In health insurance, the individual market is the individual market, the group market is the group market, and ne’er the twain shall meet.
But not for long, maybe.
Market reality has long been that premiums for groups (or what they pay annually on a per-member basis, if they are self insured) are vastly lower, with risk distributed across the group, than those for individuals. For any specific insured employer, premiums are based on its claims history, regardless of trends in the individual market.
That reality could be stood upon its head, should the proposed American Health Care Act (AHCA) be passed in something resembling its current form. While most media coverage of the proposal has focused on potential impacts for the individual market, health-benefits consultants are warning that a resulting cost hit for health-care providers could well be so profound that a wave of cost-shifting to the group market would ensue.
Why would that happen?
Say the Congressional Budget Office (CBO) were proved correct in its forecast that 14 million Americans would be dropped from health insurance — either Medicaid or coverage they purchased through the public exchanges — in the first year after the law took effect.
The people losing coverage would generally be the financially poorest and least-healthy people in the market. Most of them would have no choice but to seek free medical care at hospital emergency rooms. And in most jurisdictions hospitals are required to provide care for such patients, even if the patients have no insurance or can’t afford to pay for the care.
“The hospital has to find a way to cover its costs for that care,” says Tracy Watts, U.S. healthcare reform leader for Mercer. “So what will happen? They will pass it along to those who can pay.”
State Medicaid programs would take a huge hit under the AHCA (which some are dubbing “TrumpCare” or “RyanCare,” for House speaker Paul Ryan), with decreased funding of $880 billion over 10 years. And the CBO projects that premiums in the individual market, which have already risen significantly in the past two years, would spike even more drastically with the AHCA in effect, leading millions of people to forego insurance coverage.
“The combination of those two factors suggests that we will see cost shifting to private payers,” says Watts.
And employers sense the potential for trouble. When Watts spoke recently at a Society for Human Resources conference, she asked attendees what their concerns would be if health-care reform were to occur this year. “Overwhelmingly, the top concern was that a rise in the number of uninsured would lead to cost shifting by providers to employer-sponsored plans,” she says.
Julie Stone, a national health-care practice leader for Willis Towers Watson, concurs with the dire forecast.
“There is a large risk of instability in the insurance marketplace,” she says. “If insurance for the 20 million people who got coverage through the Medicaid expansion and the public marketplaces goes away, the uncompensated care burden for health systems will put them in a very precarious position. I do think we will very likely see cost shifting to the commercial sector.”
Stone laments the potential harm to employer-sponsored health benefits, which she calls “the one part of our health system that’s really not broken.” One thing companies can do, she suggests, is support efforts by the American Benefits Council and other advocacy groups to exert influence on lawmakers.
Will such efforts resonate with Congress and the Trump administration? After all, notes Watts, U.S. employers provide 177 million people — more than 60% of the population — with health care. And employers spend more on health care than the federal government does on Medicare, she adds.
More Cost, Less Value?
An onerous potential long-term scenario, should the AHCA become law, is disruption of the progress that’s been made toward creating a system of value-based care — where medical providers’ reimbursements are determined by patient outcomes and provider cost controls — and away from fee-for-service pricing. “We’ve only made a few steps in that direction, but it could have a significant impact” on the quality and cost of care, Watts says.
In a March 9 article in The Hill co-written by Watts and Terry Stone of Mercer’s sister company Oliver Wyman, the authors note that “a system-wide shift to value requires significant cross-industry collaboration, and consensus on what constitutes value and how to measure it.”
But health-care providers suffering skyrocketing unreimbursed costs may be less willing to go along with that movement and instead inclined to cling to the lucrative fee-for-service model, which promotes increased utilization of diagnostics and other costly services.
“What drives health-care costs are the cost of services times the utilization of services,” says Watts. “Cost shifting fails to address the underlying causes of cost growth.”
If employers’ costs for providing health benefits were to rise high enough, might they actually consider dropping the programs?
Actually, employers appear more committed to offering benefits now than they have at any time since the Affordable Care Act’s passage in 2010.
Willis Towers Watson annually surveys companies with at least 1,000 employees on the likelihood that they will continue to offer health benefits in the future. In 2008, just before the financial crisis hit, 73% of survey participants said they were “very confident” that they still would be doing so 10 years later. In 2010, the year the ACA took effect, 57% of employers said so. And from 2012 to 2014, with companies expressing frustration over ACA-related costs, the figure never exceeded 25%.
Since then confidence that benefits will continue has come back. In the consulting firm’s 2017 survey, 60% of participants expected to be offering health benefits in 10 years.
For the shorter term, the confidence level is much higher, with 92% of companies saying they were very confident they’d be offering health benefits in five years. “The mindset in the employer community is that health benefits are a core part of their value proposition for employees,” says Stone.
Still, the AHCA may affect companies in ways they’re not currently considering. For example, medical providers with high indigent-care costs may have to do more to keep their heads above water than shift those costs to private payers.
When the volume of hospitals’ unreimbursed costs reaches a certain level, they also slash their internal costs, according to a March 14 LinkedIn article by Michelle Chafee, a longtime health-care professional and CEO of Alska, developer of a technology solution for optimizing care delivery.
The cuts include layoffs of staff, including staff that provide care directly to patients, Chaffee writes.
“It doesn’t matter if you have a ‘Cadillac health plan’ or are the wealthiest person in America or even a doctor yourself. When … staff is cut and patient workloads get higher, care suffers and mistakes, sometimes deadly ones, increase. There is no discrimination within the walls of the hospital. The impact of staff shortages and budget cuts affects everyone.”