Cost Drivers in Healthcare

Dear Executives,

As healthcare costs continue to rise, employers are increasingly facing financial pressures in providing health benefits to their employees. At The Bachan Group LLC , we believe that the key to managing these challenges lies in understanding and addressing the core cost drivers. We’d like to share key insights and actionable strategies to help your company gain control of rising healthcare expenses while maintaining quality care.

The Growing Burden of Healthcare Costs

Over the past 20 years, healthcare premiums have outpaced both inflation and worker earnings. Even though we are not necessarily using more healthcare services, the costs continue to rise, particularly in hospital services and prescription drugs. The reality is stark: the cost of healthcare for a family of four has reached unsustainable levels, placing a heavy burden on both employers and employees.

Key Insight: Rising costs are not due to increased usage but rather the exorbitant prices charged for services. Hospital prices, prescription drug costs, and opaque pricing structures continue to drive up the overall cost of healthcare.

Understanding the Primary Cost Drivers

The report categorizes the cost drivers into three major areas:

1. Demographic and Economic Factors: Aging populations, per capita income growth, and rising disease prevalence are macroeconomic drivers pushing costs higher.
2. Social Determinants of Health: Factors such as socioeconomic status, access to care, and community environments play a significant role in health outcomes and costs.
3. Healthcare Economy Dynamics: Supply and demand issues in healthcare, including the introduction of new technologies, compensation levels for professionals, and fee-for-service payment models, all contribute to rising costs.

However, the most significant driver of these increasing expenses is simply the high prices being charged for healthcare services in the U.S., particularly hospital services.

Key Insight: U.S. healthcare prices are far higher than in other countries, and addressing these prices is essential to controlling costs.

The Power of Self-Funding

One of the most effective ways employers can take control of their healthcare costs is through self-funding. By self-funding, companies can:

• Directly pay for claims rather than relying solely on traditional insurance.
• Gain access to detailed claims data, allowing for more informed decisions about healthcare strategies.
• Use tools like stop-loss insurance to protect against unexpectedly high claims.

Key Insight: Self-funding gives employers more control and transparency over their healthcare spend, helping to mitigate costs and improve outcomes.

Actionable Strategies to Control Costs

Here are several steps that your company can take to better manage healthcare costs:

1. Leverage Data: Use detailed claims data to identify high-cost areas and focus on preventive care. By understanding the primary cost drivers, you can tailor your healthcare strategy to mitigate rising costs.
2. Negotiate Directly with Providers: Consider direct contracts with hospitals and providers to negotiate lower, more transparent pricing for services.
3. Focus on Employee Health: Implement wellness programs and promote preventive care to reduce the incidence of chronic diseases and lower long-term costs.
4. Evaluate Prescription Drug Plans: Work with pharmacy benefit managers (PBMs) to manage drug formularies, negotiate better rates, and reduce the cost of high-priced specialty medications.
5. Consider Telehealth and Alternative Care Models: Expanding access to telehealth services can reduce the need for expensive in-person visits and hospital readmissions.

Your Turn: Time for Action

Employers are in a unique position to disrupt the healthcare cost cycle. By taking a proactive approach—through self-funding, direct contracting, and strategic benefit designs—you can reduce healthcare costs while maintaining high-quality care for your employees.

At The Bachan Group, we are here to help guide you through these options, giving you the insights and tools you need to make informed decisions.

Let’s Talk About Your Healthcare Strategy We are eager to partner with you to tackle rising healthcare costs and optimize your benefits program. Reach out to us to discuss how these strategies can be customized for your company.

Best Regards,

Blane Bachan, The Bachan Group