The Employer's Guide Blog for Overseeing PBMs

The Definition of Oversee: to watch over and direct (an undertaking, a group of workers, etc.) in order to ensure a satisfactory outcome or performance.

The Future of Employer-Sponsored Coverage

It is early days. No one knows what will happen legislatively in 2017. But large employers are as anxious as all health care stakeholders about what the new brand of change may bring. There is high uncertainty given the volatility of the political and policy process that is unfolding and given the unpredictability of the Trump administration.

Click to Learn More
What are employers worried about? Here are a few issues to watch:

Tax-deductibility of employer-sponsored health insurance: This has to be the No. 1 and immediate issue. Currently, this is worth $260 billion per annum in tax benefits. If it were to be chipped away at, either in the form of the current law’s planned reinstatement of the Cadillac tax or some Republican proposals to scale back deductibility, this will have a significant negative effect on employers.

Pharmaceutical costs: Rising drug costs are a huge issue for employers and indeed for almost every health care stakeholder I work with. In most commercial health insurance plans (including self-insured plans), per-member, per-month drug costs now exceed inpatient hospital costs. The shift to specialty pharmaceuticals and price gouging, even on generics, is taking its toll. At a recent PBGH or Pacific Business Group on Health board retreat, the top issue raised by all participants was specialty pharmacy, not only because of the salience of the cost (explaining perhaps a full quarter of the increase in trend) but because the private sector options to control pharmaceutical costs are minimal. Trump recognized the drug cost issue in his campaign, but after he won the election, his website no longer speaks of controlling prices of drugs. Instead, there are visionary statements about innovation. Pharma may be getting a pass, as evidenced by the easy passage of the 21st Century Cures Act. But for employers, this issue is not going away. 

As Lansky of PBGH told me: “Employers aren’t just mad about price gouging but have looked very hard at the pharmaceutical supply chain in order to restructure it — even to the point of talking directly to manufacturers. They want to challenge the very nature of the business: formulary placement, the split between medical benefit and the drug benefit, rebates to pharmacy benefit managers, coupons that insulate consumers from cost sharing, intellectual property and patent rules, etc. They know that beating up on the pharmacy benefit managers (like beating up on the health plans) is not productive; the system needs re-engineering, and no one is motivated to do it except the employers who are paying.”

The inevitable cost shift: It may be off in the distance, but if coverage is eroded for the 20 million or so who benefited from the ACA and if the federal money for Medicaid expansion and exchange subsidies is geared back, providers will seek to replace that revenue from employers. Good luck with that, to all concerned.

Employers stepping up to manage their health costs directly: Many sophisticated employers will double down on their management efforts with narrow networks or using ACO arrangements and direct contracting. Others, like Apple, will expand their on-site clinic operations and corporate wellness initiatives (although the track record on wellness saving money is spotty at best).

Deja vu: The new administration has already signaled greater emphasis on consumerism, transparency, health savings accounts, shopping tools, personal responsibility and “skin in the game.” Most sophisticated employers would say, “Been there, done that, bought the T-shirt.” They believe much of this stuff, and they have done it already, so what do they do for an encore?

Partners in value: Sophisticated employers believe that health care does indeed need to migrate from volume to value (but they also expect to pay less if volumes subside). They recognize that opportunities for cost reduction exist within the delivery system, and they do not have the clout as individual employers in any geographic market to demand meaningful change in payment and delivery reform. That is why groups like PBGH have been active partners with the Centers for Medicare & Medicaid Services in promoting value-based reimbursement and innovation. These sophisticated employers want to know if they still have a partner in value in the federal government. For example, PBGH has for six years promulgated the ambulatory intensive care unit model, including a $20 million Center for Medicare & Medicaid Innovation project to extend the model to Medicare, and is now doing the same with Medi-Cal (California’s Medicaid program) using a “health homes” approach. As Lansky noted, “It’s an example where a very small idea can be aligned with national, over-65, low-income and other public programs to drive actual care transformation.”

Looking for the exit: Finally, depending on what comes out of the sausage-making machine in Washington, employers (especially the compliance police) will take a hard look at the rules of the road and reconsider their ongoing commitment to health benefits. Nothing makes corporate chief financial officers more misty-eyed than thinking they could really write a check for $10,000 a year and kiss this issue goodbye forever in a defined contribution. As PBGH’s Lansky stressed, “Either the system gets serious about re-engineering, or the exit is the only sensible path.”

Continue Reading >>

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

Leave a Reply