Business of Well-being

Employee Healthcare Cost Containment in 2015

Over the past year, I have watched in amazement as benefit consultants and their employer clients are immersed in meeting the requirements of the Affordable Care Act. My amazement was not because of the amount of energy and time devoted to this singular obsession of satisfying the employee mandate and related regulations, but rather the absence of discussion about what employers must focus on to remain competitive - employee healthcare cost inflation.

I certainly do not place any blame on my benefit consultant colleagues or their employer clients for their focus. They really had no choice but to dive into the bureaucratic jungle, armed with machetes. Bureaucracy is always an unintended consequence of government intervention. However, with the New Year, benefit consultants and employers must find a balance again.

A much greater proportion of their efforts need to focus on strategies that will deal with the crux of the employer healthcare dilemma - namely, the absence of value-based care, where value-based care is defined as superior patient outcomes at a lower cost.If this balance is not achieved soon, employers will suffer much greater financial consequences than not complying with ACA administrative regulations.

A Roadmap for Cost Containment

As the famous economist, Thomas Sowell so elegantly wrote "You will never understand bureaucracies until you understand that bureaucrats' procedure is everything and outcomes are nothing." So with focus back on outcomes, what exactly should employers be implementing within their corporate walls?

What is the recipe for healthcare cost containment specifically beyond a value-based agenda? According to the 19th Annual Towers Watson/National Business Group on Health Employer Survey on Purchasing Value in Health Care, there are a number of initiatives that employers with the lowest employee healthcare inflation rates are embracing. Below are the highlights of this survey, which outline a road map for employee healthcare cost containment in 2015 and beyond.

Emerging Payment Approaches

Companies increasingly expect their health plans to adopt payment methodologies that hold providers accountable for the cost of an episode of care, replacing discounted fee for service. In addition, a number of the employers with the highest performing health plans are entering into direct contracting relationships with providers for primary care and specialty care.

These providers are either part of an onsite worksite clinic, part of a narrow network of high-performance community providers and/or a center of excellence. Performance guarantees are attached to all of these solutions, with guarantees focusing on cost of care, quality of care and patient experience.

Medical services are paid via a bundled episode of care. In fact, 24 percent of all companies - twice as many as last year - expect these approaches to be adopted by the end of 2015.

Value-Based Design

Value-based design (VBD) is being embraced by a growing number of employers - especially those who self-insure - as they seek the twin goals of optimizing employee health and containing costs. The main pillars of VBD are providing employees with greater incentives to seek out high-value health services while erecting disincentives to low-value services viewed as over-prescribed by medical professionals A.

Mark Fendrick, MD, professor of internal medicine and health management at the University of Michigan says "You want to lower the barriers for the services you want your employees to get, such as by reducing co-pays, and put in place higher barriers for low-value services," adding that evidence-based medicine is increasingly providing a means for clinically assessing a medical procedure's value.

VBDs for pharmacy and medical plans are gaining traction: 41 percent plan to use them for pharmacy and 28 percent for medical in 2015, compared to only 26 percent and 9 percent, respectively, in 2014.

Account-Based Health Plans

Account-based health plans (ABHP) have grown significantly in the private sector in the past 10 years and studies show they have helped drive down costs. Account-based health plans are insurance plans with higher deductibles than most traditional plans (e.g., $1,000 or more) that are paired with a tax-preferred account for out-of-pocket health care expenses such as a Health Savings Account (HSA) or Health Reimbursement Account (HRA).

By aligning their ABHP and health management strategies, companies have been able to move to a full-replacement ABHP more quickly - driving enrollment up significantly. Enrollment has increased from 15 percent to nearly 33 percent in four years, largely because employers replaced all their plans with ABHPs. It is important that ABHP's are integrated with VBD's to avoid high-risk patients from rationing care, which will lead to much greater healthcare costs.

Population Health Management

An increasing number of employers are focused on strategies to improve the health of their highest risk population including targeted outreach programs, improving condition and care management, reducing risk factors; improving closure of care gaps, enhancing population stratification, segmentation and predictive modeling.

Outcome-based Incentives

Employers have become more aware of the importance of holding employees accountable for their own health, and are using incentives (rewards and penalties) to lower employee health risks and associated future costs. Requirements for rewards are increasingly linked to achievements measured against specific health standards.

By the end of 2015, 58 percent of employers expect to reward or penalize employees based on tobacco use, a 38 percent increase over 2014 and twice the number doing it in 2011. Outside of tobacco use, 22 percent of employers are using reward and penalties to motivate employees to achieve certain biometric standards in 2014 (e.g., weight control and cholesterol management), and more than twice as many (46 percent) expect to use them in 2015.

Price Transparency

As health plans continue to expand their price and quality transparency tools, employers are adopting them to give employees the information they need to make better consumer choices. In 2013, 43 percent reported offering these tools to employees. By the end of 2015, 60 percent say they will be using them, a 30 percent increase over 2014.


In addition, more and more employers expect to use new technology and other alternative approaches to open new access points for care. By next year, 52 percent of employers expect to offer telemedicine for consultations - nearly double those in 2014 - even though it typically accounts for modest savings.

However, when telemedicine can provide a relatively low-cost alternative to emergency rooms or physician office visits for non-emergency health issues, it is also a productivity boost, saving travel and waiting time, and early adopters indicate that telemedicine is highly valued from an employee engagement perspective.


Employers must refocus their efforts on employee healthcare cost containment for their organizations to remain competitive. The best performing employers are more assertive than other employers in taking steps to both improve their health cost trend and enhance the well-being of their members.

Though the roadmap exists for employers to maximize healthcare cost containment, most employers are relying too heavily on basic wellness and lifestyle management initiatives.In order to bend the healthcare cost inflation curve, employers must go beyond wellness initiatives and commit to a comprehensive approach, which should include most, if not all, of the following initiatives:

  • Value-based Provider Payment Strategies
  • Value-based Benefit Design
  • Consumer Drive Health Plans (ABHP)
  • Price Transparency
  • Population Health Management
  • Telemedicine

About the Author

Dr Spero is the CEO of InHouse Physicians and a thought leader in the area of healthcare cost containment solutions for self-insured employers. Dr. Spero graduated medical school from the University of California, Davis.

He completed his residency in Internal Medicine from Scripps Mercy Hospital in San Diego and has practiced both internal and emergency medicine.

Dr. Spero is an expert speaker on employee health care cost containment strategies, energy and performance, as well as employee health and wellness. Dr. Spero resides in Chicago, Illinois.

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