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Deana Bell: Hello and welcome to Critical Point brought to you by Milliman. I'm Deana Bell and I'll be your host today. Healthcare costs are top of mind right now for many listeners. It's open enrollment season, which means that, for many companies, this is the time that employees are signing up for their healthcare plans. And with the presidential election around the corner, we're seeing continued dialogue about the impact government programs have on the cost of healthcare and prescription drugs for consumers. So, in this episode of Critical Point, join me and the authors of the Milliman Medical Index as we discuss what's driving this year's healthcare costs for Americans on employer-sponsored insurance. From changes in government programs like Medicaid and the Inflation Reduction Act, the growing use of weight loss medications, we'll discuss how healthcare costs have changed since 2023 and how they vary for Americans across the country. Dave Liner and Jason Clarkson are both principals at Milliman and co-authors of the MMI. Thank you for joining me.

Dave Liner: Thank you, Deana. Thanks for having us.

Jason Clarkson: Thanks, Deana.

What is the Milliman Medical Index and what does it measure?

Deana Bell: First, for any listeners that aren't already familiar with the Milliman Medical Index or the MMI, Dave, can you just briefly sum up what it is?

Dave Liner: Sure. Thanks, Deana. The Milliman Medical Index estimates annual healthcare costs for people covered by a typical employer-sponsored health plan. That is, if you get your health insurance on the commercial market or through your employer. We look at the total cost of healthcare benefits, and not just the employer share and not just the premiums that individuals pay, and I think that distinguishes the Milliman Medical Index from other surveys and sources on healthcare costs. This year, we projected that healthcare costs for a hypothetical family of four hit $32,066 and were $7,151 for an average person.

Deana Bell: So it's also worth noting that we publish our family-of-four number. We have this interactive tool on Milliman.com/MMI where individuals can enter their own family composition, the number of family members, where you live, the ages, genders, and so it'll be better representative of your personal situation. Go check it out. So one of the areas of focus we looked at in this year's report was the impact of benefits not commonly covered in our MMI cost estimates. So, for instance, fertility services, dental and vision, enhanced coverages of those, and certain prescription drugs. Why did you look at coverages like this year, and which do you think is the most impactful to this year's healthcare costs. Dave?

Dave Liner: Great question. We looked at benefits not commonly covered this year because of, primarily, what we're seeing in the GLP-1 or GLP-1 class. This is a class of prescription drugs more commonly known by popular product names, including Ozempic, Wigoby, Munjaro, and others. This category of products covers weight loss and type 2 diabetes indications, and we're seeing a lot of variance in how plans are covering this category today. And I think the coverage is going to change over time in the commercial market. Now, a recent survey showed that about one-third of employers are covering GLP-1 drugs for both diabetes and weight loss. I think that was made by the International Foundation of Employee Benefit Plans. And when you cover a drug, you cover the drugs for specific indications. So you can cover these GLP-1 drugs, which are on the rise for weight loss, diabetes, or both. And I think we'll see an evolution in how plans cover these drugs in the near term. And that's, I think, a big question in terms of how it could impact the cost of healthcare for those plans.

Impact of government programs on commercial healthcare costs

Deana Bell: So we're in the midst of a presidential election year, there's been a lot of discussion around government programs and their impact on healthcare costs. And it just so happens that was one of our focuses in this year's MMI. Jason, could you just talk a bit about what you set out to do in this section?

Jason Clarkson: Sure, Deana. While our report is focused on the commercial insurance segment offered by employers, we recognize that government programs can and often do have a strong influence on the cost of employer coverage. Changes in these government programs, and we're primarily talking about Medicaid and Medicare, can have downstream implications to other segments of the market. As of today, government programs account for about 45% of total healthcare spending, and that can result on a ripple effect on insurers, policyholders, providers, and others, when government programs make material changes.

Deana Bell: So let's talk about some of those more recent program changes. Can we start with Medicaid. And what's changed since the COVID-19 public health emergency ended?

Jason Clarkson: Yeah, sure. During the public health emergency, there was something called the Family First Coronavirus Act. That act had stipulations and requirements that states had to adhere to receive enhanced federal funding for their Medicaid programs during the public health emergency. One of those was called the continuous enrollment coverage. And what that did is it really allowed the states to play a key role in supporting healthcare coverage for low-income recipients during COVID. Now that the public health emergency has ended, there's something that's commonly referred to as Medicaid unwinding. And what that means is those continuous enrollment coverage requirements are now lifted, and people are disenrolling for Medicaid. In 2024, we've seen about a 10% enrollment drop in Medicaid thus far. And because of that, these members are sometimes seeking other forms of coverage, and are sometimes becoming uninsured. When you see changes in the uninsured population, which we are seeing, we're seeing the uninsured rate increase right now, that results in more uncompensated care costs from providers. And these uncompensated care costs can pop up in other places. For example, when we see increases in provider uncompensated care costs, we can sometimes see pressure on the reimbursement rates paid by employers, which could increase the healthcare costs for employer-sponsored insurance plans going forward.

