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Employers are looking to curb health care costs
January 10, 2005
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Lincolnshire, Ill. -- Despite signs of cost trend moderation, employers remain critically concerned with the business impact of escalating health care costs and are looking beyond cost shifting to attack the root causes of rising costs, according to a new study from global human resources services firm Hewitt Associates.

Hewitt's survey of more than 500 major U.S. employers covering more than 6 million employees and family members finds that companies anticipate a cost increase of 12 percent for 2005, but can only afford a maximum 8 percent increase. Closing this gap continues to be a major issue for C-suite executives, and their concern is leading to significant changes in health care strategy. In fact, the survey shows some companies (7 percent) are shifting responsibility for health care strategy to finance and purchasing executives, a responsibility previously held by human resources.

"Increasingly, companies are recognizing that incremental changes are insufficient to attack the health care cost crisis, so they are moving beyond the more common methods for controlling costs to create more sustained and systematic changes," says Jack Bruner, national health care practice leader, Hewitt Associates. "Employers are looking to tackle the root causes of inflation through consumer-driven plans, employee education, influencing positive employee behavior changes through condition management and wellness programs, and improving the amount and quality of data available on health care costs and quality."

Expansion of consumer-driven strategies

Hewitt's survey shows that companies' interest in offering consumer-driven plans as a means to control costs and provide more choices to employees continues to grow. The most common consumer-driven models are health account plus high-deductible coverage (used by 17 percent of employers), multi-tier networks (6 percent), defined contribution (5 percent) and customized design (4 percent).

Consumer-driven models are expected to have lower rates of increase than traditional PPO, POS and HMO delivery systems, and the build-your-own/customized design option is expected to have the lowest increase at 7 percent. Employers are most aggressively encouraging enrollment in health account plus high-deductible coverage (73 percent) and customized design plans (63 percent).

Hewitt's survey finds that Health Savings Accounts (HSAs), which have gotten a lot of attention recently, are of interest to employers, but most are not yet offering them. Fifty-seven percent of employers are considering them for future use, but only three percent plan to provide access and contributions for active employees in 2005. Slightly less than 2 percent will offer HSA access and contributions for retirees in 2005.

"Consumer-driven plans can have and are having a major impact on costs, but their success hinges on driving smarter consumer behavior among employees," says Bruner. "To support needed behavior changes, companies continue to invest heavily in the decision support tools, communication and education that will result in better outcomes for employees, their families and their employers. Clearly, the message is that we're all in this together and only by working together can we keep costs in check."

Increased interest in disease management and wellness programs

The number of companies (83 percent) using condition management programs has grown significantly in the past year - up from 73 percent in 2004. Forty-nine percent of companies profile chronic conditions prevalent in their workforce (up from 42 percent), 30 percent offer incentives to encourage employee participation in wellness programs (up from 21 percent) and 27 percent measure the health and productivity impact of disease management programs (up from 22 percent). Employers are also addressing the adverse effects of obesity, with 64 percent providing coverage for bariatric surgery and 56 percent offering weight management programs.

"At-risk employees or those with chronic conditions, such as diabetes and heart disease, are the primary drivers of cost for most organizations. By influencing healthy employee behaviors through integrated health management, employers are finding significant opportunities for cost savings, perhaps as much as 5 to 7 percent."

Driving greater transparency in cost and quality data

According to Hewitt's survey, employers are focusing more on creating greater marketplace transparency to control costs and improve clinical outcomes. Sixty percent of employers encourage the use of accredited plans, 44 percent review HEDIS and other available data, 32 percent use plans that support Leapfrog patient safety standards whenever possible, and 18 percent use narrower networks based on provider quality and total episode of care data.

Employers are also looking to the government for help in this area, with 85 percent indicating that the government should mandate quality reporting. Roughly 70 percent believe the government should require that providers disclose prices publicly and mandate uniform provider data and payment reporting procedures.

The survey finds that employers are particularly concerned with transparency in prescription drug coverage. It appears that complex rebates and discounts can be confusing even to employers. While 53 percent feel the use of a pharmacy benefit manager (PBM) decreases their overall prescription drug costs, 23 percent feel it increases costs. In order to improve transparency in their PBM relationships, fourteen percent of employers require PBMs to sell prescriptions to their company at the same deep discount they get from pharmacies, 13 percent require PBMs to apply specific rebate credits at point of sale, and 12 percent have agreed to pay their PBMs full and fair administration fees to reduce the attractiveness of drug manufacturers' rebates.

Other key findings:

  • Contribution Strategies - In 2005, the average contribution will be 22 percent of premium for employees and 26 percent for their dependents. Twenty-one percent of employers will differentiate employee health care contributions based on pay in 2005 (up from 18 percent last year);
  • Dependent Coverage - Employers are influencing employees' choices by implementing higher cost sharing for dependents (31 percent), providing flexible credits for opting out of coverage (24 percent), requiring employees to pay an additional amount if working spouses do not accept coverage from their employer (7 percent) and requiring that working spouses elect coverage from their employer (8 percent);
  • Prescription Drug Coverage - Employers' efforts to control costs and increase consumerism include three-tier design (77 percent), coinsurance (45 percent), step therapy (27 percent), mandatory generics (25 percent), mandatory mail order (22 percent) and therapeutic MAC/reverse copay (16 percent); and
  • Government Intervention - In addition to helping with transparency, roughly three-fourths of employers are looking to the government to restrict malpractice awards, restrict patent extensions for brand name drugs and allow employees to access their flexible spending accounts (FSAs) before HSAs to enable savings for retirement coverage. More than half feel that the government should make Medicare available to pre-65 retirees at their own cost and allow U.S. consumers to purchase drugs from foreign countries.
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