Scott MacStravic, Ph.D, questions whether insurance industry payers have sufficient economic incentives to promote their members’ proactive health management. Scott writes:
At first glance, health insurance plans ought to be major supporters of proactive health management (PHM) for their member populations, at least to the extent that this reduces membersâ€™ use of sickness care. Most health plans do offer some kinds of PHM services, and many are into it in a big way, with large plans such as CIGNA and Aetna offering PHM to employers who are not even their health insurance clients. But the first glance may be too simplistic.
His counterintuitive observation lies in the effect of lower health care costs on total revenues –
Consider the full â€œsystems dynamicsâ€ effects of engaging in PHM. True, when done effectively, PHM can significantly, often dramatically reduce healthcare costs for populations affected. But this also reduces the â€œloss ratiosâ€ for the plans, and can threaten their overall profits, since to maintain the same percentage of profits with lower premiums, its total profit amounts will be reduced, even if their margins remain constant. They will enjoy less growth in revenue, which will threaten their share prices, and shareholder as well as Wall Street analyst happiness.
What is particularly interesting here is Scott’s empirical approach to the issue. Rather than assuming, a priori, that a health plan payer would prefer lower loss ratios in all cases, his observations suggest the importance of market analysis.
Think about his point this way. Managed care companies are essentially paid to administer health plan costs. At some point, decremental loss ratio factors will affect profit margins since the significance of services rendered is also diminished. Perhaps the greater incentive would be, for example, to shift more costs to members (though Scott did not suggest this), rather than actually lowering claims volume.
He also points out the problem that investment in PHM may actually inure to the benefit of competitors. Here he observes that:
there is a built-in risk when engaging in PHM that some portion, perhaps a significant, even the major portion of the benefits of PHM investments will end up aiding some other plan, as members change plan selections at least annually. If employed members have high turnover relative to their employer, or high â€œchurn ratesâ€ relative to their plan selections, they may not remain members of a given insurer long enough for any, or at least enough payoff to the insurer that paid for their PHM services.
These observations require analysis in specific cases before reaching conclusions, but the careful approach to analysis of economic incentives for improvement in delivery of heath care services is so often lacking in reform initiatives. Scott is a regular contributor to The World Health Care Blog on health care issues.