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Comparing Private Payer Prices to Medicare Rates

Private Payer Prices Relative to Medicare RatesTrust, but verify” is a memorable quote that President Ronald Reagan used while negotiating nuclear disarmament with the Soviet Union in the 1980s. According to Wikipedia, this quote was derived from a rhyming Russian proverb, Doveryai, no proveryai.

Trust, but verify” comes to mind in today’s healthcare environment, specifically as it relates to third-party price negotiations between commercial payers (insurance companies) and health providers. Since the prices we pay for non-government medical care are largely secretly negotiated in the backroom by insurers and providers, the TRUE payers (e.g. taxpayers, employers and consumers) often assume they are paying competitive prices for medical services. But they never really know just how much money is being left on the table – it’s anyone’s guess.

With a few exceptions, transparent medical pricing is virtually non-existent. For example, a family member of mine is scheduled to have a knee-replacement performed during this month, but despite our requests to learn the negotiated costs between our insurer and this provider, we were unable to obtain the true cost of the surgeon’s fee, in addition to many of the ancillary costs associated with this particular procedure. My mindset is quite simple: if we have to ask more than once about how much this will cost, then something is clearly not right with our supposedly ‘consumer-centric’ high-deductible health plan – supplemented by a health savings account. We have a $10,000 deductible, so we SHOULD know the true cost, right? But we don’t.

Additionally, we were offered the ‘choice’ between using the outpatient surgical center (owned by our surgeon’s group practice) versus having this procedure performed at a nearby West Des Moines hospital. When we asked the gracious office lady employed by the group practice about the price differential between the center and hospital, we received a blank stare that was followed with a promise that someone would be contacting us ‘soon’ with answers. Over two months later, we are still waiting for that promised phone call. But because we have insurance, our desire to become true ‘consumers’ is not that urgent. This will be fodder for future blogs!

To date, transparency-hype serves as a smokescreen to protect the status quo of pricing opaqueness. A great primer regarding opaqueness in healthcare pricing can be found at The Powers Report Podcast found here.

Linking Private Payment to Medicare Rates

In March of last year, I attended a conference in Indianapolis hosted by the Employers’ Forum of Indiana. The conference centered around a RAND Corp. research report that revealed a national employer-led initiative comparing private (commercial) reimbursements with known Medicare payments. In other words, how do privately-negotiated rates compare to the lower Medicare rates determined by our federal government? Claims data from almost 1,600 hospitals in 25 states were gathered and analyzed by RAND Corp. Iowa, by the way, was NOT represented in this study*.

Because there is little-to-no price transparency in the private/commercial payment sphere, RAND was forced to gather claims data from three types of data sources:

  1. Self-insured employers who chose to participate in the study.
  2. State-based, all-payer claims databases from Colorado and New Hampshire.
  3. Health plans (insurers) who chose to participate.

The key finding from the RAND study (comparing prices from 2015 to 2017) was that relative prices (which represent the allowed amount paid as a percentage of what Medicare would have paid for the same services) rose from 236 percent of Medicare rates in 2015 to 241 percent of Medicare rates in 2017. Put another way, assume that Medicare prices are at 100 percent, private reimbursements were well over double what Medicare pays hospitals for the same services.

Medicare payments are tied to average hospital costs. Some hospitals, due largely to efficient internal practices that result in lower costs, break even or make money on Medicare patients, while many less-efficient hospitals lose money.

The private reimbursement rates range widely from state-to-state, even when states are next to one another. For example, the RAND study found the average Michigan commercial payer price was 156 percent of Medicare rates, yet, their neighbor to the south, Indiana, was highest of all states with 311 percent of Medicare rates. Suffice it to say, Indiana employers in attendance at this conference where both shocked and upset about overpaying for care when compared to other employers outside Indiana.

Employers, specifically self-insured employers, have a fiduciary responsibility to spend prudently and are justifiably frustrated with ever-escalating healthcare costs that do not add value to their bottom line. Because of this, the RAND report is causing a snowballing effect with employers who wish to take a much more active role in directly negotiating and contracting with medical providers for better, more reliable and effective care. Employers are hoping to narrow the large gap between commercial and Medicare payment rates.

