Business of Well-being

Curbing Employer Healthcare Costs

Healthcare Costs

Healthcare costs in the United States are spinning out of control, as have been every year for decades. U.S. healthcare spending was about $3.8 trillion in 2019, and this is expected to climb to $6.2 trillion by 2028. What this means for millions of employees and employers across the country is that more of their earnings will be spent on healthcare—or all of it.

According to the Kaiser Family Foundation, the average cost of employee annual insurance premiums for family plans climbed by 4% from 2020, reaching $22,221 while annual premiums for individual plans also surged by 4% to $7,739. Heightened by the economic impact of the COVID-19 pandemic in the last two years, this increase in healthcare costs will only deepen as inflation hikes globally. 

But providing healthcare benefits is a crucial tool for gaining a competitive edge in the corporate space. Employers with strong healthcare benefits are perceived as being more supportive and employee-centric and tend to retain the best talents. Consequently, employers are grappling for solutions to tackle the burden of rising healthcare spendings without compromising the health and productivity of their workforce. 

Approaches to curbing the rising cost of healthcare involve addressing the key drivers. Until employers can rethink how healthcare spendings are made, they may struggle to deal with the anticipated surge in healthcare costs. From the high cost of prescription drugs, high prices set by hospitals and healthcare providers, and excessive and unnecessary tests, procedures, and treatments, to the surge in chronic disease prevalence, these drivers of the uptrending cost of care can be largely nipped in the bud through concrete cost-control strategies. 

Checking the High Cost of Prescription Drugs

Specialty drugs, such as anti-cancer drugs, make up 1 percent of precriptions made but constitute 40 percent of total drug costs, according to a report from Willis Towers Watson’s Rx Collaborative. Cancer patients could face up to $12,000 annually for one anti-cancer drug. The average cost of some cancer drugs could reach up to $99,000, more than what the average American makes in a month. 

Insured workers are not insulated from the huge financial burden of these prescription drugs. According to consulting firm Milliman, privately-insured patients with leukemia could pay up to $5,100 in the year after a cancer diagnosis while the patients with Medicare could pay more than $17,000 out-of-pocket in the same year. Pressured by the huge costs of these medications, employees may be forced to abandon or stop treatment to avoid lots of debts. 

Some employers, including high-profile companies such as PepsiCo and Walmart, are navigating this challenge through co-pay accumulator programs, which are essentially aimed to discourage the use of expensive prescription medicines when there are cheaper, generic, and equally effective alternatives. These co-pay accumulator programs simply stop manufacturer co-pay assistance coupons from counting toward employee deductibles and out-of-pocket costs. This ultimately pushes employees to seek cheaper alternatives. 

Employers and insurers are also leveraging bundle payment plans designed in collaboration with independent practices or centers of excellence that provide cheaper prices for prescription drugs or where doctors use less-costly prescription drugs. Health payers are also considering medical travel plans to send their employees abroad to access more affordable cancer care. This seems reasonable as drug companies make up to 75% of their global profits in the U.S. as the prices of drugs are considerably higher here.

Other strategies to manage prescription drug costs include limiting quantity to the minimum therapeutic doses, using less expensive drugs first, a form of step therapy, using closed formulary that exludes branded drugs, and requiring prior authorization before filling a prescription. 

Identify Unnecessary Healthcare Spendings

A 2018 survey done by the National Alliance of Healthcare Purchaser Coalitions and Benfield found that up to 25% of their employee health spending was wasted. In another report by NPR, unnecessary healthcare services cost employers more than $210 billion every year. This is often as a result of unnecessary treatments, uncessary diagnostic tests, re-admissions, and avoidable treatment complications. 

One strategy to tackle waste is to track healthcare data that could detect waste. Since much of employer healthcare spendings are directed toward chronic disease management, employers can limit how much cost this incurs by empowering their employees to better manage these conditions. Chronic disease management leverages programs that help employees keep track of their health, taking steps to prevent complications and detecting changes early on. 

For instance, ensuring good ergonomic workstation conditions and physical activity may be a simple way of preventing and managing chronic back pain resulting from poor posture. Unchecked, these musculoskeletal disorders could degenerate into states unamebale to these conservative strategies, and then such employee may have no option but to undergo and avoidable back surgery. 

A part of limiting unnecessary healthcare spending is also strengthening and redesigning your corporate wellness offerings. It is still cheaper to prevent disease than to treat it. Expand your wellness offerings to meet employees at the point of their needs. Avoid generic, one-size-fits-all wellness initiatives and truly provide what each employee needs. Your employees dealing with mental health issues may just need virtual counselling sessions and more social interactions at work and not repeated admissions and long-term treatment with expensive medications. Similarly, you cut the risk of stroke and heart disease significantly in your employees with high blood pressure by encouraging physical activity via various approaches including virtual gym sessions, wellness competitions, and paid gym memberships. However, rem ember to listen to your employees to know which strategy will work best for them. 

Adopt a Self-Funded Plan

One of the most effective ways to drive down healthcare spending is adopting a self-funded plan. The difference between a self-funded and a conventionally insured plan is that in the former, the employer assumes the risk of providing health coverage and has more control over how the plan is administered and funded. 

With self-funding plans, an employer establishes a special bank account to pay claims, instead of paying a predetermined amount to an insurance company. A third-party administrator (TPA) manages the claims and also arranges preferred provider organization (PPO) networks to provide cheaper and quality healthcare for employees. 

This is where direct contracting and bundled payments come in, allowing employers pay negotiated bundled rates for all healthcare services provided per employee visit. This model offers improved value care delivery for patients, optimizing care approaches, and lowering spending considerably. 

Self-funded plans are regulated by the Employee Retirement Income Security Act (ERISA) and offers more flexibility as it helps employer tailor healthcare spending to what employees truly need. These plans are also exempted from premium taxes and state insurance control  under ERISA, further driving down cost. 

The Burden of Rising Healthcare Costs

The rapidly increasing cost of healthcare is already stressing employees; many are having to abandon treatments as care they have hitherto received have driven them into huge financial debts. While experts project that healthcare spendings could double in the next few years, employers can curb this trend through an effective root cause analysis of this burden and adopting cost-control strategies to insulate their workers and businesses. 

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