Article: Consolidated Appropriations Act

CAA My State Slashed Public Employee Insurance Painlessly. So can West Virginia.

By Christin E. Deacon

In West Virginia, insurance claims are up, while returns on investments are down. The result: a staggering $92 million deficit from the Public Employee Insurance Agency Fund (PEIA).

This is the agency’s second year in a row in the red. Without a major intervention, not only will taxpayers likely face higher tabs, West Virginia public employees could see double-digit percentage rate hikes in their insurance over the next few years.

To many this is just the result of an aging population. But it is also caused by a broken system that lets powerful interests in the healthcare industry just keep raising prices to boost profits, with almost zero pushback or oversight.

Because Americans – and West Virginians are no exception – tend to equate costlier healthcare with higher quality care, that has made healthcare costs a third rail of politics. No one has the courage to rein them in.

But there are actually plenty of steps PEIA could take to close this deficit quickly, without affecting quality of care. Two obvious moves are to start reining in certain price-gouging practices in the health insurance industry, including among prescription benefit management firms (PBMs). The second is to use independent evaluation firms like TruDataRX and Validation Institute to evaluate the cost effectiveness of pharmaceuticals and health care providers.

Back in 2017, when I was a deputy attorney general and then assistant counsel to then-New Jersey governor Chris Christie, we held a “reverse auction” purchasing process to help unleash competitive forces. Essentially, we flipped things around, asking vendors to state what the lowest price was they would sell us their services, instead of just putting the contract out for private bid.

This move forced PBMs to make offers more competitive in multiple rounds of bidding without reducing drug benefits for the state’s 800,000 public-sector employees. We saved a projected $2.5 billion in drug spending, or about 25% for New Jersey’s public employees between 2017 and 2022.

Similar savings have been achieved by private and public employers elsewhere, from Linde Gas in Bridgewater, NY, to the Nashville public schools, and even Walmart.

Similar fat can be trimmed in West Virginia. There is plenty of evidence there is a lot of fat to cut here.  A recent University of Southern California report found that leading PBMs have secretly been inflating the cost of generic medications. They can reimburse a drug for one price, while charging insurance providers a higher one, then pocketing the difference. Traditional insurance carriers, meanwhile, have little incentive to evaluate the quality of providers and improve health outcomes.

The facts are clear. Any employer, public or private, could take matters into its own hands by taking a closer look at healthcare cost and quality data. Just by doing more competitive shopping among insurers, employers could reduce their employees’ healthcare costs by as much as one-third, saving billions, according to some estimates. They can do this by renegotiating contracts, holding reverse auctions like we did in New Jersey, or pegging payments to Medicare rates.

There’s also a new twist that makes this more urgent for private employers. A law passed last year opens employers up to lawsuits if their health benefits are overpriced, similar to what occurred with 401ks in the not-so-distant past. A recent Supreme Court case further emphasized prudence in not only in selecting investment options, but in monitoring them and removing those that are not good for investors. The corollary to healthcare is obvious: Lawsuits will ensue.

With employers over the barrel, benchmarking or comparing their healthcare prices to alternatives allows them to vastly improve patient outcomes, employee satisfaction, and retention rates. It’s a win-win-win.

A key problem is that health plans have almost zero incentive to evaluate the quality of providers. Most employees are blind to the actual costs of care, because of incestuous relationships between PBMs, hospitals, and insurers. While Americans tend to equate unlimited and expensive health benefits with higher-quality care, the dirty little secret is that plush benefits often don’t deliver better results. Worse, they sometimes encourage unnecessary procedures.

Most politicians don’t want to be accused of toying with what many claim is “the best healthcare in the world”.  But now there is ample evidence that healthcare costs don’t track with quality, and there is a lot of padding on costs. Pressing PBMs and insurers is a great way to give employees and employers relief, while prodding the healthcare industry to be more transparent and competitive

The potential savings are huge. U.S. healthcare costs were just over $74 billion in 1970. By 2020 that figure was $4.1 trillion. Meanwhile insurance costs have skyrocketed. A family plan for a teacher in Connecticut, for example, costs $37,500, crowding out other important spending.

Without intervention, expect similar double-digit rate hikes for West Virginians’ insurance costs. It’s time for employers to start scrutinizing healthcare costs and benefits the way they do any other expense.

Christin E. Deacon is the Principal at VerSan Consulting, and a former deputy attorney general for New Jersey, and private sector restructuring attorney.

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