Featured in Health Business Daily, Oct. 3, 2017

Higher Deductibles, Spousal Cost-Sharing Are on Tap for Mid-to-Large Groups in 2018

Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry. Subscribe today!

By Jane Anderson
April 3, 2017Volume 27Issue 12

Mid- to large-sized employers likely will adopt health insurance plans with somewhat higher employee cost-sharing for 2018, but probably won’t move en masse to consumer-driven health plans or value-based insurance designs, benefit consultants say. Meanwhile, payers still are struggling with the burgeoning cost of specialty pharmaceuticals, and haven’t identified any truly effective way of managing that spend.

So as 2018 health benefit planning gets underway for larger and mid-sized employers, consultants expect little that’s truly new and ground-breaking — instead, they predict tweaks around already-established benefits designs.

“In the last few years, not much new has been happening,” says Paul Fronstin, director of the Health Research and Education Program at the nonprofit Employee Benefit Research Institute (EBRI). Fronstin tells AIS Health that in some ways, consumer-driven health plans are still considered new, and “that’s where we will continue to see the growth — slow, steady growth.”

“The easiest thing to do for employers is to raise the deductible, and that’s a thing we’ll see continue,” Fronstin says. Beyond that, employers may not want to adopt major changes to their health benefits design for fear of alienating workers in what’s becoming an increasingly tight job market, he says. In addition, costs aren’t rising fast enough right now to warrant major changes in health benefits.

Employer groups aren’t facing large premium increases for 2018 — so far, increases have been moderate, reports Karan Rustagi, consulting actuary for Wakely Consulting Group. “Large employer premium increases have been modest for the past few years. We are not seeing large changes in plan designs being considered, at least for our clients that offer group coverage.”

She tells AIS Health that she’s seeing “shrinking coverage for spouses, but not for kids,” as well. Spousal surcharges or other contribution strategies are one option for this.

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Mickelle Shults, also a consulting actuary for Wakely, adds that employer groups continue to look at high-deductible health plans as an option, “but I would say that 75% of the groups I deal with already have a high-deductible health plan in place. The bigger problem is getting folks to move into those plans.”

Employers offering those plans alongside a traditional PPO or HMO plan see very little uptake, even with contribution levels that incentivize the high-deductible plan, Shults tells AIS Health. Therefore, more employers are considering eliminating the traditional plan options and offering only the high-deductible plans, with either health savings accounts or health reimbursement arrangements.

Randy Vogenberg, Ph.D., a partner in Access Market Intelligence in Greenville, S.C., agrees that higher deductibles are on the horizon. He tells AIS Health that in 2018, he expects high-deductible health plans to account for 50% or more of the market, “along with increased deductibles for many plans that have not hit the magic $5,000 per-member level.”

On pharmacy benefits, Vogenberg notes that management of specialty drugs hasn’t improved, while the number of specialty drugs continues to rise. “Specialty drugs as a broad category remains the single biggest threat to plan performance and solvency of employer-based benefits,” he says. “I would expect new integrated solutions developed for new product offerings in 2018 and 2019, but limited value in blunting the trends.”

“Our national surveys of employers the past five years has shown little significant movement in more effective management of specialty drugs, while the number and use of those drugs continues their rapid rise in the market,” Vogenberg says.

Plan sponsors are overwhelmingly focused on pharmacy costs, especially specialty pharmacy costs, says Julie Stone, specialty practices and intellectual capital integration leader, health and benefits North America at Willis Towers Watson. “Ninety-six percent of employers say they are focused on this,” Stone tells AIS Health. “It is top on the list from a cost driver perspective resulting in it being the primary area of focus.”

Drug Benefits Are Major Target for Employers

Stone expects continued focus on generic substitution “as there is still a significant opportunity to lower costs through this element of program design.” In addition, she says, “consideration of formulary design and site of care relative to specialty medications are likely to continue. There will also be continued vendor contracting to optimize price, and growth in group purchasing.”

Shults agrees that prescription drugs are a major cost driver for 2018. She says employers are looking to carve out specialty drugs, and also want better options for rebates and more transparency. “If the employer group actively pushes to get this reviewed, we have seen anticipated savings of over 25% of Rx spend guaranteed as a result of renegotiating the pharmacy benefits,” she says.

