The Cost of Health Insurance Mandates
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A few months ago, the MA Division of Health Care Finance and Policy (DHCFP) released a study that showed that mandated health insurance benefits cost insurance purchasers about $1.3 billion - or 12% of their premiums - each year. Thanks to DHCFP for publishing the study. This issue is always the source of heated debate, and it’s nice to have a piece included on it that tries to inform the discussion.
Business people read the study and said, “Ah ha! Mandates cost a lot of money!” That would be correct. Health care advocates read the study and said, “Ah ha! Mandates don’t cost that much money!” That’s correct too - sort of. As usual, where you stand depends on where you sit, how much twelve percent is worth to you for what you’re getting, and who pays the bill.
It’s also hard to tell if this kind of reporting influences the policy debate in MA or not. People here are screaming about the rising cost of health care, and the legislature responded by focusing on and enacting a cost containment bill. But at the same time, the legislature considered many new mandates during its last legislative session, including significantly expanding the mental health benefit mandate for kids and adults. Many in the legislature would argue - correctly - that the final bills that passed didn’t expand the benefit as broadly as many advocates would have liked, thereby significantly limiting the increase in costs associated with the new coverage requirements. Again, I think this is mostly a philosophical argument about how much is enough - and one that on the margin is hard to calculate.
But starting in January of 2009, the price for mandated coverage goes from 12% of premiums for some people to more like 30% - when the state’s mandatory drug coverage requirement kicks in. That’s right. Starting in January, Massachusetts becomes the only state in the United States that requires every privately insured person to have comprehensive drug coverage, or pay a steep penalty as part of the state’s health reform law. The cost of this requirement will add between 15-20% to the cost of an existing non-drug coverage plan.
This mandate will affect hundreds of thousands of MA residents who currently have the health insurance coverage they want. One fellow being interviewed on Channel 5 News the other night said demanding that he buy drug coverage was like telling someone who lived on the top of a mountain that he had to have flood insurance. It’s ironic that the promise of more affordable options for individuals, which was offered as a trade off for requiring that they buy coverage in the first place, is being replaced by more mandated coverage and fewer plan options as the Commonwealth implements health care reform.
The Commonwealth Connector - which oversees the implementation of health care reform in Massachusetts - had a hearing the other day to discuss their proposed requirement. Many, many businesses and other individuals showed up to testify against this new mandate, making many of the same arguments I’m making here. It doesn’t appear that the Connector will reverse its decision and this is too bad. Mandating drug coverage is the latest in a string of public policy decisions that is making health care insurance more expensive than it was BEFORE the reform plan passed - exactly the opposite of what was promised when the bill was enacted.
I recall seeing that 80% of mandate was home health, fertility and maternity, mental health, and child prevention (some required, federal), but a lot of common sense in that list too. I guess you know where I fall out. Things can go overboard obviously, and those on the hard right refer to list above like it is CAM in the extreme. Dont get it.
I have heard Uwe Reinhardt speak eloquently on this subject and cost of mandates usually fractional re: relation to state in which it is offered–in your case Mass–obviously costly. Right answer is in the middle.
In terms of drug benefit, seems like your state will answer its own question soon enough–kaplunk. Just curious, who pushed hard for it, ie, who were forces behind getting legislators to advance? Hope not pharma.
Bradley - I do not believe pharma has been actively pushing the addition of an Rx benefit to the basic benefit package. It’s mostly been the consumer advocacy community. That said, I don’t think pharma views it as a bad thing(!). Personally, I think the prescriptive approach that defines every benefit - and the terms of every benefit - is a mistake. It makes perfectly good health coverage subject to compliance and review issues at every turn. I’d be much happier with a “basic” plan design - and I mean basic - and then some actuarial financial standard that each plan design had to meet. The level of effort test would then be in place, and employers and individuals would be free to choose what worked for them within that framework.
