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20th Iowa Employer Benefits Survey Now Underway!

At Haystack Rock in Cannon Beach, Oregon (2002).

This year marks the 20th year that we have been performing the Iowa Employer Benefits Study©. When this study began in 1999, I had two toddler daughters, one of which is now two years post-college and working in the Twin Cities, while the other is about to graduate from St. Olaf College. Between my daughters and this survey, it’s easy to measure just how fast the years have flown by!

With the 2019 survey, as in the past, we plan to randomly survey at least 1,000 Iowa employers from a variety of sizes and industries. We have found this number of respondents to be extremely beneficial when comparing various industries and size categories to one another.

However, contrary to the past, this year’s survey is being conducted three months earlier in the year, allowing the study to become available in July. By doing so, many employers will have access to these results while strategizing potential changes to their benefit plans during the fall renewal season. Because of this, we are excited about performing this survey process earlier.

If you happen to be an employer who is randomly-selected to participate in this year’s survey, we would greatly appreciate you taking the time to share your confidential data with us. By doing so, you will receive, via email, the Iowa Employer Benefits Study© report that summarizes key findings. Please know that your information will only be used on an aggregate basis and combined with data from other participating employers. Most importantly, we will protect your anonymity and the confidentiality of your responses to the fullest extent.

Twenty years is a milestone for us. As mentioned, much has changed over these two decades, but during this time, I have always been very grateful to all Iowa employers who have taken the time to share their information with us. We take our work seriously and will always value your trust in our survey.

To stay abreast of employee benefits and healthcare issues, we invite you to subscribe to our blog.

A Potential Game Changer – Making ‘Secretly-Negotiated’ Medical Prices Public

Have you ever had a clogged bathtub drain or toilet? Yep, me too. For the waste to exit efficiently, it takes deliberate effort to remove the obstruction that hinders the plumbing system.

The U.S. healthcare system is somewhat akin to an inefficient plumbing system. As is said, “Every system is perfectly designed for exactly the results it gets.” So, in healthcare, when it comes to having transparent prices (and outcomes), our system was DESIGNED to have clogged ‘plumbing.’ Allow me to explain…

The current healthcare pricing system is broken and indefensible. It is a known fact that the escalating prices we pay for our healthcare services is a black box. Whether it be for hospitals, doctors, pharmacy or other healthcare providers, we have no idea what the negotiated prices actually are between insurers and health providers, at least until sometime AFTER the services have been rendered. But this black box was carefully designed to work as intended. To paraphrase noted economist Uwe Reinhardt, where there’s mysteries (in pricing), there’s (larger than normal) margin to be had. In healthcare, obscene money is made when it is allowed to operate in a dark room of denial and obfuscation.

It’s one thing for hospitals to now publicly disclose their ‘list’ prices – (effective January 2019) – but it’s another to disclose the ‘real’ prices that have been negotiated and paid by the insurers we choose to use.

Negotiated prices are largely bound by confidentiality agreements between healthcare providers and insurance companies, and are so closely guarded that even mega employers are not allowed to penetrate this veil of secrecy. While in Indianapolis this past week, I had lunch with the manager of General Motors’ benefits plans who shared her frustrations about these backdoor deals around the country. If this secrecy happens to General Motors, it happens to all employers.

New Transparency Approach Provides Hope

But there is hope. A Wall Street Journal (WSJ) story broke this past Friday that may possibly open up the drain and allow the plumbing to finally function properly. The Trump Administration, through the U.S. Department of Health and Human Services (HHS), is seeking to require hospitals, doctors and other healthcare providers to publicly disclose these secretly negotiated prices – which are the relevant prices we all want to know.

HHS is requesting public comment on whether patients have the right to view the discounted prices in advance of obtaining care. The invitation for comment was actually outlined in a little-noticed passage of a broader patient-data proposal released in March, tucked away in a 700-page draft regulation. According to the WSJ article, the Administration could issue a final rule mandating the disclosure of negotiated rates after the comment period closes on May 3.

Watch for Opposition to Fight this Move

It is often interesting to observe both insurers and healthcare providers who have historically acknowledged the importance of having ‘transparency’ in healthcare. These same organizations, however, appear to believe that ‘transparency’ can only happen when it suits them.

