Improving the ACA: What’s on employers’ wish list

The article below was published on September 27, 2017 by Employee Benefit News, written by John Barkett and Julie Stone.

The Affordable Care Act brought some significant changes to employer-sponsored healthcare, which employers factored into their long-term healthcare strategies. Revised plans were built to comply with the law’s many complex requirements, even though employers hoped for relief from the law’s more onerous provisions. Yet, despite the recent legislative drama and the promise of repeal and replace, seven years later the ACA is still the law of the land.

But just because employers continue to execute on their ACA-compliant healthcare strategies, doesn’t mean they aren’t yearning for improvements to the existing law. In fact, there are a number of items on their “ACA improvements wish list.”

Of greatest concern to employers about the ACA is the Cadillac tax, the excise tax on what the law defines as “high-value” health plans. Even though imposition of the tax is delayed until 2020, most employers believe it will constrain their flexibility to expand or improve benefits as competition for talent intensifies. They also worry that with low limits on plan values and many open questions on the administration of the tax, it has the potential to prevent them from creating a total rewards portfolio aligned with their overall talent strategy.

computer-image

Image Source: Benefitnews.com

A 2014 Willis Towers Watson analysis, completed when the Cadillac tax was set to go into effect in 2018, found that nearly half of large U.S. employers would start to incur the tax in its first year. In response, many employers redoubled their efforts to anticipate and modify plans to avoid the tax.

Regardless, employers want the tax eliminated. If that cannot be accomplished, they would like to see regulatory guidance that addresses the provision’s inherent flaws and challenges. Employers would also want the thresholds that trigger the tax revised upward, which would give them more latitude to offer a slate of benefits that meets their business need.

Another ACA provision employers would like to see eliminated is the employer mandate. The mandate requires employers with 50 or more full-time equivalent employees to offer affordable healthcare coverage or face penalties. Employers object to this provision more on principle than out of a desire to discontinue offering healthcare benefits; they want to see less government involvement in employer-sponsored healthcare. But our research shows that the vast majority of employers — especially large employers — have no intention of discontinuing employee health benefits.

A more tactical reason employers want to see the mandate eliminated is because it created onerous compliance and reporting requirements that have significantly increased employers’ annual administrative costs and the complexity of day-to-day management.

Recently, it was revealed that a bipartisan group of lawmakers in the House have been quietly working on a bill that, among other things, would raise the employer mandate size limit from 50 to 500 full-time equivalent employees. Although completely eliminating the employer mandate would be preferred, this would be a welcomed by some employers while exacerbating inequities in the law for others.

Looking even more broadly at ways to improve the ACA, high on employers’ wish list are provisions that would address the high cost of healthcare. Reducing costs was a stated goal of the ACA, but as the law took shape and was debated in Congress, there was little to no agreement on how to achieve this. Interestingly, one of the most significant provision aimed at lowering costs was the creation of the excise tax.

Bottom line: When the ACA was first passed, most employers were apprehensive about several of the law’s provisions and worried about their ability to meet some of its requirements. Seven years later, nearly all employers have made the changes necessary to co-exist with the law. And now, after several attempts to pass healthcare legislation friendlier to employers have failed, many are now hoping Congress will turn its attention to the more productive work of improving existing law.

Legislators forsake $60M in savings by rejecting self-insurance

The article below was published on August 19, 2017 by Green Bay Press-Gazette, written by Mike Ferguson.

Wisconsin lawmakers are at an impasse over the state budget. Senate leaders can’t agree with their Assembly counterparts on how to fund road repairs, schools, and various agencies.

Resolving this dispute would be easier if lawmakers hadn’t rejected a reform of the state’s costly health insurance program. Switching state employees and their families to a “self-insured” plan could have freed up tens of millions of dollars.

Under such a plan, the state would have covered employees’ medical expenses directly, instead of paying a traditional health insurer and hoping premiums don’t increase. Cutting out the insurance company middleman could have saved millions and enabled Wisconsin to offer higher quality benefits to government workers. It’s a missed opportunity — one that lawmakers should reconsider next year.

The purpose of health insurance is to minimize financial risk. Individuals’ health spending can fluctuate from one year to the next. That’s why people pay premiums to insurers to protect themselves against costly, unpredictable events.

Organizations with hundreds of thousands of employees like the state of Wisconsin don’t experience such fluctuations. They have a steady mix of young and old workers, and healthy and sick ones, making expenses for the entire organization predictable.

