Montana Health Care Authority.

A market-based sequential health care reform plan for Montana (Volume 1994) online

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In addition, small group reform statutes in other states usually provide for the development of two
levels of benefit plans - standard and basic - as Montana does and stipulate that all insurers
operating in the small group market must offer at least these two plans to all employer groups.
These requirements are applied to all employer groups which range in size of from 1 to 100,
depending on the state.

In the past several years, 43 states have enacted small group reforms in an effort to expand
coverage and bring more equity to the system. Of those states, 88 percent have enacted guaranteed
issue requirements, 95 percent provide for portability between jobs, 100 percent require guaranteed
renewal of coverage, 91 percent set Umits on pre-existing condition exclusions and 100 percent
provide for community rating restrictions.


In Montana, Governor Stan Stephens' Health Care for Montanans task force recommended a slate
of comprehensive insurance reforms to the 1993 legislature to include these features and to be
"based on the National Association of Insurance Commissioners 'Small Employer Health
Insurance Availability Model Act' for small employers with simUar provisions extended to
individual policies." These and related changes were incorporated into the Montana Small
Employer Health Insurance Availability Act and enacted as a part of SB 285, with December 7,
1994, set as the implementation deadline for small group reforms.

The Authority believes that small group health insurance reform is an important first step toward
the accomplishment of health insurance market reform in Montana. In fact, the Authority found
overwhelming support for the objectives of small group reform by Montana citizens throughout the
state. The Authority further believes it is important to have reforms which promote the availability
of health insurance to the small group market because many of its features already are available to
large employer groups. As a result, the employees of large firms typically enjoy better health
coverage at costs lower than what is currently available to small employers. The option most often
chosen by small employers is to not participate in any group coverage plans on behalf of their

The Authority strongly believes that small group insurance market reform must
be an essential part of even incremental health care reform and believes that
the following market changes should be either retained or enacted:

1. Health coverage should be available on a guaranteed basis.
This means that no one could be denied coverage or be
dropped by an insurer because they are in poor health.

2 Coverage should be portable, with persons not having to worry
about losing their insurance if they change jobs.

3. Only a single 12-month exclusion of pre-existing conditions should
be allowed. Once that exclusion period has passed, no one
would be subject to another waiting period, even if they changed
jobs, unless they failed to maintain continuous coverage.


4. Health care premiums should be set on a modified community-
rated basis - that is, the cost of coverage should be the same for
everyone, regardless of their sex, occupation, or health status,
except that different premiums could be established for different
age groups. The transition to this approach should occur over a
gradual time period so as to minimize dislocations in the market.

5. These changes should be applied to employer groups of 1 to 100,
with individuals included on a risk-adjusted basis. (Group size
should directly correlate to group size to be included in the
Authority's purchasing pool recommendation, discussed t>elow. If
group size in the purchasing pool legislation is adjusted, the size of
groups affected by small group reform should be similarly

6t All employer groups affected by these changes should be
offered at least two standardized benefit plans - one which
establishes a minimum (or basic) level of coverage and a
second which provides an average level of coverage.

7. In addition to the standard and basic benefit plans, consideration
should be given to include a medical savings account type of
plan as a third option. A high deductible major medical benefit
coupled with the medical savings account option appears to
have merit for eligible firms wishing to participate in small group
reform but who believe that the current standard or basic benefit
packages are not responsive to their particular needs.

Market-based Cost Containment

If there is to be a commitment to providing insurance mai'ket reforms and expanded access to both
health care coverage and services in Montana, it is critical that this coverage be affordable. This
can best be accomplished through the development and implementation of an effective cost
containment strategy.


SB 285 advocates a cost containment approach that places a substantial emphasis on government
regulation. The Authority, on the other hand, prefers a much more market-oriented approach to
controlling costs. In part, this is due to the lack of available comprehensive information on how
the health care system operates in Montana, but it is also the result of a desire to see the health care
system subjected to true market forces, which is not now the case. To implement this market-
based approach to cost containment, the Authority recommends the following steps:

1. Provide for the formation of a private, voluntary statewide health
insurance purchasing pool.

The objective of a health insurance purchasing pool is to permit small employers
and individuals to reahze some of the advantages that large employers enjoy in
purchasing health care coverage. Typically, purchasing pools do not assume risk
but instead negotiate contracts with health plans already in the market and make
those plans available to the people who participate in the pool. By negotiating for
health coverage collectively, these small purchasers can command sufficient market
share to induce health plans to be responsive to their particular needs and to pass on
some of the economies of scale that result from centralization of marketing,
enrollment and premium collection. In particular, administrative costs, which
represent a large portion of the premium paid by small purchasers, should be
substantially lowered. And competition among health plans seeking to capture
more of this market should also improve the efficiency of health care delivery.

