January 2005

Employers attack causes of healthcare cost inflation

JAN. 27 — Despite signs of cost trend moderation, employers remain critically concerned with the business impact of escalating healthcare costs and are looking beyond cost shifting to attack the root causes of rising costs, according to a new study from global human resources services firm Hewitt Associates.

Hewitt’s survey of more than 500 major U.S. employers covering more than 6 million employees and family members finds that companies anticipate a cost increase of 12 percent for 2005, but can only afford a maximum 8 percent increase. Closing this gap continues to be a major issue for C-suite executives, and their concern is leading to significant changes in healthcare strategy.

In fact, the survey shows some companies (7 percent) are shifting responsibility for healthcare strategy to finance and purchasing executives, a responsibility previously held by human resources.

“Increasingly, companies are recognizing that incremental changes are insufficient to attack the healthcare cost crisis, so they are moving beyond the more common methods for controlling costs to create more sustained and systematic changes,” said Jack Bruner, national healthcare practice leader, Hewitt Associates. “Employers are looking to tackle the root causes of inflation through consumer-driven plans, employee education, influencing positive employee behavior changes through condition management and wellness programs, and improving the amount and quality of data available on healthcare costs and quality.”

Hewitt’s survey shows that companies’ interest in offering consumer-driven plans as a means to control costs and provide more choices to employees continues to grow. The most common consumer-driven models are health account plus high-deductible coverage (used by 17 percent of employers), multi-tier networks (6 percent), defined contribution (5 percent) and customized design (4 percent).

Consumer-driven models are expected to have lower rates of increase than traditional PPO, POS and HMO delivery systems and the build-your-own/customized design option is expected to have the lowest increase at 7 percent. Employers are most aggressively encouraging enrollment in health account plus high-deductible coverage (73 percent) and customized design plans (63 percent).

Hewitt’s survey finds that Health Savings Accounts (HSAs), which have gotten a lot of attention recently, are of interest to employers, but most are not yet offering them.

The number of companies (83 percent) using condition management programs has grown significantly in the past year — up from 73 percent in 2004. Forty-nine percent of companies profile chronic conditions prevalent in their workforce (up from 42 percent), 30 percent offer incentives to encourage employee participation in wellness programs (up from 21 percent) and 27 percent measure the health and productivity impact of disease management programs (up from 22 percent).

Employers are also addressing the adverse effects of obesity, with 64 percent providing coverage for bariatric surgery and 56 percent offering weight-management programs.

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