In reality,
health insurance cost increases are more
dramatic than the Kaiser survey noted, since
many employers are increasing monthly premium
contributions and/or increasing the
out-of-pocket exposure for employees. Without
these shifts, inflation in premiums would have
been much higher.
In 2007, as the
competition for employees grows more intense,
employers will find it increasingly difficult to
continue shifting costs to workers. Furthermore,
while shifting health care expenses may help
lower costs in the short term, such efforts have
a limited impact on reducing long-term health
care costs. The overall utilization of services
remains relatively constant as medical care for
existing conditions continues to progress
regardless of an employee’s monthly contribution
or annual deductible.
Curious to learn
what options CEOs have to control corporate
health care spending, I spoke with Tom Partlow,
president of Delta Health Systems in Stockton.
Partlow, whose company provides administrative
health care solutions to many companies
nationwide, suggests that CEOs consider three
strategies to control healthcare costs:
SELF INSURANCE
Mid-sized
employers (200-1,000 employees) have
traditionally provided benefits through the
traditional health insurance market. Paying
monthly premiums to an insurance company made
the “purchase” of health care easy – employers
outsourced duties to an insurance company, which
in turn paid for services rendered at the local
hospital or doctor’s office. “Historically, this
is where health plans made their money,”
explains Partlow. “Today, they are experiencing
a great deal of pressure to increase these
revenues.”
According to Partlow, this pressure comes not only from Wall
Street but also from other market forces. For
instance, rate hikes over the past five years
have increased the number of small employers
dropping coverage altogether, thus putting the
health insurance market into a Catch-22
situation: an increase in the number of
uninsured workers leads to less revenue, which
leads to greater rate increases, which leads to
more uninsured workers. In addition, market
shifts to high-deductible health plans have
allowed employers to minimize rate increases,
thus further dampening increases in revenue.
These market
forces, combined with the advantages of
self-funding (e.g., better reporting, more
control over plan design, less insurance company
overhead and profit, etc.), are causing more
mid-sized employers to explore using a Third
Party Administrator (TPA) to administer
benefits.
INVESTMENT IN WELLNESS INITIATIVES
Employers are
beginning to take a more holistic view toward
health and wellness programs, viewing them not
only as an opportunity to impact health care
expenses but also as a chance to lower
absenteeism. While traditional ROI criteria
remain difficult to quantify for the small
employer, the savvy CEO intuitively recognizes
that improving the health of the workforce will
benefit the organization.
Programs can
range from the subsidization of a Weight
Watchers program to on-site clinics that provide
check-ups and doctor visits for employees.
According to Partlow, one of the most critical
elements of a successful wellness program
includes corporate buy-in at the CEO level.
“There must be a wellness champion within the
organization, and the higher up they are the
better.” Importantly, he or she must practice
what they preach in order to infuse a culture of
health within the organization.
Finally,
incentives for participation and effort are
required to increase participation among those
who can benefit the most. “Whether it’s simply a
cash incentive ($100 seems to be the magical
number), or a reduction in monthly
contributions, a sound wellness program must
provide incentives as opposed to disincentives,”
notes Partlow. Moreover, for a program to
qualify as a bona fide wellness program under
the Health Insurance Portability and
Accountability Act (HIPAA), incentives must be
provided for effort as well as for results.
Employers should work with their benefits
consultant to avoid designing a program that can
be deemed discriminatory.
CONSUMER-DRIVEN HEALTH PLANS (CDHP)
Many people view
CDHP programs as simply another cost-shift. Yet
there is an additional element of changing the
paradigm in which employees use their benefits.
The introduction of the Health Savings Account
(HSA) in 2004, for example, allowed employees to
save money when they change their health care
purchasing behavior.
CDHP programs
are characterized by high deductibles (a minimum
of $1,100 for singles and $2,200 for families)
combined with a savings option such as an HSA,
thus leaving it up to the employer to decide how
much – if any – they want to fund to lessen the
employee’s exposure. Additional money can be
contributed by the employee on a pre-tax basis
up to the 2007-mandated maximums of $2,850 for a
single person and $5,650 for a family.
Perhaps the most
important components of a CDHP are educational
tools and programs to aid employees in becoming
better consumers of health care. Whether it's
on-line decision-support tools such as those
found at Healthline Networks or WebMD or full
wellness and disease management programs,
employees need resources to help them learn more
about staying healthy and managing disease.
Barring any
unforeseen changes, the burden of rising health
care costs will once again fall in the lap of
business. CEOs have an opportunity to take a
strategic view of this major expense item
through investments in some or all of the
aforementioned alternatives to manage their
health care expenses while retaining key
employees.
Paul Witkay is
founder and CEO of the Alliance of Chief
Executives
(www.allianceofceos.com), an
organization exclusively for chief executives
who run public and private companies in
virtually every industry and market sector.
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October 2007 Issue
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