Clinical laboratories are being squeezed on both sides as rising healthcare costs affect their patients while increasing health plan costs impact their employees’ health coverage
When UnitedHealthcare CEO Brian Thompson was murdered on Dec. 4, the nation’s attention focused on the negative impact ever-increasing costs of healthcare coverage is having on the average American. Clinical laboratories and anatomic pathology groups experience this trend firsthand as annual increases in the cost of health plans affect their employees.
To understand just how raw the public is feeling about health insurance, consider that in a recent Emerson College poll, 41% of respondents ages 18-29 stated that Thompson’s murder was “completely” or “somewhat” acceptable.
While the majority of the country believes that such violence is not an acceptable way to solve one’s problems, the message is clear that Americans’ waning trust in health insurance companies has reached unhealthy levels.
“Health insurance costs are far outpacing inflation, leaving more consumers on the hook each year for thousands of dollars in out-of-pocket expenses. At the same time, some insurers are rejecting nearly one in five claims. That double whammy is leaving Americans paying more for coverage yet sometimes feeling like they’re getting less in return,” CBS News reported.
Twenty-five years of increases from the insurance industry make it clear why the relationships between healthcare consumers and insurance companies has soured.
“Employers are shelling out the equivalent of buying an economy car for every worker every year to pay for family coverage,” said Kaiser Family Foundation President and CEO Drew Altman (above) in a news release. “In the tight labor market in recent years, they have not been able to continue offloading costs onto workers who are already struggling with healthcare bills.” Clinical laboratories and pathology groups are among those employers struggling to provide affordable health coverage for their employees. (Photo copyright. Kaiser Family Foundation.)
People Are Frustrated
The cost of living in America has risen dramatically in the past decade. So much so that people are increasingly becoming frustrated and lashing out against companies that appear to be making record profits while their customers struggle to pay for their products and services.
A recent Kaiser Family Foundation (KFF) Health Tracking Poll found that “About one in five adults (19%) say they have difficulty affording their bills each month and about four in 10 (37%) say they are just able to afford their bills each month, while a little over four in 10 (44%) say they are both able to pay their bills and have some money left over.”
Simultaneously, according to KFF, “Employees’ share of their [health insurance] premiums are also on the rise, with a worker with family coverage typically paying premiums of $5,700 per year in 2017, the most recent year for that data, up from about $1,600 in 2000. … The average family deductible—the amount paid out-of-pocket before insurance kicks in—has increased from $2,500 in 2013 to $3,700 in 2023.”
This double-whammy in costs has a growing number of American’s worrying about unexpected healthcare bills and the overall cost of keeping their families adequately covered for the future.
“We’ve gotten to a point where healthcare is so inaccessible and unaffordable, people are justified in their frustrations,” said Céline Gounder, MD, a CBS News medical contributor and editor-at-large for public health at KFF Health News.
The chart above taken from a KFF Health Tracking Poll (Jan. 30-Feb. 7, 2024) shows participants’ answers when asked, “How worried, if at all, are you about being able to afford each of the following for you and your family?” Results indicate, according to KFF, that three in four people polled are worried about paying future healthcare bills and covering increasing insurance costs. (Graphic copyright: KFF.)
AI and Coverage Denials
Coverage denials is another sore spot for many people, impacting nearly one in five claims in nongroup qualified health plans in 2021, KFF found. This ranged from 2% to 49% depending on the company.
“When you are paying for something, they don’t give it to you, and they keep raising prices … you will be frustrated by that,” Holden Karau, a software engineer and creator of Fight Health Insurance, a free online service that helps people appeal their denials, told CBS News. Karau’s company uses artificial intelligence (AI) to help customers create appeal letters.
But the use of AI in healthcare coverage has also drawn criticism. Insurance companies are increasingly using AI to review claims and issue denials, and the lack of transparency has led to lawsuits. Last year, CBS News covered lawsuits brought by the families of two deceased individuals who accused UnitedHealthcare of “knowingly” using a “faulty” AI algorithm to deny the patients medically necessary treatments.
