It’s not as if the rising costs of health coverage went away, but for a few years the increases mitigated somewhat.
That’s changed of late as cost increases for health insurance exceed the pace of recent years, driven in large part by rapidly rising prices for prescription drugs, according to the participants in a recent roundtable MiBiz hosted on health benefits and insurance.
Participating in the roundtable were:
- Laura Appel, senior vice president for strategic initiatives for the Michigan Health & Hospital Association, the organization that sponsored the roundtable discussion
- Mary Bauman, an attorney specializing in issues related to health benefits at Miller, Johnson, Snell & Cummiskey PLC in Grand Rapids
- Jeff Connolly, senior vice president for group health and West Michigan president at Blue Cross Blue Shield of Michigan
- Bob Hughes, the principal of Advantage Benefits Group Inc. in Grand Rapids
- Marti Lolli, senior vice president at Priority Health who oversees the individual and employer group markets.
Here are some highlights of what they had to say.
From each of your perspectives, how do you see the state of the industry right now for health benefits and insurance?
Hughes: I would say we’re getting back to a little bit of the old struggle. We had health care reform, which changed the rules and added additional compliance. There was this period of two or three years of trying to adjust and trying and predict how everything was going to come out, and how companies were going to react, and how it would affect the payers and the consumer.
Now, I would say, it’s getting back to the cost issue because health care reform didn’t do anything to address cost. You’re starting to see that even at a 6-percent trend, you’re double the normal Consumer Price Index and the impact that has on families because they are typically paying a quarter of the premium and the employers are paying three-quarters of it.
Bauman: Being six years out since the enactment of the Affordable Care Act, there is a realization that employer group health coverage is not going away. In all of these past six years, I have not had a single client drop health benefits. Now we’re kind of shifting back to the big picture of, ‘OK, we’ve decided we’re going to dig in and keep our group health plan. What does that mean going forward?’ Having said that, there is some traction with the smaller employer under 50 (employees) that, I think, is re-examining whether to be in the health insurance space.
Appel: I would agree almost word for word with what Bob said about we went through a couple of years of a lot of anxiety around the whole regulatory scheme and counting employees and their hours and all of that. But it all kind of comes back to benefits are expensive and we’re really not getting at the cost. Sometimes the insurers are looking at providers and saying, ‘Are you getting that? We’re really not getting at the cost.’ I think providers feel a lot of pressure on costs and perhaps that’s a place where we’re not having a good enough conversation.
Lolli: We spend most of our time and energy and strategic thinking around how to continue to make health care affordable. It is a huge challenge for employers. We had a couple milestones this year. The average family premium hit $25,000. That’s huge. Our second milestone is we are spending more on pharmacy costs than we are spending on hospital costs for the first time. So there’s a huge transition, and our biggest increase to trend in the increase in health care costs is pharmacy unit price. It’s not utilization.
Connolly: The ACA was really a three-legged stool and one of those legs was the individual marketplace. We have seen a number of large carriers leave markets. The losses that they have been experiencing are in the billions of dollars. In Michigan, where we obviously have a large piece of the market, we started from a little different basis, given who we were and what the Michigan market represented. But even we’re starting to see a fairly significant shift in higher risk and it’s really driven from the reinsurance starting to phase out. (W)e still have not seen the younger population begin to enroll, and that was a big assumption in the underwriting. Obviously, you want the healthy risk to balance those that need to use the system more.
We do envision the individual marketplace is going to continue to erode and that’s going to have a domino effect obviously because that was a huge piece of the funding mechanism that the federal government anticipated.
Do you see people trying to game the system at all?
Connolly: We see a fair number of individuals enrolling, paying a month of two of premiums, getting the hip surgery or getting a significant event done, and that’s $30,000 or $40,000 or $50,000, and then they drop the coverage.
Hughes: If you look at all of the new people that have signed up for Medicare or the exchanges, their drug use — and I don’t know the exact figure — is substantially higher than a first-time enrollee. So they’re jumping on these plans, using the expensive drugs, and then dropping it. That’s because the system is set up to be gamed. The premiums are lower than the penalty and enforcement has been lax. … The pharmas are able to get away with what they’re doing, and individuals are able to game the system, and that’s what’s going to drive more carriers out because they’re losing on the people that are having much higher claims than a typical first-time enrollee.
Give us a better sense of what you’re seeing on drug pricing.
