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Ten-Year Projection of Employer Health Insurance Costs in Iowa

Projecting into the FutureI just can’t help it.

Give me some historical data and I want to run projections into the future. If it is good enough for Congress to rely on the Congressional Budget Office (CBO) to make budget projections based on assumptions that impact legislative proposals, why not do the same for Iowa employers on the health insurance they pay?

Many assumptions we make usually begin with a very short, yet powerful, word – ‘if.’ This word provides a fallback position for anyone who is willing to venture guesses on what the future may hold on any given subject matter. The Merriam-Webster dictionary explains how the word ‘if’ is used:

  • to talk about the result or effect of something that may happen or be true
  • to discuss the imaginary result or effect of something that did not happen or that is or was not true
  • to say that something must happen before another thing can happen

So, I want to make a few projections (not necessarily predictions) of what family health premiums ($15,743 in 2016) will be for Iowa employer-sponsored plans over the next 10 years (2017-2026). To do so, I will first need to make a few assumptions using the word, “if.” So here we go…

IF we assume over each of the next 10 years:

  1. Employers continue to offer health insurance coverage; and
  2. Employer-sponsored medical premiums increase by 7.7 percent (using the average annual growth in premiums between 2012 and 2016 received by Iowa employers PRIOR to making benefit plan changes); and
  3. Iowa employers make NO changes to their plans and accept this average increase; and
  4. Medical inflation is similar to 2016 rates and continues unchanged; and
  5. No deep recession (depression) has occurred; and
  6. ‘Pay-for-value’ reimbursement systems remain ‘experimental,’ meaning that there is no clear consensus on controlling costs and appreciably enhancing value of care delivered; and
  7. The average employer share of paying for family premiums remains at 68 percent of the total premium (employees pay the other 32 percent); and
  8. The median household income in Iowa during 2014, $53,816, increases annually by 1.5% to 2026; and
  9. Lack of political decisiveness continues without passing any new major health reform measures beyond what we currently have in 2016; and FINALLY
  10. Life continues as we currently know it today.

THEN we may see:

By the year 2026, total family medical premiums will have exceeded $33,000, which would be 51 percent of the projected 2026 median household income in Iowa ($64,344).

Ten-Year Projection of Family Premium at 7.7 Percent

IF we make the same assumptions above, but tweak #2 and#3 to make the likely assumption that employers WILL make changes to their medical plans to keep them more competitively priced, and that the average annual growth of premiums will increase by only 3.5 percent annually, the average family premium by 2026 will grow to $22,207, or 35 percent of the projected 2026 median Iowa household income. The power of compound rates can make a huge difference. In this case, the 2026 family premium would be $10,849 less using 3.5 percent compared to 7.7 percent.

Ten-Year Projection of Family Premium at 3.5 Percent

Before we become somewhat giddy about ‘saving’ this type of premium by using a lower percentage, it is important to understand what is NOT shown on this particular graph – how health plans will change by 2026 AFTER the employers make annual alterations to keep their plans affordable. Deductibles and out-of-pocket maximums would continue to increase, offsetting any potential ‘savings’ made by not having higher premiums. However, employees would assuredly bear the undeniable burden of paying more out-of-pocket expenses when seeking more expensive medical care.

In 2014, according to the Health Care Cost Institute, total annual spending was $660 less per person with those employees who had high deductible health plans, or about 13 percent less than spending in conventional health plans. But what is not known is if this ‘savings’ came from avoiding needless tests and procedures or employees skimping important (and necessary) treatment, which can be detrimental to long-term health.

Something tells me that the use of the word “giddy” will not be part of the 2026 health insurance vocabulary.

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The Healthcare Price-Quality Conundrum

Price and Quality

As Americans, one thing is certain – we continue to pay a larger share of our medical bills through higher deductibles and out-of-pocket maximums. Proponents of ‘having more skin in the game’ suggest that we will eventually become better ‘consumers’ to drive down healthcare costs. The debate about whether this will happen continues.

When shopping for colonoscopies, mammograms or childbirth procedures, people are more likely to conduct cost information searches before seeking care. But will higher-priced doctors and hospitals result in higher quality of care?

Two recent reports approached this question differently. The first report, “The Price-Quality Paradox in Health Care,” generated by the Health Care Cost Institute (HCCI), looked at actual claims data to determine whether higher prices are indicative of receiving higher ‘quality of care.’ For this report, quality measures were based on whether ‘recommended’ services were provided.

As we know, quality can be evaluated many different ways. For example, even if treatment delivered is recommended care, was this care delivered appropriately, safely and to the patient’s satisfaction? There are a host of other qualitative measures that help define the quality of care we hope to consistently receive. The HCCI report did not use other methods because such information is difficult (or impossible) to cull from mere claims data.

HCCI’s conclusion is that “price alone may not be sufficient for identifying quality.” In some cases, higher prices are associated with lower quality, meaning that high-prices are not indicative of high-quality of care. HCCI concludes with an obvious statement:

If policy makers and health care industry leaders expect transparency efforts to have real impacts on the health care system, making quality information more accessible and useable by stakeholders is also necessary.

