If you think understanding your own hospital bill is confusing, imagine scrutinizing a bill for 18,000 people. How do companies know if they’re being overcharged for healthcare services? Are people receiving care that is actually effective? Why are some medications so expensive? As an employer, this is a challenge that is all too real. 

Many companies want to offer competitive benefits, but the high cost of healthcare adds real challenge (and cost) to this goal. A great quote from Warren Buffett wraps up the employer/healthcare conundrum in a bow:

GM is a health and benefits company with an auto company attached.  -Warren Buffett

Employers who purchase health insurance for their employees are paying one of the most significant portions of our total healthcare “bill” in the U.S.–$640 billion each year to be specific. It’s unfortunate that we’re in this place where the cost of healthcare has risen so sharply over the past decade that healthcare is now often an employer’s 2nd highest expense, right after salaries. Shouldn’t this expense be managed with the same rigor as any other part of the business? 

If you ask a traditional broker how to manage costs as an employer, you may get a list of strategies that don’t actually lower healthcare spending, but rather they change who is paying for it. Here’s an example of exactly what this looks like. The 2016 Society of Human Resource Management (SHRM) Survey  lists the following strategies as the most successful in controlling health care costs:

• Offering consumer-directed health plans (e.g., health reimbursement arrangements, health savings accounts).
• Creating an organizational culture that promotes health and wellness.
• Offering a variety of preferred provider organization (PPO) plans, including those with high and low deductibles and co-pays.
• Increasing the employee share contributed to the total costs of health care.
• Offering a health maintenance organization (HMO) health plan.
• Providing incentives or rewards related to health and wellness.
• Placing limits on, or increasing cost-sharing for, spousal health care coverage.
• Increasing the employee share contributed to the cost of brand name prescription drugs. 

These strategies absolutely hit the goal of impacting an employer’s bottom line, but this often happens at the expense of employees. Noticeably missing from these strategies is anything that actually gets at the high source cost of services. But what actually lowers the underlying cost of healthcare?

Instead of these mainstream strategies that are often-cited as the go-to methods for employers to “save money,” here are just some of my top high-value strategies that target cost-management without putting more financial burden on employees:

1.      Explore new funding models. Small and mid-sized employers who are fully-insured pay higher operational costs since the health plan takes on more financial risk. However, hybrid plans of self-insurance provide lower costs while incorporating stop-loss coverage and predictable, level payments so that even small and mid-sized employers can self-insure.

2.      Change the healthcare delivery model. Employers can use high performance networks that have a limited number of quality health care providers. Because the cost of health services can vary wildly between different providers and these price differences are not correlated to the quality of care, using narrow networks helps to ensure that you’re getting the best value for your money—great care at a fair price. The benefit of exploring new healthcare delivery models is lower premiums, lower out of pocket costs, or a combination of both.

3.      Use new payment models. This solution includes care that is pay-for-performance such as partnering with Accountable Care Organizations (ACOs). The advantage of moving away from traditional payment models is that we move away from “fee-for-service” (the doctor gets paid more for seeing you more often) and towards outcomes-based payments (providers get paid for curing you, regardless of how many times they see you). The National Business Group on Health’s 2018 Health Care Strategy and Plan Design Surveyindicated that 21% of employers plan to promote ACOs in 2018 but that number could double by 2020 as another 26% are considering offering them. Other payment models include using “centers of excellence” for high-cost procedures. This enables the employer to ensure that associates are receiving the best care and the best price under payment agreements that are bundled into one comprehensive cost. 

4.      Proactively manage pharmacy costs. Partnering with an organization to keep pharmaceutical drug costs in check can hold a great deal of value for an employer’s bottom line. A big part of the management of pharmaceutical costs involves developing a strategy around specialty medications. This includes looking at specialty drug spending trends among members, how drugs are being used, cost differences in where they’re administered (hospital vs. provider), coordinating benefits between the medical and prescription plans, and implementing step therapy to ensure that options for less-expensive similar medications are used before jumping to the most expensive prescription. In addition, reviewing and revising formularies can make a large impact on costs with very minimal impact on members.

Are you cost-saving, or cost-shuffling?

Just how any other business unit in a company manages to their budget, managing health spending and strategy is a necessary part of ensuring that the high cost of health services are kept in check. This can be done by shuffling who is paying for healthcare, or it can be done by going after the source of what’s driving the costs. If I can share one takeaway here, it’s that employers have options with respect to saving health dollars. In the coming years we will see more and more employers moving away from simple “cost-shuffling” of health dollars and getting strategic about managing healthcare’s underlying high cost.

