Must-Read Turnbull — Insurer Transparency in Practice

Don’t miss Nancy Turnbull’s column today on WBUR’s Commonhealth Blog. Most people know Nancy as a faculty member at the Harvard School of Public Health and as the former head of the Blue Cross Blue Shield Foundation. Some of us with longer memories also know she served for years as the MA Deputy Commissioner of Insurance for all matters related to health insurance, where she did stellar service. Today, she uses those DoI skills and looks under the hood at the filings of the major health insurance carriers. And what does she find?

Here’s what I found: Aggregated across the three insurers, medical expense per member per year increased from $2,585 in 2003 to $3,429 in 2006. This is an increase of 33% over this three-year period, or about 10% per year. (The rate of increase was almost identical at each of the three plans.) If medical expenses had increased only by the rate of growth in GDP—20.9% instead of 33%– per member per year medical costs in 2006 would have been only $3,125, or about $305 less. …

Surprising to me, the rate of increase in health insurer administrative costs per member was even greater than the increase in medical expenses over this period. Average administrative expenses per member per year increased from $330 in 2003 to $486 in 2006. That’s a total increase of 47% over the three-year period, or about 13.5% per year. …

My little analysis shows what we all know: the biggest savings in health insurance premiums will come from controlling medical expenses. This will be quite challenging to accomplish in the short-term—unless we have the political will and resolve to control prices. But my calculations also suggest that there are huge savings to be reaped if health insurers can control the growth in their own administrative expenses. (our emphasis) This is an area in which it should be possible to make much faster progress. The Boston area CPI increased 9.4% from 2003-2006. Why did average health plan administrative expenses per member increase at five times this rate? As health insurers and the rest of us rightly pressure providers to control medical expenses and demand more transparency about prices and quality, we need to be sure to take an equally transparent—and hard–look at health plan administrative costs.

OK, insurers. You want transparency, you got it … Now what say you?

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5 Responses to Must-Read Turnbull — Insurer Transparency in Practice

  1. Pingback: A Healthy Blog » Insurers Respond to Turnbull — Nolo Contendere

  2. Dr. Marylou Buyse says:

    We’re pleased that Nancy and so many others are focused on controlling health care costs. Understanding why health care costs are rising is the first step to controlling them. It is also an essential step.

    While the analysis focused on health plan administrative expenses for the three largest health plans, it doesn’t focus on where the money is: the bulk of the health care dollar that goes to pay for medical care. Medical care is expensive and health plans provide protection against the unexpected expenses of serious illness, accident or injury. Without this protection a stay in the hospital or an operation can mean financial ruin to many Massachusetts residents and families.

    Massachusetts health plans are national leaders when it comes to quality. That is an indisputable fact, and they expend their resources known as “administrative expenses” towards improving health care and keeping costs as low as possible. It is also important to note that the state’s Division of Insurance changed the reporting rules for administrative costs between 2004 and 2005, requiring all plans to re-classify some costs that had been thought of as “medical and medical cost management” in 2003 and 2004 and these changes moved them into the administrative expense line beginning in 2005.

    Focusing on health plan administrative expenses provides a very limited view of what’s going on in health care. The focus needs to be on everyone in the health care system and what each is doing to keep health care affordable and quality high.

    In Massachusetts, for the six major commercial carriers, nearly 90 cents (87.3) of every premium dollar goes to pay for medical services, such as doctor visits, prescription drugs, and hospital costs. Roughly 10 cents (11.1) is allocated toward administrative costs, such as care management programs for individuals with chronic conditions and other services to support consumers and providers, along with costs associated with complying with requirements mandated by state and federal agencies. The remaining 1.6 cents generally is directed into health plan reserves, money set aside to ensure that medical claims are paid for catastrophic medical expenses or if a natural or man-made disaster or some other unforeseen event were to occur.

    We’re happy to answer for consumers and employers the question, “Where does the money go?” Last month, MAHP along with several of our member health plans outlined a comprehensive cost control agenda. An important component of this was publicly disclosing health plan revenue and expense data in a consumer-friendly format. This data is available on the MAHP website ( and includes the following information:

    1. The amount paid for medical expenses, such as hospital and medical benefits, prescription drugs, and bonuses paid to providers;
    2. Total administrative costs; and
    3. Health plan surpluses and reserve levels

    However, health plans are just one component of the health care industry. We are the one part of the health care system that is transparent, that does publicly report its expenses and that works tirelessly day after day to find ways to lower costs and improve quality. With the bulk of the premium dollar going to pay for medical care, we think it is important that there be similar disclosure from others in the health care industry.

    For example, hospitals should make public in an easy to understand format, available data disclosing total inpatient and outpatient service revenue, total patient expenses, total capital expenses, total administrative expenses, and surplus revenue and endowment levels, similar to what we have released.

    Our cost control agenda also includes a proposal that the state’s Health Care Quality and Cost Council convene annual hearings to examine the factors driving health care costs. Health plans would be required to outline the factors contributing to any changes in premiums, including their projected medical expenses due to provider reimbursement rates, patient utilization, administrative costs, capital investments, and efforts to reduce the rate of growth. To provide a complete picture, the Council should also require other entities in the health care industry – health centers, hospitals, physician practices, and pharmacies – to participate in these hearings and explain the factors contributing to their rising costs, whether it is greater use of technology, increased consumer demand, or if they’re seeking higher reimbursement rates.

    Enhanced public reporting of health care revenues and expenses and public hearings on cost drivers will shed light on the why costs are rising and what can be done about it.

  3. ? says:

    Mandatory Health Insurance is a tax,

    Do you know if there’s an unlimited coverage policy out there, for the poor?

    If some alleged “authority” is going to attempt to force me to have insurance, wouldn’t there be at least one insurance company that would have the brains to figure out how to maximize the fleecing of the taxpayers?

  4. Mandatory Health Insurance is a tax says:

    I wonder how she felt about transparency when she was the CEO of Neighborhood.

  5. Paul Levy says:

    Thanks for posting this. A great piece by Nancy, deserving of a lot of exposure.

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