For example, several members of the Connector Board don’t like HSA’s, and would like MA to outlaw them. This would be a mistake. I know a number of perfectly rationale solo practicioners who make a good living, don’t want first dollar coverage, and view an HSA plan as right for them. Why should we deny them access to this kind of plan design?
Hi Charlie,
I believe Big Pharma was indeed part of the campaign for the drug mandate. Certainly they produced the political polling data that showed that people believe everyone should have drug coverage, and lobbyist filings showed activity on this issue. Like other providers, Big Pharma wants more and more money to flow their way, no matter the source. And new discount initiatives by Walmart and others for $4 a month generics is not in their interest. (That $4 is less than a co-payment!!) More cash payments for low cost generics mean more pressure by consumers on the FDA and the Congress to push more of their high profit name brands into the generic marketplace more rapidly. Costly insurance for something you aren’t going to use is just dumb public policy. But in Big Pharma’s mind that mandate moves the momentum back in their direction. Just think about how many $4 trips to Walmart you could make before equalling the cost of that insurance. Hundreds…
Jon Hurst
Jon — Thanks for the input. And while we’re in the Walmart attic, I think it’s worth pointing out that generic drugs currently serve about 80% of known disease states. The notion that the generic world isn’t big enough to support relatively healthy people who don’t want to purchase drug coverage is simply not true.
Charlie - The Connector is becoming another unaccountable government agency that is now driving up healthcare costs at an unsustainable rate. First, they hand out free or heavily subsidized health insurance to anyone with a pulse. Second, they create costly mandates such as the drug coverage you talk about. Third, they want to eliminate HSAs which are not perfect but do provide another alternative for providing coverage to people. Let the market decide if people want these or not as a coverage option. Fourth, the Connector itself is costing us something like thirty million dollars a year to operate. To help pay for all of this the state has already taxed hospitals, businesses and insurers for millions of dollars that will be passed on to the residents of Massachusetts during tough economic times. I think the Connector is showing itself as an agency that works in a type of fantasy land where everyone should have full healthcare coverage, regardless of the cost. The only thing which will bring this mess back to reality is if the federal government realizes what is going on here and significantly reduces the federal waiver funding accordingly. Seriously, why should hundreds of millions of federal tax dollars go to Massachusetts to fund an “experiment” that is actually driving UP healthcare costs while, at the same time, also continuing with politically connected payments to Boston Medical Center and Cambridge Health? The waiver was to fund experiments to help extend coverage while controlling costs and that is clearly not what is happening here in Massachusetts.
Charlie
Hope you dont mind some discourse here. Can you clarify:
“…actuarial financial standard that each plan design had to meet.”
I really do have concerns with bare bones plans. While there are upsides to “keeping premiums within reach,” would you not concede there is some middle ground that should ensure policy holders they will not get skinned if something should affect their health. I am not talking back pain obviously.
Is their not a risk for underinsurance for the common Joe who may lack the savvy to buy the “right plan,” read: cheap (I do believe this applies to a lot of folks).
Anyway, you represent a difft viewpoint and am interested in your take. BTW, caught you on NEJM forum clip. Good view.
Good blog - this info/message also needs to get out to people who aren’t reading your blog. Re: drug benefit and possible pharma influence - doesn’t the cost containment bill include restrictions on how much “lobbying” the pharma industry can do with providers? Is this a bit of “do as we say, not as we do”? In addition to promising affordable coverage, I believe the reform bill also promised choice. Ironic? Unfortunate? Shameful?
Bradley - an actuarial standard would simply define the financial value of the baseline plan. In other words, if the plan didn’t offer $XX worth of coverage, using actuarial calculations to determine its worth, it wouldn’t meet the minimum standard. Set that financial level high enough, and you can eliminate a lot of the stuff that purports to be coverage, but isn’t. Most of the time, I have no trouble with requiring much of what passes for mandated benefits - but I find the scope creep on this stuff astonishing.
