Health Care Cost Trends
Last month I asked, just how low will medical cost trend go?
Apparently, still lower.
Health care cost trends have been falling for a number of years since peaking in 2002 at around 14%. Recent reports have annual commercial health plan trend as low as 5.5% to 6.5% in a few places.
The good news about lower health care cost trends continued as publicly traded health plans reported their third quarter results. Most health plans reported falling medical cost ratios on a constant basis, favorable claim development from prior periods, and pricing trend continuing to outpace actual pricing trend.
Once again for the third quarter WellPoint reported that the trend they are pricing into their contracts is greater than the actual cost trend they are experiencing: “Commercial premium yield exceeded total cost trend…resulting in an increase in underwriting margin.” Coventry reported the same thing saying, “Commercial premium yields showed a favorable price-to-cost spread in the third quarter.”
This month, the Federal Employee Health Benefits Program (FEHBP), which covers eight million federal workers, retirees, and their families, said it would increase overall premium by an average of only 1.8% in 2007.
The federal program has historically tracked with private sector costs—albeit at slightly lower levels. The FEHBP saw increases of 12.7% in 2002, 11.3% in 2003, 9.5% in 2004, 7.4% in 2005, and 6.4% in 2006. Granted, some of this is reserve adjustments from prior years but this is still surprisingly low.
A leading employee benefits firm, Hewitt Associates, LLC, also said that their survey of employee benefits costs found that employer costs would continue to moderate in 2007. Hewitt projects employer costs will rise 7.7% in 2007—7% for PPO plans, 8% for HMO plans, and 9% for point-of-service indemnity plans.
However, the drop in trend is not uniform around the country. Hewitt reports trend increases as low as 2.5% in Minneapolis, 5.7% in Philadelphia, and 6.5% in New York City. They also report trend rates as high as 13.1% in San Antonio, 12.8% in Hartford, and 10.5% in San Francisco. Last month, the Boston Globe reported Massachusetts would see at least a 10% trend rate for the seventh year in a row.
Third quarter publicly traded health plan results confirm that health plans continue to rack-up record profits on the heels of declining claim cost trends. The health care cost trend profit windfall, coming from cost trends falling faster than pricing trends, continues on.
From the Hewitt survey, it is clear that not all employers (and their employees) are benefiting from the full benefit of these declining trend rates.
While the news about trend rates is improving, that doesn’t mean health care costs are any more affordable for workers. The Kaiser Family Foundation annual survey of health insurance now pegs the average cost of family health insurance at $11,480 per year.
Even with the relatively moderate rise in health care costs for 2007 employer health care costs will have doubled since 2000.
Wednesday, February 16, 2011
Why is Health Care Cost Trend So Low?
In my last two posts (below) I pointed out that commercial medical cost trend has been reported to be as low as 5.5% to 6% with most employers reporting 2007 increases in the 7% to 8% range.
While employer trend rates are at this level, health plans are reporting even lower internal trend rates with commercial profits remaining strong and virtually all of the plans reporting rate increases ahead of actual costs (see article below).
Which raises a question: Why is health care cost trend as low as it is?
In past years, higher rates of trend tended to reflect high rates of utilization that made up perhaps two-thirds to three fourths of the trend rate. The remaining trend was made up of pure price trend. So, if trend was 12%, perhaps 4 points of that was pure price trend and 8 points was utilization––in round numbers.
Could it be that the actual trend rates being experienced by the health plans today are made up of perhaps 4 points for price inflation and 2 points for utilization––again in round numbers?
Are we seeing lower trend rates because we are experiencing lower rates of increase in utilization?
After years of high increases in utilization by providers––particularly in the wake of the "provider backlash" (or patients' rights rebellion) in the early part of this decade and a slower rate of new technology and drug introductions––are we seeing a fundamental slowing in health care costs?????
While employer trend rates are at this level, health plans are reporting even lower internal trend rates with commercial profits remaining strong and virtually all of the plans reporting rate increases ahead of actual costs (see article below).
Which raises a question: Why is health care cost trend as low as it is?
In past years, higher rates of trend tended to reflect high rates of utilization that made up perhaps two-thirds to three fourths of the trend rate. The remaining trend was made up of pure price trend. So, if trend was 12%, perhaps 4 points of that was pure price trend and 8 points was utilization––in round numbers.
Could it be that the actual trend rates being experienced by the health plans today are made up of perhaps 4 points for price inflation and 2 points for utilization––again in round numbers?
Are we seeing lower trend rates because we are experiencing lower rates of increase in utilization?
After years of high increases in utilization by providers––particularly in the wake of the "provider backlash" (or patients' rights rebellion) in the early part of this decade and a slower rate of new technology and drug introductions––are we seeing a fundamental slowing in health care costs?????
