By David Greene, Senior Principle, The Tori Group
The Current Sitch
Much has been written about why insurance rate increases delivered to Exchanges across the country for the 2015 open enrollment season are lower than in previous years. Several reasons are offered in research and reporter driven essays that can be found all over the place - and a sense of debate will continue on this (no doubt largely based on political and/or special interest perspectives). We hear about variables like guaranteed issue and the implementation of Essential Health Benefits cited. These are variations on the edges.
After being able to kick the tires of the proposed 2016 Actuarial Value Calculator (AVC), what becomes clear is - compared to output of the 2015 AVC - benefit designs people are now enrolling in for 2015 will see a significant increase in AVC results at the lower tier level (i.e. Bronze) and diminishing impact as the metal tiers increase up to the platinum level. So, what does this mean in non wonk speak: Expect that through 2016, healthcare costs are still rising at a healthy clip.
So What Gives?
Recently, there was a statement from the Centers for Medicare and Medicaid Services' (CMS) that its actuary now projects health spending will grow on average 5.7 percent each year through 2023 (this means health care's share of GDP in will go from 17.2% to 19.3% - or to about $5.2 trillion). That's a gloomy shadow being cast on hoped for cost containment. On the other hand, an article in the NY Times did a pretty good job laying out why costs may rise, but not at the CMS cited pace. It too is not necessarily a cheerful piece of reading, but it does clear out some of the gloomy clouds. So, who's right? Or, who's even less wrong? A: Doesn't matter.
There is a fundamental reason to believe we will see costs of healthcare services continue to rise post implementation of the Affordable Care Act and here it is: In and of itself, the ACA does very little, if anything, to mitigate the cost of healthcare. It's focus is on the financing of healthcare delivery. The ACA is financing the same healthcare delivery systems for health care we have had for decades. So, why should we expect the cost trend to change?
What both the CMS statement and the recent article cited show is a country who already overspends on medical services is on trajectory to overspend in greater amounts moving forward. On current path, some may see a future where premiums rise to levels where both subsidy amounts fail to be meaningful for the poor to get coverage and a growing (perhaps unsustainable) burden on tax payers exists. Feel gloomy - it does to me. This all said, a more meaningful measure to consider is what the values of the new AVC are offering to us as a look - not at what has happened - but what is to come (steady increases).
But let's consider this, there are a ton of exchanges out there. And many of these exchanges have the ability to establish rules for participation. So, what if this scale and scope were utilized to curb costs? And, what if at the same time, we could align market forces to make available metrics all could use to better transparency and ultimately drive quality? Sounds a bit "pie in the sky". But it may be closer to us than we may think.
There are some interesting things Exchanges and health insurers - and regulators - can consider to take advantage of new market dynamics resulting from the ACA implementation to curb costs.
Short (and overly incomplete) History Lesson
No matter what is written in this section, some will debate and point out some perspective nearer to them and where I may know little. But let's take the plunge anyway to talk at a high level and appreciate some of the factors affecting healthcare in the last 25 or so years.
Employers were screaming for lower premiums as costs were going through the roof, and insurance companies reacted to this with new kinds of plans. So, in the 80's and 90's, capitated plans spawned copays being driven down to a level of $5 for a doctor visit and premiums that could still be paid for in most if not all by the employer. And when you are charged $5 for an office visit, the logical conclusion for people to make is that a doc visit cost five bucks. At the time we as consumers didn't care to think through $5 being meaningful to pay office rent or staff salaries. Nor did we connect $5 being comedic against the real costs of the doctors visit when we had to pay $6 to get out of the parking garage after the visit (unless of course the doctor's office validated the visit).
The point is that while employees didn't feel the cost of care crunch before 80's/90's, employers sure did. And when the HMO based solution came to roost, consumers were not only further shielded from the cost of care, but the expectations as to its cost was even lowered! However, employer health coverage renewed annually and employers rationally shopped the business looking for lower rates and they often switched carriers. Thus, the year-over-multi-year population health potential/responsibility of HMO contracted medical groups never came to fruition - and they still had access to expensive hospital services. Premiums went down for a while and then rose again.
So look at what is happening here:
· Consumers (you and I):
· Learn fixing our health is cheap, so why care (about the costs or our physical condition)? Insurance is paying, so why not go to doctors frequently and get every test available.
· Providers:
· Learn they can still perform services with little concern for cost (why not?, most everything is still paid for by insurance companies).
