Health Insurance Crisis

The Health Care Cost and Utilization Report: 2010 found that while medical care utilization declined by more than five percent from 2007 to 2010 for inpatient admissions, emergency room visits, primary care provider office visits and radiology procedures, prices rose across all categories of service with outpatient services experiencing the fastest growth.

“Unlike other recent reports on health care spending, we find that the increased spending is mostly due to unit price increases rather than changes in the quantity or intensity of services,” the report concludes.

The report by the Health Care Cost Institute (HCCI) is based on a review of health insurance claims for more than 33 million individuals covered under employer sponsored, private health insurance from 2007 to 2010 including both fully insured and self-funded benefit programs.  The dataset represents about 20 percent of all individuals younger than 65 with employer-provided coverage, according to the HCCI.

The dynamic of the medical care “cost shift” in which insured patients are effectively surcharged to cover the cost of the care for those lacking coverage is on full display in this San Jose Mercury News item.  It reports on the “SafetyNet” program at Santa Clara Urgent Care and the 10 other facilities operated by the Bay Area Surgical Management. The program gives 1,000 uninsured residents free health care, which includes urgent care, imaging and gynecological services and outpatient surgeries.   But that care isn’t exactly free and the cost must be covered somehow:  the provider faces legal action from Aetna accusing the provider of overcharging patients with coverage.

The discussion of how Americans and their employers pay for increasingly costly health care coverage will likely be stoked by this recent study appearing in the journal Health Affairs that concludes consumer directed health plans — high deductible, catastrophic coverage combined with Health Savings Accounts (HSAs) — could achieve $57.1 billion savings annually if half of non-elderly U.S. population had them.  That’s because they operate as true insurance plans, covering medical costs for unexpected, catastrophic events with people paying out of their own pocket for routine care and prescriptions.  The study predicts the potential savings of such together with additional incentives in the Patient Protection and Affordable Care Act will encourage their growth.

Widespread adoption of this scheme would return the nation to something akin to the “major medical” coverage model of health insurance that existed in the post World War II period until pre-paid plans such as health maintenance organizations (HMOs) became prevalent starting in the 1970s and 1980s.  Their growth created an expectation of no or minimal out of pocket costs for routine care and preventative screenings, leading the study’s authors to caution those in consumer directed health plans may forgo them, potentially leading to higher health care costs over the long term.

The authors also suggest that wider adoption of consumer directed health plans could be disruptive to the traditional health insurance and HMO markets and promote adverse selection in these product lines since healthier people may opt for consumer directed plans since their premiums tend to be lower.  A major challenge facing health insurers and plans, however, is setting premiums for consumer directed plans low enough to jibe with consumer expectations of lower, more affordable premiums in exchange for taking on first dollar exposure up to a high deductible limit.  Older albeit generally healthy people in the individual market have experienced sticker shock at rates for high deductible plans, deterring them from buying the coverage even though the premium rate reflects the actuarial risk of a catastrophic medical event.

Late last week Boston.com’s White Coat Notes reported Massachusetts House leaders are proposing legislation that would create new state agency to monitor health spending and order reductions in hospital and doctor fees it finds excessive.  Hospitals charging patients 20 percent or more above the comparable median statewide contracted price would be face a 10 percent tax surcharge that according to the article would support struggling hospitals.  The California HealthCare Foundation’s CaliforniaHealthline has more details on the bill, H 4070.

Whatever happens in the Bay State bears watching inasmuch as its 2006 omnibus health care reforms served as a prototype for the federal Patient Protection and Affordable Care Act.

Meanwhile, CaliforniaHealthline reports a California ballot initiative that if qualified for the November 2012 ballot would have limited hospital profit margins to 25 was dropped by its sponsor, the Service Employees International Union (SEIU).  The California Hospital Association had termed the measure along with another SEIU-sponsored initiative requiring nonprofit hospitals provide at least five percent of their care on a charitable basis a “thinly veiled negotiating tactic.”

An Urban Institute Health Policy Center study released this week commissioned by the California State Controller’s Office found nearly 30 percent of health care expenditures for California state workers in 2008 were attributable to lifestyle-related chronic conditions such as diabetes, heart disease and hypertension. Ironically, the study determined, state entities with the highest percentages of employees with these preventable conditions staffed health-related departments including the Department of Health Care Services and the Department of Public Health.  According to this Sacramento Bee story, the latter department will pilot a workplace wellness program that was kicked off in a ceremony emceed by television personality Dr. Mehmet Oz.  Later in the week, Gov. Jerry Brown, noting preventable and chronic health conditions account for 80 percent of the Golden State’s healthcare expenditures, ordered the state’s Health and Human Services Agency to create a task force to develop a 10-year plan for improving the health of Californians.

California is to be commended in recognizing that some form of intervention is required to bring down medical utilization costs among its workers where a degree of choice and control can be exercised.  The California Public Employees Retirement System (CalPERS), is one of the nation’s biggest purchasers of health benefits, so whatever the state does to demonstrably bend the cost curve is likely to serve as a national model for public and private employers as well as payers and providers as an emerging accountable care paradigm begins to take root.

However, state officials should give thoughtful consideration to how this intervention is framed and executed if it is to have more than symbolic value and actually reduce medical expenditures.  “Workplace wellness” is a misnomer insofar as the lifestyle choices that can exacerbate — and prevent — chronic conditions are made mostly outside of the workplace and involve personal decisions concerning exercise, meals and sleep.  Moreover, a 2011 survey of employers found mixed results among those that adopted workplace wellness programs in terms of tangibly improving the health status of employees.

