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Article:

(this article first appeared in the November 9, 2002 issue of MCOL WeekEnd)

Health care cost inflation continues in double digit levels, and national benefit consulting forms project health plan premium increases in the 15% range for 2003. Project that out a number of years, and the results are mind-boggling. Of course, one would assume market forces through one means or another will prevent health care from costing double what it does now in five years. Something simply has to give- but what? What are the new directions that must be taken in managing health care costs, because the status quo will certainly lead to doubled costs?

Hewitt Associates issued a release a few weeks ago entitled "Health Care Cost Increases Expected to Continue Double-Digit Pace in 2003." The report states "Hewitt is projecting a 15.4 percent average increase for 2003 and this comes after last year's rate hike of 13.7 percent. Some companies will continue to absorb the majority of next year's increase, but many are increasing employees' share of health care premiums. According to Hewitt data, the average employee contribution for 2003 will be 19 percent for their own coverage and 24 percent for dependent coverage." Another Hewitt source stated to ABC News that "companies will pass on to their workers one-third to one-half of the rise in premiums next year."

Towers Perrin last month issued a report also projecting a 15% health plan premium increase in 2003. They broke down the projected increases as follows:

Average 2003 Monthly Health Care Costs and Cost Increases by Covered Group

source: Towers Perrin press release 10/2/02

Milliman USA, in their recently released 2002 HMO Intercompany Rate Survey, projected an even slightly higher increase for 2003: estimating a17.6% increase for large groups and a  16.4% increase for small groups.  

So where does all this double digit inflation lead us? 

Short Term, Hewitt offers the following general advice to employers: 

• Re-evaluating cost-sharing and contribution strategies.  higher payroll contributions, lower subsidies for dependents, spousal surcharges, heftier out-of-network penalties and increased office, hospital inpatient and emergency room copayments. 
• Changing prescription drug plan coverage: in addition to already adopted three-tiered systems, many companies are implementing higher copayments, generic incentives, customized drug options and coinsurance structures,
• Eliminating "cost inefficient" plans
• Contracting with plans that offer specialized or disease management programs
• Offering new consumer-driven health plans

Towers Perrin categorized their recommended strategies into five areas:

• Care Management 
• Consumerism 
• Benefit Design and Optimal Delivery
• Vendor Management 
• Data Management

Thus the New Directions taken in managing health care costs will include pushing employee cost sharing through various means into uncharted territory (which has significant implications for providers in attempting to bill and collect these amounts); a resurgence in disease management, and a variety of new products, consumer driven and otherwise. Internet technologies and other factors will play a big part as well.

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