First of all, we have an individual mandate in MA. People HAVE to buy. Many of the people who don’t buy are young, healthy, and disinterested. They haven’t been sick, and won’t be. Should they be required to buy - with their own money - a plan that costs $7-10,000 a year? I say no. That’s not what they want, it’s not what they need, and it’s not what they should be required to purchase. They are walking advertisements for catastrophic coverage - and they should be able to buy it.
Secondly, we need to decide if this is health insurance - that is, something we should buy to keep us healthy - financially and physically - or pre-paid health care that should cover and pay for every and any thing people can dream up that should be covered. I think it’s the former, but many people think it’s the latter. Many employer and union sponsored plans in Massachusetts that are GOOD COVERAGE by any definition, will fail to meet all the bells and whistles that are currently being contemplated by the Connector Authority Board. This simply doesn’t pass the reasonable person test. If GE or Fidelity can’t get their plan designs approved by the Connector, something’s wrong.
Christine - you mean everyone’s NOT reading this? Bummer. And yes, there was legislation passed that would require physicians and pharma to report on what “gifts” are exchanged between the two (meals, travel, conferences, etc.). It will be interesting to see how this works.
Sean - The federal waiver remains the biggest question mark currently before the Commonwealth, but it’s not the only one. As you point out, enrollment in subsidized plans, the ongoing support for the Uncompensated Care Pool, and tax revenues generally all create some serious uncertainty about the math on all this is going to work throughout the course of the next fiscal year. This could be a much bigger deal than the whole MCC conversation.
I just can’t help adding a few comments to this discussion:
The DHCFP mandated benefit report found that the net cost impact of the mandates is 3-4% because of federal law and the decisions that employers and health plans would continue to make to include certain benefits in the absence of state mandates. As another person noted, five benefits account for 80% of the total cost of the mandates: maternity, home health, mental health, infertility and preventive care for kids. Given the nature of this discussion, I would guess infertility might be on your collective hit list. But which of the other four would you eliminate? (Given the role that men play in the events leading up to maternity, I’d tread cautiously here.)
As someone who voted to include drug coverage in MCC, here are my reasons: because drugs are an essential component of effective treatment for so many acute and chronic conditions, and many of them are extremely expensive; because insurance doesn’t work if we let people pick and choose which benefits they think they will need (hey, I’d could have much cheaper insurance if I could exclude coverage for prostate surgery, Viagra, services that aren’t used by women who’ve gone through menopause, and all the care that I’m at low risk for because I don’t’ smoke and have been blessed with no genetic conditions that have shown up yet); because if we exclude drugs costs get passed along to government programs like the Health Safety Net; and because if we’re going to require people to buy health insurance we should make sure that it’s creditable (and not just minimum like the health plan association has been arguing).
Suggesting that the Connector board voted to include drugs in MCC because of big pharma is outrageous. As Charlie knows, I’ve long been an advocate of regulating price prices (along with many other services in health care) because I’m convinced by the experience of other countries that this is an essential component of any health system that wants to control costs. If HDHPs and stripped down coverage are the best we can do in the next few years to make coverage more affordable, I’m convinced that regulation is going to be seriously on the table as a cost control measure. I can’t wait.
Hi Nancy - Welcome! I didn’t mean to imply the Connector Board was moved by pharma - and hope I didn’t. I don’t think you (and they) were, and said so earlier.
I appreciate your comments on mandates generally - and as I said earlier in this post - I’m not all that worked up about the existing stable of mandates. I wish we had fewer of them, and I think we’re overly prescriptive on the ones we have, but hey - they are what they are, and how much they cost - and what we get for them - is certainly a debateable issue.
I do worry, however, that the Connector Aurthority, in its desire to control the overall market through Minimum Creditable Coverage standards, is going to prescribe a set of rules that good companies that offer good benefits will not be able to comply with. You should worry about that, too. It will backfire.
