Health care cost containment: filtering out the waste
Policies implemented over the past three years empower fiduciaries to scrutinize and manage health care costs and regain control of the unsustainable cost burden weighing on employers and employees.
Significant policy action over the last four years arising from government entities like the Centers for Medicare and Medicaid Services, the Department of Labor, the Department of Treasury, and the Department of Justice has focused on cost-containment and wasteful spending. These efforts include the Hospital Transparency Rule, sub-components of the Consolidated Appropriations Act of 2021, the Transparency in Coverage Rule, the establishment of the Task Force on Health Care Monopolies and Collusion, and the publication of the Healthy Competition website by the Antitrust Division of the Department of Justice, and each is aimed at helping ensure access to fair and competitive health care markets for patients.
This work to remove wasteful spending has also slowly been seeping into the consciousness of employers and their employees. There have been three notable ERISA cases over the last year, including Peters v Aetna and OptumHealth, Lewandoski v Johnson and Johnson, and S.M.O v Mayo Clinic and Medica Health Plan Solutions. Each case points to the fiduciary lens that has been placed upon plan sponsors as a result of the Consolidated Appropriations Act of 2021.
Meanwhile, 14 hospitals have been issued a civil monetary penalty by CMS since the enactment of the Hospital Transparency Rule. The share of in-network care increased from about 84% of all claims to 90% of all claims nationally between 2019 and 2023, with a steep increase of 2.3% between the fourth quarter of 2021 and the first quarter of 2022 when the No Surprises Act protections took effect. The previously mentioned task force, HCMC, had been put forth in part to show an attempt to control health care costs, especially if expenses burdening patients are high because of a lack of competition among health plans and health systems.
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Unfortunately, the osmosis of cost-containment practices has not kept pace with rising health care costs. The annual change in total health benefit cost per employee for family coverage has increased to 7%, with projections of 8.5% for 2024. However, employers have a multitude of benefit strategies to deploy to contain health care costs. Some options include moving employees to a defined contribution plan, actively embracing programs to manage patient care choices, and scrutinizing partners by monitoring data to mandate fair payment and total cost of claims performance. One option missing from the list is to continue with the status quo, where employees absorb increased costs through higher premiums and/or higher deductibles. As with those needing dialysis, the status quo can’t continue to exist for those who expect a viable outcome.
The expected premium spikes and the increased shift of ERISA oversight will necessitate cost control activism from employers on behalf of their employees. These actions include benefit leaders and CFOs actively managing employees’ health plans and associated costs prudently, with documented processes of access to claims data (another beneficial output of CAA 2021 with the prohibition of gag clauses), reviewing and managing the claims cost data, and acting in the best interest of plan participants. Fiduciaries of organizations know and understand the cost levers of all other expense items, yet the second largest expense item grows unmanaged. Despite common misconceptions, employee health benefit costs can be managed.
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Determined fiduciaries’ assimilation of practices to mitigate wasteful spending will set in motion a flywheel effect on the health care industry as a whole. Informed employers and employees can foster competition among health systems and health plans that will drive them to focus on the value of care delivery, promoting better health outcomes and a healthier population.
Benefits advisors, along with leaders in HR leaders and finance, must recognize that this level of waste can no longer persist within our system without dire consequences. The policies implemented over the past three years empower fiduciaries to scrutinize and manage health care costs and regain control of the unsustainable cost burden weighing on employers and employees. The assimilation of the cost-containment efforts, above all else, is a matter of will and education, rather than skill. The future of American economic competitiveness hinges on active and engaged stakeholders fulfilling their promise to eliminate waste and deliver value.
Mark Galvin is founder and CEO of TALON.