The State of Employer-Sponsored Healthcare

Employers have become frustrated with year over year healthcare cost increases that are three to four times the inflation rate while their employees realize poor health outcomes. Poor outcomes lead to high disability rates and low productivity, adding insult to injury.

At the same time, many U.S. employers are competing globally against companies with lower healthcare costs and higher productivity. “The situation has reached such a crisis that big changes are imperative-the status quo is unacceptable,” says Dave Ratcliffe, principal, Health & Productivity Consulting at Buck, an integrated human resources and benefits consulting, administration, and technology services firm.   

Lori Block, principal, industry insights leader at Buck, identifies five key areas of employer frustration:

• Lack of competition. Consolidated medical and pharmacy benefit manager vendor markets means less competition, resulting in higher prices for employers.

• Quantity vs. quality. Providers are incented to perform more services rather than improving the quality of care and achieving better outcomes.

• Unpredictable risk exposure. Most large employers self-insure their health benefits programs, thereby bearing all of the cost escalation risk.

• Profit vs. patient outcomes. The current prescription drug supply chain model lacks transparency and the many layers of manufacturers, wholesalers, and distributors are reaping profit at the expense of employers and patients.

• Market reluctance to change. Employers perceive that market players (i.e., doctors, hospitals, pharmaceutical companies, insurers, and even brokers) are mostly vested in the status quo, making change slow and difficult.

“On top of all of this, employees are similarly frustrated as their share of the costs continue to rise, wiping out any salary increases and leading to job dissatisfaction,” Ratcliffe says.

Another key frustration is that employers have become subject to a myriad of complex regulatory requirements, most notably the complex ACA requirements. “Many employers were forced to spend thousands of dollars on consultants to help them comply with its reporting requirements,” says Judy Boyette, senior partner in the employee benefits practice group at the law firm Hanson Bridgett.

Employers also maintain that they aren’t getting good value for their healthcare spend. In 1988, employer health spending was about 6% of total wages and now it’s 12%. “Business leaders have less money to put in their employees’ pockets because they are spending more on health insurance than ever before,” says Benjamin Isgur, health research institute leader, PwC, which analyzes trends affecting health-related industries. 

Advantages of employer involvement

Since healthcare costs will most likely continue to rise, and healthcare benefits remain important in attracting and retaining top talent, many employers are exploring how to become more involved in their healthcare program design, including adopting wellness programs and making other more direct interactions with their employees on health issues, such as providing onsite healthcare clinics, Boyette says.

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With so much of their money going toward healthcare costs, employers want to know that they are getting a return on their investment. For example, if an employer can pay a small additional cost to make it easy for employees to access preventative care and other wellness program offerings, like smoking cessation, exercise, or nutrition classes, employers may see greater involvement in healthcare as a way to have more control over outcomes of their large expenditures for healthcare coverage.

How employer-sponsored healthcare is evolving

Employers are becoming more responsive to the differing needs and priorities of their workforce’s many different generations by offering a broader range of benefits options and examining strategies to most effectively communicate benefits options, says Kim A. Buckey, vice president of Client Services, DirectPath, LLC, a company that helps employees become better healthcare consumers. 

More employers are offering or expanding voluntary benefits options, such as critical illness, hospital indemnity, or cancer insurance. “Coupled with core health insurance, voluntary benefits offer employees choice and control based on their personal health needs. This ensures that everyone in a company has access to adequate coverage, and provides an additional financial safety net,” Buckey says.

Buckey is also seeing employers provide another important safety net through tax-advantaged reimbursement programs such as health savings accounts, flexible spending accounts, or health reimbursement arrangements. These options provide additional funds to cover health expenses while reducing taxes and increasing take-home pay.

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More employers are also investing in healthcare advocacy and transparency. “By providing employees with the tools and resources they need to intelligently shop for healthcare, manage billing issues, and reconcile claims, employers help reduce their employees financial stress and out-of-pocket costs while increasing productivity,” Buckey says. This not only increases employee satisfaction with their benefits-which can be critical for retention-but it also often means that employers save on their business’ health insurance spend.

Revolutionizing medical care delivery

As the healthcare landscape rapidly evolves, employers must keep up with how they’re delivering medical care. Accenture estimates that as many as half of all large U.S. employers will offer onsite medical clinics by the end of 2019. Already, one-third of large U.S. employers currently offer their own primary care clinic on or near their worksite. This surge in internal health clinics is driven by a sharp increase in firms’ direct and indirect medical costs. 