Karau noted, “With AI tools on the insurance side, they have very little negative consequences for denying procedures,” CBS News reported. “We are seeing really high denial rates triggered by AI. And on the patient and provider side, they don’t have the tools to fight back,” she added.
“Unhappiness with insurers stems from two things: ‘I’m sick and I’m getting hassled,’ and the second is very much cost—‘I’m paying more than I used to, and I’m paying more than my wages went up,’” Rob Andrews, CEO of Health Transformation Alliance, a company that helps healthcare providers and other self-insured companies improve coverage for their employees, told CBS News. “A lot of people think they are getting less,” he added.
Effects on Clinical Laboratories
Even as individuals and families pay more money each year in healthcare premiums, deductibles, and out-of-pocket expenses, clinical laboratories have seen payers cut reimbursement for many lab tests. Thus, labs are dealing with a double-squeeze on their finances. On the income side, reimbursement for tests is under pressure, while on the cost side, the cost of health benefits for employees climbs annually.
Clinical lab and pathology managers will want to stay aware of these trends and take advantage of any opportunity to lower costs and pass on those savings to their patients.
Study findings highlight financial impact underinsured have on healthcare providers, including clinical laboratories and pathology groups
Commonwealth Fund’s 2024 Biennial Health Survey released in November shows that not only are Americans underinsured, but many are swimming in medical debt. This is not good news for clinical laboratories. Simply put, labs must collect deductibles, copays, and out of pocket amounts from insured patients. If the patient is underinsured, that means the lab probably has to collect more—even 100%—of total charges directly from the patient.
The study conducted between March and June of 2024 collected data from 8,201 respondents ages 18-64, and despite two of every three respondents carrying health insurance through their employers, one of every four is underinsured, according to a Commonwealth Fund news release.
A further 44% of respondents have medical debt, with one of every four calling their out-of-pocket payments “nearly unaffordable,” the news release notes. Additionally, one out of five had a gap in coverage during the year.
“Congress, employers, insurers, and healthcare providers all play a role in lowering costs and making care more affordable, so families can avoid debt and get the care they need to stay healthy,” said Sara R. Collins, PhD, lead study author and Commonwealth Fund Senior Scholar and Vice President for Health Care Coverage and Access and Tracking Health System Performance, in the news release.
Astute laboratory managers will look beyond the study’s face value and consider the profound impact such findings could have on their own labs.
“While having health insurance is always better than not having it, the findings challenge the implicit assumption that health insurance in the United States buys affordable access to care,” the Commonwealth Fund said of its 2023 study. This sentiment rings true in the Funds’ latest findings as well.
“The Affordable Care Act has covered 23 million people and cut the uninsured rate in half. But high costs are a serious problem for many Americans, regardless of the kind of insurance they have,” said Sara R. Collins, PhD (above), lead study author and Commonwealth Fund Senior Scholar and Vice President for Health Care Coverage and Access and Tracking Health System Performance, in a news release. Clinical laboratories and anatomic pathology groups are greatly affected by underinsured patients. (Photo copyright: Commonwealth Fund.)
Labs Often Must Collect Payments Upfront
Many patients are in high deductible health plans and may forgo or delay ordered lab tests. Labs collect patient deductibles, copays, and out-of-pocket expenses directly from patients. However, underinsured patients may be required to pay for 100% of the services they receive, requiring the lab to collect these payments upfront.
Underinsured patients already facing a mountain of debt may struggle to pay for lab services. The debt many owe is substantial. “Nearly half (48%) of all adults with medical debt owe $2,000 or more; one of five (21%) carry a staggering $5,000 or more in debt,” Commonwealth Fund noted in its study.
Thus, collecting money owed is proving to be a problem for healthcare providers. Patient collection rates are plummeting to 48%, with “providers writing off more bad debt from patients with insurance,” TechTarget reported.
