Private health insurance: New measures of a complex and changing industry | Health Insurance Association of America (HIAA) and HCFA

Private health Insurance: Measures

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If you are seller, manufacturer, wholesaler, retailer, shopkeeper, supplier, create your profile on www.salejusthere.com and post free ads. Read all about on our blogs. Private health insurance benefit payments are an integral component of estimates of national health expenditures. Recent analyses indicate that the insurance industry has undergone significant changes since the mid-1970's. As a result of these study findings and corresponding changes to estimating techniques, private health insurance estimates have been revised upward. This has had a major impact on national health expenditure estimates.

This article describes the changes that have occurred in the industry, discusses some of the implications of those changes, presents a new methodology to measure private health insurance and the resulting estimate levels, and then examines concepts that underpin these estimates.

What is Health Insurance

The private health insurance estimates prepared in conjunction with the national health expenditure estimates have undergone a major revision. The need to re-examine the private health insurance estimates became apparent during an investigation of changes in the taxation of employer-sponsored health insurance. The aggregate amount of employer contributions was being reviewed because it determines the magnitude of the impact on Federal revenues for both the proposed cap on employer contributions and proposals to permit widespread use of flexible spending accounts in cafeteria plans.

Salejusthere.com/blog publishing article for banking and finance, insurance and, legal and real estate and property related. The examination disclosed that important components of the industry, previously excluded from the estimates on the grounds that they would cause double counting, were, in fact, not duplicative. The principal items omitted were the “administrative services only” and “minimum premium plan” premiums of insurance companies. In addition, provisions were made for new components of the industry which were not previously estimated. An example is an emerging form of insurance administration known as “third-party administrators.”

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Comparisons with other independent measures indicated that the previous Health Care Finanx`cing Administration (HCFA) estimates were too low. For example, the proportion of personal health care expenditures for hospital care and physicians' services paid for by insurance was decreasing in the national health expenditure accounts. This decline seemed unreasonable because it occurred during a time when the proportion of population covered by insurance remained constant. Furthermore, the level of benefits continued to increase, because deductibles and out-of-pocket limits tend to be fixed in dollar terms.

This article discusses the new methodology for measuring private health insurance, and summarizes the results of the revised approach. Also examined are health insurance concepts such as: administration, risk, regulation, provider choice, and others, if you are planning to purchase property in India or any state visit www.salejusthere.com. The final section presents a summary of the findings and points out the need for further research in this area.

New estimates of private health insurance Industry changes

Several fundamental changes have occurred during recent years in the financing and administration of private health insurance plans. Insurers increasingly provide administrative services only for many employer health insurance plans, and they no longer bear any of the risk.1 For many other employers, contracts have been split into self-funded and insured portions, with the insurer providing protection that is equivalent to a traditional insurance plan.2 Other employers self-insure, but they obtain protection against catastrophic level of claims. This type of insurance is variously referred to in the industry as excess-loss insurance, stop-loss insurance, or reinsurance. It will be referred to herein as excess-loss insurance.

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These changes occurred at a time when large numbers of employers were converting insurance contracts into some form of self-insurance or self-funding. Here “self-insurance” refers to the assumption by an employer, union, or other group of all or most of the risk of claims for a policy year. “Self-funding” refers to the payment of claims from an employer bank account or a trust established for the purpose. Whether a self-funded plan is also self-insured depends on whether arrangements are made to transfer risk to another party through an insurance contract. Self-insurance and self-funding offer several advantages to employers. Self-insured plans are exempted from State regulation by Federal legislation in the Employee Retirement Income Security Act of 1974. Hence, State laws mandating coverage of specific facilities (such as alcohol treatment facilities), practitioners (such as podiatrists, chiropractors, or clinical psychologists), or therapy (such as outpatient psychiatric care) do not apply. The potential advantages of self-funded plans are to avoid most premium taxes, permit employers access to the claim reserves for business use, and obtain tax-free interest on reserves.

The trends to self-insurance and self-funding provided new market opportunities for independent management companies, called “third-party administrators” (or TPA's), and these companies have claimed a substantial portion of the market share.3 Other significant changes have been the growth of health maintenance organizations (HMO's) and other alternative health systems, including preferred provider organizations (or PPO's) and “cafeteria plans.” All of these changes fundamentally affect the division of risk between employers and insurers, the responsibility for determining the amount to be reimbursed, and other important aspects of insurance arrangements.

