A couple of weeks ago in writing about ERISA, I included some data on the stability of health benefits provided by large companies.  The Kaiser Family Foundation just released their 2008 Employer Health Benefits Survey.  Below is the updated chart from my earlier post.

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

The Kaiser Family Foundation’s Report also included an interesting table that provides some insight into what I wrote earlier this week about the differences in employer health benefits between high and low turn-over industries.  The relevant information from  the Kaiser report’s Exhibit 2.3 is below:

Percentage of Firms Offering Health Benefits by Industry in 2008
Agriculture/Mining/Construction                                                67%
Manufacturing                                                                           73%
Transportation/Communications/Utilities                                    89%*
Wholesale                                                                                74%
Retail                                                                                        40%*
Finance                                                                                    81%*
Service                                                                                     58%
State/Local Government                                                           97%*
Health Care                                                                              71%
ALL FIRMS                                                                          63%

[* Estimate is statistically different (p<.05) from all other firms not in the industry category.]

Given the findings of the research discussed in my other post, these industry differences shouldn’t be surprising.  However, I do wonder if after this week the Finance Industry will still be on the high end of providing health benefits.  Of course, it also raises the question of whether financial firms that survive through a federal “bailout” or “takeover” (whatever the end result is) will offer health benefits 97% of the time like state and local governments?  If so, then the number of employees that have access to health benefits may increase - although I also suspect that the number of employees in that industry may decline overall, and possibly add to the number of people without health insurance.

In any case, I’m confident that the issue of employees’ health benefits will not be a significant concern for those trying to work out stabilizing solutions for the upheaval in the financial industry.  This would be consistent with the priorities that led to the famous statement about the 1992 Presidential campaign, “It’s the economy stupid.”  Or was it, “It’s the stupid economy”?

After writing last week about Pitney Bowes’ experience in creating positive financial returns by providing quality health benefits for their employees, I attended a panel of alumni and faculty from the Yale School of Management that discussed the topic “Do Consumers Make Rational Healthcare Decisions?” (I’m told a video podcast will be available soon.)  While their consensus on this question was no, their discussion and Q&A included employer provided health benefits.

Professor Fiona Scott Morton noted that the value employers get from providing health benefits depends upon their industry - specifically whether the company retains employees or has a high turn-over rate.  This makes sense, since it would take time for employers to have a positive return on investing in employees’ health.  Professor Scott Morton also pointed me to a very interesting research article by professors at Duke and NYU that looked at this issue by analyzing data bases that included individuals occupations.*  By comparing workers in high and low turn-over industries they found several interesting things, including:

• Employers in low turn-over industries provide better health benefits
• Employees in low turn-over industries use more health care services while working
• Employees in high turn-over industries use more health care services when retired

This paper had many other interesting conclusions, and I’ll confess to not being able to fully assess all its conclusions because of some of the mathematical modeling used and the manner in which they presented their quantitative findings.  However, from what they said, I do wonder if much of the effect they observed could be due to higher wages in the lower turn-over industries.  This makes simple economic sense to me, because the researchers used average vocational preparation for the employees in the industry as a proxy for turnover (see footnote), and companies that depend on higher skilled workers would likely pay them more - which would also lead these companies to retaining their employees.   In addition, companies with lower skilled workers might also be less likely to provide paid sick leave as an additional form of compensation - which could account for the lower rate of doctor visits and preventive care the researchers found for the employees in the high turn-over industries.

What this means for health reform - and the future of employer-based insurance in the US - is that for some employers and employees the current situation works well, and seems to benefit society overall since retirees from higher skilled/low-turnover companies are less of a financial burden on Medicare.  However, for employees and employers in industries with high turn-over rates, the  employer-based insurance situation in its current form may not be working so well - although I’m still concerned about how much of the researchers conclusions are related to income -  either directly or as a proxy for less generous health benefits.  In any case, the findings from their paper point out some of the areas where our health system is working and others where it needs some fixing.  Hopefully reform initiatives in the coming months and years will address those realities.

