According to an article published in Fortune magazine last year, health care costs are projected to increase 6.5% this year, about the same as last year. In a sense, this is good news, because the annual rate of increase is far smaller than it has been for several years. Nonetheless, 6.5% is still higher than the general inflation rate (about 1% in the past year), so employers continue to face a benefits conundrum.
You have to offer attractive benefits in order to recruit and retain top-notch employees. But with benefits costs still on the rise, how are you going to afford that temptingly-strong benefits package?
Why are health care costs such a problem?
Fortune says there are two factors responsible for pushing up benefits costs:
- Cost of medical services and drugs
- Benefits usage
Interestingly, they note that increasing usage is driving up costs faster than the cost of drugs and services. They cite easier-than-ever access to medical care, among other reasons — the growing population of retail health clinics and urgent care facilities, and the comparatively low cost to visit these facilities. They also note that more patients are taking advantage of mental health benefits, something that is expected to continue increasing.
Last fall, the National Business Group on Health (NBGH) released results of a nationwide study of large American employers. They wanted to know what, specifically, was driving up health care benefits costs for employers, and how those employers were planning to address cost concerns.
- Those surveyed said the three top causes of rising costs for their company were:
- Specialty pharmacy benefits. Prescription drugs are expected to cost 7.3% more in 2017, but specialty drugs are expected to increase 16.8%. Eighty percent of employers rated this in the top three, 31% said it was their #1 problem.
- High-cost claimants (those with $50,000+ in annual claims). Nearly three-quarters of employers rated this in the top three, no doubt because the average high-cost claimant racks up $122,382 in annual claims, almost 30x average claims costs. Put another way, slightly more than 1% of claimants are responsible for 31% of health care costs among surveyed companies.
- High-cost diseases and conditions. Chronic conditions account for 53% of high-cost claims, whereas acute conditions account for 47%.
But there is another issue driving up employee benefits costs, and it does not directly relate to rising premium costs. Administrative expenses for enrolling employees and manage benefits are also increasing. Processing paperwork, corresponding with insurance carriers, finding and correcting errors, etc., can be very time-consuming.
What are the ramifications for employers?
Controlling costs is a balancing act, to be sure. Some employers are hoping to lower their costs by doing everything they can to overtly discourage workers from actually using their health benefits, even employees with serious chronic conditions. Others are simply shifting more of the cost to employees, thereby improving corporate affordability. But others worry that an overly-negative approach could produce counter-productive results, driving away their best and brightest talent.
Employers surveyed by NBGH said they definitely have plans to make changes to their health care plans, starting by targeting the most prominent causes of rising costs. Their hope is that they can reduce costs for employees as well as their companies.
What can your company do?
Companies are taking steps to educate employees so they can become savvier health care consumers, in effect requiring them to “think twice” about health care options. This speaks to both unnecessarily high usage of benefits as well as specific costs. Many employers believe workers have become spoiled by their past ability to obtain excellent health care at very little personal expense, creating a complacent disregard for costs. Or, in many cases, complete ignorance of actual costs.
Limit access to expensive medications
In some cases, companies are making it harder for employees to obtain prescriptions by requiring prior authorization, limiting the quantity of medication that can be purchased at a given time, or instituting a “stepped” programs in which patients have to try a cheaper alternative first.
Some companies say they are considering a requirement that specialty drugs be purchased only from a specialty pharmacy, where cost may be lower and where patients can get advice on better managing their condition. And some are turning to pharmacy benefit managers such as CVS to help control costs.
Limit access to services
By making employees pay a greater share of health care costs, employers hope to save in two ways – directly reducing company premiums and encouraging that “think twice” approach.
Some companies are looking to change the model itself – contributing only a set amount toward health care costs for each employee and leaving it up to each employee to handle the rest. The theory is that the higher the employee’s own investment, the more careful (or perhaps hesitant) they will be to take actions that will increase their out-of-pocket outlay.
Therefore, they will wait a few days to see if they’re “really” sick before scheduling a doctor visit. They will choose a less expensive medication, or forego optional–not-necessary tests or other procedures.
In order to achieve these goals, some employers plan to create health savings accounts (HSAs) or consumer-driven health plans (CDHPs). With an HSA, employees can set aside money tax-free to create a health expense “kitty.” This reduces insurance premiums, makes money available to pay higher deductibles, and provides valuable tax savings. Furthermore, since the money is theirs, employees can take it with them if they change jobs or even retire.
Many employers in the NBGH study said they already offer HSAs or CDHPs, but more expected to add one or both these programs during 2017:
- 35% of companies would offer only CDHPs, up from 33%.
- 92% of companies would offer HSAs, up from 87%.
Over the past several years, an increasing number of employers have started offering various types of employee wellness programs. Some are workplace-based, whereas others are more broad-based, but all aim to encourage employee efforts to make healthier lifestyle choices. Healthier people do not access health care so often, so this is a proactive response to rising costs.
Some companies are now adding nurse-coaches with whom employees can consult about health issues. Nurses can help with everything from teaching patients how to take medications properly, to diet and exercise recommendations, to ensuring patients schedule and keep needed doctor’s appointments. This concept was especially popular with companies surveyed by NBGH:
- 80% said they planned to add nurse-coaches to assist with care and condition management.
- 72% said they planned to add nurse-coaches to advise on lifestyle improvements.
Instituting wellness programs brings additional benefits, too, to both companies and employees. Healthier workers are off work less often, and they’re more productive when they’re on the job. They are happier. Job satisfaction is higher, therefore turnover is lower. These factors can do wonders for any company’s bottom line, as well as enhancing all-important hiring and retention.
Taking advantage of technology
Finally, employers are looking to technology to help reduce benefits costs and improve service delivery. Telehealth originally gained popularity because it enabled rural patients to access a much higher quality of care, much faster. But now telehealth systems are being used to link employees with information and medical advice without having to make an office visit. Patients get quality results quickly, at minimal expense. Health care experts predict telehealth options will be increasingly used to provide counseling and other mental health services as well.
And on the administrative side, implementing HR software applications that automate enrollment and claims management not only saves significant time, it can virtually eliminate mistakes which cause additional expense and waste more time.
Health benefits costs may be leveling out, but they are still increasing. Companies that respond proactively and creatively, with their specific workforce in mind, will be in the best position to control benefits costs while retaining their competitiveness as an employer.