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Health Reform: Regular Check Up Or Major Surgery?

The new administration wants to cut the Health Reform’s $1.3 billion annual costs by 25%, but wants to expand coverage at the same time. Uncertainty reigns, as insurers scramble to find ways to save the program.


June 28, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Prognosis: delicate

Insurers doubt that the government’s $300 million cost-cutting goals for the popular tarjetita can be accomplished without putting the whole program at risk. Although final decisions on the renegotiation of their contracts are not due until next week, they advised CARIBBEAN BUSINESS on what to expect.

The Calderon administration is determined to cut $300 million from the Health Reform’s $1.3 billion annual budget in order to keep the government-subsidized health insurance program from failing.

According to Gov. Sila Calderon, Government Development Bank (GDB) President Juan Agosto Alicea and Health Insurance Administration (ASES) chief Manuel Mendez, if proper controls are not put into place immediately, the $1.3 billion figure the Reform cost the government in fiscal year 2001–which will end Saturday–will continue growing and could choke the whole program to death.

As a matter of fact, the Commonwealth budget proposed by Gov. Calderon, which is expected to be approved by the Legislature this week, assigns only $1 billion to the Health Reform. The administration hopes that the private health insurers can come up with the savings.

But the health insurers don’t think they can. Triple-C (a subsidiary of Triple-S), La Cruz Azul, Humana, and Medical Card System (MCS)–are skeptical that a 23% cut can be achieved by using the strategies the government has proposed. Some of them even think that many of the cost-reducing strategies proposed by the government will end up increasing costs.

For a start, there’s little doubt that the government’s requirement for broader coverage, particularly in the area of medications, will force insurers to incur in higher costs. The proposal that the government take back the management of mental health services is also expected to increase costs. Most industry sources agree that the only way to reduce the overall costs to the government would be to strictly enforce indigence eligibility requirements and drop thousands of current beneficiaries who don’t qualify from the Reform’s rolls.

The administration has drawn fire from the political opposition. They accuse the Calderon administration of wanting to dismantle one of former Gov. Pedro Rossello’s most widely acclaimed initiatives. The popular tarjetita (as the health card has come to be known) allows 1.8 million indigent people and other beneficiaries to have access to private healthcare through private health insurance paid for by the government.

"The increase in health expenses…points towards the collapse of the Health Reform card if serious and responsible actions are not taken," Calderon said in a recent press conference held right after the contracts of three of the four insurers were cancelled, effective June 30.

Alicea told CARIBBEAN BUSINESS that the contracts of Triple-C, La Cruz Azul, and MCS–all of which ran for different terms–were cancelled in order to make all contracts run concurrently starting July 1 under new rules and specifications intended to produce the savings. Humana’s contract expires on June 30th, so it was not necessary to cancel it, said the company’s President Victor Gutierrez.

After the cancellation, the insurers received a Request for Proposal (RFP) from ASES describing the changes expected of them to save money in the Reform. The insurers had less than a week to submit their proposals. The new rules of the game are supposed to help achieve the $300 million cut in Reform expenses, but insurers interviewed by CARIBBEAN BUSINESS say that the cost-cutting objectives are not feasible unless copayments are increased or coverage is reduced, both of which the government wants to avoid. Copayments refers to the small portion of a claim that is paid by the beneficiary.

At press time, the four insurers had submitted their proposals to ASES and the negotiation period has begun. Although government officials were not able to speak to CARIBBEAN BUSINESS on the subject, the insurers did express their opinions on the probable outcome of the proposed changes to the Reform.

For the government, the first order of business in order to cut costs is for the insurance companies to reduce operational expenses. But insurers aren’t convinced that such action will help save much money. "The RFP asked us to reduce operational expenses. This is feasible, but the company could become less efficient, which in the long run will prove to be more expensive," said Triple-S President Miguel Vazquez Deynes. Gutierrez added that most insurers’ operational expenses represent about 7% of total expenses on the Reform and that government wants them to reduce this to 5%. Carlos Muñoz, president of MCS, explained that MCS’ operational expenses are around 9% and that it is definitely not possible to reduce this to 5%.

