CONTROLLING RISING HEALTH CARE COSTS

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1 CONTROLLING RISING HEALTH CARE COSTS Kiplinger's estimates that in 2003, health care costs will increase by an average of 18%. Small and midsized companies may be hit with a 25%-30% hike. So PLA tapped various HR and Benefits pros for their advice on handling the burgeoning benefits burden. While some strategies may be specific to an employer's size, you may be able to glean ideas for your own organization. The recurring themes that are emerging as employers struggle to keep health care costs down are: 1. increased cost-sharing with employees; 2. educating and communicating with employees; and 3. Controlling prescription medication costs. Take a look at some of the specific tactics employers are already taking or are just beginning to explore. Having employees pay a percentage of costs for office visits, prescriptions, etc., instead of a fixed- dollar co-pay, which may encourage them to use cheaper options. Cutting contributions to employee premiums. For example, if you are currently paying 80% of employees' premiums, reduce that to 75%. Investigating different carriers. Compare prices, services, and track records. Don't forget to ensure quality of care, which can also save money in terms of avoiding unnecessary procedures and avoiding complications that can add expenses. Also, have your insured lines (life, LTD, and stop-loss) quoted every year to make sure you're getting the most favorable pricing possible. Using brokers to get better deals. Smaller companies typically find that they get slammed if they don't go in as a larger group. Some industry associations offer purchasing groups and can be a good source of lower-cost alternatives. Not offering retirees benefits coverage. However, doing away with this important benefit could affect your ability to attract workers. And since cutting retiree benefits may also result in employees taking longer to retire in order to continue receiving health benefits, it could decrease other workers' advancement opportunities, which, in turn, can affect retention. Dropping coverage for employees' dependents. Cost-cutting, of course, is hard to do without actually eliminating benefits, but it's a tough sell in tight employment markets. Covering catastrophic events only.

2 Raising co-insurance percentages, if you have a hybrid plan that allows employees to go out of network, from, say, 80/20 to 70/30. Or, if your co-insurance levels are 80/20 on the next $5,000 following the deductible, trying switching it to 80/20 on the next $10,000. Reducing annual raises. If this step is necessary, soften the blow by reminding employees to look at their total compensation and benefits package, rather than focus only on their take-home pay. In extreme cases, employers may be asking employees to take pay cuts. You may want to survey employees first as to whether they would rather have their pay or their health benefits reduced, if that's what the case may be. Or, instead of reducing raises, use the money that would have been put into a deferred profit-sharing plan to offset the increase in medical plan costs for the year. Dropping all health benefits. But it's probably not worth it in terms of employee morale, retention and recruitment, and lost workdays due to employees who cannot afford to seek appropriate medical care when needed. GET EMPLOYEES INVOLVED WITH DEFINED CONTRIBUTION PLANS A defined contribution plan allows employers to cap the amount spent on health care costs, and shifts the responsibility for choices and costs from employers to employees. Figure out what the maximum amount is that your company is able and willing to spend on health benefits per month, per employee. Then let employees choose between, say, a basic plan, in which the company pays the costs; a better plan, in which the employee pays anything past your predetermined limit; or a lower plan, in which anything under your limit is deposited into employees' 401(k) plans. When employees see that certain choices could cost them more personally, they are more apt to choose the least expensive option. Taken to a greater extreme, some employers offer a very low-cost catastrophic medical policy as one medical plan alternative within a flex environment, which could benefit young workforces with high turnover. The cost is generally very low, and the risk of having an uninsured employee is still reduced. This could be made a mandatory choice if the employee has no other health insurance and has not bought up to a higher option. If reformers in Congress have their way, flexible spending accounts will soon be more attractive than ever, since the proposal is to remove the use it-or-lose it requirement. This would have the added benefit of making cost-shifting somewhat more palatable to employees - the extra cost of the higher deductibles, higher co-pays, reduced benefits, etc., will be offset by not having to forfeit any unspent balance at the end of the year.

3 EDUCATING EMPLOYEES Many employees do not have a clear understanding of their health benefits and options. Therefore, they may not be making the best, or most cost-effective, choices. But it's not enough for employers to simply distribute the pamphlets and booklets sent by the health insurance company and expect employees to read and understand them on their own. Make sure you have at least one benefits expert on your staff who can answer employees' specific questions. Don't underestimate the value of training managers on benefits issues. Employees who are more likely to turn to their immediate supervisor with questions than go to a different department may just stop asking altogether if they can't get answers from their supervisors. On top of reminding employees that making the right health care choices saves them money, too, give them simple tips on how they can actually go about managing costs, including: requesting generic medication, rather than the name brand, when possible; not using the emergency room for other than genuine medical emergencies, and seeing their doctor or using walk-in/urgent care clinics instead; and seeking out all medical services within the PPO network. The "education" process need not be formal or extensive. There is something to be said about simply communicating with employees and keeping them informed on the bigger health care picture, too. Keep employees updated on a regular basis as to what's going on nationally and locally with group health costs, keeping them abreast on trends, cost-shifting that many employers are doing now, what's happening with medical and prescription costs, etc. - even if employees may not want to hear it or are tired of hearing it. Periodically, write company-wide memos or articles for the company newsletter that provide employees updates on business conditions and the like. If you find a pertinent newspaper article on group health costs, employer cost-shifting, national trends, etc., include a copy with the memo or refer to it in the newsletter. The newspaper articles can be particularly effective as a "don't take our word for it-read it for yourself approach w hen you have to explain to employees why they are facing a large premium increase or benefit cut. Face-to-face communication should supplement written communications. At least once a year, hold a general meeting for all employees. Whether the meeting is entirely devoted to health benefit issues, or benefits are just one part of it, be sure to cover how the company is being affected by these issues and any benefit or plan design changes the company is making. EMPLOYERS GO ONLINE In one survey, use of Internet technology topped the list of how large employers (83%) plan on handling health care and containing costs. The most popular ways the Internet would be used, according to the respondents, are:

