New information is coming out on consumer directed health plans that indicates member satisfaction rates are significantly lower than those of individuals enrolled in “traditional” health plans. These plans are based on the premise that empowering consumers with information and requiring them to spend their own money (albeit from tax-deferred Health Savings Accounts) on costs up to a high deductible, after which insurance takes over (typically $2000 to $5000) will help reduce or at least constrain the rate of increase in health care costs.
It does appear that members of CDHPs are interested in costs; according to the Los Angeles Times article on CDHP member satisfaction and adoption rates (free registration required):
“High-deductible plans do make people think more carefully about costs. A study released Thursday by the nonprofit Employee Benefit Research Institute, for example, found that more than 70% of people in consumer-driven health plans said they considered costs when deciding whether to see a doctor, compared with less than 40% of people in traditional insurance plans.”
The information appears to be lacking for seven out of eight enrollees; only 12% of CDHP plan members have received information allowing them to compare costs at different facilities, and just a few more have been provided data on health care providers’ quality indicators.
As noted here earlier, Aetna is one of the leaders in this area, providing both cost and quality data to members in many of their locations. Aetna also has developed a website that enables members to find out what their costs will be for specific providers based on the member’s specific health plan benefit design.
Pacificare has also licensed IHCIS’ technology to provide members with a “Health Cost Estimator” which contains information on low, average and high costs by diagnosis and procedure for in-network or non-network providers.
There are now approximately 4 million CDHP members in the nation, with enrollment expected to more than quadruple by 2008. However, these numbers may be a little misleading, as the definition of a CDHP tends to be somewhat vague.
Besides being perhaps one of the most intelligent, insightful, and articulate observers and critics of the US health care “system”, Bob Laszewski has an ability to make sense out of what is a complex and occasionally contradictory business.
In his latest observation, Bob notes that what is happening in the US health care system is “different than any other (year) I have watched.” The net – as a nation, a trade union,a government, a business, or a municipality, we can no longer afford making expensive promises re health care and/or pensions.
Bob cites the Pension Benefit Guaranty Corporation’s finding that it now has a deficit of $30 billion and the PBGC’s report that private plans and union plans are underfunded by $650 billion.
That’s bad. Health care is worse.
If Medicare grows by 1% more than the rest of the economy (which would be a lot slower than it has been growing over the past ten years) it will be larger than the entire US budget by 2050.
The first baby boomers are eligible for Medicare in six years. Six years.
GM, Ford, Delphi, big steel and airlines are all cutting health benefits or have already done so. Bob believes other big firms, in better financial shape than these behemoths, will soon follow suit.
State budgets are being hammered by Medicaid expenses, leading to higher copays, changes in benefits, and outright slashing of Medicaid rolls.
His point is that we are now in a phase of “renegotiation”; promises are not going to be kept whether they are promises made by our government or employers. These promises, made in the day of cheap health care, restrictions on wage increases, a booming national economy driven by the world’s dominant manufacturing companies and a much younger population, are no longer affordable.
What does this mean for you?
Significant changes in the health care delivery system are coming. Yes, there are barriers to change in the form of strong lobbying groups. Yes there are powerful politicians. Yes, these are incredibly hard problems. But the tsunami propelled by demographic change and the continued rapid influx of technology will blow these barriers away.
There is a truly terrifying problem in the US that no one has paid attention to until now. Health care costs for public-sector retirees may represent a total cost of $1 trillion, according to Mercer Human Resources.
State and local governments are facing a requirement to report their future health care cost liabilities within the next three years. You will hear the explosion of public outrage and feel the impact on future state and local taxes shortly after individual governments announce the results of their analyses. And it will be ugly.
According to a New York Times article featuring Duluth Minn.,
“For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.
Off the government balance sheets – out of sight and out of mind – those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.
