Sep

Health insurance costs under PPACA…not what you’ve heard

Posted by Joe Paduda on Wednesday, September 11th, 2013 | Comments

There’s been a lot of yelling about insurance costs under PPACA/Obamacare of late, most of which is uninformed, unintelligible, ideologically based or just plain wrong.

Here’s the scoop.

As of 8/30, 17 states and DC have released comprehensive rates for insurance plans bought via their Exchanges. And the news is quite good.

The CBO’s projected rates for a 40 year old individual were $320; the benchmark rates in 15 of 18 states out so far are lower than CBO projection. Benchmark rates are based on the second lowest priced Silver plan. The two highest cost states – VT and NY – are anomalies as the rates and plans are affected by current rate limits and the existing ban on medical underwriting, both of which drove rates up.

Because the actual premiums are lower than projections, the federal budgetary cost of subsidies is actually going to be lower than projected. This assessment is based on a comprehensive analysis done by the good folk at Kaiser Family Foundation did a comprehensive analysis.

If a 40 year old individual with income at 250% of the FPL uses tax subsidy to buy a bronze plan, insured’s rate can be as low as $97 in Hartford CT.

So what accounts for the differences in today’s premiums vs ACA premiums?

Rates are higher than today’s because:

– pre-existing conditions will be covered under ACA will increase premiums

– coverage is more comprehensive; for many people, their coverage will improve; todays plans often have (much) higher deductibles, limits on specific types of services,

– limits on cost variation by age, medical underwriting, and gender rating

Rates are lower than projected because:

– 80/20 MLR threshold lowers premiums (insurers have to pay at least 80% of premiums for actual health services

– rate review by states/feds will reduce premiums; in some states it already as as the local regulators have required insurers to cut premiums to earn a place in the Exchanges

– federal reinsurance for high risk members will lower premiums

– most purchasers will get subsidies, either via credits based on their income (declining subsidies based on income from 100% to 400% of the federal poverty level) or credits for small employers.

– Most importantly, and I’d argue most significantly over the long term, PPACA’s Exchanges will engender fierce price competition, price competition that doesn’t occur today because consumers don’t know what their cost will be until they’ve completed the underwriting process. In the Exchanges, they’ll be able to directly and quickly compare plans from multiple insurers, without having to wade thru the minutia of different benefit designs, coverage limits, and exclusions and limitations.

Notably, in Oregon, two insurers’ plan costs came in high; the insurers realized they were priced out of the market and reduced their premiums to compete – this is very different from today where medical underwriting and the application process hides actual prices.

What does this mean for you?

Perhaps the biggest benefit of PPACA’s Exchanges is they level the playing field, making it easy for consumers to figure out what their costs will be for which plans. This is going to force insurers to compete based on value, not on how well they can underwrite – aka avoid selling insurance to anyone who might actually have a claim.

Sep

Survey of Prescription Drug Management in Work Comp – results are in

Posted by Joe Paduda on Monday, September 9th, 2013 | Comments

CompPharma’s Tenth Annual Survey of Prescription Drug Management in Worker’s Comp is available for download here.

There are two key takeaways from this year’s Survey; the continued decline in drug costs for programs managed by PBMs, and the industry’s sophistication, knowledge, and expertise about all things drug-related. The latter is one of those findings that is not immediately apparent as it has gradually increased over the last ten years; it is blindingly obvious when one reviews the first Survey and compares it to this year’s.

Respondents’ knowledge of pharmacy is deep and broad; their comments on issues, concerns, and results reflects that knowledge as they discuss issues including:

the dangers of benzos and opioids prescribed together,
concerns about opioid addiction and treatment thereof,
rapid growth in urine drug monitoring,
safety issues inherent in physician dispensing,
and drug utilization review functions and programs

For the third consecutive year, respondents reported an aggregate flat or decrease in drug spend. Careful observers may find this puzzling as overall industry data indicates drug costs are up. However, the Survey’s respondents all use PBMs, with most taking full advantage of many of the programs and services offered by their PBM. Perhaps more telling, other data indicates spend on opioids on programs managed by PBMs was also down last year.

All good, right?

No.

Senior management remains quite concerned about drugs, with the long term impact of opioids the key driver of that concern.

And concerned they should be.

Sep

Mitchell has been acquired. What’s next?

Posted by Joe Paduda on Monday, September 9th, 2013 | Comments

That didn’t take long. On the same day Kelso and Stone Point did the PMSI-Stone River deal, giant PE firm KKR bought Mitchell International for $1.1 billion.

