Entries in Riddle, Clive (265)

Tuesday
Oct302007

Benefits Cycle

Benefits Cycle

Mercer, the national human resources and benefits consulting firm, in their annual employer health plan sponsor survey findings, recently projected that the average total cost to renew health plans for 2008 with no changes would yield a 9% increase, but actual increases for 2008 are projected at 6.7% dues to changing plans, adding lower-cost options or by altering benefit design. (see “After a three-year lull, health benefit cost growth picks up a little speed in 2008”, Mercer Press Release, September 5 2007,
http://www.mercer.com/pressrelease/details.jhtml/dynamic/idContent/1279545

Thus what health plan premium rate an employer winds up with from year to year is a result of negotiations and changes in the plan design.

Earlier this month, The Wall Street Journal ran an article by M.P. McQueen, “New Health Plans Tout Predictable Premiums” (see Wall Street Jouranl, October 9, 2007; Page D3; http://online.wsj.com/article/SB119188282779652669.html - subscription required)

The article cites an example of Guardian Life offering muti-year premium rate contracts and guarantees, that build-in the ability for Guardian to alter cost-sharing provisions if actual costs for the group exceed specified thresholds. The article also cites multi-year rates from Humana, based upon other requirements.

Multi-year rate guarantees are a sign that premium rate competition may be heightening, which is of course is addressed in the concept of the Underwriting, or Premium Rate pricing cycle.

The pricing cycle phenomena has existed for more than four decades. Under the cycle, during profitable periods for health plans, the plans desire to expand or protect market share and intensify price competition. Competing plans keep pace, triggering mini price-wars and multi-year contracts. Depressed pricing in turn triggers unprofitability, which ultimately escalates to the point where market leaders accelerate their price increases. Other plans follow suit, and soon escalating industry wide increases bring the sector back to profitability and the cycle begings anew.

They cycle has softened during this decade, as plans have grown less competitive due to product and market consolidation, and changes in plan behavior. This softening of competitive behavior, combined with the advent of consumerism and cost sharing, brings us to the concept of a benefits cycle.

Under a benefits cycle, benefit coverage and cost sharing can fluctuate based on plan competition for consumer enrollment during profitable and unprofitable points in the cycle. Guardian Life’s strategy would seem a step in that direction.

Wednesday
Oct032007

The State of Convenient Care

Earlier this week, the Convenient Care Mini-Summit was held during the National Consumer Driven Healthcare Summit in Washington, DC. The Mini-Summit was sponsored by the Convenient Care Association. Speakers included: Tine Hansen-Turton, Executive Director, Convenient Care Association; Mary Kate Scott, President, Scott and Company; Chris Kersey, MD, Chief Business Development Officer and Chief Medical Officer, RediClinic; Ann Ritter, Policy Director, Convenient Care Association; Sarah Ratner, Senior Legal Counsel, MinuteClinic; and Brian Jones, Chairman and Chief Executive Officer, MedBasics.

Here's some key tidbits on what's going on in the Convenient Care sector that the faculty shared during the Mini-Summit:

  • The first Convenient Care clinic opened in 2000, today there are 500 clinics operated by over 20 companies, and there may be as much as 700 clinics by the end of the year
  • New facilities getting smaller - many around 220 square feet in size
  • Health Plan formulary compliance has not a significant issue due to limited scope of services
  • 30-35% of clinic patients represent a new Rx to the sponsoring Rx retailers
  • Minute clinic has experienced 1 million cumulative visits with no malpractice cases. The lack of malpractice claims is at least partially due to the limited scope of services provided in a Convenient Care setting
  • The target demographic, based on studies: the most typical Convenient Care consumer is female, the healthcare decision maker in their household, and a mom.
  • BCBS Minnesota for example in their claims for Convenient Care found that 63% of patients were female and 48% under age 21
  • The two big challenges facing Convenient Care are state regulations and proving the financial model. Regulation of the industry is fragmented on a state-by-state basis, with some states proactively welcoming the industry, while a few have hostile regulations that often don't apply to other types of providers. Problem regulation states cited included NY, CA, PA, and KY.
  • A clinic system might have 85% fixed costs, with 100+ clinics needed for breakeven in a standard retail model
  • A Hospital sponsored financial model is very different than the standard retail model

For any stakeholder interesting in Convenient Care Delivery, if they aren't already a member, they should consider joining the Convenient Care Association. More information about the Association can be obtained at their web site: www.convenientcareassociation.org , or by calling 215-731-7140

Monday
Aug132007

The Underinsured: 45 vs. 17 million

The Underinsured: 45 vs. 17 million
In addition to the uninsured, there is a significant population of underinsured Americans that don’t have adequate coverage to come close to addressing their medical needs. These underinsureds face significant financial burdens and barriers to receiving necessary care, and are a significant problem for health care providers as well.

