Entries in Cost & Utilization (63)


If Kaiser Is Not the Answer, What Is the Question?

by Kim Bellard, March 28, 2013

The New York Times recently published an interesting article, “The Face of Future Health Care,” that raised questions about whether even a model like Kaiser is delivering what we need to reform our health care system.  It’s the old “be careful what you wish for…” dilemma.

After all, Kaiser could be considered a prototype for what ACA wanted when it created Accountable Care Organizations (ACOs).  It is a fully integrated hospital-physician organization, delivering care and managing risk with salaried physicians and other health care practitioners, and its own hospitals.  Hospitals all over the country are rushing to build their own versions, buying up physician practices at a record pace – one survey indicated that 52% would do so this year, while another predicted 75% of physicians would be so employed by 2014.

Kaiser may not have been the first integrated delivery system, nor are they the only one, but they certainly are the largest and have been around for decades.  With all those decades, though, one would expect they would be dramatically lower in cost, and that is not generally the case.  San Francisco public radio station KQED did a report “Why Isn’t Kaiser Less Expensive?” last spring.  In their report, critics accuse Kaiser of shadow-pricing, while Kaiser’s CEO George Halvorson insists they don’t and are usually at least 10% cheaper.  That’s nothing to brag about: with even 1% lower annual trend, they should have gotten 10% cheaper in these early years of the 21st century alone.

All this is not to pick at Kaiser.  I have long admired models like Kaiser, Geisinger Health System, Group Health Cooperative of Puget Sound, Intermountain Healthcare, or The Mayo Clinic.  It just seems intuitively obvious that like an integrated system, without the same incentives to overtreat that are pervasive elsewhere, should produce better results.  Each of the systems has been fairly successful in their core markets, although less so the further away from home they get, yet none are delivering radically different cost or quality results than other providers.

And, really, why should they?  They only have to be a little better each year than their competition.  The new mantra in health care is “value-based purchasing,” but we’re a long way from there.  The Catalyst for Payment Reform reports that only 11% of payments to doctors and hospitals are based on performance, while the Commonwealth Fund reports that less than 1% of health insurance premiums was spent on quality improvement in 2011.  This is disappointing but hardly surprising.  Most purchasers are buying with essentially house money; that is, someone else’s money. 

The biggest sources of health coverage are Medicaid, Medicare, and employer-sponsored health insurance.  The persons covered under all of these are largely shielded from the true cost of that coverage.  Medicaid is funded entirely by taxes, Medicare is also largely tax-funded, even when considering beneficiaries’ lifetime contributions, and, of course, employer coverage has the tax preference.  The “tax expenditure” for employer health insurance is, by far, the largest such expenditure – more than twice as large as the mortgage deduction, for example.  It’s all just compensation to employers; money “contributed” to employee benefits is simply money not spent on employee wages.  The tax preference helps shield employees from how much is being spent on their behalf, and it creates a huge disparity with people buying individual coverage, who receive no tax break.

ACA doesn’t equalize the tax preference, but it does introduce a vast set of new subsidies for individual coverage.  The Society of Actuaries has recently reported that individual premiums may be 32% higher due to ACA, joining the chorus of warnings about what may start happening in 2014.  Even HHS Secretary Sebelius now acknowledges they may be higher, but notes that the new subsidies will offset much of these.  While I think it is good public policy for more people to be covered and for economically disadvantaged people to get assistance in making coverage affordable, I worry greatly about creating a large new class of people sheltered from the true cost of health insurance.  It’s making a bad situation much, much worse.

Steve Brill has gotten much deserved attention for his lengthy and insight Time article “Why Medical Bills Are Killing Us.”  Brill painstaking walks through the crazy world of health care prices, especially their inconsistency between payors.  Some have used his work to call for single payor or other rate-setting, while I would argue that the system is a symptom of what happens when no one is paying enough attention to prices.

Frankly, I question whether the ACO/integrated delivery system is going to be the solution to our health care mess.  Hospitals are like factories: full of capital-intensive equipment and expensive to operate unless run at capacity.  Yet they aren’t really run like modern factories in terms of management practices, as a recent study in JAMA pointed out.  Similarly, physicians and other health care providers have some definite income expectations and fixed overhead obligations. 

