So allow me to elaborate a bit on this thing about impotence, which really is about control, or lack thereof.  Employers want to reduce costs and improve benefits, but they feel they have no control..in other words, they are…impotent…

It’s ok..it’s not you–it’s me.  Really.

We-me–us–your insurance broker–have promoted the idea that we can add value to you by aggressively shopping the market to reduce your cost of health insurance.  And we’ve been successful!  Almost every time we take a customers plan out to bid, we save money–5% here, 8% there, 11% here…real money, real results.  We feel great because we have helped you balance your budget..you’ve lived to fight another day!!!

But in the process, employers have unintentionally and unknowingly ceded responsibility for controlling over healthcare cost to health insurers by actively (over) using the competitive market to reduce year over year increases.  It produces short term savings, but long term problems….like a 131% increase in costs and a 20%+ redution in avereage benefit levels over the past decade, according to the Kaiser Family Foundation.  So yea, the process works…sort of…and then again… it really doesn’t work, does it?

Before I start to prescribe the remedy for your problem,  let me provide a couple of clarifications:

• I am by no means against free market solutions–in fact, I think more reliance on market based competition is what is needed, not less;
• Going out to bid for health insurance every year can be an important tool in managing year over year costs–in many cases, over the past couple of years the savings produced in the aggressive RFP process has allowed many companies to survive and remain in businesss;
• I believe companies that provide health insurance and related risk management solutions need to be a critical partner in any long term solution; and
• I see no conflict with capitalist for-profit health insurance–competition breeds innovation, and I don’t really care how high profit margins are in health insurance as long as the value derived by customers–employers and employees– is sufficient, which ultimately means that prices are market competitive.

Ok, so on to the remedy, or at least the framework we need to establish to implement sustainable results.

1.  Re-define “The Market”: Customer frustration stems from the fact that insurers have all the power right now, so employers need to get out of the market for “health insurance”, which is a heavily regulated state by state oligopoly where you are a price taker, and get into the market for “long term health care cost management services”, which is ripe with customer-driven innovation, customer service and free-market competition.  Think about it: Why are your costs going up? Ask your insurance carrier this question and they will tell you that they are just passing along the increases in unit cost demanded by hospitals as well as higher demand for services from the obese and chronically ill.  It may be true, but this passive cost pass through approach reminds me of a defense contractor or a municipality justifying their property taxes.  There is no way the consumer wins in this kind of market.  It’s time to get out while you can.

2.  Forget about Price: That’s right–forget about the cost of coverage for a second and focus instead on the things you need to compete as a buyer in the market for long term healthcare cost control services, namely:

• More information
• More creativity
• More innovation

If you focus primarily on price, all you will get isrelatively lower prices, which are still way to high.  Instead, demand the things you need to be a smart, well prepared buyer.

3.  Own the Problem Financially-You only want to be in the market for long term health care costs control solutions if you have a problem with cost control that you are trying to manage, and that means you need to own the problem outright.   Over time, this will mean moving from a fully-insured to a self-insured or partially self-insured arrangement.  The first step is to demand options from your broker or carrier that include alternative funding arrangements–self-insurance, minimum premium, “participating contracts”, etc.  They’re out there, and we can use the RFP process to make sure we get the best the market has to offer.

This framework will sound very familiar if you have a self-insured plan.  And even if you do, this shift in attitude and approach to the market will increase your sense control and begin to eliminate the frustration that comes from market-induced impotence.

But not the kind you’re probably thinking about or maybe most worried about.  Experts across the country are puzzled by a particularly stubborn form of impotence that has emerged in markets across the country.  By all accounts,this appears to be an especially difficult strain that is presenting itself in, of all places, the work place. 

The condition appears to affect all but the most virile and progressive organizations and is reported to be 100% resistant to the popular prescriptions available in the market.

I am referring of course to health insurance, and the inability of employers to control costs.

The onset of the condition is gradual and appears benign at first. In fact, early symptoms are generally viewed quite favorable by most of the affected:

1. A choice of multiple high quality and cost competitive health plans;

2. New and improved benefits for members that includes lower copays, gym memberships, coverage for alternative medicine, etc.

3. Virtually unlimited choice of providers-every hospital, every doctor, every lab, and every pharmacy.
 

 4. The removal of most restrictions and impediments for members to access care.

 

At the beginning of the cycle, in fact, circa 1995,employers often looked forward to the annual renewal process because of the opportunities they presented-lower costs, better benefits, happy people.

As the market presents more and better options, employers become comfortable with these offerings and the solutions they represent.  But times change, of course, and as market conditions over the past decade have eroded to the point that employers universally abhor the insurance renewal process and the relative opportunities available in the market are dismal.

Essentially, what is happening is that decision-makers have become conditioned to looking to the market for answers to their problems with health insurance–rising costs and plumetting employee satisfaction. 