Besides, the government has proposed some structural changes to the Reform also in the hope of saving some money.

"The two major changes noted in the RFP are firstly, that from July 1 on, the Mental Health & Drug Addiction Services Administration (ASSMCA by its Spanish acronym) will replace insurers in the management of mental health services, and secondly, that the government will contract a Pharmacy Benefit Manager (PBM) to obtain rebates from pharmaceutical companies to save money on medications," said Zoraida Marchany, president of La Cruz Azul.

According to the insurers, the only action that will actually help save some money will be eliminating from the Reform’s roll an estimated 100,000 current beneficiaries who are not eligible under the applicable poverty standards. "I agree with the elimination of those who are not eligible for the Reform card," said Vazquez Deynes, "it is a great opportunity to reduce $70 or $80 million."

All households with incomes that fall 200% below the Federal poverty level are eligible for the Reform. In 2001, the federal poverty level was set at an annual income of $8,590 for individuals and $17,650 for a four-member family. Vazquez Deynes told CARIBBEAN BUSINESS that he expects more than 100,000 people will be dropped from the Reform.

On the other hand, the administration appears determined to take good care of a preferred constituency: government employees. The government has announced that in the reformed Reform, no public employee now benefiting from the Reform will lose coverage regardless of eligibility criteria. In fact, for those who may want to opt to pay their own private health plan, the government will pay an amount equal to what would have been its monthly contribution under the government plan. That amount is currently $40 a month per employee. It will be raised to $60 starting in January and to $100 over the next three years.

Some of the insurers interviewed agreed that this strategy will increase government expenses instead of reducing them. Still, they said that it was a good idea that government should help cover public employees’ health care costs, even for those who don’t meet poverty eligibility criteria.

Competitive bidding or contract renegotiation?

Uncertainty also reigns as to the true nature of the process. Is it a competitive bidding process or a renegotiation of the terms of the contracts that have been in place so far with each individual insurer?

Styling it as a competitive bidding process--pitting insurers against each other to compete on price--would maximize the government’s chances to get the best deal possible. According to Muñoz, the 10 Reform regions are open and the insurers are competing against each other in all. The result could be the reassignment of the regions each of them has handled so far. Sources at the other insurance companies supported this statement.

But it is unclear whether that’s the intention. At a press conference last week Gov. Calderon characterized the process as one of negotiation. "We have established our terms and they have submitted theirs. Right now we are in a process of negotiation and we will see where we end up. Those are the dynamics of a negotiation," she said. The statement confirms Alicea’s earlier comments to CARIBBEAN BUSINESS that although the administration is hoping to bring down the prices charged by the insurance companies, he is not expecting any reassignment of regions as a result of the process. "It should be expected that the insurance company that has been managing a particular region would be in the best position to keep managing that region," he said.

Mental health and PBM: the two major changes

The fact that the government will now manage mental health through ASSMCA has not received the best reviews from insurers, government opposition, and providers. Similarly, the fact that medications will be bought with rebates by a PBM contracted directly by the government instead of by the insurers, as has been the case until now, may increase costs.

Vazquez Deynes said that leaving the management of mental health services to ASSMCA will only increase costs, because private insurers spend less money on mental health than does ASSMCA.

Calderon said that although the Reform had invested more money in mental health services than ever before, the services had not improved, and 70% of those needing this service never received it.

Meanwhile, Gutierrez told CARIBBEAN BUSINESS that Humana covered mental health services for 30,000 patients and Vazquez Deynes said he has never received any complaints regarding his company’s mental health coverage.

Marchany said that while ASSMCA will be in charge of managing healthcare services, insurers will still be left to cover the medications determined by the government’s PBM. Calderon has announced that the reformed Reform will cover a much wider array of modern medications, and insurers fear that this will force them to assume more risk, making services offered more expensive, instead of cheaper, as the government would like.

Vazquez Deynes explained that insurers already have—and have always had—their own PBM, and that the government’s intention of also having one to obtain discounts on medications represents a duplication of efforts.

