Healthcare is a massive part of the US economy and a major expense for most small and medium-sized businesses (SMBs). And many organizations can best steward their health plans by looking past current year costs to trends over the next 3 to 5 years.
Between 2014 and 2019 (before the pandemic), the US population increased 3.1 percent to 328 million, the nation’s GDP increased 21.8 percent and national health spending increased 25.3 percent. According to the KFF 2021 Employer Health Benefits Survey, premiums for employer-sponsored family health coverage rose to $22,221, 4 percent higher than last year. And many groups are above this trend, with 8 to 12 percent increases or more.
So let’s identify some healthcare trends to watch in 2022 and beyond for employers!
Self-Funding and Medical Stop-Loss Captives in the SMB Market
According to the KFF survey above, the percentage of small firms with self-funded health plans rose dramatically, up to 42 percent of all small firms. This is a significant trend for a few key reasons, such as network contracting, prescription drug costs, and ACA exchange plans.
Network Contracting: Employers with a self-funded health plan have a much more modular and customizable plan for their benefits. They can design the deductible, co-pays, coinsurance, and more as they see fit. Network selection and structure are very important to the way the whole plan runs, such as if the network is narrow (fewer providers in-network) or tiered (plan design incentivizes care at certain providers through cost-sharing).
In our approach to benefits, we stress the benefits to employers of partnering with accountable and integrated medical practices to improve health outcomes for employees and lower costs. Local organizations in Southern California involved with such efforts include UCLA Health in Los Angeles, MemorialCare in Orange County, and Scripps Health in San Diego. By driving employees to these kinds of health systems, employers can receive discounted rates, deliver better outcomes to employees, and pay less overall in costs.
Prescription Drug Costs: Prescription drugs are a meaningful piece of healthcare spending and continuing to grow, with some real potential for significant cost increases in the coming years.
According to Sun Life’s report on stop-loss claims in 2021, prescription drug costs make up 25 percent or more of the total costs for the top claim conditions. One way to manage these costs is the use of Biosimilars, biologic products that are very close to already approved drugs and come to market after a patent expires. A study by Archimedes found that by using biosimilars, plan sponsors could reduce spending by up to 62 percent.
Impact on ACA Exchange Plans: One concerning trend to keep an eye on is the impact on ACA risk pools as more groups adopt self-funded plans. We figure that of the groups in an ACA small-group risk pool (one without experience underwriting where every group has the same rates based on region), the ones who leave for a self-funded plan are likely better risks for the pool than the average group. Therefore, that risk pool is now riskier, with less healthy participants, thus increasing spending and necessitating higher PEPM premiums for the remaining groups. This may create an ongoing trend where first the healthiest groups leave due to a large differential between their ACA rates and projected costs in a self-funded plan, then the next healthiest groups experience the same dynamic next year and so on.
This very well could destabilize ACA market plan risk pools and invite legislation and regulation to the SMB health plan market. Time will tell how this plays out.
Mental Health Claims, COVID and Beyond
40 percent of adults reported some sort of anxiety or depression in 2020, a significant increase from the 10 percent in 2019, according to Sun Life’s report. Their analysis showed both an increase in the frequency and total cost of claims, which may persist for 2022 and beyond as the impact of COVID on society continues to evolve.
Women with children, unfortunately, bore the brunt of challenges with school closures and increased childcare. They experienced a 10 percent greater occurrence of depressive symptoms. This effect was also exacerbated amongst people of color.
Essential workers experienced mental health disorders at a greater rate than non-essential workers, 42 percent and 30 percent respectively.
The average cost of a mental health disorder was consistent at just under $80,000, but SunLife reported a 25 percent increase on mental health claims. This also does not account for the many costs of poorer mental health that go beyond health claims due to poorer mental health among workers.
The New Normal for the Workplace and Benefits
While many of us may be going back to the office, we are not going back to “normal.” Virtual visits are a significant share of total provider visits now. Flexible work schedules and permanent work-from-home opportunities may lower the spread of other illnesses such as the flu. And benefit flexibility has grown as employees change their work and life patterns.
Virtual Health: Healthcare had lagged through the late 2010s in adopting technology to meet the customer where they wanted. But COVID forced the issue for providers, who had to adapt or see their visits evaporate. In April of 2020, about 43 percent of Medicare visits were conducted via telehealth, compared to a paltry 1 percent just two months before. Analysts expect the market for virtual healthcare to grow from $25 billion today to $55 billion in 2025. While providers are split on the advantages and disadvantages of virtual health, there is no question that it is here to stay and the patient experience is now front and center for providers.
Flexible Workplaces: Sun Life found that 83 percent of employers said their companies are implementing a flexible work schedule to a much greater degree than before the pandemic. This trend is here to stay, as many workers will refuse to go back to how things used to be. And as workers spend less time in the office and more time away while working from home, there should be less disease spread in the workplace.
And Flexible Benefits: It seems obvious but employees have become much more aware of their personal health risks since the pandemic began. They may better understand how their benefits work or better understand what they don’t offer. Employees are more interested in voluntary benefits as a way to meet their shifting needs across a range of benefits. Aon conducted a study in 2020 and found an increase of 27 percent of employers offering voluntary benefits.
Skate to Where the Puck is Going
Employers offer benefits year after year and must play the long game. Why make a move to deal with this year’s renewal if it is to the detriment of your plan in the next 5 years? Why not take a multi-year perspective and assess interventions on a 3-, 5-, or 10-year time horizon?
Employers need to stay abreast of trends in healthcare and healthcare costs. What trends do you think we missed or overlooked in this list?