National Trends in the Cost of Employer Health Insurance Coverage, 2003–2013

By Sara R. Collins, David Radley, Cathy Schoen, Sophie Beutel
The Commonwealth Fund, December 9, 2014

Looking at trends in private employer-based health insurance from 2003 to 2013, this issue brief finds that premiums for family coverage increased 73 percent over the past decade—faster than median family income. Employees’ contributions to their premiums climbed by 93 percent over that time frame. At the same time, deductibles more than doubled in both large and small firms. Workers are thus paying more but getting less protective benefits. However, the study also finds that while premiums continued to rise through 2013, the rate of growth slowed between 2010 and 2013, following implementation of the Affordable Care Act. While families experienced slower growth in premium contributions and deductibles over this period, sluggish growth in median family income means families are paying more in premiums and deductibles as a share of their income than ever before.

Premium Increases Outpace Growth in Family Income

Despite the recent slowdown in growth, insurance premiums have risen faster than median incomes for the under-65 population. While average family premiums have climbed by 73 percent since 2003, median family income has risen by 16 percent over the same time period. As a result, total premiums (including the employer and employee shares) relative to income have continued to climb for middle-income working-age families. In 2013, average annual family premiums were 23 percent of median family income, up from 15 percent in 2003 and 21 percent in 2010. There are similar trends in premiums for single coverage: average premiums have climbed 60 percent over the decade, while median income for single-person households has grown by only 11 percent.

Although workers are paying more for their health insurance, their premiums are buying less financial protection, partly because more plans include deductibles and the size of those deductibles has spiked dramatically. In 2013, 81 percent of workers were enrolled in a health plan with a deductible, up from 78 percent in 2010 and just over half (52%) in 2003. As with employee contributions to premiums, incomes have lagged growth in deductibles such that deductibles are consuming an ever-growing share of worker income.

Research has shown that the slower growth in wages during the past decade has been part of a trade-off to preserve health benefits. But while growth in premiums and deductibles has slowed over 2010–2013, median family income, when adjusted for inflation, remains below 2010 levels. Indeed, U.S. families are still trying to recapture lost income from the financial crisis and recession of 2008: real median income is 8 percent lower than it was in 2007. It is unlikely that most families at the middle and lower end of the income distribution are able to detect or feel the premium slowdown in their pocketbooks since they are paying more in premiums and deductibles as a share of their income than ever before.

http://www.commonwealthfund.org/~/media/files/publications/issue-brief/2014/dec/1793_collins_nat_premium_trends_2003_2013.pdf

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Comment:

By Don McCanne, MD

Both premiums for employer-sponsored health plans and employee out-of-pocket expenses for health care have continued to increase well in excess of employee income, in spite of a general slowing in health care spending. Employees “are paying more in premiums and deductibles as a share of their income than ever before,” and it is likely that there is no relief in site, in spite of the enactment of the Affordable Care Act.

We desperately need public policies to correct the excessive and increasing inequality in America, and a good start would be to replace our current inequitable health care financing system with an equitably-financed and more efficient single payer national health program – an improved Medicare that covers everyone.

The Health-Cost Slowdown Isn’t Just About the Economy

By David Leonhardt
The New York Times, December 5, 2014

It’s one of the most important economic questions today: Is the snail-like growth of health costs over the last several years a real trend, or is it merely a temporary part of the Great Recession’s aftermath?

The data experts who compile the government’s official numbers on health spending lean toward the more pessimistic view. They think the slowdown – to the lowest level of growth on record – stems in large part from Americans skimping on medical care during tough times.

In the aftermath of the 1990-91 recession and the slow recovery that followed, health spending stopped growing more quickly than the rest of the economy. It accounted for 13.4 percent of economic output in 1996, the same share as it had in 1993.

But the weak economy doesn’t seem to have been the main reason. The rise of health maintenance organizations (or H.M.O.’s) – along with other attempts by insurers to hold down costs – was.

Then a backlash against H.M.O.’s took hold, and health spending started growing rapidly again. The surge didn’t end until the last few years, when the efforts of the reformers began to have a widespread effect.

It’s simply not true that G.D.P. and health costs have historically moved in tandem. On the other hand, the experience of the 1990s demonstrates that a slowdown in health costs isn’t guaranteed to persist.

