While finishing up a relaxing vacation in Los Angeles last week I saw Costs for individual health plans soar in the USA Today outside my hotel room door. More people are buying individual plans as they get laid off and lose their corporate coverage. Prices are high and rising so the pain is intense.
Advocates say the 17 million Americans who buy their own coverage can’t negotiate lower rates the way employers or other large group plans can.
That’s not really the case. Mid-sized and large employers are typically self-insured. They cover their own medical costs and pay an administrative fee to a health plan or a third-party administrator (TPA) to run the plan and provide access to the plan’s provider network. Smaller companies and individuals are buying insurance in addition to administrative services, but they have access to the same provider networks and other services. The individual market sometimes has higher profit margins for insurers, but it’s also more expensive to serve because administrative costs are higher. Some states have competitive markets where individuals have several insurance companies to choose from, and they certainly do compete on price.
So why are costs high and rising, not just for individuals but for companies, too? The main culprit is medical expenses, which is a combination of utilization and pricing, both of which are rising. Factor in the higher share of patients without insurance and those on lower-reimbursement government schemes like Medicaid and you’ll find the remaining commercial patients getting squeezed ever tighter.
In the late 90s, employees rebelled against managed care’s effective cost containment mechanisms and employers basically gave in. Now that fewer people have company-sponsored insurance and those that do have to pay a higher share, it’s time for members to look at managed care as their friend, and to demand plans that put a damper on utilization as well as pricing. The brands of existing health plans may be too tainted in consumers’ minds to take on this role, but there is a business opportunity here.