Pharmacy costs for a family of four reached a record high, exceeding $3,000 in 2012. Many health plans are already working with physicians to utilize generic medications versus the more costly brand-name drugs where appropriate. Some plans also offer discounts for purchasing a 90-day supply of medication versus a 30-day supply, or for receiving medication through a mail-order pharmacy.

The cost of hospital inpatient care rose 7.6% to $6,531 per family of four, making it one of a household’s biggest annual health care expenditures.

The Milliman study also analyzes the variance in the cost of health care in 14 different cities across the United States. “While the underlying drivers of healthcare costs are ultimately the same—the cost of services provided and the volume of services utilized—they vary from one location to another.” Miami, with annual health care costs for a family of four averaging $24,965, was the most expensive city studied, and Phoenix, with costs averaging $18,365 for a family of four, was the least expensive.

AHIP’s Innovations in Recognizing and Rewarding Quality report details steps health plans are taking to improve health care quality while reducing costs.

The video below explains health care cost drivers and provides perspective on the numbers in this year’s Medical Index.

“Exchanges work best when they are true marketplaces that maximize choice and competition so that individuals, families, and small businesses can purchase plans that are right for them. States are in the best position to establish exchanges because they have the experience and local-market knowledge to meet the consumers’ needs. If a state chooses not to establish its own exchange, any exchange that is implemented should seek to preserve consumer choice and avoid regulatory duplication that will add complexity and increase costs for consumers. We appreciate that the Department has prioritized minimizing administrative burdens, encouraging choice, and preserving the states’ traditional role of regulating health insurance as these exchanges are developed.

“Allowing all health plans that meet new quality and performance standards to offer coverage in an exchange will help ensure competition and preserve consumer choice. Moreover, we agree that exchanges should be developed with input from all stakeholders to ensure they are able to provide individuals, families, and small businesses with the most accurate and up-to-date information about all of their coverage options.

“We are currently reviewing the guidance and look forward to submitting detailed comments.”

With the release of Milliman’s 2012 Medical Index finding that the yearly cost of health care for the average family of four with insurance will for the first time top $20,000, the message is clear: something needs to change.

As AHIP CEO Karen Ignagni wrote in an op-ed for the Institute for HealthCare Consumerism 2012 Outlook publication, “Health care costs are crushing the economy, eating up state budgets, frustrating employers and causing consumers to make difficult kitchen table tradeoffs. In the past 50 years, health care expenditures have risen five times faster than the economy has grown.”

Health plans are already working to advance delivery system reform across the country, offering higher-quality care at a lower cost. The patient-centered medical home (PCMH) is one such model of reform. The PCMH “replaces episodic care with a sustained relationship between patient and physician and involves health plan partnerships with medical groups, organized or virtual, as a ‘medical home’ for patients,” according to AHIP’s issue brief, Transforming Care Delivery. A PCMH encourages collaboration between care providers and patients, addressing patients’ needs and medical preferences. With this model, the use of high-tech radiology among participating physicians has decreased, as have emergency room visits, over non-participating providers. Testimony by Marcia James of Humana at today’s hearing references a PCMH partnership that has already shown a 34% decrease in emergency room visits, 10% improvement in diabetic management, 15% improvement in blood pressure control and 22% decrease in patients with uncontrolled blood pressure.

The PCMH is just one aspect of a shift toward coordinated care. Health plans are encouraging patients to engage in treatment decisions and make evidence-based health care choices. This allows patients to better adhere to treatment plans and wellness programs designed for their specific conditions. Some health plans offer patients incentives for reaching health goals, or offer ways for the patient to better manage a chronic condition, such as providing blood glucose monitors to diabetics to better manage hemoglobin levels.

Accountable care organizations are another rising trend in delivery system reform. Accountable care organizations, or ACOs, partner health plans with organizations of health plan providers, which are eligible to share cost savings if they meet certain goals to offer high-quality, lower-cost health care. Dan Kurose, who testified in today’s hearing, is CEO of Coastal Medical, which has partnered with Blue Cross Blue Shield of Rhode Island to work on ways to improve patient care. An AHIP study of ACOs published in Health Affairs found that “some of the health plans in the study reported approximately 10 percent improvement in quality [and] a 15 percent decrease in readmissions and total patient days in the hospital.”

