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POLICY: Low prices ain’t cheap enough

Mercer says that the number of small businesses offering health insurance to workers went down last year despite the greater and easier availability of high-deductible and HSA plans.

Fewer small employers offered health insurance this year, despite
the widespread availability of new, lower-cost high-deductible
insurance plans, a survey released today by benefit firm Mercer shows.
Advocates of the high-deductible plans touted them as one solution to
the growing number of uninsured, expecting the plans to appeal to small
employers, who would continue to offer health insurance as a result.
"That’s not happening," says Blaine Bos, a Mercer partner and one of
the study authors. "In fact, the reverse is happening."The
study of nearly 3,000 employers found that the percentage of employers
with 200 workers or fewer offering any kind of health insurance fell to
61% this year from 63% in 2006.That drop came even as the cost
of high-deductible plans with tax-free savings accounts averaged $5,970
per worker per year. That was $700 less than a comparable plan without
a savings account and far lower than the $7,120 for the average HMO,
the study says.

HSA/HRA type plans are growing in the market, but not as fast as employers are dropping coverage.

Currently,
about 5% of all workers with insurance have an account-linked
high-deductible plan this year, up from 3% last year. "That’s pretty
significant growth," says John
Goodman, a longtime proponent of health savings accounts and president
of the National Center for Policy Analysis, a non-profit group that
backs free-market approaches to issues such as health insurance."I am surprised it is not doing better in the small-group market," Goodman says.

Goodman’s surprise I think misses the overall
point. The low wage employer who’s been offering insurance on the
margin is struggling because even if they can save 10–15% by switching
to a HDHP they can’t get the major savings individuals can by making
that switch because they’re usually already experience-rated. The only
individuals of course who can get those switching savings are the ones
who can pass the underwriting test–i.e. the ones who aren’t sick.

Instead it’s just cheaper for the employers on the margin to not provide
insurance at all
, or to ask the worker to pay for most of it themselves, which amounts to the same thing. So suggesting that we can
make serious headway into the uninsured numbers by getting employers to voluntarily
switch to lower cost plans is missing the point.

The obvious solution that the mainstream insurance industry
is now glomming onto is to have government subsidies take up the slack.
Hence the keen support (from most of them) for something that looks
like the Arnie plan—compulsory pay or play for employers and
individuals, subsidized by the taxpayer, with not much in the way of cost constraint built in.

The WSJ noted exactly that yesterday in a piece called Health reform plans aid industry— In fact it’s so damn obvious that Karen Ignagni manages to comment upon the Presidential proposals without even telling an direct lie!

The industry’s chief lobbyist, Karen Ignagni, president of America’s
Health Insurance Plans, says she is encouraged by the debate so far and
says her group is focused on trying to get universal insurance enacted
rather than stopping it. "At 20,000 or 30,000 feet, we have heard
encouraging statements from Democrats and Republicans," she says.

I suspect however that she’s more encouraged by the Democrats–if one suspects that a future Democratic President will trade away cost-containment in order to get to universal coverage-lite. That would make the plans very happy and get rid of the low-wage employer problem–details to be worked out of course.

And frankly it’s a trade I’d take too. because once the uninsured issue is out of the way, then we can take a real look at how we’re actually spending the money. But if nothing else, the Mercer study shows that if we’re going to fix employment-based health insurance, it’ll be done by the visible hand of government not the invisible hand of the market.

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BradleyBarry CarolBrad F.jdScott Recent comment authors
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jd
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jd

Michael, It is a fact that HMOs (and insurers generally) are exempt from some, not all, Federal anti-trust regulations. They are NOT exempt from state anti-trust regulations. The exclusion from Federal anti-trust is limited, and as state regulations have grown over the years the significance has shrunk. For more, see here. I do not know of any state in which HMOs are allowed to collude and price fix with each other. Do you? I also do not know of any state (though they may exist) in which HMOs are exempt from anti-trust considerations when it comes to market share. When… Read more »

Michael Kane, DC
Guest

How can you guys ignore the pink elephant in the room and not even comment on the most obvious reason why health insurance is so expensive? Fact: The HMO’s are exempt from anti-trust. Fact: They are allowed to collude and price fix. Fact: No matter how you wonk it out they will artificailly inflate premiums until this exmeption is revoked.

jd
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jd

I agree with pretty much everything in Barry’s last post, though I’d add that the competitiveness of the market varies by region. In some states, the local BCBS company dominates the market (50% or more share) and has some pricing power. Most of them are still non-profits, so their margins have not historically been as high as they could be. Also, brokers play an important role, particularly for companies in the range of 50-500 employees. These brokers are supposed to increase competition and get the best deal for employers, but as some recent scandals have shown this is not always… Read more »

