Braun Consulting News
News on Personnel, Labor Relations and Benefits

See our Archive Pages for Back Issues of Braun Consulting News!

Employers & the Health Care Crisis

Health Care Crisis a "Top Priority"
Reasons for Escalating Costs
Impact on Employers of this Health Care Crisis
Lowering Health Care Costs over Time
Lowering Coverage Costs for Employers
Summary

Health Care Crisis a "Top Priority"

The election results in November of 2006 signaled a mood for change across this nation, and the continuing health care crisis ranked high in concerns for voters and employers.

According to "Americans for Health Care" a poll conducted by Lake Research Partners found that health care was a top issue for voters across the country and was a powerful issue in deciding the outcome of the mid-term elections.

Key findings of the poll conducted November 5 - 7, 2006 include:

• "Health care" and "prescription drugs" (27 percent) were tied with "The situation in Iraq" (27 percent) and second only to "Economy and jobs" (34 percent) as the top concerns of voters.
• Rising health care costs was the most intense economic concern of voters (29 percent).
• Health care has increased in prominence since 2004, with 47 percent saying it was the most or one for the most important issues in making their vote for Congress, compared to 32 percent in 2004.
• Sixty-six (66) percent thought health care was discussed too little by the candidates.
• Seventy-four (74) percent of voters think health care should be a high priority for the new Congress.
  (Source: http://www.americansforhealthcare.org/)

While "continuing to take it"... lets consider these points.

Reasons for Escalating Costs

Among the major causes of high-cost, inefficient health care in the United States are unnecessary procedures, use of brand-name drugs instead of generics, and poor disease management.

As millions live without health care coverage they revert more frequently to very expensive visits to emergency rooms, further raising the overall costs for everyone.

Marketing campaigns by the major drug companies drive many to request expensive brand-name drugs instead of their less expensive generic counterparts, and poor disease management opens the door to a maze of conflicting diagnosis, treatments, and procedures that multiply the cost in a variety of ways.

Part of the current stalemate in combating and lowering health care costs comes from the major companies that benefit from the status quo. Thousands of companies benefited from the fact that health care totaled 14.6 percent of U.S. gross domestic product in 2002, according to the OECD (Organization for Economic Co-operation and Development).

"Most big manufacturers have a health care operation that is often their most profitable business," Gerard Anderson notes, referring to companies like General Electric and IBM. "Nobody wants to get their profits cut."

So while thousands benefit with inflated profits, millions pay the price in higher costs resulting in much lower profit margins for many American employers.

Impact on Employers of this Health Care Crisis

General Motors is a good example of how the cost of health care affects a company's bottom line. As the largest private provider of health insurance in America, GM spent $5.3 billion to cover 1.1 million people in 2005. In 2004 the company paid $1,525 in health care costs for every car it made in North America, according to management consulting firm A.T. Kearney, while Toyota, having recently supplanted Ford as the world's second-biggest auto manufacturer, spent just $201 in health care costs for every car it made.

American employers are paying for a health care system that costs more per capita than that of any other nation in the world, according to the Organization for Economic Co-operation and Development.

And it is employers who pay for the health care of 160 million people, nearly 60 percent of the American population under 65 years old. They also pay 25 percent more for medical services than Medi-care does, according to Gerard Anderson. Some hold the view that this premium is a kind of "subsidy" paid for by employers to cover the cost of health care for nearly 46 million Americans without insurance.

Any way you look at it, if you aren't profiting directly from the crisis, you are paying for it in direct expenses and a constant drain on your bottom line with no end in sight. Paying more and getting less for health care - and still trying to run a business... that is the current impact of this health care crisis on employers.

Lowering Health Care Costs over Time

Here are a two methods being used by some employers and organizations to lower health care costs:

  Population Health Management

One of the ways to lower health care costs, some employers are saying, is not through heavy-handed regulation, but by gathering and utilizing appropriate information about where their money is actually going.

Some employers have begun to focus on their most costly health care consumers - those who are at risk of or suffer from chronic illness - by aggressively managing their health spending data.

This is sometimes referred to as "population health management."

The idea is to collect health data from employees who undergo a variety of tests, and in exchange the employees receive reduced premiums, free prescription drugs and other incentives.

Companies can then design a health benefit plan that addresses the health and cost driving factors for their particular population.

  Pay For Performance / Data Collection Issues

Some employers and state organizations are working on a system that would use claims and other data to rate doctors and hospitals based on their performance and cost. According to the theory, patients with a choice and the responsibility to pay for part of their health care will choose the best provider at the most reasonable price.

Employer groups and government organizations are working on pooling their data and developing standards so they can rate doctors, hospitals and other medical providers to make available information on which are the best and which are more inefficient or which perform poorly.

