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Over the past decade, large employers increasingly have bypassed traditional health insurance for their workers, opting instead to assume the financial risk of enrollees' medical care through self-insurance. Because self-insurance arrangements may offer advantages--such as lower costs, exemption from most state insurance regulation and greater flexibility in benefit design--they are especially attractive to large firms with enough employees to spread risk adequately to avoid the financial fallout from potentially catastrophic medical costs of some employees. Recently, with rising health care costs and changing market dynamics, more small firms--100 or fewer workers--are interested in self-insuring health benefits, according to a new qualitative study from the Center for Studying Health System Change (HSC). Self-insured firms typically use a third-party administrator (TPA) to process medical claims and provide access to provider networks. Firms also often purchase stop-loss insurance to cover medical costs exceeding a predefined amount. Increasingly competitive markets for TPA services and stop-loss insurance are making self-insurance attractive to more employers. The 2010 national health reform law imposes new requirements and taxes on health insurance that may spur more small firms to consider self-insurance. In turn, if more small firms opt to self-insure, certain health reform goals, such as strengthening consumer protections and making the small-group health insurance market more viable, may be undermined. Specifically, adverse selection--attracting sicker-than-average people--is a potential issue for the insurance exchanges created by reform.

Little has changed in local health care markets since 2005 to break the cycle of rising costs, falling insurance coverage and widening access inequities, according to initial findings from the Center for Studying Health System Change's (HSC) 2007 site visits to 12 nationally representative metropolitan communities. As intense competition among hospitals and physicians for profitable specialty services continues, employers and health plans are looking to consumers to take more responsibility for medical costs, lifestyle choices and treatment decisions. While consumer-directed health plans have not gained widespread adoption, other developments-including a heightened emphasis on prevention and wellness, along with nascent provider cost and quality information-are advancing health care consumerism. However, concerns exist about whether these efforts will slow cost growth enough to keep care affordable or whether the growing problem of affordability will derail efforts to decrease the rising number of uninsured Americans and stymie meaningful health care reform.

Efforts to improve the efficiency and quality of health care are unlikely to be successful if physicians and hospitals incur steep financial losses from success in accomplishing these goals, according to a new study by the Center for Studying Health System Change (HSC). Currently, most efforts to improve efficiency for a specific medical condition usually reduce the number of services per patient that can be billed, posing financial challenges for providers. These challenges are often magnified by the current fee-for-service payment structure, where some services are highly profitable and others are unprofitable, further undermining the case for redesigning care delivery to improve quality and efficiency. These dynamics are seen in the collaboration between Virginia Mason Medical Center (VMMC) and Aetna in Seattle to improve care for four common conditions. Although Aetna and participating self-insured employers have agreed to pay higher rates for certain unprofitable services if reductions in use of profitable services are achieved, VMMC still faces a financial challenge from applying more efficient care practices to patients covered by other insurers.

Health plans have introduced high-performance networks to encourage use of network providers--predominantly physician specialists--deemed high performing on efficiency and quality measures. Early adopters of these networks are large national employers, and, while other employers are interested, actual adoption has lagged, according to a study by the Center for Studying Health System Change (HSC). Enrollment in products using high-performance networks is limited, and objective evidence on the impact on service use, costs and quality is lacking. Early lessons learned indicate the need for effective communication between plans and providers, use of both efficiency and quality measures, industry standards of provider performance, and employer support.

Current health insurance benefit designs that simply rely on higher, one-size-fits-all patient cost sharing have limited potential to curb rapidly rising costs, but innovations in benefit design can potentially make cost sharing a more effective tool, according to a new study by the Center for Studying Health System Change (HSC). Innovative benefit designs include incentives to encourage healthy behaviors; incentives that vary by service type, patient condition or enrollee income; and incentives to use efficient providers. But most applications of these innovative designs are not widespread, suggesting that any significant cost impact is many years off. Moreover, regulations governing high-deductible, consumer-directed health plans eligible for health savings accounts (HSAs) preclude some promising benefit design innovations and dilute the incentives in others. A movement away from a one-size-fits-all HSA benefit structure toward a more flexible design might broaden the appeal of HSA plans and enable them to incorporate features that promote cost-effective care.

Many developments in local health care markets appear to be setting the stage for additional health care cost increases and access-to-care problems, according to initial findings from the Center for Studying Health System Change's (HSC) 2005 site visits to 12 nationally representative communities. Hospitals and physicians are competing more broadly and intensely for profitable specialty services, making costly investments to expand capacity and offer the latest medical technologies, especially in more affluent areas with well-insured populations. Employers and health plans have launched few initiatives to control rising costs beyond increasing patient cost sharing. As rapidly rising costs continue to push private health insurance out of reach for more people, state and local governments are struggling to meet the needs of low-income people and an increasing number of uninsured people.

After declining markedly between 1997 and 2001, Medicare seniors' access to physician care stabilized between 2001 and 2003, according to a national study by the Center for Studying Health System Change (HSC). Access to care trends were parallel for Medicare seniors 65 and older and privately insured people between the ages of 55 and 64--the near-elderly--suggesting that health system developments were much more important influences on beneficiary access than any effects of Medicare's 2002 physician payment rate reduction. In addition, access to care for both Medicare seniors and privately insured near-elderly people was comparable in local health care markets where commercial insurance payment rates far exceed Medicare's. However, both Medicare seniors and older privately insured people waited longer for physician appointments.

