Category: Health Care Costs

On The Other Hand: Insurers May Be Bearing a Lot More Risk than They Think

According to Chris Jacobs of America Next:

As insurers submit bids for the 2015 open-enrollment season, media reports have trumpeted increased participation by carriers on several health exchanges. Depending on the legal and judicial interpretations of two important issues, those insurance companies may end up getting much more than they bargained for.

The first issue involves the temporary “risk corridor” provision in ObamaCare, under which plans with enrollees who are healthier than average pay into a pool that subsidizes plans whose enrollees are unhealthier than average.

Does the Obama administration have the authority to implement this provision? A January memo from the Congressional Research Service raises doubts.

Jacobs Continues:

But that’s not the only potential pitfall for carriers: They could also end up on the hook for payment reductions caused by sequestration.

And while the premium subsidies are structured in a way that should exempt them from the budget sequester, the cost-sharing subsidies are not.

The bottom line: The nonpartisan Congressional Research Service warned in May 2013 that insurers could be on the hook to absorb the billions of dollars in sequester cuts to the cost-sharing subsidies. As with the “risk corridor” provision of ObamaCare, insurers participating under the assumption that these legal questions will be easily resolved may be doing so at their own risk.

Moody’s Gives Positive Credit Outlook to Health Insurers that Requested Double-Digit 2015 Rate Hikes for 2015

Moody’s analysts said the rate increases reflect an increasing medical cost trend, the Affordable Care Act industry fee and regulatory changes that allow people to keep noncompliant plans for another year, according to a report released Monday, emailed to FierceHealthPayer.

“The premium increases show that insurers have chosen to protect earnings margins rather than push membership growth,” the report states. (Source: FierceHealthPayer)

EBRI’s First Look at HSA Account Balances and Distributions

The Employee Benefits Research Institute has just published its first analysis of HSA accounts, balances, and distributions, based on its own HSA database. This is an excellent report, in part because it also looks at other similar reports and discusses the strengths and weaknesses of each.

It is well worth downloading and saving the entire report and using it as a baseline to watch the growth of HSAs over the coming years.

Here are some of the bullet points –

  • This year marks the 10th anniversary of the creation of health savings accounts (HSAs) under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
  • Starting from scratch a decade ago enrollment in HSA-eligible health plans is estimated to range from 15.5 million to 20.4 million policyholders and their dependents, and it has also been estimated that there are 10.7 million accounts holding $19.3 billion in assets as of Dec. 31, 2013. Seventy percent of HSAs were opened since 2011.

Private Health Exchanges Cut Costs 6 to 8 Percent; Increase Workers’ Choice of Plans

Paul Demko of Modern Healthcare has profiled some success stories of private exchanges for health insurance (free registration required):

health-insuranceAfter years of facing rising health benefit costs, household products manufacturer Church & Dwight Co. Inc. in 2012 switched its 3,200 employees from a health benefit program with three plan choices into a single, high-deductible health plan. But this year the publicly traded Ewing, N.J.-based company switched them again.

Working through a so-called private insurance exchange established by Buck Consultants, Church & Dwight gave its employees three coverage choices with a range of benefits, premiums and out-of-pocket costs. The exchange offers plan options from multiple insurers. The company says it anticipates the exchange will reduce its health benefit costs 6% to 8%.

How Much Did ObamaCare Increase Your Premiums? A New County-By-County Calculator

The Manhattan Institute has published an interactive map that shows ObamaCare’s effect on premiums for individual health insurance in almost every U.S. county. On average, premiums have increased by 49 percent. However, there is huge variance:

Among men, the county with the greatest increase in insurance prices from 2013 to 2014 was Buchanan County, Missouri, about 45 miles north of Kansas City: 271 percent. Among women, the “winner” was Goodhue County, Minnesota, about an hour southwest of Minneapolis: 200 percent. Overall, the counties of Nevada, North Carolina, Minnesota, and Arkansas haven experienced the largest rate hikes under the law. (Avik Roy, Forbes)


More on Medical Costs: The Cost of Hemophilia

Hemophilia is a rare genetic disease. It cannot be cured or prevented by diet, exercise, counseling, or wellness programs. About 400 babies are born with it each year and CDC estimates that there are 20,000 people in the US who have it. Individuals with hemophilia have defective blood clotting mechanisms and are at risk for internal bleeding which causes pain and swelling. If uncontrolled, it can lead to permanent joint damage, chronic pain, anemia, infections, and fatal hemorrhage.