All too often, combining hospitals and other providers in integrated delivery systems may be more about consolidating market power or assuring current revenue levels than about improving the cost and quality of the care for patients.  One AEI scholar recently pointed to the “humongous monopoly problem in health care,” and that’s with ACOs still in an early stage.  AEI is not the first to cite this issue, as I’ve written about previously, but I still don’t think enough attention is being paid.

We’re moving quickly to a health care system that features geographic provider monopolies or cartels, consumers too shielded from costs, and a regulatory environment that creates larger barriers to entry for new competitors in either delivery or financing of care.  That’s the perfect storm for a disaster. 

For radically different results, we’ll need radically different approaches.  Clayton Christian wrote about disruptive innovation in health care over ten years ago, and yet we’re still waiting to see it.  It may mean breaking the health/medical connection that HMOs led us to try to integrate in health coverage, giving consumers more fiscal accountability for the former while still protecting them from catastrophic expenses that can result from intensive medical interventions.  It should mean putting more of the data and technology – like mobile apps -- in the consumers’ hands, as advocated by people like Eric Topl (The Creative Destruction of Medicine) or Joe Flowers, and using that data to measure performance and help prescribe treatment. 

We’ve had a very paternalistic health care system, with health care experts telling us what care we need and other experts choosing coverage for us.  Let’s hope we can change that.  We need consumers engaged, taking responsibility, and demanding accountability from providers.  We need new types of competitors, using 21st century technology and science, to help consumers manage and finance their health needs.

We have to make sure that legislation and regulations focus on what’s best for the patient, not necessarily for existing health system entities, in order to help ensure we don’t stifle innovation (e.g., FDA regulation of mHealth).  The facts that traditional Medicare benefit design is still largely based on 1960’s Blue Cross Blue Shield designs, or that, generally speaking, you can’t use telemedicine to consult with an expert physician in a different state due to licensing or coverage restrictions, amply illustrate the problem. 

Whatever the future health system looks like, it won’t look like what we have today.  Dinosaurs were remarkable effective for hundreds of millions of years, but the environment dramatically changed and they became extinct.  A lot of the dinosaurs that have historically been the basis for our health care system will become extinct in the new health care environment, or evolve beyond recognition.  As with evolution, it will be messy, proceed with many false starts, and produce unexpected winners.

Personally, I can’t wait to see what the future looks like.


Involved But Not Committed

By Kim Bellard, February 28, 2013

There’s an old joke about the difference between bacon and eggs: the chicken is involved, but the pig is committed.  Perhaps the problem in health care is that when it comes to being engaged in our own health, most of us are chicken.  Maybe the wrong people have been cooking.

Patient engagement -- along with its many synonyms, such as shared decision-making or consumer-directed care – continues to be a favorite strategy for many health pundits.  I am biased towards it myself, although exactly what it means, or will mean in the future, is not entirely clear.

The prestigious journal Health Affairs recently devoted an entire issue to the topic.  In one study, Judith Hibbert and colleagues reported that patient activation scores help predict costs: lower activation levels were tied to higher costs, even after adjusting for risk.  A separate study, also by Hibbert, reviewed the literature and concluded that patients with higher activation levels had better health outcomes and care experiences, although the evidence was more inconclusive about the effect on costs. 

The trick, of course, is how to “activate” patients – is it all self-motivation, or can providers and other third parties (such as employers) encourage it?

One common method to influence patient engagement is an employer wellness program.  A recent National Business Group on Health survey reports that almost 90% of employers offer wellness-based incentives, spending an average of over $500 per employee on the programs.  Employers are getting tough too: 15% directly tie health plan eligibility to a health activity such as taking a risk assessment or biometric screening.  Almost two-thirds already tie employee contributions to completing such activities.  And 41% include, or plan to include, outcomes-based measures (e.g., lowering blood pressure) as part of the program.

