By Christine Cooper, CEO of aequum LLC
There has been a growing adoption of self-insured health plans given increases in insurance premiums, deductible, copays and out of pocket expense maximums that add to workers’ cost of coverage. The average increase in individual health expenditures has been about 4.5% per year for the past five years. Employers who chose self-funded coverage are attracted to unique cost management opportunities when compared to the mandated benefits, taxes, profit margins and other requirements typically part of traditional, fully insured plans.
Opportunities exist for benefit specialists to achieve significant cost savings and fully optimize the advantages and value of their health plan. Innovative medical billing support services provide powerful data intelligence, making for a stronger defense against balance billing and greater success in efforts to recover overpayments. State-of-the art information technology, data-driven software and online data analytic tools can provide a degree of price transparency and provide new insights by harnessing price data – allowing fee comparisons that identity fair and reasonable prices.
The best third-party claims administration will include a medical billing partner who is an agent of change, one that embraces innovation and advocates for “what is fair and just” in the marketplace. The right partner will also provide value-added services through turnkey solutions, administrative support, and the legal representation of participants. This support can provide invaluable guidance to navigate new federal and state healthcare regulations and identify areas to maximize value and returns on cost savings.
Industry reports substantiate healthcare inflation continues
This trend, along with a significant increase in health plan premiums, is evidenced by the newly published Kaiser Family Foundation (KFF) Employer Health Benefits Survey, which claims that the average family premiums for employer-based health insurance have jumped 47% in the last decade, far outpacing wage growth. Average annual premiums for single coverage in 2021 are $7,739. And, that premium applies even though the average deductible has increased 68.4% since 2011, to an average of $1,669 from 4991. The annual premium for family coverage is $22,2221 – workers pay a significant portion of that cost, contributions average $5,969.
Healthcare inflation rates reflect the year over year change in the medical care component of the U.S. Consumer Price Index. A rapid surge in healthcare inflation could potentially devastate providers, payers and ultimately patients. Inflation contributes to a rise in health insurance premiums. To maintain the ratio between premiums and reimbursed claims, many large insurers price premiums six to eight percent higher to account for medical inflation.
155 million Americans rely on employer-sponsored coverage. Employers expect costs for medical and pharmacy benefits to increase 5.2% in 2022, even after taking cost management initiatives into account, according to a recent survey by Willis Towers Watson. With 86% of employers prioritizing employee affordability, employers will take different approaches – some will absorb a portion of the cost increases while others will pass along some or all those costs to participants.
Managing costs is critical to the Nation’s fiscal and economic well-being.
What drives and accounts for rising costs?
Most medical spend is concentrated in hospital care, physician services, new medical technologies and prescription drugs. Healthcare spending on medical services is significant. National health expenditures are projected to grow at an annual rate of 5.4 percent and reach $6.2 trillion by 2028.
Hospital care accounts for 33% of the Nation’s healthcare costs. Between 2007 and 2014, prices for inpatient and outpatient hospital care rose much faster than physician prices, according to a 2019 study in Health Affairs. Mergers and partnerships between hospitals, medical providers and insurers have also been a prominent trend in America’s current healthcare model. The consolidation of hospitals into large regional systems diminish competition, and grant providers the opportunity to increase prices. Mergers also limit provider options for patients.
The COVID-19 pandemic resulted in a surge in demand for care and utilization beyond normal capacity
of resources. The costs of testing for COVID-19, treating patients and administering vaccinations for the disease likely will continue into 2022. Indirect costs of COVID-19 include increased mental health and substance use issues, obesity and worsening population health. Poor pandemic-era health behaviors such as lack of exercise, poor nutrition, increased substance use and smoking may lead to deterioration in US population health and increase healthcare spending.
U.S. consumers spends an average of $1,000 per person. This figure comes from US Prescription Drug Report 2021 which presents data on prescription drug usage, cost and out of pocket spending across America, compared to the rest of the world.
A starting point for cost reduction is reducing waste. The United States spends more on health care than any other country, with costs approaching 18% of the gross domestic product (GDP). Prior studies estimated that approximately 30% of health care spending may be considered waste. Eliminating administrative expense has the benefit of lowering health care costs without affecting spending on patient care. A lot of costs go into administering healthcare insurance. The U.S. spends about 8% of its healthcare dollar on administrative costs, compared to 1% to 3% in the 10 other countries (JAMA). The complexity of the U.S. healthcare system can lead to administrative waste in the insurance and provider payment systems.
A better, more cost-efficient system is possible. However, a lot will need to change as we enter the new year.
Christine Cooper is the CEO of aequum LLC and the Co-Managing Member of Koehler Fitzgerald LLC, a law firm with a national practice. Founded in 2020, aequum serves third-party administrators, medical cost management companies, stop-loss carriers, employer-sponsored health plans and brokers nationwide, defending medical balance bills and delivering savings to employer-sponsored health plans. Find aequum at aequumhealth.com.