In the commercially insured population in the United States, Hemophilia A and B affect about 13 men 100,000 men. The prevalence for men with Medicaid coverage is higher.

A Milliman report provides the means and 90th percentile costs for commercially insured hemophiliacs from 2008-2011. Unlike high cost cancer or trauma patients, hemophiliacs are likely to have very high costs over many years, costs that are high enough to wipe out the profits of insurers or Medicaid plans without adequate stop loss insurance or capital reserves. Note that the average annual cost per person in the commercial population as a whole is $4,199, and that only 10 percent of people have annual costs over $8,404.


Accounting Changes to Add Half a Trillion Dollars to Retired Public Workers’ Health Costs

Actually “recognize” might be a better verb than “add”. Here’s Michael Rappaport of the Wall Street Journal:

retirement-crackedStates and cities could be forced to report at least half a trillion dollars of additional costs on their books under proposed rules that would shine a harsher light on the growing expense of retired workers’ health insurance and other benefits.

The move by the Governmental Accounting Standards Board is intended to give taxpayers, policy makers and investors more information about the toll that retirees’ promised benefits will take on states’ and cities’ finances.

The Fifteen Years It Takes To Develop a Drug Doubles Its Capital Cost

Pharmaceutical research and development budgets range from one billion to five billion dollars. However, those figures significantly underestimate the real costs, because they ignore the time-value of money. It takes fifteen years to develop a new drug, according to Wayne Winegarden of the Pacific Research Institute:

The R&D budget is spent over time, therefore, the time value of money must be taken into account. Due to the time value of money, $366.7 million spent in the 15th year of the R&D program does not have the same value as the $366.7 million spent in the first year of the R&D program. The easiest way to see this is to imagine one investor who is funding the entire R&D program. That investor needs $366.7 million to fund the first year’s research efforts. That initial first year investment will not see any earnings until the innovative drug has been approved for use – in this case after 15 years. Alternatively, the investor could have put the funds that were used in the first year in an interest earning asset and earn income on the money.

The lost potential earnings continue to compound throughout the entire 15 year R&D process.

The estimated capital costs of the $5.5 billion R&D budget at the end of the R&D process is $11.1 billion, the estimated capital costs of the $2.0 billion R&D budget at the end of the R&D process is $4.0 billion, and the estimated capital costs of the $500 million R&D budget at the end of the R&D process is $1.0 billion.

Casting Light on Medical Price Variation

Castlight (NASDAQ: CSLT) which blew the doors of its IPO last March has finally shared with the public some of the value it has been providing its customers. Castlight’s business is to cast light on the opaque prices that health insurers and providers negotiate between themselves and then impose on patients and employers:

health-care-costsWhen looking at cost within cities, the price range for the same service can be staggering. Home to the Yankees and the Empire State Building, you can now also find the most expensive MRI in New York City, coming in at a whopping $4,527. And while expensive MRIs may not be news, this is: The same MRI is available to New Yorkers for $416. There are many more examples of wide pricing for the same service:

Price Controls

Phil Gausewitz, MD, recently focused on the problem of price controls in medicine. He argues that the imposition of price controls have devastated quality and innovation in medical care and makes a compelling case that removing them would open up a new era of patient centered care and restore the physician/patient relationship.

With the removal of the price controls we can expect that, in addition to saving the enormous administrative costs they cause, the devastating effects of the physician shortage will be relieved. Patient care services will improve significantly as physicians compete for patients on service and fees. Medicare patients will regain the right to protect their lives, which they are denied now, by being able to freely contract with physicians who require fees greater than the government allows, and we will be spared the ridiculous spectacle of the “doc fix”.

Shortages caused by price controls protect less effective doctors who now have busy practices regardless of the quality of their service. The exciting new developments in diagnostic and treatment procedures, equipment, immunology, informatics and genetics will be brought more efficiently to patient care, without being inhibited by burdensome and needless financial regulations. The relationships between physicians and patients will improve as patients choose physicians with whom they are comfortable.