“What if 10 percent, or even five percent, of the employers in our market decide to stop providing health benefits?” a Chief Strategy Officer (CSO) at a midsized health system in the Southeast recently asked.
“Their health insurance costs have been growing like crazy for 20 years. Some of these companies could easily decide to just give their employees some amount of tax-advantaged dollars and let them do their own thing.” An emerging option for employers is the relatively new individual coverage Health Reimbursement Arrangement (ICHRA), which allows employers to give tax-deductible contributions to employees to use for healthcare, including purchasing health insurance on an exchange.
According to the CSO, “What happens is this: We’ll go from getting 250 percent of Medicare for beneficiaries in a commercial group plan to getting 125 percent for beneficiaries in a market plan. I don’t know any provider with the margins to withstand that kind of shift without significant pain—certainly not us.”
The conversation shifted to a discussion about treating employers like true customers that pay generously for healthcare services, which involves increasing engagement with them and better understanding their specific problems with their employees’ healthcare. What complaints are they hearing about their employee’s difficulties with things like making timely appointments or finding after-hours care?
Provider organizations can help keep employers in the health insurance market by regularly checking in with them about their healthcare challenges, meaningfully focusing on mitigating their pain points, and exploring new kinds of mutually beneficial partnerships.
They should also carefully monitor the employer market in their region and create financial assessments of the potential impact of employers shifting employees to health insurance stipend arrangements.
Not long ago, I opened a new box of cereal and found a lot fewer flakes than usual. The plastic bag inside was barely three-quarters full.
This wasn’t a manufacturing error. It was an example of shrinkflation.
Following years of escalating prices (to offset higher supply-chain and labor costs), packaged-goods producers began facing customer resistance. So, rather than keep raising prices, big brands started giving Americans fewer ounces of just about everything—from cereal to ice cream to flame-grilled hamburgers—hoping no one would notice.
This kind of covert skimping doesn’t just happen at the grocery store or the drive-thru lane. It’s been present in American healthcare for more than a decade.
What Happened To Healthcare Prices?
With the passage of the Medicare and Medicaid Act in 1965, healthcare costs began consuming ever-higher percentages of the nation’s gross domestic product.
In 1970, medical spending took up just 6.9% of the U.S. GDP. That number jumped to 8.9% in 1980, 12.1% in 1990, 13.3% in 2000 and 17.2% in 2010.
This trajectory is normal for industrialized nations. Most countries follow a similar pattern: (1) productivity rises, (2) the total value of goods and services increases, (3) citizens demand better care, newer drugs, and more access to doctors and hospitals, (4) people pay more and more for healthcare.
But does more expensive care equate to better care and longer life expectancy? It did in the United States from 1970 to 2010. Longevity leapt nearly a decade as healthcare costs rose (as a percentage of GDP).
Then American Healthcare Hit A Ceiling
Beginning in 2010, something unexpected happened. Both of these upward trendlines—healthcare inflation and longevity—flattened.
Spending on medical care still consumes roughly 17% of the U.S. GPD—the same as 2010. Meanwhile, U.S. life expectancy in 2020 (using pre-pandemic data) was 77.3 years—about the same as in 2010 when the number was 78.7 years.
How did these plateaus occur?
Skimping On U.S. Healthcare
With the passage of the Affordable Care Act of 2010, healthcare policy experts hoped expansions in health insurance coverage would lead to better clinical outcomes, resulting in fewer heart attacks, strokes and cancers. Their assumption was that fewer life-threatening medical problems would bring down medical costs.
That’s not what happened. Although the rate of healthcare inflation did, indeed, slow to match GDP growth, the cost decreases weren’t from higher-quality medical care, drug breakthroughs or a healthier citizenry. Instead, it was driven by skimping.
To illustrate this, here are three ways that skimping reduces medical costs but worsens public health:
1. High-Deductible Health Insurance
In the 20th century, traditional health insurance included two out-of-pocket expenses. Patients paid a modest upfront fee at the point of care (in a doctor’s office or hospital) and then a portion of the medical bill afterward, usually totaling a few hundred dollars.
Both those numbers began skyrocketing around 2010 when employers adopted high-deductible insurance plans to offset the rising cost of insurance premiums (the amount an insurance company charges for coverage). With this new model, workers pay a sizable sum from their own pockets—up to $7,050 for single coverage and $14,100 for families—before any health benefits kick in.
Insurers and businesses argue that high-deductible plans force employees to have more “skin in the game,” incentivizing them to make wiser healthcare choices.
