In my August EBN editorial, I voiced my growing pessimism about the chances for full health care reform this year. Although at presstime, there still was a small chance for passage of legislation before the August recess, we now know that Congress' self-imposed deadline has come and gone.
However, hope springs eternal among benefits professionals. As I also mentioned, guest bloggers Karen McLeese, vice president of regulatory affairs at consulting firm CBIZ, and Scott Keyes and Katherine Sullivan, health care benefits consultants in Watson Wyatt's Stamford, Conn., office, have put their views on display here at the Daily Diversion. Read their full posts below.
Health care reform: What employers may want from it
By Scott C. Keyes, CEBS & Katherine Sullivan
We are beginning to debate what shape health care reform should take in the United States. While most employers broadly support the goals of greater access to health care, many are concerned that a focus on access alone may lead to significantly greater health care costs and possibly higher health care cost inflation.
With that in mind, we want to examine exactly what drives health care costs for large employers and discuss where employers may want to direct their health care reform efforts.
Health care is becoming unaffordable for both employers and employees. Health care costs for large U.S. employers approached $7,173 per year per employee in 2008 . Employer costs have more than doubled since 2000 and employee out-of-pocket costs have increased at an even greater rate in the same time.
We should also compare U.S. health care costs to those in other countries in which global companies compete for business and talent. Although the United States has the highest health care costs by a large margin, it also has the lowest life expectancy rate of the developed countries. Clearly, as we discuss health reform, addressing health care quality and cost will be key.
What drives health care costs for large employers?
What accounts for high U.S. health care costs, and can the proposed health care reform provisions address these issues? To answer that question, we examined health care claims of large employers from internal Watson Wyatt databases. These databases include over a million individuals and information from large multi-state employers, which are good proxies for the experience of other employers.
Overall health care costs increased by 40 percent from 2003 to 2007. However, the underlying cost drivers of each component varied significantly. Although the overall increase by component ranged from 33 percent to 48 percent, most had larger increases in the cost of service than in the number of services. For instance:
* The numbers of facility inpatient and outpatient services increased 5% to 7%, while the cost of these services increased by more than 27%.
* Professional services increased 13%, while the cost of service increased more than 30%.
* Pharmacy was the only component with a larger increase in units of services than price per service.
* Catastrophic care accounted for 18% of total cost but a third (33%) of the total cost increase.
What does this tell us about what employers need from health care reform?
This information gives us some insights into what employers may want from health care reform. These conclusions may not be new revelations, but we believe they provide an objective framework for the demands that employers may want to make on Congress.
Issue No. 1: Controlling the increase in the cost of medical services is more important than controlling the amount of services used. Except for the pharmacy component, health care costs are being driven by the increase in the cost of service (and the intensity of services), not greater use of services. Other authors have also supported this claim, pointing out that the U.S. health care cost problem is related to the cost of service, not because there are too many services.
So, what health care cost provision might help employers with this?
Revise payment methodology for professional and facility care. Current reimbursement approaches reward providers for providing more services, not for higher service quality or efficient resource use. Employers may want:
* Bundled approaches to paying for episodes of care that would include the facility and physician components. Centers of Excellence approaches to higher-frequency, higher-cost services (such as cardiac procedures, orthopedic procedures, diabetic care, etc.) that hospitals (and the physicians that provide the care) compete for on price and quality.
* Required electronic medical records and IT infrastructure. Electronic medical records and connectivity between health care providers are key to modernizing the health care system. Employers may want to require that all medical records and payments be recorded (and administered) electronically to make provider quality and cost data transparent, reduce administrative costs and billing errors, reduce provider errors and redundant tests and procedures and improve provider care by utilizing computer-based resources.
Issue No. 2: Controlling catastrophic care costs is equally important to overall health care cost management. Catastrophic costs make up a large portion of total cost increases, and are a key driver of inpatient facility costs. Employers may want to consider health care reform proposals that include provisions to manage catastrophic claims, but only if they improve the quality of care and reduce cost. Provisions could include:
* A national stop loss provision that helps pool these high costs
* National standards for care for high-cost cases. These could be produced from Comparative Effectiveness Research
* Centers of Excellence, which could lead to higher quality of care, more efficient care. delivery, a better selection of cases to receive various levels of care and lower overall cost.
We believe that these changes are the most fundamental to improving our health care system and managing its costs in the long term. They would address the cost issues that affect employers today, and more importantly, provide focus on the quality and value of provider services. This should not only improve care for the most sick, but improve the member experience of every one else.
Can Congress really pass a health care reform bill this year? Why, why not?
By Karen McLeese
Health care reform in the United States is happening now. There are many and diverse reasons why it is happening, not the least of which is the economic situation in which this country finds itself.
Health care reform is happening by legislative enactment on the State level. Significant examples include the Massachusetts experiment, as well as several States that have attempted to expand access to health coverage by extending dependent eligibility, and broadening access to Medicaid or the Childrens Health Insurance Programs.
It is happening in the private sector through several means, not the least of which are increased usage of consumer driven mechanisms, and designing programs to encourage personal health responsibility.
It is also being hotly debated at the Federal level. Whether there will be Federal legislation this year depends in large part on the readiness of diverse interests to work together. If certain factions draw definitive lines in the sand, the prospect for Federal reform will be less likely. To the extent that parties are willing to reconcile certain differences, the prospect for positive and effective reform is greater. Points of contention include whether a public health plan option will be a mandatory part of any reform, and whether the tax-favored status of employer-provided health coverage will be altered to fund health care reform.
Some of the concerns about a public option include the potential for eroding private sector health delivery models, and the cost impact to health care providers vis-à-vis a public option. A public option would have significant leverage in ratcheting down what is paid to providers. If it is true that the deficit created by a public plan is shifted to the private sector, then the expansion of a public plan would either increase this cost shift, further eroding the private sector system, or create a significant attrition of health care providers, due to the inability to deliver service for the compensation earned.
The debate over changing the tax-advantaged aspect of employer-provided coverage relates to the disincentive to employers that would be created by reducing or eliminating the tax-favored aspects of employer-provided coverage. Proponents of change ascribe to the theory that the current system is regressive, rewards highly paid individuals, and insulates employees from the true cost of health coverage. Advocates of the current system believe that changing the tax structure would cause employers to get out of the business of offering health coverage to their employees.
What should employers' role be under a reformed system?
The majority of the positions being proponed inside the Beltway are supportive of the employer model for the delivery of health care. With the exception of a few rumblings of a single-payer system, the employer-based system is expected to be a part of any reform design.
Ever since World War II, and to some degree even before that, employee benefits, and in
particular, health coverage, have been a significant part of the compensation package. Many families would go without coverage were it not for the coverage provided by the employer. To some degree, the employer has a captive audience with its employees, and can incent individuals to have health coverage that the individual might otherwise do without. For this reason, if no other, the employer-based delivery model is important.
Any health care reform proposal should look at enhancing what was initiated with the HIPAA portability rules, by expanding, even further, or, at least not penalizing, individuals who maintain continuous health coverage, even if that continuous health coverage is, at times, group coverage and at times, individual coverage.
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