Have we passed peak health care disruption?

Disrupting health care has been a hot topic the past few years, but it seems to me we have passed peak health care disruption and firms are now having to roll up their sleeves to do the boring, difficult work of creating incremental change.

The high point of disruption in health care (see chart below) looks to be the announcement January 30, 2018 from Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. of a health care joint venture to “address healthcare for their U.S. employees.”

What has happened related to that partnership in the last 18 months is the naming of the entity (Haven), some prominent hires (Dr. Atul Gawande), and some key staff departures (Jack Stoddard).

But there have been some notable smaller steps from two of the three Haven entities that signal feasibility and immediate impact are stronger drivers than disruption. While policy types may be interested in wholesale transformation, the business of digital health is concentrated on more immediate change.

Right after the Haven announcement, Amazon bought PillPack, an online pharmacy and platform that helps manage patient data. Last month, JPMorgan Chase & Co. bought InstaMed, adding health care payment services to the bank’s existing service offerings in wholesale payments. Knowing more about your customer and serving them better, just like in any other business, seems to be where health care companies are focused.

These kinds of digital health deals may be the wave of the future, according to RockHealth’s 2019 Midyear Digital Health Market Update. Their report (see chart below) shows a steady amount of digital health investing year-over-year, but an increasing average deal amount.

Perhaps more importantly, acquisition by non-health care companies is proving to be an increasingly likely exit ramp for digital health investors, as the PillPack and InstaMed deals exemplify. Providers and non-health care companies are stepping up their acquisitions of digital health ventures, as the chart below shows.

The next step in health care might be smaller than the word “disruption” implies. Over the past few years, health care has proven to be more complex than many tech companies and policymakers have thought. RockHealth quotes David Kim, Managing Director of DigiTx Partners, as saying: Big tech companies “are likely to acquire technologies and companies with expertise and domain knowledge that allow them to take that next step to health care without just diving in blindly headfirst.”

If disruption equates to diving in blindly headfirst, I agree. Health care change going forward is going to be data-fixated, consumer-focused, and incremental.

“Medicare-for-All” Understood as Lower Premiums for Me?

Proposals for Medicare-for-All, or more accurately, universal health coverage, are being introduced by both Congress and state legislatures at a rapid pace (see this useful interactive tool, The Many Varieties of Universal Coverage from The Commonwealth Fund). While policy types argue over how such a plan would be funded and how to set reimbursement rates for providers, and Wall Street frets about what single payer health coverage would do to health insurance companies, state legislators and regular people seem to have a different perspective. In my many conversations with people across the country about the idea of “Medicare-for-All,” I have found it striking how often people say they favor such an approach because they want lower health insurance premiums.

I think we may have a language problem. When health policy people hear “Medicare-for-All”, they think “change the health care delivery and insurance infrastructure from employer contributions to taxpayer contributions,” but maybe when regular people say “Medicare-for-All”, they mean “please find a way to lower my premiums”. The Kaiser Family Foundation Health Tracking Poll conducted in early January hints at the importance of lower premiums as a reason to support “Medicare-for-All” type proposals. As shown in the figure below, nearly 50% of people polled strongly favored proposals that allow people between 50 and 64 years of age to buy in to Medicare, or allow people to buy in to Medicaid, or create a plan like Medicare that is available to anyone. Getting insurance from a single government plan is strongly favored by only 34% of respondents.

These “buy-in” proposals may be gaining in popularity as people lose access to employer-sponsored insurance. Here is the math: “if the coverage rate for employer-sponsored insurance was the same in 2017 as it was in 1999 (67.3%), almost 24 million (or 23.8 million) additional people would be covered through an employer plan in 2017.”

It’s easy to understand why people would focus on lower health care premiums; rising premiums are having a big impact on household incomes. As fewer people are receiving health insurance through their employer, they are also being exposed to higher costs for health care premiums. We pulled recent information on employer and worker contributions for health insurance, the average national premium for a person earning just over 400% of FPL ($49,000) to buy a health plan on the ACA Exchange at various ages, and Medicare premiums. We then created a rough comparison chart of what premiums an individual might have to pay for health insurance based on how they accessed coverage. Below is what we found:

Notably, the average annual premium for employer-sponsored coverage of an individual was about $6,900 last year. But employees usually paid just 18% of that amount. For people who may have been covered by their employer for years, and then have to buy insurance in the ACA Exchange, the loss of that employer-sponsored contribution to their health insurance coverage could be quite a shock.

It’s a catchy phrase and easy to hashtag in social media, but is the appeal of Medicare-for-All driven largely by the hope that a person’s premiums will be lower? Is Medicare-for-All the best or only way to achieve lower premiums? As with all policy issues, we should probably start with the key question, “what problem are we trying to solve” and then go from there, always checking to see that we are, in fact, addressing the problem we are trying to solve with a workable solution.

Same health care, different setting, but much higher costs

There is so much health care news happening right now, you may not have seen this, but different services cost different amounts, depending on where they were delivered. While this concept isn’t necessarily news to health care policy types, this latest data set and accompanying graphics make the issue clearer than ever and beg for a policy fix.

The Centers for Medicare & Medicaid Services (CMS) finalized the Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs Rule November 21, 2018, implementing site neutral payments for hospital outpatient clinic visits. The policy essentially reduces payments for services provided in outpatient settings to the same level as the payment made for the same service in a physician’s office.

However, the policy change applies only to Medicare, which covers less than 20% of the U.S. population. The commercially insured, for example, via employer-sponsored insurance and the individual and small group market, account for 56% of the population (see Charles Gaba, The Psychedelic Donut: Types of Coverage in the U.S.).

