Private Sector Controls Insurance No One's Surprise

Amidst populist rhetoric about skyrocketing insurance costs in the private sector, leading, of course, to justifying Obamacare's taxes, subsidies, and mandates, a brief overview of the facts paints a different picture.

The results of a survey just released by Mercer, a global consulting firm, show that growth in health benefit costs per employee have dropped to a 15-year low. More importantly, these savings came mainly from Consumer Directed Health Plans (CDHPs), with 59 percent of the largest employers offering a CDHP. These plans implement smart cost-sharing strategies (such as low premiums with high deductibles), with a Health Savings Account (HSA) that allows employees to save pre-tax dollars for routine medical spending, like over-the-counter drugs, while using insurance to cover non-routine spending like doctor visits.

Others (45 percent of all employers) are currently using or considering implementing a defined contribution model to fund employees' health insurance. Under such an approach, employers would contribute a set dollar amount to employees' insurance costs, which would typically allow employees a decent level of coverage, and if employees want extra coverage they add on their own money.

A large majority of employers have also embraced wellness strategies as a long-term strategy for controlling health spending. Employers typically provide a rebate or some other incentive if employees complete an annual health assessment, go to the gym, or stop smoking. Others, like Wal-Mart, have even established centers where a set of medical procedures (spinal surgery in Wal-Mart's case), are completely covered for eligible employees.

These savings have come from employers' desire to control health costs and keep their workforce healthy and productive - not from government mandates. Indeed, Obamacare attacks the cost-control measures that work best.

For instance, the law establishes a minimum actuarial value threshold of 60 percent for health insurance - this means that plans must cover at least 60 percent of a person's health expenditures. Of course, HSA-based plans cover less than 60 percent by definition, because they offer low premiums and rely on the individual's own contributions. Moreover, the Minimum Loss Ratio (MLR) rule in the law requires 80 percent of premiums collected to be paid as benefits. Once again, because HSA-based plans collect low premiums, they will often fail to meet these guidelines. Instead, insurers offering such plans will reduce deductibles and raise premiums, making them much less useful in controlling costs.

Other cost-control innovations are sprouting in the private sector as well. In 2010, United Healthcare began a pilot program with several cancer-treatment centers around the country to experiment with bundled payment systems. Instead of reimbursing doctors as they go, they would negotiate a fixed sum for a typical six to twelve month treatment regimen, allowing the oncologist to determine the details of the treatment. While results are still forthcoming, a study published in the Journal of of Oncology Practice that tracked the treatment costs of patients on "evidence-based pathways" and those that weren't, found that the survival rate was almost identical, while savings came to $9,000 in the last month of treatment. A bundled payment system would encourage evidence-based treatment, usually less expensive, rather than the more expensive, experimental treatment that may not improve survival.

The private sector's success in controlling health insurance costs should be a lesson to policymakers as discussions of how to control Medicare's spending without cutting benefits begin.

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