August 18, 2014
Numerous news reports on the high cost of medical services and variations in price from region to region are bringing price transparency to the forefront – especially with more consumers empowered to select their own health plans – both on public exchanges and for employee-consumers via private exchanges. Savvy health care consumers are increasingly leery of trusting the first price they’re offered for a treatment or procedure – and they should be.
A recent article by KQED, a public radio station for Northern California, explains a new program that it has organized to bring clarity to the often-cloudy world of health care pricing by crowdsourcing pricing data. Listeners are invited to submit prices they paid for various procedures to an online tool called PriceCheck and compare those prices against those submitted by other listeners to get a sense of how much price variation to expect in the area.
PriceCheck data indicates the procedures that appear to be the worst offenders in price variation are:
- Mammograms, reported to cost between $134 and $1,200
- Back MRIs, which ranged from $255 to $3,700
PriceCheck is a voluntary, opt-in tool, so it doesn’t give comprehensive price comparisons. However, since such a tool does not yet exist for San Francisco Bay Area residents, the KQED PriceCheck tool is a helpful resource.
Consumers are increasingly advocating for price transparency nationwide, in some cases, sparking bidding wars for certain procedures. While PriceCheck prices are representative of cost differences only in the San Francisco Bay Area, such a tool could be useful in many local markets, since there are price variations everywhere.
August 12, 2014
This year’s annual report of the Trustees for Medicare and Social Security revealed that the Medicare trust fund will not run out until 2030 — four years later than last year’s estimate.
The extension was attributed, among other things, to reduced hospital admissions and to Part D payments declining 4% from 2013 estimates due to the use of generics.
In an article on the report in USA Today, Bryce Williams, managing director of Towers Watson’s Exchange Solutions, offered the opinion that future savings could be in store beyond what is being projected, considering that the ACA now covers many people who were previously uninsured. This could result in more people reaching the Medicare eligibility age of 65 without a lifetime of chronic health issues going untreated or unmanaged, putting less strain on Medicare coffers.
Said Williams, “[The ACA is] a stealth benefit that’s going to further extend the life of Medicare, perhaps substantially, without having to round up new funding.”
Keep an eye on the headlines for more Medicare cost-saving measures, such as changing the way doctors are paid and the creation and use of more quality metrics to improve care and weed out excessive fees.
Officially established under the Affordable Care Act in 2011, Accountable Care Organizations (ACOs) are becoming more popular with employers as a way to provide coordinated care for employees with chronic conditions while limiting unnecessary spending.
A recent article on ACOs in Employee Benefit News (EBN) reported that a growing number of large companies are “on board” with the notion that better coordination will lead to improved care for employees and lower costs for employers.
According to the 19th Annual Towers Watson/National Business Group on Health (NBGH) Employer Survey on Purchasing Value in Health Care, more than one in four employers expect growth in a variety of new methods providing quality care while mitigating costs, including ACOs. In fact, 28 percent of employers surveyed said it was likely that (employer-sponsored) care will be delivered through highly coordinated provider models such as ACOs or Patient Centered Medical Homes (PCMHs) over the next five years.
The EBN article noted, however, that some warn it’s too early to tell if ACOs will live up to their promise. Still, while use of ACOs is still in its early stages, more employers are considering ACOs as a valid method for evaluating vendors.
From the Towers Watson/NBGH survey, 81 percent of responding employers said, “Availability of ACOs and/or PCMHs with incentives and penalties to providers based on quality, efficiency and outcome” was an important or somewhat important factor in selecting a health plan vendor.
For previous posts on ACOs from the OneExchange Blog, see below:
In February 2012, the Alameda County Employees’ Retirement Association (ACERA) made a change in the way it was offering health benefits to its retirees; the public pension fund decided to transition its Medicare-eligible retirees and their dependents to Towers Watson’s OneExchange.
Now, two years after the initial transition, Kathy Foster, ACERA’s benefits administrator, is speaking publicly for the first time about the decision and how it’s going. Alameda County, located in the East Bay near San Francisco, is the nation’s seventh most populous county. ACERA is responsible for ensuring that all county employees have cost-effective health benefits when they retire.
