Underlying Challenges of Employer-Sponsored Health Care
There are four primary underlying challenges of employer-sponsored health care. In this article, we address two that you should understand as a basis upon which you can build a strategy to combat rising costs.
RISING PREMIUMS & RISING OVERALL COST
For employer-sponsored health insurance, the average 2019 annual premium for single coverage was $7,188 and $20,576 for family coverage. That’s a 4% and 5% increase, respectively, compared to 2018. At the same time, wages increased by 3.4% and inflation by 2%.1 Employees pay a smaller portion of that full amount, roughly 30% of costs on average, but this portion they are on the hook for is steadily increasing. Singles paid $1,242 last year, on average, while families paid $6,015, an increase of 71% in the past decade. Earnings have grown by 26% during the same time frame.
For 2020, large employers predict the total cost of covering health insurance for workers and their families will hit an average of $15,375, which increased from $14,642 in 2019, an increase of 5%, according to a survey by the National Business Group on Health. While employers will cover close to 70% of costs, workers will cover about $4,500 in expenses, according to the survey.
Another key challenge is the high deductible gap and functionally uninsured populations. To learn more, check out our 2020 State of Health Care guide.
HEALTH CARE COST INCREASES HAVE BEEN RESISTANT TO INTERVENTION
Within the 20-year timespan in which premiums and contributions have risen over 200% in each cost segment, the most utilized cost-containment solutions have included plan design and cost-shifting endeavors, such as spousal surcharges, premium differentials for wellness program engagement and the utilization of high-deductible health plans, that place a higher percentage of the cost of care on the employee.
Additional cost-containment solutions have focused on the appropriateness of access and therapies, including tiered formularies and networks in addition to increased telemedicine access. With those strategies being deployed, employers and employees are paying well over 200% more for health care coverage than they did before the turn of the century.
Borrowing a term from the study of behavioral disorders, “Resistance to Intervention” is a function of a number of factors, including the severity, chronicity, generalization and tolerance of an existing process or behavior, as well as the strength, acceptability, integrity and effectiveness of the proposed interventions that are intended to alter the process or behavior toward a more favorable outcome.
The resistance to intervention as related to health care costs can be defined in the following concepts:
- The market behaviors and objectives of the supply side of health care
As both employers and employee pay more for medical and pharmaceutical expenses, in the form of both premiums and claims, that additional payment translates into higher revenue for the health care industry. Therefore, health care entities will lose out on existing and future revenues if employers and their employees develop a strategy that results in paying less for health care services. As a means to prevent this from occurring, the health care industry develops and deploys creative ways to extract newer and higher revenue streams from commercially insured populations. There is little distinction between the revenue goals of nonprofit, private equity or publicly traded entities in this regard.
- The market behaviors and objectives of health care intermediaries
As both employers and employees pay more for medical and pharmaceutical expenses, in the form of both premiums and claims, that additional payment translates into higher revenue for the health care industry, which in turn translates into higher revenue for health care intermediaries, such as carriers, brokers, specialty vendors and other professionals who are indirectly involved in the purchase and placement of health care services but not directly involved in care delivery.
- Misapplied or overvalued tactics
Due to the fact that most employers access the supply side of health care via the use of health care intermediaries, the tactics that employers are exposed to the most are the ones that would be misapplied or overvalued, as those processes would have only a minor and limited effect on the overall cost of care. In most cases, the tactics that have been recommended historically did not account for the actual macroeconomic drivers of health care – variance in quality of care, variance in cost of care, clustering of claims cost in a few members, medical and pharmaceutical advancements compounding the cost of treatment, fraud, waste and abuse, health care conglomeration and vertical integration, a lack of evidence-based medicine applications, and several other factors that would not be affected or addressed by cost-shifting tactics, wellness programs or other commonly adopted yet lowly impactful strategies.
- Undervalued or appropriately valued tactics are perceived as disruptive
The supply side of health care and the intermediaries of health care seek higher revenues, and the primary recommended and adopted tactics that employers are exposed to are overvalued because of their limited impact on lowering claims trajectory and curbing claims trend. The alternative is that tactics that could effectively lower claims trajectory and curb claims trend would be seen as disruptive and a threat to the revenue levels of both the supply side of health care and their intermediaries.
- Employers are not properly exposed to undervalued or appropriately valued tactics
Assumptively, if an employer is receiving advisory services from someone whose revenue is directly tied to the outcome of health care expenses rising, certain pertinent strategies may not be brought to the employer or the employer is left to believe there is only a simple dichotomy to consider – continue forward with the same or similar strategies while paying more for the same coverage year after year or have to deal with employees and internal benefit personnel who will be discontent with some degree of change in terms of the cost, quality, access and structure of the health benefit plan.
There are specific factors that help create this “Resistance to Intervention.” To learn about these factors, as well how employer-sponsored health care can adapt and overcome, click here.