We simply part company on the drug mandate. You think everyone should have drug coverage, whether they want it or not, and I disagree. To tell someone they have to buy something and then require them to buy a fully loaded plan design seems unfair. If everyone who’s currently uninsured and buying on their own bought HSA/HDHP coverage, would you consider that to be a failure? Does everyone have to spend more than they want to to satisfy your concerns about risk selection and plan design? Many people who buy these plans like them - and believe for them they represent the right trade-off between price and value. And everyone is being rated as part of a group now, even the individual buyers, so the selection issues simply aren’t the problem they once were.
In addition, generic drugs now cover a wide range of disease states - more and more with every passing month. Some drugs are expensive. Most are not. You don’t need a full blown drug benefit to access most of them.
And I hope you know when I talk about an actuarial equivalent, I’m presuming we can squeeze out the non-coverage plans that exist in other states. That’s not what I’m talking about.
Rate regulation has been tried before in this state - and it failed to hold down costs - miserably. I believe it would fail again - for many of the same reasons. No one’s made this case better than BIDMC CEO Paul Levy on his blog.
I’m as frustrated as you are about the cost of health care, but I don’t think the answer is requiring everyone to “buy up” on their mandated coverage - which raises prices overall - and then trying to regulate costs down by applying price caps on the delivery system, which won’t work.
Charlie
While the literature is still maturing, I feel HSA’s and the like will be good for some folks, but not all (most in fact). For reasons you know, and arguments you have heard–years until we get adequate transparency and quality measurement, etc, etc, and will make this product tenuous. In fact, read recent article in paper from MN, docs are dropping them by the droves–patients dont understand or realize $$ implications. Yes, this will shake out with time, but again, this line is not for everyone, particulary the uninformed or ill.
Having said that, you are absolutely against an all in approach with modified community rating? How would you handle “non-mandating”–guaranteed renewal with Mass creating high risk pool?
Thanks Again
Brad
Regulation as a cost control measure? Yikes. It is amazing how short people’s memory can be. Instead of driving up costs with mandates and dreaming of price regulation, the Connector and the state should be more concerned with means testing the people lining up for free health insurance and stopping the politically connected payments to Boston Medical Center and Cambridge health. As I have stated before, how many people receiving free or heavily subsidized health insurance manage to find enough money for cable TV, a cell phone or a daily pack of cigarettes? Shouldn’t they be paying more for their health insurance before spending a dime on other, less important things? I think we are going to see the level of taxpayer frustration in Massachusetts when Ballot Question # 1 is voted on in November and if it passes things like this Massachusetts healthcare “experiment” gone bad will have played a large role.
Is there now, or has there ever been, a push to restructure the patent designs awarded to pharmaceutical companies when they bring a new drug to market? Wouldn’t pushing generic availability alleviate some of the cost issues facing everyone in this equation – save of course the pharmaceutical giants? Perhaps implement a drop down to 5 years for new products and 3 years for new chemicals, down from 7 and 5, respectively?
I understand that pharmaceutical industries need to recoup their investment into research, development and marketing, however some of these expenditures could be eliminated as well, if marketing bans were installed to limit advertising to the direct to physician/practitioner print arena for the first 50% of a patent’s exclusivity.
Both of these measures could push the industry towards a more generic-centered model. Already seen is the increase in trend of brand patent holders being first to market with generic equivalents, so why not try to up the ante?
I think that no matter on which side of the ‘mandate debate’ you find yourself, it can be agreed that more cost effective medications would go a long way towards relieving everyone’s headache.
Bradley - not assuming HSA’s are good for all - only that they can be good for some - and that shouldn’t disqualify them from the portfolio of options. If I understand your last question correctly, we already have a version of modified community rating in our 1-50 market in MA. For individuals and small groups, it’s one risk pool per carrier that’s benefit and age adjusted, within an upper and lower bound. That’s pretty much like modified community rating, yes? It’s also guaranteed renewal in MA.
NH has no individual mandate - and hence, no guaranteed issue. Individual coverage is medically underwritten - with a high risk pool. It works okay, but not great.