Said Foster in an April 2014 Towers Watson case study, “Through the exchange, we are able to provide our retirees a wide choice of high-quality Medicare plans as well as expert advice to help them choose among them. And we have confidence in the predictability and sustainability of the health benefits we will provide into the future.”
In an article in Employee Benefits News in June 2014, Foster touched on the challenges of running a public pension plan and managing costs, explaining how the association’s group plan offerings continued to get more and more expensive each year. According to Foster, ACERA was able to cut its costs in half, saving $2.5 million in 2013 alone for its more than 1,200 retirees.
June 16, 2014
Advocates in the quest to overcome childhood obesity have gained an unlikely ally in recent years — the U.S. military.
More specifically, support is coming from senior retired military leaders, who are calling their movement to combat childhood obesity “Mission: Readiness.” Mission: Readiness describes itself as a “nonprofit, nonpartisan national security organization of senior retired military leaders calling for smart investments in America’s children.”
While the connection between childhood obesity and the military may not seem immediately obvious, this stat makes it abundantly clear. According to recent estimates, more than 1 in 5 Americans cannot join the military due to excess weight. That is a startling statistic especially for the military, where the stakes are high when someone cannot physically do the job.
As retired general Richard E. Hawley, a member of the Mission: Readiness Advisory Council, put it, “In the civilian world, unfit or overweight employees can impact the bottom line. But in our line of work, lives are on the line and our national security is at stake.”
Mission: Readiness contends that starting early and instilling good eating and nutrition habits have the potential to provide a lifetime of benefit while ensuring that future soldiers — the “employees” of the military — will be physically fit enough to perform the duties expected of them.
Some employers in civilian life also have physical requirements or barriers to entry for jobs in their companies, for example, in construction, where a worker must be able to lift a certain amount of weight. Even in jobs that don’t have these requirements, physical fitness can be an important part of workplace productivity. And a high fitness level is proven to improve cognitive function, positively affect mood, and increase efficiency.
On the flip side, there’s a very real cost to being overweight on the job — $73.1 billion to be exact. This number comes from a collection of research that estimates the cost of missed work days and a decrease in productivity associated with being obese. So while being out of shape may not directly affect the tasks an employee is assigned to, it has a very real effect on the worker and, to quote General Hawley again, “the bottom line.”
According to data from the Towers Watson Staying@Work survey, 75 percent of employers surveyed ranked obesity as a top health risk for their employees, second only to workplace stress (78%). Related to this, employers identified “weight/obesity (BMI)” as the number one health factor targeted by outcome-based wellness programs.
The Towers Watson survey makes the connection between company productivity and health clear — “high effectiveness” companies consistently had employees with obesity rates that were 25 percent lower than “low effectiveness” companies. (High and low effectiveness were assigned based on scores on the Staying@Work Overall Health and Productivity Effectiveness scorecard.)
Even though most employers don’t need employees in “fighting shape,” they do need people who are well and healthy enough to do their jobs — the employer’s bottom line and employee happiness depend on it.
June 5, 2014
OneExchange today marked an important milestone: 50 employer clients have used our private Medicare solution to transition multiple groups of customers.
Workforces can be complex, and changing benefits for multiple groups at once may not always be possible. Union contract negotiation timelines differ. Employers may want to test-drive a new approach like an exchange with a portion of their population first. And newly acquired companies may present an opportunity to streamline benefits administration after an initial group has already transitioned.
These are all reasons why employer clients have come back time and time again to OneExchange in addition to the reasons they chose Towers Watson’s Medicare solution in the first place.
71% of companies that offer retiree health care report that they already offer retirees access to a private Medicare exchange or plan to by 2016 – just 10 years after our inaugural enrollment season as the U.S.’s first private Medicare exchange in 2006.
May 21, 2014
The deadline has passed, but it’s not too late! No, we’re not talking about taxes — hope everyone filed on time!
The deadline in question was the March 31st deadline marking the end of the open enrollment period for health insurance on the public exchanges. A related deadline was April 30th, the hard deadline for the “high risk” subset of the population with plans poised to be cancelled.
