For business leaders coping with a range of fast-evolving workplace issues, one concern remains constant: the rising cost of health insurance. Health care expenses have long outpaced both general inflation and employee wage increases, and there's little relief in sight. Consumer prices—now rising at the fastest pace in 40 years—are likely to push health benefits costs still higher this year and next.
Most employers will try to avoid passing on increased costs to employees "because of the tight labor market and the desire to keep health care affordable for employees," says Jeff Levin-Scherz, population health leader at consultancy WTW, formerly Willis Towers Watson. Still, employers' total rewards budgets are limited, so increased health care spending could cut into funds set aside for other benefits costs—and pay raises.
That leaves employers with the difficult task of trying to keep their coverage expenses manageable without further straining employees' financial well-being. To make that happen, they'll need to identify and implement smart cost-management strategies.
Cost Trends Today
The average per-employee cost of employer-sponsored health insurance jumped 6.3 percent in 2021 as employees and their families resumed seeking care after avoiding it due to the pandemic, according to HR consultancy Mercer's 2021 National Survey of Employer-Sponsored Health Plans report, released last December and based on responses from 1,745 employer health plan sponsors across the U.S.
At that time, employers were projecting, on average, a fairly typical cost increase of 4.4 percent for 2022. The recent inflation spike, however, may upend those expectations.
Mercer's chief actuary, Sunit Patel, cautioned that a number of factors could drive increased growth in health care costs as the pandemic wanes. "At the top of the list of concerns are higher utilization due to 'catch-up' care, claims for long COVID, extremely high-cost genetic and cellular drug therapies," and the effect of inflation generally on health care prices, he says.
Last year, health benefits cost growth was sharpest among small employers. Those with 50 to 499 employees saw a 9.6 percent increase, while large employers (those with 500 or more employees) reported average cost growth of 5 percent.
Small employers usually offer fully insured health plans, with premium increases reflecting insurance carriers' expectations of higher costs. Large employers are more likely to sponsor self-insured plans, in effect acting as their own insurers with more ability to control costs and plan design.
Meanwhile, spending on prescription drugs rose 7.4 percent last year among large employers, driven by an 11.1 percent increase in spending on high-cost specialty drugs.
Limits on Cost-Shifting
When health benefits cost growth accelerates, employers typically ratchet up cost-management efforts to keep increases at sustainable levels. However, one traditional cost-management tool—shifting a larger share of the cost of health services to plan enrollees—seems to be off the table for many employers. That's because they're mindful of the financial strain some employees are under.
Nearly half of insured adults say they have difficulty affording out-of-pocket costs, and 1 in 4 have difficulty affording their deductible, according to a report by the nonprofit Kaiser Family Foundation (KFF). The report is based on a KFF Health Tracking Poll conducted last fall, which drew responses from 1,146 U.S. adults age 18 or older.
Concerns about health care affordability for lower-wage workers, along with the need to retain and attract employees in a tight labor market, have limited or even reversed some health plan cost-shifting trends. For instance, Mercer reported that:
- Among small employers, the median deductible for individual coverage in a preferred provider organization plan dropped from $1,000 to $900 in 2021.
- Among large employers, the median individual deductible in a health savings account (HSA)-eligible high-deductible plan dropped from $2,000 to $1,850 last year.
According to the KFF report, "half of U.S. adults say they put off or skipped some sort of health care or dental care in the past year because of the cost, while 3 in 10 also report not taking their medicines as prescribed at some point in the past year because of the cost."
Most employers want to keep money in their workers' pockets. "Employees are already dealing with high financial exposures on their current health insurance plans, and they're all pressed for money as well," says Marcus Newman, vice president for benefits consulting at GCG Financial, an Alera Group company. "How much more risk can we ask them to shoulder?"
Medical expenses are already holding back many people in the U.S. Even among those with employer-provided health insurance, 61 percent reported carrying medical debt, according to a February 2022 survey of 1,250 U.S. adults by AffordableHealthInsurance.com, a health insurance website. Overall, nearly one-fourth (23 percent) of those with medical debt for out-of-pocket health bills owe more than $10,000. Many have delayed buying a house or saving for retirement because of the debt.
Newman suggests that employers explore strategies such as partially self-funded plans for small businesses, which, depending on workforce demographics, may be more cost-effective than a fully insured plan. Another option is making use of health reimbursement arrangements or HSAs to encourage plan participants to make cost-conscious spending choices when they're able to do so, he says.
While cost-shifting may have reached its limits, health benefits specialists agree on several benefit-design steps employers can take to help rein in rising costs.
