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By 2025, 38 Percent of State & Local Budgets will be Consumed by Healthcare

Do you ever wonder why so many of my blogs are about healthcare? It’s actually quite simple. The healthcare ‘problem’ is constant, unbridled, unsustainable, frustrating and largely because it is covered in green – money green.

The cost of healthcare has been, and continues to be, the bane of existence in our lives. It has become the new ‘weather’ in our discussions, as most everyone talks about it, but very little has been done to change it.

Another example of just how dangerous healthcare costs have become was recently reported by Fitch Ratings, a financial information services organization with operations in more than 30 countries. Their analysis states (suggests) that rising health insurance costs and retirement rates will increase budgetary pressure on U.S. state and local governments – which will adversely impact their financial ratings.

Developing their own 10-year scenario analysis for state and local budget allocations, Fitch assumed that healthcare and pension expenses would continue to grow rapidly while no policies would be implemented to offset this growth. From this, Fitch found that healthcare and social services would increase from annual budgets of 27.6 percent in 2005 to an estimated 38.3 percent by 2025. Consequently, budgets for state and local spending for education, transportation/public safety/environmental and housing would each decrease, largely due to being crowded-out by growing healthcare costs.

Inaction during this time (2018-2025) by local and state policymakers and administrators will only cause this problem to fester – the proverbial “can being kicked down the road” for later generations to tackle. State and local budgets cannot afford this to happen, not now, and certainly not in the future.

One need look no further than what is happening in our public-school systems here in Iowa and around the country. Paychecks for teachers have become skimpier, causing school teachers, students and supporters to strike. A recent story by Kaiser Health paints a very realistic picture of what Fitch’s findings reveal for our state and local communities in the months and years to come.

On top of the Fitch analysis, a PricewaterhouseCoopers report on employer-sponsored healthcare projects a six percent medical-cost growth in 2019. Although this growth rate is similar to the past five-year trend in medical cost growth, it nonetheless continues to exceed the annual consumer price index (CPI). This presents the “unsustainable” cost paradigm for consumers and employers who foot the majority of the medical bills through higher premiums, deductibles and charges. Having access to healthcare remains important, but so too, are controlling the cost of the care received. Healthcare prices are largely opaque, requiring a persistent push for price and outcome transparencies that have so far eluded the healthcare industry.

As far back as 442 B.C., Sophocles expressed the message don’t blame the person who brings bad news. With that said, hey, I’m only the messenger – don’t shoot me!

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Direct Primary Care (DPC) – New Iowa Healthcare Law Flies Under the Radar

During the 2018 session, the Iowa legislature and governor passed and signed legislation that affects Iowa law on a number of healthcare-related issues – specifically banning nearly all abortions, changing the state mental health system, developing association health plans and allowing the Iowa Farm Bureau Federation to work with Wellmark Blue Cross and Blue Shield to sell health insurance plans that are exempt from state-regulation scrutiny. All have received a great deal of public interest and varied opinions – both from supporters and detractors.

Direct Primary Care (DPC)

But, there was another Iowa health-related bill (HF 2356) signed into law on March 28 – that has not received the amount of attention that it potentially deserves. This particular law is the Direct Primary Care arrangement, or DPC. To date, 25 states have passed DPC laws, including Iowa. Five other states have introduced DPC into their legislation process. Suffice it to say this ‘movement’ has reached a critical tipping-point in the U.S.

What is DPC, you ask?

At the state level, DPC provides a viable legal arrangement for physicians to provide primary care to patients at a lower cost than traditional practice models typically available through insurance plans. Generally, with DPC, a primary care physician or group practice charges patients a membership fee (also known as a medical retainer) ranging from $30 to $500 a month giving patients most primary care services – including chronic care management – for no additional payment when they need it. Advocates of DPC arrangements suggest that market forces will set the price for services based on demand instead of relying on distant third-party payers and central planners. Patients who use medical services outside the DPC arrangement will still need to purchase high-deductible insurance coverage to cover other non-primary care services, such as hospitalization, specialized care, prescription drugs, etc. NOTE: To provide premium relief to DPC patients, it would be ideal for them to eventually purchase high-deductible plans that EXCLUDE primary care services from its’ premium pricing.

DPC arrangements are not considered insurance contracts. This means that no insurance company is involved between the primary care physician and the patient – reducing the red tape hassles of reimbursement costs that require both time and money. DPC advocates claim there is a dramatic cost reduction using this approach, in addition to allowing the physician to spend more time with patients and improving the quality of care.

DPCs are typically exempt from scrutiny by state insurance regulators, and in return, are restricted from billing insurers for consultations on a traditional fee-for-service basis. Additionally, DPC laws – Iowa included – require a valid written agreement between the provider and patient that outlines the following agreement requirements:

  • Must be in writing
  • Be signed by the direct provider (or provider agent) and the direct patient (or patient representative)
  • Describe scope of primary care health services covered by the provider
  • State the location(s) of the direct provider and any out-of-office primary care services covered by the agreement
  • Specify the direct service charge, frequency and payment terms
  • Specify any additional costs not covered by this arrangement
  • Specify the duration of the agreement, and whether renewal is automatic
  • Terms and conditions under which this agreement can be terminated by the direct provider or the patient
  • Include a notice in bold, twelve-point font that states this agreement is NOT health insurance and is NOT a plan that provides health coverage for purposes of any federal mandates. Recommends the patient obtain health insurance to cover healthcare services not covered under the DPC agreement

One key feature within the Iowa law is that a direct care provider cannot refuse to accept a new direct patient OR “discontinue care of an existing direct patient based solely on the new patient’s or the existing direct patient’s health status.”

DPCs Can Be Funded by Third Parties

Another very interesting portion of this law states that direct providers “may accept payment of a direct service charge for a direct patient either directly or indirectly from a third party.”