Another strategy employers are using is increased employee cost-sharing, such as in consumer-directed health plans (CDHPs).  Critics accuse them of simply shifting costs to employees, but there are plenty of studies that indicate they may actually change employee behavior and help control costs.  For example, Cigna recently claimed that their CDHP members improved their health risk profile 12% while their health cost trend was 13% lower than traditional members.  Cigna CDHP members were also more likely to take health risk assessments, to use cost and quality tools, to choose generic drugs, and to seek preventive care. 

Consumers may be starting to take cost into account, but they don’t like it.  A study by Sommers, et. alia, reported on focus groups of insured patients.  The focus groups indicated that patients don’t like cost considerations to be part of health care decisions, and revealed that several stereotypes remain all-too-common, including that more expensive care is better care, and choosing more expensive care is some sort of victory over insurance companies (not realizing that, in the end, they and other insureds pay for that care).  Patients still don’t really know how to weigh risk versus cost. 

We treat health care costs much like we treat the deficit: costs come from other people, cuts should come from other people, other people should pay, and, oh-by-the-way, let’s think about it tomorrow.  That has to change. 

One thing that offers new hope for patient engagement is that the options for it have never been broader or more robust – mobile, electronic records, telemedicine, and social media, to name a few.

There are estimated 40,000 mobile health apps.  It seems you can get an app to do just about anything you can think of, plus many things you probably hadn’t.  The health apps vary widely not only in purpose but also in audience and quality.  A company called Happtique has just introduced a certification for health apps that will hopefully give consumers a better comfort about which apps to use, or for physicians to know which to recommend to patients.  They see the program not as a rating mechanism but as kind of like a Good Housekeeping seal of approval, assuring that at least a set of minimum standards have been met.  This could spur adoption.

It does appear that physicians are joining the mobile revolution, according to CompTIA.  Their recent survey indicated that one in five physicians is using a medical or health-related app daily, and 62% expect to be regular users with a year.  The trick will be how they incorporate them into their practice, for patient care and/or patient engagement.

EHR/PHRs provide yet another option to engage consumers.  To date, consumer adoption of PHRs have been disappointing, to say the least – even when they are available.  A recent study by Ritu Agarwal and colleagues, aptly titled “If We Offer it, Will They Accept?”, explores this issue and concludes that use depends on a number of factors – not just existing consumer preferences but also satisfaction with the patient-provider relationship, provider support for patient use of the PHR, and specific communication strategies to encourage use.  HITECH funding and “meaningful use” requirements may drive availability of patient EHRs, but persuading patients to use them will require some effort.

Telemedicine seems be exploding, both in terms of easing of regulation and in terms of payor coverage, so it is not surprising that there are a plethora of companies making their mark in this space.  These include American Well, Cardiocom, HealthSpot, NowClinic, or Virtuwell, to name just a few.  These may not provide your personal physician, but they offer physician expertise at your convenience – 24/7, from your house or even mobile device, not restricted to a physician’s hours.  That’s got to help improve patient engagement.

The IOM just hosted a workshop on partnering with patients, and one of the conclusions was that physicians and health systems need help in developing those skills, plus they may need additional incentives to engage in the kind of dialogue patient engagement requires (why am I not surprised?).  When you think about it, though, relying on physicians, or even nurses, to drive patient engagement doesn’t seem realistic.  We can spend time and resources on training them, but we still face the barrier of the projected shortages in both professions (physician, nurse), especially with the baby boomers just starting to crash the Medicare barrier.  Primary care providers may just be too scarce, especially in rural and other already underserved areas.  Not everyone agrees with these dire forecasts, but the point remains, though: the health professional to patient ratio doesn’t scale well into an era of higher patient engagement.

And maybe it doesn’t need to.  Maybe it really is up to us as patients to take responsibility.  Fortunately, we still don’t have to go it alone.

Social media, for example, may not even rely on a provider-patient model.  Health care providers are still trying to figure out social media.  An infographic by Demi & Cooper advertising/DC Interactive Group suggests that only 26% of hospitals use social media (most commonly Facebook), while over 80% of individuals 18-24, and 45% of those 45-54, would share health information via social media.  Meanwhile, Patientslikeme has been breaking new ground for social media use in health care for many years now, using patient-to-patient expertise and experience.  We’re only begun to scratch the surface of what patient engagement looks like in a social media world.