The second report comes from an April article in Health Affairs, “Most Americans Do Not Believe That There Is An Association Between Health Care Prices and Quality Of Care,” that analyzes how Americans perceive the healthcare price-quality conundrum based on behavioral economics. The findings indicate that a majority of consumers (58-71 percent) don’t believe that price and quality are associated with one another, meaning that paying higher prices does not guarantee higher quality of care. A hefty minority of respondents (21-24 percent) indicated there was an association between price and quality, while an additional 8-16 percent did not know if there was a correlation between price and quality.

Respondents who said they had compared prices before receiving care were more likely to think that higher prices are related to higher quality of care, compared to people who did not price shop before seeking care (37 percent vs 12 percent). Avoiding low-price care because it is perceived to be low-quality, is a detriment to having an efficient delivery system that beckons consumer decision making.

Due to the intricacies of behavioral economics, it appears that how price-quality information is communicated to the patient/consumer may very well determine whether healthcare prices are indicative of care quality.

The findings in this second report relating to our purchasing behaviors, are a good complement to HCCI’s findings. This emerging subject will generate a great deal of interest from many stakeholders in the future.

For now, the price and quality metrics are still being hotly debated to determine whether we can become informed consumers who make rational healthcare decisions.

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The Healthcare ‘Consumer’ and Eye of a Needle

Camel and Eye of NeedleAgain I tell you, it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God.
Matthew 19:24

Recent research from the Health Care Cost Institute (HCCI) suggests that savvy shoppers in healthcare may only have limited market power to drive costs downward. Coming from 2011 health claims data provided by a handful of national commercial carriers, HCCI examined medical claims for people under age 65 who were covered by employer-sponsored health insurance.1

Researchers looked at total spending for ‘shoppable’ health services, which consists of care scheduled in advance – such as flu shots, non-emergency hip or knee replacement, colonoscopies, urinalysis and other non-emergency services.

Only seven percent of total healthcare spending in 2011 was paid by ‘consumers’ for shoppable services. This out-of-pocket spending total includes deductibles, copayments and coinsurance required by health plans. Many health plans use copayments for doctor visits – such as $20 per visit – which offers little, if any, incentive to price shop when seeking care. In 2011, about a quarter of the total paid out-of-pocket was from copayments. Deductibles accounted for almost half of the dollars spent by consumers for shoppable services, while 27 percent was tied to coinsurance payments. HCCI analysts summarized this report as follows: “Overall, we come to the conclusion that the potential gains from the consumer price shopping aspect of price transparency are modest.”

Dovetailing this assessment, in July 2015, the Catalyst for Payment Reform issued a ‘Report Card on State Price Transparency Laws’ that shows only three states garner a letter grade of ‘A’ or ‘B’ for price transparency – New Hampshire, Colorado and Maine – while all other states receive failing grades (Iowa included). Just recently, the U.S. Supreme Court rendered a decision on the Gobeille v. Liberty Mutual case making it difficult for states to include ERISA-based self-insured medical claims in ‘all-payer claims databases.’ From this decision, it appears that price transparency for medical costs will need to discover alternative paths to eventually reach the healthcare ‘consumer.’

As deductibles and other cost-sharing arrangements continue to move upward due to increased health costs, carriers and self-insured employers use cost-relief measures to keep coverage affordable – one of which is limiting the number of providers within networks. Fewer providers in a network may allow for competitive price breaks, but a potential problem can erupt for the unsuspecting patient – surprise medical bills from out-of-network providers who contract with in-network facilities. This happens when an in-network hospital contracts with out-of-network medical staff, including emergency-room doctors, anesthesiologists, surgical assistants or lab technicians. Hospitals are typically not obligated to tell the patient BEFORE surgery that certain services will be performed by out-of-network providers – who are allowed to charge above and beyond the patient’s in-network financial responsibilities.  According to a 2015 survey by Consumer Reports, this situation happens to an estimated 1 in 3 American adults every two years. Sometime AFTER the service was provided, usually when the invoice(s) arrive, the patient is shocked to learn of this practice.

So much for allowing the patient to become a more proficient healthcare ‘consumer.’

Driving costs downward in the future will require all payers (government, employers and insurers) to find innovative solutions to deliberately incent the provider community to deliver higher-quality outcomes at affordable costs and eliminate nonsensical surprises. But doing this is much easier said than done. Finding and implementing appropriate financial incentives to elicit the right behaviors without causing perverse consequences is akin to fitting the camel through the eye of the needle. From the provider (and carrier) perspective, there must be a good business case to hold costs down while those insured are reasonably protected from unintentional financial harm.

Market-driven healthcare enthusiasts will view the HCCI report as a somber message about the progress made since the dawn of ‘consumer-driven healthcare’ earlier this century. Price and quality transparency is a moral obligation to the American public, and it all begins with having the right payment incentives that drive a new, intentional culture of care delivery.

From today’s perspective, the eye of that needle looks awfully minuscule.

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1A five-year lag on claims data is a testament to the archaic tools we have at our disposal when analyzing healthcare usage. Unfortunately, we continue to live in a tapestry world of siloed, fragmented data, that attempts to solve a complicated jigsaw puzzle with missing puzzle pieces.