* The researchers used the average Specific Vocational Preparation (SVP) - a Department of Labor categorization system used in the databases -  for each industry as a proxy for employee turn-over since other researchers have found an inverse relationship between average SVP and employee turn-over.

I recently heard Michael Critelli, Executive Chairman of Pitney Bowes Inc., talk about what the company has learned about the value of providing quality health benefits and services to their employees.

Because they have a workforce that is divided between their offices and customers facilities, Pitney Bowes has been able to conduct a natural experiment and see how providing access to different health and wellness services can effect their employees and the company’s costs.  What they found was that providing a good quality health benefits package in conjunction with healthy food and exercise options, etc., has reduced health care costs for their employees that work in their own offices compared to employees who work off-site.

I haven’t been able to connect with Mr. Critelli to get more data, but he did state that the saving have been around $2.3:1.  Pitney Bowes careers web-site states, “We recognize that our people are key to our success. Simply speaking, our business growth depends on the talent of our people.”  This sounds like the rhetoric that many companies use, but apparently at some level they actually put their money behind this statement.

Implications for Health Reform
At a time when some are proposing to shift the tax incentives for the purchase of health insurance from the employer to the employee - which would dramatically reduce the percentage of health insurance provided by employers - the experiences of companies like Pitney Bowes should be very informative.  Having grown up in the Insurance Capital of the World, I saw how companies that understand the value of employees health and satisfaction make extensive efforts to promote both.  Only time will tell what direction health reform will take in the US, and whether immediate cost reduction or longer-term health and productivity of the workforce will be the higher priority.

Placing health reform in an historical context shows how the debate has evolved. For example, the National Bipartisan Commission on the Future of Medicare was formed to address Medicare’s projected insolvency - at a time when the overall focus for health reform was on cost containment. However, while the Commission met and deliberated, the booming economy shifted the debate away from cost containment towards access and coverage expansion, and the Commission’s 1999 final report, proposed adding an expensive outpatient drug benefit to Medicare.

Comparing two more recent perspectives on the future of the US healthcare system also illustrates how thinking about health reform evolves.

In June, 2003, (6 months before Congress passed the Medicare Modernization Act), I gave a presentation to the Presidents of the State Medical Associations about the future of the US health care system. My conclusions were:

1. We will continue to have a patchwork system of private and public delivery and financing
2. Innovations – primarily genetics/individualized medicine and information technology – will change how medicine is practiced
3. Budgetary pressures will be a prime driver of change
4. Individual empowerment will continue to increase the role patients play in their own healthcare
5. There will be growing emphasis on demonstrating actual clinical and economic outcomes as a prerequisite for payment or regulatory approval.
6. There are (were) three directions the US healthcare system can go:
   A. “Consumer Opportunity”
   B. “More Medicare”
   C. “Comprehensive Care Management”

I posited that “Comprehensive Care Management” was the most likely outcome, and that integrated care management organizations that would be responsibile for the cost and quality of a patient’s entire range of healthcare services would become more prevalent and be the best way to improve the healthcare system.

I recently had the opportunity to reflect on this presentation while listening to Dr. David Blumenthal (Director of the Institute of Health Policy at Massachusetts General Hospital) give brief keynote remarks about the future of US healthcare to a group of policy interested medical residents. His top-line comments about where the US healthcare system is heading in the next several decades were:

1. The economy is a key indicator of healthcare spending – countries with higher per capita GDP spend a higher percentage of their GDP on healthcare.
2. Technology is changing the nature of clinical medicine as well as patient-physician interactions and relationships. In the future, these relationships will likely be more collaborative.
3. The private insurance market will change over the coming decades, with movement away from the current employer-based model to more individual based insurance decisions.
4. Making changes in Federal laws and programs will be very different after the 2008 election, and changes in Congress may be more important than changes at the Presidential level
5. Globalization will affect medicine, with more international delivery of medical care.
6. Change is going to be more of a constant feature of healthcare. Success in the future will require being ready for change, embracing change, and managing change.
   