But a basic problem in examining this population is defining the scope. While identifying the uninsured is pretty straight-forward, "under-insured" is a relative term that can mean different things to different groups of stakeholders. How many underinsured Americans are there? That depends upon how you define underinsured.

If we use a definition advanced by Consumer Reports, the number could be 45.2 million. If we use a definition advanced by AHRQ, the number could be 17.1 million. That’s quite a spread.

Consumer Reports recently released results from a health insurance survey conducted by the Consumer Reports National Research Center in May 2007, which sampled 2,905 Americans between ages 18 and 64 and among other things tackled the issue of the underinsured.

Consumer Reports defines the underinsured as persons with health plan coverage that have two or more of the following complaints about their health plans: "It does not adequately cover costs of prescription drugs; doctor visits; medical tests; surgery or other medical procedures; catastrophic medical conditions; or the deductible is too high."

Applying this definition to their survey respondents, Consumer Reports estimates 24% of the U.S. adult population under age 65, which based on current U.S. census figures of 188.4 million adults in this age group, works out to an estimated 45.2 million people. Consumer Reports indicated the "median household income of respondents who were "underinsured" was $58,950, well above the U.S. median. Twenty-two percent live in households making more than $100,000."

According to the survey, 43% o of the underinsured reported that they postponed going to the doctor because they couldn't afford it, 28% of the underinsured put off filling prescriptions, 27% said they were still in debt to doctors and hospitals, and 3% of the underinsured said medical bills had forced them to declare bankruptcy. Consumer Reports broke out responses to the following circumstances by "Well Insured" vs. Underinsured categories:

Circumstance

Well Insured

Underinsured

Prepared to handle unexpected major medical costs in next 12 months

65%

37%

Postponed needed medical care in past 12 months due to costs

22%

56%

Dug deep into savings to pay medical bills

9%

33%

Made important job-related decisions based mainly on health-care needs

11%

21%

Health plan does not adequately cover prescription-drug costs

7%

63%

Decisions about retirement affected by medical expenses (adults 50+)

12%

34%

Of course, the Consumer Reports definition is entirely subjective. Researchers from the Agency for Healthcare Research and Quality (AHRQ) last year tackled this definition with a more objective measure, and published their findings in JAMA. The AHRQ definition of underinsured?  "insured persons with health care service burdens in excess of 10% of tax-adjusted family income." 

On this basis AHRQ found that in "2003, there were 48.8 million individuals (19.2%) living in families spending more than 10% of family income on health care, an increase of 11.7 million persons since 1996. Of these individuals, about 18.7 million (7.3%) were spending more than 20% of family income. In 2003, individuals with higher-than-average risk of incurring high total burdens included poor and low-income persons and those with nongroup coverage, aged 55 to 64 years, living in a non-metropolitan statistical area, in fair or poor health, having any type of limitation, or having a chronic medical condition. Applying our definition of underinsured to the insured population, an estimated 17.1 million persons younger than 65 years were underinsured in 2003, including 9.3 million persons with private employment-related insurance, 1.3 million persons with private nongroup policies, and 6.6 million persons with public coverage."

Thus the number of underinsured under age 65 Americans might be 45.2 million, according to the Consumer Reports definition, or  17.1 million according to AHRQ. Quite a difference in numbers.


Tuesday
Jul032007

The Relationship Between Premium Increases and Reform

The Relationship Between Premium Increases and Reform

Never mind that PriceWaterhouseCoopers recently issued a study indicating the medical costs increases that health plans bear will further decelerate for 2008. Hewitt Associates just issued projections that initial premium increases quoted by the plans to employers will spike upwards for 2008. If indeed premiums increases reverse the trend of the past four years and accelerate again, such movement will in turn accelerate reform initiatives and market changes.

Lets take a step back and look at the premium pricing and underwriting cycle. Under this historical model, plans are driven by cyclical market share and premium price competitive behavior. There are periods where premium increases are significant, then decline, and then rapidly increase again. Here’s how the cycle works:

  • During profitable periods: a) plans want to expand market share; b) they start to lower price to do so; c) other plans match lower prices to keep pace and not lose share; d) price wars similar to airline fare wars erupt and multi year contracts develop.
  • Then a downswing develops: a) due to insulation of provider contract capitation and discounts and the time lag on fee for service claims, considerable time elapses before financial pressures are fully visible from the lowered premiums; b) due to multi-year contracts and price pressures nothing much can be done about the problem as it becomes apparent.
  • A period of significant losses then occurs: finally enough of the market is losing money so that several major players break rank and begin increasing rates and everyone else follows suite.
  • Finally there is a return to profits: the premium increases continue until profits are being generated, and the cycle begins anew.

