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The Keckley Report

Are Employers Ready to Move from the Back Bench in U.S. Healthcare?

By August 26, 2024No Comments

This year, 316 million Americans (92.3% of the population) have health insurance: 61 million are covered by Medicare, 79 million by Medicaid/CHIP and 164 million through employment-based coverage. By 2032, the Congressional Budget Office predicts Medicare coverage will increase 18%, Medicaid and CHIP by 0% and employer-based coverage will increase 3.0% to 169 million. For some in the industry, that justifies seating Medicare on the front row for attention. And, for many, it justifies leaving employers on the back bench since the working age population use hospitals, physicians and prescription meds less than seniors.  

Last week, the Business Group on Health released its 2025 forecast for employer health costs based on responses from 125 primarily large employers surveyed in June: Highlights:

  • “Since 2022, the projected increase in health care trend, before plan design changes, rose from 6% in 2022, 7.2% in 2024 to almost 8% for 2025. Even after plan design changes, actual health care costs continued to grow at a rate exceeding pre-pandemic increases. These increases point toward a more than 50% increase in health care cost since 2017. Moreover, this health care inflation is expected to persist and, in light of the already high burden of medical costs on the plan and employees, employers are preparing to absorb much of the increase as they have done in recent years.”.
  • Per BGH, the estimated total cost of care per employee in 2024 is $18,639, up $1,438 from 2023. The estimated out-of-pocket cost for employees in 2024 is $1,825 (9.8%), compared to $1,831 (10.6%) in 2023.

The prior week, global benefits firm Aon released its 2025 assessment based on data from 950 employers:

  • “The average cost of employer-sponsored health care coverage in the U.S. is expected to increase 9.0% surpassing $16,000 per employee in 2025–higher than the 6.4% increase to health care budgets that employers experienced from 2023 to 2024 after cost savings strategies. “
  • On average, the total health-plan cost for employers increased 5.8% to $14,823 per employee from 2023 to 2024: employer costs increased 6.4% to 80.7% of total while employee premiums increased 3.4% increase–both higher than averages from the prior five years, when employer budgets grew an average of 4.4% per year and employees averaged 1.2% per year.
  • Employee contributions in 2024 were $4,858 for health care coverage, of which $2,867 is paid in the form of premiums from pay checks and $1,991 is paid through plan design features such as deductibles, co-pays and co-insurance.
  • The rate of health care cost increases varies by industry: technology and communications industry have the highest average employer cost increase at 7.4%, while the public sector has the highest average employee cost increase at 6.7%. The health care industry has the lowest average change in employee contributions, with no material change from 2023: +5.8%

And in July, PWC’s Health Research Institute released its forecast based on interviews with 20 health plan actuaries. Highlights:

  • “PwC’s Health Research Institute (HRI) is projecting an 8% year-on-year medical cost trend in 2025 for the Group market and 7.5% for the Individual market. This near-record trend is driven by inflationary pressure, prescription drug spending and behavioral health utilization. The same inflationary pressure the healthcare industry has felt since 2022 is expected to persist into 2025, as providers look for margin growth and work to recoup rising operating expenses through health plan contracts. The costs of GLP-1 drugs are on a rising trajectory that impacts overall medical costs. Innovation in prescription drugs for chronic conditions and increasing use of behavioral health services are reaching a tipping point that will likely drive further cost inflation.”

Despite different methodologies, all three analyses conclude that employer health costs next year will increase 8-9%– well-above the Congressional Budget Office’ 2025 projected inflation rate (2.2%), GDP growth (2.4% and wage growth (2.0%).  And it’s the largest one-year increase since 2017 coming at a delicate time for employers worried already about interest rates, workforce availability and the political landscape.

For employers, the playbook has been relatively straightforward: control health costs through benefits designs that drive smarter purchases and eliminate unnecessary services. Narrow networks, price transparency, on-site/near-site primary care, restrictive formularies, value-based design, risk-sharing contracts with insurers and more have become staples for employers. But this playbook is not working for employers: the intrinsic economics of supply-driven demand and its regulated protections mitigate otherwise effective ways to lower their costs while improving care for their employees and families.

