No, Your Insurer Doesn't Care if You Have High Claims. In Fact, They Like It That Way

And PPACA Cemented That Perverse Motive 

Under the Medical Loss Ratio (MLR) price control mechanism in the Patient Protection and Affordable Care Act (PPACA), health insurers in the large group market are required to spend at least 85 percent of premium revenue (80 percent for small groups and individuals) on reimbursements for clinical services and claim activity.  If they do not meet that standard on a state-by-state basis, the insurer must pay a rebate back to policyholders.  Stated alternatively, insurers are only allowed to charge 15 percent more than the actual claims of a group.

This well intentioned attempt to rein-in the exorbitant premium escalation of the last twenty years has not worked.  In fact, it's done more harm than good.  It is yet another example of how no good deed goes unpunished.  Giant government programs seeking to regulate massive businesses (or be complicit with them, frankly it doesn't matter either way) always result in economic perversions distorting the market and harming consumers.  As a result of the PPACA MLR mandate, carriers have strategically reduced spending on fraud detection, research and development, customer service training and improved systems.  Large group insurers now have 15 percent to pay their rent, keep the lights on, and pay brokers and personnel.  There is very little economic incentive to do anything more.

Kudos to the folks over at ProPublica for breaking down exactly how this hurts the insured:

Turns out, insurers don’t have to decrease spending to make money. They just have to accurately predict how much the people they insure will cost. That way they can set premiums to cover those costs — adding about 20 percent to for their administration and profit. If they’re right, they make money. If they’re wrong, they lose money. But, they aren’t too worried if they guess wrong. They can usually cover losses by raising rates the following year. 

Frank suspects he got dinged for costing Aetna too much with his surgery. The company raised the rates on his small group policy — the plan just includes him and his partner — by 18.75 percent the following year. 

The Affordable Care Act kept profit margins in check by requiring companies to use at least 80 percent of the premiums for medical care. That’s good in theory but it actually contributes to rising health care costs. If the insurance company has accurately built high costs into the premium, it can make more money. 

Here’s how: Let’s say administrative expenses eat up about 17 percent of each premium dollar and around 3 percent is profit. Making a 3 percent profit is better if the company spends more. 

It’s like if a mom told her son he could have 3 percent of a bowl of ice cream. A clever child would say, “Make it a bigger bowl.” 

Wonks call this a “perverse incentive.” 

“These insurers and providers have a symbiotic relationship,” said Wendell Potter, who left a career as a public relations executive in the insurance industry to become an author and patient advocate. “There’s not a great deal of incentive on the part of any players to bring the costs down.”

The full story is absolutely worth your time to read, here.

The MLR provision is also why no broker should be seeking to sell new business with an unscrupulous "we'll cut out commission and work for a fee" pitch.  That approach may work in the first year if you make the arrangement with the carrier and client after an initial renewal was already released.  However, the client will ultimately end up paying twice for that broker: once when the insurer re-underwrites the group with a 15 percent margin on top of claims and again when the employer has to pay its "fee" to the broker.

As we first wrote about over three years ago in Beware of Brokers Offering to Cut Commissions or Work for a Fee Under Health Reform, until the MLR rules are overturned or amended, brokers should not be working on fee agreements in the age of PPACA.  To do so simply results in client overcharges.  And any broker assurance that they can and will ensure such underwriting doesn't occur belies that they don't understand just how powerful, convoluted and nefarious the oligopoly's profit motive can be.  If they can hide the ball they will.  And they will do so with a tremendous level of complex minutia.  Employers are going to pay 15 percent more than claims in the underwriting process.  That 15 percent includes broker commission: so don't fall for the allure of "cutting out the commission" and paying the broker a fee.  To do so will ultimately result in double compensation as insured pays a fee to the broker and commission to the carrier.

How Insurers "Underwrite" for Unhealthy Potential Customers

This is from Dr. Goodman and the entire post is well worth your time to read:

[PPACA has created] a perverse incentive to structure [a] plan so that it appeals more to the healthy and less to the sick.  [Because insurers are no longer allowed to underwrite based on individual health status]. Healthy people tend to buy insurance based on price. Sick people, however, look at likely out-of-pocket costs for their illnesses and want broader networks. By choosing narrow networks and high deductibles the insurers can kill two birds with one stone: with lower costs (and therefore lower premiums) they can make their product appealing to the healthy and unappealing to the sick. 

