Last week saw developments in both the large and small group markets signifying advancement of defined contribution employer health benefits. As the term implies, rather than selecting one or more health plans for employees and deciding on deductibles, co-pays, co-insurance and dependent coverage, under a defined contribution system an employer offers employees a fixed dollar amount to be applied toward health coverage. Employees then “buy up” or “buy down” depending on the scope of health coverage they prefer.
The Wall Street Journal reported Sears Holdings Corp. and Darden Restaurants Inc. are adopting the scheme. At the same time, Aon Hewitt announced the imminent rollout of its “corporate health exchange” that it says will offer a broader array of health, dental and vision benefits options than a traditional employer-sponsored plan. According to the firm, benefits will be offered by nine national and regional carriers, including UnitedHealthcare, Cigna and Health Care Service Corporation. According to the WSJ, Sears and Darden Restaurants will use the Aon Hewitt-administered corporate exchange, which will offer five different coverage levels. (Public exchanges that will begin selling coverage in 2014 can also offer five coverage levels based on the actuarial plan value)
Meanwhile, in the small employer market, the Pittsburgh Post-Gazette reports United HealthCare is launching a defined contribution product in the Pittsburgh market. United’s Multi-Choice allows employers with 50 or fewer workers to select any number of plans among 30 separate options, from high-deductible to full-coverage plans.
Tom Blue, executive director of the Virginia-based American Academy of Private Physicians, has written a thoughtful and insightful analysis of what ails the current system of medical care and payment in the United States.
Blue’s main points:
- Health care is the only sector of the U.S. economy where insurance — fundamentally designed to spread and manage the risk of unexpected, catastrophic, and high cost losses — is used to pay for expected and preventative costs.
- Market forces have been disrupted by the third party payer system and cannot hold down rising medical costs.
- Consumers want health oriented care — what Blue terms as “functional medicine” — but the current third party reimbursement system is out of alignment, incentivizing payment for multiple procedures to treat sickness rather than promote health. As an example, Blue points to how diabetes is treated as a syndrome of discrete symptoms rather than as a condition that requires early, holistic intervention.
- Functional medicine represents the third era of U.S. medical practice. The first was focused on treating and eradicating infectious disease. The second era began in the 1970s and 1980s with the payer-side driven managed care model that Blue asserts can no longer control costs as intended and largely responsible for medical cost inflation that has outpaced annual GDP growth since 1970.
After a Two-Year Slowdown, Health Care Spending Grew 4.6 Percent Per Capita in 2011, Says HCCI Report
Rising Prices Drove Spending Growth in 2011
Prices rose for all major categories of health care—hospital stays, outpatient care, procedures and prescriptions—outpacing an uptick in the use of many of these services. Prices rose fastest for outpatient care.
“Prices continue be the main culprit for rising health care costs,” said HCCI Executive Director David Newman. “If we are really going to get health care spending under control, we have to better understand why those prices are rising and the implications those increases have for the U.S. health care budget.”
SAN FRANCISCO – September 12, 2012 – With the upcoming presidential election hinging on health care and the economy, analysis shows that poor health and its impact on productivity costs the U.S. economy $576 billion per year. This is according to estimates by the Integrated Benefits Institute (IBI), a nonprofit health and productivity research organization.
In addition to showing the entire financial burden of poor health, IBI researchers found that 39 percent—or $227 billion—is due to lost productivity associated with poor health. Lost productivity results when employees are absent due to illness or when they are underperforming due to poor health (“presenteeism”—when employees are at work but not performing at their peak).
This is a staggering number and clearly indicates Americans need to change how they work and live to achieve healthier and more balanced lives. The status quo harms their quality of life as well as the fiscal health of their employers.
The relatively higher amounts billed by physicians affiliated with these prestigious facilities couldn’t be justified in the quality of care, according to the Los Angeles Times:
Cedars and UCLA have long captured the public’s attention because celebrities have sought out treatment there for years. Anthem Blue Cross told city officials that the public often perceives care is better there because Hollywood stars such as Jodie Foster, for instance, went to Cedars to have her baby. But their costs are up to 50% higher than competitors and the quality of care isn’t measurably better, according to Steven Scott, general manager of group sales for Anthem Blue Cross.
