Want to rein in healthcare costs? Look beyond the deductible

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In the health benefits world, there's an old adage that 20% of the users account for 80% of the spending.

So it's no wonder that those users are on the mind of employers and benefits managers. After all, like the famed outlaw Willie Sutton was said to have responded when asked why he robbed banks, "That's where the money is."

"Why are we taking an interest in high-cost claims? Well, that's where the spending is," Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, said during a recent presentation the group held on the issue.

Fronstin is the co-author of a recent study that analyzed healthcare claims and spending data from 5.8 million policyholders and dependents from 2013 through 2017.

Their research not only affirmed the 80/20 rule, but actually attributed 84% of healthcare spending to the heaviest 20% of users. Moreover, just 10% of the population in their study accounted for 70% of spending, and 1% accounted for 28% of all payouts.

Businesses are taking notice. In a survey of large employers conducted by the Business Group on Health, 39% of respondents identified a focus on high-cost claims as a top initiative for 2020, trailing only behind efforts to roll out more virtual care options.

But to date, employers have most often tried to address the rising cost of healthcare coverage by raising deductibles, copayments or coinsurance. However, tinkering with deductibles and other cost-sharing mechanisms, according to Fronstin's research, doesn't yield an appreciable decline in how much people use their healthcare.

"Employers seem to be more focused on addressing high healthcare costs via high deductibles than anything else," he said. "I would argue that focusing only on the deductibles is not going to be effective on controlling healthcare spending."

In its recent study, EBRI found that solid majorities of the heaviest healthcare users exceeded their out-of-pocket maximum payment level, but continued to seek treatment, with the costs contributing to the benefits plan.

"For those reaching their OOP maximum, cost-sharing is in large part ineffective in changing behavior because patients no longer have any incentive to limit their use of healthcare for financial reasons," Fronstin wrote with his co-author, Christopher Roebuck of RxEconomics. "The data clearly show that in order to address high-cost claims, employers and insurers need to implement targeted strategies that go beyond the use of cost-sharing."

Focusing on cost-sharing, in particular deductibles, makes a certain amount of sense, Fronstin allows, particularly for smaller employers without a well-staffed and sophisticated benefits department.

"Why move to high deductibles? Well, it's the easiest thing to do. You only need to change one number in your health plan — the deductible," he said. In that sense, tinkering with deductibles might be the path of least resistance, allowing employers to avoid more complicated, fundamental changes like switching networks or providers or restructuring the plan.

"Very few employers are doing things like offering on-site health clinics, centers of excellence, high-performance networks, direct contracting and private health insurance exchanges — things that have had a lot of buzz and hype, but not a lot of take-up according to some surveys that I've looked at," Fronstin said.

He admits that he views some of those findings skeptically, but also acknowledges that those benefits are beyond the scope of what most employers are considering.

"I think one of the reasons that you see such small take-up of some of those things is that most employers are small and most small employers just aren't engaged in the same way larger employers are engaged," he said.

But employers — regardless of their size — that are worried about reining in healthcare costs would be wise to evaluate their benefits population and consider new approaches to address the heaviest claimants.

The healthcare consultancy Inspera Health classifies high-cost claimants in three broad categories: victims of trauma, such as an automobile accident; tragedy, such as a cancer diagnosis; and those dealing with multiple chronic conditions. Of the three categories, the first two are both very difficult to anticipate and tend to resolve quickly — either the patient improves, passes away, or moves to palliative care. But those with multiple chronic conditions — long-term issues such as diabetes, hypertension, or chronic pain — tend to linger in the high-cost categories for years.

Lee Murphy, founder and CEO of Inspera Health, stresses that there is no one-size-fits-all solution for handling employees with multiple chronic conditions, but urges employers to look beyond the conditions themselves and develop personalized plans with an emphasis on holistic wellness.

"Do not treat people like conditions. This is not a diabetic — this is a person. You have to come to understand this person. You have to see what their values are," he said. "And you absolutely have to include mental health as an integral part of the program. It can't be a bolt-on — it can't be something that's added on when somebody's in crisis. It has to be there from the very beginning."

There are some simple, general steps that employers can take to promote a culture of health and wellness, such as ensuring that the workplace cafeteria and vending machines have healthy options, or serving bowls of fruit at company meetings rather than, say, chips, suggests Tami Simon, senior vice president at the Segal Group, a benefits and human resources consultancy.

"That might at least get all of the people thinking more about healthy behaviors that hopefully will stick," Simon said.

But to really make a dent in the impact of the high-cost users, Fronstin argues that employers have to acknowledge that those employees are fundamentally different than the average users. That will entail a hard look at the types of health services that employees are using and their costs, which become useful data that employers can use to retool their plans. For example, Fronstin notes that chemotherapy treatments that are issued in a physician setting generally are far cheaper than those provided in a hospital, so, potentially, health plans could be tailored in such a way as to incentivize patients to seek that care at their doctor's office.

"If we're going to do anything productive to manage healthcare costs, we need to focus on the high users, especially those who are persistently high users," Fronstin said. "And that means developing solutions that focus on them specifically, instead of introducing plan designs that I would argue treat everyone as an average healthcare user."

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