NY Times Reports on Health Reform: Medicare Costs Projected to be Lower

In a follow on to this past Tuesday’s blog entitled ‘Health Reform: Why Medicare Matters to the Employee Benefits Professional’, there coincidentally was an article in yesterday’s New York Times by Margot Sanger-Katz and Kevin Quealy entitled, “Medicare: Not Such a Budget-Buster Anymore.”

The article states that the Congressional Budget Office (CBO) now projects Medicare costs to be $95 billion less in 2019 than originally thought.  To put into perspective, $95 billion is more than the US Government spends on ‘unemployment insurance, welfare and Amtrak—combined.’

Medicare spending in 2019 is now projected to be $11,300 per enrollee per year, instead of the originally forecasted $12,700 per enrollee per year.

How is that possible that Medicare is going to cost so much less than originally thought? According to the article, “The Affordable Care Act, in particular, made significant reductions to Medicare’s spending on hospitals and private Medicare plans, to help subsidize insurance coverage for low- and middle-income Americans.”

As I wrote about in Tuesday’s blog, Obamacare pays for insurance subsidies by reducing Medicare costs.

Well, one person’s ‘cost reduction’ is another person’s ‘revenue reduction’—i.e. Doctors and Hospitals will be paid $95 billion less by Medicare in 2019.  What do you think doctors’ and hospitals’ reaction will be to that lower revenue?  Acceptance?  Complacency?  No, rather, they are going to get the revenue from somewhere else.  That somewhere else is those privately insured by their employers.  Therefore, employers and employee out-of-pocket costs are going to rise to make up for decreased Medicare costs.  All of this activity does not ‘shrink the healthcare spending pie,’ it just redistributes it.

This the major point of the Tuesday BLOGwhich has only been further confirmed by the New York Times article from yesterday.

What does this mean for employee benefits professionals and healthcare consumers:

  • There is mounting evidence that healthcare costs will rise for those not in Medicare.
  • Your own personal healthcare spending ‘pie’ or your company’s healthcare spending ‘pie’ will automatically rise unless you put strategies in place to control healthcare costs—population health management, consumerism, price-transparency, wellness, etc.

Ironically, all this change in cost and price does not necessarily have to translate into lower quality care.  Click on the link below to learn more about the Quality-Cost Disconnect in Healthcare.


Preventive Care Covered at 100 Percent, But What Is Considered Preventive?

With Health Reform, many people are now aware that preventive care is covered at 100 percent–meaning there is no out-of-pocket cost to the patient.  But what care is consideredpreventive?  Not all cancer screening is preventive (e.g. lung cancer screening is usually not considered preventive).  Not all routine blood tests are preventive (e.g. thyroid tests are usually not preventive).  Not all ‘screening’ doctors’ office visits are preventive (e.g. total body skin exams by dermatologists are usually not considered preventive).  So what is preventive and who decides?

A screening, test, procedure or doctors’ office visit is considered preventive and covered at 100 percent if: (1) the test, procedure or visit is widely accepted by the medical community as effective in preventing disease, (2) the patient fits within the gender, age or other demographic parameters of the preventive care recommendation and (3) the bill is coded by doctor’s office and processed by the insurance company correctly.  It is important to note that all three need to happen in order to fall under the preventive care label.

1. The test, procedure or visit is widely accepted by the medical community as effective in preventing disease:

A division of the Federal Government—within the Department of Health and Human Services—called the U.S. Preventive Services Task Force (USPSTF) usually sets the standard of what is widely accepted by the medical community.  According to the USPSTF’s website:

The USPSTF is an independent panel of non-Federal experts in prevention and evidence-based medicine and is composed of primary care providers (such as internists, pediatricians, family physicians, gynecologists/obstetricians, nurses, and health behavior specialists).


The USPSTF conducts scientific evidence reviews of a broad range of clinical preventive health care services (such as screening, counseling, and preventive medications) and develops recommendations for primary care clinicians and health systems. These recommendations are published in the form of “Recommendation Statements.”

Recommendations for Adults

Recommendations for Children

Many of the recommendations from the USPSTF are to NOT screen because there is not sufficient evidence that the screening helps or that the screening may actually be harmful (yes, screening can be harmful.)