If patients start to rebel against some of the changes that have held down health costs – like narrow networks, which restrict which doctors they can see – spending may start to rise again. It also may start to rise if labor unions manage to undercut a tax on generous health plans or if Republicans succeed in stopping efforts to make Medicare more efficient. (Yes, that’s related to the infamous death-panel debate.)

The American health care system really is changing. What happens next will be one of the biggest economic stories of the coming decade.

Comment:

By Don McCanne, MD 

There are several factors contributing to the slowdown in health care spending, but one of the most important is insurance innovation that is impairing affordability and access. These innovations include “consumer empowerment” measures, such as ever-higher deductibles, shift from co-payments to higher coinsurance, establishment of higher-cost tiers, and narrower provider networks that impair access.

The supporters of consumer-directed health care celebrate these “savings” that we are seeing, but this represents forgone health care – much of it beneficial health care. While some cite studies such as the RAND HIE and the Oregon natural experiment as showing no harm done, in fact, these studies were not powered to shown harm, but only to show a difference in spending.

People are doing without the care that they should have. Based on my clinical experiences, people really do suffer and die merely because they delayed care when they could not afford it.

Today, because of the transfer of health care costs to patients, being insured is no longer enough to prevent personal bankruptcy. It is not even enough to ensure that you will not die from causes for which intervention is effective.

There are far more effective ways to control health care spending, beginning with a single payer system. The recovered administrative waste alone would be more than enough to pay for care that patients are now avoiding due to our ill-advised and inhumane “skin in the game” policies.

Big Changes in Fine Print of Some 2015 Obamacare Plans

By Charles Ornstein, Lena Groeger and Ryann Grochowski Jones
ProPublica, December 4, 2014

Millions of people nationwide bought health insurance this year through the federal government’s health insurance exchange, often through the website Healthcare.gov. Now, as they pick plans for next year, they face a complex battery of choices and changes.

They have until Dec. 15 to select a new plan or they’ll be re-enrolled automatically in the one they currently have. Or, if that plan no longer exists, they’ll be enrolled in another product offered by the same insurer, when available. But even if they get the same plan — of the nearly 2,800 health plans offered in 2014, about 1,700 of them will exist in the same form next year — their benefits may not stay the same.

Much attention has focused on changes to plans’ monthly premiums, but changes to other kinds of benefits — affecting the cost of things like doctors’ visits and prescriptions — can be trickier to understand and make a huge difference in annual health care costs.

Some policy changes appear subtle, just a matter of adding or subtracting a few words, but are actually quite significant. This year, many insurers charged members a set fee of a few hundred dollars for emergency room visits. For next year, some of those plans changed the wording of their benefit, adding “co-pay after deductible.” That means the insurers won’t pay for any portion of an emergency room visit until consumers meet their deductible, spending thousands of dollars.

What ProPublica’s analysis suggests is that even those who would be willing to pay higher premiums to keep their current plan may be surprised to learn that substantial details have changed. They should go back to Heatlhcare.gov or to ProPublica’s news app to make sure their plan is still the best choice.

Changes to insurance benefits are hardly exclusive to the Affordable Care Act marketplaces. They happen regularly in health plans offered by employers.

http://www.propublica.org/article/big-changes-in-fine-print-of-some-2015-obamacare-plans

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Comment:

By Don McCanne, MD

Will everyone who is surprised that the the private insurers are changing the fine print on the plans offered through the exchanges please raise your hands. (Sorry, I can’t see your hands, just as most of those purchasing plans on the exchanges won’t see the fine print either.)

Exchange Plans Increase Costs of Specialty Drugs for Patients in 2015

By Caroline F. Pearson
Avalere, December 2, 2014

A new analysis from Avalere Health finds that patients accessing specialty medications – drugs often used to treat life threatening illnesses, such as cancer, rheumatoid arthritis, or multiple sclerosis – through exchange plans are more likely to experience higher out-of-pocket costs in 2015 than in 2014.

In particular, the incidence of plans charging coinsurance greater than 30 percent for specialty medications has increased from 27 percent of Silver plans in 2014 to 41 percent in 2015. Coinsurance is the practice of charging consumers a percentage of the total cost of the medication, as opposed to a set co-payment fee. Approximately two-thirds of exchange enrollees picked Silver plans in 2014.