“Lower patient collection rates left providers facing bad debt. The analysis showed that 1.54% was the bad debt write-offs as a percentage of total claim charges in 2023. Researchers note that the percentage may be small, but the total cash amount equated to over $17.4 billion last year,” TechTarget added.
Having some rather than no insurance is not the safety net for patients previously thought. When it comes to the insured, their debt “accounts for 53% of the estimated $17.4 billion that hospitals, health systems, and medical practices wrote off as bad debts in 2023,” Business Wire noted, citing data from Kodiak Solutions’ quarterly revenue cycle benchmarking report.
Delaying Critical Lab Tests
The challenges the insured face with debt impacts labs in the long run. A staggering 57% of survey respondents reported passing on needed care because they could not afford it, and of those, 41% said their health concerns worsened when they denied themselves that care, Commonwealth Fund noted.
Increasingly poor health means patients might struggle to collect sufficient income to pay for their now added expenses, further causing them to struggle to pay for anything insurance might not cover, such as doctor ordered lab tests.
The affect this has on hospitals and medical laboratories casts light on the healthcare marketplace as a whole. It’s a trend that needs to be further studied.
“Most hospital bad debt is associated with insured patients, and nearly one in three hospitals report over $10M in bad debt,” are two of the top five financial healthcare statistics reported by Definitive Healthcare in a 2023 report.
“Expanding patient collection strategies may be key to maximizing revenue and avoiding losses,” TechTarget suggested.
Possible Solutions
The Commonwealth Fund study made clear that employer-covered healthcare does not guarantee affordable care or that ample care will be provided. Possible solutions from the study called on policymakers to “expand coverage and lower costs for consumers.” It added that “extending enhanced premium tax credits and strengthening protections against medical debt could make coverage more protective and affordable.”
Until a solution can be found, it’s wise to stay abreast of this trend and how it can impact the bottom line of clinical laboratories and anatomic pathology groups nationwide.
Though the cost of clinical laboratory testing is not highlighted in KFF’s annual survey, it is a component in how much employers pay for healthcare plans for their employees
Employers now pay higher health insurance premiums than ever for family coverage. However, because of the current tight labor market, they are generally absorbing much of that increase rather than passing the higher costs on to their workers. That’s one key takeaway from KFF’s 26th annual Employer Health Benefits Survey, which the non-profit published on Oct. 9, 2024. While the report does not comment specifically about the cost of clinical laboratory testing or genetic testing and how they may contribute to rising insurance costs, it stands to reason they are part of growing healthcare costs for corporate health benefits.
The KFF survey found that premiums for family coverage increased 7% in 2024, reaching an average of $25,572. That follows a 7% increase in 2023. “Over the past five years—a period of high inflation (23%) and wage growth (28%)—the cumulative increase in premiums has been similar (24%),” KFF stated in a press release.
However, the amount paid by workers has gone up by less than $300 since 2019. It now stands at an average of $6,296, a total increase of 5% over five years. On average, workers covered 25% of family premium costs in 2024, down from 29% in 2023. Workers with single coverage paid an average of $1,368—16% of the annual premium cost—compared with 17% in 2023.
“Employers are shelling out the equivalent of buying an economy car for every worker every year to pay for family coverage,” KFF President and CEO Drew Altman, PhD (above), said in a press release. “In the tight labor market in recent years, they have not been able to continue offloading costs onto workers who are already struggling with healthcare bills.” Rising costs of clinical laboratory testing is always part of the mix contributing to increased worker insurance premiums for employers. (Photo copyright: KFF.)
HDHP/SO plans, as defined by KFF, “have a deductible of at least $1,000 for single coverage and $2,000 for family coverage and are offered with an HRA [Health Reimbursement Arrangement] or are HSA [health savings account]-qualified.” Point-of-service plans “have lower cost sharing for in-network provider services and do not require a primary care gatekeeper to screen for specialist and hospital visits,” the report states.
Cost Sharing via Deductibles
Average deductible amounts—which KFF identified as another form of cost-sharing—varied depending on the type of plan, employer size, and whether the worker had family or single coverage.