The USPSTF also provide a list of recommendations that are considered strong (i.e. Grade A or B) and are typically covered at 100 percent as dictated by Health Reform.

2. The patient fits within the gender, age or other demographic parameters of the preventive care recommendation:

Not all screenings are appropriate for everyone… and it can get complicated.  Let’s take cholesterol screening for example.  Cholesterol is tested for by a simple blood test usually performed at the doctor’s office or lab.  For men, the recommendation is to screen at age 35 or older.  For women the recommendation is to screen at age 45 or older.  So a 40-year-old couple may go in for their annual physical and have their cholesterol checked. The end result? The husband will not have to pay for his test, but the wife will have to pay for hers.  Now the physician can screen for high cholesterol at an earlier age, but according to the USPSTF the patient must be at an “increased risk for coronary heart disease.” I would also add that the doctor must document that increased risk in the medical record, because it is likely that a copy of that record will need to be sent to the insurance company in order for the claim to be processed correctly.  You can’t just say you are at an increased risk, it has to be documented by the healthcare provider.

On top of all this, in my opinion, I would say that most physicians do not know all of the demographic parameters around preventive care.  Accordingly, your doctor may say “this is preventive,” but if according to the USPSTF standard it is not, it will likely not be covered at 100 percent… at least initially.  You and your doctor will likely have to appeal to the insurance company and justify the rationale for going outside of the USPSTF recommendations.

 3. The bill is coded by the doctor’s office and processed by the insurance company correctly:

Unfortunately, the billing and claims processing in healthcare is so complicated that errors frequently occur.  The insurance company has codes that must be met on the bill in order for it to be processed as preventive and covered at 100 percent.  The code that frequently needs to be used for a preventive doctor’s office visit is the ICD-9 diagnosis code of V70, which means ‘Routine General Medical Examination’ (aka Health Checkup).  The challenge is that if during the preventive doctor’s visit, the patient or the physician find a specific medical issue or complaint (which is the whole point of the visit right?  To find stuff), then the physician will likely also include an ICD-9 diagnosis code for that issue (e.g. Low Back Pain or Lumbago is 724.2) on the bill and the insurance company will not process the bill as ‘prevent’ but rather as a visit for a specific medical condition.  The patient is then expected to pay the copay or portion of their deductible.

All of this is rather confusing and time-consuming for all parties involved—the patients, doctor’s offices and insurance companies.  At Compass we help our members sort through this on a daily basis.  It is complicated and it is frequently a mess.

One helpful hint would be to print out the shortened list of preventive services from the link above and actually have the doctor check off which ones he or she is going to do and make sure that they follow the parameters of the USPSTF.  Another tip is to tell the physician you would prefer your visit to be considered ‘preventive’ and coded as such.

What do you think?  What have you done in the past to ensure that your preventive care is covered at 100 percent?

To view at 30-min webinar by me on how Cost and Quality do not necessarily correlate in healthcare click on the link below:

Health Reform: Why Medicare Matters to the Employee Benefits Professional

Employer-sponsored health plans were profoundly affected by Health Reform, both 1) directly (requirements to cover full time employees, minimum essential benefits, etc) and 2) indirectly–Health Reform reduces Medicare reimbursement to providers.

This second point is a BIG DEAL to employer-sponsored health plans and private insurance.  It may not seem directly obvious, but here is why: Medicare does not pay hospitals enough to cover the costs of taking care of the elderly, so as a result, hospitals charge privately insured patients more to cross-subsidize their Medicare losses.  To make things ‘worse,’ Health Reform reduces the amount that Medicare pays doctors and hospitals even more in the future.

Much of this blog post is based on a book written by Den Bishop entitled, ‘The Book on Healthcare Reform—The Economic Truth of Healthcare in America.’  Mr. Bishop is the President of Holmes Murphy & Associates—one of the insurance brokers/benefit consultants the Compass shares client with.

Here are some quotes from the book:

  1. “PPACA slashed Medicare’s unfunded liability by more than $45 trillion or 50%.”
  2. “The law [PPACA] does not specifically address how the $45 trillion of savings will materialize, but it did put a hard cap on the inflation rate for Medicare.”
  3. “The reason employer costs are so high is because private health insurance not only has to fund the cost for the healthcare it consumes, but it also has to pay for the shortfall in funding for the healthcare Medicare, Medicaid and the uninsured consumer.”

