August 16, 2022

ZMOGE

STAY HEALTHY

Employer- and Worker-Led Efforts To Lower Health Insurance Costs

Employer- and Worker-Led Efforts To Lower Health Insurance Costs

Introduction and summary

About half of Americans receive health coverage through employer-sponsored health insurance (ESI).1 While satisfaction with employer-sponsored insurance is generally high, premiums for that coverage have risen faster than workers’ wages over the past five years.2 Cost sharing is also increasingly placing a financial burden on workers and their families. According to a 2019 survey conducted by the Kaiser Family Foundation and The Los Angeles Times, 2 in 5 adults enrolled in employer-sponsored coverage reported difficulty affording health care or insurance costs.3 Half of those who struggle to afford health care costs reported delaying their or a family member’s needed care or medication due to cost.4

Rising health care prices—not utilization—is the primary driver of the rising cost of commercial insurance.5 With commercial rates for hospital care averaging 224 percent of Medicare rates, employers and workers are paying far higher prices than public payers for the same services.6 If employers can negotiate lower prices for health care services, they can secure lower premiums for the coverage they sponsor. Furthermore, lower prices—if they are not achieved to the detriment of quality or access to care—also benefit employees by reducing their premiums and cost sharing.






Individual employers have limited ability to negotiate lower prices for their insurance plans. Banding together with other firms or with workers, however, gives them a greater chance of successfully using their combined buying power to obtain fair provider prices.

For this report, the authors interviewed leaders of four groups that bring together employers or workers in an effort to reduce the cost of ESI: Peak Health Alliance, a Colorado health care purchasing alliance dedicated to making health care in the state more affordable; Catalyst for Payment Reform, a national organization representing health care purchasers; the Employers’ Forum of Indiana, an organization dedicated to bringing transparency to health care prices through policy and education; and the Uplift initiative within Oregon’s RISE Partnership, a collaboration between public employee unions and the state that provides education about worker benefits.

This report analyzes these case studies to outline the keys to the successes of these organizations. Common strategies include building coalitions around shared interests; obtaining and sharing data on health care prices; and proactively informing employees about changes in their health coverage. This analysis, as well as the contextual discussion of rising ESI costs, provides important guidance for other employers and groups hoping to improve ESI affordability.

The cost of employer-sponsored insurance is rising

Premiums for job-based health coverage have steadily risen over the past two decades. From 2011 to 2021, premiums for family coverage rose at more than twice the rate of inflation, according to analysis from the Kaiser Family Foundation.7 Premiums have also outpaced wage growth: From 2001 to 2021, premiums roughly tripled for both individual and family coverage, a far faster increase than the 68 percent rise in median weekly earnings over the same time period.8

In 2021, the average ESI premium for single coverage was $7,739 per year, and the average ESI premium for family coverage was $22,221 per year.9 Eighty-five percent of ESI plans that year contained a general annual deductible. Of those plans, the average deductible for single coverage was $1,669, and the average aggregate deductible for family coverage was $4,705.10

26%

Share of adults in ESI plans in 2020 who were underinsured

Lower-income employees in particular may find ESI unaffordable. In a 2020 Commonwealth Fund survey that defined “underinsured” as being covered by a plan with high out-of-pocket costs, one-fourth (26 percent) of working-age adults in employer plans were underinsured.11 In 2018, among firms that offered health insurance, 69 percent of employees were enrolled in ESI at firms where fewer than half of the employees were low-wage workers, compared with 50 percent at firms with a greater share of low-wage workers.12

While Medicaid and the Affordable Care Act (ACA) marketplaces provide alternative coverage options for eligible workers and their dependents, financial assistance toward individual marketplace plans is available only if an enrollee’s ESI coverage option is not “affordable.”13 Unfortunately, the current ACA affordability standard—which tests whether an employee’s premium contribution exceeds a certain percentage of their family income, which is 9.61 percent in 202214—considers only the cost of ESI for individual coverage, not the cost of family coverage for those seeking to cover dependents, due to the so-called “family glitch” stemming from an incorrect interpretation of the ACA statute.15 The Biden administration sought to remedy this glitch with a proposed rule in April 2022, which is expected to take effect in 2023.16

