Key Factors Driving Up Company Medical Plan Costs and Effective Mitigation Strategies

Rising costs of company medical plans have become a major concern for many employers. These increasing expenses can strain budgets and impact the overall financial health of a business. Understanding the main drivers behind these cost increases is essential for companies aiming to manage their healthcare spending effectively. There are many factors that increase medical plan costs, some that companies can control and others that are reflective of medical industry pratices. This blog and offers practical strategies to reduce the items companies and employees have more control over without compromising employee health benefits.

High Utilization of Medical Services

One of the primary reasons medical plan costs rise is the high use of healthcare services by employees. When employees frequently visit doctors, specialists, or emergency rooms, the claims paid by the insurer increase, leading to higher premiums. This seems counterintuitive to most medical plan participants; if they are paying for a service- why not use it? Plans can be better utilized conservatively.

Examples of high utilization include:

• Chronic conditions such as diabetes or hypertension requiring ongoing care

• Frequent emergency room visits for non-urgent issues

• Overuse of diagnostic tests and procedures

  
  

Mitigation strategies:

• Promote preventive care and wellness programs to reduce the need for costly treatments

• Educate employees on appropriate use of healthcare services, such as choosing urgent care over emergency rooms for minor issues

• Implement disease management programs targeting chronic conditions to improve health outcomes and lower costs

  
  

Increasing Prescription Drug Costs

Prescription medications represent a significant portion of medical plan expenses. The cost of new specialty drugs and price hikes for existing medications contribute heavily to rising plan costs.

Key factors include:

• Introduction of expensive specialty drugs for conditions like cancer or autoimmune diseases

• Price inflation on commonly used medications

• High utilization of brand-name drugs instead of generics

  
  

Mitigation strategies:

• Encourage use of generic drugs through formulary design and employee education

• Negotiate with pharmacy benefit managers for better pricing and rebates

• Offer medication therapy management programs to ensure appropriate drug use and adherence

  
  

Aging Workforce and Chronic Diseases

As the workforce ages, the prevalence of chronic diseases tends to increase, driving up medical costs. Older employees generally require more medical care, including specialist visits, hospital stays, and ongoing treatments.

Common chronic conditions affecting costs:

• Heart disease

• Diabetes

• Arthritis

• Respiratory illnesses

  
  

Mitigation strategies:

• Design wellness programs focused on early detection and management of chronic diseases

• Provide health coaching and support for lifestyle changes such as smoking cessation and weight management

• Use data analytics to identify high-risk employees and offer targeted interventions

  
  

Lack of Employee Engagement in Health Plans

When employees do not actively engage with their health plans, they may not take advantage of cost-saving options or preventive care, leading to higher overall costs.

Signs of low engagement:

• Employees unaware of plan benefits or cost-sharing details

• Limited use of in-network providers

• Poor participation in wellness or health education programs

  
  

Mitigation strategies:

• Communicate clearly and regularly about plan benefits, costs, and how to access care

• Use incentives to encourage participation in wellness activities and preventive screenings

• Simplify plan options to make it easier for employees to choose the best coverage for their needs

  
  

Inefficient Plan Design

Some medical plans have features that unintentionally encourage higher spending, such as low deductibles or minimal cost-sharing, which can lead to overuse of services.

Examples of inefficient design:

• Plans with no or low copayments for doctor visits and prescriptions

• Lack of tiered networks that reward use of lower-cost providers

• Absence of tools to help employees compare costs and quality of care

  
  

Mitigation strategies:

• Introduce cost-sharing elements like deductibles and copays that encourage thoughtful use of services

• Implement tiered provider networks to steer employees toward high-value care

• Provide decision-support tools that allow employees to compare prices and quality before receiving care

  
  

Impact of Regulatory Changes

Changes in healthcare regulations can affect company medical plan costs. New mandates or requirements may increase administrative expenses or require coverage of additional services.

Examples include:

• Expanded coverage mandates for certain treatments or preventive services

• Changes in reporting requirements increasing administrative workload

• Adjustments in funding or subsidies affecting plan pricing

  
  

Mitigation strategies:

• Stay informed about regulatory changes and plan adjustments accordingly

• Work closely with insurance brokers or consultants to understand impacts and options

• Consider self-funded plans where appropriate to gain more control over costs

  
  

Conclusion

Rising company medical plan costs stem from multiple factors including high utilization of services, expensive prescription drugs, an aging workforce, low employee engagement, inefficient plan design, and regulatory changes. Addressing these challenges requires a combination of strategies focused on prevention, education, plan design, and ongoing management. Your medical insurance broker can assist you in creating strategies to lower the cost of your medical plans by creating better utilization of your current plans. If you are interested in reviewing your plans for the upcoming year please reach out to Evergreen Solutions, we'd love to help you in any way we can to create a more cost effective medical plan strategy.