Participant Response to Health Plan Pricing

Question 1

Define what is meant by the term risk premium and its relationship to the loading fee.

Answer 1

Risk premium represents the maximum amount that individuals are willing to pay to avoid the consequences of an uncertain loss. In insurance vernacular, the actual amount that is paid over the expected loss is called the loading fee. The loading fee includes the insurer’s administrative costs, reserves and profits

Question 2

Why is the total premium the employer pays on behalf of the employee not used by analysts to examine the impact of insurance premiums on the choice of health insurance plan?

Answer 2

The total premium that an employer pays on behalf of employees is the relevant premium from the insurer’s point of view, and theoretically it should also be the relevant price for employees, since they trade lower wages or reductions in other benefits for the employer-sponsored health insurance. However, analysts typically argue that because employers tend to split the premium into the employer’s share—paid for with largely unseen wage and benefit reductions—and the employee’s share—paid for by explicit out-of-pocket premiums—the out-of-pocket price is what affects the employee’s decision during the open enrollment period. Since employees’ nominal wages do not immediately change as a result of their insurance decision, this is not an unreasonable approach.

Question 3

Discuss the findings of the 1986 study, cited in the textbook, investigating the extent to which health maintenance organization enrollment was a function of price differences between the plans offered.

Answer 3

The author of the 1986 study found that a 10% increase in the monthly out-of-pocket premium had a short-run effect of reducing the HMO share of a firm’s subscribers by 2% and a long-run effect of a reduction of 6%. Because the employer paid approximately 90% of the premiums of the firm being studied, a 10% premium increase would cause a 20% reduction in the insurers’ market share almost immediately and a 60% reduction after workers had time to explore options and fully adjust to the new set of premiums.

Question 4

What other factors, besides changes in out-of-pocket premiums, add complexity to estimating the effect of out-of-pocket premiums on health plan choice?

Answer 4

1. The availability of other plan substitutes within and outside the employee’s own firm
2. The introduction of a different employer contribution structure
3. The degree of choice of providers among the plans being offered,
4. The employee’s age and household income and the presence of chronic disease in the employee’s household.

Question 5

The inclusion of workers who had different insurance options (presumably outside of the employee’s own firm) led to bias—from _________ __________ of price sensitivity to changes in out-of-pocket premiums.

Answer 5

Lower estimates

Question 6

Another study examined the extent of plan switching as a result of the introduction of a ______ _____ _______ _________ plan. In this case, the employer changed its health insurance program from one that set its contribution to the average of the four most popular plans to a program pegged at the least costly plan. The study found that over ____ of employees changed plans when faced with a ___ ________ in premiums, and nearly 30% did so when out-of-pocket premiums increased by ____.

Answer 6

1. Level-dollar premium contribution plan
2. 26%
3. $10 increase
4. $20

Question 7

Describe the various methods insurers use to determine out-of-network benefits

Answer 7

Reimbursement is capped using either a percentage (usually 140% to 250%) of the Medicare rate or the usual and customary rate (UCR).

The UCR formula is often calculated employing a stated percentile (e.g., 80th percentile) of all billed charges for a specific service in a geographic area.

The individual is then responsible for any coinsurance on the UCR, the deductible and the balance bill amount

Question 8

Discuss why avoiding out-of-network providers may be difficult for employees.

Answer 8

The use of an out-of-network provider is quite often not an informed or voluntary choice

Question 9

Whether or not a provider is in-network, the amount the insurer will reimburse and the amount an out-of-network provider will require the consumer to pay are often not transparent to consumers. For some medical specialties and some geographic areas, access to in-network providers may be limited, propelling some patients to use an out-of-network provider.

Answer 9

And in some cases, hospital-based providers, such as anesthesiologists or radiologists, are not chosen by the consumer and may be out-of-network even when the hospital where the consumer is receiving care is in-network. Furthermore, emergency room (ER) services may also be provided by out-of-network providers.

Question 10

What issues make it difficult for individuals to manage access to out-of-network services?

Answer 10

1. Inadequate or outdated directories to determine provider network participation
2. Failure by most providers to publish list prices for their services and individuals’ difficulty understanding insurers’ out-of-network reimbursement schedules.

