practice. This is because twelve doctors have more bargaining clout than one doctor with the health plans. Hospitals are squeezed but they continue to grow and change and improve and their fees are growing. They hire experts at billing the insurance companies. Health plans told the pharmaceutical companies what drugs they would pay for and how much. Pharmaceutical prices continue to go up out of sight. The health plans do not have the power to negotiate as effectively as they would like to. They pass the higher costs on to the employer and All Rights Reserved, Richard Levine 55

A Better CE the employee. A group of doctors that does not like what one health plan pays will not see its patients. They will work for the other health plans instead. It is the same for hospitals and pharmaceutical companies. They can play one plan off against the other. Better results have been produced in countries that have a single-payer. That payer is the government. If the population wants more medical treatment, taxes are raised. British and European taxpayers are willing to pay more taxes to get more medical care because they see direct benefits. Americans are not sure that they get a direct return of benefit for an increase in taxes. Therefore we are not willing to raise taxes to pay for medical benefits. It is just a difference in attitude caused by a difference in history. The advantage Europe and England have is that with all medical bills paid and no cost to the patient, patients will see the doctor for a mild ailment before it gets worse. Seeing a doctor early on is the prevention. They lead the way in prevention. That is what we do not have. I would like to share something with you about what is happening in Canada. When the Canadians set up their universal healthcare system, they made sure that the government was going to be the only payer. They made it illegal to have a health insurance policy in Canada. That was a big flaw and their system. If the government did not pay for a service, it did not exist in Canada. In the spring of 2005,an appeals court in Canada ruled that it was against the Canadian Constitution to outlaw private health insurance. Perhaps now private accident and health insurance will take hold in Canada. This may make health care better in Canada. We will have to wait to see. Why the difference between the two systems? Because the British won’t pay for any more and we will not settle for any less.


When health insurance meant indemnity plans, agents would compare one plan with another on a spreadsheet. This meant that for each plan the employer could compare premiums, deductibles, coinsurance, stop loss amounts, maximum benefits, and which services were covered and which were not. Spreadsheet comparison for HMOs would not show as much of the story. Premiums, out-ofpocket costs, and out of network costs can be compared. However, there are many other factors. All Rights Reserved, Richard Levine 56

A Better CE Any source of material that the agent uses should be readily accessible, because in the everchanging world of health care financing it is necessary to stay up to date. The agent owes it to the client to make the best comparison possible.

The first question is how well accredited is this HMO? The agent only has to look up the HMO on NCQA.org. The National Committee for Quality Assurance accredits each HMO. It examines 50 different factors. Out of 222 plans reviewed, 37 percent received full accreditation and 39 percent received partial accreditation.

Agents should also check the status of the hospitals within the HMO network. The agent should ask the HMO what percentage of the network doctors are board certified. Because of the credentialing process, a higher percentage of doctors are getting themselves board certified. This Is Where the Agent Can Really Stand out The HMO lists providers in the network. Does it indicate which ones are board certified? Does it publish a list by specialties? The doctors themselves can be checked in the reference room of a library by looking in the American Medical Directory or in the Directory of Medical Specialists. There’s another publication entitled “Best Doctors”. At the other end of this scale we have a book entitled “13,012 Questionable Doctors”. It lists doctors with a track record of incompetence or malpractice claims. The state medical licensing board has information on doctors who have been sued or who have licensing problems. Continuing Success for the Ethical Agent It is not that difficult for the agent to determine which plan will provide the best protection. What is important is that the ethical agent will do it. The ethical agent will be most successful because clients will recognize that he provides good coverage. He is less vulnerable to having his coverage replaced by another agent who points to excessive co payments or poor doctors or hospitals in the network. The agent is paid to do the best possible job for the client. Clients depend on their agent for vital coverage.

Can The Client Always Get The Care He Needs? The agent should ask how care is managed. The agent should ask who makes the decision whether or not the patient is referred to specialists? If the patient is referred to a type of specialist, can he choose the particular one he wants to see? If the referral is denied, what is the appeal process? Is there an appeal process? How often can the insured change primary care physicians? If the agent wants to create a spreadsheet to compare plans they should include a comparison of the referral procedures of each plan. Remember, the person who buys the plan is concerned that he himself may need a specialist. He would not want to be denied. The agent must do everything possible to help the insured understand how the HMO works. All Rights Reserved, Richard Levine 57

A Better CE Does Proper Reimbursement or Lack of It Prevent Proper Care? Quality of care may revolve around how the HMO reimburses providers. Is a provider reimbursed per patient per month regardless of how many visits? Or is there a set fee per visit. Is the doctor given an incentive to produce a low utilization rate? Is the doctor motivated to provide less care? Is Preventive Medicine Delivered By The Plan? What services are provided? Is there extensive preventive medicine? Preventive medicine has always been offered as the key advantage of an HMO. The agent should know whether a plan pays for vaccinations, mammograms, wellness visits, various cancer screenings, various tests for diabetic conditions, and other tests. Again, something for the agent to look into.

Does The Plan Have Limits to the Care It Will provide? Does the plan have restrictions that might not become apparent until the client starts to use the plan? Are their restrictions on the amount of money that the plan will spend? Is treatment restricted? Is there a limit on the number of visits the will be paid for in a given year? Are there limits on what will be paid for mental and nervous disorders or substance abuse? Does this plan tend to label treatment as experimental because it does not want to pay for it? The agent should be familiar with all of the exclusions and limitations in the plan. He should make the client aware of exclusions and limitations in the plan.

