I talk to a lot of employers regarding their health insurance costs and plans, and many of them ask “why are my rates going up so much again this year? They seem to go up every year.” Most of them don’t understand the “WHY.”
There can be many reasons why a group health plan goes up and costs from year to year – we all hear about either bad claims experience, trend, or expecting higher claim costs next year because of the diagnosis of members within the group, to name a few. And while those can be valid reasons it still doesn’t answer the bigger question of “WHY.”
There are two significant costs that are causing healthcare costs and related premiums to increase. It really doesn’t matter whether group is fully insured or partially self-funded, all plans are affected by these forces. Higher claim costs simply translate to higher premiums and expected claims.
The first reason costs are going to continue to rise significantly is because of the dramatic increase in hospital prices. As I’ve mentioned in previous articles, the pandemic has largely contributed to this – even more so than pre-pandemic charges. Due to financial losses in the pandemic era because of the postponement of procedures and services, hospitals are increasing prices dramatically. To give you an example, I have a client that had an employee who needed right shoulder arthroscopic repair. This is a repair not a replacement, and arthroscopic would indicate that this procedure is outpatient. The hospital and physician wanted $94,000 for this procedure! They said they would take $78,000 if paid in cash. Talk about outrageous and egregious pricing!
The other reason that costs are going up at an alarming rate is specialty drugs. Specialty drugs are being prescribed more and more often as they offer tremendous benefits and results to members, albeit at alarming costs. There are over 5,000 of these drugs under development and their costs range from $10s of thousands of dollars to $100s of thousands of dollars. Makes you wonder how any health plan can afford these costs.
Now that you have a basic understanding of the “WHY,” the obvious question is “WHAT” can you do about it? There are essentially two strategies that work extremely well:
- Implement a Reference Based Pricing (RBP) program for hospitals. RBP is immune to increased hospital prices, because they reimburse hospitals based on a reference point – Medicare plus profit, or Cost plus profit. So it doesn’t really matter what the hospital is charging, the formula is based on the greater of those two metrics. And because all hospitals are reimbursed by that formula, members can go to any hospital they desire – there is no network.
- Implement an exclusive arrangement with a specialty drug company. When you do so, you need to exclude all specialty drugs from your Pharmacy Benefit Manager (PBM). Not all PBM’s will allow you to do this as they make too much money on the spread pricing and the rebates they receive. As a result, you need to take great care in selecting the proper PBM. Specialty drug programs available can provide the same drugs to members at little or no cost, as well as to the plan as a claim. Underwriters love this type of program because it can eliminate BIG dollars that they would otherwise have to cover.
These two strategies can save a plan and members at the same time. Creating a plan that strikes a balance between cost and goodwill can make a big difference when trying to attract and retain employees. If you would like to learn more you can reach me at 970 – 349 – 7707 or email me at [email protected]
Have a wonderful Thanksgiving!