But instead of promoting smarter decisions, these plans have made care so expensive that many patients avoid getting the medical assistance they need.Nearly half of Americans have taken on debt due to medical bills. And 15% of people with employer-sponsored health coverage (23 million people) have seen their health get worse because they’ve delayed or skipped needed care due to costs.
And when it comes to Medicaid, the government-run health program for individuals living in poverty, doctors and hospitals are paid dramatically lower rates than with private insurance.
As a result, even though the nation’s 90 million Medicaid enrollees have health insurance, they find it difficult to access care because an increasing number of physicians won’t accept them as patients.
2. Cost Shifting
Unlike with private insurers, the U.S. government unilaterally sets prices when paying for healthcare. And in doing so, it transfers the financial burden to employers and uninsured patients, which leads to skimping.
To understand how this happens, remember that hospitals pay the same amount for doctors, nurses and medicines, regardless of how much they are paid (by insurers) to care for a patient. If the dollars reimbursed for some patients don’t cover the costs, then other patients are charged more to make up the difference.
Two decades ago, Congress enacted legislation to curb federal spending on healthcare. This led Medicare to drastically reduce how much it pays for inpatient services. Consequently, private insurers and uninsured patients now pay double and sometimes triple Medicare rates for hospital services, according to a Kaiser Family Foundation report.
These higher prices generate heftier out-of-pocket expenses for privately insured individuals and massive bills for the uninsured, forcing millions of Americans to forgo necessary tests and treatments.
3. Delaying, Denying Care
Insurers act as the bridge between those who pay for healthcare (businesses and the government) and those who provide it (doctors and hospitals). To sell coverage, they must design a plan that (a) payers can afford and (b) providers of care will accept.
When healthcare costs surge, insurers must either increase premiums proportionately, which payers find unacceptable, or find ways to lower medical costs. Increasingly, insurers are choosing the latter. And their most common approach to cost reduction is skimping through prior authorization.
Originally promoted as a tool to prevent misuse (or overuse) of medical services and drugs, prior authorization has become an obstacle to delivering excellent medical care. Insurers know that busy doctors will hesitate to recommend costly tests or treatments likely to be challenged. And even when they do, patients weary of the wait will abandon treatment nearly one-third of the time.
This dynamic creates a vicious cycle: costs go down one year, but medical problems worsen the next year, requiring even more skimping the third year.
The Real Cost Of Healthcare Skimping
Federal actuaries project that healthcare expenses will rise another $3 trillion over the next eight years, consuming nearly 20% of the U.S. GDP by 2031.
But given the challenges of ongoing inflation and rapidly rising national debt, it’s more plausible that healthcare’s share of the GDP will remain at around 17%.
This outcome won’t be due to medical advancements or innovative technologies, but rather the result of greater skimping.
For example, consider that Medicare decreased payments to doctors 2% this year with another 3.3% cut proposed for 2024. And this year, more than 10 million low-income Americans have lost Medicaid coverage as states continue rolling back eligibility following the pandemic. And insurers are increasingly using AI to automate denials for payment.
Currently, the competitive job market has business leaders leery of cutting employee health benefits. But as the economy shifts, employees should anticipate paying even more for their healthcare.
The truth is that our healthcare system is grossly inefficient and financially unsustainable. Until someone or something disrupts that system, replacing it with a more effective alternative, we will see more and more skimping as our nation struggles to restrain medical costs.
On Wednesday, 75K Kaiser Permanente (KP) healthcare workers in five states and Washington, DC walked off the job as part of the largest healthcare strike in US history.
The striking workers are a diverse group, based mostly in California, that includes support staff, X-ray technicians, medical assistants, and pharmacy workers. They will continue their work stoppage until Saturday morning, though union leadership is threatening an even larger strike in November if a new contract agreement is not reached by then.
Their employment contract expired on September 30th, and while negotiations have progressed on issues like shift-payment differentials and employee training investments, union leaders and KP executives remain at odds over key wage increase demands, with the unions asking for a $25 national minimum wage, and KP proposing $21.
The company has sought to minimize disruptions to patient care during the strike, bringing in temporary labor to keep critical infrastructure open, but has told its members to expect some non-urgent procedures to be rescheduled, some clinic and pharmacy operating hours to be reduced, and call center wait times to be lengthy.
The Gist: Kaiser Permanente has enjoyed solid relations with its unions for decades, making this strike a significant break from precedent,fueled by post-pandemic burnout and staffing shortages.
