Healthcare Town Hall

Data released today by S&P Dow Jones Indices for the S&P Healthcare Economic Composite Index indicates that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 3.02% over the 12-months ending March 2013, decelerating from the +3.11% annual growth rate recorded in February. It posted the lowest rate of growth since January 2005.

Seven of the nine S&P Healthcare Economic Indices showed slower annual growth rates for March 2013 compared to February 2013. Annual growth rates for five of the healthcare indices hit their historic lows in March. As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance plans rose by 4.46% in March, down from +4.63% reported for February. The Commercial Index rate hit its historic low in March. Annual growth rates in Medicare costs increased by 0.82%, according to the S&P Healthcare Economic Medicare Index, up from +0.78% recorded last month.

The Hospital Index’s growth rate hit its historic low of +1.86% in March, down from +1.92% recorded in February. The Hospital Medicare Index posted a +1.89% annual rate in March, up from +1.73% recorded last month. The Hospital Commercial annual growth rate hit its historic low of +1.81% in March; it posted +2.03% in February.

Read more…

Cost Healthcare, John Cookson, S&P

Data released today by S&P Dow Jones Indices for the S&P Healthcare Economic Composite Index indicates that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 3.10% over the 12-months ending February 2013, slower than the +3.82% annual growth rate recorded in January.

All nine of S&P Healthcare Economic Indices showed slower annual growth rates for February 2013 compared to January 2013. As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance plans rose by 4.62% in February, down from +5.41% reported for January. Annual growth rates in Medicare claim costs increased by 0.78%, according to the S&P Healthcare Economic Medicare Index, down from +1.40% recorded last month.

The Professional Services Index annual growth rate was +4.19% in February 2013, down from the +5.00% January print. The Professional Services Commercial Index decelerated to +6.86% in February, down from +7.61% reported in January. The Professional Services Medicare annual growth rate set a new low of -0.87% in February, down from +0.02% posted in January.

Read more…

Cost Healthcare, John Cookson, S&P

As we move into April, health plans are working toward impending deadlines to complete rate filings for insurance products that will be available next year on state health exchanges. Last week we saw the release of two notable public analyses of premium impacts—a 50-state report from the Society of Actuaries, and a Milliman analysis for the California exchange, Covered California—and there are probably more estimates coming soon as the healthcare industry and the nation look to better understand the cost implications of the Patient Protection and Affordable Care Act (ACA).

Even though the nation has been wrestling with reform topics for three years now, there continues to be confusion over the interaction between insurance premiums and Federal subsidies for lower-income individuals.

The common mistake here is that, while subsidies may reduce the amount that a lower-income individual has to pay directly for health insurance, they do not affect the actual premium. If a monthly premium for an individual policy in California is $450, a Federal subsidy of $392.50 would reduce an individual’s cost to a manageable $57.50. But this is different than reducing the premium. The premium remains $450, with or without the subsidy. Here’s an illustration of this idea:

This distinction is important because premiums reflect the underlying cost of care. We cannot reduce premiums without reducing the underlying cost of care. Subsidies help make increasing premiums more affordable for lower-income consumers, but they do not actually reduce premiums. Someone still has to pay the full premium in order for the health plan to remain solvent. If the public is to better understand healthcare costs, they need to understand this distinction, because it is that underlying cost of care that is driving health insurance rates upward.

For a better sense of how the underlying cost of care affects premiums, read this paper. The Milliman Medical Index is also a useful reference in understanding this concept as are the videos in Milliman’s “Understanding Healthcare Costs” video series.

Cost California, Milliman Medical Index, subsidy, Understanding healthcare costs

Medicare Advantage is an insurance program that invites private payors, including health plans and insurance companies, to offer alternatives to traditional Medicare. By providing access to the private insurance market, Medicare Advantage gives beneficiaries the option to choose from a wide range of competing plans, many of which offer richer benefits than Medicare. This video explains how Medicare Advantage works.

For more on healthcare costs, view the earlier videos in this series, about Medicaid and employer-sponsored insurance.