The Authority believes that the establishment of one or more private,
voluntary purchasing pools in Montana could make a significant
contribution toward the goals of cost containment, expanded access
and improved quality of care and therefore recommends that the
legislature take those steps necessary to authorize the establishment
one or more pools in the state. (A detailed discussion of purchasing pools is
contained in an Authority report submitted to the legislature and governor on December 15,

s Z Promote managed care and utilization review for both private insurance
and Medicaid.

T'ii'i '^:'<- Managed caie is an approach to healtl-! care service delivery that integrates financing and
delivery of health care services to covere^j iridividuals by arrangement with selected


providers to furnish a comprehensive set of health care services. It has grown in popularity
during the past several years in this country because it has consistently proven to be an
effective market-based approach to controlling the growth of health care costs.

Managed care organizations can take a variety of forms, including health maintenance
organizations (HMOs), preferred provider organizations (PPOs) and physician-hospital
organizations (PHOs), among others. Regardless of the form, however, managed care
organizations typically rely on one or more of the following strategies:

• EnroUees paying a set rate to a group of providers determined by the
number of members, with incentives to the providers by keeping utilization

• Enrollees seeking care from providers who participate in the plan, or paying
extra out of pocket if going outside of the plan;

• Enrollees having care coordinated through a primary care physician who in
turn authorizes specialty care; and

• Utilization review where payment for care is contingent upon the care being
deemed necessary by a group of peer health care professionals.

Until recently the market penetration of managed care organizations in Montana (unlike
more populated areas) has been fairly small. In the past few years, however, two new
managed care organizations have been certified, bringing the total of such plans to three. In
addition, several other groups in such communities as Missoula, Helena and Havre are
currently exploring the feasibility of establishing additional community-based managed care

The Authority supports the continued development of managed care in
Montana, believing that such plans offer an effective, market-based
approach to expanding coverage and containing health care costs. In
particular, the Authority supports the current of efforts of the Medicaid
program in SRS to develop a managed care approach along with the
various community-based efforts. = ^l


In recommending that private insurance and Medicaid continue in their current efforts at
developing managed care strategies, the Authority strongly believes that the utiUzation
review components of managed care organizations should be operated in a manner that
does not jeopardize the quality of patient care or unduly interfere with the doctor-patient
relationship in attempting to achieve cost containment. Utilization review, as a monitoring
device for appropriate utilization of care, functions best when an individual's care options
are fully explored and the patient's primary caregiver has the opportunity to participate in
the review process. Identification of treatment options and involvement of caregivers
should enhance the quality of care received as well as maintain the freedom of choice
afforded to the Montana health care consumer. While cost containment is the primary
motivating factor in managed care, such a system should not foster decision making based
on finances rather than patient care. In addition, the Authority beUeves that there should be
fuU disclosure of any agreements between insurers and providers in managed care plans
which would have the effect of arbitrarily limiting patient care or quality of service.

Support federal and state income tax deduction for those who establish
medical savings accounts.

A medical savings account is typically defined as a tax-deferred account established by an
employer or individual for two primary purposes:

1 . To allow for payment of all aspects of an employee's or individual's yearly
out-of-pocket medical and health care expenses incurred to a pre-determined
limit; and

2. To allow for the accumulation of individual savings to pay for future
medical and health care expenses.

Typically, MSAs are intended for use in conjunction with a high deductible catastrophic
health insurance poUcy, where the MSA is used to cover the amount of the deductible and
co-insurance. To date, the states of Arizona, Colorado, Idaho, IlUnois, Michigan,
Mississippi ax.d Missouri have enacted medical savings account legislation as part of their
health care reform and medical cost containment strategies.

The MSA concept is based upon three major assumptions regarding consumer behavior in
the health care system:


1 . MSAs encourage individual responsibility and self-restraint in decision-
making about health care utilization by offering consumers a direct
financial incentive to decrease their health care utilization by foregoing
unnecessary medical treatment and to shop for the best value in cases in
which treatment is deemed necessary. It is believed that consumers will
become more cost-conscious if they pay their health expenditures out of
their own pockets.

2 . MSAs are believed to promote competition and control costs in all facets of
the health care system. With MSAs, it is assumed that health care utilization
and expenditures would decrease because consumers would be more frugal
with their own money rather than having utilization and payment decisions
made by a third party. Further, MSAs would spur competition by health
care providers who would choose to lower their fees in an effort to compete
for consumer dollars.