My take:

Last week, I reviewed the healthcare advocacy platforms for the leading trade groups that represent employers in DC and statehouses to see what they’re saying about their take on the healthcare industry and how they’re leaning on employee health benefits. My review included the U.S. Chamber of Commerce, National Federal of Independent Businesses, Business Roundtable, National Alliance of Purchaser Coalitions, Purchaser Business Group on Health, American Benefits Council, Self-Insurance Institute of America and the National Association of Manufacturers. What I found was amazing unanimity around 6 themes:

  • Providing health benefits to employees is important to employers. Protecting their tax exemptions, opposing government mandates, and advocating against disruptive regulations that constrain employer-employee relationships are key.
  • Healthcare affordability is an issue to employers and to their employees, All see increasing insurance premiums, benefits design changes, surprise bills, opaque pricing, and employee out-of-pocket cost obligations as problems.
  • All believe their members unwillingly subsidize the system paying 1.6-2.5 times more than what Medicare pays for the same services. They think the majority of profits made by drug companies, hospitals, physicians, device makers and insurers are the direct result of their overpayments and price gauging.
  • All think the system is wasteful, inefficient and self-serving. Profits in healthcare are protected by regulatory protections that disable competition and consumer choices.
  • All think fee-for-service incentives should be replaced by value-based purchasing.
  • And all are worried about the obesity epidemic (123 million Americans) and its costs-especially the high-priced drugs used in its treatment. It’s the near and present danger on every employer’s list of concerns.

This consensus among employers and their advocates is a force to be reckoned. It is not the same voice as health insurers: their complicity in the system’s issues of affordability and accountability is recognized by employers. Nor is it a voice of revolution: transformational changes employers seek are fixes to a private system involving incentives, price transparency, competition, consumerism and more.

Employers have been seated on healthcare’s back bench since the birth of the Medicare and Medicaid programs in 1965. Congress argues about Medicare and Medicaid funding and its use. Hospitals complain about Medicare underpayments while marking up what’s charged employers to make up the difference. Drug companies use a complicated scheme of patents, approvals and distribution schemes to price their products at will presuming employers will go along. Employers watched but from the back row.

As a new administration is seated in the White House next year regardless of the winner, what’s certain is healthcare will get more attention, and alongside the role played by employers. Inequities based on income, age and location in the current employer-sponsored system will be exposed. The epidemic of obesity and un-attended demand for mental health will be addressed early on. Concepts of competition, consumer choice, value and price transparency will be re-defined and refreshed. And employers will be on the front row to make sure they are.

For employers, it’s crunch time: managing through the pandemic presented unusual challenges but the biggest is ahead. Of the 18 benefits accounted as part of total compensation, employee health insurance coverage is one of the 3 most expensive (along with paid leave and Social Security) and is the fastest growing cost for employers.  Little wonder, employers are moving from the back bench to the front row.

Paul

 

P.S. Modern Healthcare just opened its nomination process for the 100 Most Influential Leaders in Healthcare. The catch: every nomination must be accompanied by a $199 payment. I confirmed with MH that if an individual is nominated 100 times by 100 different individuals/groups, each must pay the $199 fee.

Recognition of “top 100” and “top 10” individuals and organizations in healthcare has evolved from spontaneous responses to full blown PR campaigns to help CEOs gain celebrity status or organizations burnish their brands. I’ve watched PR departments reach out to customers and employees on behalf of the boss, and trade groups lobby to get their CEO on lists. While accepted as SOP, it’s gone too far. Government officials use public funds to get on “the right lists”. Companies spend to make sure their CEO ranks above rivals in listings. Trade groups invest member dues to advance their CEOs so they’re seen as Top Tier advocacies. It’s gone too far.

Thankfully, the best and brightest in our industry include many whose names/organizations don’t appear on these lists. They don’t seek recognition but they deserve it.

