Health Insurance Crisis

In an information intensive economy, those who create, process, analyze and add value to information can do so from anywhere thanks to the proliferation of Information and Communications Technology (ICT) over the past two decades.  Yet paradoxically, many Americans still engage in a daily commute to the office as if it were the 1950s of Dagwood Bumstead or the 1980s that inspired the more modern day office place comic strip, Dilbert.  In those days, commuting to the office was necessary because that’s where the office equipment was — telephones, typewriters (and later, dedicated word processors), photocopiers and fax machines.  Not anymore.  Today, nearly any setting can function as an office where a knowledge worker can concentrate and be productive.

Nevertheless, on average Americans spend nearly an hour a day getting to and from an office that ICT has effectively rendered obsolete.  That adds up to a lot of wasted and often stress filled time piled on top of an increasingly sedentary culture that battles the rising health care costs of lifestyle-induced chronic conditions linked to a lack of exercise, poor diet, and inadequate sleep. For the time crunched trying to balance family obligations with work, avoiding these adverse health impacts is even more challenging.  Just look around any traditional office setting and chances are you’ll see plenty of stressed out, sleep deprived, and overweight people who are more likely use medical services and in turn increase their employers’ health care utilization costs.

What’s needed is a new model for traditional office-based work that can free up time for exercise, healthier home cooked meals and sleep that would otherwise be wasted on daily commuting.  Fortunately, such a model better suited to today’s highly connected, information everywhere economy exists: ROWE or a Results Only Work Environment.  A ROWE values getting the work done over daily office attendance.  Early indications are that workplaces that adopt ROWE can achieve better health status at a time when workplace wellness is getting increased attention to slow the nation’s unsustainable rise in health care costs. 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.  ROWE is poised to become the successor to traditional “workplace wellness” programs that have been slow to demonstrate tangible progress in reducing employer health care costs.

Health plans are paring plan rates they boosted in 2011 to cover health reform mandates, reports Buck Consultants in its National Health Care Trend Survey.  That factor along with reduced medical utilization due to weak economic conditions resulted in the survey projecting a 9.9 percent average increase in 2012, the first time the figure fell below 10 percent since 2001.

Daniel Levin, a Buck principal and consulting actuary who directed the national survey of 129 insurers and plan administrators, noted that despite the lower expected increase this year,  “health care costs continue to outpace both general inflation and wage increases, creating real business challenges for organizations.”  Levin added that plan sponsors are showing increased interest in health insurance exchanges and accountable care organizations.

California continues moving forward to implement the Patient Protection and Affordable Care Act (PPACA), advancing legislation this week setting minimum coverage standards for health plans offered by small employers and sold through the California Health Benefit Exchange.

Section 1302 of the PPACA delineates 10 “essential health benefits” small group and individual market plans must offer including ambulatory and emergency services, hospitalization, maternity and newborn care, treatment for mental health and substance use disorders, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management and pediatric services, including oral and vision care.

Since health insurance markets vary among the states and to speed state efforts to establish health benefit exchanges, the U.S. Department of Health and Human Services late last year issued guidance allowing states to choose one of the following plans sold in their jurisdictions as a benchmark:

• One of the three largest small group plans in the state;
• One of the three largest state employee health plans;
• One of the three largest federal employee health plan options;
• The largest HMO plan offered in the state’s commercial market.

California advanced legislation this week, AB 1453, defining HMO Kaiser Permanente’s small group plan as of December 31, 2011 as the Golden State’s benchmark.

The Los Angeles Times‘ Chad Terhune via the Sacramento Bee quotes a key California legislator expressing support for a California version of the Patient Protection and Affordable Care Act’s (PPACA) coverage mandate if the federal law’s mandate is ruled unconstitutional by the U.S. Supreme Court.  California Insurance Commissioner Dave Jones also seems to favor an insurance mandate if the Golden State ultimately moves to put its own in place but doesn’t directly say so in Terhune’s story.

A week earlier, California Human Services Secretary Diana Dooley expressed support for the mandate, which state payer organizations contend is essential to prevent adverse selection in the state’s individual market, the largest in the nation as a percentage of working age adults and their dependents.

If the U.S. Supreme Court decides this summer that the Patient Protection and Affordable Care Act’s (PPACA) mandate that all Americans have health coverage or purchase it by 2014 is unconstitutional, California could nevertheless move forward with its own health reform plan including such a mandate.  That’s according to the state’s Health and Human Services Secretary Diana Dooley, per this excerpt from this story appearing in today’s Sacramento Bee:

If the court does rule the federal law unconstitutional, state Health and Human Services Secretary Diana Dooley said California should at least consider enacting its own universal health care legislation, including requiring every Californian to buy insurance.