Kaveh Safavi, MD, JD, senior managing director for Accenture's healthcare business, has also found that consumers desire more personalized care. Employers are looking to allow employees to pick and choose their own personalized care. One way employers are doing this is by going outside of traditional health plans and using third-party companies that provide customizable health plans.

As the desire for more digital tools rises, employees are implementing technology into their respective clinics. Most employer-sponsored health clinics have high usage of digital health services such as online access to laboratory results (68%), online appointment scheduling (68%), secure patient-provider communication (55%), and e-prescribing (53%). “The early returns registered by employers offering onsite clinics will likely spur adoption among smaller businesses,” Safavi says. Of those employers measuring returns on their employee health clinics, more than half report a return on investment of at least 50%.

Employers are also increasing the use of telemedicine. In 2018, 55% of employers offered telemedicine as part of at least one of their healthcare services and onsite clinics, Buckey says. Furthermore, employers have begun negotiating directly with providers to offer care at reduced prices as well, such as General Motors’ recent arrangement with Henry Ford Health System in Michigan.

Mitigating costs

For the last 10 years or more, the most prevalent strategy employers have used to mitigate costs has been to increase employee out-of-pocket expenses. “However, this doesn’t reduce costs-it just redistributes them,” Ratcliffe says. “Employers are now taking more aggressive actions, and are actively pursuing market innovations that will transform healthcare delivery.”

But solutions are not one-size-fits-all. “The most successful employers will start with a gap analysis to determine current and emerging supply and demand opportunities based on their unique locations and employee make-up,” Ratcliffe says. Then, their impetus toward change and opportunity for savings will all be evaluated relative to the disruption and effort required to implement.

Related article: Most employees unsatisfied with employers' well-being programs

Here are seven actions employers have taken to mitigate costs:

1. Include the ability to access non-emergency care through clinics in supermarkets and retail stores or independent urgent care centers in order to reduce use of expensive emergency room services, Boyette says.

2. Introduce tiered networks, steering employees to use providers that have been determined by health plans to be more cost effective, Boyette says.

3. Introduce provisions into health plans to pay for participants to travel to other states or countries in order to have certain procedures (e.g., knee replacements) done at hospitals or by certain doctors who have reported a high-quality result at a significantly lower price, Boyette says.

4. Offer employees and retirees funds and access to coverage offered through a private healthcare exchange, a type of online store, or health insurance marketplace where employees or retirees purchase health insurance and other benefits, typically using these funds, Boyette says.

5. Provide bundled services. Some employers like Walmart are contracting with best-in-class providers for an all-in price for certain procedures (e.g., knee or hip replacement surgery), says Jaja Okigwe, MBA, CEO, First Choice Health, a physician- and hospital-owned healthcare company. These approaches cover pre- and post-surgical appointments as well as the actual surgery.

6. Choose to be self-funding. Sixty percent of all employers today are self-funded, which means they purchase claims processing and administration from a traditional insurer or independent administrator, but pay for the cost of medical claims themselves, Okigwe says.

In a self-funded arrangement, the employer rather than an insurance carrier assumes the financial risk for providing healthcare benefits to its employees. “Since the employer bears the risk, they may be more motivated to become more involved in order to drive as much efficiency as possible to lower risk and cost,” Boyette says.

7. Actively engage with employees to develop healthcare plans. “Employers are increasingly seeking and acting on employee-generated requirements for health and wellness programs and are looking to a range of providers outside of health plans to access health and wellness services that cater to their needs,” Safavi says.

Leaders in healthcare innovation

With employees paying more for healthcare than ever-the annual premium for employer-sponsored family healthcare coverage reached $19,616 in 2018-employers and employees alike are desperate for support to control healthcare spend.

The Amazon, J.P. Morgan, and Berkshire Hathaway venture announced in early 2018 put the healthcare industry on notice that employers are no longer going to accept the status quo. The combined entity will initially be targeting administrative costs, high prices, and improper healthcare usage in an effort to reduce costs, improve satisfaction, and realize better outcomes for employees of those three companies. “Eventually, their innovations will be shared with other employers, which could cause a ripple effect through the healthcare delivery system,” Buckey says. “The venture is a signal to the market that it needs to evolve or traditional players will lose favor to more innovative industry entrants committed to delivering transparency and much needed change.”

Karen Appold is a medical writer in Lehigh Valley, Pennsylvania.