Scott told city officials recently that Cedars and UCLA are among “the most notorious” for higher costs and “taking out those physician groups produces a substantial difference in cost.” Anthem isn’t alone in pursuing this strategy. Many insurers are aggressively pitching these sharply limited networks, which offer fewer choices and lower-priced doctors and hospitals, as a cost-cutting tool at a time when U.S. health insurance premiums have climbed three times as fast as inflation and wages over the last decade.
Speaking at a Univision forum Wednesday night, the Republican presidential nominee said that now and then Obama calls him the grandfather of Obamacare.
Romney said, “I don’t think he meant that as a compliment, but I’ll take it.” He went on to defend the Massachusetts law but says it is wrong for the federal government to take that approach.
Governor Romney was also the Godfather of former California Republican Governor Arnold Schwarzenegger’s omnibus health care reform plan in 2007-08 that was largely based on Romney’s Massachusetts reforms featuring a state health benefit exchange and an “individual mandate” that everyone have public or private health coverage. I know because I covered “ArnoldCare” nee RomneyCare from its beginnings to inglorious collapse in the state Senate as Sacramento health care correspondent for the Bureau of National Affairs.
In May 2011, federal Department of Health and Human Services (HHS) promulgated a final rule implementing Section 2794 of the Public Health Services Act requiring HHS to establish an annual rate review process to identify “unreasonable” health insurance rate increases. What’s considered reasonable (and not)? According to HHS, here’s how the regulation, found at 45 Code of Federal Regulations (CFR) Part 154 works:
Starting on September 1, 2011, health insurance companies in the small group and individual markets must submit information on all rate increases with an annual impact of 10 percent or greater for their non-grandfathered plans. Insurance companies cannot raise premium rates by 10 percent or more without first justifying the increase to a Rate Review Program. Insurers proposing increases of at or above 10 percent must submit for review clear information indicating the factors contributing to the proposed increases. HHS or Effective Rate Review Programs (see insert below) review insurers’ projections, data, and assumptions to assess whether premium increases are based on sound, up-to-date information on health care costs and use of covered services. Proposed rate increases may be determined to be unreasonable if for example, the proposed increase is based on faulty assumptions or unsubstantiated trends or if the rate increase charges different prices to people who pose similar cost risks to the insurer. Information collected through this program, including explanations of the final determination, is made available to the public on HealthCare.gov.
The regulation is enforced jointly by HHS and state regulators or HHS alone if states opt not to participate. HHS announced today that as a result of the review process used under the rule, one half of 2011 insurer rate increases resulted in consumers receiving either a lower rate increase than requested or no increase at all. In addition, HHS said 12 percent of the rate increases were withdrawn prior to review “in part because some insurers were not willing to have their proposed rate increase labeled as ‘unreasonable.’” According to HHS, states made the call on reasonability in 69 percent of the proposed increases and HHS reviewed the remaining 31 percent. HHS’s 2012 Annual Rate Review Report along with estimated savings for policyholders in the individual and small group markets can be viewed here.
In addition, the Section 1311(e)(2) of Part II the Patient Protection and Affordable Care Act (PPACA) gives state health benefit exchanges a degree of leverage over premium rates for health plans sold on the exchanges. It mandates exchanges to require health plans seeking certification for “listing” on the exchanges as qualified health plans to submit a justification for any premium increase prior to implementation and to prominently post the justification on exchange websites. The Act also allows exchanges to take into account insurer rate reviews under the abovementioned section 2794 of the Public Health Service Act when determining whether to allow the plans to be offered on an exchange as well as “any excess of premium growth outside the Exchange as compared to the rate of such growth inside the Exchange, including information reported by the states.”
Meanwhile, in November 2014 California voters will decide whether individual and small group health insurance rates should be regulated under a prior approval scheme like that created by 1988’s Proposition 103 for property/casualty insurance rather than the current retrospective rate review scheme. The initiative statute can be viewed by clicking here.