Many employers want to know why medical insurance rates continue to rise and whether they’re paying too much compared to other businesses. Two recently released reports address these questions:
- Medical Cost Trend: Behind the numbers 2019, is prepared by Price Waterhouse Coopers (PwC)’s Health Research Institute and it projects medical costs to increase by 6% in 2019. Based on surveys of industry executives, health policy experts and health plan actuaries; the report noted that medical cost trend increases – from a high of nearly 12% in 2007 – “fell for seven years before stabilizing around 6 percent.” One of the major concerns for the increase in the cost of health care is the rising cost of prescription medicine and the government’s attempt to streamline to process for approval of generic medicine.The report also identifies three factors that will cause rates to increase in 2019. These include:
- Care anywhere and everywhere, which means that people can get medical care at retail stores in “minute clinics” and through their smart phones with video chats with their doctors. Easier access means higher “utilization” which increases the cost of medical care. Also, many large employers and insurance companies are using health risk questionnaires and biometric screenings. A strange paradox of these tools is that they identify potential medical issues at an early stage which results in an increase in medical care and costs associated with previously unknow medical conditions.
- Provider megamergers where large health systems purchase previously independent hospitals and medical groups. This increases the bargaining power of the medical providers when negotiating rates with insurance companies. When medical providers extract higher rates from insurance companies then employers pay higher insurance premiums. In 2018 Dignity Health merged with Catholic Health Initiatives (CHI). While CHI didn’t operate in California, so that no independent facilities were merged into a larger entity, the combined clout of the merged entity strengthens its ability to negotiate with insurance companies. Dignity Health owns 6 hospitals in the Los Angeles area including Glendale Memorial, Northridge Hospital and St. Mary’s in Long Beach. Providence Health Services owns 6 hospitals including St. John’s in Santa Monica, St. Joseph’s in Burbank and Little Company of Mary in Torrance and San Pedro. Accordingly, two medical systems control a large sector of the health care for the Los Angeles area.
- Physician consolidation and employment also causes prices to rise, according to the report. For example, when hospitals purchase medical groups, they often add a “service fee” to the cost of a routine office visit. According to a study cited in the PwC report, The Medicare Payment Advisory Committee (MedPAC) reports that when the most common office visit is performed in a hospital setting it “is more than twice the price of the same visit when performed in a physician office setting.”
On a happier note, The PwC report also identifies three cost “deflators.” These include:
- Flu impact, where “the 2018-19 flu season is expected to be milder than last season.” This should result in a decrease in medical care spending.
- Care advocacy where people enrolled in High Deductible Health Plans (HDHP) have received assistance from experts and make more cost-conscious medical care decisions. HDHP plans financially engage a patient in health care decisions because these plans usually have a $2,000 plus deductible which the member must pay before receiving payment from an insurance plan. This deflator is mostly a benefit to large, self-funded employers, however, because these large employers receive the benefit of lower costs when their members use fewer medical services. In the California small group market, fully insured Health Savings Account (HSA) compatible plans (which are HDHPs) are very expensive. HSAs have become a refuge for people with high claims/major chronic illnesses and the resulting monthly premium is often higher than non-HSA high deductible plans. So, HDHP/HSA plans are not price-competitive for small group coverage in California.
- High-Performance Network of doctors and hospitals, where doctors, hospitals and insurance companies collaborate on the care of a patient population. Referred to as “Accountable Care Organizations” or ACOs, these plans offer very real savings to California small employers with 1-100 employees. Blue Shield’s Trio is the most popular and has been available to small employers for a few years. The PwC report highlights the Blue Shield Trio plans as the best example of a successful ACO. This year, United HealthCare (UHC) introduced its version of an ACO and has named it “Harmony.” These plans offer innovative approaches to engaging members in taking an interest in their own health by offering “concierge” service to assist with medical visits and offering wearable devices to monitor one’s health. If your business is interested in offering an ACO, give Benefits Cafe a call at 800-746-0045 and we’ll help you understand how they work and determine whether they are right for your employees.
In the face of these medical cost trends, employers also want to know whether they’re paying too much for medical insurance compared to other companies. Another report, described below, will help employers with those questions. This sort of comparison is often referred to as “benchmarking” in the employee benefits world.
- 2018 Employer Health Benefits Survey, prepared by the Kaiser Family Foundation provides benchmark information that enables employers to see how their plan benefits and rates compare with the rest of the country. Some interesting findings of the report include:
- The average annual worker and employer contributes about $6,900/year for an HMO; $7,150/yr. for a PPO and $6,900/year for all plans. These average rates include large and small employers in all parts of the United States which makes it difficult to directly compare the amount you pay for your employees’ medical insurance. Still, it gives you a benchmark. On a monthly basis, the average for all plans is about $575/month. Depending on the benefit level you offer (i.e., Platinum, Gold, Silver, Bronze) and the age of your employees; you may find that you’re paying less – or more – than many other companies.
- Employee Benefit Cost Sharing include amounts patients pay when they use medical services such as deductibles, co-insurance and out-of-pocket maximums. For small firms (defined as having 3-199 employees for this study) the average plan deductible was $2,132. The report says that “forty-two percent of covered workers in small firms…. are in a plan with a deductible of at least $2,000 for single coverage, similar to the percentages for last year.” Further, copayments averaged $25 for primary care and $40 for specialty care. 19% is the average coinsurance rate for hospital admission. Only 20% of plans had an out-of-pocket maximum of $6,000 or more. These amounts would equate to a Silver or Gold level small group plan available in California.
- Employee Premium Cost Sharing is the percentage of the monthly premium that the employees contribute. Among small firms (3-199 employees for this study) 27% of employees pay 0% of the premium, meaning that the employer pays 100% of the employee-only premium. 44% of employees paid 1 – 25% of the employee only premium and 25% of employees in small firms paid between 50 – 75% of the monthly premium for coverage. Stated otherwise, 71% of employees in small firms paid less than 25% of the premium for coverage. This may be an indication of a tight labor market where it is difficult to find good employees and employers are using medical insurance benefits as a valuable component of their compensation package.
With these two reports, employers should understand the benefits they offer compared to other companies and the factors that impact the cost trends. Give us a call at BenefitsCafe.com 800-746-0045 if you’d like us to assist you with your employee benefits.