Apr 5, 2019

If there's a turning point on health costs, it'll come from employers

Illustration: Sarah Grillo/Axios

Employers are the linchpin of the U.S. health care system. But they don't always act like it.

The big picture: Employers play a minor role in the political debate over health care costs, but they have a lot on the line — and a lot more political muscle than they're choosing to flex. An increasingly bipartisan cadre of policy experts is trying to tell them that staying on the sidelines is both counterproductive and unsustainable.

Collectively, private-sector employers are one of the biggest and most politically powerful stakeholder groups in the health care debate. They cover more people than any other source, and account for about 20% of all health care spending — almost $700 billion in 2017.

  • "You would think that employers have a ton to gain by engaging in these discussions" around cost, said Dan Mendelson, the founder of the consulting firm Avalere Health. But they have consistently "failed to realize those expectations."

The catch: Even though businesses are the core of the health care system, health care typically isn't the core of what they do. They have similar structural interests, but they're not necessarily organized around those interests.

  • For years, businesses have responded to rising health care costs primarily by shifting more of those costs onto their workers, through higher deductibles and other cost-sharing. The average deductible is now 212% higher than it was in 2008.
  • If employers ever reach the conclusion that they've taken this kind of cost-shifting as far as it can go, they could be powerful voices in the political debate over more aggressive cost-control measures — and they do want to control costs. But for now, they're still on the sidelines.
  • "The frustration is definitely rising, but I would be hesitant to predict a breaking point," Mendelson said. "It would be great if they were more engaged, but at the same time it's rational that they are trying to reduce their exposure."

There are exceptions. Walmart, for example, has undertaken an especially aggressive effort to overhaul its health benefits, even ditching traditional insurers and bargaining directly with health systems that have reputations for high-quality care.

  • Then there's Haven, the joint effort from Amazon, Berkshire Hathaway and JPMorgan Chase. But it's still not clear whether that project will try to affect systemwide change, or simply a better deal for its many employees, more similar to Walmart's direct-purchasing goals. Those tools are only available to the largest companies.

Most employers still rely on their insurers to negotiate the best prices, preferring to stay out the weeds themselves. But insurers are becoming increasingly vocal about the difficulty of negotiating big discounts on hospital care, as hospitals consolidate, and for new prescription drugs that don't have any competition.

  • Government-led efforts to directly control those costs run into fierce industry opposition. But if anything could help them break through politically, the most likely inflection point would likely be some kind of "enough is enough" moment from employers.
  • "I think you're going to see more and more pressure, and even openness to public policy interventions that take advantage of negotiations" — for example, tying some private payment rates to Medicare's, Democratic health care strategist Chris Jennings said.

It's not just Democrats.

  • John Bardis, a former Trump administration health care official, said in a speech this week that employers need to take more aggressive stances toward cost containment.
  • Avik Roy, a conservative policy analyst who advised Mitt Romney's presidential campaign on health care, has also endorsed more direct intervention. In the most concentrated, least competitive markets, the government should cap how much hospitals can charge private insurers, using Medicare rates as a baseline, he says.

The bottom line: If there's ever going to be a turning point that would make cost containment more politically attainable, employers would probably need to be the ones who drive it.

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