Tag Archives: David Stoddard

Controlling rising medical costs

The 2017 Milliman Medical Index noted that medical expenditures (inpatient, outpatient, and professional) made up about 80% of the total cost of healthcare for a family of four, and that nationally the cost increases from 2016 to 2017 were about 4%. However, many employer plans have experienced much higher cost increases, especially in certain areas of the country. In 2016, for the first time, independent physicians made up less than half of the practicing physicians in the United States, according to an American Medical Association (AMA) study. Physicians who work with hospitals charge a facility price at their offices, which could result in increases in costs and significant discrepancies in prices for the same services. Additionally, hospitals have continued to merge with each other, and while these mergers offer the potential for lower costs by increasing efficiencies, a 2016 study by Northwestern University, Harvard University, and Columbia University found that prices at merging hospitals actually increased 7% to 10% if the hospitals that merged were within the same state. Given these factors, along with general price inflation and increased utilization, plan sponsors should consider ways to mitigate costs using any or all of the strategies below.

Price transparency and quality

Providing price transparency, coupled with information on quality of care, is a way to promote consumerism within a health plan so that both the plan sponsor and the members who are receiving benefits can save costs. There are various vendors that offer plan sponsors and members the ability to “shop” for surgical procedures and doctors based on price and quality metrics. Cost and quality advantages can result from steering members to specialized “Centers of Excellence” for given procedures. Members can be incentivized to choose the lower-cost facilities or physicians (without sacrificing quality) through a reduction or elimination of member cost sharing, or even with rebates (that is, the plan will “pay” the member to choose a lower-cost alternative).

Narrow networks and carve-outs

Another way to steer members toward cost-effective facilities is through the use of a narrow network. Most health plans offer a narrow network option (for both insured and self-insured plans), which limits member access to smaller pools of doctors and hospitals within their larger networks. The narrow (or preferred) network promises better discounts on claims than regular in-network claims, and the plan sponsor can encourage members to use these facilities by reducing member cost sharing within the narrow network. The plan is designed to have an additional tier of cost sharing, with the preferred network having the lowest member cost sharing. Furthermore, plan sponsors with direct contracts can consider carving out a particular facility from in-network if the facility is not a cost-effective, high-quality option (and there are other options available to the members).

Alternative payment strategies

In addition to steering members through plan design and incentives, certain plan sponsors can look to alternative payment strategies to further control costs while ensuring that quality of service does not suffer. For example, a bundled payment can be used in place of fee-for-service for certain procedures with predictable episodes of care (e.g., total joint replacement). The plan sponsor pays the same amount regardless of days spent in the hospital or on rehab visits, which can help to reduce unnecessary services. A plan sponsor can also enter into a shared savings arrangement with a group of providers, such as an accountable care organization (ACO). An ACO is a group of doctors and hospitals whose focus is on providing coordinated care to certain members within a plan. Ideally, the main goal of both the ACO and the plan is to keep costs low without sacrificing quality. If successful, both share in the savings achieved. Plans with a large enough membership can enter into these alternative payment strategies on their own; for smaller plans, they may be able to contract through their insurance carrier or third-party administrator.

This article first appeared on LaborPress.org.

Allocating health plan costs in the coming year

As 2018 gets underway, it is important for employers and health plans to consider what healthcare costs could lie ahead in the new year. Keeping the following issues in mind while working toward potential solutions will be helpful in managing costs.

Opioid abuse
According to the U.S. Department of Health and Human Services, the number of opioids prescribed since 1999 has nearly quadrupled and the increase in prescriptions has resulted in an increase in opioid abuse. As a result, health plans are beginning to take steps to curb that abuse. Plans can look to cover or encourage the use of painkillers that are less likely to be abused, such as lower-dose opioids or those that are not easily crushed or otherwise changed. As an example, a number of insurers have indicated that they will no longer cover OxyContin beginning in 2018. In addition, plans may want to consider contracting with substance abuse counselors if their populations have addiction problems or the potential for them. Milliman has analyzed a large commercially insured database and looked at variables such as demographics, mental health, physical health, etc., which can be used for predictive purposes in order to determine how susceptible a population may be to opioid abuse.

