Category Archives: Affordability

Employer-sponsored health insurance faces affordability challenge

How will the Patient Protection and Affordable Care Act (PPACA) affect employer-sponsored health insurance? Employers have to consider whether they want to preserve their existing coverage, self-insure, or pay fines for suspending coverage. That decision may hinge on an employer’s ability to maintain affordable costs while offering minimum coverage.

Paul Houchens recently discussed affordability and PPACA’s minimum benefits compliance with Healthcare Payer News. Here is an excerpt from the article:

Across industries, the main challenge will be having minimum coverage and keeping it as affordable as possible…

Wellness benefits across corporate and small firms vary from tobacco cessation programs to on-site fitness centers, free produce and commuting perks. For ACA minimum benefits compliance, though, it’s still not clear how exactly the affordability test will be measured against wellness incentives, said Paul Houchens, an Indianapolis-based consulting actuary with Milliman.

“Let’s say you have a plan that charges $2,000 for single coverage without wellness incentives, but $1,000 if you’re a non-smoker. Is that affordability going to be measured based on the $2,000 or that $1,000? Particularly for employers with large wellness incentives in their plans, it’s difficult to do a lot of planning without having that information.”

More broadly than wellness, Houchens sees employers probing the value of their current sponsored insurance and calculating the costs and benefits of different options, as federal agencies finalize rules for the individual and employer mandate, premium assistance and eligibility.

If all of an employer’s workers are above 400 percent of the federal poverty level (FPL), Houchens said, “None of them are going to qualify for premium subsidies and probably in a lot of cases are going to be paying a lot more for health insurance under exchanges than they would under (their) plan.” Or “if you have an employer with dominantly low-income employees, maybe some would actually be better off in the exchange versus your employer plan.”

While the level and relative affordability of coverage will probably vary by industry and income, Houchens and colleagues think that the cost of dropping coverage is likely to outweigh the savings.

“Even for some of the low-income employers, I think a key point to remember is that your health insurance is a tax-deductible expense, whereas the penalties are not,” Houchens said. “That’s a huge difference for the for-profit companies. And also, you’re being penalized on every full-time employee. You’re not just being penalized on the people that would participate on your plans.”

A company with 60 percent health plan participation is “really only paying for health insurance for 60 percent of employees,” he said. “But with the exception of the 30 employee exemption, you would be paying a penalty on 100 percent of the full-time employees; that’s non-tax deductible. We’ve run the calculations for a number of employers. The math of terminating coverage and trying to make them whole, it simply doesn’t add out. So employers are thinking prudently. They’re probably going to continue to offer coverage in 2014.”

Download Milliman’s Healthcare Reform Strategic Impact Study which helps answer important reform questions employers are dealing with.

Also, for more of Paul’s insights on healthcare reform, follow him on Twitter @PaulHouchens.

Health microinsurance as a component of aid in Pakistan

The Atlantic reported last month about an unconventional aid organization in Pakistan that appears to be overcoming some of the barriers to traditional aid programs:

So while USAID is very good at quickly mobilizing assistance to disaster-afflicted communities, it carries a lot of political baggage — so much so in places like Pakistan that the U.S might be better off in the long run by downsizing USAID’s direct activities there and working through alternative programs.

One good model might be the Rural Support Programmes Network. A sprawling collection of local NGOs, the RSPN was founded by the Agha Khan Network in 1982, and has since become its own, separate program. While the stats about its reach are impressive — reaching millions of the poorest homes across a vast swath of Pakistan — what’s especially fascinating about RSPN are its methods.

Put simply, RSPN has a different focus than normal aid programs. They emphasize the development of institutions first, and only after that institution is established do they worry about its output or performance. The NGO also heavily invests in the smallest scale of the community, from conceptualization to execution, hiring mostly locals to administer projects. Lastly, they have extraordinarily long project timelines — sometimes as long as 15 years from start to finish.

RSPN’s activities might be of interest to readers of this blog because they run a significant health microinsurance program:

But the most interesting project RSPN has done in rural Pakistan is a collaborative micro-healthcare insurance system. For very little money — $3.50 a year in some cases — poor people can get access to basic medical care (especially maternity care) and assistance if they face hospitalization.

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Healthcare cost: Manage the causes, not the effect

How can healthcare be made more affordable? A new paper, “Manage the causes, not the effect,” by Bill Rifkin, Tom Snook, and Ron Harris, addresses the cost-control question and suggests that the place to look for cost control is not at the premium level but further upstream. Key factors include the composition of the risk pool, unit cost, and utilization. In particular, some of the more promising cost-control measures surround utilization, as a convergence of efficiency and quality has emerged. Certain clinical practices can lead to improved healthcare quality for patients while also reducing waste and inefficiency. 

And in one other interesting (and related) item, a Washington Post op-ed looks at the individual mandate, invoking analysis by Snook and Harris to emphasize the importance of an effective mandate as a cost-control mechanism.

Taking a macro view of microinsurance

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?

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The cost trend glide path

Prof.  Uwe Reinhardt fields a reader question about healthcare costs in a New York Times blog entry today, with help from the Milliman Medical Index. Quoting Prof. Reinhardt:

Consider a family whose breadwinner(s) earn a gross wage of $60,000. By “gross wage” I mean wages that the employer books as labor expense — in accounting parlance, the total debits the employer makes to the payroll-expense account for the employee. It includes the employee’s pay before deducting any contributions that employees make toward their fringe benefits — e.g. health insurance — and any taxes they owe. It also includes the full cost of employer-paid fringe benefits and contributions to Social Security and Medicare.

In the absence of any government subsidies, this “gross wage base” of a family is the donkey that must carry the full burden of the family’s employment-based health insurance, whether formally paid for by the employer or employee.

At an annual growth rate of 3 percent, a wage base of $60,000 now will grow to $80,600 in 10 years. On the other hand, at an annual growth rate of 8 percent, a family’s total spending on health care would grow from $16,700 now to $36,000 in 10 years.

It follows that 10 years hence health care would swallow up 44 percent of this family’s gross wage base in 2019, before any allowance for employer- or employee-paid fringe benefits and taxes. It is the perfect storm into which America’s lower middle class now is being pushed, if the leaders of America’s health system continue to manage that system in their customary style, totally in abstraction from the fiscal agony their expensive managerial and practice style visits on the rest of the country.

Read Prof. Reinhardt’s blog entry

The risk to Baby Boomers that no one is thinking about

Baby Boomers already have plenty to think about. Recent research into Hepatitis C adds a few significant concerns to the list:

  • Two out of three cases of chronic hepatitis C virus (HCV) are among Baby Boomers
  • Only 22% of those infected with HCV are diagnosed
  • Long-term consequences of HCV include cirrhosis, liver cancer, and liver failure


The financial implications of these dynamics could become significant: the cost of treating advanced liver disease in HCV patients could reach $85 billion annually in the next two decades, according to the study. As many people focus attention on how to reduce the cost of healthcare, lurking risks like these demonstrate the difficulty in solving the healthcare affordability challenge.