Choose A Benefit To Use In Comparing One Plan With Another. One way to compare plans is by examining the maternity benefits. The agent should ask how many women received prenatal care in the first trimester. What percentage of covered pregnancies resulted in Caesarian deliveries? What percentage of women have normal deliveries following a previous C section? Perhaps the question is not the percentages, but whether or not the plan even tracks that information! Wouldn’t your client be more comfortable with a plan that tracks that information? Agents must make clients feel comfortable with their plan. How well do Providers Accept the Plan? How easy is it to access a physician by location? Provisions for out of network coverage are especially important if there are not too many in network physicians. We must be certain the client understands the difference between the coverage in network and out of network. Clients should also be advised to check with their provider to make sure that they still accept the plan. When the client gets a referral we should tell him to keep a copy of it to support his claim that the specialist is covered and a referral was made. This will facilitate the appeals process if there is a dispute. We have to understand that our clients are going to have difficulties adjusting to a new plan. They are always concerned about how good a new physician under a new plan will be. Ethics in Providing a New Plan It is not ethical to allow an employer to believe he is providing his employees with a new plan that is as good as the old plan, if that is not the case. What if the agent replaces a plan with good All Rights Reserved, Richard Levine 58

A Better CE medical providers with one that has less able doctors or hospitals in the network? What if the new plan has limitations that the old plan did not have? The employees will be disappointed. What Is Important to the Employer? The employer will not get the employee satisfaction that he thought his premium would buy for him. The agent must remember that today’s workforce is specialized. It is important for the employer to keep a skilled team together and working well. Dissatisfied employees are going to be a problem for the employer. Would that employer renew again with the agent who produced a plan that provided employee dissatisfaction? That is where the unethical agent loses out. The ethical agent wins and gets renewals year after year by providing customer satisfaction.

Will the federal government or the states have more control over health care? Most of the proposed laws and regulations are a result of the conflict between a managed care organization and its providers over who will make the decisions. Organizations want to contain health-care costs, while physicians and hospitals seek to provide the best quality of care. Will Legislators Give Insured Persons The Full Choice Of Providers? Managed cares’ method of delivering care through organized networks changes all the old concepts of doctor patient relationship. Legislators at the federal and state level have attempted “any willing provider” legislation, which would give the patient the ultimate choice of physician. Managed Care Organizations oppose this as they try to keep control over who the provider is and how many are in the network. States in particular have been successful in “gag clause” legislation prohibiting the Managed Care Organization from telling a doctor what he may or may not tell a patient. Congress Tried To Help Proposed federal legislation would insure patient access to emergency and specialty care. Furthermore it would require keeping patients well informed while protecting their confidentiality. Also, a dispute resolution system was to be put in place. Quality would have to be measured through the required collection of data. Most importantly, this legislation would have prevented the use of incentives to physicians to deny treatment that was medically necessary. Alas! The legislation was only proposed, not passed. Would this minimize the effectiveness of managed-care plans in controlling cost? It appears that managed care has achieved most of its cost control by restraining what is paid to providers for each service. Requiring a few extra services should not seriously increase cost. The Present Federal State Situation With Regard To The Insurance Industry Federal and state regulators argue endlessly over who can best control managed care for the benefit of the patient. The basic guidelines for resolving that argument have been in place for a long time. In 1945 the McCarran Ferguson act gave states the responsibility for regulating All Rights Reserved, Richard Levine 59

A Better CE insurance. In 1974, ERISA gave HMOs exemption from many state regulations. And still the issue is not resolved. Federal regulation of managed care organizations currently includes the Department of Labor, the Department of Health and Human Services, and the Health Care Financing Administration, among others. There can be overlapping regulation at the state level as well. California provides the best example. There a prepaid health plan for Medicaid patients can be regulated by the Federal Healthcare Financing Administration, the California Department of Corporations, and the California Department of Health services. Certainly the intrusion by the federal government cannot make it any easier for the states to regulate managed care. The NAIC’s position is that if the managed care organization performs an insurance function, it should be regulated by the states. This writer agrees whole heartedly. Federal regulators on the other hand point to inconsistencies in regulation from state to state. They say this makes it very difficult to regulate managed care in a multi-state operation. Of course with regard to other kinds of insurance, state insurance departments have been dealing with variations in state to state regulation for a long time. They have been doing a very good job.

