Overcoming Misconceptions About Healthcare Benefits: Part 4

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Albert Einstein knew that the quality of a solution was directly related to a person’s ability to identify the problem they were trying to solve. He famously said, “If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions.”

So far in this series, we’ve identified several problems that employers are trying to solve for, and we’ve used The City of Amarillo as an example employer. In Part 1 we discussed the issues of “network discounts” and how 10% renewal trend is a very poor and misguided benchmark for plans. In Part 2 I tackled the notion that large national insurance carriers are using their member populations to leverage lower healthcare pricing for their employer members. Part 3 addressed cost-shifting and slowly and incrementally raising employee deductibles, co-pays, premiums, and out of pocket costs. Rising costs is the common problem that each of these “tactics” is trying to solve for, and we’ve spent the last three blog posts identifying the ineffectiveness of each of these tactics.

The title of this series isn’t “Identifying Misconceptions”, it’s entitled “Overcoming Misconceptions”. Therefore to Einstein’s point, employers need to spend the time necessary to understand the problems they are trying to solve for. I want to start off with a video I cropped just for time purposes. It’s a video of a recent City of Amarillo City Council meeting, presided over by Mayor Ginger Nelson, and City Manager Jared Miller. I’ve edited the video down to just the Health Insurance related section and spared you having to listen about drainage projects and whatnot. Watch the video. A full-length version can be seen HERE.

I have to say, this gentleman starting off just gets right to it, “We’re 20% over budget….” To the point, I like that. A little later on he explains that the City is really only about 13% over budget, not 20%, but I like that he gets straight to the PROBLEM. The first time I watched this, I thought to myself, “Ok, he’s gotten immediately to the problem they are trying to solve for, so now we’ll get details on the issue…….”…….and then those details never came.

This is what I would call “Cringe worthy”. So much opportunity to educate here, and it was a complete swing and a miss. There was one little bit at the very end by Council woman Elaine Hays where she is trying to get a little more detail, but all she asked for was the number of covered lives in conjunction with the gross claims numbers (I’m coming back to this point later). She was asking if the City was paying more simply because they are covering more people. Elaine, you were on to something, and I’ll come back to this point, but at least you were thinking about what is actually driving claims increases.

Follow me as I dissect a few moments of this exchange.

Can someone please tell me what a “large claim” is?

From the jump, the narrative was that “large claims” and the “ever-increasing cost of healthcare” are the “exact reasons” why the City’s claims are up….again. Yet, no one ever defined what a “large claim” is. Is it a single claim over a specific dollar amount? Is it someone who breaches the $750,000 specific deductible? How are you defining “large claims”? I’m sorry, but you can’t just walk into a meeting and say the City is 20% over budget, and it’s just because of “large claims”. The lack of detail and explanation in this meeting was the biggest thing that jumped out at me, and it also feeds the belief that nothing can be done about “large claims” and the “ever-increasing cost of healthcare”. The tone of the conversation is very much “it is what it is”. This is the mindset we’ve been discussing. This is the paradigm that needs changing!

The above bar graph was the LONE GRAPHIC used in this report to the council. Aggregate claims, past and present. This is a great slide to start with, but when reporting that the City is 20% over budget, and it’s because of “large claims”, I was expecting some data on actual claims. This is just an aggregate report. It provides no detail as to what is driving large claims. If the mindset is “we can fix this” instead of “it is what it is”, then it’s natural to start digging into data to find your cost drivers. How do we begin to OVERCOME problems? We shift our mindset for starters. Start believing that “large claims” can be mitigated, possibly even avoided!

We’re going out to bid for INSURANCE SERVICES and the SMOKING GUN…

For 4 years, the City of Amarillo has touted their move to Aetna as a good one, but I’m about to debunk that misconception today. Allow me to show you the REAL reason the City’s claims went down approximately $3M that year.

From the 2019/2020 Budget: Effective January 2015 the Medicare eligible members were transitioned off of the Plan and provided a stipend to supplement insurance costs.

Whoa! Wait a minute….The City never says anything about this when referencing their move to Aetna! This is huge…..Let’s take a closer look!

According to the 2016/2017 Budget numbers, the City dropped 319 people from the health plan and moved them on to Medicare plans. In 2016, the City’s Per Employee Per Year (PEPY) spend on medical claims was $10,418. So, if you apply that figure to 319 people coming OFF the plan…. ($10,418 * 319 = $3,323,342). And there you have it. The City’s reduction in cost had nothing to do with moving to Aetna, and it was entirely because the City dropped 319 members from it’s plan. And it wasn’t just 319 random people, it was 319 people eligible for Medicare. People that are older, and higher utilizers of healthcare in general. I’m calling this the smoking gun, because it’s direct evidence that the City’s single biggest claim to fame for reducing costs (moving to Aetna) is actually circumstantial at best.

Once again, the City is back up around the 4800 total covered lives level, and once again, their claims are rising. They are covering more people! So you see Mrs. Hays, you were actually on to something when you asked to see the corresponding number of lives covered vs. the aggregate claims. The constant across all these years is the City’s medical spend PEPY…..Since 2014, it has ranged from $9400 PEPY to $12,370 and is currently sitting at $11,600. This is evidence that Aetna’s PPO discounts weren’t the reason for the drop in claims costs. The PEPY dropped because the City moved 319 older members off the plan. One year later, and the PEPY was back over $10,000, and continues to grow today.

