In Part 1, we discussed how the ACA is driving up health plan costs for employers. Here in Part 2, we talk about health insurance companies and what they’re doing to curb costs.
Why insurer costs are increasing
On the insurer side, health plans face similar pressure to reduce costs as well as premiums so that they can stay competitive and provide value to their customers. Premiums have been rising at alarming rates here in the U.S., faster than income, and with the advent of the ACA, they are predicted to be even steeper. The increases are a response to the patient protections the law provides, such as “guaranteed issue,” which requires insurers to accept anyone who applies regardless of their health status and to cover people with pre-existing conditions. Insurers are also no longer allowed to charge higher rates based on health status, age, or gender. Some experts feel that all of this will shift premium costs away from the old and the sick toward the young and the healthy.
Finally, the government mandates that every health insurance policy must cover items and services within a minimum of these ten categories:
• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Pediatric services, including oral and vision care
• Prescription drugs
• Laboratory services
• Preventive and wellness services and chronic disease management
• Rehabilitative and habilitative services and devices
• Mental health and substance use disorder services
Taken another way, insurance companies now find themselves operating outside of the free-market system they have gotten used to. Since every policy must include the same core benefits, insurers are no longer able to customize their policies as they did prior to ACA. The only variables are the co-insurance and the deductible. The good news, at least for employers, is that ACA-related premium rate increases seem to be affecting mostly individuals who buy their own health coverage.
What insurers are doing to control their costs
Insurers understand all too well that keeping costs under control means not managing premiums but managing the underlying costs of health care. As the provisions and requirements of the ACA become daily reality for all stakeholders within the medical system, health plans are looking to improve efficiencies and protect against cost increases everywhere they can. This includes:
• Optimizing contracts with hospitals and other medical service providers, including introducing provisions that limit annual increases in billable charges
• Continuing to work with drug manufacturers to secure rebates for pharmaceuticals, which, while not benefitting patients directly, can help indirectly to reduce premiums by reducing a health plan’s net benefit expense
• Closely tracking drug development and the target patient populations
• Sharing patient-level reporting and dashboards with health care providers to identify strategies to cut costs and areas for improvement in quality of care
• Offering more virtual care options
• Partnering with technology companies to update their networks, hardware and software systems
• Investing in cyber protection systems and services to protect against data breaches
As PricewaterhouseCoopers’ own Health Research Institute observes, it is more expensive in the long run if a person opts out of treatment due to high cost and then runs the risk of becoming chronically ill and requiring much more care. For this reason, employers and insurers alike should promote health benefits that avoid wasteful spending on the one hand, and on the other enable people who need care to receive it in a timely manner and to lower the barriers to preventive and wellness programs.
More importantly, however, the ACA has broken ground for major shifts in the healthcare sector. Those companies who wish to stay ahead and remain relevant need to rethink their strategies. Some insurers have already taken the initiative, partnering with businesses, providers and brokers to promote competition and maintain the ability of consumers to choose. Other strategies include tightly restricting provider networks to keep costs down and to better control reimbursement rates without impacting quality of care.
As with any market going through disruption, there, too, lies opportunity. In its recent report “Healthcare reform,” Pricewaterhouse Coopers discusses what it calls “the New Health Economy,” outlining five major trends:
1. Risk shift for all healthcare stakeholders.
The ACA buttresses new payment models that reward outcomes and penalize poor performance such as high rates of readmission and hospital-acquired conditions. This shifts the risk from traditional insurers to providers, pharmaceutical companies and even consumers.
2. Primary care goes back to basics.
Experimentation in new payment models and expansion of insurance coverage are making primary care the fulcrum of the ACA.
3. Innovators in the New Health Economy.
From data analytics to mobile technology, new businesses as well as forward-thinking established players are responding to the demand for lower-cost, consumer-oriented care options, inspiring innovation and redefining value for consumers.
4. Health insurance from wholesale to retail.
The ACA’s public exchanges means that insurers will be doing more business directly with consumers and that private exchanges are likely to attract increased interest. Translation: insurers need to overhaul their business models.
5. States as the stage of reform.
State governments are emerging as key players in the ACA-reconfigured healthcare landscape, and hold considerable power to decide how to implement the legislation.
Whether we like it or not, the ACA is here to stay. How well employers and insurance companies manage this brave new world of health care will depend on their willingness to embrace and adapt to a volatile environment of new regulatory provisions and numerous ongoing economic realities, all in turn affected by the personal lifestyle and healthcare choices that employees and other consumers make on a daily basis. Those organizations with the vision and foresight to turn uncertainty into opportunity, quantity into quality, and competition into collaboration, will emerge as the leaders of a new healthcare landscape only now being shaped.
Alan Wang is the President of UBF and serves as the lead consultant. He has delivered the UBF solution set throughout the world and is highly regarded for his areas of expertise. You can follow him on Twitter @UBFconsulting.