How Erisa Prevents the Employee from Suing an Employer Provided Health Plan. ERISA means Employee Retirement Income Security Act. This law was to protect employees from employers who simply removed money from the pension fund leaving the employees with a penniless retirement. In the middle of this 1000 page legislation, someone inserted a paragraph called the “Deemer Clause.” It stated that no employee benefit was to be considered as insurance for purposes of state regulation. This meant that the state insurance departments could not touch an employers’ health plan which did not use an insurance company. Of course the insurance department could regulate any plan where an insurance company was used. ERISA Is Really the Biggest Roadblock to State Regulation. Health care organizations are designed to avoid state regulation. This is very unfortunate because federal oversight has been very lax. This has led to many fraudulent health care organizations being created, and they have cheated employers and employees out of many millions of dollars as well as not providing healthcare. Plans that are designed to avoid state regulation do not provide state mandated benefits. There have been many lawsuits against employer sponsored plans which do not have to provide state mandated benefits. Most of these lawsuits involved treatment which the plan claims to be experimental. Generally, where the courts have found the treatment to be not experimental, the employee has won. Where the courts have found the treatment to be experimental, the employer sponsored plan has won. State regulators are finding ways to exert control over these All Rights Reserved, Richard Levine 60

A Better CE organizations. Results of ERISA Unfortunately, over 50 percent of employees are covered by ERISA plans. These plans do not have to provide all state mandated benefits and therefore cost the employers less. But there are greater problems than that. They are not subject to state supervision, and do not pay state insurance taxes. They do not have the cost of participating in guarantee funds. This has fueled a great acceleration in the number of these plans. In a single one and a half year period over 400,000 participants in these plans were left with $123 million in unpaid claims. Insurance has always been associated with a safety net provided by state regulation. The shift away from indemnity plans to managed care has cut a great hole in the safety net where ERISA plans are concerned. States have been successful in preventing the sale of nonprofit hospitals and healthcare plans to multi-state corporations. The concerned his been that local control over health care would be lost.

Exposure to Very Large Lawsuits and Loss of Reputation with Insurers The result for the insurance agent is that he may misrepresent the scope of coverage or the benefits. False claims by agents combined with false claims in marketing brochures resulted in a $25 million judgment against one California plan. The insured believed the agent and a brochure which indicated to him that his cancer would be treated. Coverage was denied. The HMO was questioned and insisted that its advertising material was technically correct, and that it could not be held responsible for statements by an agent. That the plan is not responsible for statements made by its agent would be directly contrary to agency law. The jury found in favor of the insured. Remember that the insurer you represent is responsible for what you say or do. They will not keep an agent who misrepresents their plan. Such an agent will not keep his license.

Section 2
Concentrate on What the Employer Wants This is usually sold to an employer as a group product. While the employer will receive health coverage for his employees, he is really buying something else. He is trying to obtain as much satisfaction for his employees as his premium dollars can buy. He is trying to keep a trained workforce in place. This includes health coverage that the employees are satisfied with. All Rights Reserved, Richard Levine 61

A Better CE Consider the Reputation of the Plan You Offer Employee satisfaction begins with the reputation of the plan that is providing coverage. The employee is looking for a choice of physicians, and minimum out-of-pocket expenses such as copayments. In the original HMO there was no choice of physician. Employees found this highly objectionable, and the response was the formation of the PPO. This created a greater choice of physician, as well as some coverage outside of the network. As the dynamic growth of both HMO and PPO slowed down due to a saturation of the market, HMOs sought to increase their market share by offering a Point of Service plan or POS.

This plan allowed the employee and his family to choose between in network service with minimal co-payments, or going outside of the network, OON, and facing high deductibles and copayments. This provided a psychological safety net for the employee who felt that he just might need the greatest specialist in the world. When these plans were first offered, employees complained bitterly of the lack of choice, and employers were very hesitant to impose it on them. As employees have become more and more accepting of the restrictions of the plan, the plan at the same time has eased the restrictions. We are at a point where employees accept the plans. What Will your Plan Cost The Employees? We should give a lot of consideration to the question of what the out-of-pocket expenses will be for the employees. The size of the co-payments for in network service is very straightforward. Where we have to be careful is in how we explain payments for out of network service. Some plans reimburse for this better than others. Remember that the employee is ultimately responsible for paying the provider of service. Do not assume that all plans pay the provider the same way. Do Not Fail To Prepare The greatest ethical failure for an agent is failure to prepare. Many agents have been caught off guard when the plan that they sold did not pay as well out of network as the plan it replaced. The agent must thoroughly understand how the plans pay out of network. He must explain this properly to the employer. An employee who was surprised to pay more out of network under a new plan than under the old one is going to feel that he has not been dealt with fairly. His employer, the agents’ client, will feel the same way! Do You Have To Justify How Expensive Your Plan Is? Today health insurance means a plan. Plans control medical costs by placing limits on what they will pay a physician and also by limiting the physicians or hospitals utilization of the plan. In other words, for a given condition, the physician bears responsibility for providing a cure within cost limits. He may not utilize the plan as an unlimited source of payment. This has controlled medical costs and premiums. The insured, or the employer, gets a lower premium than he would otherwise pay, and the member has only a small copayment for each visit, hospitalization, or prescription. All Rights Reserved, Richard Levine 62

A Better CE Health plan premiums are very high today. But imagine how expensive medical care would be without the plans to control physician and hospital charges. It would cost a lot more than it does today. This is what provides justification for the health plans. Did You Balance Costs And Benefits Of The Plans You Offered Due care requires that our client understand the trade-off between cost and choice. The more choices he has of physician or hospital, the higher the premium. Is the added cost worth it to him? The employer is looking to maximize employee satisfaction for the amount of premium he pays. Does he need a particular plan because a particular physician or hospital is important to him? What does it cost him if he has to go outside of the network? Some plans definitely pay better out of network than other plans pay inside their network. The diligent agent will compare plans and how they pay out of network. Each plan has to be examined separately for how it pays OON-out of network Know Your Client and His Particular Needs Well Know Your Client and His Particular Needs Well The ethical agent will take the time to examine his clients’ situation very closely. The plan that is best for one employer is not necessarily the best plan for another employer who may be of the same size or even in the same industry. The ethical agent will take time to look at the individual needs. Does one of the officers wives need a particular pharmaceutical? Does one of the supervisor’s children need behavioral health care or even a mental hospital? The ethical agent will find a policy that covers those situations as well as covering the rest of the employees.

