What strategies are really helping employers control health care costs?

Health Care Current | October 2, 2018

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies, and provides updates and insights on policy, regulatory, and legislative changes.

My Take

What strategies are really helping employers control health care costs?

By Sarah Thomas, managing director, Deloitte Center for Health Solutions, Deloitte Services LP

The annual fall open-enrollment period is just around the corner for many employers. Workers who receive health coverage through their jobs will choose a new health insurance plan or will re-enroll in existing coverage for the year ahead. For the 2019 plan year, annual coverage costs are expected to increase to nearly $15,000 per employee, according to estimates from the National Business Group on Health.

I am seeing a resurgence of interest among employers in using innovative approaches to manage benefits. Just a few years ago, the lion’s share of activity was on shifting more costs to employees. That strategy appears to have run its course, and employers and other stakeholders are looking for new ways to reduce coverage costs while adding value to their employee benefits.

When thinking about how to get more value from the health care system, employers should follow the money. A recent analysis of commercial claims data conducted by my Deloitte colleagues determined that more than half of commercial health care dollars are spent on just 5 percent of the insured population. Moreover, just 1 percent of the insured population consumes 27 percent of the health care dollars. This finding has been consistent over time. It suggests that programs designed to improve care—such as chronic-care management for this typically very sick part of the population—might have a significant return.

I’d put innovation opportunities for employers into two buckets: (1) Improving care for people who are sick (where most of the money is spent), and (2) keeping healthy people from getting sick.

Bucket one: Improve care management for the sickest
Employers, health plans, physicians, and health systems should target the small percentage of employees (and dependents) who consume the most health care resources. Technology, such as predictive modeling, could help health plans identify people who are most at risk for using expensive services. Data related to practice patterns could help identify the physicians and hospitals that have the best results for treating certain conditions. Apps can give employers a way to help their workers find lower-cost services, remind them to take their medicine, and connect them to coaches and counselors.

Employers also could help manage their sickest insured populations by partnering with efficient providers who are willing to innovate their clinical model. Both self-insured employers and those that purchase insurance from at-risk health plans can learn from other employers, as well as from the Medicare and Medicaid programs. The challenge facing many employers is how to replicate innovations. Not all employers have leverage in their markets or maintain relationships with health plans or health systems that want to be transformative.

Strategies some employers have used to reduce costs for their sickest members include:

  • Transition to value-based insurance designs: The overall trend in benefit design has been to increase employee cost sharing, but some employers are recognizing the limitations of this strategy. While research supports the idea that people use less care (both necessary and unnecessary care) when they have higher cost sharing, this might not have much of an effect on people after they exceed their deductibles. Moreover, higher cost sharing could promote non-adherence to drug regimens. A recent study in the journal Health Affairs found that value-based insurance design—which reduces cost-sharing for high-value services—can improve medication adherence without increasing overall spending.2 But the value in value-based care has to go beyond cost. A patient recently diagnosed with cancer, for example, might be more concerned with outcomes than with cost. Employers can help their workers navigate care with tools that identify high-quality providers and offer comparable information about prices.
  • Forge health system partnerships with innovative providers: At the Boeing Company, lower-back pain among workers accounted for a significant share of the company’s health care spending. The manufacturer launched an initiative with local health systems that helped to reduce spending (reportedly 20 percent), lowered absenteeism, and improved outcomes for lower-back pain by referring patients directly to physical therapy and avoiding often unnecessary surgery.3 Similarly, one major retailer has been directing its employees to high-value health systems—even the Mayo Clinic—to get medical care.
  • Consider accountable care organizations (ACOs) for certain conditions: Some employers have partnered with health systems that operate as ACOs and take risk for the total cost of care. Pennsylvania-based Geisinger Health System, for example, participates in The Employers Centers of Excellence Network. The employers involved make bundled payments for the treatment of spine, bariatric, and cardiac surgeries, which shifts the risk of additional costs related to complications onto network providers. To encourage their workers to use this program, participating employers cover copayments, deductibles, and travel expenses.

