Healthcare costs are expected to rise globally at a 10.1% rate in 2024, up from 9.3% in 2023 and the highest rate of increase since 2015. As costs increase unsustainably, labor funds are facing mounting challenges when it comes to providing high-quality healthcare to their members.
What is driving these skyrocketing costs? Several trends contribute to increasing costs of care, including utilization of high-cost services, higher-cost drugs, more complex therapies and a growing population living with chronic conditions. To avoid being caught off-guard, labor funds should be prepared to address the following trends that could significantly impact costs, discuss them with their trustees and weigh potential solutions.
High-Cost Claims
The surge in claims over $25,000 is due in part to rising hospital costs. In New York, about 39% of healthcare costs are attributable to hospital prices, and costs can vary widely for the same procedure across different hospital systems. For example, rates for total joint replacement surgery range from $24,666 to $50,639.
To mitigate costs and maintain quality of care, labor funds can implement medical management programs that may require pre-certification for high-cost services, direct members to preferred facilities and verify that services are appropriate for the member’s condition. Funds can require a claims review process for claims over a certain threshold to flag any coding issues, determine appropriateness of charges and negotiate better payment terms.
Stop-loss insurance can minimize financial risk by providing reimbursement for claims that exceed a certain amount. Specific stop-loss protects against a high-dollar claim for any one individual, while aggregate stop-loss provides a ceiling on the total amount that a plan sponsor could pay for eligible claims during a contract period.
Gene Therapy
Gene therapy is a powerful treatment for genetic disorders and diseases. It can prevent a condition from worsening and is often lifesaving for patients faced with disability or early death. Gene therapy is used to treat conditions like hemophilia, spinal muscular atrophy, certain types of cancer and certain types of blindness and deafness.
Costs can reach over $4 million for a single course of treatment, but curative gene therapies may reduce the long-term costs of ongoing care. Because gene therapy is often recommended for rare medical conditions, costs are not spread evenly across the member population. Therefore, plan sponsors should make coverage decisions prospectively for these therapies.
Health plans should start by reviewing their plan and determining whether to cover all, cover some (e.g. only FDA-approved) or exclude all gene therapies. Without an explicit exclusion, gene therapy is likely covered under most plans’ general terms. If plan sponsors choose not to cover some or all therapies, the plan should be amended with specific language to avoid ambiguity. Plans may also set caps for certain treatments.
GLP-1 Agonists and Weight Management
Over 42% of U.S. adults are obese and another 31% are overweight. Because excess weight increases the risk for chronic health conditions, people with obesity may have higher health costs overall, and these costs typically increase over time.
GLP-1 agonist drugs, originally developed to treat diabetes, are now also indicated for obesity. Clinical trials have demonstrated impressive results: Tirzepatide can help patients lose an average of 26.6% of their body weight and Semaglutide can reduce the risk of heart attack and stroke by 20% in adults with heart disease and obesity.
GLP-1 drugs are costly, averaging $1,300 per month. However, the treatment can protect against expensive and debilitating future health conditions. With 45% of adults interested in taking prescription weight loss drugs, it’s important for plan sponsors to consider in which cases to cover these drugs, and potentially implement stringent eligibility requirements.
Weight management and wellness programs can serve as a standalone approach to weight loss or increase the efficacy of GLP-1 drugs. These programs help members maintain a healthy weight, manage daily nutrition and stay active. Behavioral interventions and counseling keep members accountable and provide ongoing support.
Next Steps
As healthcare costs continue to rise, it’s important for funds to be proactive. Funds can get started by meeting with their legal counsel, consultants and administrators to discuss the three cost drivers outlined above, identify areas of impact and vet possible solutions.
Point solutions and wellness programs like fitness apps, smoking cessation programs and counseling apps can also help manage costs, and gaps in care programs can identify members who are overdue for screenings, not following treatments or non-compliant. Health plans can then provide outreach to targeted populations.
With rates increasing at double-digits annually, labor funds can’t afford to ignore these trends.