How Good An Insurer Did You Use? If the backbone of a health plan is it’s financial standing, and it’s reach is the list of participating physicians, and its mind is the people work for it, there is one more place the diligent agent must look. The agent must ask “what is the soul of this plan”? Is this a plan that intends to pay, or a plan that intends not to? How well does Your Proposed Plan Fit the Client’s Needs? Consider the client. Is a Preferred Provider Organization available to him with adequate out of network benefits? If an HMO is available, does it have a Point of Service plan with adequate out of network coverage? Can your client handle the $750 per person per year deductible and 30 percent copayment that goes with Point of Service? Does your client have dependents that will soon cease to be covered by the plan? Can you provide individual coverage for them? All Rights Reserved, Richard Levine 63

A Better CE Is the plan guaranteed renewable? That seems to be a minimal standard these days. Does this plan like to non-renew employers or raise premiums? Will the client’s family continue to be covered in the event of the client’s early death? Does the client have an employee with a substandard rating on his present policy? Will the present insurer remove the substandard rating, or will another company write the policy at standard rates?

What matters to consumers? What do statistics of employee satisfaction really mean? Most people do not need extensive complex care. Not all that many people need healthcare which is in fact expensive. The result is that when those people are frustrated by red tape and managed care obstructionism, it may not show up as a large number on employee satisfaction surveys. The survey by a leading healthcare consultant asked employees about where they look for support in making medical decisions. Sixty two percent trusted the doctor, while only fourteen percent placed their faith in an HMO. What Happens When There Is Doubt about Coverage? Consider the case of a 19 month-old girl with breathing problems and a 105 degree fever. She was taken to a hospital outside of her network. She died after four hours of delay while the hospital debated whether or not to treat her. Then there was a hospital that discharged a woman and her newborn 28 hours after birth. The baby died of a bacterial infection the next day. Then there was the 80 year old woman who fell and broke her hip. The plan refused to pay for an ambulance. She was driven to the hospital in an automobile. She was refused admission even though her x-rays indicated the possibility of multiple fractures. How Badly a Managed Care Plan Can Perform But what about cases where a Managed Care Organization had a chance to think about it? A woman had a mammogram that turned up small pockets of microcalcifications. This gave her a 20 to 40 percent chance of having breast cancer. The radiologist recommended that she consult with a breast surgeon. She called her HMO to have a breast surgeon recommended. The HMO did not even confirm the referral. They sent her back to her primary care physician. The primary care physician and the radiologist agreed that she needed to see a breast surgeon. Again the HMO tripped her up. They said they did not have one in the network. They placed the burden on her of calling general surgeons to determine if any of them would do breast surgery. For her this was a lengthy process during which she experienced extensive fear as to what the delay he might be doing to her. She finally decided to consult a breast surgeon. That had to be out of network, but she no longer cared about the cost. A biopsy was performed, and the results were negative.

Consumer Response to Poor Performance by a Managed Care Plan We can be sure of what she would say on an employee satisfaction survey. But she would only All Rights Reserved, Richard Levine 64

A Better CE be one voice out of thousands of insured who did not have a bad experience because they did not have a health problem. In other words the plan could still show 98% of employees were satisfied! Remember that the plans are there because people are concerned that they might be among the 2% who need benefits. The real question is whether the 2% are satisfied. Ask yourself this question: how would you feel if you were the producer of the policy that gave this woman such awful stress by trying not to treat her breast cancer? Could you look at yourself in the mirror?

One Approach an Attorney General Can Take As of October 2000 the state of Connecticut brought a legal action against four major health plans. The Attorney General was not requesting compensation for damages. He wanted an order enjoining these HMOs from engaging in wrongful practices. On behalf of four plaintiffs he claimed that the HMO’s “improperly and illegally obstructed” their access to safe and effective medical care. We think of ERISA, the Employee Retirement Income Security Act as a federal law which prevents legal action against an HMO. It does provide that the plan cannot be sued. Here however the Attorney General is trying to enjoin it from engaging in a harmful practice. There is actually a provision in ERISA which allows health plan customers to sue the health plan to prevent it from violating its own provisions. ERISA actually imposes a duty on health plans. It is a fiduciary duty to act solely in the interests of its customers. The lawsuit claims that the HMOs have violated that standard. This suit claims inappropriate use of prescription drug “formularies”, and other practices. This suit charges that the HMOs failed to tell the patients they will be forced to use less effective medicines because they are cheaper. At the heart of the complaint is the methods used in reviewing claims and denying proper medications. It is charged that the HMOs employee physicians routinely denied the claim without a full review. They did not look at the patient’s medical record, physically examine the patient, or even discuss the case with the attending physician. They just routinely said “no”. The Attorney General claims that this is the pattern and this is the practice. It happens every time. These companies have a moral and legal obligation to put the patient’s needs first, and to be truthful. The Attorney General produced evidence that the HMOs intended to delay, obstruct, and confuse the patients. The result is that patients are discouraged from asserting their rights or even seeking information. Callers are placed on hold for an unreasonable length of time. If they get through to someone they typically receive information which is contradictory. If the patient submits documentation, it either gets lost or there is no response. According to the plan, one insured was entitled to behavioral health services for her daughter. All Rights Reserved, Richard Levine 65

