How can employers contain health care costs? A Q&A with OneDigital's Sena Meilleur

McKinsey & Co. recently released their report on health care outlook for the next three years, which unsurprisingly predicts health care costs to increase. Specifically, the report predicts a 10% annual increase in overall health care spending between now and 2026. Moreover, persisting inflation and recession fears combined with the impending health care increases are likely to further strain American wallets.

For employers, the predicted health care price increases place further emphasis on the need to contain employee health care costs. We talked to health care expert Sena Meilleur. Managing Principal at OneDigital, the nation’s leading strategic advisory firm focused on health, wealth, and retirement, to outline strategies for employers to better support workers in light of impending health care cost increases.

How can employers improve the health of their workers? 

One of the biggest barriers to health is lack of access to health care. Providing a robust health plan with an adequate physician network and affordable employee cost-share is the number one thing employers can do to improve their employees’ health. Beyond that foundation, employers can offer population health management (PHM) programs, either as part of the health plan or separately, to assist employees with chronic or catastrophic conditions to navigate their care with the best possible outcomes.

Effective PHM programs can help employers to contain health costs in the following ways:

• Reduced health care costs from avoidable complications. This is done by identifying and treating conditions quickly and effectively to slow the progression of a disease.
• Improved health literacy resulting in lower-cost, higher-quality health care consumerism and decreased care redundancy.
• Early diagnosis and intervention (primary and secondary prevention) that reduces the risk of more costly and advanced conditions (tertiary prevention) and avoid higher-cost, catastrophic events.

Another program that can be part of the health plan or separate is a telehealth platform that allows employees immediate access to both physical and mental health care providers. Employers can also build a culture of health in their workforce that includes an emphasis on healthy nutrition, exercise, and rest. Providing healthy food in the cafeteria as well as opportunities for breaks will send the message to employees that their health is important and also possible.

Why are health care costs continuing to rise disproportionately to wages for most employees?

 Our health care system is largely unregulated in this country, which means facilities and drug companies, whether for-profit or not, can charge wildly different prices for the same products and services. Unfortunately, the health care system is structured so that revenue is higher when people are sicker, which means facilities and drug companies have misaligned incentives vis-à-vis keeping people healthy.

In a capitalist economy with low regulation, this is inevitably going to lead to cost increases outpacing wages. The problem is exacerbated by the lack of price transparency and the third-party payer (insurance companies), which shield the user from the true cost of care. Hospitals and drug companies can charge exorbitant prices, knowing the insurance company will cover most of the cost. This misalignment of incentives has caused out-of-control medical inflation in the past 50 years with no end in sight.

What are some ways employers can help contain employee health care costs?

The most obvious answer to this question is by picking up a larger share of the health plan cost. The average employer-employee split in this country right now is about 80/20, but many employers cover less than 80% of the cost and as the overall cost continues to rise, the employees’ portion will become more and more unaffordable. When employers are able to invest more in their health plan and take a larger share of the cost, employees’ costs will be contained. The larger question about how to reduce the cost of the plan overall is more complex given the rising cost of health care. As long as employers stay in a fully-insured health plan, they can expect to see annual increases in the range of 6-7% as of 2022. If employers help their employees be healthier and manage their conditions, they may experience lower increases in general, but it will be hard to tie their efforts to a significant cost reduction. For employers who truly want to tackle their health care spend and try to contain it, self-funding is the best avenue, assuming it is financially feasible for them.

Should more employers choose to offer self-funded health plans or provide reference-based pricing? 

Great segue from the previous question. The variety of creative self-funded options on the market today means that employers can self-fund at much smaller group sizes than ever before. All employers with at least 100 covered employees should be looking at self-funding, and even some groups under 100 can find a way to do it. Self-funding is not suitable for all groups, depending on their population and cash flow, among other things, but it is worth looking at for any employer who wants to try to contain their costs. In a fully-insured plan, there is very little flexibility or transparency of cost, whereas, in a self-funded plan, each plan component is disclosed and priced separately, allowing the employer to reduce waste and find the lowest cost for each piece.

Also, any improvements to employees’ health will result in lower claims that are directly realized by the plan sponsor (the employer) rather than by the insurance company, as in the case of a fully-insured plan. The case for reference-based pricing is also growing for employers who want to disengage from the random pricing we discussed earlier. With RBP, the plan no longer reimburses whatever the facility bills. Instead, their reimbursement is pegged to Medicare and is negotiated directly with the hospital. This can result in tremendous cost savings; however, it is a dramatically different model than most Americans are used to as far as accessing a network of physicians goes. For that reason, it may not be right for all groups and will always require a significant educational effort to help employees understand how it works.

How can employers drive health care price transparency for employees? 

The recent legislation regarding transparency (Consolidated Appropriations Act, 2021) requires insurance companies to submit information about health care spending to various government departments. In theory, this will result in greater availability of cost information for specific health care procedures and drugs. If average people have access to this information and can understand it, they can make more informed choices about where to get care and what care to get, based on cost.

Related: Employers’ top 2023 priorities: Personalized plans, contained costs, and employee satisfaction

It remains to be seen how helpful this legislation will be to Americans, but it is an acknowledgment that without this data, the process will continue to be opaque to the user, which is counter-productive in a free market. In the meantime, employers can take advantage of cost transparency tools that are available either through the employer-sponsored health plan or standalone, which will allow employees to look up the expected cost of care for certain drugs/services.

Making this tool available to employees and educating them on its use is the first step; employers can also take the next step and provide incentives to their employees for using the tool. This is especially helpful to a self-funded health plan where the employer will realize immediate savings when employees make the choice to access more cost-effective care.

How does improved care navigation support cost containment?

Employers should consider contracting a health care navigation service provider because these services are able to uncover hard dollar, measurable savings for the employer and offer care, convenience, and support for employees. These services also assist in gaining more value out of existing programs and resources by educating employees about the company-sponsored benefits available to them.

Here are some examples of how health care navigation services help to contain costs:

• Changing places of service – for example, sending a member to a free-standing surgery center for a colonoscopy instead of an outpatient hospital.
• Avoiding unnecessary care and looking for inexpensive equivalents to costly treatments and prescriptions.
• Educating employees on their benefits, reminding them to stick to treatment plans, and encouraging them to access routine and preventative care, which lowers the likelihood of negative long-term health outcomes and associated expenses.
• Reducing absenteeism and increasing productivity by alleviating stress and worry for employees who are experiencing medical issues.

How will the end of the public health emergency impact health costs for employers?

The impact of this change should be fairly minimal to employers. The change means primarily that COVID vaccines will be treated the same as other vaccinations, over-the-counter COVID tests will no longer be covered by most health plans, and PCR COVID testing will most likely be treated the same as other lab work (no longer covered at 100%). These changes will most likely be fairly cost-neutral to employers, while employees will pick up some modest costs associated with the purchase of test kits or receiving a PCR test.