Lolli: The prices in pharmacy and the new meds that are coming out, we’re seeing eight times increase in generics in the course of one year — unprecedented increases …. and even existing pharmacy costs are out of control. You just don’t see that as much on the provider side, although there is a trend and there is cost, because some of it is regulated by Medicare. Medicare influences and sets the fee schedule, and then the commercial world follows. We don’t have that equation in pharmacy, so it’s absolutely unchecked and out of control.
Appel: One of the things that hospitals are seeing is not only double-digit increases in the cost of drugs, but the double-digit increases happen twice a year now. So it seems to be a way that they can raise prices so you do it 15 percent for six months and then you do it 10 percent for the other six months, so it doesn’t look like a 25-percent increase. You might say, ‘Well, they’re these super-duper drugs and they’re going to be life-saving and wonderful …’
Lolli: Or they’re advertised by professional athletes on television.
Appel: These are drugs that have been used for 27 years and are just standard drugs for the course of doing business in a hospital. There is really nothing super-special about these drugs. And this is something that is very concerning to people who are running health care facilities because there’s nobody that is going to say to themselves, ‘Yeah. You’re right. That’s terrible. Let’s in the mid-term of your contract raise your rates to absorb this remarkable price increase that you’ve experienced.’
Connolly: Five or six years ago, specialty drugs out of the total pharmacy (spending by Blue Cross) was 5 to 10 percent. It’s upwards of 30 to 35 percent today and over the next three to five years, it’s anticipated to be close to 70 percent. That’s absent any new regulation or regulatory environment that could mitigate that. That’s the most significant trend line that we see.
Bauman: I get self-funded employers asking me — and probably Hep C is the poster child — ‘Gee, can I exclude some of those specialty drugs?’ And the problem is under the Americans with Disabilities Act, that particular drug just treats Hep C, and then we may have an ADA problem on our hands. We may have a way to modify that and some of these drugs are not the only treatment for Hep C, and certainly a participant can be required to exhaust some of those other treatments first. But there’s no question that if you go to a doctor and you’re told this is the miracle drug, you’re not going to rest until you get coverage for that drug.
Hughes: When you tie it all together, this specialty drug tsunami that’s been talked about for two or three years is here now. We’re experiencing it. You sit down with an employer for an annual review and you look at their first Hepatitis C claim and they’re a thousand dollars a day for 83 days and it hits them, and you’re trying to explain why this is happening. So, OK, maybe we boost the copay on the drug to a percentage up to a hundred bucks. But if that person who needs that drug doesn’t get it, now you’re looking at a $250,000 liver transplant and you’ve gone backwards. So the drug companies have figured out the spots where they have the exclusive drugs and where the treatment is life-changing and they’ve priced it in a spot where they’re going to get as much as they can, and there is not a better alternative. It’s the best of those options for the employers that are paying the bill.
Connolly: One of the things that we’ve seen is that you can increase the copay, but the drug companies are coming up with their coupons which mitigate the copay.
Lolli: And the employee hits the out-of-pocket maximum anyway, so your engagement goes away quickly.
Appel: There is a national coalition on drug pricing that includes the Blues and the American Hospital Association and we’re all working on this together because there is no governor on this spinning wheel like there is in some of the other places where you see pricing being held back. Again, you might say, ‘This is Hepatitis C. That’s a death sentence and we can cure people. It’s a public health risk, it spreads, and we can fix it and make it go away.’ We’re talking about things that go in IVs every day in a hospital, and have for years. Why is that going up by 27 percent this year and 13 percent next year? It just doesn’t make sense.
PUSH FOR CONSUMERISM
We’ve heard statistics cited that 1 percent of the people contribute to 20 percent of the costs of health care — or that just 5 percent of the people are 50 percent of the costs. What’s one thing each of you would like to see occur to better control that situation?
Connolly: This is a blanket statement, but flexibility and more incentives for the employee or for the member to be an advocate for their own health. We’re restricted in the fully-insured world from incentivizing the 5 percent or the 10 percent. We know who they are, but the engagement is woefully inadequate, in my opinion, because of the inability to really incentivize them. You can say it’s the carrot or the stick, but to incentivize them to change their behavior and interact with them, it’s really tough.
Lolli: I think it’s a combination of the provider payment models being fixed and the consumer being engaged, and they have to work together. But if you think about the pharmacy conundrum, there is a person who prescribes (the drugs), right? So if you have an arrangement where their motivation is aligned with health outcomes and overall total costs, that’s a step we can take in the right direction.
We’re looking at bundled payments for certain services where there is a set rate for services from tip to tail, from evaluation through care, through rehab. That would motivate the providers to consider alternatives, it would help them think through the pharmacy scripts that are being prescribed, and it would help them be motivated to engage that patient in the process.
