From the Desk of Bob McNett….

Why Do Health Insurance Costs Continue to Rise…..Year After Year?  There are a myriad of reasons for perpetually rising premiums.  The following gives an example of one of those reasons:  Expanding Health Care Technology.

Every year you get your call from Julie Pigg at The McNett Agency to set an appointment to review your upcoming yearly group health insurance renewal with me, your broker, Bob McNett.

Inevitably, most years this phone call brings news of some level of premium increase.  Often, I am told by a frustrated business owner…..”I wish I could pass along these type of price increases to MY customers!”  Even though I have been in the employee benefits business for around 35 years, I have yet to come up with a perfect answer to this statement, other than trying to explain what drives the cost of health insurance.  (We also bring expertise to the life and disability insurance market, along with Medicare coverages.  We do not do property and casualty insurance.)

There are a number of factors, but the following gives an example of one of those drivers:

I recently read an article about several newer, very expensive drugs , and how one insurance trade association, the national Blue Cross Association, is attempting to deal with covering these for their customers.

New drugs that will challenge Blue Cross and other carriers are drugs to treat non-alcoholic steatohepatitis (NASH), a common form of hepatitis, an often fatal disease of the liver, and new drugs for the treatment of chronic mIgraines.

For treatment of NASH, the FDA approved last year the chimeric antigen receptor (CAR)-T T-cell therapy, Kymriah, under which immune cells are removed from a patient, altered genetically and then transfused back in.  A single treatment of this therapy costs $475,000.  As an interesting exercise, I figured that an insurer, at an average premium of $400 per month for employee-only coverage, would have to collect this premium from a hepatitis patient for almost ten years to cover even a single treatment of this therapy.  The FDA approves a drug based on it’s clinical effectiveness and relative safety.  However, cost effectiveness is not taken into account as it is in other countries.

Dr. Eric Estes, R.Ph., senior director of pharmacy services for Independence Blue Cross explained, “Kymriah is a really, really big-ticket item.  Right now, it’s of somewhat limited utilization, but it will probably begin to increase in use, and we need to worry about it.”

Saying that Kymriah could have significant effect on costs in 2019 and beyond, Dr. Estes says that planning for covering this drug is happening “much earlier than we would have in the past.”

One possible outcome of this planning might be outcomes-based contracting.  Says Dr. Estes. “The start may be to sit down with these treatment centers and say, ‘For CAR-T therapy, the price the plan will pay will be “x”’—-$1 million or $1.5 million—- and it’s all in.  In other words, a one-time flat payment for all treatments.”

There are several expensive new drugs in the FDA pipeline to treat chronic migraine headaches.  Dr. Estes says there is a large population being treated with currently available therapies, including Botox, “so the uptake rate for these new drugs should be high.”

Estes says that Blue Cross will likely apply “step-therapy” rules to these new drugs.  Step-therapy has been used for years by insurers for many classes of drugs.  Basically, it requires that the patient try an older, less expensive, but still effective drug as a first therapy.  If this less expensive drug proves to be clinically ineffective for a particular patient, then use of a new, more expensive drug can be considered.    “Moving from Botox to these vastly more expensive drugs for all patients, regardless of the clinical need, would be a huge cost inflator” said Estes.

Even with these cost-control strategies, these drugs add still more pressure to health care costs.

Advancing medical technology is only one factor that affects health care spending in the USA.  Increasing population, obesity, older average ages (i.e., all us baby boomers,) firearm use, poverty, illegal and prescription drug abuse, and other factors, all weigh in to this difficult problem.

Average profit margin in the health insurance business is only 1 to 2 percent.  So, it is very easy for a health insurance company to get “upside down,” or lose money, if they do not practice careful, proactive planning. (Don’t pity the health insurance companies…even 2 cents profit on each of billions of premium dollars has made them darlings of the stock market in recent years.  Generally, these are some of the most efficiently managed, sharp-as-knives enterprises in American business.)

When I first started as a benefits broker in 1982, after a two-year stint with Blue Cross, there were lots of insurance companies offering group health plans to small companies.  Many life insurance and property casualty insurers offered group health plans as almost an afterthought.  All they had to do was print a brochure, open a claims processing office, and they were in business.  No PPO’s, HMO’s, pre-authorization reviews by insurance company doctors, or other cost control tools.  Just receive the premiums, pay the claims, and hope there was something left to put in their pocket. In the early 1980’s health care costs began to explode.  Over a period of time, most of these companies saw that they were unwilling to make the investment necessary to be effective in a business that was becoming much more complicated.  So, these insurance companies dropped out of the health insurance business to concentrate on their main areas of expertise.

Many insurance agents that offered health insurance as a small part of their services decided not to invest the time and money to compete in this more complicated area. (Unfortunately, some unqualified agents who make their living mostly in other areas of insurance, never ones to pass on making a buck, continue to sell health insurance.)  New agencies, like The McNett Agency, formed to specialize in these markets. New insurance companies formed, like United Healthcare, a re-focused Aetna, Humana and Cigna that are health insurance-centric, and willing to make the commitment in money and expertise to be successful in this business.   At the current time, in the Oklahoma group market, choices are limited to around three insurers for fully- insured plans, and a few more for self-funded plans.

The “Exchange,” now known as the”Marketplace”, run by the federal and some state governments to offer taxpayer subsidized, individual plans for folks that do not have access to employer-sponsored plans, began with about seven carriers offering coverage in Oklahoma.  After just a few years, only one of these carriers, Blue Cross of Oklahoma, remains as the sole choice.  The others abandoned ship, in short order,  when huge losses to insurers became evident.  Some of the more astute, big insurers, like United Healthcare, only dipped a toe in these waters early on, recognizing the gaping pitfalls inherent in the rules set out for insurers by the Affordable Care Act (no medical questions, no pre-existing condition waiting periods, same premiums for everyone sick or well.)  The under 50-employee group market has these same rules now, but had already moved to more of a guaranteed issue, no pre-ex market by previous legislation like HIPPA years ago.  Insurers selling individual policies in the pre-Affordable Care Act market took only very healthy people, had lengthy pre-existing condition waits and “riders” to permanently exclude coverage if an insured had a back problem or other problem to a specific body part.  (I once had a client that had his entire urinary system “ridered out” because he once took Viagra.  His response….”I don’t even take it any more because I don’t have a girlfriend.”  What could I say?)

So the changes wrought by the Affordable Care Act changed the individual  market 180 degrees.  Most of the carriers who operated profitably for years in the individual market have since gone out of business or been absorbed by other insurers since the advent of the ACA.

Next time Julie calls to set up your review, just know we are not just trying to squeeze more money out of you.  We are trying to keep your plan effective, matched to  your needs and preferences, and as affordable as possible.

I know how the old farmer felt……He bet his friend a dollar that he could “hold his water” for a week.  After a few days his friend inquired “How’s it goin’, Ralph?”  “Well,” he replies, “so far it ain’t goin’.  But it’s tough and gittin’ tougher.”

For The McNett Agency and our clients, it has been a difficult era post-ACA to help our business and individual clients keep good, reasonably priced health insurance.  It’s tough and gittin’ tougher.  But we ain’t goin’ nowhere yet.

Robert K. McNett, LUTCF

The McNett Agency
918 294 3712 Fax 918 494 6725
Toll Free 1 866 497 7119

Your small business insurance Tulsa company.