Researching the Changing Landscape in Healthcare Payments 486447_HCare_Research_WPPR_v2.indd 1 1/13/10 5:43:49 PM
Executive Summary Much has been written by the media and the analyst community regarding the steady increase in healthcare expenses, including such messages as: Growth in healthcare spending: Healthcare spending as a percentage of US GDP is growing at 7% a year. 1 At this rate, future increases may become unsustainable. Negative impact at the personal level: Out-of-pocket consumer spending continues to accelerate, leading to instances of consumers delaying care or even stopping their medications, adding an intensely human element to the situation. Challenge to the employer-responsible model: The growing challenge to employers in accessing and providing affordable insurance policies for their workforce, particularly small businesses, calls into question the sustainability of the U.S. model of employer-provided healthcare. The U.S. model of healthcare payments centers on the four payment streams highlighted in the visual below. To better understand the impact of today s trends on our stakeholders, MasterCard has focused on the patient-toprovider payment stream. We undertook a series of research initiatives throughout 2008 to delve into the effect on patients, physicians and hospitals. Conclusions drawn from the research showed that patients, physicians and hospitals are undergoing structural changes related to healthcare payments which have significant financial and procedural impacts, but there are solutions that address these challenges. 1 National Health Care Expenditures Projections: 2004-2014, p. 2. These projections are produced annually by the Office of the Actuary at the Centers for Medicare & Medicaid Services. 1 486447_HCare_Research_WPPR_v2.indd 2 1/13/10 5:43:50 PM
Introduction This whitepaper is intended to identify the key challenges impacting patients and providers. The chart below is a summary of these challenges. Financial Procedural Patients Increasing premiums and employee contributions Rising OOP costs and a shift from fixed dollar co-pays to variable coinsurance payments Escalating costs and variability lead to confusion regarding plan selection, payment and record-keeping process Providers Difficulty and delay in determining payment obligation at the point of service Growing collection expenses and bad debt write-offs Change in dialogue with patients related to payment timing, amount and referrals to specialists Overburdened credit and collection processes Consumer Out-of-Pocket Costs Are Higher and More Variable In 2007, employees share of their premium was projected to reach $3,354 in 2008, a 117% increase from 1999. 2 Exacerbating this situation is the fact that employers are shifting more costs to employees through higher out-of-pocket costs. Higher deductibles, co-pay amounts and coinsurance percentages have increased employees out-of-pocket costs in 2007 to $560 for individuals and $1,344 for families. 2 Moreover, the nature and scope of the policies are shifting as more workers enroll in High Deductible Health Plans (HDHPs). 5.5 million workers are now enrolled in HDHPs, thereby drastically increasing consumer out-of-pocket spending. 2 Increasing out-of-pocket expenses impacts consumers of all income groups. The percentage of individuals who spent more than 10% of their annual income rose from 26% to 53% for low income individuals, from 18% to 36% for middle income and from 18% to 36% for high income individuals. 3 Out-of-pocket spending is also becoming more variable. In 2008 MasterCard research, physicians offices indicated that approximately one third of patients have plans that require coinsurance payments. Depending on the plan, coinsurance programs tend to have out-of-pocket expenses that are 37% to 60% higher. In fact, 54% of employers surveyed are shifting their plan designs from fixed co-pay plans to coinsurance plans either to a moderate or great degree. 4 2 The Kaiser Family Foundation and The Health Research & Educational Trust Employer Health Benefits 2007 Annual Survey 3 Commonwealth Biennial Health Insurance Survey, 2007 4 Towers Perrin, 2008 Health Care Cost Survey 2 486447_HCare_Research_WPPR_v2.indd 3 1/13/10 5:43:50 PM
Coinsurance plans gain popularity, leaving and opening for card usage to create a simpler solution Source: Towers Perrin, 2008 Health Care Cost Survey Consumers Are Increasingly Bewildered The evolving changes in healthcare payments are putting more pressure on the consumer. With healthcare plans becoming increasingly complex, consumers must be more diligent and keep more accurate records in order to analyze plan components and minimize their healthcare expenses. MasterCard 2008 research indicates that many consumers do not clearly understand the design of their current health plan, including which expenses are covered. Consumers who have chosen to enroll in tax-advantaged Flexible Savings Accounts (FSAs), Health Reimbursement Accounts (HRAs) and/or Health Savings Accounts (HSAs) do not fully understand how to optimize their savings. Almost 50% of consumers are finding record-keeping for healthcare expenses increasingly burdensome as they use existing tools and methods to navigate through complicated policies, processes and paperwork. 5 According to 2008 MasterCard research: The two primary reasons for record-keeping of healthcare expenses are tax substantiation and reimbursement Of those who keep records, over 50% of respondents tally manually and over 90% store paper receipts or statements in a box, folder or in a drawer 5 MasterCard research, 2008 3 486447_HCare_Research_WPPR_v2.indd 4 1/13/10 5:43:50 PM
