State of health care: A Q&A with Charisse Vaughn, Nick Karls and Nathan Cassin

Over the last three decades, health care inflation generally has outpaced the Consumer Price Index (CPI), but in the most recent months, there has been a spike in inflation that hasn’t been reflected in health care. Have we solved the ever-increasing costs of health care in our country? Unfortunately, industry analysis and expert forecasts predict the spike in health care costs is still its way.

Holmes Murphy’s analysis of CPI and medical trends from 1990 to 2022 predicts a two-year lag between the impact of CPI on medical costs.

Factors contributing to the expected spike in health care include underlying health factors that drive increased use. As an example, cancer screening programs were interrupted, delayed, and avoided during the pandemic, leading to delayed diagnosis at a potentially more severe stage and marked increases in the number of avoidable cancer deaths.

Additionally, labor shortages and resulting compensation increases have impacted most industries, including health care staff, which will eventually become a pass through in higher negotiated contracted rates. Most of the impact, however, hasn’t flowed through yet because of the nature of hospital contract renewal timing. Real-time analysis shows the fastest rate of claims’ growth happening now, which is expected to start to be realized in January 2023.

Solutions do exist for employers to manage the increasing cost of health care. This must begin with understanding the needs and culture of the organization, as most employers are focused on managing costs while also competing to recruit and retain talent. Employee benefit programs are a tool in the employer package for recruitment and retention, yet this is often overlooked due to the cost pressures of health care inflation. Refocusing on the purpose of your benefit program and solving for specific needs are key to a successful strategy.

Does access to the premium tax credits with the “family glitch” fix impact employers? 

Affordable health insurance for most Americans is difficult to find. Offering affordable plans to employees’ families is an ongoing challenge for most employers. One gap in the Affordable Care Act — which by name was enacted to make health care more affordable — was closed earlier this month by addressing the “family glitch.”

The highly anticipated final rule addressing the family glitch was released by the Internal Revenue Service (IRS) on October 11. The rule went into effect immediately and was intended to provide relief in time for 2023 open enrollment.

Prior to approval of the final rule, the family glitch was the inability of an employee’s family members to qualify for premium tax credits (PTCs) to purchase subsidized coverage through an exchange when the employee was offered affordable, minimum value coverage by their employer. The affordability of employer-sponsored coverage was based on whether the lowest-cost, self-only coverage was affordable to the employee based on the employee’s income, and not the cost of coverage for family members. As a result, some families were unable to qualify for PTCs even though the cost of employer-sponsored coverage as it related to family coverage was very high.

Based on past statements from various organizations and individuals, it seems likely that the final rule will face legal challenges in the near future. At this time, it’s anyone’s guess as to how the challenges will play out in court.

Should the final rule survive potential legal challenges, employers that are currently struggling to afford rising group health insurance premiums may be able to adjust their contribution strategies without as much trepidation about how the changes may impact their employees’ family members. While it won’t be suitable for every employer to consider fixes to the family glitch, some will certainly have a new tool when combating rising insurance premiums.

Why is the interest in alternative health plans so high when traditional plans are most prevalent?

There are new entrants almost daily into the health care and health insurance space to help combat the ever-increasing cost of health care. Solutions range from assisting patients with accessing care more efficiently and effectively to new insurance financing solutions.

Innovations and technology have driven changes to program design, navigation, access to care, and nonstandard reimbursement. These alternatives to traditional health insurance, or “alternative health plans,” receive significant airtime in industry discussions and meetings with employers. Yet, the top five insurers still hold 85% of the commercial medical insurance market¹ offering traditional health insurance.

Cutting-edge solutions exist to help solve challenges with health care access, quality of care, and affordability. But in a labor market where talent shortages exist and businesses face other complexities, the culture tolerance of most organizations to lead the way in implementing newer alternative health plans remains low. Offering a health plan that has a name employees and providers will not recognize on a medical identification card is an obstacle. Brand recognition matters, even in an industry like insurance.

A recent Gallup poll asked Americans to grade the U.S. health care system, which barely received passing grades in all categories. The highest grade, in quality of care, was a C+.

As dissatisfaction with the current system continues, alongside the spiking cost of health care leading to affordability pressures for both employees and employers, more alternatives will be evaluated and implemented. Evaluating the risk tolerance for change as well as weighing the pros and cons of available solutions is necessary, as each alternative health plan is not created equal. There is no magic solution that is the right offering for everyone. Employers should choose the solution that best fits the challenges they are looking to solve!

¹ American Medical Association COMPETITION in HEALTH INSURANCE 2021 Report

What will the impact be of the Inflation Reduction Act?

The Inflation Reduction Act of 2022 was signed into law on August 16. The Act includes reforms to reduce prescription drug costs for Medicare by an estimated $159 billion, but will there be an impact to employers and employees covered by commercial insurance?

