Health insurance cost problems are not going away
(by Scott Lyon, SBAM health insurance expert)
The Patient Protection and Affordable Care Act (PPACA) was signed into law on March 23 by President Obama. Today, the question turns to will the U.S. Supreme Court decide to allow the PPACA to stand or rule the law as unconstitutional? Regardless, this is shaping up to be a landmark Supreme Court decision that will impact the provision of health care and health insurance in America for decades to come whether its upheld, struck down, or parts are maintained while others are not. The key elements in question include:
- The Individual Mandate and its related provisions including the requirement for individuals to maintain a minimum level of health insurance coverage, the design of insurance exchanges, insurance market reforms (guarantee issue and renew, no pre-existing conditions exclusions, covering children on their parent health insurance until the age of 26, among others), etc.
- The Expansion of Medicaid, essentially who is eligible for this program and how is it funded.
People who follow the Supreme Court have indicated that the conventional wisdom is that the justices will release a decision at the very end of this session – either June 25h or June 28. This makes some sense for a couple of reasons. First, the Supreme Court issues decisions on Mondays and Thursdays and the 25th and 28th are the last Monday and Thursday of the Court’s year. Second, regardless of how they rule, it will be the beginning of a media and political feeding frenzy and why do this before the Justices head out of Washington for the summer?
Either way, Michigan and for that matter the rest of the country, still will have a health insurance cost problem. The cost of U.S. healthcare services is expected to rise 7.5 percent in 2013, more than three times the projected rates for U.S. inflation and economic growth, according to an industry research report released by PricewaterhouseCoopers on May 31.
According to the report, premiums for large employer health plans could increase by only 5.5 percent as a result of company wellness programs and a growing trend toward plans that impose higher insurance costs on workers. The projected growth rate of 7.5 percent for overall healthcare costs contrasts with expectations for growth of 2.4 percent in U.S. gross domestic product and a 2 percent rise in consumer prices during 2013, according to the latest Reuters economic survey.
That said, why is health insurance so expensive and what are some big picture things that might help reduce costs?
One of the reasons health insurance costs so much is due to the federal programs of Medicare and Medicaid. A couple of years ago, the actuarial firm Milliman estimated that for a family of four, there is a cost shift of $1,788 (15 percent of premium) because these programs do not pay providers at a fair rate. Ending this cost shift would help small businesses and their employees afford coverage. While paying providers at a “fair or fairer rate” may sound easy enough, the big question that needs to be resolved is, of course, where does that money come from?
A second reason health insurance costs as much as it does is due to the cost shift from the uninsured to the insured, which is estimated at $922 for a family of four. No one on either side of the political aisle denies the uninsured and the cost shift; this is the problem that the Democrats and the Affordable Care Act are trying to resolve with the individual mandate and employer “play of pay provision.” Keep in mind that before the rules changed as a result of the PAACA – of the 47 million uninsured: 4.7 million (10 percent) were college students, 10 million (21.28 percent) are non-citizens, 11 million (23.40 percent) are eligible for, but not enrolled in public programs like CHIP and Medicaid and another 9 million (19.15 percent) live in a household with annual income over $75,000.
These numbers total to 34.7 million of the 47 million uninsured. Said differently, 12 million are what most people consider as making too much for a public program and not enough to afford coverage. It is for these people that a solution needs to be found. Solving the two cost shift problems of Medicaid and the uninsured and we could save an average family of four nearly 25 percent of their premiums.
As SBAM travels to Washington and speaks with our elected officials about the cost of health insurance that our members pay, we leave them with several ideas that we believe will help reduce costs. Beyond ending the cost shift, SBAM believes that costs can further be reduced by doing some things that people on both sides of the political aisle seem to agree on. These include:
- Common Electronic Standards/Interoperability, Electronic Medical Records and common claim forms for providers regardless of what insurance company or federal program is providing the insurance
- Providing comparative data on health costs, success rates, infection, morbidity and mortality rates inside facilities
- E-prescribing/Computer Physician Order Entry
- Reducing Waste Fraud and Abuse – and getting at it electronically
- Promoting Best Practices and/or Centers of Excellence for health care services and greatly reducing the rate of infection within our hospitals
- Pay for Performance – bonuses or withholds and stop paying for “never-events”
- Reducing costs does not stop with what goes on inside the doctor’s office or hospital. There is a certain element of individual responsibility that needs to be beefed up.
Lastly, people need to take much better care of themselves, and prevention and wellness incentives need to be included for small businesses and individuals. In many ways, we are our own worst enemies. Obesity, tobacco use, the lack of exercise, etc. all add to the cost of care.
In closing, while it will be interesting to see what the Supreme Court does with the Patient Protection and Affordable Care Act, their decision is not the end of this story. Rather, it is the simply the beginning of the next chapter in this book.
Scott Lyon is Vice President, Small Business Services for SBAM and one of the nation’s leading experts on small business health insurance issues. He can be contacted at scott.lyon@sbam.org.
What do you think can be done to help rein-in health insurance costs? Leave a comment below.