Putting the Brakes on Healthcare Spending

A recent PwC report suggests healthcare spending rates are slowing down, defying post-recession patterns. While experts say the drop could just be a natural leveling off, more organizations may begin to make bigger, bolder changes to benefit plan designs in an effort to keep costs trending down.

Thursday, July 11, 2013
Write To The Editor Reprints

A recent PwC Health Research Institute report projects that healthcare inflation will rise in 2014 at among the slowest annual rates in 50 years.

The report, Medical Cost Trend: Behind the Numbers 2014, projects healthcare spending will grow at a 6.5 percent clip next year; a slowdown that, according to a PwC statement, "defies historical post-recession patterns" and is "likely to be sustained even as the Affordable Care Act adds millions of newly insured Americans to the health system in 2014."

Are large companies contributing to this drop-off, and is it a sign of progress in employers' quest to contain healthcare costs?

The slowdown could be viewed more as a "natural leveling off" of healthcare spending in the wake of the recession that began five years ago, says Ed Kaplan, senior vice president and national practice leader for New York-based Sibson Consulting.

"[This finding] doesn't surprise me," says Kaplan. "It's been like a heartbeat. We see spikes, but generally they're not sustained. Looking at the long-term, there's been kind of a deceleration."

Employers "have always been challenged by healthcare costs, which are continuing to grow faster than wages," says Mike Thompson, a principal in PwC's global human resources service practice.

"Now," he says, "with the Cadillac tax looming in 2018, employers are doubling down to bend the cost curve and avoid or defer the 40-percent excise tax on high-cost plans."

Thompson identifies three key trends at work.

"The first [trend] is bringing consumerism mainstream. Consumer-directed plans have generally been offered as an option, but increasingly will be offered as an employer's primary benefit plan," he says, noting that PwC's 2013 Health and Well-Being Touchstone Survey finds almost one-in-five employers already offering a high-deductible plan as their only plan. The poll of 1,047 employers also found approximately 40 percent of employers saying they are considering doing so within the next few years.

"These plans have been shown to reduce the demand for services and reduce trend rates as employees and their families learn to better manage the costs and value of services they seek."

Employers have also raised expectations for employee wellness and health management, continues Thompson.

"The great majority of major employers are already investigating significantly in population health management," he says. "But the results are mixed. Going forward, major employers are expected to develop more shared accountability for managing personal health and moving beyond incentives focused on participation to incentives focused on results."

Large companies are also looking closely at how healthcare is delivered to the workforce, for the first time in more than a decade, continues Thompson.

"Employers have largely not focused on delivery since the late 1990s, but in 2014 we will see a resurgence in delivery-based strategies. While some employers will begin to offer value-based designs that incent toward high-performance networks and lower-cost delivery options, others will offer new options such as telehealth, e-visits and an expanded role for on-site or neighborhood clinics."

As Thompson notes, and as HRE has reported, many companies have already begun to shift toward more consumer-driven health plans that put more responsibility and accountability for healthcare decisions in the hands of employees.  

Thus far, however, some companies and HR professionals have been reluctant to make drastic changes to benefits plans that would force employees to reach deeply into their own pockets, says Kaplan.

"HR executives are very sensitive and don't want to overdo cost-shifting to employees. They want to keep cost increases tolerable on an individual basis," he says. "So, it's little tweaks we're seeing -- a little tweak in the employee out-of-pocket premium cost, for instance."

Other examples of such "little tweaks" include small increases in participant copays for emergency room visits or prescription drugs, he adds, noting that some plans are forced to make more significant changes such as increasing plan deductibles for inpatient admissions.

Newsletter Sign-Up:

HR Technology
Talent Management
HR Leadership
Inside HR Tech
Special Offers

Email Address

Privacy Policy

PwC research, however, finds a growing number of employers considering more significant, large-scale changes for the near future. For example, PwC's Health and Well-Being Touchstone Survey finds 33 percent of employers across more than 35 industries saying they are considering turning to high-performance networks over the next year, for costly and complex medical procedures.

Contracting with high-performance healthcare networks and centers of excellence may offer many employers an opportunity to keep healthcare costs going down, says Helen Darling, president and CEO of the Washington-based National Business Group on Health.

"When we talk to companies and HR [leaders], they all say one of their biggest problems is containing [healthcare] costs," says Darling. "We now have the chance for improvement in cost reduction."

"There's a transformation going on in the health system," she says, "that will give HR executives a chance to change the way they buy healthcare for their employees, including through high-performance networks and centers of excellence."

Cost reduction through high-performance networks comes in two distinct ways, she says.

First, she says, "these systems are contracting with employers, giving them a reasonable package of services, and on a per-case basis it costs employers less."

Secondly -- and most importantly -- the quality these high-performance networks provide is typically better, creating less "repeat customers" and improved outcomes for patients, says Darling, adding that employers often see these workers return to work sooner.

"We're only on the cusp of the movement toward higher-performing providers," says Thompson. "There's a lot of activity in the healthcare system to transform organizations; to be more oriented toward population health management and higher-value care."

Going forward, partnering with high-performance networks will be a more integral part of how many employers develop their overall healthcare strategies, he says.

"It's aligning with what payors are doing to compete with health insurance exchanges," says Thompson. "Similarly, providers and employers need to leave no stone unturned as they seek to sustain high-value benefits for their employees."

Copyright 2017© LRP Publications