The tough economic climate and tighter health care budgets have employers working even harder during 2009 to hold down health care costs. Most are considering a number of strategies to help mitigate the impact of premium increases for 2010, according to a report by Hewitt Associates, an HR consulting and outsourcing firm.
Preliminary information from Hewitt indicates that initial 2010 health maintenance organization (HMO) premium rates will increase by approximately 11.8 percent—consistent with 2009 projected rate increases. But final average HMO rate increases for 2009 were held down to 9 percent at companies that pursued cost control strategies.
"While HMO rates continue to outpace inflation and underlying health care trends, employers have been increasingly successful in reducing these costs by 3 to 4 percentage points over the past few years through plan design changes, cost shifting and negotiating aggressively with health plans," says Maureen Fay, a principal and co-leader of Hewitt's HMO rate analysis project. "Given these challenging economic conditions, we expect to see employers continuing to implement similar—if not more aggressive—strategies for 2010." Some of the most effective strategies are discussed below.
Eliminate HMOs, Consolidate Vendors, and/or Move to Self-Insurance
More employers are choosing to eliminate HMO plans in favor of more efficient network models. According to Hewitt's data, 56.6 percent of U.S. employers offered HMOs in 2009, down from 59.1 percent in 2008.
"The rich co-pay-style benefits associated with HMOs often hide the true costs of health care from consumers. Eliminating these plans allows employers to re-engage employees in managing their own health care and become smarter consumers about the resources they use," says Jeff Smith, a principal and co-leader of the HMO rate analysis project. "It also enables employers to provide consistent plan offerings across state lines rather than subscribing to individual state mandates that are required under fully insured HMOs."
HMOs often hide the true cost of
health care from consumers.
Employers are increasingly weighing a move from fully funded insurance to self-insured plans and are consolidating their plans. This enables employers to take more control of their claims data so that they can analyze the results better and put good health care strategies in place to address underlying health risks, conditions and utilization patterns specific to their population.
Rather than adopting the "one-size-fits-all" care management, disease management, and wellness programs available through fully insured HMOs, "employers can use self-insured plans to customize the package of programs to meet the needs of their covered population," Smith says.
Negotiate Aggressively with Health Plans
Employers are negotiating more aggressively with health plans as they look for ways to achieve cost savings amid the recession. Those most successful at controlling costs are armed with analytics that highlight differences in financial efficiencies among plans, which give them the leverage to negotiate successfully. In addition, employers that have moved their prescription drug benefits for HMO enrollees to a centralized plan are able to use drug claims data to identify and stratify health risks. With that risk assessment information, employers are in a better place to negotiate down proposed premium increases.
"More employers are taking a hard stance in negotiating with health plans. They are saying, 'either partner with us to cut our costs or we'll eliminate your plan altogether'," says Fay.
Change Plan Design
Employers are continuing to look for ways to shift a greater portion of health care costs to employees. An increasing number are shifting from a co-pay to a co-insurance model by, for example, moving from a $15 office co-pay and $250 hospital co-pay to a $200 plan deductible followed by 90 percent co-insurance for all services. From 2007 to 2009, Hewitt's data shows, out-of-pocket costs for large employer HMO offerings increased by 11 to 12 percent per year. By moving to percentage features, rather than flat dollar-cost-sharing features, employers are able to share a greater portion of costs with their employees.
Companies are looking at reducing their dependent subsidy dollars and focusing more on the subsidies provided to employees. This reduction is happening through increased payroll contributions for dependent health care coverage and/or by applying surcharges to encourage dependent spouses to take coverage under their employers’ plans. In addition, more employers are conducting dependent audits, which are designed to assess and remove plan costs for dependents who don't qualify for coverage based on the employer's eligibility requirements. More than two-thirds of Hewitt clients have completed an audit, have an audit in process or are considering audits.
Improve Employee Health
Improving the overall health and wellness of employees continues to remain a main focus for companies, even in an environment where cost containment is a top priority. Recent Hewitt research shows that almost two-thirds (65 percent) of companies are making a significant investment in the health and productivity of their employees.
Increasing transparency of the total costs and drivers of health care can help employers identify critical areas and put good strategies in place to help them manage chronic conditions in the workplace such as diabetes, cardiovascular disease, and asthma. Hewitt's data shows that:
• Approximately 80 percent of U.S. employers are targeting specific health conditions in their employee population, up from 51 percent just a year earlier.
• The number of employers targeting diabetes and cardiovascular disease—two of the costliest and most prevalent chronic conditions in America—increased by almost 30 percentage points, to 75 percent and 69 percent, respectively.
• Additionally, 56 percent of companies are targeting asthma, up from 36 percent in 2008, and almost a third (32 percent) are targeting depression, up from just 17 percent in 2008.
"Chronic health conditions have become a major workplace issue that impacts the overall productivity of a company," explains Smith. "And since chronically ill employees and their dependents account for at least half of companies' overall health care costs, employers have a vested interest in helping these workers optimize treatments for their conditions."
Southwestern U.S. to See Highest HMO Rate Increases;
West to See Lowest
According to Hewitt's data, HMO rate increases by region have stabilized for 2010, with less variation by region relative to the national average HMO increase level. The Southwest region is projected to see the nation's highest rate increases at 14 percent. This is an increase of almost 100 percent, up from 7.3 percent in 2009. The West region is expected to have the lowest premium increases at 11.1 percent, down from 12 percent in 2009.
"There are a number of reasons why HMO premium increases may fluctuate across regions, including variances in demographics, health risks, provider practice patterns, and plan designs," says Hewitt's Jeff Smith. "In the Southwest, for example, we weren't surprised to see higher than average rate increases for 2010 because plans in this region needed to make up for revenue and margins they lost from lower-than-average rate increases in 2009."
Stephen Miller is an online editor/manager for SHRM.
Renegotiate Health Care Contracts and Cut Costs, SHRM Online Benefits Discipline, June 2009
Health Cost Increases Seen Continuing at Double-Digit Rates, SHRM Online Benefits Discipline, June 2009
Redirecting Health Coverage to Consumer-Directed Plans, HR Magazine, June 2009
Strategically Controlling Health Costs with High-Deductible Plans, SHRM Online Benefits Discipline, June 2009
Practices Shared for Lowering Costs, Improving Health, SHRM Online Benefits Discipline, April 2009
SHRM Online Benefits Discipline