Outpatient Costs Push Spending in Employer-Sponsored Health Plans

February 24, 2020 - Employer-sponsored health plans spent $5,892 per plan member in 2018, most of which went towards emergency department visits and other outpatient services, according to a report produced by the Health Care Cost Institute (HCCI).

“Prices, spending, and out-of-pocket costs continue to rise for the 160 million Americans with employer-sponsored health insurance,” said Niall Brennan, president and chief executive officer of HCCI. 

“Higher prices for medical services continue to drive most spending increases, but in 2018 we also saw an uptick in utilization for the first time in several years. If these price and utilization trends continue, we expect spending growth to stay on an upward trajectory in the coming years.”

The report studied around 40 million individuals under the age of 65 in employer-sponsored health plans, following their healthcare spending, utilization, and healthcare pricing from 2014 through 2018. Claims data for the report came from Aetna, Humana, Kaiser Permanente, and United Healthcare (UHC). Three of these—Aetna, Humana, and UHC—were ranked among the top five largest health insurance payers in the US midway through the course of this study.

The report authors said that higher prices accounted for nearly 75 percent of the spending increase. As a result, plans’ healthcare spending rose on average $610 per member each year of the study.

READ MORE: BCBS Tackles Outpatient Generic Medication Spending, Access

The report covered spending and utilization across four categories of services: inpatient, outpatient, professional, and prescription drug services.

First, the outpatient category saw the greatest spending increase in 2018 of 5.5 percent. Across all five years of the study, prices and utilization drove healthcare spending on outpatient services up 16 percent.

Most of employers’ outpatient healthcare spending went toward outpatient emergency department visits. The prices for such services rose at a consistent pace year-over-year by 23 percent, while members’ utilization jumped seven percentage points across the five-year time period.

Although outpatient healthcare spending was largely concentrated in emergency department visits, outpatient surgery costs and observation visits also surged. 

Outpatient surgery visits, for example, made up 36 percent of outpatient service visits in 2018 alone. Over the course of five years, surgery prices went up by 19 percent.

READ MORE: Out-of-Pocket Costs Higher for Behavioral Health for Many Americans

Observation stays grew less common among employer-sponsored health plan members across most of the study timeframe. But a last-minute uptick resulted in a three percent increase overall, with observation stays accounting for 6 percent of outpatient visits in 2018. Observation stay prices did not slow, however, rising 24 percent in total.

For inpatient services, spending rose 11.4 percent from 2014 to 2018. Utilization was inconsistent. Prices increased over time but at a slowing pace, with 2018 experiencing only a two percent rise in prices whereas previous years had seen around four percent annually.

Employer-sponsored health plans raised their healthcare spending by 16 percent for professional services, such as psychiatry visits, office visits, and drug administration. 

Psychiatry, in particular, saw a tremendous boost in spending of 43 percent from 2014 to 2018. This bump could reflect both an increased awareness among employers regarding the need for such services and the impact of new payer-provided tools for facilitating psychiatric care.

Lastly, the report found that employer-sponsored health plans focused their prescription drug spending on generics. Researchers found that 88 percent of all prescriptions were for generics and for good reason: generic out-of-pocket payments were under 20 percent of the cost for brand drug out-of-pocket payments.

READ MORE: Employer-Sponsored Insurance Still Cost-Prohibitive for Workers

That being said, out-of-pocket costs increased considerably, despite employers’ efforts. Members saw nearly 15 percent more of their personal income go to healthcare services over the course of the five years studied.

Potentially driven by out-of-pocket costs which rose by $114 over the course of four years, the number of members enrolled in consumer-directed health plans increased by nearly eight percent from 2014 to 2018. These consumer-directed plans resulted in 13 percent less healthcare spending for members in 2016, according to a previous HCCI report. However, they came with deductibles of at least $1,350 for individuals and $2,700 for families in 2018, which encompasses all healthcare service costs up to that amount.

As health plans, employers, and members alike seek new ways to grapple with high costs, payers will have to get more creative about tackling outpatient services, particularly emergency department costs.

For example, Blue Cross Blue Shield (BCBS) Association and BCBS companies across the nation sought to make a dent in outpatient generic prescription drug spending. The companies partnered with a non-profit generic pharmaceutical manufacturer to bring down generic prices through increased competition.

“We plan to introduce competitive alternatives to the marketplace to ensure we have affordable drugs available to our members. This is not happening naturally now. Anytime, anywhere a drug is off-patent, it’s an opportunity for us to create an alternative and ensure that consumers are not only getting high-quality drugs, but they’re affordable,” Paul Markovich, president and chief executive officer of Blue Shield of California, explained in a statement on the site.

The partnership is open and eager to include other payers and stakeholders in the effort.

Through strategies like this, payers are joining together to combat exorbitant healthcare spending.