This decreased Medicare reimbursement to hospitals is a BIG DEAL to the hospitals as well, which is why you have seen so many hospital systems merge and consolidation has doubled since 2009 (see Aug 21st Blog post on Hospital Consolidation).  When money gets tight, industries consolidate (a la health insurance carriers, airlines, etc.).  Hospitals are horizontally (by merging with other hospitals) and vertically (by buying physician practices) integrating to 1) be able to have more negotiating power with insurance carriers to drive up reimbursements and 2) be able to ensure a constant stream of patient referrals from physician practices that they own.

What does this mean for employee benefits professionals and healthcare consumers?

  1. Costs for privately insured individuals and employers can be expected to go up as Medicare reimbursement goes down.
  2. Decreasing Medicare reimbursement is not necessarily a ‘bad thing’—in 2009 Medicare’s unfunded liability was $89 trillion, 6X the nation’s GDP—6X all of America’s economic output combined!  That is just not sustainable.
  3. As hospitals look to increase privately insured revenue to offset the ‘shrinking pie’ of Medicare, employers that can effectively design and implement a high-performing employee health plan—a la Serigraph in ‘The Company that Solved Healthcare—will be able to keep their trend flat or even have it go down.  However, other employers that ‘do nothing’ will see their costs rise automatically.

To view at 30-min webinar by me on how Cost and Quality do not necessarily correlate in healthcare click on the link below:

Healthcare Consumerism: 5 Things a Health Insurance Exchange Won’t Accomplish

With the arrival of Federal, State and Private Health Insurance Exchanges, people expect many things to come.  Here is a list of things that Health Insurance Exchanges will NOT accomplish.

  1. Lower Healthcare Costs—healthcare costs have been rising for those with insurance already.  The general consensus from Warren Buffett to healthcare policy experts is that Health Reform, Obamacare, and The Affordable Care Act will not lower healthcare costs.
  2. Fix the Moral Hazard that exists when people consume healthcare—the Moral Hazard is that people do not measure value (price and quality) well when someone else (i.e. insurance) is paying the bills.
  3. Remove the Externality that exists in healthcare—an Externality is when the decisions of one person affect another person without that effect being taken into account.  For example, playing loud rock music affecting a neighbor, or in Healthcare the doctor and patient being wasteful and as a result causing everyone’s insurance premiums to rise.
  4. Decrease the Confusion in Healthcare—if anything, an online Health Insurance Exchange may increase confusion.  The fine print of health insurance policies, the foreign medical terminology used by doctors, and the cryptic codes used in medical billing require healthcare consumers to have expert, personal guidance—not a website of choices
  5. Decrease Out-of-Pocket Expenses for Healthcare Consumers—According to an article in Forbes, the average premium for a silver plan will be $328 per month with deductibles ranging from $1,500 to $5,000.  The article goes on to say that the deductibles will be more than twice the average deductible in employer-sponsored coverage.

So when considering a present-day Health Insurance Exchange, keep in mind you will NOT (1) lower costs, (2) correct the skewed incentives, (3) align behavior, (4) reduce confusion or (5) decrease employee out-of-pocket cost.

Now, could Health Insurance Exchanges be fixed over time?  Yes, but not in their current incarnation.

Click on the link below to see how Compass helps employers who have decided to continue offering group healthcare benefits.

The ‘Hidden Tax’ of CDHPs

This is an adaptation of a blog I wrote last October, but it came up at Compass this past week, so I wanted to share again:

The Hidden ‘Tax’ of consumer-directed or consumer-driven health plans is HR and Employee Benefits Professionals TIME.  Compass Professional Health Services recently polled a sub-set of our over 1,800 employer clients and one of the resounding pieces of feedback is how ‘maxed out’ HR and employee benefits professionals are, and how little ‘bandwidth’ they have.

Another group subject to this consumer-direct health plan ‘Tax’ of TIME is the employees themselves.  Again, the HR and employee benefits professionals that we polled indicated that when employees were put on these plans, that the employees ended up spending a lot of their time during business hours on their healthcare needs—finding doctors, resolving problem bills.