As I’ve said before, I understand the rationale for the individual mandate - we need to get everyone in to balance the risk pool. That’s not my concern. My concern has more to do with once you’ve required people to buy, what is the state’s obligation to make sure they can find something to buy that they can afford. Does this address your question?
Yes it does. That fine line between affordability and adequacy of plan is a fine one. I guess the rubber hits the road in terms of what should folks pony up, and as you said–basic actuarial package. Buyer beware however, and HSAs may not be the right answer. I like the quote:
‘…you cant rely on caveat emptor to police the health care market, because the emptor does not know how to caveat”
Thanks
Brad
Hi Charlie,
I knew you weren’t suggesting that the Connector included drugs in MCC because of big pharma and I didn’t mean to imply that you were–just that some others in this stream did. We do disagree about the policy here but there are good arguments on both sides.
I am curious about an issue that came up at the Connector meeting, which was whether some people might be required to buy a HDHP if they have one available through their employer and that’s the only option that’s affordable to them under the state’s affordability schedule. On average, do you know about how much less expensive an HDHP is in the accounts that have one from HPHC alongside a more traditional health insurance product?
Best, Nancy
Nancy, don’t blame Charlie for bringing big pharma into this debate. It was me. Charlie is an insurance company President. I am a small business lobbyist. As a lobbyist I can say it takes one to know one. I have followed very closely where advocates have been in this debate since the beginning. Make no mistake about it, the advocates of big health care spending come from two camps: the providers (or the receivers of our health care dollars) and the advocates of Cadillac plans for the taxpayer subsidized plans. The providers want more, more, more money coming their way. The advocates want the taxpayer subsidized plans to not stick out like a sore thumb and look more generous than what individuals, small businesses and others have to pay–therefore they must also be forced to buy the Cadillac plans. Those facts are the basic political and high cost realities we are all facing.
Health care reform is a very complicated issue. Yet, the politics behind greater spending is actually very simple.
Nancy - Would this be with or without a drug benefit(!!)? Kidding. While the specifics in each case vary a bit, the short story is - a traditional group HMO plan with a $20 co-pay and a three tier pharmacy benefit would cost an individual in MA about $5,500 a year. A $1,000 Best Buy deductible HMO would cost about 20% less - or around $4,400 a year. A $1,500 deductible HSA/PPO plan with drug coverage would be about 30% cheaper, or around $3,800 a year.
Closer to home, HPHC as an employer offers four plan designs to our employees - from a very rich POS plan to a standard HSA plan. We use a fixed employer contribution that’s tied to 80% of the HMO plan, which is somewhere in the middle. Families that choose the Best Buy HMO save over $2,000 on their premium contribution, relative to the traditional HMO plan. Does this answer your question?
Jon - I still think Nancy’s perspective on the Connector decision is probably the right one. I can’t see her - or most of the members of the Connector Board - being swayed by the pharma crowd. The Board is made up of a bunch of pretty independent people.
That said, your larger point about so-called ‘public choice economics” is undeniable. Small groups of people who benefit from more government spending (or regulating) put a lot more effort into getting that done than the larger group of people who pay a little bit more to finance it do to stop it from happening. Many economists have won lots of awards publishing studies on this particular reality in human behavior and public life. Big groups who pay a little bit more never make the same investment in the the public process that small groups who get a lot do.
Agreed. And I fear that those small groups haven’t learned when to stop asking for more. We have had a big success story so far on health care reform, at least on coverage–not yet cost. And the more those groups get in the way of lower costs, more choices and more flexibility, the more they put the law in jeopardy. Unless we stop counterproductive and costly changes in MCC and “fair share”, I fear we will ultimately fail in this important reform. That failure will be due to economic, political, or legal reasons–directly triggered because certain groups didn’t learn to stop asking for more.
Thanks for all you are doing Charlie to stand up for your customers and all consumers.
