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Healthcare Waste & Inefficiency – an Inconvenient Truth?

Flushing Money Down The ToiletThe Iowa House and Senate leaders recently announced a joint budget agreement on spending levels for the state of Iowa’s 2015 fiscal year, which begins July 1, 2014. The budget target agreed upon? $6.97 billion – a great deal of money, for sure.

This amount, however, pales in comparison to the net worth of some of the billionaires around the world. For example, when compared to Forbes‘ latest list of the world’s billionaires, the announced 2015 Iowa budget would fall somewhere between #191 and #196 of the most wealthy people on the list. Bill Gates sits atop at $76 billion while Warren Buffett weighs in at the #4 position, with a ‘pithy’ net worth of $58.2 billion.

In short, Bill Gates’ net worth is 11 times greater than Iowa’s annual state budget. A fun fact to recite at tonight’s dinner table, right?

Try this not-so-fun fact: According to a 2010 report from Institute of Medicine (IOM), the U.S. healthcare system wastes about one-third of the $2.6 trillion we all spend on healthcare. This equates to about $765 billion wasted annually — and growing!

According to IOM, the six areas of waste and inefficiency are:

  • Missed Prevention Opportunities – $55 Billion
  • Unnecessary Services – $210 Billion
  • Inefficiently Delivered Services – $130 Billion
  • Prices that are Too High – $105 Billion
  • Excess Administrative Cost – $190 Billion
  • Fraud – $75 Billion

Based on these stats, one might reason that our health insurance premiums are about a third higher than they should be. No wonder our health premiums continue to increase more than the consumer price index, year-after-year! Let’s be honest, merely tweaking our insurance plans (by increasing deductibles, copayments, offering limited-provider networks, implementing value-based benefit plans, etc.) will NOT remotely make up the difference that we lose in annual waste.

It is about time that we confront this ‘inconvenient truth’ (thank you, Al Gore) and think differently about truly reforming our healthcare system.

To put the $765 billion of healthcare waste and inefficiency into context with other budgeted costs, consider the following:

So, the next time you wonder why your health insurance premiums and out-of-pocket healthcare costs are so high, you might remind yourself that we currently live with a VERY wasteful healthcare system that is in desperate need of an efficient and high-value care transformation.

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Exchange Clock

David P. Lind BenchmarkThe Supreme Court has ruled on the constitutionality of the health reform law. Now what? Iowa employers, insurance carriers, health care providers (among others) need to continue the implementation process required under this law. So does the state of Iowa.

For example, will Iowa have its’ own insurance exchange for individuals and small businesses, or will it need to defer to a federal-based exchange? At this point, we don’t really know. We do know that if Iowa wishes to operate a state-based exchange on January 1, 2014, it must submit a completed Exchange Blueprint to the HHS no later than November 16, 2012. This notification deadline will be shortly after the national elections…hmmm.

Meanwhile, the clock is ticking…

To date, the Iowa legislature has not passed legislation to approve its’ own exchange, which is an important part of the process. However, without such legislation, the Governor may issue an Executive Order to establish the exchange. Whether this will happen…and if so, when, is uncertain at this time.

Establishing an exchange requires a great amount of thought and study before implementation. As one can imagine, there will be both intentional and unintentional consequences to the Iowa insurance markets when implementing an exchange. Each state will need to consider key issues prior to establishing their own exchange:

  • Whether insurance companies in Iowa participating in the exchange should be required to offer all health plans sold in the exchange to individuals or small employers purchasing coverage outside the exchange.
  • Whether the individual and small employer markets should be placed entirely inside the exchange.
  • Whether the individual and small employer markets should be standardized inside the exchange or inside and outside the exchange.
  • Whether to merge the individual and small employer markets for rating purposes (how will this affect premiums for both markets?)
  • Whether to increase the size of small employers from an average of at least one but not more than 50 employees to an average of at least one but not more than 100 employees prior to January 1, 2016.
  • How to account for sole proprietors in defining “small employers”.

There are a host of other key (and complicated) questions that Iowa and all other states must decide before pursuing their own insurance exchange. Needless to say, there will be heavy lifting by key stakeholders prior to November 16 of this year. Will Iowa be ready?

The clock continues to tick.