• Growth in Health Spending Slows For Fourth Straight Year
• The Downside of ACOs
• Employees With CDHPs Have Lower Prescription Adherence
• Wellness Programs Can Cut Costs, but Only for Certain Workers
• Enrolling In the Exchanges Takes 90 Minutes
• Health Insurers Extend Deadline for Premium Payment
• Many Americans Will Face Higher Health Insurance Costs
• Covered California Health Plans Extend Payment Deadline
• Many Californians Remain Uninsured
PENSION AND 401(k) PLANS
• 401(k) Assets Are Heavily Invested in Stocks
• Pension Plans Get A Reporting Extension
• Indexed Universal Life
• Fixed Annuity Webinar
• Watch Insurance Conferences Online
Growth in Health Spending Slows for Fourth Straight Year
Health care spending grew at a record slow pace for the fourth straight year in 2012, according to a actuaries at the Centers for Medicare and Medicaid Services, published in the journal Health Affairs. In 2012 U.S. health care spending saw the fourth consecutive year of slow growth with an increase of 3.7%. The share of the economy devoted to health spending decreased from 17.3% in 2011 to 17.2% in 2012.
The Gross Domestic Product increased nearly 1% faster than health care spending at 4.6%. Private health insurance premiums reached $917 billion in 2012, and increased 3.2%, near the 3.4% growth in 2011. The net cost ratio for private health insurance was 12% in 2012 compared to 12.4% in 2011. (The difference between premiums and benefits as a share of premiums.)
Private health insurance enrollment increased 0.4% in 2012, but still lower than in 2007. Out-of-pocket spending grew 3.8% in 2012. Private health insurance spending for physician and clinical services grew at a faster pace while Medicare spending decelerated slightly in 2012.
The following categories saw an increased spending trend:
• Hospital spending increased 4.9% in 2012 compared to 3.5% in 2011.
• Spending on physician and clinical services increased 4.6% in 2012 compared to 4.1% in 2011.
• Spending for dental services increased 3% in 2012 compared to 2.2% in 2011. Out-of-pocket spending for dental services, which accounted for 4 2% of all dental spending, increased 3.9% in 2012 compared to 3.1% in 2011.
• Spending for other health, residential, and personal care services grew 4.5% in 2012 compared to 3.3% in 2011. This category includes expenditures for medical services that are generally delivered by providers at schools, community centers, the workplace, residential mental health centers, substance abuse facilities, and by ambulance providers.
• Spending growth for freestanding home health care agencies increased 5.1% in 2012 compared to 4.1% in 2011. Medicare and Medicaid spending accounted for 81% of total home health care spending in 2012. Medicare spending grew at a faster rate in 2012 while Medicaid spending slowed.
• Medicaid spending grew 3.3% in 2012 compared to 2.4 % in 2011. Federal Medicaid expenditures decreased 4.2% in 2012 while state and local Medicaid expenditures grew 15% — a result of the expiration of enhanced federal aid to states in the middle of 2011. The relatively low annual rates of growth in Medicaid spending can be explained in part by slower enrollment grow tied to improved economic conditions and efforts by states to control health care costs.
The following categories saw a decreased spending trend or stayed the same:
• Spending for independent health practitioners of physical therapy, optometry, podiatry, and chiropractic medicine increased 4.5%, which is about the same rate as in 2011.
• Spending for freestanding nursing care facilities and continuing care retirement communities increased 1.6% in 2012 compared to 4.3% in 2011. The slower growth was primarily due to a reduction in Medicare spending due to a one-time rate adjustment for skilled nursing facilities.
• Retail prescription drug spending grew 0.4% in 2012 compared to 2.5 % in 2011. Driving the low growth were reduced retail drug prices as numerous blockbuster drugs lost patent protection and generics became available.
• Retail spending for durable medical equipment (contact lenses, eyeglasses, and hearing aids) increased 5.6% in 2012, the same as in 2011.
• Retail spending for other non-durable medical products (over-the-counter medicines, medical instruments, and surgical dressings) grew 1.8% in 2012 compared to 3% in 2011.