So instead of insurers providing what the market wants, part of what we are witnessing is a reaction to perverse incentives. As the Avalere report makes clear, this is happening in spades in the Obamacare exchanges.

 

Eight Eye-Opening Healthcare and Benefit Stats

From the Conference Board’s annual Employee Health Care Conference as reported by Jason Lavender. 

Among the trends impacting health care:

1. City of Hope noted the average cost of new cancer therapy is $171,000 and spend for specialty drugs used in cancer treatment is expected to increase by 20% every year. Given rapidly changing cancer research, the gap between best practices and treatment delivered is widening in cancer while it’s shrinking in other specialties. Up to 28% of cancer cases are misdiagnosed or classified at the wrong stage. Rethinking the approach and having a specific strategy for cancer care is a must.
2. There are 86 million pre-diabetic adults in the U.S. and 90% don’t even know it. Employers have long been using biometrics and “know your numbers” campaigns to improve awareness, but the number and variety of diabetes prevention programs entering the market continues to grow, giving employers several options.
3. More than two-thirds of adults with depression don’t get treatment. That’s unacceptable. Anxiety and depression continue to be top risks in the U.S. workforce. Improving access, reducing stigmas and digitizing cognitive behavioral therapy are all top of mind for employers.
4. Specialty prescription costs are expected to double in three years. In other words by 2020 it’s estimated that on average, 7 of the top 10 drugs ranked by spend in an employer-sponsored pharmacy benefit will be specialty drugs. Employers are winning the “generic vs. brand” battle; now it’s on to managing the specialty pipeline.
5. According to Rock Health, 345 digital health startups raised more than $2 million in capital in 2017. That’s almost $6 billion in digital health funding. Sorting through the myriad of startups to find those that innovate with purpose for employers is key. At the startup panel, the entrepreneurs’ enthusiasm and desire to change the world for the better was palpable.

Trends impacting the changing workforce:

1. Today, 33% of the U.S. workforce are freelancers and that will grow to 43% by 2020. The way in which employers are attracting and competing for talent is evolving, especially when so many hires will be gig employees. Designing benefits and engaging gig employees in health care programs will need to change as well.
2. Nearly two-in-three (65%) of children entering school today will have jobs that do not exist today. Worried about what career your child will have? Don’t fret! It’s likely you’ve never heard of their future career anyway. As jobs change, the opportunities will grow.
3. More than three-in-four (77%) employers are considering changes to their Inclusion & Diversity (I&D) policies and benefits plans. The findings are based on a survey we conducted at both events in which we asked employers, “to what extent do you envision your company making changes to policies and benefits over the next three years to broadly support Inclusion and Diversity goals?” Among the responses, 30% said to a great extent, and 47% said to a good extent. The enthusiasm and attention to I&D is tremendous to see.

   

Top 10 Workplace Discrimination Claims

In 2017, the Equal Employment Opportunity Commission (EEOC) resolved more than 99,109 workplace discrimination claims—securing more than $398 million from employers in the private and public sectors as a result of these claims. Discrimination lawsuits can be very time-consuming and expensive for employers, and can result in a loss of employee morale or reputation within the community.

Top Causes of Discrimination Claims

According to the EEOC, the following are the top 10 reasons for workplace discrimination claims in fiscal year 2017:

• Retaliation—41,097 (48.8 percent of all charges filed) 
• Race—28,528 (33.9 percent) 
• Disability—26,838 (31.9 percent) 
• Sex—25,605 (30.4 percent) 
• Age—18,376 (21.8 percent) 
• National origin—8,299 (9.8 percent) 
• Religion—3,436 (4.1 percent) 
• Color—3,240 (3.8 percent) 
• Equal Pay Act—996 (1.2 percent) 
• Genetic Information Nondiscrimination Act—206 (0.2 percent) 

  

12 New Bills That Could Impact CA Employers

From our friends over at CEA: 

Like a pride of lions flashing teeth and fangs, the California legislature is on the hunt in 2018. As has become an annual spring ritual, Sacramento politicians have once again proposed a progressive labor agenda.  Below is a list of significant employment law bills pending in Sacramento. It remains to be seen which of these bills will end up on Governor Jerry Brown’s desk in about six months’ time. 

