Managing crisis Featured

8:00pm EDT March 26, 2008

The rising cost of health care is often branded as a crisis and draws the attention of many.

Everyone from special interest groups that lobby to protect their constituents to buying groups interested in spreading risk over larger numbers, from politicians who hope their “solution” will get them elected to office, and, of course, to the average American worker who finds it more difficult each year to pay his or her portion of the premium and faces increased co-payments and other out-of-pocket expenses.

The United States spent $1.6 trillion, or nearly 15 percent of gross domestic product, on health expenditures in 2002. Medicare, the government’s single payer model for seniors, spent $267 billion.

Analysts project national health care expenditures to reach $3.1 trillion by 2012 — nearly twice the amount spent in 2002. The dramatic numbers have a tendency to overstate the obvious — for many, the cost of insurance can be as much as, if not more than, rent or a mortgage.

Until the administration places its focus on the rising cost of health care, those costs will continue to escalate far exceeding the rates of earnings.

Whether you subscribe to a higher monthly premium charged by a health maintenance organization or a payroll tax collected by the government, someone has to pay the bill. Shifting the burden from a premium bill to a tax bill is not acceptable.

Smart Business spoke with Dave Chiappino, sales executive with JRG Advisors, the management company for ChamberChoice, to learn more about health care premiums.

What are the reasons health care premiums continue to rise?

One culprit is known as ‘trend,’ which can be described simply as a prediction of how much health care utilization and corresponding cost will increase during the next policy year. Trend includes:

  • Inflation — the increase in unit cost of services, including provider overhead, etc.

  • Utilization — the increase in the number of services consumed.

  • Cost shifting — As certain payers, such as the government and the uninsured, pay less for services, the providers are forced to charge more to make up the difference.

  • New technology — Having the latest and greatest equipment is one way that doctors and hospitals compete for patients.

  • Prescription drugs — The cost to develop new drugs is staggering. Direct-to-consumer advertising has created an expanding market for these drugs.

Why can’t we gain more control over trend?

During the last 10 years, economic inflation has averaged a manageable 3 percent per year. But health care cost trend has averaged 12 percent per year. One reason for the double-digit inflation of health care cost is that when purchasing medical services, consumers do so without the same discern as for all other purchases of goods and services. While we may receive health care services that cost hundreds or even thousands of dollars, we may pay nothing or a small co-pay or deductible for these services. The consumer literally has no idea of the actual health care cost. There is little incentive for consumers to care what services cost or to consider an alternative service that may be less expensive or even have a better outcome.

How can employers solve rising trends?

Although no single employer is going to lower trend for an insurance company, there are still several things that employers can do to support an overall longer-term solution and, at the same time, lower premiums for themselves.

One, affiliate with an association, insurance company and broker that strongly encourages and supports wellness, and then get your employees involved. Two, consider offering high-deductible health plans so employees and their providers consider cost when looking at treatment alternatives. And, three, provide employees with access to data that is currently available regarding cost and quality so that they can make informed decisions.

If more employers can get their employees and their covered dependents to be discerning and educated consumers, then we have a better opportunity to positively impact some of the factors that contribute to trend and rising health care costs.

DAVE CHIAPPINO is a sales executive with JRG Advisors, the management company for ChamberChoice. Reach him at (412) 456-7015 or