The risk of a spike in expenses is virtually nonexistent. So it makes sense for employers like Wisconsin — which offers health coverage to 250,000 government workers and family members — to pay for care directly rather than fork over premiums to traditional insurers.

Budget analysts predicted that self-insuring would save Wisconsin at least $60 million over two years, according to the Wisconsin Group Insurance Board. Private research firm Segal Consulting found that switching to a self-insured plan would save the government $42 million annually.

Despite these projections, Wisconsin’s politicians rejected self-insurance. Instead, the state will continue buying traditional premiums from 17 local insurance carriers.

Some legislators worried that shifting state employees onto a self-insurance plan would deprive traditional insurers of business and force them to raise premiums on other large organizations.

That’s akin to arguing that taxpayers should continue wasting millions of dollars on inflated premiums to subsidize coverage for other large organizations.

Others argued that a switch to a self-insured plan is risky, given the uncertainty surrounding Congress’s attempts to repeal the Affordable Care Act.

But this uncertainty is actually an excellent reason to switch. Self-insured organizations don’t have to worry about premiums swinging wildly or facing a raft of new compliance burdens. Self-insurance is governed by a 40-year-old federal law that will be largely unaffected no matter what happens in Washington.

Instead of addressing the rising health care costs that drive up premiums, Wisconsin lawmakers have decided to shift those costs onto workers in the form of higher deductibles. They’re also raiding the state’s rainy day fund to help pay the coming year’s premiums. This isn’t a strategy for cutting costs.

Twenty-nine states already self-insure their employees’ coverage. Nineteen others self-insure at least some of their health plans. In fact, Wisconsin has been self-insuring its employees’ dental and pharmaceutical benefits for years with excellent results.

Private companies further prove the model’s effectiveness. Fifty-eight percent of all private sector employees are enrolled in self-funded plans. Businesses that self-insure save up to 12 percent on health expenses.

It’s unclear why state lawmakers left tens of millions of dollars on the table by rejecting self-insurance this budget session. But they’ll have the chance to correct their mistake during next year’s inevitable budget crunch.

For the sake of taxpayers and state employees, let’s hope they take it.

self-funding-video

Compliance Issues Keep Coming

ComplianceAll the talk about repeal and replace seems to have lulled many plan sponsors into a false sense of security, thinking that ACA regulations weren’t going to be enforced. Unfortunately, the IRS is preparing to begin penalizing non-compliant plans, which is why we continue to encourage our clients to keep their eye on the ball even though it is easier to follow the media frenzy coming from Capitol Hill.

DG Compliance

More Smaller Companies Are Self-Insuring Health Benefits

The article below was published on August 7, 2017 by Bloomberg BNA, written by Sara Hansard.

Small and midsized companies are increasingly providing their own health coverage for employees instead of buying fully insured plans since Obamacare was enacted in 2010.

As the Affordable Care Act drives up premiums because of more requirements and taxes, self-insurance has become a more attractive option because it is often less expensive than purchasing fully insured plans, people with knowledge of health insurance markets say. But some policy analysts argue the companies that are self-insuring generally have healthy employees and that leaving the fully insured risk pool results in higher costs for fully insured companies with older, less healthy employees.

Workers in Self-Insured Plans Rising
Percent of Private-Sector Enrollees in Self-Insured Plan

Photo source: BNA

Between 2013 and 2015, as a result of an increase in self-insured plans among small and midsized employers, the percentage of covered workers enrolled in self-insured plans increased from 58.2 percent to 60 percent, according to data from about 40,000 employers interviewed by the U.S. Department of Health and Human Services and compiled by the Employee Benefit Research Institute (EBRI).

Under self-insurance, expenses are paid directly by companies as they are incurred. Under fully insured policies, employers pay premiums to insurance companies that take the risk of covering employees. Sponsors of self-insured plans often purchase stop-loss policies that reimburse for catastrophic claims and/or aggregate claim totals that exceed pre-determined limits. Most large companies use self-insurance administered by insurers or third-party administrators.

The largest increases in self-insured coverage occurred in establishments with 100-999 employees, rising 21 percent from 33.6 percent of employees in 2013 to 40.5 percent in 2015, and among establishments with 25-99 employees, where the practice increased from 13.2 percent to 15.2 percent, a 15 percent increase.

