Benefits coverage is a valuable part of your employees' overall compensation package, and benefits help you protect your company's greatest asset -- its employees. But climbing rates make covering premium and deductible costs increasingly difficult. These unpredictable, uncontrollable rate hikes pose serious threats to employers' bottom lines.
Many employees don't realize the impact health care coverage increases have on their employers' financial health, and most do not understand why rates continue to rise. Why is health care so expensive today? Do your employees know how much you pay for health benefits?
Educating employees about the rising costs helps them understand why cost-sharing solutions are popular among employers. An employee benefits consultant can provide educational tools to assist employers in communicating the following reasons for health insurance hikes.
America's "older" population is growing rapidly, while the number of younger adults and children remains stable, or in some cases, decreases. This mature demographic make-up requires more medical attention, and increased health care insurance utilization drives up costs.
As the Baby Boomer generation enters the 65-and-older category, the demand for health care coverage will be even greater. Elevated usage of prescription drugs and overall health care spending sparks a need for more resources, and someone must pay for these services.
Rising prescription drug prices
As pharmaceutical research continually provides treatment breakthroughs, the costs associated with progress affects insurance companies and managed care organizations and, consequently, employers who sponsor employee health plans. Rising prescription drug costs are a primary cause of escalating health care spending.
Why are prescription drugs more expensive? Reasons include new brand-name drug instructions, increased usage, more aggressive diagnoses and treatment methods and direct-to-consumer advertising of prescription drugs, which was outlawed by the Food and Drug Administration until 1985.
Competition among managed care companies and insurance carriers was fierce during the 1990s managed-care boom. To gain market share, large insurance companies acquired smaller firms and maintained low rates to stay competitive. This process led to dips in profitability and stock prices. Now, surviving companies are faced with less competition and are committed to returning to profitability, therefore increasing employers' health plan rates.
Expansion of providers
Expansive health care systems with acute-care hospitals, specialty facilities, clinics, labs, physician practice groups and other services are more prevalent today. These systems also require money to fuel their growth.
Political environment and government regulation
Health insurance is one of the most regulated sectors on both state and federal levels. Mandated benefits have increased 25-fold in the last 30 years. Often, these mandates duplicate or conflict with each other and usually are partnered with increased costs to health care systems.
Increased utilization and consumer demand
More people take advantage of health care services today for a variety of reasons -- improved medical technology, the influence of managed care, elevated consumer awareness and demand, and a boost in practicing physicians. Additionally, services such as breast cancer screenings, pediatric immunizations and diagnostic procedures such as MRIs also have experienced sharp utilization increases.
Old techniques are being replaced by new treatments and medication for diseases and acute illnesses. These developments play a major role in enhancing life expectancy and mortality rate statistics. However, these new technologies and procedures come with hefty price tags, and also influence the price of health care benefits.
As employers seek innovative solutions to share costs with employees, while still offering their work force valuable health care benefits plans, they also must explain to employees why costs are increasing. Understanding the variables that play into cost hikes helps employees realize the importance of their contribution.
Jessica Galardini is COO of the Chambers of Commerce Service Corp. and executive vice president and COO of HRH Affinity Marketing Group. Reach her at (412) 456-7012.