Evaluating Health Care Insurers
- by Jeff Voigt
An inside look at how ratings agencies like the NCQA and A.M. Best assess health insurance companies
Last week on Sirius XM channel 111’s “The Business of Health Care” radio show, we discussed how ratings agencies such as the National Committee for Quality Assurance (NCQA) and A.M. Best evaluate insurers—both from a quality and a financial standpoint. My guests were Peggy O’Kane, president of NCQA; Dr. Mary Barton, vice president of performance measurement at NCQA; Sally Rosen, senior director of life/health ratings at A.M. Best; and Bridget Maehr, senior financial analyst of life/health ratings at A.M. Best.
NCQA evaluates health insurers on the clinical performance (prevention and treatment) of their provider networks and consumer satisfaction with their services (customer service, claims processing, access to care). Prevention measures focus on the main drivers of health care costs and consist of reproductive health and well care visits, cancer screenings, overweight assessments, and such simple things as flu shots for the young and elderly. Treatment measures focus on the main drivers of care, with many addressing chronic conditions such as diabetes, asthma, and heart disease. Meanwhile, A.M. Best focuses on insurers’ financial strength and seeks to understand how insurance companies spend and invest premium dollars to remain financially stable.
Interestingly, while economies of scale can affect financial and quality of care measures—e.g. the number of enrollees and premium dollars received—size does not always matter. What matters with insurers is their focus on the care delivered for their enrollees. What an insurer spends its money on in providing good quality care can differ depending on the region of the country where care is offered, the patient mix, and the availability of providers in a particular area. There are a number of high quality, financially strong insurers in the Boston area (BCBS MA, Tufts, Harvard Pilgrim Health, BCBS RI), and this is likely due to a concentration of very good providers (e.g. Partners Healthcare) and “healthy/employed” enrollees. However, other highly-rated health plans such as Kaiser—an integrated care company which acts as both insurer and provider—are at risk for the cost of care of their enrollees, so they look to find ways to ensure that enrollees stay healthy and care is provided in an appropriate low-cost setting.
Under the Affordable Care Act (ACA), insurers are responsible for using a certain percentage of premium dollars to pay customers’ medical claims and expenses that improve the quality of care (called the medical loss ratio, or MLR). As an example, for the large group insurance market, the ACA demands that insurers dedicate at least 85 percent of premium dollars to medical claims spending. If in any given year this amount is less than 85 percent, the ACA requires insurance companies to issue a rebate to enrollees for the difference. Studies have shown that non-profit insurers spend more on quality improvement than for-profit insurers, with not-for-profits spending twice as much as for-profits on quality improvement expenses for government insurance products. Additionally, for-profits typically report higher overall “profit margins” than non-profits (six percent versus two percent). Why is this, and is this good or bad?
One reason why for-profits might achieve higher overall profit margins is that they need to report to shareholders, and thus they may be willing to rebate the excess MLR back to enrollees as a cost for doing business. Over time, it is likely that for-profits will continue to determine the best mix of profit reporting. Another reason is that government and self-insurance products are spending more on quality improvement, possibly because programs such as Medicare Advantage have had more of a focus on quality improvement initiatives. Further, some self-insured products may be spending their own money on these initiatives, and thus insurers do not have to deal with these costs. Lastly, it may be the mission of not-for-profits to spend significantly on quality improvement initiatives.
As care continues to move towards lower cost settings, both NCQA and A.M. Best will be developing different quality and financial measures for evaluating health insurers.