In addition, plan cost sharing can present affordability challenges, particularly for workers with lower incomes. In 2021, the average deductible for individuals with ESI plans that include a general deductible was $1,669.17 In contrast, in 2021, most marketplace enrollees had deductibles of $750 or less. 18

The high cost of ESI in part reflects the fact that commercial plans pay far higher prices for health care services than public payers: A RAND Corporation analysis of 2018–2020 data found that employer-sponsored plans paid hospital systems 224 percent of Medicare rates.19 In addition, ESI plans tend to have broader networks than marketplace plans. A separate study of 10 states in 2016 found that 100 percent of primary care offices accepted ESI, whereas 91 percent accepted marketplace plans.20 This difference reflects the tradeoff between higher-priced, broader-network plans and more affordable, narrower-network plans.

Another factor behind rising costs is the lack of robust competition in provider markets.21 A 2021 study published in the American Journal of Managed Care found that even large, self-insured employers generally lack the market power to negotiate lower hospital prices.22 Provider consolidation has resulted in higher prices for people with private insurance, without substantially contributing to quality of care.23

Innovative approaches to improving ESI affordability

Several groups have formed in response to these high ESI costs in order to pool market power among employers, improve education about benefits and coverage options, and analyze trends to inform decision-makers. The authors interviewed the leaders of the following four organizations to inform case studies: Peak Health Alliance, Catalyst for Payment Reform, Uplift Oregon, and Employers’ Forum of Indiana.

Peak Health Alliance

Peak Health Alliance began in Summit County, Colorado, one of the most expensive regions for health coverage in the country. Upon Peak Health Alliance’s founding in 2019, the county and its neighboring ski resort counties had twice the uninsured rate of the rest of the state.24 As the county had only a single hospital, residents often had to travel to nearby metropolitan areas for expensive procedures, sometimes at the behest of their physicians.25 Local hospitals were effectively free to set prices, with rural areas subsidizing lower rates in nearby urban areas.26

Peak traces its roots to 2017, when the nonprofit Summit Foundation turned to Colorado’s public all-payer claims database to examine “where care was being provided and what was being paid for that care,” according to Claire Brockbank, who served as Peak’s CEO until May 2022.27 The foundation found that hospitals in the county were being paid an astounding 850 percent of Medicare rates for emergency services and 500 percent of Medicare rates for outpatient services.28

The Summit Foundation’s data analysis spurred Peak Health Alliance’s founding. Peak uses the purchasing power of its membership, including individuals and employers, to negotiate more affordable care with local providers.29 While, under Colorado law, Peak itself cannot bear risk, Peak negotiates rates and partners with third-party administrators and carriers to implement those lower rates.30

Brockbank attributes Peak’s success to a combination of data transparency and community organizing to “bring awareness” to health care prices.31 To pressure health systems to negotiate, the group presents employers with information on hospital rates, asking local residents and businesses, “Are you okay with this as a community?”32

Anne Ladd, the new CEO of Peak Health Alliance, noted that including individual market plan enrollees alongside employers in the alliance has been helpful because individual market enrollees are highly motivated to “walk with their feet” when presented with better plan options, in contrast with employers and their representatives, who are reluctant to make benefit changes for fear of antagonizing employees, and to employers’ third-party administrators, which “depending upon the reimbursement model, don’t have much motivation to lower prices.”33

Peak encourages employers to make plan savings tangible for employees rather than assuming that benefit managers or other workers will notice the improvement in affordability. For example, organizations can use their plan savings to hire additional human resources support, extend coverage to employees’ dependents, or eliminate copays. Brockbank noted that firms that “made the mistake of not giving back the financial gain to employees” faced pushback from employees and ultimately did not continue doing business with Peak.34

From early on, Peak committed to a pragmatic approach. According to Ladd, Peak’s mission was “not an exercise in creating a perfect system.” Instead, Peak pushed for “good enough” improvements to affordability.35 For example, Peak’s current contracts are fee-for-service, not value-based, and include flat fees for common diagnostic and imaging tests, rates that are a percentage of Medicare rates, and some rates expressed as a discount of charges.36

