When Healthcare Cost Containment Fails

June 27, 2018

First Stop Health

Each June, PwC projects the growth of employer medical costs for the upcoming calendar year. For 2019, PwC expects an “unsustainably high” cost increase of 6%.

PwC finds that employers now confront a marketplace where consolidation among healthcare systems and physician practices has reduced competition, enabling further price increases. Anticipated growth in specialty drug prices adds to the cost crisis.

To effectively navigate this challenging environment, employers benefit from understanding why their past efforts at healthcare cost control have failed.

Understanding Healthcare Costs and Outcomes

Firms that seek to manage massive healthcare costs must first develop an in-depth understanding of the causes of these expenses. A consistent theme among healthcare benefits advisers is that C-suite executives, including those at Fortune 100 firms, lack a sophisticated understanding of their healthcare costs.

Large firms now spend about $10,000 on healthcare for each employee with dependents. For many companies, healthcare expenses represent the second largest cost after payroll. Nonetheless, many employers manage healthcare expenses with fewer resources, less oversight by senior management, and less expertise than they apply to the budgets of their operating divisions.

Within this context, it’s easy to understand why healthcare cost containment efforts fail. Firms that lack a refined understanding of the factors driving expense increases are unlikely to effectively target areas with high-yield impact, or implement solutions that meaningfully affect healthcare costs. 

One positive development is the emergence of employer-oriented healthcare data analytics firms. By analyzing claims data, firms such as Truven Health Analytics (now rebranding as IBM Watson Health), Springbuk, and Nuna identify utilization patterns and gaps in care, enabling employers to design interventions that reduce costs and enhance the quality of care employees receive.

In its most recent annual survey of employer “best practices” in healthcare, Willis Towers Watson found that 81% of employers plan to expand the use of analytics over the next three years. In short, employers increasingly recognize the value of better analysis of behavior and costs to power successful healthcare-related efforts.

The highly publicized Berkshire/Amazon/J.P. Morgan partnership also appears likely to focus on creating value through better measurement of healthcare costs and outcomes.

After indicating the partnership would use data to improve healthcare, the partners appointed Harvard professor, surgeon, and author Dr. Atul Gawande to lead the initiative. Gawande is also a data geek. In a TED talk titled “How do we heal medicine?”, Gawande noted that specialization and complexity lead to large inefficiencies. “When you are a specialist, you can’t see the end result very well. You have to become really interested in data, unsexy as that sounds,” he said.

A Lack of Employee Health Plan Literacy

A recent report from Gartner and Direct Path found that high-deductible healthcare plans (HDHPs) have failed to reduce employer health plan costs, partly because employees “don't know how health plans work, how to select the right plan, or how to make effective use of health coverage.” As a result, "frustrated" employees are unable to choose plans appropriate for their needs, and employers don’t realize the ROI they anticipated.

An earlier 2016 study by the International Employee Benefits Foundation found that approximately 50% of employees didn’t understand their benefits materials.

Healthcare is complicated, and it’s unfair to blame employers alone for the health plan illiteracy of their employees.  Nonetheless, for employers to reduce healthcare costs, they must engage and educate their employees. Indeed, we feel confident asserting that effective employee health plan education delivers a high ROI. 

Employee Engagement Makes A Difference

For employers, there’s a temptation to assume that education will not alter employee behavior. At First Stop Health, our firsthand experience says otherwise.

In general, the telemedicine industry experiences low utilization rates, estimated at about 1% for carrier-embedded offerings. In contrast, last year First Stop Health achieved an average utilization across its entire subscriber base of 52%.

First Stop Health’s high utilization reflects our extensive education and engagement program. On average, we communicate with the employees of new clients eight times during their first two months of membership. Through our education and engagement program, we build employee understanding, awareness, and use of a vital cost-reducing healthcare service. .


Two areas not addressed here, but meriting attention, are failed healthcare consumerism initiatives and the need for programs targeting chronic care and other costly conditions. These will be discussed in future issues.

Today our most successful businesses have developed extraordinarily sophisticated mechanisms for understanding the costs of their activities and for communicating with their customers and vendors. For healthcare cost–containment efforts, the odds of success dramatically improve when companies apply this same level of sophistication both in designing programs and in educating and engaging their employees.


Originally published Jun 27, 2018 1:20:28 PM.