Nationwide there is an increasing pressure for companies both large and small to provide affordable and effective medical insurance in an uncertain economy. But as various controllable and uncontrollable factors increase health care costs, it can be challenging for employers to find a benefits package that meets their needs and budget.
“Employers need to have a strategy that is consistent with not only their business objectives, but also with their company’s culture and actual health assessment,” says Teresa Koenig, M.D., MBA, senior vice president and chief medical officer for SummaCare, Inc.
Fortunately, solutions do exist, so it’s essential for business owners and upper-level management to work with their independent insurance agents and/or insurers to identify areas of potential wasteful spending and design benefits packages tailored with a company’s specific needs in mind.
Smart Business spoke with Koenig to learn about the top drivers of health care costs, as well as ways employers can successfully manage their health care expenditures.
What are the top drivers of health care costs?
Increased utilization, lifestyle choices, excess price inflation and mandated benefits are some of the top drivers of increased health care costs. We are a culture of diagnosis and treatment instead of prevention and healthy living, and consumers need to transition to the mindset of making better decisions in regard to their lifestyles and behaviors.
Increased utilization is a large component of rising health care costs, and it comes in various forms, including lifestyle choices and advertising. Lifestyle choices increase utilization because 70 percent of health care costs are attributable to employee behaviors. This is especially true in relation to cardiovascular disease, cancers, diabetes and obesity. Additionally, direct-to-consumer advertising can deceive consumers into thinking certain prescriptions and/or procedures can ‘solve’ medical conditions, thus pushing consumers towards treatments they may not necessarily need.
New technology also accounts for increasing health care costs, with advanced medical technology sometimes not being effectively tested to truly determine the long-term outcomes and benefits. The practice of defensive medicine also has an effect on increased costs because physicians may order tests not truly needed for liability purposes.
Finally, price inflation is the largest driver of health care costs in the United States today. As with everything, the cost of receiving care is increasing at a quicker rate than consumers can afford, and, especially in a down economy, medical consumer price index (CPI) significantly outpaces general CPI.
What can employers do to help contain health care costs?
To help contain health care costs, employers should look at their medical benefits package and determine if the package being offered is really meeting the needs’ of their employees. Employers should select a medical benefits package that delivers the right care at the right place at the right time, thus reducing costs in the long-run.
Another effective way to contain health care costs is by cost-shifting. Not only will cost-shifting help an employer recognize a significant savings and effectively manage their health care spend, but it forces awareness to the consumer and will make employees become more engaged in their health care decisions.
Employers looking to contain health care costs should contract with an insurer who offers health and wellness programs, including disease and utilization management programs. It’s also important to select a health insurance company who engages with a pharmacy benefit manager so that care coordination and benefits are maximized.
Behavioral economics is a growing trend that makes consumers more accountable and may help lower costs. In behavioral economics, responsibilities are shifted to the consumer, who then receives incentives for healthy behaviors and disincentives for unhealthy behaviors. Incentives can include things like rewards and lower premiums for employees who do things such as voluntarily enroll in health and wellness programs, while disincentives can include charging a smoker a higher premium until he or she successfully quits. However, employers should take extra caution to make sure that they are not practicing discrimination through these incentives and disincentives.
How will health care reform affect costs?
Because of the ever-changing nature of health care reform, the cost of health care could significantly change in the future. Until final legislation is passed, however, there is only speculation as to the true effect on employers.
TERESA KOENIG, M.D., MBA, is senior vice president and chief medical officer for SummaCare, Inc. Reach her at [email protected]. SummaCare, Inc., a provider-owned health plan located in Akron, Ohio, services members in an 18 county service area through a network of over 7,000 providers and many top hospitals.