Bucket two: Keep the healthy, healthy
Preventing people from becoming sick not only lowers health care spending for employers, it also helps to keep workers more productive. Employers continue to support wellness programs, and some employers are working with health plans and others to encourage employees and dependents to exercise and eat healthily. Adoption of apps and fitness trackers is on the rise, according to the results of our health care consumer survey. The number of consumers who track their health data with wearables has more than doubled since 2013. While such programs can help to improve employee health, they tend to attract people who would have been healthy anyway.

Here are three strategies employers can use to help keep their other employees healthy and engaged, and improve their access to care:

  • Consider on-site primary care facilities: On-site primary care facilities, which offer convenient care and wellness services, have become popular among some large employers. Companies such as Iora Health, for example, have developed new and innovative models that promise to provide better care at a lower cost. A recent Harvard Business Review profile of Iora Health found that their model helped reduce hospitalizations among members by 40 percent, and total health care spending decreased by 15-to-20 percent.3
  • Help connect employees to health advocates: Health advocates can help employees and their spouses navigate everything from understanding their benefit options, to finding specialists for hard-to-diagnose diseases, to negotiating medical charges with hospitals and doctors, to resolving claims-processing issues with insurance companies. According to the results of our recent consumer survey, about 50 percent of people would be interested in using an advocate to help appeal a health insurance claim or to figure out how to reduce prescription costs (see the figure below). Health advocates could help consumers navigate prescription assistance programs or use their benefits to help ensure they are getting the lowest cost for their prescription medications.


While a variety of organizations provide health advocacy services, more consumers would trust an independent health advocacy/navigator service (44 percent) or a hospital to provide the service, rather than a health plan (36 percent), or their employers (24 percent). Employers or health plans looking to offer these services should consider ways to build consumer trust, such as ensuring privacy and confidentiality, and maintaining clear communication about these services and how they are used. Employers could also consider partnering with reputable third-party organizations.

  • Navigate toward virtual care: A recent news article highlighted Comcast Corporation’s employer strategy, which it credits with keeping costs below the rate of inflation—just 1 percent.4 The strategy combines navigators, who help employees use their health benefits, and a strong emphasis on offering workers access to a doctor via cellphone. Virtual health is also considered a core component of value-based care, and a growing number of private health plans are paying for telehealth visits. As of 2016, 74 percent of large employer-sponsored health plans had incorporated telehealth into their benefits (up from 48 percent in 2015). See more from our consumer survey on virtual health care.

Employers entered the health insurance business after the Stabilization Act of 1942 made it difficult for employers to compete for workers based on wages. In response, many employers began offering health insurance, which was not taxed as income, to their workers. Over the next seven decades or so, employers have used a wide range of strategies to help keep coverage costs in check. Innovation among employers could help to crack some tough nuts, and other employers and purchasers might be able to learn from their successes and missteps.


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In the News

House and Senate announce bipartisan opioid legislation agreement

In a September 25 press release, bipartisan leaders from eight House and five Senate committees announced an agreement on legislation targeting the opioid crisis. According to the announcement, this bicameral and bipartisan agreement will allow final legislation to pass through the House and Senate before reaching the president’s desk. The House passed the SUPPORT for Patients and Communities Act in June, and on September 17, the Senate passed a package of 70 bills targeting the opioid crisis (see the September 25, 2018 Health Care Current). Included in the bill’s provisions are measures to:

  • Block fentanyl from being imported through the mail
  • Remove the rule prohibiting Medicaid from paying for the treatment of patients who have severe mental illness in most inpatient centers
  • Allow physician assistants and nurse practitioners to prescribe the anti-addiction medication buprenorphine

(Source: House Energy and Commerce Committee, Bipartisan Committee Leaders Announce Opioid Legislation Agreement, September 25, 2018)

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FDA issues two guidances to streamline application process for drugmakers

On September 24, the US Food and Drug Administration (FDA) issued two guidance documents—one draft and one final—focused on streamlining drug and biologic review processes and helping developers submit high-quality applications. In a press release, FDA Commissioner Scott Gottlieb, M.D., stated that these documents are part of the agency’s Drug Competition Action Plan and are intended to “reduce application cycling by clarifying for industry how it can submit complete, high-quality applications from the start.”

