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Midterm Elections and Healthcare – The Consensus For Moving Forward Is…

The votes were cast and we now have a split in party control in both the House and Senate. What does this mean for healthcare as we now look toward the 2020 elections and beyond? Here are a few “bottom line” excerpts from various healthcare experts who follow the Washington political gridlock circus.

Drew Altman, President, Kaiser Family FoundationNovember 8 Blog

With a Democratic House, a Republican Senate, and President Trump in the White House, get ready for two years of maneuvering but little progress on health care – unless you look beyond Washington…Democratic control of the House stops any Republican efforts to revive their efforts to repeal and replace the Affordable Care Act, block grant Medicaid or impose a per capita cap on federal Medicaid spending…the same applies to any big changes Republicans might want to make to Medicare…the proposals made in Congress and the campaign are important because they can shape the agenda after 2020. But for now, the states are where the real action is.”

Merrill Goozner, Editor Emeritus of Modern HealthcareNovember 8 Editorial

“…Given the powerful special interests invested in preserving the status quo, the most likely scenario over the next two years is inaction on each of those issues (addressing root causes of high healthcare costs, universal healthcare, surprise bills for out-of-network charges, etc.). This year’s election offered no guidance toward a politically acceptable solution to healthcare’s core problem: its unacceptably high cost.”

Stephen Miller, Online Manager/Editor, Compensation & Benefits, Society For Human Resource Management (SHRM) – November 8 Article

Mr. Miller summarizes many thoughts from national pundits about the next two years in healthcare – much of this relates to the employer perspective on regulation. Miller writes:

“The partisan divide makes it unlikely that any major changes in the ACA will advance to the desk of President Donald Trump. That doesn’t mean bipartisan efforts to address health care challenges are off the table. Meanwhile, heading into the 2020 presidential election, progressives will continue to advocate for government-funded single-payer health care for everyone.”

The Commonwealth FundNovember 7 Analysis

“…efforts to repeal the ACA or make large-scale changes to programs like Medicaid are likely off the table, though the (Trump) administration is expected to continue to pursue actions to undermine key elements of the ACA. What we may see is congressional activity on two fronts: stabilizing the individual health insurance markets and controlling high drug prices…”

Robert Pearl, M.D., Contributor to ForbesNovember 7 Blog

Dr. Pearl finishes with a paragraph that summarizes nicely the many blogs that I have written over the past seven years:

“Looking ahead, don’t expect your healthcare to change (or improve) much over the next two years. That’s because we have confused the disease with the symptom. Rising healthcare premiums and excessive out-of-pocket expenses are not the real problem. They are the result of wasted effort, inefficiency and price-jacking among healthcare’s biggest players: drug companies, hospitals and specialists. Health insurance coverage is essential, but until we as a nation grapple with how care delivery is structured, reimbursed, technologically enabled and led, voters will remain concerned about costs, fearful of losing their coverage and confused about how best to improve healthcare in the future.”

These are just a few post-election prognostications about healthcare’s uncertain road to reform. As we know from past observation, gridlock will continue and states will work diligently to find their own solutions to both access ‘quality healthcare’ and identify cost issues.

With a special thanks to Dr. Pearl (again) from his November 2 piece in the Los Angeles Times, the following quote is most appropriate for healthcare and how it usually fares in our national and local elections:

Campaign promises are like babies: easy to make, but hard to deliver.

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Why Do Our Health Insurance Rates Continue the Upward Climb?

Let’s state the obvious at the very beginning: The health insurance premiums we pay are a derivative of the healthcare (and administrative) costs we incur. As healthcare costs increase, so too, will our health insurance premiums.

One datapoint from the Iowa Employer Benefits Study© that has proven to be THE fixation each year is the rate health insurance premiums have increased. The results in 2018 are no exception. Iowa employers, regardless of employee size and industry, reported they experienced a size-weighted increase of 8.4 percent.

What this metric fails to tell us, however, is WHY this continues to happen every year – a phenomenon somewhat akin to what Bill Murray’s character experienced each day in the movie, ‘Groundhog Day.’ Like Murray, we continue to relive our past.

Healthcare spending in our country is quickly approaching 20 percent of our economy, about double what is found in other high-income countries. In 2019, this ‘crisis’ will be 50 years strong, with no signs of abatement. Worth noting, national health expenditures in 1969-70 was just 6.9 percent of GDP.

Unfortunately, finding comparable data that can easily provide insight on WHY healthcare consumes about one-fifth of our economy is difficult. If we can understand the fundamental reasons for higher costs, we can then make the necessary corrections to address the core problems that continue to plague our economy and adversely impact the personal purchasing power of most Americans.

