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Health Care Snow Globe Continues…

David P. Lind BenchmarkIn May, 2010, I posted a blog on the website of Jensen Consulting making an analogy between a snow globe and the newly-created Affordable Care Act (ACA).  Recently at lunch, almost two and one half years following the passage of this mammoth law, I was asked by a colleague what insight I had on the ACA. I responded by using the snow globe analogy…which continues to be very relevant in 2012 and beyond.

Below is the blog written over 30 months ago.

Imagine, if you will, living in a snow globe for many years. I know, this lifestyle sounds very limiting (if not downright corny!). Such an existence would most likely result in familiarity with your surroundings, including most events and activities, possibly generating some boredom. A snow globe life also allows for a more consistent and a relatively predictable world for all others who live with you in this globe.

Then, without much notice and beyond your control, the snow globe is picked up by an external, ‘omnipotent force’ who proceeds to shake the living daylights out of the globe, rocking your world to its core. After numerous violent shakes, the snow globe is set back down on the table … upside down! You find yourself in a mountain of snow, feverishly digging out of the suffocating mess to view the new arbitrarily created terrain. Your environment now looks frighteningly foreign. In fact, it remains a blizzard for the unforeseeable future, most likely for years to come.

The above analogy fits appropriately for all employers, insurance companies, health care professionals, benefit consultants and countless other individuals and entities who are (or will be) affected by the recently passed health care reform law. Also known as The Patient Protection and Affordable Care Act (PPACA), the provisions within PPACA are massive in scope and will require extensive clarification and regulation by the various governmental agencies, including state agencies. Some provisions, such as the Small Business Federal Health Care Tax Credit and the Early Retiree Reinsurance Program will take place in 2010. The extension of coverage to employees’ adult children up to age 26 and the elimination of lifetime dollar limits on medical insurance plans will take effect for plan years beginning on or after September 23, 2010. Many other provisions will apply in 2011, 2012 and in 2013 … too many to list in this particular blog.

But the year 2014, will most closely resemble the ‘upside down’ analogy of the snow globe. New rules will require insurers to accept every individual or employer who applies for coverage, which is not a bad thing, but there will be additional associated costs with this. The new law establishes state-run health exchanges, which will act like purchasing cooperatives for individuals and small businesses with up to 50 employees. An individual mandate will go into effect, which means that anyone caught without health insurance faces only a $95 penalty, but this fine will get bigger every year, maxing out at the greater of $695 or 2.5 percent of a person’s taxable income in 2019. Employers with 50 or more employees that elect not to provide health insurance coverage will face a $2,000 fine per employee if an employee receives subsidized coverage from the federal government. The employer penalty may look attractive, especially when the average annual premium in Iowa, based on our 2009 Iowa Employer Benefits Study©, is $4,440 for single coverage and $11,556 for employees who have family coverage. In other words, why would larger employers offer health coverage if paying the penalty is a cheaper option? The specifics of the above provisions are extremely complicated and convoluted, if not problematic to administer. Since the government would subsidize much of the health insurance cost for low-income workers available through the exchanges, the incentives for retaining an employer plan could very well erode altogether. (2011 Study data is found here).

With all legislation, there are both intended and unintended consequences.  But with this colossal law, a clear understanding of the intended and unintended consequences will not come for many years. Reform will certainly include more of the currently uninsured within the insured ranks, but we really don’t know at what additional cost. In my opinion, this legislation has not addressed the fundamental issues of rising health care costs, which means that health insurance costs will continue to increase at unabated rates. The snow will continue to fall for quite some time, requiring all of us to keep our shovels close by.

After reading this blog now, I realize that the snow continues to fall while we look to replace the shovel with a snow blower.

Hmm, it appears we all live in a perpetual health care snow globe.

A ‘Perfect’ Storm Brewing

David P. Lind BenchmarkAs mentioned in my July 18 blog, our annual Iowa Employer Benefit Studies© have revealed that if health insurance trends continue in Iowa (based on the average five year history of rate adjustments), employers could be paying an average annual single and family premium of $13,295 and $35,000, respectively, by the year 2021. We all know this is clearly unsustainable.

Based on these numbers, the “Perfect Storm” is brewing during the next five years in Iowa – and beyond.

Here’s why. The Affordable Care Act (ACA) has an ominous provision surfacing in 2018 that will greatly impact the cost of health insurance offered by employers in Iowa and around the country. Known as the “Cadillac” tax, employer health plans that reach a pre-determined threshold of annual premiums in 2018 and beyond ($10,200 for single and $27,500 for family) will be charged an excise tax of 40 percent for any premium over these amounts. From our survey of Iowa employers in 2011, most employers don’t think they will be affected by this provision (see below). 

David P. Lind Benchmark

So is it possible for Iowa employers to have premiums this high in about five years?

Absolutely!

As illustrated below, the average Iowa employer family premium in 2018/2019 could be hovering around the threshold amount of $27,500. This means about half of Iowa employers will be averaging premiums above this amount and paying the excise tax, while the other half are below the threshold amounts. (Although not illustrated here, the projected single premium in Iowa will also average around the single threshold of $10,200).

David P. Lind Benchmark

Clearly, Iowa employers must make strategic decisions today and in the next few years to prevent their plans from being subjected to this “Cadillac” tax. The excise tax will only accelerate the unsustainability of employer-based premiums.

Forbidden Cookies

David P. Lind BenchmarkExercise.  Healthy diet.

Both are staples for living a healthier life, without a doubt. Most, if not all, Iowa employer wellness initiatives embrace both exercise and healthy eating because it makes good sense and is supported by overwhelming research.

End of discussion.

But digging a bit deeper, it may appear that one has a greater advantage over the other, at least when attempting to lose weight. Thanks to the latest CDC data, we know that obesity rates in this country (35.7 percent of U.S. adults) continue to move northward – both for adults and for children.

According to Dr. Timothy Church, a noted wellness expert and Professor of Preventative Medicine at Pennington Biomedical Research Center at Louisiana State University, “It’s been known for some time that, calorie for calorie, it’s easier to lose weight by dieting than by exercise.”

There is mounting research that finds exercise will not increase human metabolism and, therefore, won’t allow for weight loss as effectively as having a healthy diet plan. The conclusion is that people who exercise but overeat may continue to gain weight. Regular exercise does maintain for muscle mass and ease of movement for older people, but having a healthy diet plan may be more important for the maintenance of a healthy weight.

My take-away from all of this is somewhat difficult to, uh…swallow. I should not expect to lose weight if all I do is exercise and continue to overeat. In other words, rewarding myself with a few chocolate chip cookies after a 20-mile bike ride will not help my waistline.

This sounds sensible…but I REALLY crave those freshly baked cookies!