Think for a moment about your company’s total expenditures. Do you have some numbers in mind? Now put them in a mental pie chart. Chances are, a fairly large part of that pie is taken up by salaries, benefits, and of course, healthcare spending—and those numbers get a little bigger every year.
According to the newly released 2018 Bureau of Labor Statistics data, 31% of compensation costs go toward benefits. An ongoing task employers face is trying to shrink that portion of the pie while still offering competitive benefits that attract and retain top talent. Needless to say, the fast pace at which healthcare costs are growing makes this quite difficult.
Costs are rising
Despite utilization remaining mostly the same, the spend per employee on employer-sponsored insurance hit an all-time high in 2017, according to the Health Care Cost Institute.
If not higher utilization, what’s driving that increase in spending? Rising prices. And according to the CMS, prices for healthcare services and goods are projected to grow at higher rates between now and 2027 than they have in years past. Innovative new treatments hold promise, but come with high price tags, and continuing mergers and acquisitions throughout the healthcare landscape have led to higher prices and less competition.
The SHRM predicts that, assuming companies don’t make major benefits design changes, there will be another 6% rise in health plan costs in 2019, consistent with the past five years. A report by PwC suggests these increases are often driven by factors outside the employer’s control, such as increasing drug prices, continuing health industry megamergers, and overall inflation.
Ironically, employers foot the bill for a large portion of America’s insured population, yet have little say over the increasing prices of services, medications, devices, procedures, and more. One method to contain spending is to encourage smart healthcare consumerism by aligning the consumer’s incentives. In theory, if an employee were responsible for a higher portion of the bill in the form of a deductible or coinsurance, they would be more likely to act as a consumer and shop for value: the highest quality at the lowest cost. In practice, that can be nearly impossible to do without the right type of guidance.
Wasteful spending is hard on the budget—and even harder to prevent
Money spent on services and supplies that could be eliminated without harm to the patient is known as wasteful spending—and it makes up a huge portion of U.S. healthcare spending. In fact, the National Academy of Medicine has estimated the healthcare system wastes around $765 billion a year. By that estimate, if about a fourth of what we spend as a nation on healthcare is on unnecessary services and treatments, that means roughly $3,700 of the average $14,800 employers spend per employee goes to waste.
It’s not that people intentionally seek out unnecessary care; they often just don’t have access to the proper information or resources to help them navigate the system. Employees might unknowingly receive low-value, high-risk screenings, unneeded prescription medication, and surgeries with little to no proven benefit.
The spinal fusion surgery for low-back pain is a common example: This procedure brings significant risk and few proven advantages, yet instances of it are on the rise. Examples like this incur significant costs to both employers and employees, without a clear, positive impact being brought to the patient.
A lack of cost-saving coordination
Even with all of its advancements and life-saving innovation, the fragmented nature of the U.S. healthcare system remains a roadblock in many ways.
The system comprises numerous providers, payers, manufacturers, and more. Each entity plays its own, often isolated, role in a patient’s care. It’s not uncommon for a patient to have a primary care provider at one practice, a specialist in another, a separate urgent care center, and multiple pharmacies. When providers, onsite clinics, advocates, and others can’t communicate or coordinate care, outcomes can worsen and costs can rise, to the detriment of both the employee and the employer.
In order to control healthcare costs, employers are given the unenviable task of guiding employees to smart healthcare usage and plan selections—but they face the challenges of messaging employees at the right times, having the resources to guide higher-value healthcare decisions, and being able to intercept out-of-network visits before they happen.
The other slices of the pie aren’t shrinking, either
In addition to healthcare costs, other benefits, such as financial and work/life resources, can contribute to an employer’s spending, as referenced in the Bureau of Labor Statistics data. With the tight labor market, an influx of new benefits and added benefits spend is no surprise.
While retirement saving programs made up just over 5% of benefits spending referenced in the BLS report, employers are feeling the pressure to offer new financial benefits as well, like student-loan repayment assistance and other programs. The burgeoning competition for talent is also leading employers to add expensive work/life benefits, which can be a deciding factor in whether or not candidates join a company. Childcare, employee assistance programs, gym memberships, and pet insurance are among these popular benefits.
A singular solution
Routing your entire benefits ecosystem through a single source of intelligence gives you data from all of your vendors at once, and that data can illuminate where spending is growing the most. What’s more, predictive analytics can identify opportunities to reduce that spending while delivering an excellent employee benefits experience.
Rising costs in healthcare and across other benefits offerings can seem daunting—and finding a way to contain these costs, even more so. But solutions do exist. From nudging people toward sites of care based on quality and price, to implementing programs that reduce risk and improve health, to helping people choose the right health plan, these costs can be contained.