The public exchange enrollment numbers continued to tick upwards in the weeks following the March deadline, reaching 8 million as of April 19th, 2014, the date the last official tally was reported. While enrollment numbers are slowing, it has become clear that even though the deadline has passed, some people continue to enroll.
The exceptions to the original deadline were well-documented — “high risk” patients, people in states with glitch-ridden exchanges, people who started to enroll before the deadline, but were not able to complete their applications, and people who were insured under a group health plan that is dissolving.
A lesser known fact is that the deadline for employer-sponsored insurance is similarly flexible. While October is typically when employer-sponsored health insurance is open for enrollment, many different situations merit exceptions and enable employees to enroll year-round. Here are just a few:
- Starting a new job and enrolling in a health plan with a new employer for the first time
- Leaving a job and losing employer-sponsored insurance
- Getting married and wanting to add a spouse to an employee’s coverage
- Turning 26 and becoming ineligible to be on one’s parents’ insurance
Bottom line, even though the deadline passed long ago, it was not a firm one and people without insurance still have options.
Are you one of them?
Under the ACA, it’s well understood that the cost of health insurance varies depending on your income, which determines how much of a government subsidy you qualify for, if any.
But that’s not the only variable: it also depends on where you live.
To give a sense of just how different the price can be, in the Minneapolis-St. Paul region, a 40-year-old will pay $154 a month for a PreferredOne plan, which is a silver-level plan on Minnesota’s state-run exchange, MNSure. Just across the border into Wisconsin, that same level plan — with a different insurer, doctors and hospitals — costs nearly three times as much.
Why such a difference?
According to Kaiser Health News, the least expensive areas “tend to have robust competition between hospitals and doctors, allowing insurers to wangle lower rates.” In these less expensive areas, doctors also tend to be salaried, rather than being paid by procedure. This removes the financial incentive to perform more procedures, saving money from the get-go.
Cost savings also come in areas with health systems that organize patient care in a cohesive way, rather than being a loose collection of specialists working in isolation. This type of health care network — sometimes called “integrated care” — fosters collaboration between all types of caregivers, from primary care doctors, to specialists, to nurses.
The most expensive areas for health care tend to be rural and isolated. These areas often have just one or two hospital networks, which allows a network to set prices without the price-controlling factor of competition.
Does high cost equal high quality?
Not necessarily. Higher cost, for example, does not guarantee higher quality. Consider areas such Aspen or Vail, Colorado, which are isolated and have just one hospital network. Residents of these areas will pay more due to the lack of competition, but that does not mean better care.
In fact, the best bet for affordability and quality lies in dense, populated areas where many insurers and provider networks exist — with lots of doctors and hospitals to support the population and which, therefore, must compete for business.
So while Aspen may be a good place to be a ski bum, it isn’t the best location for low-cost health care.
Though the open enrollment deadline has passed, the number of people successfully enrolled in plans continues to tick upwards. Analysts predict that if the current rate of signups continues, eventually we’ll have as many as 30 million more people who will be newly insured. Right now, we don’t have enough primary care physicians to meet this new demand. There are many possible solutions. We’re exploring 3 of them in a series of posts:
1. Shortening the amount of time it takes to get a medical degree and expanding residency programs to get more doctors into the workforce more quickly.
2. Empowering medical professionals to take on more of the responsibilities of primary care physicians, working under their supervision. These professionals include physicians’ assistants, nurse practitioners, pharmacists, nurses and others.
3. Using technology – telephones, email and telemedicine — even remote monitoring — to extend the reach of physicians — especially for people in remote and rural areas.
So far in this series, we’ve explored ways to get more physicians on the job more quickly and enabling other health care professionals to perform some medical services as the answer to the primary care physician shortage in this country. However, there is one option that doesn’t require adding more people to the mix at all. We’ll give you a hint: it involves the Internet.
According to the U.S. Department of Health and Human Services (HHS), more than three-quarters of rural communities in the U.S. have less than one physician serving every 3,500 residents.
So while adding more doctors to the pool may relieve shortages in urban hospitals or bring more specialists to the suburbs, it won’t have the same effect in towns and villages far off the beaten path.
