“Healthcare Facts (and logic) – Politics not included!” authored by Todd Bellistri*

While most politicians and pundits are battling views and beliefs, the author is compelled to articulate what seem to be often forgotten facts and logic regarding the health care system in America.

Health insurance costs are driven by the cost of health care

Mostly forgotten is the fact that health insurance costs are driven by the cost of health care.  Advancements in technology, prescription drug innovation and chronic disease account for a disproportionate share of overall health care spending.  A reasonable approach may be to focus on the areas in which a long-term impact on bending the cost curve may be achieved.  For example, preventive care and regular checkups are the basics of thwarting and controlling chronic disease (i.e. early intervention).  Additionally, impactful price negotiations with pharmaceutical makers, reduction of costly regulation for Rx innovation & development, and allowing purchase of Rx from other countries**, may affect these costs.  Together, perhaps these strategies may then reduce the prevalence of costly treatments for chronic and other diseases.  Importantly, under current law – Affordable Care Act – ACA, preventive care and annual checkups must be covered in full – no copayments or deductibles – for all health plans.

Health care costs are geographically driven

Secondly, health care costs, are geographically driven – identical services and procedures often have different costs in varying areas of the country – and these differences may be significant.  For example, the median cost of an MRI in Charlotte, NC is $780, while the same service in Atlanta, GA would cost $1,040 (a 33% difference) and Nashville, TN would cost $852 (a 9% difference). Thus, it would seem, an insurance policy offering comparable benefits would have different premium costs from region to region (state to state).  Thus, the health insurance policy sold to an individual in NC would not have the same premium cost as the policy sold to an individual in GA.

Why is this important?  There has been much debate regarding insurance policies being sold “across state lines”.  The proposed GOP health plan (American Health Care Act – AHCA) favors cross-state insurance sales –  for example, allowing a North Carolina resident to purchase a policy from an insurance company in Georgia (this is presently not permitted due to unique state insurance laws – and insurance companies typically requiring the insured to reside in the insurance carrier “service area”).  What if the Georgia insurance company were permitted to sell a health insurance policy to a resident of North Carolina?  To begin, the Georgia insurance company would need to ensure their health plan has sufficient network availability in North Carolina, and secondly, the Georgia insurance company would need to ensure the health plan sold to the North Carolina resident was priced properly – to adequately cover expected claims and profits for the insurance company.

Again, because the cost of health insurance is strongly correlated to the cost of health care in a given region, it would seem that by allowing insurance companies to sell across state lines, consumers may have more health plan options (i.e. additional insurance companies to choose from).  However, selling across state lines would likely not have a meaningful impact (if any) on health plan costs.

Individual Mandate

Thirdly, under current law (ACA), all citizens are required to be enrolled in a qualifying health insurance plan – or face a possible fine (i.e. the “individual mandate”).  The most basic premise of insurance is “all get into the risk pool” – and the many (typically younger and healthier) subsidize the few (typically older and sicker). The individual mandate, is said by many to be intrusive; others who support the concept, have stated the mandate is not strong enough (i.e. the penalty for not carrying insurance should be higher).  Related, many insurers have faced challenges in properly pricing individual policies which are sold on the online marketplace – forcing many carriers to cease offering certain policies or pulling out of the marketplace altogether.  In a perfect world (for the insurance companies) – 100% of citizens would be enrolled in health insurance, thus, premium certainty for the carriers, and lower average premium costs for all.  Would a stronger individual mandate lead to higher enrollment numbers?

The proposed health plan (AHCA), repeals the individual mandate.  Instead of facing a potential annual penalty for not being enrolled in a qualifying health policy (current ACA law), individuals who go uninsured would be subject to a 30% premium surcharge upon enrolling in coverage (proposed AHCA law).  The bipartisan Congressional Budget Office – CBO has estimated approximately 14 million more Americans will be uninsured under the proposed plan by 2018, growing to 24 million over the next 10 years.***  Importantly, most experts indicate an increase in the uninsured population, generally increases the cost of health insurance.

Health insurance policy coverage requirements

Lastly, under current law (ACA), provisions exist which require health plans to provide reimbursement, at minimum, of 60% of the expected claims of the average individual (i.e. “actuarial value” requirements).  Of course, insurers are presently free to offer policies which cover a higher % than the minimum required.  Thus the terms “bronze”, “silver”, “gold”, “platinum” – which reimburse approximately 60%, 70%, 80%, 90% respectively of expected claims.  Additionally, these policies must also cap the “out-of-pocket” expenses of the individual each year (for 2017 the out-of-pocket cap is $6,550 for an individual, and $13,100 for a family).  Both provisions combined (actuarial value and out-of-pocket caps) are intended, in part, to thwart medical bankruptcies.  The practical effect of these provisions, also leads to higher cost premiums (because the insurance policies must include these provisions) as compared to a policy which would not include these provisions.  The recently introduced plan (AHCA), proposes to relax the actuarial value requirements – allowing insurance companies flexibility in offering policies which reimburse a lower amount than the current 60% minimum.  Thus, one would expect insurance companies would then be able to offer lower priced policies – assuming all other factors remain unchanged.  Importantly, the annual out-of-pocket caps remain in place under the current and proposed health plans.  The CBO has estimated insurance premium costs to increase by approximately 15-20% under the proposed plan in 2018 & 2019 – and then begin to moderate thereafter.***