Cost, Medicare Medicare, Medicare Advantage, Understanding healthcare costs, video

Data released today by S&P Dow Jones Indices for the S&P Healthcare Economic Composite Index indicates that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 3.83% over the 12-months ending January 2013. This is an acceleration from the +3.72% annual growth rate recorded in December 2012.

Eight of the nine S&P Healthcare Economic Indices showed increased annual growth rates in January 2013. As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance plans increased by 5.41% in January, up from +5.38% reported for December. Annual growth rates in Medicare claim costs rose by 1.41%, according to the S&P Healthcare Economic Medicare Index, up from +1.19% recorded in December.

The Professional Services Index annual growth rate was +4.98% in January 2013, up from the +4.77% December print. The Professional Services Commercial Index accelerated to +7.58% in January, up from +7.33% reported in December. The Professional Services Medicare annual growth rate was +0.03% in January, up from -0.12% posted in December.

Read more…

Cost John Cookson, S&P

Today S&P Dow Jones Indices announced the results of S&P Economic Healthcare Indices for 2012. Data released by S&P Dow Jones Indices for the S&P Healthcare Economic Composite Index indicates that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 3.73% over the 12 months ending December 2012. This is a deceleration from the +4.46% annual growth rate recorded in November 2012 and the lowest rate in the eight-year history of the index.

All nine S&P Healthcare Economic Indices posted deceleration in their annual growth rates in December 2012. As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance plans increased by 5.39% over the year ending December 2012, down from +6.19% reported for November 2012. Annual growth rates in Medicare claim costs rose by 1.20%, according to the S&P Healthcare Economic Medicare Index, down from +1.81% recorded in November 2012. It is the lowest growth rate in the history of the Medicare Index.

The Professional Services Index annual growth rate was +4.78% in December 2012, down from the +5.68% November rate. The Professional Services Commercial Index decelerated to +7.34% in December, down from +8.17% reported in November. The Professional Services Medicare annual growth rate was -0.12% in December, down from +0.92% posted in November 2012. It is the first appearance of negative annual growth rate in the history of the index.

Read more…

Cost John Cookson, S&P

In the late 1990s, online travel agencies revolutionized the airline industry by publishing fares and allowing consumers to search for and purchase tickets. No longer would consumers have to rely on an agent to filter and present options; travelers could search across all vendors and use their own criteria to evaluate their options and purchase a ticket. The individual and small group health insurance markets are poised for the same sort of dramatic change, driven by the now familiar concept of the online marketplace, known in the health insurance industry as the exchange.

Although the operation of a health insurance exchange is quite different from that of an online travel agency, these distribution channels are similar in their impact on price transparency. Under the old travel agent model, consumers would first search for tickets based on convenience factors (e.g., travel dates and times, routes, etc.) and then use price to differentiate among a few options. Likewise, in the individual and small group health insurance markets, price is often presented after the purchaser has already narrowed the options to a few that meet non-price criteria. In both of these situations, price is applied as a deciding factor after the consumer has already narrowed the universe of choices to a subset of similarly appealing options; and the consumer lacks visibility to the prices of choices that were eliminated in that process. Online markets, on the other hand, allow consumers to see the prices of all or most options at the same time, making price a primary determining factor when making a purchase decision. This new presentation format, which allows consumers to choose one product over another based on a small dollar price difference, discourages significant price variation among competitors for similar products.

For most health insurance products, price is comprised of three primary components: benefit expense, administrative expense, and risk margin. Although benefit expense makes up the lion’s share of the premium or price, administrative cost differentials among health insurers can also materially contribute to premium differences. These differences will become more pronounced and may affect consumer purchasing decisions as the benefit expense component of premium is constrained by the medical loss ratio (MLR) requirements of the Patient Protection and Affordable Care Act (PPACA). These rules effectively create a benefit expense floor, requiring that health insurers in the individual and small group markets spend no less than 80% of premium on benefits (85% in the large group market), or pay a rebate to policyholders. It is likely that MLRs for individual and small group products will eventually settle around the 80% level or higher. In this new world, the importance of managing administrative cost will increase as price competition puts pressure on overall premiums and the MLR rules force administrative cost and risk margin into a fixed share of the premium dollar.