As a result, they feel powerless themselves to solve the problem-they are at the mercy of the market.  It’s what I call ”maket induced impotence”.    In other words, there is no easy cure for the conditions, so we’re forced to try to minimize the symptoms.

Ah, but innovation is alive in the market.  In our next session we’ll start to address the root causes and what we can do about it.  But for now, just be on the look-out for the tell-tale symptoms:

• Frustration
• High blood pressure
• Aggressive beghavior toward health insurance brokers or representatives

If you are exhibiting any of these symptoms, rest easy.  You are not alone…help is on the way!

Teenagers aside, this is also an incredibly insightful question for us as we develop the most appropriate solution for employers dealing with healthcare problems.  What we are looking for in the answer to this question is perspective, ownership and motivation.  Some examples:

1.  HELPLESSNESS:  My problem is my claims–we have a lot of unhealthy people and they are driving our costs through the roof.  But the claims are the claims, and there is nothing we can do…This suggests a problem exists within the four walls of the organization–which is good–but through attitude or experience or both the employer feels they are powerless to impact the problem…which is bad.

2.  VICTIMHOOD:  My problem is my insurance carrier…they’re screwin’ me again…This suggests delegation and abdication-I have hired my insurance carrier to manage the problem and they are the problem. Not only are they not performing but they are giving my employees high blood pressure and driving me to the brink of cardiac arrest!

3.  MISSION CRITICAL:  My problem is my ability to compete in the market and to survive-my health care costs are through the roof and my employees are totally pissed off…there has to be a better way…Suggests a sense of magnitude, urgency, motivation and a willingness to roll up their sleeves. ” What we’ve done in the past hasn’t worked, there must be a better way, and we need to find it now…”

Can you see how the answer to the question is so crucial?

Our job is to help organizations improve their business performance by controlling costs and driving high employee engagement.  But we have to be realistic, and we have to match expectations with capacity.  We cannot implement a progressive health improvement strategy in an organization that feels helpless or like a victim of the health insurance carrier–it won’t work!

Success is relative, and the plan must match expectations with reality.  We do a huge disservice if we fail to understand the organizations relative sense of ownership, urgency and motivation.

Try it for yourself.

What is your problem???

The financial impact of healthcare reform will be to increase expenses in the system by an additional .9% per year, (per the CMS Office of the Actuary), and by as much as 10% to 20% for employers over the next decade according to our preliminary analysis.

There are 3 key drivers leading to the acceleration on costs:

1.  More people with insurance will drive up demand for services.

2.  Reduced payments under Medicare and more people on Medicaid will increase the cost burden shifted to private insurance plans; and

3. Federal benefit mandates and underwriting restrictions require employers and health plans to provide richer benefits to more unhealthy people.

From our standpoint, the impact of reform will create a basic market breakdown that looks something like this:

Here are 5 things that executives will need to do to put their organization in the “Best in Class” category:

1. Seek Strategic Advantage:  Make healthcare a strategic priority with the CEO in charge.
2. Drive Engagement & Accountability: Make healthcare a priority for your workforce.
3. Data-Data-Data: Use information on your key Cost/Productivity/ Utilization Drivers to measure, monitor and improve key performance metrics.
4. Ops: Execute through your operations team, not just Finance and HR.
5. Take Control: Self-insure, or set yourself on the path to be able to do so over 3 years.

Everyone wants lower healthcare costs, but are you willing to do what it takes to achieve them?

A couple weeks back I called your attention to Henry Waxman’s Energy & Commerce inquiry into impact of HCR the earnings of companies like John Deere, AT&T et al.

Surprise surprise…Without any of the fanfare of his initial inquest, Waxman last week cancelled the testimony to give the employers additional time to assess the positive impact of the legislation.  From Businessweek:

“As the committee examined the potential impact of the new law on large employers, several companies and their representatives expressed the view that the new law could have beneficial impacts on large employers if implemented properly…Companies like AT&T, Verizon and a range of stakeholder associations are hopeful that the benefits of the new law will outweigh the costs,” Waxman said in the memo, “but they cannot quantify the benefits until the law is implemented.”

Waxman’s official statement is here.

Read between the lines.  The earnings pronouncements were not disputable…A + B = C, no questions asked.   Lose the tax deductions, incur the taxes, reduce the earnings.

From House Minority Leader John Boehner:

House Democrats canceled this hearing because they don’t want to give America’s employers a forum to tell the public how President Obama’s new health care law is already hurting our economy and hampering job creation.  Chairman Waxman thought he could intimidate businesses into keeping quiet about this new job-killing health care law, but when they called his bluff by continuing to speak out, he chose to pull the plug.

What are the chances Waxman will ever revisit the issue?

