By: Philip Qualo, J.D.

December 1^st marked the 31^st observance of World AIDS Day, an opportunity for the world to unite in efforts to stop HIV, support those affected by HIV, and remember those who have lost their lives to HIV-related diseases. The Centers for Disease Control and Prevention (CDC) first called attention to what is now known as AIDS in 1981.  

In 1985, the first HIV test became commercially available. But the number of people who died from AIDS kept growing. The first licensed drug, AZT, had to be given intravenously. At the doses initially used, the drug was toxic. Eventually, an oral formulation was made but it had to be taken in high doses every four hours and usually, only people in clinical trials could gain access to it. Activists had to pressure regulatory agencies to test combinations of new drugs because if each drug were tested on its own, any remission would be temporary, as HIV could easily overcome a single drug.

Since the mid-1990s, scientists have developed an array of antiretroviral drug regimens that durably suppress the replication of HIV. Antiretroviral drugs are used to treat HIV, to maintain the health of an individual, and to prevent transmission of the virus. Numerous studies have demonstrated that when people living with HIV use antiretroviral therapy to achieve and maintain a durably undetectable level of virus, they do not sexually transmit HIV. Over the years, these regimens have been updated and refined to be even more effective, with significantly fewer side effects.

Today, antiretroviral drugs combined into a single pill taken once a day can enable a person living with HIV to achieve a nearly normal lifespan. HIV-negative populations at risk for HIV can reduce the risk of acquiring HIV by 99% by taking a single pill daily as pre-exposure prophylaxis, or PreP. Emergency post-exposure prophylaxis, or PEP, also can prevent HIV from becoming established in the body if begun within three days of exposure and taken for an additional 28 days. 

The passage of the Affordable Care Act’s (ACA) in 2010 was another major milestone in improving access to care and, ultimately, health outcomes, for people with HIV in the United States. The ACA’s prohibition against denying or canceling coverage based on pre-existing conditions had a significant impact on individuals living with HIV. Prior to the ACA, many people living with HIV or other chronic health conditions experienced obstacles in getting health coverage, were dropped from coverage, or avoided seeking coverage for fear of being denied. Additionally, the ACA requires most group health plans to cover certain recommended preventive services, including HIV testing, without additional cost-sharing, such as copays or deductibles. Since one in eight people living with HIV in the U.S. are unaware of their infection, improving access to HIV testing has helped more Americans learn their status so they can be connected to appropriate care and treatment.

Despite the past 30 years of milestones in treatment, healthcare, and prevention of HIV-related illnesses, there is still no cure for AIDS at this time. However, the remarkable progress that has been made in the past three decades leads one to believe that the goal of discovering a cure may soon be a reality.  

MyHealthGuide Source: Bill Rusteberg, 7/2015, RiskManagers.us White Paper <http://www.riskmanagers.us/>

The Problem

Medical inflation continues to rise. Facing rate increases year after year, plan sponsors, with their financial backs to the wall, have historically resorted to cost shifting. These continued failed attempts to control costs have driven some to seek alternate means to restore pricing sanity to health care. To many, the cost of health insurance can mean the difference between profit and loss.

Understanding the cost of health care is directly related to what we agree to pay; more and more employers are questioning managed care contracts upon which their health care costs are based. Many are discovering the truth for the first time. Secretive contracts between health care givers and third party intermediaries contain provisions that guarantee continuous and systematic cost increases. Shared savings side agreements and other schemes found in the health industry economic chain help fuel raging health insurance costs.

Known as medical trend, cost increases have proven to be consistent and predictable. The expected rise in the cost of medical services over time is expressed as an annual percentage increase and is an important element in underwriting future risk. Medical trend is a dominant cost driver in rate making. The annual compounding effect can double or triple health care costs over time.

“For managed care plans, the medical care inflation part of trend is a function of the changes in provider reimbursement rates that are negotiated. To the extent that such negotiations entail factors such as outliers and provider bonuses, the trend rate may be materially more than simply the weighted average increase in fees.” Kevin Gabriel, MBA, FSA, MAAA, Chief Actuary of Sierra Berkshire Associates, Inc.


The Solution
Moving away from managed care contracts, more and more employers are embracing a myriad of reference based pricing models. These models can vary in scope and reach; however all share certain common characteristics in conformance with prudent business practices. Price transparency and claim benchmarking are key elements.


