Seven years after the passage of the federal Affordable Care Act, health care costs are still going up at a robust rate for many in the region, according to a new survey of Washington area companies. Health insurance costs at a broad sample of local companies are projected to increase by 7.3 percent in 2016, the Human Resource Association of the National Capital Area reported.
The association, which represents area human resource executives, said the survey found more local employers are offering higher-deductible plans and putting new restrictions on expensive prescription drugs. The percent of the organization’s membership offering so-called “consumer-directed” health care plans jumped from only 15 percent in 2008 to 50 percent in 2016. Such plans typically allow people to set aside money in special health savings accounts for routine medical costs and rely on higher-deductible insurance plans for expenses stemming from serious accidents or illness.
These plans “are a crude tool but it’s the easiest way to control costs and I think that’s one of the reasons that employers go in that direction,” said Paul Fronstin, an economist at the Employee Benefit Research Institute. “Some of it isn’t just about cost-shifting, it’s about trying to get people to really think about the provider or the services that they’re using.”
Benefits on the whole, including healthcare, welfare and retirement benefits, accounted for a little over a quarter of total payroll costs, the survey found.
The data come from an annual survey of Washington area companies conducted by the Human Resource Association of the National Capital Area, in which companies were asked to describe their 2016 benefit spending plans as of February 1. Some 143 companies representing 123,260 employees from a broad range of businesses, large, medium and small responded to the survey, and the sample of industries roughly approximated the Washington region as a whole.
Tom Cogan, chief executive of Meltzer Group, a Bethesda-based benefits brokerage that serves D.C. area companies, says he often encourages firms to consider consumer-directed plans but tends to recommend against making it the only option. Putting everyone on a high-deductible plan can be a tough transition for employees, which can hurt morale, he says.
Chasen Boscolo, a small personal injury law firm with three D.C.-area offices, tried moving to a high-deductible plan last year and quickly decided it wasn’t for it.
“It was horrible,” said founding partner Barry Chasen. “Our employees were getting jerked around, they weren’t getting care, so we decided ‘we’ve gotta go back to the old plan.’”
More local employers are also placing new restrictions on which drugs employees can use. Thirty-four percent of respondents to the association’s survey now require their employees to get prior authorization from their insurance company before they can fill a prescription, up a few percentage points from 2014. In addition, more companies are turning to “step therapy,” in which employees are required to try out cheaper drugs first when the doctor suggests something really expensive. And more companies are requiring that “specialty” drugs – an advanced category of drugs that are created from biological agents rather than a mixture of chemicals – be purchased from specialty pharmacies that can sell such drugs cheaper,. the survey found.
Julie Stone, a senior consultant at benefits brokerage Willis Towers Watson, says prescription drug restrictions are among the most effective ways of cutting healthcare costs.
“The largest driver of medical costs right now is specialty pharmacy,” she said. “The good news is there are more and more drugs coming to market that can make a big difference from a health perspective, but many of them are very expensive.”
Many of the new policies are intended to ensure “the most appropriate specialty drug is being recommended for the most appropriate condition,” said George Lane, a principal at benefits consultancy Mercer. “The good news is they’re providing cures for conditions that might not have had cures before.”