· Insurers
· Learn finding a model that lowers consumer and employer cost has ultimately lead to higher utilization and higher costs.
So, costs temporarily dip down and then continue their rise. And in following the money, no one in the supply chain is accountable to anyone else. Check it out... in the above we aren't even accountable for our own health! How are any of these outcomes aligned to be healthy and contain costs?
Tapping Exchange Potential on Costs, Transparency, and Quality
Yes, there are many reasons healthcare costs are what they are (and will keep rising). And with all the cooks in the healthcare kitchen, no one chef is going to be able to unscramble all the intertwined connections. Exchanges can't do it all. This said, because of its market reach and impact, Exchanges and health plans have huge potential for being a key component in changing health care cost trends. What also is good is that reaching this potential does not need to take place via sweeping actions. In fact, a surgical approach would be more meaningful and efficient.
The HMO history example focused on primary care visits is purposefully selected to highlight the effect a copay can have on consumer and industry behavior. The example of an office visit is not the most powerful place for Exchanges/Carriers to instate change that drives cost consideration across the supply chain. This is because the negotiated rate most carriers have with physicians is relatively tight (typically in the $100-150 range).
However, let's now consider areas of widespread costs: Imaging, specialty drugs, inpatient care, outpatient services, skilled nursing facilities and others. These can have a huge range in cost of services - and most of them have significant impact on AVC. This is a brief blog-ish perspective, not a book. So let's just pick on Imaging today.
When we say imaging, we don't mean x-rays. Instead, we are referring to MRI's, Echo-cardiograms, CT Scans, PET Scans, and other more involved tests. For the same test, costs can be high or really high. Let's focus on echo-cardiograms. Based on Medicare database info, costs for the same test can range from under $1,000 to over $10,000 in one city. And types of facilities matter as well: In the Boston area teaching hospitals average around $1,300 for an echo-cardiogram, other hospitals in the area charge an average of $5,200.
To place a copay - instead of coinsurance - on this wide range is doable, but it comes with consequences. A copayment for an echo-cardiogram (whether it be $250, $350, or $1,000) has a short term benefit in that a consumer will know at time of purchase what the test will cost before they choose a plan (should they ever need it... and odds for most people are against them needing it). However, the longer term effects can be bad. First, consumers may be paying $350 in copay for a test that actually costs $225. But even worse, the copay would shield the cost of the test and not provide incentive for imaging facilities to disclose cost or quality of outcome information (which is information we don't have today). Although copays and coinsurance may be actuarially equivalent at first, in just a few years copays for wide range of cost benefits dilute competition at the delivery services level and dilute consumer's active participation in the cost of services. This does more harm than good. In this case, harm takes the form of higher and higher premiums.
In a World of Instant Everything, This One Will Take Time (and Faith)
The ACA kicked-off a consumer market for health care with characteristics that never before existed. What would be a shame is to not look at this and consider ways we can use the ACA to curb costs. We need to remember this new age of consumerism is in the embryo stage. Launching the ACA may feel like a sprint right now, but it in fact is a long-term endeavor.
When first launched, they were to be called "Marketplaces". Since launch, "Marketplace" (inferring a coming together where both buyers and sellers are active in the process) has already been replaced by the word "Exchanges" (a process where one thing is swapped out for another based on predefined alignment). Success longer-term will depend on active behaviors at all levels. Consumers shop... so let's let them shop. The shopping process is to learn about what you want/need, and find the right cost/quality mix for you. This decision making process has been done daily for eons, was certainly done before any of our third-grade lunch trades, and is something we all do today. The faith part is these decision making processes won't stop - which is actually a pretty safe bet. In turn, this shopping behavior is what will drive further cost transparency and development of quality measures people will refer to with confidence. This kind of transparency and measures of quality don't exist now.
However, by aligning market forces, by consumers learning to apply the shopping behavior they already do to healthcare, and by providers of services learning to more actively compete, this more healthy (pun intended) environment for us all will happen faster and in the most meaningful way.
As mentioned above, Exchanges can't in and of themselves bend the health care cost escalation trend. They are only one ingredient in the recipe. But in many states where the Exchange can (or should) influence plan design, they can be a key spice mixed in that can better enable other ingredients (e.g. new care delivery models, plan selection and use tools, availability of cost comparisons, etc.) to be more bold and meet our tastes.
