Cost pressures in group health coverage segment have prompted the nation’s largest employer to scale back coverage for its work force and increase employee cost sharing.
Greg Rossiter, a Wal-Mart spokesman, said the decision to deny coverage to new part-time employees resulted from the company’s revamping of its health care offerings in light of rising costs.
“Over the last few years, we’ve all seen our health care rates increase and it’s probably not a surprise that this year will be no different,” Mr. Rossiter said. “We made the difficult decision to raise rates that will affect our associates’ medical costs. The decisions made were not easy, but they strike a balance between managing costs and providing quality care and coverage.”
The full New York Times story is here.
Wal-Mart isn’t representative of the large group market given its large number of part time and low wage workers. However this development shows that rising medical costs are rapidly chipping away at the availability of employer-based coverage in the large group market just as has occurred in the small group market.
Los Angeles Times business columnist David Lazarus wrote last week about one of the biggest challenges to making medical care more accessible and affordable: rampant medical cost inflation. It will stoutly challenge the “affordable” part of the Patient Protection and Affordable Care Act (PPACA). Lazurus writes:
It’s a problem that affects all of us. As hospitals jack up prices to get more money from insurance companies, insurers in turn hike premiums for all members to cover their rising expenses. It’s a vicious cycle that exacerbates the unaffordability and inaccessibility of treatment in the United States.
It’s also a phenom that’s not responsive to competitive market forces to hold down the price of medical care and prescription drugs. A competitive market has two elements. One, many buyers and sellers. Two, competitive markets afford ample opportunity for buyers to shop around for the best deal. Most markets for medical care and medications have the first attribute but not the second. People who are sick or injured or facing conditions that threaten the quality of their lives and life itself aren’t inclined to question the cost. Especially when insurers and managed care plans are picking up most of the tab. As prices increase, payers pass through the higher costs to their insureds and plan members.
Of course, that can only go on for so long before premiums become so high they precipitate adverse selection, with healthier people dropping coverage and leaving payers covering sicker, costlier individuals. By requiring everyone to have some form of public or private health coverage, the PPACA hopes to stave off adverse selection and put more dollars in the coffers of insurers and managed care plans to cover those increasing medical and drug costs. However, without some mechanism to hold down the rising price of medical utilization — lowering demand through healthier lifestyles, for example — the PPACA’s insurance mandate may only buy a little time before we’re facing a more widespread health insurance crisis.
The enactment of comprehensive health care reform nearly one year ago aside, the U.S. health care system needs deep systemic reform that can meaningfully reduce medical costs and align risk and incentives among consumers, providers and payers. That’s the consensus among several panelists who took part in a health care forum Friday in Sacramento, California sponsored by the UC Berkeley Institute of Governmental Studies, School of Public Health and the UC Sacramento Center.
For Diana Dooley, California’s newly installed secretary of Health and Human Services, tamping down demand for medical services is an essential component of bending what all panelists agreed is an unsustainable, unrelenting upward trajectory in medical costs. People have to take more responsibility for their health, Dooley emphasized, suggesting that the current mindset that equates more medical care with better health must be abandoned. “We have an inexhaustible appetite for health care and it’s a significant cost driver,” Dooley said. “We have to have some very frank conversations around kitchen tables and in political dialogue and ask ‘How much medicine is enough?’ A lot of these cost drivers are our choices.”
Dooley’s absolutely right. Poor lifestyle choices are within the control of individuals and are the ultimate cost driver. I would add that those lifestyle choices are strongly influenced by cultural values that place too much emphasis on sedentary work, commuting and leisure time. Those values reinforce spending too much time sitting, too little time exercising and sleeping and the interconnected lifestyle issues of excessive stress and bad eating habits.
In this environment, it’s no wonder people’s health declines and they become overweight and develop costly chronic conditions like obesity, cardiovascular disease and diabetes. From the perspective of health insurers, all of that adds up to poor risk management. But most people don’t view it that way. Health insurance is seen more as a prepaid medical plan rather than a means of paying for unexpected, high cost medical expenses. Health breaking down? Get to the doc shop or the hospital and get fixed up. The problem is as Dooley and others on the panel pointed out, when too many people adopt this way of thinking, insurers and managed care plans end up paying out too much, jeopardizing the financial solvency of these payers. Hence, premiums keep futilely chasing after costs in a vicious, unvirtuous cycle.
Panelist Paul Markovich, COO of Blue Shield of California, underscored the seriousness of those escalating premiums in the individual health insurance segment. Premiums can go up only so much before healthier people decide to drop their coverage, leaving less healthy insureds in the pool. That is placing “tremendous stress” on the pool, Markovich said. “You have all heard of the death spiral (of adverse selection). We are absolutely experiencing some of that stress right now.”
Cindy Ehnes, the director of the California Department of Managed Health Care, noted during her seven-year-long tenure managed care plans attempted to preserve their troubled individual markets through risk selection — what Ehnes termed “cherry picking and lemon dropping.” Next, Ehnes explained, payers imposed high deductibles hoping to shift more risk to consumers and drive down the utilization of medical services. Now with the individual market facing structure failure, that strategy has played out, leaving only steep premium hikes as a last, desperate measure to keep the market solvent. That’s why premiums are high and headed higher despite high deductibles. People paying high deductibles naturally expect their premiums to be substantially lower than those with low or no deductibles. When they don’t see lower premiums in proportion to their high deductibles, they understandably drop coverage figuring they’re getting poor value for their premiums. That in turn takes more premium dollars out of the pool, forcing insurers to raise premiums even more just to stay afloat.
Not surprisingly, payers bearing the bad news of fat premium increases are coming under withering criticism from the consumer groups, the media, regulators and policymakers. Ehnes noted — and I would agree — simply chastising “greedy” payers isn’t going to help. There’s far more to it than that.
State government employment was once regarded as one of the best deals going for health coverage, with rich benefit packages intended to compensate for lower salaries than those paid in the private sector. No more if what’s happening in Nevada is indicative of a broader trend.
Nevada state workers now have health benefits that look like those offered employees by smaller private employers, replete with employer-funded health savings accounts (HSAs). And big deductibles to match.
Nevada state workers will pay annual deductibles of $1,900 for individuals and $3,800 for families in 2011. The state will offset the deductibles by contributing to workers’ HSAs, $700 in the case of individuals, according to this story appearing over the weekend in the Nevada Appeal.
The Los Angeles Times today is reporting today that California’s 12.4 percent unemployment rate — the third highest in the nation — has wiped out so much employer paid health insurance through job loss that the health care sector is being adversely affected. Those who are employed are paying higher deductibles and co-pays, further depressing medical utilization, according to The Times. As a result, many newly minted health care workers are themselves unemployed, the newspaper notes.
Neeraj Sood, an associate professor at the Schaeffer Center for Health Policy and Economics at the University of Southern California, sees decreased medical utilization as ultimately a positive development for the overall economy by making it less dependent on the healthcare sector for growth, according to the Times story.
I would agree with Sood, provided lower use of medical services is driven by people taking better care of themselves. However, in the context of the Times story, that’s clearly not the case. It’s people’s inability or reluctance to pay for medical services — even doctor visits — not necessarily less need for them.
This story might also herald a time where medical utilization and costs are being reconciled with buyers’ ability to pay for them. Medical costs cannot keep rising at a rapid pace. Eventually they will hit a price point of resistance and they may be fast approaching that point. We may be on the verge of a fundamental shift in the health coverage back to the old “major medical” model that covered only hospitalizations, surgeries and other high cost services and not the routine and minor care people have come to expect in recent years.