Congress, as part of the recently passed Inflation Reduction Act, extended through 2025 the enhanced premium subsidies created by the American Rescue Plan Act. The move effectively delayed what could have been significant premium shock for millions of people at a time of record-high enrollment in marketplace coverage and record-high inflation, according to HealthAffairs.org. Meanwhile, employers around the nation are being hit from all sides, from rising health plan costs to attraction and retention issues.
According to a report from howmuch.net, health care premiums and deductibles over the past decade have outpaced wages, while private insurance spending has grown faster than Medicare and Medicaid spending and spending in all other industries when it comes to price changes. Adding insult to injury, a recent RAND 4.0 study found that Wisconsin is the fourth most expensive U.S. state when it comes to hospital costs.
As thousands of employees begin making elections in their employer’s health plans for 2023, increases are expected and likely will continue.
“We haven’t seen the full effect of inflation in health plan cost increases yet,” warned Suit Patel, chief actuary for health and benefits at Mercer in a report titled “Medical Plan Costs Expected to See Bigger Rise in 2023” by the Society for Human Resource Management (SHRM). “Employers have a small window to get out in front of sharper increases coming in 2024 from the cumulative effect of current inflationary pressures.”
With all that weighing heavily on the minds of employers and consumers, we asked local plan experts from Ansay & Associates, Dean Health Plan, The Alliance, and Advocate MD, a direct primary care service, what they do to try to keep costs in check.
Premium pain
Dane County has a long history with health maintenance programs, or HMOs, so people are conditioned to using insurance products from the likes of Dean Health Plan and Quartz Health Solutions, acknowledges Lisa Neumann-Pudlo, employee benefits consultant at Ansay & Associates.
As an insurance brokerage firm, Ansay & Associates seeks unique ways to keep out-of-pocket costs reasonable. “We look at partnering direct primary care (DPC) with other plans,” she says. “Then we compare all the health insurance carriers, whether low- or high-deductible plans, side by side to make an accurate decision before presenting to employees.”
Educating employers about direct primary care is equally important, she says. DPC is a membership model that does not accept insurance. Rather, employees pay a monthly fee for 24/7 access to an independent primary care doctor. With little overhead and the ability to treat most issues in the primary care doctor’s office, costs for services and tests can be a fraction of traditional employer-funded plans.
For more serious issues that can’t be treated or tested in a DPC office, patients should be paired with high-deductible plans or other private insurance.
Neumann-Pudlo says the reemergence of health care systems after the 2020 COVID shutdowns have had a hand in rising renewal rates.
“One large carrier told us they didn’t expect elective surgeries to happen in 2021, but that projection was wrong.” Instead, people who delayed surgeries in 2020 scheduled them in 2021, which significantly impacted renewal rates for 2022. “It’s hard now to put numbers on 2023, but in 2022, they were all over the board,” she says. “We had groups that were ecstatic if they had a single-digit renewal rate, but many small companies under 50 employees were renewed at 20 to 25%.”
Small companies are especially vulnerable, she explains, because HIPAA privacy laws deny access to any health records for those with fewer than 50 employees. “For companies with more than 50 employees, we get limited data. No names, of course, but we get data on conditions, medications taken, or dollar amounts so we can make a general estimate on what things cost. Sometimes, especially with pharmaceuticals, it’s shocking.”
In addition, costs for many advanced procedures remain illusory. “If someone goes in for an MRI, you don’t know what the charge is because prices are all over the board. A direct primary care office might work with a place that charges $650 for an MRI, while other places might charge 10 times that amount.”
Lower-cost alternatives for employers include health-share plans that provide cost sharing for large, unexpected medical costs through membership-based communities. “The downside is that they put limits on preexisting conditions,” Neumann-Pudlo says. “These types of plans tend to work best for very small employers or those with young employees who don’t yet have a history of medical conditions.”
Health reimbursement arrangements (HRAs) allow employers to agree to reimburse a portion of an employee’s deductible if the employee needs it. The employer determines how much money it will provide, and it’s beneficial because the employer can opt for a higher deductible plan to get the lower premium cost. The HRA kicks in only when employees need it to fund a portion of that deductible.
“For example, a $2,000 deductible plan costs an employer less than a $500 deductible in terms of premium,” Neumann-Pudlo explains. “With an HRA, the employer saves money because they don’t have to pay the extra premium (between the $500 deductible and $2,000 deductible in this case) and they only pay for a small percentage of employee exposure, but it’s a bit of a gamble.”
Health savings accounts offer another option. HSAs are tax-favored, and the employer or employee can add money to the employee’s account. HSAs remain with an employee no matter where they work and also can be used to pay for things like COBRA, medical expenses, or Medicare supplements later in life.
Bundling benefits
The Alliance in Madison is a not-for-profit cooperative that directly contracts with providers on behalf of over 300 employer-members. “Our employers pay monthly for whatever their plan participants consume in health care,” states Melina Kambitsi, Ph.D., senior vice president, business development and strategic marketing.