“I think that we should be committed to making this system more rational than it is today, and improving the health of the people of California,” Dooley said in an interview. “If we ask the insurance plans to take everybody and insure everybody with no screens or pre-existing conditions, then we have to have everybody buying some level of health insurance to meet their responsibility to the system.”

That reciprocity was a core principle of the Health Care Security and Cost Reduction Act.  In early 2008, California lawmakers considered but rejected the legislation championed by then-Governor Arnold Schwarzenegger and top legislative leaders.  Like the PPACA, the act was modeled after Massachusetts legislation enacted in 2006 that also served as a prototype for the PPACA and included as a central feature the so-called “individual mandate” requiring adults to have some form of public or private health insurance or managed health care plan.  In turn, insurers and health plans would abandon medical underwriting and accept all applicants regardless of medical history, thereby making coverage accessible to more people.  Other key policy goals of the mandate are to alleviate “cost shifting” in which those who have coverage end up paying for health care costs of those without coverage through higher premiums and to reduce the threat of adverse selection that can rapidly render payers insolvent.

It remains to be seen whether California would move forward with its own reform plan if the PPACA fails to survive judicial scrutiny by the nation’s highest court.  Increasing the probability is the view among the Golden State’s health care industry leaders that health care reform has achieved critical mass and will move forward regardless of what happens at the federal level.

Also generating momentum for reform is the state’s already partially spent federally funded investment in setting up the California Health Benefits Exchange under the PPACA to create a marketplace to help individuals and small employers aggregate their purchasing power.  Then there are the state’s demographics.  California is the nation’s most populous state and has more people in the individual health insurance market than other states — about eight percent of those 65 and younger versus about five percent in the nation as a whole.  It also has a relatively large percentage of medically uninsured residents, whose numbers have increased as many people lost employer-paid coverage in the economic downturn.

The recession was just getting underway when the Health Care Security and Cost Reduction Act was before the California Legislature, prompting then-state Legislative Analyst Elizabeth Hill to question if the state could afford its tax credits, subsidies and other costs.  Four years later, the state’s finances remain under siege amid ongoing deep budget deficits. Selling the individual mandate could also prove politically challenging as it did in 2008, when California health care payers were divided over it and business and consumer interests nearly uniformly opposed.

The death spiral of California’s individual health insurance market appears to be speeding up.  The market segment — which covers about eight percent of working age Californians — has been plagued by adverse selection as relatively healthy people drop coverage.  That in turn forces managed care plans and insurers to boost premiums to make up for the lost dollars when healthier people pull out of the pool and to cover the costs incurred by the less healthy who feel they must keep their coverage in place.  Exacerbating the problem, payers attempt to staunch claims with strict medical underwriting guidelines that reject relatively healthy individuals whose premiums could bolster the solvency of the pool.  As premiums keep rising, even more people question the value of paying the higher rates.  Or can’t afford them even if they want coverage as monthly premiums equal the size of modest home mortgage payments.   As the state’s individual market fails, self-employment is becoming synonymous with being medically self-insured.

Take for example, the Libresco family of San Rafael, California, mentioned in this recent Los Angeles Times story on the latest round of rate increases by the state’s largest individual market payer, Anthem Blue Cross:

Last month, Anthem notified Josh Libresco, a 57-year-old marketing researcher in San Rafael, that his family’s monthly premium would increase 29% to $1,636, effective May 1. This is after Anthem raised the deductible for the family of four to $5,900 from $5,000 last fall as well as increasing co-payments for doctor visits and prescription drugs.

“I don’t know how people can afford these increases every year. We are about at our limit,” Libresco said. “Whether it’s 20% or 29%, it’s still an enormous number.”

It’s not hard to see why this family might be inclined to drop its coverage.  Especially when they are essentially getting only catastrophic coverage but not at a price they would expect to pay for it.

Self-insuring health benefits has traditionally been the province of large employers that could afford to assume the risk of paying much of their employees’ health care costs.  Smaller employers with too few workers to feasibly spread that risk have traditionally relied on insurance as a risk transfer mechanism.

In a sign of how distressed the small group health insurance market has become, that notion is being turned on its head.  Now small employers are shunning insurance and self-insuring their health benefit risk — to a certain point.  After an employee’s medical costs hit a set amount, stop loss insurance kicks in.  That “attachment point” as it’s referred to in insurance terminology can be as low as $10,000 to $20,000, according to this Los Angeles Times article.