For workers with single coverage, average deductibles across all plan types rose from $1,655 in 2019 to $1,787 in 2024, a total five-year increase of about 8%. The average in 2023 was $1,735. These numbers were for in-network providers.
The report noted that some family plans calculate deductibles using an aggregate structure, “in which all family members’ out-of-pocket expenses count toward the deductible,” whereas others use a separate per-person structure. The report includes breakdowns of average deductibles across all types.
Who Offers the Best Benefits?
In general, the KFF report found that large companies—defined as those with 200 or more workers—tend to offer more generous health benefits than smaller ones. Virtually all large companies (98%) offered health benefits, while slightly more than half of small companies (53%) do so.
Among companies that do offer health benefits, the average deductible at a small firm was $2,575 compared to $1,538 at large firms. Among workers with family coverage, the average contribution toward overall premium costs was $7,947 (33%) at small firms compared to $5,697 (23%) at large firms. Among workers with single coverage, the numbers were $1,429 (16%) at small firms compared to $1,204 (14%) at large firms.
The report also found variations in overall premiums and health benefits across nine different industries. For example, healthcare firms paid the highest premiums for family coverage—an average of $26,864—followed by transportation/communications/utilities at $26,601. Companies in agriculture, mining, and construction paid the lowest premiums, an average of $22,654.
There were wide variations by industry in terms of how many firms offer any health benefits. Among state and local government entities, 83% offered health benefits, followed by transportation/communications/utilities (69%), manufacturing (65%), wholesale (62%), healthcare (58%), and finance (56%). Just 40% of retail businesses and 49% of agriculture/mining/construction businesses offered health benefits.
Health Screening Coverage
The KFF report did not include data about insurance coverage for clinical laboratory services. However, one section did address employer willingness to provide opportunities for health screening.
Among large businesses, 56% offered health risk assessments, in which individuals answer questions about their medical history, lifestyle, and other areas relevant to their health risks. A smaller number (44%) offer biometric screening, which “could include meeting a target body mass index (BMI) or cholesterol level, but not goals related to smoking,” the report said. Only 9% of small businesses offered biometric screening, the report found.
KFF conducted its survey between January and July 2024 among a random selection of public and private employers with at least three workers. The survey excluded federal government entities but included state and local government. A total of 2,142 employers responded.
Inflation during this current administration definitely hit consumers in the health insurance premium pocketbook. At the same time providers raised their own prices making it more expensive for people with HDHPs to come up with the cash required by their annual deductible. While clinical laboratory and genetic testing are not highlighted in KFF’s survey, they certainly play a role in increasing costs to healthcare consumers and are worth considering.
Another report finds nearly half of all healthcare systems planning to opt out of Medicare Advantage plans because of issues caused by prior authorization requirements
Prior-authorization is common and neither healthcare providers (including clinical laboratories) nor Medicare Advantage (MA) health plans are happy with the basic process. Thus, labs—which often must get prior-authorization for molecular diagnostics and genetic tests—may learn from a recent KFF study of denial rates and successful appeals.
“While prior authorization has long been used to contain spending and prevent people from receiving unnecessary or low-value services, it also has been [the] subject of criticism that it may create barriers to receiving necessary care,” KFF, a health policy research organization, stated in a news release.
Nearly all MA plan enrollees have to get prior authorization for high cost services such as inpatient stays, skilled nursing care, and chemotherapy. However, “some lawmakers and others have raised concerns that prior authorization requirements and processes, including the use of artificial intelligence to review requests, impose barriers and delays to receiving necessary care,” KFF reported.
“Insurers argue the process helps to manage unnecessary utilization and lower healthcare costs. But providers say prior authorization is time-consuming and delays care for patients,” Healthcare Dive reported.