Artificial intelligence could be the real game changer in patient engagement.  IBM has made a big bet on AI in health care via Watson, and a recent study from Indiana University reaffirms that use of AI has the potential to both improve outcomes and lower costs.  Widely available health content on the Internet started this ball rolling, but health care professionals start to look like just another option – a preferred option, to be sure, but no longer the only option – to getting health information, advice, perhaps even diagnoses.  And I’ll have to save discussion of robotic surgery for another blog…

We’re already got a mobile stethoscope app, remote monitoring options for conditions like diabetes or blood pressure, medication and other reminder apps, and increasing ability for AI to evaluate and diagnose.  Who needs health coaches or even physicians to drive patient engagement?  Maybe in the not-too-distant future the model for patient engagement will increasing look like patients simply using their mobile devices: i.e., when Siri marries Watson.

At the end of the day, the person who has to be committed to patient engagement has to be the patient.


Tell Me the Good News Again

By Kim Bellard, February 13, 2013

This just in from CBO: federal health care spending has slowed dramatically, easing its impact on the federal deficit.  They are now projecting federal Medicare and Medicaid spending will be $200 billion lower in 2020 than they did three years ago.  And it is not just federal health spending:  according to CMS, 2011 marked the third consecutive year of relatively slow grow, increasing by 3.9%, which is modest for health care. 

Should we be breaking out the champagne to toast the victory?  Maybe not just yet. 

Economists aren’t sure if structural changes are finally taking place, or if much of the slowdown can be attributed to the recession and to consumers being more reluctant to spend any discretionary cash on health care.  There are some signs that the slowdown started before the recession, but there are conflicting signs that some portions of health spending are accelerating. 

For example, the CMS report cited increases in out-of-pocket payments as an area where spending was rising faster, but the Washington Post notes a contrary analysis by NPR’s Planet Money which suggests that the share of spending from consumer out-of-pocket payments is actually decreasing, dropping by nearly half over the last forty years.  Of course, that share is of a much large dollar amount, so the lower percentage may be of scant comfort.  Consumers probably don’t have the perception that their share is getting smaller, not with rise of high deductible plans, and some researchers, like Deloitte, would argue that the official numbers understate direct consumer spending by a wide margin.  So we don’t really know.

What everyone is waiting to see is what 2014 brings us, as several of the most significant ACA provisions – Medicaid expansion, health insurance exchanges, guaranteed issue health coverage, essential benefits, and federal subsidies for health insurance, to name a few – kick in.  None is without its problems. 

Medicaid expansion seemed like a no-brainer.  It promised to make eligibility for Medicaid much more uniform across states and between different pockets of the population, and it minimized the fiscal impact on states by the federal government picking up all the costs of the expansion in the first few years.  Some states are skeptical that the federal government is a reliable partner, and others oppose ACA on general principle, with the net effect that we still don’t have even a majority of states who have agreed to the expansion.  Without the expansion, some people won’t qualify for either Medicaid or subsidized coverage through the exchanges.  In other words, if you are the wrong kind of poor person, you may still be out of luck.

As for the exchanges (excuse me – “marketplaces,” as newly rebranded by HHS), according to Kaiser Family Foundation, as of February 12, only 18 states are planning to run their own exchange, another 6 are planning to run one in partnership with the federal government, and the remaining 27 are defaulting to a federally-run exchange.  Whether state, federal, or jointly run, if they are not already deep in the planning/building process, it’s worrisome as to whether they will be able to start online shopping for all those consumers beginning this October.  I’m not betting on a wonderful, Amazon-like experience come October.

The biggest problem with guaranteed issue and essential benefits is not the much debated controversy over contraception coverage, with its weird proposed compromise for “contraception-only” coverage, but rather is the concern that premiums could skyrocket, especially for younger people.  The combination of generally richer coverage and inclusion of people who previously could not obtain insurance, along with tighter age rating bands, may lead to doubling or even tripling of premiums for some consumers, report Politico and The Wall Street Journal.  Supporters of ACA note that the subsidies will largely offset most or even all of these increases, but disguising the true cost of things from consumers is a big part of the reason our health care system is in the mess it is in.  We should be aiming to bring down the cost of health care and health insurance, not simply offset it with other federal spending.

