Q&A . . . With Matt Wheeler

PUBLISHED OCTOBER 2024

Q: In the health coverage space, how are businesses/owners reacting to the premium trend lines seen over the past several cycles?
A: We always try to do everything we can to be proactive with employers to help them be prepared for what they could anticipate with renewals. In employer markets, there are two dynamics—large, over 100 lives where the insured marketplace is using their utilization to set what the premium rates will be, plus inflation, for the next year. In the smaller market, under 100 lives, the majority of companies will get a surprise. While we can talk to employers about averages and be proactive with the data in hand, there are significant headwinds and sticker shock. While the norm here has been in the mid-to single-digit highs, there is a growing percentage of renewals in double digits and above 20 percent.

Q: Where does that fall on a trend line?
A: That’s a complete outlier historically, but it is becoming 10 to 15 percent of renewals in our book of business. These are new events in our renewal cycle for clients. A lot of factors go into it, but the way employers are reacting, one word we’ve come up with is “frustrated.” Employers have good business acumen and they can deal with short-term spikes and costs, but historically, a short-term spike was 10 percent. Now, they might be dealing with 16-17 percent increases with no alternatives. Then, there’s a concern that it might be the same outcome in the next renewal cycle. When you get into that, it becomes a question of sustainability, and owners are thinking, “My goodness, what are my options if this continues?”

Q: So what reactions have you been seeing to that?
A: Proactivity on their end is part of it. They’re doing everything they can to control the controllables. There’s a wide swath incenting employees to be proactive with preventive care to stay in front of large claims. They are pulling all the levers they can within their plans to make them more cost-efficient, using things in Kansas City like narrow (provider) networks, partnering with their insurer to use more aggressive pharmacy formularies, and making design changes in which members share in some of the inflation costs. They’re using those readily available levers in the environment they’re in, whether that’s insured or self-funded. But despite that proactivity, they may end up with a specialty med need or a high-cost infusion that completely changes the market’s perspective on them as a risk.

Q: Beyond those things, it sounds as though there’s not much they can do.
A: In that dynamic, it really becomes a challenge. For instance, I’ve shared this with employers, but going into 2024, over the course of my career in serving 100+ employers, I had never had a scenario where I took a 100+ life group to the marketplace, asked for an insured quote proposal, and received a complete market rejection from the BUCAs (Blue Cross and Blue Shield, UnitedHealth Group, Cigna, and Aetna). That happened with one client in 2024. They had a unique high-cost scenario, and the marketplace said, “We don’t want that risk.” It has happened at times in the small group market but never in the 100+ employee space. And now it’s being repeated, on multiple occasions, for large groups for 2025.

Q: Where does that leave those clients?
A: For some of these customers in dread scenarios … we’ve had multiple employers where we are sharing with them what it looks like if they moved to individual coverage (Health Reimbursement Arrangements) because of the size of the increase they may be dealing with, maybe on the heels of a prior significant increase. That’s in the realm of possibility when they size up whether their employee population will be better off staying with the current plan vs. taking that employer subsidy and moving to an exchange model, which could also be a better scenario for the employer. We’ve hit that periodically in the last five years in the small group market but never really explored it in the large group market until the advent of these large increases.

Q: Is that becoming more prevalent?
A: I would tell you that from our perspective, it has gone from zero to 60. There are a lot of market dynamics in Kansas City contributing to that. With Medicare Advantage, where Blue Cross is exiting the market, they’re tightening up other areas of underwriting, which has a downstream effect on the rest of the marketplace. You hear the term “market hardening” in the property and casualty brethren space. For the first time in many years, we’re seeing evidence of that on the health care side of the equation when it comes to big risks.

