Rising healthcare costs are a growing concern for both companies and their employees. Companies bear a significant portion of healthcare expenses in the form of healthcare premiums. This puts significant pressures on businesses of all industries and sizes.

Impact of Large Claims

One of the drivers of costs is large claimants, which are individuals who have claims greater than $50K in a given policy year. They typically have chronic conditions such as cancer, cardiovascular diseases, musculoskeletal diseases, and congenital abnormalities. In 2023, cancer accounted for 34% of large claims, while cardiovascular disease represented 10%, and musculoskeletal diseases made up 5.5%, according to a to a report by Tokio Marina America.

Predictive Analytics and Early Intervention

Predictive analytics can also help by identifying patients at high risk of developing diseases and complications, so they can begin early intervention, preventive care, and various treatment plans. Such plans and programs can reduce unnecessary tests, hospitalizations and readmissions, comorbidities, and drug interactions.

While there are various solutions and programs to help address some cost challenges, it’s important for companies to first understand the underlying factors driving large claims costs. Here’s a look at some of these drivers and how companies can tackle them effectively.

Addressing High-Cost Drivers

Medical treatment and technology are certainly advancing and improving patient outcomes, but such advancements continue to drive higher costs. Gene therapy is a fairly new technology to treat or cure chronic conditions by modifying the expression of a gene. In fact, this is being considered to treat diseases including cancer and genetic diseases. Some products include human gene editing technology and patient-delivered cellular gene therapy products where cells can be removed and genetically modified and returned to the patient. To reduce high costs associated with such programs employers can implement:

  • Gene therapy stop-loss only coverage, which covers gene therapy specifically when this isn’t covered under the self-funded employer group’s regular stop-loss contract. (Stop-loss coverage is a form of reinsurance where there’s a cap on total claims in a given contract year, essentially limiting the exposure to high, unpredictable claims.)
  • Gene therapy carve-outs and network discount contracts, which should include unique reimbursement strategies such as outcome-based payments where provider payments can be tied to how successful the therapy is.

Inflation continues to exacerbate the financial pressures on high-cost healthcare providers and patients. This contributes to the rising costs for services, treatments, and medications. There are many available solutions that medical carriers are proposing such as:

Patient steerage to lower cost sites of care: Patients receive medical services at a reduced cost compared to the traditional high-cost environment such as hospitals. Examples include steering patients from the emergency room to urgent care, from an inpatient to an outpatient hospital setting, from a doctor’s office to retail clinics, or from a doctor’s office to telemedicine or home health care.

High-performance networks: Providers provide high-quality care but reduce costs and optimize patient outcomes. For example, a contractual arrangement for a provider can be based on the provider network reducing hospital readmissions and achieving high patient satisfaction.

Actions Companies Can Take

Companies can adopt several strategies to manage high costs such as ensuring effective condition management, disease management, and chronic care management programs are in place. These strategies emphasize intensive medical care management, medication adherence, and promoting healthier lifestyles to lower overall expenses.

High costs can be driven by how often certain medical services are utilized. As organizations look to manage their overall costs, they can consider an optimal plan design arrangement to allow patients to be more cost aware, such as with higher deductible plans.

In addition, self-funded employer groups may want the flexibility of changing their plan design through higher deductibles and coinsurance to reduce their overall costs. Organizations may want to self-fund with stop-loss insurance. The organization can choose which stop-loss claim level to transfer risk per individual to a stop-loss insurance carrier. Generally, an organization who takes on higher risk elects higher stop-loss levels but would have lower stop-loss premium amounts.

How Sequoia Can Help

Sequoia’s actuarial and financial team is here to guide companies through cost drivers impacting their employees, providing options and regularly evaluating the impact of cost mitigation strategies to protect the bottom line and create a healthier, more sustainable workforce. To learn how Sequoia can help with healthcare and benefits strategies, reach out to an advisor.

Tanya Sun — Tanya is the Actuarial Director at Sequoia. Before joining Sequoia, she spent over 15 years at Mercer and Aon as a strategist and senior actuarial consultant. She has worked with a wide variety of clients in the retail, manufacturing, entertainment, and technology industry, universities, and the public sector. She specializes in numerous types of projects including financial projections, renewal negotiations, FAS 106 valuations, IBNR valuations, and developed various cost mitigation strategies for clients. Prior to her consulting years, she spent several years on the carrier side with a large focus on pricing, network and clinical analyses, provider negotiations, and managing various retiree products including Medicare Advantage Part D, Part D standalone, and Medicare supplement plans.