For the midsized companies, “That is a sizable jump,” Paul Fronstin, director of health research and education at the Washington-based EBRI, told Bloomberg BNA. “You don’t see that kind of change too often.”

More Small Companies Capable

Data for 2016, which EBRI plans to publish shortly, show that self-insurance among small companies has continued to rise to 17 percent, Fronstin said. Many health-care policy observers predicted that increased regulations under the ACA would drive more small employers to self-insure, Fronstin said. “This is confirming the anecdotes.”

Self-insured plans generally have to follow the same regulations that govern fully insured plans under the ACA, Fronstin said. But “the ACA piled on. A lot of things added up,” such as covering part-time employees who work 30 hours a week and having to cover dependent children up to the age of 26, he said.

Healthier Risk Pool

Employers have found they can counteract some of the increased cost by self-insuring, “especially if you have a decent risk pool” of healthier employees, Fronstin said.

Mercer Health & Benefits LLC, which provides health-care consulting and brokerage services, has also found increases in the use of self-funding among the employers it surveys annually, principal James Bernstein told Bloomberg BNA. Bernstein is based in Mercer’s Cincinnati office.

The largest movement Mercer found was among midsized companies with 500 to 1,000 employees. Fifty-one percent of those companies self-insured in 2014, while 66 percent did so in 2016, Bernstein said. There are geographical differences as well, he said. Employers in the Midwest led the pack with about 74 percent self-insuring, while fewer employers in the Northeast and West Coast self-insured because health maintenance organizations such as Kaiser Permanente are more prevalent there, he said.

Self-insurance is gaining more traction among midsized companies because they can take advantages of discount programs with pharmacy benefit managers, national stop-loss carriers, and health management programs, Bernstein said. Those programs aren’t generally available to smaller companies, he said.

Companies Using Self-Insurance

Over the past five years that Hardwood Products Co. has been self-insured, health-care spending has decreased by about $900,000 even as the number of employees increased by 50 to about 470, Chief Financial Officer Scott Wellman told Bloomberg BNA. The company, based in Guilford, Maine, manufactures tongue depressors and other medical and nonmedical woodenware.

“The biggest reason we self-insure is the cost savings,” Wellman said. “It’s a misnomer to say you’re fully insured versus self-insured because you pay the claims anyway. I’d rather pay my claims as they happen, not a year after the fact.”

About 90 percent of Hardwood Products’ employees are in high-deductible plans with companion health savings accounts. For the past three years, premiums have stayed the same and deductibles have been lowered, Wellman said. “Our costs have stayed steady so we’ve given back to the employees.”

More Ability to Cut Costs

One of the main reasons employers self-insure is it gives them more power to lower medical expenses. Hardwood Products has about 30 diabetics, and the company partners with Tufts Health Plan in Boston on disease management practices, Wellman said. Costs for treating those patients average under $1,800 annually, far below national average costs between $4,500-$5,000 for claims, he said. “And they’re getting better care,” he said.

Hardwood Products has a stop-loss policy with Pareto Captive Services LLC to cover annual claims above $80,000. The average employee size of the 400 companies served by Pareto is about 120 employees, Andrew Cavenagh, founder and managing director of the Philadelphia-based company, told Bloomberg BNA.

The smallest employer covered by Pareto is 50 employees, Pareto said. The company, which started in 2011, has been growing at a rate of 30 percent to 40 percent per year, and the average stop-loss threshold level is $35,000 a year, he said. Pareto has contracts with employers that cover a total of about 50,000 employees,

Over the past year premium increases for long-term members “were effectively zero,” Cavenagh said. Typical stop-loss policies only cover excess claims for one year. Pareto’s stop-loss policies provide more protection from multiyear claims that exceed the threshold by pooling assets from its members, he said.

Service Uniform, a Denver-based company that rents work uniforms, decided to self-insure in 2014 as a result of the ACA, corporate general manager Dennis Tschida told Bloomberg BNA. “It scared us to death because there’s a lot of unknowns,” such as ensuring that plans met the law’s requirements for affordability and taking action to prevent being subject to the Cadillac tax on high-cost plans, he said. The Cadillac tax has been delayed until 2020.

Service Uniform, which has about 180 employees, still has to meet ACA requirements, but being self-insured “gives us a heck of a lot more control over everything,” Tschida said. “We can design the plans for the needs of the people.”

