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Health System Resilience

Post pandemic, employers feel the urgency to address unsustainable health costs

Gabriel Perna | May 5, 2021

Employers are ready to lower the cost of health insurance and they’ll do anything to make it happen.  

According to a new survey of large employers from Kaiser Family Foundation (KFF) and the Purchaser Business Group on Health (PBGH)96 percent of employers say health benefit costs are excessive. Eighty seven percent of respondents say that within the next five years the cost of providing health benefits will become unsustainable.  

“Business leaders believe the health care industry should behave like they do and be accountable for their customers. As Sen. Braun said, health care leaders are having it both ways, they are seeking a free market and yet limiting negotiations. When employers try to do value-based purchasing, they are limited through lack of transparency, gag clauses, and other anticompetitive practices. They need to be responsive to the people paying the bills,” said Elizabeth Mitchell, CEO of PBGH in a recent webcast.  

What’s more, employers are eager to test out different collaborations and initiatives to lower the cost of care, according to the survey data. Somewhat surprisingly, a large majority even welcome government intervention. Of those surveyed, 83 percent say a greater role for government in providing coverage and containing health care costs would be better for their business and 86 percent say it would be better for their employees. Eighty five percent say the need for government to play a role in controlling costs will only increase over the next five-to-ten years.  

Another survey, from the National Alliance of Healthcare Purchaser Coalitions, confirmed that a majority of employers are interested in various legislative efforts to lower the cost of care. This includes drug price regulation (favored by 94 percent of employers), hospital price transparency (90 percent), surprise billing regulation (81 percent) and hospital rate regulation (79 percent). Michael Thompson, President and CEO of the National Alliance of Healthcare Purchaser Coalitions, says that the health care industry’s increasing consolidation has pushed employers down this path. 

“If you look at the pace at which deductibles have increased or even the premiums have increased, you realize that employers’ ability to manage costs from arm’s length has been difficult in the current system and a lot of that has fallen directly on their employees and their families. With that in mind, I think employers have hit a wall as to how far they can go with those types of strategies,” says Thompson.  

Over the past decade, employers have increasingly pushed the cost of health care on to employees, says Jim Cusumano, President and CFO of Brighton Health Plan Solutions, which offers health plan services for employers. According to a separate study from KFF, published in October of last year, there has been a 111 percent increase in the burden of deductibles across all covered workers from 2010 to 2020. But that just can’t keep happening as far as employers are concerned.  

I think the game is over when you look at the rising cost of premiums and pushing it onto the individual. The crossroads that employers are at now is how do they take control of their health care spend and reduce the overall cost. Because passing it on to their employees is not an option anymore,” says Cusumano.  

Direct contracting  

Beyond government intervention, there is a growing interest by employers to collaborate directly with health systems through direct contracting. According to the KFF and PBGH survey, 47 percent of employers say it’s highly likely they will implement a direct contracting arrangement with a high-performing provider system. In these arrangements, health systems offer their services directly to self-insured employers rather than working through insurance companies.  

Increasingly, large health systems are also interested in these arrangements. Northwell Health System, the largest provider organization in New York, entered the direct contracting game in June of last year officially launching Northwell Direct after it sat in incubation for a few years. In just under one year of operations, the direct contracting arm of the company has signed agreements with JetBlue, Whole Foods and other employers.  

“The organizations that we’ve partnered with have struggled with the more traditional model. They aren’t seeing the value in what they are paying for,” says Northwell Direct CEO Nick Stefanizzi. “We believe there is an opportunity to create a closer relationship between provider and employer, and to do it in a way that drives value and a better experience for the employer.”  

Not only are employers seeking out these arrangements because they believe it can lower costs, but also to create a better and easier experience for employees, Stefanizzi says. The complexity of the health care system has left many consumers frustrated and disengaged. A survey from Change Healthcare in 2020 found 62 percent of consumers said the health care system feels like it’s designed to be confusing. More than 60 percent reported their bills feel more complex than a mortgage payment.  

By partnering with [employers] in these new models, we have the opportunity to streamline the process, to make it easier and provide a better experience for their employees as they become patients,” Stefanizzi says. “Outside of the savings and quality that we’re able to bring, I think that’s a benefit that will accrue to the employers as well in the form of [increased] employee engagement.”  

Of course, employers want the savings too. According to Brighton Health’s estimates, Northwell has pricing that is 25 percent better than what self-insured employers can get from insurance carriers. Cusumano at Brighton (which works with Northwell) says that the rates are that low because Northwell knows it will make up for it on the utilization side and have the size to take this riskHe says the arrangement helps the health system better manage its entire population, something that was thwarted in the past with its attempt at a fully-insured health plan.  

