Cost control

Are corporate health care costs a crisis, or not?

This time of year, we tend to see a lot of press around the rising costs of health care in the US. The prestigious Kaiser Family Foundation notes that “Annual premiums rose 5% to $19,616 for an employer-provided family plan in 2018.”

That sounds scary – I know my salary did not go up 5%. So, I’m taking home less pay, right? Well, yes and no.

In another recent article, Kaiser Family Foundation’s Drew Altman notes that, at least recently, there is no crisis. Here’s his chart showing how health care, as a portion of total compensation, has fared over the last decade or so:

There is definitely an increase over the last few years, but it may not be as bad as it seems. However, as Altman notes, “Even if health costs have not been growing recently as a percentage of compensation, there still can be sticker shock, with the average cost of a family policy around $19,000 per year, about the cost of a Honda Civic.” Yikes!

What this graph and his analysis has not captured is the cost shifting that has happened to a lot of US workers over this time. We’ve seen the growth of high deductible health plans and rising PPO deductibles and other cost shifting such as eliminating copayments or adding additional tiers of coverage for specialty medications.

So, while the premiums as a percentage of total compensation have been steady over the past few years, I know that many people who require some basic level of health care treatment are feeling much more of an impact at the point of sale.

The first Kaiser article cited above also notes “The average 2018 general deductible for individual-worker coverage was $1,573, according to the survey, up from $1,505 last year and $1,135 five years ago. Those averages don’t include plans that lacked such deductibles.” Here’s the chart showing the rise in the annual deductible over the past decade or so:

So, while premiums and employer costs may not feel like a crisis, health plan consumers, your employees, are absolutely feeling the crisis. We’re expecting employees and their families to pay for a lot of their health care costs (and those costs keep growing, as well) and that trend is definitely unsustainable.

Without this cost shifting, the total compensation chart above would look very different. So, unfortunately, I think the crisis is real!

 

Why we can’t have nice things…

Hopefully everyone saw the announcement last week that business titans Amazon, Berkshire Hathaway and JP Morgan Chase were teaming up to tackle the rising costs of healthcare. This announcement noted that this was solely to benefit the collective one million U.S. employees of the combined organizations; but many of us dreamed that they would disrupt the whole healthcare industry and solve the general healthcare cost crisis in which we appear to be stuck.

That is, we were hoping until everyone in the healthcare sectors started complaining to JP Morgan’s bankers.

Wait, what??? Well, I guess that is why we won’t see any healthcare disruption anytime soon. Or, as I tell my kids, here’s why we can’t have nice things…

The reality is that way too many players in healthcare today are making a lot of money (from insurance companies to physicians). So much money that they hire lobbyists, call their investment bankers at JP Morgan and otherwise make every effort to keep their income growing. Wouldn’t you?

One key component of why we pay so much for healthcare in the US is the lack of transparency and payment integrity issues (i.e., overcharging), resulting in large profits for many in the market. We are also so emotionally connected to our healthcare in the U.S., we have a hard time becoming a consumer when our own health is involved (especially on the pre-care/emotionally gut-wrenching side of healthcare decision-making).

In Texas, the Department of Insurance launched a mediation program to assist patients with large “surprise” bills ($500 or more). With this program in 2017, the mediation only paid the providers 14% of the charges they were billing ($1 M was paid out of $7 M in disputed charges). Keep in mind that this total is only limited to:

  • People who knew about and who took the time to use the program.
  • The provider did not have them sign a document that estimated the cost of the services, or where the actual cost actually exceeded the documented amount.
  • You were treated by a non-network Radiologist, Anesthesiologist, Pathologist, Emergency Department Physician, Neonatologist or Assistant Surgeon in a network hospital.

Imagine the numbers outside of that subset in Texas alone!

So, the lesson here is that we can all hope and dream that healthcare can be “fixed.” However, until we are all aligned and agree that there will be some losers in the new equation (including insurers, PBMs and even physicians), we’re still stuck with rising costs as long as we can continue to pay. I keep thinking that we’ll hit the spending limit some time soon, but it seems to just keep rising. Maybe someday we’ll find a reason to have nice things.

 

Uncertainty Is Certain in 2018 Healthcare

Wow, this has been an exciting week – the health care bills / withdrawals / repeals abound, but no resolution is in sight.

