How long will employers continue to tolerate healthcare cost growth in excess of inflation?

• A recent HCCI report shows that average healthcare spending climbed to an all-time high of $5,892 per person in 2018 for those with health insurance coverage through an employer, according to a HealthAffairs blog.
• HFMA’s Chad Mulvany says that much of employer frustration with the high cost of healthcare stems from the wide range in prices for services both across and within markets.
• Healthcare providers should not be surprised that we’re seeing most employers support federal intervention to regulate healthcare prices and growing support for a public option, according to HFMA’s Chad Mulvany.

According to a HealthAffairs blog: “The latest annual report from the Health Care Cost Institute (HCCI) shows that average health care spending climbed to an all-time high in 2018 of $5,892 per person for individuals with health insurance coverage through an employer. That amounts to an average annual growth rate of 4.3 percent between 2014 and 2018. The increase in health care spending is particularly concerning because nearly three-quarters of the increase in inflation-adjusted spending was due to rising prices. Somewhat encouragingly, price growth slowed in 2018. However, rapid price increases between 2014 and 2017 mean that the increase in utilization in 2018 contributed more to spending growth than a similar increase would have just five years earlier.”

To put this growth in perspective, GDP increased an average of 2.41% annually, according to HFMA analysis of World Bank Data, during this same time period (2014 and 2018). So employers’ healthcare cost growth outstripped economic growth by almost two percentage points. While this is roughly in line with recent historic averages which are unsustainable long-term.

Anything that grows perpetually faster than the economy eventually crowds out other goods and services that we, as a society, value.  Much of employers’ frustration stems from the wide range in prices for services both across and within markets.

The same HealthAffairs blog also reported the following:

• Prices were the main driver of spending increases between 2014 and 2018, accounting for nearly three-quarters of post-inflation spending growth, an average of $453 per person.
• Inflation contributed another $304 per person to spending growth over that time.
• Areas of notable price growth included payments to inpatient facilities for surgical admissions, which rose $6,014 (16%) in just five years.
• The prices paid to outpatient facilities for surgical visits also rose substantially, increasing $884 (20%).

Takeaway

Employers have long been the third leg of the stool (with health plans and providers) that have pushed back against government intervention, at either the state or federal level, in healthcare markets. However, recent survey data suggest that leg of the stool is weakening as healthcare costs, driven primarily by price growth, continues to climb ever upwards. It’s not surprising we’re seeing a majority of employers support federal intervention to regulate healthcare prices and growing support for a public option.

As an example, employers for the most part have been silent in Colorado where the governor recently unveiled his public option blueprint this week. It is far more aggressive than what was passed in Washington state. While the public option in Colorado would be administered by commercial health plans, the plans would be subject to an 85% MLR ratio (meaning administrative costs and profits could only account for 15% of the premium dollar; anything over that amount plans would have a rebate to consumers). This is a substantial increase relative to the ACA requirements of an 80% MLR. It would require hospitals to participate in the public option and would, on average, reimburse hospitals 168% of Medicare rates (compared to the current state average of 230% of Medicare). If passed, the public option would be available on the Colorado exchange (individual market) in 2022, with plans to expand it to the small group market subsequently.

It’s worth watching Colorado. This could serve as a blueprint for other states as they struggle with healthcare costs in the private sector. The more expensive healthcare is in a state, the less attractive it is for companies to locate operations there and is a contributing factor to offshoring. It will be interesting to see how employers react as the fight over a public option in Colorado evolves. While hospitals are not supportive of the legislation, they have proposed a total cost of care model similar to Massachusetts or Maryland as an alternative.