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Facing higher health costs, employers get tough

September 19, 2023
By Tina Reed


Employers girding themselves for an especially pricey health care benefits season this fall are pushing back harder in negotiations, armed with new price transparency data and emboldened by increased industry scrutiny.

Why it matters: Employers frustrated that they haven’t been getting the best deals on health care are using the data to demand better terms in discussions with insurers and pharmacy benefit managers, industry experts said.

  • There have been some initial signs these strategies have been successful, but experts said it will take larger collective change among employers to generate more significant savings.
  • “I think that’s where we’re heading is a much, much more enlightened market, particularly if we get reforms in Washington,” Michael Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions, told Axios.

The big picture: Employers are facing the biggest annual increase in health care costs in a decade, according to Mercer. Two-thirds of the employer health insurance market is in self-insured plans, in which an employer is on the hook for some or all of workers’ health care costs rather than an insurer, according to KFF.

  • However, they work with third parties — often well-known health insurance brands and pharmacy benefit managers — to administer their benefits.

Between the lines: Large self-insured employers over the past year have been able to examine insurers’ negotiated rates with providers, thanks to federal price transparency rules. Congress, meanwhile, is looking at strengthening transparency requirements.

  • These employers are beginning to see that their own arrangements aren’t always working to their benefit, said Rob Andrews, CEO of the Health Transformation Alliance, which includes member companies like Marriott, Coca-Cola and American Express.
  • “This is very early days of a sea change in the market where self-insured employers for the first time can benchmark their pricing,” Andrews said.
  • For instance, he said, employers have found that many health insurance carriers privately negotiated better prices with health systems for their own Medicare Advantage plans compared to their self-insured employer customers.
  • Health insurers often can get more favorable prices from hospitals on MA patients because they promise to bring along self-insured employers at a higher rate, he said.
  • However, Thompson points out it’s not always fair to compare MA plans to the commercial market because they may have different provider networks and benefit offerings.

Andrews estimates about 15% of member companies have begun to negotiate “best price” clauses into their contracts with insurers administering self-insured plans. He said more companies are willing to move their business to another third-party administrator that doesn’t have its own competing MA plan or fully insured plan.

  • “That could grow, and it will grow if carriers are not willing to reexamine their business model,” he said.

Employers are also taking a closer look at their contracts with PBMs amid increasing scrutiny of that industry’s role in higher drug costs.

  • Groups like the Purchaser Business Group on Health and the National Alliance of Healthcare Purchaser Coalitions have outlined contracting standards employers should insist upon during negotiations with PBMs.
  • “For years, I think naively, employers relied very heavily on their intermediary to manage their pharmaceutical spend for them, and the evidence is out there that that hasn’t been a wise strategy,” Thompson said.
  • In some cases he’s aware of, getting more aggressive about things like how drugs are listed on formularies or how rebates are shared has allowed a few companies to push down drug costs as much as 9%-10%.

Employers need to ask some hard questions about their PBM contracts, said Cora Opsahl, director of 32BJ Health Fund, one of New York’s largest unions. “Are you actually getting 100% of your rebate dollars? If you’re not, why not?” she said.

  • PBMs and employers can also work together to target some of their biggest cost drivers, she said.
  • In one example, the union saw costs and use of new weight-loss drugs known as GLP-1s jump 55% in nine months. When digging into claims data with help from its PBM, the union discovered a significant portion of workers stopped using the drugs after 60 days.
  • While other drugs might get filled for 90-day prescriptions, she said switching to 30-day refills of GLP-1s will save at least $1 million in a year.
  • “What I tell all employers is you need to hire a data analyst,” Opsahl said. “And if they can’t find enough savings that equal their salary in the first year, you have the wrong data analyst.”


Read More at Axios.