Wouldn’t a similar policy for people who receive health insurance outside of Medicare be a way to reduce costs?

Outpatient setting is always more expensive…

The Health Care Cost Institute compared a common set of services performed in physician’s offices and outpatient hospital settings and found “for this set of services, the average price was always higher in an outpatient setting than an office setting.”

Services that saw a significant change when provided in an office vs. an outpatient setting varied by service. Some of the bigger changes were for ultrasounds, upper airway endoscopies, and drug administration. For example, “in 2017, 45.9% of level 5 drug administration visits occurred in outpatient settings, compared to 23.4% in 2009.”

Not only did prices increase over time for both settings, the site differential for some of the visits was stunning.

We took the HCCI info and added a calculation of our own for a few of the visit types to show the percentage difference between the price of a visit in the office setting vs. outpatient setting, as shown in the table below.

It is also something that should be made transparent to patients. As mentioned in a recent , health care costs are rising and people are struggling to afford those costs. States are passing transparency bills left and right (hospital transparency, drug price transparency), even though it is unclear how “transparency” actually lowers costs. However, implementing site neutral payments for all payers (not just Medicare) is a more obvious, and more immediate, improvement to rising health care costs.

What the Midterms Mean for State Health Policy

The midterm elections have happened and all signs point to health care as a top issue in state legislatures in 2019. We have been telling our readers (and clients) this for several months, and Drew Altman, President and CEO of the Henry J. Kaiser Family Foundation, wrote in a guest post for Axios today: “most of the real action affecting people will be in the states.”

Approximately 4 in 10 voters told exit pollsters health care was the top issue for their voting choices. This isn’t surprising as health care costs are going up by about 5% a year, and consumers are being asked to pay a higher share of those costs, which is clearly putting pressure on state policymakers to do something.

States are under particular pressure because they are responsible for overseeing the individual and small group health insurance markets and Medicaid. Why does this matter? Because an increasing proportion of people are working, but don’t have access to employer-sponsored insurance, and can’t afford health insurance being offered in their state.

That is, people have jobs, but the jobs don’t offer health insurance.

In The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015, researchers at the National Bureau of Economic Research (NBER), Lawrence Katz from Harvard University and Alan Krueger of Princeton University, estimate:

…all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements.

The researchers found between 2005 and 2015 workers in alternative work arrangements, such as “temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.1 percent in February 2005 to 15.8 percent in late 2015.”

For these “gig workers,” buying health insurance coverage, for example in the Obamacare exchanges, means high premiums (see ) and very high deductibles, as the chart below from Avalere shows.

Deductibles of $4,000, $5,000, $6,000 are rarely seen in large employer insurance offerings. Only 20% of covered workers in large firms in 2018 had an annual deductible of $2,000 or more. Compare that to 42% of workers with a deductible of $2,000 or more in small firms (fewer than 199 workers), as the Kaiser Family Foundation chart below shows.

For the parts of the health care market states oversee, including the individual and small group insurance markets, state employees, and Medicaid, states will have their hands full in 2019 as they try to manage health costs for constituents who are working but can’t afford the health insurance options available to them.

It’s hard to understand why it’s reasonable that a freelancer or person working in a small firm can’t have access to the same affordable, robust health coverage as their counterparts in large firms.

It’s Open Enrollment for Health Insurance. Am I a Small Business?

Open enrollment started today for the approximately 15 million people – less than 5% of the U.S. population – who do not purchase their health insurance through an employer, or receive it via a government-run program, such as Medicaid, Medicare, or military health care. Likewise, for people enrolled in Medicare, or many employer plans, it is the season to be making a choice about what health insurance you’d like to have for you and your family next year.

As a small business owner, I am also faced with a decision about whether and how to offer insurance to my employees, and what to offer. Here is where the fun begins and where my work life as a state health policy consultant collides with my experience as an employer trying to do the right thing.

In Virginia, as of 2018, I can now choose between buying coverage in the individual market or the small group market. This is because the Virginia legislature passed SB672 this summer, revising the definition of “small employer.” Here is the super boring, but very important change as described by the Virginia Bureau of Insurance in a bulletin to health insurance carriers:

The new law broadens the definition of “small employer” in §§ 38.2-3406.1 and 38.2-3431 of the Code of Virginia (“Code”) to include a “self-employed individual, and to allow a sole shareholder of a corporation or a sole member of a limited liability company (“LLC”), or an immediate family member of such sole shareholder or sole member, to count as an employee of the corporation or LLC, provided that the individual has performed a service for remuneration under a contract of hire.

Why does this matter? Because the rates offered to me in the small group market are much lower than those offered to me in the individual market for the same coverage, in the same market, with the same selection of providers. The difference is stark as the table below shows.

Table 1. M2 Health Care Consulting Healthcare.Gov Individual v. Small Group Rate Comparison

Notably, the Virginia Bureau of Insurance admits in the summer bulletin, “the inclusion of sole proprietors in the definition of “small employer” does conflict with the definitions of “small employer” as administered by the Department of Health and Human Services, the Department of Labor, and the Internal Revenue Service, § 1321(d) of the Patient Protection and Affordable Care Act (“ACA”)…” [emphasis added]

But in its defense of possibly being in violation of federal law, Virginia argues first, that this provision “does not ‘prevent the application’ of the ACA,” and second, that other states have enacted similar laws.

Health care is confusing, expensive, and has become increasingly frustrating. Virginia decided to make a health care policy change this year that makes at least one small business less frustrated, while at the same time making health insurance options for me and my employees less expensive and we appreciate it. Let’s keep working on the system and see what else we can do!