Tag Archive: major medical

Analysis: Employees to face healthcare sticker shock | Reuters

Over the next 18 months, between one quarter and one half of Americans who get insurance coverage through their employers will pay more of their doctor bills themselves as companies roll out healthcare plans with higher deductibles, benefits consultants say. The result: sticker shock.

“They have huge out-of-pocket costs before they get any insurance coverage, it’s a real slap in the face,” said Ron Pollack, the executive director of Families USA, a healthcare advocacy group.

via Analysis: Employees to face healthcare sticker shock | Reuters.

Mr. Pollack is reacting — badly — to a back to the future shift in health insurance, to a period prior to the emergence of all inclusive managed care plans in the 1970s and 1980s.  We are witnessing the re-emergence of health insurance that was known in period following WWII as “major medical.”  It was a true insurance product insofar as insurance by definition is designed to cover high cost, unexpected needs such as a hospital stay.  Routine, out of pocket costs were just that: paid out of the patient’s pocket.  And from all indications, it’s here to stay.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

PPACA likely to institutionalize “major medical” coverage for individuals, small business employees

The Kaiser Family Foundation has published an excellent primer on the actuarial foundation upon which “qualified health plans” must be based under Section 1301 et seq of the Patient Protection and Affordable Care Act (PPACA).  The plans will be sold through state health benefit exchanges starting Jan. 1, 2014.  The exchanges will serve as marketplaces aggregating purchasing power among the small group and individual markets — the most distressed health insurance market segments where coverage is far less accessible and affordable than large group and government insurance plans.

These plans that cover from 60 percent (bronze) to 90 percent (gold) of an individual’s projected medical costs show the era of health coverage with minimal cost sharing and out of pocket costs has come to an end for individuals and those employed by small businesses.  That new reality that emerged in recent years is now institutionalized as public policy in the PPACA.  That policy is reinforced by tax policy allowing individuals to establish tax deductible Health Savings Accounts, which have been in existence only since 2004.

The bronze plan’s 60 percent coverage level could be equated to “major medical” plans of decades past that covered as the name implies only major expenses such as hospitalizations but not routine doctor visits.  As medical treatment and pharmaceutical costs continue to push up health coverage rates leading up to 2014, it remains to be seen if the higher level silver, gold and platinum (90 percent of projected actuarial costs) will be affordable for individuals and small businesses even with their new purchasing power via the benefit exchanges.  Many could find their budgets can handle only the low end bronze plan, shifting the bulk of these market segments to a major medical level of coverage.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Rising HMO premiums hint at adverse selection

The large group health insurance market is rearranging itself along the lines of medical utilization with those using more medical services opting for managed care HMO plans and those using fewer services opting for lower cost, high deductible PPO and POS plans.  Premium rates are adjusting to this higher utilization, with HMO members expected to see a 9.8 percent bump in 2011, the highest rate increase since 2006’s 10 percent hike, according to a report issued this week by Aon Hewitt.

Since HMOs provide richer benefits but at a higher cost, they are preferred by employees who use health care more often and need coverage that is more robust. “Having a higher mix of these plan participants in HMO plans raises the risk pool, which can drive costs higher,” Aon Hewitt notes. In other words, adverse selection.  Once the trend of adverse selection becomes entrenched, the risk pool enters a death spiral of fewer insureds to share costs, requiring big premium increases that speed depopulation of the pool.

Large employers are apparently already feeling those higher prices — and it could ultimately lead to contraction of the large group HMO market, Aon Hewitt warns. “Employers continue to be successful in reducing HMO rate increases by a few percentage points through aggressive negotiations with health plans, changes in plan designs and employee cost sharing,” said Jeff Smith, a principal and leader of Aon Hewitt’s HMO rate analysis project. “Still, these increases have been very difficult for employers to absorb, particularly this year when many companies are focused on economic recovery and complying with health care reform. If HMO rates continue to outpace average health care cost increases, employers may elect to take even more aggressive steps in the coming years, such as eliminating HMO plans altogether.”

This looks like yet another sign of the end of the rich, all inclusive employer provided health coverage of recent decades and a revival of major medical coverage for hospitalizations and other high cost services and not routine or minor ones.

 

The large group health insurance market is rearranging itself along the lines of medical utilization with those using more medical services opting for managed care HMO plans and those using fewer services opting for lower cost, high deductible PPO and POS plans.  Premium rates are adjusting to this higher utilization, with HMO members expected to see a 9.8 percent bump in 2011, the highest rate increase since 2006’s 10 percent hike, according to a report issued this week by Aon Hewitt.

