Blog

Newtown, CT - March 9, 2018

Here’s a trick question. If a salaried employee making $35,000 has a monthly premium for her health care benefits completely subsidized by the employer, is her health care coverage affordable? Yes, if she has a deductible of $500, and no if that deductible is $5,000. Too often we look at health care affordability in premium terms and the debates in and around Congress and the administration are focused on premium subsidization. But premium subsidization only covers a portion of the affordability of health benefits. Out of pocket costs are the real barrier to access to care. The sum of premium paid and potential total out-of-pocket should be the primary way in which we measure health care affordability. By that measure, health care for West Virginia teachers and many others isn’t affordable and that’s why they’ve been on strike.

For years now, studies from the Kaiser Family Foundation have shown that the increase in total potential costs associated with health care coverage have exceeded wage growth. The result is that net take home pay, after medical expenses, has gone down or, at the very best, stagnated. The warning signs have been abundant but too many ignored them. Perhaps because national statistics don’t hit home in a state. After all, they represent the average and the average is almost always wrong for any individual case. Perhaps if the state had a publicly reported affordability index it would have seen the warning signs flashing long before the teachers finally said they had had enough.

Flashing lights and warning signs are great, but when they light up like a Christmas tree what actions can policy makers take to stall or even reverse the trend? Of course, much has been written about the solutions to bending the cost curve and the goal here isn’t to repeat them. Instead, let’s be clear about the options and tradeoffs because there aren’t that many.

One option is to increase the benefits load in order to decrease the amount of total out-of-pocket costs AND to subsidize premiums. You can’t do one without the other if you’re to affect affordability, because decreasing deductibles and co-insurance will immediately increase premiums, and the consumer’s pocket is picked either way. That option, at the federal level, has fizzled, and there’s little appetite in most states to increase taxes in order to subsidize health insurance. Another option is to increase wages, which the state of West Virginia seems to be doing with the teachers. However, this creates a form of moral hazard in that the culprits for increased costs get off scot-free and will simply do it again, leading to a vicious inflationary cycle.

The second option is to tackle the root causes of premium increases, which are divided into two parts:  the price of services and the quantity of services. As some of our (and other’s) national work has recently shown, private sector pricing has been increasing at twice the rate of public sector pricing, creating a compounding growth that defies any reasonableness test, and certainly has no basis in the reality of underlying economic inflation. In other words, it’s entirely self-manufactured by an industry that has become accustomed to impunity for fleecing the general public. There are ways to contain price inflation. One of those is to have broad and unfettered price transparency. Some states have taken a leadership role in that respect, but many have so far failed their residents. One should expect that health plans would aggressively pursue price transparency to encourage plan members to shift to lower priced, higher value hospitals, health systems and physician practices. And yet that’s happening less and less as the number of gag clauses embedded in payer-provider contracts multiply.

Beyond price inflation is the imperative to make sure that every service delivered to every patient is needed and provides some value to improve the health of the patient. And yet we know that isn’t the case today. Estimates of waste vary between 20% to 30% of total costs of care. Think about it, if health plans in West Virginia were able to take out that waste, premiums and total costs of care would become affordable to all those teachers (and everyone else). So far, however, estimates of this waste have been haphazard and incomplete.

So what are we to do? Well, for starters, in the next 60 days Altarum will be releasing its new Health Care Value Check-up Tool, that is designed to comprehensively assess the amount of total costs of care that can be ascribed to (a) over provision of low value care, (b) pricing failures, (c) care associated with avoidable complications, and (d) under provision of high value care. We will be calculating the amounts of costs of care that fall into each category for several states and broadly publicizing the results. At the same time, we’re hard at work defining an affordability index that can be calculated state by state, as well as state-based health sector spending trends.

The combination of these tools should provide all states with the metrics and actionable data they need to take the appropriate steps to avoid health care from becoming unaffordable and, where it has already reached that level (and it’s not just in West Virginia), steps to reverse that trend. This week, the leadership of the Department of Health and Human Services has come out guns blazing, making it clear to those who have massively benefited from the status quo that the gig is up. They now need to back their words with solid action. Our combination of tools may just be the ammo they need and we’re happy to provide it.

Newtown, CT - February 24, 2018

In his most recent column, Joe Fifer, President and CEO of the HFMA (and also Altarum Trustee), noted that while addiction to opioids has appropriately garnered national attention, we can’t and shouldn’t forget other addictions, including to alcohol, that are just as deadly. Two weeks ago we released a report showing that the cost to the U.S. of the...

Newtown, CT - February 9, 2018

A WSJ article entitled The Health Care Conspiracy of Silence focuses on one aspect of a broader omertà that plagues the industry. The conspiracy of silence reminds us of the perverse role that tax laws play in distorting markets, and the timing is good because it comes the day Congress has decided to punt on the...

Newtown, CT - January 26, 2018

When he headed up Health and Human Services, Mike Leavitt proposed a framework for a higher performing health care system. It was supported by four pillars – information on quality care that would be actionable by consumers; information on price of health care that would help providers, payers and consumers make better decisions; value-based payment models; and interoperable health information....

Newtown, CT - January 12, 2018

Several years ago we offered some guidance to CMS about key design elements that would increase the success of an APM. It’s time to revisit them – with the announcement of BPCI Advanced, Medicare just sent a strong signal that alternative payment models, and especially those that physicians participating in MACRA can opt for, are here to stay. That’s certainly consistent...

Newtown, CT - December 29, 2017

Every new beginning comes from some other beginning’s end; or so the song says – Just about six and a half years ago I started a weekly missive aimed at synthesizing what I saw happening in the emerging field of alternative payment models and, more broadly, across the health care sector. The more frequently recurring themes centered on three elements: (1) our collective overriding imperative to improve the...

Newtown, CT - December 14, 2017

It’s been five years and it’s difficult to not well up thinking about it – Since then many more children, women, and men have had their lives end abruptly, violently, shockingly, at the hands of yet another “lone wolf.” And every time it’s the same sad song. The tune never changes however horrific the new tragedy. It should be pretty clear by now that the tune won’t change until the bells have tolled in so many...

Newtown, CT - December 8, 2017

Bob Galvin once told me that second marriages were the triumph of hope over experience. Recent evidence on ACOs reminds me of that quote – A study published this month in Health Affairs by Williams, Chernew and Landon indicates that, by and large, the overwhelming majority of savings coming from ACOs participating in the Medicare...

Newtown, CT - November 18, 2017

In Memoriam – “Res tantum valet quantum vendi potest” were just a few of the many words of wisdom that, over the years, Uwe Reinhardt imparted during the yearly Altarum symposium on the sustainability of health spending. My colleagues Charlie Roehrig, Ani Turner and Paul Hughes-Cromwick had the pleasure and benefit of having Uwe as an advisor to their center for many years and, like them, we will all...

Newtown, CT - November 10, 2017

I saw a movie once in which one of the main characters stops another in mid-sentence and says: “My dad taught me long ago that anything before “but” is an excuse, so just get to the point.” That’s an important lesson when listening to those who claim they’re all for transparency, but….—As we released our...

Newtown, CT - November 3, 2017

Time for another reality check and to sift the wheat from the chaff – With the flurry of announcements coming out of CMS combined with external reports on the effectiveness of APMs, the reports from the HCP LAN and the release of the latest Leapfrog Group survey, it’s hard to make sense of it all, and yet let’s try. Earlier this week two reports cast serious doubt on the cost-effectiveness of CMMI’s two marquis...