Recent Blogs & News Updates

Insurance Carrier Profit Models in the Age of Self-Funding

Insurance carrier profit models in the age of self-funding

Historically, insurance companies made money by collecting more in insurance premiums than they paid out in medical claims (underwriting profit).  Now, with the majority (68.3% in New Jersey) of insured lives covered by some form of self-funded plan, insurance companies do not bear the financial risk for medical claims payouts – the self-funding entities do.  Consequently, insurance companies no longer have access to robust underwriting profits.

In response to this, insurance companies have developed alternate profit models.  They now serve as Third Party Administrators (TPAs) to self-funding entities via Administrative Services Only (ASO) contracts.  Roughly 50% of Horizon’s book of business is via ASO contracts.  For Aetna, that figure is 75%.

When an insurance company, such as Horizon, contracts with a self-funding entity via an ASO contract, it provides a set of services and competencies that the entity cannot provide for itself, such as utilization review, preauthorization for services, or claims adjudication.  Most importantly, the insurance company provides the entity with a network of providers with whom it has negotiated discounted fees.  Without this network, the entity would be liable to pay full retail medical fees.

Discounted fees, negotiated by the insurance company (acting as TPA), are an important part of the cost containment strategies offered by the TPA to the self-funding entity.  For these savings, however, the TPA charges a “commission”, ie, a percentage of the savings accrued to the entity for having used the TPA network, or for having the TPA adjudicate claims (for OON).  After the TPA has paid a claim, it then draws funds from the entity’s medical benefit trust account for an equal amount (reimbursing itself).  The TPA then also draws its commission – which is equal to a percentage of the difference between the paid claim and the provider’s actual charge.  This commission applies to every medical transaction, both in-network and out-of-network.

How large are these commissions?  They vary by insurance company and ASO contract.  The contracts themselves are exceedingly difficult to find.  A few are listed below.  In general, insurance companies, acting as TPA’s, charge from 30% to 50% as cost containment commissions.

Here are some ASC cost containment examples:

1. ASO between CIGNA and School Board of Seminole County, FL (Commission = 29%)

screen-shot-2016-11-10-at-3-00-28-pm   

2. ASO between United HealthCare and the City of Overland Park, Kansas (Commission = 35% in-network, 30% out-of-network).

screen-shot-2016-11-10-at-3-00-38-pm

3. ASO between Aetna and Polk County, Fl (Commission = 50%).

  screen-shot-2016-11-10-at-3-00-42-pm

The New Jersey Neurosurgical Society has been engaged in obtaining ASO contracts here in New Jersey between the State Health Benefits Plan (SHBP) and its TPAs Horizon and Aetna.

In November of 2013, the City of Richmond (COR), and the Richmond Public Schools (RPS) published an audit of their self-funded health benefits plan, administered by Cigna.

Here are some key findings of the audit:

  1. The contract (ASO) allows CIGNA to charge certain fees to RPS/COR, in addition to the cost of claims. RPS’ portion of the total payments to CIGNA exceeded $30M and included:

o Paid Claims

o Stop Loss Premiums

o Administration/Cost Containment Fees

Excluding claims paid, RPS paid $5M to CIGNA during the audit period.

  1. The ASO provides that CIGNA receive 29% of any savings realized due to cost

containment, but does not require CIGNA to choose the most cost beneficial alternatives to

RPS. These negotiations are not always beneficial to RPS.

  1. In accordance with the terms of the ASO, CIGNA charged a specific percentage of

the savings through negotiations of billed charges under agreements with third parties.

During the audit period, RPS paid CIGNA $1.1M for cost containment.  CIGNA withdrew these fees directly from RPS/COR’s joint bank account without RPS/COR’s review/approval. Under the terms of the proposed ASO, CIGNA is not required to justify these charges or provide documentation to substantiate the charges. Accordingly, information was not available, and the auditor was unable to verify the appropriateness of these charges.

  1. CIGNA did not allow the City Auditor to review any claim(s) or provide details/specifics for cost containment charges, because RPS had not signed the “audit clause” of the ASO.

