Inside the Pressure Cooker: Topics to Consider Ahead of the Renewal Season

Business and People leaders are in for a challenging road ahead. Inflation, provider contract negotiations, medical professional shortages, and the increasing demand for specialty drugs will make this year tougher for many employers.

Costs are continually going up and renewal rates are posed to be even higher. So, why is this year a possible pressure cooker? Let’s open the lid, break down some of the ingredients and dig into what employers will be facing this renewal season.

Inflation

The cost of healthcare is not immune to inflation. In fact, it is quite the opposite. Healthcare inflation is tied to factors like hospitals and providers charging more for services due to increased personnel costs to keep up with competitively higher salaries. The cost of medical commodities such as masks and gowns are more expensive than ever. For example, in the 12 months ending April, the medical care commodities index increased 4.0%. Furthermore, because health insurance carriers typically have multi-year contracts with medical providers, employers and plan managers haven't felt the full effect of price inflation on health plan provider cost increases yet. It’s expected that inflation will be one of the key factors in cost for 2024.

Contract Negotiations

Contract disputes between insurers and medical providers have been a regular headline in the health industry for a while now, especially in the Bay Area, California with the continued consolidation of medical groups. Most negotiations are completed before the old contract expires, and consumers usually only hear a little about these behind-the-scenes disagreements. However, due to various factors, we could hear more noise and see possible disruption.

When insurers and providers fail to reach an agreement on time and contracts expire, employers and members are left to find out that coverage is no longer available through their health plans. This can cause a considerable amount of anxiety for patients as routine in-network care moves out-of-network. Insurance carriers negotiate with provider groups to try and find the balance between affordability with network discounts and a broad network of providers. This translates into choice for members, giving more flexibility in where members choose to seek care.

Employers should closely keep track of these negotiations while preparing for the 2024 plan decisions, but this can be challenging. Carrier and provider negotiation timelines often do not match up with employer timelines. Employers usually begin to review market results over the summer and make decisions in early fall. Imagine selecting your insurance carrier of choice for the upcoming plan year only to learn that your new or existing medical insurer has no contract with the main medical provider in your community. Not exactly the peace of mind you thought you were buying, right? These are the kind of surprises no employer or member wants to discover at the last minute.

Doctor and Nursing Shortage

Healthcare workers continue to resign due to post-pandemic burnout, and a growing number of physicians are ready to retire. The worsening clinical labor shortage significantly contributes to our projected increase in healthcare costs over the next five years. According to a McKinsey Study, by 2025, we expect a gap of 200,000 to 450,000 registered nurses and 50,000 to 80,000 doctors (10 to 20 percent and 6 to 10 percent of the workforce, respectively). The cost of services will rise as demand increases, especially if there is a shortage of providers able to provide the service in a given area.

The US healthcare industry will be short 2.1 million nursing professionals over the next three years, or 2.1 million new people will be needed across different nursing roles by 2025.
 
— Josh Bersin, HR and Workplace Industry Analyst

Specialty Drugs

Prescription drug costs continue to represent a significant percentage of healthcare plan costs and we know this will be a headwind for employers and plan costs. Specialty drug spending has been a consistent driver of medical cost trends for years, but the pipeline of some of the big-ticket cell and gene therapies are expected to quadruple in the coming years. The FDA recently approved two new drugs (Hemgenix approximate cost of 3.5 million and Skysona approximate cost of 3 million) and there are 15 to 30 new drugs anticipated to hit the market within the next five years.

Recommendations

Where does this leave employers who provide about 50% of Americans’ health insurance? While some employers are financially able to cover these higher increases, many others may not be able to absorb these costs. OneDigital recommends the following cost-saving strategies:

• • Understand contract renewal dates with carriers for key medical groups that your employees use to spearhead unintended physician displacement and hospital disruption.
  • Revaluate network options such as tiered network plans, offering plans with a full network of medical groups alongside a narrower network and giving employees choice. Or, consider eliminating out-of-network coverage on some plan offerings altogether for additional savings.
  • Consider Alternative Funding Solutions like self-funded plans offer more competitive inclusive benefits while containing risk with no additional administration requirements.
  • Assess possible plan design changes or potentially add an HDHP plan
  • Develop a robust open enrollment strategy to educate or even incentivize employees to enroll in the plan that best fits their needs.
  • Evaluate prescription drug costs, particularly for specialty drugs to combat costs.
  • Revitalize benefit committees – Be proactive, get your benefit committee engaged and review benefits and perks most valued by employees as well as identify under-utilized investments which are expensive or time-consuming

Looking for more actionable strategies? Access OneDigital’s 2023 Cost Containment Playbook for 25 Strategies for Healthcare, Pharmacy, & Workforce Optimization in 2023.