The environment affecting employer health plan design and spending decisions continues to be unstable.
The economy, business environment, health care costs and utilization trends have not been this adverse in more than 30 years. And the outcomes from efforts to reverse these trends are yet unknown.
In spite of this fluid environment, employers can make sound, strategic decisions about health plans for the next year and beyond if they are methodical and disciplined in their approach.
Context on Current Trends
Government
We are experiencing unprecedented government intervention in the private sector, with expensive health reform in the spotlight for 2010.
As both federal and state governments look for a way to ensure affordable universal access to high-quality health care, employers are seeing many new and potential mandates, such as the provisions of the American Recovery and Reinvestment Act (ARRA), the Genetic Information Nondiscrimination Act (GINA) and the many regulations included in healthcare reform proposals.
The implications of health care reform are nearly impossible to fully anticipate.
They may include mandated coverage levels, non-coverage penalties, additional health plan taxation and FSA limitations.
On the positive side, they may give a boost to the electronic medical records trend and give employers more flexibility to integrate wellness and other consumer-directed health care initiatives into their health benefit plans.
Providers
Health care providers are also experiencing challenges.
The business and economic environment is straining their business models, leading to mergers and partnerships. Many are leaving the medical profession—especially in primary care and nursing.
The aging of the American population, rising malpractice costs, new reimbursement methodologies, administrative costs and numerous state and federal mandates—both current and potential—further complicate the situation.
In response, they are introducing new delivery models, from centers of excellence and hospitalists to telemedicine and specialty hospitals.
One of the more progressive outcomes is the idea of reimbursement based on results versus services provided. Some of these responses will translate to higher costs for the consumer, payer and employer. Others may serve to reduce costs.
Payers
Against this backdrop, consumers, employers and government are exerting pricing pressure on payers, while payers face increasing costs related to technology, legislation, adverse selection and increased transparency.
In addition, buyer loyalty to payers is down, fraud and abuse are up, and the public image of health insurance companies is suffering.
Consumers
Consumers are responding to this situation by becoming more educated and more involved in their health care. They are being urged to take more personal responsibility, even as they become more demanding of providers and payers.
However, health status trends remain on the decline.
Employers
Employers face increasing costs, taxation, fiduciary responsibilities and legislative burdens, resulting in an overall decrease in their ability to exert leverage on providers and payers.
Trends
Coverage and Affordability
For Americans, enrollment in private coverage is decreasing, while government-plan coverage goes up.
Meanwhile, the number of uninsured rose from 45.7 million in 2007 to 46.3 million in 2008. A continuing high unemployment rate in 2010 is likely to influence these trends further.
Meanwhile, insurance premiums have increased 131 percent in the past 10 years, while worker earnings went up only 38 percent, and inflation rose 28 percent. Both single and family average premiums more than doubled in the last decade.
Not surprisingly, enrollment in conventional insurance plans decreased from 29 to 20 percent over the decade, and participation shifted to managed plans, with a quarter of the U.S. population enrolled in health maintenance organizations.
Enrollment in consumer-directed health plans is rising and stands at 8 percent for 2009.
Among employers that do not offer health savings account qualified high-deductible plans, 10 percent say they are likely or somewhat likely to add one.
Health Status
While costs and mandates multiply, health status declines.
The U.S. obesity rate—a key factor in the overall cost of care and a contributor to many other health problems—has experienced phenomenal growth during the past two decades.
The Centers for Disease Control and Prevention also reports high rates of related myocardial infarction/angina, heart disease, diabetes and hypertension across the United States.
The good news is that many of these disease processes can be halted and even reversed through proactive consumer behavior.
Managing Your Risks and Costs
While the context and trends look bleak, employers can influence health plan costs positively if they are willing to invest time, effort and resources in the areas of purchasing efficiency, eligibility management and health risk management.
Purchasing Efficiency
Employers naturally need to evaluate carrier networks regularly to ensure they are receiving the best quality possible at a competitive price.
When evaluating provider networks, it is critical to consider the following factors:
- Access
- Disruption
- Quality
- Discounts
- Centers of excellence
- Tiered networks and quality-based networks
In addition, employers need to consider the carrier’s health risk management services.
- How robust are its reporting capabilities?
- Does it have disease and/or case management services and outreach?
- How does it handle patient advocacy with care providers?
Finally, employers must evaluate carrier administrative expertise using both qualitative and quantitative measures.