In summary, COR/RPS paid approx. $30 million for its members’ health care benefits during the audit period.  Roughly $25 million (83%) was used to pay actual medical claims.  $5 million (17%) was paid to Cigna via an ASO contract.  Of that, $1.1 million represented cost-containment commissions.  Cigna drew a pure profit representing 3.7% of the COR/RPS total health care budget.  This was accomplished without incurring risk for paid claims, which risk remained with COR/RPS.  In addition, the suggestion was made that Cigna’s profit motive was at odds with COR/RPS’s budgetary best interests.

Insurance companies divert billions of New Jersey health care dollars, via cost-containment commissions, away from the benefits our residents have paid for and deserve.  This is money stolen from our teachers, police officers, carpenters, and others.  Insurance companies must be held accountable for this practice, and should be forced to justify their business model in front of Assembly and Senate committees, just as OON providers have been doing for years.  Restricting OON charges might save some of the State’s health care budget (at what cost to access?).  But tight regulation of ASO agreements, on the other hand, with elimination of hidden commissions, can save the State exponentially more.

A-1952 Update

Dear Colleagues:

As you know, the latest “Out-of-Network” bill, A-1952, passed through the Assembly Appropriations Committee on October 27, despite opposition from our Society, MSNJ, the Hospital Association, and all other provider groups who testified against it.

The following is an update on what this development means to our patients and our ability to provide them with highest-quality medical care anywhere.

A-1952 is the latest iteration of an onerous, insurance-driven legislation that we have been opposing since 2010 when Gary Schaer (D-Passaic) proposed his bill capping OON reimbursements to a multiple of Medicare (In its worst form, the bill restricted OON emergency billing to 150% of Medicare).  A-1952 caps at 250% of Medicare.

The most familiar version of this bill was A-4444/S-20, which we successfully stopped from passing out of Assembly and Senate committees from 2012 -2015.

Last June, A-1952 was reported out of the Assembly Financial Institutions (AFI) Committee, whose Chair, Craig Coughlin (D-Woodbridge), is also a sponsor of the bill.  Fortunately, S-20, the Senate counterpart to A-1952, failed to clear the Commerce Committee.

At no time has an OON bill been voted upon by a full Assembly or Senate floor.

What is required for A-1952 to become law?

When a bill is introduced for consideration in either the Assembly or Senate (first reading), it is typically assigned to a committee for review, public comment, and amendment.  A-1952 went through this process last Spring, when it was referenced to and reported out of AFI.  It was then second referenced to Appropriations for review of fiscal impact.  Public hearing on this was held on Oct 27, and the bill was again reported out of committee.

A-1952 can now be considered by the entire Assembly (second reading), although amendments can now be proposed by members.

Once A-1952 reaches its final form with incorporated amendments, it can be considered by the full Assembly floor (third reading) for a vote.  Passage requires a majority of at least 41 votes.  In the Assembly, there are 52 Democrats and 28 Republicans.

Meanwhile, a similar process has to occur in the Senate Committees and Senate floor, with 21 votes for majority.  In the Senate, there are 24 Democrats and 16 Republicans.

The Assembly and Senate versions must be identical, through a process known as reconciliation.

After final passage through both houses, the bill lands on the Governor’s desk.  Here, it can be vetoed outright, conditionally vetoed (sent back for amendments), or approved.

In all, there are approximately 12 steps that a bill has to go through in order to become law.  A-1952 has gone through three of these.  This is worrisome because 1.  No other OON bill has progressed so far, and 2. The bill was rammed through two committees despite vigorous objections that previously managed to halt the bill.

Of note, Governor Christie has provided assurances of his opposition to A-1952.  Unfortunately, his term ends in January of 2018.

What Happens Now?

1.  NJNS has actively engaged Assembly Speaker Prieto (D-Hudson/Bergen) regarding the negative consequences of A-1952.  We met with him on Nov 1 for this purpose.  The Speaker can control further amendments to the bill, scheduling of a full vote, or even whether second and third readings occur.

Even though the Speaker has not committed to posting A-1952 for a vote, he is under enormous political pressure to do so.  His advice to us was simple and direct – if we want his help on this matter, we will have to help him.  How?  By contacting as many legislators as possible to let them know how A-1952 will adversely affect New Jersey citizens.  These legislators are continually visited by insurance carrier lobbyists proclaiming the predatory practices of OON providers.  It is now up to us to tell the other side of this story.  Surprisingly, these legislators have not been hearing it outside of occasional committee hearings.

