The Dreaded Strike Three for Obamacare: Corrupted Exchange Data and Inaccurate Insurance Policies

While the prescient Disease Management Care Blog was among the earliest to identify the threat of an Obamacare-induced insurance "death spiral," it missed spotting the potential fallout from a delay of the individual mandate.

As shrewdly pointed out in this Politico article, health insurance timelines require at least three months of claims experience to inform future rate setting.  Once that actuarial work is done, it then has to go through the states' Insurance Departments for approval.

In other words, if large numbers of Obamacare customers are allowed to sign up after March 31, 2014, insurance companies won't know what to charge their customers on January 1, 2015. 

While overcharging can be remedied by customer rebates, it remains to be seen how accommodating Washington DC will be if the insurers undercharge. That means negative cash flows, raiding surpluses and facing the ire of their investors and Boards of Directors.

It's baseball season, so think of the death spiral as a potential strike one, and inaccurate rate setting as a potential strike two.

Which brings the DMCB to a dreaded strike three. If it happens, the health reform brand could be irretrievably tarnished.  It could also and sink the current version of Obamacare.

Strike three would be a critical mass of inaccurate insurance policies.

If reports like this and this are even remotely representative of the back-end of Obamacare enrollment, the relative trickle of individuals who are successfully navigating the exchanges are getting commercial polices that depend on a very vulnerable reconciliation process involving many moving parts.  That includes information from the "hub" as well as user-based data entry. As noted in this report, commercial insurers are being forced to manually "clean up" the information prior to issuing their exchange-generated policies.

The DMCB suspects that a "garbage in, garbage out" adage may apply. Thanks to sheer number of inputs, clean-up mistakes are going to be inevitable.  And it will get a whole lot worse if the healthcare.gov web site gets only partially fixed. 

While a few mistakes are acceptable in large risk pools, more than a few could be huge problem at three levels:

1. At a business level, where a core competency of insurance companies is to cover their enrollees and only their enrollees. Insurance companies are really good at knowing who is and who isn't insured for a covered or non-covered service with or without a variety of co-insurance arrangements.  It's more than just getting it right, it goes to the core of their business model. If enough policies are inaccurate, it could bring the finances of some smaller health insurers to their knees.

2. At national health policy-making level, where a critical mass of insured customers with premiums and subsidies mismatched to the risk could destabilize the market and distract our political leaders. Think about the customers who assume a service is covered, providers who expect to get paid accurately, balance sheets that don't reflect the truth about claims expense as well as IBNR and regulators who will need to sort it all out.

3. At an Obamacare "brand" level.  Think about all those unfriendly and anecdotal news reports about vulnerable patients who ended up legitimately - if mistakenly - paying more out of pocket for care, or persons mysteriously lacking insurance, or hospitals and doctors being unable to get paid. It could ultimately track back to the HealthCare.gov web site that everyone will loves to hate.

The worst part is that the White House has done such a masterful job of bullying the insurers that it's unlikely that they'll want to rock the boat by going public with any notification that their enrollment data is corrupted.  Mr. Obama will naturally claim that he wasn't in the loop and his loyal aides will deflect blame elsewhere.

Strike three, and we may not even see it coming.

Bullying Health Insurance Actuaries

"Gotcha!"

Years ago, the Disease Management Care Blog proudly showed the consulting health insurance actuaries published data like these and these. It naively expected the actuaries to agree that disease management had resulted in cost reductions and that the programs should be favorably factored into the managed care insurance plan's premium pricing for the coming year.

The response of the actuaries was "no."

Disease management not only did not factor into their trend analysis, they decreed that the programs' costs needed to be loaded as an additional administrative cost. The worst part of dealing with their obstreperous math was that the health insurance plan was actually paying them to deliver this bad news.

Which is why the DMCB believes that anyone who believes that actuaries' relationships with health insurers are riddled with conflicts of interest is amateurishly misinformed.  To wit, Senator Franken (D-MN) recently scored a political "gotcha"against the Society of Actuaries when they had the temerity to predict that health insurance costs in the individual market could go up by 32%. While it is true that their consulting services generate fees that are paid by their insurers, their hard-nosed recommendations are hardly ever welcome in the industry, their fees are not linked to health plan profitability, states have regulated actuarial consulting input for decades and, to add insult to injury, customers like the DMCB have to pay their fees for unwanted news.