It was incumbent upon us to engage with employers because ultimately they're the ones that are paying the lion's share for health care in the U.S. We felt that there was a disconnect between the employers and the providers.

Stephen Parodi, MD, Chairman of the Board for the Council of Accountable Physician Practices

“Northwell put a small-group insured product in the marketplace built around their health system where [a patient is] committing to have all their care utilization and medical needs taken care of by the system. It was called Care Connect and within a couple of years, they had more than 100,000 members enrolled in this program. They were the insurance company, they took the risk, they did the underwriting, they provided that care and they ended up shutting it down because of the regulatory requirements of risk sharing,” Cusumano says. “Because they did well managing the population within their system, they had to take their profits—and then some—and distribute the money to other insurance carriers.” 

While it ultimately failed, Care Connect proved to Northwell that managing their patients directly in this capacity throughout the care continuum could work in lowering costs and improving quality. While it couldn’t operate in a fully-insured health plan environment due to government regulations, it could work in the self-insured market 

Other employer/provider collaborations 

The collaboration between self-insured employers and providers goes beyond the Northwells of the country. Other large organizations, such as Henry Ford Health System in Detroit, have created similar arrangements with employers. Earlier this year, the Council of Accountable Physician Practices, which is a coalition of medical groups and health systems that includes the Mayo Clinic and Cleveland Clinic, announced a partnership with Thompson’s Alliance of Purchaser Coalitions.  

“It was incumbent upon us to engage with employers because ultimately they’re the ones that are paying the lion’s share for health care in the U.S. We felt that there was a disconnect between the employers and the providers. We essentially had a conversation to talk about what is driving health care costs, what are employers’ priorities, what our physician priorities and how can we bring greater value and outcomes to each other as well as to our patients,” explains Stephen Parodi, MD, Chairman of the Board for the Council of Accountable Physician Practices and the associate executive director of The Permanente Medical Group 

The two groups have laid out their priorities including shifting care towards a value-based system, better integration of primary care and behavioral health, and adhering to common quality metrics so employers can see the value of what they are getting. Parodi says the collaboration will be a success if they can delineate strategies for quality measures and help physicians bridge the gap between fee-for-service and value-based medicine.  

For the employers, Thompson says that his group is finding a lot of common interest and alignment between the two sides. If these relationships can provide a differentiated employee experience as well as better clinical and financial outcomes, employers will line up to consider direct contracting, he says. That being said, he does note that direct contracting isn’t for everyone and that most employers won’t have the scale to make it work.  

“Where employees work and live can vary within a geography or certainly across the country. You can have national employers trying to cover employees in almost every market and if you’re actually doing the contract market by market, it becomes burdensome to do that everywhere except maybe your largest locations,” Thompson says. That’s not the only challenge in making this arrangement work, he notes.  

“The other part of it is any relationship takes time to nurture and improve. The largest employers have invested a great deal of time working with providers to get better at improving the employee experience and improving outcomes. I think that has paid off for employers that have made that investment, but again, unless you’re a very large employer and have a significant employee base, it’s hard to justify the amount of time that you would actually spend,” Thompson adds.  

Post pandemic concerns 

COVID exacerbated existing financial pressure that businesses were experiencing, says Stefanizzi. Moreover, employers are worried about the long-term implications and costs of employers skipping out on care during the COVID crisis. This is one major reason for the increased interest among employers to find solutions that can drive savings.  

Along with direct contracting, Thompson has seen increased investment from employers in creating advanced primary care models, centers of excellence, and doubling down on a strategy that he calls total-person health. “Using data and technology to create a hyper personalized relationship that considers multiple chronic conditions, the integration of behavioral health with physical health, as well as potential social needs that are affecting how that individual is getting care and their health needs overall,” Thompson says.  

Beyond that, according to the PGBH survey, 54 percent of employers will push for value-based payments, 48 percent plan to shift a larger percentage of costs onto employees, and 48 percent will leverage individual coverage Health Reimbursement Arrangement (HRA) plans. What’s clear is employers are increasingly unwilling to continue down the same path of rising premium costs—and they believe they have both sides of the political aisle on their side.  

“We have lost 10 years of wage growth to health care costs. For every 10 percent increase in health care costs, you lose 121,000 jobs. We are trying to bring back the U.S. economy from a pandemic. We know that controlling health care costs will enable businesses to grow and invest in jobs,” says Mitchell. “We think this aligns with public interest and it’s not a partisan issue.”  

About the Author

Gabriel Perna, Senior Manager, Digital Content

Gabriel Perna is the Senior Manager of Digital Content at Health Evolution. He brings 10+ years of experience in covering the intersection of health care and business. Previously, he was at Chief Executive, Physicians Practice and Healthcare Informatics. You can reach him via email at gabrielp@healthevolution.com or on Twitter at @GabrielSPerna