“Health plans continue to focus on managing drug costs to keep premiums low,” said Dan Mendelson, CEO at Avalere Health. “Competitive premiums are key to a sustainable exchange marketplace, which has led plans to pursue more significant cost-sharing. In some cases this could make it difficult for patients to afford and stay on medications.”

Percent of Exchange Plans with Coinsurance Above 30% for Specialty Tier drugs

Bronze (60% actuarial value)
2014  38%
2015  52%

Silver (70% actuarial value)
2014  27%
2015  41%

Gold (80% actuarial value)
2014  20%
2015  22%

Platinum (90% actuarial value)
2014  17%
2015  26%

Exchange Plans Increase Costs of Specialty Drugs for Patients in 2015

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Comment:

By Don McCanne, MD

Specialty drugs are a problem for private insurers for two reasons. They are very expensive, and they are taken by individuals with serious high-cost disorders such as cancer, rheumatoid arthritis and multiple sclerosis. It is important to understand the insurers’ responses to their concerns.

Although set-dollar copays were common for drugs covered by insurance plans, the modest patient payments left the insurer responsible for the high costs of expensive drugs. So the insurers established different tiers of drugs covered, ranging from the bottom tier of very low cost generic drugs which were not a burden for the insurers, to the highest tier with the most expensive drugs – specialty drugs. For the more expensive tiers, the insurers now use coinsurance – a percentage of the cost – instead of copays, so that the patient is paying much more of the costs of the drug. A coinsurance of 30% soon became the standard. The patient would pay $3000 toward a $10,000 drug, or maybe about $25,000 toward an $82,000 drug such as Sovaldi (for chronic hepatitis C).

This addressed to some degree the two concerns that the insurers had. For the very high costs of these drugs, either patients would be paying a very significant portion or they would simply not fill the prescription simply because it was unaffordable, in either case saving the insurer considerable costs.

The even more important problem for the insurers was that these seriously ill patients would continue to have very high health care costs. By assigning high coinsurance payments for specialty drugs, patients who were on them would go elsewhere for their insurance coverage when they found out that the coinsurance amount was unaffordable. Although the insurers are now prohibited from turning away anyone because of preexisting disorders, this was a deceptive, dishonest way of avoiding adverse selection – avoiding covering patients with more expensive disorders. Understandably, competing insurers are adopting the same coinsurance practices so they do not get stuck with the high cost patients. It is the patients who are on the losing end.

This has not gone unnoticed. Patients are being deprived of these specialty drugs. The government is now considering options on how to make these drugs more accessible for those who need them, including the option of imposing new regulations which the insurers would oppose.

In a single payer system dedicated to patient service, the prices of the drugs would be negotiated, and they would be made readily available to those who need them. But what is the response of the private insurance industry that operates under a business model rather than a service model – even though they know they are under a cloud of suspicion? Make the patient responsible for even more of the costs by increasing the coinsurance rates well above the 30% level, impairing further access to these drugs.

Look at the table above and you will see the percentage of plans that have moved beyond a 30% coinsurance in this year alone. Over 40% of benchmark-level silver plans now have a coinsurance rate of over 30%. Over 50% of the cheapest plans – the bronze plans that are more attractive to low-income individuals – now have coinsurance in excess of 30% – pricing these drugs totally out of the reach of the purchasers of these plans. Even the plans for the wealthy – the platinum plans – are not unaffected. Over one-fourth of them exceed a coinsurance of 30% – not likely to be well received by this group who thought they were buying the best. You would think that the insurers would tread lightly with this group that has significant political voice.

The solution is obvious. Dump the business model of the private insurers and replace it with our own patient service model – a single payer national health program. Then everyone would get the drugs they need.

ObamaCare author Tom Harkin: Health law is ‘really complicated’

By Alexander Bolton
The Hill, December 3, 2014

Sen. Tom Harkin, one of the co-authors of the Affordable Care Act, now thinks Democrats may have been better off not passing it at all and holding out for a better bill.

The Iowa Democrat who chairs the Senate Health, Education, Labor and Pensions Committee, laments the complexity of legislation the Senate passed five years ago.