 

Primary Sources:

 

Sections in today’s report:

  • Quotables
  • Courts
  • Economy
  • Insurers
  • Polling
  • Prescription Drugs
  • Public Health

 

Quotables

Re: self-awareness: “We are all victims of the Dunning-Kruger effect to some degree. An inability to accurately assess our own competency and wisdom is something we see in both liberals and conservatives. While being more educated typically decreases our Dunning-Kruger tendencies, it does not eliminate them entirely. That takes constant cognitive effort in the form of self-awareness, continual curiosity, and a healthy amount of skepticism. By cultivating this type of awareness in ourselves, and making an effort to spread it to others, we can fight back against the stupidity crisis that threatens our nation.

How stupidity is an existential threat to America | Opinion (msn.com)

Re: system complexity: “Health care, of course, is not just about bills—it’s about life and death and the burdens health care problems can impose on patients and families, which we have all experienced. The complexity of the system itself can be a nightmare for many people just when they need it most. But with 92% of the population covered, it’s understandable that people are more focused on affordability now.  It is, as I have suggested before, health care’s “big tent” issue. Reframing health as an economic issue is a change polling suggested could have been made years ago; a case of politicians catching up with the public.

Beyond the Data from Drew Altman: Harris Is Reframing Health as an Economic Issue (kff.org)

Re: Private equity ownership in healthcare: “The well-established harms of private takeovers of hospitals, nursing homes, and physicians’ practices call for strong action. Although 33 states ban corporations from practicing medicine, loopholes allow private equity firms to use financial levers to effectively control physicians. An outright ban on private equity ownership of doctors’ practices is the only surefire way to assure that these companies aren’t pulling medical strings. A similar ban should apply to hospitals and nursing homes, most of which were built with taxpayer dollars channeled through grants, tax exemptions, and capital payments that are folded into Medicare and Medicaid reimbursements. Mandating that private equity owners disclose their purchases, financial information, and service changes is also needed.

Communities, not investors, should control essential health resources.”

Private equity: health care’s vampire August 19, 2024 https://www.statnews.com/2024/08/19/private-equity-health-cares-vampire

Re: traditional Medicare competitiveness: Medicare is at a crossroads. Enrollment in the Medicare Advantage program among eligible beneficiaries surpassed 54% in January 2024, up from 43% just 4 years earlier.1,2 The meteoric rise of this program, fueled by subsidies, has ignited debate about the influence of private insurers on one of the most cherished and enduring social programs in U.S. history. Some tout gains from market forces and innovation, while others decry profiteering and regulatory capture by corporate interests. As is often the case in the United States, the controversy has been cast in polarizing terms such as “privatization.” …

When Congress decides to take up Medicare reform, it will be confronted with the long-standing coverage gaps of traditional Medicare and the role of Medicare Advantage in addressing them…

To better leverage competition from traditional Medicare would require improvements to traditional Medicare as well as cuts to Medicare Advantage…

Medicare reform will not be easy, but at this point, it cannot be sidestepped. As Medicare Advantage grows, debate must begin. In grappling with the future of Medicare, policymakers would be well served by setting aside polemical characterizations of traditional Medicare and Medicare Advantage and by finding common ground in what these two programs were intended to do together for seniors — compete for them.”

The Future of Medicare and the Role of Traditional Medicare as Competitor | New England Journal of Medicine (nejm.org)

Re: hospital misinformation: “In the midst of the daily grind and endless to-dos of operating and communicating about your organization, take a moment here and there to think about how you’re reading the wind, how you’re sensing any shifts in momentum. And what you might say if someone asks. Because, chances are, they will. The public is very much in school. Our advice: Be the teacher.”

Healthcare Goes to School (hs-sites.com) Jarrard

Re:  Recession likelihood: “Recession rules are based on the premise that once news gets bad enough, it will worsen further. Historically, that has been a decent bet: unemployment shoots up quickly and then falls slowly; central banks tend to raise interest rates until something breaks. Yet today the Federal Reserve has room to ease and, given the unusual labour-market recovery, some bumpiness does not spell disaster. Although America’s gangbusters expansion is calming, a gradual slowdown is not a crash—no matter what the rules say.”

