2015 Employer-Sponsored Health Care: ACA’s Impact

International Foundation of Employee Benefit Plans

On March 26, 2015, the International Foundation of Employee Benefit Plans deployed its sixth survey in a series on how single employer plans are being affected by the Affordable Care Act (ACA).

From the Key Findings:

Health Insurance Exchanges

• Ninety-four percent of all surveyed organizations continue to provide health care coverage for all full-time employees in 2015 and, among that group, nearly all plan to continue coverage in 2016. Respondents overwhelmingly chose three reasons for maintaining coverage: to attract future talent, retain current employees and maintain/increase employee satisfaction and loyalty.
• Less than 5% of organizations provide coverage to full- or part-time employees through private health insurance exchanges. However, more than one in ten organizations that provide coverage to retirees aged 65 and older are doing so via private exchanges, and 17% more are considering doing so.

Cost-Containment Strategies

• More than one-third of organizations now have increased out-of-pocket limits, in-network deductibles and/or participants’ share of premium costs in response to ACA. More than one in five organizations have increased copayments or coinsurance for primary care, increased participants’ share of prescription drug costs and/or increased the employee proportion of dependent coverage cost.
• One in five organizations has adopted or expanded wellness initiatives because of ACA and another 17% plan to do so in the next 12 months.
• Fifteen percent of organizations have adjusted hours so fewer employees quality for full-time employee medical insurance.

Cadillac Tax

• The excise tax on high-cost group health plans (a.k.a. Cadillac tax) is considered the top ACA cost driver beyond 2015. Since 2011, a steadily increasing percentage of organizations has taken action to avoid triggering the excise tax — a trend likely to continue. More than one in ten organizations already have adopted changes to prevent them from triggering the tax, 21% are working on changes and 28% plan to act sometime prior to 2018. Only one-quarter said changes were not necessary either because they have no high-cost plans (23%) or because they plan to pay the tax (2%).
• The most common action taken to avoid triggering the excise tax is moving to a consumer-driven health plan (CDHP). In particular, more than one-quarter of all responding organizations have increased emphasis or added a high-deductible health plan (HDHP) with a health savings account (HSA) because of ACA, and an additional 14% are considering doing so. Nearly one in ten organizations has adopted a full-replacement HDHP because of ACA.

Cost Impact

• Two-thirds of organizations have conducted an analysis to determine how ACA will affect 2015 health care plan costs. Among all organizations, 82% expect the law will increase their organization’s health care costs this year, with most projecting a 1% to 6% increase. The median cost increase is 3% among organizations that know their exact 2015 cost change because of ACA. However, ACA-related costs are hitting smaller employers much harder than larger ones. General ACA administrative costs and costs associated with reporting, disclosure and notification requirements are the top ACA cost drivers for 2015.

https://www.ifebp.org/pdf/research/aca-impact-survey-2015.pdf

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Comment:

By Don McCanne, MD

This is yet one more highly credible report that indicates that the quintessence of health insurance coverage – employer-sponsored health plans – is deteriorating.

Most of the changes are responses to the very high costs of health care. Employers are shifting more of the costs to employees through much higher deductibles, higher copayments and coinsurance, higher premium contributions, higher shares of drug costs, and an increase in contributions for dependent coverage. This trend began before the Affordable Care Act (ACA) was implemented. ACA actually has very few provisions that lead to major cost increases, except that most employers complain of increased administrative costs associated with compliance with ACA.

Another exception where ACA does play a consequential role for employers is the excise tax that will be assessed on plans with higher premiums. The tax will be significant, and so employers are already taking action to keep insurance premiums below the threshold at which the tax will be assessed. The most common action being taken is to move employees into consumer-driven health plans – high deductible health plans with or without health savings accounts.

Innumerable studies have confirmed that high-deductible health plans both impair access and increase the risk of financial hardship, so they have a negative impact on both the health security and the financial security of the employees.

