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February 15, 2019

Spending in employer-sponsored plans reached an all-time high in 2017. Here's how employers are fighting back.

Daily Briefing

    Spending in employer-sponsored health plans reached a record-high in 2017, and the major cause was higher prices—not higher utilization, according to the Health Care Cost Institute's (HCCI) annual Health Care Cost and Utilization Report released Tuesday.

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    Report details

    For the report, HCCI researchers analyzed data from about four billion claims from more than 40 million individuals enrolled in employer-sponsored health plans offered by the United States' four largest health insurers:

    • Aetna;
    • Humana;
    • Kaiser Permanente; and
    • UnitedHealthcare.

    Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealthcare.

    The data encompassed roughly 26% of U.S. residents enrolled in employer-sponsored health plans.


    According to the report, health care spending growth in employer-sponsored health plans outpaced growth in the United States' gross domestic product (GDP) from 2013 through 2017. The report stated that total annual per-person health care spending grew by 16.7% from 2013 to 2017, increasing from an average of $4,834 in 2013 to an average of $5,641 in 2017—which includes spending by employers, workers, and their insurers. According to the report, the increase equates to an average annual growth rate of 3.9%, compared with the GDP's annual average growth rate of 3.1%.

    The report found that price increases, rather than increases in health care utilization, largely drove the rise in health spending growth. HCCI President and CEO Niall Brennan said, "For the most part, Americans aren't using more health care services, which means we're essentially paying more and more for the same amount of health care."

    Specifically, the report stated that average utilization across all health care sectors increased by 0.5% from 2016 to 2017. In comparison, average prices across all health care sectors grew by 3.6% from 2016 to 2017, with overall health care spending rising by 4.2%.

    According to the report, spending on outpatient care experienced the largest growth rate from 2016 to 2017, at 5.1%. The report noted that outpatient prices increased by an average of 5.7% during that time, while outpatient utilization decreased an average of 0.6%. The increase in outpatient spending largely was driven by price increases for emergency department visits and outpatient surgeries, the report stated.

    Spending on professional health care services also saw significant growth, increasing by an average of 4.2% from 2016 to 2017. Over that time, prices for such services rose by an average of 3.5%, and utilization grew by an average of 0.6%. According to the report, overall spending growth on professional health care services was primarily driven by a 45% increase in spending on provider-administered drugs, even though utilization of such drugs decreased by 12%. However, the report does not take rebates and discounts offered by drugmakers into account, meaning the figures do not reflect the amount actually paid for provider-administered drugs.

    Spending on prescription drugs also saw high growth, increasing by an average of 4.7% from 2016 to 2017. However, prescription drug prices saw relatively low growth, at an average of 1.4%. According to the report, prescription drug utilization grew by 3.3% from 2016 to 2017.

    An area that saw relatively modest growth was inpatient spending, which increased by an average of 2.4% from 2016 to 2017. According to the report, inpatient prices grew by an average of 3% over that time, while inpatient utilization fell by an average of 0.6%. The increase in overall inpatient spending largely stemmed from increases in prices for medical and surgical admissions, the report noted.

    The report also found that individuals enrolled in employer-sponsored health plans are paying more for health care out of pocket. According to the report, enrollees paid an average of nearly $1,200 for health care services out-of-pocket in 2017—up by about 12% from 2013.

    Reasons for price increases

    The report did not seek to identify reasons for the price increases. However, some experts said consolidation in the health care industry could be to blame.

    Richard Scheffler, a health economics and public policy professor at the University of California-Berkeley, said the percentage of physician practices that are owned by hospitals or health systems increased from 27% in 2011 to 48% in 2016, which he said is linked with a 9% price increase for specialist outpatient procedures and a 5% price increase for primary-care outpatient procedures. "I would call this one of the most significant changes in the health care delivery system over the last decade," he said.

    Scheffler explained that some of the price increases are the result of facility fees, which are intended to help offset hospital overhead. Prices also increased because of growing market and brand power that comes from consolidation, he argued.

    Glenn Melnick, a health care finance professor at the University of Southern California, explained, "As volume goes down … these systems will raise prices, and health plans have to have them in their network." He said, "If they don't have them in network, providers will get emergency patients and consumers are left with full-bill charges."

    Employers fight back

    Some employers are trying to address rising health spending by using narrow network health plans that encourage workers to use lower-cost health care services. Employers also increasingly are using high-deductible health plans that shift more costs onto enrollees, though Sara Collins, a researcher at the Commonwealth Fund, said that trend is waning. Employers have "reached a limit in the amount of costs they can share with their employees in order to keep their premiums down," she said.

    Further, some employers are forming partnerships aimed at lowering health care costs, such as the joint venture launched by Amazon, Berkshire Hathaway, and JPMorgan Chase. John Hargraves, a senior researcher at HCCI and a co-author of the report, said the United States "will likely see more attempts" by employers to rein in health care costs (Kacik, Modern Healthcare, 2/12; Hellmann, The Hill, 2/12; Luhby, CNN, 2/12).

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