What’s Next For Employers Managing Medical Cost Trends

Inflators and deflators. No, they don’t concern the deflategate scandal and football’s New England Patriots. They’re factors that increase (inflators) or decrease (deflators) medical cost trends year to year. And PricewaterhouseCoopers (PwC) has identified two deflators—high-performing networks and controlling specialty drug costs—that can help employers reduce company’s health care costs.

Medical Cost Trends: Good News and Bad

PwC projects that the medical cost trend for 2017 will be 6.5 percent, the same as this year. The good news is that this is the lowest such trend in the last 10 years. The bad news is that it still outpaces inflation. So chances are employers will have to continue their fight to control health care costs.

Convenience clinics, such as retail walk-in facilities and urgent care centers, are impacting these costs. Their very benefit to employees—convenience—has led to higher utilization of health care services. Another inflator is increased access for behavioral health. As more employees take advantage of this benefit, overall medical costs go up. Since health plans reflect medical costs, when the cost to treat patients goes up, so do plan premiums.

But there are two steps employers can take. Pursue a high-performing network and seek plans with effective pharmacy benefit managers.

The Value of High-Performing Health Care Networks

Just as PwC cited two inflators, the consultancy noted two deflators as well. The first is high-performing health care networks. These networks are more selective in nature, comprised of top-performing providers who deliver quality outcomes at a lower total cost.

Many high-performing networks also include elements of value-based payments. Providers are typically compensated on the quality of health outcomes achieved not simply the quantity of health services provided. All to improve the health of populations. Often this care takes the form of preventive medicine. For instance, emphasis is placed on cancer screenings, immunizations, and chronic disease management. 

By improving employee health over time, fewer services will be needed. And plans offering such networks will cost employers and their workers less. The numbers bear this out. Segal Consulting projected the medical cost trend for HMOs (traditionally a narrower network) to be 6.7 percent in 2017. That’s 10 percent less than PPOs (with broader networks).

Employers are taking notice. In 2016, 49 percent of companies already have or are considering performance-based networks. That’s up from 37 percent in 2014.


49% companies w/ high-performance networks

High-Performing Networks: The Kaiser Permanente Way

Kaiser Permanente has long been a proponent of preventive medicine, figuring the best way to care for employees is to help them not get sick in the first place. When treatment is needed, we rely on evidence-based medicine, proven care that leads to healthier outcomes.

The alignment of care and coverage in the integrated Kaiser Permanente approach fully enables the value-based model and inherently fosters better outcomes at lower costs—especially within the framework of our HMO. By its very nature, our HMO is selective and built around the highest-performing medical group.

So, just how high performing is this approach? eValue8 rated our commercial HMO (as Group Health Cooperative) as the highest-performing health plan in the country. The plan was also the highest-rated nationally for helping patients get and stay healthy, and for managing chronic conditions. Supporting this rating is the fact that Kaiser Permanente Physicians (as Group Health Physicians) is the highest-ranked medical group in the state according to the 2015 Community Checkup, Washington Health Alliance.

Depending on their company’s situation, employers could save significant amounts. An Eastside children’s school with five campuses and 200 employees saved 15 percent on health care costs by moving their staff to a single, HMO plan.

Pharmacy Benefit Managers: Keeping Prescription Drug Costs down

According to PwC, the second medical cost deflator is pharmacy benefits managers who aggressively negotiate drug costs and handle claims processing. Employers should evaluate the abilities of these managers to negotiate drug discounts and optimize utilization of the highest-value drugs in each therapeutic class.

Pharmacy Management: The Kaiser Permanente Way

Kaiser Permanente has done a number of things to help employers and their employees control prescription and specialty drug costs. Among them are:

  • A transition to OptumRx as pharmacy benefits manager to enable our pharmacy claims to be more efficient and cost-effective.
  • Purchasing medications in bulk to help keep pharmacy costs down
  • A Specialty Pharmacy, staffed by board-certified specialty pharmacists to dispense and better manage specialty drugs and patient adherence.
  • A tiered formulary that dispenses generic drugs before their more expensive brand-name counterparts.
  • Mail-order refills which typically cost one-third less than in-pharmacy.
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All plans offered and underwritten by Kaiser Foundation Health Plan of Washington or Kaiser Foundation Health Plan of Washington Options, Inc.