State employee health plans know hospitals drive most costs, but struggle to make a dent

Hospital Administration

Dive Brief:

  • A survey of state employee health plans found that administrators recognize hospital prices as the main driver of healthcare cost increases but have few policies to address that issue directly.
  • Most states instead focus on attempting to control prescription drug costs and lower utilization, according to the Georgetown University’s Center on Health Insurance Reforms poll of SEHP leaders across nearly all states.
  • Union membership had an affect on cost containment efforts. While the 21 SEHPs with a collective bargaining agreement had more generous benefits, the unions helped advocate for stronger interventions such as tying hospital prices to a Medicare reference price, according to the report released Tuesday.

Dive Insight:

State employee health plans represent about 10% of people with employer-sponsored health insurance, according to the report. These plans tend to offer more generous benefit packages and to contribute more to premiums than plans from private-sector employers. For example, only 6% paid less than 80% to the cost of premiums.

And they operate in a unique environment, as they can face resistance from state lawmakers who may have powerful health systems in their districts.

Despite hospital prices contributing the most to increases in their healthcare costs, plan administrators said they faced difficulty in attempting to influence a change. They cited a lack of competition among providers, political clout of hospitals and employee preference for broad provider networks as they key challenges they faced.

Some plans are attempting value-based strategies and other interventions, but few have so far been proven to produce savings. Of the 23 states with Center of Excellence programs, only two documented reduced costs.

Other measures included primary-care based initiatives like worksite clinics, risk-sharing payment models, direct negotiations with providers and tiered network plans.

What appeared more effective at controlling costs was pegging provider rates to Medicare reimbursement. Seven states have such a program or are pursuing one while another three report the intention to create one. Montana said it saved nearly $50 million over three years through the measure and Oregon has projected savings of more than $80 million.

The report notes that progress, saying “some SEHPs are demonstrating that it is possible to rein in hospital prices through a mixture of political will, creative thinking, and simple hard work.”

Employer healthcare costs are expected to rise across the board as patients seek care they put off during the COVID-19 pandemic. PwC predicts an increase of 6.5% next year.

The continued increase in these costs for employers could buoy political will for greater government intervention. Executives surveyed recently by the Kaiser Family Foundation and Purchaser Business Group on Health showed strong support for more price transparency measures and antitrust action, and 85% said government intervention is necessary to rein in costs.

But more ambitious policies that have support of the Biden administration, like a public option or lowered Medicare age, face major uphill battles in the closely divided Congress.