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‘Disruption’ Will Be Painful (Part II)

Health care in Iowa 2013 and beyondIn last week’s blog, Seeking Truth in Health Care (Part I), I shared four observations regarding health insurance for Iowa employers. This blog continues the discussion about how this may impact the health care provider community in Iowa.

As reported annually from the Iowa Employer Benefits Study©, health insurance premiums continue to skyrocket, which erodes take-home pay for employees, especially those who fall below the 400% Federal Poverty Level. In addition, employers continually purchase higher cost-sharing health plans that require employees to assume more out-of-pocket expenses. All of this means that health care providers – hospitals and physicians alike – will continue to see inflated receivables from individuals in the private payer sector. Not only is this unsustainable for the employment market, it will create greater financial tension for health providers when attempting to collect the cost-sharing portions from employees.

The wellness culture is taking root, as the emphasis in the employment community is all about healthy and productive employees. This new transformation in wellness can be seen not only with employers, but also in communities and statewide, as witnessed by the Healthiest State Initiative and the Blue Zones® Project. Many smaller Iowa employers have yet to embrace wellness initiatives, but appear to be willing to do so – as they are looking for both assistance and direction to make this process easy to implement and maintain. With this, opportunities to partner with employers exist for health care providers. Developing sustainable business models will be paramount for such opportunities to flourish in the new health world.

Another implication that will likely impact health providers is the concept of ‘defined contribution’ (DC.) As health premiums increase, employers will look for obvious ways to limit the ‘distraction’ of offering their own health plan(s). One possible and likely approach is to provide employees with a flat subsidy (that might be tied to the Consumer Price Index) to purchase their own coverage through a private exchange.

It is my understanding that an employer offering access to a private exchange (and providing “adequate” subsidies) would be similar to offering health coverage and therefore not be subject to the $2,000-per-worker penalty under the Patient Protection and Affordable Care Act (PPACA) for employers with over 50 employees. The DC approach may intensify improved efficiencies, price concessions, access and convenience – as employees would become more astute to the true cost of insurance…and demand more information from health care providers. As a result, health providers will need to transform themselves to be more efficient due to increased pressure to be transparent both in cost and outcomes.

Finally, most Iowa employers believe that health reform will NOT solve the cost issue. Greater complexities in the insurance market will only serve to frustrate employers who look for new directions on how to manage the cost and uncertainties. A ‘Provider Renaissance’ is sorely needed to deliver higher quality care at lower costs. Without a doubt, disruption in health care will be painful for all.

There you have it. The above implications are my best guess – at least for now!

Next week’s blog will address the potential “Winners” in the future – and what it may eventually mean for the employer community.

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Unsustainable Pot of Water

You have no doubt heard of the parable about the boiling frog. The premise is that if you place a frog in a pot of boiling water, it will jump out. However, if it is placed in cold water that is slowly heated, it will not perceive the danger until it is too late – it is cooked to death. This parable illustrates how people should make themselves aware of gradual change before they suffer the catastrophic consequences. So it goes with health insurance premiums (and our health care ‘system’).

This “boiling frog syndrome” can also be found right here in Iowa. Based on the results from our 2011 Iowa Employer Benefits Study©, we found that the average annual family premium paid jointly by both the employer and employee was $13,295! An astounding number!

As concerning as our premiums are in Iowa, they appear tame compared to what they potentially will become in the next ten years. Based on our annual studies, the average premium increase reported by Iowa employers during the last five years was 10.2 percent (prior to making plan design changes to bring their rate increases down). If we trend the Iowa family premium by 10.2 percent annually for the next ten years, the $13,295 premium now becomes (drum roll, please), about $35,000 (or 164 percent higher than today)! Again, we assume that the employer has not made changes to their health plans during the next ten years, which is HIGHLY unlikely.

Quite obviously, Iowa employees will see their take-home pay become severely suppressed. In 2011, the average Iowa household income was approximately $50K, which means the family premium was 27 percent of the income earned by the average Iowan. In 2021 (assuming that income increases an anemic 2 percent annually for the next ten years) the family premium would be almost 60 percent of household income! This truly defines the word, “unsustainable”.

Health reform in this country, however it looks, will need to aggressively address the cost issue – as it remains to be seen how successful the existing health reform law will do this.

Like the frog, we are slowly being cooked. We need to find a way to jump out of that simmering pan of water before it becomes too late.


David P. Lind BenchmarkWhat if Iowa families had to spend more than half their yearly income just to pay for health insurance—making it difficult to afford housing, food and clothing? Sound ridiculous? Think again.

Already in 2011, the average Iowa family health insurance premium gobbled up roughly 27% of estimated yearly household income of $49,985*. If current trends continue, that will grow to 58% in 10 years. Unsustainable?  You bet—for employers and employees.

Look at the numbers:

  • Health insurance rates in Iowa increased an average of 10.2% annually during the last five years, according to our Iowa Employer Benefits Study©. 
  • In 2011 the average annual family health insurance premium provided by Iowa employers was $13,295.
  • The average premium for family coverage in Iowa would increase 165% to over $35k a year by 2021 if current trends continue.

We all know that rising health premiums suppress employer profitability and ultimately employee take home pay (this is why unsustainable health trends are important to both employers and their employees).

Clearly, Iowa employers and their employees (and society in general) must find new and innovative ways to seek affordable health care without compromising the quality of care they expect to receive.

Does your organization have a sustainable strategy to avoid the projected increases?

This is a topic we’ll be talking about a lot here on the blog, as we explore possible solutions. 

* The 2009 Iowa Median Household income was $48,044, and was trended up by 2% annually to 2011.