While KP is keeping all essential services open, care disruptions are inevitable with around one third of its total workforce on strike.
The stakes of these labor negotiations extend far beyond just KP and its employees, as union success could inspire other unionized healthcare workers to adopt similar tactics and demands. (Case in point: Employees at eleven Tenet Healthcare facilities in California represented by SEIU-UHW, one of the unions representing striking KP workers, just voted to authorize their own strike.)
While happening alongside high-profile strikes in other industries, labor unrest is a troubling trend for health systems, whose margins remain well below historical levels amid persistently high labor and supply expenses.
The hospital workforce is critical to the care process and is most often the largest expense on a hospital or health system’s balance sheet. Even before the pandemic, labor expenses — which include costs associated with recruitment and retention, employee benefits and incentives — accounted for more than 50 percent of hospitals’ total expenses, according to the American Hospital Association.
As a result, a slight increase in labor costs can have a tremendous effect on a hospital or health system’s total expenses and operating margins. Hospitals across the country are focused on managing the premium cost of labor, while recruiting and retaining talent remains a priority, and the cost of supplies and drugs also increases due to inflation.
Here’s how 23 health systems’ labor costs are tracking based on the results of their most recent financial documents.
Note: This is not an exhaustive list. Most of the following health systems’ labor costs are for the three months ending 30, with others for the six months ending June 30 and the 12 months ending June 30 — the most recent periods for which financial data is available. The year-over-year percentage increase/decrease is also included.
21. CommonSpirit Health (Chicago) Salaries and benefits: $18.3 billion (+0.7 percent YOY) *For the 12 months ended June 30 **Merged with Broomfield, Colo. -based SCL Health in April 2022
22. Ascension (St. Louis) Salaries, wages and employee benefits: $14.3 billion (-1.3 percent YOY) *For the 12 months ended June 30
Robert Wood Johnson University Hospital in New Brunswick, N.J., said it plans to temporarily cut off healthcare benefits for striking union workers, effective Sept. 1.
Hospital spokesperson Wendy Gottsegen described the move as unfortunate.
“We have said all along that no one benefits from a strike — least of all our nurses. We hope the union considers the impact a prolonged strike is having on our nurses and their families,” Ms. Gottsegen said in an Aug. 28 news release shared with Becker’s. “As of Sept. 1, RWJUH nurses must pay for their health benefits through COBRA. This hardship, in addition to the loss of wages throughout the strike, is very unfortunate and has been openly communicated to the union and the striking nurses since prior to the walkout on Aug. 4.”
The ongoing strike involves the United Steelworkers Local 4-200, which represents about 1,700 nurses at the facility.
Union members voted to authorize a strike in July. The union and hospital have been negotiating a new agreement for months, with the last bargaining session occurring Aug. 16.
During negotiations, the union has said it seeks a contract that provides safe staffing standards, living wages and quality, affordable healthcare.
Local 4-200 President Judy Danella, RN, said in a previous union release, “Our members remain deeply committed to our patients. However, we must address urgent concerns, like staffing. We need enough nurses on each shift, on each floor, so we can devote more time to each patient and keep ourselves safe on the job.”
Several nurses told TAPinto New Brunswick last week that they began preparing for the current situation ahead of the strike, taking overtime shifts and saving as much money as possible. Others told the publication they are taking part-time jobs or temporary employment elsewhere in the nursing field or adjacent roles.
“I think it’s important that you [remember] you might not get the job you want to do at that moment, but people have to do what they have to do to get it done,” Jessica Newcomb, RN, told TAPinto New Brunswick.
Meanwhile, the hospital has contracted with an agency to hire replacement nurses during the strike.
“As always, our top priority is to our patients. RWJUH is open, fully operational and completely staffed, and we remain steadfast in our commitment to deliver the highest quality and always-safe patient care,” Ms. Gottsegen said.
As of Aug. 28, no further dates for negotiations were scheduled by mediators.
More and more employer and union-sponsored retiree health plans are offering Medicare-eligible coverage through Medicare Advantage (MA), a new analysis finds.
The analysis from the Kaiser Family Foundation, released Thursday, comes as MA is expected to surpass traditional Medicare in total enrollment for 2023 and more insurers enter the lucrative market. Employers and unions are turning to MA in a bid to control retiree healthcare costs.
