Focus on Rising Health Care Costs
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Recent reports by major HR consulting firms Aon Consulting and Hewitt Associates concur that employer health plans will see double-digit cost increases in 2006.
According to the Hewitt study, initial HMO rates
are up 17.7 percent, continuing a five-year trend of double-digit health care cost increases.
Aon forecasts that health plan rates will
rise 16.4 percent for HMOs, 16.1 percent for POS plans, 15.7 percent for PPO plans and
17.2 percent for indemnity plans. These increases are generally higher in groups with
less than 100 employees.
These increases are approximately eight times the annual general inflation rate of 2.1 percent.
Interestingly, health plan trend rates now vary little by plan type. In the past, HMO and POS trend rates were several percentage points lower than PPO and indemnity trend rates.
Moreover, according to a 2005 survey by The Bureau of National Affairs, soaring health care expenses have impacted all industry sections. Roughly the same proportion of responding manufacturers (51 percent), nonmanufacturing companies (45 percent) and "nonbusiness" establishments (53 percent) reported a "great increase" in health care expenditures within the past year.
"The good news," said Ken Sperling of Hewitt, "is that the current increase, being less than last year’s increase of 21 percent, may signal the moderation of health care increases over the next few years."
However, although the rate of health care cost increases may be slowing somewhat, no one is suggesting that it will return to the single-digit range any time soon.
Factors Behind Rising Costs
In a 2004 study, The Factors Fueling Rising Healthcare Costs, PricewaterhouseCoopers analyzed the component costs of the overall healthcare cost increases between 2001 and 2002.
Beyond general inflation, the study
found that increased consumer demand (including "front page" treatments driven by media
coverage), drugs, medical devices and other medical advances were behind nearly half
the increase. The other half was driven largely by litigation (including class action
lawsuits, outsized awards and legal costs), mandates (there are over 1,500 existing
mandates at the state and federal level), rising provider expenses as well as fraud
and abuse.
Cost-Sharing Strategies
According to the BNA 2004 survey, employers continue to launch a myriad of health care cost-containment initiatives. "Cost-sharing strategies predominate—two out of three firms reported recent or imminent efforts to raise employees’ premium contributions or deductibles. Changes in health care plans, providers or insurance carriers were pursued by about three out of ten companies, and nearly as many firms sought to institute or bolster generic drug requirements."
Bill Sharon of Aon echoed this analysis. "Faced with rising expenses, we expect companies to increase co-pays and premiums for employees. In addition, we expect employers to continue to explore a range of new options such as consumer-driven health plans, disease management programs, tiered hospital networks, pharmacy coalitions and health promotion incentives."
The Hewitt analysis agreed that as health care costs continue to escalate, organizations are making plan design changes and sharing more of the cost with employees. For example, the number of companies with a $15 office co-pay increased significantly from 24 percent in 2002 to 43 percent in 2003. At the same time, employers offering $10 office co-pays dropped from 58 percent in 2002 to 39 percent in 2003.
Specialty care office visit co-pays continue to rise, with 40 percent of companies using a $15 co-pay, up from 25 percent in 2004. A few companies (12 percent) are introducing a $20 co-pay. More than half (55 percent) of organizations use a $50 co-pay for emergency room visits, while 16 percent use a co-pay of more than $50, doubling from just 7 percent in 2003.
Generic Drug Requirements
The Hewitt study also noted that employees are being asked to pay more for prescription drugs. The BNA survey agreed: 28% of surveyed HR executives reported new or forthcoming generic drug requirement. New or tighter restrictions on reimbursement for name-brand drugs are also widespread.
Other Strategies
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Dependent coverage has been targeted by a number of firms to be eliminated.
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Tiered copayment structures for prescription drugs have captured the attention of quite a few employers.
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Wellness programs and education have been instituted by some organizations to help bring down health care expenses.
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Strength in Numbers—some companies have sought alliances with other organizations, or use professional employer organizations, such as Extensis, to help manage health care cost increases.
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Benefits Cuts—a few employers have simply cut some benefits from their packages.
Future Outlook
Continued increases in the ‘teens to low twenties remain unaffordable for the majority of employers," noted the Hewitt study. "We expect companies to continue making aggressive plan design and employee contribution changes in the future." This view is shared by Aon, "Companies will, in the coming months, need to make some serious decisions about the design of the health plans they intend to offer employees in 2006."
Extensis Benefit
By leveraging our healthcare partnerships, Extensis assists our clients manage rising health care costs. For more information on how we can help your company, contact Extensis Human Resources at (888)473-6398, or email us by clicking here.