2.  We providers need to reach out to our legislators, on an on-going and individual basis, to inform them that A-1952 is bad policy that will only hurt the residents of NJ by reducing quality and access to needed specialists. This is a call to action! We need to become engaged. It is time to wake up our colleagues (neurosurgeons and others) and ask them to email their legislators why preserving OON is important, especially with emergency care.  Routine email contact is essential.  When legislators assemble in caucus, they do discuss what their constituents are saying.  Word will get around that they are getting emails against A-1952.

We will separately email a list of Assembly and Senate legislators, arranged by district, with email addresses.  This should simplify the process of contacting our respective lawmakers.

3.  Meanwhile, NJNS has been formulating a more proactive stance in the battle, rather than our historically defensive postures (that have not been effective during this legislative session).

a)  A new OOB bill has been drafted that incorporates the transparency mandates of A-1952, while eliminating its onerous price caps. Assemblyman Raj Mukherji (D-Jersey City) has introduced this bill, A-4228.  It has received first reading but has not yet been assigned to a committee.

b)  On November 21, the Coalition will host a press conference on A-4228 at the Trenton State House.  Mukherji will be there, along with Senator Tom Keane (Minority Leader).  We have approached other lawmakers, whose support we can count on, to attend as well.

4.  NJNS has been delving further into ERISA-governed health plans, especially as they pertain to TPA cost-containment provisions that rob our self-funded plans (including SHBP) of hundreds of millions of dollars every year.  Our goal is to demonstrate to lawmakers (and union leadership) that elimination of these provisions can save the state far more than can be achieved by restricting OON, without public health consequences.  This is important, because a key driver of the OON issue is budgetary.  Sponsors of A-1952 often cite the cost, to New Jersey, of OON billing, with the newest OLS report estimating that cost to be more than $800 million a year.

We have to offer an alternative means for legislators to achieve yearly cost reductions.  In our efforts, we have enlisted the help of Herb Conaway (D- Burlington), Chairman of the Assembly Health and Senior Services Committee, along with OLS, which has attempted to retrieve ASO contracts between SHBP and Horizon/Aetna.  Republicans on the AFI Committee have also offered assistance.

It is time for the insurance companies to be placed on the defensive.  Attached is a summary of the ERISA issue.

Dues Request

On another subject, it is time for a membership drive and dues request.  As before, the effectiveness of our efforts in Trenton relies on how extensively out Society represents the state’s neurosurgical workforce.  Our numbers are few, but our voices carry a great deal of respect given the nature of our profession.  As such, we hope to add each and every one of you to the membership roster.

Membership dues remain the same as last year.

Active members (in practice more than 3 years) – $2500.

Active members (in practice 3 years or less) – $1500

Retired members – $1500

Membership dues can be paid from corporate accounts.  Checks should be made out to “New Jersey Neurosurgical Society” and mailed to:

Anthony D’Ambrosio, MD, Treasurer.

1200 E Ridgewood Ave, Ste. 200

Ridgewood, NJ, 07450

Thank you in advance for your time.
Warm regards,

RW Raab, MD

A Strategic Approach to Adequate Patient Healthcare Access in 2016

A Strategic Approach to Adequate Patient Healthcare Access in 2016
Scott Meyer – Secretary
January 1st, 2016

In the upcoming legislative session the Access to Care Coalition plans to take a more proactive posture to insure that New Jersey patients have adequate access to qualified neurosurgeons in the state. To that end, we hope to bring attention to the tactical abuse of utilizing excessively narrow networks as a cost containment measure for insurance providers, effectively limiting patients access to quality care.

The New Jersey Neurosurgical Society plans to work with the Coalition to find sponsors of a more reasonable approach that protects our patients from surprise bills while maintaining a “market-based approach” to reimbursements. This approach helps to prevent the creation of a statewide healthcare environment in which insurance carriers have monopolistic control of the healthcare system. In addition, we plan to highlight and correct the use of self-funded plans to circumvent New Jersey DOBI regulations.

Challenges to Current Practice: Update for NJ Neurosurgeons

Challenges to Current Practice – Update for New Jersey Neurosurgeons

Marc Arginteanu, MD, FACS

Past President of NJNS

In May 2015, an out-of-network reform bill was introduced by Assemblyman Craig Coughlin, Assemblyman Troy Singleton, Assemblyman Gary Schaer and companion bill S-20, by Senator Joe Vitale.The bill’s sponsors stated: “We’ve all seen or heard of horror stories from folks who’ve gotten surprise bills when they’ve gotten medical procedures.”

