Calculator, pen, money, notebook and insurance card

Inflation, generally higher health costs, the pandemic’s impact, rising interest rates and the threat of recession suggest that employers — and, consequently, their employees — will have an even harder time in 2023 managing their health costs.

What does that mean for employers? Most likely it makes for harder decisions in what they do to insure their employees. And for employees getting health insurance from work? Most likely, more money in premiums, deductibles, co-insurance and co-pays.

Employers are seeing insurance rate increases of 40, 80 and 90 percent, said David Contorno, a benefits broker at E-Powered Benefits. He generally tries to help employers avoid what he describes as the higher-priced “fully insured” options offered by Blue Cross, UnitedHealthCare, Cigna, Aetna and Humana — the so-called “BUCAH” insurers — and instead choose “self-insured” options.

“I  remember saying decades ago, when the family premium reaches $1,000, it will all crash,” Contorno said in a phone interview. “But now it’s $2,000 a month average for family premiums — that’s $24,000  a year total premium for a health plan for an average family. 

“Our plans are substantially lower than that. So it’s not like this can’t be accomplished by some people all the time. It’s simply that the entities you’re dealing with — the BUCAH insurers — are not incentivized.

“And it’s not just what what employees are paying every month out of their paycheck. It’s also the ridiculous amount of money that they’re subjected to out of pocket when they actually use the plan. They’re in a lot of financial pain, even if they don’t use the plan — and pain only goes up if they actually use it.” (For more on big insurers, Dave Chase has some choice words about insurance plan design.)

Premium increases ‘unsustainable’

Consulting companies that advise employers are seeing some strong trends.

“As reported in the ‘2022 McKinsey Healthcare Stakeholder survey,’ over 70 percent of employers stated that premium increases above 4 percent would be unsustainable,” McKinsey, the consultant, wrote in a recent report. “As a result, the respondents said they would consider actions to control costs, including increasing employee contributions. However, such moves could exacerbate current talent attraction and retention pressures.”

Signs of stress on the system are everywhere. News headlines about horrifying emergency-room waits and sick children who cannot find a hospital bed abound.

Ten Massachusetts lawmakers wrote a letter to Department of Health and Human Services (HHS) Secretary Xavier Becerra to “sound the alarm on barriers patients are facing in accessing health care as a result of closures, service reductions, mergers, and for-profit acquisitions of hospitals in Massachusetts and across the United States,” Sen. Edward J. Markey’s office wrote in a press release. “Since 2020, the Massachusetts Department of Public Health recorded 20 service reductions or cuts – including inpatient pediatric, obstetric, and substance use disorder care – across 17 cities and towns.”

“Massachusetts hospitals report that they are caring for patients in emergency department hallways because skilled nursing facilities lack beds and workforce capacity is limited,” the lawmakers wrote. “Nationwide, hospitals are struggling to manage surge capacity because of a bed shortage that predated the pandemic. Despite financial support and high caseloads, the health care system is exhibiting worrying signs of distress.”

Hospitals also suffering

At Health Leaders Media, Amanda Schiavo predicts that 2023 will be the hardest one hospitals have seen in a long time.

“Only 7% of health system survey respondents said inflation and affordability issues were not likely to impact their 2023 strategy while 76% thought it would have a significant impact,” she wrote, citing a Deloitte study on the 2023 outlook for healthcare. “It is likely 2022 will be one of the worst financial years hospitals have experienced in decades. With operating margins compressed, some hospitals could get acquired while others may be forced to close their doors. 

Patients are ultimately suffering, too, of course. A study by InstaMed, the J.P. Morgan Chase subsidiary that does billing in health care, found recently that 87% of consumers were surprised by a medical bill in 2021.

Of them, 56% got a bill for more than expected and 50% got an unexpected bill, the study found; it cited a United States Department of Health and Human Services paper that found that surprise medical bills average $750 to $2,600.

Fiduciary responsibilities

Another change for employers in 2023 is the new federal regulation requiring them to be fiduciaries for their health plans under the Consolidated Appropriations Act. A fiduciary is any person or entity that manages money for someone else, and is thus required by law to manage that money for the benefit of that someone else, and nor for any other kind of gain.

Employers have been nominally required to be fiduciaries since the Employee Retirement Income Security Act (ERISA) was passed in 1974, but that responsibility was sort of observed with a relaxed attitude. Plus, it has not been easy to document an employer’s ERISA compliance, because insurers’ data has been locked away in silos where it’s not easy to compare — say, Employer A is paying $4,000 for an MRI while Employer B is paying only $400 because the contracted rate for each varies by a lot. Contracted rates were long held to be trade secrets, protected by gag clauses in contracts, but that all changed in 2022 when insurers were required to publicize rates. To learn more about ERISA, here’s an earlier post on self-insured employers.