A Better CE The plan outsourced behavioral health to a subcontractor. The subcontractor routinely denied benefits. Repeated phone calls to the plan and a subcontractor resulted only in an endless “run around”. The insured paid $10,000 out of her own pocket. Repeated written requests to the plan and the subcontractor produced no reply whatsoever. She actually requested the benefits book and was told that none were available. Until the Attorney General became involved she heard nothing about the 80 claims she submitted. Connecticut is by far not the only state to bring these legal actions. Health plans are being repeatedly sued for failing to act of the best interests of their patients. The health plans glibly deny any wrongdoing, or do not respond.

Health-care Provider’s Claims Against Auto Insurance Settlements. Health plan payments to hospitals have been reduced to a point where hospitals have to seek every penny they can find. Sometimes they go beyond the bounds of their contracts with health plans. They are not permitted to engage in “balance billing”. This means that if they have agreed to accept a certain sum from the plan, they may not charge the patient any additional amount. Otherwise, the plans would be meaningless. The plan benefits the patient because it controls the amount that any doctor or hospital may charge. As a matter of fact, the hospitals and doctors may not lawfully charge the patient any more than they have agreed to accept from the plan. Hospitals being paid under a health plan may not ask the patient to pay any more than the deductibles and co-payments of the plan. In the case of automobile accidents, resulting in automobile liability settlements, hospitals are trying to go around the law. They balance bill the patient. Typically, the victim of an automobile accident advises the hospital about that accident when he is admitted. He also advises the hospital that he is covered by an HMO. The HMO pays what it is supposed to according to the contract. The hospital then files a lien against the automobile liability settlement. The hospital then collects from the automobile insurer. It collects the difference between its maximum billing rates, which are not discounted, and what it received from the HMO. Now the hospital has the money, and the victim has to fight to get it back. The ethical question for the agent is that he should advise the client to seek legal help. Then the agent should step aside. Suppose the patient has $20,000 worth of treatment at full price. The hospital discounts 40 percent to the HMO. The HMO pays 60 percent of $20,000 or $12,000. The hospital files a lien for the $8,000 against the automobile settlement. The hospital uses a collection agency to file a claim against the liability settlement. This is wrong because it is against the law, and because the contract with the health plan says that the hospital agrees to look only to the health plan for compensation of covered services. One patient was All Rights Reserved, Richard Levine 66

A Better CE entitled to $250,000 in settlement of an auto liability claim, and the hospital attached $36,000. He sued. The judge made it clear that no lien can be filed to attach anything unless there is an underlying debt. He ruled that there was no underlying debt on the part of the patient, because the hospital agreed to look only to the insurer. He ruled that the hospital filed the lien purely as a ploy to get as much money as possible. He also claimed that the patients rights were intentionally disregarded. In other states, Attorneys General have warned hospitals against balance billing.

COBRA, The Consolidated Budget and Reconciliation Act of 1985 allows a worker whose employment has been terminated to continue coverage under the employers plan. Where the employee himself has been terminated, he may continue the coverage for eighteen months. His spouse and dependent children each have their own individual right to continue the coverage for three years. This only applies to insurance through employment. Someone covered by an individual plan has no COBRA rights under that plan. He cannot continue coverage under COBRA. LET US EXAMINE SOME OF THESE QUALIFYING EVENTS Termination of the job or reduction of hours, permits the employee to continue the coverage for eighteen months, or the spouse, or any dependent child, to continue the coverage for thirty six months. In certain cases only the spouse and dependent child has a COBRA right. Those cases are that the employee becomes entitled to Medicare, there is a divorce or legal separation, or the employee dies. Notice that in each of those cases they are no longer the spouse or children of a covered employee. They may continue the coverage for 36 months. Finally we have the rights of a dependent child who becomes too old to have dependent status. He or she is eighteen, or 23 if he or she continues to receive an education. That dependent child may continue COBRA coverage for 36 months. If the child has a health problem, COBRA is the only choice. He will not get an individual plan. Who Is Eligible For COBRA? None of those categories of people are required to stay on COBRA for the full length of time. If other coverage comes along they can take it. Eligibility for coverage under this act does not require the employee to be working for private enterprise, or even to be an employee. It applies to workers in state and local governments. It also applies to independent contractors who are covered under a health plan designed for employees. There is an exemption for employers having less than 20 employees. The IRS has stated that if employers wish to claim an exemption because they have fewer than 20 people, they will have to include part-time people. Connecticut has “CT COBRA” under which the employee can continue coverage for twenty four All Rights Reserved, Richard Levine 67

