Hogan Knows

For months we’ve been commenting on the dismal results of Massachusetts Health Reform and Massachusetts’ attempt to create a functional Exchange.  True, MA has achieved near universal coverage.  True, Massachusetts has healthcare costs much higher than the rest of the country and a huge provider capacity/access issue.  Last Thursday, the attached report was presented to the board of the CT Health Insurance Exchange;  the group is charged with using millions of Federal dollars to create an operating health exchange in CT.

On Friday morning I was invited to participate on a panel in Norwich hosted by the Chamber of Commerce of Eastern Connecticut to discuss

“Healthcare Today and Tomorrow”.  Christie Hager, the Regional Director for the U.S. Department of Health and Human Services and Jill B. Zorn, Senior Program Officer for the Universal Health Care Foundation of Connecticut also participated on the panel.  Interestingly, Ms. Hager was also instrumental in the initial implementation of Massachusetts healthcare reform and worked with the Massachusetts legislature on its implementation.

Our discussion on the panel and from audience questions was lively.  I took the opportunity to point out that healthcare now comprises nearly 20% of our country’s GDP and that much of the rhetoric around healthcare reform is political rather than practical.  Further, I had the opportunity to point out that the largest issues coming out of reform are that of complexity, cost and lack of capacity and that these issues simply aren’t getting addressed.  MassCare was originally expected to cost $88 million per year but now the MA healthcare budget exceeds $4 billion and is underfunded (receiving numerous Federal bailouts).

Federal healthcare reform promised increased access to healthcare and lower costs.  The data is now showing all parties that costs will continue to rise precipitously and that the new essential benefits packages will increase costs even more and the quality of covered benefits is being eroded as plans become unaffordable. 

Many of my allegations and assertions were fully supported by the revelations (Thursday)  in the attached document solicited on behalf of the CT Health Insurance Exchange Board.

-           44% of all employer sponsored products sold in CT had an actuarial value below the Bronze (lowest) level.  This has tremendous policy/financial implications for sponsored plans in CT. (page 14 of report)

-          Healthcare costs:  “One third of employers saw double digit increases after plan design changes.”  (p. 37)

-          Massachusetts:  “Massachusetts small business participation in the Exchange has been limited.”  After six years of reform the MA exchange “Currently has less than 5,000 members.”  “Broker distribution (in MA) is limited to 19 brokers.”  (p. 51)

-          Mercer conclusion to board:  “It is going to be very difficult for the Exchange to compete based upon price.” (p. 55)

The reality is that the Federal government is spending hundreds of millions of dollars in grant money to help the states create their own exchanges yet it doesn’t appear that the exchanges will do anything to reduce costs.  Further, most employers don’t intend to purchase from the Exchanges.  On 11/16/11 the Hartford Business Journal reported:  “Study: CT employers cool to health exchange.”  The article refers to another Mercer study entitled “Mercer’s 2011 National Survey of Employer-Sponsored Health Plans.”  (summary pasted below)  “Few Connecticut employers plan to terminate their medical plans after the state insurance exchange becomes operational in 2014, a new study says.”  (Hartford Business Journal, Greg Bordonaro)

The cost and policy implications for these new revelations are significant.  More to come soon.  Read the highlights of the national report below.  Don’t miss the graphs below the verbiage.  I’ve also attached the Mercer report for CT.      Jeff

Mercer’s 2011 National Survey of Employer-Sponsored Health Plans

Employers accelerate efforts to bring health benefit costs under control

United States
New York , 16 November 2011

 

 

Against the backdrop of uncertainty created by health reform, employers are accelerating their efforts to bring health benefit cost under control. According to the National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer and released today, growth in the average total health benefit cost per employee, which had reached 6.9% last year, slowed in 2011 to 6.1%, with an increase of 5.7% expected for 2012 (Fig. 1). Cost averaged $10,146 per employee in 2011 (Fig. 2).

 

Mercer’s nationally projectable annual survey includes public and private organizations with 10 or more employees; 2,844 employers responded in 2011.

 

“In a tough economy where high benefit cost increases often have to be balanced with lower pay increases, cost management is already important,” said Susan Connolly, a partner in Mercer’s Boston office. “But given the new cost pressure from health reform, for many employers it’s becoming an imperative.”

