Healthcare costs are increasing. These increases are leading to reduced benefits, lower takehome pay for workers, and poorer health outcomes.
According to the 2021 Milliman Medical Index and the 2020 KFF EMployer Health Benefits Survey, healthcare costs and health insurance premiums are increasing year over year. Over the last 5 years, the average family premium has increased 22 percent, and over the last ten years, it has risen a whopping 55 percent.
Despite these sobering figures, many small and mid-sized employers are flattening the trend and in some cases, reducing their healthcare spend. Let’s look at four key strategies employers are using to cut their healthcare costs.
Healthcare has a disconnect between cost and quality. Despite the high cost of healthcare we pay, our outcomes are middling at best. For similar services among health systems, there can be a wide variance in price. Any extra cost without a commensurate improvement in outcomes is waste.
Employers can reduce their healthcare spending by working with the local health systems to deliver high-value, integrated care. To do so, they use a preferred network of providers to ensure they pay for quality care, rather than wasteful, unnecessary spending.
A Preferred Provider Network steers employees to high-quality, low-cost providers with a plan design featuring lower deductibles, out-of-pocket maximums, and coinsurance rates. Employers will realize lower overall spending when employees pay less to get better and lower-cost care, and employees enjoy paying copays instead of dealing with deductibles and coinsurance.
Negotiate Unit Cost Savings
Again, common health care services can vary widely in price.
At one health system in Northern California, a hip or knee replacement can range anywhere from $22,865 to $101,571, according to Healthcare Dive.
We won’t be able to reduce healthcare spending if providers are are allowed to vary prices to such a great degree. By emphasizing certain providers and systems, employers can negotiate better unit costs for the services used by their employees. Employers can be successful doing this because health systems have shown an interest in working directly with local employers in a win-win relationship.
Additionally, value-based contracts put more pressure on providers to consider costs when delivering care.
Primary Care to Drive Better Outcomes
The US invests less in primary care than other developed nations, according to the PCPCC. While the US spends an average of 5 to 7% on primary care as a percentage of total health care spending, OECD countries average 14%.
Coincidentally, the US has the highest chronic disease burden and obesity rate compared to the rest of the OECD.
By emphasizing primary care, employers see the following benefits in their employee population:
- Increases in primary and preventative care
- Decreases in emergency room and urgent care visits and spending
- Decreases in unnecessary specialist care
- Shifts from inpatient to outpatient centers for services such as surgeries and imaging
Employers can pay less for care by paying for the right care at the right time in the right setting.
By keeping employees in an integrated system focused on delivering value, providers make smarter referrals.
While there can be some differences in quality for certain procedures, many services in healthcare are fairly standard and have little variations in quality, yet can differ widely in cost. Research has found that up to 51% of price variation in MRIs can be explained by referrals.
And despite these cost variations, employees bypass lower-priced options in their local market. The researchers found that patients passed on average 6 lower-priced providers traveling from their home to their treatment location.
Putting It All Together To Reduce Healthcare Spending
As consultants, we have a number of tools in our toolbox to helping employers reduce their healthcare spending. The biggest roadblock we encounter is a group that has thrown up their hands at solving health care and is content with the status quo.
The fact of the matter today is that many small and mid-sized employers are addressing the healthcare cost crisis, reducing their costs, and delivering higher quality and lower-cost care to their employees.
With many groups renewing at the end of 2021, it may be worth a conversation to see what else can be done to meet the healthcare cost crisis head-on.