At one level, the DMCB welcomes members of the U.S. Congress to its world.  The job of the independent actuaries is to present inconvenient truths about future health care trends and premium pricing.  At another level, the DMCB is concerned that Frankenesque-style bluster and bullying could force health insurance actuaries to underprice insurance and destabilize the market just when Obamacare is getting out of the blocks.  We deserve better.

The Fight Over Community Care of North Carolina's Claims of Savings Continue

Nothing like academic fisticuffs to capture the Disease Management Care Blog's interest. The well timed punch that exposes a methodologic weakness.  The counter punch that quotes past research.  The bob and weave of spin and framing.  Misquoting blows below the belt. Statistical pokes in the eye.  The DMCB says it's better than foreign politicians brawling, Kill Bill sword fights and lurid professional wrestling.

Which is why it's enjoying a big dust-up over the Community Care of North Carolina's medical home initiative in the "Letters to the Editor" section of the January 2013 issue of American Journal of Managed Care (AJMC).

Regular readers may recall this early 2009 DMCB alert about the CCNC's actuarially derived claims of savings with its medical home.  Al Lewis of the Disease Management Purchasing Consortium eventually caught-up the the DMCB with his own three-fold roundhouse of a punch directed at CCNC that was published in August 2012 AJMC:

1. Claims of $250 million in avoided hospitalization costs on a baseline 2006 cost of $114 million is very unlikely,

2. Outside data indicate that Medicaid admissions in the state only fell from 36 to 34 per thousand, which also makes any claim of hundreds of millions in savings suspect, and

3. Two neighboring states without a medical home initiative experienced the same modest declines in hospitalizations without the same savings.

Well, the actuaries involved in the original Community Care report have jabbed back:

1. The baseline that was used was an actuarial projection of what costs would have been, based on prior trends, not 2006

2. The observed savings were never ascribed to avoided hospitalizations

3. The medical home initiative had been in place for many years, which could explain its impact.

The CEO of Community Care also penned his own counter-strike.  He argues:

"Evaluating complex programs is a difficult and evolving science, but [the] approach to estimating CCNC’s impact is reasonable, measured, and up to the latest standards in the field. Its analysis plays by the same actuarial rules as everyone else—including disease management vendors calculating a return on investment and insurance companies setting rates."

.The rest of the letter uses terms like "disturbing," "facile" "erroneous" "mistakes" "misrepresents" "circular references." Ouch.

The DMCB fully expects the spat to continue and looks forward to enjoying its ringside seat.  In the meantime, it's sticking to it's original point from more than 3 years ago: the CCNC analysis was an opaque actuarial analysis that was never subjected to the scrutiny (and editing) from independent peer review.  If it had been, the reviewers would have spotted many of Mr. Lewis' concerns and forced the authors to be more transparent with their methods.

Lesson learned.

Of Actuaries, Consumerism, Care Management and the Patient Centered Medical Home

"But we're saving money!" said the Disease Management Care Blog.

"I don't really care" said the company actuary.

That pretty much summed things up years ago when the DMCB was arguing the merits of expanding the care management programs. The good news is that the DMCB stopped talking, listened and got educated.

It learned that actuaries assess past patterns of health care utilization to project future patterns, much like looking in a rear view mirror to drive a car forward. Knowing that the previous years' rate of hospitalizations is "X%," that physician offices visit rates are "Y%" and that other rates for other forms of utilization are "Z%" etc., actuaries, knowing the cost for each unit of service, can then project the cost of future services. Since care management is an additional cost, that "hard" number is simply added into next year's budget. It's all added up and voila! the cost of providing insurance was known. Our customers never liked it because rates kept going up. Our State Department of Insurance - and their actuaries - required it because they knew rates had to go up.

Even though the DMCB could demonstrate that a $70,000 per year case manager could save (depending on the condition) $100 to $700 PMPM, the actuary only saw spiraling cost inflation with higher rates of utilization. Just because a segment of the overall book of business may have cost less, it was calculated that the costs for all persons with diabetes and heart failure would continue to rise and that the nurses were an additional cost center of $70K per FTE.

Case closed.

That was the logic then and is still believed by naysayers today. So, how has care née disease management survived years of actuarial skepticism?

One answer may lie in this J.D. Power press release. Human Resource directors, managers and owners that have responsibility for buying commercial health insurance are unhappy with the industry's ability to service accounts, design new products, resolve coverage problems and manage costs. However, the most important determining factor in overall satisfaction is "employee plan experience."

