Health plan fallout Featured

7:00pm EDT January 29, 2008

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