Some employers understand that an improved Medicare that covered everyone – a single payer national health program – would ensure accessible and affordable health care for all of their employees, while eliminating the headache of having to administer their health benefit programs. It is too bad they are not joining together to advocate for single payer. It just seems like the logical thing to do.

Non-Group Health Insurance: Many Insured Americans with High Out-of-Pocket Costs Forgo Needed Health Care

Families USA, May 2015

Our study examined adults who bought private health insurance in the non-group market in 2014

• Just over one-quarter (25.2 percent) of adults who were insured for a full year went without needed medical care because they could not afford it
• Adults with lower to middle incomes were the most likely to forgo needed medical care
• Adults with high deductibles were more likely to forgo needed medical care
• In 2014, half (50.6 percent) of adults had high deductibles of $1,500 or more, and 30 percent had exceedingly high deductibles of $3,000 or more

Why are people still struggling with out-of-pocket costs?

1. Premium tax credits are tied to silver plans, which often have cost-sharing that is too high for many consumers to be able to afford
2. Only a portion of the lower-income consumers who are eligible for subsidies to reduce cost- sharing in silver plans receive substantial help to also reduce their deductibles
3. Insurers are choosing to design silver plans with upfront cost-sharing that is too high for lower- and middle-income consumers to afford

Policy Recommendations

• Health insurers should offer more plans at the silver level that have low or no cost-sharing for primary care, other outpatient services, and prescription drugs.
• Policymakers at the state and federal levels should require health insurers to sell silver plans with lower cost-sharing for primary care, other outpatient services, and prescription drugs.
• At the federal level, Congress should: Provide cost-sharing reduction subsidies to middle-income consumers (above 250% FPL) and increase the generosity of this help.
• At the state level, lawmakers can also strengthen financial assistance.

http://familiesusa.org/sites/default/files/product_documents/ACA_HRMSurvey%20Urban-Report_final_web.pdf

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Designing Silver Health Plans with Affordable Out-of-Pocket Costs for Lower- and Moderate-Income Consumers

Families USA, May 2014

Silver plans have an actuarial value of 70 percent, meaning that they are required to cover 70 percent of people’s health care costs (on average). 

Insurers have some flexibility in how they design plans to meet the actuarial value requirements for silver plans. However, analyses of current marketplace plans suggests that the majority of silver plans have high deductibles.

When we say that silver plans must meet an actuarial value of 70 percent, we mean that a silver plan’s cost-sharing must be designed so that the plan pays for, on average, 70 percent of people’s medical expenses in a year. Consumers are expected to pay 30 percent of the cost of care out of pocket (on average) through deductibles, copayments, and co-insurance.

Because silver plans must stay within the bounds of a 70 percent actuarial value, they can never completely protect consumers from having to pay higher out-of-pocket costs if they need expensive care.

Insurers must make trade-offs when deciding how to distribute the cost-sharing in their silver plans to meet the required 70 percent actuarial value. Silver plans that set higher deductibles are able to charge relatively lower copayments for care received after a consumer meets the deductible. On the other hand, silver plans that set low deductibles, or that exempt coverage for certain services from the deductible and instead charge copayments for those exempted services, may have to charge relatively higher copayments or co- insurance for other health care services.

Actuarial value considers only the costs of covered services that are delivered by in-network health care providers. A plan’s actuarial value does not consider out-of-pocket costs that consumers must pay if they need services that are not included in the plan’s covered benefits or if they receive care out of network.

Trade-Offs in Plan Design

The featured plan designs show that, because silver plans must meet specific actuarial value requirements, the plans are limited in how low they can keep cost- sharing overall. This is evident in the trade-offs that these plan designs make: Since the plans keep cost-sharing for some services more affordable, the plans must charge relatively higher cost-sharing for other services.

Many of the plan designs with affordable cost-sharing for routine and minor care charge higher cost-sharing for more expensive services, such as inpatient and emergency care, outpatient surgeries, imaging, and specialty drugs.