Employers may be able to gain additional purchasing efficiencies by integrating vendors, which can allow them to receive purchasing discounts (i.e., combining FMLA, EAP and COBRA administration).
Integrating vendors also can reduce costs and improve efficiencies in communications, reporting and pricing transparency.
Eligibility Management
Another way to slow down increasing costs without significantly changing coverage levels or plan designs is to aggressively manage eligibility.
First, employers should consider their overall philosophy about eligibility.
They may want to consider how they define an employee, based on hours, class and work status. What qualifies a dependent, considering age and domestic partners? How do they handle coordination of benefits, carve outs and surcharges for working spouses? Is employee-only coverage a possibility? What about retiree coverage?
Many employers are managing costs by refining their new-hire eligibility timeframes and offering multiple coverage and pricing levels.
Additional—sometimes dramatic—savings can come from aggressive management of dependent eligibility through review and clarification of the policy, followed by strict monitoring and enforcement.
Participant Cost Sharing
In 2009, the average U.S. employer’s net cost per employee per month was $532 or 59 percent of the total $907, with employees paying $228 or 25 percent via monthly payroll contributions and plan costs such as copayments and deductibles.
Payroll
To shift costs back to employees and provide incentives for health improvement, employers can consider various payroll contribution strategies such as buy-ups, salary- or tenure-based cost sharing and incentive-based employee contributions related to health status or participation in wellness programs.
Medical
Other ways to involve employees in medical cost management:
- Reduce member costs for clinically desirable services, i.e., preventive services or ongoing disease management compliance protocols.
- Steer members to premier providers.
- Reduce employees’ cost share when they meet biometric targets.
- Increase copayments for additional X-rays or allergy treatments.
- Reduce or eliminate transplant coverage except at centers of excellence.
- Limit payment for treatment of certain conditions (e.g., morbid obesity).
Pharmacy
For pharmacy cost control, employers can consider requiring prior authorization for some drugs, mandating the use of generics and/or mail-order services and replacing copayments with coinsurance structures.
Dental
Employers may want to consider making dental coverage voluntary, eliminating adult orthodontia or offering it as part of a buy-up plan, and moving certain procedures to different levels of coverage.
Health Risk Management (HRM)
The most promising method of reversing health plan cost trends is to affect the long-term health status of the population.
Behavior is the single greatest determinant of health status, far exceeding the effects of access to care, genetics and environment.
Eliminating just one health risk for one employee can result in a substantial reduction in health care costs.
For example, the average annual health care cost for a person with three or four health risk factors is more than 60 percent higher than the cost for someone with zero to two risk factors.
Coincidentally, providing effective health and productivity benefits has a direct effect on the bottom line.
A 2005 Integrated Benefits Institute study showed that 61 percent of the CFOs in the Fortune 5000 believed that there was a strong link between the health of the organization and the health of the bottom line.
Affecting Health Risks
Not all health behavior change programs are equally effective.
The Partnership for Prevention has evaluated various interventions based on their clinically preventable burden and cost effectiveness. The most effective health risk management programs are those addressing smoking cessation, alcohol abuse and screenings such as mammography, pap smears, colonoscopy, hypertension and cholesterol.
A Comprehensive Approach
Employers considering taking a strategic approach to health risk management may want to ask themselves first how such an approach aligns with their overall benefits philosophy.
Are they in “status quo mode,” intending for their programs to cost as little as possible and be minimally as good as those of their competitors?
This traditional approach will focus on core benefits that generally contribute to attracting, retaining and providing basic financial security for their employees.
Or, are they evolving, seeing benefits as an investment in the organization to drive competitive return?
The more progressive outlook considers benefits relevance—focusing on choice, diversity and self-service.
In addition, it sees benefits not as a cost center but as a value driver, and it provides more customization, personalized communication and wellness programs.
Fundamental HRM Components
Whether you are aggressively addressing health risk management now or want to begin a program, Lockton recommends consideration of five foundational pillars.
These pillars promote the creation of an environment that sustains and supports long-term health behavior changes. Full buy-in from all levels of management is critical to success.
In conclusion, although the context for health plan decision-making is changing rapidly, plan sponsors need not despair about their ability to take decisive and strategic action now.
Regardless of changes in regulations and the marketplace, they can take concrete steps to affect purchasing efficiency, manage eligibility, manage cost sharing and dramatically influence health risks that contribute to their costs.