Fifteen years after the passage of the Affordable Care Act, controlling employee health care insurance costs remains a challenge for employers.
That’s especially true in Wisconsin, which has some of the highest hospital costs in the country according to a 2024 report from RAND, a nonprofit research organization. According to the report, hospitals in Wisconsin charge 318% of Medicare rates, a commonly used baseline for measuring health care prices, compared to the national average of 254%.
With so much of health care insurance premiums linked to medical claims costs from the prior year, gaining insights into cost trends has become imperative for employers working to control these costs while also providing competitive benefits.
Front burner issue
Rising health insurance costs are a major focus of deliberations over the next state budget. Gov. Tony Evers outlined a handful of health care proposals in his February budget address, several of which were aimed at reducing the cost of health care and, by extension, health insurance coverage.
Some consumer advocates charge that publicly traded health insurers care more about pleasing shareholders than they do covering the medical services of people they insure, but not every health insurer is a public company.
In addition to major insurers such as United Health Care Inc. and Anthem Blue Cross Blue Shield, Wisconsin is served by 10 regional health plans — most of them not-for-profit organizations — and a growing number of small- and mid-sized employers opt for self-insurance.
According to the Employee Benefits Research Institute, as the major portions of the ACA were implemented, trends in self-insurance have differed by organizational size. Between 2010 and 2023, the percentage of small employers that self-insured grew slightly from 13% to 16% and medium-sized firms increased from 27% to 32%.
Part of the appeal is that self-insured companies have more access to claims data because they act as their own insurance provider. As such, they directly pay for and manage their employees’ health care claims.
With this direct involvement, they get a better view of their overall population claims data and theoretically are better positioned to identify trends, control costs and tailor their benefit plans to meet employee needs.
Erik Sonju, president of Power System Engineering Inc. in Madison, said his company became a self-insured company in 2024 after experiencing annual health insurance premium increases of between 10 and 28% during the previous five-year period.
That resulted in an overall increase of 159%, which far outpaced inflation. In the first year of self-funding, PSE experienced a single-digit percentage increase in overall cost.
“What this is doing is setting us up to better understand where costs are going,” Sonju said, “and that will allow us to educate our employees on how their actual health decisions, as consumers, are affecting the cost of our overall plan.”
Constructive consumerism
Consumer education about health care spending might be the most challenging piece to the cost- containment puzzle, said Joey Backus, vice president of employee benefits consulting for Cottingham & Butler, a privately held insurance broker with the majority of its Wisconsin clients in Madison, Milwaukee and the Fox Valley.
“If I don’t have information in the aggregate on my population to put strategies or programs in place to help people get healthier and help people go to the right place for care at the right time, that’s likely to rise,” he said. “The claims are going to be the claims and I don’t have any control over that.”
One strategy that has proven successful for companies trying to control costs is providing bonuses for prudent spending decisions by employees.
For example, Backus said a knee replacement within a 25-mile radius of metro areas like Madison or Milwaukee can cost anywhere from $20,000 to $60,000, but employees aren’t incentivized to choose lower-cost options because they are likely hitting their maximum out-of-pocket amount anyway, which means their employer picks up the rest of the cost. Therefore, employees have little financial incentive to do a cost-and-quality comparison.
“We have self-funded employers buying a program where somebody shops for the employee on the front end for that knee replacement,” Backus said. “They’re showing the employee that in total, this costs $60,000 versus $20,000, and here are the quality metrics related to the cost.
“What we usually find is the $20,000 option is actually better because it may be an outpatient surgery center where all they do is knees, backs, and hips.”
How do employers get employees to care about their health care spending? By offering incentives, Backus said.
“I have some clients giving 20% of the health plan savings, or that $40,000 in my example, so they’re giving their employees an $8,000 bonus,” he said. “They’re walking away and saying our company saves $32,000 because you made that decision and you get $8,000 of the total $40,000 in doing that.
“To me, that’s what we need. We need things that promote consumerism.
