Five metrics to monitor to stay ahead of your healthcare costs

After facing surprisingly large increases in 2024 healthcare benefits costs, corporate leaders are asking what they can do to avoid being blindsided again.

In a striking look at employer health costs, recent claims data reveals a notable rise of 7.7% over the 12 months leading to September 30, 2024. According to Alliant's analysis of a substantial $13.2 billion in claims, this translates to an average of $14,000 total healthcare spend per employee each year—up by $1,000 from the previous year.

Delving deeper into these figures, medical expenses have surged by 6.3%, resulting in an average annual medical spend of $10,100 per employee. And if that weren't eye-opening enough, prescription drug costs have spiked even higher, climbing by a substantial 10%, bringing the Rx average to $3,850 per employee annually.

It’s important to remember that while these numbers provide a broad overview, they can vary greatly between companies, influenced by the specific conditions and treatments prevalent in their employee populations. As we navigate these increasing costs, understanding the underlying factors will be vital for businesses aiming to manage their healthcare expenses effectively.

Most companies already have access to information that can provide an early warning of trends that raise health spending. The information is embedded in every member’s health claims, specifically, codes for procedures, along with associated provider, diagnosis, and cost.

Being able to extract that data is key to identifying cost drivers and offering actionable insights that can help lower overall health plan spend. The reality is that large claims—single catastrophic events or many claims from a small number of individuals—represent the majority of health plan costs. Only 10% of the population generates 70 to 80% of expenses.

The detailed claims data needed to perform these analytics is available to any company with a self-funded plan and most of those that participate in captive carriers. Fully insured plans get much less detailed information from their carriers; however, a consultant can offer insights on comparing your fully insured plan data to those with similar demographics. Harnessing analytics tools and clinical resources to enable predictive modeling of large claimants helps companies manage costs more effectively and gain an advantage in carrier negotiations.

Here are five views of the data that provide the best indication of future expenses:

1. How claims expense tracks to expectations.

This is the first canary in the coal mine. If spending is significantly above plan, it’s time to take a closer look at the rest of the data to determine why.

2. The prevalence and severity of high-cost, chronic conditions.

Are there more members with cancer, hemophilia, or other conditions that entail ongoing treatment? You may be able to deploy programs that help manage both quality of care and expense.

3. The growth in pharmaceutical claims.

The cost of prescription and specialty drugs has been rising rapidly for many plans, a trend accelerated by the popularity of GLP-1 weight-loss treatments. If you see a spike in claims for a specific drug category, you may be able to adjust your plan terms or introduce a management service to mitigate the costs.

4. The causes of high-cost claims.

Typically, a small number of claims represents the bulk of expenses. Isolating the reason for those claims can help explain a rise in costs. If it is mainly one-time events, such as premature births, rather than chronic conditions, the increase may not carry over to future periods.

5. Geographic concentrations.

Unusually high expenses of a certain type in a certain area might also be traced to a single cause. For example, maybe a shortage of primary care providers is leading members to seek treatment in emergency rooms and urgent care centers. Or maybe there simply aren’t enough lower-cost providers in your network.

Employers have several ways to create a system that calculates these metrics. Those with well-developed business information and analytics capabilities may be able to use existing tools to analyze the data feeds from their carriers. Commercial software packages that analyze claim data are also available. Some consultants and insurance brokers provide these analytics capabilities to clients, too. Indeed, more sophisticated consultants now go beyond analyzing current spending and build models to predict future expenses as well.

A knowledgeable consultant, moreover, can help interpret the data, comparing it to industry benchmarks and identifying options that can mitigate fast-growing costs. When it comes time to renew your insurance and pharmacy contracts, this kind of detailed understanding of claims data will also help you negotiate the most advantageous deals.

How we can help. 

Alliant specializes in curating and administering benefits strategies that are customized to meet your unique needs. A successful strategy requires leveraging your benefits data to identify risks and inform decision-making—helping you bridge the gap between raw data and actionable insights. Get in touch with an Alliant benefits consultant today.