 

Since HMOs provide richer benefits but at a higher cost, they are preferred by employees who use health care more often and need coverage that is more robust. “Having a higher mix of these plan participants in HMO plans raises the risk pool, which can drive costs higher,” Aon Hewitt notes. In other words, adverse selection.  Once the trend of adverse selection becomes entrenched, the risk pool enters a death spiral of fewer insureds to share costs, requiring big premium increases that speed depopulation of the pool.

 

Large employers are apparently already feeling those higher prices — and it could ultimately lead to contraction of the large group HMO market, Aon Hewitt warns. “Employers continue to be successful in reducing HMO rate increases by a few percentage points through aggressive negotiations with health plans, changes in plan designs and employee cost sharing,” said Jeff Smith, a principal and leader of Aon Hewitt’s HMO rate analysis project. “Still, these increases have been very difficult for employers to absorb, particularly this year when many companies are focused on economic recovery and complying with health care reform. If HMO rates continue to outpace average health care cost increases, employers may elect to take even more aggressive steps in the coming years, such as eliminating HMO plans altogether.”

 

This looks like another sign of the end of the rich, all inclusive employer provided health coverage of recent decades and a revival of major medical coverage for hospitalizations and other high cost services and not routine or minor ones.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

U.S. budget constraints could provide additional boost for catastrophic medical coverage

The increased use of catastrophic health insurance coverage could get a boost from the U.S. government’s fiscal woes as it looks to pare down deficit spending including potentially eliminating the tax break employers get for employee health insurance costs.  High deductible catastrophic coverage is increasingly a mainstay among the self-employed in the individual health insurance market and is now moving into employer paid insurance.  It’s already becoming prevalent among smaller employers with 100 or fewer employees.

Catastrophic coverage works similarly to what was known decades ago as “major medical.”  As the name suggests, it covers only high cost care such as hospitalizations and surgeries.  Routine doctor visits are paid out of patients’ pockets.

“The idea isn’t to just raise revenue, economists say, but finally to turn Americans into frugal health care consumers by having them face the full costs of their medical decisions,” an Associated Press story today notes. Health care policy wonks have long observed that as long as people’s medical care is largely paid by others — employers, health care service plans and insurers — there is little incentive for patients to be parsimonious when using medical services.

This logic would work if the market for health services functioned as a truly competitive market.  Inasmuch as there are many sellers and buyers of health services, the market is nominally a competitive one. But it doesn’t behave as a competitive market.  In fact, just the opposite. People tend to remain loyal to their doctors for routine care.  And for emergency or non-routine care, the motive is to get treatment quickly and not shop around for treatment options and prices.

Bottom line, the rise in catastrophic coverage isn’t emerging as a remedy to make the health care market more competitive in the hope doing will will drive down prices and bend the cost curve.  Rather, it reflects the fact that health care costs have reached a tipping point such that it’s no longer feasible to cover most routine services.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health insurance crisis depresses medical utilization

The Los Angeles Times today is reporting today that California’s 12.4 percent unemployment rate — the third highest in the nation — has wiped out so much employer paid health insurance through job loss that the health care sector is being adversely affected.  Those who are employed are paying higher deductibles and co-pays, further depressing medical utilization, according to The Times.  As a result, many newly minted health care workers are themselves unemployed, the newspaper notes.

Neeraj Sood, an associate professor at the Schaeffer Center for Health Policy and Economics at the University of Southern California, sees decreased medical utilization as ultimately a positive development for the overall economy by making it  less dependent on the healthcare sector for growth, according to the Times story.

I would agree with Sood, provided lower use of medical services is driven by people taking better care of themselves.  However, in the context of the Times story, that’s clearly not the case.  It’s people’s inability or reluctance to pay for medical services — even doctor visits — not necessarily less need for them.

This story might also herald a time where medical utilization and costs are being reconciled with buyers’ ability to pay for them.  Medical costs cannot keep rising at a rapid pace.  Eventually they will hit a price point of resistance and they may be fast approaching that point.  We may be on the verge of a fundamental shift in the health coverage back to the old “major medical” model that covered only hospitalizations, surgeries and other high cost services and not the routine and minor care people have come to expect in recent years.

 


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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