By Todd Callahan, editorial director, The Institute for HealthCare Consumerism
Just when it appeared the nation was in full economic recovery mode during the first quarter of 2011, the market began a steady decline, leading some economists to fear a double-dip recession.
Since December 2009, the official start of the “Great Recession,” more than 15 million jobs have been lost.
The nation has witnessed a double-digit unemployment rate, and government-sponsored programs, such as the American Recovery and Reinvestment Plan, passed in 2009, expected to produce three to four million jobs and stimulate the economy has failed to produce. It has had the opposite effect, as job losses have increased, resulting in more Americans losing their employer-sponsored health care coverage.
Next to salary, health care is the biggest cost for employers, who continue to battle a declining bottom line while maintaining the best benefits possible for their employees.
Even individuals with job security are facing uncertainty, as many small employers are contemplating ending health care benefits and paying a fine as stipulated by the Patient Protection and Affordable Care Act (PPACA).
According to a survey by Towers Watson, only 7.2 percent of medium to large-size employers are looking to drop employee health care benefits all together.
The survey also said that more employers plan on terminating heath care benefits once the government-mandated exchanges [either by the state or federal government] begins Jan. 1, 2014.
However, there are other employers who believe terminating health care benefits could send a wrong message to their employee population. Therefore the majority of employers plan on staying in the health care provider business.
“Employers are reluctant to lose control over a key employee benefit,” said Tracy Watts, a partner in Mercer’s Washington, D.C., office. “But beyond that, once you consider the penalty, the loss of tax savings, and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings.”
Insurance offered by employers is the leading source of health coverage in the United States, providing benefits to about 150 million people.
According to a report by The Kaiser Family Foundation and The Health Research & Educational Trust Employer Survey, 69 percent of mid- to large-size firms offered health benefits this year, an increase from 60 percent during last year’s survey.
Given the continued instability of the nation’s economy, it is surprising the percentage of companies continuing to offer employer-sponsored health benefits has increased during the “Great Recession.”
One possibility is an increase in consumer-directed health plans, more specifically the number of health savings accounts (HSA) or health reimbursement accounts (HRA) linked with a high-deductible health plan has continued to gain acceptability.
According to the Kaiser report, 23 percent of mid- to large-size firms began offering a CDHP with an HDHP. Of the largest employers—with more than 1,000 employees—surveyed, 41 percent offered a CDHP. The survey also added that total enrollment of employees in a CDHP has risen to 17 percent of the nation’s entire workforce in 2011. This is a huge growth seeing as only 4 percent of the American workforce participated in a CDHP in 2005.
“Health plans with HSAs offer protection and a tax-free way to invest—all at a cost that is usually less than what someone would pay for a traditional plan,” said Roy Ramthun, Founder and President of HSA Consulting Services. “For families with about $1,500 in annual medical expenses, an HSA can often save them more than $6,000 a year.”
In a stagnant economy, everyone is being forced to be better educated consumers, including health care. An HSA allows the consumers more control on how their medical dollars are spent. The consumer also can contribute up to $2,900 a year as an individual or $5,800 for a family and are non taxable.
The employer, who sees the majority of their cost going to sponsoring an employee health plan, also benefits from a CDHP.
According to a multi-year study by Aetna, employers that replaced their traditional health benefits plans with a CDHP saved $21.5 million over a five-year period for every 10,000 enrollees. This study focused on health care claims and utilization in traditional HMO/PPO plans versus consumer-directed plans administers. The study also showed enrollees in a CDHP were more engaged than an employee enrolled in a traditional coverage plan.
“The rising cost of health care has been a concern for companies for many years now,” said Mark Bertolini, president and CEO of Aetna. “We have shown that by working together to engage consumers in their own care and by giving them easy-to-understand tools and actionable information, we can help companies keep their employees healthy and save money.”
While a CDHP is a win/win situation for both employee and employer, a CDHP is still far below the traditional health plans. PPOs are offered to nearly 50 percents of all-sized firms offering employer-sponsored health plans. Much like a CDHP, PPOs are linked to a high-deductible, but do not offer the employee as much responsibility or control as an account-based health plan.
