Health care inflation's on the horizon: How employers can ease the cost of high premiums

Inflation is an everywhere problem and no person, company or government is immune. Right now, employees are feeling it directly through grocery, housing, fuel and debt costs. But another, delayed shock is on the horizon, in the form of health care inflation.

After lagging throughout much of the past two years of the pandemic, health care inflation is now being felt primarily by health care providers in labor and drug costs but will hit employees hard in the coming months as those increases work their way into premiums.

A recent analysis of 72 marketplace insurers’ early rate filings for 2023 found insurers were seeking median premium increases of 10%, largely due to rising prices paid to hospitals, doctors, and pharma companies and increased use of services by enrollees. And the Federal Reserve Bank of Dallas predicted health care inflation will roughly double between 2022 and 2023 as higher costs are reflected in open enrollment cost increases.

To employees, health care inflation will seem familiar and insurmountable. During the pandemic, as utilization cratered, health care inflation was muted. But prior to that, family premiums had exceeded the rate of inflation for more than 13 years, according to the Kaiser Family Foundation, so employees are tapped out with cost sharing and premium increases. Those tactics also cause members to underutilize their benefits, even when services like preventive care are fully covered. This is a recipe for absenteeism, long-term poor health outcomes and employee resentment.

Changing the narrative

One way to attack inflation is to throw money at it by increasing salaries. While pay increases are likely to be part of any comprehensive solution, employees see pay increases as getting them back to even.

Tactics to blunt health care inflation, by contrast, can pay off immediately and in the long-term. Here are three ways employers can address the immediate impact of inflation that will also improve value over time:

#1: Incentivize employees to get preventive care

Many employers already offer free annual physicals, diet counseling, disease screenings and routine immunizations, but their employees don’t always know they’re free. It’s important to communicate clearly and frequently about available benefits. If you don’t currently offer a long list of free preventive services, consider adding them. The investment will pay off in healthier employees. If you already offer free preventive care, consider taking some of what’s earmarked for salary increases and investing in health care incentive payments. Seven in 10 American deaths each year are caused by chronic diseases such as heart disease, cancer or diabetes in part because too many Americans go without preventive services to identify and control these chronic maladies.

Paying employees to engage in preventive health care services makes it abundantly clear their employer is invested in their health, their health is valuable and their employer is interested in making health more affordable.

#2: Try a direct relationship with a hospital or health system

Instead of eating the cost of premium increases each year, employers are increasingly interested in analyzing value for their spending on employee health benefits in the same way they analyze value for any other contractual relationship. One alternative to traditional insurance relationships, direct-to-health-system contracting, can save up to 25% over best-in-market traditional rates. Because direct contracting is a partnership between a health system and an employer where they agree on costs, transparency, data sharing, and how to share savings, the potential for both parties to benefit is substantial. Innovative third party administrators can assist with creating provider networks that support employees where they are, enabling employers and health systems to work together to implement strategies that can improve accountability and costs through the contract, such as reference-based pricing and centers of excellence programs.

Such a relationship can blunt the impact of future health benefit increases and ensures the employer their members are receiving value for their health care investment.

#3: Make mental health access a priority

Even though the Mental Health Parity and Equity Act requires health plans to offer behavioral health benefits on par with medical and surgical benefits, the reality is more complicated because patients obtain these services in discrete ways, and with few exceptions, physical and behavioral health care are not integrated.

Yet up to three-fourths of primary care visits include behavioral or mental health components, including behavioral factors related to chronic disease management. These are often addressed in an unsystematic way by professionals whose practice is aimed at physical health. But new practice models that integrate behavioral health and primary care have shown promise and the benefits accrue to both patients and physicians, as well as employers.

One way to encourage practice transformation is to incentivize practices or health systems for adopting facets of these models by steering patients toward practices that have implemented them.

Related: Tough choices await employers looking at the high costs of health care

Ultimately, there’s no escaping the negative impacts of health care inflation without achieving better efficiency, but in health care, there’s plenty of efficiency to be had. Implementing some or all of these tactics can help employers turn a crisis into an opportunity.

Nancy K. Klotz, MD, MBA, FACP, is chief medical officer at Brighton Health Plan Solutions where she is responsible for clinical strategy across the company’s various business segments.