The Current Sitch
Much has been written about why insurance rate increases delivered to Exchanges across the country for the 2015 open enrollment season are lower than in previous years. Several reasons are offered in research and reporter driven essays that can be found all over the place - and a sense of debate will continue on this (no doubt largely based on political and/or special interest perspectives). We hear about variables like guaranteed issue and the implementation of Essential Health Benefits cited. These are variations on the edges.
After being able to kick the tires of the proposed 2016 Actuarial Value Calculator (AVC), what becomes clear is - compared to output of the 2015 AVC - benefit designs people are now enrolling in for 2015 will see a significant increase in AVC results at the lower tier level (i.e. Bronze) and diminishing impact as the metal tiers increase up to the platinum level. So, what does this mean in non wonk speak: Expect that through 2016, healthcare costs are still rising at a healthy clip.
So What Gives?
Recently, there was a statement from the Centers for Medicare and Medicaid Services' (CMS) that its actuary now projects health spending will grow on average 5.7 percent each year through 2023 (this means health care's share of GDP in will go from 17.2% to 19.3% - or to about $5.2 trillion). That's a gloomy shadow being cast on hoped for cost containment. On the other hand, an article in the NY Times did a pretty good job laying out why costs may rise, but not at the CMS cited pace. It too is not necessarily a cheerful piece of reading, but it does clear out some of the gloomy clouds. So, who's right? Or, who's even less wrong? A: Doesn't matter.
There is a fundamental reason to believe we will see costs of healthcare services continue to rise post implementation of the Affordable Care Act and here it is: In and of itself, the ACA does very little, if anything, to mitigate the cost of healthcare. It's focus is on the financing of healthcare delivery. The ACA is financing the same healthcare delivery systems for health care we have had for decades. So, why should we expect the cost trend to change?
What both the CMS statement and the recent article cited show is a country who already overspends on medical services is on trajectory to overspend in greater amounts moving forward. On current path, some may see a future where premiums rise to levels where both subsidy amounts fail to be meaningful for the poor to get coverage and a growing (perhaps unsustainable) burden on tax payers exists. Feel gloomy - it does to me. This all said, a more meaningful measure to consider is what the values of the new AVC are offering to us as a look - not at what has happened - but what is to come (steady increases).
But let's consider this, there are a ton of exchanges out there. And many of these exchanges have the ability to establish rules for participation. So, what if this scale and scope were utilized to curb costs? And, what if at the same time, we could align market forces to make available metrics all could use to better transparency and ultimately drive quality? Sounds a bit "pie in the sky". But it may be closer to us than we may think.
There are some interesting things Exchanges and health insurers - and regulators - can consider to take advantage of new market dynamics resulting from the ACA implementation to curb costs.
Short (and overly incomplete) History Lesson
No matter what is written in this section, some will debate and point out some perspective nearer to them and where I may know little. But let's take the plunge anyway to talk at a high level and appreciate some of the factors affecting healthcare in the last 25 or so years.
Employers were screaming for lower premiums as costs were going through the roof, and insurance companies reacted to this with new kinds of plans. So, in the 80's and 90's, capitated plans spawned copays being driven down to a level of $5 for a doctor visit and premiums that could still be paid for in most if not all by the employer. And when you are charged $5 for an office visit, the logical conclusion for people to make is that a doc visit cost five bucks. At the time we as consumers didn't care to think through $5 being meaningful to pay office rent or staff salaries. Nor did we connect $5 being comedic against the real costs of the doctors visit when we had to pay $6 to get out of the parking garage after the visit (unless of course the doctor's office validated the visit).
The point is that while employees didn't feel the cost of care crunch before 80's/90's, employers sure did. And when the HMO based solution came to roost, consumers were not only further shielded from the cost of care, but the expectations as to its cost was even lowered! However, employer health coverage renewed annually and employers rationally shopped the business looking for lower rates and they often switched carriers. Thus, the year-over-multi-year population health potential/responsibility of HMO contracted medical groups never came to fruition - and they still had access to expensive hospital services. Premiums went down for a while and then rose again.
So look at what is happening here:
· Consumers (you and I):
· Learn fixing our health is cheap, so why care (about the costs or our physical condition)? Insurance is paying, so why not go to doctors frequently and get every test available.
· Providers:
· Learn they can still perform services with little concern for cost (why not?, most everything is still paid for by insurance companies).
