The future of employer-sponsored health care: strategic responses and cost containment opportunities

For benefits professionals, administering employer sponsored health plans and providing employee participants with access to affordable, quality health care is one of the greatest economic challenges of today — and the foreseeable future. Finding the right balance between a benefit package that is adequate and affordable — yet financially sustainable — has never been easy. Employer-sponsored health benefits have persisted despite recent policy changes and broader trends like the Affordable Care Act (ACA), public health exchanges and health care inflation. However, initiatives currently under consideration, such as an extension of ACA subsidies and the provision of a public option, may cause employers to reconsider their commitment to offer health benefits. One of the biggest factors — and a well-documented issue — is the rising cost of coverage and its impact on affordability for both employees and the employer. Employers point to increased pressure from drug prices, high-cost claims and inflation of hospital and provider fees. The 2023 increase in health plan premiums for 2023 was twice the increase in 2022 due to inflation and utilization trends. These challenges are compounded by the impact of COVID-19 and significant post-pandemic challenges. While plan sponsors may be cheering an end to the public health emergency, organizations face new bumps in the road. 

What’s next/? Many employers are encountering impediments such as volatile economic conditions, labor issues, and government health policies in their efforts to sustain health coverage as a cost-effective employee benefit.

In a study published by the Commonwealth Fund, What Employers Say About the Future of Employer-Sponsored Health Insurance, the Employee Benefit Research Institute (EBRI) examines the conditions that might lead employers to discontinue health benefits. EBRI conducted interviews with more than two dozen benefits executives working in a variety of industries and representing firms that employ from 300 to 250,000 employees. 

This EBRI study acknowledges the impact of ever-increasing costs. However, employers prefer to maintain an employee value proposition that includes affordable health coverage. They do not want to relinquish control over health coverage to avoid creating a competitive disadvantage in recruiting and retention. Benefits executives interviewed found it difficult to imagine future circumstances that would lead their companies to stop providing health coverage. 

7 challenges benefits pros face 

1. Financial challenges are forcing some employers to pare back on benefits, now being referred to as a “perk-cession,” before resorting to layoffs and terminations.
2. Surging health care inflation will force most employers and employees to pay more in 2023. The average increase in 2023 in the cost of health coverage was 6.5% — now more than $13,800 per employee, according to professional services firm Aon. Higher insurance premiums are only part of the picture. Americans are paying more out of pocket (in nominal dollars) than ever before.
3. Medical providers are increasing their fees in response to inflation, labor shortages, and changes in the coverage of their patient population. More patients than ever before are covered under Medicare and Medicaid, where the government applies stringent caps on provider reimbursements. So, expect providers to shift the burden from inflation to employer-sponsored plans.
4. Because inflation is widespread, many Americans workers have become “financially fragile” – unprepared for regular, periodic expenses, let alone unanticipated out-of-pocket medical costs. Benefit professionals should take strategic action to ensure that their clients incorporate the most effective strategies for addressing today’s economic challenges to the “health and wealth” of their participants.
5. Smaller employers and those with narrower profit margins may be forced to adjust their total rewards or employment. Larger employers, and those who have products and services with inelastic demand, may be able to maintain margins despite inflation and a looming recession.
6. With a new wave of layoffs, health plan loss ratios may worsen by operation of the Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation of coverage — where claims loss ratios often exceed 175% of premiums.
7. The expiration of the American Rescue Plan (ARPA) enhanced premium subsidies for marketplace coverage coupled with Medicaid eligibility redeterminations will likely cause a shift to increase enrollment in employer-sponsored plans and a higher risk pool, leading to increased rates, enrollment and expense.

Migration to employer-sponsored, self-insured health plan

A significant number of companies are choosing to work with their advisors and explore self-funding their benefits in response to significant increases in insurance premiums. Employers who choose self-funded coverage are attracted to unique cost management opportunities when compared to the premiums, taxes, state mandated benefits, profit margins and other requirements of traditional, fully insured plans.

Self-insured coverage offers a greater level of flexibility that comes with being able to tailor the plan to meet employee needs. Under this model, organizations assume responsibility for all financial risk, which can be mitigated through stop-loss insurance, in exchange for more control over plan administration and funding. These plans are most prevalent among organizations with 500 or more employees, although self-funding can be successful for smaller companies.

When “done right,” self-insured plans can benefit from the most effective strategies available today, including cost containment opportunities such as direct contracting, and participant protections against balance billing, price transparency, reference-based pricing, and effectively designed HSA-capable coverage.