In reading the press release, the the DMCB can't tell what makes up "employee plan experience," but it has a pretty good idea that a large part includes wellness, prevention and care management. So, in addition to "patient engagement," and "self care" and "risk reduction" and "behavior change," care management's secret sauce consists of personalized outreach and creating special relationships with patients. It's called talking to your customers.

Which offers two lessons and a warning:

1. Service Recovery: This is one of the reasons why disease management, now called care management, wellness and prevention, has done so well in the self and fully insured commercial insurance settings. If JD Powers' press release is to be believed, insurers are relying on their care management programs to partially make up for their perennial inability to execute well on other parts of the business. That doesn't mean there isn't growing evidence that the actuaries can be wrong and that care management also saves money. This is cake and eating it too.

2. Medical Loss Ratio: Given the actuaries' biases and an in-house perception that disease management was a customer service function, it's no surprise that disease and care management programs were placed in the administrative cost column and not the MLR. The care management industry always thought it was a clinical function, but with the widespread perception that health insurer administrative costs are too high (and that the MLR is too low), the industry is working hard at getting their costs reassigned.

And the warning?

While my colleagues who are promoting the Patient Centered Medical Home (PCMH) are fixated on its ability to increase quality, reduce costs, rescue primary care, minimize variation, reverse the Federal deficit and banish all hunger in America, it may turn out that a key success factor will be none of those things. Rather, the long term staying power of the PCMH may hinge on its ability to enhance the health care experience for patients. GroupHealth understands that (here at the 30 sec mark) and so does Blue Cross Blue Shield of Michigan (here). If the actuaries get skeptical and consumers don't notice a palpable change, the PCMH may go the way of dermatologists who remember which end of the stethoscope goes in the ears, the dodo bird and good taste in a Lady GaGa music video.

Image from Wikipedia

Chronic Non-Chronic Blended Trending? A Word from Milliman about Medicare & Disease Management

Check out this interesting and highly readable report from Milliman and their health care actuaries. According to this analysis of Medicare fee-for-service claims from ’03 to ’06, the rate of increase (otherwise known as the ‘trend’) for persons with heart disease, diabetes, chronic obstructive pulmonary disease, chronic heart failure and asthma was lower than the trend for persons without those conditions.

That’s important because trend is arguably a more important metric for the success of disease management than cost. While it would be nice to ‘lower’ the cost of care for persons with chronic conditions, that begs the question of lower cost compared to what. Thanks to forces driving the overall cost of health care (for example, people are getting older, inflation is accelerating, technology is expanding), a successful disease management program may diminish the costs that are proportionally directly due to the chronic condition but still ‘look bad,’ thanks to the general cost drivers. Since costs are constantly increasing across the board, looking at the rate of increase is a good way to reconcile expected vs. observed costs. At least that's how the non-actuarially inclined Disease Management Care Blog thinks about it when its brain isn't getting full.

The art and science of separating costs/trends that are due to the chronic illness versus overall costs not only turns otherwise brainy, stoic, placid and mute health care actuaries into brainy, stoic, placid and murmuring actuaries but is also the stuff on which millions and millions dollars of disease management company performance guarantees depend. Guarantees may depend on comparison of observed trend to a calculated trend that ‘blends’ the non-chronic and chronic trends. If the ‘non-chronic’ general trend is higher than expected and the ‘chronic’ trend is already low without any disease management, the guarantees could be miscalculated. Big time.

This is all based on Medicare fee-for-service data, which doesn’t necessarily apply to the commercial insurance sector, which is where most disease management companies live. In fact, Medicare fee-for-service has no disease management programs to speak of. Milliman's analysis would need to be performed outside of Medicare to determine if it's generalizable.

However, the observation that rate of cost increases is higher for persons without chronic illness has big implications for health care policy. The Milliman report points out that wellness, preventive care, diagnostic services and elective procedures may be the more important drivers of health care costs in 2008. The folks at the Dartmouth Atlas, thanks to their perspective on variation and preference sensitive conditions, would probably agree. The report also asks if the current evidence-based medicine and quality improvement efforts that have been focused on chronic disease is paying off.

The report didn’t bring this up, but it begs another question: does Medicare FFS really need disease management? The answer may still be yes, but if this is all about the scary likelihood of depleting the Trust Fund by 2019, chronic illness may not be where President Willie Obama McCain Sutton should want to go. Maybe some parts of the current Demos directed at chronic illness were unable to show an impact because chronic illness trends were already down....

Food for thought. In the meantime, if you want to learn more about this chronic-non-chronic trend stuff, look here. The DMCB is going to read its copy one more time.