With the release of insurers’ contracted rates, that meant that ERISA obligations could theoretically be compared, and Employer A could theoretically ask for the same rate Employer B is paying. There are several problems, though: The insurer data was released in reams and reams of huge files, hard to acquire and hard to read without specialized skills. So intermediaries took the insurer data and tried to harmonize it and make it available to employers and others (for a fee, of course).

Elizabeth Mitchell, head of the Purchaser Business Group on Health, a consortium of large companies that compare information on health costs, told Fierce Healthcare that she expects change to happen, perhaps lawsuits for fiduciary duty violations when the data reveals how badly some health plans or third-party administrators have been making deals for their employer clients.

“’They’re coming,” she said of the lawsuits. “Because they were supposed to be negotiating effectively on behalf of their customers. And I think there’s going to be increasing evidence that that didn’t always happen.”

Lawsuits have already been filed, including one  complaint filed in early December by self-funded employers against Anthem, Fierce Healthcare reported, “in which the employers charge that the health plan allegedly denied them access to claims data.”

Among the sources of claims data made digestible and comparable are Innovu, Finhealth and Turquoise, as well as Castlestone, 4cDigitalHealth and Pratter.us

Insurers and hospitals changing roles

Meanwhile, seismic changes are taking place below the surface, with insurers and hospitals increasingly taking on different roles.

“Hospitals believe delivering necessary health services to communities is their role. Patients delegate clinical decisions to the nurses, doctors and caregivers that hospitals provide,” Paul Keckley, an observer of the industry, wrote in a recent newsletter. “Insurers believe hospitals play an essential role in delivering services to patients. Their role is to ‘audit’ the performance of hospitals and other providers to enhance the cost-effectiveness and clinical efficacy of services provided.
 
“It’s an 80-year-old construct but in recent years, boundaries between the two have been breached: more than 200 hospitals now own all or part of a captive insurance plan and every national insurer operates clinics with employed clinicians and ancillary services. Both recognize their markets are changing and demand for their core businesses is shrinking (insurance risk, inpatient care). And ironically, the forward trends impacting the two are almost identical:

“Increased dependence on clinical and financial data to operate effectively and comply with regulatory requirements. … Increased negative impact of drug costs and workforce shortages on operating margins. Increased consolidation with bigger players getting bigger. Increasing administrative costs and decreasing operating margins.”

Insurers’ drug profits growing

Another big change: The big health insurance companies are now getting more and more revenue and profit from their pharmacy management business, as Wendell Potter, a health systems analyst and former healthcare publicist, notes on his Substack.

In analyzing the 2022 earnings report of UnitedHealthGroup, including its subsidiary, Optum, Potter wrote: “Optum, the division of UnitedHealth that operates the company’s pharmacy benefit manager, contributed $4 billion to UnitedHealth’s profits during the last three months of 2022, far more than the $2.9 billion contributed by the division that sells health insurance.” (Health insurance premiums and earnings are a favorite topic for Potter.)

“Looking at revenues, Optum still lags behind the health insurance division, but it is quickly closing the gap. During the same quarter 10 years ago, UnitedHealthcare, the insurance division, posted revenues of $26.9 billion. Last quarter, the total had more than doubled to $63 billion. But Optum’s revenues increased more than six-fold (639%), from $7.5 billion in 4Q 2012 to $47.9 billion in 4Q 2022.”

The same thing is happening at Cigna, where its Evernorth division controls its pharmacy benefit manager, and a CVS-Aetna, with its pharmacy operation, Caremark, Potter wrote.

“These three companies, which we still call ‘insurers,’ but which together control 80% of the PBM market, have transformed themselves into companies that get most of their money now as middlemen sucking more and more out of the drug supply chain – between you and your pharmacist and the companies that make your medications – and less and less (as a percentage of revenues and profits) from their health insurance operations,” Potter concludes.

“And among all the big seven for-profit ‘insurers,’ as I’m sure we’ll see over the coming weeks, most of whatever growth they report in health plan enrollment over the past year will have come primarily from Medicare and Medicaid and other government programs. That’s because more and more U.S. employers and their workers can no longer afford the premiums they charge. Uncle Sam, on the other hand, keeps their health plan operations afloat and profitable by funneling more and more of our tax dollars to those companies.”

Jeanne Pinder

Jeanne Pinder  is the founder and CEO of ClearHealthCosts. She worked at The New York Times for almost 25 years as a reporter, editor and human resources executive, then volunteered for a buyout and founded...