Health Savings Accounts

There has been much talk and debate regarding Health Savings Accounts – HSAs (the recently introduced health plan (AHCA) endorses HSA programs.   An HSA is coupled alongside a high deductible health plan – with health plan deductibles typically ranging from $3,500 – $12,000 per year.  The high deductible health plan is a common strategy used by individuals and businesses to lower the premium cost of the health plan (i.e. higher deductible = lower premium).  The HSA is a funding mechanism to assist the individual in paying out-of-pocket medical expenses which are subject to the health plan deductible.  For many people (certainly not all) the HSA concept is an effective means to lower premium costs and modify utilization behavior (i.e. think twice before running little Suzie to the emergency room for pink eye).  Importantly, an HSA is not a device to control or reduce health care costs. ****

Insurance company profits

Under present law (ACA), insurance company profits are capped – health plans must pay out up to 85% of every premium dollar toward member benefits (i.e. claims and other services).  While many believe this to be regulation overreach, the provision generally ensures individuals are enrolled in properly priced insurance policies (i.e. insurance carriers must submit actuarial and claims data to the regulatory agencies each year to justify premium costs) without fear of being sold a clunker of a policy.  Therefore, assuming all carriers are operating under the same conditions (i.e. policy coverage requirements and geographic regions) – one would believe the health plan cost is a reflection of both competitive forces and health care costs.

How does “repeal and replace” impact employers?  

Employer Benefit Plan Design

Under the proposed plan (AHCA) employers may expect a relaxation (or elimination) of the requirement to offer coverage to full-time employees (under current ACA law – employers with 50+ employees must offer health coverage or face potential penalties).  Under the proposed plan, employers may have access to additional health plan options (i.e. lower actuarial values) which may then be offered to employees.  Employers may also have increased flexibility with the design of Flexible Spending Accounts – FSAs (elimination of the $2,500 annual cap), Health Savings Accounts – HSAs (coverage for over-the-counter medications and increased contribution limits) and Wellness programs.

Employer Administration

Under current law (ACA), individuals who meet certain financial standards, and are not eligible for employer based health coverage, may qualify for premium subsidies (which are payable for the benefit of the individual upon enrolling in coverage) through the online marketplace.  The proposed plan (AHCA) would provide qualifying individuals with tax credits (which are payable for the benefit of the individual upon filing her/her tax return for the prior year).   Importantly, under both the current (ACA) and proposed (AHCA) plans, one of the qualifying factors is the individual not being eligible for employer based coverage.  Thus, it would seem, the employer reporting requirement (i.e. Forms 1094/1095-C) would remain under the current plan or the proposed plan – as a means to monitor premium subsidies or tax credits.  Regardless, many believe the employer reporting burden may become more simplified in the coming years.

Summary

We are entitled to our own belief systems, that is what makes us great as a nation!  We are also entitled to understand the many moving parts which comprise the complicated health care delivery in our great country.  Would you like to see less government regulation?  Would you like to see lower health care costs?  Would you like to see lower health plan premiums?  How about more health plan options?  Are these desires mutually exclusive?  Depending on the answers to these questions, one may be inclined to favor the provisions of the current health care law (ACA), or possibly favor the provisions of the proposed health care law (AHCA).  Perhaps one may be inclined to favor certain provisions of both the current and proposed laws?

The Author:

Todd Bellistri
President & CEO
August Benefits, Inc.
augustbenefits.com

Disclosures:
*The author is politically agnostic.
**The Margolis Center for Health Policy at Duke University recently submitted an open letter “warning Congress that legalizing the importation of drugs from other countries…is a risky approach that would endanger consumers by exposing them to fake, substandard and contaminated drugs.”   The open letter does concede that importation would likely help Americans access less-expensive medicines.
***The Congressional Budget Office (CBO) estimates 14 million Americans would lose their existing healthcare coverage by 2018 under the AHCA, growing to 24 million in the next 10 years, to bring the total uninsured population to 52 million. This amounts to a net increase of 4 million uninsured from before the ACA was signed into law (the year 2010) when 48 million were uninsured. The plan would also reduce the federal deficit by $337 billion by 2026, with $880 billion in reduced Medicaid spending and $673 billion cut by eliminating the ACA’s subsidies. In place of those subsidies, the CBO projects that the AHCA tax credits would cost the federal government $361 billion over 10 years. The CBO is the nonpartisan group tasked with determining the cost of legislation to the federal government, both in a loss of revenue and increase in spending.
****The author and his family (4 kids and wife) have been happily enrolled in an HSA along with a high deductible health plan for 8+ years.
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