By Dave Gardner
Frustrated employers around the nation are swimming in murky waters with process instability, plus unending cost increases, as they face health insurance enrollments for 2018 within America’s $3 trillion-plus health care system.
Despite the ferocious hub-bub in Washington about the Affordable Care Act (ACA) being responsible for health insurance price increases, data clearly is indicating that overall policy costs have been increasing for decades, and long before the ACA was signed into law. In reality, insurance costs revolve around the complex actuarial system, where highly trained analysts examine historical claims and costs and then use this data to forecast product pricing for the coming year.
All available data is now indicating that the nation’s steep insurance costs and unending price increases are hugely the result of exploding costs and usage for pharmaceuticals, new technology acquisition, and escalating provider usage by patients. In addition, the ACA has inflicted some minor indirect increases to pay for its insurer mandates such as standardized basic benefits, young adults up to 26 years old remaining on their parents’ policy and coverage of pre-existing conditions.
Above all, insurance policies must be financially sustainable from the standpoint of revenues versus costs. Pennsylvania insurers are required to work with Harrisburg for their products to be externally reviewed, which may include public hearings.
ACA policies sold through the Internet have proven to be a mine field of unpredictability, because the carriers originally selling these on the Internet had no historical data about the claims they would receive. Price corrections then followed as this pool of insured customers turned out to be much sicker and therefore more expensive in terms of claims than originally forecast.
Yet, some insurers report that their overall ACA insurance is enjoying a 95 percent stability for the involved insurance products. This scenario is playing out in a national environment where health insurance, as a whole, is only generating a margin of 3 percent to 5 percent.
Cash reserves for insurance carriers are also vital if mass claims with high payouts occur, such as from a disease pandemic. The insurance company must be protected against cash exhaustion that would flow to providers, and Harrisburg creates these reserves guidelines that each insurance company must comply with.
Investment and its inherent needs for cash have also become a big issue for modern health care providers as they compete within a free-market system for patient dollars. The Geisinger Health System, one of the state’s most well-known organizations, spent $330 million on buildings, equipment and capitalized information technology during the past fiscal year.
In addition, spending of $445 million has marked the current fiscal year. Buildings and equipment represent about 75 percent of capital expenditures, with technology accounting for the remaining 25 percent.
At the Geisinger Wyoming Valley Medical Center in Wilkes-Barre, ongoing investment includes a $38.9 million facilities upgrade project. Within the system’s Community Medical Center in Scranton, maternity care is returning after a decade with a new $15 million maternity center as part of the Geisinger Women’s and Children’s Institute.
The emergency department is also reopening on the Geisinger South campus. This involves a $5 million project that, according to internal projections, will create 75 to 100 new jobs.
GUARDED AND MURKY?
Roger Howell, president of Howell Benefit Services Inc., charged that finances can be “guarded and murky” within various insurance systems, although insurers are presenting no shortages of cash. This is compounded by the fact that 80 percent to 85 percent of insurance claims are lifestyle related, thereby making obese and aging NEPA unattractive for many carriers.
Howell also has found that legislators, overall, have no understanding of the health care cost problems driving insurance prices. In addition, workforce diversity is creating differing benefit demands, such as the millennials’ tendency to remain unmarried.
“Employers can’t really control the demographics of their employee base, and most full-time employees must now be covered,” said Howell. “You mix annual price increases for decades into this situation, and it’s a powder keg of financial trouble.”
The use of an employer wellness program to reduce claims and eventually control health care costs takes time, according to Howell. A project such as this also requires maximum effort and participation, measurable weight loss by the employees and active management of pharma usage.
“Negotiations with the carriers and physician groups are vital for minimum possible pricing,” said Howell. “But, this can be tedious.”
Howell disclosed that the ACA has created a form of hidden costs for employers in the form of complex enrollment and mandatory information reporting to Washington. He therefore advises employers to leverage technology to maximize data productivity, with Howell Benefits now offering software that can accomplish these in almost a paperless fashion.
Often, costs for insurance have become so prohibitive that company CEOs first will target a number for coverage cost and then build this total into their business model. This is then dictated to carriers during subsequent negotiations.
“Yet, you pay either way, through payroll or point of service,” said Howell. “The employers just can’t deal with all of these costs, and when the employers can’t absorb the increased costs the employee pays.”
Howell also is not a fan of annual carrier changes. The process is complex, time consuming, and creates costly administration costs, and he is careful to speak simply to employee groups about their benefit packages, with enrollment surveys offering consistent commentary.
“The employees tell us over and over they hate change, can’t understand the policy jargon, don’t want to be rushed and often must deal with HR departments that are over-extended with no time,” said Howell.
