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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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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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Using the IRS to Tame Healthcare Costs

As I approach the eve of receiving results from our 19th annual Iowa Employer Benefits Study©, a survey that was on sabbatical in 2017 to accommodate our Iowa Patient Safety Study©, I am waiting in great anticipation as to the status of employer benefits in Iowa after this one-year hiatus.

From this latest study, we will be learning quite a bit regarding many key components found in health and dental insurance, life and disability coverages, retirement, and a multitude of paid-time off components that are extremely important to employees.

But as in previous studies, I will be highly focused on health insurance components, such as premiums, employee contributions and out-of-pockets expenditures. As we are all painfully aware, the cost of health insurance, although experiencing relative tepid growth in the past few years, continues to outpace inflationary costs. In May, the Milliman Medical Index was released showing that, on a national average for 2018, the total cost of insurance for a family of four exceeded $28,000 (it was $23,215 in 2014). As we know, the rising cost of health insurance and medical care alters purchasing behaviors – rational or not.

A recent commentary written in the Wall Street Journal, “The IRS Can Save American Health Care,” by Regina Herzlinger (professor at Harvard Business School) and Joel Klein (chief policy and strategy office at Oscar Health) piqued my interest. Now it must be noted that Dr. Herzlinger is a huge proponent of “consumer-driven healthcare,” while Oscar Health is a technology-focused health insurance company that primarily focuses on individuals purchasing health coverage through designated state marketplaces. Oscar would presumably benefit greatly from what these authors have proposed.

The Existing Problem

Thanks to a 2017 Kaiser Family Foundation report, the authors make a point that eight percent of employers offer a choice of tighter provider networks for their employees to use. Tighter networks restrict the number of providers that can be covered in a geographical location, but in return, providers concede on price, making the plans’ cost more competitive. By abdicating the important choice to exclude higher-cost providers, the authors argue that large hospitals that are dominant in local markets are able to charge higher prices without facing much backlash.

Employers benefit from using pretax dollars when they purchase insurance on behalf of employees, who understandably, are unsure about the true cost of health insurance as this tax exemption greatly distorts and conceals this cost. As a result, employees are likely to believe that someone else is paying the majority of the cost and may not feel as compelled to discern the charges they rack up. If employees work for employers who don’t offer health insurance, they can buy policies on their own through the individual markets, however, they will not benefit from the same tax breaks allowed to employers.

According to the authors, it is who pays for the coverage that ultimately impacts healthcare costs.

Proposed Approach to Put Employees in Charge of Health Costs

Herzlinger and Klein are advocating the IRS to adjust its technical definition of Health Reimbursement Arrangements (HRAs) so that they can be used to pay insurance premiums to satisfy the ObamaCare employer mandate. How could this happen? Employers would simply fund a fixed amount of money into each employees’ HRA, and then have the employee buy the best health plan for their families in ACA-exchanges. Employees would now have tax-free money to purchase health insurance, and if any money is left after the purchase, they can pocket the savings as taxable income. This provides an economic incentive to employees to become thrifty with their money.

The thought process is that employees would now have the appropriate tax break to induce buying cheaper, more-tailored policies – rather than receive a standard plan offered by their employer. The theory is that having more workers purchase coverage through the individual marketplaces would “drive down premiums.” Workers may be more inclined to select a scaled-down provider network that would have fewer providers, but in return, the insurer would be empowered to negotiate lower prices with hospitals and physicians. Such activity would eventually break the stronghold that dominant health providers have in their markets. A 2017 McKinsey analysis suggests that tighter provider networks can be at least 18 percent cheaper (and still achieve similar outcomes).

With this IRS adjustment, the authors feel the Department of Health and Human Services – and Treasury – could work with states and employers on offering HRAs to employees. There would be no act required by Congress to make this happen, bypassing the common gridlock found in Washington.

Will This Be Successful?

This approach is simple in concept and may have some merit of pushing workers to become better healthcare ‘consumers.’ However, expecting a new insurance approach – even through different tax advantages – to overcome the myriad of twisted, inefficient, and opaque incentives that mold how providers and other stakeholders behave is, I’m afraid, mere wishful thinking.

I do consider myself to be an advocate of ‘market-driven’ forces to make healthcare more efficient, safe and affordable, however, it will take a carefully-crafted menagerie of both public-private approaches to ‘tame’ this beast and eventually alleviate runaway health costs.

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