Access to employee data is the primary difference between fully insured and self-insured plans. With a self-funded insurance health plan, employers fund their own plan rather than pay a premium to a commercial insurer such as Quartz Health Solutions or Dean Health Plan. “When an employer is fully insured, by regulation they don’t have access to their own data, so they really don’t know if their employees are healthy or not,” Kambitsi states.
In a self-funded plan, the employer deposits a set amount into a bank account every month. The Alliance reprices employee claims according to its contracts and sends them to a third-party administrator (TPA). The TPA adjudicates the claims based on benefit design and out-of-pocket costs and posts them to the employer’s bank account based on actual usage.
Every company has good and bad years when it comes to health claims. The costs average out, Kambitsi explains, because most employees are healthy, while some may develop more serious issues.
To help manage costs, self-funded companies purchase reinsurance. For example, if an employer pays a reinsurer $50,000 a month but its actual claims exceed that amount, the reinsurer picks up the bill. At the end of the year, if the reinsurer pays out more than agreed to, the employer will see an increase. If it pays out less, the money stays in the employer’s bank account for the following year.
Self-funded companies assume both the risks and rewards of paying for the medical and prescription drug claims of employees and their families.
That’s where bundling can help, Kambitsi says. The Alliance has 350 separate one-price bundles through freestanding surgery centers that allow employers to know specifically what they’ll be paying for employee health issues.
For example, one bundle for someone with knee problems might include an employee’s initial visit to a doctor, a certain number of physical therapy sessions, an office visit with a provider, knee surgery, and a number of post-surgery rehabilitation visits, all for a set price.
The Alliance recently added a virtual primary care provider as well. “We know that younger patients gravitate toward online care, and it’s worked very well with mental health issues, but it must be the right kind of virtual care,” Kambitsi insists, “not just a nurse line or telehealth that sends people elsewhere.”
Better cost management
It takes a team effort to design plans, notes Dan Hounchell, vice president of product management at Dean Health Plan, a private HMO in Dane County.
“We collaborate with employer-customers that look at cost saving opportunities through better chronic condition management, better leveraging of our care management and disease management programs, and we’re always looking to explore new solutions and innovations to see if there are specific initiatives around employee populations that we can put in place. We work hand in hand with SSM Health, which helps us understand the issues around costs and access.”
But whether self-funded or fully insured, prices continue rising. Health care is a significant expense and difficult to manage from a cost perspective, Hounchell notes, while employers try to provide the best benefits possible to be competitive so they can attract and retain the best talent.
Post COVID, Dean has seen increased utilization in areas like mental health, made worse for many by economic inflationary factors, Hounchell says, exacerbating the problem for employers.
Meanwhile, employers are looking for health plans that combine traditional primary care, virtual solutions, and home health in innovative ways to help control costs and improve access, Hounchell explains. As an example, Dean has provided school-employee wellness clinics or enhanced primary care offerings bundled with a near-site clinic to an employer, virtual-care services, wellness services, and at-home care when appropriate.
During the pandemic, consumers also were exposed to more on-demand and at-home virtual care. Bundling benefits was one way to create better access and more predictable cost sharing for members, allowing consumers to be more engaged in their own health care, Hounchell explains.
Plan design at Dean is a 12-to-18-month process involving the product team, input from brokers, agents, employers, and data collected from its health services and customer service teams. “We take all of those inputs and slowly work toward the best benefit design that’s affordable for the employer. At the end of the day though, the paying customer has the final say.”
Shoppable procedures
On any given day, Dr. Nicole Hemkes champions the benefits of direct primary care and Advocate MD, her independent medical practice that has two offices currently and third in the works.
Employers and individuals need to understand that much of health care is shoppable, she explains. “If you’re having a heart attack or stroke, or you have cancer, you’re obviously going to the nearest hospital. Those things can’t be shopped.”
But procedures like X-rays, MRIs, or elective surgeries can vary tremendously in cost. “We help patients find the cash costs,” Hemkes states. “A thyroid biopsy in a major health system might cost $5,000, but with DPC, the entire procedure may cost less than $500. That’s just one example. Most people are willing to drive 90-minutes down the road to save $4,500.”
Madison is a challenging market, Hemkes admits. “There’s a monopoly of HMOs and sometimes the HMOs give large employers very good deals on premiums, but downstream costs for things like chemotherapy or knee or hip replacements are shifted back into the system. That’s where they make their money.”
Since opening in 2018, Advocate MD’s membership costs, which are based on age, have remained steady. The highest monthly rate, for someone over 60, is $111, and family discounts are offered. The business has clinics in east Madison and Middleton, four doctors, and 22 companies on board ranging from five to 100 employees. With plenty of capacity for more clients, Hemkes hopes larger companies will begin to explore the benefits of DPC.
“We take care of 90% of health issues people see their primary care physicians for and offer immediate or near-immediate access to care with the exception of X-rays, ultrasound, and medications. We try to offer as much as possible without referrals, and as physicians, we get to know our patients and they get to know us.”
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