• Medicare spending, which represented 20% of national health spending in 2012, grew 4.8% compared to 5% in 2011. With a new payment system, there was a one-time payment reduction to skilled nursing facilities in 2012 after a large increase in 2011.
In 2012, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (18%). The federal government financed 26% of total health spending in 2012, a slight decrease from 27% in 2011. In June 2011 saw the expiration of enhanced federal funding from the American Recovery and Reinvestment Act of 2009. Since states are no longer getting additional federal government aid, they have seen their share of the health care bill increasing from 17% in 2011 to 18% in 2012. For more information, visit http://content.healthaffairs.org/content/33/1/67.abstract.
The Downside of ACOs
Writing in this week’s Journal of General Internal Medicine, Drs. David Himmelstein and Steffie Woolhandler warn that accountable-care organizations (ACOs) will bring frequent denials of care, restrictive provider networks, and increased financial risk sharing. HMO practices that are resurfacing in the context of today’s ACOs limit patient choice and pressure physicians to withhold care and avoid unprofitably ill patients, such as those with mental illnesses.
Supporters say that ACOs will have safeguards against the cherry-picking healthy patients and denying care. But the authors write that the early HMO proponents made virtually identical promises.
Just like HMOs, ACOs will be highly susceptible to gaming, such as over-diagnosing and up-coding medical conditions to make patients look sicker on paper to garner higher payments for care. Experience has shown that providers who initially refrain from such practices are forced to do so to survive.
Nor is there evidence that today’s ACOs will save money. Himmelstein and Woolhandler say that giant corporations will have a competitive edge in the reshaped, post-ACA health care landscape based on their clout and the size of their market share, and that a system dominated by profit-maximizing oligopolies is a perilous route to savings. In contrast, countries that have adopted a universal system of care with regulations that restrain costs and minimize opportunities for profit have achieved better outcomes, lower costs, and fairer compensation of physicians.
Employees with CDHPs Have Lower Prescription Adherence
Research published in the American Journal of Managed Care looks at how workers with chronic conditions were affected when their Mid-Western employer adopted a consumer-directed health plan (CDHP) with a health savings account (HSA) for all workers. During the first year after implementation, enrollees with hypertension, dyslipidemia, and diabetes had significantly less medication utilization and lower adherence rates. These reductions abated, yet remained, after two years among hypertension and dyslipidemia patients. Adherence was significantly lower in patients with depression after two years. There were no statistically significant effects on enrollees with asthma/chronic obstructive pulmonary disease. For more information, visit http://www.ajmc.com.
Wellness Programs Can Cut Costs, but Only for Certain Workers
Workplace wellness programs can lower health care costs for those with chronic diseases, but some components of the programs may not reduce health costs or lead to lower net savings, according to a RAND Corporation study. The results are published in the January edition of the Journal Health Affairs. The study looks at PepsiCo’s Healthy Living wellness program over seven years. The program includes health risk assessments, on-site wellness events, lifestyle management, disease management, complex care management, and a nurse advice phone line.
Efforts to help employees manage chronic illnesses saved $3.78 in health care costs for every $1 invested. However, people who participated in the lifestyle management program reported a small reduction in absenteeism, but there was no significant effect on health care costs.
In contrast, the disease management program reduced costs among participants by $136 per member per month, or $1,632 annually. There was a 29% drop in hospital admissions. RAND researchers say that with any prevention effort, it is often easier to achieve cost savings in people with higher baseline spending, as found among those in the disease management program. Interestingly, disease management participants who also joined the lifestyle management program experienced much higher savings at $160 per month with a 66% drop in hospital admissions. This suggests that proper targeting can improve the financial performance of lifestyle management programs. For more information, visit http://www.rand.org/newsletters.html
Enrolling In the Exchanges Takes 90 Minutes
Enrolling a family in a health exchange in New York or California takes an average of 90 minutes, according to a study by HolaDoctor.com. Researchers made calls at different times and days and the wait time on the phone to be 12 to 50 minutes.
