It’s no secret - health insurance costs have risen sharply over the past two decades in the United States. A study conducted by the American Medical Association found that the cost of health care increased by about $1 trillion from 1996 to 2015. In 2018, insurance premiums rose by 3% for single coverage and 5% for family coverage, according to the Employer Health Benefits 2018 Annual Survey by the Kaiser Family Foundation. With employers shouldering most of these escalating costs, the pressure is on to control them. It has been predicted that by 2020, large employers will face a 6% rise in premiums. Smaller employers (with less bargaining power) could face a rise in premiums up to 18% more than the big boys.
Why Are Health Costs Rising?
Before we get to the how, we must understand the why. Since every employer is different, each business could experience various cost drivers. The following list contains a handful of the most common reasons behind the increase in health care costs across the country:
- Skyrocketing prescription costs - Receiving health care in America is substantially more difficult than in many parts of the world. Why? Two words - expensive medication. Prescription drug costs still make up a large portion of health care expenses. The Center for Medicare and Medicaid Services projects that from 2012 to 2022, annual spending on drugs will grow to $455 billion.
- Increasing chronic conditions - As a nation, 86% of our healthcare dollars go to the treatment of chronic diseases which, although a large amount, is understandable since 133 million Americans live with one or more chronic diseases. These chronic conditions not only affect those who suffer with them, but also contribute to high medical expenditure and lost productivity for employers.
- Increasing usage of services - Thanks to improvements in medical technology, elevated consumer awareness, more practicing physicians, and the availability of more nursing centers, Americans have been receiving and making use of better treatment and more health services. But it comes with a price. The more the awareness, the higher the number of surgical procedures, breast cancer screenings, children immunizations, MRI and CT scans, and prescription drugs dispensed. And none of these services can be called inexpensive.
- Aging population - The U.S. Census Bureau has predicted that the number of Americans aged 65 and above will most likely double by 2025, and the elderly population (80 and older) will increase by 80%. This implies an increase in chronic diseases like asthma, cancer, and heart disease, along with the need to fight these ailments through the use of expensive medical services. In short, an older population significantly impacts rising health care costs.
- Low health literacy - 1 in 3 Americans find it difficult to do basic health-related tasks like reading prescription drug labels or making sound health care decisions, as per the U.S. Department of Education’s National Assessment of Adult Literacy. An inability to perform such simple tasks often leads to the utilization of expensive services that may not be necessary (like emergency care or hospital admissions), which adds up quickly. The 2018 Broker Services Survey found that 41% of all respondents believe that helping employees become smarter consumers of health care was one of the biggest challenges in regards to providing benefits.
How Can Employers Address Rising Costs?
Now that we understand the factors contributing to the increase in health care costs, we can dive right into how you can deal with this situation that has worried 68% of employers nationwide for a few years.
Many employers want to continue to offer attractive health benefits to their current and newer quality employees. But they must also weigh the cost-effectiveness of those benefits when price hikes are rampant throughout the country. Since firms are absorbing most of the health insurance costs, it makes sense to attack the root causes of these rising costs with sustained, systemic changes. Adopt short-term and long-term strategies to reduce health costs, including plan design changes, a focus on employee wellness and education, and implementing additional offerings and services.
Making Plan Design Changes
One of the most prominent strategies to reduce health costs is to change up the design of your health plan offerings. There are multiple options you can offer, each with its own pros and cons that must be examined to find the right fit for your business.
- Self Insured Health Plans - With this plan, employers operate their own health plan as opposed to purchasing a fully-insured plan from an insurance carrier. It’s also beneficial to purchase stop-loss insurance coverage in case the amount of claims is more than you anticipated. One reason that employers choose to self-insure is that it allows them to save on the profit and risk margins that insurance companies add to their premiums.
61% of covered workers are in a self insured plan of which 13% work in small firms and 81% work in large firms. Since the employer is responsible for paying medical claims out-of-pocket, it’s more profitable for large firms where the financial risk can be spread over more employees. The smaller the business, the more expensive this option will be in the event of large or excessive claim pay-outs.
- Level Funded Health Plans - If you want the freedom of a self-insured plan but need a little more certainty for your budget, level funding might be an option for you. It’s also a better option for employers who are told they aren’t large enough to implement self-insuring plans.
With this plan, employers pay a fixed amount (includes administrative and other fees along with the maximum amount of expected claims and embedded stop-loss insurance) each month to a carrier. This carrier will handle claim pay-outs throughout the year and refund whatever is left. If the claims are more than what you paid for, your stop-loss insurance will usually cover the rest of the amount.
- When opting for level funding, pay close attention to the terms of the contract with your carrier. Depending on the size of your company, the potential benefits could vary. Also, many level funding plans have restrictions based on the minimum and the maximum number of employees in a company, which may affect your ability to select carriers.
- Cost Sharing - In recent years, more and more employers have been opting to share the cost of insurance with their employees to manage rising costs. Common co-payment strategies include offering high deductible health plans and out-of-pocket maximums, increasing employee cost-sharing amounts for out-of-network providers and for branded prescription drugs to promote the usage of cheaper generics.
- Reference Based Pricing - This is a smart way to figure out how much you want to spend on health plans. With the help of third-party vendors, employers can set a spending limit on certain medical services and procedures based on the highest and lowest market price for those services. Employees will be covered up to this limit and will have to pay out-of-pocket for anything exceeding the limit. Further, limits can be set only on “shoppable” services, meaning individuals must be able to shop around for these services and select one based on price and quality (like prescriptions, lab tests, and certain procedures). For all of these services, there are lower-cost options that are typically as good as the more expensive alternatives. For instance, having an appendix removed could cost anywhere from $1,500 to $180,000, depending on the physician. Using RBP, you can set a limit based on the average market price for an appendectomy - if the employee chooses a more expensive facility, he or she will need to cover the charges exceeding the limit.
