Dr. Ari Hoffman serves as Collective Health's Chief Clinical Officer and VP of Population Health.
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The cost of healthcare keeps business leaders and employees up at night. Benefits are typically the most expensive line item after payroll, and prices are only expected to rise. Employers are bracing for the largest increase in healthcare costs in a decade, with trend estimates as high as an eye-popping 8.5% in 2024.
Employers still pay most healthcare costs, but the burden on employees and their families is ever-increasing. This includes contributions to premiums, deductibles and other forms of cost-sharing. The prevalence of medical-based crowdfunding efforts gives us insight into how dire the situation is; the popular site GoFundMe, for example, raises upwards of $750 million annually for health-related campaigns.
The increasing reliance on crowdfunding to cover medical expenses should be cause for concern. As my friends at the organization Costs of Care say, “Nobody should have to choose between their life and their life savings.” Unfortunately, this is exactly what millions of people do every day. As costs become increasingly prohibitive, especially amid rampant inflation and broader economic turbulence, we must work to bring prices down and improve affordability at large.
Defining Affordability
I like to conceptualize healthcare affordability as an index. For simplicity’s sake, affordability is the amount of money individuals spend on healthcare—monthly contributions plus out-of-pocket expenses like deductibles, copays and coinsurance—as a percentage of their annual income. This provides a sense of whether expenses will impede medical care or lead to debt or bankruptcy.
These numbers tend to be presented as population averages, but it’s important to consider this index at an individual level because, after all, people aren’t averages. It’s cold comfort to know the average individual out-of-pocket expense is $1,763 if your personal expense is $2,000 or higher. To make matters worse, individual and system numbers are on entirely different scales; astronomical individual costs seem minuscule compared to the healthcare expenses of a large employer. But copays add up. Many can’t afford their current cost-sharing obligations, forcing them to make brutal tradeoff decisions like foregoing medication to pay for utilities.
That’s the system we’re up against: pricey, fragmented and ineffective. As an employer, striking a balance between purchaser and individual affordability is essential to maintaining employees’ access to affordable and comprehensive coverage while still keeping costs in check.
The Cost Containment Toolbox
Controlling plan spend is already at the top of employers’ minds. To effect lasting, valuable change, individual affordability should be an integral part of any cost containment strategy. Every tool is critical, but members won’t directly feel the impact unless their monthly contribution and/or out-of-pocket spend goes down.
Let’s explore how to wield these tools with an unblinking eye on individual affordability.
Contracts
As healthcare purchasers, start by addressing the unit costs of healthcare via network contracts to achieve the best possible discount rates for your population and geography. This is a key first step in health spend management. Your savings from unit-cost reductions through contracts would be well spent by reducing (or at least maintaining) employees’ monthly contributions and limiting other cost-sharing for high-value services.
Benefit Design
Over the past two decades, the rising costs of healthcare have shifted to members in various ways. In addition to steadily increasing premiums, deductibles and other cost-sharing have skyrocketed. This has given rise to the concept of underinsurance, where even those with private, employer-sponsored insurance are facing medical debt and personal bankruptcy to cover needed medical care.
Thoughtful plan design can create incentives for people to move the needle on both unit price and utilization, so long as members understand their plans, have agency and support to navigate them and aren’t financially penalized for illness or factors outside their control.
Utilization Management (UM)
Through the lens of appropriateness, UM has the potential to evolve beyond the use of blunt cost containment tools like prior authorization. It can become a mechanism for ensuring the use of high-value services on top of the avoidance of low-value services. Encouraging employees to use preventive and primary care, for example, can drive down costly emergency room and hospital visits down the line.
Navigation And Care Management
Members need guidance to make well-informed decisions about the services, treatments and resources available under their plan. This leaves them better equipped to identify cost-effective treatment options and reduce any unnecessary tests or procedures. The navigation you provide should span the entire benefits journey, from plan selection to evaluating appropriateness to adherence. Affordability impacts every one of those steps.
Payment Integrity
Your benefits leaders must confirm your company pays a fair and accurate unit price. A comprehensive approach to payment integrity protects individual members from overpayments; ensures cost-sharing arrangements for members like deductibles, copayments and coinsurance are accurate; and contributes to stable and predictable premium costs.
Individual Affordability And Population Health Promotion
As an employer, your challenge lies in controlling healthcare spend without passing costs to members or undermining population health. As we design for better affordability overall, individual challenges are paramount.
When controlling chronic disease is both cost-effective and simplified, people are more likely to take advantage of the resources that can help them live healthy and productive lives. This, in turn, promotes a healthy and productive workplace. Employees take fewer leaves of absence, are better equipped to produce good work and are less likely to churn.
With healthcare costs rising year over year, it's our responsibility to ensure benefits are accessible to our workforce. Making individual affordability a pillar of your cost containment strategy is the best bet for addressing affordability challenges at every level.
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