EVOLUTION OF EMPLOYER-BASED GROUP HEALTH INSURANCE: FROM INDEMNITY/SERVICE PLANS TO MANAGED HEALTH INSURANCE PLANS – THROUGH 2000

HSA 312

MANAGED HEALTH CARE

READING A.

SPRING 2021 L. EITEL

PHILOSOPHIES OF RISK MANAGEMENT IN HEALTH INSURANCE: FINANCIAL RISK AND MEDICAL RISK

Do health insurers manage health risks in a way which focuses narrowly on health insurance financial viability and (as appropriate) profitability?

OR

Do health insurers manage health risks in a way which is fiscally prudent, and which also serves the cause of enhanced individual patient health status as well as improved population health status of U.S. communities, and the United States as a whole?

I. INDEMNITY AND SERVICE PLANS AND RISK - FOCUS ON FINANCIAL RISK:

The focus under these plans, which represented the bulk of the health industry’s insurance products through the 1970’s and even into the late 1980’s, was to properly price insurance products through relatively accurate actuarial projections of expected health services usage for selected communities or for experience-rated subgroups such as employees of a particular firm. Properly priced premiums, sometimes associated with expense-sharing features such as consumer deductibles, coinsurance, and co-payments, were expected to ensure that outlays for services did not exceed a health insurance plan’s inflow of premium funds.

Risk was looked at solely in terms of financial risk to the insurer and the consumer associated with treatment for episodes of acute care. Risk was further managed by establishing annual and lifetime limits on the insurance company payout for health services provided to individual consumers and their families.

Risk was seen neither in terms of a population’s health status or an individual’s health status, nor in terms of the quality and appropriateness of services delivered. The quality of the inputs to the health services delivery process (modern hospitals, well-trained board-certified physicians) and the adherence of health care professionals to the standards of conduct for their chosen profession were implicitly assumed to address those risks.

The purpose of this kind of health insurance was to make acute and catastrophic care affordable and available to consumers without affecting the character and operation of the health care delivery system. Preventive Care and Wellness Services were not seen as the proper target of these plans, nor were they seen as appropriate objects for the expenditure of premium dollars. These health insurance plans paid out money for services, but did not see themselves as responsible for the size and shape of the network of health services providers available to serve their publics, nor for the quality and appropriateness of the health care services which were delivered.

II. MANAGED HEALTH INSURANCE PLANS AND RISK: FOCUS ON BOTH MEDICAL RISK AND FINANCIAL RISK:

This family of health insurance products addressed health risks in a way which was fiscally prudent, but which also served the cause of enhanced individual patient health status as well as improved population/community health status.

Management of the financial risk associated with insuring and paying for the delivery of health care goods and services was not the sole emphasis of this kind of insurance, but was seen as important, and as directly linked to the provision of truly appropriate and high-quality health care services.

Financial Risk was not the sole focus of these plans, which made them different from Indemnity and Service plans. Risk was ALSO seen in terms of a population’s health status as well as an individual’s or family’s health status, and in terms of the quality and appropriateness of services delivered. Related to this philosophy of health insurance, preventive care and wellness services were also seen as a critical concern.

These plans focused on Wellness and Preventive Services, the use of Primary Care Practitioners as coordinators of all of a patient’s health care services (what was later, in the 1990s, called the “gatekeeper” function), preauthorization and precertification of diagnostic and therapeutic procedures, and other activities which involved the insurance company in decisions about the actual provision of care.

Managed Care Organizations also created and maintained specially contracted and more limited networks of individual and institutional health care providers.

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