A gap now exists between employers and employees as HR managers search for a solution to their insurance costs, according to Dan Day, regional vice president of sales with Highmark Blue Cross Blue Shield. The situation has been muddied by the survival of rich benefit plans for school districts and many municipalities, although when employees leave these organizations and see true policy costs with COBRA, they usually are in shock.
“We’ve been dealing with nonsustainable policy increases of eight to nine percent for years, with cost-shifting now a factor as employers try to make up their dollar losses,” said Day.
He is in agreement with major health care policy analysts that rising costs for technology, pharma, and high provider use are the true culprits behind exploding insurance costs. Ongoing infrastructure buyouts of health systems also has created a need for provider cash, but cultural issues often are at the root of poor employee wellness, such as rampant obesity and the multiple medical conditions it gives rise to.
“Employer self-funded insurance is an interesting option that may cut costs, but the idea of selling insurance across state lines presents big challenges,” said Day. “This would be complicated by a lack of networks and contracts.”
The 2018 ACA policy market, according to Day, is fairly stable within Pennsylvania. Most locales have competition and well-funded policies available, but some states, such as Delaware, are dealing with limited carriers and competition. Premiums must equal claims, creating markets where high payouts must be funded by crippling policy costs.
Meanwhile, within the employer market, an understanding is finally being achieved that costs from care are the true problem. Irrational pricing by carriers to drive member numbers has hurt in some locations, adding to a situation that is non-sustainable with a disconnect among the various players.
Solutions to potentially battle rising costs continue to flow. These may now include the use of patient-to-provider digital technology that instantly transmits information about that patient’s life signs, and use of a pharmacy benefit manager who can serve as a middle-man for best drug buys and pricing.
Day said a rising storm within the Medicare system must be addressed. Data indicate the current system is financially unsustainable as 10,000-plus people per day apply for coverage. Many are hugely co-morbid but also living longer.
“It is becoming vital that we remove the noise that is clouding our discussion and judgment about the health care system, and the true problems we face,” said Day.
Chris Fanning, chief sales and marketing officer with the Geisinger Health Plan, said Washington’s political instability is creating a need for flexible scenario analysis and different marketing positions with policy offerings. This contrasts with the reality that insurance requires stability if rates are to be predictable, as expenses must equal income.
Within the group market, single-digit price increases still are the rule every year, with larger groups receiving smaller increases. Employer wellness programs have become a plus if costs are to be reduced, requiring an aggressive approach featuring work site programs to battle obesity with disease management and prevention.
“It’s all about demand for care,” said Day. He noted that after the 2008 crash, as the economy struggled, employers aggressively analyzed their operating costs. This made erosion inevitable with benefit cost shifting, and has now led employers into a search for financial alternatives with insurance coverage.
“Despite all of this searching, there seems to be no big disruptor on the horizon with rising costs,” said Day. “The situation has also featured at least five years of legislative haggling with the discussion solely on health insurance reform, and in the process, we took energy away from the creative disruption of care costs.”
Day emphasized that no massive employer revolt with insurance has yet occurred, but as the post-recession labor markets evolve, sweet benefit packages have become vital to attract employee talent. Within this scenario, carriers are attempting to communicate that it is important not to over-utilize provider services.
“Long-term financial planning within all of this must involve both the insurance carriers and the providers,” said Day. “Unfortunately, all of Washington’s potential reforms have not addressed provider costs. Change has been only on the insurance end.”
Michelle Grushinski, past president with the NEPA chapter of the Society of Human Resources Management, has reaped benefits from contracting with a health insurance broker who thoroughly investigated the options available. Cost-versus-quality analysis was performed, allowing best choices to be made of which carrier and plan to utilize.
“A brutal battle with substantial negotiation may occur when several insurance carriers bid,” said Grushinski. “A national provider network is also vital if a business operates multiple locations, and a broker can help with this also.”
However, even when every resource is used to purchase health insurance, the overall situation for employers is unsustainable, according to Grushinski. Decades of annual prices for policies have created an environment where many employers are close to being unable to purchase insurance coverage.
The option of self-insuring with larger employers has also become attractive. Grushinski has found carriers nebulous with the complex reasons for their annual increases, but with a self-insured process the company would see accurate payment data and be able to negotiate like providers and operate with transparent financial data.
“At this time, there are no high-level discussions in Washington about the true problem, which is high overall care costs,” said Grushinski. “I’m sorry to say, many of us can see a dark light at end for the system, a financial shipwreck for employer coverage, and confusion nationally from too many players and variables in the drama.”