This data point of the TIME that it takes HR, benefits and employees in these types of health plans is an important dynamic to keep in mind when considering moving to a consumer-directed or consumer-driven (CDHP) plan.

Here is what some of our 1,800 Compass employer clients have done to leverage outside resources to address these challenges:

  1. Leverage vendors to do more of the ‘heavy lifting’ in consumer-directed health plan implementation and on-going support for employees.
  2. Scale back the number and/or scope of their initiatives such as wellness programs and on site clinics.
  3. Use technology as a force multiplier.  Examples of technology are (1) use of video over the internet for open enrollment education rather than conducting many in-person meetings and (2) make benefits information and resources available to employees via mobile apps.
  4. Make a budget with the CFO specifically for ‘consumer-directed health plan support or tools.’  HR and Benefits can make a case for how an upfront investment can translate into lower claims costs as soon as the same year with continued lower costs over time.  This approach for one of our clients resulted in their claims costs going down by $13M in year one.  Employers like Serigraph as featured in the book ‘The Company that Solved Healthcare’ had about a 15:1 ROI on their upfront investment in consumerism, consumer-driven and consumer-directed health plans.

Click on the link below to see how Compass can save HR and employees TIME and avoid the ‘hidden tax.’

JAMA Reports: Hospital Consolidation Does Not Necessarily Equal Quality

There is an interesting editorial from the Journal of the American Medical Association (JAMA) in their July 2, 2014 issue entitled, “Hospital Consolidation, Competition, and Quality: Is Bigger Necessarily Better?”

The article starts by stating that hospital consolidation has Doubled since 2009.

The authors are doctors from the Harvard School of Public Health and they challenge the 3 reasons that have been posed for hospital consolidation in the name  of ‘improved quality.’  Some proponents of consolidation have stated:

  1. Larger hospital systems have better outcomes
  2. Larger hospital systems provide more integrated care
  3. Larger hospital systems have the financial strength to invest in quality.

The article counters:

  1. Larger hospital systems have better outcomes for a narrow set of complex surgical procedures such as the removal of the esophagus, but for the majority of more common procedures, the size / quality relationship does not hold up.  The focus should be on process, not size.  Process equals better outcomes.
  2. Larger hospitals systems tend to ‘silo’ their data and not share it with external providers—perhaps lessening care integration.
  3. Many quality investments are not financially daunting and are a simple as implementing checklists.  Again, process equals better care.

The authors then ends with an interesting line:  “…as institutions try to merge, they often point to large, integrated hospital systems—organizations like Geisinger and Intermountain Health—as examples of “larger is better.”  However, these organizations are exemplars not because they are large but because they have had a longstanding commitment to quality.  The delivery of high quality care reflects priorities more than resources or size.  Many small healthcare organizations are excellent, proving that size is no prerequisite for delivery of high-quality care.  Higher healthcare costs from decreased competition should not be the price society has to pay to receive high-quality healthcare.”

What does this mean for employee benefits professionals and healthcare consumers?

  • Provider consolidation will likely drive up healthcare costs
  • There is a mix opinion within the medical community over whether this consolidation will lead to higher quality healthcare
  • Consumers will need to be as educated and proactive as ever in navigating the healthcare system… especially in a world of larger and larger hospitals.

Hidden Cause of Rising Healthcare Costs: Referrals up 100%

There is an excellent article from the August 13, 2014 issue of the Journal of the American Medical Association entitle, “Patient Referrals-A Linchpin for Increasing Value of Care.”

With all the talk about technology, chronic disease and other ‘causes of rising healthcare costs,’ one cause that is seldom if ever mentioned is Patient Referrals—i.e. one doctor sending a patient to another doctor.  This usually takes the form of a primary care physician (PCP) referring a patient to a specialist.

The article points out that referral rates have doubled from 1999 to 2009.

10% of outpatient visits result in a referral.