Hughes: We’re always looking for the shiny new toy to deal with this problem. I still think we’re not doing a good enough job with some of the stuff we’ve been talking about for several years now. It kind of gets back to that old theory of we all spend other people’s money differently than they spend their own. We’ve insulated the great American consumer, which in every market drives the price down but in health care.
Appel: In the short term, if I could wave the magic wand, it would be to make everybody much smarter about health care. Not just their health, but their care. We have this great opportunity with choosing wisely. The actual people who are specialists in this area have identified five, 10, even 15 things. (These are) physicians who have said, ‘If somebody tells you that you need this, think twice. This is not usually indicated as being particularly effective. Ask a bunch of people about whether you need this.’ It’s not insurance companies saying this. It’s a bunch of physicians who do this work.
Why is it important for consumers to question their care?
Appel: Just to be much better about what you are deciding to use because there is not a lot of great decision-making going on out there, and a lot of people are saying providers are responsible for this and they have to be better stewards of your care and all of that. But we’re not real smart about what we’re getting. To have everybody be 100 percent smarter would be great.
Hughes: I was at an employee meeting and the vast majority of people in that room had no idea that there’s a price variance for services in town. High school football is starting. (For) every kid that walks out of practice (and says), “Mom, I sprained my ankle. I have to go get an MRI,” how many of them do you think go shop for that?
Lolli: Or need an MRI even.
Hughes: The percentage is less than 5 percent. We still need to educate people on the differences and now the tools are out there to make them aware of that. … Getting back to the consumer, it doesn’t matter how low the prices are, how low the administrative is when the typical American is 24 pounds greater than they were in 1966. The knee replacements that are coming, the hip replacements that are coming, the medications that are being taken for hypertension and diabetes, and the diabetes epidemic that continues to grow — until we get that under control, which is a much bigger issue, the claims costs are going to keep going up. The health care industry is going to continue to feast on it.
We’re seeing the movement to a value-based model in health care. How far is the industry down that road?
Connolly: In Michigan, about 87 percent of our spend (on medical claims) is value-based today. So we’re way ahead of the curve. Nationally, I think that is about 20 to 25 percent. It’s getting better, but there is a long way to go.
How far are we from a truly value-based system?
Connolly: We’re undoing decades of a fee-for-service environment. We’ve been at this for six years now and are kind of at a version 2.0. It will continue to evolve and it evolves based on how the ACA defines medical homes and defines population health and organized systems of care. They all intertwine in the value-based environment. I would say we’ve made pretty good progress, but each hospital is also unique. You can’t spread the peanut butter evenly across the state because health care will always be local. In some areas, it’s been more of a struggle than others, but I think we’re making headway.
The feedback I get from a lot of primary care and a lot of hospital executives is that they feel they are more engaged with their patients and with the members. They’re getting closer. The big question I get is that they wish on the employer side and the benefit plan design that there would be more incentive on the member and the employee to engage.
Bauman: If there’s a way to move the value-based design to the participant somehow and integrate that into the plan design, that’s going to close the circle and give it hope to work. But right now, value-based reimbursement doesn’t mean a whole lot to an employer self-funding a group health plan. They don’t understand it, they don’t see how it benefits them other than they’re told it’s going to help contain health care costs.
FUTURE OF ACA
We’re going to have a new Congress and president in January. Should they repeal the Affordable Care Act or change it?
Bauman: It’s here to stay and will not be repealed. I do believe that the Cadillac Tax will either be repealed or significantly weakened.
Hughes: And where will those dollars be replaced? I totally agree with Mary, because they don’t want to do the hard stuff, and that is funding. It’s hard to get it done because there are a lot of people up against it now and the money used to fund all that great stuff is not going to be there. Then what? The system’s already struggling with the money part of it.
Appel: Definitely improve it. Part of the deal for paying for the Affordable Care Act was hospitals nationally agreed to give up $155 billion of Medicare reimbursement. Michigan hospitals’ bogey for that in the first 10 years was $7 billion. We had to start giving that back in April 2010. Four years before the first person got a coverage expansion, we started getting a reduction in Medicare reimbursements. We need the expansion to help backfill that hole.
Lolli: It has to be adjusted. A real easy way to do that is to make the individual market sustainable long term.
Connolly: It’s the single largest piece of legislation that passed since Medicare. Like any legislation, it needs to be modified. It’s not going away. To me, modify means that they have to make some courageous decisions about how to make this economically sustainable.
