Archive

Posts Tagged ‘major medical’

Little noticed ACA provision may hold key to restoring primacy to primary care to bend cost curve

February 4, 2013 1 comment

Witnesses at a recent California legislative committee hearing bemoaned what is well known among health care policy wonks: poor access to primary care and its relationship to complex, chronic conditions that drive the 80-20 rule on health care spending: that 20 percent of patients account for 80 percent of the health care spend.

An excerpt from the California HealthCare Foundation’s California Healthline report on the hearing:

“We need to look at better management of chronic conditions,” said Assembly member Richard Pan (D-Sacramento), chair of the Committee on Health. “It’s one of the greatest cost factors in our health care system.”

How much cost?

The numbers are “astounding,” according to Sophia Chang, director of the Better Chronic Disease Care Program at the California HealthCare Foundation and one of the panelists at yesterday’s hearing. CHCF publishes California Healthline.

“We’re dealing with an epidemic,” Chang said. “Growing numbers, growing costs.”

The article goes on to quote testimony by Kevin Grumbach, chair of family and community medicine at UC-San Francisco:

“All this talk about chronic care and the patient-centered medical home is fundamentally about the primary care foundation of a well-functioning health care [system],” Grumbach said. “Systems that are built on a solid foundation of primary care are much better able to deliver the triple aim of better care, better outcomes and lower cost, and in an equitable way.”

Unfortunately, he said, California’s primary care system “is completely topsy turvy,” he said.

A little noticed provision of the Patient Protection and Affordable Care Act could contain the means of restoring the primacy of primary care and putting health insurance into the more logical and sensible role of covering large, unexpected medical costs.  It allows state health benefit exchanges to offer qualified health plans (QHPs) that are bundled with primary care directly paid by the insured, not the QHP. These “Direct Primary Care Medical Home Plan” QHPs would logically be those offering lower actuarial value (such as the “bronze” and “silver” metal tier plans that cover 60 and 70 percent, respectively, of expected claims costs).

Such a product could offer real benefits for both individuals and small businesses purchasing coverage in the exchanges starting this fall as well as for health plan issuers.  The former would benefit from lower premiums since they would be purchasing a lower cost plan. Health plans would benefit because insureds that pay for their own primary care – likely through pre-paid primary care contracts with primary care doctors and clinics – would have access to primary care and lifestyle coaching to ward off the development or progression of chronic conditions.  And primary care providers would also benefit by pre-paid direct primary care plans since they would provide a degree of predictability to their business models and potentially attract the large number of new primary care physicians that will be needed by the many newly insured under the ACA. That sounds like a promising means to achieve Grumbach’s triple aim.

Plan issuers, however, might initially resist offering such Section 1301(a)(3) plans since they would require them to retool their plans to be more like the “major medical” plans that predominated in the United States until all inclusive managed care plan models covering primary care proliferated beginning in the 1970s. But amid relentlessly rising medical costs that threaten their current business models and the opportunity presented by the new exchange marketplaces to devise new plans, now may be the right time for them to adopt DPC-based plans. Such plans might be marketed as “DPC (Direct Primary Care) compatible” just as high deductible plans are termed “HSA compatible.”

To spur their adoption, the Internal Revenue Code should be amended to allow individuals to take an income tax deduction for pre-paid direct primary care, just as they now can for contributions to health savings accounts.

Analysis: Employees to face healthcare sticker shock | Reuters

November 4, 2012 Leave a comment

Over the next 18 months, between one quarter and one half of Americans who get insurance coverage through their employers will pay more of their doctor bills themselves as companies roll out healthcare plans with higher deductibles, benefits consultants say. The result: sticker shock.

“They have huge out-of-pocket costs before they get any insurance coverage, it’s a real slap in the face,” said Ron Pollack, the executive director of Families USA, a healthcare advocacy group.

via Analysis: Employees to face healthcare sticker shock | Reuters.

Mr. Pollack is reacting — badly — to a back to the future shift in health insurance, to a period prior to the emergence of all inclusive managed care plans in the 1970s and 1980s.  We are witnessing the re-emergence of health insurance that was known in period following WWII as “major medical.”  It was a true insurance product insofar as insurance by definition is designed to cover high cost, unexpected needs such as a hospital stay.  Routine, out of pocket costs were just that: paid out of the patient’s pocket.  And from all indications, it’s here to stay.

PPACA likely to institutionalize “major medical” coverage for individuals, small business employees

The Kaiser Family Foundation has published an excellent primer on the actuarial foundation upon which “qualified health plans” must be based under Section 1301 et seq of the Patient Protection and Affordable Care Act (PPACA).  The plans will be sold through state health benefit exchanges starting Jan. 1, 2014.  The exchanges will serve as marketplaces aggregating purchasing power among the small group and individual markets — the most distressed health insurance market segments where coverage is far less accessible and affordable than large group and government insurance plans.

These plans that cover from 60 percent (bronze) to 90 percent (gold) of an individual’s projected medical costs show the era of health coverage with minimal cost sharing and out of pocket costs has come to an end for individuals and those employed by small businesses.  That new reality that emerged in recent years is now institutionalized as public policy in the PPACA.  That policy is reinforced by tax policy allowing individuals to establish tax deductible Health Savings Accounts, which have been in existence only since 2004.

