Why Prices are the Real Problem in Health Benefit Costs
By Melina Kambitsi, Ph.D., senior vice president, business development and strategic marketing
Do your health benefit costs go up each year because employees use too much health care or because health care costs too much?
The latest PwC report on “Medical cost trend: Beyond the numbers 2020” makes it clear that the ongoing pattern of rising health care prices is the biggest factor.
“Prices – not utilization – are continuing to fuel health care spending,” the report states. It also notes that PwC’s Health Research Institute projects a 6 percent medical cost increase in 2020, after several years when health care prices ranged from 5.5 percent to 5.7 percent.
Those increases seem “moderate” when you compare them to annual increases of 9 percent or more a decade ago. But when you compare them to inflation, the real issue becomes clear. Health care prices continue to rise faster than employers’ and employees’ ability to pay for them.
Cost Inflators
The report cites three additional “inflators” of health care costs:
- Rapid increases in drug spending, which is expected to increase 3 to 6 percent a year for private health insurance between 2020 and 2027.
- Chronic diseases such as obesity and type 2 diabetes, which lead to high rates of high blood pressure and cardiovascular disease. The report notes that 60 percent of adults have a chronic disease, while 40 percent are managing two or more chronic diseases. That matters to employers because on a per capita basis, it costs eight times more to care for a person with a chronic complex disease, when compared to a healthy person.
- Greater use of mental health services, which will increase short-term costs but could help decrease health care costs over the long term because of the link between poorly managed mental health conditions and chronic diseases.
An Employer Turning Point
The report also contains some encouraging news for those who believe that employers are likely to lead the way in finding health care solutions. The report predicts a “turning point” will occur in 2020, when “more employers fight back using new tools and strategies to control the ever-growing costs to their own organizations, their employees and their families.”
Employers who are members of The Alliance have been engaged in this fight since the cooperative was created in 1990. Here are a few of the strategies Alliance members use to counter rising health care costs.
- Self-fund your health plan. By self-funding, you gain access to data that shows how employees are using their health benefits. You also control your plan design, which lets you use a “carrots and sticks” approach to encourage employees to get the care they need while avoiding unnecessary care.
- Work with other employers. Combining your purchasing power gives you the clout to negotiate a fair price in your local market. This lets employers send a clear message to health care providers about their local markets’ need for fair, predictable increases in health care prices.
- Buy high-value health care. High-value health care pursues both better outcomes and lower costs. You can provide financial incentives to guide employees to fairly priced, high value care for common surgeries or tests, for example.
- Link employees to high-value primary care. PwC predicted that employers will continue to open more worksite clinics that offer more services to help employees access care. PwC calls worksite clinics a “deflator” that employers can use to help restrain health care cost increases. The Alliance helps small to mid-sized employers work together to start high-value primary care clinics for their employees. Employers can also contract with physician groups that are not part of large health systems and that specifically aim to deliver this type of care. Direct primary care clinics that offer high-value primary care are often willing to contract with employers to care for employees.
The Search for Value
The Alliance’s employers are in pursuit of
“bending the trend.” We do this by helping employers identify
how and
why they are spending their health care dollars. Through the power of our analytics we provide them insights of where
care is good and price is low.
As the PwC report advises, employers can “take the driver’s seat to beat the market.” If they don’t, they can expect health care prices to keep rising faster than inflation.
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