Healthcare’s expensive. On a whole, the US spends $3 trillion on healthcare, twice as much as other developed nations, and has worse outcomes, with healthcare spending approaching 18% of the GDP.
And for many Americans, their employers are the ones picking up the tab. More than half of the non-elderly population is covered by an employer-sponsored plan, and almost 80% of large companies are self-insured. As healthcare costs go up, employers are the ones feeling the pressure. And some are starting to get fed up.
Scott Shreeve, the CEO of Crossover Health, a startup that runs on-site or near-site health clinics for companies including Apple, Facebook, and LinkedIn, has a name for these employers.
While Shreeve been working with employers for almost 10 years, it’s only been in the last year that he’s seen employers become more proactive and vocal about trying to lower costs. He calls this group “activist employers.”
“They are waking up to the fact that they are the payers,” Shreeve said. ” These self-insured, gigantic companies are paying a lot of money and they’re not getting the value.”
Stepping up and speaking out
If you’re an employee with a self-insured employer, it means that when you’re an employee going to a doctor’s appointment, your employer is ultimately footing the bill for the MRI you receive, for example, rather than a health insurer.
Insurance companies are there in the middle to handle the logistics of getting the claim from one place to another, so you might not realize your employer’s footing the entire bill on the other end. It also means that employers don’t always have the most direct influence on how much they spend, since they’re not the ones setting up the hospital networks or negotiating the prices.
“We always say that employers pay the bills for so much of healthcare in the US, and yet their purchasing power historically has not been equal to the size of their spend and what should be their influence in the space,” Renya Spak, a partner at health benefits firm Mercer and head of the company’s Healthcare Innovation Center told Business Insider. Mercer helps consult employers on how to set up and manage their health plans. While employers are the ones spending on health insurance, they haven’t traditionally been able to exert that influence to score themselves better deals when purchasing that healthcare.
Already, some employers have taken action to change that dynamic. The city of Rockford, Illinois sued a drugmaker after realizing it was spending almost $500,000 on one drug. Others have formed coalitions to take on high prices using collective bargaining power.
In January, JPMorgan, Amazon and Berkshire Hathaway announced their plans to form a new independent venture aimed at lowering healthcare costs for their employees, though it remains to be seen how that shapes up. The fact that they’re the ones paying for healthcare hasn’t been lost on them.
“I tell people, JP Morgan Chase already buys a $1.5 billion of medical, and we self-insure,” JPMorgan CEO Jamie Dimon told Business Insider in February. “Think of this, we’re already the insurance company, we’re already making these decisions, and we simply want do a better job.”
Others are asking for the full rebates to the list prices of drugs that they’re paying for. Rebates, which drugmakers pay out more than $100 billion of, is a big business for pharmacy benefit managers like Express Scripts, CVS Caremark and Optum RX. The rebates create a discount to the price drugmakers set for a particular medication. Typically, these rebates pass through the PBMs, who get a cut, and then back to the organization that paid for the drug, either the health plan or the employer.
Mark Merritt, CEO of the Pharmaceutical Care Management Association, the lobbying group that represents PBMs, told Business Insider that about half of the clients — the employers and health plans — the PBMs work with want 100% of the rebates passed directly to them, instead of just receiving a cut. That sentiment has been growing over the last five years, Merritt’s said.
Waiting for its Uber moment
Curbing healthcare spending isn’t as simple a tacking on one program or testing out an interesting technology and calling it a day. But employers seem receptive to giving new things a try.
“The self-insured employers are so ready for innovation now,” Glen Tullman, CEO of Livongo told Business Insider. Livongo manages chronic diseases like diabetes and hypertension, working with employers as well as health plans. “They weren’t always that way, but now they’ve gotten ready, because no one has been able to stem this increasing cost of healthcare.”
While big companies may have managed other areas of their business, healthcare has evaded their control. “It’s the last part of their supply chain that they haven’t really managed,” Shreeve said.
Michael Rea, the CEO of Rx Savings Solutions, which works with consumers and employers paying for healthcare to help them understand their drug prices, has noticed a change in the reactions he’s gotten from employers over the past few years.
Rea said he expects the number of members covered by Rx Savings Solutions to grow in 2018 from 2.5 million to 10 million. The growth, he says, has more to do with the unrest in the market than it does his particular company. “It’s less about us, it’s that people are looking for something and they’re starting to make decisions,” he said.
One thing’s for sure: waiting around for another part of the healthcare industry to create a solution isn’t an option.
“Healthcare’s waiting for its ‘Uber’ moment and employers have realized that they can’t sit on the sidelines,” Spak said. “They need to drive and shape the direction of that change in order to have greater influence and better business results.”
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