Health Insurance Increases Improve but Remain Burdensome for Many

It's hard to imagine a time when we would believe less of more could be a good thing. Yet, when it comes to health insurance premium increases, that is precisely what gives employers a big sigh of relief. Annual rate increases continue to shrink below the 10 percent figure, and employers are now considering what opportunities they have to control expenses even more effectively.

According to the Watson Wyatt 11th annual National Business Group on Health, the best-performing companies are achieving a 3 percent median cost increase from 2004 to 2005 and from 2005 to 2006. When compared to an annual 11.5 percent increase from underperforming peers, the gap is surprisingly - logical. Bottom line, you can ask yourself: how do I get there?

For 2007, employers are looking more closely at how they purchase coverage and what tools employees need to help themselves more effectively procure healthcare. Both of these events will directly reduce the burden of health insurance rates.

DRIVING THE RIGHT VEHICLE?

For the vast majority of employers, insurance companies provide three different services.

First, they have negotiated rates with healthcare professionals, hospitals and pharmaceutical manufactures to obtain "wholesale" pricing. Second, for most employers, they are insuring all or a significant portion of your risk. Finally, the insurance company answers employee questions, processes claims and determines benefit eligibility.

Premiums, the rate that employers pay to provide healthcare coverage to their employees, are generally 86% claim related. Think about that - 86 cents of each and every healthcare dollar is tied to the payment of services including doctor's office visits, lab tests, hospitalizations and prescriptions.

Best-performing companies show a greater willingness to survey their employees' utilization patterns and consider which vehicle provides the most cost effective "wholesale" pricing solution.

Cleveland, Ohio is a perfect example of such a marketplace. Defined by two (2) competing hospital systems, Cleveland insurers pay different rates to each provider. While both healthcare systems may be a 'preferred' provider, one is clearly more cost efficient. Unfortunately, in the short term, the efficiency of a healthcare system and the rate for services covered by your insurance company don't always equal the lowest rate on your renewal spreadsheet.

Considering that 86% of your healthcare expense is tied to the vehicle's ability to secure the best cost of services on your behalf, doesn't it pay to determine which healthcare vehicle would provide your staff with the most cost efficient solution?

The market is predictable: over the long-term, the insurance provider with the most cost effective model for securing services on behalf of your company will deliver the most aggressive pricing.

WHAT TOOLS DO MY EMPLOYEES NEED?

Just three years ago, industry experts believed that the Health Savings Account (HSA) could inspire real consumerism. The theory was that the only tool employees needed was to be in charge of their own healthcare account and have a backup information system to support their decision processes.

Today, experts and employers agree that healthcare tools are equivalent to employee engagement ideas. Engaging the employee and their dependents transcends the type of plan you offer, be it a Health Savings Account, High Deductible Health Plan or a traditional deductible and copay PPO.

Best of class employers use leading edge plans designed to achieve three key objectives: increase employee awareness of their healthcare coverage and cost, promote a more appropriate use of services and perhaps most important: create incentives for employees to improve their health and lifestyle. Meeting these objectives can only be done if we provide employees with the right tools.

First, increasing employee awareness of healthcare coverage and cost requires a full time benefit communications strategy. Gone are the days where employers simply send out the annual open-enrollment memorandum explaining how much more coverage will cost. Today's best performing employers are increasingly using monthly benefit newsletters, promotional wellness programs and year end benefit value statements to communicate to employees the true 'worth' of their coverage.

Second, employers use promotion opportunities as a forum for consumer education. The message is simple: receive care when necessary - avoid abuse and over utilization. One example involves a recent national healthcare journal that documented nearly 4 out of 5 emergency room visits as unnecessary and far from life-threatening.

To address the issue, leading edge employers promote responsible utilization by embracing a three pronged strategy to: (a) make 24-hour ask-a-nurse services available, (b) educate employees as to appropriate severities requiring emergency room care, and (c) implementation of significant penalties for non-emergency use of the emergency room.

Regardless of the application, the remedy is consistently to make alternate resources available, educate for appropriateness and then penalize non-compliance.

Third, employers are finding new and creative ways to help members help themselves. Clinical studies show that lifestyle can impact a population's claim utilization by up to 13%. Employers are embracing benefit initiatives that incent smoking cessation, appropriate body mass index, physical fitness and blood pressure/cholesterol management. By tying coverage levels to a participant's quality of life, employers are beginning to improve participant wellness and reduce healthcare expense.

SUMMARY

While increases less than 10% may appear to be breath of fresh air for employers, cost increases remain an incredible burden for employees and employers. The days of changing carriers annually or even bi-annually may be coming to an end. Employers will be forced to begin thinking longer-term, aligning their coverage with the insurance provider (vehicle) that can deliver the best long term services procurement.

Participant education in the areas of cost, quality, utilization acceptability and healthy lifestyle will continue to redefine the market's efforts to move toward consumerism.

Whether you purchase direct from the market or through a broker or consultant, expect that your representative will be able to assist you with the assessment of carrier viability and development of a strategy and expected rate of return from consumerism objectives. Employers who push their consultant in this direction will be better positioned to control expenses and enhance employee outcomes and benefit satisfaction in the future.

Kyle M. Anthony is Vice President of Behnke & Company. Founded in 1918, Behnke is a leading risk management consulting firm with specialization in property and casualty, captive management and employee benefits. You can email Kyle at kanthony@behnkeohio.com.