Cover Story
Downsizing Health CoverageCompanies can't afford it. Workers can't afford it. Is this the tipping point?
| The Relentless Rise of Insurance Costs | ||||||||||||||||||||||||||||
| Health insurance premiums for outpaced overall inflation and worker' earnings between 1999 and 2004 | ||||||||||||||||||||||||||||
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It's been reported so often it's practically a mantra: General Motors spends more on health care than it does on steel, with employee and retiree medical benefits adding about $1,500 to the cost of each vehicle. The implication: Burgeoning health care costs are crippling American industry in the global marketplace.
While GM's decades-long slide in market share can hardly be blamed on what it spends on insuring its workers, the fact is that health care costs are a real and growing problem. As employers ask workers to pay a bigger share of insurance costs--and as smaller companies drop employee coverage altogether--the number of Americans without health insurance surges.
"Firms in highly competitive product markets with mainly low-income workers are likely to be soon priced out of health insurance altogether," says Princeton health care economist Uwe Reinhardt. "Wal-Mart is an example of this type of business, or fast-food outlets, etc."
Under current cost trends, the lower one-third of U.S. wage-earners are likely to lose coverage within a decade, says Reinhardt, who has served on commissions overseeing Medicare and Medicaid. Many of those who retain coverage will be unable to afford co-payments, making doctors and hospitals the insurers of last resort for an ever-growing segment of the population.
Reinhardt is not alone in his assessment. "Employer coverage will continue to erode; it is a long-term, well-established trend," says Paul Ginsburg, president of the Center for Studying Health System Change. Ginsburg is a longtime observer of health policy who has served on federal Medicare and Medicaid oversight commissions.
Even for those who retain coverage and can afford higher co-payments, the nature of coverage is changing--with major consequences for hospitals and providers. The rush to "consumer-directed" plans, "evidence-driven" benefit packages and "value-based" employee benefit strategies all put pressure on providers to somehow prove that their product is worth the money--and effectively communicate the value of services to a wide range of constituents.
As a result, hospitals will have to track and market outcomes much more precisely and aggressively, and work with insurers and employers to develop customized health improvement plans if they are to capture a share of an increasingly data-driven private insurance market.
The bottom line is that access to health care will increasingly be determined by income, Reinhardt says. "Chronically ill, low-wage workers will find themselves increasingly rationed out of the timely health care that better-situated Americans take for granted."
That will put many providers in an almost untenable position. "Physicians, nurses and hospital executives still are being held by the American people to highly egalitarian standards in the conduct of their work," Reinhardt says. "Therefore, the providers of health care are caught between a rock and a hard place: The payment system screams at them to ration health care by income class and insurance status, while the media and the general public hold them to egalitarian standards. It is decidedly unfair. In fact, it's pretty nasty."
The challenge for hospitals will be negotiating these competing pressures while continuing to serve community needs. What follows is an outline of emerging trends in employer-sponsored care and some of their implications for providers.
Employers continue cutting coverage
With health insurance premiums skyrocketing 59 percent from 2001 to 2004, employers have significantly cut coverage, both by raising employee cost-sharing and eliminating coverage altogether, according to an annual monitoring survey by the Health Research and Educational Trust and the Henry J. Kaiser Family Foundation. As a result, the percentage of workers covered by their own employer's health plan dropped from 65 percent in 2001 to 61 percent in 2004--about 1 percent per year (see chart below).
While observers note that recession and the accompanying overall decline in employment sped up the process in the early 2000s, the percentage of workers covered by employer-sponsored plans has declined steadily for the past 20 years.
Outright loss of coverage drove some of the recent decline. However, the inability of low-wage workers to afford increased "cost-sharing" was also a significant factor, says Jon Gabel, who until this summer was vice president of health systems studies at HRET. From 2001 to 2004, employee health insurance contributions grew by 57 percent for single coverage and 49 percent for family coverage. Lower-wage workers at smaller employers simply can't afford the employee contribution, prompting many to drop coverage, even when it's available.
At larger firms, and those with higher-wage workers, the situation is less bleak. Gabel points out that the cost-sharing that GM seeks brings the company in line with other industries, and that the higher-wage workers in the auto industry will likely be able to afford co-payments. "We're not falling off a cliff," Gabel says.
Certain other sectors are even better positioned. "Firms that do not suffer from competition from abroad and have high wage-base employees--for example, professional firms such as law firms or architectural firms--can cope with health spending for some time," Reinhardt says.
However, hospitals serving these higher-wage populations face increased pressure to document outcomes and integrate electronic decision support and reporting mechanisms into their systems. The Leapfrog Group initiatives may be just the start.
"The biggest source of frustration employers face is the mountain of waste in inappropriate or downright harmful health care that workers receive," says Helen Darling, president of the National Business Group on Health. She predicts that corporations will increasingly focus on quality of care and demand proof of compliance with evidence-based protocols as a condition of contracting with providers. "If all hospitals followed the most scrupulous infection control and risk management, we could probably reduce costs by 20 percent," Darling says. (See sidebar, "What Employers Want From Their Health Care Investment.")