Hospital consolidation
In 2016, for the first time ever, less than half of physicians practicing in the United States were independent, according an American Medical Association study. Physicians who work with hospitals are able to charge a facility price at a physician’s office, which has resulted in an increase in hospital costs and significant discrepancies in price for the same services. Therefore, price transparency, coupled with quality information, becomes imperative for the consumer (the employer that provides health benefits and the employees who receive those benefits). There are various vendors who can offer to the consumer the ability to “shop” for surgical procedures and/or physicians based on both price and quality metrics. Additionally, plans can offer narrow network designs, which can incentivize high quality and low price (by “carving out” expensive hospitals that don’t offer higher-quality services).

Uncertainty of the ACA
The Patient Protection and Affordable Care Act (ACA) remains the law of the land, but there continues to be uncertainty around the legislation. The uncertainty is mostly in the individual market, but large losses to insurers and increasing premiums for consumers would have an impact on the group market as well, as healthcare for individuals and groups are intertwined. With signing of the recent tax bill into law, the individual mandate will be repealed in 2018, which will likely result in healthier individuals leaving the market—4 million in 2018 and 13 million by 2027, according to the Congressional Budget Office (CBO)—and premiums increasing for those remaining by an average of more than 10%, according to the CBO. Congress is also continuing to consider ways to repeal the employer mandate, which would have a more direct impact on the group market.

Alternative payment strategies
Plans will also continue the trend of considering alternative payment strategies. The ACA introduced the idea of accountable care organizations (ACOs), which incentivize quality care through shared savings based on trend guarantees. ACOs are usually facilities or professional organizations, but there are also prescription drug shared savings programs that offer trend guarantees, and we expect them to gain some popularity in the coming year. Prescription drug shared savings programs are a unique way to achieve plan savings, in that they align the incentives of the pharmacy benefit manager (PBM) and the plan, as both are focused on controlling costs. In a typical prescription drug contract arrangement, the PBM can offer pricing discount and rebate guarantees without necessarily needing to be concerned with the average wholesale price of the drugs.

The above issues are just a few of what could potentially be on the horizon for 2018 and beyond. We will continue to monitor these issues and others as we begin the new year.

Questions and answers: Are you managing retiree health needs cost-effectively?

Because retirees are often the highest users of healthcare, simple changes in plan design or delivery can go a long way in reducing costs for employers. For example, we had a client that was looking to deliver benefits to its Medicare retirees more efficiently. By moving the entire population to a Medicare Advantage plan, our client not only reduced its retiree medical costs by 10% in the first year due to a reduced premium, but it also was able to provide a richer benefit design.

In reviewing your own retiree medical benefit design strategy, here are a few questions you should ask.

Is my plan coordinating with Medicare in the most efficient way?
If you have an active medical plan that also covers Medicare-eligible retirees, carefully review the coordination of benefits method. When Medicare is primary, the plan commonly coordinates under one of these approaches: carve-out, maintenance of benefits, or coordination of benefits. Because costs to the plan and retiree vary under each of these approaches it is a good idea to examine each one; there may be a way to save money for the plan or the retiree.

Am I taking full advantage of prescription drug subsidies?
Given the high use of prescription drugs in the retiree population, this area may be your best opportunity to reduce costs. Are you taking full advantage of the prescription drug subsidies from the Centers for Medicare and Medicaid Services (CMS)? Consider delivering Medicare prescription drug coverage through an employer group waiver plan or with retiree drug subsidy coverage.

Am I leveraging the experts in administration?
Some companies have moved Medicare-eligible retirees to a Medicare Advantage Prescription Drug Plan (MAPDP), which offers additional benefits beyond Part A and Part B coverage. The federal government pays private insurance companies to offer these plans. Because MAPDPs are fully insured, the insurer would take over the entire administration of the Medicare plan and is well-versed in managing this population, resulting in possible savings and increased efficiencies in plan administration.

Does a pre-Medicare plan make sense?
If the size of your pre-Medicare retiree population is large enough, the most cost-effective solution could be to offer a pre-Medicare retiree-only plan. Retiree populations are different and a pre-Medicare retiree-only plan can be designed with those needs in mind, in a way that efficiently maximizes benefits. For example, retirees are generally on fixed incomes, so a plan designed with set deductibles, copayments, and out-of-pocket maximums is more desirable.