How might drug price negotiations impact commercial reimbursement and insurance?

Deana Bell: The report also highlighted the Medicare government program. So, Dave, how might the Inflation Reduction Act and the impact of Medicare doing drug price negotiations ripple through commercial reimbursement and insurance?

Dave Liner: Yeah, great question, Deana. So the government recently came out with its initial list of products identified for drug price negotiations. I find this to be a pretty impactful policy since this is the first time the federal government is negotiating directly with pharmaceutical manufacturers at this scale. And what you've seen historically is actions that happen through the federal government, mostly in the Medicare program, sometimes in other programs, often have a trickle-down effect to where you'll either see a converse effect in the commercial market, so for example a lower cost in Medicare might lead to higher costs, or reimbursement levels in the commercial side. Or it could be more of an echo, where you see the Medicare program take a certain approach, for example, with moving away from fee-for-service to value-based payment to providers and have certain aspects of the commercial market echo that and move to value-based as well. So the GLP-1 drugs were not included in this initial list of drug prices, but we do expect that at some point in the future some of the more popular drugs today could be included in that. And you'd have to ask how all the stakeholders involved would react during that time. It's really unclear, but that's the other main issue our report highlighted this year, is the interplay between what goes on within the federal government in terms of policy and their programs and how it affects the commercial market.

Deana Bell: Thank you. Now, Jason, potentially similar question to you. What's been at the top of your mind when it comes to GLP-1s and healthcare costs in Medicaid?

Jason Clarkson: So Medicaid programs are still grappling with how to cover GLP-1s and whether to cover the GLP-1 prescription drugs. Some states have started covering them for things like weight loss, and some states are still holding back and only covering them for type 2 diabetes indications. And, at the same time, there's pressure from advocacy groups and others to change that coverage. However, with that comes costs, and states are trying to grapple what to do with their budgets and with this coverage. At a time where, to be honest, states are facing a lot of budget pressure for Medicaid programs. We mentioned earlier that the public health emergency (PHE) ended, and I mentioned Medicaid unwinding efforts, but with that came a decrease in the enhanced federal funding that happened during the public health emergency. States just lost additional federal match of 6.2% of their Medicaid spend. And so that is a budget hole that a lot of them are looking to fill. And as they're, you know, really trying to tighten the spend on Medicaid, it's hard to at the same time open up the floodgate for these additional drugs that are fairly costly.

Deana Bell: Jason, also, our initial report was published in May of this year, but what's new, and what's happened since we've initially published the report?

Jason Clarkson: And so, as you mentioned, our report came out in May. The following month, in June, the Center for Medicaid and Medicare Services released what they call the National Health Expenditure Data. The last time that was released was in September of 2023, so it's been a little while since we've seen an update in this data from the Center of Medicare or Medicaid Services, which I'll just refer to as CMS. This data had projected healthcare costs from 2023 through 2032, so a nine-year projection period. And one of the things that CMS is saying in this new report is that they expect that the average growth in health expenditures will continue to outpace the growth in GDP through that time period. And because of that, the healthcare spending as a percentage of GDP is going to continue to rise from where it is today, which today it's a little over 17%, to where it is in 2032. And CMS is estimating that it could be close to 20% of GDP by 2032. Other things in this data that were notable is, when they updated the data, they had lower enrollment for Medicaid relative to the September 2023 forecast produced by CMS. That could mean that the Medicaid unwinding activities are happening faster than they originally anticipated, or it could mean that there's a bigger decrease in Medicaid enrollment after the public health emergency than was initially estimated. But, regardless, a bigger decrease in Medicaid could mean larger ripple effects to other market segments. Those could either be bigger ripples or faster ripples but, regardless, the impact of those people previously on Medicaid going either uninsured or to the employer market is likely going to be realized faster than we thought it would be at the time we were drafting our report in May because those enrollment numbers are coming in higher than was originally estimated.

A look ahead: Coverage decisions, funding rates and trends

Deana Bell: Excellent. So the same question to Dave. What in your area that you've been following, area of practice, what's new since we've published the report in May?

Dave Liner: I think we understand a little bit more what coverage decisions different employers and plans are making. And we've talked about coverage before, but I want to make an important point that we like to think about from the actuarial perspective. And that is, if you make a similar decision with respect to how you cover a GLP-1, the same decision in different markets or different ecosystems could lead to very different results. So, for example, if you choose to cover Ozempic for a weight loss indication, and many of your competitors do, or many other plans available to your population do, that'll have a different effect than if you were the only plan or one of a few plans to make the decision to cover that drug. So we're learning a little bit more about coverages and what plans are covering. It'll be very interesting as we approach open enrollment for the next calendar year, where we'll learn a lot more about the different approaches that plans are taking to covering these drugs. One other point too, Deana, just to add to what Jason had said, going back to the presidential election, we're starting to learn a little bit more about the policy positions of the candidates. And there were some new potential tax rates that the Harris/Walz platform were discussing. And I like to think back to the Warren Buffett quote in that it's not taxes that are really the concern. It's healthcare is the tapeworm of the American economy. And going back to the statistics that Jason cited, if that 17% of GDP goes up to 20% per the new projections, I would have to imagine that whatever administration in the future is in control, healthcare will continue to be an issue that we will have to address as a nation.

