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June 28, 2012

The Supreme Court Decides – The Mandate Survives

Summary:

Today, the biggest competitor of companies that produce or sell consumer products and services is rising health care spending. It is significantly impacting companies' sales today, but in a nearly invisible way. This is a huge strategic issue for corporations. Many CEOs are looking at how their own company's health costs are rising but may not be forecasting the impact on sales going forward.

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The Supreme Court has decided that the individual mandate to purchase health insurance is a form of tax, therefore constitutional. Click here to read a Wall Street Journal report on this. As we all know much of the rest of Obamacare hinged on that mandate. It is law.

This ruling does not surprise me. I predicted in a blog post on January 27, 2012, that The Patient Protection and Affordable Care Act would not be repealed by the Supreme Court. I was correct. I won’t spend words here on why I had doubts about repeal of the individual mandate. Click here to read that post.

Let me also refer you to a blog post I made on March 30, 2012. The drift was that no matter whether The Patient Protection and Affordable Care Act is overturned or not, we have a huge spending problem in the United States.

That post gave a link to an article written by Shannon Brownlee and Brian Klepper. They wrote, “Yet whatever the court decides, we will still be stuck with a problem that this contentious law was not likely to solve on its own: an out of control health care industry that threatens the stability of the U.S. economy and the federal government’s ability to deal with our long-term debt.”

Further, they say, “It is hard to overstate the gravity of the situation. A 2008 study by the consulting firm PricewaterhouseCoopers estimated that more than half of all health care expenditures provide no value — meaning we spend more than double what we should. In today’s dollars, that waste represents an extra $1.5 trillion a year.”

Let me emphasize this point … half of health care dollars provide no value. That did not surprise me either as I watched that waste occurring every day for decades as I managed health benefits for large corporations.

Between now and the year 2025, consumer discretionary income will shrink dramatically unless health care costs are reigned in. That will impact nearly all companies’ top line. Today, the biggest competitor of companies that produce or sell consumer products and services is rising health care spending. It is significantly impacting companies’ sales today, but in a nearly invisible way. This is a huge strategic issue for corporations. Many CEOs are looking at how their own company’s health costs are rising but may not be forecasting the impact on sales going forward.

I have been advising corporate executive committees and corporate executives of this impact on top line growth for over ten years. I wish I had been wrong, but my predictions on this are coming true too. This will not fix itself.

In benefit plans today about 6-8% of members, called outliers, spend 80% of plan dollars each year. With so much spending by so few plan members, success in managing health plan costs going forward will require a whole new approach, namely carefully managing the shrinking outlier population.

Certain things are known about the outlier population. Most have complex health problems with multiple co-morbidities and most are seeing multiple specialists who are frequently failing to coordinate diagnoses or treatments. Accordingly, about 10-20% outliers are either completely misdiagnosed or have a flawed diagnoses. This is impacting about 8-16% of total plan spending.

Furthermore, about 40% of outliers have erroneous or, at best, sub-optimal treatment plans. Again, their specialists are failing to coordinate care. This is impacting about 40% of health plan dollars. While primary and secondary care in U.S. hospitals is usually quite standardized, there is huge variation in tertiary care from clinic to clinic in the U.S. The variation is in quality of care, pricing, outcomes, diagnostic capabilities, and ethical standards.

Methods are available to identify the few clinics and hospitals in the U.S. in which the best quality, highest ethical standards, and best pricing all come together and to connect plan members with those facilities in an employee-friendly, yet very cost effective, way.

One outlier solution is to set up employer-specific centers of excellence from among clinics in the U.S., ones that perform in a superior way for tertiary and quaternary care patients. Other solutions involve setting up highly specialized second opinion programs aimed at the outlier population, often involving on-site visits to a high performing clinic. These solutions have proven track records of success in companies such as British Petroleum, Burger King, and Walmart, plus many others.

Adopting these types of solutions will lead to genuine market driven health care informed by price and quality transparency for 80% of benefit plan dollars.

Unfortunately, the Patient Protection and Affordable Care Act does almost nothing to control our skyrocketing health care costs. In that sense the Supreme Court ruling today is a skirmish in a decades long battle to rescue America from the utterly out-of-control waste in health spending in America.

Going forward, health costs are a huge risk to be managed, rather than a traditional human resources construct.

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