By Heffernan Insurance Brokers

For the past two decades, health costs have increased each year. This happens for a variety of reasons, such as inflation or, say, a global pandemic. With that in mind, employers can bank on prices going up in 2022.

According to a PricewaterhouseCoopers (PwC) report, medical costs are projected to increase 6.5% in 2022. This is about average for the past decade, although it is slightly lower than the 7% increase projected this year (as more spending goes toward the COVID-19 pandemic).

Yet, 6.5% is still a considerable increase, especially when so many budgets have been reallocated or slashed due to the pandemic. That's why employers must think both strategically and creatively about how they can lower their health benefits expenses in 2022.

1. Control Drug Spending

Drug prices are rising faster than any other medical service or commodity. Prices are now 33% higher than they were in 2014, according to GoodRx. This is a significant problem during inpatient procedures, where individuals usually aren't given an option to select a generic medication—patients rarely know what drugs they're given until after the fact. Even in routine prescription scenarios, employees may be prescribed name-brand medications simply due to physician preference.

Employers can educate employees on the price differences between name-brand and generic medications. Doing so can help employees understand that they can save money while still receiving the same quality treatment.

Additionally, employers may consider introducing varying levels of prescription drug coverage—for example, fully covering generic prescriptions or drugs used for chronic conditions. For higher levels (e.g., specialty drugs), employers may cover fewer costs. Ultimately, employers will need to determine the appropriate coverage levels for their unique workplaces.

2. Encourage Active Benefits Participation

Beyond drug spending, employers can help limit overall health costs by making employees active participants in their health care. This means encouraging employees to improve their health literacy, research treatments and price shop.

Price shopping should be easier in 2022, given the new hospital price transparency rule that took effect January 1, 2021. Employees will now be able to see specific prices for procedures and other services. This incentivizes employees to educate themselves before making costly health decisions.

3. Offer Savings Accounts with Carryovers

Health plans with savings components are becoming more popular each year. That's because these tax-advantaged savings accounts empower employees to control their own spending and improve their health literacy. The accounts include health savings accounts (HSAs), flexible spending accounts (FSAs) and others.

Many accounts allow for fund carryover year to year or allow employers to add that option onto their plan designs. Allowing carryover encourages employees to contribute more funds since they're no longer "use it or lose it." Since many employers match contributions up to a limit, more money added to these accounts means greater tax savings for everyone.

4. Embrace Virtual Health Options

One major takeaway from the COVID-19 pandemic has been that virtual solutions can offer high-quality outcomes. As a result, many companies are allowing employees to permanently work remotely. Virtual health options are no exception to this trend.

There are countless telehealth services available these days. Individuals can connect with health professionals in just a few clicks—there is no waiting times or driving to a clinic. Additionally, individuals will not need to take large chunks of time off work, allowing for greater productivity. As such, telehealth solutions are often much less expensive than a typical in-person doctor visit. Even the Centers for Medicare and Medicaid Services (CMS) acknowledges the usefulness of telehealth services and is seeking to expand access to them.

Employers can consider adding telehealth services into their plan designs. In some cases, it may be cost-efficient for employees to schedule a virtual health visit before an in-person appointment. In any case, having a telehealth option expands access to care and lowers expenses for everyone.

5. Consider Plan Funding Alternatives

A more drastic option for reducing health costs is restructuring how plans are funded. For example, a self-funded plan may be more cost-effective than paying a monthly premium for a fully insured plan. Other options include level-funding or reference-based pricing models, each of which carries its own set of administrative rules and legal constraints.

Funding decisions should not be taken lightly and should be based on several factors, such as the size of an organization, risk tolerance and financial stability. Employee financial stability should also be considered, especially while the effects of the COVID-19 pandemic can still be felt. Employees may not be able to take on large premium increases, constraining some plan funding flexibility options.

Historically, employers have shifted costs onto their employees, usually through higher premiums, to reduce spending. However, that trend is not expected to be widespread in 2022. Considering the tight labor market and how many individuals are struggling financially due to the pandemic, employers will likely be hesitant to shift too much of the burden. Doing so may cause employees to seek other jobs or simply forego preventive care, which can lead to chronic conditions and higher future health care costs.

Conclusion

Employers have a variety of ways in which they can help contain health care expenses. Choosing the right method will depend on unique employee populations and budgets. Reach out to the team at Heffernan Insurance Brokers today for help strategizing your best options.

About Heffernan Insurance Brokers
Heffernan Insurance Brokers, formed in 1988, is one of the largest independent insurance brokerage firms in the United States. Heffernan provides insurance and financial services products to a range of businesses and individuals. Employee-owned, Heffernan Insurance Brokers was named the Top Mid-Sized Broker in the United States to work for in 2009 by Business Insurance Magazine. The firm has been among the Top Greater Bay Area Philanthropists since 2003.