And without question, the administrative costs of handling those benefits are poised to go up. Among the factors driving the increase is more regulation at both the federal and state levels.
So say a number of area people whose jobs place them at the point where health care regulations most visibly throw their weight.
On the federal front, for instance, there’s the behemoth Health Insurance Portability and Accountability Act (HIPAA) of 1996.
HIPAA compliance involves implementation of two new sets of standards that Congress intended to improve the efficiency and effectiveness of the health care system.
Federal law required most health plans, clearing houses, and providers that conduct certain transactions electronically to be compliant with the first HIPAA transactions standards by Oct. 16 this year unless they filed for a one-year extension before Oct. 15.
The law gives certain small health plans until Oct. 16 next year to comply.
The first deadline deals with national standards for the electronic exchange of financial and administrative transactions involving health claims, payments, claim status, health enrollment, disenrollment and eligibility.
The second compliance deadline — April 14, 2003, for most covered entities and April 14, 2004, for small health plans — involves privacy standards that apply to all medical records and vocal communications.
The state, too, has passed laws mandating certain benefits that must be administered by various insurance carriers and third-party administrators.
“Legislators are apt to pass legislation without fully understanding the impact of delivering health care and health care insurance,” said Jim Kenyon, chairman of the Alliance for Health’s Health Benefit Advisory Group and a principal with Pinnacle Insurance Partners.
He said they see the impact of new statutes after the fact, when all of the new administrative rules arising out of new laws come home to roost as encumbrances placed on business and industry.
Kenyon told the Business Journal that a local benefits administrator told him recently that as a result of HIPAA and all its disclosure and communication requirements, the old explanation of benefits (EOB) form — once a simple, one-page synopsis — has become a three-page document full of legalese.
“Who’s going to wind up paying for that stuff?” Kenyon asked.
“It’s going to be impacted in the rates, or if you’re a large employer, it will be added on to your administration charges. Business and industry pays for that, and if they can’t afford it, they pass it on to employees.”
HIPAA compliance will push up costs in the future, said Ron Palmer, CEO of Grand Valley Health Plan (GVHP).
For example, as organizations put more software, hardware and so on in place to adapt, it will result in substantial cost increases going forward, he noted.
“The more regulation you have, the more hoops you have and the more administrative costs go up, because you have to do reporting and compliance issues with those regulations.”
At the state level, the biggest issues GVHP sees are the mandated benefits and mandated types of reporting that just keep increasing the costs of health care.
Palmer added that mandated benefits kind of take away the choice of which benefits individuals would choose to have out of the hands of employers or purchasers and basically tells them what they have to purchase.
Palmer said administration costs at his organization have remained relatively flat.
“There are numerous organizations that are trying to do quality measurement initiatives, which means we need to do different quality-related reports for multiple organizations. So we have seen that level of costs go up.
“Ours probably haven’t really gone up because there are substantial portions of the delivery of services that we do ourselves, so consequently we don’t have administrative costs of contracting outside for somebody to do those services.”
GVHP has its own pharmacies, surgical center, primary care and a lot of radiology capabilities.
As the organization increases its delivery of services, it generates internally all of the quality types of improvement reports anyway, so they don’t have to be done again over on the insurance side, he explained.
But most people delivering health care don’t do those things internally, Palmer observed, so when the insurance company or health maintenance organization has to do it for them, costs increase.
“Every time we better integrate services that we’re delivering, we lower costs on that side. So our administrative costs are staying about the same but it’s really a factor of our lowering them on the side of delivering health care and seeing them increasing on the side of external regulatory and other types of agencies,” Palmer said.
Both Palmer and Kenyon agree that administration costs continue to be a very small percentage of the total group insurance dollar. Kenyon said no more than 10 percent to 12 percent of group insurance dollars goes toward administration.
The vast majority of dollars goes toward actually serving those people that buy the insurance products, he said.
A lot of it is technological kinds of enhancements such as electronic enrollments, e-mail communications and other Web-enabled services that are being implemented to help contain the escalating costs of administration fees.
“That’s certainly helping stem the tide on increases,” Kenyon said.
Palmer said the biggest way health benefits administrators can contain costs is to have the providers of the services do more clinical quality reporting and service reporting and those types of things so it’s not all borne by the third-party administrator.
“To the extent that the quality measurements and data can be gathered at the site of the clinical care, it lowers the administrative costs for insurance for third-party administrators — without question.”