While companies are spending more money on education tools to teach their employees the benefits of CDHPs, perhaps the biggest engagement tool has been the sluggish economy. It’s the employee’s hard-earned dollars. They get to choose how they use it.
“HSAs encourage employees to share the responsibility—and the rewards,” said Dennis Triplett CEO UMB Healthcare Services. “With a comprehensive plan grounded in prevention, employees can take charge of their health care, educating themselves about preventive care, generic drugs, disease management, and wellness programs. Research shows, knowing how to make better choices leads to better health, and that affects not only the health of employees, but also the health of the business.”
Another encouragement for employers to drop their traditional health plan and move to a full CDHP is the PPACA. According to the Keiser survey, 90 percent of employers believe the health care law will increase the company’s health care benefit costs. The increased cost in employer-sponsored health plans created by the PPACA and the individual mandate requiring everyone to have health care, gives companies incentives to encourage their employees to participate in a CDHP.
According to the Mercer study, A CDHP costs about 15 percent less than an HMO or PPO.
"Employers see them as a way to provide more value to employees while at the same time managing cost," said Beth Umland, Mercer's director of health and benefits research.
In Southeast Michigan, an area rocked by the recession where companies have closed and the unemployment rate is more than 16 percent, struggling employers are continuing to provide employer-sponsored health plans according to a employer survey conducted by McGraw Wentworth, Michigan’s largest employee group benefit brokerage/consulting firm.
Surveying 470 of the region’s mid-size employers—employers with employee population from 100 to 10,000, revealed that only 7 percent of companies are likely to stop offering employee benefits.
The survey also revealed an increase in the number of firms offering CDHPs.
“Organizations that manage cost increases to the lowest levels are putting decision-making regarding personal health and health care purchasing in the hands of the consumer,” said Rebecca McLaughlan, managing director, McGraw Wentworth. “Employers can hold health care benefit costs in check by engaging employees. For example, a leading consumer strategy is three-tier prescription drug co-pay programs, where employees choose from either a generic, formulary brand or non-formulary brand drug,”
The survey indicated employers offering a CDHP this year rose to 27 percent compared to 19 percent in 2009. Five percent of companies surveyed offered CDHPs as the only plan option. The survey also revealed that traditional HMOs remain a good cost competitive option due to innovative, wellness-centered plan designs.
“Mid-sized employers are considering the impact of health reform but few indicate they will move to eliminate group health plan coverage,” added Julie Truskowski, account director with McGraw Wentworth and survey leader. “Employers are looking closely at the ‘play or pay’ aspects of health reform and the status of their health plans. Two things are certain: Change is under way and employers will need to make some strategic decisions before 2014 to accommodate health care reform mandates.
“In today’s economy and with health reform under way, the survey analysis provides Michigan employers with an objective, statistically valid tool for benchmarking plan designs and evaluating cost sharing strategies for 2011 and beyond”
The PPACA is not all Bad
Although employers see the PPACA as the main culprit in aiding the escalation of the cost of health care, one aspect of the health care law is trying to help curb health care cost by eliminating abuse and fraud in a broken system.
There are four reasons for the increasing cost of health care: The top areas found to be responsible for the greatest amount of waste in the health care system are:
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Administrative system inefficiencies
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Provider inefficiencies and errors
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System inefficiencies
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Fraud
According to a report by the Associated Press in early September, nationwide law enforcement crackdown has charged 91 people — including doctors and other medical professionals — with participating in Medicare fraud schemes involving $295 million in false billing. Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius said that 70 people were charged in indictments and 21 others were charged earlier, beginning Aug. 24. Charges were filed in Baton Rouge, La.; Brooklyn, N.Y.; Chicago, Dallas, Detroit, Houston; Los Angeles and Miami.
At a news conference, the attorney general said that those arrested are "jeopardizing the integrity of our health care system." Sebelius called the law enforcement initiative "a powerful warning to those who would try to defraud taxpayers and Medicare beneficiaries.