Barry Carol
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Barry Carol

Peter, It was interesting that you mentioned car insurance. Here in NJ, we were the most expensive state for car insurance in the country for years until the mid to late 1990’s. Insurers were very tightly regulated, could not make an adequate return, and quite a few either left the state entirely or cut back on the business they were willing to write here. I paid close to $1,000 per car (for two cars) for insurance at that time. NJ was one of two states (MA was the other) that Geico would not operate in because the environment was horrible.… Read more »

Bradley
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Bradley

Peter
Great article on mandates in this months Health Affairs. Auto insurance not required in every state. Overall, this is a fantastic review on why “mandates” may not succeed in any future health rewiring. Also, I think Barry was referring to self-insured plans as far as savings. Agreed, if commercial plans could reap a windfall if it is their nickel, they are not going to give it back.
brad
http://content.healthaffairs.org/cgi/content/abstract/26/6/1612

Peter
Guest
Peter

I clicked to soon and want to add:
All you have to do is look at car insurance. I believe it is regulated in every state because it is mandated in every state. In NC our commissioner looks at expenses and profits and every so often orders insurers to reimburse policy holders because they OVER CHARGED in relation to expenses. He is always reducing their rate increases. And Barry if insurance acts as good citizens then why did the AG of NY have to get involved to force transparency on rate calculation?

Peter
Guest
Peter

I’ve got to agree with Michael. I don’t trust insurance companies to give back anything. If they think profits look too high then they’ll just put up another building or give out bigger bonuses or larger stock dividends to bury those profits. “Joe Six Pack” will NEVER see any reduction from health insurers in premiums, lower deductibles or reduced co-pays. The industry will hide their cloning in a competitive cloak.

Michael Kane, DC
Guest

Maybe I see things too much from a provders perspective. I just have my doubts that any industry that is exempt from anti-trust and has the legal right to price fix and collude would EVER lower prices. We see their “expenses” are so falsely inflated just so they can justify higher premiums and “cost” controls. Pretty oson people will be paying huge prices for absolutel yno benefit. That is completely unjustifiable and unsustainable in a fee market. HMO’s do not fucntion in a free market. Maybe the docs have been so beaten it’s the only way we can see it.… Read more »

Barry Carol
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Barry Carol

Do you seriously think that if waste was cut out of the system the HMO’s would give the money back by lowering premiums, deductibles, and co-pays? Absolutely, positively, yes! Why? Competition. If costs do not actually decline but grow more slowly, than the growth rate in health insurance premiums should slow commensurately. I assume no regulatory changes or other factors that affect insurer costs are also occurring. In recent years, the large insurers have gotten much better at estimating the growth in their medical cost trend for the upcoming year. Large, self-insured employers, who insure about 50-60 million people, would… Read more »

jd
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jd

Michael, To answer your question, it’s impossible to say exactly what insurance companies would do if the medical cost trend started rising at a slower rate or even stopped rising for a while. There are a number of factors, including the degree of competition, possible new regulations, and the ability of plans to anticipate changes in medical cost trends. As a point of historical reference, when managed care hit it big in the 90s, the profits of insurers actually shrank. The years of highest growth for HMO, PPO and POS products were also years of dismal or non-existent profits for… Read more »

MIchael Kane, DC
Guest

I read through jd’s stuff and it is quite compelling. I will read it more throughly over thre weekend. I can’t get enough of this stuff. I think we’re basically aksing for the same thing, however, what these these reports do not break down are the particular habits of individual docs or hospitals. If you ask any doc in a given town they know who the over-utilizers are. I know I do. I guarantee of the 18 chiros in my area just 2-3 of them are responsible for for 90% of the waste. Roughly 10-20% cause 90% of the problem… Read more »

Brad F.
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Brad F.

Michael
I agree with jd. Reading up a bit more might help a bit.
brad f

MIchael Kane, DC
Guest

jd- Thank you. I look forward to reading through the material you have posted. The chiropractic profession has begged the insurance industry to eliminate waste in physical medicine by focusing on measureable outcomes and rewarding the individual providers of any discipline that are performing well. We desperately want to be measured fairly against our Ortho and PT counerparts using a valid measure. Chiropractors in whole make up less than 1% of the premium cost. However, if used properly, and I underscore the word properly, we can save the system hundreds of millions of dollars. Do me a favor. Answer a… Read more »

jd
Guest
jd

Michael Kane, The list is so long. The first thing I recommend is the work of Jack Wennberg. Check out the policy briefs here. Also the work on Medicare . In the same vein, here’s a nice popular treatment in Consumer Reports: Here’s a book on overtreatment by Shannon Brownlee. There is also Maggie Mahar’s Money Driven Medicine (interview here) Then there is Alain Enthoven and the argument of the need for managed competition among integrated delivery systems to reduce care fragmentation. Even physician organizations see the need for reform in health care delivery as well as in insurance. The… Read more »

Peter
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Peter

“….because with current trends insurance carriers are pricing themselves out of the market.”
Scott, with a deal like Med PartD they’ll then start to price the taxpayer out of the market.