Not all operators responded in Spanish even though the service is offered through various media. However, employees who attended the calls in English offered the Spanish translation service through a third party. Having documentation at the time of the call speeds up the process. When people call the federal market, an automated message tells the caller which documents they will need to enroll. For more information, visit www.holadoctor.net
Health Insurers Extend Deadline for Premium Payment
America’s Health Insurance Plans (AHIP) announced that health plans are extending the deadline for consumers to pay their first month’s premium. Consumers who select their plans by December 23 and pay their premiums by January 10 will be able to have coverage effective January 1.
Consumers who want to begin coverage on January 1 must select a plan by December 23 and pay the first month’s premium by December 31. The short time period to complete these steps, particularly around the holidays, combined with the ongoing technical issues with healthcare.gov have raised concerns that some consumers’ coverage may not be able to begin on January 1. Consumers must still pay their first month’s premium before coverage takes effect, but those who pay their premium by January 10 will now be able to have coverage retroactive to January 1.
Many Americans Will Face Higher Health Insurance Costs
Nearly half of Americans with employer-based health coverage are seeing more money being taken out of their paychecks for health insurance compared to a year ago, according to a Bankrate.com report. Forty-four percent have higher out-of-pocket expenses compared to one year ago, including deductibles and copayments. Forty-eight of Americans would choose to repeal the Affordable Care Act (ACA), and only 38% would choose to keep it. In late September 46% of Americans wanted to repeal the ACA and 46% wanted to keep it.
Upper-middle-income Americans with employer-based health insurance (annual household incomes from $50,000 to $74,999) are most likely to say that more money is being taken from their paychecks and that they are experiencing higher out-of-pocket expenses. Out of all income levels, upper-middle-income Americans are the most likely to say that the law has had a negative effect on their health insurance (47%).
While many feared losing family coverage as a result of the Affordable Care Act, very few employers have taken this step (fewer than one in 10 Americans with employer-based health insurance lost coverage for a spouse or child this year). And only two in 10 Americans with employer-based health insurance now have fewer doctors included in their plans.
“Since so much of the Obamacare conversation has focused on uninsured Americans and the government-run exchanges, it’s easy to forget most Americans – about 150 million – get their health insurance from an employer. People covered under these plans should watch for changes and discuss with their employers how Obamacare may affect their coverage and costs. In some cases, getting insurance through the health exchanges could be more cost effective, so it is important to research all possibilities,” said Bankrate.com insurance analyst Doug Whiteman. The study also reveals the following:
• 52% of women with employer-based coverage report higher out-of-pocket expenses, compared to only 35% of men.
• Americans who are feeling more negative about the law outnumber those feeling more positive by a two-to-one margin (31% to 15%). For more information, visit
Covered California Health Plans Extend Payment Deadline
Covered California’s 11 health insurance companies agreed unanimously to extend the deadline for consumers to submit payment for their first month’s premium. Consumers now have until Jan. 15 to get payment to the companies. Payment for coverage taking effect Jan. 1 must be in the hands of the health insurance companies by Jan. 15 and not simply postmarked or in-transit. Meanwhile, about 200,000 households with coverage due to take effect Jan. 1, and who supplied their email addresses to Covered California, will get direct notification about the payment deadline extension. Consumers can also visit CoveredCA.com for instructions on how to pay their premium. Health insurance companies stress that this is a one-time payment deadline extension, and that payment for coverage is due at the beginning of each month. For more information on Covered California, please visit www.CoveredCA.com.
Many Californians Remain Uninsured
At seven million, California has the most uninsured residents of any state. California also has the seventh largest percentage of uninsured under 65, according to a report by the California HealthCare Foundation. Many of the state’s uninsured are employed. The percentage of residents who get coverage through their jobs has dropped from 63% in 1988 to 54% in 2012. While public insurance has mostly offset this gap, one in five remains uninsured.
The Affordable Care Act (ACA) will reduce the number of uninsured residents in California, but a significant number will be left behind. The following are key findings:
• One in five Californians is uninsured. The rate among those who work is even higher at one in four.
