If you are a CFO or HR professional reading this article, you are probably familiar with the typical renewal discussion with your employee benefits broker. It goes something like this:
Broker: “Well, the insurance company initially wanted a 12% increase.”
You: “How can that be? We have performed fairly well this year.”
Broker: “I agree, so we went back to the insurance company and negotiated the increase down to 5%. That is two percentage points below the industry average, so I suggest we lock it in and wrap up the renewal.”
This conversation happens all too often. Cost increases are the norm in the health insurance industry, and employers are satisfied with merely beating industry averages (while brokers are receiving pay raises because of commissions on the higher premiums).
By accepting these terms, employers may be overlooking a big problem.
Let’s pretend the data below is your three-year insurance summary. Take a look and determine if you have had a successful run.
Enrolled employees: 300
Total health plan costs: $3.5 million
Average annual cost increase: 2.5%
At first glance, it would appear that you had a pretty successful stint. A 2.5% average over the past three years is definitely beating industry averages. So what is the problem?
A closer look shows you are spending more than $10,000 per-employee-per-year (PEPY). Was this really a successful three-year run? No. You should be ticked off with this performance. because YOU WERE PAYING TOO MUCH TO BEGIN WITH.
For comparison, the average cost of providing a group medical plan in the state of Colorado is $8,160 PEPY. The average cost of providing a group medical plan in the U.S. is $9,504 PEPY.. By spending more than $10,000 PEPY, you are spending more than the average U.S. employer and significantly more than the average employer in Colorado.
Now, plan costs can differ based on industry and location, but the message here is clear. Do not be satisfied with merely beating industry averages. It is too easy to be satisfied when you are only comparing your current costs with your previous costs. If you are an employer that is already spending too much, it is time to challenge your broker and the status quo. Dig in and find out why you are paying too much, and begin implementing the appropriate cost-containment strategies that will help you reverse the cost increases (albeit small) that have affected your plan for far too long.
Did you ever hear the joke where the boss says floggings will continue until morale improves? In healthcare, flogging the data until results improve or the data confesses is not uncommon. Too bad.
Over the course of my career, I’ve worked with companies with more than a hundred thousand covered lives, the claim costs of which could swing widely from year to year, all because of a few extra transplants, big neonatal ICU cases, ventricular assist cases, etc.
Here are just a few of the single case claims I’ve observed in recent years:
$3.5 million one cancer case
$6 million one neonatal intensive care
$8 million one hemophilia case
$1.4 million one organ transplant
$1 million one ventricular assist device
These big numbers aren’t a complaint. After all, health insurance should be about huge, unbudgetable health events. But they raise an important point about the lumpiness of costs and about claims that are made about reducing health expenditures.
All health insurance plans must cover one organ transplant every 10,000 or so life years, which will cost about $1 million over six years. So, a plan with 1,000 covered lives will have such an expense every 10 years, on average. Of course, the company may have none for 15 years and have two in the 16th year. The same timing applies to $500,000-plus ventricular assist device surgeries.
Looking at claims data for small groups is perilous—and is sometimes so for large groups, too. Because of the high cost and relative infrequency of so-called “shock” claims (those of more than $250,000), you need about 100,000 life years for the claims data to be even approximately 75% credible. When a group with 5,000 lives says it did something that cut the claims costs, you can’t really know if the change made a significant difference for a couple of decades.
Here’s an example. A small-ish group with about 3,000 covered lives asked me to help calculate how much its wellness plan was saving. It had all its employees listed in three tiers: active wellness participants, moderate participants and non-participants. I warned the company it didn’t have enough data to be credible, but it proceeded anyway. It expected active users would have the lowest claim costs—and so on. When the data was reviewed, there was perfect reverse correlation. Active wellness users had the highest claim costs, moderate users had the next highest costs and non-participants had the lowest. In the final report—which I had nothing to do with preparing and from which I had recused myself—the company subtracted big claims by the active and moderate users to get the results it wanted. In short, the company flogged the data until it confessed. Alas.
One large company claimed huge reductions in plan costs by adding a wellness program. It turns out, during the period in question, the company also implemented an “early out” incentive. Upon examination, the early-out program resulted in a big reduction in the number of older employees, which more than accounted for the reduction in claims costs.
