1. Massachusetts law requires that the cost for the oldest person cannot be more than two times that of the youngest employee. By way of comparison, the new federal health care law allows a 3 to 1 ratio which would mean that older persons would pay more and younger persons pay less.

2. Last summer, a new law was passed as part of Chapter 288 which directs the Division of Insurance to implement a new pricing requirement that sets a “ceiling” on the premium renewal increase that an employer would receive. Details are yet to be defined. This new requirement will help to buffer higher increases due to shifts in age. Of course this will also mean that the actual cost above the “ceiling” will be passed along to all of the customers…thereby spreading out the costs to a much larger population.

“Age” has long been a major variable driving insurance premiums and is well understood by brokers and employers. So I don’t expect this blog will drive changes in human resource retention strategies based on age (not to mention age discrimination).

In the spirit of improving our health care system, we will continue to work on keeping details driving the cost of care and the cost of insurance transparent.

I imagine that it is still way too early to tell if an ACO approach (or some other payment model) will have any impact, but given the dramatic numbers in Massachusetts (the numbers I’ve heard are that approximately 13% of all inpatient hospitalizations in MA are deemed unnecessary, and as much as 50% of all ER/ED visits are unnecessary) are you of the thought that reforming the way providers are paid will have any significant impact? Or is it more a matter of financially motivating the consumer away from these seemingly easily accessed service points by making it maybe not prohibitively expensive, but costly enough to make someone think twice, or three times, before they visit an ER or agree to an I/P stay?

Thanks.

You raise many excellent points and the drivers are going to differ from state to state.

Without a doubt, the private employer and consumer sector is paying more for health insurance because of cost shifting due to inadequate government payments made to providers. This cost shifting has been occurring for years and is largely built into the base rates.

Other drivers of trend are:

1. High cost hospitals, typically those with very strong brands and geographic market power, are expanding into new communities and also establishing new relationships with some community hospitals that have difficulty competing. These acquisitions, joint ventures and other arrangements also bring with them much higher fee for service rates that drive up total costs. We have seen this especially in the area of outpatient diagnostics, outpatient cancer treatments, and new forms of specialist services that are distributed to community hospitals.
2. The Federal Health Care Reform passed this spring is causing rates to increase for a change in covered services – no lifetime maximums, first dollar coverage for preventive services, coverage up to age 26, and others.
3. State Mandates – some states are shifting previous costs funded from their tax revenues to health insurers…which then get passed on to private employers and consumers. In Massachusetts, for example, costs associate with portions of childhood immunizations ($40 million +) were shifted to healthplans. Also, effective January 1, 2100, certain intensive and early intervention services must now be covered under health insurance.

Moving away from fee for service medicine will help to deal with some of these trends, but continuing state and federal mandates, government cost shifting and excessive market powers have to be addressed.

Overall, we expect the Affordable Care Act provision that extends coverage for Young Adults up to age 26 will have a relatively small impact on our rates. We are planning to see only slight increases in family size because the three states we serve (Maine, New Hampshire and Massachusetts) already have similar state mandates for young adult coverage. We expect little change in subscribers average age.

The Young Adult Plan through the Massachusetts’ Connector may see a slight decrease in growth rate due to decreased demand. The same may hold true for Student Insurance.

The overall impact on our rates in this area is well below 1%.

The CFO of a Mid-Atlantic hospital system in PA told a small group recently that his system’s cost per adjusted hospital admission rose 2.0% in 2010, down from 3.5% last year. I suspect the results are similar in most places. A CEO of a hospital system in NJ commented that his system’s inpatient admissions were down over 5% this year. For insurers’ medical trend to be 10%, the cost shifting to make up for inadequate Medicare and Medicaid payments must be significant. Yet, Medicare and Medicaid aren’t controlling their costs very well either, I suspect, because they don’t try to manage care and fraud is probably an issue as well.

Based upon your final statement, “If young people leave the group, annual rates for the customer may increase dramatically”, do you and your Actuaries expect to see any additional rate pressure stemming from the relatively new rule that allows dependent children to remain on their parent’s plan until age 26?

Looking at it from just a numbers standpoint it seems likely that the pool of younger Subscribers would shrink (maybe slightly; perhaps significantly) since they are no longer necessarily enrolling as Subs at the age of 21, 22, etc.

When I refer to “first dollar plan” I am using a simplified way to describe (basically) a non-deductible plan. In other words, a medical plan that pays a subscriber’s healthcare costs as of the first dollar without requiring the subscriber to initially satisfy a deductible. Of course 99.99% of health plans in MA include some level of co-pay, whether it be a $10.00, $15.00, or $20.00 office visit co-pay, so the literal definition of “first dollar” has to be suspended somewhat. I go back to the time when the HMO concept was fresh; you’d walk into a staff model where all of your doctors were located, and probably your pharmacy too, and you might pay a $2.00 office visit co-payment. That is really what a “first dollar” plan looked like.

Although I have not seen actuarial evidence of increased medical care utilization due to the existance of HRAs, it would not surprise me in the least if that were the case. In Massachsuetts especially, employers are extremely generous when it comes to providing benefits. (Something like 76% of all Massachusetts employers provide some level of health care benefits, while the national average is closer to 60%, and that national number is falling.) Every employer I have ever worked with felt an obligation to mitigate the impact their employees would feel by going to a high-deductible plan, and quite frankly many of the employees at those companies seemed to believe that they were entitled to a continuation of “the Cadillac comfort at a Yugo cost”. Not that I blame the employees, since we as an industry have spent the better part of the past two plus decades convincing them that all they had to do was show this ID card and everything else would be handled by the man behind the curtain.

Interesting that you used the word “right”. I often wonder when the idea that employees could work to earn “employee benefits” became the belief that employees were simply entitled to “employee privileges”, because that is often what it feels like out there on the road.

I believe that I heard that employer funded HRAs actually increased employees medical claims because employees wanted to ‘spend’ these employer-provided dollars. Can either of you comment on this?