What is driving referrals?  According to the article:

  1. Doctor knowledge gaps
  2. Doctor does not have enough time, so just refers the patient to someone else to save time
  3. Doctor concern about malpractice
  4. Patient preference

Do referrals drive cost?  According to the article:

  • “The largest variation in clinical decision making between high- and low-spending regions was in the likelihood to refer.”  (based on an analysis of Medicare data)

In other words, the difference about the doctors in high cost parts of the country versus the low cost parts of the country—was how frequently the doctors made referrals.

Additionally, referral rates are highly variable among physicians even in the same practice.  The article states that a study of 120 PCPs found that there was a 5X difference in referral rates among physicians in the same practice, even after controlling for the patients’ severity of illness (i.e. the referral difference was not because the patients of a high-referring doctor were ‘sicker’).

What does this mean for employee benefits professionals and patients?

  • In my blog yesterday, I stated that analyzing the employee population is an important part of controlling healthcare costs… well, the other important part is analyzing the referral patterns of the doctors your employees are going to.
  • If you are sending your employees to doctors that are making tons of referrals, your costs will likely be higher.
  • Referring patients is high subjective and the article cites one hospital system that was able to reduce referrals by 20% by better coordinating the referral process itself.  Arguably 20% of their referrals were waste.

To find out how Compass helps employers and employees through the referral process, click on the 5-min link by me below:

Mayo Clinic Population Health Management Benchmark Stats

If you are in Employee Benefits, you are in Population Health Management—whether you like it or not.  You are concerned about the health of employees and their families. You are concerned about their quality of healthcare and how they are using the healthcare system.  You are concerned about the cost of healthcare.  You may ‘wear a hat’ that says VP of HR, Director of Benefits, Benefit Consultant or Insurance Broker—but your real ‘hat’ says ‘Population Health Manager.’

As such, how does the health of your employee population stack up against benchmarks?  How does the health ‘risk’ of your employee population translate into future healthcare utilization, future claims and future healthcare costs?

All important questions for a ‘Population Health Manager.’

The September 2013 issue of Mayo Clinic Proceedings (journal for the Mayo Clinic) has some great benchmarking stats on this subject.  The Mayo Clinic performed its own Population Health analysis on over 21,000 patients that use their health system.  They had the patients fill out a questionnaire (aka ‘Health Risk Assessment’—sound familiar?) and reviewed blood samples (aka ‘Biometric Screening’—sound familiar?).

The most common self-reported medical conditions were:

  1. High cholesterol (41%)
  2. Hypertension (38%)
  3. Arthritis (30%)
  4. Cancer (29%)
  5. Heart Burn (26%)

The most common types of cancer were 1) mild skin cancer (i.e. not melanoma) (14%) 2) prostate (12%) 3) breast (4%) 4) melanoma (3%) 5) cervical (2%)

The median age of this population was 62… so older than most companies, but the stats are still relevant, especially if you have an older workforce.

Click here to read the abstract.

These are very helpful benchmarks for your own employee population.  They drive much of your medical spend—High cholesterol and Hypertension drive cardiovascular spend.  Arthritis drives musculoskeletal spend.  Cancer drives cancer spend.  Cardiovascular, Musculoskeletal and Cancer—those are the same top three diagnostic categories that we at Compass see drive employers’ claims spend.

So how do these medical conditions translated into healthcare utilization and claims.

The next article in the same issue of Mayo Clinical Proceedings divided patients into 5 tiers based on the number of chronic diseases that each person had.  It is called the Minnesota Tiering Score and is based on the Johns Hopkins Adjusted Clinical Groups system.


  • Tier 0—No Chronic Conditions: 6% of population
  • Tier 1—1-3 Chronic Conditions: 46% of population
  • Tier 2—4-6 Chronic Conditions: 34% of population
  • Tier 3—7-9 Chronic Conditions: 10% of population
  • Tier 4—10+ Chronic Conditions: 4% of population

The Mayo researchers then compared the risk of hospitalization among the tiers.

They found that Tier 4 patients were almost 6X more likely to be hospitalized than Tier 0 or 1 patients.

Tier 4 patients were 5.4X more likely to use the ER than Tier 0 or 1 patients.

Tier 4 patients were 9X more likely to be rehospitalized within 30 days than Tier 0 or 1 patients.

Click here to read an abstract of this study.