Here is yet another example. I was at a conference a few years ago where a presenter from a small company (about 1,000 covered lives) claimed to have kept its health costs flat for five years through wellness initiatives. While the presenter got a big ovation, his numbers just didn’t add up. I asked him a few questions after his speech about the other changes he made during that period. He said the company lowered its “stop loss” limit from $100,000 to $50,000 a few years earlier. Then he admitted to excluding his stop-loss premium costs, which were skyrocketing, from his presentation. With a bit of mental arithmetic, I added the costs back in, which revealed his company’s total health costs were going up at the same rate as everyone else’s, perhaps even a little faster. Hmmm. I don’t think he deliberately misled the audience; he just didn’t know better.
When you hear boasts of big short-term impacts of wellness programs, beware of confirmation bias.
When a company claims it implemented something that caused its health plan costs to drop 15% or so, ask a few questions:
Did the company adjust for plan design changes—such as raising deductibles and co-pays—that merely shifted costs to employees?
Did the changes really save claim dollars?
Did the company factor in stop-loss premiums?
How many life years of data did the company observe?
Did the company exclude large or “shock” claims? (This isn’t uncommon, especially among wellness vendors.)
Did the company experience any big changes in demographics, such as through implementation of an early retirement program or layoffs that, particularly, had a large impact on older workers?
When I’ve asked those kinds of questions of a small company, I’ve almost never seen a big claim of cost reductions hold up under scrutiny. And that goes for some big companies, too.
Today, flogging the data to get the desired results is all too common. That’s no surprise. Academics and big pharma kept getting caught doing the same thing.
The individual health insurance marketplace is endangered, and policymakers need to start thinking about a fix right now, before we pass the point of no return.
Health plans aren’t officially withdrawing from the individual- and family-market segment, but actual formal withdrawals are rare. What we are witnessing, however, may be the start of a stampede of virtual exits.
From a carrier perspective, the individual and family health insurance market has never been easy. This market is far more susceptible to adverse selection than the group coverage market. The Affordable Care Act’s (ACA) guarantee of coverage only makes adverse selection more likely, although, to be fair, the individual mandate mitigates this risk to some extent. Then again, the penalty enforcing the individual mandate is simply inadequate to have the desired effect.
Then add in the higher costs of administering individual policies relative to group coverage and the greater volatility of the individual insured pool. Stability is a challenge, as people move in and out of the individual market as they find or lose jobs with employer-provided coverage. In short, competing in the individual market is not for the faint of heart, which is why many more carriers offer group coverage than individual policies. The carriers in the individual market tend to be very good ; they have to be to survive.
In 2014, when most of the ACA’s provisions took effect, carriers in the individual market suddenly found their expertise less helpful. The changes were so substantial that experience could give limited guidance. There were simply too many unanswered questions. How would guaranteed issue affect the risk profile of consumers buying their own coverage? Would the individual mandate be effective? How would competitors price their products? Would physicians and providers raise prices in light of increased demand for services? The list goes on.
Actuaries are great at forecasting results when given large amounts of data concerning long-term trends. Enter a horde of unknowns, however, and their science rapidly veers toward mere educated guesses. The drafters of the ACA anticipated this situation and established three critical mechanisms to help carriers get through the transition: the risk adjustment, reinsurance and risk corridor programs.
Risk corridors are especially important in this context as they limit carriers’ losses—and gains. Carriers experiencing claims less than 97% of a specified target pay into a fund administered by the Department of Health and Human Services; health plans with claims greater than 103% of this specific target receive refunds. Think of risk corridors as market-wide shock absorbers, helping carriers make it down an unknown, bumpy road without shaking themselves apart.
One step several carriers are considering is leaving the health insurance exchanges. Another is exiting the individual market altogether—not formally, but virtually. Formal market withdrawals by health plans are rare. The regulatory burden is heavy, and insurers are usually barred from re-entering the market for a number of years (five in California, for example).
There’s more than one way to leave a market, however. One method carriers sometimes employ is to continue offering policies but to make it hard to buy them. Because so many consumers rely on the expertise of professional agents to find the right health plans, a carrier can prevent sales by making it difficult or unprofitable for agents to do their job. Slash commissions to zero, and agents lose money on each sale.
While I haven’t seen documentation yet, I’m hearing about an increasing number of carriers eliminating agent commissions as well as others removing agent support staff from the field. (Several carriers have eliminated field support in California. If you know of other insurers making a similar move or ending commissions, please respond in the comments section).
So, what can be done? In a presidential election year, there’s not much to be done legislatively. Republicans will want to use an imploding individual market to justify their calls for repealing the ACA altogether. Sen. Bernie Sanders will cite the situation as yet another reason we need “Medicare for all.” Former Secretary of State Hillary Clinton, however, has an incentive to raise the alarm. She wants to build on the ACA. Having it implode just before the November presidential election won’t help her campaign. She needs to get in front of this issue now to demonstrate she understands the issue and concerns, to begin mapping out the solution and to inoculate herself from whatever happens later this year.