A Better CE months. This applies to employers who have less than 20 employees. Many states have this type of coverage and also provide broader rights in determining who is eligible for coverage. Some Employees Are Not Eligible For COBRA Many Americans work for large corporations. Those corporations have self funded health plans. Those employers, under ERISA, are exempt from state regulation of their plans. If the employers buy insurance from outside insurers, they would be subject to provisions of COBRA. The employee would have to actually be covered under employer health plan purchased from a private insurance company in order to be eligible for COBRA. COBRA is only a right to continue existing coverage. It is not a right to start coverage. If the employee was not covered, spouse and children are not covered either. A child no longer covered under the employer health plan could not get covered, even after a qualifying event. COBRA coverage ends when one of four things happens: 1. The employee or dependent reaches the last day of maximum coverage. 2. Coverage expires for nonpayment of premium. 3. The employer terminates the health plan, and does not replace it. There is no coverage to continue. 4. The employee obtains coverage through another employer group health plan. Obtained coverage means that he was not prevented from doing so by any limitations or pre-existing conditions of the employee or a beneficiary. If he cannot get covered under his new employers plan, he may continue with his old employers plan until the time limits of COBRA are used up. The downside of COBRA is that the employee must pay the premium himself. That premium could be anywhere between $400 to $700, or more. This will have to be paid with after tax money. The employee pays the employer what the employer pays to the plan plus two percent for administration. Deciding to pay these premiums after loss of a job is a difficult decision. However, health insurance must be in place because any member of the family might suddenly require expensive health care. The employee might be unable to purchase individual coverage because of a pre-existing condition of anyone in his family. While federal law forbids group health coverage from medically underwriting an employee, an applicant for an individual policy can still be medically underwritten. This means he can be declined. There is another very important advantage to continuing under COBRA. HIPAA, The Health Insurance Portability and Accountability Act of 1997 provides for continuous coverage. If the recently unemployed worker continues under COBRA, that fact may prove highly necessary in obtaining coverage under HIPAA as soon as he finds new employment. Not only coverage right away, but most importantly, coverage even if he has a pre-existing condition. If the worker does not elect COBRA, that would create a gap in coverage. Coverage under COBRA is Creditable Coverage under HIPAA. All Rights Reserved, Richard Levine 68

A Better CE Another advantage to continuing under COBRA is that he will not have to switch doctors. This is important even if the worker could be covered under a spouses plan that does not cover the doctor that recently unemployed worker wishes to continue to see. Of course a gap in coverage could also be avoided by purchasing an individual plan, if that is available to that individual worker and affordable. A short-term policy might also serve that purpose. The coverage the worker receives must be identical to the coverage that he had before the qualifying event. The employer may not even permit the employee to choose a less expensive plan, or require him to take a more expensive plan. The coverage must be the same. The employer may give the employee the option of dropping benefits such as dental or hearing or vision care, which are not core benefits. It is the basic health plan which can not be changed. However, suppose the employer had covered the employee under three different health plans. Suppose one plan covered medical, another hospital, another prescriptions. The employee could continue or discontinue any one of them.

The Agent Must Be Aware And Advise The Client If proper procedures are not followed, the employee could forfeit his rights to coverage under COBRA. The qualifying events again are death, termination of employment or reduced hours of employment, Medicare eligibility. The employer must notify the health plan administrator within 30 days after those qualifying events. In the case of other qualifying events it is the employee’s responsibility or the family’s responsibility to notify the health plan administrator. The family must notify the plan administrator within 60 days after these events: divorce or separation, child’s loss of dependent status. To summarize the notification periods: 30 days for events related to doing the job; 60 days for family related issues. After the plan administrator is notified, he has 14 days to notify the family about their rights to elect COBRA. Remember that the IRS is qualifying the health plan so that the employer may deduct the premium. This gives the IRS power to either disqualify a plan, or impose lesser penalties. Plan administrator’s have been held personally liable for breach of duty for failing to notify the family about their rights under COBRA.

These Are Serious Responsibilities The agent who produced a plan, or any agent who is working with the family, has serious ethical responsibilities to advise the family of their rights and obligations under COBRA. The IRS has rules because it permits deductions. The employer may also have plan rules, because All Rights Reserved, Richard Levine 69

A Better CE he pays the premium. If the plan allows it, there are two exceptions to the notification rule. The employer can arrange a longer time limit for notification by the employer, the employee, or the plan administrator. Secondly, employers can relieve themselves of the obligation to notify plan administrators that the employees quit or reduced their work hours. Any producer arranging such a plan for the employer should take care. First of all, the producer would have to find out if there is such a provision. This requires reading the plan. It would then be up to the plan administrator to determine when a qualifying event had occurred. This would require scouring every payroll sheet to see which employees dropped off or had reduced hours. The producer would have to be certain that the administrator was willing ready and able to do this. The Agent Must Be Ready To Advise The Employee To do the best job for the employer and the employee, the agent should make the following clear: Once notified, the family has 60 days to decide whether or not to purchase COBRA. That is 60 days from the date of eligibility, or the date notification is sent, whichever is later. The post mark on the envelope containing the notification message is important. It would be far better to join the plan within the 60 day eligibility. Then they will be covered retroactive to the date they became eligible. If on the other hand, the family elect COBRA after the 60 day eligibility period is over, different rules apply. Medical expenses would only covered after the election. If the family waits until the eligibility period is over and then elects COBRA, medical expenses incurred before the family elects COBRA are not covered.