Direct contracting presents a cost containment opportunity

A growing number of primary care physicians are negotiating direct working relationships with self-funded employer-sponsored health plans. To take advantage of this cost containment opportunity, employers should consider direct contracting, a move from broad networks with minimal discounts that shifts the risk of poor experience to a more limited network via a monthly capitation fee. 

Self-funded health plans are discovering that “going direct” lowers costs by eliminating the middleman. Direct contracting reduces providers’ administrative burdens. The model supplants the traditional fee-for-service reimbursement process with a value-based care arrangement. 

Physicians participating in direct contracting report that they spend more time with patients. Direct contracting empowers the provider to coordinate and manage the provision of health care services with an eye on controlling costs while improving the quality of care and increasing participant satisfaction. Superior results are achievable via a direct contracting arrangement where the plan sponsor and the health provider align their respective business interests by aligning their respective economic interests.

Adopting “pure” reference-based pricing 

A quality health plan should provide resources for easy, direct access and understanding of pricing, benefits and out-of-pocket expense information so plan participants can make informed and cost-effective decisions. Adoption of a “pure” reference-based pricing (RBP) design enhances price transparency. A “pure” RBP structure, coupled with tech-driven data support, may avoid unreasonable or excessive provider charges, while potentially lowering both the cost of coverage and employee point of purchase cost sharing (deductibles, coinsurance, copayments, etc.). RBP designs have been part of self-insured plans for decades. Coupled with participant representation services, RBP can have a substantial favorable impact on medical costs paid by the plan and its participants. Implementing RBP requires adoption of a benchmark for fees, often called the “maximum allowable charge” where there is no contractual relationship with a provider. Most RBP programs incorporate schedules based on Medicare reimbursement rates and other provider cost data to create an objective cost baseline.

Health and wealth strategy enabled by health savings account 

Many American workers live paycheck to paycheck, with 72% of surveyed workers admitting they would have some or significant difficulty paying all their bills if their next paycheck was delayed one week. Health savings accounts (HSAs) offer a strategic option for employer-sponsored health plans to alleviate “financial fragility” when it comes to medical expenses that many workers are not prepared to pay. HSAs are capable of “quadruple duty”: covering COBRA, Medicare and long-term care premiums, out-of-pocket medical costs in current and future years, and providing for an income in retirement and survivor benefits. HSAs receive America’s most valuable benefits tax preference since contributions are pre-tax for federal (and most state) income taxes, as well as for FICA (Social Security) and FICA-MED (Medicare). Earnings accumulate tax deferred and payouts for eligible medical expenses are tax free. More medical expenses qualify under HSAs than under health flexible spending accounts (FSAs). Unlike FSA accounts, there is no “use or lose” or forfeiture provisions. Unspent money rolls over from year-to-year. HSAs and 401(k)s are better together. People who save in both an HSA and a 401(k) can achieve a synergistic outcome, one that is dramatically better than participation limited to only one of the two accounts. Superior HSA designs avoid risks of commission and omission, and HSA-capable coverage complements a 401(k) plan, in both the accumulation and decumulation phases. A participant who carefully allocates savings between the two accounts can shape how each is used, today and tomorrow, maximizing the net after-tax value from savings.

Harnessing technology and powerful data

A quality health plan should provide easy, direct access and understanding of pricing, benefits and out-of-pocket expense information so plan participants can make informed and cost-effective decisions. Valuable data insights are gained through innovative software and tech-driven data analysis solutions. Employers should evaluate the data they receive from the health plan, including claims data and utilization reports, to better understand which services are being used, which providers are most cost-effective, and where savings can be identified and realized.

A tech-driven approach can provide participants with insights and tools to better manage their health care costs. Harnessing technology to understand the vast amount of data can identify potential areas of escalating health costs and identify opportunities to control health costs. Innovative medical billing services utilize powerful data-driven software and online data analytic tools that can provide a degree of price transparency by harnessing price data electronically – allowing fee comparisons that identify fair and reasonable prices.

Value of a medical billing partner

The right medical billing partner facilitates all the strategic designs and processes, acting as an agent of change, embracing technology innovation and advocating for “what is fair and just.” The right partner will also provide value-added services through turnkey solutions, innovative plan designs, administrative and compliance support, as well as participant legal representation. This support provides invaluable guidance to navigate federal and state healthcare regulations, identify areas to lower risk, reduce costs and maximize value.

Christine Cooper is the CEO of aequum LLC and the Co-Managing Member of Koehler Fitzgerald LLC, a law firm with a national practice.