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Large Employers Continue to Manage Their Healthcare Spend

By Truven Staff
Mike Taylor imageA recent survey published by the National Business Group on Health (NBGH) found large employers haven’t stopped trying new ideas to control their healthcare spend. Various consulting firms have predicted anywhere from a 4% to 9% healthcare cost increase for 2014, with a sharper uptick in 2015, so these strategies are very important. The medical spend trend in the past several years has been more moderate due to a combination of lingering effects from the recession and payment reform. What strategies will employers use to control costs in the future? Here is a partial list (in no particular order):
  • Employers will continue to implement higher co-pays and deductibles. This has been occurring for 20 years with the employer typically paying 70-80% of the cost and employees picking up the rest.
  • The use of high-deductible health plans (HDHP) will continue to grow, with deductibles above $1000. HDHP include the full cost of all prescriptions as part of the deductible, and employers expect that strategy to drive more transparency around drug costs and a higher demand for generics.
  • Employers will more carefully consider the use of spousal surcharges. The logic is that if a spouse has other coverage because they work at another employer, the spouse should take that coverage. Spousal surcharges run more than $100 per month, and are intended to incent the spouse to seek other coverage.
  • Large employers haven’t given up on wellness programs. We will see continued interest in financial incentives to change behavior, with a minority of employers incenting outcomes such as weight loss, tobacco cessation and physical activity.
  • Many employers haven’t found value in disease management programs and are looking into other ways to help employees better utilize healthcare services. The future of disease management programs is unclear, but providers are working hard to target these programs to patients who are most likely to benefit.
  • “Specialty drugs” or “biologics” are a growing cost issue. As has been reported by many, the new Hepatitis drug costs $84,000 for a 12 week treatment. Specialty drugs consume roughly 25% of the drug spend, but are projected to rise to nearly 50% in the coming years. Employers will likely use step therapy and prior authorization programs to manage these costs.
  • Interest in narrow networks will continue to grow, including incentives to receive care at distant medical centers and “Centers of Excellence.” Large employers with many employees at one location are studying the feasibility of contracting with only a few hospitals by offering the hospitals a larger volume in return for a lower unit price. I believe this will be limited to certain procedures (cardiac bypass, hip and knee replacement) rather than full alliances.
  • Employers will continue to drive “pay for value, not volume” payment reform. This is a newer trend, but I believe it will grow substantially in the next several years. Employers want to know they are buying high quality healthcare, and not paying for wasteful unnecessary care.
  • Employers are still considering more transparency tools to help their employees understand cost, but many employers are looking to their health plans to provide these tools.
  • Most employers have shifted their retiree benefit plans (especially for the pre-65 retirees) to an exchange, rather than allowing the retirees to remain on their traditional plans.
  • Some employers are looking to public or private exchanges. These conversations are less likely to be occurring for those who employ large numbers of knowledge workers; most of this activity will likely take place among companies that employ low-margin service employers.
Our clients are studying many options. There is no single clear strategy; every employer has a different culture, and a unique approach to managing costs. These choices are difficult for employers to evaluate, because there are so many variables and confounders that it’s difficult to know what parts of the strategy are actually working. Employers are depending more and more on data and analysis to understand all these moving parts. The one constant among all the variables will be the need for data and thoughtful analysis.

Michael L. Taylor, MD, FACP
Chief Medical Officer

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