We do know that repealing the Affordable Care Act (ACA) will leave millions more without health coverage than under the current regulations – the CBO put the number at 32 million by 2026 (but, we’ll also lower the deficit by $473 billion).

While that does not seem to have support from the Senate, the uncertainty of the health care regulations is creating a lot of turmoil for insurance companies. How can you plan for the future, when the future of the health care rules might change?

NPR and Kaiser Health News (KHN) set out to see how much this uncertainty is costing consumers. If you were not aware, the insurance premiums were due to the respective state insurance boards in June. Many companies have been asked to revisit their rates and make adjustments, but what does all of this uncertainty do to the pricing?

A lot depends on the Federal subsidies in the marketplaces. If the current administration stops these subsidies in an effort to “gut Obamacare markets,” it will eliminate the “affordable” out of the Affordable Care Act for millions of Americans and many (especially healthier) people will be forced to drop their coverage due to the sharp premium increases.

It ends up, this uncertainty may cost consumers a lot next year. Per the NPR / KHN report, “In Pennsylvania, premiums next year without the subsidies would increase by an average of 20 percent, compared with 9 percent if they remain intact.”

The Pennsylvania Insurance Department further states that “Statewide average rate increases will be 36.3 percent if the individual mandate penalty is eliminated and cost-sharing reduction funding is also cut off.”

Average premiums in Pennsylvania in 2017 (without subsidies) are $533/month. That means, 2018 may have the following average premiums for those in Pennsylvania:

ACA Chart 2018

That’s just one state’s projections, and keep in mind that these are average statistics in Pennsylvania. Some will experience less and some more that what is noted above.

I am not sure who could lose their up to 64% subsidy (average of $340/month or $4,080/year in 2017) and then potentially shoulder an additional $2,300+ premium increase next year due to policy changes. That could be about $6,400 in additional premiums next year alone.

It does look like there may not be a full understanding of what health care premiums are from our current leader. I think $12-a-year premiums sound great, but even those of us with employer subsidized coverage don’t have that kind of deal.

Whatever the future holds, I hope we do not take coverage away from millions, either through mandate or affordability. Many employers are also struggling with affordability issues, and certainly do not receive any Federal assistance.

I do agree that all sides need to come together and come up with something to help fix the situation we are now in. There will be winners and losers in this process, but keeping the uninsured as the ongoing loser hardly seems fair.

However, this uncertainty may kill us before we ever get there…

Are you considering adding an ACO plan?

Employers are warming up to Accountable Care Organizations (ACOs), but is that the right option for your employees? There are already great resources on how ACOs work [i] – and I am not going to recount these details for you here. Instead, I want to help you determine if these types of plans might be a good fit for your employees.

ACOs are a product of the Affordable Care Act (ACA), but they are not completely unfamiliar territory for those of us who have been around a while. HMOs have a rather negative connotation to many of us who were enrolled in them 20-ish years ago, but they are very much an older and less tech savvy model of the ACO. If an ACO is streaming music from the cloud, and HMO is a cassette tape. They may sound alike, but they are fundamentally different.

Service Area Issues

A few important aspects of these plans have changed. Like HMOs, ACOs are specific to a particular service area, as they have to have a hospital network to succeed. So, to the extent possible, you will need to have a carrier knit together your ACO offerings if you have multiple locations, or have a benefits administration system that is smart enough to know who is eligible for which plan (and also reassign eligibility should an employee move service areas).

Cost Savings

The older HMOs relied on restrictions to care to drive costs savings. This added more administrative hassle (to both members and providers) and potentially to inappropriate restrictions for patients whose doctors were not good at documenting their case for the necessity of the care.

As the pendulum swung from the old model of restriction to a newer one of freedom, the new way to help control costs was to make the member foot the first part of the bill to a greater extent than they had to do in years – hence, the birth of the high deductible health plan (HDHP), or consumer driven health plan (CDHP).

Many employers added HDHPs/CDHPs over the last few years – we were looking for any way to help mitigate the rising medical plan trend. The main problem with this approach is that consumers really don’t have any easy ways to understand health care costs, much less become a smart consumer. 

Yes, we were all surprised when we went to the pharmacy in January and had a $300 fee, but that did not necessarily help us become better consumers. Many of us just grumbled under our breath and paid the bill – especially if our employer help us with some seed money in our HSA/HRA (or other savings) accounts.