He wonders in hindsight whether the law was made overly complicated to satisfy the political concerns of a few Democratic centrists who have since left Congress. 

“We had the power to do it in a way that would have simplified healthcare, made it more efficient and made it less costly and we didn’t do it,” Harkin told The Hill. “So I look back and say we should have either done it the correct way or not done anything at all.

“What we did is we muddled through and we got a system that is complex, convoluted, needs probably some corrections and still rewards the insurance companies extensively,” he added.

Harkin said the sweeping healthcare reform bill included important reforms such as preventing insurance companies from discriminating against people with pre-existing conditions and keeping young adults on their parents’ health insurance plans until age 26.

But he believes the nation might have been better off if Democrats didn’t bow to political pressure and settle for a policy solution he views as inferior to government-provided health insurance.

He believes Congress should have enacted “single-payer right from the get-go or at least put a public option would have simplified a lot.”

“We had the votes to do that and we blew it,” he said.

Harkin and other liberals are now faced with the bitter irony that the centrists tried to placate five years ago by crafting a labyrinthine market-based reform are now all out of the Senate.

“So as a result we’ve got this complicated thing out there called the Affordable Care Act,” he said.

He believes Congress should have moved legislation in the first 100 days after Obama’s inauguration, which drew over a million people to the National Mall on a frigid January day.   

“There’s this old saying, ‘If you have the votes, vote. If you don’t, talk.’ We had the votes but we talked,” he said.

http://thehill.com/homenews/senate/225812-harkin-dems-better-off-without-obamacare

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Comment:

By Don McCanne, MD

No comment.

Moral Hazard in Health Insurance

By Amy Finkelstein
Columbia University Press, December 2014

In 1963, Ken Arrow proposed the concept of moral hazard in health insurance, the idea that health insurance may increase the demand for medical care. That creates a fundamental tension for health policy that is trying both to cover the uninsured and simultaneously reduce the level and growth of health spending.

The challenge posed in Arrow’s paper to subsequent generations of economists was whether we could verify that this theoretical notion of moral hazard and health insurance actually existed, and whether we could quantify its magnitude and explore its nature and implications.

How have we risen to this challenge? There is compelling evidence from randomized trials that health insurance affects medical spending. Those who say otherwise are ignoring the evidence at their own peril. This is a fact of life. It mat not be what we wished for, but we have to think about it, grapple with it, and think about its implications for policy.

http://cup.columbia.edu/book/moral-hazard-in-health-insurance/9780231163804

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The RAND Health Insurance Experiment, Three Decades Later

By Aviva Aron-Dine, Liran Einav, and Amy Finkelstein
Journal of Economic Perspectives, Winter 2013

Our reexamination concludes that despite the potential for substantial bias in the original estimates stemming from systematically differential participation and reporting across experimental arms, one of the central contributions of the RAND experiment is robust: the rejection of the null hypothesis that health spending does not respond to the out-of-pocket price. Naturally, however, these potential biases introduce uncertainty about the magnitude of the impact of the different insurance plans on medical spending. Moreover, the translation of these experimental estimates into economic objects of interest—such as a price elasticity of demand for medical care—requires further assumptions and machinery, which go beyond the “raw” experimental results. While economic analysis has made progress in the intervening decades in developing techniques that may offer new approaches to the economic analysis of moral hazard effects of health insurance, it will always be the case that, like the famous –0.2 price elasticity of demand estimate produced by the original RAND investigators, any attempt by researchers to apply the experimental estimates out of sample will involve more assumptions—and hence scope for uncertainty—than the direct experimental estimates themselves. This point, while straightforward and uncontroversial (we’d think), may have become somewhat lost in the intervening decades of use of the RAND estimates. Our hope is that this essay may help put both the famous experiment and its results back in context.

http://economics.mit.edu/files/8400

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Comment:

By Don McCanne, MD

This short book by Amy Finkelstein, “Moral Hazard in Health Insurance,” provides an excellent update that can be used to better understand the application of the concept of moral hazard to the design of health care financing. But more must be said.

