Avoiding rising health care costs is nearly impossible, but you can learn why they continue to rise and what you can do to minimize the fallout for your organization and your employees. This presentation outlines the latest health care cost figures, the factors contributing to these rate hikes and some solutions that firms around the United States are undertaking to help soften the blow.
This slide depicts the percent change in average annual health care cost increases from 2004 to 2012. The overall cost of health care has a direct impact on the rates employers pay for employee health benefits. Even though the rate of growth is projected to slow a bit in 2012, 7 percent growth is still substantial, and undoubtedly difficult for employers to handle.
This slide shows the average total health benefit costs for each active employee for the years 2005 to 2012. This spiking costs have prompted many employers to pass more costs to employees. In 2011 employees paid an annual average of $2,084 for their health benefits (21.3 percent of the total cost of coverage) and that number is projected to rise to $2,306 in 2012 (22 percent of total coverage).
As costs have dramatically increased over the past decade, various factors have contributed over the years.
The 2011 Hewitt Health Value Initiative Survey identified a couple specific issues that have contributed to the current increase.
The pressure of spiking health care costs paired with already tight budgets is prompting many employers to be more proactive in their strategies and programs to reduce health care costs. Here are some of the top strategies employers are using to manage their health care costs.
A Hewitt Associates’ health care survey found that employers’ top strategy for managing health care costs is using health care data and measurement to drive health care strategy and decision-making.
Health and wellness initiatives have become another popular health care cost management strategy in recent years, and remain one of employers’ top cost containment strategies – these are some trends seen among employers.
Many companies are choosing to pass more health care costs to their employees and/or structure their health plan in a way that incentivizes lower-cost options. Here are some of the strategies used.
Should you pass costs on to employees at the risk of losing some of them? Or, should you try to manage costs in some of the other ways discussed in this presentation? Ultimately, it is a decision that you need to come to through thoughtful and detailed analysis of your plans and with the advice of your broker-consultant. This slide provides some questions that your organization can address in order to begin developing an effective strategy.
Prescription drugs are a good component for employers to target, with a variety of available strategies that can contribute to overall health care cost management.
Health care costs and health benefit costs continue to increase at exceptionally high rates from year after year. You want to continue to offer valuable health benefits to your current and future employees, and you want those benefits to help you attract and retain good employees. However, you also need to consider the cost-effectiveness of those benefits at a time when hefty rate hikes are the norm, rather than the exception. The information contained in this presentation is designed to help you understand why your renewal rates may have increased, and to consequently help you educate your employees about the reasons for any plan or contribution changes you may have to make. If your employees understand current trends in the health care industry, they will be more supportive of any such changes and will appreciate the resources required to provide them with their health care benefits.
Increasing Health Care Costs and Your Employee Health PlanPresented by: Alford, Staples, Lapeyre, & Robichaux
Health Care Costs Continue Climbing • Health care costs have been increasing at an alarming rate for over a decade. • Average health care costs increased 7.5 percent in 2010 (up from 6.9 percent the year before). • Following years of growth, the rate of increase is projected to slow for 2012, to 7 percent.
National TrendsAnnual Health Care Cost Increases, National Averages 2004-2012Source: Hewitt Health Value Initiative™, 2011
National TrendsAnnual Health Care Costs Per Employee, National Averages 2005-2012Source: Hewitt Health Value Initiative™, 2011
Contributors to Rising CostsSeveral factors have led to the climbing health care costsover the past decade, including: • Demographics • Expansion of health care providers • Consolidation of managed care companies • Political environment/government regulation • Increased utilization and consumer demand • New medical technology • Weakening of managed care system • Health care spending and medical cost inflation • Increased prescription drug costs
Contributors to Rising Costs Contributors to the current projected spike in health care costs: •An aging population and workforce •Poor general health among employees
Contributors to Rising Costs• Aging workforce o Population is aging o Slower hiring levels have lead to older workforces o Older workers are more prone to severe and costly health conditions o Employers have seen a rise in the frequency and cost of catastrophic claims, presumably due to the aging workforce
Contributors to Rising Costs• Poor general health o Employees have become more and more unhealthy, which has also contributed to health care cost increases o Preventable risk factors such as obesity and high blood pressure had led to increases in chronic, costly medical conditions such as diabetes and heart disease
What Employers Can Do Employers are becoming more proactive in instituting strategies and programs to reduce overall health care costs, including: •Using health care data to drive health care strategy •Greater emphasis on consumer-driven health plans •Promoting employee health and wellness •Increased employee cost-sharing •Auditing and increasing cost-sharing for dependents •Strategic vendor management •Looking at long-term solutions and plans, rather than short- term fixes
What Employers Can Do• Using health care data to make strategic decisions o A top employer strategy for reducing costs, according to a Hewitt Associates study o Using measurable data and analytics to drive health benefits strategy o Important to go beyond accessing the data, and understand how to apply it to making health plan decisions and implementing changes
What Employers Can Do• Greater emphasis on consumer-driven plans o Consumer-driven health care has become increasingly popular o Balances cost-savings for the employer, with employee empowerment to make own health care decisions o If paired with proper education, employees will become smarter health care consumers - which will save both the company and employees money
What Employers Can Do• Promoting employee health and wellness o A common initiative, aimed at increasing employee health and effectively lowering health care costs o Many employers targeting specific diseases and creating more comprehensive programs o Incentives for participation, particularly for actions that promote actual behavior change (such as participating in a certain program, rather than just taking a health risk assessment) o Penalties for nonparticipation, especially in the form of higher premiums or other employee cost-shifting o Wellness and disease management programs are highly dependent on quality employee education and communication tactics
What Employers Can Do• Increased employee cost-sharing o Companies will continue to shoulder the burden, but are passing off more costs to employees: - Moving from fixed dollar copayments to coinsurance - Increasing deductibles and out-of-pocket maximums - Increasing cost-sharing for non-network providers - Offering consumer-driven plans - Increasing cost of brand name drugs to incentivize generic use
What Employers Can Do• Dependent management strategies o Conducting dependent eligibility audits can save companies huge amounts of money - Studies show that an average of 3 to 12 percent of dependents are not actually eligible o Many companies shifting to a per-member premium fee, rather than just “individual” and “family” o Emerging trend is requiring spouses to pay more in premium or assessing a surcharge, to encourage spouses to enroll in their own employer’s plan
What Employers Can Do• Strategic vendor management o Another recent trend is companies evaluating their vendor relationships more aggressively o Vendors not producing measurable results are being replaced or eliminated o Looking for opportunities to consolidate vendor relationships to get the most for their money
What Employers Can Do• Long-term strategies vs. short-term fixes o Short-term tactics, such as employee cost-shifting, are still prevalent o Many employers are also looking more closely at multi-year plans and longer-term initiatives to improve overall employee health and strategically manage costs in the future o Especially in the wake of health care reform, many employers are worried about developing strategies that have sustainability in keeping costs down
Determining the Right Strategy for YourCompany• Is our program structure, plan design and pricing appropriate?• Do we have all the right vendors, services, contracting and funding in place?• Are our employee communication efforts appropriate and effective – especially in regards to employee health and wellness and consumerism?• Do we have effective disease management and wellness programs for our employees?• Do our pricing and plan design features encourage cost- conscious behavior on the part of our employees?• Are we thinking about long-term solutions rather than simply quick fixes for this year?
The Impact of Prescription Drugs• Prescription drugs are an important part of health benefits and make a big impact on cost• Prescription drug spending has been one of the fastest growing components in health care over the past several years o This growth has slowed lately, partially due to increased availability of generics and decreased medication adherence by patients
The Impact of Prescription DrugsPrescription drug cost-cutting strategies :•Instituting or rearranging your drug tier structure, toincentive use of generics and increase cost for specialtydrugs•Joining purchasing pools or drug discount programs•Promoting the use of mail-order prescriptions
The Impact of Prescription Drugs Prescription drug cost-cutting strategies: •Promoting employee consumerism when buying prescriptions •Encouraging medication adherence o Lack of adherence can cause costly medical complications and exacerbate chronic conditions o An employee education and communication initiative is needed for this to be effective