“For some large employers, the shift to Medicare Advantage appears to be a strategy to maintain benefits for their retirees, without terminating coverage or adopting other changes that more directly shift costs onto retirees,” the analysis said. “However, the shift to Medicare Advantage has implications for retirees that extend beyond supplemental benefits.”
Kaiser relied on data from its 2022 employer health benefits survey of large private and nonfederal public employers. It showed that half of the large employers with 200 or more workers are offering health benefits to retirees through an MA contract, nearly double the 26% doing the same in 2017. Another 44% that offer MA coverage to retirees don’t give them another choice in coverage.
Among the companies with 2,000 or more employers, 60% offered benefits through an MA plan. The top reason such companies turn to MA is to combat higher costs, with 42% citing it as a reason compared with 14% for flexibility for enrollees.
Unlike traditional Medicare, MA relies on provider networks and cost management tools to cut down on costs. Kaiser warned that this shift toward MA has some unintended consequences for retirees.
“This approach has potential to restrict retirees’ access to doctors and hospitals, depending on the plan’s provider network, and subject retirees to cost management tools, such as prior authorization, that may limit access to Medicare-covered services,” the analysis said.
Kaiser cited a recent move by New York City to move its city worker retirees to an MA plan, a decision that is on hold after the insurers Elevance Health and Empire Blue Cross Blue Shield dropped out, according to a published report on The City news site.
The MA market has grown in popularity among seniors in recent years. The program has also received heightened scrutiny surrounding overpayments to plans based on inaccurate risk scores and aggressive marketing tactics by agents and brokers.
Employers face a brutal increase in health-insurance premiums for 2023, Axios’ Arielle Dreher writes from a Kaiser Family Foundation report out this morning.
Why it matters: Premiums stayed relatively flat this year, even as wages and inflation surged. That reprieve was because many 2022 premiums were finalized last fall, before inflation took off.
“Employers are already concerned about what they pay for health premiums,” KFF president and CEO Drew Altman said.
“[B]ut this could be the calm before the storm … Given the tight labor market and rising wages, it will be tough for employers to shift costs onto workers when costs spike.”
🧠 What’s happening: Nearly 159 million Americans get health coverage through work — and coverage costs and benefits have become a critical factor in a tight labor market.
Healthcare costs are expected to jump 6.0% next year. CFOs must prepare accordingly, advises WTW’s Tim Stawicki.
CFOs need to be prepared for a “higher tail” of medical inflation — even if general inflation eases in the near future, Tim Stawicki, chief actuary, North America health & benefits of Willis Towers Watson (WTW) told CFO Dive.
“CFOS need to be prepared for the case that if general inflation eases, there may be two or three more years where they need to think about how they are managing the costs of health care plans,” he said in an interview.
Inflation, which can more immediately impact consumer prices, works somewhat differently when it comes to costs of medical care. “Employers are paying healthcare costs based on contracts that their insurer has with providers, which are multiple years in length. So if a deal with the hospital or contract does not come up until 2023, then that provider has the opportunity to renegotiate higher prices for three years,” said Stawicki.
The recent Best Practices in Healthcare Survey by WTW consisting of 455 U.S. employers found that employers project their healthcare costs will jump 6.0% next year compared with an average 5.0% increase expected by the end of this year.
Further, employers see little relief in sight — seven in 10 (71%) expect moderate to significant increases in costs over the next three years. Additionally, over half of respondents (54%) expect their costs will be over budget this year.
Balancing talent retention and healthcare costs
Talent retention has also remained an entrenched challenge for CFOs over recent months and continues to be top of mind.
Given inflationary pressures and a potential looming recession, employers are having trouble finding the workers they need to run their businesses. A rise in healthcare benefit costs will make this all the more challenging, said Stawicki. “Employers are looking around and saying ‘I need to find talent to help me run my business and I can’t do that if I have an ineffective program in healthcare benefits,’” he said.
There is a direct link between business outcomes and in particular employee productivity and employees’ ability to manage their health and financial environment, according to WTW’s Global Benefits Attitude Survey. “Losing the ability to offer programs and benefits that meet employee needs is impacting business,” said Stawicki.
It comes down to finding the balance between cost management in an environment where talent is hard to come by, he said. In order for CFOs to be successful in financing benefit programs they need to look at finding ways to partner with their counterparts in human resources, said Stawicki.
Sixty-seven percent of employers said that managing company costs was a top priority in the company’s August Best Practices in Healthcare Survey, versus the 42% who said that achieving affordability for employees was a top priority. In the near future, CFOs need to establish a relationship with HR counterparts that can facilitate “ways to manage company costs without shifting it to employees,” said Stawicki.