Am I using all the utilization management tools available?
Utilization management programs can be helpful in reducing the cost of covering pre-Medicare retirees. For example, chronic diseases are likely more prevalent in your pre-Medicare retirees than your actives. Helping retirees manage these conditions can benefit not just your covered population but also your bottom line.

Do any of the plan changes that I am making have unintended consequences for my retiree population?
Seemingly small changes can have significant financial impacts for your organization when you look closely at how it affects your retirees—even though retirees likely make up a smaller portion of your total population. For example, for plans that receive the retiree drug subsidy, changes that increase cost sharing or contributions for prescription drugs for retirees may cause the plan to lose eligibility for the subsidy. Instead of cost-shifting, it may make more sense to focus on managing plan costs. You will have the added advantage of possibly lowering retiree medical accounting liabilities—e.g., Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 715-60 liability—by potentially reducing projected plan costs, long-term trend, and delaying the impact of the 40% excise tax on high-cost health plans.

When it comes to retiree medical coverage, it is important to ask the right questions. Given the increasing cost of healthcare and retirees’ high utilization, you may be able to make changes that positively affect your retirees and lower the cost of covering them.

Effectively communicating plan design

As multiemployer plans focus on delivering health benefits to their members in a cost-effective and efficient way, a key component is clearly and concisely communicating the thought process behind plan design and plan design changes.

Given the limited amount of money available to spend on benefits, multiemployer plans must avoid unnecessary services and reduce waste in an effort to contain costs. As a result, increased member cost sharing, restrictions on certain services, and more tightly managed benefits are often implemented to manage the plans’ spending.

However, despite these changes mainly being made for the “greater good of the plan,” they will be interpreted in different ways (generally negatively) by the membership. For example, a plan with high emergency room use (for nonemergencies) may increase the emergency room copayment (and perhaps lower the primary care physician copayment as an offset). For a member who legitimately needs to use the emergency room, an increased copayment will feel like a punishment. But if the change is communicated effectively, along with the reason(s) for the change, members may be more likely to be amenable to the change.

Effective communication to members includes delivering the message via email, pamphlets, mailings, bulletin board postings, or meetings—any mode of communication that reaches the membership. The message should be concise—the fewer the words, the more likely members will listen—and it should be repeated often. For example, if the plan wishes to emphasize preventive care to avoid higher-cost services in the future, the headline could be “The Importance of Preventive Services,” and members should have multiple opportunities—at least once every three to six months—to receive the message until the plan is sure that the message has been heard. If the membership understands the plan’s goals in administering benefits, the plan is more likely to achieve or even surpass these goals.

This article first appeared on LaborPress.org.

Cost containment programs: Win-win healthcare for employers and employees

The 2015 Kaiser Employer Health Benefits Survey found that a majority of employers said controlling the rising cost of healthcare and other employee benefits is one of their most important concerns. Medical trend has consistently outpaced inflation, which is expected to result in an unsustainable situation that will require across-the-board changes in the industry. The implementation of the excise tax on high-cost health plans, effective for plan years after 2017, has created even more incentive for managing costs, because any healthcare costs above the excise tax thresholds will be taxed at 40%. In the past, one of the ways an employer could control costs was by increasing member cost-sharing through deductibles, copayments, and coinsurance. However, because an employer needs to maintain at least minimum value (60% actuarial value, approximately equivalent to a bronze plan) in order to avoid paying penalties, increasing member cost-sharing is, at best, a temporary solution, as the excise tax thresholds only increase by inflation. Additionally, for a typical gold plan (approximately 80% actuarial value), the impact of the excise tax will be felt even sooner. As a result, managing healthcare costs beyond cost-shifting will become the main focus of employer-sponsored insurance.

Given the greater emphasis on improving the quality of care in employer-sponsored insurance, employers and their consultants need to work together to implement cost containment programs into their medical and prescription drug plans. A cost containment program can be defined as any action by the plan, excluding increasing broad-based member cost-sharing that results in savings on total plan costs. Cost containment programs encourage the utilization of necessary services and avoidance of unnecessary services, and generally fall into one of the following categories:

• Prescription drug management
• Medical management
• Provider programs

Employers can utilize these programs in order to attempt to control plan costs and provide members with the most cost-efficient services that promote wellness and the improvement of overall health.

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