 

One provision of the Patient Protection and Affordable Care Act (PPACA) that went into effect in 2011 was a requirement that employers extend dependent coverage eligibility to employees’ children up to age 26. Health plan enrollment grew by an average of 2% in 2011 as a result. Provisions going into effect in 2014 include requiring employers to extend coverage eligibility to all employees working at least 30 hours per week on average and auto-enrolling newly eligible employees. Employers expect that these provisions – along with the new mandate that all individuals obtain health insurance coverage – will result in another increase in enrollment. Retailers and other employers with large part-time populations are likely to be the most affected.

Still, the provision that concerns the most employers is the excise tax on high-cost plans  – nearly half say it’s a “significant” or “very significant” concern (Fig. 3). While some employers offer high-cost plans because generous benefits are part of their attraction and retention strategy, others have high-cost plans simply because they have an older or less healthy workforce or are located in a high-cost area. Only 39% of employers with 50 or more employees believe their current plans won’t hit the excise tax cost threshold, which will be tied to CPI and increase each year.

 

Nearly all the rest are determined to avoid the tax if they can: 21% say they “will do whatever is necessary to bring cost below the threshold amounts,” and 36% say they will attempt to bring the cost below the threshold amounts, acknowledging that “it may not be possible.”  Only 4% will take no action to avoid the tax.

 

“Employers that are concerned about a jump in enrollment in 2014 or the excise tax in 2018 see a need to slow cost growth now,” said Beth Umland, Mercer’s director of research for health and benefits. “While cost-shifting to employees is still going on, this year we saw more employers adopting strategies they believe will provide better results over the long haul.”

 

Just under half of all employers (47%) say they will shift cost in 2012 by raising deductibles or the percentage of the premium paid by employees. This is down slightly from 50% saying they would shift cost in 2011.

Employers add consumer-directed plans

This year saw the biggest increase ever in the adoption of high-deductible, account-based consumer-directed health plans (CDHPs) by large organizations. Now, 32% of all employers with 500 or more employees offer a CDHP, up sharply from 23% in 2010 (Fig. 4). The largest employers are the most likely to offer a CDHP (47% of those with 10,000 or more employees do so), but CDHP use grew among small employers as well, from 16% to 20% of those with 10-499 employees.

 

Overall, 13% of all covered employees are enrolled in a CDHP. Enrollment growth has been rapid – five years ago, CDHPs enrolled just 3% of covered employees. 

 

The appeal of these plans to employers is clear. The cost of coverage in a CDHP with a health savings account is nearly 20% lower, on average, than the cost of PPO coverage – $7,787 per employee compared to $9,385 (Fig. 5). 

 

In addition, some employers see these plans as integral to strategies to improve workforce health. “One feature of the CDHP that employers like is flexibility in funding employees’ spending accounts,” said Ms. Connolly. “A growing number of employers are making their account contributions contingent on the employees’ willingness to take steps to improve their own health.”

Employers put teeth into health management programs with incentives – and penalties

Workforce health management, or “wellness”, has emerged as employers’ top long-term strategy for controlling health spending. When asked about a long-term response to the changes initiated by health reform, an astonishing 87% of large employers say they will add or strengthen programs or policies to encourage more health-conscious behavior.

 

In 2011 it was clear these efforts were well underway. For a second year in a row there was a sharp increase in the use of incentives or penalties to encourage higher participation rates: 33% of large employers with health management programs provided incentives or penalties, up from 27% last year and 21% in 2009 (Fig. 6).

 

In addition, the incentives are becoming more substantial. Five years ago, the most common incentive offered by large employers for completing a health assessment was either a token gift or cash; this year it is a lower premium contribution from the employee (the median reduction in the annual contribution required for employee-only coverage is $240).

 

Health assessments, which are intended to alert employees to possible health risks and to identify individuals who could benefit from disease or lifestyle management programs, are offered by most large employers (70%), but small employers are adopting them as well: 34% offered an assessment in 2011, up from 29% in 2010.

A year after PPACA, most employers still say it’s unlikely they will drop health plans

Despite employers’ concerns about the impact of reform, when asked how likely they are to terminate their health care plans after state-run insurance exchanges become operational, the great majority says “not likely.” Large employers in particular remain committed to their role of health plan sponsor. Just 9% of all employers with 500 or more employees – 4% of those with 5,000 or more employees – say they are likely to terminate their health plan and have employees seek coverage in the individual market after 2014 (Fig. 7).

