Affordability is one of the top concerns Regence hears from our members, who want access to health care at a reasonable price point. How can all the parties in health care work together, from providers and health insurance companies to patients and regulators, to make care more affordable?
For this episode of HealthChangers, host Ashley Bach talks through these issues with Bill Kramer, senior advisor for health policy at the Purchaser Business Group on Health. Kramer has spent his career advocating for affordable care and now represents many of the country's largest employers as they figure out how to keep the cost of care sustainable for their employees.
While the podcast discussion is not part of any formal partnership, Bill Kramer has a business relationship with another business unit at Regence. The interview was conducted independently and is focused on sharing valuable insights about an important topic.
Listen to the full podcast episode on the player above. Below are some highlights, which have been edited for length and clarity.
AB: Bill, can you tell me more about the Purchaser Business Group on Health (PBGH), and why making health care more affordable is such a priority for you?
BK: PBGH is a not-for-profit coalition of large organizations that purchase health benefits for their employees and beneficiaries. We have about 40 members, consisting of large employers and public agencies, and the mission of the organization is to improve the affordability, quality and equity in the healthcare system. Collectively, our members spend about $350 billion annually on health benefits. They cover about 21 million Americans and their families. In Washington State, for example, PBGH members include Microsoft, Boeing, Amazon, as well as the state's Medicaid program and the public employees’ program.
PBGH members are extremely concerned about the cost of health benefits. This has been a growing problem for decades, and it affects businesses of all sizes, from multinationals to small businesses that have only a handful of employees. A high cost of health benefits is not only a direct cost to employers, it also crowds out wage growth. It crowds out business investment, which leads to slower economic growth overall. In other words, this is a wages and economic growth issue, not just a health care cost issue; and for many small businesses, it means they can't even afford to offer health benefits at all.
The bottom line is that the cost of care is out of control, and we need solutions, both through the marketplace and in public policy.
AB: What does the recent research say about the cost of care?
BK: We've seen the cost of care go up dramatically across the U.S. in recent years, but also it's been going on for decades. Recent reports in Washington and Oregon provide some specifics about how rising costs play out on the state level.
For example, a report this year from the Office of the Insurance Commissioner in Washington said that workers and businesses have experienced double-digit increases over the past decade, with a total average premium for a single worker rising by 49 percent, and the deductible rising 79 percent from 2010 through 2020. On the Washington State Health Benefit Exchange, from 2014 to 2024, premiums for health plans for individuals more than doubled from $295 per month to $628 per month.
In Oregon, a report from the Health Care Cost Institute said that per person health spending rose by 22 percent from 2018 to 2022, with per-person health spending now at $5,900 per year.
These reports have showed that the rise in prices is predominantly attributed to prices for specific services, for medical care. It's not due to increased use of services or aging of population. It's the price factor that's driving the overall increase in costs.
AB: Those numbers are staggering. How does a company factor those health care cost increases into their budgets?
BK: It's a difficult conversation every year. First of all, it happens when the health plan comes to the employer and says, “This is what your premium increases are going to be next year,” and then that causes a lot of turmoil internally, where the employee benefits person has to go to the head of HR and say, “Oh, we're going to be hit with another double-digit rate increase this year.” It goes up to the CFO and often to the CEO. So, what are we going to do about this and this? It's not just one year at a time, it's the cumulative effect of these increases that far outpace inflation, far outpace what prices the businesses can charge for their services.
AB: How is the rising cost of care impacting patients?
BK: Employees and their families – even those with health benefits from their employers – often incur significant costs through their contributions to the monthly premiums, deductibles and co-insurance. As a result of this, the problem of medical debt has been rising, and many people are forced to delay or avoid medical care altogether due to financial barriers. A recent survey in Washington showed that 31 percent of Washington residents live in a household that has medical debt. Fifty seven percent have avoided seeking medical treatment or modified their use of prescriptions in the last year due to the cost. The report shows that health care costs also are likely to have a disproportionate impact on households that own a small business, people with disability and communities of color.
AB: You mentioned the rise in health insurance premiums, which reflect what providers are charging for care. What is driving the overall cost of health care?
BK: The largest share of overall health care costs is hospital costs. Other portions consist of physician or outpatient costs, and also drug costs and administrative costs. But let's focus on hospitals, which probably make 40 to 50 percent of total health care spending in the U.S. This is important, because what we've seen in Washington and around the country is, the hospital industry has been consolidating. Big hospitals buying up smaller hospitals, or big hospital and health systems buying up hospitals, smaller hospitals and physician groups. As a result, these big hospitals and health systems gain market power in their negotiations with health plans, which enables them to charge higher prices, and that's been a big driver of higher premiums for everyone.
In addition, some big health systems have used anti-competitive contracting practices in their negotiations with health insurance companies, which also enables them to demand higher prices. I should say that we have similar issues in prescription drug costs – they've been charging very high prices – and also consolidation in the pharmacy benefit manager industry, which has enabled them to take a fair amount of the money that's floating around in drug costs, all resulting in higher costs for purchasers, consumers and patients.
AB: What can be done in terms of industry reform and public policy to make care more affordable?
BK: First, employers rely on health plans to negotiate effectively with hospitals, physician groups and drug companies to get the lowest cost possible. And we do appreciate the efforts that Regence and other health plans do to hold a line on costs in their contract negotiations. This effort by Regence is even more critical as these health systems try to use their growing market power to demand big price increases that drive up the cost of health care for consumers and businesses. But since the playing field is so uneven given the market power of these large health systems, we need policymakers to step up to fix the market, to make it more competitive and really address the underlying drivers of this affordability crisis.
There are several ideas that states have used to tackle these issues. One is to establish and enforce cost growth targets. Washington has established cost growth targets through its Health Care Cost Transparency Board, for example.
Another potential policy would be to prohibit anti-competitive contracting practices. There's a history here. In California, the Sutter Health system was the subject of a major lawsuit for engaging in anti-competitive contracting practices and using that leverage to raise prices. Sutter settled for $575 million in damages and agreed not to engage in these practices going forward. But other big health systems have used these tactics, too, and they should be prohibited throughout the marketplace.
A third area would be to strengthen oversight of mergers and acquisitions. A lot of consolidation has already happened. The horse is already out of the barn, but there are still some horses in the barn, and we want to ensure that any mergers and acquisitions that do occur are done in the public interest, that they will not be used to simply increase prices, that they're done in a way that ensures that people still have access to the care they need, and that they're not negative effects on quality or equity.
Another issue that is worthy of attention is the use of facility fees. This is a practice that many hospitals use, of charging an extra fee for outpatient services. It's a tactic that's been used to jack up prices. It's hard for health plans to stop this through their negotiating practices. This is something that could be fixed with public policy.
Legislators and regulators need to step up. This is a serious, serious problem for people throughout the country, and we very much encourage lawmakers to work with all the stakeholders, consumers, purchasers, health plans, hospitals, physician groups and others, to ensure that we're all working together to try to improve affordability, quality and equity in our health care system.