The local chapter of the National Alliance for the Mentally Ill (NAMI) has expressed its worries about transferring the management of mental health services to ASSMCA. First of all, its spokespersons have said that mental health providers have not been included in the decision-making process. In addition, they have said that the decisions being made point to the repetition of the closed managed care model with limited free selection of providers and medications, which they say prevails now. NAMI would like to see psychiatrists and other mental health professionals have complete control over the treatments and medications patients receive, and not leave it up to an insurer to determine which treatment or medication can be administered.

NAMI’s other complaint is that medication coverage shouldn’t be left to insurers because this could promote medical malpractice. The organization said that more than 70% of psychiatric medications approved by insurance companies are more than 40 years old and represent increased risk for the patient because they cause more side effects than the modern medications that should be in use, even though these are more expensive. In that sense, NAMI is happy with the government’s intention of including more and modern medicines to the list of medications insurers will have to cover. Vazquez Deynes and Gutierrez did not agree with NAMI’s statement regarding the medications their companies cover. "I can tell you that we cover modern medications for mental illness extensively, it’s just that many people make erroneous statements based on limited data," said Gutierrez.

To make things worse, the chapter’s executive director, Sylvia Arias, said that no concrete rules on exactly how ASSMCA will perform its new task have been put forth. Still, the government agency will begin its new duty on July 1. NAMI is urgently advising the government to establish a transition process because the group fears that mental health services will be interrupted, adversely affecting patients who depend on continuous treatment to stay well.

New Progressive Party Senator Miriam Ramirez—who is also a medical doctor—told CARIBBEAN BUSINESS that transferring mental health administration to ASSMCA is not at all a good idea. "I remember that under the administration of Rafael Hernandez Colon the complaints about ASSMCA were just incredible. Giving this agency such responsibility is like moving backwards," she said.

Meanwhile Gutierrez stated that transferring the management of mental health to ASSMCA may not necessarily represent added risk for insurers.

What will it be?

Considering that many strategies suggested by the government may not produce the $300 million in savings, but increase costs instead, has insurers wondering about how the reformed Reform will work out.

"We had no choice but to offer a higher cost-per-insured in our proposal," said Vazquez Deynes. "I’m almost sure that the other insurance companies will also offer a higher cost in their proposals because if they offer a lower cost than they offer now, they’ll be assuming too much risk. The coverage and service model the government is requiring us to offer makes it almost impossible to reduce costs. Costs cannot be reduced if the product isn’t reconfigured," he continued.

Gutierrez said that Humana had to offer a significant cost estimate for the coverage asked for in the RFP. "No insurer was able to offer a reduction, but there are a number of modifications that can be done in later contract negotiations," he said.

Vazquez Deynes worries that the Reform may get stuck if the government does not accept the insurers’ higher prices. On the other hand, Gutierrez is certain that the government will make the changes necessary to offer the best coverage possible for a fair premium and will not allow health services to be discontinued. Muñoz agreed, "I see a spirit of cooperation and collaboration from the government."

Meanwhile, Senator Ramirez told CARIBBEAN BUSINESS that the $300 million cut is not logical or feasible because health costs increase every year. A statement sent to the media by Ramirez and NPP Senator Lucy Arce recommend reducing the budget of other government agencies and not creating new entities to deal with the reform to save money. "They should have added $100 million to the reform’s budget instead of cutting $300 million," said Ramirez.

But the requirements put forth by the government are far from final, as the insurers and government are already negotiating the terms of the RFP in order to come to a feasible agreement, according to Muñoz. "We are negotiating with ASES to identify ways in which we can reduce costs," he said. Among the alternatives discussed have been a strategy to reduce emergency room over-use, and the development of a collaboration model between insurers and hospitals & other providers, said Muñoz.

Despite repeated efforts, CARIBBEAN BUSINESS could not obtain reactions from either Mendez or Department of Health Secretary Johnny Rullan, as they will not comment on the Reform until after July 1.

This Caribbean Business article appears courtesy of Casiano Communications.
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