Thursday, April 11, 2013

Potential abuse in Transitional Reinsurance Program

A few quick points: Hospitals account for 50% of all spending and a good portion of excess cost. A number of hospitals own their own insurance carriers. Not all hospitals are bad/a problem; some just "work" the system really well. It is this history of working the system that makes this such a problem.

I'm in DC at a payor conference and the IRS was explaining the workings of the Transitional Reinsurance Program (TRP) to protect carriers writing individual guarantee issue policies. Once an individual exceeds $60,000 the TRP will reimburse 80% of expenses up to $250,000. That works out to 80% of $190,000 or $152,000 of losses ($250k - $60k is $190k; $152k is 80% of that)..

Most of my business is under 50 lives, so they are not required to offer group insurance; sending everyone to the Exchange is a very viable option. We can usually beat the carriers, though, by managing claims and cost and educating members. A great area of savings is moving care from the hospital charging 300% of Medicare to the one willing to contract at 140% of Medicare.

Look what happens now that the government has stepped in to make things "fair:"

A 30 life group has one person with large known claims. The premise of insurance is that the premium would need to equal the known cost of the claim, plus other claims, plus fixed costs; to make this point, though, we are just going to focus on this one claim.

Hospital with their own insurance carrier usually charges 1000% of Medicare and collects 300%. A claim that Medicare would pay $50,000 on would be billed at $500,000 and paid $150,000.

Under my self funded plan we would steer that claim across the street and only pay $70,000. Still a lot of money for a 30 life group. But under TPR look what happens if the employer just drops their insurance:

Hospital sells them an individual policy and lowers the PPO discount to 500% of Medicare. The hospital now collects $250,000 instead of $150,000 for an increased profit of $100,000. But it gets worse; The carrier lost an additional $100,000 but will now get a reimbursement from TRP in the amount of $152,000. Previously the hospital made $150K and the carrier side broke even on their premium. Now the Hospital side makes $250,000 and the carrier makes premium minus $60K.

What should only be a $70,000 claim in the first place is costing the system $250,000 plus the subsidy of $152,000 or $402,000. The subsidy comes out of the pocket of the competition (me). ACA just turned a $150,000 bill into $402,000 and made it that much harder to compete.
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