Health care costs and health insurance are important to pay attention to as the price of past and future health claims will dictate the cost of health insurance premiums. Step back and look at all of the insurance products that are available to us. Of the many products available, health insurance is one of the few (if not the only) that we purchase with the intention of using at some point in the near future. Some individuals and companies purchase high deductible health plans and are willing to cover the smaller doctor and prescription expenses on their own. Whether you have a fully insured health plan or partially self-funded, the annual costs are controlled by our utilization of health care.
The average health insurance premium for a family in 2014 was $16,834 per year in comparison to $9,950 per year in 2004. This is a 69 percent increase over the last 10 years.
The United States has been introduced to the Affordable Care Act in phases over the past few years. Insurance carriers, states, companies, and individuals have been seeing some of the impacts in various ways. We have witnessed people who debate whether this bill is good or bad, whether it raises or lowers health care costs, and whether it will go away or if it is here to stay. We have witnessed people put their heads in the sand and just wait for what is to come and others who have set their sails to plan their course and have adjusted those sails as the winds have changed.
The latest reports from the Kaiser Family Foundation show the following trends:
- The average health insurance premium for a family in 2014 was $16,834 per year in comparison to $9,950 per year in 2004. This is a 69 percent increase over the last 10 years.
- Over the same period, employers have increased the premium contributions from employees 81 percent, from $2,661 annually in 2004 to $4,823 annually in 2014. The same report shows that in 2006, only 6 percent of firms sponsored plans that had over a $1,000 deductible and in 2014 over 32 percent now sponsor plans that have deductibles of $1,000 or more.
- In other words, companies have tried strategies of passing on deductible increases to get less expensive plans and have asked employees to share in the premium increases, but the overall costs to both employers and its employees are still here.
In their annual report, Express Scripts stated:
“In 2014, the pharmacy landscape underwent a seismic change, confronting health care payers with the highest annual increase in drug spend since 2003. New treatments for nonorphan conditions like hepatitis C were introduced in the U.S. market at exorbitant, orphan-drug pricing. Compounding pharmacies began exploiting a loophole in a new regulation that made the creation and dispensing of unproven topical creams a lucrative cottage industry. Drug manufacturers – brand and generic alike – continued to consolidate, placing additional strain on the supply chain to handle temporary shortages. The pipeline of new medications to treat conditions like cancer and high blood cholesterol also threatened to undermine the sustainability of the U.S. pharmacy benefit.”
One of the examples of the rising cost of drugs is the new treatments of hepatitis C virus. Harvoni is marketed with a cost of $1,125 per tablet which is more than $33,000 per 30-day prescription. Drugs like this resulted in an increase of 30.9 percent in specialty drugs from 2013 to 2014. The overall trend of prescriptions was 13.1 percent in 2014.
We see the problem with the rising costs of health care, but what are the solutions?
One might choose to wait to see how the Affordable Care Act plays out. Other companies might choose to drop their health insurance and wait to see how that impacts the recruitment and retention of their workforce. But others will take control. The good news is that there are many courses of action that a company can take. The bad news is that there are many courses of action that a company can take. So let’s start by looking at options to self-fund.
Health insurance carriers are not directly incentivized to keep their premiums low. Yes, they want to be competitive in their market to gain market share. Many markets only have a small handful of carriers to choose from. Even if a health insurance carrier is competing against two other carriers in a market, they can still carve-out a decent market share. The Affordable Care Act states that an insurance carrier must rebate companies and individuals at the end of the year if their Medical Loss Ratio is less than 80 or 85 percent based on that insured’s respectable size. I am not suggesting that insurance carriers will purposely try to drive rates higher, but the incentive to hold premiums low to be more profitable is more negligible. Would you rather have 15 percent of $200 or $400? Employers, individuals, and consultants are in the driver’s seat to control the market. When a company or individual decides to self-fund or partially self-fund a health plan, the incentive to drive down or keep health care costs low is 100 percent more relevant.
Many people are born or nurtured to be more risk averse than others. So other options to join captives or health care trusts are also available to allow you to spread your potential risk among other like-minded individuals and companies. Your Leavitt Group health consultant can provide many of these options to you.
If you want individuals to make better decisions today to help avoid health care costs that may be controllable based on lifestyle, start by gathering data about lifestyles, habits, and current health claims. Deploy health plans, incentives, and wellness programs to help individuals meet their goals. Sure there are many ways we can work to achieve individual and company goals, but my father always told me that a goal that is important to reach should have a reward and a consequence. I recommend using a carrot or a stick as part of your wellness program to “lead the horses to water” or nudge them a little bit to get there.
Once you know your company’s goals, align yourself with other like-minded companies or individuals and make sure you have the right resources to succeed. Then you can tackle the costs of health care and prescription drug spending. There are options, such as setting up a private network of physicians. The quickest way to start is through primary care physicians. Having greater access to quality medicine is a perfect place to start. I recommend keeping a “brand name network” like UnitedHealthcare, Aetna, or Blue Cross Blue Shield layered on top of your private network, but you may be able to grow your private network even further.
Many of my clients are seeing their prescription drug spending reach 25 to 30 percent of their total cost of health care each year. Drill down these costs. If insulin and other diabetic supplies are more readily available to a diabetic population, will that help keep emergency room, hospital claims, or even limb amputations lower? With a trusted physician network, active pharmacy benefit manager, and possibly a partnered clinic, you can consider step therapy for certain medications, free or discounted maintenance medications, or even limited pharmacy dispensary for greater discounts.
Sweeping legislation may not be the quick fix that we were hoping for. Some of the strategies that are outlined in this article aren’t a quick fix either. But there are options for companies and individuals to start setting their sails to help maintain the rising costs of the health care.
“The 2014 Drug Trend Report.” The Express Scripts Lab. March 2015