Peak achieved early success in Summit County, with a 38.4 percent reduction in premiums in its first year, followed by an additional 11.2 percent in the 2021 plan year and 2.7 percent in 2022; this success led other communities to approach Peak in search of savings.37 Peak is now active in eight communities and delivered the lowest premiums for the 2021 plan year in all seven counties in which it worked at the time.38 However, despite lower prices and premium savings, some employees and individuals expressed concern that deductibles were still keeping them from seeing a doctor.39 Subsequently, Peak spent its second year moving services, including clinician office visits, “in front” of the deductible and making mental health and telehealth services available without cost sharing.40

Peak attributes its success to its local, flexible approach. Ladd explained, “What I love about what Peak is doing is going community by community and finding out who are the local people interested in making a change.”41 At the same time, however, that community-rooted approach means that groups in other states cannot simply replicate Peak’s model without investing in building community relationships, one by one. Each of Peak’s successes, Ladd noted, was a “one-off and an individualized solution.”42

Catalyst for Payment Reform

Catalyst for Payment Reform (CPR) was founded in 2009 to address rising health care costs and weak incentives for improving quality in the U.S. health care system.43 CPR’s mission is to spur employers, public purchasers, and others to improve the value of health care and the health care marketplaces.44 Today, CPR’s membership spans purchasers from state Medicaid agencies to major private companies. Covered California, General Motors, and Walmart are among its members, and as of the end of 2021, its employer-purchasers accounted for more than 15 million covered people.45

At its inception, the organization’s goals were to move from a volume-based payment system to a value-based one and to use the collective purchasing power of employers and other purchasers to drive change in the health care delivery system. Having heard from hospitals, plans, unions, consumer groups, and employers that were dissatisfied with fee-for-service payments, CPR was determined to “find common ground” on payment reforms, recalled Suzanne Delbanco, executive director of CPR, in an interview with the authors.46 While the ACA, passed in 2010, contained blueprints for reforming Medicare and Medicaid payments, Delbanco noted that it “became obvious there wasn’t similar leadership in the employer market.”47 At the time, only 1 percent to 3 percent of payments were linked to performance.48

These low rates prompted CPR to set a target of 20 percent of payments tied to performance —a number that seemed “audacious” at the time.49 When CPR first collected data in 2012, the group found that only 11 percent of payments had any link to quality. When the next survey showed that 40 percent of payments were quality-linked, CPR upped the ante: Its goal became to have payment not just tied to performance but also flowing through methods “proven to enhance quality.”50

Data transparency and data sharing are central to CPR’s mission. Delbanco observed that CPR was at the forefront of the movement for price transparency when it began, and transparency has now become “a fundamental element of the health care system.”51 Pricing data revealed variations in payments for the same services, highlighting for purchasers the need for payment and pricing reform. According to Delbanco, access to pricing information provides an opportunity for purchasers to reflect upon what high-quality, affordable coverage means for them and their members and to consider how alternative payments models may improve access.52 Purchasers can take advantage of user group meetings that CPR convenes with major health plans to make the “business case” for payment reform and price transparency.53

Access to pricing information drives an opportunity for purchasers to reflect upon what high-quality, affordable coverage means for them and their members and to consider how alternative payments models may improve access.

Delbanco called tailoring networks the “most obvious option” for achieving cost and quality goals, stressing that access is about more than the ability to see “any provider you want.”54 To that point, she asked: “Do you really want to have access to the health care providers who don’t do a good job?”55 Additionally, employers can improve affordability through benefit design changes that offer low-cost services and reduce premiums. For example, employers could consider offering a narrow, more cost-efficient network alongside a broader one, allowing employees to choose based on their individual coverage needs when enrolling.56

CPR also encourages the tactic of aggregated purchasing, in which purchasers align their interests and buying power to procure higher-value medical services than they could procure individually.57 While consolidation has increased the negotiating power of health systems, purchasers have the potential to use their collective market power in negotiations to drive forward their organizations’ and members’ interests.