The transaction, reported to value Mitchell at 11-12 times adjusted earnings (no word on if that was trailing or forecast), was not as lucrative as some expected.

Mitchell, along with Stratacare, Medata, Xerox, and MCMC are the leading providers of bill review software to the work comp industry. Traditionally focused on auto claims software, Mitchell added work comp with its acquisition of CompReview several years back. The foray into comp was not without its challenges, particularly staff turnover, product glitches and some customers’ concern about responsiveness particularly around fee schedule updates. That said they did add several customers over the last few years, customers who seem generally satisfied with their performance.

There’s an interesting question yet to be addressed; does it make sense for KKR to keep the work comp AND auto software businesses?

A superficial analysis might lead one to think there’s synergy here; the same customer sector (P&C insurance), and similar issues and functions (process medical bills, deal with regulatory issues, integrate with treasury, medical management, and networks (albeit rare in auto).

In reality, I don’t see much in the way of synergy. The folks who run PIP and commercial auto at P&C insurers are quite separate and distinct from the work comp operators, making it unlikely one would influence another’s systems decisions. Second, auto is very different from comp – comp has indemnity, auto has property and liability; auto has medical limits and little in the way of medical management, comp has no limits and lots of med management; comp is functionality focused while auto is not.

And auto is a much bigger business than work comp bill review.

Competitor Stratacare has been rumored to be on the block for some months now; sources indicate Coventry’s work comp folks spent several days on-site earlier this year evaluating the software and operations. At some point Coventry will have to invest in its aging and creaky BR 4.0 platform, either that or kill the thing and switch customers to another application. That reality may well have been behind the on-site visit. If Coventry does not buy Stratacare, and I’d bet they don’t, there’s an argument to be made that splitting off Mitchell’s SmartAdviser platform (their work comp business) and merging it with Stratacare makes a great deal of sense.

There have been rumors that Mitchell attempted to merge with its largest competitor in the auto claims software business at least once in recently, a merger that may well have run into regulatory obstacles. A Stratacare-Smart Adviser “combination” would have no such problems, would generate a lot of cash for KKR, and would consolidate a business that needs consolidation.

What does this mean for you?

1. The expectations for Mitchell were likely too high; An 11x multiple is, by any standard, quite rich. Why the owners thought they’d get a 14x is puzzling. Perhaps they thought the feeding frenzy in work comp deals would generate a bidding war…alas this is primarily an auto company.

2. Watch this closely. KKR’s next few moves will tell much about their plans for workers’ comp.

Sep

PMSI’s acquisition

Posted by Joe Paduda on Friday, September 6th, 2013 | Comments

Yes, the deal is in process.

PBM PMSI’s new owners will be Kelso & Company and Stone Point Capital. And yes that’s the same Stone Point that owns Stone River/Progressive Medical.

Emry Sisson and Tommy Young will remain as Co-CEOS, with current PMSI CEO Eileen Auen taking the top spot as Executive Chair. The new company will have revenues near $750 million.

Given recent transactions, I’d hazard a guess that PMSI’s price was hefty, likely well above a double digit multiple of their EBITDA.

Auen has done a remarkable job turning around an almost-defunct PMSI; her leadership is key to the success of the new company and she will remain with the new organization in a full time role. Anyone who knows Eileen knows she’s full-time executive, with an excellent reputation in the industry and strong relationships with many payers.

More to come

Sep

Montana’s progress on work comp

Posted by Joe Paduda on Thursday, September 5th, 2013 | Comments

I was invited to speak at Montana’s annual Governor’s Conference on Work Comp, and came away with a few brief but telling impressions.

Governor Steve Bullock actually came and spoke to the 300+ attendees, and he knew what he was talking about. Impressive.
Lieutenant Governor John Walsh is heavily involved in comp, is quite knowledgeable and leads the Labor Management Activity Council.
The LMAC leaders spent an hour fielding questions from attendees, seeking feedback on recent reforms, asking what can be done better, and listening hard to any and all comments.

Several years ago, Montana’s work comp costs were the highest in the nation. Now, they’ve dropped substantially, driven by frequency as well as decreases in indemnity expenses. Perhaps the best news is their medical costs have inched up a mere 2 percent over the last three years, this while the rest of the nation has seen about a ten point jump.

The reforms, which include adoption of evidence-based medical guidelines, closing of medical after five years, and changes to wage-loss payments, have made a big difference. But they would not be nearly as effective if not for the State’s ongoing commitment to make sure they are implemented correctly, changed when needed, and supported by stakeholders.

