• I was (kind of) wrong

    For a long time now I’ve been writing things like “the balance of market power between insurers and providers determines health care prices” or “consolidation among insurers can offset hospital monopoly power.” I’ve used the term “insurers” a lot. So do many others. But it’s not really the right term in most cases. Here’s why:

    About 45 percent of workers are covered by fully-insured plans. That’s a plan for which an insurance firm is at risk for the costs. The other 55 percent of workers are covered by self-insured plans. That’s a plan for which the employer takes on the risk of financing plan costs. In the case of self-insured plans, strictly speaking, there is no “insurer.” Loosely speaking one could say the employer is the insurer but that’s a misuse of the term “insurer” since in most cases the employer is not an insurance company.

    This fully-insured/self-insured distinction really matters to some people and in some respects. To me it never has because I’ve been thinking about how prices are set and the term “insurer” was just a stand in for the bargaining unit that opposes the hospital or provider. That is, prices are set in the marketplace via negotiation between two entities. My generic term for one entity was “provider” (sometimes just “hospital” if I wished to exclude physicians). My generic term for the other entity was “insurer.” I was OK with that.

    But not everyone is, nor need they be. I can do better and make thinks clearer. What I really think is going on (and this is confirmed by some colleagues with whom I corresponded on this) is that “plan brokers” bargain with providers. A “plan broker,” as I am defining it, is any entity that serves as an insurer or an administrator of a self-insured plan or both. Plan brokers likely leverage their entire portfolio of policyholders when they negotiate with providers. That is, all lives covered via the fully-insured and self-insured plans a plan broker administers is a determinative factor the prices paid by plans offered by that entity.

    So, I’ll stop using “insurer” when I mean the bargaining unit that opposes providers. I’ll use “plan broker” for now, but I’m not confident the meaning of that term is well understood. I worry it will be confused with insurance brokers. Is there a better, clearer term? “Plans” is not right since a firm can offer multiple plans. The plan  is not the bargaining unit. The firm is. But “firm” is too generic. What type of firm? Answer: A firm in the business of selling health plans, whether fully-insured or to self-insured employers.

    Still with me? Got suggestions?

    UPDATE: My colleague Steve Pizer suggests that I should just use the term “plans” and clarify on first use that I mean the firms that offer plans, either fully-insured or administered self-insured ones. He thinks that “plan brokers” is too close to “insurance brokers.” I agree. I need to avoid “broker” and “insurer” and “firm” is too vague. That leaves “plans.” Still, we really need a better term for this bargaining unit. Got ideas?

    UPDATE 2: Another reader informed me that firms refer to their self-insured business as Administrative Services Only (ASO).

    • Often in the documents I prepare I end up using the rather bulky “health benefit plan issuers” to refer to all non-self insured business that a state regulates. Perhaps “plan issuers” can be used? It probably suffers from the same problem as “insurers” that the middlemen insurance companies for self insured business are perhaps not actually the “issuers”, but at least its not laden with the implications of risk shifting that insurer invokes. “Plans” alone is not clear enough, as you mentioned. There are plenty of regulations at the plan level, yet more at the firm level, and they are distinct micro-levels.

    • If it weren’t so cumbersome, something like “beneficiary representatives” might do the trick.

      I am also interested in your suggestion that it’s a misuse of “insurer” to call a self-insured firm an insurer, since the firm isn’t an insurance company. Does this also mean that “National Health Insurance” is also a misuse, since a government is not an insurance company?

      • @Paul (the first one) – There’s a difference between “insurer” and “insurance.” Insurance can be obtained from an entity other than an insurer. (This is all strictly speaking. I don’t have any trouble being looser with definitions. But some people do.)

    • what about “payer”? they’re the ones bargaining with providers.

    • Great post. “Insurance broker” could use definition as well. When you decide on what terms you’re going to stick to, a glossary post would be helpful.

    • @Austin– Not that I think a lot turns on it, but if a non-insurance company can provide insurance, then it seems forced to say we misuse the term “insurer” when we apply it to corporations that self-insure (i.e. insure their employees against illness and its financial threats). Of course, I realize that in certain circles, “insurer” may be a technical term with the regimentation you suggest.

    • Very Important Post. This matter needs to be examined further. A few random thoughts:

      1) I vote for the terms “Health Plan’ when what is being discussed could be either. Where it can make a difference, the distinction should be made clear.

      2) My understanding is that fully insured plans are regulated by the state Insurance Commission, but self-funded plans are not Instead, these are regulated by ERISA and HIPAA.

      3) I’ve seen a number of plan descriptions which contain a paragraph stating that “nothing in these documents shall be construed as to create any contract of insurance between and the employee. So, someone must think there is a difference.

      4) The incentives are different. A 3rd party administrator is not going to lose money over a really sick case. Is there an incentive to approve borderline claims? I don’t know.