This advice is applicable to both Victorian brides on their wedding night and pedestrians who are about to be hit by a car.
It is also applicable to companies that are worried that they will need to start paying the Cadillac tax in 2018 on high cost health plans. United Health Care has a nice quick explainer:
Beginning in 2018, a 40 percent excise tax will be imposed on the value of health insurance benefits exceeding a certain threshold. The estimated thresholds are $10,200 for individual coverage and $27,500 for family coverage. The thresholds may be increased depending on actual medical inflation between 2010 and 2018 using a measure that looks to the Federal Employees Health Benefits (FEHB) program. The thresholds may also be increased for individuals in high-risk professions and pursuant to an age and gender adjustment.
The goal is to start clawing back the Employer Sponsored Insurance tax deduction. The foregone tax expenditures will be used to fund subsidies and indirectly it will be used to structurally rebuild the insurance market. This will be disruptive, it is intended to be a disruptive reform.
Large employer groups whose benefit consultants are telling them that they are either already in the Cadillac zone or are on course to enter the Cadillac tax zone have four options. The first option is to do nothing besides hope that the general market for health insurance and health provider services experiences low inflation for the next couple of years. The next three options are ways to avoid or at least minimize the amount of premiums subject to the Cadillac tax. Smart firms who want to avoid as much Cadillac tax as possible should be attempting to get on a glidepath instead of jumping at the cliff for the 2018 open enrollment as gradual change is easier to accept.
- Pay for less coverage
- Pay less per service performed
- Use fewer services
These three options can be intermingled and depending on benefit design, they will interact.
Right now, the headlines from the moran crowd are about firms reducing the acturial value of their plans. They are ignoring the fact that this has been an ongoing trend for the past decade or more. Reducing the acturial value of a plan from 97% to 85% will reduce premiums but all else being equal, it is just a cost shift from the employer onto sicker employees. Common things that we’ll see as companies try to get off the Cadillac glidepath will be more high deductible/Health Savings Account plans, higher co-insurance amounts and higher co-pays. Firms may still offer a Cadillac plan but they’ll increase the amount an employee needs to spend on premiums to get that plan while the cheaper and lower acturial value plans are significantly cheaper.
The system reform efforts will be in the interplay of paying less per unit of service and people using fewer services in general. How would things be configured for a high cost group if they have the following constraints?
- Stay under Cadillac thresholds in 2018 to 2023 benefit years
- No increases to co-insurance, co-pays or deductibles past the rate of inflation
- No further restrictions on services covered
This seems like a tough problem of how to reduce costs without reducing benefits, but there are solutions which introduce minor systems of “no” with minimal member disruption.
The first step is to change the plan design. There are high cost Health Maitenance Oganizations (HMO), Point of Service (POS) and Exclusive Provider Organizations (EPO), but those are outliers. Most of the high cost plans are either comprehensive indeminty plans that will pay a fixed percentage of all costs for any provider, or Preferred Provider Organizations (PPOs). These two plan designs have minimal means of saying no. PPO has a soft nudge to stay in network, but it is a soft nudge. Changing plans from indemity to PPO or PPO to EPO will introduce stronger systems of no.
The second and more fruitful avenue is changing what health plans pay for a service. This often means a narrowing of networks to exclude providers that are high cost without attendant higher quality to justify those higher costs. There are a number of ways to restrict a network. Eliminating high end academic medical centers for routine care is a highly plausible option. A simple gall bladder surgery performed at the community hospital is often forty or fifty percent less expensive than the same surgery performed by the same surgeon at the regional academic medical center which is ten miles away from the community hospital. Another option is to reduce the number of providers in the network by eliminating the top 5% to 10% of the fee schedule.
These are steps which have always been available to large employer groups. However the incentive has not been there to risk pissing off employees. When the discussion is “don’t go to Big City Academic Medical Center for gall bladder surgery OR a $2,500 tax bill” these options become much better.
More exotic systems such as reference pricing can be brought into play for standard, replicable services to preserve choice while significantly nudging people to lower cost but still high quality options. In a few years, in some states, the SHOP exchanges may be open to large groups. Those exchanges will have significantly narrower and less expensive networks that are reimbursed at Medicare plus a little bit instead of 150% of Medicare or 215% Medicare or other standard commercial multipliers of the Medicare fee schedule. Price per unit of service can be pressured downwards significantly with minimal to no quality loss.
The other side of the equation to lower prices per service is reducing the number of services needed. Some of this can be achieved by wellness programs that are really chronic disease management programs. We have good evidence that chronic disease management programs work to improve health and save money. However, most companies already have wellness programs in place. There can be some tinkering and even some tightening of the program to mainly work with people with chronic diseases instead of everyone. The higher value is paying for value instead of volume. Restrictions can be put in place where best practices for a given set of indications have to be used first if the provider is to get a full rate. For instance, physical therapy tends to be as successful as back surgery for some types of minimally specified back pain. Physical therapy tends to be much cheaper than surgery, so the plan will pay for three months of physical therapy first at no deductible or copay before it will pay for back surgery.
These types of plan design changes can lead to lower cost coverage of the same or even greater acturially value.
Reformers are in a split bag on how disruptive they want this reform to be. If it actually forces significant value shopping at the high end and places real price pressure on high cost providers, the Cadillac tax will have achived its structural reform measure without raising as much revenue as the Congressional Budget Office projects. If there are fewer structural reforms, more money will be coming in to pay for subsidies so the entire reform package will get a better CBO score. I’m in the camp that I’m hoping for less revenue because there are fewer $40,000 per year plans that don’t say no to anyone or anything.