In November, the U.S. Department of Health and Human Services (HHS) issued a proposed rule governing wellness programs offered as part of employer-sponsored health plans for plan years beginning January 1, 2014. The proposed rule is aimed at boosting incentive for large employers to increase the health status of their employees since large employers will be continue to be regarded as discrete risk pools under the Patient Protection and Affordable Care Act, whereas small employers will be collectively treated as a single risk pool.
In addition to the traditional participatory wellness programs such as discounts on fitness club memberships, health assessments and seminars, the proposed rules create an enhanced incentive for employers to offer health contingent wellness programs. The contingency? Employees must adopt a lifestyle changes and health improvement plans designed to help them reach target biometric goals such reducing weight, body mass index (BMI), blood pressure, or cholesterol levels. If they hit the prescribed targets, the proposed rule would allow employers to reward the employee with a payout of up to 30 percent of the cost of the employee’s health coverage for the plan year, an increase over the current 20 percent permitted under rules adopted in 2006.
The rulemaking’s preamble suggests HHS believes the increase in the maximum reward is necessary to boost participation in contingent wellness programs. It cites a 2010 survey by NBGH and TowersWatson in which just four percent of responding employers reported offering financial incentives for maintaining a BMI within target levels. Only three percent did so for maintaining targets for blood pressure and cholesterol levels. Based on these numbers, increasing the maximum award level alone isn’t likely to produce a significant increase in the number of employers and employees participating in contingent wellness programs.
However, if such programs were joined with affording employees greater control over when and where they work, participation could increase substantially and employers would see a potentially large payoff in improved employee health status and reduced medical utilization. Schedule control eliminates the “I don’t have time” excuse for not engaging in health promoting behaviors such as regular exercise and getting sufficient amounts of sleep. If employers want employees to take responsibility for their health, they must give them the means to adopt healthy lifestyles and avoid the daily sedentary (and hardly health promoting) routine of commuting to and from and sitting in a centralized office. Plus they would likely enjoy the added bonus of crisper and more creative thinking and better ideas from employees getting plenty of sleep and exercise thanks to having more control over their work schedules.
Health benefit exchanges: A market intervention mechanism aimed at preserving individual, small group health coverage
State health benefit exchanges mandated by the federal Patient Protection and Affordable Care Act of 2010 have been commonly described as online marketplaces where buying a health insurance policy or managed care plan can be done as easily as booking a flight or vacation. Ease of purchase, however, is not the driving policy rationale behind the exchanges. They came about in response to market failure in the individual and small group market segments, particularly in the former. In insurance terms, market failure means the dreaded death spiral of adverse selection.
Insurance fundamentally is about spreading costs across a group of insureds, known as the insurance principle. The principle is based on the law of large numbers. If too few people purchase an insurance or health plan, the law of large numbers is violated and the insurance principle breaks down. For those insureds left in the group, their share of the group’s costs – paid as premiums or membership dues – must be sharply increased. The pool shrinks and only those most likely to use medical services remain since they need coverage, putting further upward pressure on premiums.
There is a limit what any insured can afford to pay. Eventually market failure results and the insurance or managed care plan becomes economically unviable. As plans close, the fewer remaining health plans pass along relentlessly rising medical care costs and the unvirtious cycle proliferates until the entire marketplace is at risk. That was — and still is — the situation the individual and small group health insurance markets leading up to the enactment of the ACA in 2010. Ultimately, health benefit exchanges are an attempt to preserve these markets by concentrating plan issuers and purchasers into a government-sponsored marketplace with incentives and disincentives for individuals to participate in the form of tax credit subsidies and tax penalties, respectively.
Whether the exchanges are able do so won’t be known for several years after the exchanges begin pre-enrolling individuals and small businesses for 2014 coverage starting in October 2013. What is certain is the exchanges as insurance marketplaces – like the failed market they seek to remedy — are also subject to the insurance principle. They must attract sufficiently large numbers of individuals and small businesses if they are to successfully achieve the market aggregation solution that led to their inclusion in the ACA.
The Los Angeles Times reports Blue Shield of California is proposing to up individual plan premiums by an average of 12 percent in 2013, the penultimate year heading up to the launch of the California Health Benefit Exchange (Covered California) in 2014. Blue Shield’s rate hike is somewhat lower than California’s individual market share leader, Anthem Blue Cross, which last month informed regulators it would boost 2013 rates between 15 and 18 percent for its plans.
Both payers cite rising medical treatment costs for the rate increases. According to the Times story, Blue Shield is also boosting its reserves to cover claims costs from an expected influx of new customers in 2014, when payers must accept all applicants without medical underwriting and the state’s health benefit exchange will offer income tax credit subsidies to defray premium costs. “It’s a once-in-a-lifetime change in the healthcare market that will bring a lot of volatility, and we need higher reserves for that,” Blue Shield spokeswoman Lindy Wagner told the Times.
