Feature Article:
Cost Containment in the Large Group Health Insurance Market
By: Dorothy Cociu, RHU, REBC, GBA, RPA
President, Advanced Benefit Consulting & Insurance Services, Inc.
OCAHU Vice President, Communications & Public Affairs
If you’ve worked in the large group market, you know that large group employers constantly struggle to keep their health costs down. The good news is that in the large group market, there are generally more options available to assist the large group employer, although some do involve a certain amount of risk.
The rule of thumb is that the majority of costs come from a small group of individuals with chronic illnesses or catastrophic events. Finding ways to manage the cost of these types of claims and care will generally bring down the overall costs. This can be done with a variety of options for chronic and disease management programs, directed care to network providers or providers accepting a fixed rate payment (such as a percentage of Medicare in a reference based pricing plan), a strong preventive program to catch the big stuff before it becomes chronic, and RX cost management. Another important thing, with unfortunately little control over in some circumstances, is finding ways to prevent or regulate the overcharging of facilities and providers. That is of course a more difficult scenario.
Obviously, if the large group employer is fully insured, the cost containment options have somewhat minimal flexibility. Of course the employer can choose wider vs more narrow networks, where the brokers usually want to provide a good provider matching analysis to be sure the majority of the used providers are covered in the network. Part of that analysis should also be comparing the cost vs. benefit. Obviously more narrow networks can reduce savings, but more obviously, many providers may be lost in the transition. The question is, does reducing the network size actually reduce costs?
The smaller network is generally created based on the prices for services that those providers are willing to accept for services. If they don’t accept the lower pricing structure, they are not included in the narrow network. Some would argue, however, that the more quality providers will not, and should not, accept those lower rates from the network, so are we really reducing costs or are we forcing participants instead to use non-PPO providers, where there is less control over costs, other than the lower PPO non-network benefit levels? I’ve seen compelling arguments on both sides.
Obviously, employers can make deductible selections and compare HSA options and compatibility. But most agents have learned that not all employers and employees want high deductible health plans, and this alone does not lower premium costs as much as they once did.
You can also mix and match plan design options, such as deductibles, copays, OOP maximums, chiropractic options, fertility options, etc. These of course vary by carrier.
One of the biggest cost savers is in the selection of the RX plan. Pharmacy Benefit Managers (PBMs) vary greatly, and should be carefully and methodically examined and compared. Don’t just select the lowest price plan. You need to be sure to check the variances in the types of brand names and specialty drugs covered, as well as the formulary options. Keep in mind, high cost specialty drugs for cancer, Hep-C and other drugs can be catastrophic in some cases to the employer and covered participants.
Today we also have options available with Accountable Care Organizations (ACOs), where groups of doctors, hospitals, and other health care providers come together voluntarily to fie coordinated high-quality care to Medicare patients. The goal of this coordinated care, according to CMS, is to ensure that patients get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. Today, insurers are duplicating this method in the group product sales, including Anthem (Vivity), Blue Shield (Trio), Aetna (Whole Health), etc. Kaiser has always emphasized using integrated care and electronic records to identify members with chronic illnesses, who account for 80-85% of the overall health care costs.
The Affordable Care Act (ACA) led to the creation of Minimum Value Plans (MVP), Minimum Essential Coverage Plans (MEC) to keep costs down, after the ACA forced employers with 50 or more (applicable large employers or ALEs) to offer coverage to their employees. It’s important to keep in mind, if you are offering these plans to your employer clients, or if you’re an employer, that MEC plans will eliminate the $2,000 penalty, but will NOT eliminate the $3,000 penalty for employees who go to the exchange and qualify for premium subsidies. MVP plans meet the requirements and avoid penalties in both areas.
I truly believe that one of the keys to keeping plan costs down in the large group market is to keep the RX costs under control. Prescription drugs are a large portion of the overall cost of a group health plan. Prescription drug costs continue to rise and pharmaceutical companies advertising their highest cost drugs have done nothing to help the situation. In fact, they have, in my opinion, exasperated the situation.
