Relax and keep the knees up

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. 

 

 

 

 

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41 replies
  1. 1
    Amir Khalid says:

    What, you didn’t go with The Killer‘s version?

  2. 2
    daveNYC says:

    Wouldn’t the easiest thing be to just stop offering health insurance and increase employee pay by 50% of what the company was coughing up for insurance? The company totally avoids any tax, gets to fire their HR people who do benefits, and they get to keep more cash.

  3. 3
    Richard Mayhew says:

    @daveNYC: That is one possibility, and honestly, that is not a bad option even with the employer mandate of $2000 penalty as people then move onto the Exchanges (hint, this is a long term goal of PPACA — break the link below employment and useful health insurance)

  4. 4
    Elizabelle says:

    @Richard Mayhew:

    I applaud that ACA goal.

    Health insurance should attach to a person because they are a mortal human being who needs healthcare, not just because they have a job.

  5. 5
    Xantar says:

    I’ve started seeing a talking point going around that only about 1 million of ACA enrollees in private insurance plans are people who previously didn’t have insurance, so really Obamacare hasn’t helped that many people get covered. I’m trying to figure out where they would even get this number. I know it’s probably bullshit, but the wingers usually at least have some numbers that they manipulate in order to put some veneer of respectability to their claims. Does anybody know where this is coming from?

    Also, Medicaid expansion alone has covered a few million people hasn’t it? And aren’t those mostly people who didn’t have insurance before?

  6. 6
    randomworker says:

    @daveNYC: Why not 100%? You are kind to split the savings of not providing an employee benefit with the corporation 50/50.

    But yes, I agree that ultimately breaking the link between employment and health insurance is a desirable goal.

    At the company I work for the family PPO costs about $24,000 per employee (we are self insured). Below the Cadillac Tax threshold. So I see this as just a start. I would take it further and tax anything above the average Gold level plan offered (or something).

  7. 7
    Rob in CT says:

    Yes, the link must be severed. Of course, this means that the 60-70% of us who haven’t really had to deal with shopping for coveage will, slowly, get pushed into doing so. And many of us will hate it. There will be much whining. I may even whine, though it seems unlikely since my state somehow managed to build a functional website ;)

    There’s a reason the Dems slow-played this. If they’d tried to just cut the cord, people would’ve freaked (and I’m not sure how well the market would have done adjusting to such a huge change overnight). It could’ve been a huge, huge mess. So instead we get a nudge here, a phaseout there, a tax over there… and eventually we’re probably all or nearly all on the exchanges.

  8. 8
    Rob in CT says:

    @randomworker:

    100% of after-tax savings would be equitable, but we both know that’s not what would happen. The corp will keep some of it, and pay it out in exec comp, dividends and share buybacks.

  9. 9
    Belafon says:

    @randomworker: The goal was to get the middle class, including the upper middle class, to either like or at lest not dislike the ACA.

  10. 10
    daveNYC says:

    @randomworker: Companies would probably love to keep all the savings, but that’s a hard thing to sell most people would recognize it as a pay cut and see if they could bounce to a different company.

  11. 11
    Belafon says:

    @Belafon: This was meant to be a response to @daveNYC.

  12. 12
    Elizabelle says:

    Today is Hobby Lobby “religious freedom” argument day at the Supreme Court.

    Screw ’em.

  13. 13
    sparrow says:

    Just curious, how do you know if your employer-sponsored plan is cadillac or not?

    For my company (~ 500 employees), we have two choices which cost the same ($40/month). Either you can (A) choose a “gatekeeper” PCP, which means you need to get referrals to see specialists other than OB/GYN, or (B) you can go to any doctor you want any time. If you go with the gatekeeper/referral process, it is obviously more of a pain, but they pay 100% of in-network costs. I have (A) and recently went to the ER with a bad case of mono — they kept me overnight. The bill was around $2700, I paid $80 which I think was mainly some kind of copay. If you choose (B), they only pay 90% in-network. (I think out-of-network is like 60 or 70% for both).

    The network seems fairly broad. So is this a Cadillac plan? To put it another way, I have a hard time imagining how they could make it better, except maybe a broader network.

  14. 14
    KithKanan says:

    @sparrow: find your latest W-2, look in box 12 code DD. If you’re with a large employer, that should have the total cost of your health insurance (both what you paid and what your employer paid).

  15. 15
    randomworker says:

    @Elizabelle: Indeed. I see America’s Most Pitiful Spinster Kathy Lopez is spamming the twittersphere about it.

