Employer health care spending has grown from 6% of total wages in 1988 to more than 12% in 2018.  The Centers for Medicare and Medicaid Services (CMS) estimate that this growth will continue, with national health spending projected to be 20% of the economy by 2026.  Employers are seeking innovative approaches to keeping healthcare costs down.

There are a number of drivers of the rising costs of healthcare.  As usual, pharmaceutical costs lead the pack, but there are a number of other factors that are also impacting costs.  First, employers are providing greater access to provider networks throughout the country to meet the flexibility needs of their employees.  Second, mergers are growing in the healthcare industry, and these mergers tend to increase pricing to consumers.  Third, doctor groups are consolidating within hospital health systems, becoming employees of the system.  PWC’s HRI research shows that these organizations tend to charge higher prices than independent doctors.

With an aging workforce, according to Mercer’s National Survey of Employer-Sponsored Health Plans, 2017, managing and monitoring high cost claimants is the top health benefits strategy that U.S. employers will be focusing on for the next five years.  77% of U.S. employers with 500 or more employees said this strategy was “very important” or “important.”

There are a number of ways employers are containing costs.  To begin with, employers are readjusting the cost sharing between employees/employers.  They are also reviewing the deductibles and encouraging employees to enter high deductible plans.  For some employers, the use of private exchanges would provide greater control over budget and yet provide employees with the flexibility to make decisions as how to spend their healthcare dollars.

For larger employers, such as ASE member, General Motors (GM), dropping the middleman and negotiating with a healthcare system, may be a significant approach to controlling healthcare costs.  GM just signed a contract with ASE member, Henry Ford Health System (HFHS,) to cover everything from doctor visits to surgical procedures.  GM says it can offer a plan that costs employees less than other options while also promising special customer-service perks and quality standards.  This service is offered only to non-union employees and will be administered by another ASE member, Blue Cross and Blue Shield of Michigan.  “We’re a strategic partner with General Motors,” said Helen Stojic, director of corporate affairs at Blue Cross.

Other employers have also negotiated these types of arrangements including Wal-Mart, Disney, and Boeing.  With large employee bases, these employers can guarantee a large volume of patients to the healthcare system. 

Under the GM five-year agreement, HFHS agreed to goals for quality, cost, and customer service, such as same-day or next-day appointments with primary-care physicians. Among the objectives are reducing hospital admissions and improving management of high blood pressure. The contract includes targets for the total cost of enrollees’ care.  By meeting these goals, HFHS can get bonus payments.  On the other hand, missing these goals may cause HFHS to have to pay back monies to GM.

GM employees would not be pushed immediately under the HFHS plan, called ConnectedCare.  They would still have access to their current plans, but they will find that they could save approximately $300 to $900 a year compared with their current lowest cost opion, depending on how many people the worker is covering.

Unfortunately, dropping the middleman only works for large employers who can guarantee a stream of enrolled patients.  Yet, Association Health Plans (AHP) could become a vehicle for small employers to gain similar benefits as large employers.  AHPs allow small businesses to band together to buy insurance.  Assuming these types of plans gain traction through the maneuvering of the current administration, it is likely they could be the primary provider for many small businesses.  A consolidation of these plans could permit the same type of contractual arrangements that GM will enjoy under its new arrangements with HFHS.

Source:  Wall Street Journal 8/6/18, CCH 8/7/18, Price Waterhouse Coopers HRI June 2018, NPR 6/27/18