Benchmarking is one of the most effective tools available to help health insurers manage administrative expense. For insurers working to achieve MLR targets through administrative cost reduction, a benchmarking assessment can offer a function-by-function comparison of administrative expenses and staffing levels versus competitors and peers. Such an analysis can help organizations figure out where to target their cost reduction initiatives or determine what cost level is appropriate for a given department, cost center, or function.

For insurers that have already achieved the MLR targets, administrative benchmarks combined with a dashboard view can allow for monitoring of administrative expense variation throughout the year. Optimizing administrative cost is not something that can be achieved overnight; it takes time to plan and implement cost management initiatives, and months or years before the benefits accrue to the bottom line. Thus a dashboard coupled with benchmarks can provide management the tools they need to effectively manage their price competitiveness in this new distribution paradigm.

This article first appeared at Milliman MedInsight.

Administration, Cost, Reform administrative expense, Andrew Naugle, benchmarking, medical loss ratios, MedInsight, state exchanges

Harmful medication errors, or preventable adverse drug events (ADEs), are prominent quality and cost issues in healthcare. Injectable medications are important therapeutic agents, but they are associated with a greater potential for serious harm than oral medications. The economic burden of preventable ADEs associated with inpatient injectable medications and the associated medical professional liability (MPL) costs had not been previously described in the literature.

This study finds that the healthcare and MPL costs associated with preventable ADEs are substantial. The authors estimate that inpatient preventable ADEs associated with injectable medications increase annual U.S. payor costs by $2.7 billion up to $5.1 billion, while MPL costs associated with injectable medications total $300 million to $610 million annually.

The study was published in the December 2012 issue of American Health & Drug Benefits.

Cost adverse drug events, Bruce Pyenson, Healthcare, Helen Blumen, Kosuke Iwasaki, medical professional liability, Susan Forray

Data released today by S&P Dow Jones Indices for the S&P Healthcare Economic Composite Index indicates that the average per capita cost of healthcare services covered by commercial insurance and Medicare programs increased by 5.07% over the 12 months ending November 2012. This is a deceleration from the +5.27% annual growth rate recorded in October 2012.

Eight out of nine S&P Healthcare Economic Indices posted deceleration in their annual growth rates in November 2012. As measured by the S&P Healthcare Economic Commercial Index, healthcare costs covered by commercial insurance plans increased by 6.86% over the year ending November 2012, down from +7.15% reported for October 2012. Annual growth rates in Medicare claim costs rose by 2.32%, according to the S&P Healthcare Economic Medicare Index, down from +2.40% recorded in October 2012. The Professional Services Index annual growth rate was +6.49% in November 2012, down from the +6.61% October print. The Hospital Index’s growth rate hit its historic low of +3.57% in November from +3.83% recorded in October 2012. It was driven by the Hospital Commercial Index, which hit its lowest rate since the index began in January 2005 with an annual growth rate of +4.26%. It posted a +4.79% annual rate last month.

The Professional Services Commercial Index decelerated to +9.03% in November, down from +9.06% reported in October. The Professional Services Medicare annual growth rate decelerated to +1.61% in November from +1.91% posted in October 2012. The Hospital Medicare annual growth rate posted +2.61% in November, up from its +2.54% October rate.

Read more…

Cost John Cookson, S&P

Healthcare reform will provide employers several cost-saving measures without requiring adjustments to their current utilization or provider access. The potential savings, or discounts, will vary based on the group’s mix of markets and services, so a medical repricing study can help quantify the differences.

In a new paper, Liz Myers covers the most frequently asked questions about the calculation and evaluation of medical discounts, highlights various methods for estimating discount differences, and discusses how discount differences impact the overall medical cost to the employer.

To read the entire paper, click here.

Cost, Reform cost reduction, discounts, Healthcare, Liz Myers