The Devil in Containing Health Care Costs

There's some cheering news on health care: Cost-cutting is working, driving annual increases for employer-provided health insurance into single digits for the first time since 2000.

There's some cheering news on health care: Cost-cutting is working, driving annual increases for employer-provided health insurance into single digits for the first time since 2000. Increases will average 9% in 2007 and should dip by a percentage point or more in the following years.

But keeping that momentum up will be tough, with the aging population and relentless costs of technical and medical advances exerting constant upward pressure on costs. Savings from higher deductibles and copays, making workers more prudent about doctors' visits and tests plus greater reliance on generic drugs and fewer hospital stays have helped, but those savings will go only so far.

Continued savings depend on helping employees make better choices

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about their health care treatments and providers as well as their lifestyles and health regimens. Capturing the savings will require spoon-feeding information to workers, making sure they get and grasp facts about treatment options, their results and trade-offs plus quality ratings for hospitals, doctors and other care providers.

  • Ratchet up preventative care and education. Every dollar spent on such programs saves nearly $3.50 in health care costs and about $5.80 in reduced absenteeism. The cornerstone of prevention programs: individual health risk assessments. Health care professionals evaluate the condition of each insured person and recommend an appropriate ongoing health program. For those with chronic conditions such as diabetes or high blood pressure, it might include disease management and routine monitoring. For others, it could include help with weight loss, smoking or instituting an exercise program.

For now, getting employees on board may take serious encouragement. Johnson & Johnson, for example, gives workers a $500 break on premiums for taking part in an assessment and subsequent coaching program. But in four or five years, once these programs take root, many businesses will get tougher. "Employers will require employees to take a health risk assessment or participate in a wellness or disease management program as a condition of coverage," says Camille Haltom, a consultant with Hewitt Associates.

  • Be aggressive with incentives, putting cash in the pockets of employees who exercise regularly, watch their weight, don't smoke, etc., or who participate in programs to help them curb unhealthy behavior. Take care, though, to steer clear of potential discrimination charges. Human resources experts, such as Seth Serxner, with Mercer Human Resource Consulting, point out that the law is not clear on whether or not employers can penalize unhealthy behavior—putting a surcharge on premiums for unrepentant smokers, for example. "If you give incentives to smokers to quit, what about the nonsmokers?" You can make it fair to everyone, Serxner says, by discounting premiums for everyone except unrepentant smokers, paying both nonsmokers and those willing to join a program to help them quit. Down the road, the government is likely to change the rules governing Health Savings Accounts, allowing employers to selectively contribute funds. Employees who make sound health choices may benefit from an extra little something, while others won't.
  • Steer wage earners to the best care. Increasingly, insurers are ranking hospitals, doctors and other providers for quality of care. Picking up more of the tab for workers who opt to use those at the top of the list will wind up saving both you and the employee in the long run. Some employers and insurance plans even pay to transport sick workers to top-notch hospitals. For now, rankings are likely to be specific to each insurer or health care management company. But look for the development of a national system for gauging quality, with agreed-upon standards, in three to five years.

Just as employees will need help coping with this new and sophisticated level of information and decision-making, most employers will need help, too. Most will turn to all-in-one insurers who will provide not just coverage and information, but care managers, health coaches and the like.

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Martha Lynn Craver
Associate Editor, The Kiplinger Letter