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An Employer’s Guide to Combating Health Care Premium Increases
by Dayna DeVito-Fleck, Lockton Insurance Brokers

Health care costs and, consequently, health insurance premiums are rising at an alarming rate. Can you avoid it? Probably not, but you can learn why it is happening and how to decrease its impact on your organization and employees.

Industry projections estimate that annual health plan renewal premiums in 2001 will increase 10 to 13 percent for large employers and 20 percent or more for smaller employers. Unfortunately, increases of 10 percent or more are expected to continue for the next several years.

What are the causes of these skyrocketing costs? Several market conditions have lead to the current onslaught of steep increases. The following illustrates the key factors:

    1. Demographics — The Aging of America
    2. Dramatic Rise of Prescription Drug Costs
    3. Consolidation of Managed Care Companies
    4. Expansion of Providers
    5. Political Environment
    6. Increase Utilization and Consumer Demand
    7. New Medical Technology
    8. Weakening of the Managed Care System
    9. Health care Spending and Medical Cost Inflation

What Can You Do?

You and other employers are undoubtedly trying to determine how to keep accelerating health plan premiums from having debilitating consequences on your organization. Many firms will try to absorb most of the costs because of employee attraction and retention issues but will have to pass portions of the costs on to their employees in the form of increased contributions in some cases. In particular, small businesses will face the critical decision to raise employee contributions or to discontinue offering the coverage altogether. Should you pass costs on to employees at the risk of losing some of them? Or, should you try to manage costs in other ways?

Firms around the United States are undertaking a variety of measures to help minimize the effect of premium increases on their organizations. Ultimately, it is a decision that you need to arrive at through thoughtful and detailed analysis of your plans and with the advice from a broker-consultant. However, there are a few general options to consider as you explore your particular situation.

  • Review your prescription drug plan design. Prescription drug costs are one of the primary drivers of the health care cost trend. We’re seeing approximately 18—20 percent increases. In response, many carriers are offering and many employers are selecting three-tier pharmacy co-payment models.

  • Strengthen your managed care plan and increase employee out-of-pocket expenses. Introduce larger co-payments and deductibles for services such as office visits and make penalties for out-of-network services stricter.

  • Regularly review the cost efficiency of your plan and make adjustments to improve efficiency. This may mean either changing plan designs or changing carriers altogether.

  • Consider reinventing your current "Defined Benefit" approach to a "Defined Contribution" approach. Many employers have redesigned their current employee contribution strategy to a Defined Contribution Program, which helps to educate employees as to the actual cost of healthcare coverage, empowers employees with choices that fit their individual needs and allows them to be better consumers of health care.

  • Offer a wellness program to your employees. These programs usually entail offering discounts for fitness and nutrition programs and products and other means of encouraging employees to live healthy lifestyles and focus on preventive care.

What Should I Tell My Employees?

Communicating consistently throughout the year is one of the best ways to maintain employee satisfaction and morale about their benefits package. If your employees understand current trends in the health care industry, they will be more supportive of any required changes and will appreciate the resources to provide them with their health care benefits.

It’s a fact: Health care costs and health plan premiums are increasing at an alarming rate. As an employer, you want to continue to offer valuable health benefits to your current and future employees, and you want those benefits to help you attract and retain good employees.

Employees appreciate hearing this, and what steps have been taken to purchase the best and most affordable insurance plans available.

Dayna DeVito-Fleck is a Partner with Lockton Insurance Brokers, a national Risk Management and Employee Benefits Brokerage Firm. She has successfully assisted her clients in cost containment strategies, employee communication themes and program design/implementation. Dayna can be reached at (949) 252-4414 or via email at dfleck@lockton.com.

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