My home state, Connecticut, is one of those that budget for health care on a pay-as-you-go-basis. I have been encouraging our local town officials to come to grips with this problem for two years, to no avail. So, it is encouraging that we are being forced to do so. Disappointing that we could not act like adults and do this on our own, but better forced to do it now than later.
Meanwhile, Medicaid and Medicare are the subject of a major fight over $10-50 billion in budget cuts. This is truly tweaking around the edges, and almost a waste of time compared to the local and state problems with health care liabilities. Clearly, we need more than accounting tricks and small benefit design changes if we are to adequately address the nation’s health care cost and access problem
What does this mean for you?
United HealthGroup appears to be preparing to re-enter the workers compensation network business. Sources indicate that the initiative is housed within UHG’s Ingenix subsidiary; plans are not finalized but reports indicate this is all but a done deal.
Ingenix’ new CEO, Richard Anderson, is in the process of determining what to do and who is to do it. While Ingenix is well known for its Power-Trak, UCR databases, and other analytical and software applications, the property and casualty industry has been a relatively modest contributor to the company’s revenues.
For those relatively new to the WC network business, UHG was once a significant player in workers comp PPOs, owning both the Focus (now part of Concentra) and MetraComp (also part of Concentra) network businesses. UHG sold both about 8 years ago; neither was core to the company’s business at the time. Having been at UHG’s MetraComp subsidiary until 1996, I can attest to the company’s lack of interest in workers comp.
Which begs the question – why now? Is it because Aetna is making a major push? Has UHG management been swayed by Coventry’s positive statements about workers comp? (many Coventry executives are ex-UHG employees) Is this a push to diversify, as UHG’s group health and HMO plans are very much a mature industry?
All of the above?
I’ve discussed this at some length with WC network buyers, competitors, and others, and all welcome UHG’s entrance. However, those who have expertise in network development wonder if UHG has the persistence and focus it will take to be successful in this business. It will take years, a lot of dollars, and a long view that UHG has not been known for in the past.
There are many other challenges to be faced; if and when UHG announces anything publicly I’ll devote more time to this.
What does this mean for you?
Another sign that the HMO industry is maturing, and executives are looking for the gold dust that has fallen through the cracks in the measuring room floor.
A suit has been filed by Arizona’s Attorney General accusing 42 drug manufacturers of inflating Average Wholesale Prices on drugs sold to physicians. According to an article in the Arizona Republic, at least 14 other states are also pursuing action against foreign and domestic pharmaceutical firms.
The pharmas are accused of artificially inflating the AWP reported to payers and data aggregators, setting prices that are many times higher than what they “actually charge some doctors and pharmacies.” As Medicare, Medicaid, group health plans, and group health and workers comp pharmacy benefit managers often base their reimbursement on AWP, the effect of the alleged price inflation is to generate enormous profits for the retailers and physicians paying the real wholesale prices.
In one example, the Republic noted:
“Abbott Laboratories Inc. lists a price of $382.14 for a 1-gram vial of the antibiotic vancomycin, which is used for severe infections. But the providers, the doctors and pharmacies, are charged only $4.98 for the drug, leaving a profit of $377.16, or 7,547 percent. Some drug firms sell the salt solution sodium chloride to pharmacies and physicians for about $4, with the average wholesale price listed at about $670.
The complaint also says that drug manufacturers provide financial incentives to physicians and suppliers to stimulate drug sales, such as volume discounts, rebates and free goods, at the expense of Medicaid and Medicare. The incentives were not offered to government or consumers.”
AWP is universally derided as “Ain’t What’s Paid”, and this is yet more proof that the pejorative definition of the acronym is more realistic than the industry definition. Transparency is a critical issue in the industry, and this shows why.
Not mentioned in the article is the growing trend in dispensing of drugs by physicians for workers comp patients in many states, particularly California. According to some of our clients, almost half of all drugs dispensed to WC claimants are through physician offices. I’ll comment in depth about this in a future post.
What does this mean for you?
Yet more evidence that the “discount” is meaningless. Too many payers assess their program based not on total drug costs but on the discount received. This is proof that the system is ripe for manipulation.