A good example of this is in the State of New Hampshire where the NH Legislature, the NH Department of Health and Human Services, and the NH Insurance Department have joined together to create the "Comprehensive Health care Information System (CHIS) in 2003.

In 2003, NH became one of the first states in the country to mandate the collection of data that "shall be available as a resource for insurers, employers, providers, purchasers of health care, and state agencies to continuously review health care utilization, expenditures, and performance in New Hampshire and to enhance the ability of NH consumers and employers to make informed and cost-effective health care choices."

Still in its infancy, this organization is working to define what questions will be asked of the health care system. The CHIS legislation requires that all NH health insurance carriers and Medicaid submit claims data and health plan quality data to the Department of Health and Human Services and the NH Insurance Department.

So far, creating price and quality transparency has produced few results, according to Gerard Anderson at Johns Hopkins University.

"Transparency will only work if prices go down as a result. That happens one of two ways: Either a hospital or doctor is too expensive and lowers prices to become competitive, or the patient sees that one doctor's prices are higher than another's and chooses the less expensive doctor. I don't see either one happening now" says Anderson.

In August of 2006 President Bush signed a bill requiring the four federal agencies in charge of healthcare - HHS, the Department of Defense, the Department of Veterans Affairs and the Office of Personnel Management - to share data amongst agencies and with beneficiaries.

It is estimated that the government pays for 40 percent of healthcare delivered in the U.S., so this is a further step forward in the transparency movement.

It is too early to tell the full effect of this, but it is an idea with some merit that is being actively explored as a way to get some measure of control and understanding of how these costs can be tracked and contained.

Lowering Coverage Costs for Employers

While bringing down overall health care costs is a major concern for employers, of more immediate concern is lowering the actual cost of coverage.

Some methods that are being explored and used by more employers now are the following:

  Consumer Driven Health Plans (CDHP's)

Enrollment gains in CDHP's has not matched the interest these plans have attracted from employers, health insurers, and the industry that has sprung up around them.

Drew Altman, president of the Kaiser foundation summed it up in this way, "Basically, what we saw is that the talk and debate of consumer-directed health care in the business world and at the highest level of the policy world is way out in front of the reality of the marketplace."

His observation is based, in part, on the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust annual report on health care costs released in September of 2006.

This report noted that during the past 12 months the number of workers enrolled in consumer-driven plans, either with health savings accounts or health reimbursement accounts, grew by 300,000 people to 2.7 million. And although the number of members enrolled in HSAs increased from 800,000 to 1.4 million workers, membership in HRA plans dropped to 1.3 million workers from 1.6 million.

Though growing in enrollment, the percentage of participation in these plans is still relatively small. One factor in this slow growth is that those employers that are making the switch are taking their time. The shift in time frames is due, in part, to disenchantment with high-deductible plans among employees, according to a survey published last year by McKinsey & Co. The survey found that 56 percent of employees whose companies had switched to a consumer-directed plan were less satisfied with their health insurance.

"We're seeing that mostly the large companies, those with over 2,000 employees, are looking at a year of just education before throwing them into a full-blown CDH model," says Amit Gupta, president of Fiserv Health CareGain, a technology company that helps design consumer-directed health care programs.

To bridge this satisfaction divide, large companies are bringing back wellness and preventive programs that may have failed in the past, Gupta says. "Getting people more engaged in incentives is growing because employers want to get people used to the idea of getting rewarded for healthy behavior."

Conventional wisdom seems to indicate that, given the cost similarity between PPOs and consumer-driven plans, employers in 2006 may not have been willing to invest the time and additional money needed to switch to high-deductible health plans, especially if doing so risked lowering employee morale.

One calculation out there is that it takes three years to effectively make the switch from PPOs to consumer driven plans.

If this is the case, then companies may be taking several years to make a change and current enrollment figures might overlook a sharp enrollment increase building over time.

One example of a successful switch is from the company Whole Foods Market. In October 2003 the employees at Whole Foods Market passed a consumer-directed plan and within a year medical-claim costs dropped 13 percent. About 90 percent of employees also had money left over in their health reimbursement accounts, while hospital admissions dropped 22 percent. Since then, health care cost increases for the company have slowed to a pace below national rates.

For more information on CDHP's visit the NCPA's Consumer-Driven Health Care Website. The site is described as "a one-stop-shop for information on consumer-driven and consumer-centric health information for consumers, researchers, policy-makers and the media. It features a large collection of health care policy experts who believe health care competition and quality go hand in hand. The Web site is an initiative of the National Center for Policy Analysis' Rapid Response in health care? the purpose of which is to promote consumerism in health care and correct misinformation while promoting sensible solutions to America's health care problems."