First, Dr. Blumenthal’s comments where much more coherent than mine. And second, although I disagree with his views on the eventual demise of the employer based insurance system, it is valuable to see how the health reform debate has evolved because of real-world changes over the last 5 years:

• The use of information technology by physicians in care delivery is no longer speculation
• Genomics-based diagnostics and therapies are now realities
• Safety and quality are much more prominent issues in the public debate
• Budgetary issue are still important, and the pendulum is in the process of swinging from how do we pay for universal coverage to how do we contain costs as part of an overall strategy for promoting economic growth.

There will continue to be lots of debate about health reform – particularly during this election year, and in the next Congress. I don’t think we’ll see the singular focus on health reform like we had in 1991-94, but it will certainly be a big topic for the President, the Congress and the Country, and as Dr. Blumenthal noted (and I wrote last month), the economy will be a major influence on public and private health reform discussions and actions.

What do you think will happen, and when?

A recent report from the Pew Foundation indicated that 1 out of 100 adults in the US get free government health care with no premiums, deductibles or co-payments. The reason this report didn’t get more media attention was because the 1% of Americans getting free government health care are behind bars – as in prison or jail.

The Pew report indicates that for the first time, more than 1 in 100 adults in America are in prison or jail. That’s over 2.3 million in state or federal prisons or local jails, and the numbers and percentages have been growing. (See the Department of Justice chart below)

This data is an interesting launching point into other aspects of our current health care system’s problems:

First, health care costs for people behind bars represent about 10% of the costs of incarceration. (In 2004 this was about $3.7 billion.) And as the Pew report notes, “Under the 1976 U.S. Supreme Court ruling Estelle v. Gamble, states are compelled to provide a constitutionally adequate level of medical care, or care that generally meets a “community standard.” (I assume that Federal prisons are required to meet a similar standard.)

This was the basis for Harris Wofford’s 1991 successful campaign message, (in a special election for the US Senate), that Americans in jail have a guaranteed right to health care, but nobody else does. He was quoted in the New York Times in 1994 as saying about health insurance: “The wealthy have it. The poor have it. If you go to jail, you have it. Only the middle class doesn’t have it, and I don’t think that makes much sense.” (It will be interesting to see how the health care issues of costs and access play out in this year’s elections.)

Second, upon leaving prison (or jail) these individuals are not automatically enrolled in any type of health insurance. Given that they are likely making a difficult transition back into unincarcerated society, health insurance paperwork is probably not their highest priority. A study done by the American Public Health Association of parolees in Los Angles County described these challenges:

Many of the parolees’ illnesses go undiagnosed and untreated by prison physicians. To exacerbate the problem, California’s prison-based health care system does not prepare parolees to use public and private health clinics in the counties where they will reside. There is no coordination between counties and prisons in planning for the continued care of inmates after they are released.

Most parolees do not have medical insurance or stable sources of medical services. Eligible parolees may sign up for various programs but few do, often because they are unable to complete required application forms, do not possess appropriate personal identification documents, and/or have no permanent address. If parolees do succeed in applying for public health insurance programs, they often experience long delays while their enrollments are finalized.

Third, these individuals have more health care needs than average. As the APHA report found, parolees in LA County had:

• 4 times higher rate of active tuberculosis
• 9-10 times higher rate of hepatitis C
• 5 times higher rate of AIDS
• 1.5 -5 times higher rate of mental illness

Fourth, about 25% of children get health insurance through Medicaid or the State Children’s Health Insurance Program (~34 million), about another 24 million adults have insurance through Medicaid, about 3 million Americans get health care from the Veterans Affairs (VA) health system, and over 8 million have health insurance benefits through the Federal Employees Health Benefits Program.

Together this all paints a picture where multiple government health systems lack coordination. One of the most likely pairs for coordination would be the government run Department of Defense and Veterans Administration health programs, but they have had significant coordination problems that they continue to work on today. Conversely, one of the best examples of coordination may be in the private sector, where people can transition from one private insurer to another if they maintain insurance coverage. However, this ability is not an innate result of the market, but was a provision in the Health Insurance Portability and Accountability Act (HIPAA) of 1996, and illustrates the managed-market reality of the US health care system.

