Employers are facing legal pushback over high healthcare costs, the Medicare Advantage landscape is getting more tricky, and alternative payment models are growing in popularity.
Three key payer trends hospitals need to know:
1. Employers are getting sued over healthcare costs
Large, self-insured employers are beginning to face lawsuits from their workers over claims of mismanaging health and pharmaceutical benefits and violating their fiduciary duties under the Employee Retirement Income Security Act.
In the most recent example, Wells Fargo was sued by employees in July for allegedly paying inflated prices to its contracted pharmacy benefits manager, Express Scripts. Other notable ongoing examples include Johnson & Johnson and Mayo Clinic.
2. Medicare Advantage growth and headwinds
Medicare Advantage enrollment has grown to nearly 33 million people, or 54% of the eligible Medicare population. As MA enrollment has grown, so too have the financial headwinds facing major carriers — government scrutiny is rising, CMS regulations and payments are tightening, and the cost of care is going up.
In response, some large insurers have said they will exit markets in 2025 — and potentially reduce benefit offerings — to accommodate the changing reimbursement environment and rising costs. Providers, especially hospitals, should expect rising pressures in the MA space as payers look to preserve margins.
"We expect insurers to prioritize margin over membership, and we expect large insurers will use their scale and market clout to limit provider rate increases over what will prove to be a challenging contract negotiation season," S&P Global analysts wrote in August.
3. Alternative payment models are growing
Narrow network plans are similar to HMO plans, but they can be even more restrictive in the number of providers they include in their network. HMOs and exclusive provider organization plans make up 79% of plans on ACA exchanges in 2024, up from 42% in 2014, according to Oliver Wyman. Payers will seek closer relationships with certain providers to stay competitive with members and to grow their bargaining power.
Reference-based pricing allows employers (supported by a TPA or broker) to pay a set price for healthcare services versus negotiating prices with providers. This price is often based on a benchmark, such as a percentage of Medicare rates. This model is underutilized, but it has gained popularity over time, according to a 2024 survey by Zelis of 100 brokerage and TPA executives. Only 42% of TPAs and brokers service employer groups that offer RBP to their employees. In the next one to three years, 30% of respondents said they will increase RBP reliance slightly, and 56% aren't sure yet.
Direct contracting allows employers to contract with providers directly for healthcare services received by employees, bypassing a traditional health insurance network. Among 150 benefits executives surveyed in 2024 by Brighton Health Plan Solutions, 75% are already using direct contracting. Among those that aren't, 41% said they were likely to consider it by 2025.
Individual coverage health reimbursement arrangements, or ICHRAs, allow employers to offer a defined tax-advantaged contribution used to reimburse premiums for an individual health plan purchased by an employee on their state's ACA exchange. Employer adoption of ICHRAs is up 29% since 2023, according to a 2024 report from the HRA Council. The number of U.S. employees offered a defined contribution health benefit now exceeds 200,000, which does not include dependents — some estimates have said more than 500,000 people are now enrolled.