Last but not least, there are the subsidies themselves, which are the key to success in improving the number of people with coverage (not, as many think, the infamous mandate, which is probably too weak to force people to buy coverage they don’t want or don’t think they can afford).  The subsidies are already running into problems.  Unions fear that their health plans may become disadvantaged relative to subsidized coverage in the exchanges, and have asked the Administration to be eligible for similar subsidies, thus reopening the spending spigot.  Of course, there are a number of employer plans who could make the same request, although their political clout may not be as great as the unions. 

Employer plans face enough problems as it is, and the recent IRS rules that base “affordability under ACA guidelines solely on the cost for single coverage, not family coverage, are likely to complicate things further.  The IRS ruling spares employers from the nightmare of having to guess at a worker’s total family income, but also opens the door to employers contributing ever smaller portions towards family coverage.  We could end up with a Catch-22: rapidly shrinking employer contributions for dependent coverage make that coverage too expensive for many families, yet those same families would not be not eligible for the subsidies in the exchanges because of their eligibility for employer coverage.  I can already see the tear-jerking stories in Congressional hearings, although I’m not sure who Congress will try to pin the blame on.  Not themselves, of course.

And, of course, the sheer size of the subsidies – over $1 trillion through 2022 -- will become a tempting target for budget cuts should Congress and the Administration ever get serious about the deficit.  At the same time CBO delivered the good news about lower Medicare/Medicaid spending, they also disclosed that they were raising the estimates of the cost of the subsidy by over $200 billion over 10 years.  They also estimated that twice as many people – 7 million – will move from employer coverage to individual coverage through the exchanges.  Oh, and they also think fewer people will gain coverage through ACA at all, reducing their estimate to 27 million from their initial estimate of 32 to 34 million.  So there.

We have a long way to go before we can feel comfortable about how the health care system is changing.  The disturbing but, sadly, not surprising results of the recent study by Jaime Rosenthal and Peter Cram on the inability of consumers to obtain prices of hip replacement illustrate both the difficulty of obtaining prices for even a common surgical procedure, as well as the shockingly wide range of the prices they might be able to find.  If anyone thinks ACOs will make this better, I suggest they think again – assuming consumers will be able even find multiple ACOs near them from whom to seek competing prices, due to increasing provider consolidation.

And meanwhile we face the spectre of an explosion of health spending as baby boomers begin hitting peak health expense years, especially since they are already in worse health than their parent were at the same age, according to a recent study.  Living longer but in worse health and more demanding – not exactly a recipe for reduced health care spending in the years ahead.

I’ll go back to something I wrote a couple years ago: all health care spending ends up as revenue for someone.  Even care we might categorize as waste, unnecessary, or inappropriate counts towards some entity’s revenue.  We can make the health care system more efficient, more transparent, and more patient-centered, but at the end of the day controlling spending will mean controlling providers’ income.  To do that, one of three things has to happen: all providers end up getting less, some categories of providers fare worse than others (e.g., hospitals gain while nursing homes lose), or we start paying specific providers drastically less, or not at all. 

Personally, I think the fairest – although not the easiest -- way to control spending, and to improve the quality of care for patients, is to weed out underperforming providers, those who are delivering sub-par care (and we’re kidding ourselves if we think they don’t exist).  When we get serious about that, then maybe it will be time to start the celebration.


But Which Half?

By Kim Bellard, January 30, 2013

Advertising lore credits John Wanamaker, the department store magnate and marketing pioneer, with the famous quote: “Half the money I spend on advertising is wasted; the trouble is I don't know which half.”  It turns out he could have been talking about spending on health care.

