Healthcare costs are continuing to increase, outpacing inflation. The average cost increase for employer-sponsored health plans in the U.S. will be 5.7 percent in 2016, up from 5.3 percent in 2015. Employers only have a few options to get their costs under control — some work better than others, if at all. It’s important for companies to understand the impact of these interventions and create their own bespoke strategy for reducing their healthcare cost increases.
What can companies do today to control their immediate healthcare costs? Here’s an overview of a company’s options, ranked in order of impact on cost.
Strategy #1: Offset costs to employees, offer plans with fewer features, and/or offer health reimbursement or health savings accounts
In the past, when healthcare costs were less expensive, as a benefit, companies covered the entire health insurance premium for their employees. But as premiums skyrocketed, employers started to split the cost of premiums with their employees. Then employers tacked on insurance plans with higher deductibles, requiring their employees to cover the first couple thousand dollars of actual healthcare costs before insurance started covering the bills. In the last 10 years, there has been a 61% increase in health insurance premiums and an 83% increase in employee contributions toward the cost of health insurance. Reducing the features of plans offered is another way employers can reduce their immediate healthcare costs. Offering HRAs and HSAs allow both employees and employers to yield tax advantages to offset healthcare costs.
Pros: Very clearly reduces a company’s healthcare costs
Cons: Unsustainably reduces the value of a healthcare benefit to employees over time
Strategy #2: Help chronically ill employees manage their expensive chronic illnesses
Employees with diabetes, asthma, heart disease, and cancer are very costly. These employees have difficulty navigating the healthcare system, managing a steady stream of bills, while also managing their medical issues that often lead to expensive hospital stays. Services that help the low number of very expensive healthcare users are a wonderful, targeted intervention that makes their lives easier and manages immediate costs.
Pros: Targeting most expensive issues is high impact
Cons: Services are limited to the needs of a small subset of chronically ill employees
Example: Iora Health
Strategy #3: Help employees strategically manage acute and ongoing healthcare services
This is a new intervention now available to companies and it’s spearheaded by Sherpaa. Sherpaa is an online physician group who can diagnose, treat, and coordinate care for employees. When an employee thinks they need to access healthcare, they first reach out to Sherpaa doctors via Sherpaa’s app and share their situation. Sherpaa doctors ask more questions, potentially order tests, and, diagnose and treat the condition 70% of the time. For the other 30% of situations, Sherpaa doctors create and execute a plan that ensures the employee visits the most appropriate specialist or facility best suited to fix or manage the acute or chronic condition. Sherpaa effectively acts as a filter to take care of those issues that can be solved with online communication, testing, and photos and ensures real-life healthcare visits only happen when in-person visits are absolutely necessary. Sherpaa handles all situations from simple issues like pink eye to complex, acute situations like appendicitis and complex, chronic issues like the care coordination needed to treat serious heart disease or diabetes. Throughout all situations, Sherpaa doctors communicate with employees and follow-up to ensure all is well, turning healthcare into a relationship rather than a time-limited transaction. It’s like having a well-connected doctor in the family. Seventy percent of healthcare issues, both acute and chronic, do not require claim-generating office visits. Sherpaa saves employees time and employers money by ensuring employees use healthcare most appropriately. It’s healthcare problem-solving made intelligent. Sixty to 70% of a company’s employees use Sherpaa on a regular basis to help them spend their money wisely, turning 60-70% of a company’s healthcare spend into an intelligent spend.
Pros: Meets the acute and ongoing medical needs of all employees and reduces roughly 70% of claims
Cons: Cannot diagnose and treat the 30% of everyday medical issues that need to be diagnosed and managed in person
Strategy #4: Leverage your employee pool to contract directly with hospital systems for guaranteed rates
Some large employers are contracting directly with healthcare “Centers of Excellence” to offer their employees treatment at predetermined institutions for a pre-approved list of high cost procedures. If an employee needs, for example, a hip replacement, the employee will travel to a “Center of Excellence” like Cleveland Clinic where they will assess the need and, if deemed necessary, perform the procedure for a flat rate. This strategy is promising for routine, high cost, predictable, procedures.
Pros: Reduces the cost of a finite list of predictable, expensive procedures
Cons: Available to only very large employers and restricts employees’ choices
Example: Centers of Excellence
Strategy #5: Maximize wellness
Wellness programs are an intervention targeting distant future healthcare expenses like the sequelae of smoking, lack of exercise, and poor eating habits. Investing in improving health behaviors today may save money on healthcare in a few decades. While this is a noble and worthwhile policy, the potential savings are not immediate. And with the average American switching jobs every 4.6 years, a company’s investment in wellness will likely not yield cost savings to the company.
Pros: Proactively prevents illness over time if effective
Cons: Lack of objective evidence that wellness programs effectively improve health over time
Strategy #6: Empower employees as educated, cost-conscious consumers
Healthcare costs can vary significantly. For example, an MRI may cost $1800 at one institution and $900 at another for the same test quality. Giving employees access to details on how much healthcare costs may help them become smarter consumers of healthcare, especially for those occasional healthcare services and procedures that are priced at a fixed rate. However, for the unknown issues, like a visit to the ER, consumers cannot predict what that will cost them because they are at the mercy of the their doctors’ orders to best diagnose and treat the issue.
Pros: Educates and empowers consumers
Cons: Prices are estimates with no price guarantees. Only works for predictable services.
Strategy #7: Make very simple, inexpensive health issues easier to treat to offset unnecessary, expensive visits to ERs, urgent care centers, and specialist visits
Helping your employees access retail health clinics, like those found in your local chain pharmacy, effectively treat simple issues like pink eye and strep throat, especially if the health issue requires simple testing but does not require follow-up management. Although more limited in capability than retail clinics, video and phone-based telehealth services are also good interventions for treating a smaller subset of those same simple issues. Video visits are less capable in diagnosing and treating simple issues because they can’t order tests nor perform a physical exam. Simple health issues are common and, when taken care of appropriately, very inexpensive to treat. Helping employees manage common, inexpensive issues are a great strategy to prevent the occasional unnecessary ER visit for pink eye.
Pros: With the average 22 day wait for a primary care doctor, these services improve access to needed care
Cons: Out of the roughly 10,000 medical diagnoses, they can only diagnose and treat 20 to 30 of the simple diagnoses.
Example: Teladoc, Walgreens Clinic
Companies should employ as many high impact strategies as possible to reduce their healthcare costs. It’s vital to properly package and communicate the offered services and strategies so employees best understand how to leverage their options. But with the right mix of services and proper education, employers can offer affordable, effective health insurance while ensuring employees always have choice and access to healthcare providers. Health insurance protects your employees from financial ruin, but that’s only half of the solution. Without having deep expertise, it is impossible for employees to use healthcare intelligently in this increasingly convoluted and confusing healthcare system. Offering services that layer on top of health insurance to make healthcare services markedly more accessible and efficient makes your health insurance work optimally, and therefore cost-effectively.