Inflation Meets Benefits Plan Designs
According to the latest Bureau of Labor Statistics data, inflation kept its hold on the U.S. economy in September, jumping more than expected.
The consumer price report showed U.S. prices rose 0.4% in September compared to August, twice the 0.2% projected by analysts, with increases in food, housing and medical care weighing on consumers.
Due to this growing stagflation, average costs for employers that pay for their employees’ healthcare will increase 6.5% to more than $13,800 per employee in 2023, according to Aon’s Global Medical Trend Rates Report 2023. That’s how much costs could rise, on average, if employers renewed their current plans without making any changes. This projection is more than double the 3% increase in healthcare budgets that employers experienced from 2021 to 2022.
With renewal season well underway, brokers and consultants have been talking with clients about their employer-sponsored health programs and steps they can take to address the impact of high inflation. Here are two trending strategies employers are using to address health plan affordability in the face of an economic downturn and still a tight labor market.
#1 Getting Back to Long-Term Cost Management
The pandemic disrupted cost-management efforts as most employers focused on workplace safety and their employee population’s overall engagement and well-being. With steep cost increases looming, brokers and employers are refocusing on cost management strategies that can slow cost growth over the long term, while minimizing cost shifting to employees.
At the top of the list: managing the costs of specialty drugs and deploying targeted clinical management programs for specific health conditions. Around 4% of the population uses specialty drugs, but they account for 65% of total drug costs and 19% of total healthcare costs, according to Cigna’s 2022 National Trend Report.
Multimillion-dollar claims are on the rise in part due to clinical advancements that have allowed for the creation of cures and treatments for a number of chronic illnesses and previously untreatable diseases. It’s not surprising that employers are taking focused action to manage these drug costs, as new curative yet costly treatments and medications will likely drive future spending trends.
Recent actions include plan design changes to steer patients to specialty pharmacies, focusing on the site of care, seeking support from drug manufacturers to lower member out-of-pocket costs, demanding integrated care management from pharmacy benefit managers and health plans as well as stop loss coverage innovations (e.g., supplemental specialty pharmacy coverage) and captive arrangements.
Likewise, targeted population health management programs that adopt enhanced clinical management models beyond the standard health plan model are an area of growing employer investment. Cancer, musculoskeletal and cardiovascular disorders are the top conditions driving costs by the incidence of claims, according to WTW’s 2023 Global Medical Cost Survey.
The clinical integration model provides medical management, care management and patient management processes that are designed to transform a traditionally fragmented delivery system into a more cohesive system where incentives are aligned and better health outcomes are the goal.
Increasingly, communication and health coverage-related links are being established among primary care physicians, specialists and hospitals to create seamless, accessible care for members. At the same time, leading brokers and employers are starting to take advantage of new interoperability and transparency developments that have unlocked the ability for employees to access information digitally and navigate to high-quality care providers using more pricing and cost information than they’ve been able to access previously.
#2 Using Integrated Layers of Benefits Data to Prioritize Investments
To implement and grow advanced cost-management strategies, employers need multiple data sources to establish a fuller picture of their population’s health and wealth status. Integrating medical, pharmacy, and mental health claims data is a foundational first step.
For the last five years, Cigna has conducted a Value of Integration Study, which evaluates the impact of medical, pharmacy and comprehensive behavioral benefit integration on annual total medical costs. The results show that their clients realize significant savings through the integration of these benefits programs: $227 per member per month savings in clients’ total medical costs and $4,741 per member per month savings through solutions that engage individuals with a health improvement opportunity, like closing a gap in care.
In the startup space, healthcare companies with employer-serving business models built upon the “integrated data, integrated care” thesis have received significant funding from the investor community. Transcarent, a Palo Alto, California-based health tech company, raised $200m in Series C funding earlier this year. The company’s goal is to provide a combined medical and pharmacy experience for the self-funded employer market to reduce costs and drive better health outcomes.
The platform is a curated, one-stop-shop for virtually all of the most common and challenging needs of an employee population, including sourcing lower cost medications, providing personalized behavioral health symptom evaluation and facilitating access to a range of specialty care providers.
Employers often need to reevaluate and make changes when the economy slips. What is unique is the availability of new data (from the Transparency in Coverage rules and the No Surprises Act) and tools to navigate workforces toward the highest-quality healthcare.