Ultimately, company costs remain paramount for employers but running a successful business will also require keeping employee affordability top of mind.
As hospitals and health systems continue to grapple with staffing shortages, employers are using perks beyond pay to recruit and retain talent.
Incentives beyond the norm are attractive to employees: They prove the employer values them personally, beyond their work performance.
These four health systems offer perks beyond pay, like extra paid time off, well-being coaches, adoption assistance and local discounts.
Food, entertainment and staycations
Nashville, Tenn.-based Vanderbilt Health said it will launch a new employee awards program in September that offers workers perks, discounts and a grand prize “staycation.”
The month-long Work Perks program will feature a website where employees can play games to earn perks in music and entertainment, health and wellness, dining and Nashville-area attractions, according to an Aug. 29 news release shared with Becker’s.
Workers will also be able to enter a drawing for a staycation. Five employees will win grand prizes including a one-night stay at a downtown hotel, passes to Nashville attractions, dinner at a local restaurant and a gift basket with items from Nashville businesses, including a winery and chocolate company, Vanderbilt Health said.
“We’re excited to show appreciation for our dedicated workforce in this way, and we’re grateful to so many generous partners to help make it happen,” Amy Schoeny, PhD, chief human resources officer, said in a release. “This is just one of the many benefits and perks that we offer to those who choose to pursue careers in making healthcare personal for our patients today and in the future.”
Work Perks will launch Sept. 5.
“We Hours” program
Marlton, N.J.-based Virtua Health told Becker’s it has instituted a “We Hours” program “to give employees more time to do the things that are important to them — from self-care to community service.”
The program offers eight additional hours of scheduled, paid time off per year for most of Virtua’s 13,000 employees.
“The ultimate goal is to encourage mindfulness and a healthy work-life balance,” Rhonda Jordan, Virtua’s executive vice president and chief human resources officer, told Becker’s. “We Hours are intended for colleagues to pursue something rewarding or fulfilling, such as volunteering, recognizing a religious or cultural event, or ‘recharging their battery’ with extra time away.”
Ms. Jordan said Virtua workers may also use the program for practical matters, such as a physician’s visit or attending to household repairs.
The program name stems from Virtua’s “Culture of We,” a set of guiding principles that include continuous learning and innovation, open communication and inclusive teamwork, among others.
A colleague committee developed the tenets in 2019, and employees are encouraged to share how they spend their We Hours in a private Facebook group, according to Ms. Jordan. She cited examples including photos from a visit to a botanical garden, a description of volunteer work helping nonprofit organizations, and a photo of the day one worker spent with her son, who’d been away serving in the U.S. Marine Corps.
“One of my favorite outcomes of the We Hours is that they invite us to learn more about our colleagues and the people, causes and activities that are most important to them,” Ms. Jordan adds.
Walking trails and well-being coaching
Charlotte, N.C.-based Atrium Health encourages all-around health through their LiveWell programs.
“[LiveWell] exists to support teammates in working meaningfully, eating healthfully, learning continuously and living fully … living their best lives so that we can deliver on the mission of Atrium Health,” Scott Laws, vice president of enterprise total rewards at Atrium Health, told Becker’s.
Physical health is encouraged through perks like discounted gym enrollment, tobacco cessation programs and on-site walking trails at Atrium Health facilities. Financial assistance is provided through free webinars and individual medication management consultations. One-on-one well-being coaches encourage employees to consider personal health.
Those that take advantage of the LiveWell resources are rewarded.
“By completing certain physical, personal and financial well-being goals — which include participation in wellness exams and programs or financial education — teammates are eligible for financial incentives, paid into their HSAs,” Mr. Laws said.
Adoption assistance
Springfield, Ill.-based Hospital Sisters Health System offers adoption assistance as part of its benefits package.
“HSHS provides financial support up to $7,500 per child for eligible adoption expenses to qualified colleagues,” Catie Sheehan, vice president of advocacy and communications at Hospital Sisters, told Becker’s.
Alicia Corman, an occupational therapist in the health system, was first to receive the benefit. After the adoption decree was signed, the human resources department helped her submit a breakdown of what the financial support would cover, Ms. Corman said in a video shared with Becker’s. The funds she received aided Ms. Corman and her husband in adopting their son.
“I’m very grateful because if you look across the U.S., adoption is not very supported in a workplace,” Ms. Corman said.
HENRY KOTULA 