Employers can be involved with DPC under the following approach:

“A direct provider may accept all or part of a direct service charge paid by an employer on behalf of an employee who is a direct patient of the direct provider. A direct provider shall not enter directly into an agreement with an employer relating to a direct primary care agreement between the direct provider and employees of the employer, other than an agreement to establish the timing and method of the payment of a direct service charge paid by the employer on behalf of the employee.”

Based on the above language, this arrangement opens up the possibility of third parties being not only employers, but public payers, such as Medicaid and/or Medicare.  In fact, in just the last two weeks, America’s Physician Groups, an association of medical groups, submitted to the Centers for Medicare and Medicaid Services (CMS) a provider contracting model that would allow a provider network to receive Medicare funds upfront to manage their patients’ care – through the DPC method.

It is common knowledge that many physicians and healthcare staff are operating within the current medical environment under great stress – if not burnout conditions. In fact, from the results of our 2017 Iowa Patient Safety Study, patients feel a large reason that medical errors occur are directly linked to overworked (and stressed) medical staff. For many physicians who have adopted DPCs in other states, they praise DPC because it allows them to spend more time with patients and less time dealing with the bureaucracy of filing claims to various insurance vendors that do not provide the value patients are hoping to have when seeking care.

Currently, Iowa does not appear to have many primary care physicians operating on a medical retainer basis. However, this new law will most likely generate more interest from primary care physicians wishing to deliver more affordable care while enhancing a direct relationship with their patients. Not surprisingly, insurance companies and other critics of DPCs claim that direct providers may withhold necessary services to be profitable. However, according to DPC advocates, this concern has been unwarranted in other states with DPC laws.

The implications of this new Iowa law will play out over time. Given that healthcare price transparency is such a hot topic, and rightfully so, this new legislation is intriguing for both patients and payers alike.

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The Iowa Employer Benefit Study© – An Iowa ‘Natural Resource’?

This week, Data Point Research (DPR), the research organization that I have partnered with for over 20 years, will send out the first invitations to Iowa employers to participate in this years’ Iowa Employer Benefits Study©. I’m looking forward to learning what this year’s findings will reveal to us – especially after taking a one-year sabbatical in 2017.

This study has become a two-decade ‘project’ for DPR and myself. In 1999, the first year of this study, I contacted Andrew Williams, president of DPR, to learn how we could conduct a randomized survey that would provide the necessary methodologies to reflect results of the entire employer community in Iowa. Taking this approach, we felt, was the safest and most efficient method to survey enough Iowa employers WITHOUT having to survey them all. DPR has proven to be a trusted partner to extract the benefits information. And, from this work, Iowa employers have come to depend on our annual results to benchmark their benefits with other similar employers.

Benchmarking our survey results continues to serve as a top tool used by leadership in Iowa organizations. It supports informed decision-making when identifying cost-effective employee benefits. Benchmarking helps:

  • Human Resource and finance leaders make benefit choices with confidence, and track progress over time based on using empirical evidence, rather than ‘gut feel’ or opinion.
  • Provide clear evidence of opportunities for employers to improve on cost-effective employee benefits, given the size and industry in which employers operate.
  • Place employers ahead of the pack on trends that develop in the Iowa marketplace.

The industries we track for employers are varied. Depending on the number of survey responses, the industries may include:

  • Overall – All industries combined
  • Finance, Insurance and Real Estate
  • Government and Public Education
  • Healthcare and Social Services
  • Manufacturing
  • Retail
  • Other Services
  • For-Profit only
  • Not-For-Profit
  • Government Only – Bargained
  • Non-Public – Bargained
  • Public Schools – Bargained
  • Trucking

We also distinguish results by employer-size (based on number of employees), because, after all, size does matter a great deal when it comes to breadth and scope of employee benefits.

The Iowa Study has been particularly relevant to Sue Bennett, compensation and benefits manager at Kirkwood Community College. Sue recently commented:

The Iowa Employer Benefits Study© has been extremely valuable over the years in reviewing the competitiveness of our employee benefits package. Other benefits studies provide data on a nationwide basis, but having data specific to Iowa is more useful. The most beneficial aspect of the survey is the ability to extract data based on industry type and size.

I have always believed in the importance of having empirical evidence to share with benefits consultants and their employer clients. Most recently, I received another ‘testimonial’ from John Monaghan, partner at PDCM Insurance, a Waterloo benefits consulting organization. Over the past decade, John has loyally applied our study results with his clients by using our benchmarking data to successfully guide them through the benefits decision-making strategies he employs.

If you are a benefits consultant or Human Resource professional, the Iowa Employer Benefits Study© should be considered one of Iowa’s best natural resources. For over 10 years, my clients have used the data in the study to develop benefit programs without guesswork. So often, benefit decisions that cost millions of dollars are made with a gut feel. This study provides the data to take the guesswork out and make sure every invested dollar counts. It provides the information to build a True benefits strategy.

John finished his comments with this:

My clients have made the adjustments to better attract and retain employees through the data provided by this study.

I am truly humbled by Sue and John’s comments. To me, ‘natural resources’ are items that people can use which come from the natural environment, such as oil, natural gas, other minerals, soil, forests and timber, etc.

When people, who are unfamiliar with my work, ask what I “do for a living,” I will sometimes jokingly tell them that I am both an “archaeologist and inventor.” They will then quizzically look at me and ask, “How so?” My response is simply, “I’m similar to an archaeologist because I dig for items that are not readily available for the public to find, and I’m like an inventor, because once this treasure has been found and exposed, I convert it into something usable for others.”

A natural resource for Iowa? I’m unsure about that, but my gloves are now back on my hands and I have begun the digging process to unearth the next treasures buried below the surface. Stay tuned as to what we may find!

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