Zika Virus in the Americas
PERS PE C T IV E Med Trop 2015 December 22 (Epub ahead of print). 4. Morens DM, Fauci AS. Chikungunya at the door — déjà vu all over again? N Engl J Med 2014;371:885-7. 5. European Centre for Disease Prevention
and Control. Microcephaly in Brazil potentially linked to the Zika virus epidemic: ECDC assesses the risk. Solna, Sweden: European Centre for Disease Prevention and Control, November 25, 2015 (http://ecdc .europa.eu/en/press/news/_layouts/forms/
News_DispForm.aspx?ID=1329&List= 8db7286c-fe2d-476c-9133-18ff4cb1b568 &Source=http%3A%2F%2Fecdc.europa .eu%2Fen%2FPages%2Fhome.aspx). DOI: 10.1056/NEJMp1600297 Copyright © 2016 Massachusetts Medical Society. Zika Virus in the Americas
How Employers Are Responding to the ACA
How Employers Are Responding to the ACA Robert Galvin, M.D.
T
he Affordable Care Act (ACA) changed employers’ role in the U.S. health care system. Employersponsored insurance, a longstanding system component, provides health coverage for more than 160 million Americans. While preserving the employerbased system, the ACA fundamentally altered it by making the provision of health benefits mandatory rather than voluntary for employers with more than 50 employees and establishing minimum criteria for affordability and coverage. In addition, a “play or pay” model was created, providing employers with an exit: employees would no longer become uninsured if their employers dropped benefits but could instead purchase guaranteed and potentially subsidized insurance through public exchanges. Two financial milestones are leading employers to evaluate whether they want to play or pay. In 2015, employers with more than 100 employees became subject to a shared-responsibility penalty for coverage that didn’t meet federal standards; further down the road, a 40% excise tax on coverage over a maximum dollar value (the so-called Cadillac tax) is due to go into effect (implementation was originally set for 2018, but Congress recently voted to delay it by 2 years). Al-
604
though it’s still early in the game, employers are making key decisions that affect patients, health care providers, and insurers. So far, almost all employers have continued to “play.” Given that sponsoring health benefits is not a core business function, why are so few firms ceasing to do so? The biggest reason is that there is no cost advantage to discontinuing health coverage. The “simple math” that a $2,000 fine is less than the $10,000 average per-employee cost of coverage is complicated by the tax deductibility of employers’ health care contributions. The increase in non– tax-deductible salaries that would be needed to keep projected health care costs from damaging employee recruitment and retention efforts exceeds the savings an employer could expect from dropping health care coverage. A second reason is that the business community is skeptical that the government can manage large social programs efficiently and therefore expects the penalties to increase. And a third, underappreciated reason is that growth in health care costs has slowed substantially over the past several years, so employers don’t feel compelled to make a change. Private insurance exchanges have been promoted as a nongovernmental exit option. These
products allow firms to outsource the design and delivery of health benefits. They differ from the public exchanges in that employers can continue to be regulated under the Employee Retirement Income Security Act (ERISA) and remain self-insured — which means lower costs and less exposure to regulation — but employees receive no means-based subsidies. Despite aggressive marketing by such exchanges, very few companies have adopted this strategy for active employees, according to the Employee Benefit Research Institute. Most of the big-name companies that have pursued this route compete in low-wage labor markets in which offering health benefits is not considered essential to finding employees; their move to private insurance exchanges is not indicative of a broader trend. There’s no evidence that private exchanges can control costs any better than employers are doing on their own. Employers will face a second financial milestone if the Cadillac tax becomes effective in 2020. The provision, levying a 40% nondeductible tax on the value of health benefit plans exceeding a specified amount (currently $10,200 annually for individuals), has captured the attention of chief executives, who are focusing more on health care than they have
n engl j med 374;7 nejm.org February 18, 2016
The New England Journal of Medicine Downloaded from nejm.org on February 20, 2016. For personal use only. No other uses without permission. Copyright © 2016 Massachusetts Medical Society. All rights reserved.
