Before we discuss cost-containment strategies with respect to healthcare, we need to understand what cost containment is.
Cost containment is the business practice of maintaining expense levels to prevent unnecessary spending, or thoughtfully reducing expenses to improve profitability without risking long-term damage to the company.
Why Do Employers Need Healthcare Cost-Containment Strategies?
Healthcare costs are rising, and everyone is feeling it.
In fact, according to the Centers for Medicare and Medicaid Services, healthcare spending is projected to increase by 5.5% annually through 2027; that’s faster than the rate of inflation. Large employers predict they will see an increase of 5-6% in healthcare costs in 2020.
No wonder 45% of employers say that managing healthcare costs is their top priority. But how can they address the challenge of rising healthcare costs?
There is one approach that can help employers incur a lower cost increase: implementing cost-containment strategies. These can range from modifying employer practices — such as shifting costs to employees — to harnessing technology. Some are more effective than others.
Examples of cost-containment strategies include:
- Offering high-deductible health plans (HDHPs)
- Shifting costs to employees
- Offering virtual care, such as telemedicine
- Offering health savings accounts (HSAs)
- Performing claims analysis
- Making changes to coinsurance
We can think of healthcare today as a triangular relationship:
- Employee–Insurance Company
- Employer–Insurance Company
Each of these relationships is dependent on the other two relationships, and some consist of negotiated rates and discounts. Consequently, things become complicated quickly, with prices getting messy and mystifying. The lack of price transparency, partly the result of
insurance companies having to individually negotiate with and pay providers, creates a system that can’t manage its own costs. Patients find themselves confused, and they end up overpaying.
Telemedicine is a win-win.
By offering employees a lower-cost, virtual visit with a doctor, telemedicine helps employees get diagnosed and treated without their having to step out the door. This means employees can get the care they need quickly and conveniently.
Meanwhile, employers benefit because telemedicine is often an effective healthcare cost-containment strategy, as it allows employees to avoid more expensive healthcare options, such as primary care, urgent care and emergency rooms.
However, generating real savings by limiting claims for ER and office visits requires telemedicine be highly utilized. If people aren’t using the service, then they are still going to the doctor’s office, ER or urgent care facility. In such a case, very little healthcare cost savings can be realized.
Population Health Management
Population health management programs look at demographic and claims data to identify chronic illnesses like hypertension, diabetes and heart disease. The programs can then help companies combat the high costs of treatment by suggesting case-management strategies for conditions stemming from those major health problems.
This can be an effective, if complicated, way to manage costs in the medium-to-long term. Unfortunately, case management requires a lot of work when a patient’s needs are especially complicated. Moreover, it may take years to realize savings, because it hinges on the cooperation of the individual employees who have expensive health conditions.
The Keys to Cost Containment
What elements are key to an effective cost-containment strategy?
First, for employee-facing cost-containment strategies to work, employers need to ensure employees will actually use them. In the example above, telemedicine can be an effective cost-containment strategy — when employees use it. Telemedicine that isn’t used doesn’t have real value.
Utilization is also key to initiatives such as HDHPs, HSAs, smoking cessation and wellness programs.
Driving utilization requires a robust employee-engagement program. Changing employee behavior is tough, but if employees don’t change their behavior around accessing healthcare, employers won’t see meaningful results from cost-containment strategies.
The second key is discovering what’s working and what’s not.
Employers often struggle to measure the success of a cost-containment strategy. For example, according to the results of the First Stop Health 2019 Health Benefits Cost Containment Employer Report, while 79% of employers measure enrollment in HDHPs, only about one-third measure ROI.
Certainly, ROI is difficult to measure, but how can you know if a program is effective if you don’t measure it? It is metrics that allow you to vet existing programs and, when needed, justify making room for more effective ones.