· Insurers
· Learn finding a model that lowers consumer and employer cost has ultimately lead to higher utilization and higher costs.
So, costs temporarily dip down and then continue their rise. And in following the money, no one in the supply chain is accountable to anyone else. Check it out... in the above we aren't even accountable for our own health! How are any of these outcomes aligned to be healthy and contain costs?
Tapping Exchange Potential on Costs, Transparency, and Quality
Yes, there are many reasons healthcare costs are what they are (and will keep rising). And with all the cooks in the healthcare kitchen, no one chef is going to be able to unscramble all the intertwined connections. Exchanges can't do it all. This said, because of its market reach and impact, Exchanges and health plans have huge potential for being a key component in changing health care cost trends. What also is good is that reaching this potential does not need to take place via sweeping actions. In fact, a surgical approach would be more meaningful and efficient.
The HMO history example focused on primary care visits is purposefully selected to highlight the effect a copay can have on consumer and industry behavior. The example of an office visit is not the most powerful place for Exchanges/Carriers to instate change that drives cost consideration across the supply chain. This is because the negotiated rate most carriers have with physicians is relatively tight (typically in the $100-150 range).
However, let's now consider areas of widespread costs: Imaging, specialty drugs, inpatient care, outpatient services, skilled nursing facilities and others. These can have a huge range in cost of services - and most of them have significant impact on AVC. This is a brief blog-ish perspective, not a book. So let's just pick on Imaging today.
When we say imaging, we don't mean x-rays. Instead, we are referring to MRI's, Echo-cardiograms, CT Scans, PET Scans, and other more involved tests. For the same test, costs can be high or really high. Let's focus on echo-cardiograms. Based on Medicare database info, costs for the same test can range from under $1,000 to over $10,000 in one city. And types of facilities matter as well: In the Boston area teaching hospitals average around $1,300 for an echo-cardiogram, other hospitals in the area charge an average of $5,200.
To place a copay - instead of coinsurance - on this wide range is doable, but it comes with consequences. A copayment for an echo-cardiogram (whether it be $250, $350, or $1,000) has a short term benefit in that a consumer will know at time of purchase what the test will cost before they choose a plan (should they ever need it... and odds for most people are against them needing it). However, the longer term effects can be bad. First, consumers may be paying $350 in copay for a test that actually costs $225. But even worse, the copay would shield the cost of the test and not provide incentive for imaging facilities to disclose cost or quality of outcome information (which is information we don't have today). Although copays and coinsurance may be actuarially equivalent at first, in just a few years copays for wide range of cost benefits dilute competition at the delivery services level and dilute consumer's active participation in the cost of services. This does more harm than good. In this case, harm takes the form of higher and higher premiums.
In a World of Instant Everything, This One Will Take Time (and Faith)
The ACA kicked-off a consumer market for health care with characteristics that never before existed. What would be a shame is to not look at this and consider ways we can use the ACA to curb costs. We need to remember this new age of consumerism is in the embryo stage. Launching the ACA may feel like a sprint right now, but it in fact is a long-term endeavor.
When first launched, they were to be called "Marketplaces". Since launch, "Marketplace" (inferring a coming together where both buyers and sellers are active in the process) has already been replaced by the word "Exchanges" (a process where one thing is swapped out for another based on predefined alignment). Success longer-term will depend on active behaviors at all levels. Consumers shop... so let's let them shop. The shopping process is to learn about what you want/need, and find the right cost/quality mix for you. This decision making process has been done daily for eons, was certainly done before any of our third-grade lunch trades, and is something we all do today. The faith part is these decision making processes won't stop - which is actually a pretty safe bet. In turn, this shopping behavior is what will drive further cost transparency and development of quality measures people will refer to with confidence. This kind of transparency and measures of quality don't exist now.
However, by aligning market forces, by consumers learning to apply the shopping behavior they already do to healthcare, and by providers of services learning to more actively compete, this more healthy (pun intended) environment for us all will happen faster and in the most meaningful way.
As mentioned above, Exchanges can't in and of themselves bend the health care cost escalation trend. They are only one ingredient in the recipe. But in many states where the Exchange can (or should) influence plan design, they can be a key spice mixed in that can better enable other ingredients (e.g. new care delivery models, plan selection and use tools, availability of cost comparisons, etc.) to be more bold and meet our tastes.
RSS Feed
