As we write this blog, we still find ourselves in an environment of unknowns due to the continued challenge of the COVID-19 pandemic. The state of employer benefits prior to COVID-19 was one where employers were determined to aggressively seek cost saving benefit designs that go beyond simply shifting costs to the consumer, having reached an important inflection point where employers needed to take a more critical eye to traditional plan designs and health management programs to effectively control costs. The focus on cost containment is only being amplified coming out of our current environment, with corporate profitability under pressure and healthcare costs showing no sign of abatement. The exact long-term impacts of the current pandemic on the economy and employment are still unclear. Today, individuals claiming unemployment insurance total 17.8 million. Both the United States' ability to contain the virus and employers' ability to provide a safe workplace environment for individuals to return to work will have a significant effect on employment over the near and medium term. The trends toward self-funding had been strong prior to the pandemic and are expected to continue, supported by a vendor environment delivering more advanced and customized solutions that extend across the employer spectrum.
With that in mind, below are some of the trends we see gaining momentum currently and as we re-emerge from this environment.
- Network Cost Containment: In 2019, RAND Corporation conducted a study highlighting the large price discrepancies that exist between what private health plans pay to hospitals for medical services, ranging from 150 percent of Medicare rates at the low end to 350 to 400-plus percent at the high end. The way healthcare has been priced and paid for in the U.S. has rightfully come into question, with initiatives focused on increasing transparency to the employer and consumer. The most recent efforts by the federal government through the Price Transparency Act are pushing to require hospitals to disclose their negotiated rates for shoppable services to the public as a level of transparency for adequate comparison of medical services across providers. While it’s a step in the right direction, the complexities of these price lists and the amount of codes that need to be combined to estimate a price for a treatment or procedure offer consumers little in the way of understanding comparisons across providers. As employers have started to realize they have more options than simply contracting for traditional PPO networks, reference-based pricing (RBP) vendors are gaining notable momentum. By using publicly available benchmarks and decoupling the complexities of hospital charges, in addition to utilizing their own proprietary data, RBP vendors are illuminating the drastic variations in prices providers charge for similar procedures even within the same geography. It is making healthcare pricing more straightforward, addressing a process that has long been dominated by complex billing and the opaque negotiations between payers and providers on network rates. In addition to reference-based pricing, direct contracting and centers of excellence models are taking hold. A critical element to the successful implementation of all models is to ensure proper education and engagement of employees, having them act as a partner in driving significant healthcare savings.
- Clinical Advocacy and Navigation: The variations in healthcare delivery access, cost, and quality have made clinical advocacy resources a critical component to any employer health plan. The pent-up demand for elective procedures as we emerge from the pandemic, with nearly 40% of households having postponed getting medical care, will require advocacy and decision support resources with clinical depth and a focus on healthcare literacy. In a recent survey conducted by Bain & Company, surgeons foresee three out of every four elective procedures returning by September, and Anthem and UnitedHealthcare have both warned on recent earnings calls of increased medical costs in the second half of the year as people begin to catch up on delayed procedures. Navigating the consumer to the highest quality of care at the most effective cost and equipping them with the best evidence-based treatment information for their condition, has proven to have a significant effect on long-term healthcare costs. Vendors serving this market are moving beyond engagement to delivering clear and quantifiable ROI.
- Specialty Condition Management Programs and Digital Therapeutics: Consumer wellness is a well-established market with just about every employer offering some form of wellness program for employees; however, the wellness industry has come under scrutiny for its inability to show a clear and quantifiable impact on consumer health. This has led to a focus on product innovation and an altering of expectations on the part of employers for what they expect from their wellness programs. This evolution has also led to the growth in adoption of specialty condition management programs and digital therapeutics. Platforms addressing chronic conditions such as diabetes, musculoskeletal, and behavioral health are getting increased focus. Programs delivering solutions for nutrition, sleep, and maternity are also seeing positive momentum. These platforms are presented through a modality that creates a more engaged and educated consumer, helps break down barriers to access, and in the case of mental health, reduces the stigma of pursuing treatment. In our recent series on Virtual Health, we take a deeper look at how companies in this sector are impacting the way healthcare is accessed and utilized to deliver a more coordinated impact on physical and behavioral health. Some of the most successful vendors in this market have established leadership positions within one condition, and then expanded their solution suite to address multiple conditions with a more holistic experience to the individual and a broader value proposition to the employer. Their use of data is creating a more individual experience, connecting the highest quality care at the right moment. The incentives in the employer market are becoming more apparent, as clinical outcome data is showing more promise as well as a strong value proposition around non-clinical performance metrics (e.g., reduced absenteeism, productivity). These companies are well-positioned as the market continues to evolve on reporting value to the employer and ROI becomes more and more of a focus.
- Benefit Captives: Employer health benefit captives, groups of employers that come together to reduce healthcare cost volatility by distributing risk across multiple employer groups and stop loss insurance, are proving to be one of the most effective benefit design tools for small and mid-size employers to sustainably self-fund their medical benefits. Reduced year-over-year cost volatility, lower annual premium increases, and access to leading cost containment programs are all attractive features of captive participation. These programs are well aligned to many of the themes driving increased interest and participation in self-funded arrangements, and we expect attractive long-term growth prospects for those serving this market.
- Pharmacy and PBM Solutions: Specialty drugs have been one of the largest drivers of healthcare cost increases over the past several years. Total U.S. drug spend has grown by over 36% since 2013 and specialty drugs now account for over 50% of that total spend. Consolidation in the market amongst the largest PBMs has led to less competitive pricing and reduced transparency to the market. Clinical services around pharmaceuticals are becoming as or even more important than formulary management. Proper protocols around pre-authorization and management of drug utilization is critical to managing these costs. The market is quickly recognizing the importance of taking control of this benefit by placing a more critical lens on how their PBM arrangement is designing formularies and providing the clinical services to manage utilization. This is giving rise to a number of independent vendors serving this market who are providing a very differentiated value proposition to employers.
- Return to Work and COVID-19 Compliance Solutions: As organizations have started to re-open across the U.S., they’ve been faced with the complexities of ensuring a safe and sustainable work environment for their employees. To support this need, vendors across a diverse set of industries have stood up solutions to address return to work demands and created an ecosystem to support the longitudinal management of both the employer and employee during the current crisis. Digital applications are being shown to effectively support front-end needs such as daily symptom evaluations, active health monitoring, and contact tracing. Vendors are also providing clinical support for those infected or exhibiting symptoms, compliance procedures to ensure adherence to CDC recommendations, and behavioral health solutions to help sustain the mental well-being of employees. With the lack of in-house expertise to support return to work procedures for many employers, these vendors are providing a critical solution to help us restart the economy in the safest way possible. It is unknown what the long-term need for these solutions will be, but it is hard to imagine that elements of these solutions won’t become a permanent requirement for how we operate in professional settings in the future.
As we extensively discussed in our Virtual Health series, the pandemic has fundamentally changed the way healthcare will be accessed and delivered in the future. In a similar manner, we believe the current environment will further support positive momentum for innovative solutions serving the employer health and benefits market. Proper design and management of health benefits has become even more strategic for employers, and there are a number of exciting vendors ready to serve this need.