Volume 2
Oct 2010
About the Author
From the earliest phase of his career, Jeff Slay saw the
importance of exceptional client service. In 1988 Slay
started a benefits operation associated with a regional
Property & Casualty brokerage/consulting firm.
This firm became Integrated Insurance Services,
the precursor to Neovia, with Jeff continuing as
Founder and CEO. In 2008, Slay and his partner
Jeff Yoos rebranded Integrated Insurance Services
as Neovia, or “new way” to further differentiate their
firm’s unique position in the market. Slay remains
genuinely passionate about Neovia’s ability to provide
solutions to a broken health care system and make
the process easier for employers, their employees and
their families. Slay received his Bachelor of Arts in
English from California State University, Fullerton.
If you would like to contact Neovia, please email
[email protected] or call 800-549-1830.
Santa Barbara
90 Castilian Drive, Suite 110, Goleta, Ca 93117
Irvine
17811 Gillette Avenue, Irvine, Ca 92614
Pasadena
234 East Colorado Boulevard, Suite 450, Pasadena, Ca 91101
More
Than A
Band-Aid
Exploring solutions to the broken Health Care System.
Illustrated by Ronald Kurniawan
More
Than A
Band-Aid
Written by Jeff Slay
Founder and CEO of Neovia Insurance Services
H
ealth care costs for businesses and their employees
continue to escalate through 2010 – with no
foreseeable end in sight. This is the first article in a four-part
series that will provide a health care industry snapshot and
importantly outline how companies can not only address, but
contain the epidemic of rising health care costs. This first article
gives a primary overview of the multiple causes of increasing
prices and suggests possible remedies. The rest of the series will
provide a deeper analysis of solutions that companies can integrate.
The Patient Protection and Affordable Care Act was signed into
law in March of 2010. Unfortunately, the law did little to address
rising costs specifically for businesses.
Costs are projected to rise 66 percent between 2008 and 2017
according to the Centers for Medicare & Medicaid Services
(CMS), Office of the Actuary. In normal economic times health
cost and insurance increases put major pressure on businesses
and their employees, but can be devastating in the middle of a
recession as businesses try to make their way to recovery.
Some of the primary causes for escalating health care costs
include advances in technology, cost shifting from Medicare
and Medicaid to private payers (businesses who provide health
insurance to their employees), the high cost of regulatory
compliance, and unhealthy patient lifestyles. There is also a
large disparity between what consumers pay for health care and
what they receive. For instance, the most expensive treatment
facility or provider is not always the best for the patient.
Medical Advances and the High Cost of Technology Have
Caused Health Care Costs to Increase
It is undisputed that advances in medicine and technology have
not only saved lives but dramatically improved the quality of
lives of those who have suffered illness. For example, the care of
premature babies has also improved dramatically in recent years.
Technology has saved many newborn babies born prematurely
that in previous generations would have been lost. Neonatal
Intensive Care Units run approximately $1,800 a day. This does
not factor treatment costs for the newborn which may consist
of expensive drugs and treatments including organ transplants.
Another example, implantable cardiac defibrillators regulate
the heart and reduce death by heart attack by 30 percent.
They are frequently installed in heart attack patients at a cost
of $68,000 to $102,000 per procedure. Ironically, medicine that
helps a heart attack victim and extends their lifespan, increases
their likelihood later in life to be diagnosed with cancer or
Alzheimer’s – two of the most expensive illnesses to treat.
1
During the recession, Congress passed laws in 2009 and 2010
to extend and subsidize COBRA-coverage for terminated
employees. Businesses had to front two-thirds of the cost which
the government would reimburse at a future time. Employers
were required to send out notifications to employees who had
previously declined coverage and then administer those plans
at their cost.
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Vol 2:Oct 2010
Cost Shifting
Another factor that dramatically affects the health insurance
premium costs for business is cost shifting. Specifically, both
Medicare and Medicaid underpay physicians and hospitals
relative to their costs. The caregivers then pass on these costs
to consumers who have better insurance. Therefore, consumers
with insurance through employers are being charged more
than they should. Illustrated in the graph below, California
consumers with insurance paid approximately 56 percent more
for hospital services than the government through Medicare.
Escalating Price
due to Cost Shift to Private Payers
OSHPD Financial Reporting
• CA Hospitals as a whole are barely breaking even.
• As of 2008 Medicare and Medicaid underpaid CA
hospitals by $5.6 billion, in addition to annual losses
of $2.1 billion on other indigent programs/charitable
care which also shift costs to the privately insured.
Payer Type
California*
US Average**
Medicare
-14.2%
-9.4%
Medicaid
-19.8%
-14.7%
Commercial42.5%
23.1%
County Indigent -57.2%N/A
Other
-39.8%N/A
* 2008 CA OSPHD Hospital Financial Reports
** December 2008 report released by Milliman prepared for the AHA,
America’s Health Insurance Plans, Blue Cross Blue Shield Association
Chart data derived from CA Office of Statewide Health Planning and
Development (OSHPD) Hospital Financial Reports 2004 – 2008.
