Annual Health Insurance Hunting Season is Officially Open

Thursday, September 22, 2016 | Larry Sobal

It’s fall and the 2017 health insurance hunting season is underway. This annual process of employers waiting to hear whether their costs will go up for the next benefit plan year (usually January 1) is an anxious time because most employers have no idea what to expect. Whether employers see a miniscule rise, a double-digit percentage increase, or even a decline, depends on a number of factors. The answer will determine if employers keep their current plan, move to a different plan, or change the benefit structure for insured employees and their dependents. A high percentage of employers (especially smaller companies) are forced to hunt for the best rate. Let’s explore what they’re likely to find.

The increase in costs of medical services and prescription drugs—referred to as medical trend—is based on not only the increase in per-unit costs of services, but also changes in health care utilization and mix of services. Overall, medical trend for 2017 is expected to stay fairly consistent with previous years, but remain low relative to historical levels. That’s not to say that some employers won’t experience huge (I’m talking 10% to 20% or more) increases, while a few others will have small increases or even decreases. The chart below shows recent medical trend and the Price Waterhouse prediction for the coming year.

 

 

Despite Price Waterhouse’s prediction of similar medical trends over the past 3 years, others contend there is great uncertainty regarding the causes of recent medical trends and whether they will continue. Structural changes to the health care payment and delivery system, such as a greater focus on cost-effective care, might be contributing to slower medical spending growth. Other data suggests that part of the cost slowdown has been a direct result of shifting more costs onto the shoulders of employees. This increasing burden of out-of-pocket health care spending is reducing their own consumption of health care—in some cases foregoing necessary treatment.

 It’s interesting that the media often portrays the recent medical trend as being a “stabilization” of costs. Since when is a series of annual 6% plus increases considered stable? Let’s not forget that the last few years have been a period of relatively low inflation, while health care costs have been consistently rising at a much faster rate than inflation. A recent Kaiser study reported that family coverage premiums have climbed a total of 20% over the last five years, while worker earnings have risen only 11% and inflation has been only a modest 6%. This means that employers might be holding back on raises because they have to spend more on health insurance. The average annual premium for family health insurance coverage now exceeds $18,000. That’s more than double what the annual premium was for family coverage in 1999, even after adjusting for inflation. 

 When you factor in what families then have to pay for their out-of-pocket share of medical costs, the overall health care costs (employer premiums paid, plus the employee share of premiums, plus family out-of-pocket spending) for the average American family surpassed $25,000 for the first time in 2016. The health care costs for a typical family of four covered by an employer-sponsored "preferred provider plan" is $1,155 higher than last year, and triple what it cost for the same family in 2001, as recently reported by the Milliman Medical Index. This is the 11^th consecutive year that the total dollar increase in the average family's health care costs exceeded $1,110. The chart below shows where the $25,000 is coming from.

 

Physicians are becoming increasingly alarmed about the meteoric rise in costs to provide health care to their patients. The Physician Practice 2016 Great American Physician (GAP) Survey found that one-fifth of respondents said rising deductibles and cost sharing represent the largest barrier to good health care for their patients.

While there isn't a single cause that has contributed to the sharp rise in health care costs, the advent of high-deductible health plans (HDHPs) seems to have accelerated the process and ratcheted up the problem for physicians and their patients. Practices are in the uncomfortable position of collecting outstanding patient balances more aggressively, while trying to sympathize with cash-strapped patients. It’s a no-win situation, often forcing the staff to take on the role of "bad guy."  HDHPs were created as a way to rein in runaway health costs, but they are increasingly becoming a problem for patients. Because of large annual deductibles, which can range from hundreds of dollars to more than $5,000, these plans are also limiting patient access to health care.   

Physicians are becoming increasingly alarmed about the meteoric rise in costs to provide health care to their patients.

Data show that in 2006, about 50% of employees with regular employer insurance (not Affordable Care Act plans, Medicaid, or Medicare) had a deductible. In 2016, that number is 80%. Not only has the number of people with deductibles increased, but the amount of the deductible has also increased. In addition, this year employer-sponsored health plans reached a new benchmark. Half of all workers who received insurance through their employers faced a deductible of at least $1,000 a year for individual coverage, up from just 10% of workers in 2006. The average deductible for individuals in firms with fewer than 200 employees is $2,069.

What does all this mean? For one thing, it suggests that the many initiatives underway to reduce health care spending really are not working very well. Although there has been a proliferation of ACOs, CDHPs, bundled payments and other plans to slow down cost growth, many of the incentives are still mainly aligned only with growing the total scale of health care expenditures, not shrinking them. That’s bad news for employers, patients, and physicians alike.

 

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Larry Sobal is Executive Vice President of Business Development at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and insurance. As part of his current role, Larry consults, writes and presents on topics relevant to transforming physician practices and health systems.

 

 

 

Illustration: Lee Sauer

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