  16. 16
    Elizabelle says:

    @randomworker: Ah. The industrial strength crazy KLo.

    I will take a pass.

  17. 17
    Richard Mayhew says:

    @sparrow: Building on what KtithKanan is saying , if you have single coverage and box 12DD is around $16,500 or so, you’re in danger of getting into Cadillac territory depending on what healthcare inflation assumptions you make. If you have family coverage and you are in danger of getting into Cadillac territory if box 12DD is around $24,000 or so.

  18. 18
    KithKanan says:

    @Richard Mayhew: while I’m thinking about it, how does the Cadillac Tax affect small-employer plans that charge age-rated premiums?

  19. 19
    Mnemosyne says:

    As I’ve mentioned before, the Giant Evil Corporation I work for is self-insured and recently partnered up with an extremely local hospital (seriously, it’s across the street from the main location of the GEC) to basically have an entire practice solely for employees of the GEC (and their covered families). They have one building with general practitioners and the most common specialists where you can basically walk in or get a same-day appointment and get covered, like a mini-Kaiser Permanente.

    I still haven’t made up my mind if I’m going to switch away from my current doctor because the partner hospital is a Catholic hospital and I worry about potential issues with reproductive care, but I’m also a former Kaiser member and loved their “one stop shopping” way of doing things where everything was in-network so you never got a weird bill you didn’t expect. But I’m also not sure I want my employer to be that close to my medical care, even though California has very strong state laws preventing them from seeing my specific information, because you end up with assholes like the CEO of AOL deciding that a few expensive patients mean he has to raise everyone’s costs.

  20. 20
    Berial says:

    I kind of like the econ ‘news’ from the nakedcapitalism blog, but they hate them some Obamacare. It’s all bad news all the time when they talk about it.

  21. 21
    Mnemosyne says:

    @sparrow:

    FWIW, I just checked my W-2 for 2013 and my section DD came in under $7,000 for what is essentially a Gold-level plan (for one person — G has his own insurance and we have no children). Though I think I pay more per month in premiums than you do — about $100 right now — so that may influence it as well.

  22. 22
    Richard Mayhew says:

    @Berial: They want single payer without really understanding how the single payer nations do cost control and they want it yesterday and they’ve never come up with a viable theory as to how to get 218-51-1-5 in the US at any point. See McLaren for our local example.

    Anything less than single payer without any “NO” function is a sell out and a failure to heighten contradictions. Lambert is being about as mature as my five year old in her cookie negoatiations.

  23. 23
    Berial says:

    @Richard Mayhew: Yeah, that’s about my take too.

    I find it disappointing because, for me, it undermines the economic posts. If they are that strident about subject ‘x’, are they the same about subject ‘y’. It reminds me of the History Channel and the damn ghosts/aliens bullship they show on the channel now.

  24. 24
    Mnemosyne says:

    @Berial:

    I’m afraid of getting out of the boat, but is that the same guy who doesn’t seem to understand that the problems he’s having with “Obamacare” are because he lives in Florida and his governor has chosen to deliberately fuck his state’s citizens over when it comes to healthcare?

  25. 25
    Berial says:

    @Mnemosyne: I honestly don’t know where he’s from, but his posts about Obamacare are certainly always the same.

  26. 26
    El Caganer says:

    @Mnemosyne: I think lambert lives in Maine, but there’s another guy who posts sometimes who I’m pretty sure is the one you have in mind.

  27. 27
    mazareth says:

    @Mnemosyne: I just checked my plan. I’m single and the total cost of my plan is about the same. A 10% coinsurance component was added to the plan in 2011.

    I’m lucky that the most expensive part of my thyroid cancer treatments happened before that. As it is, I just had some tests done. My coinsurance came to almost $900. If I would have been under the current plan, when the initial treatments were in progress, the coinsurance would have been around $35,000. I would probably have had to declare bankruptcy.

    We really need single payer!

  28. 28
    Someguy says:

    Good. Fuck these rich bastards with their gold plated plans. They should be paying a 40% tax on them, if for no other reason than the amount of resources they consume that are no longer there for the rest of us to use.

  29. 29
    Richard Mayhew says:

    @KithKanan: Not sure…. — the small group market is about to get massively disrupted by new underwriting requirements as they move from experience and statistical rating to community rating. There is some wiggle room in the Cadillac taxes for age and professional risk adjustment (for example fishermen as a profession run much higher claims than average, so their Cadillac threshold would be higher) but I don’t know exactly how it will play out.

