Eric M. Huebscher is the President and CEO of Huebscher & Co.
He has over 30 years of management experience in with a specialized emphasis on healthcare operations, finance and regulatory compliance and oversight.

9 2012

Payor Restructuring: Cost Containment and Sharing Approaches

ABI Health Care Committee News / Volume 9, Number 2 / May 2012
by: Eric Huebscher

Editor's Note: This is the second in a series of articles on health care restructuring efforts by a wide range of health maintenance organizations from across the country.

In the first article in this series, found here, the author examined how the Healthcare Maintenance Organization Act of 1973 has evolved since its introduction almost 40 years ago. When the Act was legislated, the primary driving force was to create a paradigm of health care services that would keep the costs and delivery of health care in check while halting the apparent escalating expense structure that was outpacing the consumer inflation indexes. With the benefit of hindsight, the author is almost certain that the Act's authors now wish that they had expanded the scope and depth of their legislation to provide greater checks and balances—the least of which might have kept the expense profile under tighter control. The first article also touched on how the Obama administration’s Healthcare Reform legislation may impact our society.

Some more history: As the expense to deliver care continued to balloon, a schism formed between those that could afford and expect care and those that needed basic services. In response to this challenge, health care organizations introduced varying product structures with different levels of care and network availability. With this shift in consumer demand and the increasing demand by shareholders of publicly traded health care organizations, the health care industry saw the emergence of "co-pays" (a term that includes part of out-of-pocket expenditures) as a method to shift the premium expense from the insurer to the insured. Co-pays first started with primary care services and then expanded to include everything from specialists to emergency room visits to different levels for generic vs. name brand drugs. The intent of co-pay implementation was to try to influence behavioral changes in consumer demand for health care services.

Have those cost-sharing changes been effective? Has consumer demand changed? Centers for Medicare and Medicaid Services (CMS) reported on the potential impacts of the Reform on the distribution of expenses between individuals and payors.[1] CMS reported that between 2005 and 2009, the out-of-pocket expenditures (including co-pays) for individuals increased 13.5 percent from $264 billion to $299 billion. Total overall health care expenditures increased 23 percent over the same period, and between 2005 and 2020, historical and projected total health care spending is expected to increase 79 percent, with out-of-pocket expenditures increasing 46 percent over the same period to just under $444 billion. Notably, however, between 2005 and 2020, the percentage of pocket expense as a correlation to total expense is expected to decrease from 13 percent to just over 9 percent.

This data does not demonstrate a convincing argument for the continued use of cost sharing. It clearly is not keeping costs in check, as evidenced by the projected increases to year 2020. Some would argue that without the out-of-pocket expense, the associated premium would have increased to offset the payor's lost revenue; however, another plausible consideration should have been to address the issue at the core.

The U.S. Supreme Court is currently entertaining arguments about the constitutionality of the Healthcare Reform. While the decision is not expected until June, early news reports suggest that some or conceivably all of the Healthcare Reform's mandates may be struck down. In September 2010, an article for this newsletter entitled "Healthcare Reform—The Big Hedge" was published that covered the numerous financial projection hurdles and challenges that the Healthcare Reform faced in achieving its goals. It would appear that the biggest hurdle may be with how the Supreme Court will rule on the basis of its constitutionality.

Regardless of the Supreme Court's outcome, the challenges that we will face as a society will not disappear. The third article in this series will discuss some key areas that the author believes we should address—areas that may go a long way in reducing expense and making healthcare less of a burden on our collective pockets.

The third article in this series will discuss the cost of end-of-life care and its overall impact on the health care system and how a greater acceptance could lead to overall cost/expense reduction.

Next Article:

Health Care Reform: A Pragmatic Approach

  1. CMS National Health Expenditure Projections; July 2011


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