3. Individuals are allowed to accrue the unexpended funds in the MSAs to be
used for future medical expenses, including the purchase of health insurance
if the employee loses his or her job or payment for expenses related to long
term care. This approach is expected to reinforce frugal shopping for health
care services by consumers.

After conducting an extensive analysis of medical savings account programs enacted across
the country, neither the Authority nor its consultants could find an example of a medical
savings account program that is fully implemented and so were unable to determine if the
above assumptions are valid. However, the Authority believes that the MSA
concept deserves a serious trial in Montana and therefore recommends
enactment of legislation that includes the following features:

• Permits employers to establish medical savings accounts for
their employees and permits individuals with their primary
domicile in Montana to establish MSAs for themselves;


Limits the amount whicti may be contributed to the MSA to
$3,000 per person annually;

If an employer contributes less than the maximum allowed,
permits the employee to contribute the difference;

Allows for employees to establish their own accounts within
the $3,000 annual limitation if an employer does not make
the option available;

Provides that employee contributions to a medical savings
account be made on a pre-tax basis through payroll
deductions and makes employer contributions to
employee medical savings accounts a state tax deduction;

Provides that medical expenses be reimbursed from a
medical savings account only if incurred by the individual,
spouse, or on behalf of a dependent as defined by tax

Provides that amounts withheld from an employee's wages
for deposit into a medical savings account and interest
earned on funds in the account are not to be included in the
employee's taxable income for state tax purposes;

Provides that the employee may transfer the account to a
new employer if the employee changes jobs;

Provides that funds may be withdrawn for non-medical
purposes on the last business day of the MSA benefit year
and that such withdrawals and the interest earned are
subject to state income tax;


• Provides that on all o\het days, non-medical withdrawals
and interest earned on those funds, in addition to being
subject to state income tax, are subject to a 10 percent
penalty; and

• Provides that amounts that have accumulated in a medical
savings account and amounts that have been withdrawn
from the account to pay medical expenses are not to t>e
taxed for state income tax purposes and that funds used for
non-medical expenses are subject to state income tax.

The Authority strongly believes that for this program to be effective, improved consumer
information needs to be readily available, ideally from a comprehensive health care
information data base. In addition, the Authority believes that, if enacted, the medical
savings account program needs to be closely monitored to determine whether it proves to
be cost effective and achieves the goals of encouraging individual responsibility and self-
restraint and promoting competition and controlling costs.

Support aggressive medical insurance fraud prosecution effort.

Ten percent of the cost of insurance poUcies can be linked to fraud and abuse. This
translates into $40 million to $50 milUon a year in Montana. Insurance companies pass
along the cost of abuse to consumers and businesses either as higher premiums or reduced
coverage. The majority of agents, carriers and consumer are honest and want the
wrongdoers caught. In some cases, the insurance laws are vague or absent, making what
is or is not legal unclear.

The Insurance Commissioner's office currently only has power to go after bad insurance
agents and employs two investigators for that purpose. Through its deliberations on cost
containment, the Authority has identified the need to broaden medical insurance fraud
prosecution efforts to include the entire network of ujsurance fraud from die consumer who
illegally files a claim, to the provider who bills for ser/ices noi given, to the agent who
misrepresents poUcies, to the insurance company that overlooks or encourages illegal
practices or poUcies.


The Authority supports efforts to reduce fraud and abuse, including
actions to clarify existing statutes to more clearly define fraud and abuse
and to centralize these efforts in order to avoid duplication of efforts
regarding Montana's workers' compensation, Medicare and Medicaid

5. Ufxlate regional and statewide health care resource management
plans on a biennial basis; merge the state comprehensive health plan
Into resource management planning process.

SB 285 required the Authority, in conjunction with its regional health care planning boards,
to complete and annually update a health resource management plan designed to provide an
inventory of existing health care resources and services which can be used periodically to
identify gaps and duplications in existing levels of resources and services. These plans are
to be completed on a regional and statewide basis. In addition, the legislation provides for
the transfer of comprehensive health planning activities from the Department of Health and
Environmental Sciences to the Authority by July 1, 1996.

The Authority beUeves that these two planning processes could be effectively merged into a
single effort and carried out on a biennial (rather than an annual) schedule. This is based
on the recognition that both processes provide guidance to communities, regions and the
Slate as to appropriate levels and distribution of health care resources. Integration of these
procedures would be designed to create a simpler process and gain greater public input into
resource planning.

6. Continue the certificate of need program in its current form but consider
transferring responsibility for it to the Health Care Authority.