If you aren’t measuring your drug costs based on total expenditures, you are not doing your job.
John Burton reports that the workers compensation industry had an excellent year in 2004, delivering an operating ratio of 93.7. According to Burton, the”operating ratio” is the best overall indicator of sector performance as it considers investment income as well as operating results.
The combined ratio (all losses combined plus dividends excluding investment income results) was also strong at 104.9, continuing a four year trend of improvements.
The factors contributing to these returns are expenses, defined as claims, loss adjustment expenses, dividends and underwriting expenses, as well as investment income. It will come as no surprise that investment returns in recent years have been less than stellar; the tepid equity markets and low returns on debt vehicles have combined to make it difficult for investment returns to hit the 20%+ results seen at the end of the last decade.
As noted here previously, the strong financials may not continue for much longer, as there are some indications that the market is softening. The key will be what happens with reinsurance rates and availability. After the hurricane season’s record losses, many reinsurers may be looking to recoup losses by increasing their prices. This will have a rapid and notable trickle-down effect on primary insurance rates.
What does this mean for you?
Manage losses and prevent them where possible. There is little the average employer or insurer can do to impact the reinsurance market, but there is a lot that can be done to mitigate the underlying driver – claims costs. Start with prevention and make sure your managed care program drives lower total claims costs, not just discounts on bills.
There continues to be an ongoing discussion in this country regarding who or what entity should be responsible for providing health insurance. The ends of the spectrum are the strong conservatives/libertarians who are in favor of total individual responsibility for paying health care costs; at the other end are the strong liberals who favor single payer, universal coverage funded and mandated by the government.
In reality we have a “hybrid” system, or perhaps more accurately a mish-mash of individual coverage, employer-based insurance, governmental programs and tax-payer and employer-subsidized care for the uninsured (although this takes the form of a hidden tax).
The reality is we have universal coverage funded by individuals, employers, tax-payers, and providers. Everyone has access to care, although some do not have access to the same level of care or the same providers.
For working age Americans, most insurance coverage is provided through their employers. Although there has been a trend towards fewer employers offering coverage (60% in 2005, down from 69% in 2000), in general larger employers and those with average annual employee earnings above $21,000 tend to offer health insurance.
And the latest information is that this is not likely to change anytime soon. While national health insurance provided by the government would certainly help manufacturing companies such as GM and Ford, there does not appear to by any traction for other funding mechanisms.
An article in the New York Times on employer-based health insurance focused on this issue, and is well worth reading. One passage reads:
“What is also clear, though, is that there are no clear alternatives. Corporate executives and many others are leery of a government solution, but no one has come up with a private-sector option that has gained significant support. Because individuals who buy private insurance on their own pay much higher prices than the group rates employers get, many people could probably not afford health insurance if their employers were not buying it for them.”
The present political climate makes it unlikely that any nationalized system will emerge in the near term. Until and unless large employers, and the middle class, feels pain, there will be no change. That said, my sense is we are approaching that point. With the percentage of employers offering health insurance declining by nine points in five years, more and more soccer moms will soon be directly impacted by this trend. This is a powerful and vocal demographic that will make its presence felt.
What does this mean for you?
Change is coming; the next Congressional election will indicate how soon and provide some hints as to the direction of the health care debate.
The State of Texas has at long last released rules governing how workers compensation networks can be set up, operated, evaluated, and regulated by the state. The announcement by Insurance Commissioner Mike Geeslin addresses one major issue we have long had problems with; the focus of most WC networks is discounts, not quality. Here’s Geeslin addressing this issue.
“I want to address a concern that has been raised concerning network care, that it is merely a discount program that will cut corners to save money. If workers’ comp health networks are viewed only as a tool to reduce medical costs, without adding any value to the rehabilitation and care of the injured employee, then the networks are headed to failure. Many employers and injured workers with whom I have spoken have emphasized the need for best value, not care on the cheap or, conversely, excessive care. The more effective medical care that a worker receives, the sooner he or she will be back to productive work or to a point where their injury is manageable.
