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Estimated Waste in Iowa Employer Health Premiums:
$2,400 Single/$6,600 Family

Imagine walking into a restaurant and being seated. Sometime after your meal, you receive the check and find an additional charge that was not indicated on the menu or previously mentioned by your waiter. The charge – before your gratuity is determined – is a 34 percent markup simply labeled, ‘Surcharge.’ After prodding the waiter, the sheepish but honest response is whispered to you: “The restaurant industry is bloated and inefficient requiring additional costs, and because of this, we must pass on this surcharge to our patrons.”

Truth be known, we are all paying this ‘surcharge’ in the healthcare that we purchase, as it is baked into our health insurance premiums and the out-of-pocket expenses we incur and pay. What is different from the hypothetical restaurant example, however, is there’s no transparency on how much these costs add up in healthcare. Opaqueness of this information allows this surcharge to be included on the final price tag – and the purchaser is no wiser.

In healthcare, it’s buyer beware – on steroids.

Healthcare Waste in the U.S.

To begin, defining healthcare ‘waste’ is somewhat tricky, but nonetheless important. Waste is defined by many in the industry to be resources that are expended in services, money, time, and/or personnel that do not add value for the patient, family or community. In fact, this non-value waste can actually harm patients, which adds more cost to the system.

I recently watched an Institute for Healthcare Improvement (IHI) webcast, “Let’s Get to Work on Waste in Health Care.” In addition to a wonderful Call to Action’ piece, IHI provided great examples of healthcare waste within the ‘Trillion Dollar Checkbook.’ The IHI used ‘trillion’ in this piece because the healthcare industry in the U.S. is about one-fifth of the nation’s economy (and growing), and the annual spend in healthcare during 2018 was $3.65 trillion. Healthcare waste in the U.S. is generally believed to be a comfortable one-third of the total spend – roughly one trillion dollars – about the size of Mexico’s economy. Click here for the audio and video of this webcast.

The IHI referred to a JAMA article published in 2012 by Dr. Donald Berwick, a highly-respected physician and health policy expert, and Andrew Hackbarth of the RAND Corporation. The article, “Eliminating Waste in US Health Care,” aptly describes that escalating healthcare costs is debilitating other worthy government programs, erodes wages, and undermines the competitiveness of the overall U.S. industry. The percentage of waste that is built into healthcare costs, according to this paper, ranges from 21 percent to 47 percent, with 34 percent being the midpoint.

‘Litter Box’ of Healthcare Waste

So what healthcare waste is found in the litter box hidden from the public?  Plenty. A ‘less harmful strategy’ described by the JAMA authors would be to reduce waste that does not add value to care. They cite six categories of waste briefly summarized below, beginning with the largest estimated waste to the smallest:

  1. Administrative complexity – Government, private payers, and others create inefficient or misguided rules for providers. By comparison, in 2015, the U.S. spending on healthcare administration dwarfs the OECD countries. One example is that payers fail to standardize forms, consuming limited physician time in having to deal with onerous billing procedures. Multiple payers do not coordinate their efforts with those providing care. Estimated waste in 2011: Between $107 billion and $389 billion.
  2. Overtreatment – Subjecting patients to care that cannot possibly help them – based on sound science and patient preferences. This care is “rooted in outmoded habits, supply-driven behaviors, and ignoring good science by providing excessive and inappropriate care. Examples include using excessive antibiotics and opioids, performing surgery when watchful waiting makes better sense, and unwanted intensive care at end-of-life for patients who don’t want this. Estimated waste in 2011: Between $158 billion and $226 billion.
  3. Fraud and abuse – Issuing fake bills and running scams to get paid by government and private payers. Estimated waste in 2011: Between $82 billion and $272 billion.
  4. Pricing failures – Well-functioning markets produce reasonable prices that come from actual costs of production plus a fair profit. In healthcare, due to lack of transparency and competition, prices are several times more than identical procedures in other countries. Pricing failure includes payer-based health services pricing, medication pricing, in addition to laboratory-based and ambulatory pricing. Estimated waste in 2011: Between 84 billion and $178 billion.
  5. Care delivery failures – This includes poor execution and lack of widespread adoption of known best care processes, such as for patient safety systems and preventive care practices and are known to be effective. Better care saves money. Estimated waste in 2011: Between $102 billion and $154 billion.
  6. Care coordination failures – Care in the U.S. is fragmented, meaning that patients fall through the cracks, resulting in complications, hospital readmissions, and declines in functional status requiring increased dependency. Estimated waste in 2011: Between $25 billion and $45 billion.

