Cost pressures cause more pain, employers now looking at value

November 1, 2010

Employers are beginning to focus on price in the broader context of value according to industry analysts

NATIONAL REPORTS-Employers are beginning to focus on price in the broader context of value, say industry analysts.

The lack of cost-containment measures in healthcare reform has lead to an increased awareness among employers of the need to aggressively manage their total employee health costs. And they will be more inclined to start comparison shopping, says George Stadtlander, executive vice president and chief managed care officer, Medical Mutual of Ohio.

"Price is still tops in employers' minds," he says. "So employers are looking at innovative strategies that the plan has in place to control or drive down costs while still delivering quality care."

Concerns over striking a reasonable balance between cost and quality of care have led many employers to consider value, not just price alone, in their assessment of health plans. Value propositions also take into consideration the services that a plan delivers, particularly services with the potential to help manage costs.

Several key strategies are emerging as the most desired by employers, including transparency, evidence-based care, wellness and the plan's ability to engage employees in programs such as disease or population-health management, which ideally lead to more cost savings through improvements in member lifestyle and health choices.

Employers also are noticing that sophisticated technology is foundational to all of their cost-containment strategies. More will be seeking plans that have the ability to integrate clinical and claims data through an electronic medical record.

"Payers that can support employers in incenting value will become the players of choice," says Michael Thompson, a principal with PricewaterhouseCooper's Health Industries Practice.

The size and scope of the plan's network, while not a driver on its own, plays a role in a plan's ability to deliver value because of the discounts associated with in-network care. In a true value-driven environment, payers will develop variations in cost sharing to promote utilization of higher performing networks and promote greater utilization of top tier providers. Member education will drive employees to make better decisions.

Employee engagement is directly tied to a plan's ability to manage costs and deliver value. Employers are scrutinizing the plan's tools and strategies for educating and engaging employees on issues such as evidence-based care. Also, value-based prescription drug benefits must be studied to gauge their effectiveness in helping employees better manage chronic conditions.

"The bottom line," Stadtlander says, "is getting [employees] to ask whether they are getting the highest quality care that will drive down costs."

Employee wellness and health promotion programs are another emerging touchpoint among medium and large employers. According to a recent Towers Watson study, 86% of employers plan to increase employee engagement around wellness, and 65% plan to increase incentives for employee participation in such programs.

"Health plans with a proven track record of engaging employees and influencing behavior will be in high demand," says Julie Stone, senior consultant and practice leader at Towers Watson.

ACCOUNTABLE CARE

The pressing need for plans to deliver a total package to employers and demonstrate value is moving the focus away from traditional plan design and cost shifting by increasing deductibles and other out of pocket costs. Medium and large employers are interested in health plans that are innovating new forms of provider reimbursement, which most analysts believe is needed for long-term reductions in healthcare costs.

Health plans that can arrange for accountable care, bundled payments and medical homes will gain an advantage with progressive employers that are seeking value-based plan design and collaboration.

According to Towers Watson, employer healthcare costs for active employees are projected to rise 8.2% (after plan changes), to an average annual cost of $10,730 next year.

Separately, Buck Consultants reports cost increases of 10.6% for HMOs, 11.6% for PPOs and 11.3% for high-deductible plans.