Early results show that these efforts are producing favorable outcomes. According to AHIP testimony submitted to a Senate HELP Committee hearing on delivery system reform, “While still in their relative infancy, these reform efforts have demonstrated a range of desirable results within specific plan-provider partnerships. These results include: reduced preventable hospital admissions and readmissions; reduced preventable emergency room visits; better patient outcomes; higher patient satisfaction; reduced practice variation; and better value.”

Other AHIP resources on delivery system reform:

• AHIP’s Ignagni: Health Plan Innovation Across the Nation
• Medicare Advantage Plan Provides Model for Improving Care for Patients with Diabetes
• AHIP Innovation report series highlighting health plan innovation in health care delivery and quality improvement
• AHIP’s Summit on Shared Accountability, showcasing a variety of payment models that health plans have implemented across the country

While heart rate and blood pressure are routinely checked in doctors’ offices, some groups are saying that body mass index (BMI) also needs to be regularly tracked and checked. BMI, the ratio of height to weight, is “the best way to identify people who have a weight problem,” but “just over 40 percent of adult patients in commercial HMOs had documented BMI measurements in 2009 and 2010, according to a survey by the National Committee for Quality Analysis.”

Health insurance plans are introducing behavioral modification programs designed to promote healthy eating and behaviors. Some companies are “exploring the use of financial incentives—cash payments or reduced premiums or deductibles—to motivate members to keep their weight in check and to adopt other lifestyle changes.”

AHIP CEO Karen Ignagni was quoted in the article, saying “Is there coverage [for obesity] is yesterday’s conversation. Today’s conversation is how to design coverage to encourage people to use and continue using it.”

Other AHIP resources on obesity:

• Facing the Challenge of Unhealthy Weight: Recommendations for the Health Care Community
• Reducing and Preventing Childhood Obesity, Health Insurance Plans Partnering in Communities

Treatment of the uninsured and the lower reimbursement rates from government-subsidized health care means that hospitals must shift the costs and raise rates on the privately insured. “‘There is no such thing as free care,’ said Rachel Garfield, associate director of the Kaiser Family Foundation’s Commission on Medicaid and the Uninsured. ‘When the uninsured use hospital services, if they are unable to pay, the hospital has to find another source of payment.’”

In some cases, this means hospitals must significantly mark up their rates to compensate for lost revenue. According to a commission report, some hospitals “must artificially mark up their charges by almost 200 percent in order to cover shortfalls due to uncompensated care, discounts to large HMOs, and low payments from Medicare and Medicaid.”

The prices of medical technology are another driving factor in rising hospital rates. Constantly improving medical technology is ever more costly, and Karoline Mortensen, assistant professor of health services administration at the University of Maryland, says hospitals “are in a technological arms race to get more expensive technology, which will then attract better physicians.”

Washington Post’s Wonkblog examined the prices of medical services in the United States compared to other countries, and found that in the vast majority of cases Americans were paying higher prices than residents of other developed countries, in large part due to expensive medical technology. “Unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high.”

At times, access to these newest technologies doesn’t provide significantly better benefits over other noninvasive treatments. An article in Newsweek reported that “…surgical procedures such as stenting often don’t improve survival rates in studies any more than noninvasive treatments like drugs, exercise, and a healthy diet.”

So how can health care stakeholders help constrain these rising costs? Rather than staying with the traditional fee-for-service model, in which physicians are compensated based on the volume of care, some health plans are recognizing and rewarding physicians for the quality and effectiveness of their care. AHIP’s Innovations in Recognizing and Rewarding Quality report details some of the ways health plans are working with providers to provide higher-quality patient care at a lower cost.

So how do we go about reducing this waste? Transitioning away from the typical fee-for-service reimbursement system is moving in the right direction, but going a step further and empowering patients and consumers to take a more active role in their care will lead to even greater success in patient care and lowered health care costs. Many insurers and employers are already working to encourage patients to use “high-value prevention and screening services, and away from other procedures that may have a low chance of success.”

Chronic conditions—such as heart disease, hypertension, obesity and diabetes—are a key driver of health care costs. According to the Partnership to Fight Chronic Disease, treating patients with chronic diseases accounts for 75 percent of the U.S.’s health care spending. Many health plans are working closely with medical professionals and patients to better manage and prevent chronic conditions, as discussed in the AHIP report Trends and Innovations in Chronic Disease Prevention and Treatment.