Eleven of the people charged were doctors, three were nurses and 10 were licensed health professionals.
More than half the defendants — 46 — and $160 million of the total in phony claims announced came from South Florida, an area leading the nation in Medicare fraud.
While the arrests are a start, it is only a drop in the bucket to the amount of claims abuse in the system.
The country spends and estimated $2 trillion on health care, however according to a study by the National Health Care Anti-Fraud Association, $68 billion of that is lost on fraudulent claims. Fraud accounts for 19 percent of the estimated $600 to $800 billion in waste in the nation’s health care system.
The bulk of this amount is from fraudulent Medicare claims to kickbacks between doctors prescribing unnecessary medicine because of a partnership with a pharmaceutical firm.
Due to the lack of transparency, dishonest medical providers can charge extra to the patient’s health plan. Since most health care consumers struggle to understand their medical bill, excess charges are rarely discovered. The health care provider is charged an excess amount, thus increasing the cost of health care.
“Although there is no precise measure of the magnitude of health care fraud, we know that it is a serious problem that demands an aggressive response,” Inspector General of the U.S. Department of Health & Human Services Daniel Levinson told the U.S. Senate Finance Committee in mid May. “Medicare and Medicaid fraud, waste, and abuse cost taxpayers billions of dollars each year and put beneficiaries’ health and welfare at risk. The impact of these losses and risks is magnified by the growing number of people served by these programs and the increased strain on Federal and State budgets. Moreover, new and expanded programs under the Patient Protection and Affordable Care Act (Affordable Care Act or ACA) further heighten the need for robust oversight.”
Through the efforts of the Office of Inspector General, employing all oversight and enforcements tools available and with the cooperation of the HHS and the Department of Justice, there has been a rise in the number of federal heath care fraud prosecutions.
Over the past fiscal year, OIG has opened more than 1,700 health care fraud investigations. Additionally there have been 900 criminal and civil actions and more than $3 billion in expected investigative recoveries in 2010.
The PPACA also has provided the federal government more power in fighting fraud and abuse by offering $350 million in fraud enforcement funding for the next 10 years. A third of that was added to the 2011 budget.
The Obama administration also has made it a point to crack down on fraudulent health care claims, and the 85 percent increase in heath care fraud prosecutions compared to the first eight months of 2010 is proof of the commitment.
Larger health insurance companies and third party administrators also have bolstered their budgets to fight health care fraud, purchasing software that seeks out anomalies in health care claims that could identify possible fraudulent claims.
However, this software is pricey and insurer investigative units are usually small and do not have the budget to actively investigate all of the fraudulent claims cases.
However the only 100 percent way to avoid fraud and abuse in the health care system is to avoid having to see a health care provider.
Many proactive employers are not waiting on the government to stamp out fraud and abuse in the health care system and focusing on establishing wellness programs for their employee population.
A healthier workforce produces fewer trips to the doctor thus cutting back on insurance claims and producing a healthier bottom line.
While employees are taking more responsibility abut their health care spend, other companies like change:healthcare are helping by creating a “Transparency Messenger,” which proactively alerts employees when they have an opportunity to save money on routine care, procedures and prescriptions.
After an easy implementation and training period, change:healthcare’s Transparency Messenger will help the clients’ employees better understand and manage their individual health care expenses.
Unified Group Services, which offers a range of administrative and wellness products to more than 22,000 members enrolled in preferred provider organization (PPO) or high-deductible plans, rolled out the change:healthcare’s Transparency Messenger to its internal employees in August and started offering the program to its clients in early September.
“As TPAs consolidate and compete for market share, Unified continues to differentiate itself and stay ahead of the curve by implementing technologies that make the lives of employees and their families easier,” said Howard McLure, CEO of change:healthcare. “Transparency Messenger offers companies the ability to proactively arm employees with the information they need to become smarter healthcare consumers—ultimately reducing overall health care costs and significantly impacting the bottom line.”
