Thursday, July 24, 2008

Health Care and Shared Costs for Employees

Next year, over a third of employers plan to increase cost sharing in their medical plans according to a report issued by PricewaterhouseCoopers. That means that workers will have to pay more for health care than they have been, and companies will be taking less of the risk and expense. Yahoo News reported Health care costs are expected to rise more than 10% into 2009, according to a survey of insurers done by Aon Consulting Worldwide; and that increase is the smallest Aon has seen in six years. Experts say it shows that efforts to tame costs, such as employee wellness or disease management programs, may be paying off. Actuaries expect costs to rise an average of 10.6% during 12-month rating periods starting this year between April and September.

But the percentage likely won't be what the average employee faces for a premium hike next year according to the Yahoo News article. It doesn't reflect insurance plan designs or changes an employer might make to benefits plans. Many employers have started researching their benefit options for 2009, and some consultants say it's too early for predictions on next year's health care plan costs. Costs are still rising to keep up with growing patient demand for services, the needs of an aging population and prescription drug and technology costs, according to Aon Consulting. Overuse and misuse of services and an "out-of-control medical liability system" also contribute to increases. Additionally, health insurers have offered disease management programs and encouraged the use of cheaper generic drugs to help contain costs. Doctors, hospitals and employers all have worked to curb costs. But costs are continuing to increase.

The Seattle Times this month reported findings from a study done by AARP. Workers may have to contribute more to keep their health-insurance coverage. Among the findings:
1.) Cost sharing: Nearly half of the companies said they now pay 100 percent of the insurance premiums. An additional 26% pick up at least three-quarters of the costs, and 12% cover at least 51% of the premiums.
2.) Coping plan: If current cost trends continue, 29% of the employers said, it's extremely or very likely they will raise workers' share of premiums in the next three years. Twenty-five percent said they will increase deductibles.
3.) Terminating coverage: If health-care costs were to rise 10% above current levels, 14% of firms said they would drop health coverage. If costs rose 15% higher, 27% would do so. If costs rose 25%, four in 10 employers said they would stop providing coverage.

AARP found that employers' rising health-care costs are threatening thousands of workers with an even steeper toll -- the loss of any employer health coverage. Two-thirds of the employers surveyed said that if trends continue, they plan to pass along higher costs by upping employees' share of premiums, deductibles or co-payments -- or all three -- in the next three years. Many American workers are oblivious to the true cost of health care "because they're not paying the bill." However, one solution may be for employers to subsidize workers so that they can purchase coverage for themselves. One of these ways is through HRAs. Health Reimbursement Accounts can help workers pay for some health care treatments that can reduce the cost of health insurance. Any change must be comprehensive to work. It would require Americans to wean themselves from expensive medical technologies and take more responsibility for their health.

Businesses still battling health-care costs, though, according to the Central New York Business Journal. As reported by InsuranceNewsNet, it's no secret that increasing health-insurance premiums are one of the biggest cost drivers for small businesses. They feel that they are at a disadvantage compared to larger counterparts when it comes to access to coverage. A NASE (National Association of Self Employed) study indicated that of the more than 46% of responding businesses offering health insurance, only 18% offer coverage for full-time employees. The self-employed indicates more that 65% cite cost as the single most significant barrier to offering health insurance to employees.

The Business Journal also indicated that one of the factors expected to help drive medical cost increases in 2009 is the health-care industry is in an era of booming construction to replace facilities and adjust to consumer demands, such as a preference for private hospital rooms and a move to outpatient venues, as reported by Mercer Consulting. Use of generic drugs instead of brand names could save billions of dollars, if patients would learn to ask their doctors about those drugs. Employers should focus on helping workers with reducing waistlines and cutting the smoking rates. Furthermore, employers need to rely on prevention and disease-management programs to hold down cost increases in 2009, rather than shifting higher levels of cost-sharing onto workers.

The consulting services company Hewitt has reported that as the economy continues to weaken, and because salary increases are expected to remain similar to last year, employers are becoming increasingly sensitive to the effect higher health care costs have on employee take-home pay and payroll deductions. As a result, more companies move away from traditional employer strategies—such as employee cost-shifting—toward more aggressive and innovative steps that not only help mitigate health care costs, but also keep more money in employees' pockets. Employers must continue to take aggressive steps in 2009 to mitigate the impact of high premium increases on their health care budgets.

Steps to accomplish this goal are:
--Consolidating Vendors and Moving to Self-Insured Plans: this creates more purchasing power and leverage through the negotiation process and typically results in more realistic assumptions around such factors as overhead and risk margins, while also reducing overall cost by having a smaller number of health plans to manage. Also, they are consolidating plan participants under self-insured arrangements where they assume the full financial risk for medical claim costs and pay the health plan an administrative fee for services such as claims processing and provider network management.
--Increasing Focus on Improving Employee Health: employer interest in building employee knowledge and ownership for managing their health continues to grow. Most employers believe that keeping employees healthy has a direct impact on controlling health care costs, maintaining high levels of productivity and mitigating absences. Health- and wellness-related programs that address the spectrum of health risk from the healthy to the chronically ill—including health risk assessments, disease management programs, nurse help lines, and smoking cessation and weight management programs—are the most widely offered; however, emerging strategies such as value-based health plan designs and biometric screenings are rapidly gaining interest among employers.
--Aggressively Negotiating With Health Plans: employers are also holding their health plans accountable for delivering on specific program measures, including participation levels, clinical outcomes, reductions in claim costs, and member satisfaction levels. Companies are coming to the negotiation table well-informed and ready to articulate their requirements.
--Shifting Costs to Dependents: as employers struggle with making their health care budget dollars stretch further in an environment of continued high costs, some are beginning to cost-shift a portion of their dependent subsidy dollars to employees. This is taking many forms, whether through increased payroll contributions for dependent health care coverage or by applying surcharges to encourage dependent spouses to take coverage under their own employer's plans.

As prices for health care continue to rise, including insurance premiums and medical treatments, employers are seeking multiple ways to afford insuring workers. Creative options must be considered in order for employees to survive the health care marketplace.

Until next time. Let me know what you think.

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