Is America already in recession? (economist.com)

Re: workforce wages: “The typical U.S. worker’s pay is about the same as it was in late 2019, after accounting for inflation. But workers in some states have seen sharply higher earnings, especially in scenic areas that are appealing to remote workers and have labor shortages.

In Montana, for example, average pay has increased 28.3% since before the pandemic, easily beating the roughly 19% national inflation rate during that time…Other picturesque places also have drawn remote workers. Average pay increased significantly in these states, though some of them had relatively low wages to begin with. They include New Hampshire (wages up 28%), Florida (27.3%), Washington (27.2%), Maine (26.7%), Vermont (26.5%), Utah (25.7%), Arizona (24.8%) and West Virginia (24.6%).

Pay increased slightly less than the 19.3% inflation rate in North Dakota (16.8%), Wyoming (17.5%), Connecticut and Michigan (18.1%), New Jersey (18.2%), Maryland and Rhode Island (18.6%), Minnesota and New York (18.9%), and Oklahoma and Pennsylvania (19%).”

Most workers make about the same as before the pandemic — except in these states • Stateline

Re: Boardroom communication: “While often uncomfortable—or even assiduously avoided—difficult conversations can catalyze positive change and innovation. By confronting underlying issues and exposing diverse perspectives, these discussions can spark creativity and challenge the status quo. This discomfort can lead to a deeper understanding of problems and a more comprehensive exploration of potential conflicts and solutions. Ultimately, accepting—and even embracing—difficult conversations can pave the way for significant advancements to the company’s strategic vision and foster a more resilient and adaptable board and organization.”

Boardroom Diplomacy: Mastering the Art of Difficult Conversations (nacdonline.org)

 

Courts

FTC Non-Compete Ban Thrown Out: Last Tuesday, Federal Judge Ada Brown (US District Court for the Northern District of Texas, Dallas Division) ruled that the Federal Trade Commission does not have authority to enact its ban on noncompete agreements concluding it “unreasonably overbroad without a reasonable explanation.”

FTC’s noncompete ban blocked by federal judge | Modern Healthcare

 

Economy

BLS Employment Revision explanation: Last week, the Bureau of Labor issued a revision to its employment benchmarking reports for the period April 2023 to March 2024.

“Recall that nonfarm payrolls- aka Current Employment Statistics/Establishment survey- is only 1 of 2 surveys that estimates job growth, but it grabs most of the headline attention even though it doesn’t produce things like the unemployment rate. As the name suggests, the benchmarking process takes place once a year and is done to align monthly estimates of job growth- which are based on a sample of establishments and include assumptions- to the actual, non-sampled, straight count of jobs from the quarterly census of employment and wages (QCEW).

The total downward revision for the period was 818,000 which is the largest number we’ve seen since 2009. Professional and Business Services as well as Leisure and Hospitality saw the largest downward revisions.

In other words, the preliminary revision suggests the monthly estimates of job growth have been drastically overstated for some time now, but we will need to wait until February 2025 to see the final benchmark revision. In my opinion, it will likely show the same directional trend. Simply put, the labor market is weaker than headlines suggest. “

(37) Jordan Keckley, CPA | LinkedIn Jordan Keckley, CPA,

E&Y: July 2024 deal activity: “The aggregate value of U.S. merger-and-acquisition deals jumped 42% last month over June, despite persistent macroeconomic challenges…. A total of 141 U.S. deals were recorded during July, a 33% increase versus the month before. The combined deal value climbed to $124 billion.

The Wall Street Journal (Aug. 22)

Housing market up in July: U.S. home sales rose slightly in July after four months of consecutive declines, even as prices remained near record highs. Sales of previously owned residences rose 1.3% last month from June to a seasonally adjusted annual rate of 3.95 million, reports the National Association of Realtors — the lowest level for any July since 2010. The national median existing-home price was $422,600, up 4.2 percent year over year.