4 1. providing employees with information on health plan choices; 2. annual enrollment; 3. helping employees navigate the delivery system; 4. health promotion and wellness; 5. educating employees about self care; and 6. plan administration. Going online can save employers money in two ways. For one, you can cut down on administrative costs by giving employees a way to complete enrollment forms, access claims info, etc., on their own. Second, the more informed employees are, the better their decisions will be. And giving employees more decision-making responsibility will provide an incentive for them to take the less expensive route. It's easy to put on your intranet or provide links to information on employees' health benefits plans; specific health-related material; and health plan vendors. For example, direct workers to the Agency for Healthcare Research and Quality's web site at for information on good health, wellness, and prevention information. PREVENTIVE CARE FOR COST CONTROL When most individuals think of health benefits, they think of the services that are available to them after they get sick, such as doctor visits, medication, physical therapy, etc. But employers may be able to help reduce benefits costs by providing services to employees that help prevent a trip to the doctor, the need for prescription medication, etc. Not only can you reduce overall health costs, but such efforts should help decrease absenteeism and increase productivity, since you'll have fewer incidents of sick employees showing up for work, but working at reduced efficiency. Some companies have started down the prevention road by: offering yearly flu shots, mammograms, blood pressure checks, and the like; making available information on the benefits of a good diet and regular exercise; providing information on specific diseases or disease management programs, including asthma, heart failure, diabetes, and back pain; offering regular health seminars on topics such as hypertension, stress, and depression; and opening an on-site medical facility. Look into what information and services your insurance company offers. Your benefits plan itself can also serve as a preventive measure. If your plan is selfinsured, you can, for example, institute a $5,000 per occurrence deductible if an employee or

5 dependent is injured: while operating a motorized vehicle (of any kind) while under the influence of illegal drugs or over the legal limit for alcohol; if they are not wearing a helmet and are operating, or are a passenger on, a motorcycle, all-terrain vehicle, or similar vehicle; and if they are not wearing a seatbelt and are in a car accident, whether as driver or passenger. The thirdparty administrator can look at the police report to determine whether the employee or the dependent was in compliance with plan requirements. This plan provision might not necessarily save you money, but on the other hand, you don't know who avoided a serious injury because they wore a helmet or seatbelt they otherwise might not have. PROBLEM: PRESCRIPTION DRUGS Some employers are mandating the use of generic drugs, versus their more expensive brand-name counterparts. Other employers are giving employees a choice, either by having employees pay a percentage of the drug cost, or using a three-tiered drug structure, which surveyed employers picked as the best way to handle the prescription drug problem (see chart). In a three-tiered structure, employees would pay $7 for generic drugs; $15 for some preferred brand-name drugs; and $25 for others, for example. For those on maintenance drugs, a mail-in prescription program can help with further cost savings. Most Effective Methods Of Managing Drug Costs Three-tiered co-pays 71% Increase employee co-pays 59% Consumer education 55% Increase use of formularies 48% Disease management 39% PBM quality improvement initiatives 24% Reduce or eliminate coverage for certain drugs 14% Source: Watson Wyatt Worldwide Make it a point to tell your employees about the large increases in prescription drug costs. Newspaper articles on the topic can come in handy here. You'll likely see an increase in the number of generic prescriptions being chosen. Another approach is carving out the prescription benefit and selling it as a separate plan. Typically how this works is that employees may purchase prescription coverage only if they have also purchased medical, but prescriptions do not come automatically with the medical plan enrollment. While it may not be a particularly popular idea, it could help make employees aware of the radical increases in drug costs, which is a large part of the problem. DON'T FORGET ABOUT WORKERS' COMP COSTS The more job-related health problems your employees experience, the higher your Workers' Compensation premium goes. Inform employees of their rights and responsibilities, including the financial advantages of getting back to work as soon as possible. Inform

6 supervisors of their duties, too, including finding light-duty work and modifying work assignments; investigating accidents and taking preventive measures; and stressing employee safety. One company successfully cut its WC costs, in part, by improving its light-duty program. It tried to provide light-duty work in the employees' respective departments, and made the effort to set up several light-duty stations to keep morale up and ensure employees stayed involved. The mindset changed from what an employee could not do, to focusing on what an employee could do. The company also found an increase in repetitive stress injuries, so it instituted stretch breaks. It surveyed employees to find out in which parts of their bodies they were having problems, evaluated the work site, and then designed stretching programs to suit employees' needs. Fraud also affects every employer's Workers' Comp costs. Prevent it from occurring in your company by looking for the following signs: Monday morning claims that are actually non-work-related injuries that happened over the weekend; injuries on the heels of an adverse employment action, such as termination, layoff, or demotion; hard-to-diagnose injuries, such as repetitive stress injuries and stress; changing doctors frequently (until the employee finds one who will verify his/her fraudulent claims); refusing to undergo treatment, skipping doctor visits and physical therapy sessions. Finally, double-check that your insurance company hasn't miscalculated your premium. Go over your WC information from the past few years. Verify payroll and loss data with your WC policy billing statements and loss-history summaries from the past few years. Alexander Hamilton Institute, Inc. 2001