Charlie – Your estimate of 20%-30% savings available to people who buy the HDHP plans vs. the comprehensive plans is consistent with what I’ve heard from UnitedHealth and others. As you probably know, critics of HDHP’s argue that members are as likely to avoid necessary care (like mammograms, etc.) as unnecessary care and will wind up costing us more in the future. I, however, believe most people are capable of acting sensibly and in their own best interest when they have adequate information.
I wonder if you have any data regarding differences in the demographic profile or socioeconomic status of your own employees or other customers who choose your HDHP plans vs. the plans with lower deductibles. If there are differences in the number of hospital inpatient days per thousand members, is there a way to adjust the data for age and socioeconomic status to determine whether or not people are accessing healthcare more wisely? I think the bottom line is that HDHP’s could well be a sensible health insurance choice that saves the member 20%-30% on the premium, though it is probably most appropriate for those who fall into the upper half of the income distribution. They, presumably, can more easily afford to cover the deductible and are less likely to avoid necessary care in order to save money in the short term. More robust price and quality transparency tools would also be helpful.
Barry, I agree with your assessment that HDHPs are less apppropriate for people with more moderate incomes and fewer assets. Here is a link to an interesting article on this topic from Health Affairs from a few months ago:http://content.healthaffairs.org/cgi/content/abstract/hlthaff.27.3.w214. Authors conclude that even if HDHPs are less expensive they won’t help much with the problem of the uninsured because most uninsured people would have trouble affording the cost-sharing in an HDHP if they got really sick.
Here’s a study by Towers Perrin that found lower levels of satisfaction among people who have HDHPs: http://www.towersperrin.com/tp/getwebcachedoc?webc=HRS/USA/2007/200712/AcctBasedHPExecSum_FINAL.pdf
HDHPs may be an appropriate option for some people but they aren’t going to be a great solution to much of what ails the health care system. Just another sign of our national infaturation with risk shifting to individuals… If you’re looking for a great book on this phenomenon, read Jacob Hacker’s The Great Risk Shift from a few years ago.
Barry and Nancy - For what it’s worth, we’ve tracked the use of preventive care services - like mammograms - in our Best Buy HMO population. This is our deductible HMO product suite. The use of preventive services by our Best Buy members mirrors the use of preventive services by our traditional HMO members. But we structured our Best Buy HMO plans to keep many of the preventive services inside the co-pay tent - and not have them apply to the deductible. I’m sure that helped. We also called many of our Best Buy HMO members when they enrolled to welcome them to the plan and explain their coverage. We think this helped, too.
As far as income distribution is concerned, I can only speak for our own employee population, and it’s pretty evenly distributed across salaried and hourly staff, and individuals and families. The primary HDHP take-up is in the Best Buy HMO, not the HSA, (HDHPs with traditional plan designs are much more flexible than HSAs), and we offer partial support for the deductible exposure in the HMO plan using an HRA. Again, the HDHP with an HRA is a more flexible option for employers than the HSA, a I wish more employers understood this opportunity.
And Nancy, I must say - I’ve read six or seven studies on HDHPs and have found them all to be “framed” in a way that meets the pre-conceived opinions of the authors. I would argue the jury on this one is still out, and that the role of the employer, the attitude of the subscriber, and the context in which the choices are made has a lot to do with subscriber satisfaction.
I also believe that if the choice for someone - especially someone who’s sick - is no coverage at all or a HDHP, I think the HDHP is a far better choice. I’m surprised to see you imply otherwise. HDHPs can be structured in a variety of ways - but under almost any set of circumstances, they’re better financial protection for someone who’s using the system than nothing at all.
Finally, I don’t think anyone is implying here that HDHPs are “a great solution to much of what ails the health care system.” I’ve written over 100 posts in the past fifteen months or so, and have written only a couple on HDHPs. That said, I continue to believe they can and do work in certain circumstances, and belong as part of the coverage mix.
I am not suggesting that you think HDHPs are the solution for much of what ails the health system, Charlie. And I don\\\’t mind HDHPs being an option for people, as long as they are well structured and people understand what they are buying. But I\\\’d hate to see the country move in the direction of embracing the \\