By John Thornton
Healthcare costs have been steadily rising for over three decades. According to National Health Expenditure (NHE) data analyzed by the Kaiser Family Foundation (KFF), U.S. national health spending in 1970 totaled $74 billion. It increased to $1.4 trillion in 2000, and by 2020, health expenditures tripled to $4.1 trillion or 19.7% of the Gross Domestic Product (GDP).
These steady increases can be attributed to many factors, including an increase in per-person healthcare spending, consolidation of hospitals and physician practices, and consolidation among health insurers. The aging of America, increased incidences of chronic diseases, and the wider spread use of high-cost specialty drugs are other primary contributors to rising healthcare costs. Unfortunately, employer-sponsored health plans have had to bear the brunt of these high costs.
Leveraging advanced technologies and services is proving an effective way to control spiraling healthcare costs. For brokers, presenting these technologies and services to their clients can generate new revenue streams and further establish oneself as trusted advisors continually seeking new ways to help clients.
Healthcare Cost Trends
In its analysis of healthcare expenditures from 2019-2020, KFF found these to be the primary contributors to an increase in health spending:
- Federal and state/local public health 32.5%
- Hospital expenditures 20.9%
- Administrative costs 18.0%
- Physician and clinical expenditures 11.4%
- Long-term services (i.e., home health care, nursing facilities and continuing care communities) 9.1%
- Other health (i.e., other health, residential, personal care and services from other healthcare practitioners (e.g., physical therapists, chiropractors, etc.) 5.3%
- Prescription drugs 2.8%
- Medical goods (i.e., durable and non-durable medical goods and equipment) 0.7%
The NHE projected national health expenditures to grow, on average, 1.1 percentage points faster than the GDM per year from 2019 to 2028, with the healthcare portion of the economy projected to increase from 17.7 % in 2018 to 19.7% in 2028.
The consultant Aon projected that for large, self-funded U.S. employers, healthcare costs will increase, on average, 5% to over $13,000 per employee in 2022. Its projections were based on the healthcare costs and benefit programs of more than 700 large U.S. employees with a total of 5.6 million employees. They took into account any health plan changes and vendor negotiations. It would not be unusual for a similar pattern to exist among other self-insurers which, according to the U.S. Department of Labor’s Annual Report on Self-Insured Group Health Plans, March 2021, totaled 25,500 in 2018; a number that has likely increased over the past four years.
COVID-19 and other drivers
At its peak, the COVID-19 pandemic caused increased healthcare spending. And, while today COVID-related costs are more predictable, there remains uneasiness regarding its variants and what may be in store for the nation. Consequently, some commercial insurers may adjust their 2023 rates.
Other factors driving rate changes include:
- changes in the small group market due to the continued shift of small employers to self-fund or adopt other risk-rated coverage
- changes in the individual market composition fueled by changes in premium tax credits; increased utilization of telehealth and mental healthcare
- changes in provider contracting and related impacts of medical inflation.
One bright spot in the nation’s healthcare landscape has been telehealth. Up until the COVID-19 pandemic struck, telehealth was not widely-used by either providers or consumers. Of course, when it became challenging to have in-person visits, many had little choice but to use telehealth to virtually meet with their providers. What they learned was that virtual doctor appointments weren’t such a bad thing and that telehealth actually gave them access to a broader network of providers. What plan sponsors found out was that telehealth resulted in lower costs. Still, up until recently, telehealth has relied largely on phone visits, which subsequently led to video conference visits. Now, next generation telehealth solutions are proving to be the most convenient, cost-effective alternative.
The most leading-edge telehealth solutions provide an integrated nurse help line with a telemedicine program accessible on a 24/7 basis.
Here’s how they work.
An individual with a medical problem calls a dedicated toll-free line staffed by experienced registered nurses (RNs). An RN conducts a virtual patient intake and records all pertinent information including the patient’s contact information, symptoms, and reason for calling. This information is entered into the patient’s electronic health record. Then, based on the RN’s exchange with the patient, the RN would either address the individual’s situation directly or triage the call by transitioning it to the next level of medical care; which could be a physician, health advocate, behavioral advocate or other professional.
As a result of this option, unnecessary visits to a physician’s office, hospital emergency department or urgent care facility can be avoided, and the associated costs saved. Plan sponsors reduce their medical claims’ costs, while plan members have lower co-pays or no co-pays at all.
One employer of 1,000 employees saw telemedicine effectively transition 44% of urgent care visits and 35% of physician visits. The 140 telehealth calls its plan members made over the winter season resulted in a $15,000 savings with similar savings projected in subsequent seasons.
The most advanced next-gen telehealth platforms feature user-friendly dashboards that can be accessed from any device — a PC, laptop, tablet or smart phone. Some of the most progressive providers of these advanced telehealth solutions customize their pricing based on the demographics of each group.
Taming the beast — specialty drug costs
The Centers for Medicare and Medicaid (CMS) reports that specialty drug costs have been rising at an estimated rate of 18% annually since 2014. According to the AMS 2020 Specialty Drug Trends Report, high-cost specialty drugs comprise 51% of total drug expenses and are responsible for driving 80% of all medical trend increases. This is despite the fact that only 2% of the U.S. population uses specialty drugs.
Two reasons for the high costs of specialty drugs are the lack of competition among specialty drug manufacturers and the lack of legislation to curtail their high, rising costs, although efforts to enact legislation are underway. For instance, the AARP has called on Congress to remedy the problem by establishing a law that enables Medicare to negotiate drug prices, place a cap on out-of-pocket costs, particularly those incurred by older individuals, and levy penalties on drug manufacturers that increase their prices at a rate faster than inflation. While there has been significant progress in the development of biosimilars to offset current specialty drugs, the fact remains that the large majority of high-cost specialty drugs are still needed and used by many individuals to treat chronic and/or catastrophic illnesses such as cancer, arthritis, multiple-sclerosis, Crohn’s disease, psoriasis, hemophilia, and cystic fibrosis.
