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Conflicting Healthcare Data – An Insider’s Thoughts

October 1, 2011

One thing we all can agree upon is that medical costs continue to rise and  is the single largest threat to the prosperity of the nation, employers and we as consumers. As the headlines told us this week you can now a new buy a car for the average cost of family coverage in the U.S.

Dealing with this was one of the major reasons PPACA was passed in the first place.

This week Kaiser came out with a study pointing to a supposed 9% increase in costs for 2012 after 3% last year both of which seem like anomalies.

This anomaly has created another PPACA wildfire that has taken on a life of its own with the anti reform Tea Party and Republican crowd. Why am I not surprised?

Lets try and ferret out the truth here on what really is happening.

Kaiser Study Conflicts with Other Major Studies They Aligned With Before

Clearly the headline grabber 9% increase is an anomaly and outlier as was last years’s 3%.  I am in the business and no one saw 3% increases in 2010 esp, in the <50 life marker that makes up 80% of their sample.

Neither is close to in line with other major studies like Mercer whoses press release on their 2011 annual study reported that if:

“no changes to their current plans, employers reported an average increase of 7.1%Over the past five years, this underlying health benefit cost trend has been running at about 9%.

So where did Kaiser get 3% last year and the headline grabbing, Obamacare bashing 9% this year? In 2007-2009 Kaiser’s numbers were very similar to Mercers in the 6-7 % range. Why the divergence in the last 2 years?

Something is clearly wrong here.

Large Scale Trends Show That Cost Inflation May Be Slowing 

Medicare in 2011 is our first contradictory data point.

  • Over 17.3 million got free preventive care this year (as of 6/30) and
  • Medicare inflation is the lowest ever and
  • Medicare Advantage premiums are the going DOWN 4%.
  • Donut hole closing had saved seniors $468M thru June alone.
  • Fraud investigations have saved 5.1B in 2011 and over 200 fraudsters prosecuted. Could this have a prevention or recidivist effect as well with the new FBI dedicated fraud unit in place?

The Federal health plan is another counterpoint that covers 8 million people, the largest in the nation:

  •  3.5% average increase, the lowest ever, down from 7% in 2010 over the 210 plans offered. Some even decreased.
  • NO major benefit changes are being made
  • The plan too absorbed the age 26 and wellness coverage just like everyone else.

So the 2 largest plans in the nation saw real significant slowing in costs including the addition of preventive care and RX changes for medicare and young adults and preventive care in the Federal plan.

At a minimum this is an encouraging start to analyzing the outlook for 2012 insurance costs.

Kaiser’s Own Data Anomalies

Kaiser is the premier source for healthcare data but they have some real anomalies in their data and methodologies that they asterisk in the report. 2011  seems at odds with their own prior years surveys and other industry data.

So why is Kaiser a seeming outlier? Data assumption changes.

The major adjustment they made was supposedly using updated DOL numbers for the number of employers in the various size categories they use.

They reduced the number of large employers – over 1000 – from around 25K to 10,000. In reality the real number is around 17K from industry marketing databases built on DOL 5500 data and D&B, OneSource and other business data.

From 100-999 they also made changes that reduced the mid market employer numbers by another 20-30K again contrary to industry databases.

This means that in 2011 the impact of small employers, those that are insured and subject to the greatest rate changes in any market make up a larget part of the sample.

Here is the second anomaly and it is a big one. In 2010 Kaiser showed ESI jumping from 59% of companies to 69% and then this year back to 60%. That never happened especially in this major recession. NFIB has surveyed small employers for years and their 2011 report shows 42% of employers <50 offer ESI.

Why this huge difference? In their supplement explaining their methodology has none. The reason is that ESI has been dropping as we all know for the last five years at least.

So what is the botton line?

Kaiser’s headline grabbing 9% is only 7% in terms of apples to apples compared to past years. And that is further skewed by its data anomalies.

In fact Kaiser even contradicts itself in its analysis (per Merrill Goozner):

Drew Altman, head of KFF, suggested lower than expected utilization (by individuals trying to protect recession-ravaged household budgets — individual payments rose only 3.3 percent) and higher health care prices may also have accounted for some of the higher premiums. While both of those phenomena are happening, they would tend to offset each other.

Covering New People and Adding Coverage is NOT Increasing Total Costs

First lets simply address the ONLY parts of PPACA that have gone into effect – age 26 and preventive care inclusions in plans. These are NOT inflation increases but new people being covered and services now in premiums vs. from a person’s out of pocket costs.

Most states covered young adults in school already at varying levels from 23-25 so this no revolutionary change with no actuarial to support the real costs. For most insurers this was an administrative cost not a claims increaser.

2.3 million young people were covered at an average cost of about $150 each/year (1% of the $15K average family premium) and in reality employees with this age group paid an additional premium for the kids to be added in a new tier in their plans just like they do when they move from family to +1, +2 etc as they have children.

