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.

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Price Transparency In Medicine Faces Stiff Opposition — From Hospitals And Doctors

The article below was published on July 25, 2017 by Kaiser Health News, written by Rachel Bluth.

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Photo Source: Kaiser Health News

COLUMBUS, Ohio — Two years after it passed unanimously in Ohio’s state Legislature, a law meant to inform patients what health care procedures will cost is in a state of suspended animation.

One of the most stringent in a group of similar state laws being proposed across the country, Ohio’s Healthcare Price Transparency Law stipulated that providers had to give patients a “good faith” estimate of what non-emergency services would cost individuals after insurance before they commenced treatment.

But the law didn’t go into force on Jan. 1 as scheduled. And its troubled odyssey illustrates the political and business forces opposing a common-sense but controversial solution to rein in high health care costs for patients: Let patients see prices.

Many patient advocates say such transparency would be helpful for patients, allowing them to shop around for some services to hold down out-of-pocket costs, as well as adjust their household budgets for upcoming health-related outlays at a time of high-deductible plans.

At the Ohio Statehouse, the law’s greatest champion in state government has been Rep. Jim Butler, a Republican and former Navy fighter pilot whose wife is a physician. He authored the legislation and has beat the drum for it since he got the idea in 2013, as he waited for a garage mechanic to repair his car and absorbed the shop’s posted rates for brake jobs, oil changes and tuneups.

Opposition has been formidable, led by the goliath Ohio Hospital Association. It has filed a court injunction that is currently delaying enactment, peppered local news media with editorials, and lobbied Republican Gov. John Kasich, who has eliminated funding that would allow implementation from the latest state budget.

Joining the hospital association in its legal action are a wide range of provider groups including the Ohio State Medical Association, the Ohio Psychological Association, the Ohio Physical Therapy Association, and the Ohio chapters of the American Academy of Pediatrics, the American College of Surgeons, and the American Osteopathic Association.

These groups say that the law, which applies only to elective procedures, is too broad and that forcing providers to create estimates before procedures would slow down patient care. “The only way to even try to comply with the law is to delay care to patients in order to track down information from insurance companies, who may or may not provide the requested information,” wrote Mike Abrams, the president and CEO of the Ohio Hospital Association, in an op-ed in The Columbus Dispatch in January.

But Jerry Friedman, a retired health policy adviser for the Ohio State University Wexner Medical Center, said the opposition doesn’t stem from genuine concern about patients but from a desire to keep the secret rates that providers have negotiated with insurers under wraps. Transparency would mean explaining to consumers why the hospital charged them $1,000 for a test, he said, adding that providers “don’t want to expose this house of cards they’ve built between hospital physician industry and the insurance industry.”

Said Butler on his quest to see the law enacted: “The health care industry has a lot of political power and lots of money. It’s hard to fight on behalf of people against this kind of force.”

The law’s next test will come in August, when the first court hearing on the association’s lawsuit is scheduled. The Kasich administration said it couldn’t comment on the law because of the pending litigation.

Greater price transparency has been a popular policy prescription for America’s high health costs, especially at a time when many patients have high-deductible insurance plans and face larger copayments. Upfront estimates exist in other countries, such as Australia and, for patients facing out-of-pocket expenses, in France.

In Massachusetts, patients can get an estimate within two days of admission if they ask for it. Nebraska requires hospitals and surgical centers to provide a list of the average charges for services. New Hampshire has a website where consumers can compare costs.

Hospitals and doctors often oppose such measures. The American Hospital Association’s position is that health plans — not hospitals — are responsible for telling insured patients about their out-of-pocket costs, according to its website.

Aimee Winteregg, 35, of Troy, Ohio, said she would have liked such information before five miscarriages in four years left her buried in unexpected medical bills. She and her husband became first-time parents in November. Though they are well insured, tests and treatment cost the couple $4,000 out-of-pocket, demanded in bills that were sometimes no more descriptive than for “medical service.”

“We don’t want to deal with this, especially when the doctor tells you stress is bad for the pregnancy,” her husband, J.D., said. But imposing greater transparency has been controversial in both the medical industry and among some health care researchers, who say it puts patients in an untenable position.

The transparency law “was written by someone thinking about health care as a TV, and not as health care,” said Sandra Tanenbaum, a professor of health services management and policy at The Ohio State University College of Public Health.

