Cut Healthcare Spending or Face the Public Option

"If we don't get a handle on spending at some point, we will have a government-financed system," predicts the head of the Pacific Business Group on Health.

With healthcare-spending growth continuing to outpace growth of the national economy, large employers are facing a gargantuan challenge.

"It's challenging because healthcare is not their prime business. To large employers, healthcare is just one of the many suppliers they work with, and the cost of healthcare is part of the overhead of a business that is otherwise pumping gas or selling groceries, says David Lansky, PhD, president and CEO of the Pacific Business Group on Health, a nonprofit business coalition that through its member organizations, is "demanding increased value" in the healthcare system.

"So, it is going to be difficult for them to step up to an even larger degree, but it is necessary," he says.

Healthcare Spending Expected to Grow 5.8% Annually Through 2025

Employer-sponsored insurance helps cover the medical expenses of about half of all Americans, according to the Kaiser Family Foundation. Despite the cost of providing this benefit to their workers, large employers are committed to the ESI market, Lansky says.

"There's an understanding that if we don't get a handle on spending at some point, we will have a government-financed system and we will look to the taxpayers to figure out how to cap total healthcare costs. Most employers don't want to see that happen," he says.

At Some Point, Healthcare 'Becomes Unaffordable'

"They think they add value by being an advocate for their employees in the healthcare system and building wellness programs, benefits programs, mental health programs, and disease management programs that ultimately are beneficial to their employees. They don't want to give that up; but at some point, it becomes unaffordable."

The double-digit pace of healthcare-spending growth seen at the turn of the century appears to be tamed, according to the 2016 National Health Expenditures Report released last month.

It forecasts that national healthcare spending will increase at an average of 5.8% through 2025. If that prediction is accurate, the healthcare sector's share of the total economy will rise from 17.5% in 2014 to 20.1% in 2025.

Over the past 20 years, U.S. economic growth has not exceeded 4.7%, according to World Bank data on annual economic growth since the country emerged from The Great Recession in 2010 at 2.1%.

Large employers will play a pivotal role in determining whether annual healthcare-spending growth can be reduced to at least 3%, Lansky says. "The way our healthcare economy is structured, a great deal depends on what the buyers of services decide to reward, incentivize or require from a contractual point of view."

He says large employers find themselves increasingly working with both Medicare and the states to try to achieve impacts as buyers.

"The purchaser community has been very fragmented over the years, both employers fragmented from each other and employers working separately from state governments and the federal government. That fragmentation has been changing, where we are seeing a lot more alignment among the buyers."

A prime example of healthcare-buyer alignment, according to Lansky, is in Arkansas, where the state's largest corporation, Bentonville-based Walmart, is participating in a Medicaid-led bundled payments program that features nearly two dozen episodes of care including heart failure.

Lansky says large employers are increasingly engaged in several other strategies to help cut healthcare spending nationwide:

• Centers of excellence programs where "patients are going to get the highest quality care, which is ultimately cheaper because there are so many fewer readmissions, new operations and complications."


• Reference pricing "that works through benefit design to give patients information about the cost of care and where they can get comparable quality care for lower cost."


• Direct contracting with accountable care organizations, which involve large employers picking high-value healthcare providers then rewarding their workers for seeing those providers with reduced cost-sharing. "Then you work with that care system to continuously improve what they do, to become more efficient, and ultimately lower costs."

"When you look at these strategies, what many of them have in common is ensuring that patients get into the hands of the highest performing providers and services; so we are rewarding the low-cost, high-quality provider with more business, and we are informing patients where they can go to get that care," he says.