The British Medical Journal, through their Clinical Evidence initiative, recently reported that they’d analyzed 3,000 medical treatments that had been studied in controlled, randomized studies.  It turns out that for half of those treatments, we have no idea how well they work.  Indeed, only about a third of the treatments were found to actually be beneficial or likely to be beneficial.  The rest are likely to be harmful.

Sadly, this does not come as a surprise.

We know we don’t know enough.  The vast number of medical treatments have never even been studied in a true clinical trial.  Worse yet, sometimes even when there is clear empirical evidence about which treatments are most effective, that information does not always sway physician behavior, or does so only very slowly (for example, see this study on the use of heart stents versus medication therapy).

There is no shortage of reports of unnecessary or even harmful care.  It’s even scarier when that care is associated with high costs.  In no particular order, one could cite recent controversies with spinal fusions, hip replacements, or chemotherapy drugs.   There can be lots of money at stake for manufacturers, drug companies, and health care providers.  That kind of money can distort the question of what is truly in the best interests of the patient.

Many employers, payors, and researchers have been pushing for “evidence-based medicine” for many years now.  EBM focuses on making sure that treatments have appropriate research to support their effectiveness, and in getting the word out about such treatments.  One of the many initiatives from ACA was the Patient-Centered Outcomes Research Institute, which is charged with conducting research to provide such evidence and funded by a $1 head tax on people covered by insurers.  And, of course, AHRQ probably is wondering why we need a new organization to focus on EBM, given their many efforts on effectiveness.

In time, this may all become much easier, as more patient data become electronic and more connected, and we can make more use of computing power to track what truly happens to patients under various courses of treatments.  I mentioned a couple examples of this in my last blog, citing Optum/Mayo’s new initiative and meta-research studies in lieu of clinical trials.  Another example comes from Archimedes Inc., a firm founded by David Eddy, who was one of the early pioneers of evidenced-based medicine.  Archimedes claims to use its advanced mathematics and computing prowess “to run clinically realistic virtual trials on any population and create compelling evidence to make decisions in health and economic outcomes research, policy creation, clinical trial design, and performance improvement.”  Apparently HHS thinks they can, as it hired Archimedes last year.

Most physicians I know are very bright, care very much about their patients, and work hard to stay current on the medical literature.  Unfortunately, the latter is virtually impossible to do, given the sheer volume of that literature.  Even when there are clear results about which treatment is truly the most effective, the research doesn’t usually come with a guide as to how physicians can implement the associated changes to their practice routines.  It’s as much of a question of change management as it is the evidence to make the change.

It would seem that the situation is tailor-made for clinical decision support tools, which seek to provide clinicians with information on treatment options, potential outcomes, and possible contra-indications at point-of-care.  Unfortunately, we may not quite be ready for them.

Last summer The Annals of Internal Medicine published a study on clinical decision support systems by Bright, et. al.  They did a meta-analysis of studies on CDSSs, and found ample evidence of their efficacy in improving process measures, but sparse results on their impact on clinical or economic outcomes.  Whether this is due to the limitations of the underlying studies, the CDSSs themselves, or how they were used by clinicians is unclear. 

Similarly, KLAS Research recently released results of their survey of health care providers on their satisfaction with clinical decision support tools.  The results cited a general level of frustration, especially due to lack of integration with EHRs and “alert fatigue” caused by ineffective targeting of alerts. 

Worst yet, according to new research from the University of Missouri, patients don’t seem to trust treatment recommendations from physicians who use CDSSs, believing them to be less capable than physicians who make decisions unaided.  Patients don’t even like it when physicians consult with other physicians before making a recommendation!  They think their doctor should know everything.  I blame television for this – on medical shows like Grey’s Anatomy or House physicians pull up the most obscure diagnoses and treatments strictly from memory, without ever having to consult any reference materials.  Nobody’s memory is that good. 

Clinical decision support systems aren’t going to replace doctors; they are simply tools to aid health care professionals, much as a stethoscope or a thermometer does.  One can imagine a future where CDSSs -- and EHRs -- fit seamlessly into patient visits, providing real-time, interactive information while with the patient.  The line between evaluation, documentation, and clinical decision support should blur, in order to more accurately diagnosis patients and determine the best course of treatment.  