Indeed, corporations such as Dow Chemical are already adopting approaches to health benefits that emphasize the business value of the services. Not only are providers pushed to adopt evidence-based practice on the acute side, these companies are looking for ways to head off health threats specific to their covered groups. Employee health surveys and absentee data are among the new data sources used to adopt a more proactive health benefits strategy, says Sean Sullivan, president and CEO of the Institute for Health and Productivity Management, a Phoenix-based not-for-profit organization developing new approaches to health benefits. "Quality, while it is necessary, is not sufficient to improve the bottom line for health purchasers. We need more forward-looking data and programs to prevent health problems."
However, many in the health policy community doubt that these value-based initiatives will be any more successful than previous managed care efforts. "I hear a lot more talk than serious action from employers on issues like value," Ginsburg says. "They are all in favor of it, but when it comes down to doing something, I am less impressed."
One idea Ginsburg does expect to catch on is the high-performance network--centers of excellence for treating a specific condition at low costs and with better outcomes. "It often goes by specialty or a high-volume procedure," he says, "steering patients to providers that are more efficient and higher quality."
Such an approach makes sense to Gabel because it addresses the major source of costs. "It is the 20 percent of very sick people who use 80 percent of the health care who are the real key to controlling costs," he says. "It is not clear that disease management controls costs, but it does improve care. There are studies on both sides of the cost-containment issue; it is really too early to tell if this will be an effective cost-containment strategy."
Hospitals may also see pressure from employers to disclose financial relationships with suppliers. Already, major employers are pushing pharmacy benefit managers to disclose rebates and discounts they receive from drug manufacturers.
The bottom line: Hospitals that can establish clinical centers of excellence in high-cost, high-volume service areas will have an advantage in attracting employer-sponsored business. Those that can maintain a share of the upper-income market may not see much change in operations beyond the need to collect larger co-payments and deductibles--easy enough if patients can afford it.
On the other hand, hospitals serving lower-wage populations will likely face rapid increases in uninsured and underinsured populations. They will be challenged to develop policies that allow them to collect enough from patients to stay open, but that will not provoke regulatory backlash, such as local attempts to revoke tax exemptions.
Consumer-Driven Plans May Not Solve the Insurance Problem
High-deductible insurance policies coupled with tax-deductible health savings accounts are often touted as a solution for high health insurance costs. However, they do little to address the needs of those most likely to lose coverage--low-wage workers.
In theory, HSAs give patients a bigger stake in health care decisions by giving them control of spending decisions below the deductible amount--typically $5,000. In fact, workers at the lower end of the wage spectrum are least likely to be able to afford to fund HSAs, essentially leaving them uncovered for the first several thousand dollars of costs. Also, some employers note that fully funding HSAs for all employees would be more expensive than continuing traditional coverage because most workers incur no or very small medical costs in a given year. Unfortunately, even a few thousand dollars in medical expenses is enough to push workers subsisting from paycheck to paycheck over the financial edge.
Several recent studies document how the problem has grown. The Commonwealth Fund says about 16 million Americans were underinsured in 2003, in addition to the 45 million uninsured. About half of these underinsured patients went without needed care during the year. In 2001, half of bankruptcies, about 1 million, involved medical bills, a Harvard Medical School study found. On average, medical bills for those in bankruptcy totaled nearly $12,000. About three-quarters had insurance at the onset of the illness or accident that ultimately resulted in bankruptcy, though many lost it because they were unable to pay the premiums due to illness.
As a result, consumer-directed plans are likely to change, says Michael Thompson, a principal in the health care practice at PricewaterhouseCoopers. "Some of the pushback on the initial plans has been if people are confronted with a high deductible, they will defer necessary care," he says.
Thompson sees plans emerging that encourage workers to seek preventive and maintenance care for potentially expensive conditions such as diabetes. This might be done by charging no co-payment for drugs and services administered through a proven treatment protocol. Keeping the cost of coverage for high-risk conditions affordable, however, might still entail leaving workers significantly exposed to hospital or other costs. "The key would be transparency for choosing more discretionary services," he says.
Under this scenario, providers would need to give employers and insurers access to more data, and integrate reporting and tracking mechanisms that would make it possible to review provider and patient compliance with protocols. Providers likely would still be left to collect payment from patients for services outside those preferred packages.
Not surprisingly, the decline in employer-sponsored coverage has prompted new interest in government-sponsored plans. They range from expanding Medicaid and SCHIP programs such as KidCare to adopting a single-payer system. Bills calling for universal coverage have been introduced in at least 18 state legislatures this year, according to the Associated Press.
Expansion of SCHIP programs for children offset most of the declines in employer-sponsored coverage since 2001. However, tight budgets are prompting states to reduce Medicaid coverage.
Nationally, prospects appear no better. Noting that the federal government did nothing when it projected a 10-year $3.1 trillion surplus in 2001, Reinhardt says it's not likely any measure would make it through a Congress now struggling with massive deficits.
"One-third of that surplus would have sufficed to provide close to universal coverage to all Americans," Reinhardt says. "We chose instead to grant ourselves a massive tax cut, followed by another one in 2003. In other words, we sent a very clear signal to the uninsured: 'Take a long walk on a short pier.' I think we shall opt, as a nation, for a multitier health care system, with rationing by income class."
Howard Larkin is a freelance writer based in Oak Park, Ill.
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This article 1st appeared in the September 2005 issue of HHN Magazine.
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