Employer-sponsored health plans, which
are designed to benefit employees and
their dependents, continue to produce renewal rate increases of nearly 10 percent.
While there are a number of moving parts
that affect the pricing of an employee health
plan, the primary driver is the rate of inflation
of health care costs. As employers and
employees, we hear information regarding
this subject every day, but do we understand
what we’re being told by the experts?
From 1994 to 1998, health care costs
increased an average of 2 percent. Then,
during the next two years, we saw dramatic inflation nearing approximately 9.5 percent. Double-digit increases of 13 percent,
on average, were experienced from 2001
through 2004. Nationally, we’ve seen a
moderation in health care costs, beginning
in 2005 (9.2 percent), with 2007 projected
to enter the history books at 7.7 percent.
Smart Business spoke with Rick
Galardini, CEO of JRG Advisors, the management company for ChamberChoice,
about employee health plans and what
companies should expect concerning them
in the coming years.
Why are employee health plans and renewal
rates escalating?
This is where the ‘moving parts’ come
into play. The major factors that have
affected an employer’s renewal rates over
the last decade are employee demographics, prescription drug costs, expansion of
health care providers, insurance industry
consolidation, government legislation, new
medical technology, increased utilization
and consumer demand and, finally, a weakened managed care system.
To further complicate matters, the aforementioned moving parts have atypical
characteristics throughout the country.
And, insurers react to the influences of
these cost factors in different ways and at
varying points in time.
If the costs of delivering health care are
decreasing, why are renewal rates for
employee health plans increasing?
The answer can be found in the behavior of employers and their employees.
With 85 percent of employers having
fewer than 25 employees, neither party
can easily understand the solutions
related to mitigating the effects of medical cost inflation. Smaller employers
lack the day-to-day expertise to analyze
the problem and grasp the alternatives.
Employees are not being properly educated with regard to the consumerism
movement and the realities of condition
management, wellness programs, varying costs for health care services and
appropriate use of health plan features.
While larger employers are experiencing
flat or decreasing renewal rates, smaller
employers will continue to be the recipients of double digit increases.
Who is at fault for this disparity?
Employers blame the health care delivery systems — the hospitals, doctors,
the pharmaceutical industry and the
insurance companies. Those blamed by
employers turn right around and point
the finger at the employer along with
their employees and dependents. The
fault lies with all involved. The fix is
clearly evident as you watch what larger
employers have successfully instituted,
managed and monitored.
Employees and their dependents need
to be told the answer to the problem.
However, they need to be provided with
the appropriate tools and advice to
understand these answers. Insurance
companies can only react to the behavior of the employers and employees
making decisions as it pertains to the
choices of health plans and their utilization. Clearly, insurance companies have
the obligation to supply the employer
and employee with the information necessary to make informed decisions. The
health care provider community has the
obligation to control costs by delivering
their services at the right time, in the
appropriate setting and at a fair price.
RICK GALARDINI is the CEO of JRG Advisors, the management company for ChamberChoice in Pittsburgh, Pa. He can be reached at
(412) 456-7013 or [email protected].
