Employer-sponsored health insurance covers over half of the U.S. population, with employers of at least 50 full-time workers required by the Affordable Care Act to provide health insurance. However, recent class action lawsuits filed by workers against companies like Johnson & Johnson and Mayo Clinic have raised concerns about employers’ management of health benefits. These lawsuits allege breaches of fiduciary duties under ERISA, which requires employers to administer their plans solely in the interest of participants and beneficiaries.
With the Consolidated Appropriation Act of 2021 opening more channels for litigation against employers for breaching fiduciary duties, many employers are reconsidering their hands-off approach to purchasing healthcare. Employers often delegate the management of plan assets to insurers or third-party administrators, owned by insurers. While this can result in lower healthcare spending for employers and workers, insurers and administrators may not have incentives aligned with cost savings.
To address mismanagement risks and reduce legal challenges, employers, especially those with geographically concentrated workforces, are considering circumventing insurers and directly contracting with healthcare providers. Direct contracting can lead to lower costs, as cash prices are often cheaper than those negotiated by insurers. Companies like Boeing and Walmart are already engaging in direct contracting with hospitals and health systems, while platforms like Mishe are offering cash-price based networks for employers.
In addition to direct contracting with healthcare providers, employers are exploring opportunities for cash-based transactions in the prescription drug market. Direct-pay channels for generic drugs, like those offered by Mark Cuban Cost Plus Drug Company and Costco, often result in cheaper prices compared to insurer negotiations. Efforts from companies like Eli Lilly, Costco, and Sesame are also making weight-loss medications more affordable through cash transactions.
Legislative actions, such as codifying price transparency legislation, are needed to facilitate employer-provider direct contracting and stimulate price competition in the healthcare market. For example, Congress should consider implementing price transparency for hospitals, clinical labs, imaging centers, and ambulatory surgical centers. Lawmakers should also relax restrictions on HSAs, count eligible cash payments toward deductibles, and allow employers to exclude low-cost routine services from insurance coverage to reduce premiums.
Innovative efforts from employers and legislative actions from lawmakers are crucial for employers to fulfill their fiduciary duties and mitigate litigation risks. By promoting cash-based transactions, direct contracting, and price transparency, employers can play a vital role in bringing dynamism to the U.S. healthcare system and ultimately benefit American workers. As Shawn Gremminger from the National Alliance of Healthcare Purchaser Coalitions emphasized, employers are key players in reshaping the healthcare landscape, and with the right tools and policies, they can help improve healthcare affordability and accessibility for all.