Some would argue that this all just means we should have a single-payer health care system. However, while that may look good in theory, the challenges of getting from our current system to a single payer program are beyond huge. And even if that is our ultimate goal, getting better coordination between programs would make lots of sense – as would making it easier (or routine) for people being released from behind bars to get health insurance. After all, we do this for people leaving their jobs by enabling them to continue their employee coverage (this was in the 1986 COBRA law), and then transition to another private insurance plan under HIPAA. So we should be able to do something similar for people being released from jail, shouldn’t we?

What do you think?

The National Federation of Independent Businesses (NFIB), just launched their health reform campaign called Solutions Start Here. Their 10 small business principles for healthcare reform includes:

Evidence-based:
The healthcare system must encourage consumers and providers to accumulate evidence and to use that evidence to improve health. Appropriate treatment choices and better wellness and preventive care should be key outcomes.

Current information and decision systems make it difficult to accumulate, interpret and use evidence affecting treatment decisions. One result is overspending on treatments and underspending on prevention. Decision-makers must understand the impact of their decisions on both costs and outcomes. Such an understanding must be based on solid clinical and economic evidence.

(The NFIB’s other 9 reform principles are Universal, Private, Affordable, Unbiased, Competitive, Portable, Transparent, Efficient, and Realistic.)

As I’ve said before, evidence-based medicine is great in theory, but like a lot of good theories, it can go sour in practice. Thinking about the NFIB’s membership and how they might do business based upon evidence-based value of their products and services, selling undercoating for automobiles came to mind. I’ve been told that buying this dealer sprayed on stuff (versus what’s applied at the factory before the car gets trucked hundreds or thousands of miles to you) is a waste of money - and of course getting undercoating applied to used cars makes even less sense.

Applying evidence-based standards to many products and services would be great, but it could also drive many small businesses into bankruptcy - because either the evidence shows there is no value, or the business isn’t big enough to pay for the research to generate the evidence. Of course I realize that healthcare companies are generally not small businesses, but the same principles of investing scarce resources should apply - What goals are we trying to achieve (improve quality? control costs?); How much are we going to invest in a particularly project or problem area (both dollars and experts’ time that can only be used once); What are the expected returns towards our goals from those investments, and how are we going to measure that progress? Many of these questions seem to remain unanswered in the healthcare debate, and in the push for more “evidence-based” medicine.

Any other thoughts on EBM?

The January 26th issue of The Economist had a short article about growing healthcare costs in the US. It pointed out (referencing CMS as a source), that healthcare costs had increased 6.7% from 2005-2006, but that Medicare spending had increased 18.7% What these numbers reflect, (but the Economist article only implies), is that because Medicare Part D started in 2006, spending growth shifted from private spending (and Medicaid) to Medicare. Looking at the actual data shows this to be the case:

• Public sector healthcare spending increased 8.2% in 2006 compared to 2005; Greater than the 7.1% the previous year
• Private sector healthcare spending o increased 5.4% in 2006 compared to 2005; Less than the 6.1% the previous year

Looking closer at the data is even more interesting. For 2006 compared to 2005:

• Medicare spending increased 18.7% compared to the prior year’s 9.3%
• Medicaid spending declined by 0.9% (the first decline in the history of the program) compared to a 7.3% increase the prior year
• Spending on private health insurance increased 5.5% (the slowest rate of growth since 1997) compared to 6.2% the prior year
• Out-of-pocket payments increased 3.8% compared to 5.2% the prior year

However, although total Medicare spending has increased, Part D spending has been tens of billions of dollars per year lower than originally projected.

What do you think this all mean for:

• Longer term spending within the US healthcare system?
• The political fighting over Part D?
• Changes to Part D’s structure (e.g. donut hole), and financing?
• Medicare’s contracting with managed care plans in Medicare Advantage (formerly Medicare+Choice)?