Tag Archives: payroll deduction

healthcare

Why Healthcare Costs Rise So Fast

This is the first of a two-part series, by David Toomey and me, on why healthcare cost growth has historically been much higher that general inflation. 

If you want to truly understand why corporate healthcare costs have risen faster than nearly anything else over the past 40 years, read this article.

In 2001, David was managing large accounts for a major carrier/TPA (third-party administrator) when the largest hospital system in the market issued a notice to terminate its relationship with the carrier, to begin negotiating for higher unit prices. (When hospitals want a very high fee increase, they sometimes start the process by terminating participation in a carrier’s network.) This notice began a tumultuous series of negotiations that involved the local press. The fee increase demanded by the hospital system was high single digits, above market and highly inflationary for the area. This system was already paid a premium because of its large market presence.

David moved quickly to engage major self-insured clients and educated them on the cost impact. They told him to hold firm, as they could not absorb the increases. When asked what they would do if this major hospital was not in the network of the carrier that employed David, many responded that they would turn to another carrier so as not to disrupt employees who used the hospital system!

There were no questions by employers on the quality of the hospital’s care or on its commitment to process improvement. Although they realized that they could not really afford the higher prices, they felt that avoiding disrupting employees (even in a fairly minor way, by having them use a different hospital system) trumps company profits and affordable payroll deductions. That position meant David had no leverage at all in negotiating with the hospital system.

As a result, employer and employee health costs ratcheted up in that market. That’s too bad, but this story is the norm.

We’ve seen this same scenario continuously in our careers. Even if a hospital or clinic is used by fewer than 5% to 10% of a company’s employees, getting complaints from employees—even just a few—trumps corporate profits, shareholder returns, rising payroll deductions, restraining rising deductibles and rising employee out-of-pocket health costs. Even though self-insured employers are the ultimate purchasers of healthcare, they usually just roll over when providers keep raising their charges year after year.

In every market, by definition, half the providers are below average. While company benefit managers profess to want the best-quality care for their employees, they willingly accept larger fee increases from the worst providers. Why? Avoiding a few employee complaints has always been more important than deleting poor-quality providers, ones with a high rate of harming patients. (By “harming patients,” we mean providers with high rates of misdiagnoses, high rates of prescribing bad or suboptimal treatment plans and high rates of infections, some of which are deadly.)

Sally Welborn, head of benefits for Walmart Stores, recently called for self-insured employers to take the lead in reforming how providers are paid and in making hard, value-based purchasing decisions. (The term “value” excludes providers that have a high rate of misdiagnosed patients and give them profitable but unnecessary treatments.)

Soon, you can read Part Two on how employers can obtain value from the provider community.

Healthcare Exchanges: Math Doesn’t Work

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.

Don’t Be Dissuaded by Medicaid Myths

Brokers hesitate to offer Medicaid enrollment services to their clients because of the perceived stigma surrounding them.

But the reality is that those stigmas are all talk and no bite – most Americans don’t have a problem with public benefits like Medicaid. In fact, those who qualify for it generally prefer it because it offers lower costs and better coverage than many private plans do. Brokers who offer this government-subsidized coverage give themselves an advantage over those who don’t while better meeting workers’ healthcare needs.

Busting the Medicaid Myths

The common notion that Medicaid provides inferior coverage when compared with private plans is patently false. Study after study has shown that Medicaid recipients are actually happier with their coverage than enrollees in individually purchased plans or employer-sponsored private plans. In three southern states, low-income residents said they preferred Medicaid’s quality of care to that of private plans. Nationwide, 87% of Medicaid enrollees feel positive about their health insurance, compared with 73% of those with private plans.

Medicaid’s doubters note that only 66% of those eligible for Medicaid are enrolled and say the figures demonstrates inadequacies in the program. Under-enrollment has many causes, but pride is not among them. Many people don’t know they’re eligible for Medicaid, and the application process is complex. In addition, the application process is largely online, and a significant number of low-income individuals lack computer skills or access to the Internet.