The enormous growth in costly new drugs for complex diseases and long patent periods are causing limited generic alternatives. Primary cost drivers include price inflation, rebates on brand and specialty drugs, utilization increases (much can be contributed to TV advertising in my opinion), and new, high cost specialty drugs. According to the Express Scripts Drug Trend Report 2016, published February, 2017, Drug Trend was 10.3% in 2017 and is projected to be 11.6% in 2018, and 12.7% in 2019. Published data shows brand name drug prices have increased nearly 11%. Specialty drug spending is forecast to increase another 15% in 2018, which is up to 50% of the total dollars spent on pharmacy costs.[1]
The highest cost medications on the market right now are gene therapy agents such as Kymriah ($373k), Luxturna ($850k) and Yescarta ($475k). Hep-C drugs have received a lot of press due to their enormous price tags. Yes, they CURE the disease, not just manage it. But there is a high cost attached to that. Treatments ranged from 12 to 24 weeks initially, and are not down to 8 to 12 weeks. You’ve all heard the stories… I had self-funded clients a few years ago paying about $180k for the treatment, which lasted up to 6 months or more. Then there was Sovaldi, called the $1000 pill, that cost $84k for the 12 week cycle (although the same medication in other countries were a fraction of that cost).
According to Pro-Act data (Pro-Act is a PBM, used with permission), the first medications (Ribavirin and Interferon) were less than 30% effective and had to be used for close to a year. Due to the fact that they had significant side effects, members would often time not complete therapy due to intolerability. The average cost was approximately $60,000 annually. When Sovaldi, Harvoni, etc. were released, the treatment durations dropped (12-24 weeks), response levels rose (90-95% or better response), and tolerability improved. The initial medications costs $100k+ for the course of treatment, but due to increased competition from medications such as Epclusa and Mavyret, treatment courses could be now around $30,000.
There is no silver bullet, but key cost savings strategies continue to include utilizing advanced utilization management (prior authorization, step therapy, drug quantity management), therapy optimization and specialty drug management programs and specific specialty pharmacies within their networks to manage costs. The use of a percentage co-pays rather than a flat dollar co-pay also keeps costs down, because if the employee/covered person can see the actual cost of the drugs, they tend to make better choices. I highly recommend the use of mandatory mail order programs for ongoing maintenance drugs. Plan participants can also take advantage of manufacturer sponsored co-pay assistance programs. Also, if available, consider generic drugs only.
Obviously, the best way to contain costs in the large group market in my opinion is to self-fund. You then have the freedom to choose your plan components to make it work best for each employer. Plan design options can make or break a plan financially. Find the right TPA, the best and most affordable stop loss/excess loss carrier, the right network (or reference based pricing option), the most cost effective RX PBM, and monitor the costs constantly, and make changes as necessary.
I don’t have the space to detail all of the self-funded ideas I have in this article, but I will share some at the OCAHU BDS in February at a new CE class.
Bottom line, self-funding offers ERISA pre-emption, complete freedom of plan design (staying within the ERISA requirements and ACA requirements, of course), plan continuity (plan goes on long term; you can change the components you need to as time goes on, but you don’t have to change plans every few years like in the fully insured market when your carrier increases their prices), state uniformity, and so many more positive features. Yes, it’s more time-consuming for the agent. Sometimes you might get paid less than on a fully insured plan. Yes, the agent’s fees and commissions are 100% transparent, so your employer client sees how much you’re getting paid. But bottom line, it can save them money.
Self-funding can also offer price transparency with the use of reference based pricing programs (using Medicare rates as the payment allowance benchmark and eliminating the PPO network), which has seen considerable cost savings throughout the country. This requires a lot more prep time (90 days to 6 months prior to the renewal date) to allow for complete education of the HR Department and down to the end user, the employees and their covered dependents.
All in all, cost containment in the large group market can be successful, if the agent is willing to put in the time with data analysis and education.
##
[1] Express Scripts 2016 Drug Trend Report, Industry Averages, Dvorina, Nancy, “The Future of Specialty Drug Pricing”, In Vivo, 14, November, 2016