When silver plans have relatively affordable cost-sharing, consumers with greater health care needs will likely still face high out- of-pocket costs. For example, consumers who need expensive medications or more complex care (such as surgery) will still have to pay high out-of-pocket costs in many of these plans until they reach their out-of- pocket spending limit.

Potentially Problematic Cost-Sharing Designs

• Three-Tiered Provider Networks
• Four-Tiered Drug Formularies
• Potentially Discriminatory Cost-Sharing for Select Treatments

Conclusion

The findings of our analysis prove that it is possible to design silver plans that don’t have high deductibles and that do have more affordable copayments, at least for routine care and care for minor health problems. Putting policies in place that require or encourage insurers to offer these types of plans in the marketplace will help make sure that lower- and moderate-income consumers can afford routine care.

By design, silver plans cannot necessarily shield consumers who need expensive care from high out- of-pocket costs. That is why, over the longer term, efforts to get marketplaces to offer more diverse silver plans must be part of a larger initiative to identify and implement state and federal solutions that will prevent lower- and moderate-income consumers from being underinsured. Examples of such solutions include policies to ensure that this population receiving greater financial assistance to help them afford more comprehensive coverage, or policies to expand cost-sharing assistance to more moderate-income consumers.

http://familiesusa.org/sites/default/files/product_documents/ACT_Assessing%20Alternatives%20Silver%20Plans%20Designs%20Brief_final_web2.pdf

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Comment:

By Don McCanne, MD

Today Families USA released their report that confirms, once again, that many adults insured with high-deductible health plans are likely to forgo needed medical care, especially if they have lower to middle incomes. So what are their recommendations?

In order to remove financial barriers to care, they recommend that more plans offered at the silver level – the benchmark plans –  have lower or no cost-sharing for primary care, other outpatient services, and prescription drugs. This has the advantage of increasing access to primary care services, which most agree would significantly improve the performance of our health care system.

The problem is that the barely affordable silver plans must have an actuarial value of 70 percent (the patient pays 30 percent of health care costs, up to a given maximum). Higher deductibles are used in most of these plans in order to meet this actuarial value. But in a report that Families USA released last year, they explain that if the deductibles and copayments were reduced to more affordable levels, then the required 30 percent of out-of-pocket costs must be shifted to more expensive services.

So this scheme would help the majority who simply need primary care services, but it would make care less affordable, even catastrophic, for those who have greater health care needs. As long as our benchmark plans are set at an actuarial value of 70 percent, this trade-off cannot be avoided.

Families USA also suggests the obvious. We should increase federal and/or state subsidies for both the purchase of plans and for cost sharing for low and middle income individuals and families.

But if you are going to make care affordable for everyone, why continue with this highly inefficient, administratively complex system that wastes so many of our health care dollars. Surely by now Families USA should acknowledge that our dysfunctional system should be replaced by a much more efficient single payer national health program – an improved Medicare for all. We’ve experimented extensively with their preferred model, and it didn’t work.

Court case shows how health insurers rip off you and your employer

By Wendell Potter
The Center for Public Integrity, May 11, 2015

It turns out that one of the reasons workers have been paying more for their coverage is allegedly a common practice among insurers:  charging their employer customers unlawful hidden fees.

The fees came to light when Hi-Lex Controls, an automotive technology company, took Blue Cross Blue Shield of Michigan (BCBSM) to court in 2013 after becoming suspicious that the company had been systematically cheating it over 19 years. After reviewing evidence in the case, a judge ordered that BCBSM stop charging the hidden fees and pay Hi-Lex $6.1 million.

Documents filed in the case showed that in 1993 BCBSM implemented a scheme through which it would collect additional revenue by adding certain mark-ups to hospital claims paid by its self-insured customers. Self-insured companies hire firms  like BCBSM to do the paperwork. It is the employer’s money—not the insurance company’s—that is “at risk” in such arrangements.

