Health care insurance costs continue to escalate and squeeze profits from employers. Some reports are predicting insurance costs to increase by more than 10 percent in 2007. Short-term measures of transferring more cost to employees, or decreasing their benefits, is not a feasible or realistic option with increases of that magnitude. It may be time for employers to either offer a new insurance option or start implementing strategies to help employees lead healthier lifestyles.

Picking a plan
The two most-common health care plans offered by employers are Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO). Under an HMO, discounted rates are offered by networking with specific doctors, hospitals and clinics. Employees are required to use these doctors, hospitals and clinics in order to receive the benefits from their employer’s health care plan.

With a PPO, plans are less restrictive allowing employees to choose any doctor at a reduced rate. However, doctors within the employer’s network will yield better savings.

Although the HMO and PPO plans are most common, there are others that are growing in popularity. One is the Consumer Driven Health Plan (CDHP).

A CDHP takes the framework of a PPO, but features a higher deductible. Using a plan with a high deductible will help reduce some costs for employers. However, higher deductibles potentially put more expense on the employee.

With CDHPs, the expectation is that employees will become more responsible with their health habits because they have to spend more of their own money before reaching the deductible — but not everyone grasps that idea, says Christopher Mathews, senior health consultant and vice president of the Segal Co., Washington, D.C.

To help alleviate some of the potential burden, CDHPs are accompanied by either a spending or savings account that employees have control over.

With a spending account, known as a Health Reimbursement Account (HRA), an employer contributes money for use by employees to pay for health care expenses within the deductible. For example, if the plan had a deductible of $1,000, an employer may contribute $500 in cash into an HRA to cover expenses that would otherwise be covered by a lower deductible, explains Mathews. The employee doesn’t own the money in the account, but in some instances the beneficiary may vest into it and eventually acquire ownership after a number or years or after retirement, says Steve Kaczmarek, principle and consulting actuary, Hartford Health Practice, Hartford, Conn.

On the other hand, a savings account, known as a Health Savings Account (HSA), allows the employee or the plan sponsor to contribute pre-taxed money into the account. The employee owns the account and money may be allowed to roll over from year to year.

A drawback to the savings and spending accounts is that it results in “winners” and “losers,” says Kaczmarek. Healthy employees would not use all monies in an account and they could roll over to the next year. On the other hand, employees with chronic health problems could exhaust their account and have to keep cost sharing once they got past their deductible, he explains.

Adding a strategy
A criticism of CDHPs is that they don’t do enough to help employees live healthier lifestyles, which would also reduce costs of insurance plans for employers. However, employers who are savvy about health care can implement strategies to accompany their existing plan. Doing so can help trigger behavioral changes in employees and as a result, lower the cost of insurance.

Total Health Management (THM) is one cost-managing approach designed to improve employee health by having employees take an active role in health management. It provides employees with information and resources so that people become educated consumers in health care and start to make better decisions on what type of care to get, where to go to get treatment and what types of doctors to use, explains Kaczmarek.

“THM supports the consumer through the medical care process,” adds Mathews. “They are not left to wander the medical maze on their own.”

With a strategy like THM, employers can segment their employees into different types of groups to find those who may need better care. For example, one group may be recognized as currently healthy, but could benefit from a healthier lifestyle to prevent future disease and illness. That segment is provided with education on how to stay healthy, explains Kaczmarek. The other segment of the workforce may have chronic conditions. Programs can then be implemented for this group to reduce spending and improve the quality of care they receive.

Improving the quality of care will lead to lower costs because the patient will be getting healthier faster, says Mathews. THM promotes the use of specialists that not only charge less than general practitioners, but also have specific expertise.

One drawback to THM is that it can be seen as intrusive because some people with chronic conditions may not want their employers involved in their health problems, says Kaczmarek.

Another strategy that employers can utilize to trigger behavioral changes as a way to reduce costs is rewards. Rewards are beneficial to both employers and employees because they help workers live healthier lifestyles, which then reduce rates.

Rewards can be offered in various ways. Some examples include: Offering cash incentives to employees with chronic illness who participate in a condition management program; having non-smokers or smokers who participate in smoking cessation programs make lower contributions; or conducting a contest for a group of employees to lose weight, which encourages good behavior.

Both THM and rewards can accompany any existing plan companies may already have, whether it’s an HMO, PPO, CDHP, etc. The right combination of plan and strategy may be the answer business owners are looking for to reduce their escalating insurance costs.

Ken Fracaro is a business writer in Hixson, Tenn. Additional reporting by Dan Weltin, Editor.




POSTED ON: 2/1/2007