The good news is that Massachusetts now has the highest state level of population with insurance in the country with a mere 2.6% left uninsured. The bad news is that the program has done nothing toward tackling the rising cost of healthcare.  With a significant state commitment to subsidizing costs, the original estimates pegged state costs for Commonwealth Care at $725 million per year. In two years time, that projection has been increased by 20% to $880 million per year.  In addition to the economic downturn, the state has been faced with significant budget concerns some of which are attributed to the weight of the new healthcare program. In response to growing financial pressures, in 2009 Massachusetts took the unpopular position of eliminating 30,000 legal immigrants from the program to reduce expenses by $130 million.

Now, the latest challenge. Recently, several state insurance companies filed rate increases for individual and small group policies (less than 50 employees) ranging from 8-32%. In most states, this process has historically been a rubber-stamp process. However, the State Insurance Commissioner, backed by Governor Deval Patrick, has denied the requested increases for April 1 and is requiring that current rates remain in place. Six insurers have filed an injunction against the state, four of whom had operating losses in 2009, and indicate that the increases are required to address increases in costs. As of Monday, a judge has ruled that the injunction will not be granted and that the insurers had not exhausted their administrative appeals process. Needless to say, price controls on a private industry will remain front and center in both Massachusetts and on the federal level as both programs struggle with effective means to contain costs. Is this a foreshadowing of ObamaCare?

As we see with most pieces of legislation, politics will play an important part of public policy. Governor Patrick will be in a highly contested fight for his seat in Massachusetts in 2010 and some question his strong stance against insurance company’s rate increases as posturing against one of his formidable challengers, Charlie Baker, former CEO of Harvard Pilgrim Health.

In addition, as Mitt Romney eyes a potential presidential bid for 2012, it will be interesting to see how he attempts to nuance the success (greater number of insured) with the programs financial troubles and its similarities to the recently passed federal reform approach.

It may be as good a sport as Yankees vs. Red Sox watching this one unfold…

Click on Chart to Enlarge

More info on the announcements here and here.

In each of these situations, the bulk of the adverse affect comes from the loss in deductibility of the Retiree Drug Subsidy (RDS) program associated with Medicare D coverage provided by these companies.  RDS provides a federal subsidy worth 28% of the cost of prescriptions paid by companies on behalf of Medicare beneficiaries enrolled in Medicare D “creditable coverage” plans.  By and large, these chareges reflect the fact that beginning in 2013, the tax fee status of these subsidies is eroded as the underlying expense is no longer deductible.

CEO’s from these companies have been called to testify in front of Henry Waxman’s (D-CA) Energy and Commerce Committee on April 21.  Pay close attention to the outcome of these hearings.  Although Waxman’s intention is clearly to challenge and discredit the announcements, the testimony could shift public focus more directly onto the jobs impact of the reforms, and any lasting momentum in that direction could have a big impact on the political forces fighting the new law.

I’ve noticed that something really scary has happened for me during this year long debate:   I think I really understand what a Trillion Dollars is!!

Seriously, I have heard the T-word thrown around for along time when the federal budget is being discussed or military expenditures, etc. But for most of my life, it was in one ear and out the other–I never really took the time to comprehend how much a trillion dollars really is.  But with the bailouts and the Stimulus bill and healthcare reform bills all approaching the T-level, I think I really understand how big a number it really is.

Or how small it is, I should say.

Last night I was flipping through the Trustees Report on Medicare and Social Security (I know…get a life…it’s March Madness time!!!), which includes the dire prediction that the Medicare  Hospital Insurance (Part A) Fund will be gone–gone-gone-in 8 years.  In 2017, I will be 54 years old, still 11 years from being eligible and it will be gone.  I have been paying in 2.9% of my income (1.45% as employee and 1.45% as employer) into Medicare for as long as I can remember, and there will be nothing left for me!!!

Even more scary is the fact that, according to the National Center for Policy Analysis (NCPA), the accumulated cost of the Medicare benefits that have been promised to me and a lot of other people will cost $89.3 trillion in todays dollars.  Add in another $17.5 trillion in Social Security, and the combined Medicare/Social Security obligations are $107 trillion more than we have on hand.

Now that these figures are so unimaginable that most of us can’t fathom or process the impact.  But consider that U.S. corporations have been required to account and report these post-employment obligations for nearly 20 years (FAS106), and state and local governments for the past 3 or 4 (GASB43/45).  What makes private business and local government any different that the federal government?

What makes the federal government different is this:  it’s the federal government!!

Washington is focused on  spending nearly a trillion dollars in the very worthy attempt to cover an additional 30 million (we all agree it would be great to cover everyone…) , they are poised to not deliver on the promise to provide coverage to the 270 million of us who are expecting coverage when we are old(…but not at any cost!!!).

Worst of all, over $500 billion (half a trillion for you those of us who comprehend) of the $940 billion  comes from cuts in MEdicare funding..  That’s right–cuts in funding for a program that will already be bankrupt in 8 years!!!

I just can’t understand what’s going on in these polls…do you???