We all have our own theories, credible or not, about this WHY question. Some of these theories typically include:

  • Americans are higher utilizers of care (compared to other industrialized countries) and that is WHY we pay more – because healthcare consumption is really a volume problem.
  • Tied closely to the theory above, is the belief that the U.S. lacks enough primary care physicians but has too many specialists who charge more for their services.
  • High usage of prescription drugs, in addition to our inability to negotiate favorable price concessions with drug manufacturers.
  • A fee-for-service reimbursement system that incentivizes healthcare providers to give us excess (and usually unnecessary) care.
  • A broken malpractice system that drives excessive defensive spending.
  • The U.S. under-invests in beneficial spending of social programs compared to other advanced countries. By not investing in the ‘social determinants of health,’ we pay the eventual price of having a sicker population that uses more healthcare and that drives high healthcare spending.
  • A national culture that refuses to face death, and instead, spends excessively at the end of life.

On the surface, any of the above theories have merit, perhaps merit that can even be substantiated. However, when taking a deeper dive, some theories may shake out as myths.

Unmasking Some Popular Myths

Recently, a report in JAMA indicated that healthcare utilization in the U.S. is not what we have historically believed. It turns out that, “When it comes to utilization, there is no compelling case that the U.S. rates are substantially higher than comparator countries.” Admittedly, we do have more CT scans, knee replacements and higher cardiac procedures than other countries. But we have fewer hip replacements, and overall hospital days, and physician visits per population. The authors of this work make the point that “we certainly do not overuse services at such a rate to meaningfully explain spending that’s twice as much as comparator countries.”

It is important to note, however, according to a 2017 article published in Health Affairs, there is excess utilization of many low-value services in the U.S. Because these low-value services are also low cost, this does not appear to impact the spending differences between the U.S. and other countries.

The fee-for-service (FFS) payment structure is widely believed by many to push health costs upward, but FFS does not have the impact on costs as popularly perceived. Rather, FFS adversely impacts accountability in how healthcare is delivered and undervalues the quality we expect to have. Eliminating FFS to keep costs down may provide some relief, but its demise is more about initiating better practices of care.

A 2016 article in JAMA basically found the spending for end-of-life utilization in the U.S. to be in line with other countries, meaning that it is also high everywhere. End-of-life spending occurs due to uncertainty about when a person is going to die – we spend a great amount of money on people who are really sick, but they die anyway. Because most other countries are similar to our perceived “unique culture” in the U.S., this narrative does not hold true on why costs are higher in the U.S. than elsewhere.

Two (Primary) Reasons for Grossly High Health Costs

I’ve just spent some time debunking commonly-held beliefs on why healthcare costs are high in the U.S. (and Iowa). Harvard professor and physician, Ashish Jha, one of the authors to the JAMA article that refutes high healthcare utilization in the U.S., provided a fascinating discussion about understanding healthcare costs to the Senate Committee on Health, Education, Labor, and Pensions this past June.

Jha argues that two major culprits are responsible for gobbling up the U.S. GDP:

  1. Administrative Complexity
  2. High Medical Prices
Administrative Complexity: 

As consumers of goods and services, Americans love to have many choices available to them – and healthcare is no different.  We desire choices in the providers who perform the care we seek and in the various health plans we purchase – either individually or through our employers. But with choices come complexity and additional costs. In healthcare, how many choices become too many?

Fragmentation of our healthcare system centers around the number of health insurers – we have about 858 insurers in the U.S. With each insurer, there are various protocol requirements by physicians and hospitals when confronting billing and insurance-related activities. There is a myriad of different claim forms, hoops to jump through to ensure a claim will be paid, zillions of different benefit plans that require unique compliance procedures and varying challenges of claim denials.

When compared to other high-income countries, the costs of administrative inefficiencies in the U.S. are enormous. One aggressive 2014 report puts this cost at 30 percent of total healthcare spending. Another more cautious report from the OECD uses a narrower definition of administrative costs and estimates the U.S. to be at eight percent, which is over twice the average of other advanced countries.

High Medical Prices:

Reinhardt et al. (2003) argued in a Health Affairs article, “It’s the prices, stupid.” Again, compared to other industrialized countries, the U.S. has the highest prices for medical goods, services and labor – and nearly all brand-name drugs. A recent Wall Street Journal article, “Why Americans Spend So Much on Health Care,” states that “Among the reasons (for high medical prices) is the troubling fact that few people in health care, from consumers to doctors to hospitals to insurers, know the true cost of what they are buying and selling.”

Primary care doctors are paid, on average, $218,000 in the U.S. – about $85,000 more than similar physicians in advanced countries. Computed tomography (CT) scans, MRIs, colonoscopies and many other procedures are about double the cost compared to other countries. As an example, I recently had a CT scan performed at a Des Moines hospital, taking no more than five minutes. I learned a month later through my insurance company’s Explanation of Benefits, that the charge was a whopping $8,323.01, while the network ‘savings’ was $7,608. I would love to learn how that charge (and write-off) was determined!