According to Julie Stone, managing director of health and benefits at WTW, "rising costs and increased utilization, fueled by a resurgence in deferred care, are driving employers to find new ways to control costs while providing employees with affordable, high-quality care."
Three-quarters of health insurers, for instance, say managing a health plan's network of care providers is critical to controlling rising medical costs, according to WTW's 2022 Global Medical Trends Survey, conducted from July through September 2021 among 209 leading insurers globally.
The plan features most likely to keep costs under control were:
- Contracting directly with high-quality, cost-competitive doctors and hospitals for in-network coverage (cited by 75 percent of respondents).
- Requiring preapproval for scheduled inpatient services (67 percent).
- Offering telehealth services (63 percent).
Telehealth or virtual care rose to the third spot from the fifth position the previous year, "a sign that more insurers see potential savings from remote options for diagnosing and treating patients," according to the report.
"Telehealth's momentum will be sustained post-pandemic," predicts Francis Coleman, managing director at WTW. "The role of telehealth will continue to evolve not only as a navigation tool to speed access to the right care but also as a means to close gaps in access to care."
In companion research, the 378 U.S. employers that participated in WTW's 2021 Best Practices in Health Care Survey last year identified the following measures as ones they're taking to address affordability:
- Telebehavioral health. Eighty-nine percent of respondents are now offering coverage for telebehavioral mental health services, such as counseling for alcohol or drug abuse.
- Onsite wellness programs. Fifty-five percent offer onsite/worksite health- and wellness-promoting activities.
- Specialty drugs. Fifty-four percent evaluate specialty drug costs and health outcomes through their medical plans.
- Centers of excellence. Forty-eight percent use centers of excellence within their health plans. This means they pay a higher share of costs for coverage received at hospitals or clinics rated as offering high-quality, cost-effective care, often because they specialize in procedures such as joint replacement or conditions such as cancer treatment.
- Concierge services. Thirty-one percent offer access to concierge services with integrated care management programs.
- Working-spouse surcharges. Twenty-five percent use spousal surcharges when additional employer coverage is available for the working spouse.
- Premium contributions based on pay and grade. Twenty-two percent structure employee contributions based on pay levels or job grades.
- Narrow networks. Twenty-one percent offer narrow networks that limit in-network doctors and hospitals to higher-quality health care providers with competitive costs for their services.
- Medication adherence. Thirteen percent provide support services to help ensure that employees take their medications as prescribed, which can help improve health outcomes, especially in more vulnerable populations.
Price Disclosure Initiatives
Under federal regulations, self-insured group health plans and insurance companies must provide plan enrollees with estimates of their out-of-pocket expenses for services from different health care providers through an online self-service tool; this allows enrollees to shop around and compare costs for services before receiving care. The final rule—the Transparency in Coverage rule—issued in 2020 by the U.S. Departments of Labor, Treasury, and Health and Human Services will not take full effect until 2024.
The transparency rule will require plans and issuers to disclose in-network provider negotiated rates, historical out-of-network allowed amounts and drug pricing information.
The Consolidated Appropriations Act of 2021 also requires group health plans to report certain information related to health care and prescription drug costs to the secretaries of health and human services, labor, and the treasury. The first report is due by Dec. 27, 2022. The agencies will use the reported information to analyze trends in overall spending by group health plans, which could help insurers and self-insured plans negotiate fairer rates with health providers and lower costs for plan participants.
Employers continue to play an important role in providing health care benefits to large segments of the workforce and their dependents, but face serious challenges in successfully containing health care costs during a time of rising inflation. In this episode of All Things Work, host Tony Lee speaks with Jeff Levin-Scherz, population health leader at WTW, on how employers can maintain current health care coverage for employees without breaking the bank.
Help from Brokers
As cost-control challenges mount and transparency disclosures near, most benefits brokers report that employers want their help detailing their organizations' health care spending and educating employees about why—and how—they should "shop" for care, according to a January/February 2022 survey by DirectPath, a benefits education, enrollment and health care transparency firm.
Brokers are responding. The survey shows that 86 percent currently provide some sort of health care transparency and clinical advocacy services to help clients keep their health care costs down.
Despite recent and upcoming regulations requiring health plans and hospitals to share pricing information, "most employees aren't aware these resources exist, have no idea how to access them, and are unclear on what to do with the information once they get it," says Kim Buckey, DirectPath's vice president for client services.
"When employees understand how much costs can vary and can compare prices, they're able to make more-informed decisions that ultimately pass savings on to their employers," Buckey says. "Employers are recognizing the importance of educating employees to become smart health care shoppers."
Stephen Miller, CEBS, is an online writer/editor for SHRM who focuses on compensation and benefits.
SHRM provides advice and resources to help business leaders better manage the rising costs of health care.
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