Underlying the enactment of the Patient Protection and Affordable Care Act (PPACA) in 2010 was a fundamental policy choice that rejected the idea of cutting out private “middle man” health plans and insurers in order to make coverage more accessible and affordable by adopting a Canadian-style single payer model in which the government pays all medical bills. Or have a government-run insurance plan compete with private payers — the so called “public option.” The Obama administration rejected these deprivatization schemes as too radical and instead chose to build upon the existing system largely based on working age people and their families having private health coverage paid for by employers.
Two recent surveys by benefit consulting firms Towers Watson and Mercer suggest however the foundations of that system could ironically erode under the PPACA if employers drop their group insurance and managed care plans and opt to have their employees purchase coverage in the individual market. One of the major motivators, this AP article suggests, is the creation of health benefit exchanges designed to make it easier for individuals and families to buy their own coverage.
Given steep medical cost inflation that has rapidly accelerated the cost of covering workers over the past decade, at least some employers see “opting out” of providing health coverage as their cost control “nuclear option” despite the adverse tax implications and penalties they would incur by not covering their employees.
The implications of the Towers Watson and Mercer surveys are controversial and are drawing caveats from administration officials, particularly insofar that the benefit exchanges won’t open for business until January 2014. With more than two years until then, it’s hard to draw any firm conclusions regarding what employers will actually do when the exchanges become operational. But benefits consultants warn that it won’t take many employers to start a trend of opting out as the AP story notes:
Benefits consultants say most companies, especially large employers, will continue to offer coverage because they need to attract and keep workers. But that could change if a competitor drops coverage first.
Michael Turpin, a national practice leader at broker and consultant USI Insurance Services, said one of his clients plans to drop coverage as soon as any competitor does. The client, a major entertainment industry company he declined to identify, will be at a financial disadvantage if it doesn’t.
“In those industries … if somebody makes the first move, the others are going to follow like dominoes,” Turpin said.
If that happens, the PPACA will have the unintended consequence of radically altering the employer-based system of health care coverage in the United States, moving it instead toward one based in individuals purchasing their own coverage.
This article makes a point also made on this blog: that increasing access to health care fails to address the root cause of increased health care utilization and particularly lifestyles that lead to preventable chronic conditions that are a major driver of that utilization.
Employers are becoming increasingly sensitive to the rising cost of health care, driving interest in prevention and wellness programs designed to reinforce healthy behaviors such as exercise. Some are paying workers rewards to take good care of themselves and even strapping pedometers on them.
But will these measures have a meaningful, long-term impact on getting rising health care costs under control? I’m doubtful because I view this not so much as a workplace issue but more of a work-life time management issue, particularly for office/information workers. If they are commuting to an office five days a week there’s often not much time or energy in the workday for a significant and beneficial amount of exercise and the seven to eight hours of sleep many medical experts say people aren’t getting but should. Sitting in a commute and then sitting in a cubicle for eight or more hours does not a healthy lifestyle make. Just look at the many supersized workers who inhabit this work environment.
One employee wellness intervention that employers of this large category of workers should consider implementing to get measurable results is allowing them to work from their homes or from locales close to their homes for some or most of the workweek. The freed up commute time can then be used for an hour of exercise based on the average U.S. commute time. There’s also the added plus of more sleep time since teleworkers can start work soon after rising without having to prepare for a trip to the office.
Rising medical costs — a key driver of the health insurance crisis — appear to be easing, the Wall Street Journal reported this week. According to the newspaper, there are two factors at work. The first is the recession. Since a large majority of people get health coverage through employment, their coverage gets more costly once they lose their jobs since they must buy costly COBRA coverage (many long term unemployed have lost that coverage) or pricey individual health insurance or HMO memberships.
In the case of the latter, more are opting for more affordable high deductible plans, which serve as a built in deterrent to the utilization of medical services. “People just aren’t using health care like they have,” Wayne DeVeydt, WellPoint’s chief financial officer, told the newspaper. “Utilization is lower than we expected, and it’s unusual.”
