California’s biggest healthcare buyer isn’t happy about its $7-billion annual medical bill climbing almost 10% next year, and the state’s big insurers may be feeling the heat.
The California Public Employees’ Retirement System is preparing to rebid its health insurance business this fall for 1.3 million members, and two of its current plans, Anthem Blue Cross and Blue Shield of California, are likely to face intense competition as the giant pension fund considers its options.
Perhaps the boldest move under consideration for 2014 would be to bypass insurers altogether in some areas of the state and begin contracting for medical services directly with large physician groups.
The Los Angeles Times notes the move could put large medical groups in direct competition with their contracted insurers. A key motivation for the CalPERS strategy is to better manage its risk pool and control costs associated with chronic conditions such as diabetes and congestive heart failure.
Nearly one third of California state worker health care costs attributable to preventable chronic conditions
An Urban Institute Health Policy Center study released this week commissioned by the California State Controller’s Office found nearly 30 percent of health care expenditures for California state workers in 2008 were attributable to lifestyle-related chronic conditions such as diabetes, heart disease and hypertension. Ironically, the study determined, state entities with the highest percentages of employees with these preventable conditions staffed health-related departments including the Department of Health Care Services and the Department of Public Health. According to this Sacramento Bee story, the latter department will pilot a workplace wellness program that was kicked off in a ceremony emceed by television personality Dr. Mehmet Oz. Later in the week, Gov. Jerry Brown, noting preventable and chronic health conditions account for 80 percent of the Golden State’s healthcare expenditures, ordered the state’s Health and Human Services Agency to create a task force to develop a 10-year plan for improving the health of Californians.
California is to be commended in recognizing that some form of intervention is required to bring down medical utilization costs among its workers where a degree of choice and control can be exercised. The California Public Employees Retirement System (CalPERS), is one of the nation’s biggest purchasers of health benefits, so whatever the state does to demonstrably bend the cost curve is likely to serve as a national model for public and private employers as well as payers and providers as an emerging accountable care paradigm begins to take root.
However, state officials should give thoughtful consideration to how this intervention is framed and executed if it is to have more than symbolic value and actually reduce medical expenditures. “Workplace wellness” is a misnomer insofar as the lifestyle choices that can exacerbate — and prevent — chronic conditions are made mostly outside of the workplace and involve personal decisions concerning exercise, meals and sleep. Moreover, a 2011 survey of employers found mixed results among those that adopted workplace wellness programs in terms of tangibly improving the health status of employees.
Instead of “workplace wellness,” the focus should be simply on wellness. It should treat employees like adults and give them the freedom to make the personal lifestyle choices they and their medical providers believe can best improve and preserve their health and fitness. Confining employees to a cubicle for set work hours 40 hours a week and adding on more sedentary time spent commuting to and from that cubicle is hardly a health promoting activity. It robs workers of valuable time that could be spent on activities that enhance health, particularly sustained exercise. Nor is it necessary since Information and Communications Technology (ICT) has matured to the point state employees who are mostly knowledge and information workers can do their jobs from a home office or wherever else they can concentrate and be productive.
On this point, California’s pilot employee wellness program should incorporate a Results Only Work Environment (ROWE). A ROWE values getting the work done over daily office attendance. Early indications are that workplaces that adopt ROWE can achieve better health status. A University of Minnesota study issued in December 2011 found workers in a ROWE realized increased health-related behaviors of more sleep and exercise — behaviors that can go a long way toward maintaining health and reducing medical utilization.
With the coming end of medical insurance underwriting in 2014 under the Patient Protection and Affordable Care Act (PPACA), payers are retooling their business models to enable them to manage medical risk posed by high utilization patients. These are people with complex, chronic conditions whose needs for care and medications rank them in the top one percent of all patients. In risk management terms, these are “catastrophic” risks payers will soon no longer be able to avoid. Instead, these patients will have to be managed to minimize utilization. Daniel Malloy of the healthcare consultancy IMS Health explains in this New York Times article earlier this week:
Insurance companies will be required to enroll millions of new customers without the ability to turn them away or charge them higher premiums if they are sick. They will prosper only if they are able to coordinate care and prevent patients from reaching that top 1 percent, Mr. Malloy said. “The insurance model is fundamentally changing,” he said.
The Times article notes insurers are becoming increasingly sophisticated at identifying high utilization patients and those likely to develop serious complications. “It’s important to know who they are and manage their conditions,” Dr. Pat Courneya, the medical director for the health plan offered by HealthPartners, told the newspaper.
Managing costs posed by these high risk patients could also require a holistic medicine approach that treats the whole person — both body and psyche. The Times article reports that “insurers are also still grappling with their understanding of human nature — why some people simply don’t take care of themselves or take their medicine or go to the doctor, even when it is clear that they should.”
Premiums for employer-provided health insurance rose by 50 percent from 2003 to 2010 as employers passed on high costs to workers, boosting their annual share of premiums by 63 percent over the seven-year period, according to a report issued this week by The Commonwealth Fund. That’s much faster than overall inflation and wage growth during the period. The numbers reflect an affordability crisis confronting health insurers given the rate of growth of premiums is taxing the ability of employers and individuals to pay them at the same time the nation struggles to regain economic growth.
