By Scott VandeSand, Director and Deputy Program Manager for the World Trade Center Health Program Support (WTCHPS)
Market pressures continue to drive streamlining of health insurance administration services. Health insurers and business outsourcing companies have fine-tuned and optimized administrative service offerings to enroll members, assign benefit plans, manage provider networks, process claims, limit cost of medical claims via aggressive Utilization Management and Population Health programs, and provide general customer service support. Companies known as healthcare Third Party Administrators (TPAs) leverage standardization in the commercial marketplace to consolidate systems, data, and staff across client implementations in an effort to drive administrative costs down as aggressively as possible. Government-sponsored health programs are looking for ways to leverage this service consolidation and reduce the costs they pay for administrative services. However, implementing commercial TPA solutions without significant tailoring can create unforeseen conflicts and challenges because government health programs have different missions to achieve and legislative frameworks in which they must operate.
To explore how commercial TPA services are designed, built, and optimized, it is important to understand some key aspects of the US commercial health insurance system. In the US, commercial health insurance is either provided directly to consumers (individual coverage) or through employer or association sponsored plans (group coverage). In both cases, health insurance coverage is provided to policyholders in return for a premium payment. The premium is typically a monthly charge set by the health insurance plan administrator and incorporates several costs, including three primary elements:
- Cost of Healthcare Services – Health insurers leverage risk-based assessments and actuarial services to forecast individual and group healthcare costs based on demographics and claims histories.
- Cost of Administrative Services – These are all of the operational costs associated with performing the work of a health insurance company, including member services, provider network services, claims, and financial services, and customer service support. As discussed above, when performed as a stand-alone service, these are referred to as TPA services.
- Profit Margin – As public companies, health insurance plan administrators’ primary mission is to maximize value to their shareholders. It is important to note that health insurance companies have to limit overall premiums to attract and retain policy holders (individuals and groups). So, they maximize profits by controlling costs, limiting price increases to individual and group consumers, and maximizing barriers to competition so they can retain existing customers.
Health insurance companies have found that administrative services are the fulcrum on which they can tip the balance towards maximizing Profit Margin. Profit margins are maximized when health insurance companies optimize these TPA service offerings in effectiveness (lower costs of healthcare services) and efficiency (lower cost of providing the administrative services). Because this is the case, commercial TPA services are engineered to maximize health insurer profits by minimizing costs.
Government-sponsored health plans have different drivers than commercial health insurance companies. The first difference is that plan participants do not pay premiums to the same extent as in commercial plans – our tax-paying populace pays the premiums to achieve a mandate aimed at providing for and/or improving a population’s or a sub-population’s health established by legislation. That legislative mandate replaces “Profit Margin” as the primary goal(s) of the health plan. For example, Medicare’s goals are outlined in the CMS Strategic Plan (https://www.cms.gov/files/document/cms-strategic-plan-infographic.pdf) and include advancing equity, expanding access, engaging partners, driving innovation, protecting programs, and fostering excellence.
This focus on achieving a mandate vs. maximizing profit changes the purpose of TPA services for government-sponsored health plans. For example, TPA services in support of Medicare should be tailored to advance equity, expand access, engage partners, etc. Commercial TPA services aimed at maximizing corporate profits often conflict with these government-sponsored health plan mandates. Commercial TPA best practices for Utilization Management, such as strict prior authorization of services and aggressive concurrent and retrospective reviews of inpatient stays to limit claims expenses, limit access to services as a way of maximizing profits. Using different commercial TPA vendors and associated policies, procedures, and solutions on a single government-sponsored health plan creates inequities.
This difference is even more pronounced in special-purpose government-sponsored health plans aimed at meeting the specific needs of special populations. These special populations are, by definition, different than the general populations covered by commercial insurers. Even further, special-purpose government-sponsored health plans are often created with the explicit intention of addressing a gap in existing government programs and/or commercial health insurance coverages. These special-purpose plans can also have mandated limits regarding benefit plan structure and populations with severe illness that are more complex and costly to treat than normal populations.
This is not to say that commercial TPA services can’t benefit government-sponsored health plans. But rather, government sponsors must carefully engineer how those commercial TPA services are designed and implemented to ensure they foster mission attainment. Karna has developed a methodology and framework to assess and tailor commercial TPA solutions for government use to help government sponsors design and implement TPA services aligned to their specific mandates. In future blogs, we will explore how Karna tailors specific TPA service offerings (e.g., Provider Network Management, Utilization Management & Prior Authorization, Population Health, Claims Processing Systems and Services, Customer Service Support, Member Services, etc.) to help government-sponsored health plan clients meet their individual mandates.