If the U.S. economy enters a post recession deflationary period as some economists expect and some Federal Reserve bankers worry aloud, premiums might even fall. That along with decreased utilization might head off potential market failure in the individual and small markets, troubled market segments that might not otherwise survive in their current form by the time most provisions of the Patient Protection and Affordable Care Act take effect in 2014 if sharp increases in medical costs and premium rates continue.
Mark Smith, president and CEO of the California HealthCare Foundation, concurs with a point recently made on this blog: the enactment of the Patient Protection and Affordability Act while expected to substantially cut the numbers of those without medical insurance or a managed care plan still leaves them at the mercy of a health care system that is growing increasingly unaffordable. That’s truly ironic given that patient affordability is specifcally mentioned in the title of the federal legislation.
Smith lays out several prescriptions that he believes are necessary to hold down medical costs lest they render the Patient Protection and Affordability Act unaffordable by the time most of its provisions take effect in 2014.
Smith’s op-ed in today’s Sacramento Bee can be read here.
Not long after 2010 got underway, Anthem Blue Cross created high anxiety among consumers in California’s individual health insurance market by announcing steep rate increases averaging 25 and as high as 39 percent effective March 1. After the California Department of Insurance asked Anthem to run its numbers again, the insurer said it found mathematical errors in its actuarial projections and would refile corrected rates later this year.
Since individuals lack the bargaining power of employers, they tend to get the biggest rate hikes since insurers can essentially offer them on a take it or leave it basis. Small employers with fewer than 50 employees by contrast have at least some negotiating leverage with insurers compared to individuals. But not much more. They offer next path of least resistance for payers to pass on rising medical costs.
And so come double digit rate increases for them, not just from Anthem Blue Cross but also from all of Anthem’s major competitors who along with Anthem make up about 90 percent of the state’s private health insurance market. A Los Angeles Times survey released May 26 found major insurers in California’s small-business market are raising rates 12 to 23 percent in the small group market. Not surprisingly, the increases are producing protests from those small employers who have thus far managed to ride out the recession and remain in business. Some warn the rate hikes will force them to curtail hiring or even close.
The small group market is the bleeding edge of the breakdown of employer-paid health insurance model upon which most working age Americans rely for health coverage. These rate increases will likely prompt more small businesses to cease providing health insurance for their workers, forcing those employees into the already distressed individual market.
Many of those workers will find they cannot qualify for or afford individual coverage, boosting the number of medically uninsured Californians and creating political pressure for more immediate reforms than those contained in the recently enacted federal Patient Protection and Affordability Act. The problem for policymakers is no amount of reform of the insurance mechanism that pays medical treatment and pharmaceutical costs can provide relief as long as those costs keep rising far in excess of the rate of inflation.
The Patient Protection and Affordability Act was enacted largely in response to a perceived crisis in health care in the U.S. That sense of urgency propelled the reform train forward over objections that the nation’s medical care system would be effectively deprivatized to a greater extent than it was by Medicaid and Medicare more than four decades ago.
But most of the law’s provisions don’t take effect until 2014 and thus don’t provide an immediate solution to what’s seen as an immediate problem. Premium rates in the individual health insurance market — which covers only about five percent of working age Americans but provided much of the impetus for the Act’s enactment — are rising in response to higher underlying medical care costs.
Between now and Jan. 1, 2014 when health insurance purchasing exchanges are set to begin operating with the expectation they will provide increased power to individuals and small businesses to bargain for lower rates, both can expect to see their premiums rise above levels many complain are already unaffordable in a presently busted boom and bust economy.
What this means is health insurance reform isn’t over — because the crisis isn’t over. Expect another round of omnibus reform as the distress in the individual and small business market continues and grows amid concern that the underlying medical cost drivers haven’t been adequately tamed. This will clearly affect the political environment. Policymakers won’t be able to satisfy constituents by telling them to wait until 2014 to see if things get better.