What advice would you offer to the next president and Congress to make the law better?
Hughes: You have to refine the gaming of the system, the penalties have to be changed, and you have to change to have negotiations with the drug companies.
Connolly: Somehow they need to figure out a way to incentivize and draw in the younger population. General insurance applies. You need those who are going to use it less to fund those who are going to use it more. Until that happens and if you kick the can down the road, I don’t know if it’s five years or 10 years, this is not economically sustainable.
Appel: They’ve thrown an awful lot at providers, physicians in particular. We’re throwing out new payment models and new incentives and new whatevers about every six minutes. I would freeze everything they have and try to learn something about some of the stuff they’ve tried before we try the next thing. It’s just been overwhelming for physicians. I saw a graphic the other day of this ridiculous number of quality measures that we have that people are recording in every different way. It’s making it so we’re measuring everything and don’t seem to be improving much.
What would help improve those quality measures?
Appel: Has everybody heard of the Van Halen brown M&M thing? They put that (they wanted the brown M&Ms removed) in the contract (for a concert venue) because it was very important to them that everybody understood all of the details of their contract for the safety of their show and the things that they needed to do. If you didn’t get through to the part where you took the brown M&Ms out of the bowl, then they knew you hadn’t read the contract and done what you needed to do. That was their quality measure. They didn’t have to go through and test you on every single provision of their contract. They looked at the bowl and if the brown M&Ms where in there, it was like, ‘We have a problem.’ We need a brown M&M piece for the quality measures of our health care system where we can have some set of parsimonious measures that say, ‘If we know these 12 things are lined up, then we know this is a good place to get health care.’
Hughes: David Lee Roth on health care. Right here, right now. Spectacular. I never thought we’d get there.
Bauman: Employers are completely overwhelmed by the Affordable Care Act. The reporting that they’ve had to do has been the most onerous, complicated thing that I’ve ever experienced.
It’s a nightmare and it’s a nightmare that they never get out of. This is the ‘Hotel California’ for employers. It’s terrible. And unless they’re really large, they don’t know what they’re doing.
Hughes: The cost and additional taxes and fees on health care reform are huge, but the compliance? Basically the U.S. government has turned employers into small satellites of the U.S. Census Bureau in terms of what they’ve had to report. Without somebody to help them make sense of it, it makes their head spin. It is a big problem. We’re not making businesses any more efficient and able to compete globally with what’s been thrown at them.
Back to the original question, what would you advise the next crop of leaders to do to improve the ACA?
Lolli: Number one, ease up on employers. They’re all trying to do the right thing by offering benefits and there are a lot of employers who haven’t changed course and haven’t dropped out of that. I just don’t think it was designed well to support employers.
Connolly: The new president needs to foster an environment to reach out to the true stakeholders that are affected by the ACA in modifying that language. Let’s not have a few people making a decision for many. Let’s engage.
Do you see any positive health insurance reforms being considered currently?
Bauman: There has been a bill introduced in Congress that the Ways and Means Committee recently passed that would enable small employers under 50 (employees) to basically pre-fund on a pre-tax basis the cost of coverage for an individual to go to the exchange, which I think a lot of small employers would like. ‘I can give you pre-tax dollars, you go to the exchange, I wipe my hands of health insurance but I’m still competitive to attract and retain workers.’ I don’t think that bill is going anywhere, but it’s an idea that’s being put out there. Particularly for small employers to give them some flexibility to reimburse individual coverage, whether on the exchange or the private market, that has some economic appeal. So that would be one area where maybe I see some shift, but if you’re a large employer, to keep employees and to attract new employees, you have to have a health plan.
So what’s lurking just over the horizon that employers need to know?
Hughes: Part of that will be answered in November. I’m not going to get into the political preferences, but if certain people get elected, I think you’re going to see more mandates, more taxes and fees, and more expansion of health care reform, potentially, and not addressing the cost factor.
Bauman: Coming back full circle to what I said at the onset, cost. You have to address cost. Cost is going to continue to outpace inflation.
Lolli: From an employer perspective, they’re going to have to get more engaged than they’ve ever been. I talk to some employers who don’t want to play that role. They just want to run their business and they don’t want to have to think about, ‘How do I impact my employees?’ I would just tell employers that their engagement probably is going to move up.
Connolly: Employers need to be an advocate for their employees to get out and vote. Health care will not become less regulated. So to the extent where you want to see change and to effect consumerism and opportunity, it’s who the majority puts in office.