After suing and getting documentation from BCBSM, attorneys for Hi-Lex were able to show the court that BCBSM marked up hospital claims by as much as 22 percent. BCBSM didn’t disclose the markups, however. As part of the scheme, regardless of the amount BCBSM was required to pay a hospital for a given service, it reported a higher amount to Hi-Lex and pocketed the difference.

The hidden fees were listed in internal BCBSM documents under a variety of names:  provider network fees, contingency/risk fees, retiree surcharges, and—my personal favorite—other-than-group subsidy fees. Internal company emails showed that BCBSM knew customers were unaware of the markups and that the company actually trained its employees to downplay the hidden fees should customers suspect they were being gouged.

After rumors began circulating in the early 2000s that BCBSM was charging hidden fees, the company told insurance brokers, falsely, that its customers got 100 percent of the hospital discounts it negotiated.

The Court of Appeals affirmed the $6.1 million fraud judgment, agreeing with the lower court that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the disputed feeds in contract documents.”

BCBSM hoped the U.S. Supreme Court would take the case but the high court refused, meaning the lower courts’ rulings stand.  As a consequence, as many as 50 of BCBSM’s other customers also filed suit.

Lest you think this scheme was something BCBSM dreamed up on its own, an actuary from the consulting firm Milliman Inc. testified under oath that many other insurers engaged in the same practices.

http://www.publicintegrity.org/2015/05/11/17317/court-case-shows-how-health-insurers-rip-you-and-your-employer

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Comment:

By Don McCanne, MD

Wasteful administrative services are the private insurers’ primary product that they are selling us, and the only product when they administer the plans of our nation’s large, self-insured employers. The insurers have devised many devious methods of diverting risk pool funds into their own coffers, but this report shows us that they are truly nefarious to the core when they are fraudulently padding the bill for their administrative services alone.

Not only does this report show that the supposedly cleanest of the insurers – Blue Cross Blue Shield of Michigan – engages in this thievery, many other insurers engage in the same practices, according to the sworn testimony of a Milliman actuary.

Had enough? Time for our own publicly-administered single payer program.

Do Individuals Make Sensible Health Insurance Decisions? Evidence from a Menu with Dominated Options

By Saurabh Bhargava, George Loewenstein, and Justin Sydnor
National Bureau of Economic Research, NBER Working Paper No. 21160, May 2015

Abstract 

The recent expansion of health-plan choice has been touted as increasing competition and enabling people to choose plans that fit their needs. This study provides new evidence challenging these proposed benefits of expanded health-insurance choice. We examine health-insurance decisions of employees at a large U.S. firm where a new plan menu included a large share of financially dominated options. This menu offers a unique litmus test for evaluating choice quality since standard risk preferences and beliefs about one’s health cannot rationalize enrollment into the dominated plans. We find that a majority of employees – and in particular, older workers, women, and low earners – chose dominated options, resulting in substantial excess spending. Most employees would have fared better had they instead been enrolled in the single actuarially-best plan. In follow-up hypothetical-choice experiments, we observe similar choices despite far simpler menus. We find these choices reflect a severe deficit in health insurance literacy and naïve considerations of health risk and price, rather than a sensible comparison of plan value. Our results challenge the standard practice of inferring risk attitudes and assessing welfare from insurance choices, and raise doubts whether recent health reforms will deliver their promised benefits.

Conclusion

Our principle contribution is to document widespread and costly violations of dominance in the health-insurance decisions of a large and diverse sample of U.S. employees. Unlike most prior work, our paper is able to transparently assess choice quality without making assumptions about risk preferences or beliefs, by analyzing employee choice from a standardized plan menu with a large share of financially dominated options. For the majority of employees who chose dominated plans—a disproportionate share of whom were of low income—the adverse financial consequences of poor choice outweigh the estimated benefits of recent policy measures (e.g., the effect of the exchange on insurance premiums, or the penalty associated with the individual mandate) that have attracted far more policy attention.