They aren’t all the way there; but the folks from Big Sky Country are well on the way.

Sep

You won’t believe this.

Posted by Joe Paduda on Tuesday, September 3rd, 2013 | Comments

But it’s real…

One would think the Execs at a dominant workers’ comp fund in a state where premiums are exploding, claims costs increasing, and severity heading ever higher would make darn sure they managed the little things; as we all know, if you take care of the little things, the big things take care of themselves.

Alas, it appears that the denizens of North Dakota’s C-Suite kinda forgot this basic tenet of good management. Either that or they have come up with a unique way of encouraging honesty…

Seems that WSI issued brand new fancy ID Cards to all workers, complete with a phone number for the finder to call if the card is misplaced. Interestingly, the folks answering the call on said toll-free phone number seem to be more interested in satisfying callers’ prurient pleasures than simply re-connecting a WSI employee with their ID card.

Turns out the toll free number (above) connects to an organization staffed with “red hot babes”.

Babes that are very, very excited about talking with callers.

Perhaps this is a brilliant way to encourage finders to not be keepers, and get those cards returned quicker than you can say “hey, baby, whatcha wearing?”

Or, perhaps not…

I’m guessing there are going to be lots and lots of lost cards, and perhaps some very high phone bills as honest North Dakotans try get those cards back to their rightful owners.

Hopefully the guy who sits in the CEO suite, one who was propelled into that chair after last occupying the drivers’ seat of a state police patrol car, isn’t going to place the blame on some poor person lower down in the organization. That would be easy, and wrong. Because it is the CEO’s job to make sure the little things get done right, and if they aren’t, to correct her or his management style, directives, processes and metrics to make sure they are.

Sep

Tuesday’s goings on in work comp

Posted by Joe Paduda on Tuesday, September 3rd, 2013 | Comments

Bits and pieces from around the world of work comp…

PMSI has landed the PBM business from California TPA Intercare. Sources in the Sunshine State indicate the deal is worth around $7 million…

Drug testing firm Millennium Labs (and HSA consulting client) was awarded a contract to provide services to the Montana State Fund.

From Fitch comes news that “Property and casualty insurers’ and reinsurers’ 2013 first-half profitability grew compared to the same period in 2012, but the current pricing cycle may be reaching its peak…” [emphasis added]. The ratings guru found that the industry’s combined hit 93.5, a big improvement from just a few years ago. And, net earned premium growth was up 4.7%, reflecting improvements in the economy and pricing. However, there’s a troubling cloud on the horizon – the reinsurance industry is getting more competitive, increasing concerns that pricing may falter.

Here’s hoping that the industry’s leaders are smart enough to realize that we’re far from a happy place; rational pricing has to persist if we aren’t going to see another step over the stupid line and into a price war.

Finally, kudos to Mississippi for regulations to control the latest WC scam – so-called “pain creams”. [subscription required, good work Mike Whitely] Nothing more than re-formulated Ben-Gay look-alikes, these creams are only the most recent example of profiteers’ creative efforts to suck as much money as possible out of employers’ pockets.

I’ll have to disagree with friend Ken Martino of IWP; creams are rarely used when pills don’t work; they are prescribed – and dispensed – by docs to make money. Creams should be ordered AFTER pills have been tried and failed, yet these scam artists are using them as a first line. There’s no evidence docs try pills first, rather they prescribe the creams for financial reasons…

Aug

So you want to repeal Obamacare?

Posted by Joe Paduda on Friday, August 30th, 2013 | Comments

Quick, who said “A mandate on households [to buy health insurance] certainly would force those with adequate means to obtain insurance protection.”?

How about :”If a young man wrecks his Porsche and has not had the foresight to obtain insurance, we may commiserate, but society feels no obligation to repair his car. But health care is different. If a man is struck down by a heart attack in the street, Americans will care for him whether or not he has insurance.”

See below for the answer…

For the gazillionth (okay, only 7,386th) House GOP members recently voted to repeal or defund Obamacare. That principled effort has consumed 15% of the House of Representatives’ floor time – one out of every seven hours has been devoted to this Quixotic effort.

Back in the day, there were calls to “repeal and replace”; those have disappeared of late, replaced by…nothing. Rather, the thinking seems to be “it’s not our job to fix this mess.”

