Put simply, medical trend for the past several years is ‘less bad.’ It might not be the most grammatical term, but relative to a very volatile 2007 where medical trend rose as high as 12 percent, the steady 6-7 percent increase for the past five years seems somewhat more palatable. That is, until we dig into the numbers.
PwC’s 2018 “Behind the Numbers” study shows that while trend continues to increase at a ‘less bad’ rate, utilization of actual medical services continues to decrease. To put it plainly, medical prices are still just as out of control, people are just using them less, acting as a ‘Band-Aid’ for ballooning costs. So, is quality of care responsible for the hike in costs? That would be a fair assumption, but the U.S. spends more on health care than any other nation and ranks 31st in life expectancy while taking first place amongst 12 high-income countries in amount of deaths from preventable diseases and complications.
So what the heck is driving up employee and employer medical costs every year?!
There is an answer and a solution, but it isn’t as simple as we would all like and it differs for every company out there. However, for an organization with over 100 enrolled in its health plan, there are three specific areas that are typically behind annual renewal increases. You and your broker should be focused on the following to predictably and measurably decrease ballooning costs:
- Key risk factors/discrepancies in pricing: Regardless of whether you are fully insured, level-funded or self-insured, the vast majority of your renewal increases are going to come from the members of your health plan and the providers and facilities they use. Creating a strategy with your broker that addresses and generates better outcomes for employees is critical to containing costs. (There’s no catchall way to do this; it involves a multifaceted approach that your broker should spearhead.)
- Specialty pharmacy: Pharmacy trend increases are at about 18 percent and show no signs of slowing. Pharmacy Benefit Managers can skim dollars through contract stipulations, so it is important to have a broker or consultant review your contract and have a strategy in place to manage your Rx spend.
- High-cost claimants: Just as members, providers and facilities drive employer-based medical costs, high-cost claimants are typically the biggest cost driver in an employer’s health plan. Working with your broker or consultant to develop a compliant strategy that creates a win-win scenario for these members and the employer is critical to managing costs.
The Hungry Tapeworm
There’s a reason Warren Buffet called health care the ‘hungry tapeworm eating away at the US economy.’ These increases are more than just ‘less bad.’ Every year, an employer is faced with very tough decisions on how to deal with this expense. The employer is stuck between shifting costs onto employees, stripping down health plans and moving toward high deductible options, or absorbing the expense internally and year-over-year shaving away profit margins. Meanwhile, none of this generates better plan performance or member outcomes, it simply buys time on a runaway train. Employers and consultants reversing this trend, optimizing health plan performance and extracting far more value for dollars spent are looking at things differently.
On April 4th at 4 p.m. EST, AssuredPartners’ Director of Analytics, Scott Mayer, will dive deeper into the three specific strategies mentioned above and answer questions on how this is done. If you would like to attend this in-person CEO/CFO seminar hosted at the MetLife Building, please click here to register.
For more information on effective cost-containment strategies and reversing medical trend, please reach out to Lauren Randall, Benefits Consultant at AssuredPartners.
By Lauren Randall