How Employers Are Responding to the ACA
since the attempted Clinton health care reform of the 1990s. Given a 5% annual cost increase, 27% of employers could face this tax in 2020 (see graph).1 The tax’s future is uncertain, since both Democrats and Republicans have reasons to dislike the provision. Its outright repeal outside the context of broader tax reform is unlikely, given the amount of funding that would have to be replaced (about $87 billion through 2021), but its implementation could conceivably be postponed on an annual basis. The tax’s uncertain future is likely to moderate but not reverse employer actions to control costs. Employers will do what it takes to avoid paying a future tax but will slow down the pace of change if employees complain or if they encounter problems with recruitment or retention. Lacking the authority that the Centers for Medicare and Medicaid Services has to administer health care prices, employers have long struggled to control costs. Some approaches, such as selfinsurance, managed care, and competitive bidding of health insurers, have been effective. Others, such as efforts to influence employees’ lifestyle choices or to manage chronic conditions through call centers, have proved to cost as much money as they save. Increasing employees’ cost sharing has been the primary tool employers have used to address rising health care expenditures. To address the increased costs brought on by the ACA, employers have sought first to limit eligibility for coverage. Many have eliminated retiree benefits, and some are aiming to move workers to a less-than-30-hour work-
week so that they don’t qualify 50 for coverage. But curtailing hours 45 42 or cutting jobs has been more 40 difficult than predicted. Employ35 ers had already thinned out ex30 30 27 cess labor capacity over recent 25 decades, and it’s challenging to 20 shift workers to part-time employ15 ment while maintaining service 10 quality and customer satisfaction. 5 Some employers are reducing 0 coverage for spouses and depen2020 2023 2028 dents — but are wary of jeopardizing recruitment and retention. Percent of Employers Offering Health Employers have turned to two Benefits with Plans That Would Exceed new benefit designs to control Cadillac-Tax Threshold with 5% Premium costs: defined-contribution plans Growth. and consumer-directed high- Calculations include health plan premiums, employer contributions to health deductible plans (CDHPs). Both savings accounts, and contributions to attempt to make employees act health reimbursement arrangements and more like consumers — to make flexible spending accounts. Data are from choices based on prices and their a Kaiser Family Foundation analysis. preferences. Defined contributions affect employees at the coverage than buy up to more time of their annual choice of coverage,2 and CDHPs result in coverage. Employers fix their markedly reduced service utilicontribution on the basis of a zation.3 But CDHPs have engendered specific benefit design, and employees may “buy up or down” to controversy. Many policy experts purchase more or less insurance, believe this model is simply anbut without any additional em- other form of cost shifting that ployer subsidy for a more expen- leads enrollees to avoid necessive plan; less expensive designs sary care. Proponents argue that generally include narrower pro- CDHPs motivate people to behave as consumers, being smartvider networks. The CDHP model affects en- er about what interventions they rollees when they’re seeking a pursue and at what cost. One health care service. They are sub- study demonstrated that enrollees ject to a high deductible (about used price information to obtain $2,500 for individuals) and draw lower-cost services, with the largon an associated tax-advantaged est savings obtained in imaging health savings account. These and laboratory services.4 Other plans frequently provide access studies have indicated that higher to information on prices of ser- out-of-pocket costs result in less vices, and enrollees benefit finan- utilization of both unnecessary cially if they choose lower-cost and necessary services, and a reoptions. Early experience indi- cent report revealed no evidence cates that both these approaches of “shopping.”5 It’s unclear whethsave money in the short term. er the small percentage of any More employees in defined-con- population that accounts for the tribution plans buy down to less majority of health spending will Percent of Employers
PE R S PE C T IV E
n engl j med 374;7 nejm.org February 18, 2016
The New England Journal of Medicine Downloaded from nejm.org on February 20, 2016. For personal use only. No other uses without permission. Copyright © 2016 Massachusetts Medical Society. All rights reserved.
