For the average American worker, wages have barely increased over the last 40 years, according to the Economic Policy Institute. This is despite consistent productivity gains, leading to a decoupling between wages and productivity. This most significantly affects middle- and low-wage workers, despite the historical connection between productivity gains and income growth.
There are many debates and explanations for this but no one disagrees that health insurance premiums have played a role in crowding out wage gains for Americans.
Recently Warren Buffett referred to healthcare as America’s tapeworm. It’s a top 2 or 3 line-item expense for most organizations, and yet, most employers have little understanding of these costs and how to control them.
Health Insurance Costs Consume Pay Raises
Employers who give pay raises every year are typically also passing along health insurance premium increases.
Rates increased 6 to 7 percent for employees of small- and medium-sized businesses, according to Mercer’s 2020 National Survey of Employer Health Plans. And according to the Kaiser Family Foundation’s 2020 Employer Health Benefits report, the average family premium in 2020 increased 4 percent while workers’ wages increased 3.4 percent and inflation was 2.1 percent.
These numbers are bad news for workers juggling family expenses and employers absorbing these costs.
Yet as benefits consultants who talk to organizations with 25 or 2,500 employees, we see an opportunity for small and medium-sized employers to give employees a real pay raise.
Employers can increase their worker’s real pay by better managing their health care spending. It’s both simple and not so simple. Let’s dive in.
Improve Benefits to Slash Costs
In today’s $4 trillion health care industry, small- and mid-sized employers unknowingly contribute to a system of misaligned incentives, low-value care, increasing costs, and wide cost variations. And despite our highest in the world spending, we have distressingly average outcomes across a number of measures.
Given our high costs, it may seem counterintuitive to hear you can slash costs by increasing the value of your benefits.
Yet, that’s where we find ourselves today.
While there isn’t necessarily one slam dunk move for groups to make, the reality is that groups have a number of strategies to reduce their health care costs year over year. Small- and middle-market groups can stack tried and trusted strategies used by the Fortune 500 to manage their health care supply chain and reduce their costs.
Let’s look at some of the most common strategies available to an employer today.
Access, Assess, and Act on Data
The foundation of our strategic health care consulting is to obtain transparent and informative claims data for an employer.
Without claims information, a company can’t identify opportunities and see the results of interventions. For California employers, this issue is particularly apparent as organizations must reach a significant size before their insurance company will share claims data.
We’ve seen organizations with $5 million or higher annual spending on their health care, with next to no data around where it is spent. Most organizations don’t accept pouring this kind of money into a black box elsewhere in their business, so we push them to collect and analyze their claims data just as they would other supply chains in their business.
With the insight of claims data, we can identify opportunities, implement interventions, assess results, and review results in an iterative process that allows us to find ongoing cost savings for an employer.
In connection to our focus on employee’s real wages, we find benefits if we can direct employees to higher-quality and lower-cost providers, reduce wasteful spending, and save costs on prescription drugs.
Incentivize Good Outcomes and Good Providers
By partnering with accountable and high-value providers, employers can steer employees to systems and providers to lower the total cost of care, increase both patient and physician satisfaction, and increase preventative screenings.
Accountable providers reduce the rampant cost variation in health care that isn’t correlated to care quality. One payer found that despite a 39% variation in the cost for stomach cancer treatment between providers, there was no difference in care outcomes.
Employers can reduce their spending and simultaneously deliver better benefits to employees by emphasizing a more favorable cost to quality ratio and steering employees to high-quality providers.
Prescription drugs typically make up about 20 percent of a given organization’s total health care spending. A number of strategies exist to reduce costs, such as a review of the formulary (the drugs allowed for reimbursement) and a greater emphasis on generics. A simple review of your prescription spending can usually uncover savings opportunities, but again, this starts with gaining access to claims data.
One opportunity that is not a cost reduction but a value improvement for an organization is to make selective decisions to approve drug therapies that a traditional health insurance carrier may decline.
An example is when a doctor recommends a medication for off-label use- a traditional carrier may not approve such a prescription for reimbursement, which forces an employee to pay 100% of the costs for the drug. When that price tag can be $5,000, $10,000 or more per month, employees can face very painful decisions whether to continue certain treatments.
We’ll save this for another post, but in short, drug companies hurt sick Americans with their patent protection and extension practices. They know their drugs have off-label uses and yet they wait to apply for these uses, in a gambit to prolong their patent protection and maximize drug profits.
Mindful employers can make decisions to actually pay for some of the cost in such instances in a desire to offer valuable benefits to their employees.
Behavioral and Mental Health
The 2020 COVID pandemic and ensuing lockdown brought behavioral and mental health front and center.
An oft-cited CDC statistic from 2020 found that 40 percent of adults reported symptoms of depression, anxiety, or increased substance use during COVID. Additionally, 10.7 percent of respondents had contemplated suicide in past 30 days. These figures were all increases from previous surveys.
These findings played out in claims data, as behavioral claims grew 20 percent in 2020 versus an 8 percent prior growth rate. Anxiety claims were the biggest driver with 50 percent growth in incidence in 2020.
Claims data also shows that employees with a mental health condition have two to four times greater overall health care costs compared to the general employee population.
And as Ginger reported in their Third Annual Workforce Attitudes Toward Mental Health Report, CEOs overwhelmingly believe that employee mental health is a C-suite issue and offer mental health benefits. The rub here is that just over half of employees agree that their company offers such benefits.
Employers can address gaps in the market around navigation, access, and advocacy for employees, and culture and infrastructure for the organization. The result is a happier and more productive workforce and reduced health care spending.
Again, we have to emphasize that improved benefits actually reduce health care spending and thereby puts money back into employee paychecks and frees up earnings for higher and better uses in the organization.
Next Steps to Reduce Employee Health Care Costs
Oftentimes, we help employers take these first steps towards reining in the cost of their health plan by moving them onto a true health insurance plan, a self-insured health plan in which they become the payer for their employee’s claims. It’s a strategy used by nearly 40 percent of employers and one which provides health benefits to about 60 percent of covered workers today. And it’s becoming more common for small- and middle-market employers to say no to little to no control over their year after year cost increases.
If the ideas above resonate with you and you want to know more, talk to one of our benefits consultants today. We’re here to improve the quality of life for our client employees and we believe wholeheartedly in employer’s ability to better manage the healthcare tapeworm.