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A Cluttered Desk and a New Resolution!

I like to think that I keep my office and desk clean and organized. Most of the time, it is. I have learned at a very young age, thanks largely to my mother, to always keep my bedroom ‘spic and span’ and make sure the bed is made before beginning my day.

I decided to write this particular blog because I was immediately struck by something I saw in my office after grabbing a fresh cup of coffee…and I realized it would not be flattering – especially to my mother!

When I’m not working on my own research, I spend a great deal of my office time developing benchmarks for clients, writing blogs and articles, and dabbling in other more mundane business-related activities. Writing for me has always been a challenge, primarily because it requires a combination of perseverance, creativity, and mostly – deep thought.

Sitting down and quickly typing something for immediate release is not my usual approach. Perhaps the best way to explain my writing process is to think of marinating your favorite meat in the refrigerator using a good concoction of ingredients. It takes time and a quality seasoning mix to alter the taste of that meat. Doing so will usually result in a pleasing meal for the palate.

Writing is a process of ‘marinating’ a myriad of ideas with adequate time to allow the end product to become ‘consumable.’ However, for this particular blog, the marination process was completely bypassed – so my apologies!

During the past year, a number of people have contacted me to request that I write about certain subject matters, specifically relating to healthcare and employee benefits issues. A few examples include Medicare-For-All, surprise medical bills, reviewing an on-line analytical pharmacy, physician conflict-of-interest, medical errors, and proposed mergers of health systems. As you can imagine, each topic requires a great deal of ‘research’ time, ensuring there is enough backroom ‘due diligence’ to provide a balanced discussion.

As I write this specific piece, I was struck by how messy and chaotic my desk appeared when I walked back with a newly-brewed cup of coffee. I’ve come to the realization that whatever I decide to write, must be somewhat similar to how sausage must be made in the back room.  Making sausage, we are led to believe, is somewhat sickening to watch and may not render complete confidence about the process.

The holidays provide a good time to work on resolutions for the upcoming year.  Having a cleaner desk to set my cup of coffee will serve as a great start. Perhaps ‘making sausage in my office’ will not be as painful as what the picture suggests!

I wish you a very Happy Holiday season and a peaceful and prosperous (and tidy) 2020!

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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.

Is it Time for All-Payer Rate Setting?

Iowans – heck, all Americans – are tired of exorbitant medical costs that equate to receding take-home pay due to runaway health premiums. Mainstream media, including a recent CBS News’ three-part series on ‘Medical Price Roulette,’ demonstrates national outrage about medical costs. Add in surprise medical bills, a complex health system impossible for patients to coherently navigate, predatory pricing by greedy actors who can get away with this egregious behavior, and we find a full-blown mess of a problem that is sucking the life from all budgets.

Contrary to arguments made by the medical establishment that bloated healthcare equates to more local jobs and serves as a multiplier-effect for local economies, growing our medical industrial complex just does not fit the true narrative of having thriving economies.

The frustration for this writer is that it is much simpler to describe the ill-effects of a bad healthcare ‘system’ than it is to offer up actual solutions to remedy it. However, I would strongly argue that anyone who claims to have a ‘silver bullet’ solution for an exceedingly complex Rubik’s Cube, is most likely the new, 21st century version of PT Barnum. Yet, repeating the over-used phrase, “Healthcare is complicated,” shouldn’t be an excuse to not pursue viable solutions. Opaqueness in healthcare happens not by accident – but deliberately – it is working as intended. Any remedy to fix this, however, is wrought with both intentional and unintentional consequences.

The Problem

Through a government rate-setting method, Medicare controls what it pays to hospitals, physicians, and other providers by using 745 hospital diagnostic-related groups (DRGs), over 8,000 HCPCS/CPT codes, and many other categories of service to keep medical costs manageable. However, Medicare does not control what providers charge for non-Medicare patients covered by a private plan – which include employer-sponsored health plans, and individual (non-Medicare and non-Medicaid) coverages. Private healthcare markets have clearly failed in reining in extraordinarily-high medical prices, beckoning some type of involvement of price regulation by government authorities.

The problem for private payers? According to a 2019 report by RAND, they pay more than double the amount paid by Medicare for identical healthcare services. Much of this occurs due to cost-shifting – providers charge more to commercial insurers to make up for ‘low rates’ paid by government payers. How much is due to cost-shifting is debateable, however.

As the ‘true’ purchasers of care, employees and their surrogates (employers), use third-party contractors – better known as insurance companies – to negotiate the best ‘deals’ with the provider community. These ‘deals,’ however, are secretly-negotiated without the true payers knowing what the arrangements entail. Insurers often remind purchasers about how ‘deep’ these discounts are off of highly-inflated hospital chargemasters. But that discussion is disingenuous, as chargemasters are irrelevant to the true cost of care.

All-Payer Rate Setting

One strategy to help contain and equalize the pricing arrangement between medical providers and ALL payers – including Medicare, Medicaid, private commercial insurance companies and large self-insured employer plans – is to implement an all-payer rate approach.

“All-payer” rate payments are the same for all patients who receive the same service or treatment from the same medical provider.  All-payers include private health insurance plans, large employer self-funded plans, and Medicaid and Medicare (under an approved waiver from the federal government). Uninsured patients can also possibly be included under the all-payer rate method.

There are two types of all-payer rate programs, state-determined rates and provider-set rates. As mentioned, for Medicare to be included, the state must seek a waiver from the federal government.

  1. State-Determined Rates

Under this arrangement, a state authority will set rates, most often for hospital services. This process is somewhat akin to public utility regulation.

  1. Provider-Set Rates

This approach allows providers to set their own rates, but requires rates to be the same for all payers. In this way, the state can establish rate-setting parameters but does not set the actual rates.

The intent of both approaches is to contain healthcare costs by fostering price competition and reducing or eliminating the cost to negotiate and administer multiple reimbursement schedules with multiple payers. When it comes to dominant health provider concentration, primarily resulting from mergers and acquisitions, the all-payer rate setting can help address adverse consequences derived from large providers in local markets. Dominant insurance companies may also pose different risks to unsuspecting purchasers – such as controlling how their products are distributed within the markets they serve.

Due to a myriad of payers requiring a multitude of quality metrics for doctors and hospitals to comply (costing around $15 billion annually to report results to the government), quality improvement must attack the ‘appropriateness’ of care, whether that particular care was needed in the first place.

Maryland is the only state with an all-payer system of hospital services, which is overseen by its’ state-based Health Services Cost Review Commission. In 2018, Maryland Gov. Larry Hogan signed a contract with the federal government to establish an all-payer health care model, hoping to create incentives to improve care while saving money. This new contract is expected to provide a total $1 billion of savings by the year 2023. Whether this plan works, however, remains to be seen.

Conclusion

Strategies to curb rising health costs and make them more transparent over time is not impossible, it just requires the grit to succeed. Secret negotiations that portray the ‘best’ deals is no longer in vogue, and rightfully so. The inability (or unwillingness) of the private markets to ‘right the ship’ in costs and make them more transparent continues to nudge enthusiasm for various payment initiatives, such as ‘Medicare for all,’ public-plan options, all-payer systems (Maryland), global budgeting (Massachusetts), regulating what insurers pay providers, as well as other approaches.

A warning to those who support the ‘status quo’ in our current healthcare ‘system’ – look for more transparent opportunities to reveal true healthcare prices and make the system less onerous for patients, providers and budgets. Otherwise, stand aside, and be prepared to become this century’s version of the buggy whip.

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