Corporate America’s poor return on investment for employer-provided health benefits, the largest P&L expense other than payroll in many organizations, continues to perplex C-Suites everywhere. At the root of this dilemma is a combination of largely systemic factors coupled with circumstance. While there are solutions at hand that can vastly improve ROI (more on that later), mounting evidence of this phenomenon can be found on a number of fronts:
- Perverse market forces. The law of supply and demand doesn’t seem to apply to the nation’s healthcare system. At a time of record profits for health insurers, costs keep rising while utilization has actually decreased, according to the Centers for Medicare and Medicaid Services.
- An unhealthy population. Americans are unhealthy, and it is only getting worse. More than half of U.S. adults exhibit one or more chronic disease, such as diabetes, high blood pressure or heart disease, while roughly two-thirds of the country is considered overweight. Given this backdrop, it is not surprising that more than 85% of health costs are directly attributed to treating chronic conditions. And as the health of Americans worsens, healthcare costs are expected to continue to rise.
- Lack of information. U.S. consumers have never been more informed about products and services sold across virtually every marketplace – except for healthcare. A lack of transparent pricing and complicated contracts, as well as confusing billing schedules and schemes, makes it difficult for patients to accurately determine the cost of healthcare services. As a result, medical debt has now surpassed $140 billion, which is now the largest category of debt in America. In response to growing concern over this troubling trend, Congress enacted the No Surprises Act, but it is anyone’s guess whether the legislation will contain healthcare costs and halt soaring debt.
- Poor quality. Apart from making healthcare more affordable, the Affordable Care Act also was supposed to improve quality. Neither has happened, though federal subsidies have at least temporarily eased the burden of rising out-of-pocket costs for those who are eligible for such assistance. The fact is that overtreatment and unnecessary repetitive treatments still occurs, resulting in more revenue for doctors and facilities and higher costs to patients. To a large extent, the system’s perversity is still very much intact in spite of this 12-year-old landmark law.
- Employer plan bias. The Kaiser Family Foundation estimates that nearly half of the U.S. population obtains health insurance coverage through an employer. The problem for consumers of these services is that employers typically elect plan options based on what is best for them and their financial position – not the member. This conflict of interest amounts to a breach in fiduciary duty under the Consolidated Appropriations Act. Given the legal ramifications and hefty fines associated with CAA violations, far more attention is expected when it comes to redesigning health plans.
This last point is where U.S. employers can begin to stem the tide of rising healthcare costs and improve quality of care. It begins with designing plan options that are in the best interest of the health plan members. In doing so, benefits utilization increases and clinical outcomes will improve. Other methods, including self-funding and embracing alternative risk transfer arrangements such as captive insurance, also help stem rising healthcare costs, but any action to reduce costs should first start with getting the member population healthier. Doing so will make healthcare more accessible and affordable to average Americans, which will also produce better results.
Ryan S. Mitchell is Global Accident & Health Leader and Reinsurance Deputy Partner for Wisterm