  30. 30
    DecidedFenceSitter says:

    Yep, my employer would have been nailed with the Cadillac tax and switched to a high deductible HSA – the employer is helping with the deductible, but it is still going to be a harsh shock to be paying market price for every procedure.

  31. 31
    Richard Mayhew says:

    @DecidedFenceSitter: You’ll be paying the insurance contracted rate for the procedure not the list price. But yes, it will be a shock.

  32. 32
    narya says:

    I’m all for managing chronic diseases–but I work for a community health center/FQHC-LAL, and we still get paid on a fee-for-service, NOT a fee-for-performance basis. As a community health center, we don’t have the resources to wait while the market comes up with a true pay-for-peformance metric–and implementing a patient-centered medical home model makes it even more challenging (though we’re doing it anyway, because it’s better for the patients). Early studies already show that, while PCMH can reduce the overall cost of care, the costs may actually increase at the primary care level, because places like ours are taking on the extra burdens of care that keep the overall cost lower, but not in ways that we can be reimbursed for those burdens.

    Gonna be a challenge, and I hope the feds have a way to modify the Section 330 funding in ways that help CHCs continue to serve the people who are most in need.

  33. 33
    FDRLincoln says:

    Well…neither my wife nor I are in good health, and we have an autistic child, and we have really good health insurance through my employer. It is starting to look like we could lose this insurance eventually under the ACA, but we make too much money to be eligible for subsidies. So I am assuming that we are going to be among the “you are screwed” class eventually and we will be destroyed financially.

    Just to be clear, I do not blame Obama for this. The ACA was the best thing he could get through Congress. I understand that. But what are we going to do?

  34. 34
    Mnemosyne says:

    @FDRLincoln:

    It depends on what you mean by “eventually.” Will employer-based insurance go away in the next 20 to 25 years? Probably. Are you going to lose your employer-based insurance next year? Probably not.

    How much is your current paycheck deduction for your health insurance?

  35. 35
    Xantar says:

    @FDRLincoln:

    You seem to assume that purchasing health insurance without a tax subsidy is going to be financially ruinous. I’m not sure that’s a fair assumption to make.

  36. 36
    another lurker says:

    @Xantar: Right. Under ACA you aren’t forced into a high risk pool or denied coverage because of preexisting conditions. The premiums are based on age, community rating, whether you are a smoker and coverage options. A lot of plans are very affordable.

  37. 37
    FDRLincoln says:

    Right now I pay $80 a month for a family of four. Before getting my current job that came with insurance, we were on the market by ourselves and paying over $1,000 per month for very poor insurance.

  38. 38
    FDRLincoln says:

    If we were still in the marketplace by ourselves, ACA would certainly leave us better off than we were a few years ago when we were paying over 1K per month. However, I live in a state (Kansas) that is doing everything it can to sabotage ACA implementation, and I worry what will happen if I lose my job or if my employer drops coverage and puts us into the market again.

  39. 39
    🍀 Martin says:

    My employer provided insurance was in cadillac territory. They needed to change that as the costs have grown beyond all reason. We’ve contained costs in every area except for health insurance. So ACA was a convenient lever for the administration to pull to cut benefits. We have many plans to choose from and a number got cut entire, some were significantly altered, and a few changed slightly. The end result looks a lot like the platinum plans. They’re still very good, and they should bring us in under the cost cap. I think the goal is to make them identical to the platinum plans, so that as employees roll out or retire they can just switch over and not even notice. That should also help bring costs down as we won’t need to be separately underwritten.

  40. 40
    Richard Mayhew says:

    @FDRLincoln: Right now, continue to use your excellent insurance, and then lobby Congress to change the rules on PPACA — either set it up so that subsidies take care of all premium payments for 2nd cheapest silver above 9.5% family income, or have a seperate autism account or enhanced general subsidies or frailty subsidy assistance… Employer sponsored insurance is not going away in the next five years, so use the political process to protect yourself.

  41. 41
    Original Lee says:

    I’m wondering where these new-fangled concierge services will fit. My mom’s doctor joined a new practice in October and essentially if you pay them $2K/year, up front, you get the equivalent of EZPass access to the doctor when you call. Mom couldn’t afford it, so now when she calls the office, she talks to the triage nurse-practitioner, who has clearly been instructed to slow-walk any medical issues for the peons as much as possible.

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