The book is based on the fifth annual Kenneth J. Arrow Lecture presented at Columbia University in April 2012. Finkelstein’s lecture is covered in 30 pages. An introduction is provided by Joseph P. Newhouse (RAND HIE). Commentaries are provided by Jonathan Gruber (provider-side moral hazard), Kenneth J. Arrow himself (asymmetry of information), Joseph E. Stiglitz (markets and health care), and a brief discussion follows. Finally, Kenneth Arrow’s seminal 1963 paper, “Uncertainty and the Welfare Economics of Medical Care,” is included. This book should be in every library covering health policy.

As applied to health insurance, the concept of moral hazard is quite simple: many people will use more health care if they are protected from the out-of-pocket costs of that care. What is not so simple is how much of an impact that has and what the ramifications are. Amy Finkelstien helps us by explaining that there is much unknown, and that even the classical studies must be interpreted with great care as they are applied to today’s insurance models. Nevertheless, she makes the case that the evidence that health insurance affects medical spending is compelling.

One important concern about her presentation is that she attacks what she calls “the rhetorical case against the notion of moral hazard and health insurance” by criticizing the “alternative view” that “medical care is determined not by price but by needs.” She then seems to dismiss the great work by John Nyman plus the input by Uwe Reinhardt, not directly, but by merely including them in a quote from Malcolm Gladwell’s New Yorker article, “The Moral-Hazard Myth.” When she writes, “Those who say otherwise are ignoring the evidence at their own peril,” it seems that she is referring to Gladwell, Nyman and Reinhardt.

Unfortunately, she seems to be guilty of using a straw man analogy. I do not recall ever reading that either Nyman or Reinhardt said that price was not a factor in medical care. In fact, Reinhardt is coauthor of the Health Affairs article, “It’s the Prices, Stupid.” However, they have both made the point that need is a very important factor in accessing medical care, even when there are price barriers. Moral hazard enthusiasts need to address medical need.

The greatest problem with this book is that it advances, without requisite criticism, the widely accepted thesis that having insurance increases health care spending . This concept has resulted in the widespread application of countermeasures that erect financial barriers to care – high deductibles, greater coinsurance, tiering of benefits, and narrow networks. All of these impair patient access to beneficial care – the opposite of what a well-functioning system should be providing for us.

Is depriving patients of beneficial care harmful? Many economists seem to glibly dismiss the potential harm if it is effective in reducing spending. They cite the RAND HIE and the Oregon natural experiment as showing that harm is negligible or non-existent. Yet Finkelstein and her colleagues, in the Journal of Economic Perspectives paper on the RAND HIE, state, “attempt by researchers to apply the experimental estimates out of sample will involve more assumptions – and hence scope for uncertainty – than the direct experimental estimates themselves.” 

It is frequently stated in the lay literature that the RAND HIE and the Oregon experiment showed that the decrease in care caused by patient out-of-pocket spending does not result in adverse outcomes. That statement is incorrect. There were some adverse outcomes in both studies, but, more importantly, the studies concentrated on spending and were not powered to detect impaired health outcomes. The facts are that we do not have studies that can reliably assure us that no harm is done. Such studies would be complex, expensive and unethical.

We have a century of experience with our health care delivery system. The beneficial effects of modern health care far outweigh the detrimental effects. We do not need policy studies to try to counter this observation. It is intuitive that having better access to health care is beneficial, and, in this case, intuition is more than enough to drive policy.

From the  perspective of optimal patient care, the thesis of this book is upside-down. Rather than looking at the increase in spending that occurs when a person is covered with insurance, we should be looking at the impaired access that results from the reduction in spending due to ill-advised financial barriers erected through insurance innovations. Our efforts should be directed toward removing those barriers.

But then what about the spending that economists characterize as “increases” due to moral hazard? The answer is simple. Instead of depriving patients of beneficial care we should turn to the other methods of containing costs that have been proven to be effective in other nations.

We could start with the administrative waste that would be recovered simply by converting to a single payer system (not to mention the many other financial benefits of single payer). Just the administrative savings alone would be far more than could ever be saved through the application of moral hazard policies.

We already have high deductibles and coinsurance, and yet our health care costs are much higher than in those nations that do not use such detrimental interventions. Application of moral hazard theory has been a failure primarily because it diverted our attention away from social policies that would advance health care justice.