Uplift Oregon

Uplift Oregon, a partnership between the state and labor unions, aims to provide public employees the information they need to make smarter benefit choices. Uplift is one of five trusts within RISE Partnership, an organization that was founded in 2019 to improve the delivery of training and benefits for workers. It currently provides education and training to 80,000 workers in Oregon.58 Uplift Oregon focuses on employee education, primarily surrounding health benefits.59

The partnership leads 90-minute trainings for new state public employees to explain health insurance plans, retirement plans, loan forgiveness, employee assistance programs, and flexible spending accounts. The training is mandatory for employees in union-represented positions, and some state agencies have opted to make Uplift Oregon’s workshop mandatory for all employees. Although originally intended as in-person training, Uplift Oregon adapted to the COVID-19 pandemic by conducting live, virtual sessions.60 According to Siobhan Martin, deputy executive director of SEIU Local 503, one of the unions partnered with RISE Partnership, it is essential to provide information to new employees making their plan choices for the first time.61 Martin shared that the point of first-time enrollment is a critical time to apply new information toward plan choices; in her experience, employees who are already enrolled in plans are less likely to change plans, even with new information about how others may meet their needs better.62

Prior to these workshops, some employees were choosing the most expensive health plans—assuming they provided the best coverage—while others ended up enrolled in plans that did not meet their needs, according to Kelley Weigel, director of Uplift Oregon.63 Uplift Oregon’s training provides illustrative scenarios to explain patient financial obligations under four different plan offerings, which Weigel said helps employees think through their plan options.64

While Uplift Oregon is still in its early stages and has not yet carried out a formal evaluation of the impact of its programming, its initial feedback is promising. Preliminary survey data found that 82 percent of participants felt more or much more confident “in taking action on selecting [their] benefits after taking the workshop.”65 In addition, Martin said that over time, especially with case-by-case guidance, employee enrollment has been migrating from a more expensive, broader-network plan toward a managed, narrower-network plan that is more aligned with some employees’ needs.66

A next step for Uplift Oregon’s employee education would be to consider if the plans available actually meet employees’ needs, especially those with incomes below the median for state employees.67 In addition, Weigel pointed out that Uplift Oregon’s work to educate employees about benefits is inherently connected to employee equity and wellness, which she hopes Uplift Oregon can advance in the future—by, for example, considering whether employees have access to culturally competent providers or by working with providers to educate on health disparities in the state workforce.68

Employers’ Forum of Indiana

In 2001, the Employers’ Forum of Indiana began to bring together self-funded employers to lead a coalition that includes employers, physicians, hospitals, health plans, and benefit consultants.69 The Forum focuses on quality, price, and cost transparency, arming employers and other stakeholders with the information they need to make more informed, high-value health care choices. Early on, encouraged by several large member corporations—including General Motors, Chrysler, and Eli Lilly—the Forum began to evaluate health care prices.

In March 2015, Gloria Sachdev became president and CEO of the Forum.70 When she asked employer members about their biggest pain points, they “unanimously” pointed to unsustainable, rising health care costs.71 Employers often did not know how much they were paying for services because of gag clauses in plan contracts and other barriers to price transparency. Sachdev reviewed studies by Chapin White, a researcher at the RAND Corporation, that compared commercial prices and Medicare rates for the same hospital services and reported that commercial prices were rising rapidly and at a faster rate than Medicare.72 Sachdev and her colleagues began to posit that using employer claims, they could compare commercial hospital rates in Indiana with nationwide Medicare rates:73 “The thing that woke us up was that if we own the claims, we could report pricing information.”74

With financial support from the Robert Wood Johnson Foundation and employer members, the Forum commissioned a study from RAND to analyze prices and advance price transparency.75 The study, published in 2017, was unique in that it published data on hospitals by name and included inpatient, outpatient, and total costs.76 Sachdev recalled that it was “shocking” to see that some hospitals were paid up to 500 percent of Medicare rates, while others were paid 150 percent.77 The next RAND pricing study, in 2019, compared data across 25 states and found that Indiana was the most expensive state.78 RAND’s findings have highlighted a sentiment among some multistate employers that the best place from which to run their business was “anywhere but Indiana.”79

