With the days becoming shorter and leaves beginning to change, I’m already excited for a uniquely American tradition. After another year of planning, investment, and hard work, some teams will soon find out if they can count themselves among an elite group of winners. The rest will be left hoping for better luck next year.
It’s not sports that I’m thinking about, but group benefit plan renewals. The fourth quarter of the year is peak season for employers to make decisions for the upcoming year and conduct open enrollment. There’s much more than pride on the line here, as a bad loss can affect employee take-home pay, recruiting and retention, and even a company’s future viability.
Even though healthcare costs have been rising faster than inflation for decades, employers and employees who face large increases often don’t know why they are being asked to pay more. There are of course many factors in play here, the impact of which can vary based on the type of plan offered.
If your company has 50 or fewer employees and an insured health plan, your rates will not be directly tied to your group’s claims history. Instead, insurers look at the experience and expected costs of all similarly sized groups in your area to develop a table of age-based rates. These rates will be offered to all small groups in your community, without regard for each constituent groups’ actual or expected claims.
In contrast, rates for large groups and self-funded (or “level funded”) small groups are directly affected by group members’ health status. This means that unlike small insured plans, these groups can benefit from keeping employees healthy and avoiding high cost care through wellness, alternative delivery channels, and other strategies. On the other hand, experience-rated groups are also exposed to potentially massive increases due to high-cost claims.
In the past, many of the most expensive claims were due to conditions that required intensive hospital care, like premature birth or heart surgery. Prescription drug expenses were, by comparison, relatively modest. Now, however, new high-cost specialty medications can be among a group’s largest claims in a year.
For example, you may have recently seen television commercials for a new drug called Harvoni that can cure Hepatitis C in over 90 percent of patients. This is a big improvement over older treatments, which achieved cure rates of 40-50 percent. The downside is that a twelve-week treatment regimen of Harvoni costs nearly $100,000.
For small groups with pooled rates and very large employers with thousands of employees, these types of costs can be spread across a large population. Rates will likely rise, but not severely. For smaller and mid-size experience rated groups, however, just one of these claims can have a huge impact on their renewal rates.
In the current healthcare environment, all groups are accustomed to budgeting for some predictable level of increase. No one budgets for increases of 50 percent, 80 percent, or more. These types of increases put the squeeze on employers, employees, and their families, and bring them closer to their breaking points.
At the same time, no one wants to deny access to life-changing treatments. If you want to avoid this choice, it’s critical to do all you can to manage costs in other areas, as well as ensure your pharmacy benefits are being managed ethically and responsibly. Unlike in baseball, everyone can be a winner with the right health plan strategy.