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2020 is a Mixed Bag for Health Insurers – Surging Revenue but Low Grades

Imagine that you are the CEO of a large, midwest-based, health insurance company and have just learned the results of a national survey where employers gave your company a mid-level grade on the ability to direct employees to high-quality health care. Somewhat discouraging news, don’t you think?

But there’s also good news. Net income for your organization is up almost 100 percent during the recent quarter and you have personally received over $52 million in total pay for 2019.  In fact, your total realized compensation increased 143 percent from the $21.5 million you took home in 2018.

Such is the life of this non-fictional CEO, whose compensation is comprised of salary, stocks, contributions to pension and many other wonderful perks.

Steady Revenue for Insurers – Reduced Claims

Due to the widespread deferral of elective and routine care during the COVID-19 pandemic in the second quarter, health insurance companies have benefited from plummeting medical costs while still collecting predetermined health premiums from their customers. This fortuitous ‘perfect storm’ has resulted in insurers obtaining skyrocketing net income compared to the same period a year ago.

How this will continue to play out when the pandemic recedes, however, will not be known for some time.

Both small and large insurance organizations experienced miraculous financial returns from the second quarter of 2020. UnitedHealth Group reported a net income of $6.7 billion – a 97.8 percent increase. Anthem Blue Cross and Blue Shield reported an increase of 99.8 percent, while Cigna Corp. reported a net income increase of almost 25 percent during this same period.

Many executives promise to correct this financial imbalance by eventually returning excess funds to customers and health providers.

CEO Compensation Growth

Meanwhile, according to a BDO USA survey released earlier this year, health insurer CEOs are doing quite well financially.  I don’t begrudge their success, I really don’t. I do believe, however, in responsible capitalism. Making millions upon millions of dollars just to be an administrator is both excessive and unconscionable. The ‘value’ provided by health insurers within our dysfunctional health system raises some concern. The question of ‘how much is too much’ is a subjective gymnastic exercise, however.

The 2019 compensation for the aforementioned CEO was 348 times more than the median pay earned by an employee at his organization ($54,322). This example is merely illustrative of the health insurance industry.

Lack of Price Transparency

Both insurance companies and hospitals are resisting the tidal wave that is moving toward healthcare price transparency, which should call into question the commitment insurers have to their premium-paying clients. For example, are insurers in business to serve medical providers or their employer clients? Perhaps insurers serve both parties? If so, are employers at a disadvantage by not having specific knowledge of the prices negotiated between insurers and providers? I believe they are.

Without transparency in prices and patient outcomes, how do employers know they are receiving commensurate value for the premiums they pay – which also includes administrative costs charged by insurers? Frankly, it is very subjective.

According to 2019 data from the Kaiser Family Foundation, over 156 million non-elderly Americans – or almost half of the country’s total population – receive employer-sponsored health insurance. By sheer numbers, employers are entitled to know what negotiated arrangements are made between the insurers they use and the medical provider community.

But now comes a newly-released survey. This one addresses whether employers are satisfied with their insurers.

Employers’ View on Insurers is Lukewarm

In July, The Leapfrog Group released very interesting survey results regarding an online survey of employer executives that administer and fund benefits for employees and their dependents. Leapfrog, an independent national healthcare watchdog organization on healthcare issues for employers around the country, desired to “gain employer perspectives on health plan effectiveness in achieving health care quality, safety and value.”

Survey respondents, a total of 174 employers* – small, midsize and large – cited their experiences with health plans that included, Aetna, Cigna, UnitedHealthcare, and over a dozen Blue Cross and Blue Shield plans around the country. Four key issues were rated by employers:

  1. Responsiveness of the health plan to employer concerns;
  2. Transparency in helping employers and employees choose the best (health) providers;
  3. Payment reform initiatives that incentivize excellence in the market; and
  4. Value strategies driven by health plans.

The responses by employers on each issue is quite revealing on just how they perceive the value provided by insurers on high-cost healthcare. These perceptions, by the way, are not flattering to health insurers, especially the views coming from larger employers.

According to the summary of results, Leapfrog indicated that “Most employer respondents appeared to have reservations about whether their health plan puts their needs above the preferences of contracted providers. About a third of Cigna and Aetna clients believed their plan put them first, while only 14 percent of UnitedHealthcare employers were similarly satisfied.

Overall, when asked to grade their health plans, from A to F, employer respondents gave their plans a C-plus (2.57 GPA) on their ability to direct their employees to high-quality healthcare. UnitedHealthcare received the poorest grade, with a 2.29 GPA.

Having accountability in healthcare delivery, payment and outcomes is extremely important to payers. But – at least with the Leapfrog survey – insurers have a long way to go in making their value commensurate with how insurers earn their profits in a poorly-run health system.

Insurance company CEOs should take a hard look at themselves in their mirrors to really see what their reflection candidly reveals.

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*I would’ve like to have seen a bit larger number of respondents, but this is, nonetheless, a very good survey.

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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By 2028, Iowa Employer Health Insurance Family Premiums Could Be…

As we enter the holiday season, I’m somewhat hesitant to share something that could spoil the holiday spirit – our projected health insurance premium 10 years from now. But to put a positive spin on this, especially as we prepare for Thanksgiving day, it is safe to assume the health insurance premiums that we are currently paying will be a ‘bargain’ compared to what we may be paying in 2028.

From our latest 2018 Iowa Employer Benefits Study©, we learned the average annual Iowa family health insurance premium is $17,448. Yes, this is a very inflated amount, especially when we compare it to 10 years earlier in 2008 ($11,520). Yet, this Iowa average is actually a bargain compared to the 2018 Kaiser Family Foundation national average of $19,616! Another positive spin for you!

The five-year average (2014 – 2018) increase for Iowa employer health insurance premiums is 7.7 percent. This figure represents all survey respondents, regardless of employee size and industry. It is important to acknowledge that this number represents the average increase BEFORE employers made adjustments to their health plans to keep the rate increase more manageable. Such adjustments typically include increasing deductibles, copayments and other plan features that require employees (and their dependents) to assume more of the medical costs when seeking healthcare through providers. Either way, the rate increases adversely affect employees’ the take-home pay.

The graph below calculates the average Iowa family premium rate trending forward for the next 10 years (compounded annually at 7.7%) and showing the annual employer and employee contributions (based on the Iowa employer contributing 68 percent of the total cost – another five-year average). One squeamish by-product of inflated health rates not shown on this graph are the plan design alterations that will surely be made by employers to shift costs to employees in order to keep the rates ‘manageable.’ One primary example of this cost-shifting is the family deductible, which was $1,963 in 2008 and is now at $3,900 in 2018 (99 percent increase over 10 years).

The family premium in 2028 could become $36,636! This amount is 110 percent more than today’s average family premium in Iowa.

Also worth noting, the trend line above the premium represents the estimated annual household income (HHI) in Iowa, compounded annually by 1.5% to 2028. The bubble above the $57,947 HHI for 2018 represents the percentage of family premium to HHI. This percentage is projected to almost double by 2028 if we cannot control healthcare costs. In short, over half of our household income (54 percent) could evaporate due to healthcare costs.

As we cast 10 years into the future, it is safe to give ‘thanks’ for what we are paying today in health insurance premiums. This is my best attempt to find some good in something that clearly is not.

Sorry to share this information.  Now, it’s time for the other turkey…

Have a wonderful Thanksgiving!

*DISCLAIMER:
I am NOT predicting that family premiums in Iowa will be $36k by 2028. Rather, based on past behaviors, employers will continue to find ways to alter their plan designs to keep their premiums lower than the initial increases they experience. Because of this, health plans will look considerably different in 10 years than they do today.

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