With corporate revenues continuing to limp along, health-care benefit costs have become a matter of considerable concern for CFOs. The hard reality is, group medical-plan premiums will undoubtedly rise again next year. The jacking-up of premiums has left finance chiefs scrambling to rein in costs, while still maintaining decent coverage for employees.
It’s a tough act to pull off. Says Richard Ostuw, a senior consultant at Towers Perrin: “The biggest short-term challenge that employers face is balancing the conflict between limiting cost increases and minimizing the disruption and backlash from employees.”
Those cost increases will be substantial. According to Towers Perrin’s Health Care Cost Survey released in October, large-sized companies will see double-digit increases in their health-care costs in 2003. That’s the fourth year in a row such companies have seen such increases.
And there’s more good news on the horizon. The average cost of benefit plans for large companies will jump up 15 percent next year. That’s the highest year-over-year increase since Towers Perrin began conducting the survey in 1989 — and that percentage is coming off a high base to begin with.
Medical insurance premiums are rising so quickly, in fact, that employers have little choice but to pass costs on to employees. According to Towers Perrin, workers will pay 19 percent of their health-care benefit costs for employee-only coverage in 2003. In 2002, that figure was closer to 17 percent.
In addition, employees will pick up 22 percent of the costs for family coverage next year, compared to the 21 percent they paid this year. Cost transfers are likely to come in the form of higher monthly contributions, deductibles, and co-payments
Asking employees to pay more out-of-pocket expenses, while a reasonable approach, will only get employers so far. Hence, many corporates are eagerly seeking longer-term health-benefit solutions, particularly since health maintenance organizations appear to have lost their clout with medical providers and pharmaceuticals.
Some corporates are increasingly willing to experiment with innovative health-benefit approaches — things like Health Reimbursement Accounts (HRAs).
Such plans are intended to raise employee awareness about the financial implications of their health-care choices. Employers say cost-sharing and tiered-pricing plans, which create incentives for using lower-cost health care alternatives, are particularly effective in curbing excessive payouts for prescription drugs.
In addition, some employers are leveraging business intelligence technology to help them better manage health-care data. Armed with better information, plan sponsors can make adjustments that align financial goals with employees’ health-care usage.
Others are getting more aggressive about disease-prevention programs and are more proactively providing educational services to their employees. Many are finding that they can cut costs by implementing programs that target the chronic conditions that result in the greatest expense. According to research from consultancy Towers Perrin, about 15 percent of employees account for nearly 75 percent of health-care benefit costs in any given year.