On this week’s episode of the Empowering Patients Podcast, our co-founder Theo Harvey got a chance to talk to Prince Mckinney Healthcare Financial Expert.
They took a deeper look at the business side of healthcare. Prince was able to provide clarity on healthcare terminology like medical cost ratio and medical loss ratio.
Theo: Let’s dive into some of these acronyms for insurers. There’s the medical cost ratio and the medical loss ratio. Can you break down what these mean for insurers and why they are so important?
Prince: Great question. So the medical loss ratio is essentially the total share of healthcare premiums spent on medical claims to help improve the quality of care. This is important because through legislation, insurers have to spend at least 80 to 85% of their premiums on medical claims or to improve cost of care.
Premiums are the money that they collect. That’s the money that they collect from our monthly paychecks or whomever you buy your insurance from. And 85% of that needs to be paid out of medical claims. In a situation where your claims are higher, 122%, you spent 22% more than you actually collected. So, that definitely hits your profit profitability.
If you think about it like that, [if] you spent the 122%, you won’t be in business very long. Insurer’s like to be in that 80 to 85% range because one, it’s mandated and then two, if they spend less than that, they actually have to refund that money back out to their insurance class.
Theo: That’s why it’s important for them to find ways to treat these patients at a high standard of care, but maybe at lower cost. [It’s also probably] why insurers also look at their different patient populations, right? To determine [which] patients spend the most money when it comes to care and which don’t – which tend to be younger folks. Older folks spend more money. So they are, I guess they’re looking for the right patient mix.
Prince: Yeah. The demographics are definitely important to an insurer and it is based on your strategy. You have some of these newer interests into the market going after the Medicare base because as we all know, there’s an aging population here in the US. So one of the growing sectors within insurance is that C plans are through private insurers. You should get the same benefits of Medicare, of A and B, but it’s through a private insurer and Not the government.
Theo: This may be off the wheel here a little bit, but when you say that, so private insurers taking over Medicare? What are Medicare advantage plans really? Are those the private insurers taking over Medicare? In theory, there’s some cost cutting they can do, or some better efficiencies they can gather to make that a little bit more efficient when it comes to that.
Prince: Yeah. Exactly. So Medicare C is essentially Medicare A and B. Medicare A and B are legislated through Congress. But in order to bring down the cost of care, the government started allowing private insurers to offer those plans. That’s how you get this second market of Medicare C and not going through the traditional government. You said it, as a new entrant, I think I can provide this care at a better quality, less expensive, more efficient and drive better patient outcomes than going more of the traditional route. That would be the motivation, they believe they can come in and provide these services with better quality and more efficiently.
Theo: Yeah. To make sure I’m clear, Medicare C, is that the same as Medicare Advantage or is that a separate category?
Prince: Medicare C is the Medicare Advantage. So you have A and B, which is the traditional, then you have C. You have D, which is the dental and things like that. So it’s a lot going on there.
Theo: That makes sense. Medicare advantage is one of the fastest growing Medicare plans. I mean, I think they’re trying to get more and more folks on that plan. I think it’s been the highest it’s ever been, they’re saying I think 50% will be on Medicare Advantage in the next several years. And to your point to push it into the private insurers to kind of innovate and find more efficiencies.
So let’s say, I’m an innovative digital home company or insurer and I need more growth, so I’m going to go IPO or I’m going to go to public markets and get out of private markets. There’s this big push with these special purpose acquisition classes or specs and we saw a lot of healthcare companies taking advantage of this. Get into the public markets. What are your thoughts there with insurers or digital health companies in general going that route? What’s the pros and cons? What are some of the things that you’re seeing shakeout now?
Prince: I think the pros are definitely a double edged sword in some respects of the cons. I think I alluded to a little bit earlier. It’s the speed to market with the specs, they’re able to raise the money. Investors are able to raise money beforehand and then they merge with those already existing companies. And there’s less scrutiny, less due diligence involved in that type of transaction as opposed to the traditional you know, IPO route going public. So it’s the speed to market it’s a lot faster, but at the same time that becomes a risk as well, because in some cases they may not be as well vetted as a traditional IPO approach. I think with the the size of the potential market within healthcare, this is a great time to really be within this industry because you do see this digital revolution, you do see these entrants and new players into the market and the technology is enabling all of that and, you know, fueling that is this ability to go to market a little bit faster through these facts.
Theo: We talked about growth opportunities in healthcare. I mean the pandemic was transformative. I think someone said we went 10 years forward in innovation progress in one year with the pandemic. We saw a record number of telehealth visits, the space I’m in remote patient monitoring took off. Another big, hot area right now where we’re actually doing clinical trials remotely with patients. Where do you see the innovation coming to healthcare finance? Like who’s going to pay for all these tools and technologies so that we can enable better care for patients?
Prince: I think the tech’ll pay for itself, right? Because the investment is meant to increase patient experience, but at the same time to decrease cost. So if you increase the other two and you decrease the cost, it naturally funds itself. You can then reinvest back into the business. So I don’t look at it as who’s going to pay for it, whether it’s the patient, you and I, or the government, but rather the investment should pay for itself through increased efficiencies, low cost of delivery, increased outcomes, more preventative health. So people transitioning from sick care to more preventative care, I think these tools and these investments will eventually pay for themselves.
Theo: I love what you said about preventative tools too. Some of these beneficiaries who are spending more on claims, they’re taking care of themselves better. I mean even my space with remote patient monitoring, people who are monitoring themselves every day, it’s changing habits. They can manage a chronic condition. So you don’t have an exacerbation and have to go to the ER, which can cost tens of thousands of dollars to the healthcare system. So these cost savings mechanisms, I think will have a long term play for the future.
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