MetLife Latest to Pay for Contingent Commissions
MetLife is the latest to settle with New York Attorney General Spitzer for its use of contingent commissions. With UnumProvident and Prudential Financial already paying millions in fines and restitution to customers, MetLife will now pay $16.5 million to policyholders and $2.5 million in New York penalties.
What is amazing is how long all of this has gone on. For years after the scandal first broke, the contingent and unreported commission practice has continued. Smaller benefits brokers and benefits consultants continued to insist on these behind the scenes incentives to put more business with a particular company long after one would have thought the threat of embarrassment and common sense would have prevailed.
The ERISA required form 5500 always required full disclosure. Yet the industry ignored it. Insurers paid, brokers and consultants collected, and employers looked the other way.
Things have been particularly bad for my old company––UnumProvident. They not only got caught up in this as the benefits commission payment poster child for sleeze, but paid another set of fines and settlements to state insurance departments for even sleazier claim practices.
The chickens always come home to roost!
Anyone still on the take with these back room commission deals would be wise to pay attention.
What is amazing is how long all of this has gone on. For years after the scandal first broke, the contingent and unreported commission practice has continued. Smaller benefits brokers and benefits consultants continued to insist on these behind the scenes incentives to put more business with a particular company long after one would have thought the threat of embarrassment and common sense would have prevailed.
The ERISA required form 5500 always required full disclosure. Yet the industry ignored it. Insurers paid, brokers and consultants collected, and employers looked the other way.
Things have been particularly bad for my old company––UnumProvident. They not only got caught up in this as the benefits commission payment poster child for sleeze, but paid another set of fines and settlements to state insurance departments for even sleazier claim practices.
The chickens always come home to roost!
Anyone still on the take with these back room commission deals would be wise to pay attention.
Has the Florida Judge Stopped the New Health Care Law in Its Tracks?
The last issue to be resolved is the plaintiffs’ request for injunctive relief enjoining implementation of the Act, which can be disposed of very quickly.
Injunctive relief is an “extraordinary” [Weinberger v. Romero-Barcelo, 456U.S. 305, 312, 102 S. Ct. 1798, 72 L. Ed. 2d 91 (1982)], and “drastic” remedy [Aaron v. S.E.C., 446 U.S. 680, 703, 100 S. Ct. 1945, 64 L. Ed. 2d 611 (1980)(Burger, J., concurring)]. It is even more so when the party to be enjoined is the federal government, for there is a long-standing presumption “that officials of the Executive Branch will adhere to the law as declared by the court. As a result, the declaratory judgment is the functional equivalent of an injunction.” See Comm. On Judiciary of U.S. House of Representatives v. Miers, 542 F.3d 909, 911 (D.C. Cir.2008); accord Sanchez-Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir.1985) (“declaratory judgment is, in a context such as this where federal officers are defendants, the practical equivalent of specific relief such as an injunction . . .since it must be presumed that federal officers will adhere to the law as declared by the court”) (Scalia, J.) (emphasis added).
There is no reason to conclude that this presumption should not apply here. Thus, the award of declaratory relief is adequate and separate injunctive relief is not necessary.
Presumably, this applies only in the 26 states that brought the suit. And, of course we should expect the Appeals Court with jurisdiction over this judge to rule on his finding--including the possibility of an emergency order keeping the law in effect during the appeals. But what happens to the early benefits of the law in the meantime?
Injunctive relief is an “extraordinary” [Weinberger v. Romero-Barcelo, 456U.S. 305, 312, 102 S. Ct. 1798, 72 L. Ed. 2d 91 (1982)], and “drastic” remedy [Aaron v. S.E.C., 446 U.S. 680, 703, 100 S. Ct. 1945, 64 L. Ed. 2d 611 (1980)(Burger, J., concurring)]. It is even more so when the party to be enjoined is the federal government, for there is a long-standing presumption “that officials of the Executive Branch will adhere to the law as declared by the court. As a result, the declaratory judgment is the functional equivalent of an injunction.” See Comm. On Judiciary of U.S. House of Representatives v. Miers, 542 F.3d 909, 911 (D.C. Cir.2008); accord Sanchez-Espinoza v. Reagan, 770 F.2d 202, 208 n.8 (D.C. Cir.1985) (“declaratory judgment is, in a context such as this where federal officers are defendants, the practical equivalent of specific relief such as an injunction . . .since it must be presumed that federal officers will adhere to the law as declared by the court”) (Scalia, J.) (emphasis added).
There is no reason to conclude that this presumption should not apply here. Thus, the award of declaratory relief is adequate and separate injunctive relief is not necessary.
Presumably, this applies only in the 26 states that brought the suit. And, of course we should expect the Appeals Court with jurisdiction over this judge to rule on his finding--including the possibility of an emergency order keeping the law in effect during the appeals. But what happens to the early benefits of the law in the meantime?
