Kaiser Family Foundation HRET Annual Survey of Employer Health Insurance

Today’s Managing Health Care Costs Indicator is $13,770

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The annual Kaiser Family Foundation –HRET survey of employer benefits came out on Thursday, and it showed that the increase in cost of health care coverage was smaller than in most recent years (up 5% for family coverage, and 3% for individual coverage).  However, employees are paying a significantly larger share of the total cost of coverage, and the health plans have higher deductibles and more patient cost-sharing than in past years. . 

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Overall, families pay for 30% of the total health care premium (up from 27% last year). That means that last year, a family on average would have paid $3552, and this year they would pay $3997, a 13% increase.   It’s worse still for low wage families, which were responsible for 35% of the family premium.   Family premiums are also more for workers at small employers (<200 workers) -- $14,038. 

Even as they increase in price, health plans are also shaving benefits.  27% of single workers have a deductible of over $1000 in 2010, compared to 22% in 2009 and 10% in 2006.   High deductible health plans have increased their market penetration (13% compared to 8% in 2009). 

About the only surprising finding is that a larger portion of insurers are offering health insurance – from 60% to 69%.    The denominator here is the individual employer –and this increase in health care offering was driven by employers with 3-9 employees, so it doesn’t mean that the overall rate of insured workers went up.  In fact, 59% of workers received insurance coverage from their jobs in 2009 and 2010.

The KFF-HRET survey makes it clear that health care is just too expensive.  The inflation rate of health plans appears to have moderated.  But there is little good news for workers,  who paid an increased portion of the premium for health plans that offer fewer benefits than in previous years.  

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The AARP Faults Drug Companies for Price Increases

Today’s Managing Health Care Costs Indicator is 8.5%

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The AARP  reported last week that brand name prescription drug prices rose 8.5% last year.    That’s substantially more than the total increase in the cost of pharmaceuticals - which was 3.2% for 2008 (last publication of National Health Expenditures  or 5.7% (CVS-Caremark- figure above).

What’s the difference?

The overwhelming majority of prescriptions (about 70%) are for generic medications.  However, the overwhelming majority of costs (about 80%) are for that minority of medications that are available in brand name formulations only.  So – generic substitution can lead to giant savings, but these can also be wiped out quickly when brand name prices go up.

The big pharmas aren’t in an enviable position.  Many ‘blockbuster’ drugs have gone generic over the past few years, and Pfizer is preparing itself for Lipitor (atorvastatin) going generic at the end of next year.   The AARP study shows that drugs about to go generic have had large cost increases in recent years.   Why is this?

It’s not to fund the research (long since paid for), but it could help underwrite new research.  It’s not to pay for marketing – the pharmas cease large-scale promotion of a drug in the months before it goes generic.  Brand name price increases are certainly not to address additional production costs – generic manufacturers will be able to produce these for pennies a pill in just a few months.  

The pharmas cannot suggest an increase in ‘value’ provided by a brand name as it nears patent expiry which could justify an increase often over 10%. 

Once again –what causes the prices of drugs about to go generic to increase?

There are a few different underlying reasons.  The first is revenue maximization.  The ability to get a high margin is about to evaporate – make hay while the sun shines!  A darker potential reason is that  the pharmas are seeking to make drugs about to go off patent look as unattractive as possible.  When  Lipitor is about to lose its patent protection, even while a similar drug simvastatin is available for pennies a pill , Lipitor goes up in price by 24%.  Sure, that will move some patients to simvastatin.   But that will diminish profits for the ‘first mover’ generic competitor, as some patients will switch to another statin medication that retains patent protection.   Flomax went up 92% over 5 years; most of that price increase was in the two years before patent expiration.   

Many pharmacy benefit managers would move drugs about to lose their patent protection to a “preferred” tier to gain savings after the drug goes generic.  However, the manufacturers would like patients to move away from drugs about to lose their patent protection – preferably to a medication that will retain patent protection for a number of additional years. 

There aren’t perfect answers here.   Most other developed countries have rigorous price controls for pharmaceutical agents, but this can stifle innovation.   Clearly, “me too” drugs can offer an opportunity to create some price competition, which helps improve value.  The pharmas used to introduce controlled release formulations for a drug about to lose patent protection; we have seen fewer of these end-runs around generic substitution recently.  New regulations to make it more difficult for the brand name pharmas to pay a generic manufacturer for a delay can drive some additional volume to the lower-cost generic earlier.

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Should teachers support repeal of health care reform?

 Nebraska’s (Republican) Governor Dave Heineman is on the mark when he points out that costs of health care “crowd out” other important social needs. That’s the reason why it is so important to decrease the rate of medical inflation.

Here is his quote: 

"Increased funding for Medicaid is likely to result in less funding for education," Heineman says in the letter sent Wednesday to associations representing teachers, school boards and school administrators. "Don't sit on the sidelines," it says later. "I strongly urge you to support the repeal of the recently enacted federal health care law."

Is Heineman right that school committees in Nebraska should fear the health care reform act?

The Kaiser Family Foundation  has calculated how much each state will spend to comply with health care reform (largely Medicaid expansion), and how much new federal money will come into the state.  In the case of Nebraska, KFF projects that the state would spend $106 million from 2014-2019, the federal government will spend over $2.3 billion, or over 95% of the total new spending.  This $2.3 billion will lead to new jobs – and with a 6.84% income tax, the increased income tax alone would equal the cost of the state Medicaid outlays as long as 2/3 of the spending is on salaries. That’s not counting a “multiplier” effect where one person’s new income leads to increased incomes for everyone from whom she purchases goods or services, and it’s not considering state sales tax of 5.5%.

Across the country, most analysts believe health care reform will increase the cost of overall health care by a very modest amount.   The reform bill also includes some serious cost control, including cuts in payments to Medicare Advantage health plans, cuts to providers, funding for comparative effectiveness research, and a Medicare innovation center.  The answer to health care crowding out other important social services isn’t repealing health care reform, but building on it.   Teachers should not be on the picket lines pushing for repeal.

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