Many employers are struggling to understand new requirements aimed at making healthcare costs more transparent. Here's how your organization can plan accordingly.

Authors: Tom Belmont Jr. Seth Friedman Sally Wineman


Challenges remain for achieving true healthcare cost transparency, but two developments coincide in an interesting way: Crossover timing of inflationary pressure on prices and access to data on individual costs offers some promise for improved healthcare consumerism.

In late December 2021, the Centers for Medicare & Medicaid Services (CMS) issued instructions for reporting prescription drug and other healthcare spending costs, as required under the Consolidated Appropriations Act (CAA), 2021. Plans and issuers in the group and individual markets, including fully insured and self-insured group health plans, must comply annually. They're accountable for submitting machine-readable files to a public website that provide required information on spending, premiums and enrollment.

The intent of the final transparency regulations is to demystify spending decisions. Consumers gain access to information on the cost of prescription drugs and healthcare services before — not after — they purchase or receive them. Key requirements for plans and issuers are providing personalized cost-sharing information and ensuring other information on costs is publicly available.

Transparency improvements brought about by the CAA that elicit the most confidence among employers include employee communication and educational or decision-support tools (18%), and negotiated rates between the plan or insurer and in-network providers for all covered items and services (14%). They're less certain about the potential impact of publicly available prescription drug cost information (7%) and personalized cost-sharing information (5%). Doubt was also fairly prevalent about historical payments to, and billed charges from, out-of-network providers (2%).1

Reliance on vendors for data and reporting

Responsibility and liability for compliance rests with the group health plan. But carriers, pharmacy benefit managers (PBMs) or third-party administrators (TPAs) are largely expected to act as the reporting entity on behalf of employers. Detailed data access requirements and administrative needs apply whether the plan is fully insured or self-insured.

Involvement levels of carriers vary, ranging from meeting legislative requirements to evaluating and proposing more comprehensive approaches to transparency. Most likely, fulfilling requirements for reporting will be offered as an additional paid service. Employers may benefit from reviewing and comparing how different carriers, PBMs and TPAs address available options.

When working with a carrier, pharmacy benefit manager or third-party administrator, it’s important to clarify the information they need and related timelines, and to document responsibilities and agreements.

When working with a carrier, PBM or TPA, it's important to clarify the information they need and related timelines, and to document responsibilities and agreements. Only the entity that directly submits plan information to the designated departments of the federal government retains access, including the employer. A potential workaround for this restriction could be assigning specific duties to different vendors. For instance, the PBM may upload data on the 50 most costly drugs while the TPA reports on spending by category.

Rules for accessing submitted data may prevent employers from ensuring that a reporting entity uploaded the required information. For verification, they'll want to consult with their vendor or vendors to identify parties who are responsible for transferring plan information to the Health Insurance and Operating System run by the U.S. Department of Health & Human Services (HHS). This record-keeping process applies not only to confirmation that data has been uploaded as required, but also to cost-information data files and vendor charges for these services.2

The impact of fluid timelines on information release

The final transparency regulations include an obligation for group medical plans and health insurance issuers to provide three machine-readable files on internet websites, with detailed pricing data. For all covered items and services, negotiated rates between the plan or insurer and in-network providers are kept in a designated file. A separate file dedicated to allowed amounts includes historical payments to, and billed charges from, out-of-network providers. And the prescription drug file contains in-network negotiated rates and historical net prices for all covered prescription drugs — by plan or insurer at the pharmacy location level.

Timeline reporting rules may be a hindrance because they're administratively burdensome, complicating efforts by carriers to proactively inform employers. The reporting has also been delayed pending further guidance, which limits the ability to prepare in advance for the next rule by restricting foresight into what lies further ahead. Yet half of employers describe the level of information their health plan, PBM or TPA has provided to the organization about the CAA transparency requirements as minimal. For the other half, the level of detail was about right.1

During the spring of 2022, carriers started to roll out details on how they planned to help employers meet the July requirements for posting machine-readable files on a publicly accessible website, including information about their approach and what employers needed to provide. As 2023 draws closer, regulations for a majority of the provisions implemented in good faith will likely be in progress. This includes identification cards (IDs) and timely provider directory updates as set forth by the No Surprises Act, passed in 2020 and effective in January 2022.

Because they're generally more prepared to provide a machine-readable file, PBMs have communicated about their efforts since last year, both for compliance and to establish a market position for their offering with clients. However, the CAA delayed prescription drug reporting by one year, which is now set to begin in December. These drugs aren't on the list of 500 services that must be included beginning in 2023, but the requirement applies beginning in 2024 when information must be provided for all covered services.

Clear potential but clouded expectations

While the goal is enhanced transparency, potential outcomes are more opaque. Prescription drug reporting is notoriously secretive. Yet providing data on drug spending to Congress does have the potential to impact future policy, because it introduces requirements for price transparency on net fees at a national drug code (NDC) level, including rebates. However, there's no standard definition for a rebate, leaving it open to interpretation and possibly causing confusion about proper NDC reconciliation.

Utility of data is highly contingent upon the appropriate use of communication methods. And how the CAA will aggregate and display data on drug spending remains unclear. The outcomes of this legislation are unlikely to provide a clean net-net cost perspective, which would drive more transparency in the pharmaceutical supply chain and lower costs at the individual prescription level. Questions still surround the accuracy of plan data submitted for health systems comparisons, too.

The effect of inflation on consumer use of individual cost data

As prices rise on all sorts of essential goods and services under the influence of inflation, demands for information on how to avoid or minimize cost hikes are also likely to increase. Consequently, the intersection of the CAA's implementation with a 40-year high in the consumer price index could be fortuitous. People may be more motivated to seek healthcare information that enhances their individual buying power.

Many employers think that personalized cost-sharing information — one of the requirements under CAA regulations — has the potential for near-term impact on employee healthcare purchasing behaviors once implemented. But overall sentiment leans toward a small (53%) or moderate (24%) effect.1

Expected effect of CAA rules on employee healthcare spending: small = 53%; moderate = 24%; significant = 3%

Estimated cost-sharing liability information and advance explanation of benefits are among the requirements. They approximate the total amount an individual would be responsible for paying under the terms of their healthcare plan including deductibles, coinsurance and copayments. Costs are based on actual rates and allowed amounts, and factors such as individual limits on cost sharing or cumulative treatments.3 The amounts disclosed must include both cost-sharing stipulated by the plan and costs an individual has already incurred.

Employees will be able to preview estimated out-of-pocket costs for 500 healthcare items and services. Before receiving care, they'll have access to price comparison tools for plan coverage — either online or on paper — to help them select a plan or provider that's the right fit.

Price transparency will likely benefit employees more than employers. As comparative information helps to guide healthcare decisions that lower costs for plan members, the value of consumerism is reinforced — which is a better understanding of choices and costs. When they're clearly informed, employees may not elect the least expensive option.

Visibility into comparative healthcare data can go a long way toward motivating consumerism, but employers and carriers play a pivotal role. Communicating with employees about the availability of information, and educating them on the best use of services and tools before they need them, more fully enables the achievement of this goal.

Learn about the latest trends in compensation, benefits, healthcare consumerism and more, to help you run a thriving organization in a volatile economic climate. Download the Q3 issue of Gallagher Better WorksSM Insights.

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