The same for the preventive care. Anyone who spent cash out of pocket for basic services and checkups saves cash but pays more premium and others who have foregone care now can get it. Over time this will yield lower costs to employer and families alike.

Susan Connolly, a partner in Mercer’s Boston office, believes that slowing utilization may also be a sign that programs targeted at improving employee health – now the rule rather than the exception in employer benefit programs – are having a positive impact.

“Earlier risk identification and health education, along with improvements in drug therapies and medical technology, are keeping people with health risks and chronic conditions away from the emergency room,” Connolly said. “And consumers are more aware that overuse and misuse of health care services will directly impact their wallets as well as their employer’s budget.”

So for the Kaiser study did the overall spending on healthcare increase 2% or is it simply getting moved from one accounting bucket (out of pocket costs by the consumer) into tax deductible premium changes of the employer and employee (sec. 125) ?

Net/Net there is little to any real increase in overall healthcare spending due to these provisions and the investment in prevention will have real paybacks in healthier workers, less absenteeism, keeping people on their medication regime and early detection of all types.

What is the Insurer’s Spin on Healthcare Costs and Pricing?

Merrill Goozner at “Care and Cost” said this:

Insurers “have been conservative in their pricing, so they have overshot to some degree,” said Matthew Borsch, an analyst at Goldman Sachs. “You’ve seen that reflected in strong earnings they’ve been reporting.”

Wendell Potter is more direct and to the point:

…Wall Street very happy indeed, as reflected in the breathtaking increase in the companies’ share prices over the past year. Since the end of July 2010, investors have bid up the stock by more than 50 percent at four of the big five. WellPoint, the laggard, saw its stock price increase by a still-impressive 35 percent.

One of the secrets to achieving these results is what the insurers euphemistically call “medical management.” That often translates into denied claims and denied coverage for doctor-ordered care. The fewer claims you pay and the more procedures you refuse to pay for, the more money is left over for investors to put in their pockets.

Another important way they’ve been able to sustain such a string of impressive earnings results is to shift more and more of the cost of care to their policyholders. An increasing percentage of these companies’ policyholders are enrolled in plans that require greater cost sharing. Those policyholders pay more for care out of their own pockets than ever before while their insurers are paying much less.

The insurers are loathe to admit this and have been making up a host of incredible excuses to explain why they are paying so much less for care than investors and analysts had expected and so much less on a percentage basis than in previous years.

In fact the explanations insurers have been using are laughable if they were not so transparent:

At the end of 2010, executives told Wall Street that the “utilization” of medical services was lower than in 2009 because the flu season last year was less severe. They assured investors utilization would return to more normal levels during the first quarter of 2011.

When it didn’t, the bad winter weather was to blame. Insurance executives wanted us to believe that people were not getting the care they needed because it was colder and snowier than usual. They assured us that medical spending would jump again as soon as the weather improved and the ice and snow melted.

Surprise! It’s August and people are still not going to the doctor or picking up their prescriptions or checking into the hospital as much as they usually do. .

And what’s the excuse this time? It’s the economy, they say — even though the recession officially ended more than a year ago.

Even an industry executive admitted a little bit of truth to AP:

At least UnitedHealth’s executives ackowledged that, as AP reported, “health plans that make patients more aware of the cost of care may be having an impact.”

Conclusion

So has Obamacare raise healthcare inflation with these 2 provisions? NO!

Did it raise total dollars spent by employer premiums and consumers out of their pockets? Not really when you look at total costs for a consumer for uncovered out of pocket expenses and premiums paid to insurers.

Some may have gone down in total, and some may have gone up, but the system now covers 2.3 million more people, lowering uninsured rates 2% alone, with better care that will help improve overall health, one of the major goals of PPACA.

Medicare trend is lowest in over a decade and all of the above happened while over 17 million seniors took advantage of their new free preventive services and saved so far over $468B in drug cost with the donut hole closure.

The real headline with all the data points we used is that 2012 is seeing a bend in the cost curve of 15-20% year over year with more people covered and the entire insured nation getting preventive care.

  • Is the economy the culprit with people putting off care?
  • Is it “unsurance” with the higher deductibles etc reducing insurer liabilities?
  • Or is there an early sign that Obamacare may work?

Wendell Potter sees it the same way:

What seems clear is that insurers decided last year to charge their customers considerably more than necessary this year to be able to meet Wall Street’s profit expectations; insurance companies are also concerned that such increases will be more difficult once health care reform is fully implemented in 2014.

I find it very hard to find blame with PPACA when the industry it affects behaves in such an obvious and deceitful fashion.

PPACA is far from perfect but the insurance industry proves once again why the law is needed to put some real regulation around their unfettered and multiple ways to justify premium increases.

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