Congress should get in front of the situation now, too. Hearings on the implosion of the individual market and discussions on how to deal with it would lay the groundwork for meaningful legislative action in 2017. State regulators must notice the endangered individual market, as well. They have a responsibility to ensure competitive markets. They need to examine the levers at their disposal to find creative approaches to keep existing carriers in the individual market and to attract new ones.
If the individual market is reduced to one or two carriers in a region, no one wins. Competition and choice are consumers’ friends; monopolies are not. And when consumers (also known as voters) lose, so do politicians. Which means smart lawmakers will start addressing this issue now.
The individual health insurance market may be an endangered species, but it’s not extinct … yet. There’s still time to act. There’s just not a lot of it.
Those are the employers’ problems, but the employers’ problems become the employees’ problems when employees are “voluntarily” forced to submit to programs that are likely to harm them. (As the New York Times recently pointed out, there is nothing voluntary about most of these programs.)
Recently, the head of United Healthcare’s (UHC) wellness operations (Optum), Seth Serxner, admitted that Optum’s programs consciously ignore U.S. Preventive Services Task Force (USPSTF) screening guidelines. Rather than apologize, Serxner blamed employers for insisting on overscreening and overdiagnosing their own employees…and (by implication) overpaying for the privilege of doing so. “Our clients make us do it,” were his exact words.
We asked our own clients who use Optum about why they turned down Optum’s generous offer to do more appropriate screenings at a lower price. None of them remember receiving such an offer.
A UHC executive wrote and said we were making the company look bad. I said I would happily revise or even retract statements about the company if the executive could introduce me to just one single Optum customer — one out of their thousands — who recalls insisting on overscreening and overpaying. Never heard back….
United Healthcare isn’t alone in harming employees. It is just the first company to admit doing so. It is also far from the worst offender, as the harms of its overscreening for glucose and cholesterol don’t hold a candle to the ideas listed below, in increasing order of harms:
We would say: “Someone should inform Provant that you are not supposed to drink eight glasses of water a day,” except that we already did, and they didn’t believe us. Obsessive hydration remains one of their core recommendations despite the overwhelming evidence that you should drink when you are thirsty.
The employee who recorded this blood pressure is essentially dead. Cerner’s diagnosis? Blood pressure “higher than what is ideal.” Cerner’s recommendation? “Talk to your healthcare provider.” A real doctor’s recommendation? “Call an ambulance. The guy barely has a pulse.”
This is not a random mistake. This is the front cover of the company’s brochure.
USPSTF screening age recommendations aren’t minimums. They are optimums, the ages at which screening benefits might start to exceed harms, even if they still fall far short of costs. Otherwise, you are taking way too much risk. This is especially true for colonoscopies, one of this program’s favorite screens — complications from the test itself can be very serious.
Your preventive coverage is not supposed to be “greater than healthcare reform guidelines.” That’s like rounding up twice the number of usual suspects. And you aren’t supposed to waive “age restrictions.” That’s like a state waiving minimum “age restrictions” to get a driver’s license.
Both these outfits pitch exactly the opposite of what you are supposed to do in weight control: unhealthy crash dieting. Attaching money to this idea and setting a start date make the plan even worse: along with crash-dieting during these eight weeks, you’re encouraging employees to binge before the initial weigh-in.
In addition to its wellness program that collects employee DNA (partnered, ironically, with a company called Newtopia) and then makes up claims about savings, Aetna owns the distinction of launching the only wellness program whose core drugs are specifically editorialized against in the Journal of the American Medical Association. This would literally be the most harmful wellness program ever, except that the only employees being harmed are (1) obese employees who (2) answer the phone when their employer’s health plan calls them to pitch these two drugs; (3) who have a doctor who would willingly prescribe drugs that almost no other doctors will prescribe, because of their side effect profile; and (4) who don’t Google the drugs. Presumably, this combination is a very low percentage of all employees.
The good news is that the drugs, Belviq and Qsymia, should be off the market in a couple of years because almost no onewants to take them, so the harms of this Aetna program should be self-limited.
Star Wellness offers a full range of USPSTF D-rated screens. “D” is the lowest USPSTF rating and means harms exceed benefits. Star gets extra credit for being the first wellness vendor to sell franchises. All you need is a background in sales or “municipal administration” plus $67,000 and five days of training, and you, too, can poke employees with needles and lie about your outcomes. Is this a great country, or what?