605
How Employers Are Responding to the ACA
PERS PE C T IV E
in fact shop for services on the basis of quality and cost. Although the definition of consumerism in employer-sponsored insurance is fuzzy, more than 45% of employers are offering such account-based plans, and the number is growing. Employers’ move to consumerism is having substantial effects on providers, ranging from decreased An audio interview with Dr. Galvin is use of services and available at NEJM.org challenges in collecting deductibles to demands for public release of information on prices and quality. In an environment of controlled health care costs and favorable tax treatment, employers
competing for skilled labor will continue to sponsor health benefits and not move employees to an exchange. The situation could change if and when employers’ health plans begin hitting the threshold for the Cadillac tax. Even then, however, whether to pay rather than play will be an economic decision made by individual companies, and I believe there will no rush for the exits. Disclosure forms provided by the author are available with the full text of this article at NEJM.org. From the Blackstone Group, New York; and the Department of Medicine, Yale University School of Medicine, New Haven, CT. 1. Clayton G, Levitt L. How many employ-
ers could be affected by the Cadillac tax plan? Menlo Park, CA:Kaiser Family Foundation, August 25, 2015. 2. Examining private exchanges in the employer-sponsored insurance market. Menlo Park, CA:Kaiser Family Foundation, September 2014. 3. The impact of consumer-directed health plans on costs, utilization, and care. Truven Health Analytics. April 2015 (http://truven health.com/portals/0/assets/consumer -directed-health-plans.pdf ). 4. Whaley C, Schneider Chafen J, Pinkard S, et al. Association between availability of health service prices and payments for these services. JAMA 2014;312:1670-6. 5. Brot-Goldberg ZC, Chandra A, Handel BR, Kolstad JT. What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. (NBER Working Paper No. 21632.) Cambridge, MA:National Bureau of Economic Research, October 2015. DOI: 10.1056/NEJMp1514649 Copyright © 2016 Massachusetts Medical Society. How Employers Are Responding to the ACA
Asymmetric Thinking about Return on Investment
Asymmetric Thinking about Return on Investment David A. Asch, M.D., Mark V. Pauly, Ph.D., and Ralph W. Muller, M.A.
L
ately, we’ve attended many conferences about providing health care to patients with high medical and social needs — people with chronic illnesses who are frequently readmitted to the hospital. It seems as if every presentation refers to “return on investment” (ROI), which is invariably presented as a constraint — as in “Our program kept people out of the hospital, but we just couldn’t get the ROI to work.” Heads nod understandingly, and then participants move on to other topics. At conferences about providing care for patients with cancer or other acute illnesses, by contrast, we almost never hear the term ROI. Instead, people talk about clinical gains, using understandable and patient-centered terms like “survival.” Though
606
high drug prices are sometimes mentioned, no one ever says the ROI is prohibitive. No one mentions ROI at all. ROI is the net profit of an investment (the money you got back minus the money you put in) divided by the money you put in. If you invested $100 and got back $110, you gained $10 and the return on your $100 investment was 10%. That’s good, as long as you can’t do even better by putting your $100 somewhere else. When people in health care colloquially say the ROI doesn’t work, though, they’re not saying they could make more money elsewhere; they’re saying they’re losing money. If your ROI equation’s numerator is negative — for example, if you put in $100 and got back $90 — there’s no way the ROI can work.
There is no obvious reason why ROI is more relevant to some clinical situations than to others. So why do we focus so heavily on ROI when the topic is chronic illness but rarely mention it when the topic is cancer? A huge amount of the cancer care we deliver provides such small personal and social gains that, were those gains monetized, the endeavor’s ROI would be deeply negative. And yet we ask, “What’s the ROI of that program that keeps chronically ill patients out of the hospital?” but not “What’s the ROI of treating advanced lung cancer?” There are at least three reasons for this difference. One is that from the financial perspective of doctors and hospitals, the ROI of treating cancer is favorable. Reimbursements for cancer care are high in part because the
n engl j med 374;7 nejm.org February 18, 2016
The New England Journal of Medicine Downloaded from nejm.org on February 20, 2016. For personal use only. No other uses without permission. Copyright © 2016 Massachusetts Medical Society. All rights reserved.
