One of the best results of the ACA (Affordable Care Act aka Obamacare) was that it started a national conversation about health care delivery and financing in our country. In this column I hope to inform the reader on how these systems are inter-related.
First and foremost the reader must understand that the primary driver of health insurance premiums is actual health care costs. The ACA requires that insurers pay out about 85% of every premium dollar in direct health care costs to providers. Insurers have been aggressive about cutting their costs and profits are running about 2% of your premium dollar. Granted it’s a huge amount of dollars so they get no sympathy from any of us.
But I will give them sympathy for the fact that they are continually trying to adjust to new rules. Since the election uncertainty is now the biggest challenge facing insurance companies. Be assured that this is a market that lives by actuarial principles, so uncertainty is one of their worst nightmares.
Mercer, one of the nation’s largest insurance brokerages, recently launched a brief employer survey regarding the first Republican attempt at “repeal and replace” since the election: the AHCA. Of 900 employers, the responses were primarily negative toward the bill. The only very positive response came in the area of supporting the expansion of HSA (Health Savings Accounts).
Interestingly, 65% believe that cutting funding for public health and Medicaid cut backs would negatively their communities and their plans. I suspect this is because most large employers are acutely aware of the effect of cost shifting on their plans. Cost shifting means that hospitals and other providers will increase their charges to the private plans in order to cover losses for delivery of care in the public sector, such as MediCAL or the uninsured.
They weren’t enamored of the change to a 40 hour week threshold for eligibility. This is likely because HIPAA established the 30 hour eligibility in 1996 and most employers have adjusted. Retail and food service are the industries most impacted by the ACA because they have traditionally not provided benefits to their employees, while other industries have done so.
The biggest issue for these employers has been the Cadillac tax. This provision charges an excise tax on what are considered to be rich benefit plans. Mercer estimates 23% of large employers will be subject to the tax in 2020 and 46% in 2025.
Mercer’s poll showed that what employers really want is help controlling Rx cost. Again, we are back to the reality that what drives health insurance premiums is health care costs. If we can control or reduce the costs of pharma we reduce overall costs. Medications can often be a low cost management tool for diseases like hypertension and cholesterol. No one argues the validity of their use.
Most health plans are spending in the range of 20-25% of premium on Rx costs. Insurers are continuing to find ways to encourage the use of lower cost drugs such as defining tiers and requiring higher copays for high cost or higher risk drugs. SB17 was recently introduced in California to require more transparency in Rx costs. It would be interesting to see something like that on a federal level.
Dr. Jerry Avorn, a professor at Harvard Medical School and critic of some drug company practices, said the industry “has brought this on itself by charging prices that are so astonishing, it makes citizens wonder, ‘Where did this figure come from?’ ”
Apparently Anthem is having the same issues as they are firing Express Scripps over allegations that they were overcharged by $15 Billion.
As an aside, I would love to see a study on the costs of Rx since the implementation of Medicare Part D in 2006. Prior to that there was no Rx coverage for Medicare beneficiaries.
One other issue in the AHCA that continues to get little support from the insurance or employer sector is the provision to sell across state lines. While it makes for a great sound bite, most knowledgeable folks in the industry agree that it is a waste of time to follow that trail as a cost control measure.
Representative Doug LaMalfa spoke at our professional association meeting last week and confirmed that he is certainly not an expert on these issues, but his goal was to do what is best for his constituents. I believe it is incumbent on all of us to assist him in a direct and respectful manner. Since pharma increased lobbying spending in the first 3 months of 2017 by $4.42 million, we have a lot to do!
In the meantime, we must do our part to adopt health lifestyles that keep us away from high cost medical services.