As a result, many people who live in remote areas must travel hours to get to a doctor’s office or hospital. For them, a doctor’s appointment may never be convenient. The physicians who do work in rural communities must perform a broad scope of services — on any given day handling “everything from atrial fibrillation to pneumonia, and an asthma exacerbation to a cesarean section birth.”
Here’s where the Internet comes in.
Making it possible for physicians to “examine,” diagnose, and treat their patients remotely via devices included under the umbrella term “health information technology” (HIT) may be the answer providing primary physician care to these remote communities. It’s called telemedicine and it’s growing in use and popularity.
New Solution from Towers Watson Lets Employers Transfer Their Retiree Medical Obligation to a Highly Rated Insurer
April 21, 2014
Retirees receive funding for benefits for life
A new retiree medical exit solution announced March 24th by Towers Watson uses customized group annuities and an innovative transaction structure to overcome the traditional hurdles to an exit — with positive tax implications for employers and preservation of benefits for retirees. Longitude Solution is available to existing and prospective clients of the Towers Watson OneExchange private Medicare exchange.
Both public and private sector employers have long sought an exit solution to address the high cost of retiree medical benefits as well as the many regulatory and legal obligations associated with a retiree medical program. Rising health care costs, especially for older individuals, make offering retiree medical increasingly unaffordable, even for the largest organizations.
In addition, retiree medical creates balance sheet liabilities and income statement expense while diverting management time from more strategic benefits strategies.
Why haven’t employers exited retiree benefits before?
The fact that more employers haven’t simply stopped providing the benefit speaks to the complexity and risk of an exit.
Public sector employers and many private sector companies have long-standing contracts with unions that guarantee funding of retiree medical benefits for life. Even without a union or written contract, no employer wants to be sued by its retirees.
Beyond the possibility of a lawsuit is the concern employers have about ending a benefit that seniors on fixed incomes depend on as well as the negative press that might be associated with doing that.
Hurdles (and their solutions) to an annuity-based exit
Employers and their benefits consultants have long known that the ideal way to exit retiree medical is through a group annuity. However, to be successful, the annuity would have to do the following three things: 1) end an employer’s legal obligation once and for all, 2) avoid adverse tax consequences for both employers and retirees, and 3) create economic value for both parties.
But before a group annuity could be part of a retiree exit solution, the following four hurdles had to be overcome:
Hurdle #1: Medical inflation is a risk that cannot be hedged, and an annuity for retiree medical benefits cannot be issued unless medical inflation risk has been eliminated.
Solution: Medical inflation risk is eliminated when an employer moves from defined benefit (DB) approach to a defined contribution (DC) plan because benefits are capped to a fixed dollar amount per year.
If the transition is made with Towers Watson’s OneExchange private Medicare exchange, the added benefit is that the employer has a platform for administering the annuity and retirees don’t have to change how they purchase plans and get reimbursed for medical claims.
Hurdle #2: Retirees do not pay taxes on medical benefits funded through a tax advantage account such as an HRA, but they would have to pay taxes on existing annuity benefits as income.
Solution: By specifying that distributions can only be used for medical insurance premiums and other medical costs, an employer can mirror its existing plan design while shielding distributions from taxation.
Hurdle #3: Employers cannot deduct the full annuity payment at the time of purchase because premiums paid for long-term contracts, like annuities, must be amortized for tax deductions.
Solution: The annuity solution includes a series of transactions that are commonly used in retirement benefit plans that make the purchase price deductible right away.
Hurdle #4: Employers must address commitment made to retirees before removing the retiree medical liability from the balance sheet.
Solution: The certificates issued under the annuity are irrevocable commitments that transfer an employer’s liability to the insurance company, eliminating the employer’s obligation.
Fulfillment of obligation, peace of mind
With these hurdles overcome, both public and private sector employers can use the Towers Watson annuity-based exit solution to fully exit their legal, accounting, and regulatory responsibilities. The solution should also give retirees peace of mind because they would have tax-free funding for medical benefits from a highly rated insurance company for the rest of their lives.
This type of retiree medical exit solution is the end of a journey that many employers began decades ago — at the time, with no clear path to exit in sight — and can now finish, in a way that meets the needs of employers and retirees alike.
For more information about the Longitude Solution, read the article in Tower’s Watson Corporate Finance Matters.