Healthcare Town Hall

What is really driving increasing healthcare costs? Several causal factors contribute to the overall cost of health insurance:

There are many specific reasons why premium rates change year to year. These reasons can be grouped generally into five major categories:

1. Premium True-up: Correction (upward or downward) needed to current premium rates in order to align new rates with actual claims and other revenue needs

2. Benefit Cost Trend: Incorporation of changes to reflect the cost of the benefits in the future

a. Unit Cost Trend (provider payment rate changes)

i. Medical Inflation (price changes for a fixed market basket of medical services)

ii. Net Impact of Provider Contracts (difference between change in provider payment rates and medical inflation)

b. Utilization Trend (change in number of services used)

c. Mix/Intensity of Services Trend (change in composition of services used by consumers)

d. Cost-sharing Leverage (change in impact over time of fixed dollar copays and deductibles on benefit costs)

3. Member Changes: Recognition of changes in the characteristics of members covered in the future period to which the new premium rates apply (e.g., age and gender mix), compared with those members covered currently (types of changes for which there is no differentiation in the premium rates themselves)

4. Plan Changes: Reflection of the impact of changes in benefit design or provisions

5. Insurer/Administrator Retention Changes: Inclusion of needed or desired adjustment to the insurer retention component of premium rates (principally health plan administrative costs, taxes, and profits)

There may be other causes or components that can be identified, but these five categories capture the primary reasons for premium rate changes. Within these five categories, the first and second (premium true-up and benefit cost trend) are typically the primary drivers of year-to-year premium rate increases. As a component of benefit cost trend, medical inflation is usually one of the most important contributors. However, it is not the only component of benefit cost trend, and benefit cost trend is but one of the five major causes of premium rate increases.

This list was excerpted from the recent paper by Jon Shreve, “The difficulty of legislating premium rate increases.”

Cost Jon Shreve, premiums

The earthquake in Haiti has called attention to the role that micro-finance can play in developing countries, especially following a catastrophe. The largest microinsurer in Haiti was in a position to respond more quickly than many traditional financial entities, a story reported in Newsweek last month:

Hollywood couldn’t have done it better. Late in the afternoon on Jan. 22, an armored car packed with $2 million in cash rolled out of J.P. Morgan Chase headquarters in downtown Miami, headed to the Homestead Air Force Base. Thirty-four bricks of bank notes packed into ordinary office supply boxes were loaded onto a C-17 transport plane redeployed from Langley, Va., and dispatched to Haiti, lighting up switchboards at the United Nations, the U.S. State Department, the Federal Reserve, and military rescue bases in Port-au-Prince.

Before dawn the next day, the stash was on a helicopter bound for 34 branches of microlender Fonkoze. While Port-au-Prince’s nine commercial banks were in a shambles and Western Union was paralyzed, half of Fonkoze’s 42 agencies were up and running in four days, and all but two of the rest within a week. The amounts were trifling: no more than a few dollars per client. But for tens of thousands of desperate Haitians, the nimble infusion of cash amid the chaos and ruin literally meant survival. For the legions of aid bureaucrats, charities, civic groups, and emergency organizations struggling to get a grip on the Western hemisphere’s worst natural disaster in memory, Fonkoze’s nationwide client base of 200,000 depositors (50,000 of whom are also borrowers) was a ready-made lifeline. Could microcredit be the new Red Cross?

Read more…

Affordability, Global Haiti, John Meerschaert, Lisa Morgan, medical tourism, Microinsurance

Medicare Advantage News examines possible changes to Medicare Advantage (MA) plans if the president’s proposal is enacted. Here is an excerpt from the AIS analysis:

The proposal, designed for use in the Feb. 25 “summit” with congressional leaders on health reform, includes only two paragraphs under the heading “Improve Medicare Advantage Payments.” The first paragraph asserts that MA plans are significantly overpaid.

The second paragraph states, “The president’s Proposal represents a compromise between the House and Senate bills, blending elements of both bills, while providing greater certainty of cost savings by linking to current fee-for-service costs. Specifically, the president’s Proposal creates a set of benchmark payments at different percentages of the current average fee-for-service costs in an area. It phases these benchmarks in gradually in order to avoid disruption to beneficiaries, taking into account the relative payments to fee-for-service costs in an area.”