There are two benchmarks we use when analyzing how well a plan is running; Medical Claims per employee per year (PEPY), and Pharmacy Claims per member per month (PMPM). These are two good benchmarks to put things in proper perspective. Instead of looking around at other plans, other cities, seeing how much their costs are increasing every year, and trying to benchmark off their status quo results, focus on these two figures.

I do not have the City’s Pharmacy data broken out, so I could not calculate their Pharmacy Claims PMPM, but I am able to calculate their Medical Claims spend PEPY, and here are the results going back to 2014/2015:

2014/2015: $12,370 PEPY
2015/2016: $10,418 PEPY
2016/2017: $9,385 PEPY
2017/2018: $10,574 PEPY
2018/2019: $11,600 PEPY
2019/2020: trending 13% higher according to report in video

It is worth noting, that High-Performance plans, plans we can design utilizing Health Rosetta models and principles, are commonly running under $7000 PEPY. If the City of Amarillo would adopt these principles, and could reduce the PEPY to $7000, that would yield an ANNUAL SAVINGS just shy of $8.5 MILLION!!! And folks, that’s per year. Mayor Nelson….I’m ready to talk whenever the City is. Don’t believe me? That’s fine, but at least hear me out.

Hey, I know…..lets start a wellness program!

Aetna has offered the City $250,000 to implement a wellness program. Sounds great! Are there strings attached? I mean, is Aetna requiring the City spend that quarter of a million with Aetna? If not, there are far better ways to invest that money than on a wellness program, or what we like to call “prick, poke, and prod” programs.

Has anyone from the City analysed any studies that show wellness programs do not reduce healthcare costs, and they do not make people healthier? There are literally dozens of studies that challenge such misconceptions. Wellness programs lead to unnecessary testing, imaging, prescription costs, and could even endanger employees.

Not to mention, the City has already traveled this road before. The City had a wellness program in place several years ago, and the average number of people who participated? 300. 300 employees out of almost 1800. Once again, conventional wisdom has the City repeating steps already taken, and merely hoping for a better result.

I would like to introduce the City of Amarillo to Al Lewis, friend and colleague. Al is the CEO of Quizzify, a company dedicated to empowering patients/employees through healthcare education. People don’t need “prick, poke, and prod” programs, they need better healthcare literacy. They need to know what drives costs. They need resources that transform them into true consumers of care. From Quizzify’s Website:

Healthcare illiteracy contributes to the waste of nearly ⅓ of every medical care dollar spent in the U.S.  A poor knowledge base not only harms employee health, it causes them to over-consume medical care and misuse your healthcare dollars.

Before the City implements a wellness program, they should look into better alternatives, and they should also spend some extra time and due diligence on the EEOC’s latest rules concerning corporate wellness programs.

In Conclusion

For several years I’ve been wanting to write this blog, and it’s sometimes hard telling folks that there are better ways of doing things. Over time, I’ve learned that one of the most dangerous mindsets to be in is thinking you’re doing everything right and not listening to other perspectives. But who is expected to know everything? I hope no one ever holds me to that standard, and it is/was not my intention to say that our City leaders are in some way “negligent” or “incompetent”. It is my belief that the City has simply not followed Einstein’s example and spent adequate time understanding the problems in healthcare benefits they are trying to solve. I also think our City leaders have been given status quo advice, and that has yielded status quo results (average trend of 10%).

It’s time for employers to sit up and take notice of these solutions we’ve been discussing. Not because “I said so”, but because there are real ramifications for not doing so. Case and point, just last week, former Amarillo Mayor Jerry Hodge, and CEO Alex Fairly filed a lawsuit against Amarillo Independent School District for basically failing to prudently manage health plan assets, which is a fiduciary duty of any plan sponsor, including the City of Amarillo. The lawsuit alleges that Fairly produced an RFP, that the District ignored, that reduced the District’s healthcare costs by $10-15 Million over a 3 year period, therefore wasting tax payer dollars.

Whether that is precisely true or not isn’t what I’m addressing. The facts will all come out. The point I’m addressing is that plan sponsors have a very real fiduciary responsibility, and even though public plans like AISD and the City are not regulated by ERISA, they arguably have an even higher fiduciary responsibility, not only to their plan members, but to tax payers as well. Our City needs to safeguard itself from potential lawsuits that would make similar claims; that they were offered significant cost savings solutions, but they ignored them and elected status quo options that are needlessly costing tax payers money. This is a real liability.

Overcoming Misconceptions About Healthcare Benefits is possible. First we must fully understand the problems we are trying to solve, and it’s my belief that by doing just that, employers will begin to experience the mindset shift necessary to IMPLEMENT the solutions to these problems.

If you’ve taken the time to follow this series of blogs, thank you. My hope is that you will share these blogs with employers and public plans everywhere. Healthcare is fixed, join us to scale these fixes, and restore health and hope to health plans across the country.

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