Also, the company’s vaccination clinic features Vitamin B12 shots. We don’t know which is more appalling–routinely giving employees Vitamin B12 shots or thinking Vitamin B12 is a vaccine.
Angioscreen doesn’t have the most USPSTF D-rated screens. In fact, it offers only one screen in total, for carotid artery stenosis. That screen gets a D grade from USPSTF, giving Angioscreen the unique distinction of being the only vendor 100% guaranteed to harm your workforce.
Angioscreen’s other distinction is that the company admits right on its website that this screen is a bad idea. Angioscreen is probably the only non-tobacco company in America to admit you are better off not using its product.
In addition to the usual assortment of D-rated tests, the company offers screens that the USPSTF hasn’t even rated, because it never, ever occurred to the USPSTF that anyone would use these tests for mass screening of patients or employees. Criticizing the USPSTF for not rating these “screens” (CBCsand Chem-20s) would be like criticizing Sanofi-Aventis for not warning against taking Ambien after parking your car on a railroad crossing.
Let’s leave aside the fact that the majority of its other screens are harmful and focus on its screening for H.pylori, the strain of bacteria associated with ulcers.
Visit our full treatment here. In a nutshell, the majority of us harbor H.pylori–without symptoms. It may even be beneficial. The screening test is expensive and notoriously unreliable, and the only way to get rid of H.pylori is with some very powerful antibiotics, a treatment rarely even used on patients with symptoms, because of its inconvenience, ineffectiveness and potential long-term side-effects.
A Modest Proposal
So how should we as a country protect employees from these harms? Our policy recommendation is always the same and very non-intrusive. We aren’t saying wellness vendors shouldn’t be allowed to harm employees. That proposal would be too radical to ever pass Congress. If it did, the Business Roundtable would pressure the White House again, to preserve the hard-earned right to “medicalize” the workplace and show employees who’s boss.
Instead, we recommend merely a disclosure requirement. The harms of screens or (in United Healthcare’s case) screening intervals that don’t earn at least a “B” from USPSTF should be disclosed to employees, and employees should get a chance to “opt out” into something that isn’t harmful (like Quizzify, perhaps?) without suffering financial consequences.
Call us cockeyed optimists, but we don’t think employers should be able to force employees to choose between harming themselves and paying fines.
Employers of all sizes are rushing into healthcare exchanges these days — often after heavy prompting by their consulting firm or broker. Part of the expectation is that employers can cap their future health plan costs while giving active employees more options. Sounds great, doesn’t it?
The problem is the math doesn’t work. In addition, this approach has been tried before and flopped miserably.
The previous iteration of healthcare exchanges was in the early ’90s and was called “cafeteria” plans. The same claims were made: “No longer will your costs be at the mercy of healthcare inflationary trends. You can control how much you want to increase your subsidy each year – that is, if you want to increase it at all.” This failed because the math worked against the strategy then, too.
Let’s take a steely-eyed look at the numbers. If a company puts employees into an exchange because it wants to cap its costs going forward, that creates a reverse leveraging effect on employee payroll deductions.
Here’s an example: Assume premiums (or self-insured budget dollars) are $10,000 per employee per year and the company contributes 75%. The company pays $7,500 per employee per year (PEPY), and the employee pays $2,500. If plan costs increase 10%, and the company’s contribution stays flat, the employee cost will increase by $1,000 per year ($10,000 x 10%). That means the employee payroll deductions will go from $2,500 to $3,500, or an increase of 40%!
If costs go up another 10% in the next year or two, and the company contribution remains flat, the employee payroll deduction will increase another $1,100, for a total of $4,600, or a total increase of nearly 85% over a few years.
What employers quickly realized in the ’90s was that, if they didn’t keep increasing their subsidy level at a market rate, the cost to employees became intolerable. This reality led to the demise of so-called cafeteria plans.
If that is not enough, consider this. Some benefit managers hope exchanges will lead employees to choose less costly plans, ones with even higher deductibles. However, in an era in which 80% of plan dollars are being spent by 6% to 8% of plan members (called outliers), that notion is flawed. Why? The 92% who aren’t spending much may choose plans with higher deductibles and copays, but the outliers won’t. Period. The result is having about the same claim dollars as before but collecting less in employee contributions, an unsustainable proposition for employers.
Further, some outlier spending is deferrable. An outlier-to-be in a high-deductible plan can switch to a low-deductible plan in the following year, have an expensive surgery and then switch back. That, of course, is the definition of adverse selection.
A private exchange may look like a good fit for your situation, but beware. If your consulting firm owns an exchange, really beware.
Alas, considering the rush into exchanges today, it looks like history is doomed to repeat itself.