Full story here. 
 

Legal Alert: 9th Circuit Rules That Any Employer Reliance on Past Pay History is Inherently Discriminatory

From HR Morning: 

One of the most common pay-determining techniques could now put your company in legal danger. 

The 9th U.S. Circuit Court of Appeals just unanimously ruled that pay differences based on prior salaries are inherently discriminatory under the Equal Pay Act because those past salaries stemmed from gender bias. 

The ruling was handed down in Rizo v. Fresno County Office of Education, a lawsuit in which a teacher claimed she was paid thousands of dollars less than her male colleagues. ...

 

The Astounding Inefficiency of Taxpayer Resources Allocated Under Obamcare

From The Hill: 

Not counting the money spent on state and federal exchanges, the federal government spent $341 billion from 2014 through 2016 on subsidizing individual coverage so that people would buy it. 

All this spending managed to increase private coverage by just 1.7 million people, slightly less than half of the natural increase in the civilian labor force. That’s $200,000 per person. The feds could have saved money by closing the exchanges and giving people who qualified for subsidies a check for $50,000 for each of the three years. Those people could then have paid $20,000 for their own unsubsidized policy and used the rest to either cover their out-of-pocket costs or buy a nice used car. 

 

What Your Carrier Won't Tell You at Renewal - Costs are Down and Carrier Profits Up

The unholy Frankenstein monster that is the leftover, adulterated, selectively enforced remnants of the Patient Protection and Affordable Care Act (PPACA) is working with an almost entirely dysfunctional healthcare system to generate massive profits for insurers in 2018.  While PPACA covered roughly 12 to 15 million of the nation's 40 million uninsured, it did nothing to actually reduce price.

If anything, PPACA made healthcare more expensive by about 2% per year since its inception with its myriad of taxes, fees, penalties and robust benefit mandates.  Alas, for the first time since its passage, we are finally starting to see costs moderate and carriers are back to the kind of record profits they enjoyed prior to 2010.

While policyholders and covered employees are being hammered with a barrage of news media about the runaway costs of healthcare, double digit premium increases and overall demise of the medical insurer model, something peculiar has been occurring over the past four to nine months.  Costs are slowing and carriers are profiting.  But have your renewal increases similarly moderated?  No, in most cases they have not.

Is this the inevitable result of free-market, for-profit healthcare?  Hardly.  We cannot remind our readers enough: we do not have "free-market" healthcare in America.  Instead we have something more like an unholy alliance between a gargantuan, rent-seeking, oligopoly and Big Government.  Recall that in California alone, 70% of all persons are covered by taxpayer-funded healthcare:

Many people assume that the U.S. health care system is primarily supported by private dollars, such as insurance premiums from employer-based coverage, said Gerald Kominski, director of the UCLA Center for Health Policy Research and the study’s lead author. 

But that’s no longer the case, at least in California — mostly because of its massive expansion of Medi-Cal, the state’s version of Medicaid, he said. 

“There’s this myth that we have a mostly privately funded health care system, but we’re approaching a point in which almost three quarters of this system is funded by public money,” Kominski said. “Now a question to ask ourselves is: when do we reach the tipping point and say ‘this is essentially a public system?’” - California Healthline.  

Meanwhile, as we put a bow on the first quarter of 2018, the insurance carrier community is busy funneling another message to investors on Wall Street: business is good!

These two graphs are from Cigna's May 3, 2018 Investor Presentation on slide 18:

And this is a simple smattering of recent investor stories about various carrier revenue and profit performance in 2018:

UnitedHealth Group’s 2018 1st Quarterly Earnings Advanced 28.27%; Surpassed Expectations 

Cigna came out with adjusted earnings per share of $4.11, beating the Zacks Consensus Estimate of $3.37. Earnings also grew 48% year over year. Better-than-expected earnings were primarily driven by revenue growth. 

