Employers have become frustrated with year over year healthcare cost increases that are three to four times the inflation rate while their employees realize poor health outcomes. Poor outcomes lead to high disability rates and low productivity, adding insult to injury.
At the same time, many U.S. employers are competing globally against companies with lower healthcare costs and higher productivity. “The situation has reached such a crisis that big changes are imperative—the status quo is unacceptable,” says Dave Ratcliffe, principal, Health & Productivity Consulting at Buck, an integrated human resources and benefits consulting, administration, and technology services firm.
Lori Block, principal, industry insights leader at Buck, identifies five key areas of employer frustration:
- Lack of competition. Consolidated medical and pharmacy benefit manager vendor markets means less competition, resulting in higher prices for employers.
- Quantity vs. quality. Providers are incented to perform more services rather than improving the quality of care and achieving better outcomes.
- Unpredictable risk exposure. Most large employers self-insure their health benefits programs, thereby bearing all of the cost escalation risk.
- Profit vs. patient outcomes. The current prescription drug supply chain model lacks transparency and the many layers of manufacturers, wholesalers, and distributors are reaping profit at the expense of employers and patients.
- Market reluctance to change. Employers perceive that market players (i.e., doctors, hospitals, pharmaceutical companies, insurers, and even brokers) are mostly vested in the status quo, making change slow and difficult.
“On top of all of this, employees are similarly frustrated as their share of the costs continue to rise, wiping out any salary increases and leading to job dissatisfaction,” Ratcliffe says.
Another key frustration is that employers have become subject to a myriad of complex regulatory requirements, most notably the complex ACA requirements. “Many employers were forced to spend thousands of dollars on consultants to help them comply with its reporting requirements,” says Judy Boyette, senior partner in the employee benefits practice group at the law firm Hanson Bridgett.
Employers also maintain that they aren’t getting good value for their healthcare spend. In 1988, employer health spending was about 6% of total wages and now it’s 12%. “Business leaders have less money to put in their employees’ pockets because they are spending more on health insurance than ever before,” says Benjamin Isgur, health research institute leader, PwC, which analyzes trends affecting health-related industries.
Advantages of employer involvement
Since healthcare costs will most likely continue to rise, and healthcare benefits remain important in attracting and retaining top talent, many employers are exploring how to become more involved in their healthcare program design, including adopting wellness programs and making other more direct interactions with their employees on health issues, such as providing onsite healthcare clinics, Boyette says.
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With so much of their money going toward healthcare costs, employers want to know that they are getting a return on their investment. For example, if an employer can pay a small additional cost to make it easy for employees to access preventative care and other wellness program offerings, like smoking cessation, exercise, or nutrition classes, employers may see greater involvement in healthcare as a way to have more control over outcomes of their large expenditures for healthcare coverage.