How employers can help fix the US health care system

The past ten years have caused a negative turning point for the American health care system, and specifically for consumer health care spending. In fact, unpaid medical bills have become the largest source of debt Americans owe collections agencies, holding $140 billion in unpaid medical bills.

Furthermore, half (50%) of Americans say they are dealing with medical debt, setting them back financially for the long term. This not only causes problems for individual Americans, but also for employers, as employees who have financial stressors are less likely to be productive at work. Because employers insure 156 million people in the U.S., they have a bigger role than many know in driving change in the industry.

So, how did we get here, and what can employers do to address this problem? Let’s dive into what has caused the evolving health care crisis and solutions to resolve some of these systemic issues.

Unintended consequences of the Affordable Care Act’s MLR rule

The Affordable Care Act’s MLR Rule, which was implemented in January 2011, mandates insurers spend at least 85% (80% for small employer plans) of premium revenues on clinical services and quality improvement. While this may seem like a good strategy, it also incentivizes insurers to grow their claims spend to increase profit. This creates a perverse incentive where no one – from insurance carriers to drug manufacturers to providers – is truly incentivized to lower costs or improve care. A few examples of how this problem exhibits in the real world are:

• Insurers successfully negotiating to reduce payments to providers and facilities
• Selling more expensive drugs to increase profits
• Allowing overutilization and overtreatment to increase profits

The first step to combatting this unintended consequence is simply education. Employers need to understand that this MLR Rule is exacerbating an already difficult situation. Once they can start connecting the dots to how we’re paying providers, employers often become more open to creating strategies that mitigate this situation. But the MLR Rule is just the beginning of the many problems in our current system.

Underlying drivers of systemic issues

There are a variety of intertwined drivers that must be overhauled to change the system as we know it, but the main three are the price of medications, the lack of transparency over price and lack of open access to data.

Price of medications

The drug manufacturing industry needs a full overhaul to fix the problem with the pricing of medication in America. The price of generic prescription drugs in the U.S. are more than 2.5 times the price in other countries and 3.44 times the price in OECD countries for brand-name drugs. Rebates, the financial incentives, and lack of transparency causes mistrust between health insurance companies, providers and employers, resulting in more expensive drugs being prioritized over drugs that are less expensive and equally effective. A major piece of the puzzle in solving this problem leads us to our next driver – lack of price transparency.

Lack of price transparency

There is extremely limited transparency as to what drugs cost and their effectiveness. Big pharma makes profits by spending a significant budget on advertising, which leads to patients requesting certain drugs from their doctors. The industry is designed for insurers to push drugs that drive rebates. If not for successful lobbying to create a federal safe-harbor for Big pharma, rebates would implicate federal anti-kickback laws.

Without the transparency and knowledge on what the price of the drug is that you’re paying for, and the rebates the insurer receives, the physician, the patient, and the employer providing the patients with insurance, have no way of knowing what the incentives are at play for your group. Because of this lack of transparency, practitioners don’t have the data to show why another drug may be more cost-effective and equally effective for their condition.

Health care prices are difficult if not impossible to obtain and there is little to no correlation with quality. It’s also nearly impossible to determine price in advice. This extreme lack of transparency across the industry has led to higher costs for employers and patients.

Lack of open access to data

There are two kinds of plans to consider when we talk about data access. First, an employer-sponsored self-funded plan, in which employers pay medical and pharmacy claims either directly to providers and pharmacy benefits managers or indirectly through an ASO agreement.

The second is a fully insured environment, where employers pay premiums to insurance companies, who then pay claims on behalf of the employer, employees and their dependents.

The premiums are typically underwritten based on utilization or incurred claims. In both cases, it’s important for employers to have full access to data about the claims paid on their behalf. This would allow employers to understand how and where their money is being spent and empower them to focus on controlling costs for their employees while also improving health care outcomes.

Sustainable solutions for long term success

While solutions to the health care system are complex, it all starts with education. As we discussed, understanding the unintended consequences of the MLR Rule is critical for employers to create environments to change the system. The same goes for drug rebates, pay transparency and access to data.

Employers need to demand 100% price transparency from insurance companies. While this is easier said than done, it’s critical for all parties to be aware of the costs of every drug and the rebate dollar amount if we want to make progress. Additionally, direct-to-consumer advertising should be eliminated, as it often skews consumers toward more expensive drugs, rather than cost-effective options that work just as well. Furthermore, employers need to see how critically important having access to data is. There’s currently not enough education on the importance of data, which creates a lot of assumptions about how companies are driving revenue.

Finally, there needs to be an effective provider payment strategy – in a perfect world we would pay for value not volume. Currently most employer health plans pay for volume of care, rather than quality of care. Instead, we should be paying for quality and incentivizing health outcomes. This strategy would bring down health care costs as much as 20-25% as the total cost of care comes down to the success of care.

As employers continue to reevaluate their health care plans for a post-pandemic environment, it’s a critical time to look at how we can all be a part of creating a health care system that helps patients be healthier, rather than be in debt.

Chris Thurin is executive vice president of organic growth at OneDigital.