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Understanding Health Care Costs

Premiums are a direct reflection of the underlying cost of medical care
    • When the cost of health care services increases, the cost of providing health benefits also rises.


  • According to federal data, between 2000-2009 the growth in premiums tracked directly with the growth in benefits.
Health plan profits are consistently below other health care sectors

Understanding Healthcare Costs

Medical inflation is not the only factor contributing to rising health care costs
    • The medical component of the Consumer Price Index (Medical CPI) simply measures the inflationary component of prices charged for a defined group of services.


    • It does not include other major factors that drive increases in health care spending, such as increased utilization, the needs of an aging population, and the development of new medical technologies and prescription drugs. As a result of these other factors, the cost of providing health benefits increases significantly above Medical CPI.


    • The Massachusetts appeals panel rejected the argument that medical CPI is an accurate measure of how much health care costs are rising. In its report reversing the commissioner’s decision to deny Fallon’s premium rates the panel said this about the medical CPI:


“Fallon has proved that using the percentage increase of the New England Regional Medical CPI as the sole criterion for deciding whether to disapprove Fallon’s proposed 2010 rates is incorrect for the following reasons”:

    • The medical component of the Consumer Price Index (Medical CPI) simply measures the inflationary component of prices charged for a defined group of services.


    • The CPI “is purely a backward-looking measure of past expenses and does not measure or forecast future costs.”


    • The CPI “does not measure costs that are comparable to the costs of Fallon’s prospective claims.”


    • “Focusing solely on the percentage increase, to the exclusion of the resultant premium number permits anomalous results, with another company’s premiums that are higher than Fallon’s proposed premiums for comparable products not being disapproved while Fallon’s were disapproved.”


  • “Using a metric external to Fallon’s as the sole fact to determine whether Fallon’s proposed 2010 rates are excessive violates actuarial and regulatory principles and thereby contravenes the statutory requirement that rates must be adequate.”

Understanding Healthcare Costs

Health plans are doing their part to improve the quality and safety of patient care and help put our health care system on a sustainable path
In the face of these exploding costs, health plans are deploying the next generation of medical management tools to promote a high-value health care system, including:

    • Targeting disease management services to enrollees who stand to benefit the most from pro-active interventions.


    • Working with primary care physicians to expand patient-centered medical homes that promote care coordination and accountability for clinical outcomes.


    • Providing incentives to promote the use of decision-support tools and health information technology.


    • Providing quality improvement reports for physicians to monitor their progress in managing disease.


    • Offering personalized risk assessments and wellness programs.


    • Encouraging electronic prescribing and consumer safety alerts.


  • Providing peer-to-peer comparisons to demonstrate the appropriate use of health care services across specialists and manage the use of high-cost imaging services.