Jha points out in his comments to the Senate committee that Prince Louis, the “royal baby” born to Kate Middleton and Prince William earlier this year, was delivered in a “luxurious private maternity ward in expensive London.” The Economist article cited by Jha indicated the cost was $8,900 for this delivery, while the ‘average’ delivery cost in many U.S. communities is around $10,800 – but can be much higher depending on the location. Even the cost of the best and most luxurious delivery care in London pales to what us common folk have in this country. Put another way, the delivery cost of the ‘royal baby’ was comparable to the exaggerated charge of my five minute CT scan!

Of course, it might be somewhat of an equalizer if the care we received in the U.S. outperformed care in these other countries. It does not. In 2017, The Commonwealth Fund ranked the U.S. as the lowest performing country when compared to 10 other countries. Healthcare outcomes, in addition to access, administrative efficiency and equity placed a dismal 10 or 11 in these categories.

Administrative inefficiencies and high medical prices are two simple evils found in the healthcare cost crisis. Sounds as though the solutions should also be simple – tackle the factors that determine prices and simplify administrative services. We must combat a dysfunctional healthcare ‘system’ that desperately needs infusion of common sense and the embracement of the right incentives to perform efficiently. Doing so would drive competitive battles to reduce costs to a more reasonable level.

Until then, the premium increases experienced by employer-sponsored plans will continue into the foreseeable future.

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Did Iowa Mess Up Its Individual Health Insurance Market?

The individual health insurance market in most every state is, at best, precarious. Iowa is no exception – a conclusion reached recently by national consultant, Wakely Consulting Group, one of many organizations that I collaborated with in 2012 when analyzing the Iowa population for implementing a state-based health insurance marketplace. Their report, “Analysis of Alternative Policy Decisions in Iowa’s Individual Market,” sheds light on how a concoction of earlier decisions can undermine fragile markets. In short, the individual health market is a tangled mess.

The Affordable Care Act (ACA) established state-based marketplaces that allowed Americans without employer health coverage to purchase health insurance regardless of preexisting conditions. Such sanctioned ACA plans would also provide minimum essential standard-of-benefits.

The premium paid by those qualified to enroll in these plans varies, primarily based on factors of age, tobacco use, family size and geography. Other factors – such as pre-existing conditions, health status, claims history, duration of coverage, gender, occupation, and small employer size and industry – cannot be used to impact insurance premiums. Individuals earning a certain amount of income (100-400 percent of poverty), can receive subsidies to pay for their coverage, while others above this threshold must pay the full premium themselves.

The whole idea of insurance risk is to cover as many insureds as possible, safeguarding that there will be enough ‘good’ risks to help offset those considered to be ‘bad’ risks. When the Iowa marketplace was launched in 2014, Iowa had four insurers competing in the individual marketplace. Today, Medica is the only insurer that sells ACA-compliant health plans in Iowa. To sustain its business in Iowa, Medica had to increase the premiums in 2018 by 50 percent – which did not impact those receiving premium subsidies but slammed those who earn above the subsidy limit.

On top of this, the state’s largest insurance company – Wellmark Blue Cross and Blue Shield – maintained a large block of pre-ACA grandfathered plans (policies in effect before March 2010) and grandmothered health plans (policies written after 2010 enactment but before 2014) within its block of individual health business. The state of Iowa allowed Iowa carriers to maintain both blocks of business outside the sanctioned ACA marketplace.  According to the Wakely report, “Iowa’s ACA individual market in 2015 represented approximately 40 percent of the total non-group market…while the other 60 percent were covered under the two transitional plans.”

From its analysis, Wakely’s conclusion is that had Iowa NOT allowed for grandfathered and grandmothered plans (an option for each state to decide), the enrollment in the ACA-compliant plans would have increased by 55,000-85,000, while the change in premiums would have dropped by 8-18 percent. Had this happened, I’m sure there would have been new ‘winners’ and ‘losers’ on the amount of premiums individuals would be required to pay.

Lessons Learned?

The likely lessons learned from Iowa, according to Wakely and The Commonwealth Fund, is that further segmentation of the individual market between healthy and unhealthy enrollees wreaks havoc for those who do not receive subsidies that offset massive premium growth. Adopting policies to expand the risk pool and maintain a balance between healthy and unhealthy enrollees, using state-level reinsurance programs can be beneficial to state-based marketplaces.

As mentioned in the Commonwealth Fund analysis, “…premiums in the state’s (Iowa) individual market are already among the highest in the country, with an average annual marketplace plan premium in excess of $10,000 in 2018.” The middle-class consumers – entrepreneurs, independent consultants, farmers, and early retirees – who earn too much to quality for subsidies become ‘losers’ in the insurance risk game.

Granted, with the advent of new association health plans and short-term medical plans that can legally shed many ACA requirements and theoretically become more cost competitive, many of the healthier middle-class insureds may qualify for these plans – but what about those with pre-existing conditions?

The policies we generally make in healthcare are too often made from situational circumstances that cause knee-jerk reactions that may appear to be expedient, but ultimately exacerbate an already complex problem.

Scottish writer, Walter Scott, put it quite succinctly:

O, what a tangled web we weave…when first we practice to deceive.

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