William De Marco, founder and president of Pendulum HealthCare Development Corporation in Rockford, Ill., says the major cost-driving trends he’s seeing are prescription drugs and hospitalizations.

De Marco tells AIS Health that hospitalization expenses are on the rise again for plan sponsors following several years of moderation that coincided with the institution of high-deductible plans. “People were delaying care” due to high deductibles and copays for services, he says. “Now we’re seeing [expenses] specifically for chronic disease that could have been avoided.”

Shults, though, disagrees: “I find that a lot of employers moving to high-deductible plans have reasonably controlled medical spend — if they went all in and got rid of the traditional plans. For the groups that continue to just pick away at benefits by changing deductibles by $50 or tiny tweaks to copays, their costs just continue to go up because the employers aren’t changing utilization patterns or the thought process by employees on how they purchase medical benefits.”

Employers Experiment With ACOs

Still, the more innovative employers will start to experiment with different benefit designs, Fronstin says. For example, some employers are using accountable care organizations (ACOs) as the backbone of their networks as a way to interject hopefully lower-cost value-based care, he says.

De Marco agrees this is a trend — in fact, he says, some employers are taking it a step further by instituting ultra-narrow networks or even on-site company-run clinics. These types of set-ups, when implemented properly, can produce cost savings similar to those of a well-run staff-model HMO, he contends.

“I’m seeing more and more organizations that are considering this,” De Marco says, adding that smaller companies can consider banding together to open a clinic for all their workers. This model, or a model based on a hand-picked, ultra-narrow network of physicians and hospitals, can help bend the cost trend and improve employee health and productivity, he says. “Employers are starting to realize that not all physicians practice the same way.”

The most innovative large employers are looking at value-based contracts with hospital centers of excellence for services such as joint replacement, De Marco says.

But Vogenberg says he’s skeptical. “Value-based care remains a long sought-after goal, but [it’s] still unclear from plan to plan what that really means, along with how you measure care performed,” he says. “The continuing paucity or unreliability of metrics that are meaningful to employer plan sponsors plagues self-funded plan decision-makers and ‘C’ suite.” The market is “more likely to seek newer solutions with better data,” he adds.

In reality, narrow networks — whether based on value or just price — aren’t catching on very quickly. A December 2016 EBRI report found only 7% of employers with health plans offered a narrow network.

“There is a reluctance to go in that direction,” Fronstin says. Reasons include lack of a track record showing sustained year-over-year savings, concern about antagonizing workers, spotty availability of narrow networks, and a reluctance to adopt major benefit design changes until the future of the Cadillac tax is resolved.

Still, that EBRI report found signs that employers’ interest may grow in the near future. More than one-third of employers with health plans that cover 5,000 or more workers now offer some type of alternative network, including tiered or “high-performance” networks.

The same goes for private exchanges. “It’s eerily quiet,” Fronstin says, adding that the “hype” predicting rapid growth in that market “was wrong — it usually is. Most major trends in employee benefits take a long time to play out.” He estimates that 7 million to 8 million people are in private exchanges right now, depending on how “private exchange” is defined.

Vogenberg adds, “Private exchanges are likely to drop in popularity again for 2018 due to the inability to offer easy-to-utilize plans over time. The multi-year element of time is important to employers, unlike the ACA exchange plans that are focused on an individual year. There are other aspects of a private exchange that make them less competitive in many major markets or large accounts.”

Employers Tweak Benefit Designs

Shults agrees. “Employers like to talk about private exchanges but it really isn’t a feasible option for any of them so far that I deal with. They have zero interest when they really understand what it is.”

Meanwhile, employers and benefit consultants are keeping a close eye on the Affordable Care Act repeal-and-replace efforts in Congress (see story, below). However, it’s difficult to determine how this effort might affect employer plans, analysts say. Vogenberg says he anticipates some “short-term pain but a greater likelihood of relief over the long run to keep employers in the insurance game.”

Rustagi says she’s seeing some employers “talk about setting up association plans, Multiple Employer Welfare Arrangements or self-funded arrangements in the mid-sized markets to avoid ACA and all the uncertainties about its future.”

Regardless, Stone says employers are moving forward with 2018 decision-making even as Congress debates repeal of the ACA. “The outcome of the debate may impact employers longer-term relative to changes in health savings account regulations, stability of the insurance markets, and more. There may also be some retroactive changes that waive certain penalties for non-compliance,” she adds.


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