The Loop

Conditions That Drive Up Employer Healthcare Costs

Filed under: Benefits

For each of the last three years, healthcare benefit cost increases for large U.S. employers has held steady at six percent. While that's actually good news relative to past premium hikes, it's still a substantial increase over the pace of general inflation (two percent) and salary budget increases (three percent).

While the cost of providing healthcare continues to rise, so do the numbers of people developing conditions that are expensive to treat. Here's a snapshot of the top three most costly conditions:

Approximately 1.7 million people aged 20 years and up are diagnosed with diabetes each year. Presently, about 29 million Americans are afflicted with the disease—more than nine percent of the population. All told, it cost more than $101 billion to treat diabetics each year.

Ischemic Heart Disease
About 28.4 million Americans (11.7 percent of the population) have diagnosed heart disease, which kills more than 600,000 people each year. The second most expensive condition in the U.S, ischemic heart disease, costs the health industry about $88 billion a year.

Low Back and Neck Pain
Running neck-and-neck with heart disease, low back and neck pain costs around $87 billion to manage and treat each year. About half of all working Americans admit to having back pain symptoms, which is one of the most common reasons for missed work and is the single leading cause of disability.

These three conditions, combined with high blood pressure ($83.9 billion) and injuries from falls ($76.3 billion), represent 18 percent of all personal health spending. The following are other common conditions that generate the biggest healthcare spend in the US:

• Depressive disorders – $71.1 billion
• Oral-related problems – $66.4 billion
• Vision and hearing problems – $59 billion
• Skin-related problems, such as cellulitis and acne – $55.7 billion
• Pregnancy and postpartum care – $55.6 billion

Prescription Drugs
While prescription drugs are not a medical condition, they do represent the single largest expense of consumer dollars. At more than 22%, the cost of medications outpaces that of physicians as well as inpatient and outpatient hospital services. Interestingly, the overall growth rate for prescription drug spending is only three to four percent. However, the growth rate for specialty drugs is exponentially higher.

For example, many drugs prescribed to treat cancer and other severe conditions often cost $10,000 a month or more. While only a small percentage of patients use them, they represent about 30 percent of all healthcare claim costs. Specialty pharmacy costs are projected to surge another 16.8 percent in 2017.

On average, pharmaceutical costs account for 15-to-20 percent of employers' medical spending and are rising at two times the rate of overall health care costs. The three largest contributors to specialty drug costs are for those prescribed for:

• Inflammatory conditions (e.g., rheumatoid arthritis, inflammatory bowel disease) – 27%
• Oncology – 20%
• Multiple Sclerosis – 11%

Why Is It an Employer's Responsibility?
The most money spent on healthcare is for the working age population. What's interesting is that researchers believe that most chronic conditions are caused by and can be controlled at least in part by modifiable behavior. Therefore, creating a health-conscious work environment and implementing practices and programs to facilitate good health can be a positive factor to a company's bottom line.

This brings us to the question of when and why did it become the employer's responsibility to safeguard the health of its workforce? Up until World War II, Americans paid for everyday medical care out-of-pocket directly to their doctor. After the war, the federal government tried to control inflation by implementing wage and price controls. This wasn't popular, particularly among labor groups, so the government exempted employer-paid health benefits from wage controls and income tax as a concession.

Years later, the government tried to eliminate this tax break, but the benefit was already entrenched as an assumed benefit. By the mid-1960s, employer-provided health insurance was near universal in the U.S. Problems with this model began in the 1990s when healthcare costs grew at twice the rate of inflation. While there are undoubtedly perks to having a healthy workforce, such as higher levels of energy, mindfulness and sharp mental acuity, the reason employers deploy wellness programs is directly related to keeping overhead administrative costs down.

A general population lifestyle management program promoting healthy diet, weight loss, exercise and smoking cessation can be effective for long-term health. However, disease management programs have proven to yield a stronger return on investment. A study by Rand Corporation found that disease management programs represent 86 percent of hard healthcare cost savings, including a 30 percent reduction in hospital admissions.

According to the 2017 Large Employers' Health Plan Design Survey, specialty drugs constitute the highest driver of health costs. Another problem area is high-cost claimants. This is based on the finding that the majority of costs are concentrated among a relatively small percentage of high-need individuals—those whose healthcare expenses run $50,000 or more in a year.

The study also revealed the top ways employers are attempting to reduce workforce healthcare expenditures:

• Offer high-deductible healthcare plans as an option or the only option
• Wellness initiatives
• Self-service decision-support tools
• Nurse coaching for lifestyle management
• Disease/condition management
• Pharmacy management techniques, such as:
          – Selective pharmacy networks
          – Prior authorization before filling a prescription
          – Quantity limits
          – Step therapy, requiring less expensive drugs to be tried first
          – Having the member pay the difference between generic and brand prices
          – Closed formulary excluding certain brand name drugs
          – Integrated medical and pharmacy data for more effective cost management
          – Mandatory mail order for maintenance medications
          – Four-tier or higher pharmacy plan design
          – No co-pay for select generic medications
          – More aggressive use of management protocols for specialty medications
          – Specialty medications must be obtained through a specialty pharmacy
          – Pharmacy plan designed with a specialty tier with greater cost sharing
• Increased employee cost sharing; in 2016:
          – Large employers paid about 78 percent of premiums for employees and their families
          – The median in-network deductible was $1,425 for employee-only coverage and $2,900 for family coverage across all plan types

Aging Workforce
It's safe to assume that many of the conditions that represent high costs for employers, such as low back and neck pain and vision and hearing problems, will become more prevalent among today's aging workforce. Given the enormous population of baby boomers, 25 percent of the working population is expected to be over age 55 by 2020.

Increasing age is inevitably accompanied by health conditions, some of which may qualify under the rules of the Americans with Disabilities Act (ADA). This legislation prohibits discrimination and guarantees that people with disabilities, of all ages, have the same opportunities as everyone else. As such, it requires employers to offer reasonable accommodations to older workers with qualifying disabilities, such as:

• Accessible parking spaces
• Screen magnification software
• Flexible scheduling due to stamina issues or the effects of medications
• Periodic rest breaks away from the workstation
• Part-time work schedules
• Sit-stand desk
• Time off for medical treatment

While health declines that accompany age are likely to incur higher healthcare expenses for employers, it's important to weigh those costs against the benefits of older workers. For instance, mature employees tend to be the most skilled and productive. In addition, human resource managers routinely cite the top advantages of older workers as having significantly more work experience and industry knowledge; greater maturity and professionalism; more reliable with less turnover; and a stronger work ethic.

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