“There are a ton of barriers with prior authorizations and referrals. And there’s been a really big delay in care—then we spend a lot of hours and dollars to get paid what our contracts say,” said Katie Kucera (above),Vice President and CFO, Carson Tahoe Health, Carson City, Nev., in a Becker’s Hospital CFO Report which shared the health system’s plan to end participation in UnitedHealthcare commercial and Medicare Advantage plans effective May 2025. Clinical laboratories may want to review how test denials by Medicare Advantage plans, and the time cost of the appeals process, affect the services they provide to their provider clients. (Photo copyright: Carson Tahoe Health.)
Key Findings of KFF Study
To complete its study, KFF analyzed “data submitted by Medicare Advantage insurers to CMS to examine the number of prior authorization requests, denials, and appeals for 2019 through 2022, as well as differences across Medicare Advantage insurers in 2022,” according to a KFF issue brief.
Here are key findings:
Requests for prior authorization jumped 24.3% to 46 million in 2022 from 37 million in 2019.
More than 90%, or 42.7 million requests, were approved in full.
About 7.4%, or 3.4 million, prior authorization requests were fully or partially denied by insurers in 2022, up from 5.8% in 2021, 5.6% in 2020, and 5.7% in 2019.
About 9.9% of denials were appealed in 2022, up from 7.5% in 2019, but less than 10.2% in 2020 and 10.6% in 2021.
More than 80% of appeals resulted in partial or full overturning of denials in the years studied. Still, “negative effects on a person’s health may have resulted from delay,” KFF pointed out.
KFF also found that requests for prior authorization differed among insurers. For example:
Humana experienced the most requests for prior authorization.
Among all MA plans, the share of patients who appealed denied requests was small. The low rate of appeals may reflect Medicare Advantage plan members’ uncertainty that they can question insurers’ decisions, KFF noted.
It’s a big market. Nevertheless, “between onerous authorization requirements and high denial rates, healthcare systems are frustrated with Medicare Advantage,” according to a Healthcare Financial Management Association (HFMA) survey of 135 health system Chief Financial Officers.
According to the CFOs surveyed, 19% of healthcare systems stopped accepting one or more Medicare Advantage plans in 2023, and 61% are planning or considering ending participation in one or more plans within two years.
“Nearly half of health systems are considering dropping Medicare Advantage plans,” Becker’s reported.
Federal lawmakers acted, introducing three bills to help improve timeliness, transparency, and criteria used in prior authorization decision making. Starting in 2023, KFF reported, the federal Centers for Medicare and Medicaid Services (CMS) published final rules on the bills:
Rule One (effective June 5, 2023), “clarifies the criteria that may be used by Medicare Advantage plans in establishing prior authorization policies and the duration for which a prior authorization is valid. Specifically, the rule states that prior authorization may only be used to confirm a diagnosis and/or ensure that the requested service is medically necessary and that private insurers must follow the same criteria used by traditional Medicare. That is, Medicare Advantage prior authorization requirements cannot result in coverage that is more restrictive than traditional Medicare.”
Rule Two (effective April 8, 2024), is “intended to improve the use of electronic prior authorization processes, as well as the timeliness and transparency of decisions, and applies to Medicare Advantage and certain other insurers. Specifically, it shortens the standard time frame for insurers to respond to prior authorization requests from 14 to seven calendar days starting in January 2026 and standardizes the electronic exchange of information by specifying the prior authorization information that must be included in application programming interfaces starting in January 2027.”
Rule Three (effective June 3, 2024), requires “Medicare Advantage plans to evaluate the effect of prior authorization policies on people with certain social risk factors starting with plan year 2025.”
KFF’s report details how prior authorization affects patient care and how healthcare providers struggle to get paid for services rendered by Medicare Advantage plans amid the rise of value-based reimbursements.
Clinical laboratory leaders may want to analyze their test denials and appeals rates as well and, in partnership with finance colleagues, consider whether to continue contracts with Medicare Advantage health plans.
Request for money upfront comes at a time when many patients already struggle with medical debt
In its reporting of healthcare trends gathering momentum, a national newspaper caused quite a stir this spring when it published a story documenting how some hospitals now require patients to pay in advance of specified surgeries and procedures. Hospitals are recognizing what clinical laboratories have long known—a larger proportion of Americans do not have the cash to pay a medical bill.
