Hit by a recession and double-digit increases in health care costs, employers are taking aggressive steps to control their medical spending. Consumers are being asked to pay more for their medical care and take more responsibility for their care.
New health plans require employees to pay for in-office doctor visits, as well as increased co-pays and deductibles, making routine office visits appear more expensive than they’ve been in the past.
Most workers haven’t seen dramatic increases yet, because many companies locked in insurance rates for 2002 last summer, when a quick economic recovery seemed more likely. But more will feel the pain in 2003, industry analysts believe.
Health Care Inflation Returns
Health costs will rise nearly 13 percent on average, the fastest clip in a decade, and up from about 11 percent in 2001, according to a recent nationwide survey of 2,800 employers by benefits consultant William M. Mercer. By contrast, consumer prices generally increased at an annual rate of 1.9 percent in 2001 and are expected to remain stable in 2002.
According to a survey by Hewitt Associates, half of the 700 organizations surveyed across the United States said that over the next five years, the maximum added annual cost they can absorb for health care benefits is 8 percent.
Worse still, health insurance agents and brokers in the field say the 13 percent figure cited by Mercer does not reflect the entire health insurance market. That figure, they say, is from large corporations with deep pockets who can absorb some of the inflation.
Members of the National Association of Health Underwriters (NAHU), at a Washington conference held February 2-5, said their individual and small group insurance clients are being hammered with up to 30 percent increases.
In New York, the fallout from the September 11 attack includes smaller employers seeing health care cost increases of 25 percent or more, and larger organizations seeing increases of at least 15 percent.
Companies are trying to contain expenses through cost-sharing and plan design changes. But without a magic bullet—like managed care in the early 1990s—the gap between the rising costs and what companies can afford has many companies seeking alternative options to the traditional approach for employee health benefits.
Why Costs Are Rising
Fueling the inflation in health care costs are the combined effects of unfunded state and federal government regulations on insurers, such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA); state patient’s rights laws that are unraveling the cost-control efforts of HMOs and PPOs; increased consumption of non-generic prescription drugs; increasing demands for long-term care by an aging population; and physicians who have regained some pricing leverage with health plans.
The rising cost of medical care is trickling down to workers in the form of higher premium contributions and other costs, such as larger deductible amounts before insurance coverage kicks in, and larger co-payments at each doctor visit and on each prescription filled. Higher health insurance costs to employers also mean smaller wage increases or even lay-offs.
During the days when unemployment was at historic lows and the economy at full tilt, U.S. companies were eager to attract and keep their best workers by absorbing much of the impact of higher medical costs. Today, facing shrinking profits and an upward trend of operating costs, employers look to shift more of the responsibility to their employees, health care industry experts say.
MSA-Style Options
Employees will be asked to take a greater role in managing their own medical expenses under so-called consumer-directed initiatives that give workers more choices of plans and options as an incentive to keep costs under control.
One new plan targeted to younger and healthier workers provides basic preventive care and catastrophic coverage at a lower monthly premium, but with relatively high deductibles. More employers are looking at multi-tiered co-payments and deductibles for prescription drugs, doctor office visits, and hospital stays.
Dr. Jonathan Lord, chief clinical strategy officer for Humana Inc., one of the insurers testing several new plan designs, suggests, “The more engaged people are in choosing their benefits, the more I believe they will have confidence in their health plan.”
Abbott Laboratories Inc., a maker of hospital products and pharmaceuticals, is including some 40 health plan offerings next year in a pilot plan with a flexible spending account of $1,000 for singles and $2,000 for families.
The new twist is in how Abbott employees can spend the money on health care not traditionally covered by insurance, such as laser eye surgery. As is common with medical savings accounts, any leftover funds can be carried over to the next year and accumulated for future health care needs.
General Motors Corporation, the nation’s largest private purchaser of health insurance, is actively encouraging its workers to select generic drugs. GM rates its health plan providers by how well they are controlling costs and whether their health providers offer a high level of quality of care. Employees are given a “report card” on its health plan providers so they can compare providers and choose the one best suited to their needs.
Also expected to grow in popularity are programs assisting employees in managing chronic health problems such as diabetes, arthritis, and obesity.
Free-Market Solutions
According to the insurance professionals at NAHU, the current premium inflation trend presents an opportunity for government to expand the use of market-oriented options. Agents and brokers say there is a surge of interest in Medical Savings Accounts, tax credits, and defined contribution plans.
Given the recent extension of the enrollment period, MSAs offer individuals and small group employers hard hit by premium increases an opportunity to buy affordable health insurance. To date, the MSA option has helped thousands of Americans gain affordable, portable tax-favored insurance coverage.
NAHU was quick to support tax credits as a market-based opportunity to buy MSAs or other health plans in the private market, noting the credits offer immediate assistance to the uninsured and under-insured. Tax credits also create a fair system that ensures progress toward the goal of universal coverage through incentives rather than government mandates.
Defined contribution (DC) also offers a new direction in health care coverage. As premium inflation continues, DC plans are being implemented by an increasing number of employers large and small. Some NAHU agents and brokers say the traditional employer health benefit remains intact, while the employee savings in premium cost can be as much as 25 percent.
The added bonus in the DC approach is that employees, not their employers, choose the plan that best suits their individual and family needs.
