Over the past several years, we have witnessed a concerning trend: healthcare costs in Massachusetts continue to rise at rates in excess of inflation.

These increases are the primary component of the annual “trend” factor to generate group medical insurance premiums. According to recent data from the Massachusetts Center for Health Information and Analysis (CHIA), the cost of healthcare services has been steadily climbing, placing a significant financial burden on individuals, their families, and employers alike.

Unfortunately, based on what we are learning, the trend will climb at a faster rate in the coming months.

What’s the Root Cause?

Compounding these challenges is the apparent lack of influence that the Massachusetts Health Care Cost Growth Benchmark has had on healthcare provider reimbursements. The benchmark was implemented in 2012 as a guideline for healthcare pricing. The benchmark for CY2024 was determined by the Massachusetts Health Policy Commission and set at 3.6%. This leaves insurers and plan sponsors without a clear reference point for assessing and controlling healthcare spending, underscoring the need for alternative strategies and innovative solutions.

Additional pressures contributing to this escalation include the potential exit from the state by Steward Healthcare System along with the closure of New England Sanai in Stoughton. Steward, a for-profit system, owns and operates eight other facilities in Massachusetts. The closure of these healthcare facilities disrupts access to vital medical services for residents in affected areas and creates additional strain to the remaining healthcare infrastructure, potentially driving up costs even further.

These developments raise questions about the future of healthcare delivery and affordability in Massachusetts. Changes in ownership could have far-reaching implications for employers, individuals and care providers as each group looks to identify savings wherever possible.

Cost Drivers Continue to Mount

In Massachusetts, more than 2.3 million residents were enrolled in MassHealth/Medicaid programs at the beginning of this year, compared to 1.8 million residents five years ago. That’s an increase of 23% during a period when the population grew only 1.7%. Approximately one-third of the state population is now enrolled in a MassHealth plan. This high enrollment results in providers treating more people tied to a Medicaid reimbursement rate, which represents a financial loss and has providers looking to employer group medical plans to offset this loss.

On the Medicare front, approximately 10,000 people turn 65 daily in the United States. This is typically their first enrollment opportunity for Medicare. Quite often, they enroll in Medicare and disenroll from a group insurance plan. When someone receives care through a Medicare program, the reimbursement to the provider is lower than it was with group coverage. This trend applies further revenue loss pressures to providers.  

What MA Employers Are Doing About It

Considering these developments, many Massachusetts employers are taking careful consideration and proactive measures to explore historically less conventional approaches for their group health plans. These cost-saving strategies include:

• Self-Funding or Level-Funding – Empowers employers with the opportunity to reduce plan costs while protecting against large losses with insurance programs. 
• Group Captive Programs – Groups of like-minded employers working together to build a strategic healthcare funding arrangement and share risk. 
• Shared Funding Arrangements (e.g., OneDigital’s Benemax Program) – Provides employers with the ability to decrease monthly plan costs with the added security of a fully insured plan. 
• Reference-Based Pricing (RBP) – A form of self-funding that reimburses claims based on a benchmark, such as Medicare reimbursement rates, to reduce the cost of claims within a plan. 
• Individual Coverage Health Reimbursement Arrangement (ICHRA) – An ICHRA program allows an employer to take advantage of premium rates in the individual market that may be lower than the cost of group plan premiums. 

By embracing innovative health plan funding models and thinking strategically, we can explore cost-effective solutions that prioritize employee wellbeing while addressing the escalating costs of healthcare. To learn more about these models and other creative solutions to help reduce your healthcare costs, dive into our Cost Containment Playbook for 25 strategies to reduce healthcare, pharmacy and workforce costs.

As we navigate these complex healthcare challenges, it is essential that the business community in Massachusetts come together to advocate for meaningful reforms and sustainable solutions. By fostering collaboration and sharing our voices, we can work towards a future where quality healthcare is accessible and affordable for all residents of Massachusetts.

Connect with a OneDigital consultant to explore what employee benefit solutions may be the best fit for your organization.

Want more Massachusetts-specific content? Read our MA PFML blog here.