The Time for Action: Employers Must Take Control of Rising Healthcare Costs

Understanding the Drivers Behind Soaring Healthcare Expenses

Several factors contribute to the escalating healthcare costs that employers face. One of the most significant contributors is the rising expense of pharmaceuticals, particularly specialty medications, cell and gene therapies, and GLP-1 treatments. These advanced drugs, while offering life-saving benefits, come with hefty price tags that significantly impact overall healthcare budgets.

Beyond pharmacy costs, there is an increasing prevalence of high-cost claims due to conditions like cancer, cardiovascular disease, and musculoskeletal disorders. Additionally, more employees are utilizing their health benefits, leading to higher utilization rates. This trend has been observed in various sectors, with fewer individuals opting out of coverage altogether. The underlying issue, experts argue, lies in market distortions caused by consolidation, anti-competitive practices, and opaque business models within the healthcare industry.

The Disproportionate Impact on Small Businesses

Small businesses, already facing financial constraints, are bearing the brunt of rising healthcare costs more acutely than their larger counterparts. According to a recent report, small business employees paid an average of $7,529 per year for family premiums in 2023—$733 more than those at large firms. Moreover, they faced deductibles over $1,500 higher. This disparity stems from limited bargaining power, as smaller firms lack the leverage to negotiate favorable rates with insurers.

Sara Collins, a senior scholar at the Commonwealth Fund, highlighted that small firms have less flexibility in rate negotiations due to their size. “Smaller companies are often at the mercy of market forces, lacking the resources to compete effectively,” she explained. This situation underscores the urgent need for policy reforms that level the playing field for all employers, regardless of size.

Strategies Employers Are Adopting to Mitigate Costs

To combat rising healthcare expenses, employers are taking proactive measures to hold their vendor partners accountable. Many are conducting more requests for proposals (RFPs) to assess partnerships and seek evidence of improved outcomes and lower costs. There’s also a growing emphasis on well-being initiatives, focusing on prevention, immunizations, primary care, and chronic disease management.

Employers are increasingly scrutinizing their relationships with pharmacy benefit managers (PBMs), with 52% considering a change in the next few years. PBMs have been criticized for opaque practices that allow them to reclassify drugs without employer consent, maximizing revenue for their internal pharmacies. Shawn Gremminger, CEO of the National Alliance of Healthcare Purchaser Coalitions, emphasized the need for transparency and accountability in PBM operations.

The Role of Data Access and Fiduciary Responsibility

A key strategy for managing healthcare costs involves gaining access to medical claims data. Employers believe this transparency will help them fulfill their fiduciary responsibilities by ensuring they provide the best health benefits at the lowest cost. Some have even resorted to legal action against insurance carriers to obtain unrestricted access to their data. Notable cases include Kraft Heinz vs. Aetna and W.W. Grainger vs. Aetna, both highlighting the importance of data transparency in driving informed decision-making.

Gremminger advised employers to focus on negotiating contracts that eliminate conflicts of interest and promote fair pricing. Establishing narrower networks focused on cost and value can further enhance cost management efforts. Employers must also reassess plan design and cost-sharing strategies to ensure they align with current needs, especially for low-wage workers who may be over-insured or under-insured.

The Need for Policy Reforms

Ultimately, addressing the root causes of rising healthcare costs requires comprehensive policy fixes at both state and federal levels. Advocates call for measures that drive market competition, enhance transparency, and promote fair pricing. Key recommendations include banning anti-competitive contract provisions between hospitals and health plans, mandating full disclosure of claims data without additional costs, and increasing price transparency for PBMs.

While employers continue to explore innovative solutions, it’s clear that systemic changes are necessary to create a sustainable healthcare landscape. Only through collaborative efforts between policymakers, employers, and healthcare providers can we hope to curb future medical costs and ensure equitable access to quality care.