PERS PE C T IV E Med Trop 2015 December 22 (Epub ahead of print). 4. Morens DM, Fauci AS. Chikungunya at the door — déjà vu all over again? N Engl J Med 2014;371:885-7. 5. European Centre for Disease Prevention
and Control. Microcephaly in Brazil potentially linked to the Zika virus epidemic: ECDC assesses the risk. Solna, Sweden: European Centre for Disease Prevention and Control, November 25, 2015 (http://ecdc .europa.eu/en/press/news/_layouts/forms/
News_DispForm.aspx?ID=1329&List= 8db7286c-fe2d-476c-9133-18ff4cb1b568 &Source=http%3A%2F%2Fecdc.europa .eu%2Fen%2FPages%2Fhome.aspx). DOI: 10.1056/NEJMp1600297 Copyright © 2016 Massachusetts Medical Society. Zika Virus in the Americas
How Employers Are Responding to the ACA
How Employers Are Responding to the ACA Robert Galvin, M.D.
T
he Affordable Care Act (ACA) changed employers’ role in the U.S. health care system. Employersponsored insurance, a longstanding system component, provides health coverage for more than 160 million Americans. While preserving the employerbased system, the ACA fundamentally altered it by making the provision of health benefits mandatory rather than voluntary for employers with more than 50 employees and establishing minimum criteria for affordability and coverage. In addition, a “play or pay” model was created, providing employers with an exit: employees would no longer become uninsured if their employers dropped benefits but could instead purchase guaranteed and potentially subsidized insurance through public exchanges. Two financial milestones are leading employers to evaluate whether they want to play or pay. In 2015, employers with more than 100 employees became subject to a shared-responsibility penalty for coverage that didn’t meet federal standards; further down the road, a 40% excise tax on coverage over a maximum dollar value (the so-called Cadillac tax) is due to go into effect (implementation was originally set for 2018, but Congress recently voted to delay it by 2 years). Al-
604
though it’s still early in the game, employers are making key decisions that affect patients, health care providers, and insurers. So far, almost all employers have continued to “play.” Given that sponsoring health benefits is not a core business function, why are so few firms ceasing to do so? The biggest reason is that there is no cost advantage to discontinuing health coverage. The “simple math” that a $2,000 fine is less than the $10,000 average per-employee cost of coverage is complicated by the tax deductibility of employers’ health care contributions. The increase in non– tax-deductible salaries that would be needed to keep projected health care costs from damaging employee recruitment and retention efforts exceeds the savings an employer could expect from dropping health care coverage. A second reason is that the business community is skeptical that the government can manage large social programs efficiently and therefore expects the penalties to increase. And a third, underappreciated reason is that growth in health care costs has slowed substantially over the past several years, so employers don’t feel compelled to make a change. Private insurance exchanges have been promoted as a nongovernmental exit option. These
products allow firms to outsource the design and delivery of health benefits. They differ from the public exchanges in that employers can continue to be regulated under the Employee Retirement Income Security Act (ERISA) and remain self-insured — which means lower costs and less exposure to regulation — but employees receive no means-based subsidies. Despite aggressive marketing by such exchanges, very few companies have adopted this strategy for active employees, according to the Employee Benefit Research Institute. Most of the big-name companies that have pursued this route compete in low-wage labor markets in which offering health benefits is not considered essential to finding employees; their move to private insurance exchanges is not indicative of a broader trend. There’s no evidence that private exchanges can control costs any better than employers are doing on their own. Employers will face a second financial milestone if the Cadillac tax becomes effective in 2020. The provision, levying a 40% nondeductible tax on the value of health benefit plans exceeding a specified amount (currently $10,200 annually for individuals), has captured the attention of chief executives, who are focusing more on health care than they have
n engl j med 374;7 nejm.org February 18, 2016
The New England Journal of Medicine Downloaded from nejm.org on February 20, 2016. For personal use only. No other uses without permission. Copyright © 2016 Massachusetts Medical Society. All rights reserved.
