FINDINGS AND RECOMMENDATIONS
House Resolution No. 200, H.D. 3, requests that part II of this study:
Access to Health Care Coverage
Comprehensive health care coverage for most of Hawaii's labor force and their dependents is provided through the State's private and public sector employers. The QUEST program serves low income individuals and those receiving public assistance. This study found no indication that the competitive practices of the State's health plan providers have the effect of limiting access to care or adversely affecting the quality of care. (The cap placed by the federal Health Care Financing Administration on enrollment by QUEST clients in the Hawaii Medical Service Association's (HMSA) plan did limit the choice of plans previously available to this group.)
There are, at present, no generally accepted standardized measures of health care quality, although "report card" summaries of basic services and outcomes similar to those issued by Kaiser Permanente in 1994 and 1995 are prepared by a number of plans on the mainland. However, even if all Hawaii plan providers were to issue similar reports, it is difficult to see how differences could be attributed to competitive practices within the industry.
Plan Providers that Both Provide and Pay for Health Care Services
Health plans under which the plan provider is also the care provider are health maintenance organizations (HMOs). This system is well established in Hawaii and dates back to the contract physicians employed by many of the plantations. HMOs use a capitated payment system under which care providers are compensated in advance on a per patient basis rather than for each procedure. Critics of the HMO system claim that care providers in HMOs may withhold or delay care for economic rather than medical reasons, and that the capitation payment system provides an economic incentive to underutilize care services and facilities. A statistically valid analysis of utilization data and medical outcomes covering indemnity and HMO plans with demographically comparable memberships would be needed to properly address this issue.
Recommendations for Guidelines
Prepaid health plans should probably be considered as a type of service contract rather than a conventional insurance product. A typical service contract is a short-term commitment to provide or pay for maintenance or repair of an item in exchange for a set fee paid in advance. There is an underlying assumption that covered services will, in fact, be requested and provided during the term of the contract; and that current payments from contracts will cover current costs for the group as a whole. With service contracts, the contractor must be able to respond to requests for services (or reimbursement for services) on a regular basis for each contract.
Traditional insurance, such as home, auto, liability, or accident insurance, has a different objective and different characteristics. Insurance, like a reimbursement service contract, provides an agreed-to sum of money when a covered event occurs. However, the actions that trigger insurance agreements are rare, and the client's interest is the protection of financial assets rather than the maintenance/repair of an item. The number of claims expected relative to the number of policies outstanding is significantly lower for traditional insurance policies than for service contracts.
This analogy between comprehensive health plans and service contracts is not perfect, and there is not always a clear distinction between service contracts and insurance. However, the differences in emphasis and purpose between the two instruments are useful when examining issues of public interest and government oversight of health plan providers. In summary, for health plans:
The State's Interests
The State's interest in the operation and practices of organizations that offer health plans is based on two factors. One is that State law requires private employers and their employees to participate in prepaid health care plans. The State therefore has a responsibility to ensure that:
The State's second interest lies in the fact that it is also a consumer of health plans on behalf of its own employees, as agent for the counties and their employees, and as the purchaser of plans under the QUEST program.
The following recommendations are submitted within the context of the preceding discussion.
Currently regulated insurers and HMOs must be audited annually.52 Mutual benefit societies are only required to submit certain annual financial exhibits.53
The Insurance Commissioner should have sufficient information regarding an organization's investment program to advise against or prevent the inappropriate investment of plan assets rather than react only after the fact. Had such a provision been in place, HMSA's questionable investments in derivatives (see chapter 3) might have been prevented or the losses minimized.
All providers of health plans should have their investments subject to a uniform set of standards and guidelines applicable to the health insurance aspects of their operations. The investment objectives and need to access capital reserves may differ for conventional insurance products and prepaid health plans. To that end, investments that are appropriate for one may not be appropriate for the other. But to the extent that the operations of any entity, be it a conventional insurer, a mutual benefit society, or an HMO involve providing health plans, the levels of safety and liquidity needed in those investments should be similar.
Currently, mutual benefit societies may invest in the same instruments as regulated insurers,54 and the Insurance Commissioner has recently been required to adopt rules for permitted investments by HMOs.55 for reasons of equity, there is no reason to subject investments related to the health plan operations of some providers to standards and guidelines different from those applicable to the health plan operations of other providers. Similarly, investments related to the operations of health plans should not be subject to the same standards and guidelines as those applicable to insurance products having different investment objectives.
This would help the Insurance Commissioner to assess whether a plan provider is shifting the costs of one plan to the members of another or whether their current rates, overall, are generating revenues that substantially exceed or fall short of the plan's financial requirements. Rate regulation should be considered if the Commissioner determines that significant cost shifting is occurring or plan revenues do not reasonably reflect plan expenditures.
Hawaii's health plan industry is a complex network of plan administrators, care facilities and care providers. With the exception of the hospital-based organizations like Kaiser Permanente that have exclusive contracts with their physician groups, the various parties contract with each other on a non- exclusive basis. For example, a physician may belong to several preferred provider networks, and a plan administration organization may administer portions of a competitors program. Exclusive contracts would limit the flexibility of the current system and, if allowed to a significant extent, could lead to a situation where the production and distribution of health plans and services are controlled by a single entity.
The Legislature should direct the Insurance Commissioner to monitor the contractual relationships among plan administrators and the care providers that participate in their programs. If a significant increase in the use of exclusive contracts occurs, the Legislature should consider establishing restrictions on the practice.
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