New JAMA Study Released about Waste

A new study published in JAMA finds that roughly 20 to 25 percent of American healthcare spending is wasteful. Although this finding is slightly less than findings mentioned above, the estimated waste is considered to be an astounding $760 billion to $935 billion per year – comparable to government spending on Medicare. This waste exceeds national military spending and total primary and secondary education spending. This study also addresses the same six categories of waste explained earlier.

Waste in Iowa Employer Health Insurance Premiums

In our recent 2019 Iowa Employer Benefits Study©, we found the average annual single and family health insurance premiums are now $7,017 and $19,335, respectively. Using the midpoint of 34 percent waste (a number from the Berwick study), the annual waste built into the Iowa single and family premiums are $2,386 and $6,574, respectively. This estimated waste reflects the amount employers and their employees overpay which generates income for providers, healthcare industry vendors, health systems, and health plans.

Applying the midpoint for each of the above six categories of waste, I was able to estimate each of the six cost components for the health insurance premiums paid by Iowa employers and their employees. Below is a graphic that depicts the total estimated waste found in both the single and family premiums based on the six waste categories described earlier.

Summary

By tolerating waste, we unknowingly create and sustain a rising burden of out-of-pocket expenses, suppressed take-home pay, delays of care and other side-effects that harm our care and well-being. As mentioned in the IHI’s ‘Call to Action,’ “…it’s not just money that’s being wasted. The most precious resources – the workforce’s time, spirit and joy – are being unnecessarily drained by wasteful processes every day…No matter how many medical breakthroughs achieved…if we don’t remove waste in health care, our health systems cannot thrive.”

Healthcare waste comes from many different sources, which require multiple strategies to reduce at least a fraction of waste described above. Berwick believes that healthcare waste must be attacked through political means, such as simplification of administrative services and pushing back on irrational pricing. Others believe that enhancing regulation of healthcare monopolies can also greatly help.

Frankly, too many ‘insiders’ are afraid to speak critically about their wasteful piece of the healthcare system, fearing loss of promotion, employment or obtaining lucrative consulting contracts. This fear allows the status quo to remain largely unchallenged.

Whatever the solutions, we must begin to have an honest national discussion about the massive waste we pay to others who see this as their revenue and income. A logical start is for voters to ask candidates how they propose to cut waste and simplify our healthcare system.

With 20 to 47 percent of our health insurance premium and out-of-pocket costs considered to be ‘wasteful’, I’m ready to have this discussion.  Are you?

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Three Key Health Plan Comparisons Between Iowa and U.S.

Three important health plan components that are first and foremost on the minds of employers when assessing their annual plan offerings, include: health premiums, employee health coverage contribution and deductibles employees are required to pay. It is natural, therefore, to compare Iowa averages to national norms, thanks largely to the Kaiser Family Foundation’s Employer Health Benefits Survey, which was just released on September 25. Kaiser Family Foundation (KFF) is a nonprofit organization based in San Francisco, CA.

Brief Survey Background

Since the year 1999, the KFF has been performing their national survey of employer health plans, the same year that we began our Iowa Employer Benefits Study©. For the record, there was no particular reason that 1999 was the base year used by KFF and our organization, but speaking for myself, I’m happy that we can use the annual KFF study as a measuring stick to our statewide annual results.

Before I share the graphic comparisons, I must comment that surveys can vary from one another using slightly different methodologies, and there is no exception with the two studies being compared in this blog. The largest difference is that KFF is a national survey, which in 2019, randomly-selected 2,012 non-federal public and private organizations with three or more employees. Additionally, KFF asked another 2,383 organizations a single question about offering health coverage.