• Sixty-two percent of uninsured children in California are in families in which the head of the household worked full-time during 2012.
• Employees in businesses of all sizes are more likely to be uninsured in California than in the rest of the United States. In businesses with fewer than 10 employees, 40% of workers are likely to have no insurance.
• Nearly one-third of the uninsured in California have annual family incomes of $50,000 or more.
• Nearly 60% of the state’s uninsured population is Latino.
For more information, visit www.chcf.org.
401(k) Assets Are Heavily Invested in Stocks
The bulk of 401(k) assets are invested in stocks. In 2012, 61% of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock, according to a report by the Employee Benefit Research Institute. Thirty-three percent were in fixed-income securities, such as stable-value investments and bond and money funds.
Seventy-two percent of 401(k) plans included target-date funds in their investment lineup. Fifteen percent of the assets in the EBRI/ICI 401(k) database were invested in target-date funds, and 41% of 401(k) participants in the database held target-date funds. Also known as “lifecycle funds,” these funds are designed to offer a diversified portfolio that rebalances automatically to be more focused on income over time.
More new or recent hires invested their 401(k) assets in balanced funds, including target-date funds. For example, at 2012, nearly 54% of the account balances of recently hired participants in their 20s were in balanced funds compared to 51% in 2011, and about 7% in 1998. A significant subset of that balanced fund category is in target-date funds. At 2012, 43% of the account balances of recently hired participants in their 20s were invested in target-date funds, compared to 40% at 2011.
The 401(k) participants continued to seek diversification of their investments. The share of 401(k) accounts invested in company stock edged down to 7%. This share has fallen by more than half since 1999. Recently hired 401(k) participants were less likely to hold employer stock.
Participants’ 401(k) loan activity remained steady, although loan balances increased slightly in 2012. Twenty-one percent of 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from 2011, 2010, and 2009, but up from 2008 at 18%. Loans outstanding amounted to an average of 13% of the remaining account balance in 2012, down 1% from 2011. Nevertheless, outstanding loan amounts increased slightly from the previous year.
The 2012 average 401(k) account balance in the database was 8.4% higher than the year before, but may not reflect the experience of typical 401(k) participants in 2012. For more information, visit www.ebri.org.
Pension Plans Get A Reporting Extension
On January 3, 2014, Pension Benefit Guaranty Corporation (PBGC) published a final rule extending the flat-rate premium due date for large single employer and multi-employer pension plans (500 or more participants) starting with the 2014 plan year. Flat-rate premiums for large calendar year 2014 plans will be due October 15 instead of February 28. It gives small plans more time to value benefits, provide for relief from penalties, and make other changes. PBGC expects to publish a final rule and make MyPAA available for 2014 filings well before the first filing deadline of October 15. Until then, PBGC is not accepting 2014 filings.
Indexed Universal Life
Genworth introduced its second index universal life (UL) insurance product, “Foundation Builder Index UL.” It provides affordable death benefit protection backed by a no-lapse guarantee of up to 30 years, plus the opportunity to build cash value for future financial flexibility. It also offers five index interest crediting strategies linked to the percentage change in the S&P 500 and an optional accelerated benefit rider for long term care services. For more information, visit http://www.genworth.com.
Fixed Annuity Webinar
The National Assn. of Fixed Annuities is sponsoring a webinar, “Top 10 Reasons Why 2014 is the Year of the Fixed Annuity. How Generational Attitude Changes Should Positively Impact Your Business.” It will be held Thursday, January 23, 2014 at 8:30 a.m. PT. For more information, visit www.nafa.com.
Watch Insurance Conferences Online
Virtual Insurance Conferences & Expos will enable insurance and financial professionals to access, view and interact with live conferences via their computers, smartphones, and tablets. The first Virtual Insurance Conferences & Expo is set for May. It will feature the American Association for Long Term Care Insurance’s LTC Sales Summit. For more information, visit www.insuranceExpos.com or call 818-597-3205.