To provide an example of just how expensive these drugs are, GoodRx Health reported that these are the annual costs based on length of therapy for some of the most expensive specialty drugs:
- Zolgensma – which treats spinal muscular atrophy- $2,125,00
- Zokinvy – which treats a rare disease that causes premature aging – $1,073,760
- Danyelza – which treats neurobastoma in the bone or bone marrow – $1,011,882
- Kimmtrak – which treats metastatic or surgically untreatable uveal melanoma (eye cancer) – $975,520
On a lesser scale, the Commonwealth Fund reports that Tretinoin, which helps manage some leukemia complications, cost $6,800 per month per patient. However, it is not unusual for many specialty drugs to cost over $100,000 per year per patient.
Some of the ways that insurers are tackling the high-cost specialty drug problem is to implement plans which require plan members/employees to first try less costly drugs before going on a high-cost specialty drug. They are also asking plan members to adhere to their overall treatment plans and offering incentives. Other measures include using a combination of a specialty drug cost management program with a specialty drug prior authorization service that works to identify alternatives to the most cost-effective specialty drugs. Using this approach, an average of 40% savings on specialty drugs can be achieved.
New Pharmacy Benefit Administrative Services
Newer to the drug cost management landscape are advanced pharmacy benefit administrative (PBA) services. By giving patients access to a national network of retail pharmacies with mail order capabilities, these services are also driving savings upwards of 40% when used with a specialty drug reimbursement cost management program and a prior authorization policy. They also have been effective in driving lower medical stop loss costs.
Like advanced telehealth platforms, PBA services leverage online technologies that feature user-friendly, easy to navigate platforms with intuitive functionality. The PBA services’ portal can be accessed 24/7 and provides helpful drug and healthcare information, as well as drug videos on demand. Real-time alerts remind patients when to refill their prescriptions. The portal can be accessed from a PC or any mobile devices and also use quick response codes (QR) on select specialty drug prescription labels.
Other successful measures
Along with deploying advanced telehealth platforms and specialty drug cost management services, plan sponsors, largely self-insurers, are banding together to drive lower healthcare costs through various measures. Many of these initiatives are state and/or regional based alliances.
Among those which are already making strides are:
- Employers’ Forum of Indiana, comprised of 154-self-insured employers including larger employers such as Eli Lilly, Fiat Chrysler, Cummins, Indiana University and Purdue University. To address the high prices in Indiana, due in large part to the declining number of independent providers with approximately 70% of physicians in Indiana now employed by hospitals and health systems, the group commissioned RAND Corp. to conduct several studies over the past five years (2017-2021). The studies revealed patterns relating to prices negotiated by specific Indiana hospitals with Medicare for inpatient and outpatient services. Specifically, the 2017 study, relying on claims data analysis, found that employers were paying 358% of Medicare rates, on average, for outpatient services and up to three-and-one-half times the Medicare rates for inpatient services. Further uncovered was that hospitals aligned with large health systems had higher costs than smaller health systems and independent hospitals. The 2019 report revealed that Indiana’s hospital pricing was the nation’s highest. Some of the outcomes of these and the Forum’s other commissioned studies led to the release of pricing from specific hospitals, altering of negotiations between hospitals and health plans, the Indianapolis-based insurer Anthem’s demand of concessions from Parkview Health, and the pursuit of legislative measures to facilitate price transparency.
- The Alliance, a nonprofit cooperative comprised of over 300 self-insured employees from Wisconsin and adjacent counties in Illinois, Iowa, Michigan and Minnesota. It applies data to convey the benefits, both fiscal and quality of healthcare, derived from directing employees to high-value providers, some of which consented to accepting bundled payment for select high-cost procedures.
- Peak Health Alliance, a healthcare purchasing coalition covering seven counties in Colorado and comprised of self-insured employers, as well as local government and individuals who purchase health insurance on the state exchange. Like Employer’s Forum of Indiana, it too relied on the capture and analysis of claims data to uncover that insurers were paying the local hospital, St. Anthony Summit Medical Center (part of Centura Health Network), almost 850% of Medicare rates for emergency department services and some employers, who believed that had negotiated great deals with the hospital for outpatient visits, were actually paying 550% of Medicare rates.
In addition to adopting advanced telehealth solutions and specialty drug cost management programs, and considering forming coalitions similar to these groups, other measures plan sponsors can also benefit from include instituting robust employee wellness programs which, in addition to offering on-site health screenings and exercise and nutrition programs, also provide educational seminars to help educate employees regarding their behavior and lifestyle choices and the impact on their health, and how to make fiscally-sound healthcare decisions.
Brokers as catalysts
With a full understanding of rising healthcare costs in America and the use of cost-savings measures such as advanced telehealth platforms, specialty drug cost management and administrative services, plan sponsors can gain some financial relief. Brokers can be valuable catalysts in helping to bring these next-gen solutions to their clients.
John Thornton, is EVP, Sales and Marketing, Amalgamated Life Insurance Company. An industry veteran, he has been a driving force in the expansion of Amalgamated Life’s voluntary worksite product line, geographic expansion, national sales force and broker relationships. John is dedicated to helping working people and their families achieve financial security by providing affordable life, health, administration, pension products and services.
The Amalgamated Family of Companies includes Amalgamated Life Insurance Company, a leading provider of comprehensive insurance solutions with 47 consecutive “A” (Excellent) ratings from A.M. Best Company.