Health systems and employers are bypassing insurers to deliver higher-quality, more affordable care
By MICHAEL J. ALKIRE
Employee health plan premiums are rising along with the total healthcare spending tab, spurring employers to rethink their benefits design strategy. Footing the tab, employers are becoming a more active and forceful driver in managing wellness, seeking healthcare partners that can keep their workforce healthy through affordable, convenient care.
health systems assume accountability for the health of their communities, a
market has been born that is ripe for new partnerships between local health
systems and national employers in their community to resourcefully and
effectively manage wellness and overall healthcare costs. Together, they are bypassing traditional
third-party payers to pursue a new type of healthcare financing and delivery
While just 3 percent of self-insured employers are contracting directly with health systems today, dodging third parties to redesign employee benefit and care plans is becoming increasingly popular. AdventHealth in Florida announced a partnership with Disney in 2018 to provide health benefits to Disney employees at a lower cost in exchange for taking on some risk, and Henry Ford Health System has a multi-year, risk-based contract with General Motors.
The notion of bypassing payers is attractive for employers, especially on the back of consecutive cost increases they and their employees have swallowed over the last several years. Payers have traditionally offered employers rigid, fee-for-service plans that not only provide little room for customization, but often exacerbate issues with care coordination and lead to suboptimal health outcomes for both employees and their families. Adding to this frustration for employers is the need to manage complex benefits packages and their corresponding administrative burdens.
In the industrialized world and especially in United States, health care expenditures per capita has has significantly outgrown per capita income in the last few decades. The projected national expenditures growth at 6.2%/year from 2015 onwards with an estimated in 20% of entire national spending in 2022 on healthcare, has resulted in passionate deliberation on the enormous consequences in US political and policy circles. In US, the ongoing public healthcare reform discussions have gained traction especially with the recent efforts by the Senate to repeal national government intervention with Affordable Care Act (ACA).
In this never ending debate the role of government interventions has been vehemently opposed by conservative stakeholders who strongly favor the neoclassical economic tradition of allowing “invisible hands” of the free market without minimal (or any) government regulations to achieve the desired economic efficiency (Pareto optimality).
A central tenet of this argument is that perfect competition will weed out inefficiency by permitting only competent producers to survive in the market as well as benefit consumer to gain more “value for their money” through lower prices and wider choices.
Restrained by limited societal resources, in US to make our health market ‘efficient’ we need to aim for enhancing production of health services provision at optimal per unit cost that can match consumers maximum utility (satisfaction) given income/budget restraints.
Keeping asides the discussion on whether a competitive market solution for healthcare is even desirable as adversely impact the policy objective of ‘equity”, however from a pure ‘efficiency’ perspective it is worthwhile to focus on the core issue whether conditions in healthcare market align with the prototypical, traditional competitive model for efficient allocation of resources.
The official 2017 statistics from the U.S. Department of Health and Human Services (DHHS) are out, and there are some good news: The annual growth rate of health care spending is slowing down, and is the lowest since 2013 at 3.9%—it was 4.3% for 2016 and 5.8% for 2015. The bad news is that our health care cost increases are still well above inflation, and that we spent $3.5 trillion in this area, or 17.9% of GDP. Americans spent $10,739 on health care in 2017, more than twice as much as of our direct economic competitors: This per capita health care spending was $4,700 in Japan; $5,700 in Germany; $4,900 in France; $4,200 in the U.K.; $4,800 in Canada; and an average of $5,300 for a dozen such wealthy countries, according to the Peterson -Kaiser health system tracker from the Kaiser Family Foundation, and OECD data. Spending almost a fifth of our GDP on health care, compared to 9-11% for other large developed economies (and much less in China), is like having a chain tied to our ankles when it comes to our economic competitiveness.
Could 2019 be the year when our health care spending actually decreases, or at least grows at a slower pace than inflation? Or will we see instead an uptick in costs for health care consumers?
To answer these questions, we need to look in more detail at the largest areas of health care spending in America, and at the recent but also longer term spending trends in these areas. Using the annual statistics from the DHHS, we can compare the growth in spending in half a dozen critical health care categories with the growth in total spending, and this for the last three years as well as the last decade. Over the last decade, since 2007, these costs grew 52% in aggregate (from $2.3T to $3.5T) and 41% per capita (from $7,630 to $10,740).
