The cost of health care benefits provided to employees has been rising rapidly across the world and is expected to continue its upward growth in the coming years. The reasons ascribed to this medical inflation” are many: the introduction of new medical technologies, the overuse and over-prescription of new drugs, increased innovation in treatments and soaring pharmaceutical costs. The increasing cost of specialty drugs is a significant factor that influences medical inflation, with a year-on-year increase of over 14% expected in the next five years.
The shift from social health care programs to employer-sponsored health plans has stretched the cost-bearing capabilities of large enterprises. The global average health care cost, including premiums and out-of-pocket costs for employees and dependents, is expected to rise to $15,375 per employee in 2020, up from $14,642 per employee in 2019.
It has been identified that globally the top three chronic medical conditions are cardiovascular diseases, hypertension and diabetes, along with other health risks arising from poor lifestyle such as physical inactivity, obesity, bad nutrition and excessive alcohol and substance abuse. To mitigate the total cost of health care, employers are turning to cost-containment strategies to help them reduce the frequency of claims as well as manage the claims cost efficiently.
Key Cost-Containment Strategies Used by Employers
Telemedicine: Offering Virtual Care
By offering a virtual visit with a doctor, telemedicine helps employees get diagnosed and treated without having to step out of their homes. This means that employees can get the care they need quickly and conveniently, while employers also benefit as telemedicine helps avoid expensive health care options. Telemedicine can become a profitable channel for many enterprises owing to the cost savings brought in by avoiding physical consulting and expensive pre-treatment services.
To overcome regulatory barriers, many governments are introducing policies that support the growth of the telemedicine industry. For instance, in June 2019, Germany’s government amended laws to allow doctors to prescribe treatment through apps, with the tab being picked up by health insurance providers.
Deductibles, Co-Insurance, and Co-Payments: Making Changes to Employee Cost-Sharing
On average, employers cover approximately 85% of the employee insurance costs, leaving employees to cover the remaining 15%. As insurance costs shoot up rapidly, employers are focusing on cost-sharing strategies by altering the deductibles, co-insurance and co-payment policies. For example, large employers are altering the premiums and deductibles based on an employee’s income, deducting higher premiums from a skilled workforce. JPMorgan Chase pays 80% of the premium for employees earning less than $60,000 per year, but 70% for employees who earn more. The company has also set deductibles depending on the plan the employee chooses. Customization in cost-sharing plans can bring in significant cost savings for large enterprises.
Population Health Management: Improving Clinical Aftermath
Population health management programs focus on analyzing and focusing on the demographic and claim data of a workforce to identify chronic illnesses such as hypertension, diabetes and heart disease. These programs can help enterprises manage high treatment expenses by suggesting case-management strategies for conditions arising from these medical conditions. This can be an effective way to manage medium- to long-term costs for enterprises, as it may take years to realize savings because it hinges on the cooperation of individual employees with expensive health conditions.
Proactive Health Management: Investing in Prevention
As a large portion of the employers’ money is going into health care costs, they are now keen to invest in preventive measures as it will help reduce the number of claims. The cost of insuring people, who are in decent health, is lower, so many insurance companies, in 2020, are set to offer incentives to companies that encourage their employees to participate in workplace exercise programs or pay regular visits to primary care providers. Thus, proactive health initiatives at the workplace will help enterprises get discounts and rebates from insurance providers.
While rising health care costs are a major concern for enterprises, the good news is that employers who conduct regular analysis of their benefits schemes and programs and are flexible about altering them can contain costs more effectively. As a first step, we recommend that companies carry out an annual review, after which they can trim their insurance premiums by switching to cost-mitigating health care schemes and programs.
For the success of cost-containment strategies, employers need to ensure their employees are using them. For instance, telemedicine can be an effective cost-containment strategy only if employees are using that option, otherwise costs will not come down. Thus, efficient implementation and utilization of innovative health care and insurance programs are key to managing insurance premiums.