She said people could not shop for procedures as they would for a TV or car repairs, since they often lack information on the quality of doctors and hospitals, and make health care decisions based on much more than cost.

Consumers are more likely to base their decisions on their doctors’ advice, not on cost alone, according to a report from the Health Policy Institute of Ohio.

Only around 10 percent of health care costs are even “shoppable” expenses — procedures that can be scheduled in advance, like an MRI or elective surgery — according to the HPIO.

Regardless, Butler maintains, the health care industry can give consumers better information upfront. “If you really want patients to be empowered, they really need the information,” he said.

In support of such access, Butler has written letters to the Ohio Hospital Association, the Ohio attorney general and the Dayton Daily News, all in defense of the transparency law.

The Ohio Hospital Association, along with seven other Ohio health organizations, went to court last December to block the law, a month before it was supposed to take effect.

Butler said Gov. Kasich’s administration is helping the hospital association stall by not writing regulations, eliminating funding for the law in the state budget, and declining to meet with Butler to discuss it.

State Rep. Michael Henne, also a Republican, has worked with Butler in the Ohio General Assembly on the transparency law. He called Butler a “driver” on the law, noting: “It’s frustrating. You don’t realize how much [influence] special interests have in the process.”

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.

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4 ways employers can prepare for healthcare changes

The article below was published on June 23, 2017 by Employee Benefit News, written by Mark Johnson.

The new healthcare bill, revealed by U.S. Senate Republicans Thursday, could bring significant changes to organizations and their employees. Granted, there’s a long way to go before any Obamacare replacement legislation is signed. But health insurance is a complex component of running any business, and it’s important that employers start preparing for what might come.

Here are four actions items employers should be addressing now.

1. Create a roadmap. A compliance calendar is a helpful tool in identifying major deadlines. Employers are legally obligated to share health insurance and benefits updates with their employees by certain dates. Employees must be given reasonable notice — typically 30 days prior — of a major change in policy. There will likely be a set date for compliance and specific instructions around notice requirements that accompany the new legislation.

One step to compliance is adhering to benefit notice requirements. Benefit notices (i.e., HIPAA, COBRA, Summary Plan Descriptions, Special Health Care Notices, Health Care Reform, Form 5500 and others) vary by the size of the organization. Other steps can be more involved, such as required changes to plan design (e.g., copays, deductibles and coinsurance), types of services covered and annual and lifetime maximums, among others. Create a compliance calendar that reflects old and new healthcare benefit requirements so you can stay on track.

Senate Majority Leader Mitch McConnell (R-Ky.)
Image Source: benefitnews.com

2. Rally the troops. Managing healthcare compliance spans several departments. Assemble key external and internal stakeholders by department, including HR, finance, payroll and IT.

Update the team on potential changes as healthcare legislation makes its way through Congress so they can prepare and be ready to execute should a new bill be signed. HR is responsible for communicating changes to employees and providing them with information on their plan and benefits. Finance needs to evaluate how changes in the plan will affect the company’s bottom line. Payroll must be aware of how much of an employee’s check to allocate to health insurance each month. In addition, payroll and Human Resources Information Systems (HRIS) are used to track and monitor changes in employee population, which helps employers determine benefit notice and compliance requirements. All departments need to be informed of the modified health insurance plan as soon as possible and on the same page.

3. Get connected. It’s essential to verify information as it’s released, via newsletters, seminars, healthcare carriers, payroll vendors and consultants. These resources can help employers navigate the evolving healthcare landscape. Knowledge of changes will empower an organization to handle them effectively.

4. Evaluate partnerships. There’s no better time for employers to examine their current partners, from an insurance consultant or broker to the accounting firm and legal counsel. An employer’s insurance consultant should be a trusted adviser in working on budgeting and benchmarking the company plan, administering benefits, evaluating plan performance and reporting outcomes. Finding an insurance solution that meets a company’s business goals, as well as its employee’s needs, can be accomplished with a knowledgeable, experienced insurance partner.

Staying ahead of healthcare changes is essential for organizations to have a smooth transition to an updated healthcare plan. Strategic planning, communication among departments and establishing the right partnerships are key. Employers must be proactive in addressing healthcare changes so they are ready when the time comes.

DG Compliance

Why U.S. Health Care Costs Defy Common Sense

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

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(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.

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