Rising Health Plan Costs: Out with the Old Approach, In with the New

One of the major sticking points around the “Cadillac” excise tax, set to go into effect 2018, is that most companies challenged with the rising costs of healthcare plans are not taking into account the implications of the new tax provisions on the horizon.

The debate about repealing the tax is grabbing the spotlight for now, but the underlying problem won’t disappear regardless of the tax debate outcome: costs keep going up. While utilization rates are expected to drop slightly next year, much of the expected price increase will be driven by higher prescription drug costs and price inflation for hospital services, according to research from Segal Consulting.

This is a systemic problem that isn’t going to be fixed by previously deployed solutions. The new healthcare marketplace demands bigger-picture thinking from all relevant parties—payers, providers, drug companies and employers—to bring meaningful, sustainable change.

For employers, this requires shifting the focus beyond managing health benefit plans to managing healthcare risks .

What does that look like?

Intel offers one such innovative approach. A recent issue of Harvard Business Review examines how Intel has entirely re-written the traditional employer role in health plans through its Healthcare Marketplace Collaborative. The company proactively partnered with its health plan administrator and a local health system in Seattle to pilot a program aimed at reducing costs and improving care tied to six high-cost and high-frequency medical conditions. The parties worked together to established defined roles, actions and metrics to track progress. Over the course of five years, the program resulted in a significant drop in the direct costs of those conditions, in addition to eliminating more than 10,000 hours of waste in business processes, and improving return-to-work time and employee satisfaction.

Bundled payments are another approach gaining steam in the marketplace, being pushed aggressively by CMS, which has already made bundled payments mandatory for joint replacements and end-stage renal care. The Cleveland Clinic’s Program for Advanced Medical Care was a pioneer in this area, partnering with major corporations like Wal-Mart and Lowe’s to offer bundled pricing for conditions like heart disease, resulting in better outcomes for employees and lowering long-term costs.

Innovation in healthcare requires that employers play a critical role in defining the new environment for healthcare. If nothing else, the Cadillac tax provides a timely trigger for employers to conduct a more holistic evaluation of their health costs . Don’t just evaluate the potential impact of the tax; instead, invite discussion around what’s driving up costs and the opportunities to try a different approach.

Watch for more in-depth coverage of the Cadillac tax and new approaches to managing healthcare risks in the fall issue of the BDO Knows Healthcare newsletter.