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Three Key Iowa Employer Health Cost Projections for Next 10 Years

Given the evolution of rapidly-developing technologies in any given industry, with a blink of an eye we are enjoying new product launches that substantially impact our daily livelihood and newly-acquired habits. For example, just one decade ago (2009-2010), the Apple iPad was being launched, self-driving autos were a wishful idea still in conception, and the Chrome OS and Chromebook computers were not yet a ‘thing.’ Cast forward to now and we have countless new products that we never dreamed of having available 10 years ago.

Much of this ‘advancement,’ one might argue, has centered our lives around personal conveniences at a relatively affordable cost.

Unfortunately, when it comes to healthcare trends in the next 10 years, I do see the continuance of our national inaction of ‘fixing’ the healthcare system. Escalating costs will continue its upward projection for the foreseeable future.

With this in mind, it might be interesting to forecast three primary cost-sharing responsibilities that Iowa employers and their employees will face when paying for healthcare coverage 10 years from now:

  1. Monthly health premiums
  2. Monthly employee contributions of these premiums
  3. Health plan deductibles.

Using a simple linear regression1 trend line tool, I will share what these costs may project to be in 2029 – a decade from now. Linear regression analysis will serve as my ‘crystal ball’ of what health costs may be in Iowa without any meaningful reform changes during the next decade – including economic downturns and other factors that may impact health insurance coverages.

It is also worth mentioning that median household income will also be different for Iowans by 2029. In 2017, the median household income in Iowa was $58,570. Annualized at 1.5 percent for the next 10 years, the median household income is projected to be $70,027 by 2029.

PROJECTED MONTHLY HEALTH INSURANCE PREMIUMS IN 10 YEARS

In our 2019 Iowa Employer Benefits Study©, we learned the average single and family health premiums were $585 and $1,611, respectively. Based on prior results dating back to 1999, the linear regression graphic (found below) shows that the monthly premium for single and family coverages could jump to approximately $800 and $2,000 by 2029.

This finding may appear to be somewhat tame, but this increase would be much greater if employers refrain from altering their health plans to keep them ‘affordable.’ As we know, this does not happen, as employers have always ‘watered down’ their health plans to maintain some sense of affordability. This is typically done by shifting additional costs to employees through higher payroll deductions and plan design alterations that require more financial exposure by employees. Both are discussed below.

PROJECTED MONTHLY EMPLOYEE CONTRIBUTIONS IN 10 YEARS

By 2029, Iowa employees with single health coverage are projected to contribute about $140 per month ($1,680 annual) for employer coverage, while an employee with family coverage is projected to contribute $600 monthly (or $7,200 annual). This projection is found in the graphic below.

PROJECTED SINGLE AND FAMILY HEALTH PLAN DEDUCTIBLES IN 10 YEARS

Health plan deductibles serve as the common approach for employers to shift rising health costs to employees and their family members. As premium costs continue to rise during this next decade, employers will most likely continue this trend. Based on the graphic found below, the average single and family deductibles will shift to about $3,000 and $6,000, respectively. The average 2019 deductibles in Iowa are $2,192 for single and $3,975 for family.

Not illustrated here, but the current out-of-pocket maximums (OPMs) that Iowa employees are paying through their employer plans are at $3,700 single and $6,800 family. The linear regression line for single and family OPMs illustrates an increase to $5,000 and $10,000 respectively.

I must admit, I’m a bit surprised that all three graphics did not display greater increases during the next decade. But again, health reform, aging of boomers and economic conditions play a crucial role on how this might impact key cost components of employer-sponsored health coverage in Iowa.

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1In simplified statistical terms, a linear regression is a basic and commonly-used type of predictive analysis, that examines a set of predictor variables to determine a relationship over a period of time.

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, cheap drugs, 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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Rural Iowa Workers Outpace Urban Workers – But Not Favorably

I’m a sucker for playing with data, especially when it covers a relatively sizeable period of time. Over time, data usually tells a ‘story’ especially when drilling deeper. With the results of the latest 2019 Iowa Employer Benefits Study© now available, I tracked a few key cost comparisons as they relate to employees with single health coverage versus those with family coverage. More specifically, I found that Iowa workers employed by rural employers are paying higher healthcare costs – both in premiums and deductibles – compared to their urban counterparts.