The draft document, “Good Review Management Principles and Practices for New Drug Applications and Biologics License Applications,” is intended to reduce the number of review cycles needed for approval, according to FDA. It applies to new drug applications (NDAs) and biologics license applications (BLAs).

The finalized document, “ANDA Submissions—Content and Format of Abbreviated New Drug Applications,” helps generic drugmakers prepare complete abbreviated new drug applications (ANDAs) for FDA review. According to the agency, this document incorporates comments received following the draft version’s release in 2014.

(Source: FDA, FDA takes new actions to reduce the time that it takes for safe and effective new and generic drugs reach the market, September 24, 2018)

VA hospitals see care quality improvements

Nearly three-quarters of US Department of Veterans Affairs (VA) hospitals have shown improvements on care quality and patient outcomes measures, according to data from VA’s most recent Strategic Analytics for Improvement and Learning (SAIL) report card. In a September 18 news release, the VA compared its most recent data to a report from the same time last year and noted that 103 VA Medical Centers (or 71 percent of all VAMCs) showed improvement in overall quality. The largest gains were in areas with VA-wide improvement initiatives, such as length of stay, mortality, and avoidable adverse events. Only seven VAMCs (5 percent) showed a small decrease in quality.

Of the 15 VAMCs placed under the Strategic Action for Transformation program (StAT) initiative to monitor high-risk medical centers and provide resources to assist facilities, five are no longer considered high-risk, and 11 have shown improvement since being placed under the program in January, the report added.

The SAIL report, which has been released quarterly since 2015, assesses 25 quality measures and two productivity and efficiency metrics in areas such as complications and patient satisfaction, mortality, and overall physician capacity at 146 VAMCs. According to VA, it uses the data from the SAIL report to identify best-practice efforts and to develop strategies for facility improvement.

(Source: VA, VA SAIL report scorecard shows majority of VA medical centers have improved over past year in quality of services provided to Veterans, September 18, 2018)

CMS funds new partnerships to develop quality measures

The Centers for Medicare and Medicaid Services (CMS) partnered with seven organizations to develop quality measures for physicians and other clinicians in Medicare’s Quality Payment Program (QPP). The organizations include clinical professional organizations and specialty societies, patient advocacy groups, educational institutions, independent research institutions, and health systems. The program has $26.6 million in funding. This is the first public-private partnership that CMS has funded to develop quality measures under QPP.

QPP is part of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

According to CMS Administrator Seema Verma, the funding aligns with the Meaningful Measures initiative, through which CMS intends to advance measures that can help reduce the burden on clinicians, improve patient outcomes, and drive high-quality care. The selected partners will work to create better measures for certain clinical specialties and will focus on patient-reported and functional status measures.

CMS says the next phase of the Meaningful Measures initiative will include measures that could help reduce administrative data burden.

(Source: CMS, CMS Awards Funding for Quality Measure Development, September 21, 2018)

California approves ban on short-term insurance

On September 22, California Governor Jerry Brown (D) signed legislation banning short-term, limited-duration (STLD) health insurance plans from the state next year. California is the first state to take this step since the administration issued new rules expanding their use. Under the administration’s final rule, states have regulatory authority to approve or limit STLD plans (see the August 7, 2018 Health Care Current). Several states already prohibit the sale of STLD insurance plans. According to California’s insurance department, about 15,500 Californians had STLD insurance as of the end of last year.

