It is no secret that COVID-19 has caused significant disruptions to the way we live and the way we do business now and moving into the future. The pandemic has forced business leaders across many industries to pursue aggressive cost reductions, well beyond the scope of their regular cost management initiatives.
After the obvious but painful cost-reductions and cuts have taken place, what happens when that is not enough? Many leaders are forced to shift focus to core expense categories, including compensation. Beyond hiring freezes and headcount reductions, health benefits offer the next logical target, given that they typically account for over 30% of companies’ overall compensation spend according to the U.S. Bureau of Labor Statistics. However, health benefits remain more necessary than ever for retaining and attracting talent. In the midst of the COVID-19 pandemic, employees are becoming much more aware of how important it is to have benefits that provide affordable access to routine care as well as emergency care.
The question now is, will COVID-19 lead to permanent changes in the way businesses think about their employee health benefits, or is it a short-term disruption after which things will go back to normal?
Although it may be too soon to tell and, to some extent, the answer will depend on the eventual duration and severity of the pandemic, there are a few trends that were already emerging prior to COVID-19 that are likely to become even more prominent and permanent. The most obvious being the adoption of telemedicine with video visits and expansion of mental health support services included in plans – both have garnered attention and are certain to remain critical in both the near and long term.
However, although not widely mentioned, there are two additional critical areas to consider.
The first is the desire for stronger cost control and predictability. Employers are increasingly unwilling to accept and finance the disparity between the rate of growth in the cost of medical services and the general growth rate of the economy. While your business is growing at 5%, it might still be possible to absorb a 7% increase in the cost of employee health coverage, but when your revenues have contracted by 20%, it’s next to impossible.
What many businesses are looking at instead is the defined-contribution model that sets a fixed amount of health benefits dollars that are offered to each employee and can then be applied to a variety of health plan options, each with a different premium cost, and often offered by a different insurance carrier. Employees choose an option that best fits their needs and budget, and the employer knows exactly how much they will spend. It’s a win-win for everyone. With this model, the company’s benefits budget is highly predictable, as it does not depend on employees’ enrollment choices. As business goals and budget needs evolve, employers can adjust their contributions without switching insurance carriers or disrupting their employees’ experience.
No one saw COVID-19 coming or knew the impact it would have on the way we live our daily lives, run our businesses and take care of ourselves and there are surely more unforeseen adjustments still ahead of us. Employers need a health plan structure that can roll with the punches and adjust as the world continues navigating this COVID-19 rollercoaster.
Another trend that is likely to persist is the movement away from high levels of cost-sharing (e.g. deductibles, coinsurance or copays). Throughout the last decade, high-deductible plans have become more prevalent as the primary plan design among employers, promising the flattening of the medical cost curve by creating a “skin in the game” effect. This promise has largely remained unfulfilled, while deductibles associated with employer-sponsored health benefits have risen rapidly to the current average of over $1,600, according to Kaiser Family Foundation, which is often well beyond what a typical worker has available in emergency funds. The economic devastation related to the pandemic has further exacerbated this situation, leading many employees to question the value they get from paying for their health coverage.
Beyond the financial stress that high-deductible plans impose, they also reinforce a dangerous perception that you should only go to the doctor (either in person, or virtually) if you’re REALLY sick. Not only might this prevent employees from seeking care early enough to diagnose a potential COVID-19 infection, but many serious conditions unrelated to COVID-19 start out with non-acute symptoms, or often with no symptoms at all. Avoiding care, not identifying symptoms and not seeking early diagnosis and treatment become much more harmful, and in turn, more expensive to care for in the long run. No one should have to choose between paying the utilities or groceries or seeking medical care.
CDC data tells us that chronic diseases that can be managed through preventive care account for 75% of the nation’s health care spending and lower economic output in the US by $260 billion dollars per year. As a result, many businesses are turning away from high-deductible plan designs, and looking at options that expand, lower or eliminates cost-sharing.
Innovative product offerings by new market entrants are gaining traction — bringing zero-copay, zero-deductible plan options, at a cost that is comparable to typical high-deductible plan designs and proving to be financially viable. Not only can eliminating employee cost-sharing help businesses save money in the long-run, it can also help increase employees’ perceived value when it comes to their health benefits and compensation package.
As we move forward and navigate the continued challenges and changes COVID-19 presents, where and how companies pivot will be crucial for both employers and employees when it comes to health benefits and compensation packages. Like many things prior to COVID-19, processes and systems that once worked, may not survive our “new normal.” Now is the time to be diligent, proactive and steadfast in looking at innovative solutions for health benefits.
Marek Ciolko is co-founder and CEO at Gravie where he is responsible for delivering on the company’s mission — to improve the way people purchase and access health care, and leading the team to design and deliver innovative, consumer-focused health benefit solutions.