The paragraph continues, “It provides bonuses for quality and enrollee satisfaction. It adjusts rebates of savings between the benchmark payment and actual plan bid to take into account the transition as well as a plan’s quality rating; plans with low quality scores receive lower rebates (i.e., can keep less of any savings they generate). Finally, the president’s Proposal requires a payment adjustment for unjustified coding patterns in Medicare Advantage plans that have raised payments more rapidly than the evidence of their enrollees’ health status and costs suggests is warranted, based on actuarial analysis. This is the primary source of additional savings compared to the Senate proposal.”

Industry consultants and executives were muted in their comments on that section because of the lack of details. Pat Dunks, a consulting actuary in the Milwaukee office of Milliman, for instance, says it is unclear how big a pay cut might result and where.

The full article is here.  Here is an article about MA plan profitability.

And remember this is not the first time Medicare Advantage has faced a big change, as evidenced by this 2005 article by Pat Dunks.

Medicare, Reform Medicare Advantage, Pat Dunks

Singapore is known for its central planning. So how is the island nation doing with their electronic health record implementation? Here are details from Today Online:

By April next year, all key medical information – including patient demographics, allergies, clinical diagnoses, medication history, X-rays, laboratory investigations and discharge summaries – will be fully available on the new National Electronic Health Record (NEHR).

Electronic Health Records EHR, Singapore

A recent PBS discussion between Ron Pollack with Families USA, healthcare blogger Robert Lasczewski, and Thomas Mann with the Brookings Institute ranged over several significant reform topics, including the cost of the uninsured. Here is an excerpt from Pollack’s remarks:

If we fail to link improved coverage affordability and expansion with a prohibition on pre-existing condition exclusions, the older and sicker portion of the population will enroll in coverage and the younger and healthier part of the population will drop such coverage — thereby leading to a skyrocketing premium cost spiral.

Doing this will provide significant relief to people and businesses that purchase health coverage today. This is because premiums for health coverage contain a “hidden health tax” that substantially increases the premiums to underwrite the uncompensated health care costs of the uninsured. A report by Families USA, based on data developed by the well-respected actuarial firm Milliman, Inc., found that the average premium for family health coverage contained an average “hidden health tax” of $1,017 in 2008 — a figure which is no doubt higher today. Hence, the extended health coverage to more than 30 million uninsured people, as envisioned in the Senate and House bills, will provide premium relief for America’s families as well as businesses that currently offer coverage for their workers.

See the full Families USA study here.  See more on the individual mandate here.

Uninsured Bruce Pyenson, Families USA, Uninsured

A new article in Employee Benefit News looks at the notion of employer “pay-or-play” provisions and examines what kinds of employer-sponsored benefits provide a return on investment. There continues to be some question whether certain programs sponsored by employers do in fact return value. Here is an excerpt from the article:

Health management programs are not without their critics. Research by the Centers for Medicare & Medicaid Services shows some health management programs don’t live up to their promises of reducing health care expenses.

“As an actuary, I run the formulas of disease management companies on large databases and understand why they can show an ROI increase in their formulas and what the flaws are within those formulas,” said Bruce Pyenson, a principal and consulting actuary with Milliman, a New York-based actuarial and consulting firm.

Pyenson pointed out that Americans are living longer, disability rates are lower and events associated with some chronic conditions are at an all-time low. “Americans are healthier than ever, despite the obesity epidemic,” Pyenson contended….Pyenson explained that the idea “you spend more money now in order to save more money later is an idea that does not work.”

Health care reform puts the spotlight on “some bad behaviors that employers have gotten into with benefit plans designs. Now is the time to sweep out some of that trash that accumulated over the years in benefits plans,” asserted Pyenson.

For example, employers can save money by dropping disease management and employee assistance programs, and value-based insurance designs. “It’s been proven that the stuff doesn’t work,” Pyenson said. Employers instead should aim for tighter formularies on prescription drugs benefits and challenge the commissions of brokers and consultants.

According to Pyenson, employers also can earn substantial dollar savings by moving to a limited network, tightening medical management, limiting out-of-network benefits or offering no out-of-network benefits.

