Employers Face Potential Backlash From Cost-shifting

Higher Out-of-Pocket Expenses Increase Risk for Chronic Illnesses

Healthcare spending may have slowed down this year but not because the nation is getting any healthier. And certainly not because skyrocketing costs from medical visits, lab tests and prescription medications have suddenly come to a screeching halt.

Many healthcare consultants believe the dip in premium increases, from 13.9 percent in 2003 to 11.2 percent in 2004,[1] is mostly a result of companies shifting more of the costs to employees through higher deductibles and co-pays for doctor visits and prescriptions.

“The problem of healthcare costs isn’t going away,” says Don Hardin, senior healthcare consultant with Mercer Human Resource Consulting. “Health costs slowed down because people are having to pay more. People are putting off going to the physician.”[2]

Hardin advises employers not to get too zealous in their use of this cost-cutting method. “Employers must be careful not to overburden their employees, who may decide not to seek care for health problems that may escalate into costly illnesses,” he says. “There’s a limit to cost-shifting, and I think we’ve reached it for the time being. We’ll start to see people not getting the care they need.”

With medical premium increases in 2005 estimated to reach 10 percent, more cost-shifting is highly likely this year, says Michael Carter, a vice president with Hay Group, a global and human resources consulting firm. Echoing Hardin, he warns that “there is a limit to the amount that companies can shift to employees, particularly lower-paid employees.”[3]

Disease Management “Best Long-term Strategy”

Companies will need to incorporate other cost-cutting strategies into their overall plan, Carter stresses. “Disease management, which lowers costs by improving employees’ health, currently is the best long-term strategy for controlling costs,” he says.

About 31 percent of the largest companies offering disease management services told Mercer Consulting they saved more in health costs than it cost to provide the programs.[4]

Mercer’s annual survey of 3,000 employers revealed that 55 percent of companies with more than 500 employees offered a diabetes disease management program in 2004, up from 42 percent in 2002, and 46 percent offered a program for heart disease and blood pressure, up from 36 percent in 2002.[5]

In an order to inspire interest in disease management programs, more companies are giving employees the option of enrolling either in a consumer-driven health plan with higher out-of-pocket expenses or a disease management program.[6] Hay Group’s clients are turning to “employee consumerism,” which involves educating employees about how cost increases affect them and what they can do to lower costs, such as enrolling in a disease management, wellness or prevention program.[7]

Costs Pricing More People Out of the Insurance Market

A recent report stressed that the number of Americans without health insurance, already 45 million or 15.6 percent of the population, will continue to grow as healthcare costs increase.[8] This includes employees who can no longer afford premiums for healthcare insurance.

Overall, consumer-driven healthcare plans and cost-shifting are helping to lower healthcare spending but not enough to produce a significant or long-lasting difference in healthcare costs, according to the report by the Center for Studying Health Change and the Employee Benefit Research Institute.

“Healthcare costs are pricing more and more people out of the insurance marketplace,” says Paul Ginsburg, president of the Center and co-author of the report. Even if the growth rate of healthcare spending slows down again, the cost of employer-sponsored insurance could continue to outpace the growth in workers’ wages, forcing more Americans onto the uninsured rolls, his report says.

“These are still larger increases than anyone can afford in the long-term,” says Gary Laugharn, regional client leader for Hewitt Associates, a human resources outsourcing and consulting firm, who also recommends disease management programs to his clients for long-term financial benefits.[9]

“Many of our clients are saying these are worth investing in today,” Laugharn says. “Employers are beginning to believe that the more they can do to keep people healthy today, the more time they can devote to being good workers.”

[1] Employee Benefit News, “Healthcare Cost Increases Easing,” Oct. 1, 2004

[2] The News & Observer, Knight Ridder/Tribune Business News, “Survey Finds Higher Health Costs,” Nov. 22, 2004

[3] Accounting Office Management & Administration Report, “Healthcare Benefits Costs: What to Expect in the Coming Year”, Dec. 1, 2004

[4] The News & Observer, Knight Ridder/Tribune Business News, “Survey finds higher health costs”, Nov. 22, 2004

[5] Ibid

[6] Winston-Salem Journal, Knight Ridder/Tribune Business News, “Employer-paid health insurance premiums may rise by 13.5 percent, study shows”, Nov. 10, 2004

[7] Accounting Office Management & Administration Report, “Healthcare Benefits Costs: What to Expect in the Coming Year”, Dec. 1, 2004

[8] Modern Healthcare, “Uninsured may rise with costs”, Dec. 6, 2004

[9] Houston Chronicle, “Insurance increases becoming more personal; More businesses are putting health choices in their workers’ hands”, Nov. 28, 2004