Today, employers insure 155 million individuals – nearly half of the U.S. population. As healthcare spending continues to grow at an average annual rate of 5.5 percent, employers have found it increasingly challenging to offer comprehensive health insurance benefits to employees. Now, eight in 10 employers say they are “taking action to manage healthcare costs.” The Transamerica Center for Health Studies’ Sixth Annual Employers Survey found that employer strategies include offering health maintenance organization (HMO) plans (28%); encouraging employees to use generic drugs (28%); or providing wellness rewards to incentivize healthy behaviors (27%). Employers have also increasingly shifted costs to employees in the form of higher deductibles (the average deductible has grown almost 300 percent in the last decade). Despite these efforts, one-quarter of employers say they are “extremely or very likely” to lower their contribution towards health insurance within the next 12 months in order to manage operational costs.

One reason the above employer strategies have disappointed is that they fail to address the primary driver of year-over-year cost increases: rising provider prices. However, some employers are taking notice of their high provider costs and are looking at approaches that could, if more widely replicated, disrupt traditional modes of care delivery. Here we highlight three tactics that have gained increasing traction: direct contracting, Centers of Excellence (COEs), and on-site healthcare clinics.

Direct Contracting

Direct contracting occurs when a self-insured employer partners with a healthcare system to reimburse providers for services rendered. The employer bypasses the traditional relationship most have with an insurance company to negotiate directly with providers. Employers report that they have turned to direct contracting because they were dissatisfied with the traditional health benefit plans offered by insurers or were frustrated by a lack of transparency behind annual rate increases. Many believe direct contracting can be a useful tool for reducing costs. Over the last year, several major employers have entered into such agreements:

• General Motors & Henry Ford Health System: General Motors will launch its ConnectedCare plan for salaried employees beginning in 2019, which will provide access to 3,000 providers in Southeast Michigan. The plan provides coverage of primary care, hospitalization, emergency care, and behavioral health services, as well as over 40 specialties. Among other perks, participants will have access to same- and next-day primary care appointments and specialist visits within 10 business days. Employees can opt into the plan and, according to one source, annual premiums may be $300 to $900 less than the current lowest-cost option.
• Walmart & Ochsner Health System: Walmart is partnering with Ochsner Health System to offer 6,600 employees in New Orleans and Baton Rouge coverage beginning in 2019. Employees will receive access to 200 primary care providers, including patient engagement specialists through a 24-hour call center. Walmart has formed 10 similar relationships with other healthcare systems. Like the General Motors arrangement, employees may opt into the plan, which is reportedly cheaper than the alternatives. Walmart has not disclosed how much money the arrangement will save, but reports that it is “optimistic about a few things that we are seeing.”
• Disney & Orlando Health and Florida Hospital: Disney is offering two HMO plans through separate contracts with Orlando Health and Florida Hospital for its 70,000 employees based in Central Florida. Employees may elect to join one of the plans, and in return, will receive services at a lower cost, though the exact discount has not been reported. The company is continuing to offer a policy through Cigna for employees who do not have easy access to the other networks.

To date, major medical insurers, like Anthem and UnitedHealthcare, have not expressed concern with such arrangements, though some caution that direct contracting could “cut them out” of some employer-based business.

Centers of Excellence 

Beyond direct contracting, large employers are also increasingly developing Centers of Excellence programs, which focus on specific areas of medicine and care delivery (e.g., bariatric or spine surgery) and provide a high volume of services for those select procedures. Typically, COEs are selected because they deliver the best outcomes, often at a lower cost than competing facilities. For some employers, COEs also function as a source of data and best practices, helping identify optimal care standards and cost-effective treatments. For example:

• Walmart’s COE Program provides enhanced benefits for breast, colon, lung, and rectal cancer through collaboration with Mayo Clinic. Benefits include medical record reviews by cancer experts who determine whether a patients would benefit from traveling to Mayo Clinic for treatment. If so, travel, lodging, and daily allowance benefits are provided. The company also announced last week that it will expand its program by requiring employees to travel to COEs for spine surgeries.
• New York City’s public employees will have access to COEs for orthopedic and cancer care services through Emblem Health, starting January 1, 2019.

Investment bank Leerink Partners reports that “nearly 80 percent of large employers have said they will use COEs by 2019, while 22 percent expect to directly contract with health systems.”

On-Site Clinics

Some large employers are becoming providers themselves by offering employees access to on-site clinics. One survey found that one-third of large organizations now provide medical clinics at or near employees’ worksite – up from just 17 percent a decade ago. This includes companies like Fiat Chrysler, which began offering free primary care to employees and their families – an estimated 22,000 individuals – near its central Indiana factory. The company reportedly opened its clinic after hearing that nearly half of its employees did not have a primary care physician and, as a result, often used emergency room care for non-urgent services. These on-site primary care facilities have the added advantage of allowing the employer some control over referrals for often-costly surgical, lab, imaging, and other services. Other examples include:

• Apple’s AC Wellness: Apple launched a number of health clinics for employees and their families last spring, which provide concierge health and wellness services, similar to those offered at Facebook and Intel.
• Walmart: In select states, Walmart plans to convert its extra parking lot space into “town centers,” which may include health clinics and fitness services. Behavioral health company, Beacon Health Options, has even opened a mental health clinic in Walmart’s Carrollton, Texas location, with plans to expand nationwide.
• Amazon: After soliciting proposals from outside vendors, Amazon is reportedly opting to develop a primary care clinic itself for employees at its Seattle headquarter location. Amazon joined Berkshire Hathaway and JPMorgan Chase early last year to launch a joint venture aimed at improving employee satisfaction with healthcare and reducing costs.

The National Business Group on Health reports that over 50 percent of large employers will have on-site or nearby health clinics by 2019.

Take-Away: As healthcare spending continues to rise, small and large employers alike are grappling with ways to hold down costs, while still providing competitive insurance benefits to employees. With some declaring that “employer-based care is broken,” and others finding a degree of employer complacency in the face of rising prices, at least some large companies are now taking steps to try to circumvent traditional insurance and care delivery models to contain costs and improve outcomes.