According to RAND, the implications of knowing this information allows employers new “opportunities to redesign their health benefits to better align hospital prices with the value of care provided. Employers can exert pressure on their health plans and hospitals to shift from discounted charge contracts to contracts based on a multiple of Medicare or other prospective case rates.”

What About Iowa Commercial Rates?

Because there were no self-insured employers from Iowa participating with RAND during the 2015 and 2017 studies, there is no information on how commercial payments in Iowa compare to Medicare rates and to other states. This, however, can certainly change if a few large, self-insured Iowa employers would voluntarily share their claims data with RAND* for future analysis. Sharing such data would provide proof that the commercial rates being paid in Iowa are competitive (or not) with other states when using Medicare rates as the measuring stick. Very large national organizations participating with RAND evidently trust that their claims data are highly guarded by RAND and will not be compromised due to HIPAA privacy concerns, etc.

In a perfect world, having completely transparent negotiated rates between commercial payers and providers would eventually become a game-changer on knowing just how competitive the prices are in Iowa and elsewhere. It is telling that research is necessary in order to learn whether or not the prices we pay to our healthcare providers are trusted to be appropriate. As President Reagan indicated a few decades ago, verification is a sound strategy.

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*Self-insured Iowa employers, if interested, can become part of the RAND Hospital Price Transparency Project for 2020-2021.

Paid Parental Leave – Gaining Traction?

Paid Parental Leave - Gaining TractionOne important employee benefit that I increasingly hear about, both in Iowa and nationally, relates to paid parental leave.

This topic made headlines this past December when paid leave was included for federal civilian workers in the National Defense Authorization Act for Fiscal Year 2020. This Act provides up to 12 weeks of paid parental leave in connection with the birth, adoption, or foster care placement of a child for employees covered by the Family and Medical Leave Act (FMLA). This new law applies to leave taken in connection with a birth or placement occurring on or after October 1, 2020.

Paid Parental Leave Offered by Private Employers

The United States is the only industrialized country without a nationwide guarantee of paid parental leave. Private employers in the U.S. can voluntarily offer paid leave benefits. One national survey found that 40 percent of employers offered a standalone paid parental leave plan for employees, and of those, 63 percent offered full wages during the entire leave duration.

As of March 2019, the U.S. Bureau of Labor Statistics reported that 18 percent of all workers have access to paid family leave while 35 percent of the highest wage earners have access. Part-time employees are less likely to enjoy this benefit. Additionally, larger organizations with over 500 employees and certain industries are more likely to offer access to paid family leave.

Paid Leave in Iowa?

In Iowa, data about the prevalence of paid parental leave offered by private Iowa employers is seemingly difficult to find. Perhaps it is available, but this information does not appear to be easily accessible. Overall results from our 2019 Iowa Employer Benefits Study© revealed that 73 percent of Iowa employers offered ‘maternity leave’ while 51 percent offered ‘paternity leave.’ However, the survey questions did not specifically relate to whether or not these benefits were ‘paid’ by employers – so clarifying research is needed. (More about this at the end of this blog)

Only a few states mandate paid maternity leave. Iowa is not one of them. For women employees in the state of Iowa, Iowa law (Chapter 216 of the Iowa Code) prohibits employers with four or more employees from denying a woman’s request for up to eight weeks of unpaid leave to address a physical disability due to pregnancy, childbirth or related medical outcomes. There is no requirement that a woman works a previous amount of time or hours prior to unpaid leave. Again, employers can voluntarily pay for this leave.

The Family and Medical Leave Act (FMLA)

The FMLA requires covered employers with at least 50 covered employees (among other criteria) to provide up to 12 work weeks of unpaid leave in a 12-month period for new parents after the birth or adoption of a child. The focus is on job protection, not income replacement. The FMLA is gender neutral, but in order to qualify, the employee must meet certain requirements.

An estimated 60 percent of employees have access to leave under FMLA. Generally, employees who work for employers with under 50 employees or work part-time schedules do not have access to FMLA. But in Iowa, as mentioned earlier, covered employees have unpaid coverage up to eight weeks if employed by employers with four-plus employees.

