Background

Katrina, the financial sector collapse, and health care (finance) reform entail poor risk appraisal and ineffective risk management.

Risk transfers promote clinical and financial inefficiency – not efficiency.

Risk is disruptive: Redundancy , Capacity , Disaster preparedness , Service quality/quantity , and Health disparities .

Risk assuming health care providers (RAHCPs) are the HCS’s Bernard Madoff’s – High risk takers, incapable of sustained service delivery.

Insurers reduced Katrina costs by low-balling claim offers to desperate victims, health providers do this as well

Random Sampling, the Central Limit Theorem & InsuranceInsurance is random sampling. The CLT defines relationships between insurer size, standard errors, operating results, and Maximum Sustainable Benefits:

Insurers produce 'estimates' of population loss ratios Large insurer’s estimates are more accurate (lower standard errors) Small insurer’s estimates are less accurate ((higher standard errors)

Risk premiums depend on insurer size – One size does not fit all Small insurers assume greater risk - need higher risk premiums Small insurers require higher surplus reserves (redundant capacity)

Clinically efficient providers become inefficient insurersInadequate compensation + Risk Reduced service capacityReduced service capacity Delayed/denied Dx & TxProviders profit if clients stay away – Antithesis of population healthRewards for prevention activities are distant and uncertain

Professional Caregiver Insurance Risk

Examples: Managed care; Prospective payment systems for MDs, hospitals, LTC and HHA, Global Capitation.

Reform: Expand risk transfers, ignore inefficiencies.

Model Assumptions & Implications

Insurer: 1,000,000 policies, $4,000 per policy. Loss ratio = $0.75, Expense ratio = $0.15, Profit margin = Risk premium = Standard Error = $0.05. P[Profits>$0.05] = 0.8413, P[No Net Loss] = 0.9772, P[LR<0.90] = 0.9987. Smaller insurers (See Table) have lower probabilities.

Flaws in Health Services/Disparities Research

Acute, chronic, and prevention costs are current and certain - Savings are distant and uncertain.

MCOs profit by avoiding risks – Providers profit by delaying Dx/Tx.

Failure to identify capitation as insurance No observable effect.

The HCS has been compromised - Everyone gets less

Claim Denial in Clinical Settings

Providers must deny some claims. Easy targets: Poor, racial, ethnic, gender & geographic minorities – True across all insurance lines

“Evil insurance company won't let me…” Not: “I won't pay for...”

Appointment delays, crowded facilities, problem focused exams, Rx pads, ignored secondary concerns: Providers reduce costs by delaying Dx/Tx and discouraging clients from coming. The antithesis of “population focused” practice.

Katrina: Providers not “population” focused, not prepared, abandoned clients. Should have had sufficient resources to stay indefinitely.

Fallacious Ideas

Deregulation: Few states regulate now. Weak insurers will incorporate in lax States – Little recourse in remote State courts.

Rugged individualism: We all set aside $250,000. $76.75 Trillion dollars in idled wealth, reduced consumption, economic stagnation, increased unemployment, and will not cover high costs.

More insurers/competition: We have 1,300+ inefficient insurers, benefits vary, poor claims practices, inadequate regulation, and contract ambiguities. Better choice: Fewer, more efficient, insurers, uniform benefits, reduced inefficiency, and less litigation.

Wall Street, Katrina & Health Care Finance ReformWall Street, Katrina & Health Care Finance Reform

Thomas Cox PhD, RNThomas Cox PhD, RN2008 financial sector collapse began, decades earlier, with poor risk appraisal, excessive risk taking, and regulatory failures

Excessive risk taking and regulatory failures occur when health providers accept insurance/financial risks: “Professional Caregiver Insurance Risk” in Managed care, DRGs, the Prospective Payment Systems, and Capitation contracts

Central Limit Theorem (CLT): Portfolios , Standard Errors , Risks , Poor financial and clinical outcomes ensue

RAHCPs should be paid more to accept insurance risks, but are not. Should maintain redundant resources, but do not

RAHCPs must reduce services to compensate for inefficient insurance operations

Insurer Size 307,000,000 1,000,000 500,000 100,000 50,000 10,000 5,000

Standard Error 0.0029 0.0500 0.0707 0.1581 0.2236 0.5000 0.7071

Probability of Profits GE 5% (LR < 0.80) 1.0000 0.8413 0.7603 0.6241 0.5885 0.5398 0.5282

Probability No Losses (LR < 0.85) 1.0000 0.9772 0.9214 0.7365 0.6726 0.5793 0.5562

Probability No Insolvency (LR < 0.90) 1.0000 09987 0.9831 0.8286 0.7488 0.6179 0.5840

Surplus Required for 99.87% Solvency $0 $202,400,000 $225,800,000 $150,440,000 $114,680,000 $56,228,000 $40,588,000

Total Surplus for 1,000,000 Policies $0 $202,400,000 $451,600,000 $1,504,400,000 $2,293,600,000 $5,622,800,000 $8,117,600,000

Maximum Sustainable Benefits 0.7971 0.7500 0.7293 0.6419 0.5764 0.3000 0.0929

Benefit Efficiency Compared to 0.80 99.64 93.75 91.16 80.24 72.05 37.50 11.61

Multi-disciplinary Research OpportunitiesMulti-disciplinary Research Opportunities

Partnerships: Nursing, Medicine, Law, Finance, Accounting, Political science, Business Administration, Mathematics, Statistics, Sociology, Planning, Health care administration, Actuarial science and insurance, Social work, Psychology, Philosophy, Engineering, Cybernetics, Urban affairs…

Contracts: RAHCPs are under-funded, under-capitalized, inadequately resourced and unregulated insurers. MCOs avoid insurance risks, compete unfairly with insurers, and impose “Take it or Leave It” contracts. Superior knowledge of risk and other provider’s contracts, relative power, and unfair contract conditions create “Contracts of Adhesion” and “unconscionable” advantage. Litigation risks are enormous.

Risk Management: Risk adjusted payments are inefficient and ineffective. Risk adjusted payments should exceed risk retaining insurer’s costs. Payment delays, withholds, retrospective audits, and performance based bonuses increase provider’s risks. Reinsurance further reduces resources.

Legal/Ethical Issues: Unregulated and undisclosed insurance operations, poorly defined performance standards, inadequate accounting standards, non-existent surplus reserves, inadequate oversight, ethical/role conflicts, lead to inadequate and unreliable service delivery (Katrina).

Public Health: Katrina - Fee for service providers were free to leave New Orleans. Their clients were voluntary and could choose other providers anywhere. Pre-payment providers had a duty to prepare and stay having been paid to serve a “population.” Providers deny claims they should honor if they leave or have inadequate resources. As insurers they should be prepared for disasters and supply chain disruption. What is the analog in health care for insurer surplus?

Professional standards: How do the obligations of provider/insurers differ from FFS/OOP providers? How are RAHCPs deciding which clients/services to cut? How do providers see and adjust to their new roles? Are providers targeting many small cost clients or few, high cost clients?

Health Disparities: How do reduced service capacities effect clients? All insurers target high cost claims for intense review, investigating their liability, and delaying claim decisions. When providers are insurers how do they deal with high cost claimants? How do clinicians delay claim/deny claims?

Holism: Transferring insurance risks to health care providers encourages a piece meal approach to health care. It exacerbates rather than corrects a parts focus. Instead of holistic comprehensive care, the system has moved to greater fragmentation.

Illustrative Insurer Performance Characteristics by Portfolio Size