The Complexity of Cost Management

Cost savings is often the first focus of my conversations with financial leaders because healthcare benefits are one of the largest expenses a company faces. In 2022, this is no exception. So, let’s consider what’s driving the need for creativity, and what you can do to be prepared.

As we think more about health plan costs for 2022 and beyond it’s important to reflect on a couple of irregular years we’ve had during the pandemic. 2020 saw the first year of negative trend in some scenarios due to the reduction in services and scheduled procedures when the pandemic began in 2020. In 2021, costs rose around typical rates of 5 to 6% and employers are anticipating another 4 to 5% increase going into 2022.

Almost 95% of employers anticipate increases in medical services in the near future as a result of delayed care caused by canceled procedures or avoided screenings and preventive care where certain conditions like cancer or cardiac issues could have been detected sooner. We also need to expand our view, not just from the medical plan side, but also how COVID-related illness or illness exacerbated by the pandemic might impact disability claims in the future, with either long COVID sometimes called long-hauler COVID or serious conditions identified later than usual.

If you’re a self-funded employer, understanding your clinical utilization trends either from carrier reporting or a data warehouse solution can really make a difference. If, you’re a fully-insured group, we are continuing to see more of an interest in captive and level funding solutions, with more employers considering the savings to be had along with avoiding state mandates and plan design flexibility. The right answer? Well, as always the right answer is what’s right for your firm, your risk tolerance, and your budget. And determining that answer and then maximizing your cost savings under any funding arrangement is where having a partner can really make a difference. Size does make a difference in available levers you can pull. 

So, what’s an employer to do? According to the Business Group on Health, nearly half of employers are likely to use a value base benefit design in the future to help achieve steerage towards the most efficient providers in the network. And, employers are increasingly adding Centers of Excellence to their plans including things like recent increased interest in mental health, fertility and transgender health providers. As new price transparency requirements around “shoppable” services come into play, more plan sponsors believe their ability to identify high value providers and facilities will increase their ability to steer members through savings will increase. We expect to see more and more employers drive towards value based care in the coming years.

With employers focused on finding efficiencies and cost savings opportunities on the medical benefit side, they are increasingly looking at the fastest growing category of spend within their plan, which is unsurprisingly specialty pharmacy. Pharmacy spend equates close to 30% of the total healthcare spend. Plan design can make a difference, but if you are self-insured, there are more options to “buy” it better and incorporate better arrangements with the pharmacy benefit managers (PBMs).

I know that’s a lot to digest, and that’s why I’m here – understanding and unpacking the tools and levers employers can use to help control their costs and maximize the return on their investment is my key focus – so ask me your questions. What are your greatest financial challenges this year? I’d love to know how this fits with what you’re seeing in your circles and organizations. Tell me at [email protected].

Welcome to Carlozo’s Corner, a new weekly installment I’m pleased to contribute to the FENG newsletter. I’m Anthony Carlozo, a client executive at Marsh McLennan Agency (MMA), the employee benefits division of Marsh.

At Marsh McLennan Agency, I work with organizations of all sizes to help them minimize their risk and maximize the value of their benefits programs.

Here I’ll be sharing insights about a current market trend and the strategies I’m seeing employers adopt to adapt to today’s evolving business landscape.