Are Carriers Doomed?

On January 30, New York Times op-ed columnist Ezekiel J. Emanuel and Jeffrey B. Liebman, a professor of public policy at Harvard, published what they called “a bold prediction for the new year.”

“By 2020, the American health insurance industry will be extinct,” they write. “Insurance companies will be replaced by accountable care organizations—groups of doctors, hospitals and other health care providers who come together to provide the full range of medical care for patients.”

Of course, it’s impossible to know whether this forecast is accurate. Talking with others in the health care and insurance industries, however, suggests the scenario Emanuel and Liebman paint is only one of many possible futures for ACOs and the health benefits industry as a whole.

An ACO overview

Simply put, an ACO is any organization of medical providers that works together to take accountability for the total cost and quality of care given to a defined population, says Harold Miller, executive director of the Center for Healthcare Quality and Payment Reform, based in Pittsburgh.

“ACOs are about moving from a world where we are paid for the quantity of services to a world where we are paid for the quality of services,” agrees Sree Chaguturu, medical director of population health management at Partners Health Care in Boston. “Providers go from treating people when they are sick to being paid to some degree for keeping people healthy. Along the way, you ideally improve quality and reduce cost.”

Health maintenance organizations tried something similar in the 1980s and 1990s, but they worked by using gatekeepers to make it harder for patients to access care. ACOs, by contrast, do much that wellness programs already address: help prevent and manage chronic conditions and advocate for overall good health. ACO providers also work to help patients avoid unnecessary hospitalizations and use the least expensive, still-effective treatments for ailments and injuries.

That means gathering a lot of data, Chaguturu says. ACOs must track clinical outcomes, understand costs both by population and episodes of care, see variance in how providers deliver care and in provider outcomes, and compare providers with their peers.

Developing structures

Private sector ACO forms are still evolving.

“There is no single definition of ACO. They can mean anything between an insurance company and a physician group practice, or a group practice and hospital,” says Anders Gilberg, senior vice president for government affairs at the Medical Group Management Association in Washington, D.C.

In the government ACO, called the Medicare Shared Savings Program, the focus is on cost first and quality second, though “the quality metrics are in place to ensure that quality doesn’t suffer,” Gilberg says. “The shift has been pretty dramatic in the past 24 months. There used to be a lot more talk about quality first. Now we talk about cost first, with quality seen as constant.”

In that model, Medicare pays a fee for service and the program and its providers share in the total savings they generate.

There’s no reason, however, that private sector ACOs have to use the same approach, and there are “a million” other possibilities, Miller says.

That’s where the New York Times op-ed piece might have it wrong. Ezekiel and Liebman say ACOs “will typically be paid a fixed amount per patient, along with bonuses for achieving quality targets.” Though this structure—known as capitation—is one possible ACO structure, there are many others.

An ACO could bundle services across multiple providers, paying a single fee for an acute health episode. Or an ACO could accept a set amount of money each month or year to care for a given population, providing all necessary care and keeping—or sharing—whatever money was left over.

An employer could pay an ACO a risk-adjusted payment, spending more if their employees have more than an average number of any common medical problem. Or businesses could combine stop-loss coverage with an ACO contract or even contract with multiple ACOs, each specializing in a particular kind of medical care.

An ACO could string together multiple individual medical practices, connect a hospital and individual providers, or take the form of a single large medical group. Patients might be restricted to using providers within their ACO or be welcome to use whatever providers they like.

Benefit design structure will also be a question. Will ACOs have co-pays, co-insurance or deductibles? Will benefit structures say you must get all your care from an ACO, or that you’re responsible for the difference if you go somewhere more expensive?

“We need to change the benefit structure in a way that makes providers feel that it’s not just them trying to contain costs,” Miller says.

In all these potential setups, ACOs can coexist with third-party administrators and risk-bearing insurance companies. ACOs need the data collection and administrative services that third-party administrators often provide. And companies and individuals will still likely need insurance, whether it’s stop-loss coverage for self-insured companies or a combination of insurance coverage plus ACO access for fully insured firms.

Potential complications

So far, Miller says, no one has tried a capitation-based ACO, at least in part because the capitation model is particularly vulnerable to potential regulatory snags.

For example, PPACA requires health insurance companies spend either 80 percent or 85 percent (depending on the insured group’s size) of premium dollars on claims. It’s unclear whether that rule could apply to ACOs, Miller says. As long as an ACO accepts a fee for each service, they’re not selling insurance. But under capitation, “the upfront-payment system kind of looks like insurance,” he says, because it takes on both performance and financial risk.