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Why are employer health insurance costs rising so much?

Employers are facing tremendous pressure today to handle the increasing costs of health care insurance. The health care insurance industry is as volatile as has been seen in more than a decade. Many employers are wondering how they can afford to maintain their benefits.

This article discusses some of the many elements contributing to these escalating costs and provides some basic strategies for employers to explore to improve the cost and benefit offering.

Health insurers are essentially repackagers of the vast American health care system. Most employer policies include physician services, hospitalization, mental health and prescription benefits.

The health insurers consolidate our disparate system to give the consumer, through the employer, a conduit to health insurance. Herein lies a part of the challenge each insurer faces. Each part of the system is seeing its' component rise in pricing.

Prescription costs lead the way with an average trend factor of around 28%. Pharmacy costs have consistently risen in the 15 to 20% range each year for the last three years says Jeff Smith of Milliman's Columbus, Ohio office.

Every carrier is faced with the challenge of changing consumer-purchasing patterns. Pick up any magazine and see the many advertisements that attempt to compel the consumer to ask their physician for a prescription by name. The patient and not the physician now often facilitate the prescription purchase. This changing purchasing pattern is dramatically altering pricing. The average percentage increase for small employer health insurance is between 14-15%. The prescription component is heavily weighted in this amount.

The Health Insurance Portability and Accountability Act (HIPAA) or the Katzenbaum Kennedy Bill passed in 1996 has impacted how health insurers handle much of their business. Group health products must be guaranteed issue to any small employer applicant who adequately meets contribution and participation guidelines.

But paramount for any group is the overall health status of the group. If your group has a combination of health conditions that will constitute a marginal risk, you may be rated-up prohibitively by the various insurance vendors. Work with an insurance agent to help facilitate this process so that all of your options are evaluated.

The following are among the many other reasons that costs for health insurance are increasing so dramatically:
-Technological advances in the health care industry.
-An aging U.S. Population.
-Physicians and hospitals are banning together to regain negotiating clout with insurance vendors.
-Legislation has created far more regulatory requirements.
-Overutilization of services by Americans.

As described in the opening paragraph, health insurers as private labelers of our health care system must identify strategies to help relieve the pressures of these various issues. Each of these items is impacting profitability and an unprofitable industry is not ideal for purchasers, consumers or vendors and also creates much of the volatility each employer is facing on their renewal.

Employers must begin to engage their employees in these cost increases. Employers can do the following things to increase awareness:
-Provide a detailed breakdown of the overall cost for insurance and then show the employee contribution on payroll information.
-Provide a payroll stuffer that demonstrates costs sharing or total employer cost.
-During annual review periods ensure the employee understands the costs of employee benefits and note that the employer portion represents effectively additional income.
-Increase the employee contribution while explaining the price increase.

Employers must analyze their costs regularly. Each year the company will renew with their insurance vendor. The employer has the opportunity two to three months prior to evaluate the marketplace. There are many factors that will determine if the company is able to improve price, product or network.

So what can an employer do to keep costs affordable? There are several steps that should be considered in attempting to keep costs affordable:
-Evaluate your plan each year and ensure pricing is competitive.
-Make annual plan changes to offset increases in pricing such as increasing copays or deductibles.
-Consider changing your drug card to engage your employees more in the cost.
-Evaluate employee contribution levels and consider changes in the percentage of overall costs that you provide.
-Discuss the affordability of a health care offering with your employees and leadership to ensure each knows the pressure of maintaining such an offering.

For many employers, the cost of offering health care is typically the in the top five highest costs behind costs such as payroll and raw materials. This high ranking in cost is growing exponentially and deserves the time to be carefully evaluated and assessed. As the consumer becomes more engaged in the complex purchasing decision for the employer, there may be a gradual enlightenment by some employees who will realize that everything has a price.

Take the time to have your benefits evaluated by a seasoned professional who will carefully analyze your company's benefit/price/risk equation for your health care offering so that you can optimize your position.

Scott is a partner in ESP Benefit Design, an employee benefits insurance firm based in Westerville, Ohio. (614-882-8535) Scott has an MBA from Franklin University. Scott has worked with over 6,000 customers. Email Scott at scott@espbd.comVisit americanhealthadvocate.com and check out articles such as health and medical insurance quote


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