One digit crisis has passed, but another looms. This time it’s the double-digit growth in the cost of health care, a sector that defies the economy’s low-inflation trend. But employers are not rushing to share the burden with employees as they have in the past, for fear of risking a worse headache–the flight of top talent to a more generous company.
Instead, companies face having to eat the increases, which are expected to average from 9 to 12 percent this year. Growing drug costs, the aging population, and costly technology continue to be the major underlying factors that are pushing health care rates through the roof. And the insurers are stubborn, burnt out by years of low margins from market-share wars. “Some [health care organizations] are not even negotiating,” says Paula Breslin, executive director of Massachusetts Healthcare Purchasing Group (MHPG). “They are saying, ‘Take it or leave it.’”
So instead of knuckling under providers’ demands or performing “actuarial acrobatics,” such as raised co- payments and fewer plan choices, employers are trying to shave costs in other ways. Some are turning to the Internet to cut administration and communication costs. Others are exploring ways to make their employees better consumers of health care, and are allowing them to share in company health-care savings. And some are borrowing best practices from their purchasing departments and applying them to health care. While companies can’t single-handedly reverse broad macroeconomic trends, they don’t have to sit still and take it on the chin, either.
Efforts to mitigate health care cost increases come at a time when past systemic reforms are starting to show cracks. In November, United Healthcare stunned the industry when it announced that it was reversing its practice of using administrators to review recommended treatments and instead giving doctors the final say. The shift marks a retreat from one of managed care’s core principles, administrative overview. While publicly employers are cheering United’s move, the decision has clearly made some of them uneasy. “It’s a public-relations ploy,” says E. J. Holland Jr., assistant vice president of corporate benefits at Sprint Corp. “It’s not clear that it was a meaningful change, because [United] has not said exactly what it is going to do instead.”
One reason employers are concerned is that United’s decision raises questions about the future of managed care, which was supposed to end years of double- digit cost increases for good. Now that promise is waning. Still, Holland maintains that the death of managed care has been greatly exaggerated. “We’re not ready to throw in the towel yet,” he says. “Managed care is here to stay.”
Communicating At Sprint
Rather than reverse the managed- care movement, Sprint continues to embrace it. The telecommunications giant contracts with roughly 100 HMOs around the country to provide care for its 78,000 employees. In addition, the company provides a self-branded point-of-service network administered by health insurer Cigna Corp., as well as three different levels of indemnity programs, also administered by Cigna. With half its employees in HMOs, Sprint is seeing significant increases in costs. Holland anticipates hikes of 9 to 15 percent this year, depending on the plan. But even with rates going up so fast, Sprint is encouraging employees to join managed-care organizations. “The indemnity plans still cost twice as much,” says Holland. “If we can encourage employees to move from the least- efficient plans to the most- efficient, we can save them a lot of money.”