Now We Have Real Uncertaintly--The Entire Health Law Ruled Unconstitutional!
We all knew the question of the constitutionality over the new health care law was going to be taken up by the Supreme Court.
We knew that because the law inexplicably lacked a severability clause a judge could throw the whole thing out if the individual mandate were to be found unconstitutional and critical to the legislation.
And, we expected this Florida judge would likely rule against the law in some way.
Up to today, we knew that one federal judge had ruled that only the individual mandate was unconstitutional while two other federal judges had upheld the law.
But, I will suggest that the market's uncertainty about implementing the Affordability Act just went up exponentially with a second federal judge ruling against it. And, there is nothing like the whole thing being thrown out in a suit 26 states have brought.
It will likely be 18 months before we get a final Supreme Court ruling--not to mention a number of Appeals Court Rulings in the meantime. Will they uphold the entire law, throw it all out, or just the individual mandate? Four federal judges have put at least those choices on the table.
If you are a provider, do you now spend millions of dollars developing an Accountable Care Organization? Do you build that new building or make a big technology purchase? If you run an insurance company do you make a big strategic bet on exchanges or now marginal markets?
We really don't know any more this afternoon then we knew this morning.
But the uncertainty index just took a huge jump!
We knew that because the law inexplicably lacked a severability clause a judge could throw the whole thing out if the individual mandate were to be found unconstitutional and critical to the legislation.
And, we expected this Florida judge would likely rule against the law in some way.
Up to today, we knew that one federal judge had ruled that only the individual mandate was unconstitutional while two other federal judges had upheld the law.
But, I will suggest that the market's uncertainty about implementing the Affordability Act just went up exponentially with a second federal judge ruling against it. And, there is nothing like the whole thing being thrown out in a suit 26 states have brought.
It will likely be 18 months before we get a final Supreme Court ruling--not to mention a number of Appeals Court Rulings in the meantime. Will they uphold the entire law, throw it all out, or just the individual mandate? Four federal judges have put at least those choices on the table.
If you are a provider, do you now spend millions of dollars developing an Accountable Care Organization? Do you build that new building or make a big technology purchase? If you run an insurance company do you make a big strategic bet on exchanges or now marginal markets?
We really don't know any more this afternoon then we knew this morning.
But the uncertainty index just took a huge jump!
It Will Be Democratic Senators Leading The Charge To Fix Or Improve The New Health Law
I wrote this Kaiser Op-Ed before today's federal court ruling, that held the entire health care law unconstitutional because of the individual mandate. Now that two federal judges have held the individual mandate unconstitutional, this one overturning the entire law because of it, I have to wonder just how long the Democrats are going to wait before they try to amend the Affordability Act in order to jettison the individual mandate that threatens the whole thing.
When the House of Representatives roll was called Jan. 19, only three Democrats joined with House Republicans in voting to repeal the new health law. This development was notable in that it meant most of Democrats who voted against the overhaul the first time around, and were reelected to Congress in November, voted not to repeal it this time -- evidence that they may be sensing that support for the health overhaul hardening. A quick examination of public opinions offers evidence as to why this idea might be taking hold.
First off, recent polls have shown public perception of the overhaul may be improving. Although the country is still evenly divided in its overall feelings toward the new law, a recent Washington Post-ABC News poll found that less than one in five want the whole thing repealed. Similarly, a Kaiser Family Foundation poll released the day of the President's State of the Union address found that, though about half of Americans remain opposed to the measure, most aren't as supportive of repealing, replacing or defunding it as congressional Republicans are. (KHN is a program of the Kaiser Family Foundation.)
Another recent poll, this one by Fox News, found only 27 percent of those asked wanted the whole law repealed while 34 percent wanted parts of it repealed and 20 percent wanted it expanded. And within Fox's collection of numbers, one specific finding jumped out. Only one in seven of those polled by Fox News want the health law to remain as it is. In other words, for now at least, the country seems to be settling on "fix or improve" attitude toward what we have.
Backed by findings like these, Democrats in Congress seem just as convinced defending the bill is a winning issue as Republicans are certain they have the high ground in trying to scrap it.
But what do voters want in the run-up to the 2012 elections? Cooperation.
A recent USAToday poll found that 80 percent of those asked said the President Barack Obama and the Republicans should work to pass legislation they can agree on -- even 70 percent of Democrats agreed with that. Eighty-three percent said that it is extremely important for House Republicans to pass legislation that both parties agree on -- including 77 percent of Republicans.
More than another bitter and protracted health care debate in 2011, what Americans want the Congress to focus on is policies that will lead to more jobs. While I expect a number of House committees to hold lots of health care hearings in the next few months, I also expect Republicans to begin to move on to other issues rather than spend the whole year on health care.