The report looks to a combination of insurance market reforms, payment incentives and delivery system changes to potentially reduce insurance costs by an average of 1 to 1.5 percentage points per year over the next decade. But even with the higher savings figure, coverage would remain costly, putting the average national family premium at $16,912 in 2015 and $20,620 by 2020, the report estimates.
While not specifically called out in The Commonwealth Fund report, the premium increase data underscore the enormous social cost of the poor health habits of many Americans — unhealthy diet and lack of adequate exercise and sleep — that underlie chronic conditions such as heart disease and diabetes that in turn drive up medical costs. Insurance market reforms alone can’t address those factors that according to the Preventative Medicine Research Institute account for 75 percent of health care costs that can be prevented by lifestyle changes.
California as the United States is facing an affordability crisis when it comes to purchasing health coverage and care. Many argue that the best response to bend the cost curve that’s increasingly placing them out of reach for employers and consumers is revamping the current health care system away from the “auto mechanic” model. In that paradigm, patients are charged incrementally for each visit to the shop and “repair” they need. Reformers promote an alternative system that provides incentives for health care providers to keep people healthy and relatively free of the effects of chronic disease that account for a large majority of health care spending, particularly as people age into their senior years. If they are in less than optimal health in early adulthood and middle age, they’ll end up as very costly medical cases in future years.
“It is not possible to develop a medical system that is adequately efficient to resolve California’s affordability crisis if a large percentage of people are developing diabetes—and conditions that often come along with obesity such as depression—in their 30s and 40s,” argues Micah Weinberg of the Bay Area Council in the organization’s report released this month, Roadmap to a High-Value Health System Addressing California’s Healthcare Affordability Crisis.
“Our current food environments and the individual choices we make are creating a tidal wave of disease that our medical system cannot handle effectively and equitably,” Weinberg asserts. “Californians, therefore, must become much more engaged in improving their own health and taking personal responsibility for bringing down their own lifetime healthcare costs so that resources are preserved for those truly in need.”
Weinberg is essentially promoting a new social ethos relative to health care. One that regards health care as an expensive, finite resource and not a limitless commodity that can be easily modified to respond to consumer demand and market forces. If we as individuals over utilize health care as the result of poor lifestyle choices, that collectively incurs a major societal cost and worsens the plight of those who need care for illnesses and injuries they could not have avoided.
The Sacramento-based Center for Health Improvement (CHI) recently hosted an informative seminar on risk adjustment components of the Patient Protection and Affordable Care Act to help health plans and insurers manage and balance medical risk once they must begin accepting all applicants regardless of pre-existing medical conditions starting Jan. 1, 2014. (Background and a webcast of the seminar are available at the CHI webpage.)
Medical underwriting that can make obtaining affordable coverage difficult for many prospective insureds in the individual and small group market segments ends on that date. The framers of the PPACA put in place these risk adjustment mechanisms to ensure balance and stability in the individual and small group insurance marketplace when it arrives. They are intended to avoid adverse selection — when medical claims costs and premiums rise in a self-reinforcing manner and threaten insurers’ ability to spread risk among healthier people, threatening the solvency of the insurance pool — as well as cherry picking. The latter term refers to insurer risk selection aimed at weeding out people who could incur high medical bills and attracting healthier insureds less likely to file costly claims.
The PPACA provides three risk adjustment techniques for health plans and insurers. Two are of limited 3-year duration, intended to ease the transition from medical underwriting to community-based rating during the period of Jan. 1, 2014 to Jan. 1, 2017. They include reinsurance designed to help cover the cost of actuarially unexpected, very high cost claims that could lead to overall higher premiums, and risk corridors. Risk corridors are an equalizing mechanism that subsidizes insurers incurring disproportionally high claims costs and inversely, surcharges those that incur lower than expected claims costs.
The ongoing mainstay risk adjustment mechanism — risk adjustment — also employs a similar redistribution mechanism for insurers and health plans that shifts funds from insurers and plans enrolling low risk insureds to those with more risky, sicker insureds. Risk adjustment employs dollar weighted risk differentials assigned to each insured that take into account that person’s likely medical treatment costs going forward based on their medical diagnoses and conditions.
The American Academy of Actuaries has prepared an excellent primer on the three risk adjustment components of the PPACA.
Panelist John Bertko of the Centers for Medicare & Medicaid Services’ (CMS) and director of special initiatives and pricing for the center for Consumer Information and Insurance Oversight, summed up a key goal of the PPACA’s risk adjustment mechanisms: a means of sharing the growing burden of chronic disease across payers come 2014. It remains to be seen just how great that burden will be in 2014 as the cost of treating chronic, complex diseases such as diabetes and heart disease in an aging population continues to trend upward. While the PPACA’s risk adjustment mechanisms can help allocate these costs across payers, the overall increased cost will ultimately have to be borne by everyone covered by health plans and insurers in the form of higher premiums.