  Health Savings Accounts (HSA's)

In his State of the Union speech in January of 2006, President Bush allocated 165 words to the subject of health care. The president said in his speech "We will strengthen health savings accounts, making sure individuals and small-business employees can buy insurance with the same advantages that people working for big businesses now get."

In December of 2006 President Bush signed the Health Opportunity Patient Empowerment Act of 2006. The law is part of the Tax Relief and Health Care Act of 2006.

"Health savings accounts are improving the way Americans obtain the care they need. This bill makes HSAs more flexible and makes it easier for participants to put money aside for their personal health care," said Treasury Assistant Secretary for Tax Policy Eric Solomon.

Critics of Bush's new law have said that limits on contributions to HSAs do not allow people to save an adequate amount of money for retirement. This year the federal government raised the maximum amount that can be contributed to health savings accounts to $2,850 for individuals (up $150) and to $5,650 for families (up $200).

Jay Savan, a consultant and actuary with Towers Perrin in St. Louis, believes that the maximums are not enough to pay for estimated retiree health costs, says.

He estimates that people will need $600,000 in 20 years if they retire at age 65 and health care costs continue to grow at more than twice the rate of inflation. Saving the maximum of $2,850 a year and earning 7 percent interest returns about $155,000 after 20 years.

"If you max out your HSA and if you never touch that money and save it for 25 years, the money you amass is a shadow of what you'll need to cover your care expenses," he says.

To read more details about this new law you can click here: http://www.ustreas.gov/press/releases/hp209.htm

President Bush again addressed the health care crisis in his 2007 State of the Union address.

Here is what he said in the speech:

"And so tonight, I propose two new initiatives to help more Americans afford their own insurance. First, I propose a standard tax deduction for health insurance that will be like the standard tax deduction for dependents. Families with health insurance will pay no income on payroll tax -- or payroll taxes on $15,000 of their income. Single Americans with health insurance will pay no income or payroll taxes on $7,500 of their income. With this reform, more than 100 million men, women, and children who are now covered by employer-provided insurance will benefit from lower tax bills. At the same time, this reform will level the playing field for those who do not get health insurance through their job. For Americans who now purchase health insurance on their own, this proposal would mean a substantial tax savings - $4,500 for a family of four making $60,000 a year. And for the millions of other Americans who have no health insurance at all, this deduction would help put a basic private health insurance plan within their reach. Changing the tax code is a vital and necessary step to making health care affordable for more Americans."

He went on to state the following:

"There are many other ways that Congress can help. We need to expand Health Savings Accounts. We need to help small businesses through Association Health Plans. We need to reduce costs and medical errors with better information technology. We will encourage price transparency. And to protect good doctors from junk lawsuits, we passing medical liability reform. In all we do, we must remember that the best health care decisions are made not by government and insurance companies, but by patients and their doctors."

  Cost Shifting

For the past several years, employers have used high deductibles, higher co-insurance and higher co-pays to help reduce their health care costs.

However, there is a limit to how much a company can shift costs before eliminating benefits altogether.

A survey by Watson Wyatt in late 2006 surveyed 12,000 workers across all job levels and major industries. Sixty-nine percent of workers, the study reported, say they are concerned their employer will increase out-of-pocket health care costs through higher deductibles and co-payments in the next three years; 53 percent of those surveyed say they worry that employers will limit providers or items covered in the next two years.

This continued cost shifting could cause an unpleasant backlash among employees, making recruitment and retention even more difficult than it already is in this strong labor market.

"You are going to get the law of diminishing returns," says Paul Ginsburg, president of the Center for Studying Health System Change. "If you keep raising deductibles, you start defeating the reason you had health insurance in the first place, which is to insure people against the financial risk of health expenditures and to make sure they get the care they need."

Summary

With the high priority of the health care crisis in the minds of consumers, employers, and politicians it is interesting to track actual changes in the current state of affairs.

An example is the recently released plan by Senator Tom Coburn, a Republican from Oklahoma, to address the uninsured. His plan includes expanding the role of health savings accounts by giving a tax break people can only use to buy health insurance, including high deductible plans with health savings accounts.

Slow, careful, and meeting with resistance seem to be the hallmarks of any real change. In this article we have touched on a few of the main areas of change actually happening in the workplace at this time.

Hopefully our next articles in revisiting this question will provide more inspiration and hope with some sense that a real and lasting answer has been found to this continuing crisis.

Independent Contractor Conundrum 

The Contents of this News Letter are intended for general information and should not be construed as legal advise or opinion. Click Here to view our Web Site Disclaimer Page.  * INSIDE  * HOME  * ARCHIVES Braun Consulting Group * Insurance * Labor * Personnel