The 2019 ACA plan year is notable for the increase in insurer participation in the marketplace. Expansion and entry have been substantial, and the percent of counties with one insurer has declined from more than 50 percent to approximately 35 percent. While urban areas in rural states have received much of the new participation, entire rural states have gained, along with more metropolitan urban areas.
Economic theory and common sense lead most to believe that increased competition is unquestionably good for consumers. Yet in the paradoxical world of the subsidized ACA marketplace, things are not so simple. In some markets, increased competition may result in a reduction in the purchasing power of subsidized consumers by narrowing the gap between the benchmark premium and plans that are cheaper than the benchmark. Even though the overall level of premiums may decline, potential losses to subsidized consumers in some markets will outweigh gains to the unsubsidized, suggesting that at the county level, the losers stand to lose more than the winners will win.
One way to illustrate this is to hypothetically subject 2018 marketplace enrollees to 2019 premiums in counties where new carriers have entered the market. Assuming that enrollees stay in the same metal plan in both 2018 and 2019, and that they continue to buy the cheapest plan in their metal, we can calculate how much their spending would change by income group.
Under these assumptions, in about one quarter of the counties with federally facilitated marketplaces (FFM) that received a new carrier in 2019, both subsidized and unsubsidized enrollees would be better off in 2019, meaning that they could spend less money and stay in the same metal level. In about thirty percent of these counties, all enrollees are worse off. In almost all of the rest, about forty percent, there are winners and losers, but in the aggregate, the subsidized lose more than the unsubsidized win. Overall, in about 70 percent of FFM counties with a new carrier, subsidized enrollees will lose purchasing power, while in about 66 percent of these counties, unsubsidized customers will see premium reductions. In population terms, about two-thirds of subsidized enrollees in counties with a new carrier will find plans to be less affordable, while a little more than half of unsubsidized enrollees will see lower premiums.
When it comes to health care prices, the burden piled on payers can seem almost cartoonishly heavy. News stories on the state of the industry read as though some satirist decided to exaggerate real systemic flaws into cost-prohibitive fiction. A particularly painful example hit the presses earlier this year, when a writer for Reuters revealed that the cost of a full course of oncology treatment skyrocketed from $30,447 in 2006 to $161,141 in the last few years. The change was so unbelievable as to verge on dark comedy — but there isn’t much to find funny in the situation when lives and health outcomes are on the line.
For the average employee in my home of Silicon Valley, the price crunch is challenging regardless the size of your paycheck. For local employers, however, the dilemma can be even more pointed. Today, employees of companies, large and small, expect their employer to provide comprehensive health care benefits and are largely unaware of or insensitive to the factors exacerbating market problems today. Providing these benefits, however, is easier said than done.
Employers and insurers alike face a multitude of barriers to connecting employees with affordable care. Recent research suggests that prices will increase at an average clip of 5.8% annually between now and 2024, well above the expected rate of inflation. Even worse, the increased consolidation of healthcare providers has drastically undermined the negotiating power that payers would otherwise have in more competitive markets. In Northern California, for example, major health systems, including Sutter Health, sparked outrage and protest as they have managed to amass enough of the region’s hospitals, outpatient facilities, and primary care offices to diminish regional competitors and set what many view as unacceptably high rates — all the while knowing that the lack of local competition makes it challenging for the major health insurers to push back.
“I don’t know that what they’re doing is going to be as transformative as maybe the potential of it is – and it’s going to take time. I don’t know that they’re going to ‘all-of-a-sudden’ leap frog over all the things that health plans have been doing for decades. I think they’re going to learn that this is really complicated stuff…”
Health plan innovation got a makeover this year. What used to look like value-based care models and telehealth visits has transformed. Health plan innovation is sexier – with big-dollar M&A deals like CVS-Aetna and Cigna-ExpressScripts looking to flatten the industry. Meanwhile, brand name collaborations like Amazon-Berkshire Hathaway-JP Morgan may prove that payment model innovation is unexpectedly ‘label-conscious.’
So, how are health plans dealing with this startling new look? And what should health tech startups who want their innovation investment dollars do now??
A ‘single-payer’ plan is a target on the back of its supporters. But what about a ‘Medicare Public-Private Partnership’?