Up to this point, Medicare was prohibited from negotiating drug prices under the “non-interference clause,” which disallowed the federal government from negotiating with drug manufacturers. The Inflation Reduction Act instead allows the Secretary of Health and Human Services (HHS) to negotiate prices with drug companies for a small number of single-source, brand-name drugs or biologics without generic or biosimilar competitors that are covered under Medicare Part D (starting in 2026) and Part B (starting in 2028). These drugs will be selected from among the 50 drugs with the highest total Medicare Part D and Medicare Part B spending. The new law also includes a rebate paid to Medicare if drug prices outpace inflation, caps the cost of insulin at $35 per month, and implements a $2,000 out-of-pocket spending limit on drugs for Medicare beneficiaries.

This reform will help reduce health care spending for those covered by Medicare and improve access to necessary prescription drugs for many Americans covered by Medicare. However, if the same pattern holds true for drug prices as exists for medical services, Medicare price negotiations will increase costs for commercial insurance. Commercial insurance spends $1.99 for every dollar spent by Medicare on the same medical service performed at the same facility by the same provider. The differential is as high as 259% in some markets.

Improving access to affordable, quality health care is necessary for all Americans. Provisions are needed that improve the system overall rather than exacerbating the cost shifting from government programs to those covered by commercial insurance. 

2 https://www.crfb.org/blogs/cbo-scores-ira-238-billion-deficit-reduction

How will biosimilars entering the market help reduce the expense of costly medications?

Biologic specialty medications that lose patent protection do not become ”generic” in the traditional sense because the drug chemistry of biologics involves living tissue and complex molecules that are not easily or directly replicable from one manufacturer to another. Competing products to originator products are called biosimilars, which are therapeutically equivalent to the originator product and considered similar, not the same.

In the U.S., when biosimilars are launched, there is a dual effect: (1) it reduces the costs of all biosimilars for the originator product in the market, and (2) it reduces the costs of the originator product. In both cases, price drops have been on average 10% to 20%.

The year 2023 presents a cost-saving opportunity for the U.S. market, as popular injectable drug Humira faces competition from biosimilar manufacturers. How much cost savings will there be as a result? That impact will be determined by the market share of biosimilars.

Market share is largely driven by a few factors: (1) the placement on pharmacy benefit manager (PBM) formularies; (2) interchangeability status with Humira at the point of sale; (3) prescribers feeling confident in the safety and efficacy of the biosimilars; and (4) pricing strategy employed by the originator product manufacturer to retain current utilizers.

Said another way, biosimilars entering the market will only generate cost savings if prescribing physicians are comfortable with the new drug’s effectiveness of treatment AND if the manufacturer of the originator product does not incentivize PBMs (often through rebates) to keep the originator product on the formulary as the preferred drug.

Looking across the pond, biosimilars for Humira have been on the market since 2019. The uptake in the EU has been strong, with biosimilars making up 60% of the market share differing by country — 40% share in the U.K., 21% share in Germany, and 17% share in France.

Plan sponsors looking to capitalize on the coming biosimilars should consider factors that drive market share when selecting a PBM and a biosimilar strategy. Driving to lowest net cost should benefit the plan sponsor as well as the patient, making the pricing strategy of the biosimilars and Humira significant in 2023. Factors that go into pricing strategy include list prices, discounts, financial assistance, and rebates. Choosing the right biosimilar is integral to maintaining the balance in benefits between plan sponsor and patient.

Is wellness well? 

Traditional wellness plans that incentivize employees to prioritize activities and habits that improve their health and the health of their family members have good intentions. A variety of strategies exist, including counting points, receiving a health grade, onsite biometric screenings, and health intervention programs.

During the pandemic, most employers paused their activity-based programs as many activities became difficult to navigate. Many employers paused prior programs indefinitely to focus on retention of talent and balancing the challenge of onsite programs in a hybrid working environment.

Many wellness plans are also on hold due to the uncertainty of the compliance of incentives. Recent activity around proposed regulations by the Equal Employment Opportunity Commission’s (EEOC) final rule has left unanswered questions.

The EEOC final rule came out in May 2016 and was challenged by the AARP in October 2016, resulting in the EEOC’s court-ordered removal of the portion of the final rule that established  incentive limits for a participatory wellness plan. This change to the final rule resulted in a lot of confusion regarding what incentives, if any, would be allowable for a voluntary wellness program where the American Disabilities Act (ADA) is implicated. By removing the portion of the rule establishing incentive limits, but not providing new guidance, the final rule now cites a provision that no longer exists.

While the EEOC sorts out its composition and unfinished work, there is a level of uncertainty surrounding what reward, if any, is permissible when determining whether a wellness plan is voluntary. Compliance with the ADA is not the only consideration for an employer with a wellness program. They must also work to stay in compliance with other areas of law, such as HIPAA, GINA, and ERISA.

In addition to these complexities around traditional wellness plans, their effectiveness is also in question, as clinical wellness is only one component of overall wellbeing. Holistic strategies that bring together all five areas of wellbeing are proven to increase overall employee engagement and organizational health.

Amid navigating the complexities, employers should take a pause to determine whether their strategy still works for their employees and accomplishes the goals of their organization. Starting with “who, what, when, and how” when evaluating the wellness plan will likely lead employers in a different direction.