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Employers Push More Health Coverage Costs to Workers

Originally publishedby Reuters Health, April 8, 2002

WASHINGTON (Reuters Health) — Without a clear answer for containing double-digit healthcare cost increases, large US employers this year are passing substantially more of the cost of employee healthcare coverage to workers than in years past, a leading health benefits consultant said on Capitol Hill Monday.

“We’re looking at a particularly bleak period right now,” Blaine Bos, a principal with Mercer Human Resource Consulting, told congressional staffers and reporters at a briefing. “We really don’t expect [double-digit cost increases] to abate for probably another three years, perhaps even five years.”

With managed care failing to hold costs in check, as it did through much of the 1990s, employers are now using a number of approaches to keep costs in check. Such strategies include passing even more costs on to workers for health insurance, welcoming so-called “consumer-directed health plans,” using tiered networks in efforts to drive patients to lower cost and/or quality providers and other methods.

Large employers are projected to pay 12.8% more for active employee health benefits this year compared with 2001, Bos said. That would represent the largest increase in more than a decade. In 2001, US companies with 500 or more workers paid $5,162 on average for health coverage per employee—or a 12.1% increase over 2000, according to Mercer’s 2001 National Survey of Employer-Sponsored Health Plans.

Costs are rising as a result of prescription drug cost inflation, an aging workforce, providers’ increased negotiating power and consolidation of healthcare vendors, which have a mindset on increasing shareholder satisfaction.

Before the recession started early last year, large employers didn’t pass on extra costs to workers for health coverage, Bos said. It’s a different story today, as 40% of such employers are increasing the percentage of an employee’s premium contribution, and 34% of companies are increasing cost sharing, according to Mercer. “This is significant,” Bos said, adding that employers are passing on to workers more than just the 12.8% inflation increase companies are facing.

In addition to passing on more costs, large employers are increasingly likely to offer consumer-directed health plans. The most popular type is a high-deductible catastrophic plan that also offers preventive care benefits. Employers offer this and fund a personal medical benefit account, which the worker has discretion over.

Such accounts came on the market in early 2001, with just 5,000 workers holding such accounts, according to Scott Keyes, senior consultant with Watson Wyatt Worldwide. It’s estimated that more than 100,000 employees hold such accounts this year.

“There isn’t a lot of enrollment, but there is a ton of interest,” Bos said of the personal healthcare accounts.

Employers and health plans are also creating tiered networks of providers, creating monetary incentives to primary care providers and consumers to refer to a network’s higher-quality specialists or in some cases lower-cost specialists and hospitals.

For instance, a primary care physician referring a patient to a specialist not deemed a top-performing physician may only get a base fee payment. Moreover, large employers and health plans are also requiring consumers to pay more for visiting higher-cost physicians and hospitals within the established provider network, Bos told Reuters Health.

Other employer strategies include building purchasing coalitions for health plan and provider contracting purposes, and creating self-funded HMOs. In fact, 13% of large employers self-funded in 2001, nearly double the 7% that had self-funded plans in 2000. “We expect to see that continue,” Bos said.

Employers are taking different approaches to containing healthcare costs this year, Bos said, adding that it will take two to three years to see if some of these approaches work better than others.