Government Makes the Rules – Businesses Pay the Price
Companies are especially feeling the pinch when it comes to the
high cost of regulatory compliance. With government COBRA
and HIPAA regulations to contend with, businesses must hire
staff to handle the mountain of paperwork and procedural
issues to make sure they are always in compliance.
HIPAA privacy laws require a business to protect personal and
private health information. A business must bear the costs to set
up certain processes, protocols and systems including upgrades
in technology and encryption or face fines of $10,000 per
infraction up to $1,500,000.
We must give employees and their families the information to
make wise and informed decisions not only regarding cost but
best medical outcomes.
A New Model for a New Era in Health Care
As noted above, a number of factors are causing health care
costs and health insurance premiums to increase at a much
higher rate than inflation. Plan design changes and a wellness
fair are not solutions to this complex set of issues. Below is a
broad solution outline which will be explained in further detail
in future writings.
The recent Health Care Reform legislation requires insurance
companies to offer over-age dependent coverage to individuals
previously not eligible, adjust coverage limits to unlimited
lifetime benefits, and significantly increase and cover wellness
benefits for all employees and dependents as prescribed and
First, an assessment must be completed. A business must review
regulated by the law. The costs to modify all of these contracts,
its costs, premiums, and claims relative to the norm adjusted for
including legal review, filing plan changes with state regulatory
plan design, demographic, and geographic variances. Although
agencies, and communicating the contract changes to plan
it may not be actuarially valid if a company only has 50
members will cost millions of dollars. The actual cost
or 100 employees, a business must understand
of providing the newly extended and enhanced
its starting point.
There are seven
benefits will cost even more. Independent
chronic conditions according to the Second, a company must perform
actuaries and the insurance carriers are
projecting that it will raise claims and
Milken Institute that cost Americans analytics to understand which
therefore premium costs 3 percent to 5
factors are having the most
percent above the already high trend.
impact on their employees and
therefore the business premium
Changing Employee Lifestyle
costs. It’s important to determine
Choices Can Change the World
what specific factors are causing
Lifestyle choices also significantly affect
cost increases. Is it cost shifting,
health care costs. There are seven chronic
compliance costs, lifestyle choices or
conditions, according to the Milken Institute,
chronic conditions? Is it a combination
that cost Americans $1.3 trillion annually. These
of these factors that is impacting the costs,
conditions include hypertension, mental disorders,
and if so, to what degree? Are costs primarily with
diabetes, cancers, strokes, pulmonary and heart disease. Nearly
employees or the dependents? Does the company have a higher
half of all Americans suffer from a chronic condition which
percentage of pregnancies? What are the chronic conditions in
accounts for 75 percent of our nation’s health care costs,
the company’s population? What percentages of the covered
according to The Center for Science in the Public Interest.
individuals are overweight or obese? Where are employees and
More than half of these costs are due to personal lifestyle
families going to receive treatment relative to costs and quality?
choices as indicated by The National Center for Chronic
A company must realize there are significant issues relative to
Disease Prevention and Health Promotion. Data from the “2008
privacy and HIPAA in completing step two of performing analytics.
Milliman Medical Index” indicates that for a family of four with
medical costs of $15,609, $7,804 of that is tied directly to health
Finally, after understanding the business’s costs and the specific
behavior. For employers who provide health insurance for their
factors that affect it, a specific laser-like approach and action
employees and dependents, these behavior costs can and should
plan must be formulated and executed to address these issues
be reduced.
and bend the cost curve. What are the areas that need to be
addressed? What solutions or resources are available through
Experts also note that obesity is at epidemic proportions in our
the insurance carrier? Does it make sense for an employer to
society. The annual cost to care for an obese patient is $5,500
spend money to address any of these issues? Will there be a
per person which translates to 39 percent more than the cost
return on the investment, ROI?
to care for someone in a normal weight range, according to
a McKinsey study that measured body mass index relative to
Working together to combat the broken health care system,
health costs. The cost disparity worsens as consumer’s age:
employees, employers and expert health care advocates can
obese patients aged 35 – 39 cost 55 percent more while obese
make a significant difference in the bottom line. A multipatients over the age of 40 cost 91 percent more than normal
pronged approach can help companies feel like they are back
weight range patients.
in control of health care costs again, not only creating a healthy
financial future, but a healthy roster of employees and families,
How to Offer Quality Treatment Across the Board
which is the true end goal.
Patients and employers are concerned not only about health
care costs, but the quality and consistency of care for the price
About the Article:
paid. According to a McKinsey study, the cost of a coronary artery
This article is not intended as political commentary on Health
bypass graft in exactly the same metropolitan area found that
Care Reform. The author does not want to diminish that the law
hospital 1 charged $49,158 while hospital 2 charged $69,059 for
addressed covering the uninsured, over-age dependents, and
the same procedure. As indicated by the Centers for Medicaid &
prohibitions on cancellation of coverage for those who are sick
Medicare Services (CMS), hospital 1 had a quality score of 86.5
by insurance carriers. The author will let the proponents and
while hospital 2 had a quality score of 85.4. The significant cost
opponents argue their respective cases. The intent of this article
difference between each hospital was not explained by a quality
is to address the reality of rising costs specifically as it pertains to
difference.
business and what can and should be done.
$1.3 trillion
annually
Vol 2:Oct 2010
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