This Data Bulletin is based on data from the Milliman USA Health Cost Index (HCI) ($0 deductible), which is designed to forecast claims trends faced by private insurers and the U.S. Bureau of Labor Statistics' National Compensation Survey to track hourly compensation costs for nurses and Producer Price Index for general medical and surgical hospitals to track hospital prices. The HCI classifies spending on services performed in freestanding facilities in its hospital outpatient category, which is consistent with how insurers classify such services. Due to data limitations, the HCI includes spending for Medicaid and uninsured patients, which can cause HCI trends to differ from privately insured trends. The authors have adjusted the HCI estimates to remove the effect of distinct Medicaid hospital price trends. As with most economic data, the HCI is subject to periodic retroactive revisions.

Continued high-cost trends are threatening the affordability of health insurance and many consumers' access to care. Early findings from the Center for Studying Health System Change's (HSC) 2002-03 site visits to 12 nationally representative communities show the retreat from tightly managed care continues to shape local health care markets. Employers are aggressively shifting higher health costs to workers, and absent tight managed care controls to limit the use of care and slow payment rate increases, hospitals and physicians in many markets are competing fiercely for profitable specialty services. These developments have sparked growing skepticism about the potential for market-led solutions to the cost, quality and access problems facing the health care system today.

Hospitals specializing in cardiovascular and orthopedic procedures are developing rapidly throughout the country, raising challenging questions for communities and policy makers. Proponents argue that specialty hospitals could improve quality and reduce costs, yet skeptics note that specialty hospitals might reduce quality, increase costs and decrease access to basic services. The Center for Studying Health System Change (HSC) site visit findings suggest that the relatively high profit margins of these select procedures and specialists' desire to increase control over the care environment and increase their income are among the key reasons for this specialty hospital building boom. Policy makers are exploring a range of responses with the goal of allowing specialty hospitals to compete and innovate while minimizing the potential for quality, cost and access problems.

This Data Bulletin is based on physicians' reports of net income from the practice of medicine from the HSC Community Tracking Study Physician Survey in 1996-97, 1998-99 and 2000-01. Net income equals income from the practice of medicine after expenses and before taxes. Reported income is lagged--for example, in the 2000-01 survey, physicians provide 1999 net income. Adjustments for inflation use the Bureau of Labor Statistics (BLS) online inflation calculator.

Projected cuts in Medicare physician payments raise serious concerns that Medicare beneficiaries will lose access to needed physician services. A study by the Center for Studying Health System Change (HSC) shows growing physician access problems among Medicare and privately insured patients. Patients have the most difficulties obtaining care from specialists and in certain communities. Proposals to increase Medicare fees across the board may prevent deterioration of access for Medicare beneficiaries but are unlikely to address system-wide access problems that vary by specialty and market.

This Data Bulletin analyzes changes in an aging index that measures the extent to which average health care spending per person under age 65 changes from year to year due solely to the aging of the U.S. population, while holding all other cost drivers constant.

Bipartisan interest is growing in Congress for using federal tax credits to help low-income families buy health insurance. Regardless of the approach taken, tax credit policies must address risk selection issues to ensure coverage for the chronically ill. Proposals that link tax credits to purchasing pools would avoid risk selection by grouping risks similar to the way large employers do. Voluntary purchasing pools have had only limited success, however. This Issue Brief discusses linking tax credits to purchasing pools. It uses information from the Center for Studying Health System Change's (HSC) site visits to 12 communities as well as other research to assess the role of purchasing pools nationwide and the key issues and implications of linking tax credits and pools.

Every two years, researchers at the Center for Studying Health System Change (HSC) interview health care leaders in 12 nationally representative communities to assess changes in local health care markets. The third round of site visits is under-way, and early findings from 2000-2001 indicate significant changes in health care financing and delivery are taking place across the country. This Issue Brief discusses developments in managed care, hospital consolidation, physician-hospital tensions, risk contracting and health plan premiums. State and federal policy makers charged with balancing cost, coverage, access and quality of health care should consider these emerging trends in their decision making.

The Massachusetts insurance commissioner placed Harvard Pilgrim Health Care (HPHC) in receivership in January on the basis of large projected losses that put the nonprofit plan in a significant negative net worth position. Because Harvard Pilgrim was the largest health plan in the market, with substantial amounts payable to hospitals and physicians, its financial problems shook the Boston health care community. The story also attracted national attention because of the plan's prominence and its reputation for quality. The Center for Studying Health System Change (HSC) followed the Harvard Pilgrim story closely as part of its continuous tracking of Boston--one of the 12 Community Tracking Study sites visited every two years--and is able to put this event in broader context. Many of Harvard Pilgrim's problems are evident in plans elsewhere. This Issue Brief discusses the causes of the plan's financial problem and the state's response, which has preserved the organization.

Defined contributions for health benefits are being promoted as the new silver bullet for employers to combat the rising costs of health care, the managed care backlash and the changing climate for employer liability. As interest in this concept grows, so does the number of proposed alternatives for implementing it. Originally called fixed contributions, defined contributions now also refer to cash transfers or vouchers, with reliance on the individual market for health insurance. A more recent angle for defined contributions is using the Internet as an on-line marketplace for purchasing health insurance. This Issue Brief examines defined-contribution strategies and assesses issues relevant to employers, employees and public policy makers.

After three years of anticipation, health care cost trends have taken an upward turn. In employment-based insurance, premium increases for 1999 were in the 5 percent range, up from 3 percent for 1998. The rate of increase in underlying costs of private insurance--lagged by one year--also rose by approximately 2 percentage points. Many had expected a sharper upturn in premium increases than underlying cost increases. This would have heralded a turn in the insurance underwriting cycle, which has not yet occurred. This Issue Brief tracks the rate of growth of health care costs and the experience with premiums for employment-based health insurance and discusses the impact of these trends on consumers.