In 2007 — 2008 we approached several of our clients to suggest something different to control costs. The concept was simple. Eschew managed care contracts in lieu of claim benchmarking off multiple data points such as Medicare reimbursement rates. Removing managed care contracts, i.e, PPO, and paying providers quickly, fairly and directly had an immediate impact on claim costs.

After 15 months we performed a study by running 100% of claims back through the prior PPO network reimbursement rates. This exercise proved a net savings of 43% above and beyond the PPO discounts we would have otherwise experienced. Instead of doing the same thing year after year, our client did something different and it worked.

It has been seven years since our first client exited the managed care world. Subsequently more clients have embarked on the same journey, most with equally good results. None have returned to the world of managed care.

The Evidence

Skeptics may ask “How have your clients fared over time? Have they won the battle against medical trend?” The answer may be found by reviewing the experience of four of our clients who have been on a reference based pricing model for five years or more.

Our study is based on actual paid, mature medical claims through succeeding plan years starting in the first year on reference based pricing benchmarked off the prior year under a managed care plan. All claims above stop loss levels have been excluded.

This abbreviated analysis does not recognize changing demographics and plan changes. For example the leveraging effect of higher deductibles will increase trend factors. Of particular importance it should be noted that plan changes occurred in each case through improved benefits supported by prior year claim savings. This study includes medical claims only.

One must understand that medical trend is just one of the factors used to calculate renewal rates for health plans and stop loss insurance. Each year carriers set their own trend level based on various factors, including the current health care inflation rate, analysts’ forecasts and their own experiences. However, our clients are self-funded and thus bear most risk with actual trend directly affecting costs without the benefit of pooling to any significant degree.

“Over the past several years, trend rates have consistently run 8-10% nationally, though certain regions have seen significantly higher or lower figures. Prescription drug trends (which are a component of this) have been more volatile. In the early 2000’s these trends were above 15%. They then fell back to single digit levels. But they have now returned to the teens,”  said Gabriel.

In comparing our client’s experience with average medical trend, we relied upon Heffernan Benefit Advisory Services — 2013 Trend Report; Historical Trend Factors. Based on this report, we are using 9.615% as average annual medical only trend factor.

Political Subdivision — 400 Employee Lives
This case has been on RBP for 7 years. They experienced poor claim years in 2010 and 2012. In 2012, for example, there were 14 large claims that approached or exceeded $125,000. Medical PEPM for 2014 and 2015 (to date) is less than 2008. Benefits have been improved; no deductible or co-insurance features with all benefits subject to co-pays only. Funding increase over seven years has been 15.6% or 2.23% per year.

[Political Subdivisoin]
Public School District — 900 Employee Lives
This case has demonstrated a consistent downward claim trend. Current PEPM (2015) is less than 2008-2009. No benefit reductions. Some benefit improvements. Plan funding has remained essentially static for the past five years.

[Public School District]
Medical Industry — 280 Employee Lives
Plan year 2012-2013 experienced an outlier year with several large claims and 34 pregnancies. Current medical PEPM is 16% higher than under managed care plan in 2008-2009, representing a 2.66% increase per year (sans outliers). This illustrates that higher utilization and outlier claims will result in increasing cost which would occur under either managed care or RBP model. However, RBP trend factor continues below industry benchmarks.

[Medical Industry]
Retail Business — 818 Employee Lives
This case has consistently been well below medical trend. Current medical PEPM is significantly lower than plan year 2008-2009. This case has not raised plan contributions in seven years.

[Retail Business]
Conclusion
Managed care has failed. Medical costs continue to soar. Providers are charging more and we continue to agree to blindly pay up through secretive contracts negotiated by vested interests. Medical trend has, and continues to be, consistently at double digits or close to it.

Cost plus insurance / reference based pricing is a proven method to maintain and even improve comprehensive coverage while at the same time keeping costs reasonable, predictable and consistent. Industry sources estimate reference based pricing plans represent 10% market share and rising. An east coast hedge fund, seeking opportunities in reference based pricing models, predicts reference based pricing will gain 60% market share within the next five years.

“What moves things is innovation. But it’s not easy to innovate in stagnant, hyper-regulated, captured sectors” – Max Borders ( www.fee.org<https://t.e2ma.net/click/hcsgk/l7ixcb/lf924f> ) Cost shifting under the Affordable Care Act will continue to fail to control costs.

Reference Based Pricing represents the last frontier in innovation to control health care costs in a tightly regulated and controlled market.

Plan sponsors can reasonably expect to reduce their health care costs below medical trend without benefit reductions or cost shifting of any kind.