Q: How has the issue of mental health coverage affected plan design?
A: Things are better there. I think there are a lot of positives to be said in the mental health space. As you look through the data, I really wish we could export the mental health story to the rest of the health care spectrum. Here’s why. When you look at our overall book of business, mental and behavioral health services spending has grown by 9 percent over the last two plan years. However, that increase is all in growth in services, increased provider access, and more visits with those providers. Cost of accessing services or pharmacy interventions has not increased. The right services are being provided for the needs of the members in a cost-effective manner. About 5 percent of the overall spending for employers is going to those services. It’s a success story, and while this was brought into focus during the pandemic, employers are focusing on more support in this space post-pandemic.

Q: What’s the impact from the employee side?
A: Employees are also voicing the need to employers. There’s a big emphasis on communication among the employee population on where to go for services. There’s an increased use of virtual applications in telemedicine that are a big boon in this space because people don’t have to walk into a brick-and-mortar site to get the services they need. 

Q: Sounds a bit rosier there than with the other medical coverage issues.
A: Yes, if you piece all that together, the good news here is that the pharma costs in our book of business, and probably nationally, are flat to even decreasing because the pharmacotherapy is cost-effective. The are no new blockbuster drug costs in this space. We love this story because that’s where we all ultimately want health care in America to be—leaning heavily on professional providers in the space with cost-effective pharma. People are getting the care needed at the moment, and not necessarily with new interventions.

Q: What’s been the employee reaction to higher costs or plan restrictions?
A: We work with a number of employers, sit in their benefit meetings, and have direct insight into how employees are reacting. If you go back three, four or five years ago, a distinctive focus in those committee-based situations was that employees were most interested in protecting the benefit and keeping their copay, deductible and co-insurance exposure low, even if it meant some payroll increases. That’s flipped 180 degrees. Almost every engagement where this information is in front of employees now, the consensus—and I think this has to do with overall inflation—is that “we want to protect payroll.” If there’s a need to increase deductibles, lift the out-of-pocket maximum, shift from a big to a small network, and do what you can to protect payroll. What they don’t tolerate is passing all the added costs along. 

Q: What’s the employer response?
A: On the main, employers are very sensitive to that. They value their employees, and in a tough job market, they’re fighting, scratching and clawing to get wage increases for their employees, and they don’t want to dissipate that with higher payroll expenses. 

Q: How are the kinds of stresses you all deal with affecting your own ability as employers to attract and retain talent?
A: Holmes Murphy deals with much the same issues as every other organization; however, we’ve always been a culture and people-focused organization. Because of this, we have really doubled down on who we are. We do engagement surveys every year, and we hear, “I could sling insurance anywhere, but I could not do it without these people by my side. What we want from you, Holmes Murphy, is to make sure you invest in us as people so that we have the resources we need to grow, the flexibility in the workplace, and the support for and from the people around me.” We love this, as that depicts who we are as an organization. Is there a silver bullet for the challenges all employers deal with? No, but our employees are coming to work to make a difference for the people they serve and not only understand but are also invested in our employee value proposition of loving what they do and who they do it with.

Q: What applications of AI are making a difference for plan administration, either with employers, providers or brokers?
A: We’re just scratching the surface in this area. Insurance is traditionally a slow adopter, but there are a lot of things in the hopper that are exciting. Real time, we’re using it for content creation here and there, but we have an ongoing engagement with a firm about how we’re going to use AI in our processes to elevate our client experience and for quality control. 

Q: What else keeps you up at night?
A: What always has over the course of my career is, how to do the right thing by employers in the health-care space that is also going to reduce costs. If we close the gaps in care, make sure plans are covering all the essential benefits, and make sure people with chronic conditions are compliant with protocols for them, employees will have improved health and the cost of health care for that employer will be lower and their employees will be better off. But that dynamic is no longer true because we have a situation that is not sustainable in health care, and particularly the pharma space, where interventions for chronic conditions can carry no corresponding ROI. Where the costs of those interventions actually supersede what the elevated hospitalization or ER visits costs would be on a medical plan. If that’s the case, we now have competing interests, which no employer wants to be in the business of making decisions around: Where providing coverage with the best benefits, the best pharma intervention and creating better health no longer saves costs and plans that produce worse health but may in time mean better costs. That definitely keeps us up at night.