As organizations increasingly seek ways to improve the health status of their workforces and reduce burgeoning waistlines and health care utilization costs, they must look to new approaches that hold potential for achieving meaningful results. A strategy previously discussed on this blog is affording workers more control over when and where they work – known as schedule control – in which work is seen as an activity and not a destination.
In a 2011 study, schedule control showed promise among knowledge workers who thanks to today’s information and communications technology (ICT) are able to be productive independent of time and place. The study of 659 knowledge workers found that affording them schedule control can promote employee wellness, particularly in terms of prevention behaviors. Another study published in 2007 found a positive association among workers who perceived greater control over their work schedules with hours of sleep and the frequency of physical activity. It concluded schedule control may play an important role in effective worksite health promotion programs.
Health professionals would agree that health promoting behaviors take dedication and time – sufficient time for meaningful exercise and adequate sleep. In recent decades, however, time has become a restricted commodity for full time workers, taking a toll on their health status. Indeed, a 1996 study correlated too insufficient time for both work and family obligations to poor health outcomes. Another study sponsored by Health Canada in 2004 found workers with high levels of work time conflict were in poorer physical and mental health and made greater use of Canada’s health care system.
Schedule control provides a means to take back wasted time and thus offers a potential win-win wellness solution for organizations. Providing it costs organizations virtually nothing and even offers the possible bonus of saving on office space costs. For knowledge workers, it frees up time devoted to a no longer necessary daily commute to the office. (Commuting has been shown in a European study to interfere with patterns of everyday life by restricting free time and reducing sleeping time.) While more study is needed, existing research suggests that perhaps the most promising “worksite wellness” intervention may be to drop the “site” and instead focus on the work and the worker.
As the name suggests, the primary policy goal of Subtitle D, Part 2 of the Patient Protection and Affordable Care Act (PPACA), Consumer Choices and Insurance Competition Through Health Benefit Exchanges, is to restore America’s health insurance market to functionality. Functioning markets by definition offer buyers meaningful choice among competing sellers. The health benefit exchange mechanism would create a functional market by “leveling the playing field” to ensure health plan issuers offer the same benefits and otherwise comply with rules governing coverage contained in the PPACA. Second, the exchanges offer strong market participation incentive for plan issuers by making available millions of consumers who cannot afford relentlessly rising premiums by taking tax dollars these individuals would otherwise pay to the U.S. Treasury and giving them to plans to subsidize their premiums.
In addition to these market interventions, the PPACA — like the Clinton administration’s unenacted health care reform plan of the 1990s before it — takes the insurance out of health insurance. How? By outlawing medical underwriting of individuals and instead instituting modified community rating where rates vary only based on age, family size and residence and not medical history. Underwriting is the heart of insurance: selecting who is offered insurance and at what price. Without underwriting, health coverage can no longer be accurately described as an insurance product. Perhaps that’s why the PPACA refers to the new, government mandated state insurance markets as health benefit exchanges and not health insurance exchanges.
Since all health plans would be offering the same coverage as mandated by the PPACA come 2014 and can no longer underwrite to obtain the lowest risk (and lowest cost) individuals to cover, they are left to compete solely on service and price. How will this play out over the long term since the underlying costs of medical care continue to rise and show no signs of abating? Let’s explore some scenarios. Plans may compete by absorbing the increased cost of care in order to keep premiums down. Plans that can do that successfully will survive. Those that cannot will be forced to pass along increased costs to consumers through higher premiums. As consumers choose cheaper plans offered by competing plan issuers, less price competitive plans face the death spiral of adverse selection and/or insolvency, leaving only the biggest players to compete in the exchanges. Fewer players mean less choice, which is contrary to a key goal of the exchanges. Less choice and less competition in turn gives surviving plan issuers greater incentive to pass along rising costs to consumers.
But unlike in the current market, in the exchange market starting in 2014 and going forward, those increased premiums won’t be necessarily be completely absorbed by consumers or lead to their dropping coverage because it’s no longer affordable. The federal treasury will also share the burden because the advance tax credit subsidies for exchange-purchased coverage will absorb whatever the plans charge above a consumer’s income level (subject to federal review of the reasonability of rate increases), ranging from no more than two percent of income at the federal poverty level (FPL) to 9.5 percent at 400 percent of FPL. Since tax dollars will be subsidizing insurance rates, how much those rates go up in this soon to emerge market automatically become not only a market regulation issue, but also a matter of national fiscal policy.