The company was able to modify its plan to provide employees better access to physical therapy treatments; improve the design of its pharmaceutical plan; and add telemedicine and concierge medicine services, Tschida said. The company, which had experienced 15 percent to 18 percent premium increases in prior years, was able to save about $200,000 in the first two years, he said.

AEgis Technologies Group Inc., a Huntsville, Ala.-based defense contractor, has had modest health-care cost increases from $8,355 in 2013 to $9,657 in 2016 after it began self-insuring, an increase of about 16 percent, Chief Financial Officer Rodney Kreps told Bloomberg BNA. During this period, he said, fully insured rates have climbed at annual rates of 15 percent to 20 percent. The company has about 325 employees.

AEgis also uses high-deductible plans coupled with health savings accounts, which the company helps fund. That gives employees incentives to be cost-conscious, and some employees have been able to build up HSA accounts to $1 million, which can be carried over from year to year, Kreps said.

“Every time the world has made a major shift to get costs under control it’s because you put decision power back in the hands of the consumer,” Kreps said. “That’s what self-insurance does.”

Stop-Loss Plans Offered to Healthy Groups

But some health-care policy analysts argue there is a downside to the trend of self-insurance. More insurers are offering self-funding and stop-loss plans to attract healthy employer groups, according to a study recently published by the Robert Wood Johnson Foundation (RWJF).

Self-insurance plans are “marketed almost exclusively to healthy groups, groups that have very, very good claims experience,” Sabrina Corlette, a research professor with Georgetown University’s Center on Health Insurance Reforms and an author of the study, told Bloomberg BNA.

“Once they self-fund they are no longer part of the risk pool for the ACA fully insured market,” Corlette said. “If you have a critical mass of healthy employers leaving the market, that can lead to premium hikes in the traditional, fully insured market,” she said. “You can have ever-increasing premiums for the employers that can’t qualify for the self-funded plans because they can’t pass underwriting.” In the past some states have acted to limit the use of stop-loss policy sales to small groups, Corlette said. But more recently, states such as New Mexico, Vermont and Minnesota have made it easier to sell stop-loss policies to small groups, she said. “Insurers and brokers are encouraging them to do that,” she said of the states moving in that direction.

self-fundingCTA

Bundled Payments Yielding Good Results

bundled-paymentsIn a previous newsletter, we discussed bundling introduced by Medicare which focuses on orthopedic and cardiac procedures. Through the mandatory initiative for comprehensive care for joint replacements (CJR), which became policy in 2016, some 800 hospitals are participating in the program.

While some sources report the results of bundling as mixed, Medicare reports that joint replacement payments increased by approximately 5% nationally, but decreased 8% for BPCI participants. One large health system achieved a 20.8% episode decrease and another reported a significantly shorter prolonged length of stay – a sign of fewer complications resulting from surgery.

Providers, both acute and post-acute, shared in the savings and indications are that post-acute savings were achieved because their care was bundled, placing these providers at risk. Even though efforts to repeal and replace or modify the Affordable Care Act are on hold, more healthcare providers and payers can be expected to embrace bundling going forward.

self-fundingCTA

Why U.S. Health Care Costs Defy Common Sense

The article below was published on June 26, 2017 by CNN, written by Elisabeth Rosenthal.

supreme-court

(CNN) – When Jeffrey Kivi’s rheumatologist changed affiliations from one hospital in New York City to another, less than 20 blocks uptown, the price his insurer paid for the outpatient infusion he got about every 6 weeks to control his arthritis jumped from $19,000 to over $100,000. Same drug; same dose — though, Kivi noted, the pricier infusion room had free cookies, Wi-Fi and bottled water.

Mary Chapman, diagnosed with multiple sclerosis, started taking a then-new drug called Avonex in 1998, which belongs to a class of drugs called disease-modifying therapies. Approved in 1996, Avonex was expensive, about $9,000 a year. Today, two decades later, it’s no longer the latest thing — but its annual price tag is over $62,000.

Marvina White’s minor elective outpatient surgery to remove an annoying cyst on her hand was scheduled in 2014 based on her doctor’s availability. Because it was booked in a small facility that is formally classified as a hospital (with two operating rooms and 16 “spacious private suites”) rather than the outpatient surgery center where the doctor also practiced, the operating room fee was $11,000 rather than $2,000.

Len Charlap had two echocardiograms — sonograms of the heart — within a year: One, for $1,714, involved extensive testing at a Harvard training hospital; the other, for $5,435, was a far briefer exam at a community hospital in New Jersey.

