An uncertain economic environment has set the stage for a tense contract renegotiation cycle between health insurance companies and employers.
During the public health emergency, self-insured employers often suspended changes to their workers’ healthcare coverage as the COVID-19 pandemic tore through their communities. At the same time, employers were largely insulated from medical cost increases because most insurers and providers paused contract negotiations while they attempted to mitigate the coronavirus’ effects on the public health system.
Now that the national emergency period has ended, talks among health insurance companies, providers and employers have resumed, with the participants sparring over just how much rates need to rise to reflect growing operating costs, a tight labor market and a potential recession.
“The bloodbath is underway,” said Jeff Goldsmith, founder and president of the consultancy Health Futures.
Because health insurance companies and self-funded employers are in the middle of negotiations, it’s too early to know how much more large employers could pay for their health insurance next year. Benefits consultants and employer groups said large group plans are being presented similar levels of premium increases to those facing small group plans, in which the insurer assumes the financial risk of the business’ workers.
Health insurers are pitching an average 10.9% increase in small group premiums across the 12 states that have released insurers’ proposed rates so far, according to a report this month by the Stephens Inc. investment bank. State regulators must approve insurance companies’ fully insured small group premium rates, along with those for individual policies sold on the exchange. Officials publicly release carriers’ proposed premium changes before they are finalized.
For-profit insurers are proposing larger premium increases than nonprofit carriers, the Stephens analysis said. Cigna has proposed the highest average increase, of nearly 23% across all markets surveyed, the report said. The company is one of the largest administrators of job-based insurance, helping employers develop and enforce coverage policies for 16 million workers.
Cigna and insurance lobbying group AHIP did not respond to interview requests.
Provider-payer pressure
How an employer structures their health benefits depends on the agreements insurers ink with providers. This year, more carriers and health systems have deadlocked over contract terms. Hospitals are asking for higher reimbursement rates to account for rising labor and supply expenses and looming Medicare payment cuts, while insurers are reckoning with their own increased cost of conducting business and what some characterize as an unexpected spike in utilization.
During the first six months of 2023, there have been 41 public contract disputes between providers and insurers, more than double the 15 reported during the same period last year, according to data compiled by FTI Consulting. The rise reflects the uncertain macroeconomic environment, employer pressure on both sides to improve the value of services and the growing complexity of these legal agreements, said Adam Broder, managing director of FTI.
Insurance companies and health systems are increasingly bargaining over how prior authorization and payment management practices can be used, how quality data must be shared and how much must be paid, he said.
“The two sides are finding compromises, but it's becoming harder,” Broder said. “The contracts are becoming more complicated, margins are so thin, and the push to show value on both sides, both payer and provider, is now becoming so important.”
Employer response
Carriers will look to manage any reimbursement rate hikes through increases in their commercial premiums, said Dan Kuperstein, senior vice president of compliance at Corporate Synergies, an employee benefits brokerage and consultancy.
But labor shortages and the healthcare affordability crisis will make many companies hesitant to lower their expense through their usual methods of increasing employees’ cost-sharing or cutting benefits, he said. The average cost of health coverage has grown 20% over the past five years for a family of four, reaching $22,000 last year, according to the most recent annual survey of employee health benefits from KFF.
For many employers, the pandemic underscored the importance of healthcare access and employers are hesitant to impose new cost barriers on their workforce, Kuperstein said. Companies operating in tight labor markets may also view paring back their benefits as counterintuitive to their strategy for capturing and retaining talent. The Bureau of Labor Statistics reported unemployment at 3.6% in June, below the 10-year average of 5.3%.
Some employers are asking insurers and pharmacy benefit managers to justify double-digit proposed premium increases by turning over workers’ claims data, said Courtney Stubblefield, managing director and insights and commercialization leader at Willis Towers Watson, a health benefits brokerage and consultancy. But companies are running into roadblocks retrieving this information from their health and pharmacy vendors.
“There's a lot of employer challenge to [insurers’] data, due to some of the assumptions being used in the marketplace, and it definitely can get heated,” Stubblefield said. “There are a few insurers that have come out higher [in proposed premium increases] and been fairly intractable.”
The Kraft Heinz Company highlighted negotiation difficulties in a lawsuit against Aetna in Texas federal court last month, with the food manufacturer alleging the CVS Health subsidiary charged hidden fees and improperly paid providers’ claims as a way to subsidize its fully insured products. When Kraft asked Aetna for information on its workers’ medical expenses, Aetna offered incomplete data and blocked Kraft’s benefits broker, Willis Towers Watson, from releasing its workers’ bills, the lawsuit alleges.
“Without this data, Kraft Heinz is unable to assess Aetna’s handling of the plans’ funds and associated payment integrity. Kraft Heinz owns this data and has an absolute right to it,” Kraft wrote in the lawsuit. Aetna declined to comment.
“These lawsuits represent the challenges in the marketplace right now, in terms of employers wanting complete and total access to all their data without restrictions,” Willis Towers Watson’s Stubblefield said. “I think each situation is unique and I can’t comment on any lawsuit. But there have been more recently, [and] I don’t expect that to stop.”
Employers are also responding to proposed premium increases by seeking new health insurance partners, said Michael Thompson, CEO of the National Alliance of Healthcare Purchaser Coalitions, a nonprofit group of private- and public-sector employers and unions focused on healthcare purchasing. In addition, rising costs and the lack of transparency are pushing more employers to experiment with new ways of providing health and pharmacy benefits, he said.
“Increasingly employers are finding ways to get around their intermediaries that don’t support them,” Thompson said. “Now that we’ve gotten to the other side of the pandemic, all bets are off, there's a lot of activity going on.”