Our initial results prompted us to address the question of why employees make such disadvantageous decisions. Through a series of online experiments with hypothetical choices modeled on the firm’s plan menu, we find evidence for a modest role of search/menu complexity and much larger role of low health literacy. Confirming other research, we find widespread deficits in employee understanding of the insurance choices they face. Even with simple menus with few options, we observed significant errors in plan choice, suggesting that plan choice is difficult to improve. The online studies suggest that poor choice may partly reflect a heuristic understanding of health insurance such that consumers sort into plans based on perceived health risk and inferences about plan generosity from the rank-ordering of plan deductibles rather than a careful assessment of financial plan value.

The promise of recent reforms that expand choice and aim to increase provider competition is premised on the assumption—challenged by our research—that enrollees will make sensible plan choices. While efforts to improve choice through simplification, education, and other modifications to the choice environment may improve the quality of decisions, our results suggest value in shifting focus from helping consumers navigate complicated insurance options to simplifying and standardizing the options themselves. At the extreme, if all firms offered identical products, then competition would be far more likely to focus exclusively on price and quality. Beyond implications for policy, our study asserts that traditional attempts to infer risk preferences from health insurance choices may be misguided. Rather than reflecting rational deliberations involving cost, need, and risk, many health plan choices likely reflect heuristic choice strategies grounded in a fundamental deficit of health plan literacy.

http://www.nber.org/papers/w21160

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Comment:

By Don McCanne, MD

Regarding whether or not individuals make sensible decisions when purchasing health insurance, these authors conclude, “many health plan choices likely reflect heuristic choice strategies grounded in a fundamental deficit of health plan literacy.” That is, individuals do not understand health plan options well enough to make sensible choices on their own.

So much for the political campaign that led to the Affordable Care Act – you remember, the campaign that called for CHOICE, when by choice they meant choosing exactly the health insurance you want. As the authors state, “We find these choices reflect a severe deficit in health insurance literacy and naïve considerations of health risk and price, rather than a sensible comparison of plan value.” This raises “doubts whether recent health reforms will deliver their promised benefits.”

The authors further state, “At the extreme, if all firms offered identical products, then competition would be far more likely to focus exclusively on price and quality.”

But we can go them one better. Suppose we had one identical comprehensive product for everyone, and removed price as an issue by funding care through an equitably-funded, universal risk pool. Then we would all get the care we need, and select our care based on quality.

It may be that the perception of quality would be based on “heuristic choice strategies” with a “deficit of health (quality) literacy,” but limiting decision options to only that of perceived quality, whether or not the perception is valid, would result in a vastly superior concept of choice than that which applies to the health plan marketplace – whether the individual insurance market, the ACA exchanges, employer-sponsored plans, or Medicare Advantage and Part D plans.

Obviously, under a single-payer improved Medicare for all, the only choice that we would have to make would be our health care professionals and institutions, and that choice would be based on perceived quality – a much better deal for us all.

The Trans-Pacific Partnership: A Threat To Global Health?

By Deane Marchbein, President of the Doctors Without Borders USA Board of Directors
Health Affairs Blog, May 8, 2015

Lost in the political discussions over the passage of the Trans-Pacific Partnership (TPP)—a trade agreement currently being negotiated in secret between the U.S. and 11 other Pacific-Rim nations—is the very real negative impact it would have on global health.

Doctors Without Borders/Médecins Sans Frontières (MSF) works in over 60 countries, and our medical teams rely on access to affordable medicines and vaccines. We are deeply concerned that the TPP, in its current form, will lock-in high, unsustainable drug prices, block or delay the availability of affordable generic medicines, and price millions of people out of much-needed medical care.

The public health repercussions of this deal could be massive. The negotiating countries represent at least 700 million people, and U.S. negotiators refer to the TPP as a “blueprint” for future trade deals. The TPP attempts to rewrite existing global trade rules and would dismantle legal flexibilities and protections afforded for public health.