Employers, Value Bruce Pyenson, employer, Wellness

The idea of implementing legislative controls of healthcare premium increases has been part of the reform bills for some time, but the idea has become more prominent in recent weeks. While it is tempting to look only at premium numbers when trying to control costs, there are actually a number of underlying factors: unit cost changes, medical inflation, utilization changes, member behavior, plan changes, premium “true-up,” and various leveraging.

This dynamic is discussed in a new briefing paper by Jon Shreve.

Cost, Reform cost inflation, Jon Shreve, premiums

On Monday, we blogged about new analysis of a court decision to reverse medical malpractice damage caps in Illinois. Subsequent coverage offers more detail—and also some alternative perspectives.

First, perspective from AM Best’s, which gives the five-year view of Illinois tort reform:

The court found that portions of a 2005 statute that capped noneconomic damages at $500,000 against doctors and $1 million against hospitals violated the separation of powers between the Illinois General Assembly and the judiciary. The case, Lebron vs. Gottleib Memorial Hospital et al, was filed by Frances Lebron, the mother of baby Abigaile Lebron, who was born at Gottlieb with “numerous permanent injuries” allegedly sustained during a Caesarean procedure, the court noted. Lebron filed suit against the hospital and her medical team in 2006, and in 2007 the Cook County Circuit Court found the caps unconstitutional (BestWire, Nov. 13, 2007).

The Milliman study buttresses insurers’ argument that the cap is good for Illinois, said Jeffrey Junkas, a spokesman for the American Insurance Association. Moreover, the legislature is unlikely to act to rectify the ruling anytime soon, he said.

“There’s no appetite to address this issue again,” Junkas said. “We may have to get back to that crisis condition we had in ‘03 and ‘04.”

Without a cap from 1997 to 2005, Chicago physicians saw liability premiums jump an average of 10% to 12% a year. When the cap was reinstated in 2005, premiums for Chicago physicians stabilized and even began to shrink, according to the American Medical Association (BestWire, Feb. 4, 2010).

The top Illinois writers of medical professional liability coverage in 2008, according to BestLink, were: ISMIE Mutual Group, with 55.3% market share; APCapital Group, 5.2%; Berkshire Hathaway Insurance Group, 4.5%; American International Group, 3.8%; and ProAssurance Group, 3.2%. BestLink provides online access to A.M. Best’s Global Insurance & Banking Database.

Read more…

Medmal Chad Karls, Illinois, medical malpractice

New analysis indicates that the Feb. 4 decision by the Illinois Supreme Court overturning caps on non-economic damages awarded to medical malpractice claimants is likely to increase physician liability costs in the state by 18%. 

The magnitude of the estimated increase is largely a reflection of the tort environment in Illinois,” said Chad C. Karls, principal and consulting actuary for Milliman, who specializes in medical professional liability coverage.  “The overturn of a $500,000 cap on non-economic damages would have less impact in almost any other state.  In Illinois, claim severities have been among the highest in the country.  In addition, experience in other states suggests that the overturn of a cap like this can result in significant increases in the number of reported claims going forward. This would result in additional increases in costs for insurers.”

Indemnity claim severities will increase by approximately 23% and the average cost that insurers expend defending claims will increase by 10%.

See the full release here.

Karls has also written about retooling medical professional system.  That analysis is available here.

Medmal, Reform Chad Karls, Illinois, medical professional liability, Medmal, Susan Forray

A recap of an EBRI forum from last December reopens the old question of wellness programs and whether or not they provide value. Here is an excerpt:

Do wellness programs work? Yes, says Beth Umland, head of Mercer’s health and benefits research unit. While controversy persists, “data is starting to accumulate that show that these programs actually are cost effective.” Among those employers that have tried to measure the ROI for wellness programs, “about three-quarters say it’s been very successful,” Umland continued. Pam French, director of benefits for Boeing, Inc., also endorsed the value of wellness programs.

Taking the opposing view was Bruce Pyenson, a consulting actuary with Milliman. Disease management and other wellness programs don’t work, he said. “The theory that you can spend more now to save money later in health care is just wrong. If you want to spend less in health care, you should spend less in health care,” according to Pyenson.

Pyenson’s perspective is actually a bit more nuanced than just that—but the point is that it becomes difficult to find ROI when many wellness programs require getting people with very few annual healthcare claims to engage the system. Given this dynamic, certain programs work better than others.

Electronic Health Records Bruce Pyenson, Wellness