How Employers Are Responding to the ACA
since the attempted Clinton health care reform of the 1990s. Given a 5% annual cost increase, 27% of employers could face this tax in 2020 (see graph).1 The tax’s future is uncertain, since both Democrats and Republicans have reasons to dislike the provision. Its outright repeal outside the context of broader tax reform is unlikely, given the amount of funding that would have to be replaced (about $87 billion through 2021), but its implementation could conceivably be postponed on an annual basis. The tax’s uncertain future is likely to moderate but not reverse employer actions to control costs. Employers will do what it takes to avoid paying a future tax but will slow down the pace of change if employees complain or if they encounter problems with recruitment or retention. Lacking the authority that the Centers for Medicare and Medicaid Services has to administer health care prices, employers have long struggled to control costs. Some approaches, such as selfinsurance, managed care, and competitive bidding of health insurers, have been effective. Others, such as efforts to influence employees’ lifestyle choices or to manage chronic conditions through call centers, have proved to cost as much money as they save. Increasing employees’ cost sharing has been the primary tool employers have used to address rising health care expenditures. To address the increased costs brought on by the ACA, employers have sought first to limit eligibility for coverage. Many have eliminated retiree benefits, and some are aiming to move workers to a less-than-30-hour work-
week so that they don’t qualify 50 for coverage. But curtailing hours 45 42 or cutting jobs has been more 40 difficult than predicted. Employ35 ers had already thinned out ex30 30 27 cess labor capacity over recent 25 decades, and it’s challenging to 20 shift workers to part-time employ15 ment while maintaining service 10 quality and customer satisfaction. 5 Some employers are reducing 0 coverage for spouses and depen2020 2023 2028 dents — but are wary of jeopardizing recruitment and retention. Percent of Employers Offering Health Employers have turned to two Benefits with Plans That Would Exceed new benefit designs to control Cadillac-Tax Threshold with 5% Premium costs: defined-contribution plans Growth. and consumer-directed high- Calculations include health plan premiums, employer contributions to health deductible plans (CDHPs). Both savings accounts, and contributions to attempt to make employees act health reimbursement arrangements and more like consumers — to make flexible spending accounts. Data are from choices based on prices and their a Kaiser Family Foundation analysis. preferences. Defined contributions affect employees at the coverage than buy up to more time of their annual choice of coverage,2 and CDHPs result in coverage. Employers fix their markedly reduced service utilicontribution on the basis of a zation.3 But CDHPs have engendered specific benefit design, and employees may “buy up or down” to controversy. Many policy experts purchase more or less insurance, believe this model is simply anbut without any additional em- other form of cost shifting that ployer subsidy for a more expen- leads enrollees to avoid necessive plan; less expensive designs sary care. Proponents argue that generally include narrower pro- CDHPs motivate people to behave as consumers, being smartvider networks. The CDHP model affects en- er about what interventions they rollees when they’re seeking a pursue and at what cost. One health care service. They are sub- study demonstrated that enrollees ject to a high deductible (about used price information to obtain $2,500 for individuals) and draw lower-cost services, with the largon an associated tax-advantaged est savings obtained in imaging health savings account. These and laboratory services.4 Other plans frequently provide access studies have indicated that higher to information on prices of ser- out-of-pocket costs result in less vices, and enrollees benefit finan- utilization of both unnecessary cially if they choose lower-cost and necessary services, and a reoptions. Early experience indi- cent report revealed no evidence cates that both these approaches of “shopping.”5 It’s unclear whethsave money in the short term. er the small percentage of any More employees in defined-con- population that accounts for the tribution plans buy down to less majority of health spending will Percent of Employers
PE R S PE C T IV E
n engl j med 374;7 nejm.org February 18, 2016
The New England Journal of Medicine Downloaded from nejm.org on February 20, 2016. For personal use only. No other uses without permission. Copyright © 2016 Massachusetts Medical Society. All rights reserved.