As the Times reports, the practice is stoking controversy and raising concern it could steer small employers away from Small Business Health Options Programs (SHOPs) being set up under the state health benefit exchange component of the Patient Protection and Affordable Care Act (PPACA). Beginning in 2014, SHOPs will allow small employers to offer employees a variety health plans like so-called “cafeteria plans” offered by large employers.  The concern is without sufficient participation by employers, the SHOP plans could face increased risk for adverse selection by limiting the size of the SHOP’s risk pool.

While not directly saying so in the Times story, California’s insurance regulator is sufficiently alarmed by the potential threat to the actuarial integrity of that state’s yet to be formed SHOP that he wants legislation that would require higher attachment points for self-insured small employer health stop loss coverage.  That would also make self-insurance a less attractive option for small employers than getting coverage through the Golden State’s SHOP, reducing the SHOP’s spread of risk.  The California Health Benefit Exchange issued a solicitation last month seeking bids to help it design its SHOP.

The Patient Protection and Affordable Care Act (PPACA) will be unable to significantly slow the rising cost of health care.  As a result, the price of health coverage will soon become unaffordable for low and moderate income Americans, concludes a projection prepared by Richard A. Young, MD, and Jennifer E. DeVoe appearing in the March/April Annuals of Family Medicine.

The authors predict based on the current rate of increase in health insurance premiums and wages and barring significant structural changes in the health care system, the average cost of a family health insurance premium will equal half of household income by 2021 and surpass the average household income by 2033.  When out-of-pocket costs are added to premiums, the 50 percent threshold would be reached by 2018 and exceed household income by 2030, they forecast.

Based on their prognostication of a “barely bending” health care cost curve, Young and Devoe suggest America’s health care landscape could undergo major change.  The shift away from all in employer-paid group insurance coverage in favor of defined contribution health plans could accelerate.  They speculate that lower income workers could determine they can’t afford to participate in these plans and instead attempt to qualify for Medicaid under PPACA provisions expanding the government paid health coverage.

This point coincides with a Congressional Budget Office (CBO) estimate issued this month reducing the amount of people expected a year ago to obtain commercial insurance as the PPACA is implemented.  “Fewer people are now expected to obtain health insurance coverage from their employer or in insurance exchanges; more are now expected to obtain coverage from Medicaid or CHIP or from nongroup or other sources,” the estimate states.  “More are expected to be uninsured.”  The updated estimate is based on a revised CBO economic forecast of lower wages and higher unemployment during the 2012-2021 forecast period than projected in March 2011.

Even though they have not yet qualified for California’s general election in November and are still in the signature gathering stage, proposed ballot initiatives to limit hospital profits and subject health insurance and managed care plan premium rates to prior regulatory approval are already generating considerable political heat and smoke.

Both measures are playing not so much as health care reform measures designed to apply brute governmental force to hold down rapidly rising health care costs and premiums.  More accurately, they represent new battlefronts in California’s perennial conflict between plaintiffs attorneys and labor unions on one side and tort reform and business interests on the other.  Health payers and providers are aligning in the latter camp to oppose the measures.

Hospitals argue the proposed Fair Healthcare Pricing Act of 2012 that would cap hospital profit margins at 25 percent is an attempt by unions representing health care workers to gain leverage at the bargaining table.  Meanwhile, health care providers this week announced a coalition to oppose the proposed insurance rate regulation measure, the Insurance Rate Public Justification and Accountability Act.  It would add health insurance to existing law put in place by a 1988 ballot measure, Proposition 103, that subjected most property/casualty insurance rates to prior approval by the state’s elected insurance commissioner and subsidizes costs of those who intervene on behalf of the public to contest proposed rate increases.  A similar proposal stalled in the current legislative session.

While constitutional soundness of the Patient Protection and Affordable Care Act (PPACA) is to be decided this year by the U.S. Supreme Court, health care reform will continue to move along a rapid trajectory of change in California regardless of the high court’s ruling.  That’s the view of health care industry panelists at a recent symposium hosted by the Sacramento Business Journal, according to this item from the California HealthCare Foundation’s California Healthline.

Michael Taylor — senior vice president of operations for Dignity Health’s Greater Sacramento-San Joaquin area — said, “We believe we need to drive health care reform whether it’s legislated or not.” He added, “Health care costs are out of control and we need to bend the curve.”

According to the California Healthline item, the panelists agreed reforms must address a shortage of primary care physicians, the need to refocus health care on prevention instead of treatment of preventable conditions, and a transition away from employer-based health coverage to a new model where individuals dictate plan purchases instead of employers. I’ve lately read suggestions by some observers that shift could take the form of a defined contribution health plan.