Advise Employers about These Rules Payment of the first premium is due 45 days after electing COBRA. This premium will be higher because it includes the current month, as well as being retroactive to the date the employee or family member became eligible for COBRA. There is a grace period for paying premiums. It is the longest of three time frames: 1. The length of time the plan allows the employees to pay late. 2. The length of time the plan allows the employer to pay late. 3. Thirty days. COBRA regulations place minimum time limits on how long the employee can remain covered. The plan is perfectly free to extend those limits. Because this plan involves employee benefits, some facets of it are overseen by the Department of Labor. DOL has jurisdiction over notification of the employees concerning the coverage. Employers who fail to comply with notification rules can be fined $110 for every day that the employer is late sending notification after the deadline. The IRS can levy an excise tax against an employer who does not comply with COBRA regulations. An employee who was newly hired must be advised about his COBRA rights. Employers and producers should be careful to be certain that procedures are in place for this. This can easily be overlooked because the employee may not have to be covered until the end of a probationary All Rights Reserved, Richard Levine 70

A Better CE period which can be 30, 60, or 90 days in length. When the employees becomes covered they must receive a health plan description, which is a plan summary. A former employee or family member may be in the middle of the COBRA coverage period when the employer changes to a new insurance carrier or modifies the plan. Those people must be given the option to switch plans at that time. Some health plans give employees the option of converting from a group plan to an individual policy under COBRA. Such employees must be allowed to choose to convert within 180 days before their COBRA ends. The agent should advise the employee that switching to individual coverage means that he’s no longer covered under a group plan. That fact would undermine protection that he has under HIPAA. Individual coverage is not creditable coverage under HIPAA. Furthermore, the individual policy will be more expensive. Every year one American in five moves to a new address. That move may take them out of the coverage area. They would lose their COBRA benefits. The employer does not have to offer them a plan in the new area. The employer would not even be able to offer a plan in the new area. Premiums will go up every year, and the COBRA covered employee or family will have to pay more. They have to pay the employer what it cost the employer, plus two percent for bookkeeping. Premium notices must be sent monthly so that the employee pays attention to premium due dates. Sometimes employment terminates due to disability. Occasionally the disabled employee is entitled to Social Security Disability benefits. They may be covered under COBRA for 29 months. The question is: where would they receive the money to pay the premium? This is another good argument for having a disability policy in place. The disability benefit should be sufficient that the family can live on it, and pay COBRA premiums. COBRA does not provide for extension of employment related life insurance coverage, just health coverage.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT Employees Can Change Jobs without Losing Health Coverage The greatest benefit of HIPAA is that an employee who changes jobs can be immediately covered by the new employer’s health insurance plan regardless of medical problems This refers to the client’s right to health insurance portability. This law was designed to protect people who have “job lock”. They were unable to change jobs because they could not give up the group health coverage they had under their existing employer. All Rights Reserved, Richard Levine 71

A Better CE That is because their employer’s health plan covered a medical condition the employee had. HIPAA provides that a group health plan can not deny an applicant based only on health conditions. Therefore it provides better access to health insurance. The new employer’s health plan will have to cover the employee who transfers. The importance of HIPAA is that the new plan will have to accept him whether he is insurable or not. This is what allows him to change jobs. It limits exclusions for pre-existing conditions. This guarantees re-newability and availability of health coverage to the employee who is changing jobs. Insurance companies do not like to cover pre-existing conditions in newly insured individuals. The preexisting condition is usually defined as one for which treatment, medical advice or diagnosis, or care was received six months prior to the enrollment date. It also includes treatment that was merely recommended in the last six months. It also covers conditions which the insured was aware of, but never sought treatment. In other words, if the job applicant knew about the condition in the last six months, it was a preexisting condition. In some states, even a medical condition the insured did not know about was classified as preexisting. HIPAA has done away with all that. The new applicant for coverage in employer’s group health plan can not be denied coverage due to a preexisting condition. What Coverage Does The Newly Hired Employee Get? The employee who changes jobs gets only the coverage provided by his new employer’s plan. HIPAA is not a right to continue the coverage he had under the old employer. He has left that plan. HIPAA is a right to whatever coverage the new employer has. Sometimes an example proves a rule. Group health plans cannot consider pregnancy as a preexisting condition. However, no federal rule requires health plans to provide maternity coverage in the first place. Of course many states in the Northeast require it. Thus, if a woman applies to a new health plan that does not have maternity coverage, she will not have maternity coverage. She is simply covered for the other benefits of the new employer’s plan. The rules of HIPAA apply to employer group health plans. The plan only has to have two participants to be covered under HIPAA. This applies also to companies that are self-insured. States have the option of applying this group rule to groups of one, and some states have. This is very helpful for the self-employed. There are many situations where states have given the individual buyer of health insurance rights over and above rights under federal law. The alert and helpful producer should always be a lookout for these improvements under state law. Many courses are written to cover federal laws only, because the same course is given in many states. HIPAA applies to group plans only. It offers no protection to someone who is purchasing individual coverage. HIPAA is a great improvement, but not perfect. There is no federal or state law that requires employers to pay for health insurance or even provide it. The federal government does not All Rights Reserved, Richard Levine 72

