Most insurance carriers expect employee benefit insurance premiums to rise 12 percent to 14 percent for HMO plans and 14 percent to 18 percent for PPO plans in 2009. The aging workforce, increases in the costs of pharmaceutical drugs and new medical technology, and the renegotiation of providers’ contracts will be the drivers for premiums this year.
Aging Workforce As the average age of American workers rises, so does the occurrence of chronic illnesses such as cancer, diabetes and heart disease. These conditions result in increased demand for prescription drugs, technologically advanced diagnostic tests and other innovative medical procedures, all of which preclude a sharp rise in health care spending.
The U.S. Census Bureau projects the elderly population will increase considerably from 2010 to 2030 as the baby boom generation enters retirement.
Pharmaceutical Drug Costs
Advancements in pharmaceutical research continue to yield breakthroughs that will help treat and possibly prevent many illnesses. However, research and development costs also severely impact insurance companies and employers. Prescription drugs are a major cost component of HMO plans, which traditionally provide generous coverage of pharmaceutical drugs.
Some reasons for the increase in pharmaceutical drug costs include:
- new name-brand drugs introduced to the market;
- wider use of prescription drugs for disease maintenance and preventive care;
- higher prescription drug use by people who have health insurance;
- higher incidence of chronic disease and medical care to treat an aging workforce; and
- direct-to-consumer television marketing.
New Medical Technology
While the American workforce ages, U.S. life expectancy and mortality rates continue to improve. More advanced methods for early detection of diseases and better treatments for serious illnesses have played an important role in the increase of life expectancy.
In addition, diagnostics such as CT scans and MRIs are quickly replacing less efficient, less accurate and far less expensive diagnostic tools. Breakthroughs in breast cancer and colon cancer screenings, improved immunizations for children and adults, more thorough preventive care, and continuing research and development of treatments for chronic illnesses all come with high price tags.
Provider Contracts
In this economy, medical providers (doctors, hospitals and laboratories) also have seen the cost of doing business rise dramatically. Providers of medical care are forced to renegotiate contracts with insurers and drive a harder bargain in order to cover their increased costs.
Medical providers not only demand more money for their services from insurance carriers, but they also want enhanced contracts that offer more authority in claims decision-making, better terms and the ability to switch from “capitation” to “fee-for-service” contracts.
Under a capitation contract, a medical group of providers is paid a flat monthly fee depending on how many members are assigned to the group. The medical group and the providers are then responsible for coordinating care and managing the cost of care for members within the group.
Under a fee-for-service contract, the providers are paid for the actual services they perform when they are performed. The provider has less risk, but the insurance company is more involved in medical decisions and can approve or disapprove the care being offered.
Renegotiating causes many delays in contracting and uneasiness for the insureds. It also has caused insurance carriers to terminate contracts, leaving insureds with a more limited network of providers for medical care.
Most insurance companies now have two networks available to their clients. The first network offers fewer providers (less access) at a lower premium, and the second network offers more providers (wider access) at a higher premium. Often the plan designs are exactly the same in both networks. The insurance companies that run dual networks offer insureds an opportunity to lower their premiums without changing the benefit levels.
Cost Management Strategies Rising costs force employers to make drastic choices regarding employee benefits. Some cost management strategies for employers to combat the steady upward trend of health care costs include:
- increasing costs to employees;
- decreasing benefits to employees;
- a combination of increasing costs to employees and decreasing benefits; or
- absorbing cost increases.
In addition, many employers are looking at different types of funding arrangements, including adding higher deductible plans and self-funding that is deductible through a health reimbursement account or directly through a third-party administrator. Health savings accounts also are a viable option and continue to attract many employers.
A well-structured employee benefits program increases employee satisfaction and retention, and aids in recruiting new employees. An employee benefits broker can help a construction company procure the best plan at the best price, and help determine how much of the premium cost should be shared with employees.