One prime example is the American Hospital Association (AHA), which opposes the move to make negotiated prices public. As reported in the WSJ article, an AHA executive vice president commented, “Disclosing negotiated rates between insurers and hospitals could undermine the choices available in the private market…While we support transparency, this approach misses the mark.”

Misses what mark? What type of transparency is the AHA looking for? This is a baffling comment made by a trade organization whose sole purpose is to serve hospitals, but at the public’s expense. We don’t need to have the AHA tell us what ‘transparency’ should be…they, along with insurance companies, have had their chance to fix this clogged drain for decades, but they have habitually – and deliberately – failed. Just watch the massive lobbying efforts that will coalesce to fight against this newly-found plunger from being used to fix an enormous problem.

The legal question will most likely center around whether this new transparency initiative violates contract law, or whether it can ‘bust’ antitrust activity that harms the public. The insurance card that we carry represents lost wages and financial bonuses that have, instead, been unnecessarily diverted to pay exorbitant healthcare fees to others.

A Possible New Beginning – More Changes Necessary

By itself, having real prices become publicly available will not solve the inherent problems that persist throughout the healthcare system, but it may serve as the liquid drain cleaner that will eventually loosen stubborn ‘hairy gunk’ that blocks a drain from functioning properly. Price transparency is a good first-step to have, but it is not the sole remedy to a ‘system’ that requires massive fixes.

Despite isolated progress, healthcare ‘consumerism’ has been relatively slow for various reasons. However, by exposing real (negotiated) prices to the public, the aggregation of price data will most likely find new legs due to third-party entrepreneurs and technology companies who will find clever ways to make pricing a relevant decision-making tool for many patients. This has always been the hope for consumerism to take hold. All purchasers want the BEST VALUE in the healthcare being purchased.

Unclogging the healthcare price drain will begin to allow for a natural flow of the real waste to exit the system.

To stay abreast of employee benefits and healthcare issues, we invite you to subscribe to our blog.

Eliminating Unnecessary and Inappropriate Care – Could Health Premiums Drop to 2010 Levels?

Here’s a quiz regarding the estimated annual cost of inappropriate and unnecessary healthcare in the U.S.  Please select the answer you believe reflects the best cost estimate:

a. $210 billionInstitute of Medicine (2013)
b. $265 billionOliver Wyman (2017)
c. $393 – $958 billionGoodman, et al. (2011)
d. $1 trillion + – Various sources
e. No one really knows

The correct answer is, “e,” as measurements vary widely based on different methodologies – such as the year it was performed, and just how broad the term, ‘inappropriate,’ was used in each analysis. However, as new reports become published, unnecessary care is typically considered between 20 and 30 percent of overall needed care. In fact, based on a 2017 study of surveyed physicians regarding unnecessary care, physicians reported that more than 20 percent of overall care was not needed. Yes, even physicians acknowledge that at least one-fifth of care is not appropriate!

Despite the ABIM Foundation’sChoosing Wisely” campaign, which began in 2010 and has been widely adopted by at least 80 specialty societies, 75 percent of physicians believe unnecessary care is still a serious problem. Additionally, 69 percent said the average practitioner ordered useless tests and procedures at least once a week. Noted physician, Marty Makary of Johns Hopkins University, theorized that “Ninety percent of C-sections are unnecessary; 80 percent of stents are inappropriate; and 30 percent of people with cancer get the wrong treatment.”

But our broken healthcare ‘system’ allows for defective and unsuitable care to be paid out anyway. In a $3.5 trillion healthcare industry, inappropriate costs can account for as much as 30 percent of the total healthcare economy, or over $1 trillion annually. To put this number into perspective, the Congressional Budget Office reported that U.S. defense spending during fiscal year 2017 was $590 billion.

The above estimates do not specifically include another form of ‘waste’ as it relates to the fragmentation of care – the complexity of administering healthcare. This complexity leads to additional indirect costs and duplication of effort because there are so many different health plan payers with a myriad of administration functions. Functions which cause providers to hire additional staff to meet health plan requirements, like pre-authorization, administering various billing methods, etc. This is yet another problem with add-on costs that provide little-to-no value in a system already wrought with excessive waste of unnecessary care. I will not be addressing waste due to indirect costs in this blog.

