How Workplaces Can Lower Insurance Costs

A healthy workforce is vital to a thriving business. Beyond keeping premiums affordable and basic healthcare accessible, today's employers are facing several challenges to controlling the cost of health insurance:

• The U.S. Bureau of Labor Statistics estimated that inflation for medical care in American cities fluctuated between approximately 2 percent and 5 percent (in terms of their 12-month increases in costs) between 2007 and 2017.
• To understand the impact of those increases, consider that the consumer price index (CPI) for health services is now approximately 5 times higher than it was from 1982 to 1984; for comparison, CPI for food and beverages is only 2.4 times higher than the same baseline, according to the Federal Reserve Bank of St. Louis.
• One major insurer projected that specialty pharmacy spending could reach $400 billion by 2020, more than quadrupling from the $87 billion spent in 2012 and eventually accounting for over 9 percent of all national healthcare spending.

At the same time, premiums for workplace health plans have been rising modestly in recent years, with the Kaiser Family Foundation (KFF) discovering only a 3 percent year-over-year uptick in 2016. This change tracks closely with wage growth and macroeconomic inflation.   For now, the cost curve is manageable, but it's important for organizations to stay vigilant and proactive in how they address the various potential issues - including the ones described above - to ensure a sustainable trajectory.

Wellness Initiatives

Both the Centers for Disease Control and the RAND Corporation have documented the success of wellness programs that promote and incentivize employee attentiveness to common disabilities and risk factors. Diabetes, obesity and tobacco usage are common targets of such initiatives. Assessing more than 50 studies on the subject, the CDC revealed that properly implemented wellness programs can produce 25 percent savings on health costs, in addition to reductions in absenteeism and disability claims. A RAND report found that a combination of programs for lifestyle (e.g., focused on eating habits, exercise, etc.) and disease (e.g., emphysema and heart disease) management lowered the average monthly cost per employee by $30. These two initiatives can yield short- and long-term benefits by preventing heart attacks and the development of prediabetes. Most savings come from the disease management side, but enrollment is much higher - as a percentage of the workforce - for lifestyle management, so employers can benefit from thinking about how to optimize both types. Offering health plans with wellness initiatives may help save money.  

HSAs and/or HRAs

According to KFF, premiums from 2011 to 2016 increased slightly less than they did from 2001 to 2006 and 2006 to 2011. There are many drivers of this slowdown, but one of the most important has been the growing adoption of high-deductible plans paired with health savings accounts and health reimbursement accounts. There are some key benefits to HSAs and HRAs. For example, contributions to them are pretax (or tax deductible), their earned interest is tax-free and workers may use them to pay their deductibles. Also, single coverage deductibles increased 63 percent from 2011 to 2016, much more so than premiums or overall inflation. For these reasons, HSAs and HRAs nicely complement high-deductible plans.  

A Variety of Insurance Options

Many workers and companies associate the term "health plans" with PPOs only, even though alternatives such as HMOs are still widely available. Employers that offer a mix of different types of PPOs, or a combo of PPOs and HMOs, could realize savings by addressing a broader set of health needs. PPOs typically have higher copays and premiums than HMOs. But while HMOs are usually more cost-effective upfront, their coverage networks are more restrictive. PPOs also come with a wide range of possible deductibles, which may vary depending on what other health benefits - like HSAs/HRAs - are offered. Overall, employers can optimize their health spend by finding plans that fit their organizations. The set of options for a startup with a younger workforce compared to a more diverse one at a more established company will likely look very different from each other.

More Specific Guidance on Healthcare Choices

The numerous moving parts of the healthcare economy, from hospitals and clinics to insurance providers and plan payers, have to navigate many cases, claims and special requests each day. Doing so can be challenging, but many healthcare entities exist to mitigate these challenges with the specific services they offer. Advanced Medical Reviews (AMR), an independent review organization (IRO), is one such entity that provides physician level peer review to independently evaluate procedures or proposed procedures for medical necessity and efficacy.

Being Proactive Helps Lower Company Health Costs

In light of the central current issues of specialty pharmacy costs and general medical inflation, solutions for efficient and expert case review have become more important than ever. Employers can benefit from thinking ahead and focusing on areas in which they can save money, in terms not only of case review but also other incentives, initiatives and plans. This includes implementing wellness initiatives, considering HSAs and/or HRAs, and diversifying the mix of plans. A proactive approach to improving healthcare delivery and options gives workplaces greater control and insight into the design, cost-effectiveness, and sustainability of their plans.