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» The Rise of Healthcare Costs & How to Reduce it

January 17, 2023

Healthcare Spending, Human Resources, Self-Funding, Telehealth

The Why

According to the Centers for Medicare & Medicaid Services, in 2021, healthcare costs skyrocketed to $4.3 trillion. This is caused by the premium increases, higher deductibles and copays, and soaring prescription drug prices. Most of these costs are market driven from the unregulated prescription drug costs and healthcare providers’ salaries rank higher than in other western nations, and hospital care accounts for 31% of the nation’s healthcare costs. Another large issue is labor costs. Coming out of the pandemic, many groups are hit with 10-40% rate increases, which CFOs across the country cannot ignore anymore. Below is a graph to show how both employer and employees are feeling this vast increase.

Below are the eight reasons they continue to rise.

  1. Medical providers are paid for quantity, not quality
  2. The U.S. population is growing more unhealthy
    1. Specifically, the boomers (the largest generation) are becoming older.
  3. The newer the tech, the more expensive
  4. Many Americans don’t choose their own healthcare plan
    1. Employer – Employee: Delegating Coverage Level

It starts with the employee delegating the health plan purchasing decision to the employer. The employee usually should know what is best for their healthcare, the employer will choose which coverage level they will offer. They will decide on the cost sharing amount, access restrictions, and carrier network. Compromise and the over-purchase of insurance for the employer will most likely happen.

  1. There’s a lack of information about medical care and its costs
    1. The only way to save money is through data and transparency. However, the reason insurance is so expensive is because in a fully- insured marketplace the carriers are not required to provide access to claims reports. Thus being able to increase costs without knowledge leaves employers vulnerable.
  2. Hospitals and providers are well-positioned to demand higher prices
  3. Fear of malpractice lawsuits
  4. Inflation’s impact on the economy

The How

As you can see from the list above, as an employer, you can only control so much of the rise in cost. However, with what you control, you can still make an impact!

Controlling is key, and that’s why more and more companies are moving to self-funding through a captive. They can increase control from choosing their TPA’s and PBM’s and decrease volatility because the employers pool their risk together. See below how self-funding impacts 3 out of the 8 reasons healthcare is increasing.

  1. The newer the tech, the more expensive
    1. Technology has provided a lot of opportunity in the self-funded marketplace; specifically, telemedicine. In self-funding, lowering the cost of claims is the key to savings. However, you still want your employees to receive the care they need just at a manageable cost. Navigating the utilization and educating the members to use telemedicine can redirect and decrease unnecessary, avoidable claims.
  2. Many Americans don’t choose their own healthcare plan
    1. In the fully insured marketplace, you are pigeonholed. So, whether you are an employer or employee, you have little to no flexibility in your own healthcare. In the self-funded marketplace, the world is your oyster! When a group self-funds, as little as 20% of the costs are fixed, the 80% variability is the opportunity for savings. With fully insured, 100% is fixed and you are only “renting” your insurance.
  3. There’s a lack of information about medical care and its costs
    1. Knowledge is power! Through data and information employers can learn how to better manage their companies care. This can only be done in a world where claims reports are given to employers.

There is so much more to the healthcare world!

For more information, please reach out or schedule a meeting!

  • Eleanor Schroeder

Posted by in Healthcare Spending, Human Resources, Self-Funding, Telehealth