Navigating Trends and Alternatives in Employee Benefits

Healthcare Costs and Evolving Funding Alternatives

Healthcare costs are expected to rise an average of seven percent this year. This rising cost trend is driven by things like the increased use of specialty drugs, the emergence of medical advancements such as cell and gene therapies, the growth of behavioral health concerns that began to come forward as a result of the pandemic and the continued consolidation of providers.

Where once employers were comfortable with conservative, fully insured, fixed-premium health plans, many companies today—especially larger enterprises—find that level-funded and self-funded programs better serve their needs. These funding alternatives carry more risk than traditional insurance, but they also offer the opportunity for compelling rewards.

Alternative risk solutions, such as captive insurance, directly reward the plan holder financially if claims are below the projections. Critically, self-funded options typically give plan owners access to data, which is the gateway to cost savings opportunities. Further, the plan holder benefits from more flexibility in the benefits offering, particularly with the opportunity to select point solutions independently.

The Importance of Healthcare Analytics

During the Hylant webinar, more than a third of participants reported having limited or no access to their healthcare program’s performance data. Without data, enterprises will find it almost impossible to create strategies and analyze alternatives that support cost containment and higher quality care—goals that are not mutually exclusive.

The right data and healthcare analytics tool can help plan managers identify and understand the following:

• Healthcare plan cost drivers
• High-claimant trends (80% of plan funding is used to pay claims)
• Chronic condition concerns
• Gaps in care
• Plan design improvement opportunities
• Beneficial population health initiatives
• Member education opportunities
• Preventive care opportunities
• Patient steerage opportunities

Many insurance carriers will provide descriptive data that describes what has happened. For more effective decision-making, however, organizations also need data that is predictive (what likely will happen if nothing changes) and prescriptive (what levers can we pull to address what is about to happen).

Hidden Pharmacy Costs

Pharmacy costs are now at 25% or more of an organization’s healthcare plan spend. Many plan sponsors fail to realize that prescriptions aren’t priced the same across all pharmacies; they might not even be priced consistently from one day to the next in the same pharmacy. Often, a healthcare plan’s pharmacy contract will be rolled into its medical contract, which makes it difficult to see the true cost basis.

If working with a pharmacy benefit manager (PBM), organizations should understand whether the PBM is operating on a true pass-through model (the plan sponsor is charged the same amount the PBM pays the pharmacy) or is using spread pricing (the PBM pays the pharmacy but charges the plan sponsor an additional undisclosed percentage). Hidden fees like this can increase a plan’s pharmacy spend from 5% to 12%, and most organizations will never know it.

Additionally, plan sponsors should understand how their rebates work. First, large rebates are not necessarily a good sign. They may be a sign that employees are using higher-cost medications when less expensive clinically appropriate alternatives are available.

Effective pharmacy strategies can reduce prescription drug spending by up to 30%. To achieve this, plan sponsors would be wise to consider the following:

• PBM must use a true pass-through model (no spread pricing).
• Pass-through pricing must have minimum guarantees.
• All administrative fees must be disclosed entirely.
• Broker fees must be disclosed.
• Clinical program options (specialty pharmacy, clinical edits, formulary management) should be explored.

There is another important reason to understand what a company is paying for its plan costs: fiduciary responsibility.

Fiduciary Responsibility: A Critical Compliance Consideration

Fiduciary responsibility used to be focused primarily on retirement plans. Today, with demands for increased healthcare and insurance cost transparency ushered in by the Affordable Care Act and the Consolidated Appropriations Act, the focus is expanding to welfare benefit plans.

Early in 2024, for example, an employee filed a proposed class action suit against her employer. She alleged that the company paid its PBM inflated prices for generic specialty drugs, breaching its ERISA fiduciary duties.

Healthcare plan fiduciaries include anyone who exercises discretionary control or authority over plan management or plan assets. In other words, the employer—not a TPA, PBM or a lawyer—is responsible for acting in its plan participants’ best interests. Plan fiduciaries must use data to make the best possible decisions and ensure they are performing their ERISA fiduciary responsibilities.

More Benefits Trends and Alternatives

The webinar explored additional topics not highlighted here, including the impact of specialty drugs, managing quality of care, the promise and the reality of point solutions, and more. View the recording here.

For help exploring cost containment strategies for your organization, contact a Hylant advisor.

The above information does not constitute advice. Always contact your employee benefits broker or trusted advisor for insurance-related questions.