Because there’s no question our health care system is a mess – expensive and horribly inefficient, while delivering outcomes that are far worse than embarrassing. And somehow the current system does not need oversight/repair/re-configuration?

Here are a few things to consider when pondering solutions to the current health care mess.

1. Insurers won’t cover people with potentially expensive pre-existing conditions unless they are forced to. That’s just common sense, and responsible behavior.

2. Because insurers won’t cover high-risk individuals, we have “high-risk pools”. Unfortunately, these have always been and are now seriously underfunded.

3. If a) insurers won’t cover people with history of heart disease, diabetes, obesity, asthma, depression, or a few hundred other conditions, and b) there’s no other coverage, these people will not get insurance coverage. Unless they are super-wealthy, they won’t get care, either.

Some make the principled argument that this is not their problem, that the Federal Government’s role does not include anything involving the health of Americans. I respect that position, as long as it is consistent with their policy views on other matters. I would also note that it is at odds with most Americans who view Medicare – a Federal program – as sacrosanct.

Which gets us back to the original question, who wanted the mandate first?

The lede quote came from the Heritage Foundation; here’s what Heritage’s Stuart Butler said:

“[N]either the federal government nor any state requires all households to protect themselves from the potentially catastrophic costs of a serious accident or illness. Under the Heritage plan, there would be such a requirement…Society does feel a moral obligation to insure that its citizens do not suffer from the unavailability of health care. But on the other hand, each household has the obligation, to the extent it is able, to avoid placing demands on society by protecting itself…A mandate on households certainly would force those with adequate means to obtain insurance protection.”

BTW, Butler authored the Porsche quote as well…

A question.

Why is Obamacare now anathema to the very people who originated the idea?

Is it the policy, or the person who’s name is now attached to the very idea first advanced by conservatives?

Note: As always, happy to engage in spirited debate; if you want to posit a different argument, use citations of primary sources to back up your positions. I do, so you have to.

Aug

What’s happening with health care premiums and costs?

Posted by Joe Paduda on Wednesday, August 28th, 2013 | Comments

Employer health insurance premiums increased 4 percent for families, 5 percent for singles this year. While that’s a modest increase, over the last decade, family premiums are up 80 percent.

And, premiums have been held down of late in large part due to rapidly increasing cost-sharing; the average deductible for employers with 3-199 employees hit $1715 this year as the percentage of employers with deductibles over $1000 jumped from 49% in 2012 to 58% this year.

Large insurers’ actual trend rates continue to come in lower than projections, with the latest stats indicate Aetna, CIGNA, and Wellpoint all reporting mid-single digit rises.

Combining Medicare and commercial health care costs as reported by health care providers shows an increase of 3 percent in June over the preceding 12 months. Medicare’s trend was a lowly 1.27 percent…Medicare is increasing hospital reimbursement by less than 1 percent, a move that will certainly help keep the program’s costs increasing very slowly.

But those price controls are far from the only reason Medicare’s cost trends are at historical lows.

What’s behind the relatively good news on cost increases? While commercial insurers see the recession as a contributor to past success in keeping trend rates down, the recession doesn’t appear to have had much to do with Medicare’s relatively low cost increases from 2000 to 2010. According to the Congressional Budget Office, the modest trend rate:

“appears to have been caused in substantial part by factors that were not related to the recession’s effect on beneficiaries’ demand for services…other factors–namely, a combination of changes in providers’ behavior and changes in beneficiaries’ demand for care that we did not measure–were responsible for a substantial portion of the slowdown in Medicare spending growth.”

In fact, CBO is projecting Medicare’s total costs by 2020 will be some $169 billion lower than earlier projections.

So, what does this all mean.

Well, mostly good news for folks not in the health care sector. The decline in projected costs will have a substantial – and very positive – effect on the Federal deficit and long-term debt.

Employers and individuals won’t see costs hit the troposphere just yet – I guess that’s good news, although they certainly aren’t going to drop out of the stratosphere…

For the health care provider sector (broadly defined), what have been wrenching changes to date are about to get even more dramatic. I’d expect some payers will see increased efforts to cost-shift as providers seek to increase revenues where they can while they struggle to strip cost and inefficiencies out of their operations.

Aug

Opioid Survey – fixed!

Posted by Joe Paduda on Tuesday, August 27th, 2013 | Comments

Apologies to those who clicked on the (broken) link in yesterday’s post on our Opioid Survey – here’s the right one.

All respondents who complete the Survey (and only respondents) will receive a detailed Survey Report…so click away!

Author: Joe Paduda