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Seven things business leaders should know (and do) about health care

By Murray Ross, PhD, Vice President and Institute for Health Policy Director
Murray N. Ross, PhD
Murray N. Ross, PhD
Vice President, Institute for Health Policy and Government Relations

In the six years since the Affordable Care Act (ACA) was signed into law, it has survived three elections, two Supreme Court decisions, and countless legislative challenges. Today, millions of Americans who once went uninsured now have health coverage.

But the affordability of care continues to be a major issue.  On one hand, the rate of annual increase of health insurance premiums has slowed substantially from double digits to low single digits. On the other hand, rising health care costs have led total health care spending to reach 17.5% of gross domestic product (GDP) in 2014—and costs are expected to rise 6.5% in 2016. American businesses are facing evolving policies, new market forces, and an unprecedented era of consumerism in health care. With the ACA touching every employer and employee, and health care remaining a huge economic force of the U.S. economy, here are seven trends every business leader needs to understand if we truly want to create a better, more affordable health care system.

1. Our nation can and must broaden our definition of health and health care because our population is changing. Where people are born and raised, their age, race, ethnicity, their education, and what they do for work all impact their health. These social determinants of health can have a huge impact on health outcomes, and are often behind health disparities; for example, African Americans have a shorter lifespan than whites. In terms of human life and the dollars and cents we spend on health care, health disparities affect all of us. As endorsed by the Office of Disease Prevention and Health Promotion, we need better assessment tools to review how social policies impact health, and to apply a “health in all policies” strategy, aimed at closing these gaps. Kaiser Permanente prescribes to a philosophy of “total health” focused on the whole person—mind, body, and spirit—that emphasizes care beyond the clinic walls by focusing on social and policy change in the community. Business leaders should join this critical dialogue as we work together to redefine what health and health care means, to improve the health of everyone.

2. We don’t have a free market in health care—and now is the time for the public and private sector to work together. Americans like to think of our economy as a free enterprise. But it really is not in health care and has not been for a long time. As far back as the Nixon Administration, government at all levels accounted for over one-third of health spending. Now it’s approaching 50%. Where government dollars are in play, the government rules the way. (With one notable exception: the pharmaceutical market, discussed in number six below.)

In January 2015, Health and Human Services (HHS) Secretary Sylvia M. Burwell announced an accelerated schedule to move Medicare reimbursement from “pay for volume” to “pay for value.” The goal is to reimburse health care providers based on the quality rather than the quantity of care that they provide. In the long term, that will improve care and reduce costs. It is already the way some health care systems, including Kaiser Permanente, operate. Burwell’s plan is ambitious given Medicare’s history of gradual reform, but the larger point is clear: We are moving away from “payment for whatever providers do” to “payment for what works.”

3. The effect of retail health care on consumers. The health insurance options offered by employers to their employees today are already giving consumers more “skin in the game.” In 2005, just four percent of employers offered their employees a Health Savings Account (HSA)-qualified high deductible health plan option. High deductible plans require consumers to pay the upfront costs of care before insurance pays the difference. By 2014, the share of employees covered in this way had risen to 27%. This trend is in part related to the looming “Cadillac tax,” in which employers will soon have to pay penalties for offering rich health insurance benefits. Although Congress has delayed its implementation, employers are seeking to transition their employees to arrangements that encourage more employee cost sharing—meaning the trend toward offering high deductible plans will only accelerate in the coming years.

Driven by rising costs of care, the average employee deductible has risen from $584 to $1,217 in the past eight years, which does not include other health care expenses that are not covered, such as co-pays, pharmaceuticals, and other treatments. The effect of greater numbers of people on high deductible health plans raises concerns about their ability to pay for care when they need it, or a possible growing trend toward skipping needed, preventive care, which ends up being costly in the long run. It is a trend worth researching further, especially as more employers move to high deductible plan offerings, or shift to private exchanges that encourage the same.

4. You are going to hear all about new care models for your employees that may or may not be better—the devil is in the details. Accountable care organizations, or ACOs, are associated health care providers—including primary care, specialists, and hospitals—who are responsible for the cost and quality of care delivered to a population of patients. As value-based reimbursement is an increasing priority, ACOs offer promise and in theory are a good thing, as they strive to answer the question of how to better align clinical and financial decisions. Their numbers in the U.S. have jumped from 64 in 2011 to close to 750 in 2015, serving approximately 23 million people. But the devil is in the details. In both commercial and Medicare markets, if an ACO is modeled after Kaiser Permanente then it is focused on delivering better quality, more integrated care. Alternatively, it could just be an arrangement to drive volume to hospitals and increase profits. What a care organization does is more important than what it calls itself.

5. Consolidation is all the rage. The ACA limits profits for hospitals and insurers, which has led them to increase their scale through mergers that maximize savings from a broader population base. Sometimes dressed up as ACOs, other times billed as economies of scale, this trend could lead to increased consolidation to counter the bargaining power of a smaller number of hospitals and insurers. The big news recently has been the planned mergers between insurers Anthem and Cigna and Aetna and Humana; and mergers in provider systems have been a trend for quite some time.

Will increased efficiencies of ever-larger companies provide savings and benefits to consumers? History and extensive research tell us the answer is varied. In regions where there are few insurers or providers competing, employers have little bargaining power to negotiate lower costs when mergers occur. But sometimes, and in situations where competition is sufficient, mergers or acquisitions mean a health system is better able to provide higher quality, well-coordinated care.

6. Pharma will continue to reign as king—you should be at the table. The pharmaceutical industry has undergone a revolution in recent years. The big companies no longer have the edge in innovation; their play is in buying up technology from researchers then focusing on marketing and distribution. It’s a highly competitive market that is looking for big plays. We’ve seen this recently with Gilead Life Sciences’ hepatitis-C products Sovaldi and Harvoni. (You may remember that Harvoni is the $1,000 pill.) In this case, we saw a shift from high-priced drugs that “kind of work” to massively priced drugs that “really work,” such as the new Gilead pills. These treatments are invaluable for patient care, but this is the space where government dollars are at play and still don’t rule the day. The regulatory environment around drug pricing encourages these high prices. (Example: Medicare is the nation’s largest purchaser of drugs but cannot negotiate costs.) As a result, pharmaceutical companies are pricing what the market will bear. And drug prices are a leading driver of rising health care costs. A new dialogue among payers, consumers, and providers is seeking to create more balanced and sustainable pricing strategies. Business leaders concerned about these skyrocketing costs should be at the table, too, and ask questions about how drug pricing affects their business expenses and the lives of their employees.

7. The Internet and data are changing how consumers access and use health care, with huge potential—embrace it. Data Liberacion is the slogan of Todd Park, founder of Athena Health and Castlight Health and former Chief Technology Officer for HHS. He has gathered an impressive following of employers, researchers, and others to make health data more available. The goal of this information is for health plans and providers to improve care. Consumers can use this data to make more informed decisions and take better control of their care. At Kaiser Permanente, we tend to think of Health information technology as our comprehensive electronic health record, which includes more than 10 million members who have 24/7 access to their medical information and health management tools. But the digital information revolution will go far beyond electronic health records. Enhanced access to data, social media platforms, and mobile devices are changing everything about health care, from how patients select doctors and treatments to how they address their chronic disease. Far beyond high deductible health plans, this really is about making health care more detail in the traditional sense of the word, empowering consumers to shop around and become more informed.

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