The Iowa Employer Benefits Study© is a statewide-only survey. Each year, we seek to have at least 1,000 organizations participate.  These organizations are randomly-selected to ensure that results will reflect the overall population of organizations within Iowa. Although we survey employers with at least two employees, we do not actively randomly-select organizations with 2 to 10 employees. During the survey process, however, if respondents fall into this size category due to downsizing, we will include their data within our report.

It is important to note that Iowa organizations can also be surveyed by KFF, but the number is considerably fewer than our goal of 1,000 organizations. In 2019, for example, KFF surveyed 612 organizations in 12 midwestern states, including Iowa, which averages out to 51 organizations for each state. This Midwest average is consistent with prior KFF surveys.

Health Plan Premiums

Since we released our study in early August, we learned that Iowa employer-sponsored health premiums increased by 7.1 percent during the past year, which is slightly higher than the KFF national average increase of 3.4 percent for single and 5 percent for family coverages. One explanation for this variance between surveys can be that KFF may have compared the actual premium change from 2018 to 2019 – AFTER plan design changes were made. Our survey, however, asked Iowa employers to share their rate adjustments (e.g. increase, decrease, no change) during the past year BEFORE plan design changes were made – subtle difference, but important.

The annual KFF single premium in 2019 is $7,188, which is merely $171 higher than the average Iowa single premium of $7,017. Statistically speaking, the single premiums are in a dead heat with each other. As for family premiums, the KFF premium is now at $20,576, which is $1,241 higher (or 6.4 percent) than Iowa’s $19,335. We often hear that Iowa’s medical costs are lower than the national averages, which is a true statement. However, it does appear with the latest data available, Iowa is inching closer to the national premium averages.

Since 1999, health premiums from both studies show very similar results when it comes to growth. Below is a graphic that superimposes the KFF premiums to the annual Iowa history of single and family premiums. The premium increases are staggering for both, but equally horrific is that the Iowa premiums (both single and family) have increased slightly higher compared to the national norms (denoted in green font).Employee Contribution as a Percentage of Premium

As the health premiums change each year, usually through increases, employers are forced to make decisions on how much to shift this increased cost to employees, most often through health plan design changes and having the employee assume more of the premium burden. One way to measure just how much the employer wishes the employee to assume is illustrated in the graphic below.

From this graphic, Iowa organizations and their national counterparts are nearly identical as to the percentage of the total premium that is assumed by employees for both single and family coverages. For single coverage, Iowa employees pay 19 percent of the total single premium, while employees elsewhere contribute 18 percent of the single cost. As for family coverage, employees in both Iowa and national organizations identically pay 30 percent of the total family cost.Single Health Deductibles

KFF’s report shows that, on a national basis, the average single deductible is $1,655, which is $537 lower than the Iowa average of $2,192. Part of this difference may be explained in the composition of small employers participating in each survey. As we know from previous results, smaller employers are less likely to control their health costs when compared to larger, more sophisticated employers – employers that have more tools at their disposal to keep their rates down (e.g. administration costs, self-insuring, etc).

Perhaps a larger mix of smaller employers in the Iowa study could very well influence the overall deductible averages being higher – however, this is pure speculation. NOTE: Family deductibles were excluded in this comparison due to insufficient historical data from KFF.

The following graphic displays how Iowa single deductibles compare to national norms.Conclusion

In past years, the KFF results most always demonstrated higher national health premiums compared to Iowa. However, despite higher premiums, employees in the U.S. paid, on average, a similar percentage for their health premiums than Iowans, except for family coverage, where they paid a lower percentage compared to Iowans. In 2019, however, Iowans have ‘regressed to the mean’ and now appear to be paying a similar percentage of the premium for both single and family coverages.

Despite having lower premiums, Iowa workers are asked to pay higher deductibles compared to their national counterparts, which makes paying for medical services a bit more challenging each year. Tracking these key components are vital to learning how Iowans fare with the rest of the country, and it appears that Iowa is becoming ‘more the norm’ in some of these components.