Source: MasterCard research, 2008 Physicians Face New Challenges The physician-patient dialogue has undergone a fundamental change, shifting inexorably from a pure diagnosis-and-treatment visit to a wide-ranging discussion of options based on cost, coverage and confusion. Patients, who see their doctor as the source of all medical-related information, now bring new questions to their physicians: Can I afford the treatment? Is it covered under my policy? Physicians, whose training and experience have prepared them for patient treatment and not insurance-specific concerns, are showing high levels of frustration; they are not equipped to answer detailed insurance queries, nor are they primed for the paperwork that comes with modern healthcare accounting processes. The complexity involved in tracking expenses, combined with difficulty in determining what providers are owed, makes it difficult for patients to accurately and efficiently make payments and payment-based decisions. All of which increases the confusion over insurance coverage, leading to increasing friction between patient and provider. A representative comment from a provider s office underscores the problem: Nine times out of ten they come in clueless about their insurance, like it s our problem, not theirs. 6 When physicians were asked if they had taken steps to minimize confusion, such as utilizing an estimation tool to determine the patient-responsible amount at point of service, only 17% of physicians and 22% of hospitals replied affirmatively. Moreover, only 8% of physicians and 23% of hospitals plan to commence some type of estimation of the patient-responsible amount at the point of service within the next year. 6 Shifting consumer liabilities to a post-service billing environment increases the need for additional billing and collection resources at the physician s office. According to 2008 MasterCard research, patient charges enter the manually intensive, accounts-receivable billing process with the average collection period currently 93 days for physicians and 89 days for hospitals. This implies multiple contacts, either in writing, telephone or email messages. Should the patient ultimately choose to pay with a debit or credit card, 55% of consumers polled said they call the office and read the card number over the telephone, adding a manual element to the process. 6 MasterCard research, 2008 4 486447_HCare_Research_WPPR_v2.indd 5 1/13/10 5:43:52 PM
Increase in Provider Collection Expenses, Reduced Cashflow and Bad Debt An increasing number of patients are either unable to pay their outstanding balances or simply choose not to pay. 61% of individuals with medical bill problems or accumulated medical debt were insured at the time care was provided. 7 MasterCard 2008 research indicates that on average: From the patient s perspective: 3.8 weeks elapse from provider visit to receipt of bill, and 3.5 weeks elapse from receipt of bill to payment From the provider s perspective: Physicians wait 53 days to receive payment from patients; hospitals wait 70 days Days from Billing to Receipt of Payment Patient Payments (%) 0 29 days 39 50 30 59 days 22 26 60-89 days 15 18 90 179 days 4 11 Over 180 days 6 9 Hospitals Physicians Offices Source: MasterCard research, 2008 Additionally, 2008 MasterCard research found that over 25% of physicians and nearly 50% of hospitals reported an increase in bad debt over the past three years. Moreover, $40 to $60 billion of bills to providers were unpaid. 8 Those who did see a decrease reported collecting more from patients at the point of service. 7 Commonwealth Biennial Health Insurance Survey, 2007 8 Overhauling the U.S. Healthcare Payment System, The McKinsey Quarterly, June 2007 5 486447_HCare_Research_WPPR_v2.indd 6 1/13/10 5:43:52 PM
In order to stem this trend, proactive providers are encouraging payment at the point of service. In fact, 85% of physicians and 97% of hospitals who saw a decrease indicated that they were collecting more up-front payments from patients at the point of service. Conclusion Unless stakeholders in the healthcare payments ecosystem recognize the issues surrounding the consumer-to-provider payment stream and band together to integrate their experience, expertise and technology, the payment flow will soon become untenable. We recommend and are promoting endeavors among stakeholders to: 1. Create integrated solutions that enable accurate and prompt payments at the point of service, minimizing post-service billing issues 2. Provide efficient solutions for post-service billing and electronic payments 3. Increase the technological and financial sophistication of providers and consumers The information provided herein is strictly proprietary to MasterCard and for use in connection with this presentation only. You may not distribute nor share any information contained herein with any other third party, in oral or written form, without MasterCard s prior approval. Information in this paper or in any report or deliverable provided by MasterCard in connection herewith relating to the projected impact on your financial performance, as well as the results that you may expect generally are estimates only. No assurances are given that any of these projections, estimates or expectations will be achieved, or that the analysis provided is error-free. You acknowledge and agree that inaccuracies and inconsistencies may be inherent in both MasterCard s and your data and systems, and that consequently, the analysis may itself be somewhat inaccurate or inconsistent. The information, including all forecasts, projections, or indications of financial opportunities are provided to you on an AS IS basis for use at your own risk. MasterCard will not be responsible for any action you take as a result of this presentation, or any inaccuracies, inconsistencies, formatting errors, or omissions in this presentation. 6 486447_HCare_Research_WPPR_v2.indd 7 1/13/10 5:43:52 PM
10-486447 1/10 2010 MasterCard 486447_HCare_Research_WPPR_v2.indd 8 1/13/10 5:43:52 PM