HCI3 Update from the Field: Between Insurer and Insured

Submitted by francois.debrantes@hci3.org on Friday, January 4, 2013 - 01:39

Newtown, CT – January 4, 2013

We too often think of an insurance contract as being between an insurer and an insured – and while that is true, there are two parallel and often uncoordinated parts to the health insurance contract. The first part is, in fact, between the insurer (whether an employer or a health plan – including Medicaid or Medicare) and the insured. And that contract creates terms under which health care services "consumed" by the plan member will be paid, the portion of the services paid for by the insurer and the insured, and the limits to the financial risk of both parties during the term of the contract. There is, however, a second part which is just as important: the contract between the insurer and the providers of health care services. That part describes the terms under which the insurer will pay for services delivered, the portion of the services that will be paid by the insurer and any portion that might not be paid and under what circumstances. Sadly for all of us, in almost all instances, there is little, if any, relationship between the two parts of the contract. And there is almost never any clinical nuance introduced in either contract. And yet, the real health care transactions that result from these two parts occur not between the insurer and the provider or the insurer and the plan member, but between the plan member and the provider. Which is why we have conflicts between physicians and plan members, and various other misalignments between payers, providers and patients.

What this means to you – Just think about it. An insurer (or its agent) negotiates payment terms for services with providers. Separately, that insurer negotiates reimbursement terms for the consumption of services with plan members. Let's consider the instance in which the first part is a negotiation on a global per member fee with a targeted trend rate. And let's assume that the second part is a basic co-pay per service used, with no co-pay for certain preventive services. The member is encouraged to access and consume services while the provider has the opposite incentive. Or let's consider a more subtle example. The global per member fee excludes preventive services so that there's better alignment with the member contract. In that case, both members and providers are encouraged to deliver and receive preventive services. But not all members should get the same preventive services. For example, colonoscopies aren't really recommended for patients under 50 if they have no know risk factors, and yet the provider will have a financial incentive to administer a colonoscopy to all plan members, not simply the ones for whom it's really recommended. The point is both complex and simple. The two sides of the contract have to match in order to avoid conflicts between the ultimate parties to the real transaction – the provider and the patient – and the terms of the contracts have to evolve significantly so that they reflect the clinical nuance that is inherent in the appropriate management of patients. For example, the provider-insurer contract could reduce the price for the colonoscopy provided to patients under 50, and increase it for patients above; and the member-insurer contract could institute a co-pay for colonoscopies if the member is under 50, and no co-pay for members above 50. That's a long way from the hammer and nail approach of most of today's insurance contracts, including all of Medicare's contracts with providers and beneficiaries. But the journey has to start today. 


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org