Today the cost of healthcare landed on the front page of The Wall Street Journal, just below a story on bond yields, and next to the dancing UK Prime Minister, Teresa May. The angle of the story is how the cost of family healthcare premiums in the United States now approaches $20,000. The genesis of it was yesterday’s release of the annual Kaiser Family Foundation Survey on employer-sponsored healthcare. It’s the industry study for trends affecting the 152,000,000 people in the US who have benefits through employment and one of an impressive breadth of responses from 2,000+ employers and over 200 pages of detail. Last night was a long night.
Premium cost increases are slowing…but
The average annual premium cost for a single employee is $6,900, up 3%, and in line with year-over-year wage growth and inflation of 2-3%. But numbers in healthcare need perspective. Healthcare still accounts for 7-9% of payroll. When you factor in what I call Total Cost Till Coverage (Total Premiums + Deductible) the costs are over $8,000/year and up 4%. That’s smaller than previous years’ increases, and encouraging given how the economy is running, but enough to claim more of America’s GDP. All those promises by consultants and brokers of how to dramatically lower costs, if aggregate industry behavior is the judge, have failed.
On-site clinics are a new field this year, and 10% of large employers have at least one. 74% of large firms offer telemedicine, an 18% relative increase from 2017. New access can be good, just don’t expect big savings from it. Fewer workers are enrolling in benefits: 76% compared to 80%. This is perhaps the biggest source of employer savings and one reason there is intentional discomfort with open enrollment. It can’t be a perfect process or more people will enroll (though this is probably a short-sided way of making happy employees). What’s more, nearly one-quarter of large employers anticipate the repeal of the insurance mandate will lead to lower enrollments in company health plans. However, perhaps as a sign of a tighter labor market, fewer firms have a mandatory waiting period before benefits take effect (71% vs. 76%). Wearables’ buzzwordiness grows.
More of the same
Enrollment in high deductible health plans (HDHPs, or deductibles of at least $1,350) are up slightly to 29% of enrollments. Employer contributions to health savings accounts are steady at approximately $600 on average. Cost sharing for prescription drugs is basically the same. Only one in fifteen jumbo companies (over 5,000 employees) switches insurance companies each year, a sign of entrenched relationships and switching costs. Health Risk Assessments, biometric screenings, and wellness in general, haven’t changed (or delivered) much and are unloved enough to require bribes for employees to complete them. The percentage of large companies that self-insure their claims is steady at ~80%. Healthcare exchanges, whereby active employees are given money to shop for the right plan, have stalled and don’t even get a mention in the 2018 report.
What can change?
Much of what’s wrong with healthcare is on the structural side. Commercial insurance reimburses at almost 2x more than Medicare. The distortions and shell games will continue and pricing variations across facilities will persist. Where there is inefficiency there is an opportunity. The Healthcare Cost Insitute studied pricing and utilization from 2012-2016 and concluded that prices were up while utilization was flat to down. Lest you think hospitals are printing money, hospitalizations per 1,000 are down and publicly traded hospitals have margins of 2-4%. I would not recommend buying stock in any publicly traded hospital.
Companies should actually use 5th-grade math to see if what they’re doing makes sense (e.g., Are ER visits per 1,000 reduced, are you following screening guidelines?) and provide things employees want and deliver value in excess of the price paid. Cutting wasteful programs can save money. Steady amounts of employee education help. The real change and innovation will happen first, and by definition, will lag in landing in these types of studies. Many of the failed strategies just disappear and don’t get enough press or shame. Take innovation with a grain of salt. Changes will take a while to hit the front page of The Journal. Until then, be an active healthcare consumer, and don’t wait for your employer’s nudges.