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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.


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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Removing Each Child from Health Coverage – a Rite of Passage

Following college graduation this past May, my daughter, Maria, took a position with a non-profit organization in Minneapolis. As parents, Deb and I are both proud and happy to watch our youngest daughter start a new chapter in her post-graduate life.  As a rite of passage, Maria was confronted with a plethora of decisions to make regarding the benefits offered by her new employer.

This also meant she would no longer be covered under our health plan, an important and necessary parental commitment that most of us provide to our children. In a strange way, at least for me, this was an end of an era – 24-plus years to be more precise. Our oldest daughter, Emma, was removed from our health plan earlier due to her full-time position and the associated benefits tied to it.

As parents, ‘letting go’ can mean different things. With both daughters, while teaching them to ride newly-purchased toddler bikes, we took them to a traffic-free smoothly-paved parking lot to begin lessons. Watching their progress balancing on the bike was impressive, as if our little Einsteins were able to crack the code that few were able to do! The hardest part, however, was coming to the realization they could balance without our assistance. Letting go of the bike and allowing our child to carry on without Mom and Dad was a gut-wrenching parental experience, even though we were only a step or two away to avoid potential catastrophe!

Taking our girls to ‘mother’s morning out’ was yet another rite of passage for us. Dropping the unsuspecting daughter off at a play ‘school’ to be with other children for just a few hours was an emotional struggle. More so for us, I must confess. The same applies for kindergarten, grade school, junior high, high school, and eventually college. Yes, as our daughters became older, Mom (or Dad) would no longer be standing outside the classroom door to observe how our girls were adapting to the new learning environment. We instinctively knew that the days were numbered as time was quickly marching on.

Parents experience gentle reminders on how past roles we once held evolve into new opportunities and/or challenges for what lies ahead. The same, I suppose, also applies to our professional lives. With each child, we are nudged by the circumstances they experience, knowing that their lives will forever be different as they transition into productive adults.

I had to remind myself that by removing each daughter from our health insurance plan was similar to letting go of their bike and allowing them to explore the unknown world ahead. We can only hope that whatever course each daughter pursues will be a safe journey.

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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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