U.S. Home Sales Edged Up in July, Prices Still Near Record Highs August 22, 2024 https://www.wsj.com/economy/housing/real-estate-july-home-sales-prices-data-b9ba8b04

 

Insurance

Prescription Drug coverage: % Reporting Lack of Prescription Coverage by Insurance Plan Type:

  • Exchange:34.5%
  • Medicare: 24.0%
  • Private: 23.0%
  • Medicaid: 22.4%
  • TRICARE, VA, or other military healthcare: 19.0%

GoodRx: A Third of Americans Aren’t Filling Their Prescriptions Because of High Costs, June 2024

S&P: MA pressure on providers: Key takeaways from report: “The Medicare Advantage (MA) program recently achieved a milestone in covering more than 50% of total Medicare beneficiaries. This development could have an adverse impact on margins and thus be a negative credit factor for certain health care service companies, the most stressed segment within S&P Global Ratings rated for-profit health care universe. We believe hospitals are the most negatively affected health care services subsector. We expect health care service providers to see future rate pressure from MA plans implementing strategies to preserve their margins from higher utilization, and regulatory changes. In 2024 the Centers for Medicare & Medicaid Services (CMS) implemented rules that could help health care service providers, though the extent of the benefit is unclear.”

Medicare Advantage Can Harm Health Care Services Credit Quality S&P Global August 16, 2024 https://www.spglobal.com/ratings/en/research/articles/240815-medicare-advantage-can-harm-health-care-services-credit-quality-

 

Polling

Axios-Ipsos Poll: American Health Index Poll: “As a summer COVID surge continues, the latest Axios/Ipsos American Health Index finds that concern about COVID is ticking up, even as mask use hasn’t changed. However, concern about COVID remains relatively low and in line with other respiratory illnesses, like the flu.

When it comes to the top public health worries for the country, opioids and fentanyl along with obesity rise to the top, and COVID remains low. Majorities of Americans find many policies that reduce the use of opioids and fentanyl or overdose deaths important. On a different topic, the use of prescription weight loss drugs remains low but is rising, as many support health insurance companies covering the cost of these drugs.”

Summer COVID surges as concern with the virus rises slightly, now matching worry about flu August 22, 2024https://www.ipsos.com/en-us/axios-ipsos-american-health-index

 

Public Health

CDC: US Fertility Rate Dropped to Record Low In 2023: In 2023, the US fertility rate fell another 3% from the year before, to a historic low of about 55 births for every 1,000 females ages 15 to 44: Just under 3.6 million babies were born last year, about 68,000 fewer than the year before. Since 2007, when the fertility rate was at its most recent high, the number of births has declined 17%, and the general fertility rate has declined 21%.

CDC.gov

WHO: Alcohol-related deaths: Alcohol consumption played a role in 2.6 million deaths worldwide in 2019, according to a report from the World Health Organization. The report analyzed alcohol and psychoactive drug usage in 2019 across 145 countries. Deaths linked to alcohol consumption accounted for 4.7% of all deaths worldwide.

WHO.org

CDC Report: Uninsured Q123 vs. Q124: Percentage and Number of Uninsured, by Age Group:

Age Quarter 1, 2023 Quarter 1, 2024
All ages 7.7% (25.3*) 8.2% (27.1)
Under 65 9.2% (25.0) 9.8% (26.8)
0-17 4.2% (3.0) 5.2% (3.8)
18-64 11.0% (22.0) 11.5% (23.0)

CDC, National Center for Health Statistics, Health Insurance Coverage: Early Release of Quarterly Estimates from the National Health Interview Survey, January 2023–March 2024

CDC: Life expectancy in states: “Among the 50 states and District of Columbia, Hawaii had the highest life expectancy at birth, 79.9 years in 2021, and Mississippi had the lowest, 70.9 years. From 2020 to 2021, life expectancy at birth declined for 39 states, increased for 11 states, and remained unchanged for the District of Columbia. In 2021, life expectancy at age 65 ranged from 16.1 years in Mississippi to 20.6 years in Hawaii. Life expectancy at birth was higher for females in all states and the District of Columbia. The difference in life expectancy between females and males ranged from 3.9 years in Utah to 7.6 years in New Mexico.”

