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California WC Med Costs - It Is the Networks; National Reform

By Joe Paduda

Thursday, June 11, 2009 | 0

By Joe Paduda

Those of us with plenty of gray (or silver) hair have not been surprised by the significant increase in medical expense in California since the implementation of reform several years ago. What has been surprising is that it has taken this long for medical inflation to 'present' itself.

Medical costs are the primary reason premiums are headed back up, but before we get too excited, let's remember that work comp premiums plummeted during the past few years, dropping to almost-unprecedented levels. Carriers rushed into the state, new insurers started up, and existing carriers sought to write even more business. The result was a very competitive market, and a dramatic drop in employers' workers' comp costs.

The market has turned; the insurance rating board is looking for a rate increase of almost 24%, driven in large part by the increase in medical expense.

In a recent hearing before the state's insurance commissioner, two problems became apparent — one obvious and the other much less so.

The obvious problem is the rapid rise in medical expense in California. According to a recent release by the California Workers' Compensation Institute, its analysis shows "significant increases in California workers' comp medical payments since AY 2005, with amounts paid for treatment, pharmaceuticals and durable medical equipment...all on the rise."

The less obvious problem is the lack of understanding on the part of most insurers, TPAs, and other payers about the factors driving up medical expense. This ignorance is demonstrated by their continued reliance on medical management techniques and tools that are not only ineffective, but — I would argue — are likely contributing to the increase in costs.

As reported on WorkCompCentral.com (subscription required):

"Despite the fact that self-insured employers such as Safeway and the University of California reported much smaller medical cost increases than commercial insurers, they pointed out that their medical networks have helped reduce much of their exposure to cost drivers because of the quality of their physicians [emphasis added], and their ability to encourage claimants to seek treatment within their medical networks and avoid litigation."

Big generalist networks do not reduce comp medical expense because the incentives are all wrong and they contain too many docs who can't spell workers' comp.

What does this mean for you?

Until and unless payers figure this out and stop talking about doing something and actually start doing that "something" medical costs are going to continue to rocket up, and so will employers' premiums.



National Health Reform - The Battle is Joined

With the release by the Ways and Means Committee of the first House health reform bill, the debate is about to get much louder and more strident. The "bill" is more of an outline than anything else, although it's a pretty detailed outline.

It is also very much a "moderate' plan," one that has the fingerprints of the House Blue Dog Democrats all over it.

Notable by their absence from the bill is any mention of a Medicare-based public plan option or employer mandate. This doesn't mean the Democrats are abandoning either option; rather it indicates a willingness on the part of Baucus, Waxman, Kennedy et al to work with Senate Republicans on compromise language in an effort to gain some GOP support.

Key components of the bills now up for debate include:

  • Maintains current employment-based insurance structure; employers can keep their plans
  • Calls for a "public health insurance option [that is] self-sustaining and competes on a 'level field' with private insurers"
  • An insurance exchange enabling insurers and small businesses to evaluate and select from a list of private insurance options
  • Prohibits medical underwriting, exclusion of coverage for pre-existing conditions, and rating based on gender, health status, or occupation with some allowances for age rating
  • Subsidizes coverage on a sliding scale for individuals and families with income up to 400% of the Federal poverty level (family coverage today would amount to 14% of income at that level).
  • Exempts small, low-wage firms and provides a small business tax credit for those providing health coverage.
  • Eliminates the Medicare Sustainable Growth Rate formula (used to determine physician compensation) and increases reimbursement for primary care providers

What's not there is more telling than what is.

There's precious little discussion of how to pay for this, and specifically whether employer premiums will be taxable and, if so, to what extent.

As I've been saying for months, it's about the money. Expanding coverage without tough cost controls (note - NOT price controls - that's very different) is a road to financial ruin.

With their recent focus on the cost of the Recovery Bill and apparent strategy to take on the Democrats and the President on the issue of government debt and spending, the GOP has served notice that they will miss no chance to accuse the Dems of profligate spending.

Good for them; "Oversight" is certainly appropriate and necessary, as the most important part of health reform is cost containment.


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Joseph Paduda's blog, managedcarematters.com, focuses on managed care for group health, workers compensation, auto insurance, cost containment, health policy, health research, and medical news for insurers, employers, and health care providers. Paduda is the principal of Health Strategy Associates.
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