Employer Sponsored Benefits, Healthcare Market Overview

By: Mike Wojcik, MBA, CLU, CFP®, Senior Vice President / Horton Benefit Solutions

As we head into an election year, healthcare and health insurance have become central topics to many campaigns, mostly due to rising costs. Healthcare inflation remains high in Illinois at 6% to 8% and even higher in surrounding states. Without adopting change, the 2021 insurance market will continue to see higher rates, including reinsurance rates!

Contributing factors have not changed much over the past few years, but no solid solutions have taken place. We continue to experience: 

• Increased spend due to an aging population where medical episodes are higher. Six-figure claimants have doubled over the past five years, many influenced by specialty drugs(i) .
• A continued rise in Rx costs with top name brand drugs increasing 3 to 9 time’s inflation. Generic Drug competition is healthy, accounting for an average of 85% of scripts filled today. This market introduced a record-number 1,171 generic alternatives last year, with 125 being first-time approvals. Specialty (biogenetic) drugs continue to flood the market as well.  While they total only 1% to  2% of total scripts filled, they account for as much as 50% of total Rx spend. It will be several years before we see specialty alternatives (bio-similar) to compete and at lower costs. 
• Mergers and acquisitions of hospitals and physician practice groups are raising the cost of care. The share of physicians employed by hospitals increased from 26% in 2012 to 44% today(ii) . The argument has been that such mergers would improve quality and cut spending, but research shows different.
• Lower preventive health engagement and growing behavioral health claims from the Millennial population, as confirmed by a New Study by the Blue Cross Association(iii) . With Millennials comprising 35% of the US labor market and rising, this is a force to control sooner rather than later. 

Employers are looking to gain more control of the process and looking for strategies to impact provider costs and end-user (consumer) outcomes. The following strategies are gaining traction:

• Redirection of Care to greater value: Centers of Excellence, Direct Primary Care, High-Performance Providers, and Telehealth. Different than the Narrow Network plan designs offered today, look for new “high performance” networks to be introduced to mid-market employers and drive a new contracting approach. We have entered the Value Era, with providers – many risk-based, being paid for value with incentives, rather than for each transaction. Optimal site of care requirements will also be engaged, resulting in: improved outcomes at a lower cost with quicker recoveries, lower infection rates, fewer re-admittances and faster return to work – increasing productivity. This is where the big employers (Walmart, Amazon, Chase, Berkshire Hathaway, and Google) have focused over the past few years, implementing most of these tactics through plan design. A prime example of bigger (networks) is not always better. 
• Transparency. The Trump Administration released final rules for Hospital Transparency last week and proposed similar disclosures for insurers and self-funded plans, giving more information to the end-user to better manage their health and cost. 
• Expanding use of High Deductible Health Plans (HDHP) paired with Health Savings Account (HSA). This model has always been about empowering employees (the end-user) to make better-informed benefit decisions. Transparency of quality and pricing has always been the argument against this model. With new requirements coming from Washington, that argument will fade.  There are many enhancements in review. Most recently the IRS approved HDHP+ plans to include an expanded list of first-dollar preventive services and prescriptions to provide patients with identified chronic conditions, first-dollar coverage before the high deductible, eliminating barriers to care where needed most. Carriers are projecting pricing of the added benefit to be neutral due to added gains in health that members will experience.  
• Stronger Rx – Pharmaceutical Benefit Manager (PBM) control with optimal performance formularies. This is another example of bigger not always being better.  Today’s performance-driven or closed Rx formularies have produced cost savings by managing the best care for members with the lowest cost delivery. A newer tactic includes 26% of commercial drug spend and 42% of specialty drug spend being billed under the medical portion of health plans to allow plan designs to drive lower costs in the delivery of high price infusion therapies. Site of care management plays an important role. Drugs dispensed in a hospital are as much as twice that in a doctor’s office and three times in-home care (iv).
• Expanding Worksite Well-Being programs to include outcome-based incentives. With the Millennial study cited, this will continue to be a critical factor in controlling health. Employer-based programs will expand and place greater emphasis on primary care relationships at the worksite or virtually.
• Artificial Intelligence (AI). We are just at the tip of the iceberg! Look for powerful analytics engines that interpret clinical data and can ping real-time messages to providers. Already available is AI that can read 12 million medical data points in less than one minute and immediately identify medical red flags and gaps in care. AI will also play an essential role in the direction of member care, especially during off-hours, to the best-suited providers at the lowest cost and highest quality at the time of need.

Meanwhile, these traditional strategies remain core to benefit planning success, Communication and Compliance, Efficient Benefit Administration, Eligibility Management, Generational Benefit Planning, and systems to further enhance the growing Human Capital Management needs. 

We expect to see more changes to cut costs through legislative involvement in the following areas:

• Greater transparency in all facets of Healthcare.
• State-level legislation seeking lower-cost alternatives for members. 
• Repeal of the Cadillac Tax.
• The House approved 419 – 6; the Senate vote expected by year-end
• Stronger legislation affecting the Pharma industry. There are several bills being considered by the Trump Administration and Congress that would allow greater negotiation of price on most frequently used drugs and to address differences in pricing between the U.S. and developed countries. Look for more to come in this area.

As the cost of family health coverage in the U.S. tops $20,000(v) , the time for change is now. Horton’s priority goal is to be proactively engaged with developments to help our clients reduce cost, reduce risk, reduce workload and create quality benefit programs to attract and retain top talent. 

(i) Blue Cross Intelligence
(ii) Modern Healthcare – “Patients Feel the Pain of Hospital-Physician Consolidation”
(iii) Blue Cross Association Study: “ The Economic Consequences of Millennial Health”
(iv) Optum – “Home Infusion Therapy: Better Outcomes”
(v) Kaiser Family Foundation Employer Health Benefits Survey