Before concentrating on rural and urban data, I would like to share a few graphics comparing overall Iowa data from 2005 through 2019. This first graphic provides a comparison of how employee-only premiums have increased over 14 years of our study. Of note, this study was not performed in 2017.

Total Annual Spending – by Employee-Only Coverage

In 2005, the total annual premium for employee-only coverage was $3,708, of which the Iowa employer contributed $3,000 (or 81 percent of the total), and the employee pitched in $708 (19 percent of the total). In 2019, 15 years later, the total annual premium jumped by 89 percent to $7,020. The employer is now contributing $5,712 annually (up 90 percent), while the employee is chipping in $1,308 (up 174 percent).

Akin to the Ginsu knives commercial, there’s more. The deductibles purchased by Iowa employers increased from $750 in 2005 to $2,192 in 2019 – up 192 percent during that period. What is not covered on this graphic (please accept my apologies, Iowa-specific information is difficult to obtain) is the actual out-of-pocket money spent by Iowa employees for medical care each year.

Total Annual Spending – by Employee-Only Coverage

Total Annual Spending – by Family Coverage

Similar to the previous graphic on employee-only coverage, the family graphic that follows illustrates the continued ‘leakage’ from employee paychecks in the form of higher employee contributions and deductibles they are required to pay for covered services. However, in this graphic, I have included another layer of cost, thanks largely to Kaiser Family Foundation, that shows the national family out-of-pocket spending (based on employers with 1,000+ employees). Again, it would be very helpful to have Iowa-specific claims data, but I am forced to use national data as a replacement.

In 2005, the total annual premium for family coverage was $9,768, of which Iowa employers contributed $6,396 and the employee relinquished $3,372 through payroll deductions. In 2019, the total annual premium increased by almost $9,600 to $19,332 – an amount that would buy a 2019 Volkswagen Beetle. Additionally, family deductibles increased by 157 percent during that period, growing from $1,547 to $3,975.

Total Annual Spending – by Family Coverage

Employee-Only Coverage (Urban vs. Rural)

The next two graphics compare urban with rural employees, both employee-only and family coverages. Because studies from 2005 – 2011 did not breakout urban and rural data, the following graphics spans seven years (2012 – 2019).

In 2012, the total annual urban employee-only premium was $5,206, while the rural premium was $430 higher ($5,636). In 2019, the urban premium jumped by 29 percent to $6,723, while the rural premium increased by 32 percent to $7,413 – which is 10.3 percent higher than the average urban premium. Despite having a higher premium, the rural employee with single coverage has a higher deductible ($2,536) when compared to the average urban deductible ($1,888). Additionally, in 2019, the rural employee contributes $284 more annually for health coverage compared to urban employees.

Employee-Only Coverage (Urban vs. Rural)

Family Coverage (Urban vs. Rural)

Finally, the family premium for urban family employees jumped 60 percent from $11,980 in 2012 to $19,152 in 2019.  The rural family premium increased by 73 percent during this same period, and is now $402 higher than the average urban family premium. On average, rural employees contribute $812 more annually for health coverage compared to urban employees. As with employee-only deductibles, the average family deductible for rural employees ($4,370) is higher than the average urban deductible ($3,647).

Family Coverage (Urban vs. Rural)

In the final analysis, urban employees are more likely to pay less for their health coverage premiums, and when they seek medical care, will typically pay less out-of-pocket due to having lower deductibles and out-of-pocket maximums (not shown). This difference is also spelled out quite clearly when comparing the 2019 Lindex® scores between both groups – the urban employers scored a 78, while the rural employers scored four points less (74).

The Take-A-Way?

Without dispute, the cost of health insurance crowds out workers’ wages. The continuation of cost-shifting in healthcare deflates purchasing opportunities that workers and their families make elsewhere. On the surface, overall data found above can show trends happening for a particular population (see graphics one and two), yet when drilling down deeper with this same data, we find that other important – and disturbing –  issues are occurring (e.g. rural outcomes vs. urban outcomes).

Imagine what this data would show between selected industries, such as manufacturing vs. retail, or for-profit vs. non-profit. We did for 17 different Iowa sectors – it’s called the Lindex!

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