Regulators examine health care administrative costs

Zoonar/N.Okhitin

Zoonar/N.Okhitin

By SAM DRYSDALE

State House News Service

Published: 01-13-2025 12:29 PM

BOSTON — Massachusetts has the second-highest family health insurance premiums in the country, according to the Health Policy Commission, and the state Division of Insurance is investigating medical inflation as average premium rates across the individual and small group markets increased by 7.9% over the course of 2024.

Health plans and hospitals were at odds over what drives up medical costs — often pointing at each other — during a Division of Insurance hearing last week, and in disagreement about whether administrative costs are a main inflationary factor in Massachusetts.

The division is holding hearings throughout the winter to try to get to the bottom of the rising premiums that are drilling holes in consumers’ pockets. The uptick to 7.9% in the merged market follows last year’s increase of 3.2%.

Across that average weighted increase are weighted increases of medical costs by 6.6%, pharmacy costs by 11.8% and administrative costs by 0.6%. There are 648,253 consumers in the merged market, including qualified health plans for individuals and small employers, in Massachusetts, according to the DOI.

To help reduce costs, the division plans to come up with a set of recommendations in February based on the information gleaned from the hearings, DOI Deputy Commissioner Kevin Beagan said.

Last week’s hearing was on the administrative expenses, an area that all panelists agreed is highly regulated in Massachusetts. The DOI regulates the merged market so no more than 12% of an insurer’s costs can be on administration. At least 88% of the premium dollar is meant to be spent on health care services.

Darren Bennett, chief financial officer of Boston Medical Center Health Plan, and Lucy Silva, CFO of the Massachusetts General Brigham Health Plan, both said administrative costs have increased recently due to efforts to improve consumer experience, like having a mobile app, call center or online provider listings.

“Going into the digital age, which we are very much in that age as we speak, the focus really now is on having the right access,” Silva said. “Even the ID card has gone digital for the most part, and that is the preference for a lot of our members. And I would say, as a consumer, I’m also leaning in that direction and expect all of the information that I need for services that are covered and where to get services would be very easily accessible and mobile.”

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Bennett said there could be an opportunity to reduce administrative costs by embracing artificial intelligence and automation to streamline operations in some areas.

“The key that I’m hearing is this is something, the expenses that you’ve described are ones that are part of the nature to run a health plan, and that the expenses you’re actually reporting are ones that continue to evolve as you try to find new ways to make things more efficient, but you are still constrained to make sure that it remains within the 12%,” said Beagan.

Bennett and Silva agreed, pointing instead to hospital and prescription costs driving up premiums.

Some health care provider panelists, however, pointed back to the plans for rising health care costs.

“Hospitals and providers contract with many, many, many different health plans. Each one of those plans has numerous products under them. Each one of those plans delegates a lot of services to contracted vendors like [pharmacy benefit managers], like radiology management, like behavioral health. For each one of those situations, the hospital or the physician practice has to deal with numerous different rules, regulations, requirements, medical necessity determinations, what’s prior authorization when it’s required, when it’s not. All of these result in enormous costs on the provider side. None of that is referenced in the conversation that we just had,” said Massachusetts Health and Hospital Administration senior director of managed care policy Karen Granoff.

Dr. Barbara Spivak, an internist associated with Beth Israel Lahey Health and former president of the Massachusetts Medical Society, said hospitals can get backed up due to administrative issues with health plans.

Spivak said she recently had a patient who took three weeks to get prior authorization on a drug that she recommended, because it was denied the first time and her patient had to file an appeal. In the meantime, her patient ended up in the emergency room, she said.

“I think that administrative waste that comes from the delays in care, related to delays in access and related to prior authorizations, are things that we should be able to fix at a system level by statewide policies. It doesn’t take a genius. We all know what those are, and there are ways of fixing them,” she said.