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Doi: 10.1377/forefront.20181105.590047

Many of us periodically consult updates to the classic chart from the Kaiser Family Foundation (KFF) Employer Health Benefits Survey showing the trends in annual average premiums for single and family coverage.  In recent years, I have begun referring to this graphic as the “stairway to hell.”  According to a recent Health Affairs article by Gary Claxton and colleagues, “Health Benefits In 2018: Modest Growth In Premiums, Higher Worker Contributions At Firms With More Low-Wage Workers” summarizing the survey results, “There were no big changes in employer-sponsored health coverage from 2017 to 2018.”  However, the constant step-wise premium increases over the past 20 years are no less alarming for being predictable.  Some commentators have claimed that we don’t have a crisis because the benefit and premium trends aren’t remarkably different in recent years. In fact, we have a decades-long crisis of high costs that is eroding the employer-based insurance system and damaging our economy.  As we descend, step by step, we are spending more on health care and less on wages or other beneficial private and public goods and services.  Purchasers – from both the private and public sector – need to embrace more forceful and creative purchasing strategies to reduce costs and improve quality.

A second recent Health Affairs article by Amanda Frost and colleagues, "Health Care Spending under Employer-Sponsored Insurance: a 10-Year Retrospective," shows that health spending under employer-sponsored insurance has increased faster than inflation.  We’ve almost become numb to this and accept it as an intrinsic element of our health care system.  It’s not, or at least it shouldn’t be.  The article provides a lot of valuable data that could be used by large employers and exchanges to guide value-based purchasing strategies.  For example, the increase in visits to Emergency Departments is a red flag, since it indicates that too many people are receiving services that could be provided less expensively (and probably better) in urgent care clinics or similar settings. Similarly, the spending increase in brand-name prescriptions reinforces the need for more effective purchasing strategies as well as public policy changes, and the increase in outpatient surgery reminds us that more oversight is needed regarding costs and appropriate use, as well as quality.  More generally, the Health Care Cost Institute (HCCI) database and other private and publicly-sponsored all-payer databases can provide important insights into health spending patterns under employer-based benefits.

The continuing growth in spending for employer-based health benefits sends a signal that the marketplace is not working.  For many decades, going back to Kenneth Arrow’s seminal article on the economics of medical care, we’ve recognized that the health care market has intrinsic problems.  Fundamentally, there is an imbalance in the relative market power of the demand side (employers and consumers) compared to the supply side (hospitals, drug companies, physicians, etc.) in health care.  This has led to higher prices in employer-based coverage, especially since public purchasers (Medicare and Medicaid) have the authority to set prices for services provided to their beneficiaries. 

But why haven’t employers exerted more influence by pursuing more effective purchasing strategies?  For example, the Claxton article shows that the use of tiered, high-performing, or narrow networks – a proven way to improve quality and reduce costs -- has actually declined since 2015.  There are many reasons for employers’ reluctance to embrace these value-based strategies, including a lack of resources, the complexity of developing and implementing creative benefit designs, concerns about employee complaints (especially in a tight labor market), and a sense of futility based on past experience.  But we should recognize and encourage those employers that are taking up the challenge.  For example, Boeing, Intel, Disney, Qualcomm, and others have developed ACO-type direct contracts with selected health systems.  Walmart, Lowe’s and others have implemented centers of excellence programs that have improved quality and reduced costs.  We need to spread these innovations and encourage others to implement similar programs.  This can be especially effective at the local level if state employee plans, Medicaid programs, and private sector employers align their purchasing strategies.  To have national impact, however, Medicare needs to adopt some of the most promising private sector innovations to improve quality and reduce costs.

It will take a massive effort to achieve our goals of a more affordable and higher quality health care system.  The first step is to recognize how serious our problem is.  The recent studies by Claxton and colleagues at KFF and Frost and colleagues at HCCI -- and similar research -- provide enormous value, but we should not interpret the “stability” of cost increases as anything other than a continuing crisis.

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June 2024 | Reimagining Public Health