Having spent the past 15 years in benefits, specifically healthcare, certain trends are undeniable. The following is written with the intent of offering insight as to the current environment.
At the beginning of my quest to become a student-of-the-game regarding insurance related to healthcare, rich plan designs were abundant, and fairly standard. A rich benefit plan design offers an employee low deductibles, out-of-pocket maximums (OOP), copays for office visits, and copays paid at the pharmacy. Said another way, rich benefit plans carry with them low overall cost exposure for the person accessing care. At the time, tolerance for cost shifting to employees by virtue of less coverage was generally deemed unacceptable by most employers.
Fast forward 15 years, and times have changed significantly. It’s important to look at and understand the causes of “the shift” in market tolerance related to benefit levels. Throughout the country, employer sponsored benefit programs have shifted away from plans considered as rich, and have overwhelmingly embraced the concept of shifting cost to the employee. In other words, higher deductibles, OOPs, and copays.
This begs the obvious question: Why?
While I don’t propose that the below reasons offer 100% of the explanation, they certainly play a considerable role.
Here are a few key drivers:
Medical Advancement
While we all agree that the medical community has, and will continue to make incredible strides to treat and/or cure many conditions, it all comes with a price. Technology has catapulted most industries in the US, and medicine remains to be at the forefront of increased capabilities driven by the technology boom. As we continue on the path of advancements in medicine, the cost of care increases, and we as the end users of medical care must increasingly share more in the cost of such advancements. Ergo, “there’s no free lunch”.
Think about this for a moment. When the concept of the hospital deductible was introduced to the US marketplace, the benchmark used to establish what the deductible amount should be was equivalent to an average night’s stay in a hospital. The amount at the time: $100. Today, it’s hard to imagine anything related to hospital care with a price tag of only $100 – certainly not a night’s stay.
Pharmaceutical Advancement
Some would argue that the advancements made by the pharmaceutical industry outpace that of medical. I suppose that depends on who you talk to, but let’s point out the obvious. The pharmaceutical companies, like the medical community, have made some truly incredible discoveries, again fueled by the technology boom. All good news for us right? Of course, provided cost isn’t in the equation… The fact that post diagnosis we, as Americans, can go to the local pharmacy and obtain a prescription that is life changing is really something… truly amazing.
In addition to discovery and advancement, specific to pharma, we must look at other factors related to increased prescription costs. The largest of which being marketing.
There are only 2 ways to market a product and/or service regardless of what that product/service is. 1) push strategy 2) pull strategy.
The Push Strategy
The manufacturer “pushes” the product through channels to eventually reach the end consumer, or patient in this example. In the not to distant past this was the exclusive marketing strategy used by pharmaceutical companies. Meaning, the drug company would market to the physicians directly and therefore “push” the product through channels to reach the patient if and only if the physician deemed it the right course of care.
This too has changed…
The Pull Strategy
Think TV and radio adds. The pull strategy of marketing exists when the manufacturer markets directly to the end consumer, and therefore “pulls” the consumer through the business channels. Now think fishing. In this example the fish represents you and me, the consumer. Throw in a line (the add), hook the fish (consumer), reel it in, through the channels, and back to the manufacturer – the pharmaceutical company. There once was a day that pharmaceutical didn’t market directly to the end consumer. We now live in a world where patients are making appointments to ask the physicians specifically about an add they heard. This not only drives pharmaceutical costs, it also drives increased frequencies for doctor’s appointment. Simply put, increased demand = increased costs. Economics 101.
Now add the cost of said marketing… the estimates vary, but suffice to say the price tag is considerable.
The above stated factors, as well as others not mentioned, create an undeniable need to shift costs to the end user; the consumers of healthcare…us.
A recent study released in April of 2016 by Zywave illustrates many of the results regarding cost shifting. Zywave is a trusted provider of insurance information used by more than 3,000 brokerages worldwide including 90 of the top 100 US insurance firms. For calendar year 2015, here are some of their findings, all based on a sample size of approximately 50,000 employers:
- A steady trend of higher deductibles, higher out-of-pocket costs, and higher copays
- Nearly half of all plans offered include a deductible of $2,500 or more
- OOPs have increased nearly 30% over the past 3 years
- Considerably higher ER copays in an effort to steer towards urgent care facilities
- Nearly half of employers offer a plan with an office visit copay of at least $35
- Approximately 40% of plans include a front-end prescription deductible of at least $250
While we as end users cannot change the driving factors illustrated in this article, it has become increasingly important for employer groups to consider partnerships with those in the industry who don’t just act as transactional brokers. In part a transactional broker offers little to no guidance over the factors which can be controlled and positively influenced. Working with an advisor who can influence cost, utilization, and outcomes, is now more important than ever in years past. Employers should seek out advisors who are true stewards of the insurance business, and embrace the methods of risk management, mitigation, and prevention, both at the employer and employee level. Working with an advisor whose comfort zone and expertise circumvents around the power of negotiation is a key factor of controlling cost at all levels.
Written By: James F Hughes, Libertate Insurance, LLC
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