As of this year, RAND has now published four rounds of studies on hospital pricing in employer-sponsored plans.80 The pricing information gleaned from these studies has motivated Indiana employers to change their negotiation tactics and rethink their broad provider networks. For example, the Forum started working with insurance company Anthem Blue Cross Blue Shield in 2017 to design narrow-network and tiered-network options.81 Additionally, Sachdev and David Kelleher, the founding CEO and a current board member of the Forum, said that employers began to contract directly with high-value health systems.82

Employers and employees alike were not selecting services at the lowest price points. Realizing this, the Forum focused its efforts on point-of-enrollment intervention, encouraging employers to design better, valuable benefits and offer employees cost-effective options, such as narrower or tiered networks. The Forum’s new Sage Transparency tool, released in May 2022, allows employers to compare price and quality data from several sources to make informed decisions about benefit design and contracting.83 The tool presents the prices as percentages of Medicare rates and groups service prices by clinical, rather than procedural, categories.

Faced with the information the Forum has unveiled about the consequences of high health care prices on local jobs and economies, legislators and hospitals have begun to pay more attention and become interested in improving the situation. For example, in December 2021, Indiana General Assembly Senate President Pro Tempore Sen. Rodric D. Bray (R) and Speaker of the House Rep. Todd M. Huston (R) cited the RAND study, among other evidence, in a letter they sent to hospital leaders requesting that they work with third-party payers to lower Indiana’s hospital prices to at least the national average.84 The day before the letter was released, the state’s largest health system, Indiana University Health, which reportedly charged the highest hospital fees in the Indianapolis region, announced a five-year freeze on prices to bring them closer in line with national averages.85

Strategies for success

These four case studies provide important insights for other groups seeking to build collective power to lower ESI costs. From building coalitions, collecting and analyzing data, and designing communication strategies to prioritizing employee support and considering broader health systems, organizations can use these case studies as models to improve ESI affordability.

Build coalitions around aligned interests

Working in concert, employers may be able to present a stronger, united front in negotiations with insurers or health systems to demand pricing reforms or to conduct aggregated purchasing.

By prioritizing high-value care, the Employers’ Forum of Indiana was able to bring providers into its tent. The Forum empowered self-funded employers to engage in direct discussion with high-quality providers and provider groups, which allowed employers to select the highest quality providers for their networks. David Kelleher noted that employers and providers share an interest in delivering high-value care to patients.86 Data transparency has enabled providers to see how they compared against their peers and can motivate them to offer more desirable prices and high quality.87

If you are in an insured environment, ask coalitions, ‘Why don’t we leverage small employers and individuals?’
Anne Ladd, CEO of Peak Health Alliance

Employers should also think broadly about other types of purchasers whose interests align with theirs. Peak Health Alliance, which is open to any commercial payer, said that the price sensitivity of individual market enrollees makes that market a “powerful” one to tap for collaboration.88 Ladd offered this advice for self-funded employers: “If you are in an insured environment, ask coalitions, ‘Why don’t we leverage small employers and individuals?’”89

Data are power

The Employers’ Forum of Indiana’s partnership with experts in hospital pricing analysis and its use of existing data sources enabled it to educate its members and others in the state. Throughout its data collection process, the Forum maintained a commitment to using the data strategically. For example, based on employers’ feedback, the Forum determined that price transparency data were less useful at the point of service, and it focused its efforts on point-of-enrollment interventions instead. The Forum and its members were also able to use evidence of wide-ranging variation in payment rates to promote better deals and “more transparent agreements among” insurers, hospitals, and health systems.90

When Peak Health Alliance analyzed Colorado’s All Payer Claims Database data in 2018, its pricing information astounded local employers and drove community organizing around these high prices.91 Peak began to educate employers and community members about the fact that high hospital prices were driving care out of the community and contributing to high premiums and expenses. This gave local employers the information they needed to negotiate with the local hospital and generate savings for employers and employees alike.92 While hospitals and health systems were initially unwilling to come to the negotiating table, public outcry and employers’ market power drove health systems to lower their prices significantly over the next several years.93