SB 285 mandated the Authority to consider whether any changes are called for in
Montana's certificate of need program under a health care reform scenario. The Authority
c-'ti> cairied out this task and submitted its report to die legislature and governor on December 1,
1994. In that report, tl"ie Au'Jicriiy recommends that the current certificate of need process
be retained, but recognized the need for additional program resources in order to more
©rlT 5f;.. effectively administer the siatutory lequirements. -t cics.-.

nSFhe Authority also recommended that current non-reviewable entities should continue to be
fj non-fleYiewiWe, bui should nodfy regional planning boards and the Authority of capital


expenditures above statutory spending thresholds for inclusion in the resource management
planning process.

Finally, the Authority also recommended that administration of the certificate of need
program be transferred from the Department of Health and Environmental Sciences to the
Authority along with comprehensive health planning since it is closely tied to those
planning functions and coincides with similar cost containment activities of the Authority.
With comprehensive health planning, the certificate of need process would then function
closely with the health care resource management planning process, combining several
planning, reporting and data collection responsibiUties.

7. Promote the development of consumer education mectianisms designed
to Increase individual responsibility for more efficient utilization of \he
tiealth care system.

The Authority believes that a significant step in developing a solution to the problem of
health care cost containment is to encourage and empower health care consumers to take
greater responsibility for their health care purchasing decisions. There are two initial steps
which can make a significant contribution to the accomplishment of this goal, including:

• EstabUsh a uniform health care data base designed to develop and
disseminate information to consumers regarding health care costs,
utilization and outcomes. This information system should supply
consumers with information on provider fees and charges and quality
assessment efforts, including peer review ratings of providers, health plan
ratings, accreditation or hcensing surveys and specific health education

• Encourage the development of third-party payer guidelines for health
education services and encourage the inclusion of education and wellness
components in health insurance benefit packages, .,u..:■'^. .i-vv^:

, .... .,..,., , ,.^ b-«~" •■ id

8. Encourage all tiospitals to obtain independent rate review by joining the
voluntary Montana Hospitals Rate Review System.

The Authority believes that the Montana Hospitals Rate Review System, a volutifery
independent fate reviewisystem for hospitals in thesiat^, cari^y a significant role in:


• the acquisition of information regarding Montana hospitals' rates, costs,
capital expenditures and service expansion and utiUzation trends; and

• managing a reasonable cost containment process in our state.

Accordingly, the Authority has encouraged the Rate Review System to consider the
following recommendations:

1 . All hospitals in the state are strongly encouraged to become members of
MHRRS. This is based upon the beUef that all hospitals in the state should
obtain an independent budget review on a periodic basis. Obviously, the
MHRRS is in the best position to provide such review to Montana
hospitals. Thus, the Authority believes that all Montana hospitals should
enroll in the Rate Review System.

2. The Authority also believes that all members of the MHRRS should submit
uniform data on a regular basis to the System. Without such uniformity, the
information collected and evaluated by the MHRRS is not as meaningful or
as useful as it could be.

3. Hospital reports submitted to the MHRRS should at a minimum contain
information on rate levels, utiHzation levels and income levels for each
individual member institution. Such information would be especially useful
as an indicator of emerging trends in health care system costs.

4. The feasibility of incorporating the MHRRS' data into the unified data base
required by SB 285 should be seriously explored.

5. In consideration of the long term goals of improving the competitive nature
of the health care market place and in providing consumers with better
information regarding health care costs, the MHRRS should consider ways
of opening at least part of its meetings to the public arid regularly publishing
hospital cost information in a uniform format easily understood by

. . consumers.

.. 24

'■:i ■.■(^rj-< .^lii J

9. Implement a simplified billing approach for health care providers in


SB 285 allows the Commissioner of Insurance to adopt a uniform health insurance claim
form with uniform standards and procedures for filing claims. The objective of
a simplified billing process is to reduce administrative costs in the insurance and health
care provider industries. Reduced costs can be achieved when payers use a common claim
form and an electronic claims clearinghouse. Ultimately, the health care consumer should
benefit through a simplified and more efficient process where payers and providers are
communicating with the same claims forms and, most importantly, an impact on the rate of
health care price inflation. The Authority supports the efforts of the Insurance
Commissioner to implement a common claim form and, eventually, an electronic claims
clearinghouse as important mechanisms for reducing administrative costs in the health care
industry. It believes, however, that a common claim form, to be truly effective in reducing
administrative costs, should be applied to all medical insurance programs and carriers,
including Medicaid and Workers' Compensation.

10. Continue to monitor and evaluate medical malpractice and tort reform


SB 285 charged the Authority with examining the issue of defensive medicine and to
develop appropriate recommendations to reduce its cost. Defensive medicine occurs when


Online LibraryMontana Health Care AuthorityA market-based sequential health care reform plan for Montana (Volume 1994) → online text (page 2 of 3)