Patients who are engaged in their care may also be able to avoid the high costs associated with unnecessary testing. An article in Kaiser Health News reported on a study that found that 12 unnecessary tests and treatments accounted for $6.8 billion in annual health care spending. “Patient expectations drive some of the spending…[because] sometimes simple directives, such as drinking less alcohol or getting more exercise, aren’t what patients want to hear.”

One of the easiest ways to reduce health care waste is simple—by taking medications as prescribed. “More than 20 percent of first-time prescriptions are never filled, and 50 percent that are prescribed for chronic conditions are not renewed after six months. Non-adhering behavior drives up system costs due to unnecessary emergency room visits and preventable medical complications.” AHIP’s Innovations in Patient Safety report discusses way in which health plans are assisting patients with follow-up care and medicine adherence, such as through phone consultations with patients following hospital discharge.

More AHIP resources on chronic conditions:

• Innovations in Chronic Care
• Health Insurance Plans’ Innovative Initiatives to Combat Cardiovascular Disease

Health insurance plans have a long-standing commitment to work with the populations they cover and the communities they serve, creating programs and initiatives that can make a real difference in people’s lives and well-being. Many health plans are handling the challenge of overweight and obesity through developing toolkits for physicians, establishing telephone or web-based weight management programs, and implementing healthy eating and physical activity programs in school and worksites.

Physicians and other clinicians have an important role to play, and body mass index (BMI) screening and counseling around weight-related behaviors are often a first step in helping individuals and families learn about the dangers of unhealthy weight and what they can do about it. Health plans are conducting outreach and providing assistance to physicians to help them address these issues with their patients, using efforts such as screening, counseling and referral.

Because public health experts agree that our weight, eating habits, and physical activity habits are strongly influenced by our environment – where we live, work, and go to school – health plans recognize they need to reach people outside the clinical setting as well. Recognizing that adults spend much of their day at work, health plans are working with employers to implement wellness programs that target behaviors related to weight – including providing health risk assessments to identify people who need to reduce their BMI, improve physical activity and eating habits, or who have other obesity-related conditions (such as hypertension, type 2 diabetes or prediabetes). At-risk members are informed about programs that can help them – such as working with a health coach either in person or more commonly, telephonic or online coaching, as well as participating in web-based programs, classes, or support groups. Incentives are sometimes a part of these programs, as a growing body of evidence demonstrates that incentives can increase engagement.

The obesity epidemic also affects children, and health plans’ efforts to reduce childhood obesity are occurring in schools, community farmer’s markets and health fairs, through working with local government, and through reaching out and educating parents and families. AHIP’s recent report, Reducing and Preventing Childhood Obesity: Health Insurance Plans Partnering in Communities, features a sample of the innovative programs that health plans have developed and implemented in their communities, in collaboration with schools, community groups, and policy-makers, to prevent and ultimately reverse childhood obesity.

Other AHIP resources on obesity:

• Facing the Challenge of Unhealthy Weight: Recommendations for the Health Care Community
• Innovations in Prevention and Wellness

The survey found that workers are uninformed about disability insurance, but when educated about the benefit, the vast majority say they want it and are willing to help pay for it.

According to the CFA/Unum survey, many employees tend to believe that injuries, rather than illnesses, are the cause of most disabilities that cause workers to miss work for more than three months. In fact, the reverse is true. “According to the Council of Disability Awareness, 90 percent of all disability claims paid are for common illnesses and health conditions. The reason for this misperception appears to be the more fundamental misperception that most disabilities are work-related, when, in fact, far more disabling conditions are related to conditions not attributable to work.”

Sixty-five percent of those surveyed believe their employers offer disability insurance, but the Bureau of Labor Statistics indicates that the number is much lower—only 32 percent of working Americans in private industry have access to employer-sponsored long-term disability insurance coverage.

The affordable cost of monthly premiums ($10-$30) for employer-sponsored long-term disability insurance made it of even more interest to those surveyed. Once educated about disability insurance, 90 percent felt employers should make disability insurance coverage available to employees, and 86 percent said they would be willing to pay half of the $30 monthly premium, with 56 percent saying they would pay the entire premium.