Not really surprising: more chronic disease = more use of healthcare services and more claims.  The next question is, what are you doing to identify the Tier 4 people in your own population?  Once you identify them, what are you doing to help them?  The Mayo stats play right into the old 5/50 rule of thumb: 5% of employee drive 50% of the claims spend.

What does this mean for employee benefits professionals and healthcare consumers?

  1. Cardiovascular, musculoskeletal and cancer are likely the top three healthcare risk categories for your employee population
  2. Those employees with more chronic conditions will use the healthcare system more and generate more claims.
  3. Analyzing that population and implementing programs to help them will lead to better population health management, improved employee health and lower healthcare costs
  4. My own personal bias is that the combination of consumerism and population health management on an engagement platform that actively works with employees and healthcare providers (not against them) offers the best solution to these challenges.

Click on the link below to watch a 5-min video by me on how Compass does just that for employees.

Healthcare Systems ‘Aim to Get Bigger at Any Cost’

Steve Jacob reported from a conference on healthcare mergers and acquisitions, that hospitals are making acquisitions to get bigger and will accelerate their pace of acquisitions.

The motivation: keep operating rooms and beds full to ‘monetize their infrastructure.’

Other key stats from the article:

  • The top 53 hospital systems generate $220 billion a year in revenue and have $120 billion in cash available
  • 2,000 of the nation’s 5,300 hospitals should be for sale
  • For-profit hospitals are being acquired for up to eight times EBITDA (earnings before interest, taxes, depreciation and amortization)

To read the full article click Here: M&A Panel: Healthcare Systems Aim to “Get Bigger at Any Cost”

As employers and employees try to improve the value of the care they purchase and receive, they will need to do so in an environment of consolidating hospital systems that are getting larger in an effort to maintain and increase patient volume—office visits, surgeries, scans and procedures.

To learn how Compass helps employers and their employees navigate these large, complex organizations, click on the link below:

Modern Healthcare Reports: Patients More Sensitive to Price

Melanie Evans (@MHmevans), a journalist for the magazine Modern Healthcare, wrote a fantastic article that was posted on Thursday, August 13thentitled “Reform Update: Patients’ cost sensitivity worries some doctors.”

The article describes how doctors are seeing more and more patients ask them about the cost for tests, procedures and medications.  The article reports that some doctors do not like this trend because they feel it interferes with patient care.  However, other doctors quoted in the article believe it is a good thing for doctors to discuss healthcare costs with patients.

The article states, “Some physicians say they welcome conversations with patients prompted by high-deductible plans about efforts to prevent illness, minimize complications and avoid unnecessary care. Frank discussion of cost also can help patients avoid the stress and financial damage of large medical bills.”

Here are some other interesting stats from the article:

  • According to a National Business Group on Health survey, 32% of employers plan to offer ONLY a consumer-directed health plan to employees in 2015.
  • A study of 1,500 cancer patients found that 1 in 10 patients struggled with medical debt 4 years after their treatment.
  • That same study found that 20% of the 1,500 patients spent between $2,000 and $5,000 on out-of-pocket costs for medical services.

In my opinion, the days of 100% coverage, ‘blank-check’ healthcare are going the way of the dinosaur—it’s just too expensive and unsustainable for employers, the government and individual healthcare consumers (who often have to shoulder increasing costs in the form of increased premium contributions).  It is a new, scary and sometimes painful culture change going from ‘never thinking about costs’ in healthcare, to both providers and healthcare consumers being aware of costs and making decisions—not solely based on cost—but incorporating costs.

I wrote a previous blog post about how when doctors at Johns Hopkins Hospital in Baltimore (where I did my training) where shown the price of blood tests, they voluntarily ordered fewer of them.  No incentives or disincentives were given to them.  They were not asked to compromise quality in any way—just simply showing them the costs caused them to be more prudent in their lab ordering. Click Here to read that blog post “Johns Hopkins Study: Hospital gives price-transparency to doctors—Costs go down.”

At Compass, our employee engagement platform that provides price-transparency, quality information and health system navigation via a personal healthcare concierge is helping over 1,800 employer clients through this culture change from ‘Passive Patient’ to ‘Value-Driven Healthcare Consumer.’  It’s exciting to see the movement gathering steam.

Click on the video below to learn about the services Compass provides to employees.