U.S. State Life Tables, 2021 August 21, 2024 https://www.cdc.gov/nchs/data/nvsr/nvsr73/nvsr73-07.pdf?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

Study: Nutritional value in toddler foods: “This study assessed the nutritional and promotional profile of infant and toddler foods (6–36 months of age) collected from the top 10 grocery chains in 2023. Products were assessed against the WHO NPPM nutritional and promotional requirements. The type and number of claims across packaging type were also assessed. Of the 651 products examined, 60% failed to meet the nutritional requirements of the NPPM, and 0% met the promotional requirements. Almost 100% of products had at least 1 claim on-pack that was prohibited under the NPPM, with some products displaying up to 11 prohibited claims. Snack-size packages had the lowest compliance with nutrient requirements. These findings highlight that urgent work is needed to improve the nutritional quality of commercially produced infant and toddler foods in the United States. The high use of prohibited claims also suggests the need to regulate the type and number of claims allowed on-pack

An Evaluation of the Nutritional and Promotional Profile of Commercial Foods for Infants and Toddlers in the United States August 21, 2024 https://www.mdpi.com/2072-6643/16/16/2782

Commentary: research about miscarriages needed: “Lack of research into miscarriage in the U.S. — its prevalence, its causes, and how best to treat people who’ve experienced pregnancy loss — has helped to reinforce what has long been a culture of silence and shame around miscarriage…The dearth of knowledge about pregnancy loss and miscarriage is far greater in the United States than in other industrialized countries… with national health systems such as the United Kingdom have standardized medical records and better aggregate health data, enabling medical researchers to conduct studies and trials more readily, and to examine the physical, emotional, and economic toll of pregnancy loss. Nordic countries, too, have national health systems that provide more open access to data, enabling researchers to study the impact of loss to a greater extent than it is studied in the U. S…. The Centers for Disease Control and Prevention does not publish data on miscarriage, but estimates suggest that 10% to 25% of all pregnancies in the U.S. end in miscarriage. The American College of Obstetricians and Gynecologists says that fewer than 5 in 100 people have two miscarriages in a row.”

Miscarriages in the U.S.: Researchers are trying to close the knowledge gap (statnews.com)

Obesity coverage and costs: “Obesity is a significant health crisis affecting more than 123 million adults and children/adolescents in the US. An estimated 1 in 5 deaths in Black and White individuals aged 40 to 85 years in the US is attributable to obesity. Obesity puts individuals at elevated risk for type 2 diabetes, cardiovascular disease, chronic kidney disease, gastrointestinal disorders, nonalcoholic fatty liver disease, cancer, respiratory ailments, dementia/Alzheimer disease, and other disorders. In the US, significantly more Black (49.9%) and Hispanic (45.6%) individuals are affected by obesity than White (41.4%) and Asian (16.1%) individuals. Health care costs for obesity account for more than $260 billion of annual US health care spending—more than 50% greater in excess annual medical costs per person than individuals with normal weight…

The major contributors to the growing obesity epidemic are inadequate access to qualified health care providers due to racial disparities in obesity prevalence and treatment; lack of adequate health insurance coverage of necessary medical services; stigmatization of individuals with obesity by health care providers, policy makers, and society; and failure of Medicare and most private insurance plans to provide widespread coverage for new medications that have been clearly demonstrated to be effective in achieving significant weight loss…

The medical costs associated with its complications increase the economic burden on payers and health care systems by approximately 50% more than for individuals with normal weight.

Inadequate Insurance Coverage for Overweight/Obesity Management (ajmc.com)