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New Mexico to transition to a state-based exchange

On September 21, the board of New Mexico’s health insurance exchange, beWellnm, voted unanimously to transition its individual market to a state-run exchange by the 2021 plan year. Today, New Mexico uses the federal exchange platform,

New Mexico paid two percent in premium payments (about $5.4 million) to use the platform for 2018, but the cost will increase to 3 percent of premium payments, totaling more than $10 million in 2019. The director of the state’s insurance exchange expects New Mexico will save more than $8 million in 2025 by transitioning to a state-run platform.

Related: In August, Nevada’s exchange board approved transitioning from a federal platform to back to a fully state-run marketplace by 2020. Nevada previously operated a state-based exchange, but moved to the federal enrollment platform for its individual market in 2015.

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Federal workers to see smallest premium increase in more than two decades

Federal employees will see their health insurance premiums increase by an average of 1.5 percent for the 2019 plan year, and the federal government’s share will increase by 1.2 percent, the Office of Personnel Management (OPM) announced on September 26. According to the agency, this is the smallest rate increase since 1996. Several factors, including lower-than-expected claims for some health plans, renegotiated contract rates with providers, and greater use of telehealth services helped contain the rate increase, according to OPM.

The Federal Employees Health Benefits Program (FEHBP) provides health benefits to about 4 million federal workers, and another 4 million spouses and children. About 70 percent of premium costs are paid by the federal government. For the 2019 plan year, the FEHBP will offer 265 health plan options, including 16 national health plans. The open-enrollment period will begin November 12.

(Source: OPM, OPM Announces 2019 Health, Dental, and Vision Program Premiums, September 26, 2018)

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Breaking Boundaries

Innovation is needed to prepare for pandemic influenza

Health care stakeholders are concerned that the world is not adequately prepared to confront a pandemic. The Spanish flu killed at least 50 million people a century ago. Although we’ve made progress fighting infectious diseases like the flu, many countries still lack sufficient public health surveillance. Moreover, vaccines can take months to develop and distribute.

In September, three international flights coming into the US were quarantined after some passengers and crew members complained of flu-like symptoms. After observing the passengers, it was determined they were suffering from seasonal flu. But many public health officials think it is only a matter of time before we face the next pandemic flu.

An article in the September issue of Science Advances focuses on recent strides toward a possible pandemic flu vaccine. The research team that authored the article outlined some the steps they took to improve pandemic flu readiness:

  • They developed a microneedle that penetrates the top layer of skin rather than the muscle, making it possible for patients to administer their own vaccines (by affixing a bandage to their skin) rather than having a nurse or trained clinical person give them an injection.
  • They also expedited the production of a noninfectious flu vaccine that could protect against a deadly flu strain. The team achieved vaccine production in 3-4 weeks, in comparison to the 4-6 months it typically takes to produce egg-based vaccines. Instead of eggs, the teams used a tobacco plant-based system.
  • The vaccine also had an immune booster, or adjuvant, which was shown to be safe in their trial.

Next steps include larger human trials and the development of a flu vaccine that can be administered through dissolvable microneedles inlayed in a bandage.

Many public health and national security stakeholders agree that the US should focus on establishing new approaches to quickly produce drugs, vaccines, and rapid diagnostics for novel pathogens. The House recently passed the Pandemic and All-Hazards Preparedness and Advancing Innovation Act of 2018, H.R. 6378 (115). The bill would reauthorize and boost funding ceilings for HHS programs to develop responses to pandemics and biological threats.

In 2014, the US launched the Global Health Security Agenda (GHSA), a five-year, $1 billion initiative to establish an international effort to strengthen countries' abilities to prevent, detect, and respond to outbreaks. More than 60 countries are involved, along with the World Health Organization and other groups. Early successes include improved surveillance of multi-drug-resistant bacteria in Vietnam and faster responses to disease outbreaks in Uganda. GHSA's funding will run out next year and future US funding is uncertain.

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