The most onerous provisions in the bill would:

  • Limit how much out-of-network hospitals and doctors can charge for their services in New Jersey.

For institutions, the maximum payment would be restricted to the “lowest in-network deductible (plan).  No solutions should come at the expense of eliminating out-of-network options for patients and a provider’s ability to negotiate fair contracts with insurance carriers. This bill removes the leverage for providers to negotiate fair in-network rates with insurers by creating a system whereby insurance companies can tie up every single claim  in an arbitration system.

  • Create a binding baseball arbitration process.

An arbitration model based on a win/lose scheme to settle claims disputes would fail to take into account the complexity and patient variation specifics of any and all medical procedures. Language to allow ERISA plans to opt in to the arbitration system, while prohibiting balance billing by the provider will result in chronic underpayment to providers by these plans.

This is an insurance favored measure that would promote narrow networks and eliminate flexibility all while attempting to limit provider reimbursement rates and control fees. We need to address those in-network problems rather than vilifying the small number of providers who are out-of-network.

National headwinds are also a concern.  ObamaCare failures in Colorado have recently spurred an unpleasant backlash.  More than half a million cancellations of health care exchange plans  between 2013 and the end of the year are expected.  Premium increases of about 12 percent are expected on the remainder.  Liberals in Colarado are mobilizing to replace ObamaCare with a single-payer system.  ColoradoCare may  be on the 2016 ballot to replace private insurance with health care funded by taxation alone. Fortunately, the initiative and referendum process is not an option in New Jersey.

Senate Commerce Committee Refused to clear S-20

Senate Commerce Committee refused to clear S-20 (“Out-of-Network” bill) for consideration by the full NJ Senate
Rajnik Raab, M.D. – NJNS President

When the New Jersey Neurosurgical Society last met in June, 2015, the “Out-of-Network” bill (A-4444/S-20) had just been defeated in the Senate Commerce Committee. It had already failed to clear the Assembly Financial Institutions and Insurance Committee (AFI), and so the Trenton legislative session recessed for the summer without advancement of this onerous new law. Nevertheless, its chief sponsor, Senator Joseph Vitale (D- 19th District), vowed to continue his efforts after the summer recess.

During the summer of 2015, A-4444/S-20 was reworked, and resubmitted during the lame duck session. As before, no physician or hospital stakeholders were invited to contribute. Rather, the new bill represented typical insurance favored cost-containment initiatives, promoting narrow networks, eliminating flexibility, and severely restricting provider reimbursement, all the while ignoring real health care cost drivers in the state.

In a letter sent by our Society to Nia Gil (D – Chair, Commerce Committee), the following was noted:

“S-20 provides a ready example of this pattern: Section 4, dealing with disclosure mandates to facilities, has 651 words. Section 5, dealing with provider disclosure, has 673 words. Finally, Section 6, which details disclosure requirements for insurance companies, has only 357 words. The imbalance is obvious. Moreover, S-20 mandates apply to 100% of the health care providers in our State, but only 30% of the health care insurers. Again, imbalance. The other 70% (self-funded) can operate without transparency, offering expensive insurance products that create the illusion of financial protection to its members, but, in fact, leave them unprotected at the most vulnerable time in their lives – when they become sick.”

Fortunately, on December 10th, the Senate Commerce Committee refused to clear S-20 for consideration by the full Senate. As such, we can cautiously celebrate a small victory in 2015. On this point, I would like to credit members of NJNS, MSNJ, and the Access to Care Coalition for their collaborative efforts to fight S-20. Their diligent “behind the scenes” efforts — phone calls and campaigning to key legislators prior to the Senate Commerce Committee hearing made a major impact on the ultimate outcome. Had bill A-4444/S-20 cleared both committees, and then been sent to the respective floors for full vote, we as providers would have faced our most imminent existential threat since 2007, when Assemblymen Gary Schaer’s OON bill came up for a full Assembly vote and was defeated. As we forge ahead in new legislative session, we can only be successful in protecting the right to practice out of network with your continued involvement and support.