But what about all of those great consumer tools? Even the best built tools and resources only help for some situations – I am probably not going to search for the lowest cost emergency room when I think I am having a heart attack. Nor do I necessarily understand why one place might charge more than another – maybe the more expensive provider is better quality? How are we to know, when health care quality is not well defined by anyone, much less your employees?

Accountability

For an ACO to work correctly, the accountability shifts from the member in the HDHP back to the provider, but with the technology to make the process (hopefully) much smoother. That sounds great, right? Doctors can help me navigate the system, their nurses will call and check on me when I forget to refill my diabetes medication, and they will help me navigate the complex health care systems.

However, we’ve just spent the last few years telling members that they had to be accountable!? No wonder employees are always confused. It’s like we’ve just told them butter is better than margarine, after years of pushing margarine. We give up!

That said, many of your members may really like the concept of having more savvy advocates for their health care – especially if they have a chronic condition or if most of their providers are already in the narrower network. Since I am a visual person, here’s how I like to think about how ACOs fit on the spectrum:

ACO Graphic

So, where do your employees want to fall on that spectrum?

  • Are they constantly confused about their plan and what is/is not covered? If so, they should move to the left.
  • In control and only asking very detailed questions? Maybe they can venture more to the right.

Savings

Will an ACO save your employer money? I am not sure we really know the answer to that yet. We do know thahave these plans do tend to attract the health (when priced at a lower price point) or those who already frequent the network. More time will help us determine if there are really savings to be had by pushing responsibilities back to providers. Unfortunately, the patient also needs to take accountability, including diet, exercise and medication adherence, Somehow, we can’t figure out how to create a plan that holds everyone accountable. I don’t think PPOs do that well, either.

Network Size

The other factor on this, of course, if the network size – ACOs typically have a significantly smaller network than most PPOs and HDHPs on the market. Let’s hope that some of that changes over time, as ACOs grow their network and integrate providers into their systems. 

For now, that’s another confusing factor in all of this – especially when many providers do not turn someone away when they show up and they are not in the member’s plan. Some even use non-network status this as a strategy and submit excessive bills to employer plans to exploit loopholes in non-network provider coverage. The usual and customary rates they receive are greater than the network price, so they waive any member fees and go after the insurance company with appeals and even lawsuits.

That’s exactly why some more provider accountability sounds so good to me right now, and I think (at least for now) ACOs are an option worth considering for many employers. Even if savings are unknown, increased member satisfaction with a more guided model may be the,right fit for your population, or even for you.

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[i] See the following resources:

Does telehealth actually increase employer costs?

A recent research paper in Health Affairs noted that “12 percent of direct-to-consumer telehealth visits replaced visits to other providers, and 88 percent represented new utilization” — meaning that 88% of the people who used telemedicine for acute respiratory illnesses probably would not have otherwise gone to the doctor. This increased the plan costs by $45 per telehealth user.

So, let’s back up a bit here. What is telehealth? Telehealth connects a patient with a provider using technology – this can be a phone call, an online chat or a video conference to conduct what would otherwise be a normal office visit, and can only be used for certain ailments. The thought is that this convenience will allow members to easily access car for certain conditions (especially if in a remote location) at a fraction of the cost. However, don’t expect to use telehealth for a broken arm or chest pain – go to the emergency room, instead.

There are some key things to take away from this study, but don’t drop your telehealth benefits yet!

First, while the study had a large sample and covered several years of claims, it did only analyze one diagnosis: respiratory illness. So, it is really limited in its applicability to assessing the costs for all telemedicine visits.

Next, keep in mind that some of the “new utilization” generated may have actually prevented larger claims down the road. Some of those patients who would have otherwise skipped a traditional office visit may have developed pneumonia or other more complicated and expensive illnesses as a result of the lack of care without telemedicine.

Monitoring your telemedicine utilization and expense is definitely something to keep an eye on; and if you are an employer who has access to claims data, you might want to investigate claims activity before and after introducing telemedicine (if possible).

Lastly, remember that not all benefits like this are in place to reduce costs. Providing a benefit that makes care convenient can be valuable to your employees! So, take these evaluations with a grain of salt and step back and remember why you introduced them in the first place. My guess is that even if your population uses this benefit a bit more, the additional $45 per utilizing member is probably worth the expense, given your total health care spend.