| Today's Managing Health Care Costs Number is 17% |
Kaiser Family Foundation and the Health Education Research Trust release a comprehensive review of employer sponsored health insurance each September - and that report dropped this week. One of the takeaways is that employer sponsored health insurance is increasing in cost at a rate dramatically less than the Affordable Care Act exchanges. This was picked up by Kaiser Health News (Phil Galewitz briefly quotes me) and by the New York Times. The graphic above shows a 17% gap between the rate of premium increase for employer sponsored plans compared to individually-purchased exchange plans.
Employers are making some important efforts to improve the cost effectiveness of care. This includes narrow high performance networks, earlier intervention with metabolic syndrome, and centers of excellence. But there are other big reasons why the costs of employer sponsored insurance, especially large self-insured companies, are more stable than the costs of the exchanges.
- Risk selection
Employees tend to be healthier than those purchasing insurance on the exchanges. They often leave their employment if they get exceptionally sick. But more importantly, an employer offers coverage to all of her employees - and the 10% with the highest risk all take up the offer, but they are "diluted" by the fact that 70 or so percent of all employees accept insurance- so members in the top decile of risk only represent 1/7 of the total population. Insurance takeup at smaller employers is lower - often closer to 30% - so those in the top decile of risk could represent 1/3 of the insured population. It's even worse in the individual market - where the top decile of risk could represent as much as a majority of all insured. Individual markets are especially susceptible to "death spirals," where the increasing cost of insurance chases away all potential low-risk subscribers.
The individual mandate should help keep younger and healthier people in the risk pool - but the Trump Administration has signaled that it is loath to enforce this.
The Trump Administration also cut 90% of the advertising budget and has forced firing of most of the health care navigators across the states by not approving budgets. Sick people are likely to find their way to the exchanges - while we are not making it easy for those without a large illness burden to do the same
- Government Interference
The Congressional Budget Office notes that rate increases of 15% on the ACA exchange markets could be related to the uncertainty about whether the Cost Sharing Reduction (CSR) payments will continue through the next calendar year. The Trump Administration has offered mixed messages on this - and insurers have to build rates as if they will not get these payments at some point in the future.
CMS has also used ACA funds to produce material discouraging ACA enrollment - which can lead to market confusion and worsening risk profile of those who do enroll.
We don't adequately appreciate that the Affordable Care Act has actually helped lower the cost of employer sponsored health insurance, too. The ACA included decreases in the rate of increase of Medicare fee schedules. Most commercial health plans pay fee for service for care delivered - and these fee schedules are almost all based on Medicare fee schedules. As the Medicare fee schedule stays closer to flat - it's easier to avoid raising the commercial fee schedules as well.
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