S&S Benefits.....Opinion, Hearsay & News Review

The CBO says PPACA will cost the economy 2 million full-time jobs and that the botched rollout of the law reduced sign-ups by one million people.

An EBRI study showed that 74% of employees are satisfied with their benefits, which is better than the 70% who reported the same in 2001. Meanwhile, Gallup reports that 59% of uninsured Americans reported having a negative experience with the new federal health exchange and 29% said they had a very negative experience. The poll interviewed 1,500 uninsured, including 450  who visited an exchange web site.

While plan costs in the exchange are largely reported to be very high, even with the narrow networks offered by most carriers, the government is now talking of forcing the carriers to cover at least 30% of "essential community providers" in each county in 2015, which will further raise costs. Also, consumers in 515 counties  spread across 15 states have only one insurer selling plans on the exchange. Coverage in those counties was found to cost 23% more than counties where there are competing interests.

The CMS Office of the Actuary has estimated that 65% of small businesses that cover 11 million people will see an increase in premium due to community rating under Obamacare.

At least six states and counties from Maryland to Oregon and including Cook County (Chicago) are enrolling  inmates into the exchanges, shifting costs to the federal government. Also, Humana has announced it will tap between $250 and $450 million from the reinsurance risk pool for Obamacare. This amounts to about 25% of the insurer's expected exchange revenue and is needed to offset losses due to low enrollment and their risk pool that consists of mostly older and less healthy people.

The Obamacare law has been changed again. Now those employers with 50-99 employees will not have to offer coverage until 2016. Firms with 100 or more employees must offer coverage in 2015 to at least 70% of FTEs with the number jumping to 95% of FTEs in 2016.

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Trends in medical care benefits are fairly predictable and usually return as a horse with a new name. In the early to mid-1980's, HMO's became the rage to control costs. That didn't work once the non-healthy employees were forced into the HMOs via the contributions they had to pay. Predictably, HMOs fell out of style and have only a small market share today.

Today, HMOs have come back as Accountable Care Organizations. Under this scenario, when a hospital and a group of doctors are joined together they will supposedly provide better care. For performing better than average, they expect to be paid more. However, neither the doctor or the hospital has any real incentive to control costs in general and there is no transparency to these arrangements in terms of their charges. They won't be any more able to account for larger claims of many sick people than were HMOs.

Another panacea talked about constantly in the press in the last few years that has not abated is the introduction of wellness programs to employer based plans. Although originally, cost containment programs that do work, such as utilization review and disease and case management were originally being called wellness programs, the term has now evolved  to include anything from internet based wellness tips to programs which require biometric screenings and coaching and which offer either incentives or disincentives to encourage employees to participate. These programs have largely been faith based in that there was rarely any believable data that showed a return on investment for these plans, although most claimed a 3 to 1 ROI or better.

The problem with these programs is that they are not allowed to be discriminatory, so offering the program with a high turnover population  (as opposed to only low turnover management) was not effective. Participation in these plans was largely by the already health conscious employees. There is not enough of a disincentive/incentive allowed under government rules to attract most employees. In addition, the program costs had to be increased in order to have a chance of being effective if the employer offered coverage to dependents of employees.  The RAND Corporation released a study in May 2013 that concluded that wellness programs don't work for the cost.

Then,  in July 2013, Katherine Baicker from Harvard,  one of the early backers of these programs and one of the most effective communicators of the need for the programs surprised the wellness industry by admitting that there was no data that could prove cost effectiveness.

In the mid to late 1990's, many insurance carriers started marketing medical plans where there were several options. The employer would pay "X" no matter which plan the employee chose and the employees could use any left over money to buy other benefits or take in cash (taxable). These Defined Contribution Plans also fizzled out.

One reason was that despite the best efforts to  communicate these programs, employees were confused by the number of offerings (even if there were only 3). Also, there had to be a huge spread in the rates employees paid between the highest cost  and lowest cost plans in order to drive employees into the most cost effective plans. However, since employees only paid a minor portion of the total premium (as is true today), the rate spread for employees could never be large enough to really drive people into the lowest cost plans and make a difference, because large claims are the major cost drivers of a benefit plan. This is because on average 90% of employee claims are less than $2,000 per year.

So, as costs went up, unless the employer increased their own contribution proportionally, soon many employees were paying too much money for a plan that most didn't use very much. As complaints skyrocketed and valued employees either changed employers or threatened to, these plans went away. The problems are the same with fully insured or self-funded defined contribution, but the trouble with self-funded was that the true costs could never be 100% predictable for the employer.

The advent of health exchanges under PPACA has revived the once failed concept with a new name ("Exchange", be it private or public). This has led people who write about the insurance industry to tout the "new" concept (new to most of them) of Defined Contribution as being something new and different, and supposedly better than the failed or failing panaceas of HMO, PPO, Consumer Driven, Defined Contribution or Accountable Care.

Finally, most of the new private exchanges are being offered by large brokerage and consulting firms, who now instead of being in the position of advisor, are almost like an insurance carrier competing for business with each other almost as the insurer, rather than on the strength of their advise. In other words, now the fox is watching the henhouse in the private exchange business. That is something that the press has conveniently forgotten about, or more likely, never thought about.

For employers who are large enough to be self-funded, the top down discounts of PPOs are no longer sufficient. Reducing a hospital claim by 30% to 50%, when the mark-up is 350% to 400% will not save a plan much money. Therefore, we are a strong advocate of Cost Plus or Medicare Plus pricing based on a full audit of hospital claims. This transparency in pricing actually has proven savings of about $150,000 per 100 employees on average. However, you won't find the large brokerage firms that have their own exchanges advocating this methodology of paying claims, simply because it would cut into the fox watching the henhouse easy commissions they make on their non-transparent exchange plans.