Rising Health Care Costs Swamp Employer Budgets

March 6, 2003 (PLANSPONSOR.com) - The cost of health care benefits escalated even more than US employers had forecast in their budgets last year, leaving some employers to turn to greater cost-sharing among the employees.

Nearly half (45%) of the employers report their health care costsexceeded their budget in 2002.  Furthermore, health care costs areexpected to jump another 15% this year, and fewer employers say they areableor willing to absorb these increases (32% in 2002 versus 52% in 2000), according to the Eighth Annual Watson Wyatt/Washington Business Group on Health (WBGH) survey.

Employers are taking their concerns to heart, as 25% said theyare not at all or not very confident in their ability to manage costs,while 57% said they are just somewhat confident. Only 18%expressed strong confidence in their ability to control health spending.

As a result of the recent cost increases, employers are more likely to use short-term cost-saving strategies in their effort to rein in expenses. These strategies include:

  • Increases in employee premium contributions – 83%
  • Cost sharing through copay increases – 80%
  • Increasing the use of health care data in decision making – 62%
  • Targeting interventions to specific conditions – 56%
  • Adding or reconfiguring coverage – 45%
  • Forming partnerships with providers – 44%
  • Providing self care information to employees – 36%
  • Reducing or eliminating coverage – 33%
  • Changing medical vendors – 29%
  • Changing pharmacy vendors – 23%

Additionally, only 43% responded to being “very confident” that their organization will continue to offer health care benefits 10 years from now.   The majority played their answers close to the vest, with half responding to being only “somewhat confident” and the remaining 7% saying they “are not at all confident” their companies will even have these benefits then.

Rising Above

However, approximately one-fifth of the 434 large employers surveyed successfully met or came inbelow their health care budget last year and expects this year’s increasesto be among the lowest at about 10%.  These “high performing”companies also report that quality of care and employee satisfactionstayedthe same or improved as a result of changes they made to their healthbenefits programs.

One key difference found amonghigh performing companies is their staged approach toward health care consumerism.“These companies view consumerism as a process and are increasing theiruseof cost sharing at the point of care to encourage employees to be betterhealth care consumers,” said Maureen Cotter,Global Group and Health Care Practice Director at Watson Wyatt.  “Low performing companies arealso interested in consumerism, but instead emphasize premium increases.They also seem to view consumerism as a ‘product,’ not a longer termprocess.”

Despite the buzz, the majority of employers are skeptical that the consumer-oriented approaches offered to date can solve the problem of rising health care costs. Only 33% are “very” or “somewhat confident” that these approaches will work, while 67% are “not very” or “not at all confident.”

However, employers hold more hope for the future, as the majority is at least “somewhat confident” that it can improve the involvement of their employees in their own health care decision-making.

Specifically, employers anticipate using more consumer-oriented strategies in the next year. More than half plan to use a range of strategies that fall broadly under the flag of consumerism by the end of 2003.   Those strategies include:

  • Placing an emphasis on consumerism – 33%
  • Providing information to employees on health care quality – 17%
  • Offering HRA and high-deductible plans – 14%
  • Providing employees with information on unit price of services – 10%
  • Utilizing clinical risk adjustment in plan selection and planning – 4%

A full copy of the report can be obtained at  www.watsonwyatt.com .