MOUNT VERNON — In February 2017, President Trump famously said: “Nobody knew health care could be so complicated.” Nobody other than about 99.9 percent of the almost 300 million people in the U.S. with insurance, that is. Yesterday, I received a copy of “Get to know your benefits,” the 236-page “booklet” for my new health plan. Like most people, I’ll never read the book, but its weight alone says “complicated.”
And it’s safe to guess that Trump also will never read his Federal Employee Health Plan information, even though one Aetna choice available to him has a “brochure” of only 184 pages. Thinking about the amount of information available to health insurance plan consumers, I began to wonder what Health and Human Services Secretary Alex Azar meant, also last February, when he said, “Americans need more choices in health insurance so they can find coverage that meets their needs.”
Presumably, were we to have more choices, we could study the hundreds of pages of information about each available plan and make better choices. According to the federal Office of Personnel Management, federal employees who live at 1600 Pennsylvania Ave., Washington, D.C. 20500, have a choice of 35 monthly plans. Too bad the president doesn’t live in Maine, where he’d have only 20 plans to study!
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Having formerly worked for a health plan, I geek out over health plan innovation as IMO it’s the underpinning of the true disruption of health care. When the incentives change, everything else will change too…
So when I met Mario Schlosser, co-founder & CEO of Oscar Health at Health Datapalooza, I may or may not have asked him to sign my Oscar insurance card. (Yep, I’m a member.)
Our chat focused his push to continue driving health plan innovation amid the deterioration of the ACA and his plans for Oscar’s latest $165M round. His goal: make the payer “an interface and enabler of new kinds of technologies.” Is that even possible?!
Around 4:15 minute mark we find out if he’s been tapped for advice from the Berkshire Hathaway/Amazon/JP Morgan health alliance as they take on their own challenges disrupting health insurance.
The fact that I was once the CEO of a health insurer may cause you to read this with some skepticism.
I invite and challenge your skepticism. And I will do my very best to keep this piece strictly factual and not stray into the ambiguities that necessarily accompany complicated matters.
So bear with me.
Health insurers are not popular. No one wants to go to the prom with us. We have been vilified by no less than the President of the United States. Heady stuff. Let us see if this vilification and what I call the cartoonization of insurers has served us well in the healthcare debate. I think it has not, because for reasons I hope to make clearer, it has taken the focus away from the real causes of our cost and quality nightmares.
Health insurance started in the Depression with the Blues, although they were not at first called that. They typically were formed by hospitals (the Blue Crosses) and physicians (the Blue Shields), so that some payment for services rendered might be, well, “insured.” Provider self interest cloaked in the public interest. Perhaps there was alignment. And there was a Depression going on after all.
At first, the role of the health insurer was strictly financial. The insurer financed all or a portion of covered health services, and far, far fewer services were covered then than today. That’s all an insurer did or was expected to do. It was not there to manage doctors or hospitals or patients or anything else. Originally, this financing was done through “indemnity” plans, which allowed patients to see anyone they wanted, and paid a set dollar amount per service or per day of hospitalization (e.g., $50/day of hospitalization). Thus, if you chose a more expensive provider, the difference was on you. Insurers back in the day did not negotiate reduced fees with providers (“fee discounts”). It was much more civil then.
When I recently returned home after a two-week speaking tour of Canada and began catching up on news about Obamacare, I was angry and upset, and not just at politicians and special interests that benefit from deception-based PR tactics.
I was — and still am — mostly angry and upset with myself. And I know I always will be.
Over the course of a two-decade career as a health insurance executive, I spent hours and hours implementing my industry’s ongoing propaganda campaign to mislead people about the Canadian health care system.
We spread horror stories about “rationed care” and long waiting times for medically necessary care. Our anecdotes were not at all representative of most Canadians’ experiences, but we spent millions of dollars to persuade Americans that they were.
At every stop between Halifax and Vancouver last month, I explained how the United States had achieved the dubious distinction of having both the most expensive health care system on the planet and also one of the most inequitable.
While Canadian lawmakers in the 1960s were implementing a partnership between the federal and provincial governments to create the country’s publicly funded universal health insurance system — known as Medicare — our lawmakers in Washington were establishing America’s own single-payer Medicare program, but only for folks 65 and older and some younger disabled people.
Congress also created the federal and state-administered Medicaid program for the nation’s poor.
Ever since, most of the rest of us have had to deal with private insurance companies and pay whatever they felt like charging us for coverage.