Caring for health care benefits Featured

12:12pm EDT February 28, 2006
Health care costs have been rising at double-figure rates for a number of years. There are a host of factors involved, but so far, few solutions. As a result, many businesses have had to scale back their health care benefits or eliminate them entirely.

Kathy Holmes, vice president and manager in employee benefits for Sander A. Kessler & Associates Inc., is keenly aware of the burden employees face. “The inflation factor is three times higher for health care than earnings over the past 15 years,” she says. “It’s a huge concern and will take a complicated solution to fix the problem.”

Holmes spoke with Smart Business about why health care costs have risen, the best practice to safeguard against higher insurance costs and how changes to an existing plan should be handled with employees.

What are the reasons behind the rising costs of health care?
We’ve summarized what we consider to be the top 10 reasons for the premium increases and rising cost of health care.

  • Increased utilization. There has been a dramatic increase in the use of health care services.

  • Pricing catch-up. Insurers are seeing pent-up demand by providers for increased payments to compensate for past shortfalls in their budget.

  • Expensive disease treatments. People are living longer with chronic diseases.

  • Consumer demands. Many Americans feel entitled to unlimited, unrestricted access to any doctor, technology or treatment available.

  • Pharmacy advertising campaigns. These raise demand for prescriptions that may be medically unnecessary.

  • New technologies. America leads the world in expensive diagnostic and therapeutic procedures.

  • New laws and regulations. State and federal governments are increasingly intervening in health care requiring HMO’s and other managed-care carriers to provide specific specialty and ancillary services.

  • Overcapacity. Research shows that growth in hospitals and medical specialists lead to an increase in medical services provided.

  • Increased lawsuits. Malpractice lawsuits have skyrocketed during the past 20 years.

  • Persistent variation. There is a variation in the type of medical services provided in any given region.

What best practices can businesses use to help control health insurance costs?
The best tool is employee education — teaching them how to utilize their programs better. Although the insurance companies are paying for the services, it is important to be sensitive that there is a cost related to the services. When those costs go up, or if utilization goes up, then the premium is also going to go up. So primary employee education is the best practice.

What advice would you give to businesses struggling to provide insurance benefits for their employees?
The employer needs to look at benefits and payroll as a total compensation package. They should be projecting into their budget what those costs are going to be and integrating those costs into their future business plans in terms of what they may need to do to increase their income to cover these costs and still remain competitive with like businesses.

How should changes to an existing health plan be conveyed to employees?
We find it very effective to do employee announcement pieces. Typically, these show what the previous program covered, and then side-by-side to that, what the changes are so they have a true understanding of what exactly changed.

Also, have group meetings with employees, as well as one-on-one sessions, so it gives them a better understanding of the plan and how the changes personally affect them. With the group meeting, a representative of the health care provider should be present for legal purposes and to make sure that the benefits are represented accurately.

What are some of the pros and cons of managed care versus fee-for-service?
The pro for managed care is cost containment. This doesn’t sound logical when you look at the costs continuing to increase; however, without managed care there would be much higher increases.

For fee-for-service there is a much greater freedom of choice for the employee to go out and receive care from whichever provider that they please. But there is a higher cost affiliated with it.

Kathy Holmes is vice president and manager in employee benefits for Sander A. Kessler & Associates Inc. Reach her at (310) 309-2276 or kholmes@sanderkessler.com.