The Truth About Medicaid

The reality is that Medicaid provides affordable, high-quality care to working people. It also presents brokers and business leaders an opportunity to lower costs while increasing the number of employees who have health coverage.

Contrary to the misconception that Medicaid offers little coverage, the program provides more comprehensive coverage than most private plans. Medicaid includes vision and dental benefits for children throughout the country and for adults in most states. It also includes benefits like non-emergency transportation and substance abuse treatment.

What’s more, care under Medicaid is just as accessible as care under private plans. Only 2.8% of Medicaid enrollees can’t access nearby care – while that number isn’t zero, it does suggest that the vast majority of enrollees can find primary and secondary care.

Not only does Medicaid cover a wide range of services, but it’s also quite affordable. The vast majority of Medicaid enrollees pay no premiums, and employers pay no additional cash for their employees enrolled in Medicaid. Even in the handful of states that do have premiums, enrollees typically can’t lose coverage for failing to pay. Medicaid has no deductibles and minimal co-pays, often charging just a few dollars for prescriptions and doctor visits. Medicaid covers the whole family; unlike many private plans, there are no drastic rate spikes for dependent coverage. For many families, Medicaid is the only path toward insuring the whole family.

In addition to saving money on premiums, people who have Medicaid are significantly less likely to incur significant medical debt than eligible people who do not sign up for Medicaid. Medical debt remains the most common cause of bankruptcies in the U.S., and Medicaid reduces the risk that a devastating medical complication will also bankrupt an individual.

When brokers help companies provide Medicaid enrollment services in the workplace, most employees are grateful to get help with this process in a comfortable and familiar venue without having to make appointments during their limited hours outside work.

How Brokers Can Benefit

It’s clear that Medicaid benefits enrollees, but what about the brokers who provide the benefits? Medicaid helps them, too.

Offering Medicaid enrollment support sets brokers apart in a crowded field. By bringing a new solution to the table – particularly one that many people are unaware of – brokers distinguish themselves.

Medicaid options also represent cost savings for employers, so brokers can find footing among business clients if they choose to offer Medicaid. In an increasingly commodified health insurance market, the ability to provide an option that requires minimal or no payroll deductions while offering access to high-quality care gives brokers an edge over the competition.

If attracting business clients wasn’t incentive enough, brokers can also earn sizable commissions through third-party enrollers on all workers they enroll in Medicaid, including those who were previously uninsured and thus generating no commission at all. At the end of the day, these additional commissions can actually generate more revenue for brokers than they would receive without offering Medicaid enrollment services.

Employers associate high costs with high quality, but that’s not always the case in the world of healthcare. Brokers who help employees find the right coverage for the right price help everyone save money while providing high-quality care to those who need it.

With Medicaid myths busted, it’s up to brokers to help individuals access care when they need it – and for a reasonable price. As the American population becomes increasingly insured, Medicaid enrollment continues to climb. Brokers who don’t offer Medicaid enrollment support might find themselves on the outside looking in if they fail to provide their clients with the cost savings, coverage and care that Medicaid brings to the table.

How to Live Longer? Drink More Coffee

This idea is taken from The Doctor Weighs In post by Dov Michaeli.

As the article says, “Coffee drinkers have a reduced risk of dying prematurely from all causes, and consequently live longer.” Coffee is a “vice” that is most worthy, and one to be embraced.

Some health attributes of coffee include reduced risks of death from:

  • Cardiac arrhythmia
  • Type 2 diabetes
  • Dementia
  • Pneumonia
  • Lung disease
  • Accidents
  • Strokes

That’s quite a list. The good news is that a 50-cent cup of coffee works as well as a five-dollar cup. Any amount of coffee is better than none. According to results of a study by the National Institutes of Health (NIH), “Compared with people who drank no coffee at all, men and women who drank six or more cups per day were 10% and 15% less likely, respectively, to die during the study.”

Don’t tell wellness true believers about this. They may want to start charging coffee-free employees a higher health payroll deduction.