Confronting Rising Health Care Costs, Employers Look For Alternatives

Health care costs will likely rise again for 2006, pushing many employers to find alternatives to reduce their ever-rising budgets for employment-based health care. The choices for employers who continue to offer health benefits are basically two: either deal with higher health care benefit costs or adopt new and innovative plan designs.

Predictions as to the 2006 increase in benefit costs vary. Premiums in 2005 increased an average of 9.2 percent compared with 11.2 percent in 2004, marking the second consecutive year of a slower rise in premiums, according to a nationwide survey of employers by United Benefit Advisors (UBA). A Towers Perrin survey estimates that costs will rise 8 percent in 2006, while UBA expects an average increase of 12.2 percent. Hewitt Associates projects premiums to rise less than 10 percent for large employers.

To combat the mounting price tag, employers and health care providers are giving serious consideration to consumer-driven health plans. UBA found more than one-third of all employers offering two or more plan options. A Kaiser Family Foundation survey reported 2.4 million workers are now covered by a consumer-directed health plan. Some are finding that offering these types of plans is not enough; they must go further to reduce the costs.

Watson Wyatt Worldwide sees six major trends for larger employers.

• No more co-pays and more co-insurance deductibles. Employers will design their health benefits to emphasize first-dollar cost sharing. Thus, for many, the typical $15-$25 co-payment will become a thing of the past, replaced by little or no pre-deductible benefit, followed by a percentage cost share (e.g., 80-20).
• New cost arrangements for prescription drug benefits. Employers are ditching prescription drug benefit plans that offer first-dollar co-payments for generic and brand-name drugs and replacing them with plans featuring co-insurance and deductibles. While some employers are continuing with co-pays, they are increasing co-pays by approximately $5 for brand-name drugs with generic drugs remaining the same.
• High-deductible health plans (HDHPs)/personal health care accounts growing. Employers will move toward plans that involve employees in the health care decision-making, including HDHPs bundled with Health Savings Accounts (HSAs).
• More health risk assessments with financial incentives. Employers are offering financial incentives to employees who complete a health risk assessment and participate in a wellness program, encouraging employees to instill a healthy lifestyle.
• Greater access to online, decision-making tools. Many employers have a goal to make employees more responsible for health care decisions. To gain this foothold, employers are providing tools, available online, to help employees make informed choices.
• New drug choices for older workers and retirees. Some employers may change their program options depending on whether they take a federal subsidy available through the new Medicare Part D prescription program that takes effect on January 1, 2006.

This shift in how employer-sponsored benefits plans are structured has led to recognition of the importance of employee’s knowledge about health care decisions. Employees must graduate from mere health care beneficiaries to health care consumers. An important aspect to this change is educating employees and encouraging changes in spending habits.

Ideally, an employer should begin an educational campaign six to nine months prior to open enrollment, centering on health care costs, wellness and disease management. As open enrollment approaches, employers should focus on specific plan features that promote plan savings and offer advantages.

Communication is key. To improve understanding, employees need clear and specific information on the reasons for rising health care costs. Employers should disclose how much they are paying for health care coverage.

Infinisource, Inc. is well prepared to assist employers with these issues and propose cost-saving measures with consumer-driven accounts. For more information, please visit our website www.benefitsolved.com or call 800-779-6384.

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