Deana Bell: Definitely. And I would love to hear your take on—we have open enrollment coming up, so employer-sponsored health plans are getting their ducks in a row with respect to decisions around any changes to their plan benefit designs, any changes to the employee portion of the contribution. And there's quite a bit of that inflationary pressure. How do you think this year might go for employer-sponsored health plans, in this case for open enrollment?

Dave Liner: It's a good question. I still think we are in a higher inflationary environment compared to where we've been historically. You could also look at the health benefits that employers are adding to their compensation packages to attract the talent in this current environment. I would also say you want to look at the long-term effects of some of these drugs, GLP-1s in particular. If you look at the average rate of employee turnover, it's between three or four years. And a lot of the benefits from these GLP-1 medications are long-term benefits. So I think part of what employers are trying to answer, not just the compensation package for this year, but will I retain these employees or this population long enough to fully realize the benefits, the long-term benefits of taking these drugs? So we're still at the very early stages of how the insurance landscape is evolving to cover this category of products. It'll be really interesting to see to what extent that long-term thinking and analysis goes into the decision making that employers are making. And we do see that there are different turnover rates by industry, so I'm going to be very curious as we see more information on open enrollment to see if there's a difference in how longer turnover—or higher-turnover industries cover these categories of drugs compared to industries that experience lower turnover in their workforce.

Deana Bell: I know with our own Milliman employee benefits, we're seeing the biggest funding rate increase in the last four to five years just due to—and, we're hearing from health plans, the 2023 to 2024 increase to healthcare utilization and cost has really popped up.

Dave Liner: Well, Deana, I think it is helpful to maybe talk about, say, the past five years, the arc that many employers went through as we… going back almost five years, we went through COVID. And what was very counterintuitive about COVID is that the costs were relatively flat or even decreased in some cases because, as it turned out, the amount of deferred and eliminated care was far more than the additional treatment and testing and vaccination for COVID. So you had employers going through COVID and thereafter looking at their experience, often seeing the experience get better if they're a self-insured plan and basically not have any rate increases for that year. And sometimes adding benefits as a result to say, wow, our claims experience is running quite well. And I think many employers saw multiple years of that with their coverage. Now you're seeing the deferred care coming back, and you're seeing now the GLP-1 drugs and other drugs be more of a concern in a higher inflationary environment. So during this five-year arc, right, the rate of inflation has increased quite a bit as well. So we're in a much higher inflationary environment coupled with looking forward at trend and really getting concerned about how high it could be. That's really interesting, especially coming off the heels of, again, what we went through during that COVID period.

Deana Bell: Indeed. And we've also seen quite a few published reports around those 2025 trend estimates being above 6%. And we've been hovering at a pretty stable point, again, with the weirdness of COVID suppression of utilization. But I think a lot of the estimates that are being put out there for the near-term future are higher than what we've seen in a really long time.

Dave Liner: Completely agreed. I think the shocker is coming off of a couple-year period of very low flat increases, it is a little bit more of a shock than the normal.

Deana Bell: So this continues to be challenging for families. They have high inflation they see at the grocery stores, gas and everything. And coming around to open enrollment, they're going to see it with—potentially in their own healthcare benefits and out-of-pocket costs and premiums, just because that's all coming to a head as well.

Dave Liner: It'll be interesting to see, Deana, because I believe even during that five-year period we discussed, the rate of adoption of high-deductible health plans has continued to increase. There hasn't been sort of a large pivot back to the low out-of-pocket cost HMO products that we had decades ago. And it'll be really interesting to see how families react in this environment where everything's more expensive. The costs of the grocery stores are much higher than they were just a couple of years ago. So now you're thinking of putting food on the table, putting gas in your car, or paying that $500 copay or $500 cost sharing for a medical procedure that maybe you could put off, maybe you shouldn't, the effects of that decision are more long-term. So you're going to start seeing families potentially make some of those hard decisions, and it's unclear how much that'll trickle down to the overall healthcare cost we're seeing.

Deana Bell: Got it. Thank you, Dave and Jason, for joining us. To read the MMI, please visit Milliman.com/MMI. You've been listening to Critical Point presented by Milliman. If you enjoyed this episode, rate us five stars on Apple Podcasts, or share this episode with your colleagues. We'll see you next time.