605
How Employers Are Responding to the ACA
PERS PE C T IV E
in fact shop for services on the basis of quality and cost. Although the definition of consumerism in employer-sponsored insurance is fuzzy, more than 45% of employers are offering such account-based plans, and the number is growing. Employers’ move to consumerism is having substantial effects on providers, ranging from decreased An audio interview with Dr. Galvin is use of services and available at NEJM.org challenges in collecting deductibles to demands for public release of information on prices and quality. In an environment of controlled health care costs and favorable tax treatment, employers
competing for skilled labor will continue to sponsor health benefits and not move employees to an exchange. The situation could change if and when employers’ health plans begin hitting the threshold for the Cadillac tax. Even then, however, whether to pay rather than play will be an economic decision made by individual companies, and I believe there will no rush for the exits. Disclosure forms provided by the author are available with the full text of this article at NEJM.org. From the Blackstone Group, New York; and the Department of Medicine, Yale University School of Medicine, New Haven, CT. 1. Clayton G, Levitt L. How many employ-
ers could be affected by the Cadillac tax plan? Menlo Park, CA:Kaiser Family Foundation, August 25, 2015. 2. Examining private exchanges in the employer-sponsored insurance market. Menlo Park, CA:Kaiser Family Foundation, September 2014. 3. The impact of consumer-directed health plans on costs, utilization, and care. Truven Health Analytics. April 2015 (http://truven health.com/portals/0/assets/consumer -directed-health-plans.pdf ). 4. Whaley C, Schneider Chafen J, Pinkard S, et al. Association between availability of health service prices and payments for these services. JAMA 2014;312:1670-6. 5. Brot-Goldberg ZC, Chandra A, Handel BR, Kolstad JT. What does a deductible do? The impact of cost-sharing on health care prices, quantities, and spending dynamics. (NBER Working Paper No. 21632.) Cambridge, MA:National Bureau of Economic Research, October 2015. DOI: 10.1056/NEJMp1514649 Copyright © 2016 Massachusetts Medical Society. How Employers Are Responding to the ACA
Asymmetric Thinking about Return on Investment
Asymmetric Thinking about Return on Investment David A. Asch, M.D., Mark V. Pauly, Ph.D., and Ralph W. Muller, M.A.
L
ately, we’ve attended many conferences about providing health care to patients with high medical and social needs — people with chronic illnesses who are frequently readmitted to the hospital. It seems as if every presentation refers to “return on investment” (ROI), which is invariably presented as a constraint — as in “Our program kept people out of the hospital, but we just couldn’t get the ROI to work.” Heads nod understandingly, and then participants move on to other topics. At conferences about providing care for patients with cancer or other acute illnesses, by contrast, we almost never hear the term ROI. Instead, people talk about clinical gains, using understandable and patient-centered terms like “survival.” Though
606
high drug prices are sometimes mentioned, no one ever says the ROI is prohibitive. No one mentions ROI at all. ROI is the net profit of an investment (the money you got back minus the money you put in) divided by the money you put in. If you invested $100 and got back $110, you gained $10 and the return on your $100 investment was 10%. That’s good, as long as you can’t do even better by putting your $100 somewhere else. When people in health care colloquially say the ROI doesn’t work, though, they’re not saying they could make more money elsewhere; they’re saying they’re losing money. If your ROI equation’s numerator is negative — for example, if you put in $100 and got back $90 — there’s no way the ROI can work.
There is no obvious reason why ROI is more relevant to some clinical situations than to others. So why do we focus so heavily on ROI when the topic is chronic illness but rarely mention it when the topic is cancer? A huge amount of the cancer care we deliver provides such small personal and social gains that, were those gains monetized, the endeavor’s ROI would be deeply negative. And yet we ask, “What’s the ROI of that program that keeps chronically ill patients out of the hospital?” but not “What’s the ROI of treating advanced lung cancer?” There are at least three reasons for this difference. One is that from the financial perspective of doctors and hospitals, the ROI of treating cancer is favorable. Reimbursements for cancer care are high in part because the
n engl j med 374;7 nejm.org February 18, 2016
The New England Journal of Medicine Downloaded from nejm.org on February 20, 2016. For personal use only. No other uses without permission. Copyright © 2016 Massachusetts Medical Society. All rights reserved.