Back home, most House Democrats are not on the defensive over the new health care law. But that is not always the case with Senate Democrats. With a disproportionate number of their seats in play in 2012 -- and with Sen. Kent Conrad, D-N.D., already deciding not to run again -- it will be the Senate Democrats up for reelection who most want to look like they are being the constructive ones. The individual mandate may be one of the areas on which they focus their attention.
My sense is that what many Americans, particularly swing voters, want to hear most about health care is that Democrats and Republicans found a way to work together to make the new law better -- not repeal it, but not leave it as it is either.
Ironically, I expect it will be these vulnerable Democratic senators, not Republicans who still think they have a winning issue bashing the new law, who will be the most eager to fix or improve the measure.
When the House of Representatives roll was called Jan. 19, only three Democrats joined with House Republicans in voting to repeal the new health law. This development was notable in that it meant most of Democrats who voted against the overhaul the first time around, and were reelected to Congress in November, voted not to repeal it this time -- evidence that they may be sensing that support for the health overhaul hardening. A quick examination of public opinions offers evidence as to why this idea might be taking hold.
First off, recent polls have shown public perception of the overhaul may be improving. Although the country is still evenly divided in its overall feelings toward the new law, a recent Washington Post-ABC News poll found that less than one in five want the whole thing repealed. Similarly, a Kaiser Family Foundation poll released the day of the President's State of the Union address found that, though about half of Americans remain opposed to the measure, most aren't as supportive of repealing, replacing or defunding it as congressional Republicans are. (KHN is a program of the Kaiser Family Foundation.)
Another recent poll, this one by Fox News, found only 27 percent of those asked wanted the whole law repealed while 34 percent wanted parts of it repealed and 20 percent wanted it expanded. And within Fox's collection of numbers, one specific finding jumped out. Only one in seven of those polled by Fox News want the health law to remain as it is. In other words, for now at least, the country seems to be settling on "fix or improve" attitude toward what we have.
Backed by findings like these, Democrats in Congress seem just as convinced defending the bill is a winning issue as Republicans are certain they have the high ground in trying to scrap it.
But what do voters want in the run-up to the 2012 elections? Cooperation.
A recent USAToday poll found that 80 percent of those asked said the President Barack Obama and the Republicans should work to pass legislation they can agree on -- even 70 percent of Democrats agreed with that. Eighty-three percent said that it is extremely important for House Republicans to pass legislation that both parties agree on -- including 77 percent of Republicans.
More than another bitter and protracted health care debate in 2011, what Americans want the Congress to focus on is policies that will lead to more jobs. While I expect a number of House committees to hold lots of health care hearings in the next few months, I also expect Republicans to begin to move on to other issues rather than spend the whole year on health care.
Back home, most House Democrats are not on the defensive over the new health care law. But that is not always the case with Senate Democrats. With a disproportionate number of their seats in play in 2012 -- and with Sen. Kent Conrad, D-N.D., already deciding not to run again -- it will be the Senate Democrats up for reelection who most want to look like they are being the constructive ones. The individual mandate may be one of the areas on which they focus their attention.
My sense is that what many Americans, particularly swing voters, want to hear most about health care is that Democrats and Republicans found a way to work together to make the new law better -- not repeal it, but not leave it as it is either.
Ironically, I expect it will be these vulnerable Democratic senators, not Republicans who still think they have a winning issue bashing the new law, who will be the most eager to fix or improve the measure.
"Quit the RUC"
Brian Klepper and David Kibbe have a notable column at Kaiser Health News arguing that the American Medical Association's Relative Value Scale Update Committee (RUC) is specialist dominated and steers health care resources away from primary care:
Not surprisingly, the Committee’s payment recommendations have consistently favored specialists at the expense of primary care physicians. More striking, however, is CMS’ rubber stamping of about 90 percent of their suggestions, even though, in their last three service reviews, the RUC urged payment increases six times more often than decreases.
This arrangement has played out well for specialists, but the health system consequences have been catastrophic. One significant result has been a primary care shortage. Specialists now earn, on average, $135,000 a year and $3.5 million over the course of their careers more than their primary care colleagues. The income disparity has driven all but the most idealistic medical students away from primary care.
Not surprisingly, the Committee’s payment recommendations have consistently favored specialists at the expense of primary care physicians. More striking, however, is CMS’ rubber stamping of about 90 percent of their suggestions, even though, in their last three service reviews, the RUC urged payment increases six times more often than decreases.
This arrangement has played out well for specialists, but the health system consequences have been catastrophic. One significant result has been a primary care shortage. Specialists now earn, on average, $135,000 a year and $3.5 million over the course of their careers more than their primary care colleagues. The income disparity has driven all but the most idealistic medical students away from primary care.
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