Getting to grips with spiralling health costs

Feb 18 2006 by Brian Amble Print This Article

U.S. companies are stepping up their efforts to control spiralling health care costs as a new survey finds that the increase in the cost of health care has slowed for the fourth consecutive year.

Research by Watson Wyatt Worldwide and the National Business Group on Health has found that employers expect health care benefit costs to increase a median eight per cent this year, down from the 10 per cent increase they expected in 2005.

The vast majority of employers surveyed Ė more than eight out of 10 - also said their health care benefit costs came in at or below budget in 2005. Employers expect prices to increase about eight per cent again in 2007.

Although health care cost increases have declined steadily since 2002, U.S. per capita spending on health care remains twice that of many other industrialised countries. In addition, the increase in health benefits prices continues to outpace the rate of growth in wages and other business costs.

As a Towers Perrin survey last year revealed, the cumulative effect of years of double-digit increases means that employers are paying 140 per cent more now than they were 10 years ago.

Meanwhile, an eight per cent hike in costs still means that this year's gross health care expenditure is expected to rise by an average of $597 per employee, reaching an average total cost of $8,424.

"Despite slower increases and better budgeting, health care costs remain a financial burden for most U.S. employers," said Ted Nussbaum, Watson Wyatt's director of group and health care consulting in North America.

"Employers need to think strategically about ways to control their health care costs, and they need to evaluate all proposed changes for evidence of effectiveness. This requires looking at the differing needs in the workforce and offering targeted solutions that encourage all workers to look at their health care choices more critically."

Although virtually all employers are very or somewhat confident that they will continue to offer health care benefits 10 years from now, many are planning to implement strategies to better manage their health care benefit programs.

A third of employers said that in the next one to two years they will start encouraging workers to use health care services wisely while one in three said they plan to increase accountability of employees to manage their own health. About a quarter plan to focus on ways to improve their workers' health.

Employers are also implementing a wide variety of cost management strategies. Nearly half of employers (47 per cent) are currently auditing or reviewing who is eligible and who enrols in their health care plans, or plan to begin doing so this year.

But although four out of 10 employers surveyed said they are prepared to absorb cost increases rather than pass additional costs on to workers, it is clear that many other employers are not.

GM announced earlier this month that it will cap health-care spending for all other salaried retirees and their families at 2006 levels, forcing them to shoulder all future increases in health costs, in a move that is set to save the company $900m (£515m) a year, before taxes.

Verizon, IBM and Japanese car giant Nissan, among others, have recently announced similar moves.

But despite this, Helen Darling, president of the National Business Group on Health, insisted that most companies remain committed to providing health care benefits for their workers and families.

"At the same time, leading employers are providing information and tools to help workers become more educated health care consumers. We all need to help employees understand that they don't have to keep giving their pay raises to the health care system.

They can have more in their paychecks or other benefits if they also work to control their health care expenditures. Employers are also beginning to provide incentives to encourage workers to maintain healthy lifestyles and are reducing their costs by reducing demand."