To that end, our network rules incorporate a number of quality assurance tools. Workers’ compensation networks are required to be credentialed and must demonstrate that they have a formal complaint and dispute process in place. The networks are also required to track return-to-work statistics to see how well they are getting injured workers back on the job.
In addition, TDI researchers will compile data to assess each network’s performance on a yearly basis in the form of a “network report card.” The report card will allow comparisons between networks on a variety of measures, including access to care, health-related outcomes, return-to-work outcomes, employee satisfaction with quality of care, and health care costs and utilization of care.”
I’ll address some of the high points in a future post, but here are a couple of significant aspects of the new law.
1. Employees can choose their provider from any contracted provider in the approved network.
It will come as no surprise that the war over the Medicare Part D program (free subscription required) is continuing to heat up, with Republicans touting the benefits for seniors while Democrats describe the program as a giveaway to the large pharmaceutical firms on the backs of the taxpayers.
As I have noted before, the entire Medicare Part D program, from the original budget estimates (remember the Medicare Chief Actuary was threatened with dismissal by the Administration (subscription required) if he revealed the true cost of the program before the Congressional vote) to the hold-harmless provisions protecting private companies from losses to the failure of the legislation to allow the Feds to negotiate drug prices to the cumbersome, complex, confusing program itself to the likelihood for adverse selection due to the benefit design is enough to make your head spin. And that’s exactly what is happening amongst potential beneficiaries.
An article in the New York Times on Part D describes the problems politicians of all stripes are facing when attempting to educate their constituents about this program
First Health’s performance to date was addressed in a presentation by Coventry CFO Shawn Guertin earlier this week. First Health, a subsidiary of Coventry, produced revenues for Workers Comp of $53.7 mm in Q1 (corrected for acquisition timing), $53.65 in Q2, and $50.7 in Q3.
Workers Comp is disproportionably profitable for Coventry; previous statements from the company indicated WC drives 11% of profits and 3% of revenues. Thus, the decrease in top line has a multiplier effect on profitability.
During the investor call last week CFO Shawn Guertin noted that the company “feel(s) real good about (the workers compensation sector’s) prospects…” Coventry may also be looking at acquisitions in the workers comp space (as well as in network rental and the Medicaid/public sector).
According to Coventry, First Health’s performance to date has been “consistent with expectations”, and the division is poised for growth in 2006, especially in the workers comp sector. This may well be the case, but my sense is the performance to date is likely on the low end of those expectations.
Three other items may bear on the success of First Health’s workers comp sector in the near term.
First Health’s largest WC customer, Liberty Mutual, continues its’ evaluation of network providers. There has been no indication of where Liberty will end up, but given the size of the relationship it will be important for First Health to retain a significant portion of the business. Unfortunately for Coventry, there does not appear to be much upside; as FH is Liberty’s network in the vast majority of states, it does not stand to gain much if it lands new business (the states FH does not service are relatively small). However, the downside could be significant if Liberty chooses to move some states, particularly the larger ones such as California, Florida, Texas, Illinois, New Jersey and/or New York to other networks.
Second, to date there has been no announcement regarding the company’s search for an executive leader for the workers comp sector. The search by Spencer Stuart has been in process for some months now; the right leader could add significantly to FH’s future prospects.
Finally, Aetna’s Aetna Workers Compensation Access (AWCA) has gained some traction as of late with some of First Health’s present customers, and may well be poised to take additional market share. Sources indicate that 2006 may see several larger payers replacing First Health with AWCA, albeit only in a few states.
What does this mean for you?
Clearly, the WC managed care market is maturing. First Health, long the dominant network provider, is at a crucial point in its life cycle. The next few months should provide some clues as to the company’s future direction and strategy, both of which will bear heavily on the managed care programs at many workers comp payers.