Rising health-care costs may be hitting businesses hard, but few companies are taking significant changes to stem the tide, even though options are available.
That’s what a crowd of business people heard at a recent health-care benefits forum presented in Brookfield by the Independent Business Association of Wisconsin.
Even in the face of escalating health-care and insurance costs, employers are reluctant to make changes to benefits programs that could stave off cost increases, said Steven Miller, president of the Milwaukee firm BeneCo of Wisconsin who spoke at the forum.
A variety of factors is driving the cost increases, noted Jim Mueller, president of the insurance employee benefits division of Frank F. Haack & Associates of Wauwatosa.
According to Mueller, who also spoke at the event, the costs of health benefits are climbing due to market factors such as consolidation of medical-care providers and managed-care providers, increased prescription costs due in part to advertising to the consumer, addition of new technology, the aging of the population, and other factors.
Consolidation among insurance companies and medical-care providers is taking place for different reasons, according to Mueller. But in both cases, it’s not friendly for people paying for those services.
“On the insurance company side, they are happening for a few reasons. The business as an industry has not been profitable,” Mueller said. “There are two strategies: an exit strategy which means a sale, or an acquisition strategy, where because of less competition you can make money. Lack of profitability has led to these two strategies. But at the end of the day, less choice is good from a shareholder’s standpoint, but not good from a consumer’s standpoint. The few remaining players can determine what margin they would like.”
Mueller feels that consolidation among health-care providers has been more nefarious and purposeful.
“On the provider side, that has been strategic and with purpose,” Mueller said. “Again, with consolidation, you are able to determine pricing through diminished competition and therefore engage in contractual agreements that allow you to determine your financial destiny. Providers have accomplished, geographically, a fair amount of control by contracting or forming strong alliances. Insurance companies are frustrated because they are paying more for their services, which is then paid for by employers and employees.”
But other factors are driving cost increases as well, according to Mueller. Prescription costs in particular are “growing and compounding at 18 to 20 percent. Why? Direct-to-consumer advertising, more drugs in lieu of surgery, and other medical interventions and more demand in general.”
Advancements in technology, while desirable, are also leading to cost increases, which is an uncharacteristic aspect of technological advancement, according to Mueller.
“Technology is a major driver,” Mueller said. “GE Medical and other firms continue to create wonderful aids to save lives and stamp out illness. However, there is a cost for that. Generally speaking – and I think this is a rule – any time businesses invest in technology, there is a savings in either the near short term or intermediate term. In health care, it is only additional cost. And when the hospital buys the machine and six months later there is a new model, which model do you want? Do you want to go to a hospital with the six-month-old model or the new-and-improved model? I know what I’d want. But that is a very expensive model. Imagine replacing your technology every six to 12 months. You might go out of business.”
The Internet, too, has impacted the cost of medical care, as, according to Mueller, a better-informed patient can cost more to deal with.
“Think of someone recently who was ill in your family – or a friend,” Mueller said. “Did you go to the Internet to seek information for that cancerous situation – or any other disease you can think of? What did you do with that information? Did you take it to your doctor and say – what about what they’re doing at Duke University … well here’s the problem. Think of the olden days – two years ago – you went to your doctor’s office and he spent anywhere from one to four minutes per room going around in that circle. Your doctor enters the hospital and he or she is sticking their head in rooms about every 120 seconds. Now think of the consulting time while you’re sitting down there with your printouts. We’re getting ourselves into real trouble because doctors’ practices are not built to have them sit down while you say ‘here’s what Duke’s doing …’.”
Tied to the tracks
And as health-care costs go up and competition among benefits and care providers decreases, benefit costs are going up as a result, a factor that causes stress to employers.
Miller likened the predicament of many employers to a person tied to railroad tracks. “You’re roped to the track and you’re trying to figure out how you’re going to get off there,” he said. “Well, what are you doing to get off of the tracks? According to Deloitte & Touche, fewer than one in five employers are considering any drastic changes in the way they purchase health-care benefits.”
Miller said the tight labor market, and the effect of benefits on employee retention and recruitment, have many employers concerned. But in many cases, existing employees may not appreciate the cost of the benefits being provided them. And benefits managers need to change that.
“In many cases, there is a real reluctance on the employers’ part to tell the employees the true cost of their benefits,” Miller said. “And there is also employee resistance to change. Nobody likes change. Everybody likes the status quo. Think about that conversation you’ve had with that key management group, explaining to them that you’re going to be implementing a higher deductible, higher co-insurance and you’re going to be asking for a higher contribution. There is a tendency to lean away from that.”
Yet, Miller and other experts feel that those are exactly the type of steps that many businesses will have to take to prevent shouldering the burden of greater health care and insurance costs.
Miller stated that only 44% of employers have moved toward higher employee contributions or cheaper health plans – or opted for fewer plan choices in the battle to control costs. Many employers will continue to face increased costs because they are opting for plan design changes as their primary strategy.
“Most people haven’t changed their contribution strategies all that much,” he said.
Control factors
According to Miller, employers in fact have several variables they can control that can help them get a handle on health-care coverage costs:
Of course, some things are not under employer control.
“Carrier instability – you don’t have any control over that. Medical underwriting – those of you who have gone through that process know – it’s really horrific. You’re asking all your employees to give out all that detailed information. What happens is that information goes in, information comes back – and it boosts your rate right up,” Miller said. “Although the IBA has some influence over federal law, most of the time you have to think about changes in law – you have a mandate for this, a mandate for that, and in the end you don’t have as much influence as you might think. And you obviously don’t control your employees’ poor health choices. The employee that’s overweight. The employee that smokes.”
And according to Miller, despite the escalating costs of medical care, employees are not getting healthier, which contributes further to increasing coverage costs.
“I recently heard a report from the Centers for Disease Control that we are not winning the battle on obesity,” he said. “We are not winning the battle on diabetes. Our technology is increasing … but our employees are not getting healthier.”
In the face of that predicament, Miller stated that consultancies such as his need to work with employers on identifying factors leading to increased cost. Some areas of cost increases are hard to control due to governmental mandates, he said. However, by altering co-insurance, deductibles, prescription drug co-pays and other factors, Miller presented case studies that would help employers reduce expenses for a number of typical medical coverage plans.
Point of service
Under the point-of-service managed-care option, plan members each select a participating primary care physician to coordinate their health care. Referred, in-network care is fully covered, and members are responsible for a co-payment for each visit.
“Some health-care costs are increasing faster than others. The part that is increasing highest is inpatient or outpatient surgery,” Miller said. “Under a point-of-service plan, employees that incur charges in this area are going to have to pay more of the cost for the plan. If you are an employer group of 35-40, typically 10% of employees are incurring 90% of the costs of the plan. Increased cost comes into play when they are admitted as inpatients. Under point-of-service, they would have to pay 20% of charges up to a particular ceiling.
“Savings are realized by employees who keep themselves reasonably healthy and who go to the doctor for periodic examinations. Those employees would see increased costs because in the past, they may have paid 10%, but would now pay 20-30 percent of the cost for their office encounters. But all diagnostics – lab work, x-rays – would be paid at 100%.”
Miller demonstrated that by decreasing the co-insurance and prescription drug benefits, increasing the ceiling on out-of-pocket expenses and making other changes, savings of 16% could be realized over a model plan.
Preferred provider
A preferred provider organization is a group of health-care professionals and/or hospitals that contract with an employer, insurance company or third-party payer to provide medical care to a group. Unlike managed care, the services offered are not prepaid or fixed. There is typically more choice in a preferred provider network than in a health
April 13, 2001 Small Business Times
