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Less Than 1% of Health Plan Premiums Spent on Quality

 |  By John Commins  
   March 22, 2013

Health insurance providers have spent less than 1% of the premium dollars they collected from policy holders on quality initiatives, a Commonwealth Fund study said.

Insurers spent $2.3 billion on quality improvement activities in 2011, an average of about $29 per policyholder, the report said.  Spending on quality initiatives is mandated in a provision of the Patient Protection and Affordable Care Act.

"You have to have a little bit of a caveat here because this regulation was just starting in 2011. They're dealing with coordinated care and it is in the embryonic stages here of how they are going to allocate those costs," says study coauthor Michael McCue of Virginia Commonwealth University.


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"They have to be able to accurately measure all of these various activities and allocate those costs. The big plans, back when this data was reported, were still in the planning stage of how they were going to be measuring quality of care activities. The majority of the dollars paid out in premiums are going towards medical expenses. These are activities that help promote quality of care."

The PPACA's medical loss ratio rule requires insurers to spend at least 80% or 85% of premiums on medical claims and quality improvement activities, or else pay rebates to consumers. To calculate medical loss ratios, the report, Insurers' Medical Loss Ratios and Quality Improvement Spending in 2011, linked quality improvement expenses to activities that are likely to improve health outcomes, prevent hospital readmissions, improve patient safety and reduce medical errors, and increase wellness and health promotion.

Insurers spent 17% of the total quality improvement spending on health information technology upgrades, 51% on improving health outcomes, 9% on preventing hospital readmissions, 10% on patient safety, and 13% on wellness, the study found.

It also identified substantial variations in quality improvement expenditures ranging from $40 per member among the top quartile to $12 per member in the bottom quartile.  The median expenditure among provider-sponsored plans was $37 per member and $23 by non-provider-sponsored plans. Nonprofit plans spent $35 per member and for-profit plans spent $19.

Robert Zirkelbach, spokesman for America's Health Insurance Plans, says insurers have complained that federal regulations weren't "capturing all of the activities that plans do to improve quality for patients."

"There is a big move towards partnering with doctors and hospitals to change how we pay for care so we are rewarding quality and value over volume of services provided. Plans are doing that all across the country, but that is not reflected in these numbers," Zirkelbach said.

"Plans increasingly provide patients with more access to information and data about quality and cost of medical services, providing online and on mobile devices, information and claims history personal health records so they can make more informed health decisions. That is not included."

"We are making sure that more physicians in health plan networks are providing high-quality care, credentialing them, making sure they provide the kind of care that patients need, but that isn't included. Efforts to prevent and deter fraud from occurring in the healthcare system that has not only cost implications, but patient safety and quality implications as well, [such as] doctors providing fake medicine and charging plans is going to hurt patient care. It is those types of things that aren't included but plans are doing and investing significant resources to do so it is not fully capturing the full picture," Zirkelbach says.

In the individual market, 8% of nonprofit plans owed consumer rebates, compared to 47% of for-profit insurers, while 7% of provider-sponsored plans in the individual market owed rebates compared to 40% of non-provider sponsored plans, the report said.

Nonprofit and provider-sponsored plans were more likely than for-profit and non-provider-sponsored plans to meet the health reform law's medical loss ratio requirement that they spend at least 80% to 85% percent of premiums on medical claims and quality improvement, the report said.

McCue says publicly traded insurers have the added pressure of answering to stockholders.
"Mostly they are going to try to target that as much as they can to generate some kind of profit. However a not-for-profit plan will generate some return but they are not driven by their stockholders," he says.

"If you think about the mission or goal of a publicly traded firm that is to maximize stockholder wealth. They try to appease stockholders. Not-for-profits have their mission, although profit is not the primary motive so more of those dollars may be paid out into medical expenses."

The report suggests that costs and benefits are more important to consumers shopping for health insurance coverage than are issues such as quality of care, which means that health insurers are not incentivized to invest in quality improvement initiatives.
"Some consumers, because of the fact that they are going to be mandated to buy insurance,  are going to be very cost-driven initially," McCue says. "But once they become part of a health plan and utilize the providers of that plan then quality may become an issue to them."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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