Health Care Trends

The Challenge Of Health Care Inflation

Moving beyond management toward cost-containment

by Jack Towarnicky

As an ERISA/Employee Benefits compliance and planning attorney, Jack has over forty years of experience in human resources and plan sponsor leadership roles. This includes twenty-five years as the leader of a Fortune 100 corporation’s benefits function. While serving in those roles, Jack and his team won a multitude of individual, team and corporate recognitions. In 2020 Jack joined aequum and provides plan drafting and compliance services to employers and plan sponsors. 

Management: A process of dealing with

Containment: Keeping something harmful under control

Only a handful of employer-sponsored plans have “contained” health costs.

Instead, most plan sponsors and participants have been taken for a ride along inflation’s bumpy path. In response to inflation, plan sponsor’s adjusted employee contributions in one of three ways, resulting in rate increases that were:

  • Greater than the ever-increasing cost of health coverage (cost shifting),
  • Equal to health inflation rates (maintaining the relationship or cost sharing), and
  • Less than the cost increases (allocating a larger portion of total rewards to health coverage.)

But, for all the employee moaning and groaning about “cost shifting” and “affordability,” Kaiser’s annual survey shows, on average (and averages can be deceiving) that employee and employer contributions for both single and family premiums have increased by the same rate, about 6%, for the past 25 years![1]

Unlike sharing coverage costs, point of purchase cost sharing has changed significantly. Twenty-five years ago, HMO’s, PPO’s and POS coverage options had modest point of purchase cost sharing – where 90+% of HMOs had $10 or less office copays, and POS in-network annual deductibles averaged $41, PPO’s $190.[2]

We’ve seen the percentage of workers enrolled in a plan with a general annual deductible increase from less than 50% to 90%, with an average single deductible of $1,735.[3]

However, these nominal point of purchase numbers are also deceiving. Even though the percentage of Americans who must satisfy a deductible had dramatically increased, and even though the average deductible has dramatically increased, Americans on average (and again, averages can be deceiving), pay only about 10% of the cost of health services out-of-pocket – Americans paid 3 times as much out of pocket (as a percentage of health costs) 50+ years ago!

Even though Americans pay only 10% of the actual cost of health services out of pocket, about one in ten Americans are in a family that struggles to pay their medical bills.[4] And, fewer than 1 in 5 know the cost of services prior to treatment,[5] however, over 38% say they have delayed treatment due to anticipated costs.[6]

So, in summary:

  • Workers don’t know the cost of services
  • Many are so worried about their out-of-pocket costs that they delay treatment
  • Workers see the dollar amount increases in deductibles and copayments, and often conclude that they are paying all or much of the cost of health services, even though their out-of-pocket costs are, in fact, a much smaller portion of the cost of treatment
  • Workers see the dollar increase in their contributions and perceive a shift of costs even though both employer and employee coverage cost increases are about the same

The Only Containment Solution Proven Successful

There is only one proven effective “cost containment” solution for sponsors of self-insured health plans who want to address all of these issues – “Pure” Reference Based Pricing, coupled with participant representation in anticipation of balance billing disputes. That design will moderate both employee and employer spend on health services and prospectively lower the rate of increase in the cost of coverage.

Simply, networks are unable or unwilling to negotiate prices with providers because of the below-cost prices set by the federal and state governments.[7] As a result, providers must charge more for services to those enrolled in employer-sponsored plans because:

  • Almost half of all Americans are now covered under Medicare or Medicaid/CHIP, so
  • Providers must add a surcharge, a cost-shift, to employer-sponsored plans.

The only option for self-insured employers to “piggy-back” on government set prices is to adopt pricing that is linked to or is set in reference to Medicare.[8]

Value Offered by A Medical Billing Partner

Medical billing partners can assist in helping plan sponsors create and execute the change in coverage strategy to incorporate Reference Based Pricing (RBP).

To avoid cost shifting expenses in excess of the reference price to participants, plans with RBP provisions should always add participant representation services. The following components should be a part of every plan that incorporates RBP:

  • Carefully drafted plan documents that strengthen the rights of participants to dispute bills.
  • Avoidance of contracts with providers or limited use of contracts.
  • A defensible repricing mechanism.
  • A robust patient advocacy process that includes legal representation.

While RBP designs have been part of self-insured plans for decades and established a meaningful track record in reducing health spend, few employers have adopted these plans in the face of provider resistance, a litigious climate and employee friction. As a result, those employers who adopt “Pure” RBP gain an immediate, competitive cost advantage.




1 Author’s calculations, data from Kaiser Family Foundation 2023 Employer Health Benefits Survey, 10/18/23, Accessed 2/19/24 at:
2 Kaiser Family Foundation, 1999 Annual Survey, Accessed 2/19/24 at:
3 2023 Employer Health Benefits Survey, 10/18/23, Accessed 2/19/24 at:
4 R. Cohen, A. Cha, problems Paying Medical Bills: United States, 2021, National Health Statistics Reports Number 180, U.S. Department of Health, and Human Services, 1/18/23. “… Results— Overall, the percentage of people who were in families having problems paying medical bills in the past 12 months decreased from 14.0% in 2019 to 10.8% in 2021. …” Accessed 2/19/24 at:
5 S. Marken, Few Americans Know How Much Their Healthcare Costs, Gallup, 1/31/24, Accessed 2/19/24 at: 
6 M. Brenan, Record High in U.S. Put Off Medical Care Due to Cost in 2022, Gallup, 1/17/23, Accessed 2/19/24 at:
7 A. Sen, J. Chang, J. Hargraves, Health Care Service Price Comparison Suggests That Employers Lack Leverage To Negotiate Lower Prices, Health Affairs, Vol. 42, No 9, September 2023. Accessed 2/19/24 at:  M. Goozner, It’s still the prices, stupid.
What’s Medicare’s secret sauce for controlling costs? The agency sets provider prices. 9/7/23. “…  those skyrocketing prices only took place in the private insurance market — not Medicare, which sets the prices it pays hospitals and physicians for different services through an annual rule-making process. While few people outside the medical-industrial complex pay attention to what are officially known as the Inpatient Prospect Payment System (IPPS) and Outpatient Prospective Payment System (OPPS) rules, they are in essence gigantic price-setting operations, often running well over a thousand pages in length. State agencies that oversee Medicaid piggyback on those prices — usually at even lower rates.” Accessed 2/19/24 at:
8 D. Bernstein, J. Capretta, J. Rowling, Medicare’s Price-Setting Rules: An Alternative Perspective, Health Affairs Forefront, 3/14/24, Accessed 3/19/24 at:


Leave a Reply

Your email address will not be published. Required fields are marked *