Health insurer Aetna Inc.’s AET first-quarter 2018 earnings of $3.19 per share beat the Zacks Consensus Estimate of $2.97 by 7.4%. Moreover, the bottom line improved 17.7% from the prior-year quarter. 

Anthem reported a better-than-expected quarterly profit on in 2018 Q1 as

• it kept a tight leash on patient payouts, prompting the health insurer to raise its full-year profit forecast 

• The company said it was prioritizing investments throughout 2018 on infrastructure that can quickly respond to the evolving needs of its customers - a sign it may continue to steer clear of major acquisitions

Health insurer Centene's profit more than doubles in Q1 of 2018. Centene owns the popular California insurer Health Net and focuses primarily on taxpayer funded health plans such as Medicare and Medicaid.

Kaiser Permanente sees record revenue growth in 2017. The not-for-profit Oakland, Calif.-based system, which includes Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals and their subsidiaries, saw its operating revenue jump by $8.1 billion in 2017, a 12.5% boost, mostly thanks to its massive health plan. Operating revenue was $72.7 billion in 2017, compared with $64.6 billion in 2016.

Question?  If carrier costs are only going up 4% to 6.5%, why are your renewals consistently between 9% and 12%?  Yes, some of that is PPACA taxes, but not all of it.  Arm yourself with these facts and the carrier's investor press releases as you head into your renewal season.  The profitability of your business depends on it. 

Armstrong and Getty covered this story at length during their third hour on May 10, 2018, here is that audio: 

  

60 Minutes: The Problem with Prescription Drug Prices

What one city did to fight high drug prices reveals a drug supply chain in which just about every link can benefit when prices go up

"The underlying problem we have with prescription drugs in this country is that every single actor has the potential to make money when drug prices go up."

Full story here. 

  

Great to Remember When Negotiating Your Anthem Renewal, Costs DOWN 3%

I'm sure that will be reflected in all of your renewals ... from ABC News:  

Anthem's first-quarter earnings shot up 30 percent, and the Blue Cross-Blue Shield insurer hiked its 2018 forecast, as a drop in medical expenses bolstered its performance. 

The nation's second-largest health insurer joined rival UnitedHealth Group Inc. in topping analyst expectations for the quarter and hiking its 2018 forecast. 

Anthem said Wednesday that it now expects 2018 adjusted earnings to be greater than $15.30 per share after saying in January that they would exceed $15 per share. 

The new estimate tops the average analyst forecast for $15.13 per share, according to FactSet. 

In the first quarter, Anthem saw its largest expense, medical costs, fall 3 percent to $17.05 billion. New CEO Gail Boudreaux attributed that drop in part to the insurer's push to create "value based care models" across its markets. ...

The Biggest Impediment to Healthcare Price Transparency?

Gag Clauses masquerading as trade secrets.

The Uniform Trade Secrets Act suggests that to qualify as a trade secret, the secret information must provide a competitive advantage to its owners. While concealing negotiated price information could, in certain circumstances, provide a payer or a provider with a competitive advantage (for example, because the negotiated prices are lower than the competition’s and could enable the payer or provider to gain additional market share), the majority of that practice today is nothing more than rent-seeking behavior.

However, the trade secrets claim is asserted to prevent any communication of provider prices to health plan members or any other third party. Some payers are forbidden to use pricing information in any way that could potentially lead to patients voting with their feet, which is the exact goal of price transparency.

In other words, these clauses are nothing more than gag clauses designed specifically to counter the movement toward greater price transparency.

Some states, such as Maine, are countering by adopting new legislation, known as “right to shop laws” that compels all health plans to provide price transparency to certain categories of its members. Others can follow suit. More broadly, Congress could investigate the abuse of the Uniform Trade Secrets Act to forcefully prevent transparency and stifle market competition.

Source: Health Affairs, April 19, 2018

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• In economics, “Rent-seeking” is an attempt to maximize economic return by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth.

• A “Gag Clause” is a provision often included in a physician’s contract with insurers, preventing he/she from being open with his patients about the terms of the patient’s payment and specific procedure costs.