Strategic communication can support change

The Employers’ Forum of Indiana has been highly successful at generating publicity around the state’s high health care prices. This is an intentional strategy. As part of the press rollout for the RAND study, the Forum shared its members’ reactions with a journalist for the Indianapolis Star. The Star article featured an auto industry executive’s colorful riff on Indiana’s high prices: “We have plants all over the country, and whenever we’re talking about opening a new one, do you know what I say? I say, ABI”—meaning, “anywhere but Indiana.”94 Besides calling attention to the new data, the news coverage buoyed the Forum’s case that high prices for care hamper the local economy and cost the state jobs.

Catalyst for Payment Reform also leveraged high-profile partners to push for change. Suzanne Delbanco noted that well-known corporations are particularly effective at driving change: “The thing that makes the biggest difference is household-name companies. Most employers don’t feel comfortable out of their swim lane to push for better value health plans.”95

Earning employee buy-in is crucial

Proactive efforts to inform employees of changes and communicate the benefits of plan changes can prevent potential negative employee reactions to cost-saving or quality-improvement disruptions. Both Peak Health Alliance and CPR spoke about the importance of ensuring that employees are being taken care of amid efforts to control health care costs. For example, Claire Brockbank of Peak Health Alliance said that an employer that narrows its plan network should consider applying a portion of the savings toward adding benefits or reducing cost sharing for some services.96 Anne Ladd of Peak Health Alliance stressed that employers making plan changes must “translate what that upside is early, early, early, so people have the eye on the prize” as they experience any disruption to their coverage.97

Unions, as organizations dedicated to workers’ interests, are well positioned to represent employees in plan negotiations. They may also benefit from greater credibility in nudging employees to right-size their health coverage and advocating for reforms to lower health care costs. Uplift Oregon provides a model for collaboration between employers and workers to empower employees by ensuring that they have the information and education they need to make sound health plan choices.

Do not neglect health care system sustainability

Although refusing to contract with provider systems may be essential to securing lower prices, employers—especially those in rural or underserved areas—should also consider whether diverting enrollees to lower-cost providers could have unintended consequences for patient access to care and raise prices in the longer term. Ladd described how Peak Health Alliance strives to “keep care in the community.”98 When Peak negotiated lower prices for consumers in Summit County, for example, it took care not to undermine local, independent providers by setting a flat rate for MRI services that, while not as low as prices in Denver, was low enough to “take away the incentive” for patients to travel outside the community.99 Even when creating narrower networks with large health systems as hubs, Peak will not contract with hospitals that demand that independent providers be excluded from networks.100

Conclusion

Employer-sponsored insurance is a critical avenue for containing the nation’s growing health care costs and for making coverage more affordable for American workers and their families. Rising premiums and increasing costs make it imperative that employers immediately consider actions to bring down ESI costs. As the four case studies featured in this report demonstrate, building collective market power, promoting data transparency and communication strategies, empowering and supporting employees and their needs, and considering the impacts of reforms on the sustainability of the broader health care system are critical to lowering employer and employee costs.

Acknowledgments

The authors would like to thank the leaders of the case study organizations for their time and willingness to contribute to this publication: Claire Brockbank, former CEO of Peak Health Alliance and current director of policy at 32BJ Health Fund; Anne Ladd, CEO of Peak Health Alliance; Suzanne Delbanco, executive director at Catalyst for Payment Reform; Kelley Weigel, director for Uplift Oregon; Siobhan Martin, deputy executive director for SEIU Local 503; David Kelleher, founding CEO and current board member of the Employers’ Forum in Indiana; and Gloria Sachdev, president, CEO, and board chair of Employers’ Forum of Indiana. The authors would also like to acknowledge Richa Upadhyay, the intern for health policy at the Center for American Progress, for her contributions.

Read more about health insurance coverage amid the COVID-19 pandemic