However, with the new century, health plan economic behavior appears to have changed to some degree:

  • Plans are now somewhat less driven by long-term market share
  • Plans are now somewhat more driven by short-term bottom line profitability
  • Plans are more willing to exit unprofitable markets and product lines
  • Plan consolidation has occurred due to closures of failing plans, market exits and acquisition of plans.
  • Premium competition has somewhat diminished because of all the above.

This doesn’t mean that the premium pricing cycle has disappeared. It does mean the down part of the cycle will be less pronounced due to reduced premium competition. Here’s how the cycle looks graphically:

premiumjpg.jpg

Source: MCOL Managed Care Fact Sheets

Now let's correspond a little history of some major reform and market movements in the past twenty years to this premium increase graph. You will notice each of these major market movements correspond with shifts in the premium trends:

  1. PPO marketshare diminished, and HMOs became the mainstream employer health plan option in the late 1980s as the vehicle to address double digit rate increases nearing 20%
  2. HMO tight utilization controls, provider capitation arrangements and deeper discounted contracts rapidly increased in scope as HMOs gained marketshare clout in the first half of the 1990s, and health plans required cost savings to counter significant premium price competition. Pressure for health care reform erodes after 1993 as premium increases rapidly delerate.
  3. Significant Managed care backlash emerged from providers, media and consumers in the late 1990s, causing a relaxation of utilization controls, a very large reduction of capitation programs and reduction of provider discounts. PPO enrollment again accelerated due to the backlash, and premium increased as resulting costs increased.
  4. Consumer driven health plans and greater consumer cost sharing emerged with the new decade as cost increases reached double digit levels. the number of uninsured reach peak levels and pressures for reform increase.

So now plot the next points on the graphs fro 2008 - 2010. Will they continue downward or climb back upward. If they continue to decelerate, we would predict diminished enthusiasm for significant health care reform, and for movement to consumer driven plans. If they start accelerating, a fire should be lit under greater pressures for reform, as well as consumer driven programs. Of course, the reform movement and consumer driven movement will most likely be at odds in the direction they intend to take us, but momentum they may both well have in that scenario.

So the question is, what happens next? Will health plans keep decelerating their premium increases, as the PwC medical cost study would cause us to believe, or will premium increases accelerate, as the Hewitt analysis indicates?

The PwC study: "Behind the numbers Healthcare cost trends for 2008" from the PricewaterhouseCoopers' Health Research Institute, released this June 2007 is available at http://pwchealth.com/cgi-local/hregister.cgi?link=reg/numbers2008.pdf. The following is the PwC expected Medical Cost Trends for 2007 and 2008:

  2007 2008
PPOs 11.9% 9.9%
HMO/POS/EPO 11.8% 9.9%
Consumer Driven 10.7% 7.4%

The Hewitt Associates analysis can be reviewed in their June 28, 2007 press release "HMOs Propose Highest Rate Increases in Four Years, According to Hewitt Analysis" at http://www.hewittassociates.com/Intl/NA/en-US/AboutHewitt/Newsroom/PressReleaseDetail.aspx?cid=4159 . Overall, Hewitt projects these initial 2008 rates increases to average 14.1%, compared with 11.7% in 2007 and 12.4 % for 2006. How different are the final plan rates? Hewitt notes that after plan changes, negotiations and terminations, 2007 average HMO rates increased by 8.2%. If that same differential held for 2008, final 2008 rate increases would be around 9.9%, which if you round it, does bring us back to double digits even for the final numbers.

So, let's spin the premium rate wheel of fortune and see if we're headed into pressures for change or status quo as we inch along towards the election year.

Friday
Jun222007

Clive Riddle's Welcome

Greetings from BlogLand:

MCOL has launched the MCOLBlog, and I'm excited to be a part of it. Actually, we've been blogging to our MCOL paid members for years, but this inaugurates our public blog for all those in the universe wishing to take part in our discussion.

I will be commenting and reporting on a wide variety of topics regarding the business of health care. By way of background, I've been running MCOL, the B2B publisher of managed care and health care business information and resources for the past twelve years. Before that, I ran a regional health plan for over a decade.

In particular, I'll be addressing issues including consumer driven care, transparency, health care reform, strategies addressing plan design and costs, convenient care, international health care issues, Medicare and Medicaid managed care, and much more.

I look forward to your comments.

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