Last year was an anomaly
The Covid-19 pandemic led to lower-than-usual health care utilization in 2020. While that was bad news for many providers and patients, it was a boon for most employers. More than 60% of employers reported that 2020 health care costs came in under budget, and over a third were 8% or more below budget. With HR teams overwhelmed by Covid-19 response and sensitive to a workforce seeking stability, 2021 was a quiet year for health benefits changes. In fact, 57% of employers reported no plans to implement cost-savings measures in 2021, a 13 percentage point increase from two years prior.
But we believe this lull is likely the calm before the storm. As part of our annual State of the Union research, we interviewed many employers and employer coalitions. Most expressed concern that care deferrals and worsening mental and physical health during the pandemic will accelerate health care spending growth as soon as 2022 and 2023.
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This leaves employers faced with several options to reduce health benefits spending:
How to cut costs?
Cost shifting—the preferred strategy during the 2008-2009 global financial crisis—seems to have run its course, as evidenced by a dip in the number of individual workers with a deductible of over $2,000 in 2020. Employees are fed up with their out-of-pocket costs going up every year, and employers are not seeing the results they’d expected.
Lowering drug spending is a growing area of interest for employers, especially as more high-cost drugs come to market every year. But lowering pharmaceutical costs is easier said than done. Most employers are still trying to learn how to lower drug spending, and the few employers working on this are focusing their efforts on establishing more transparent PBM relationships. Ultimately, the average employer’s pharmacy spending pales in comparison to its medical spending, so employers need to look there as well.
Employers turning to steerage to control spending
With plateauing interest in cost shifting, steerage has emerged as the predominant strategy for employers looking to reduce medical spending growth. Employers and plans have typically shied away from “hard steerage” strategies like narrow networks, for fear of alienating staff and providers. But some highly activated employers are warming to the concept. The 32BJ Health Fund, which oversees health benefits for almost 200,000 unionized service workers in the Northeast, made headlines this summer when it decided to remove a large system from its network due to the system’s pricing. While moves like this are still rare, recent price transparency policies could motivate more employers—and their plan partners—to start culling higher cost hospitals from their networks.
That said, the tactic that most effectively balances workforce appeal with savings potential is “soft steerage,” which navigates patients to preferred providers and settings without making formal changes to in-network status. Center of Excellence (COE) strategies continue to gain popularity, and a proliferation of third-party operators are making it easier for employers to contract directly with providers for high-cost specialty services. High-value primary care networks, typically made up of independent physicians who are not affiliated with large health systems, are also becoming more common for employers trying to reduce downstream costs.
The rise of digital health
The increase in digital health adoption during the pandemic could accelerate these steerage strategies. With a huge spike in telehealth use over the last 18 months, more employees feel comfortable taking a digital-first approach that connects them with a chatbot or a video visit over an in-person encounter. And an increasing number of remote care providers are refining their ability to help navigate patients for downstream care and steer patients toward more cost-effective follow-up care options.
The acquisition of primary-care telehealth startup PlushCare by benefits navigator Accolade and the merger of telehealth giant Doctor on Demand with navigation company Grand Rounds are two of the most prominent examples seen in recent months. Newer entrants like Transcarent, a start-up headed by the founder of Livongo, are also betting big on online care navigation. The company acquired COE vendor BridgeHealth and will offer self-insured employers a single tool for patient navigation, remote care, and provider bundles. Employers want help wading through the sea of digital point solutions that have cropped up—aggregation and curation platforms such as these are trying to fill that need by offering longitudinal, coordinated approaches aimed at reducing the total cost of care.
For hospitals and health systems, the convergence of new price transparency data with greater employer steerage poses both a challenge and an opportunity. Health systems must cement their total cost of care value proposition to establish themselves as preferred partners to employers and their carriers. Primary care practices will need to invest in high-quality telehealth platforms and demonstrate to employers that they can use telehealth appropriately to lower overall costs. Specialists need to remain open to network partnerships with these new navigation services. Digital health companies must continue to expand their capabilities to draw virtual visits away from local providers (since employers will expect to see a focus not only on the provision of remote primary and urgent care services, but also on the ability to effectively navigate patients across the entire care continuum).
As the market has been flooded with new digital health players amid the pandemic, most employers are eager to see higher levels of integration rather than siloed solutions. Health plans may be able to make a case for being a “one-stop shop” for network creation and management, benefits administration, and steerage. But they can do that only if they can prove that their solutions are as effective as those offered by third parties, who are often viewed as more technologically savvy and more incentivized to reduce total cost of care.
Employers put their planned health benefits changes on pause during the pandemic, but that hiatus is not going to last long. Players from across the industry would do well to be proactive in developing strong employer relationships in what is bound to become an increasingly active and competitive playing field.