Proponents of Paid Leave

Proponents of paid leave believe that the new federal employee law should serve as a guide to private employers. However, federal employees do not receive paid leave while caring for a sick family member or recovering from a serious illness. Advocates for paid leave desire a broader approach to include both paid family and medical leave that would cover time off for illness and caregiving.

Proponents argue that paid leave boosts morale and productivity, in addition to labor force attachment to the employer. Mothers who receive maternity leave return to their employers and are more likely to stay. Having a paid parental leave policy can be a powerful tool to attract job seekers, especially when a majority of employers do not currently offer paid leave. Currently, paid family leave on a national basis is gathering interest by both Republicans and Democrats, specifically through the House Ways and Means Committee on Capital Hill. The big stumbling block, however, is how such a program would be financed.

Summary

Because paid parental leave remains a mainstream discussion that employers wish to learn more about, and given the lack of Iowa-specific data on the prevalence of this important benefit, our upcoming 2020 Iowa Employer Benefits Study© will address this topic with Iowa employers. From this, we will learn how popular (or not) this benefit is, and about the many components found within paid leave, such as the number of weeks offered and percentage of pay. Additionally, we also hope to discover why employers may not consider offering paid parental leave in the future.

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Dental and Vision Benefits Remain Popular and Stable in Iowa

Dental and Vision Benefits Remain Popular and Stable in IowaIowa employers continue to offer two important ancillary benefits within their workplace setting – dental insurance and vision coverage. Both benefits are perceived by employees to be of high value and important to their overall health. And, there is good evidence that the long-term benefits to employee well-being can outweigh the associated costs of offering these plans.

Dental Coverage in Iowa

Overall, our 2019 study revealed that almost two-thirds (64 percent) of Iowa employers offer dental coverage – whether or not the cost was subsidized by employers. This offering compares to 60 percent in 2012. Organizational size usually determines whether these benefits are offered in the workplace. For Iowa employers with 101+ employees, 94 percent offered dental coverage, compared to 87 percent in 2012. However, 43 percent of employers with fewer than 101 employees offer dental, compared with over 50 percent seven years ago. It should be noted that employers with fewer than 10 employees are less likely to offer dental coverage, which greatly affects the <101 size category.

In addition to organizational size, location of employers can also determine whether dental coverage is offered: 69 percent of urban employers offer dental compared to 57 percent of rural organizations. In urban settings, a higher-populated geographical area, competition for personnel can be very intense, which usually results in more benefits being offered than in rural communities. NOTE:  Prior to the 2016 survey year, urban and rural employers were not broken out for comparison purposes.

Unlike the instability of health insurance costs, dental premiums have remained relatively stable over a large time period – providing a great amount of budget certainty for both employers and their employees. For example, dental insurance premiums reported by Iowa employers in 2012 were at $35 for Single and $92 Family, while in 2019, seven years later, the premiums were at $34 for Single and $99 for Family – very marginal differences.

The following graphic illustrates the great variance of employers offering dental coverage based on industry. All Colleges and Universities in Iowa responding to the 2019 survey indicate offering dental coverage, while only 49 percent of Construction and Retail organizations offer this benefit.

Vision Coverage in Iowa

Our 2019 study revealed that over 40 percent of all Iowa employers offer vision coverage – again, whether or not the cost was subsidized by employers. This offering compares to 39 percent in 2012. Similar to dental coverage, organizational size definitely determines whether these benefits are offered in the workplace. For Iowa employers with 101+ employees, 63 percent offered vision coverage, while only one-quarter of employers with fewer than 101 employees offer this benefit.

Again, urban employers are more likely to offer vision (45 percent) versus their rural counterparts (35 percent).

By industry, Financial Organizations and Iowa Colleges and Universities are most likely to offer vision coverage, while both Retail and Construction employers are least likely to provide this coverage.

For many obvious reasons, health insurance is often the most dominant topic of conversation (and concern) within employer-sponsored benefits. As a result, dental and vision benefits are regularly overshadowed. But, as demonstrated here, these two benefits continue to be both important and popular within the Iowa workplace.

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