“A Plan for the Study of the Rising Cost of Health Care and Its Effects on Employers”
...rder to lower control costs. THEORETICAL REVIEW: In the Society of Human Resource Management’s Job Benefits Survey it was revealed that health benefits are by far the most important type of benefit that determines worker satisfaction with their job (Schramm, p.3). In this case employers benefit plans must be comparative with other companies in order to stay competitive. Today, many employees and employers have experienced first hand the impact of rising insurance costs. Employers are now asking themselves how they are going to handle these costs. CHAPTER 2 EFFECTS FROM THE RISING COST OF HEALTH CARE The United States spends more on health care than any other country in the world. The U.S. healthcare system has many shortcomings. Based on measures such as life expectancy, healthy life expectancy, infant mortality rate and other health-related outcomes, compared with data from other industrialized countries, it is clear that the U.S. health care system is in need of revision. Health care costs have become a critical concern for the majority of CEO’s, Human Resource Directors and other business leaders. Health care costs are expected to rise at an average of 14% per year. Employers are saying that they can only afford to absorb 9% of the 14%. Over the next 5 years employer’s costs are expected to rise at least 54% (Weatherly, p. 1). Intense competition and overcapacity in many industries have made it difficult for businesses to pass these cost increases along to their customers and clients. There are several factors that are driving the rising cost of insurance. The costs of prescription drugs are one of the main reasons that health insurance is skyrocketing. It is expected to grow at a rate of 20% to 30% each year over the next several years. This is due to there being many new expensive drugs on the market, and the use of them is exploding (Almanac, vol. 48). Weather states “It is estimated that up to 85% of all participants utilize prescription drug benefits. In addition, drug costs are escalating at a faster pace than all other health care costs at this time” (p.4). Also, the proposed new government mandates, such as the Patients’ Bill of Rights, Medicare reform, and health care tax changes, will continue to drive health care costs up (Almanac, vol 48). Blue Cross’s Health Care Cost Trends believe that technology, such as new diagnostic tests, new drugs and new surgical procedures, continues to be a major driver of health care costs and will continue to affect cost for the foreseeable future (p.2). America currently spends 13% of its gross domestic product on health care even though 15% of the U.S. population is uninsured. A. Effects on Employers Rising costs of health care can have a detrimental effect on small employers that have fewer than 100 employees. They typically do not have someone on staff with the expertise to manage employee benefits. Also, because they have little time or experience to devote to the task, they must rely on the advise of the insurance agent (Weatherly, p. 2). Even when small employers make the best choices, their health insurance premiums are likely to be substantially higher for comparable coverage than large employers. Due to the costs of insurance to employees many do not elect health insurance. This can also cause a great impact on the company. The economic impact of the lack of health insurance on productivity, absenteeism, turnover, and increased health care costs is estimated to be as much as $152 billion per year. Currently there are 43.6 million Americans without insurance and based on current projections, the number of uninsured could grow to 63 million by the year 2010. The costs of providing care to this group of uninsured are borne indirectly by the insured consumers. B. Effects on the Employees Due to the rising costs of health care employers are having to pass some of the costs to the employees. They are passing them in the form of higher deductibles, three-tier prescription drug co pays and higher out- of pocket maximums. Employers are also passing costs in other ways. With the rise in dual-income families, employers have become more reluctant to pay the health care costs of another company’s employees. Employers are beginning to implement a variety of cost containment techniques to limit their exposure. They are starting to require that working spouses elect coverage from their employers, requiring employees to pay an additional amount if spouses do not accept coverage from their employers. Now that employees are beginning to pay a greater portion of their health care costs, there is a concern about health care affordability, especially for lower paid employees. Without some refinements it could cause patients to cut back on both needed and discretionary care when faced with higher out-of-pocket maximums. As a result, seriously ill and low-income workers may face financial and medical hardships. It is causing employers to have to start looking at cost sharing strategies based on pay, i.e., health care premiums as a percentage of base pay. This would cause higher salaried employees to pay more than those with lower salaries. This is very popular today but is expected to become more popular over the next several years (Weatherly, p. 4). C. Effects on Summit Senior Services and its Employees Summit Senior Services has been in business for 9 years. It currently has 7 assisted/independent living facilities throughout Alabama and Georgia. A few of these facilities have Specialty Care Assisted Living (SCALF) units. The President of the company is Bridget Hammett and the Vice President is Terri Howell. Summit Senior Services employs approximately 200 employees. These employees range from Administrators to Resident Attendants. The majority of the employees are in the low income range. In 2005 Summit Senior Services was hit with a staggering 30% increase in health care premiums. CHAPTER 3 EMPLOYER OPTIONS IN LOWERING HEALTH CARE COSTS There are many ways in which employers are trying to get a handle on the rising cost of health care and figure out ways to keep them from rising. Employers are trying to come up with some preventive maintenance plans for employees. This chapter will discuss some of the reasons for preventative maintenance programs. Employers are also having to pass some of the costs to employees and make changes to their existing insurance plans. The last way to try and decrease costs that will be discussed in this chapter is, now employers are starting to move from fully insured to self insured insurance plans. A. Reasons Employers are Using Preventive Maintenance Programs Employers’ stake in the health of their employees is growing. This is mainly due to the rising health care costs and the need to get as much productivity as possible from employees (WorkPlace Visions). Healthy employees bring costs down by requiring fewer medical interventions and prescription drugs and may also be more productive. Promoting good health among employees has benefits because it enables employers to simultaneously bring down health care costs while increasing worker productivity. For U.S employers, the health of their business is increasingly linked to the health of their workforce (Workplace Visions). Some of the highest health care costs are caused by diseases, such as heart disease and cancer. Some studies have linked these diseases to smoking and obesity. Some human resource professionals are focusing on preventive health care aimed at several factors such as obesity, tobacco use, alcohol/substance abuse and possibly stress. They are also looking at managing chronic illnesses. Employers are starting to take a more aggressive approach to preventive maintenance. Preventive maintenance programs have been around for many years but haven’t made significant change in lowering health care costs. By concentrating efforts of preventative maintenance HR professionals will be attempting to eliminate the precursors to the chronic or catastrophic illnesses that cost employers the most. They will focus largely on obesity, smoking, alcohol / substance abuse and stress. I. Obesity- federal statistics show that more than half of Americans are now either obese or overweight. Recent research shows that obesity costs in the United States totaled up to $92.6 billion. Obesity is linked to some of the most deadly diseases...