Hospitals and surgery centers are requesting advanced payment for elective procedures such as knee replacements, CT scans, and childbirth procedures, according to an Advisory Board daily briefing.
“In some cases, they may also have a contract with an insurance company. And in that contract are terms that stipulate hospitals need to collect deductibles or co-insurance before a procedure,” Evans added.
According to Bankrate’s 2024 Annual Emergency Savings Report, nearly half of all American’s would be unable to pay cash for an unplanned $1,000 bill. Therefore, one wonders why hospitals would attempt to extract payments from patients in advance of medical visits and clinical laboratory testing. Wouldn’t that just reduce the number of patients electing to undergo needed surgeries and other costly procedures? Nevertheless, it appears that many hospitals struggling financially are doing just that, according to The Wall Street Journal.
Genetic testing laboratories have a similar problem because of high-deductible health plans ($5K/year for individual, $12K/year for family). It means that many patients, even with insurance, struggle to pay a $1,000 to $5,000 bill for a genetic test.
Requesting payment from patients before healthcare visits is not new. However, the practice is on the rise and comes at a time when consumers are already struggling to make ends meet.
“Hospitals collected (in Q1 2024) about 23% of what patients owed them before they set foot in a hospital or doctor’s office. That’s up from about 20% in the same period a year earlier,” said reporter Melanie Evans (above) of The Wall Street Journal, referring to data from 1,850 hospitals analyzed by Kodiak Solutions. Genetic testing laboratories experience similar challenges getting paid due to many people struggling with high deductible health plans. (Photo copyright: LinkedIn.)
Price Transparency Behind Upfront Payments
According to a recent KFF survey of US families, “about half of adults would be unable to pay an unexpected medical bill of $500 in full without going into debt.”
Regardless, asking for payment for nonemergency care has become more common as people increasingly choose health plans with high-deductibles and amid the push for greater price transparency, according to Richard Gundling, Senior Vice President, Content and Professional Practice Guidance at Healthcare Financial Management Association (HFMA), in an interview with Advisory Board.
“It’s very common if not the norm” for hospitals to give patients a cost estimate and ask for advance payment, Gundling stated during the interview.
In fact, healthcare providers and insurers are required to shared charges and estimates as part of newly implemented federal rules. According to the American Hospital Association (AHA) those statutes and rules include:
The Hospital Price Transparency Final Rule (effective January 2021) which requires hospitals to publicly post “standard charges” via machine readable files.
The No Surprises Act which mandates the sharing of “good faith estimates” with uninsured/self-pay patients for most scheduled services and also requires insurers to provide explanation of benefits to enrollees.
According to Consumer Reports, hospitals are finding consumers less reliable payers than insurance companies. “No one would say, ‘Pay up or we won’t treat you.’ But we’re saying that, ‘You have a large out-of-pocket cost, and we want to know how are you going to pay for it,’” explained Jonathan Wiik, Vice President of Health Insights at FinThrive, a revenue cycle management company.
Razor Thin Hospital Margins
For their part, hospitals, health systems, and medical practices wrote off $17.4 billion in bad debt in 2023, Kodiak Solutions, an Indianapolis-based healthcare consulting and software company, reported in a news release.
“With the amounts that health plans require patients to pay continuing to grow, provider organizations need a strategy to avoid intensifying pressure on their already thin margins,” said Colleen Hall, Senior Vice President, Revenue Cycle, Kodiak, in the news release.
“Patient collections have become an increasingly difficult challenge for hospitals due primarily to a shift in payer mix. Because of rising deductibles and increased patient responsibility, the percentage of healthcare provider revenue collected directly from patients increased to more than 30% from less than 10% over 10 years,” the HFMA noted.
Thus, the financial tension being experienced by both patients and providers, and the need for patients to prepay for some treatment, are extreme challenges. The situation may call for clinical laboratory leaders to not only focus on quality testing and efficient workflow, but also affordability and access to services.
