According to the Greek philosopher Heraclitus, “The only thing that is constant is change.” This certainly rings true for the year ahead in the world of employee benefits and human capital management. While not an exhaustive summary of the changes to come, the following touches on some of the key trends and area of focus for employee benefits in the near future.
Benefits Purchasing Strategies
According to PwC’s Health Research Institute, medical cost trend is projected to be another +6% in 2019. While medical inflationary trend has seemed to level out in recent years, this growth in health care spending continues to exert significant downward pressure on businesses and individuals alike. Some have attributed the rapid adoption of consumer-driven health plans (HSA-qualified plans in particular) as the leading contributor to reduced health care spending while others remain concerned that patients are avoiding health care rather than evolving into informed health care consumers. Meanwhile health care facilities and pharmacy manufacturers continue to inflate prices for services and medications and many employers are beginning to see diminishing returns on consumer-driven health strategies as benefits costs continue to rise to their normal levels.
A growing response to the ongoing risk of health care inflation is a movement towards value-based purchasing strategies. These strategies focus on ensuring that patients are receiving medically appropriate care from providers and facilities that deliver the highest quality of care for the lowest price. Employers who adopt these strategies must be willing to direct patients to high value health care provides through incentive-based plan designs or narrow networks.
Other parts of the country are focused on driving down the unit cost of health care services as low as possible through Reference Based Pricing (RBP). Essentially, an RBP plan sets reimbursements to providers and facilities to a fixed percentage above the reference Medicare reimbursement rather than the reimbursement amount approved through a traditional PPO network discount. While this can yield significant savings, the risk of patients being balance-billed above and beyond the provider’s reimbursement is high because an RBP plan typically does not establish contracts between payers and providers. RBP does not always end in disaster, however, just ask Marilyn Bartlett from the state of Montana who successfully implemented RBP thanks to the state’s size and clout over hospital systems.
Buyers Rolling Up Their Sleeves
Large, influential companies like Amazon, Berkshire Hathaway, Chase, Apple, Microsoft, and Google are all taking on initiatives to improve access, cost, and quality to health care for their employees and it is likely that they all will be evaluating aspects of value-based purchasing strategies. Obviously, these companies have a vested interest in lowering their own health care expenditures, but it is likely they are all building solutions that can be monetized when offered to commercial customers. While Apple is exploring new medical device products, Microsoft, Amazon, and Google are evaluating ways of digitizing and securely sharing protecting patient medical records to ensure continuity of care between fragmented health care providers. Both Amazon and Apple announced plans to build onsite primary care clinics for their employees and Amazon is evaluating ways to utilize their supply chain management expertise to eliminate waste, lower costs, and increase value as much as possible.
The health insurance landscape has changed rapidly following industry mega-mergers such as CVS Caremark’s purchase of Aetna and Cigna’s merger with Express Scripts. The health care industry is largely concentrated to 5 key players, all of which are combing health insurance and prescription benefits operations: United Healthcare (Optum Rx), Cigna (Express Scripts), CVS (Aetna), Anthem (IngenioRx), and Humana (Humana Pharmacy Solutions). This M&A activity raises concerns that an already concentrated health care industry is now even more consolidated and noncompetitive. While an optimist would hope that these health insurance and PBM entities would pass savings on to consumers, it is more likely that the conglomerates will use their synergies to introduce new ways to more conveniently access health care and pharmacy services to further expand their market shares.
Pharmacy Practices Under Scrutiny
Speaking of pharmacy benefits, PBMs and pharmaceutical manufacturers have been under intense scrutiny in recent years as Washington and the media have questioned practices such as manufacturer drug pricing, spread pricing, gag claws, and pharmacy rebates. In keeping with the blueprint announced by the Trump administration in 2018, the Department of Health and Human Services (HHS) is particularly focused on reforming pharmaceutical practices to lower costs for consumers. Most recently, HHS proposed a rule that would eliminate rebates paid to by pharmaceutical manufacturers to PBMs for certain brand name drugs covered under Medicare. HHS expects that the value of pharmacy refunds will be reapplied as increased discounts at the point-of-sale for consumers. While this proposal is intended only for Medicare at this time, it is expected that these policies (once implemented) will eventually become expanded to commercial plans. Expect additional scrutiny as stakeholders seek to bring needed transparency, regulation, and general reform to the pharmacy benefit space.
Efforts to “Repeal and Replace” the Affordable Care Act are all but dead with a divided congress following the Democratic party seizing control of the House last November. However, that doesn’t spell the end of the ACA’s woes. In December 2018, a federal judge ruled that entire ACA on the basis that the individual mandate is unconstitutional. The ACA was previously upheld by the Supreme Court in 2012 upon the ruling that considered the individual mandate insurance penalty as a tax within the federal government’s authority. With the penalty zeroed out in January 2019, the validity of the ACA is being challenged with the elimination of the tax by which the law was originally upheld. There is no impact to ACA rules or coverage while the ruling is pending appeal. If the ruling is upheld, the consequences are vast for all stakeholders involves as premium tax credits, coverage requirements, and reporting requirements would disappear. In this case it is likely that Congress will take on health care reform again or individual states will step in to restore favorable aspects of the ACA.