 

“Employers have had a year to think about the impact of health reform,” said Ms. Umland. “When they consider the penalty, the loss of tax savings and potentially grossing up employee income so they can purchase comparable coverage through an exchange, many don’t see a financial advantage in dropping coverage.”

 

A greater portion of small employers say they are likely to terminate their plans: 19% of those with 10-499 employees, essentially unchanged from 20% in 2010. Employers of this size are less likely to offer coverage to begin with; they generally offer fully insured health plans and, with small risk pools and little purchasing power, are vulnerable to large rate increases. In 2011, the percentage of small employers offering an employee health plan fell from 57% to 53%.

“Best practices” save money

Large employers reported a significantly lower average health benefit cost increase than small employers in 2011: 3.6% compared to 9.9%. “The health care reform law may have had a greater impact on small employers than large employers in 2011,” said Ms. Umland. “But the survey also shows that large employers are doing more to control health benefit cost.”

 

Small employers tend to offer less-generous coverage than large employers, and so were more likely to be affected by new PPACA rules restricting annual benefit limitations and mandating free preventive care. However, they are also less likely to invest in the types of programs that large employers are using to manage cost.

 

Mercer’s survey asks employers about more than 20 “best practices” in managing health plans – strategies intended to control cost, such as providing incentives to improve health habits or contracting with smaller, high-quality, cost-efficient provider networks. When large employers were divided into three roughly equal groups based on the number of best practices they have incorporated, the average per-employee medical plan cost was 7% higher for those using no more than six best practices compared to those using 10 or more. The average cost of the health benefit program as a percentage of payroll was higher as well in the group using fewer best practices – 16% compared to 14% (Fig. 8).

 

“What’s exciting about this analysis is that it shows that effective tools exist to hold health care cost in check – and that it’s not all about shifting cost to employees,” said Ms. Connolly.

Other findings

• Significant drop in offerings of medical plans for Medicare-eligible retirees - The prevalence of retiree medical plans slid to its lowest point ever in 2011, with just 24% of large employers offering a plan to retirees under age 65 and just 16% offering a plan to Medicare-eligible employees – down from 25% and 19%, respectively (Fig. 9). However, some employers that stopped offering a plan for which new hires are eligible continue to offer coverage to employees retiring or hired after a specific date; an additional 15% of all large employers offer coverage to such a closed group.

 

• Domestic partner coverage - Close to half of large employers include same-sex domestic partners as eligible dependents – 46%, up sharply from 39% in 2010. This varies significantly based on geographic region, from 79% of employers in the West to 28% of employers in the South.

 

• Spousal surcharges - 15% of large employers have special provisions concerning spouses of employees with other coverage available – 7% impose a surcharge and 7% do not provide coverage at all.

 

• Annual prescription drug cost increase slowed to just 5% in 2011, down from 10% five years ago and 17% ten years ago, as employers have implemented strategies to encourage the use of generic and over-the-counter drugs.

 

• Move to self-funding? Concerns that new PPACA regulations will drive up the cost of fully insured plans has sparked greater interest in self-funding. Of the 28% of employers with 500 or more employees that have a fully insured PPO, one-third say they are likely to switch to self-funding within the next three years. Just 8% of smaller employers say it’s likely they will switch.

 

• Grandfathered status - Only about half of all employers (and 37% of large employers) believe they will maintain the grandfathered status of all their health plans until 2014. One-third had no grandfathered plans in 2011 and 18% expect to lose grandfathered status over the next two years.

Survey methodology

The Mercer National Survey of Employer-Sponsored Health Plans is conducted using a national probability sample of public and private employers with at least 10 employees; 2,844 employers completed the survey in 2011. The survey was conducted during the late summer, when most employers have a good fix on their costs for the current year. Results represent about 800,000 employers and more than 104 million full- and part-time employees. The error range is +/–3%.

 

The full report on the Mercer survey, including a separate appendix of tables of responses broken out by employer size, region and industry, will be published in late March 2012. The report costs $600 and the report and tables cost $1,200. For more information, visit www.mercer.com/ushealthplansurvey or call Tara Lewis at 212/345-2451.

 

 

 

 

 

 

 

 

 

 

 

 

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Contact: Mercer Feedback

Jeffrey Hogan|Northeast Regional Manager

Rogers Benefit Group

One Forest Park Drive| Farmington, CT  06032

P: 860.606.0370|F: 860.677.5098|C: 860.424.2600

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