AHIP has several resources available on disability insurance:

• Disability Insurance: A Missing Piece in the Financial Security Puzzle
• Guide to Disability Income Insurance
• An Employer’s Guide to Disability Income Insurance
• Trends and Innovations in Disability Income Insurance

To learn more about disability income insurance, visit http://www.yourincomeatrisk.org/ and http://protectyourpaycheck.org/.

New case study examines Washington state’s experiment with guarantee issue in the absence of a mandate

Washington, D.C. – Consumers in the state of Washington experienced higher premiums and loss of choice following the enactment of guarantee issue without an individual mandate in the 1990’s. Washington’s reforms also failed to reduce the number of uninsured.

These are among the takeaways of a new case study released today by America’s Health Insurance Plans (AHIP) that examines the impact of the Washington state’s implementation of well-intentioned health insurance market reforms in the absence of a personal coverage requirement.

“When thinking about the impact of potential Supreme Court rulings, there is no substitute for real-world experience. Washington state’s experience demonstrated that passing market reforms without requiring broad participation in the system does not work.  The linkage is essential,” said AHIP President and CEO Karen Ignagni.

According to the study, the reforms Washington enacted in 1993 resulted in substantial increases in the premiums charged for individually purchased policies; a dramatic reduction in the number of carriers writing policies for individuals in the state from 19 to only two; and a 30 percent increase in the number of uninsured between enactment of the initial reform law and the turn of the new century.

The case study notes “the law was not implemented as originally intended, and as Washington residents soon discovered, unless these types of insurance market reforms are paired with an effective requirement for everyone to purchase coverage, serious market disruption is likely, creating real problems for employers, families and individuals.”

According to the Office of the Insurance Commissioner in Washington: “In 2000, a higher percentage of residents was uninsured than before the 1993 reform act, and our state’s three largest issuers in the market stopped writing new individual policies.”

AHIP recently released an updated study from Milliman Inc, examining the experience in states that enacted guaranteed issue and community rating reforms in the absence of an individual mandate. The report found that these states’ individual insurance markets deteriorated as consumers experienced higher premiums, coverage disruptions and loss of choice.

Studies from a range of independent experts have examined the impact of severing the mandate but retaining key Affordable Care Act market reforms. While the studies differ on the magnitude of the impact of severing the mandate, they all find that doing so would result in a dramatic rise in the uninsured population and higher premiums compared to heath reform with a mandate.

To learn more about the impact of delinking guarantee issue and community rating from the individual mandate, please visit http://thelink.ahip.org.

An article by Julie Barnes in The Atlantic Monthly discusses how the U.S.’s $2.6 trillion in health care spending is directly related to the fee-for-service (FFS) model of paying for care. The FFS model requires that payers reimburse providers for all services—including those that don’t lead to a positive impact on patient health.

Barnes writes, “Moving away from fee-for-service requires realigning the care delivery and payment incentives in the health care system. We must reimburse based on the quality and utility of care provided, not just the sheer volume of services.”

AHIP’s Innovations in Recognizing and Rewarding Quality highlights the steps health plans are already making toward paying for performance, not just services rendered.

Another article from The Atlantic Monthly says that lack of faith in the current medical justice system leads many doctors to practice ‘defensive medicine’ — ordering unnecessary tests and procedures to act as a defense against possible lawsuits. One solution? The creation of special health courts, which would feature an expert judge who “would decide cases based on best medical practice, writing an opinion that is subject to appeal to an appellate health court. Among other features, there would be a requirement of full disclosure by hospitals, and all facts would be fed back into the health care system so providers learn from their mistakes.”

The Health Affairs blog argues that the real problem behind rising health care costs is affordability and patients’ lack of knowledge of health care costs. Some 35-40 million Americans are covered by health insurance but cannot afford to pay the patient’s share of the cost. Increasing patient engagement with the true costs of health care is the “most powerful tool available to reduce the absolute cost of health care…and rewarding them for making intelligent, cost-conserving choices.”

A study from Commonwealth Fund compares health care spending, supply, utilization, prices and quality in 13 industrialized countries. Not surprisingly, the U.S.’s median spending of nearly $8,000 per person in 2009 far surpasses the median of all other countries ($3,000 per person). The study concludes that “higher spending is largely due to higher prices and perhaps because of more readily accessible technology and greater rates of obesity. Despite being more expensive, the quality of health care in the U.S. does not appear to be notably superior to other industrialized countries.”