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Employers Target Expensive Surgeries to Cut Health-Care Costs

Oct. 13, 2022, 9:35 AM

Employers are trying to control rising health-care expenses without burdening workers with higher premiums and out-of-pocket costs as the 2023 open enrollment season starts.

Employers increasingly are turning to hospitals that have good track records for quality and value to cover high-cost surgeries. They are also steering their employees to lower-cost providers that offer good quality care.

Open enrollment at companies, when plan participants can make changes or enroll in coverage, typically is held in late October and November.

Health-care costs borne by employers are expected to rise sharply in 2023 due to hospital and specialty drug price inflation and treatments for people who deferred care during the pandemic. Employers should expect per-employee increases of about 8% unless they make plan changes or shift costs to employees, according to Edward Kaplan, national health practice leader of employee benefits consulting firm Segal Group Inc.

“That’s the highest it’s been in over a decade,” he said. For plan sponsors that are making changes, net cost increases are expected to be 5% to 6%, he said.

Mix of Changes

The mix of changes will depend on a company’s situation, Kaplan said. Many hospital systems, trying to keep their staff, are absorbing all the increases instead of passing them on to employees, while high-turnover retail employers, which tend to have low profit margins, are asking employees to pay 5% to 15% more, he said.

Kaplan expects employees to pay average annual increases of $350 to $600 on top of the $70 to $100 a month they now pay for single coverage, while employers will end up paying about $600 a year more per employee than the $7,000 average they now pay for single coverage, based on the sample of employers Segal monitors.

Annual premiums for employer-sponsored family health coverage reached $22,221 in 2021 with workers paying $5,969 on average toward the cost of their coverage, according to Kaiser Family Foundation.

Centers of Excellence

Carrum Health, which provides a software platform to connect self-insured employers with hospital centers of excellence, expects its revenue to double or triple in 2023, CEO Sach Jain said in an interview. The company works with 300 employer groups, he said.

Centers of excellence provide high-value health-care, often at lower prices than other medical centers.

Employers face recessionary pressure in 2023, while costs are increasing, Jain said. At the same time, the labor market remains tight, limiting employers’ ability to reduce benefits, he said.

“The cost pressure on employers and demanding more value for every dollar is obviously playing in the favor of what we offer,” Jain said. “Employers are also tired of implementing solutions that promise savings three years down the road, five years down the road,” he said.

Using centers of excellence for surgical procedures results in immediate savings, Jain said. Carrum, which works with centers that cover 90% of the US population, provides “bundled” prices that cover the procedure and related care. Jain said Carrum’s centers cut employers’ spending for covered services by about half by reducing the cost of surgeries, reducing hospital readmissions, and avoiding some procedures. The savings amount to about $16,000 per procedure for employers, and another $1,000 to $2,000 in employee out-of-pocket costs, he said.

In 2023, employers are particularly interested in including oncology services in the centers Carrum contracts with. “It is the No. 1 or No. 2 priority of every single employer meeting that we’re having,” Brook West, Carrum’s chief commercial officer, said.

A Business Group on Health survey released in August found that, as care has been deferred during the pandemic, cancer is the top driver of large companies’ health-care costs.

Tiered Networks

Rice Lake Weighing Systems, a family-owned manufacturing company based in Rice Lake, Wis., will keep employee-only contributions for the approximately 500 employees and dependents it covers at $20 a week in 2023, the eighth year at that level, Jake Nolin, vice president of human resources, said in an interview.

Rice Lake has done that by using its own primary care clinic and a tiered system of contracted coverage under which employees save money by using the most economical health systems, Nolin said.

“The track record of eight consecutive years without increasing employee contributions, especially in the environment that we’re in this year with inflation doing what it is—that would be adding insult to injury to put a price increase on top of everything else that’s going on, so we’re going to hold our contribution steady,” Nolin said.

The primary care clinic, used by about 750 members in Wisconsin, saves enough money that the company doesn’t need to increase prices at other locations that don’t have a clinic, Nolin said.

The company spent about $4 million on health care in 2021, Nolin said. Rice Lake expects costs to go down at least 10% in both 2022 and 2023, he said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editor responsible for this story: Karl Hardy at khardy@bloomberglaw.com