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Proposed Healthcare Merger a Charade?

Strengthening patient choices of hospitals and physicians through competition is imperative. Promoting cost and quality transparency so employers, consumers and policymakers have access to this meaningful information is equally important.

With this in mind, I wrote the following Op-Ed that was published by the Des Moines Register on September 14.

The proposed merger between two major Midwestern hospital systems, Sanford Health and UnityPoint Health, is deeply troublesome for two key reasons – cost and health outcomes.

For 20 years, I have researched employee benefits in Iowa, including healthcare costs paid by employers and their employees. Since 1999, Iowa employer premiums have skyrocketed by 240 percent (single) and 251 percent (family). Today’s annual Iowa family premium is about $20,000. In 10 years, assuming a five-year average increase of 7.6 percent and no benefit changes are made, the family premium growth could compound to $40,596 (see graphic below).

Over this same 20-year period, Iowa health plan deductibles have increased dramatically, with the average family deductible reaching almost $4,000, with no relief in sight.

Despite the elevated costs paid by Iowans, the level of care received is equally troublesome. The care Iowans receive for the egregious prices we pay suggests we are not receiving commensurate value. With a scarcity of patient information on Iowa health outcomes, we performed the first-of-its-kind study on Iowans’ experiences with the medical care they received – specifically regarding medical errors.

The results we found were stunning. One-fifth of randomly-surveyed Iowans in 2017 indicated they or someone close to them experienced a medical error while seeking care during the previous five years. Of those, 60 percent indicated the error had ‘serious health consequences’ while another 23 percent reported ‘minor health consequences.’ Iowans also incurred serious financial consequences, as a result.

On the surface, the Sanford-UnityPoint proposed merger is touted to be a win-win for these two regional non-profit giants and for the payers of care, including the patients covered in the respective markets. We’re led to believe that such mergers will broaden “access to care” and “increase efficiency” which will help “lower costs and improve care.” These symbiotic relationships generated by mergers may sound intuitive, even for those who regulate anticompetitive business practices, such as the Federal Trade Commission (FTC) and state attorneys general.

But the devil is in the details, and substantiated results of these details show a clearly different, and problematic story that must become public.

The proposed Sanford-UnityPoint merger would amass 76 hospitals, outpatient and long-term-care services across 26 states – employing 2,600 physicians and 83,000 staff. It would be among the top 15 largest nonprofit health systems in the U.S. and have more than $11 billion in combined operating revenue. In 2018, the combined operating income of both non-profit organizations was nearing $213 million.

Nationally, hospital and health system mergers and acquisitions have increased from 38 in 2003 to 115 in 2017. Hospitals account for nearly 33 percent of all healthcare spending – the largest portion of overall health expenditures in the U.S.  Studies have shown that consolidation is more about enhancing bargaining power that health providers have with payers, such as insurance companies and self-funded employers – and less about integration to reduce costs and provide better, safer care.

Provider consolidation serves as a ploy – leveraging its bargaining prowess with third-party payers to ensure favorable prices – resulting in hefty profits for additional acquisitions. Larger, more market-concentrated hospital systems eventually hold payors hostage by refusing to participate in the covered network of providers unless they receive favorable price increases.

Two renowned experts on this subject, Drs. Martin Gaynor and Robert Town, have frequently found that hospital mergers in concentrated markets result in significant price increases, most exceeding 20 percent. In Iowa, Sanford and UnityPoint would most likely seek to leverage a higher-fee reimbursement from private payers which would only increase the 10-year premium projection mentioned earlier. This behavior is detrimental to the well-being of most Iowans and those insured in other areas under this merger’s footprint.

Our antitrust policies must hold hospital market power in check. Attorney General Tom Miller has a long history of using anti-trust laws to protect Iowans – from fighting big tobacco to reigning in Google. Governor Kim Reynolds has made access to rural health care one of her central issues. Both Governor Reynolds and Attorney General Miller must review this merger to ensure that Iowans won’t pay more for less.

Without this, Iowans and others will continue to pay dearly by allowing this charade to continue.

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