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March 4, 2002 Issue

So How Do I Proactively Respond to Increased Healthcare Benefit Costs?

The last issue of Astronology reviewed how the current labor shortage in healthcare impacts healthcare benefit costs. Today, we explore what organizations are doing to respond to increases in healthcare benefit costs. The following is a summary of key points from an article in the February 2002 Human Resource Executive.

In November 2001, Hewitt Associates released a study showing that the average increase in the cost to employers of health coverage in 2002 moved from 13 to 16%. The cost to employees will rise approximately $200 per year.

A poll released last October by the National Business Coalition on Health found that 80% of big-business respondents had either recently raised what employees pay for health insurance or were considering doing so. 50% of the companies reported they would increase deductibles as well.

While this trend continues into the future, there is a move towards more employee accountability. The next generation of health plans accelerate the post-managed care trend of giving workers more choice, with the expectation that those who opt for more expensive alternatives have to pay for them.

Prescription drugs are the most important cost control area on which employers are focusing. In 2000, Syracuse University lowered the cost of generic drugs for its employees and upped the cost of branded medications. Government figures show that the increase in prescription medication costs was 15.2% in 2001, 14.5% in 2000, and 18.4% in 1999. Current studies place this increase at 22.1% for 2002.

With these increases, organizations and the insurance industry are moving towards "three tier" systems. Blue Cross/Blue Shield will offer federal employees a three-tiered system:

a $10 co-pay for generic drugs,
a $25 co-pay for branded formulary choices, and
50% of the cost of off-formulary brands with a minimum co-pay of $35.

Some organizations have expanded this idea to include two additional tiers. One requires an employee that chooses a brand name over a generic drug to pay the co-pay and the difference in price between the two. A fifth tier includes lifestyle drugs, such as Viagra, where employees pay 90% of the cost. However, for these plans to work, the employer must mount a comprehensive education campaign. There needs to be special communication to employees. Many organizations grandfather those using drugs in the top two tiers.

Another model being explored is the "You Choose, You Pay" model that impacts all aspects of healthcare coverage. If an employee chooses to have a procedure done at a hospital versus an outpatient surgery center, which is often less expensive, the employee pays the co-pay plus the difference. Tufts Health Plan of Massachusetts has differentials in four different areas:

a separate deductible just for drugs;
a higher co-pay for having same day surgery as a hospital in-patient rather than using an outpatient facility;
a co-pay for a visit to a specialist that is more than double a visit to a primary care physician; and
a higher co-pay for admission to a teaching hospital.

Some HR professionals advocate a more radical approach in returning healthcare coverage to a more typical insurance model by separating payments for routine, predictable care from unpredictable, catastrophic big-ticket medical expenses. Aetna provides such a plan and is test marketing it with their employees. The plan is essentially a PPO with a high deductible. Single employees have a deductible of $2,000. Families have a deductible of $4,000. Only families with major medical expenses will utilize this insurance.

Aetna is also setting up a separate fund of $500 per employee or $1,000 per family that can be tapped for expenses normally covered by the health plan. If employees choose to go to a hospital not in Aetna's PPO network, they will have to pay more. Employees who do not use their allocated amount in the fund can roll the amount into next year's plan and still be eligible for that year's employer contribution.

This move to more employee accountability will continue as long as prescription drug and overall healthcare costs continue to increase well beyond the current rate of inflation.

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ISSN Number 1549-0467