The Source - Fighting the Rising Cost of Healthcare

Despite rapidly rising healthcare costs, an overwhelming majority of companies say they have no plans to cut or eliminate coverage for their employees. So says a survey by Watson Wyatt Worldwide, the Washington Business Group on Health, and the
Healthcare Financial Management Association.

The survey, which polled 360 employers, reports overall healthcare costs increased 10.3 percent, and prescription costs increased 14.6 percent in 2001. But only 14 percent of companies said they would cut or curtail coverage. Companies continuing to provide coverage cited three reasons for doing so:

Good and capable workers with chronic illnesses typically need intensive or special care regularly to stay productive. If they can’t personally afford this kind of medical attention, they cease to be productive employees.
There’s still a tight labor market in many sectors, and benefits are one key to attracting and retaining good employees.
Every time you have to replace a worker, there’s a cost and risk involved. New employees are an investment, and keeping them healthy can help ensure a good return on that investment.

If you don’t intend to reduce or eliminate healthcare benefits, what can you do to lower the cost? One is to change your attitude about what constitutes medical costs; the other is to change the way the program is administered.

Changing Healthcare Strategy
A good way to evaluate whether you’re spending your healthcare dollars effectively is to examine the impact of treatment costs, disability absences, and lost productivity. So says a study by the Integrated Benefits Institute (IBI), CORE INC., and The MEDSTAT Group. Researchers spent two and one-half years looking at 308,000 claims and 32,000 related short-term disabilities for a Midwest manufacturer with 72,000 employees. The manufacturer spent a total of $1.4 billion on treatment and associated healthcare costs. Medical treatment costs were less than 20 percent of the total. Lost productivity was almost $1 billion.

The report concludes that to ascertain actual healthcare costs, a company must look at treatment and disability costs together. Although it’s difficult to do, you can start by identifying healthcare plans that have the most accompanying disability claims and linking the results to key diagnoses that cost the most money. This allows you to analyze treatment not as individual events but as a series of disabilities that have financial consequences. For several points from the study, see the list at right.

Making Administration More Efficient
The proliferation of the Internet brings several ways to lessen the administrative costs of managing health care benefits, including:

Using the Web as a resource for plan information. Put the company’s insurance handbook online. This way whenever employees have questions about plan rules, restrictions, co-pays, or network doctors, they can access the information.
Using the Web to reduce administrative headaches. Allow participants to conduct transactions — such as annual enrollment, renewals, premium payments, and processing of claims forms — online. It saves time and money. (Watson Wyatt estimates savings between three percent and five percent.)
Using the Web to promote health. Customize messages promoting health and wellness by age, gender, and even medical condition. For example, if several employees have diabetes, provide information about new treatments only to them. Employees can also keep track of when they had routine physicals or flu shots. The biggest advantage to employers is that employees can take care of these matters on their time. With around-the-clock access to insurance information, employees can focus on work at work.

Although comprehensive healthcare benefit software packages don’t exist yet, don’t let that stop you from using the Web. Not only will it reduce your costs, but it can improve privacy for employees and assure them of better and more readily accessible information.

Results of IBI Study of Total Healthcare Costs

Medical plus disability costs vary widely by health plan for the same medical conditions. Under fee-for-service plans, employees had higher medical and disability costs plus longer periods of disability than those employees who had PPO plans. In addition, costs for mental health treatment and disability were on average 22 percent higher than the least expensive PPO, and 18 percent higher for back and spine conditions.
The difference in cost between employer-paid health plans is primarily from short-term disability benefits, rather than medical care payments.
HMO plans have the largest share of brief short-term disability claims. Although this reduces average disability costs, there is a tradeoff. With HMOs come productivity problems. This includes high turnover, which puts increased strain on supervisors.
Nine conditions account for 75 percent of all medical and disability costs. Of those, musculoskeletal, cardiovascular, and mental health costs account for half.
Employees on short-term disability comprise 11 percent of cases but cost 53 percent of total dollars spent on health and disability.