Question 11

Do health plans offering a choice between in-network and out-of-network services typically allow out-of-network cost sharing to count toward an individual’s out-of-pocket maximum under the plan?

Answer 11

Ordinarily, plans do not allow out-of-network cost sharing or balance billing to count toward an individual’s annual out-of-pocket maximum.

Question 12

How have some states and the Affordable Care Act addressed the issue of network adequacy?

Answer 12

1. States may require insurers to report provider-to-enrollee ratios or statistics related to driving distance to providers
2. Maintain a network that is sufficient in number and types of providers, including providers that specialize in mental health and substance abuse services, to assure that all services will be accessible without unreasonable delay.”

Question 13

Which factors affect adequacy of provider network?

Answer 13

Geography

Provider type

The absolute number of providers

The amount of provider competition and insurer policies including reimbursement

Question 14

What are the incentives and disincentives for providers to join a network?

Answer 14

Provider competition is a powerful incentive to participate in a managed care network; if providers have an insufficient supply of patients without network participation, they will have a strong incentive to contract with an insurer.

Lack of competition creates different incentives; if all the anesthesiologists in an area are in the same practice, they may have little incentive other than patient satisfaction to accept reduced payment rates offered by an insurer for their essential service. Health system consolidation may also have unintended consequences for whether specific providers are included in a network.

Question 15

Discuss the unexpected out-of-pocket expenses that individuals may incur from a hospital stay.

Answer 15

Hospital-based providers do not typically inform patients that they are out-of-network before delivering care

For some specialties, such as radiology or pathology, patients may not even come in contact with the out-of-network provider. While a hospital may be in-network, providers treating patients at that hospital may not be in a particular network. This means that, though a patient may check before a routine surgery to ensure that a hospital is in her insurer’s network, during her surgery she may receive services from an out-of-network assistant surgeon or anesthesiologist, which essentially would be impossible to refuse. The patient may not discover the provider is out-of-network until she is billed for the service.

Question 16

What approach does ACA take to the problem of involuntary out-of-network emergency care?

Answer 16

it requires that plans not impose higher copayments or coinsurance for out-of-network emergency room providers

Question 17

Insurers must also reimburse (at a minimum) the greatest of three possible amounts

Answer 17

“(1) the amount negotiated with in-network providers for the emergency service furnished;

(2) the amount for the emergency service calculated using the same method the plan generally uses to determine payments for out-of-network services (such as the usual, customary and reasonable charges) but substituting the in-network cost-sharing provisions for the out-of-network cost-sharing provisions; or
(3) the amount that would be paid under Medicare for the emergency service.” Notably, balance billing by the provider is still allowed, although the rules on minimum insurer reimbursement may reduce the amounts that providers will balance bill.

Question 18

term used to describe the situation where a health care provider wants to be reimbursed from a managed care plan enrollee the difference between the provider’s billed charges for a service and the amount that the managed care plan paid on that claim.

Answer 18

Balance billing

Question 19

Chargemaster rate

Answer 19

Charge billed by the provider, which refers to a comprehensive list of billable services that are set unreasonably high so that they can be discounted following negotiations with insurers.

Question 20

For non-emergency care, individuals who _________ or involuntarily obtain care from out-of-network providers are often ________ _______ the large difference between what the health plan allowed and the ___________ _____.

Answer 20

1. Voluntarily
2. Balance billed
3. Chargemaster rate

Question 21

Discuss why ambiguous price terms in hospital admissions contracts do not cause the contracts to be unenforceable due to indefiniteness.

Answer 21

Upon agreeing to undergo treatment at a hospital, a patient assumes financial obligations toward the hospital and its physicians, as set by the standardized contracts between the patients and the providers. Generally, for a contract to be enforceable, an offer must be so definite in its terms that the promises and performances to be rendered by each party are reasonably certain. Unfortunately, courts have recognized that the nature of medicine and the doctor-patient relationship require a different standard of definiteness than do more traditional exchanges. As a result, a patient who incurs surprise medical bills from an out-of-network physician at an in-network hospital is unlikely to escape his contractual obligation under a theory of indefiniteness.