It is not just that US healthcare is expensive, with price tags often far higher than those in other developed countries. We know that. At this point, Americans face astronomical prices that quite simply defy the laws of economics and — as each of the above patients noted when they contacted me — of decency and common sense.

‘The balance sheet just doesn’t work out’

“It’s the prices, stupid.”

This phrase, part of the title of a 2003 scholarly article in the journal Health Affairs explaining high US health expenditures, has been bandied about by a number of health economists for years.
But politicians have long been prone to ignore this essential wisdom. They do so today at their own peril. Outraged Americans at Town Hall meetings are wising up. Like patients who I’ve spoken to in my last few years of reporting, they have experienced the bankrupting and baffling illogic of US medical prices firsthand.

With the prices the US medical system demands for care, it’s no wonder that Republicans have had so much trouble finding a recipe to replace the Affordable Care Act, aka Obamacare, with “something better” for less money, as they’ve promised endlessly to do. Ironically, despite the extreme differences, the GOP is stumbling on the same underlying problem that ultimately tarnished the ACA in critics’ eyes: spiraling prices often necessitated skyrocketing premiums and deductibles, belying the “affordable” moniker. The balance sheet just doesn’t work out.

Any plan to solve America’s health care mess must confront this reality: Our prices for tests, drugs, hospitalizations and procedures — old or new — have gone up dramatically year by year, and are vastly higher than in other developed countries. Indeed, prices for similar interventions in other countries have often declined.

Why? The United States — more or less alone among developed countries — has no direct mechanism to rationalize prices for medical encounters, to insure they are at least nominally related to value. Worse still, we alone effectively allow businesses — mostly for-profit — to set the asking price. And, as these examples show, price and value have in many cases become completely uncoupled, allowing price to travel into the stratosphere.

The perils of ‘sticky pricing’

According to the rules of economics, the prices of innovative, breakthrough medical offerings should go down as they become more common. Competition should reduce prices as more manufacturers enter the field allowing purchaser-prescribers to choose from alternatives.
The pricing of pharmaceuticals and treatments in the United States often does exactly the opposite. Continue reading

Views Limiting the employer tax exclusion for healthcare is the wrong idea

The article below was published on June 7, 2017 by Employee Benefit News, written by Craig Hasday.

The Republicans are looking everywhere for funds to fix healthcare, as well they should. This problem is not an easy one to solve, however. Under the Affordable Care Act, employers were faced with the Cadillac tax. As a result, they wasted no time planning to mitigate the effect. While the Democrats seemed to believe that this was a pot of gold available to solve some of the cost issues, the reality turned out much differently.

Consultants, like me, have spent the last few years planning for our clients to avoid ever paying the Cadillac tax. Employers fled to health savings accounts, self-insured plans and any strategy that would reduce costs below the taxable threshold. Instead of a pot of gold, there was a leprechaun at the end of the rainbow waiting to laugh at the CBO scoring, which had predicted billions in revenue.

Now, some prominent Republicans are looking to limit the employee health insurance tax exclusion or its counterpart, the employer deduction, to fund healthcare for the uninsured. I am hopeful that they take the time to look closely at the potential impact of this decision.

Peeling back the onion, altering the tax-favored status of employer-provided benefits will have the same effect as the Cadillac tax — employers are going to plan around it. More than 175 million Americans get healthcare through their employer, and this is not a progressive benefit. If the employer exclusion is eliminated there would be little incentive for employers to continue to provide benefits — and if they do, the pressure to reduce costs, and thus benefits, will be intense. The impact on lower-paid workers would be far greater than the more highly-compensated group.

Finding the pot of gold

Politicians may not be listening, but the effect of this change in tax treatment would be the opposite of what is desired. We need to go after the cost of healthcare. That’s the pot of gold.

Here are some suggestions to go after cost:

  • Further encourage the shift from pay-for-volume or pay-for-services-rendered to reimbursement of providers based upon value and the outcome of treatment.
  • Make drug pricing fairer; eliminate rebates which obscure real prices and regulate obscene pharmaceutical profits for patent-protected drugs.
  • Introduce meaningful tort reform.
  • Expand Medicaid in every state. This is the platform that should be used for subsidized care.

Each one of these changes is going to require a great deal of effort, but they are better than an ill-fitting Band-Aid which is just going to make healthcare even more expensive for the individual.

why-diversified-group