Instead of “workplace wellness,” the focus should be simply on wellness.  It should treat employees like adults and give them the freedom to make the personal lifestyle choices they and their medical providers believe can best improve and preserve their health and fitness.  Confining employees to a cubicle for set work hours 40 hours a week and adding on more sedentary time spent commuting to and from that cubicle is hardly a health promoting activity.  It robs workers of valuable time that could be spent on activities that enhance health, particularly sustained exercise.  Nor is it necessary since Information and Communications Technology (ICT) has matured to the point knowledge state employees who are mostly knowledge and information workers can do their jobs from a home office or wherever else they can concentrate and be productive.

On this point, California’s pilot employee wellness program should incorporate a Results Only Work Environment (ROWE).  A ROWE values getting the work done over daily office attendance.  Early indications are that workplaces that adopt ROWE can achieve better health status.  A University of Minnesota study issued in December 2011 found workers in a ROWE realized increased health-related behaviors of more sleep and exercise — behaviors that can go a long way toward maintaining health and reducing medical utilization.

A major contributing factor to the health insurance crisis is an epidemic of obesity that’s boosting the health care spend and accounting nearly a quarter of health care costs.  A Cornell University study published in the January issue of the Journal of Health Economics estimates obese patients incur medical costs that are $2,741 higher in 2005 dollars than if they were not obese. Nationwide, that translates into $190.2 billion per year, or 20.6 percent of national health expenditures, according to the research, which notes earlier estimates measured the cost of obesity at $85.7 billion, or 9.1 percent of national health expenditures.

While a major driver of health care spending, obesity is merely a distressing symptom of a larger dysfunctional set of American cultural economic and lifestyle choices that drive up health care utilization.  They include poor work-life balance (long workweeks, long commutes to obsolete office spaces and associated stress), lack of exercise (and sufficient time for sustained daily exercise), too little sleep, unhealthy diets (and their commercialization via the “foodie” culture) and the expectation that health issues can be “repaired” by medical treatment and the state of the art pharmaceuticals.

California lawmakers are concerned a trend of small employers self insuring their employee health benefits and purchasing stop loss coverage for cases when a given worker incurs high medical bills will play havoc with the state’s small group health insurance market.  The chief concern is the arrangement will further reduce an already shrinking and distressed market segment and foster adverse selection as the state prepares to bolster the market starting in 2014 with a Small Business Health Options Program (SHOP) offered through the California Health Benefit Exchange.

Lawmakers are responding by imposing restrictions on medical stop loss coverage with SB 1431, legislation sponsored by California Insurance Commissioner Dave Jones and approved this week by the Senate Health Committee setting higher attachment points for the insurance.  Stop loss coverage has been reportedly offered with attachment points as low as $10,000 to $20,000.  Combined with a $1,000 to $2,000 deductible, employers would be responsible for an employee’s medical bills in a relatively narrow window above the employee deductible and below the stop loss attachment point.  Stop loss insurance kicks in when an employee’s medical costs exceed the attachment point.

“SB 1431 is necessary to prevent the state’s small group market from falling victim to adverse selection and unsustainable premium levels and protecting California’s small businesses, its employees, and the success of the post-ACA (Affordable Care Act) insurance market,” the committee’s analysis notes.

California legislative health committees have approved legislation authored by their chairs that would require health plans and insurers to transition from medical underwriting to community-based rating in 2014.  The authors of the bills, AB 1461 and SB 961, said they would conform California law to a similar provision of the federal Patient Protection and Affordable Care Act (PPACA) that becomes effective that year.

The California Association of Health Plans (CAHP) opposes the bills unless they are amended to also mirror the PPACA’s requirement that all individuals be enrolled in a health plan or have health insurance.  If the PPACA’s so-called “individual mandate” is set aside as unconstitutional by the U.S. Supreme Court this year, CAHP fears without a similar requirement in California law, health plans will fall into the adverse selection death spiral and become actuarially unsustainable.

But putting teeth into any California requirement that all residents have some form of medical coverage could prove problematic since those teeth like the PPACA version would likely take the form of a penalty or excise tax.  As a new tax, it would require approval by two thirds of the California Legislature, which would be a near political impossibility as long as Republicans hold at least one third of the seats in either house.

CAHP also dislikes provisions in the bills that would bar health plans from considering smoking when setting an applicant’s rates, arguing it would lead to non-smokers subsidizing smokers.

Various California officials have been signaling over the past month or so that the Golden State would implement health reforms similar to those of the Patient Protection and Affordable Care Act (PPACA) if the U.S. Supreme Court rules the law unconstitutional this summer.

One influential state lawmaker, Senate Health Committee Chairman Ed Hernandez, put that intent on record this week.  He amended his SB 1487 to state legislative intent “to enact into state law any provision of the Affordable Care Act that may be struck down by the United States Supreme Court and that is necessary to ensure all Californians receive the full promise of the act.”

The individual health insurance market isn’t a feasible replacement for employer-based coverage.  So concludes the 2011 Commonwealth Fund Health Insurance Tracking Survey.  The survey of 2,134 U.S. adults found 25 percent experienced a gap in their health insurance in 2011, with a majority remaining uninsured for one year or more. Losing or changing jobs was the primary reason people experienced a coverage gap.

“The individual market has proven to be a weak stop-gap option for families who lose employer insur­ance,” the survey states.  It reported those who attempted to find coverage in the individual market reported substantial difficulties finding affordable coverage that met their needs. Almost half of those surveyed ended up going without coverage as a result, with affordability the most common reason for not purchasing a plan.