The main concern when opting for RBP is that your vendor must be reliable and experienced. The wrong vendor may set your limits too low for services your employees need and make the plans unaffordable, while not using a vendor could leave you vulnerable to providers attempting to profit.
Reducing Drug Prices
As mentioned earlier, the high cost of prescription drugs is a huge contributor to the overall cost of health care. Ensuring your staff has the right medication is important to their health as well as to your bottom line. Forgoing prescription medication in favor of brand-name drugs could prove more expensive and simultaneously cause employees to miss out on the medication they actually need.
Generic drugs are mistaken as subpar or inferior simply because they are not as well known as brand-name prescription drugs. But the fact is that they are not only of the same high quality as brand-name drugs, they can also cost up 85% less. According to the FDA, “Generic drugs are important options that allow greater access to health care for all Americans. They are copies of brand-name drugs and are the same as those brand-name drugs in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use.” The only reason your employees aren’t using them right now is that they lack the necessary education. Teach your employees the value of buying generic so they can save money - for you and themselves. Improve their health care literacy by sending out informational articles or emails explaining the advantages of generic drugs as part of the benefits communications.
Using Telemedicine to Reduce Costs
Telemedicine makes use of technology to cross borders, allowing doctors to treat, diagnose and consult with patients through the internet. Also called virtual visits or e-health, this is a cost-saving alternative to physically going to the doctor. The doctor can offer medical advice over video and examine the medical history of your employees from online medical records. Time and money are saved since employees don’t have to waste them on transport and/or in waiting rooms. It also allows your employees to receive a diagnosis and preventive medical advice, reducing the costs associated with undetected chronic disease symptoms and long hospitalizations. Productivity increases and your wallet is spared the larger medical expenses.
Of course, the only issue is that all of your employees should have a stable internet connection and possess a few technological skills in order for the virtual visits to work. There are also some legal concerns regarding telemedicine, which is a big challenge for employers. Strict government limitations on telemedicine services and the overall complexity of such regulations and compliance obligations make it necessary that you consult with a legal professional before implementing this plan.
Offering Case Management Services
Knowledge is power. That’s what case managers do - they evaluate and assess the health and situation of your employees and help them make well-informed medical decisions. Armed with a better understanding of your employees, case managers can establish the best care plan for them, saving your company thousands of dollars on unnecessary hospital expenses.
When an employee is faced with receiving care, they often have complex and confusing decisions to make. Considering 1/3rd of the American population have low health literacy, the case manager can step in and advocate for your employees, serving as a link between them and their health care professionals. Additionally, case managers are responsible for explaining all care options and decisions available to employees so that they fully understand what’s going on. When the time for patient discharge or end of treatment arrives, the case manager will handle this process and determine if any follow-up treatment is required.
There are 3 major types of case management services - large, disease, and wellness case management. Large and disease case management focuses on catastrophic injuries and chronic ailments respectively, while wellness case management services involve delivering reader-friendly health and wellness information to employees. The goal is to motivate your staff to take charge of their wellness by providing them with weekly topics, worksheets, and assignments to help them build their health literacy and avoid facing chronic diseases. Prevention is, after all, better than cure.
Promoting Employee Well-being
The healthier your employees, the more productive they will be. Less time is spent away from work due to illness or fatigue, which saves you more money than you’d think. At its root, well-being is about feeling good and living both safely and healthily. It refers to wellness in all aspects of life, including mental, physical, social, and financial health. From an organizational standpoint, the employee’s well-being is directly related to the quality of their work, as well as their engagement, performance and productivity.
Contributing towards the physical well-being of your employees goes beyond offering gym discounts, weight-loss activities, or walking programs. It’s all about giving your people the tools they need to make healthy life choices and manage or prevent chronic conditions. Of course, you can’t avoid certain factors such as age, genetics and environmental triggers. Still, controlling risk factors such as smoking, physical inactivity and unhealthy eating habits can play an important role in preventing chronic conditions.
As for their mental and social well-being, this includes a realization of their full potential, productivity, stress management, and the ability to contribute to their community. You can help by not allowing your workplace to add to your employees’ stress in the form of intense pressure, heavy workloads, workplace harassment, job insecurity, long hours, office politics and conflicts, and excessive travel. Lowering stress boosts morale, and an active concern in the well-being of your staff will help them feel valued and cared for, ultimately increasing productivity.
Next to work-related stress, financial stress is the biggest stressor for employees. It can be quite a handicap to worry about pending monthly car payments or a pile of unpaid bills waiting at home, while you’re at work. This is where financial education steps in and helps your staff learn about how to manage their finances better. Over 80% of employers offer some kind of financial wellness program that includes benefits, retirement, and savings calculators, and access to financial advisors, according to a study by Prudential.
Investing in the well-being of your employees doesn’t require thousands of dollars. The above methods will ensure you retain your top-performing employees as well as recruit the best candidates, by incorporating a holistic approach to wellness. The healthier your team, the less expensive they become.
Again, not all of these tips to reduce health costs may apply to your business. It is imperative to consider the merits and demerits of each approach before you select one or more. In fact, choosing to cut costs on insurance is no easy decision in and of itself. Cutting too much could cause you to lose out on the coverage you actually need, while not cutting enough could lead you to paying for more coverage than you require. At NY Small Health, you can leave your insurance concerns with the experts and make sure you get the most bang for your buck.