Problematic Provisions

We have concerns with several U.S. government demands in the TPP. For example, the TPP would lower the standard for patentability of medicines. It would force TPP governments to grant pharmaceutical companies additional patents for changes to existing medicines, even when the changes provide no therapeutic benefit to patients. These provisions would facilitate “evergreening” and other forms of abuse of the patent system by lengthening monopolies and delaying access to generic competition.

Another concerning provision in the TPP involves so-called “data exclusivity” for biologics, a new class of medicines that includes vaccines and drugs used for cancer and multiple sclerosis treatment. Data exclusivity blocks competing firms from using previously generated clinical trial data to gain approval for generic versions of these drugs and vaccines. If pharmaceutical companies have their way, the TPP will block generic producers of biologics from entering the market for at least 12 years, during which patients would be forced to endure astronomical prices.

Twelve years of data exclusivity is not only unprecedented in any trade agreement, it is not the law in any of the TPP negotiating countries outside of the U.S., and it would keep lifesaving medicines out of reach of millions of people.

Research And Development

As an organization caring for patients worldwide, Doctors Without Borders understands that there should be incentives to recover research and development investments and to promote innovation. Unfortunately, the public is in the dark on what this research and development truly costs. We are told that it costs billions to research and develop a new medicine, although a significant amount of early research and development actually happens at publicly funded centers and universities.

We are told that the only way to ensure that people receive the medicines they need is by increasing intellectual property provisions, such as those encapsulated in the TPP. In reality, the existing monopoly-based innovation system that the TPP is attempting to standardize has left us with more patents and fewer medical breakthroughs.

As TPP countries aim to conclude negotiations in the next few months, it is essential that the United States and other negotiating countries work to protect existing access to medicines’ safeguards and to promote a public-health driven biomedical innovation system.

http://healthaffairs.org/blog/2015/05/08/the-trans-pacific-partnership-a-threat-to-global-health/

Doctors Without Borders/Médecins Sans Frontières website, “TPP: A Bad Deal for Medicine”: http://www.doctorswithoutborders.org/help-us-fix-tpp

Coalition letter to President Obama: http://www.msfaccess.org/sites/default/files/MSF_assets/IP/Docs/TPP-Joint-Letter-Dec-17-2014-FINAL.pdf

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Comment:

By Don McCanne, MD

Doctors Without Borders/Médecins Sans Frontières, recipients of the Nobel Peace Prize, are warning us of an imminent threat to global health.

The U.S. Senate is expected to act as soon as tomorrow on granting President Obama fast track authority to approve the Trans-Pacific Partnership Agreement (TPP) – an international trade agreement. Fast track approval would prevent the agreement from being modified by Congress, as it would limit their role to an up-or-down vote.

Although the TPP agreement is still secret, it is known that there are many provisions that should be modified or removed. Amongst the more important are the provisions that would allow the pharmaceutical and biomedical industries to lock in high prices for their products, which would price millions of people out of much needed medical care. Blanket approval of TPP would precipitate a series of expensive and unnecessary global medical crises.

This issue should be of direct concern for advocates of single payer reform. A state or national program would have to comply with international agreements, even if that meant perpetuating the outrageous pricing policies of the pharmaceutical and biomedical industries – policies that would impair access to much needed treatments.

President Obama is currently campaigning heavily for fast track authority on behalf of the industries that would profit, while criticizing advocates of social justice for their opposition. Sorry, but we have to work with those who place the people first, including Doctors Without Borders/Médecins Sans Frontières.

The most urgent task: Contact your Senators today and tell them to REJECT fast track authority that would allow the President to unilaterally set the terms for TPP.

NOTE:  The issues are complex. Sen. Elizabeth Warren was specifically cited by Pres. Obama as being “absolutely wrong” in her opposition to fast track authority. Today she fired back at the President.