The bronze plan’s 60 percent coverage level could be equated to “major medical” plans of decades past that covered as the name implies only major expenses such as hospitalizations but not routine doctor visits.  As medical treatment and pharmaceutical costs continue to push up health coverage rates leading up to 2014, it remains to be seen if the higher level silver, gold and platinum (90 percent of projected actuarial costs) will be affordable for individuals and small businesses even with their new purchasing power via the benefit exchanges.  Many could find their budgets can handle only the low end bronze plan, shifting the bulk of these market segments to a major medical level of coverage.

Rising HMO premiums hint at adverse selection

December 4, 2010 Leave a comment

The large group health insurance market is rearranging itself along the lines of medical utilization with those using more medical services opting for managed care HMO plans and those using fewer services opting for lower cost, high deductible PPO and POS plans.  Premium rates are adjusting to this higher utilization, with HMO members expected to see a 9.8 percent bump in 2011, the highest rate increase since 2006’s 10 percent hike, according to a report issued this week by Aon Hewitt.

Since HMOs provide richer benefits but at a higher cost, they are preferred by employees who use health care more often and need coverage that is more robust. “Having a higher mix of these plan participants in HMO plans raises the risk pool, which can drive costs higher,” Aon Hewitt notes. In other words, adverse selection.  Once the trend of adverse selection becomes entrenched, the risk pool enters a death spiral of fewer insureds to share costs, requiring big premium increases that speed depopulation of the pool.

Large employers are apparently already feeling those higher prices — and it could ultimately lead to contraction of the large group HMO market, Aon Hewitt warns. “Employers continue to be successful in reducing HMO rate increases by a few percentage points through aggressive negotiations with health plans, changes in plan designs and employee cost sharing,” said Jeff Smith, a principal and leader of Aon Hewitt’s HMO rate analysis project. “Still, these increases have been very difficult for employers to absorb, particularly this year when many companies are focused on economic recovery and complying with health care reform. If HMO rates continue to outpace average health care cost increases, employers may elect to take even more aggressive steps in the coming years, such as eliminating HMO plans altogether.”

This looks like yet another sign of the end of the rich, all inclusive employer provided health coverage of recent decades and a revival of major medical coverage for hospitalizations and other high cost services and not routine or minor ones.

 

The large group health insurance market is rearranging itself along the lines of medical utilization with those using more medical services opting for managed care HMO plans and those using fewer services opting for lower cost, high deductible PPO and POS plans.  Premium rates are adjusting to this higher utilization, with HMO members expected to see a 9.8 percent bump in 2011, the highest rate increase since 2006’s 10 percent hike, according to a report issued this week by Aon Hewitt.

 

Since HMOs provide richer benefits but at a higher cost, they are preferred by employees who use health care more often and need coverage that is more robust. “Having a higher mix of these plan participants in HMO plans raises the risk pool, which can drive costs higher,” Aon Hewitt notes. In other words, adverse selection.  Once the trend of adverse selection becomes entrenched, the risk pool enters a death spiral of fewer insureds to share costs, requiring big premium increases that speed depopulation of the pool.

 

Large employers are apparently already feeling those higher prices — and it could ultimately lead to contraction of the large group HMO market, Aon Hewitt warns. “Employers continue to be successful in reducing HMO rate increases by a few percentage points through aggressive negotiations with health plans, changes in plan designs and employee cost sharing,” said Jeff Smith, a principal and leader of Aon Hewitt’s HMO rate analysis project. “Still, these increases have been very difficult for employers to absorb, particularly this year when many companies are focused on economic recovery and complying with health care reform. If HMO rates continue to outpace average health care cost increases, employers may elect to take even more aggressive steps in the coming years, such as eliminating HMO plans altogether.”

 

This looks like another sign of the end of the rich, all inclusive employer provided health coverage of recent decades and a revival of major medical coverage for hospitalizations and other high cost services and not routine or minor ones.

U.S. budget constraints could provide additional boost for catastrophic medical coverage

November 28, 2010 Leave a comment

The increased use of catastrophic health insurance coverage could get a boost from the U.S. government’s fiscal woes as it looks to pare down deficit spending including potentially eliminating the tax break employers get for employee health insurance costs.  High deductible catastrophic coverage is increasingly a mainstay among the self-employed in the individual health insurance market and is now moving into employer paid insurance.  It’s already becoming prevalent among smaller employers with 100 or fewer employees.

Catastrophic coverage works similarly to what was known decades ago as “major medical.”  As the name suggests, it covers only high cost care such as hospitalizations and surgeries.  Routine doctor visits are paid out of patients’ pockets.

“The idea isn’t to just raise revenue, economists say, but finally to turn Americans into frugal health care consumers by having them face the full costs of their medical decisions,” an Associated Press story today notes. Health care policy wonks have long observed that as long as people’s medical care is largely paid by others — employers, health care service plans and insurers — there is little incentive for patients to be parsimonious when using medical services.

This logic would work if the market for health services functioned as a truly competitive market.  Inasmuch as there are many sellers and buyers of health services, the market is nominally a competitive one. But it doesn’t behave as a competitive market.  In fact, just the opposite. People tend to remain loyal to their doctors for routine care.  And for emergency or non-routine care, the motive is to get treatment quickly and not shop around for treatment options and prices.

Bottom line, the rise in catastrophic coverage isn’t emerging as a remedy to make the health care market more competitive in the hope doing will will drive down prices and bend the cost curve.  Rather, it reflects the fact that health care costs have reached a tipping point such that it’s no longer feasible to cover most routine services.

Health insurance crisis depresses medical utilization

November 22, 2010 Leave a comment

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.

%d bloggers like this: