Over
the past decade, how individuals receive and pay for their healthcare is
changing. As the Supreme Court prepares to decide on the constitutionality of
the Patient Protection and Affordable Care Act (PPACA), employers recognize the
ruling will have a significant impact on health care in the years to come. Confused
by the pending legislation, employers are also fearful of rising insurance
costs and are hesitant to make any significant changes to their current plans.
However, despite this uncertainty, there are a few strategies employers can
employ to manage the changing tide.
2012 Health Care Trends
According to the 2011 annual survey of
medical cost trends by PriceWaterhouseCoopers (PwC), on average US employers
can expect health care cost to rise 8.5 percent in 2012. This is 1.5 percent
below the Aon Hewitt 2011 Health Care Trend survey which estimated national medical
care costs will increase by 10 percent. These figures are lower than 2010 and
2011figures which were between 12 percent – 14 percent. Much of the slowdown is
due to the recession and thus not
unexpected health experts say. But some of it seems to be attributable to
changing behavior by consumers and providers of health care — meaning the lower
rates of growth might persist even as the economy picks up.
Since Medicare and Medicaid are two of the largest contributors to
the country’s long-term debts, slower growth in health costs could reduce the
pressure for enormous spending cuts or tax increases. In 2009 and 2010, total
nationwide health care spending grew less than 4 percent per year. This was the slowest annual pace in more than
five decades, according to the latest
numbers from the Centers for Medicaid and Medicare Services. After
years of taking up a growing share of economic activity, health spending held
steady in 2010, at 17.9 percent of the gross domestic product.
The growth rate has also slowed as
millions of Americans lost insurance coverage along with their jobs. Worried
about job security, employees may have feared taking time off work for doctor’s
visits or surgical procedures, or skipped non-urgent care when money was tight.
Still, the slowdown was sharper than health economists expected. A broad bipartisan range of academics,
hospital administrators and policy experts have started to wonder— if doctors
and patients have begun to change their behavior in ways that bend the
so-called cost curve. If so, it was
happening just as the new health care
law was coming into
force and before the Supreme Court could weigh in on it or the voters could
pronounce their own verdict at the polls.
While
health cost growth may have slowed, the premiums for insurance still need to
catch up. Confirming this, actuarial
firm Milliman released its 2011 Milliman Medical index in May 2011. The report
shows health care cost for a typical U.S. family of four covered by a preferred
provider organization (PPO) in 2011 was $19,393. This reflects an increase of
7.3 percent over 2010. Even though the percentage of increase was the lowest in
recent years, the increase in total dollars—$1,319 in 2011—was the highest in
the history of the study. Of this $1,319, employers covered about 40% of the
increase ($641) while employees shouldered the rest—$403 in payroll contributions
and $275 in additional cost sharing.
Employers
React to Rising Costs & Health Care Reform
Here
are four strategies that have been growing in popularity over the past several
years. These strategies have been
successful in containing insurance premiums and overall costs:
1.
Consumer Directed Health Plans
2.
Accountable Care Organizations
3.
Micro Market Networks
4.
Employee Wellness Programs
Consumer
Directed Health Plans
Employers
continue to explore consumer‐directed health care
plans (CDHC). These plans are structured to give employees greater control over
their personal health care costs, thereby promoting caution before they utilize
expensive procedures or request unnecessary treatments.
CDHC
plans offer higher deductible plan options, coupled with a Health Savings
Account (HSA) or Health Reimbursement Account (HRA). Employees will pay for out‐of-pocket medical costs with their self‐funded plans.
Accountable Care
Organizations
An
Accountable Care Organization (ACO) is a network of health care organizations,
hospitals and doctors that unite in order to provide coordinated medical care
to patients. Until recently, health care in America has mostly been fragmented.
Hospitals, pharmacies, skilled nurses, primary care and specialty doctors
operated as separate entities across the health spectrum. ACOs were created as
a result of the Health Care Reform and are meant to integrate, coordinate and
be held accountable for an individual’s health car. This will generate better medical outcomes at
a lower cost. Studies performed on current ACOs including Mayo Clinic,
Cleveland Clinic and Intermountain indicate by delivering efficient health care
this will help reduce health care costs by as much as 50%. By driving out
inefficiencies, reducing unnecessary hospital admissions and applying the best
approaches to clinical care, ACOs provide a promising picture of affordable
health care.
In
Massachusetts, the Massachusetts Health
Care Cost Trends - Premiums and Expenditures study released in May 2012 also
concluded health care costs growth has slowed in Massachusetts and is
consistent with the national slowing trend due primarily to ACOs.
Micro Market Networks
Micro
Market Networks operate in a similar vein to ACOs, without being quite as
integrated. Many insurance companies, including Blue Cross, Harvard, Tufts and
Fallon, are working on the initial phases of Micro Market Networks. These carriers are offering a variety of
options including the purchase of an independent plan that only includes access
to a particular group of self-contained health providers. The expectation over
the coming two years is many regional networks of this sort will develop. The
hope is these Micro Market Networks will operate in a similar fashion to ACOs. These networks will improve efficiencies and
drive costs down. Currently in MA, these
Micro networks are seeing from a 3 percent to 12 percent reduction in premiums.
Employee
Wellness Programs
As
premiums continue to increase, employers are looking to promote employee wellness
programs to offset costs. Well documented research indicates a balanced
lifestyle – including a proper diet, exercise and leisure time – leads to healthier
and more productive employees. In turn, the employees’ medical utilization is
reduced and health premiums drop. Additionally, a healthy workforce will have
fewer sick days, be on time more often, and remain focused throughout the day. In
contrast, other studies conducted on workplace stress indicate a stressful
unbalanced lifestyle can lead to health risks and impact insurance premiums.
A
major source of rising workplace health costs is the declining health of
employees. A new Gallup poll reports an
astonishing six of every seven full-time employees in the US are overweight or
suffer from a chronic health condition.
This is a terrible waste of human capital and an enormous burden on the
bottom line, costing employers more than $153 billion a year in absenteeism
alone. We already know wellness programs
can reduce costs. A study last year by
Harvard health economist Katherine Baicker found medical costs fell by $3.27
for every dollar spent on wellness programs.
Conclusion
While
the future of health care reform remains uncertain and the cost of insurance
will remain a large financial responsibility for employers, employers can take
action to help reign in costs. We have
outlined a few strategies employers can explore to help manage these cost
increases. If you would like to learn
more about how these strategies can work for your organization, please contact
our office at 978.777.6554.