Unnecessary and Inappropriate Care

Unnecessary and inappropriate care commonly consists of wasted spending due to ‘defensive medicine,’ whereby physicians order more (than necessary) tests and procedures to avoid potential malpractice lawsuits. Some studies suggest this amount of waste is not as great than commonly thought, perhaps less than three percent of overall costs. Another reason for inappropriate care is due to patients wanting unnecessary care. Misdiagnosis (overdiagnosis or no-diagnosis) also impacts the overall cost of healthcare. Of course, medical mistakes, both preventable and otherwise, also greatly impact healthcare costs, in addition to societal costs for patients and our communities.

Put another way, if inappropriate care could somehow be scrubbed from the healthcare system, it would make sense that our costs (premiums and, consequently, out-of-pocket expenditures for care) would correspondingly drop by a commensurate amount. According to the Kaiser Family Foundation, employer-sponsored health coverage continues to cover more American workers than earlier this century. Employer-sponsored plans in 2017 covered 156 million people, dwarfing the next largest form of health coverage, Medicaid (74 million).

Employer plan costs would be greatly impacted by eliminating inappropriate and unnecessary care. Another big takeaway: Employee takehome pay would increase, providing an economic boost.

Paying 2010 Premiums

In 2018, the 19th Iowa Employer Benefits Study© reported that the average monthly single and family health premiums were approximately $573 and $1,454, respectively. If about one-third of inappropriate care was eliminated, these rates would also be reduced, presumably by the same ratio (if we assume waste is across the board in all medical settings and procedures – and it appears to be). The newly-adjusted (unscientific) rates would now become $401 (single) and $1,017 (family) – rates that we have not seen in Iowa since our 2010 Iowa Employer Benefits Study©.

If we could eliminate ineffective, harmful and wasted care, we could revert to paying insurance premiums we paid eight years ago – even without eliminating bloated administrative costs. In the past, medical cost trends have historically exceeded the consumer price index, but by eliminating this excessive waste, and assuming the waste is continuously ‘engineered out’ of the delivery system, the medical-cost trend should be more favorable in the future. The problem, however, is not a small one. This problem comes from the idiom, “One man’s loss is another man’s gain.”

No organization or practitioner desires to lose revenue, because their income would be adversely impacted. Yet, obfuscating the cost by using chargemasters, backroom discount pricing methods and other unorthodox means to keep costs opaque serve no one other than those who allow our system to be ‘gamed’ for profitable purposes. Smarter regulation, appropriate technology and quality improvements can all reduce waste. Additionally, we must find the antithesis of greed.

As a country, think about how such ‘savings’ could be diverted to fund other programs that would proactively impact population health. We live in a world of trade offs, and trading wasted care (and its’ associated cost) with preventive health-related programs seems to make a lot of sense.

Market-Based Healthcare?

Let’s be honest. Our healthcare ‘system’ is not a true market-based model. It is different from any other part of our economy. True market-based models are characterized by three things not currently found in U.S. healthcare:

  1. Transparency in cost and quality.
  2. Accountability for care across the continuum (payment would be connected to outcomes that really matter).
  3. Information that allows for consumer choice and competition – patients need to be treated as consumers when appropriate.

All three allow us to get to the value of care, and ultimately, a market-based model that would theoretically provide checks and balances to keep the system ‘honest.’

Overall, a market-based model has more clarity around the producer, the seller and the buyer.  Historically in healthcare, the buyer (consumer) has not been part of the equation.  It is not yet clear the role in which the buyer will play as the healthcare system evolves. Currently, healthcare services are paid by somebody else – such as employers (offsetting employee pay), insurance companies or the government. This disconnect between the seller and producer from the ultimate consumer allows for perverse behaviors which are not commonly found in other market-based systems.

Payments Must Incent Appropriate Outcomes

Until we have payment systems that reward appropriately-determined outcomes, a market-driven system in healthcare will be merely a dream, not reality. In fact, if our hodge-podge system continues without much needed disruption, a true market-based system may not have a chance to see daylight. Market systems may wring out the unnecessary additive costs over time, but this cannot be done without having the three components in place as mentioned earlier.

The simple question is this: How can we turn back the clock to eight years ago and pay what we really should be paying today? Eric Coldwell, an analyst with Baird Equity Research put it quite succinctly when describing the push for transparency and value-based care: “The U.S. healthcare system is a sandcastle and the tide is coming in.”

To stay abreast of employee benefits and healthcare issues, we invite you to subscribe to our blog.