It’s no secret health insurance costs, and consequently employee health benefits costs, have been increasing at an alarming rate for nearly a decade.
Avoiding rising health care costs feels nearly impossible, but let’s step back and learn about why they continue to rise and what you can do to help manage costs for your organization and your employees.
Factors Leading to the Increased Cost of Health Insurance
We get this question all the time.
What is causing my health care costs to skyrocket?
Several market conditions have led to a decade of unrelenting increases.
Factors that have contributed to climbing health care costs over the past decade include:
- Expansion of health care providers
- Consolidation of managed care companies
- Political environment and 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
Two factors that are contributing to the current and projected health care costs are an aging population and poor general health.
Because older workers are more prone to health problems, companies are seeing a rise in chronic conditions, costly medical problems and the use of prescription drugs, as well as an increase in the amount and frequency of catastrophic claims.
Poor General Health
Poorer health among Americans has also contributed to health care cost increases.
Preventable risk factors such as obesity and high blood pressure have led to increases in chronic health conditions such as diabetes and heart disease - illnesses that are long term and extremely costly.
Unhealthy lifestyles can be addressed through wellness programs to improve employee health and reduce costs, but most savings are seen in the long term.
To combat the continuing short-term increases, employers are passing more and more costs to employees through higher deductibles, copays and out-of-pocket maximum amounts.
Understanding why your annual health plan renewal rates may be significantly higher than in the previous year is the key to forming alternatives and solutions to your particular plan’s challenges.
It’s also important for educating your employees about the reasons behind any plan or contribution changes you may decide to introduce.
What is your company doing to lower group health care costs?
Download our free scorecard to help you determine the steps you need to take
to reduce your year-after-year rate increases.
So, what can you do to combat rising health insurance costs?
Employers like you are struggling to contain accelerating health plan costs.
After trying to absorb most of the costs because of hiring and retention issues, many employers are attacking the root causes of rising costs with sustained, systematic changes.
With the growing epidemic of poor health and the uncertain overall impact of health care reform, it’s time you look for short-term and long-term strategies to manage health care costs.
Here’s 7 cost-containment strategies to help drive down the cost of health care
- Use Health Care Data to Drive Strategy - A Hewitt Associates survey found that employers cite using health care data to make strategic health plan decisions as their top cost-cutting strategy. But the survey also discusses the importance of going beyond accessing data to understanding how to apply it when making decisions and implementing strategic changes.
- Put Greater Emphasis on Consumer-Driven Plans - An increasingly popular option in the healthcare industry is the adoption of consumer driven health plans, typically involving a health reimbursement account (HRA) or health savings account (HSA). These plans offer cost-savings for the employer, but also benefit the employee. With proper education, employees can be smarter health care consumers, which can help save you and your employees money.
- Promote Employee Health and Wellness - Health and wellness initiatives have become another popular health care cost management strategy, and remain one of employers’ top cost containment strategies. As more employers realize that improving employee health and wellness can lower health care costs and increase productivity, many are creating comprehensive wellness programs that target specific diseases and include dependents in the initiatives. It’s important to note here that successful wellness and disease management initiatives are dependent on quality employee education and communication techniques.
- Increase Employee Cost-Sharing - Many employers are choosing to pass more costs to employees or restructure their health plans to incentivize lower-cost options. Here’s a few strategies to do this:
- Move from a fixed-dollar copayment to a coinsurance model where the employee pays a percentage of costs for each health care service
- Increase deductibles and out-of-pocket maximums
- Increase employee cost-sharing for out-of-network providers
- Increase employee cost-sharing for brand name prescription drugs to incentivize use of generics
- Offer consumer driven plans, either as an option along with a traditional plan or as a total replacement
- Implement Dependent Management Strategies - Employers are finding huge cost-saving opportunities by changing the way we manage dependents. Dependent eligibility audits can save companies substantial amounts of money. Studies show that, on average, 5 to 15 percent of dependents are actually not eligible to be on the health plan. Many companies are also shifting to a per-member premium structure, rather than just “individual” or “family.” Another emerging trend is requiring spouses to pay more in premiums or assessing a surcharge to encourage spouses to enroll in their own employers’ plans.
- Evaluate Vendor Relationships - A recent movement involves companies aggressively evaluating their vendor relationships and replacing or eliminating those vendors that do not produce measurable results. Employers are also looking for opportunities to consolidate vendor relationships to get the most of their money.
- Seek Long-Term Solutions vs. Short-Term Fixes - Due to financial pressure, short-term tactics like employee cost-sharing are still prevalent. However, employers are exploring multi-year plans and longer-term initiatives to improve overall employee health and strategically manage costs in the future. Particularly in the wake of health care reform, many employers are becoming more concerned with developing strategies that are sustainable in keeping costs down.
Which solution is right for you?
Should you pass costs on to employees?
Or should you try to manage costs in some of the other ways discussed in this article?
Ultimately, the decision is yours - and requires a detailed and thoughtful analysis of your benefits plan and the advice of your trusted advisor.
Here’s some questions to address in order to begin developing an effective cost-containment strategy that’s right for your organization.
- Is your program structure, plan design and pricing appropriate?
- Do you have the right vendors, services, contracting and funding in place?
- Are your employee communication efforts appropriate and effective, especially regarding employee health and wellness and/or consumerism?
- Do you have effective disease management and wellness programs for our employees?
- Do your pricing and plan design features encourage cost-conscious behavior on the part of our employees?
- Are you thinking about long-term solutions rather than quick fixes for this year?
The information in this article is to help you understand why your renewal rates are increasing, and provide for you a variety of strategies other employers are using to help contain costs.
There is no end in sight to the rising rates of health care - so you can continue to fight the uphill battle or you can do something about it.
My name is Ty Reid, and I’m the Director of Worksite Benefits here at The O’Neill Group, an insurance and risk management firm here in Wadsworth, Ohio.
I’d be happy to sit down and discuss my process to helping you develop and implement the cost-containment strategies listed above.