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High Care Costs Driving Employer-Sponsored Insurance Spending

Increases in high healthcare costs, not utilization rates, led to increases in employer-sponsored insurance spending from 2012 to 2016 according to recent research.

High healthcare costs drove employer sponsored insurance spending

Source: Thinkstock

By Thomas Beaton

- The Health Care Cost Institute (HCCI) found that high care costs were the primary driver of increased employer-sponsored insurance spending in 2016, which grew by 4.6 percent and exceeded any rate between 2012 and 2015.

A HCCI report of employer-sponsored healthcare spending analyzed claims data from Aetna, Humana, Kaiser Permanente, and United Healthcare and concluded that healthcare utilization rates either went down or remained unchanged from 2012 to 2016.

With utilization stagnant or decreased, prescription drugs, ED visits, and surgical hospital admissions emerged as the source of increases in employer sponsored health plan spending. The report also indicated that out-of-pocket spending increased among employees albeit at a much slower rate than employer spending on healthcare services.

Employers spent an average of $5,709 per person annually for a combination of inpatient services ($1,094 per person each year), outpatient services ($1,507), professional and specialty services ($1,821), and prescription drugs ($1,030).

According to HCCI President Niall Brennan, the data can help increase awareness about how the prices of healthcare services are a significant driver in healthcare spending nationwide.

READ MORE: How Payer Philanthropy Can Address Social Determinants of Health

“HCCI aims to provide a compelling contribution to the broader discussion of US healthcare costs and stimulate a conversation on the significant role rising prices are playing in driving the growth of healthcare spending,” he said.

HCCI identified large increases within healthcare spending categories that financially strain employers and their employee populations.

Out-of-pocket spending

In 2016, employees spent an average of $848 out-of-pocket on healthcare services including inpatient services ($50 per person), prescription drugs ($158), outpatient ($252), and professional and specialty services ($388). Average out-of-pocket spending increased by 12 percent from 2012 to 2016, which was an average increase of $88 per person each year.

HCCI additionally found that payer/employer spending increased on prescription drugs while out-of-pocket spending on drugs decreased. Increased payer responsibility for prescription drug purchasing was a major contributor to lower growth rates in out-of-pocket spending. 

Payer vs. out-of-pocket spending on prescription drugs

Source: Health Care Cost Institute - HCCI

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Out-of-pocket spending grew faster than payer spending within the inpatient, outpatient, and professional service sectors, but payers felt most of the burden within drug spending.

Additionally, payers may be spending more but also can negotiate rebates through a PBM or participate in a value-based purchasing contract that lowers the price they pay for drugs. Out-of-pocket spenders don’t have some of the advantages payers do when negotiating drug prices.

Prescription drug spending

Prescription drug spending grew by 27 percent between 2012 and 2016, equating to spending increases of $223 per person.

Prescription drugs categories that grew fastest in price include skin-based anti-inflammatory drugs, hormone and synthetic substitutes like insulin, and antibiotic or similar antiviral medications. Anti-inflammatory and skin-based drug spending grew by 79 percent ($27 per person each year), hormone and synthetic substitutes spending increased by 55 percent ($88), and antibiotic spending grew by 51 percent ($41).

Prescription drug spending and utilization trends also reinforced an argument for increasing access to generic drugs to employees.

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While brand-name prescription utilization decreased by 38 percent, brand-name drug spending increased by 110 percent. Conversely, generic drug utilization increased by 14 percent but prices only increased by 6 percent.

Some generic drug categories even experienced significant utilization increases with high reductions in spending. For example, generic respiratory drug utilization increased by 121 percent from 2012 to 2016, but spending fell by 55 percent per person during the same time.

Inpatient healthcare spending

Inpatient spending grew by 8 percent from 2012 to 2016 with prices increasing by $81 per person each year. Inpatient utilization declined by 12 percent between 2012 to 2016, but the price of inpatient services increased by 23 percent during the same period.

In 2016, surgical admission prices averaged $41,702 per admission and the total cost of inpatient spending averaged $20,929 per person.

“Surgery accounted for just over half of acute inpatient spending in 2016,” HCCI added. “The average price for surgical admissions increased by nearly $10,000 from 2012 to 2016, a 30 percent cumulative increase in five years.

Medical inpatient spending averaged $18,465 as the second most expensive inpatient service followed by newborn care $10,824.

Inpatient utilization declined by 12 percent between 2012 and 2016 but the price of inpatient services increased by 23 percent during the same period.

Outpatient healthcare spending  

Outpatient spending increased by a rate of 17 percent or $221 per person each year between 2012 and 2016. Outpatient spending grew faster than any other category in 2016 at a rate of 6 percent or $88 per person.

ED visits were cumulatively the largest driver in outpatient spending growth between 2012 and 2016 with prices increasing by 34 percent or $89 per person. Outpatient surgery grew by 12 percent but had the second largest price increase of $61 per person.

ED utilization grew by 2 percent 2012-16, or by 4 visits per every 1,000 individuals, which helped drive outpatient spending.

“The price increase, in combination with the slight increase in use, drove 4 percent of the increase in total outpatient spending between 2012 and 2016,” HCCI added.

The average price 2016 outpatient surgery costs were $4,722, which was the most expensive outpatient service that year. The second most expensive service was outpatient observations ($2,027) followed by ED visits ($1,917) and radiology services ($539).

Healthcare spending and managing healthcare costs will continue to be a problem for payers based on spending trends, which may drive payers to leverage cost-saving strategies and consumer-directed insurance design to lessen the impact of high healthcare costs. 


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