Health Insurance Association of America (HCFA): Review of prior methods

Previous HCFA private health insurance estimates were based on three principal data sources: the Blue Cross Association and Blue Shield Association (the Blues), the Health Insurance Association of America (HIAA), and the Survey of Independent Prepaid and Self-insured Health Plans conducted each year by HCFA. These sources continue to be available. The Blues provide estimates for the national totals for Blue Cross/Blue Shield financial coverage and enrollment data.4 HIAA provides similar estimates for insurance company regular business and, since 1978, for administrative-service-only (ASO) contracts and minimum-premium-plans (MPP) business. These estimates are based on an annual sample survey conducted with insurance companies writing health insurance. The results from their regular business survey are controlled to totals compiled from annual statements filed with State insurance departments.5 Finally, the HCFA Survey was designed to cover the rest of the health insurance industry. Surveyed are self-insured employer and union plans, and prepaid plans such as HMO's, and dental and vision plans.

Many of the problems with the previous estimates are associated with the treatment of independent plans and, in particular, with proper measurement of self-insured plans. The HCFA Survey of independent health plans has been conducted each year since 1942. This annual Survey is benchmarked to periodic census measures of the independent plan universe. The last census was conducted in 1978 for 1977 data.

Recent Evaluation of TPA

Recent evaluation of the process suggested two general shortcomings. First, the universe of independent plans was incomplete, because virtually all of the labor management plans in the census are self-insured and self-administered. Plans which are self-insured but administered by a third party, an insurance company, Blue Cross or Blue Shield Plan, or a TPA, were found to be largely missing from the data base. Second, no method existed to measure annual changes in the number of new independent plans in the universe. These problems are especially serious because, according to data from HIAA, a large proportion of participating experience-rated plans insured by commercial insurers were converted to ASO or MPP during this period. ASO and MPP estimates became available in 1978. However, they were not included in the private health insurance estimates because they were thought to duplicate the HCFA Survey estimates of self-insured plans.

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In addition to ASO's and MPP's, the TPA's were growing rapidly. Hundreds of TPA firms have been identified, though only a few of these were in operation in 1975. Finally, new developments have led to a rise in the number of self-administered plans. Notable among these developments is the availability of time-shared software and specialized consultants to assist plan administrators.

The result of the incomplete and fixed sample frame for surveys conducted in 1978 and later years was a downward bias in the estimate of self-insured plans. In fact, no TPA administered plans were surveyed, and relatively few ASO or MPP plans were included in the sample frame. In addition, the fixed sample frame did not allow for a growth in the number of self-administered, self-insured plans. These findings were revealed by a special survey of the 66 self-insured plans included in the annual HCFA Survey. Only two had an ASO arrangement and none used a TPA. The plans were also asked about their administration in 1977, the census year, and the responses were the same.

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The primary information gaps cited above are that neither the HIAA nor the HCFA estimates of self-insured plans are complete measures of self-insurance. Each measures a different type of self-insured plan: HIAA measures those that are administered by insurance companies, and HCFA those that are self-administered. In addition, neither includes still another type of self-insured plan, namely those administered by TPA's. As noted, the previous methodology used only the HCFA Survey results to avoid presumed double counting. The conclusion from current studies is that data from both HIAA and the HCFA Survey should be used as the basis for estimates of their respective components of self-insured plans. In addition, a measure of the TPA self-insured plans is needed.

The data needed to make the ASO and MPP changes were available from HIAA. Information on third-party administrators were not readily available, and an estimation procedure had to be developed for these new measures of private health insurance. The estimates are an amalgamation of information from a variety of sources, principally from Business Insurance, a weekly trade journal, and from Temple, Barker, and Sloane, Inc., an industry management and consulting firm.

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Business Insurance conducts an Annual Survey of Third-Party Administrators (Cain, 1984). The information reported includes the total number of claims administered for all firms and for self-insured firms and the proportion of claims that were for health insurance. Also included are estimates of gross revenues and total staff.

Conclusion:

Additional information is available for some TPA's from a survey by Temple, Barker, and Sloane that was used to supplement the Business Insurance list of TPA's. This information includes estimates of total health insurance claims paid, the staff devoted to paying claims, and the dollar volume of health claims paid. TPA's administer claims for many entities, including self-insured plans, insurance companies, associations, and prepaid plans. The TPA estimates are for the administration they provide for self-insured plans only.6 From all sources, information was available for 137 TPA's serving the health insurance industry. Since many more TPA's are known to exist, these estimates should be considered preliminary and most likely as a lower bound of the actual level.

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