A Better CE require employers to provide any specific benefits. Mandated benefits are mandated by the state. Therefore plan may not have maternity coverage, behavioral health coverage, substance abuse coverage, or any other benefit the state decides not to require, and the employer decides not to provide. HIPAA provide portability, not identical benefits. Health coverage can also be canceled if employee or employers fail to pay premium, commit fraud, violate rules of the health plan, or the employee moves outside of the plans service area. HIPAA has definitely not eliminated the waiting period of 30 to 90 days before a new employee will be covered under the company health plan. The waiting periods do not count as a lapse in coverage. How does HIPAA provide uninterrupted coverage? Basically, the employee can be denied coverage for existing medical problems, but only for12 months. Late enrollees can be denied coverage for existing medical problems for 18 months. HIPAA requires the new health plan to give credit for the time the employee was covered under the previous plan. If the employee was covered for 12 months under the previous plan, he cannot be denied coverage at all. Why? Because for every month the employee was covered under the previous plan, one month is subtracted from the 12 months waiting period for preexisting conditions. With 12 months coverage, he cannot be denied at all. All his conditions are covered immediately. The coverage the employee needs is called “creditable coverage”. It includes group health plans whether under a private employer, government or church. Individual coverage is also creditable. A departing employee receives a certificate of creditable coverage. This is proof of coverage because it contains the coverage dates, the policy ID number and the name of the insurer and all covered family members. This entitles him to coverage under the new plan regardless of preexisting conditions if he has no lapse of 63 days or more. When he leaves his old employer, he may avoid lapses in coverage by using COBRA, or buying an individual policy, or short-term insurance. Unemployment of several months, combined with a failure to obtain those coverages will result in waiting periods when he finds new employment. Clients should be counseled to maintain coverage. Reminds the employees that in order to get HIPAA benefits he must have a certificate of creditable coverage to show the new employer!

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A Better CE Insurance companies are allowed to examine creditable coverage closely. They can look at five specific benefits. These include pharmaceuticals, vision, dental, mental health, and substance abuse. If the insured did not have any of those, the new insurer can apply preexisting condition exclusions to the coverage he did not have. If the insured had no vision coverage under the old plan, the new insurer could insist on a 12 months waiting period for vision problems. If he had only six months of creditable dental coverage under the old plan, the new insurer could insist on a six-month waiting period for preexisting dental problems. These waiting periods would not apply to the entire health plan, only those benefits for which there was not 12 months creditable coverage.

HIPAA Is Health Coverage Only HIPAA is only intended to provide portability of accident and health coverage. HIPAA does not apply to accidental death and dismemberment insurance, travel accident insurance, accidental death and dismemberment insurance, or disability insurance. Nor does it cover liability insurance or any supplemental liability insurance. Also not covered is workers compensation. HIPAA does not cover automobile medical payments, or any type of credit insurance. Also not covered are the onsite medical clinics that many employers maintain.

Seniors Can Get Answers Every state has a federally funded State Health Insurance Advisory Program, or SHIP. It helps the elderly and disabled persons understand their rights and options for health care. In Connecticut it is called CHOICES. Other states have other names. It provides advice about buying Medigap and Long-term Care insurance. It provides help when payment is denied or appeals are necessary. Medicare rights and protections are explained. The elderly have a place where they can make comments about care and treatment, and be heard.

Large Employers Can Negotiate Coverages, Not Just Price Seventy percent of people covered under health insurance are covered under group plans. That is because the employer has better bargaining power, and has administrative cost savings. Administrative savings and bargaining power combine, especially when employer’s band together to form purchasing pools. Larger employers have formed NCHB, the National Business Coalition on Health.

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A Better CE Smaller businesses are represented by the NFIB, the National Federation of Independent Business. Many of these smaller businesses find it difficult to arrange any affordable health plan whatsoever. As a member of this group, they can find coverage. Larger employers have flexibility because they have the power to negotiate the terms of the coverage. Small employers have to accept policies as they are written. Smaller business focuses on cost because they realize that the state has regulated much of the market. Larger businesses are able to negotiate the quality of care that they offer to their employees. Larger businesses undertake healthcare quality improvement initiatives. They use collective bargaining power to demand information from hospitals and care providers. This puts the large employer in a position to measure the quality of care that is offered. The small employer can not do this. The larger employer has staff that can do this; the smaller employer does not. Understand The Business Owners Before You Approach Him Businessmen are being taught to ask about the agents motives. Is the plan proposed best for the employees or best for the agent? They might ask you what percentage of your business you place with a given company, and why. They want to know how many plans you represent. If you do not offer enough different plans, that is a signal for the business person to shop elsewhere. A business person is a trained purchaser. Be sure that the business person understands that going to several agents can result in multiple submissions to the same plan. The business person will also be checking with the state insurance department to see if there are any complaints against the agent. Here again, being ethical and having a good reputation pays off. Smaller Insurers Can Offer Good Plans Many employers will only become involved with an accredited health plan. Accreditation is necessary but not foolproof. A smaller plan may do an excellent job for the covered people, but may not have the resources to provide all the necessary data for accreditation. Larger organizations can provide overwhelming data with highly sophisticated computer tracking systems. That does not necessarily mean better care. For example, JCAHO’s current system allows hospitals to choose among 2500 different measures to track performance. Supercomputers can work their way through the different measurements to produce a measurement that gives them a higher ranking. In smaller organizations computers would not be able to do this. The agent representing a smaller plan is going to have to provide references from other employers and anecdotal evidence of good care. The smaller plan may meet the standards, but not have the computing capability to prove it.

All Rights Reserved, Richard Levine