In the meantime, it’s somewhat of a crapshoot.

A recent study by Deloitte indicates that 62% of Americans believe that, in fact, over 50% of U.S. health spending is wasted, which is up from the already high 51% in 2009.  The message about necessary spending may be getting out, but consumers may be getting the wrong idea – only 18% thought the problem was not using evidence-based treatments, versus 69% who blame fraud and abuse in the payment system.  In other words, the problem can be blamed on greedy crooks, not on well-meaning health care providers.  Defensive medicine and unnecessary paperwork were each also cited by about a third of respondents. 

I agree that fraud, defensive medicine, and inefficient administration contribute cause us to spend money we shouldn’t, and each should be addressed, but I suspect more of unnecessary spending comes from well-intentioned treatments that aren’t really best for the patients.  As professionals, health care providers should be more stringent about basing their treatment recommendations on evidence that truly supports them.  More importantly, as the people whose health is going to be impacted by those treatments, it’s incumbent on us to demand that evidence.

Maybe one day we’ll have Star Trek’s tricorder to non-invasively diagnosis or even Star Trek Voyager’s holographic doctor to treat.  Maybe someday nanobots will fix all our ills without our even being aware of their work.  All that is in the future.  For right now I’d settle for simply being able to know the odds that a recommended treatment will actually benefit me.


Mercer Weighs in on Employer Health Benefit Cost Projections

By Clive Riddle, November 16, 2012

Here’s what Mercer has to say about the rise in  health benefit costs:  “growth in the average total health benefit cost per employee slowed from 6.1% last year to just 4.1% in 2012. Cost averaged $10,558 per employee in 2012. Large employers – those with 500 or more employees – experienced both a higher increase (5.4%) and higher average cost…. Employers expect another relatively low increase of 5.0% for 2013. However, this increase reflects changes they plan to make to reduce cost; if they made no changes, cost would rise by an average of 7.4%.”

This is based on results from Mercer’s annual National Survey of Employer-Sponsored Health Plans, which includes public and private organizations with 10 or more employees; with 2,809 employers responding in 2012. The full survey results will be released in April 2013.

 How does this compare to what other major human resources/benefits consulting firms are estimating? Here's what we reported in our Tidbits column in the October 6th edition of MCOL weekend:

Aon Hewitt reports that "the average health care premium rate increase for large employers in 2012 was 4.9 percent, down from 8.5 percent in 2011 and 6.2 percent in 2010. In 2013, however, average health care premium increases are projected to jump up to 6.3 percent."  Towers Watson's survey "projects a 5.3% net increase in total health benefit plan costs after any plan changes are taken into account, increasing the average cost per active employee from $10,925 in 2012 to $11,507 in 2013. Of the 2013 total, employees will pay an average of $2,596, or 22.6%, up from $2,436 in 2012." The Segal Company  projects 8.8% increases in 2013 for open access PPOs (10.0% in 2012; 8.2% increases in 2013 for HMOs (9.6% for 2012) and 9.1% increases in 2013 for HDHPs (10.4% in 2012.)

Mercer makes particular note of the impact of CDHPs in the employer benefit arena. They state that “with a growing number of employers now positioning a high-deductible, account-based consumer-directed health plan as their primary plan – or even their only plan – employee enrollment jumped from 13% to 16% of all covered employees in 2012. Many employers see these plans as central to their response to health care reform provisions that will raise enrollment. Over the past two years, offerings of CDHPs have risen from 17% to 22% of all employers, and from 23% to 36% of employers with 500 or more employees. Well over half (59%) of very large organizations (20,000 or more employees), which typically offer employees a choice of medical plans, now offer a CDHP. With the cost of coverage in a CDHP with a health savings account is about 20% lower, on average, than the cost of PPO coverage – $7,833 per employee compared to $10,007 -- employers are increasing willing to make the CDHP their primary or even their only plan. Among large employers that offer an HSA-based CDHP, average enrollment rose from 25% to 32% in 2012. And, when asked if they expect to offer a CDHP five years from now, 18% of large employers say they expect to offer it as the only plan, up from 11% in 2011.”