Continued growth in employer-paid healthcare premiums may spur employers to find alternative solutions

• The Kaiser Family Foundation’s 2020 Employer Health Benefits Survey finds that average annual premiums for employer-sponsored health insurance are $7,470 for single coverage and $21,342 for family coverage.
• The KFF survey also points out that average single and family premiums both increased 4% over the past year while workers’ wages increased 3.4% and inflation increased 2.1%.
• In 2020, family coverage for employee-sponsored insurance cost $21,342 or 31% of gross household wages, with the employee picking up $5,588 of the costs or about 8% of gross wages.

I’ve just reviewed the Kaiser Family Foundation’s 2020 edition of its annual survey of employer healthcare costs. For 2020, it finds that “average annual premiums for employer-sponsored health insurance [ESI] are $7,470 for single coverage and $21,342 for family coverage [See the exhibit below]. The average single and family premiums both increased 4% over the past year. Workers’ wages increased 3.4% and inflation increased 2.1%.”

Takeaway

Compared to the high single- and double-digit rates of increase in employers’ healthcare costs for their employees in the 1980s and 1990s, 4.1% isn’t bad. But by any objective measure, this isn’t good or sustainable. At a basic macroeconomic level, anything that perpetually grows faster than the economy (looking at healthcare at 4% versus negative U.S. GDP growth for 2020), eventually becomes the economy crowding out things that we value like investments in education, leisure goods, infrastructure, housing, etc.  

And healthcare costs continue to eat into employees’ wages as insurance costs consumed more of the overall dollars employers have to compensate their workers. Real, median household income is approximately $68,000. In 2020, family coverage for ESI cost $21,342 or 31% of gross household wages, with the employee picking up $5,588 of the costs or about 8% of gross wages.

Given unabated cost growth, large employers have signaled a possible end to their patience for traditional players — both third party administrators and providers to provide a “traditional” solution that delivers high-quality cost-effective care. Where might employers look to take a more active role in driving health reform? A couple of examples include the following.

• More aggressive, localized purchaser coalitions: Peak Health Alliance, representing 6,000 individuals and employees (out of a county with a population of 30,000), in Colorado’s ski country, used data from the state’s all payer claims database to negotiate lower prices by direct contracting with one of the local hospitals. It was able to secure prices 20% lower in exchange for reducing the hospital’s leakage to other providers in Colorado’s front range.
• Data and benefit design: Walmart health plans will test curated physician networks in three markets in 2021: Northwest Arkansas, the Orlando-Tampa area and the Dallas area. The pilot is guided by insight from Walmart’s center of excellence model for select conditions. More than 50% of plan enrollees who had been told by local providers that they needed spine surgery, and 20% previously told they needed hip or knee surgery were found by the COEs not to require those procedures. Part of the issue was that associates were getting imaging done in their local markets and being misdiagnosed due to either a poor-read or an image captured using low-quality equipment. To address this issue, Walmart is working with Embold Health, which has access to de-identified claims data on more than 150 million lives and has developed evidence-based guidelines of care in consultation with academic physicians from leading universities. The local physicians are then screened based on their performance and its effect on appropriateness, effectiveness and costs of care. The vendor’s analyses are provided to Walmart, which has the final say on who to include in its curated network. Employee plan enrollees in 2021 will have the option of selecting a lower-cost “curated network” in three pilot markets.
• Virtual primary care first network designs: Humana is piloting a virtual primary care network design to small group employers in select markets. Premera Blue Cross has launched a similar product available to all employers. Like the Humana plan, Premera’s virtual primary care product is available at a steeply discounted premium compared to standard PPO plans and offers a specialist referral process. Given the likelihood of increased virtual primary care usage, the lower premium is likely attributed to better access and care management, which will reduce unnecessary utilization. And steering referrals to providers that, based on plan data, are believed to be lower cost.