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BetaXAnalytics partners with employers to use the power of their health data “for good” to improve the cost and quality of their health care. By combining PhD-level expertise with the latest technology, they help employers to become savvy health consumers, to save health dollars and to better target health interventions to keep employees well. For more insights on using data to drive healthcare, pharmacy and wellbeing decisions, follow BetaXAnalytics on Twitter @betaxanalytics, Facebook @bxanalytics and LinkedIn at BetaXAnalytics.

We get it. Healthcare is expensive and costs are going up every year.  Medication costs are skyrocketing. For some chronic conditions, a year of treatment with a specialty drug can exceed $100,000. American companies are shouldering the burden of a healthcare system where ½ of what we spend in healthcare is considered “wasteful”. Healthcare is now the 2nd highest business expense for most companies, second only to salaries. And because most employers pay their health claims at dollar 1, regardless of what their business does, by default all companies end up in the business of healthcare. And something’s gotta give.

Why do employers bear the burden of the inefficiency of the US healthcare system? In US healthcare we spend twice as much per capita with health outcomes that rank among the worst in the world. So the growing trend for employers to deal with crippling health care costs is to find others to share in this cost. Why not hold employees more accountable? After all, employees’ personal health choices and behavior make up37% of health costs. Employers tell their employees “let’s solve this together. We will support you.”

So very well-meaning companies offer “high deductible health plans” to employees. On the surface, it’s a win-win. The thought behind these plans is that if employees have to contribute more to their healthcare costs, they will take more responsibility for their health. In theory, employees will take better care of themselves so they can stay healthy. They will avoid unnecessary medical procedures, since they are responsible for paying for costs under their deductible. Employees will start to compare costs of medications and procedures to make sure they’re keeping their health expenses as low as possible. And so with average out-of-pocket costs for individual employees at $5,248, the rationale is that overall health costs for both the employer and the employee will go down since employees start to understand the value of their health, and they become smarter consumers of health care.

From an employer perspective, this sounds like a brilliant plan to control costs. But does this idea to transform Americans into savvy health consumers actually happen once a company starts expecting employees to pay a higher share of health costs?

Nope. 

As we track the results, there is evidence that raising employees’ out-of-pocket costs for healthcare does NOT increase consumerism, and it also has led to people not taking necessary medications and delaying care for chronic conditions, which leads to more serious health events (and costs) later on down the road.

Employers save money in the short term…but at what cost?

Researchers from UC Berkeley and Harvard studied the results of a large employer’s choice to offer a high deductible plan over 2 years. But instead of finding evidence to support the theory that high-deductible plans make people take more charge of their health spending, they found some surprising trends. Yes, employees spent 12% less on their healthcare, so in the short term these plans achieved their goal of lowering health costs. But these “savings” were from avoiding care of EVERY type. There was no evidence to show that employees were comparing costs or cutting unnecessary services once they had a high healthcare deductible. They went to the same doctors. And they cut low-value health services at the same rate as they were cutting important medical services, causing the employer to question whether members were making the right choices for their long term health.

Yes, But What if Preventative Services are Free?

The common response from employers with high deductible plans is to make sure necessary and preventative health services come at little to no cost to employees. But a recent study from California found that despite these efforts, 1 in 5 people still avoided preventative care citing cost as the reason. In fact, most high deductible health plan members surveyed did not know that their preventative screenings and important care was available with little or no out-of-pocket payments.  Additional studies show that high deductible health plans have the most adverse impact on those with chronic conditions, people with mental health disorders, and low-income individuals and families.  The danger of high deductible health plans is that their members with the highest health risks have shown that they avoid necessary care and medications. And this trend is one of many symptoms of the crippling cost of healthcare in America. 

Employers: we know you did not ask for the job of footing $640 billion of our healthcare bill in the U.S. It’s ridiculous, we know. But we just want to make sure you know high deductible health plans are a band-aid—not a solution. 

Signed, Hardworking Americans

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If you’re an employer who feels there’s got to be a better way to control health care costs, you’re on to something. And we can help. BetaXAnalytics partners with employers to use the power of their health data “for good” to improve the cost and quality of their health care. By combining PhD-level expertise with the latest technology, they help employers to become savvy health consumers, to save health dollars and to better target health interventions to keep employees well. For more insights on using data to drive healthcare, pharmacy and wellbeing decisions, follow BetaXAnalytics on Twitter @betaxanalytics, Facebook @bxanalytics and LinkedIn at BetaXAnalytics.