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Health Care Trends in 2006

By Elizabeth M. Rice, SPHR

Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, and waste. These problems significantly increase the cost of medical care and health insurance for employers and workers alike. We interviewed Catherine Botello and Dan Murphy of Barney and Barney, a health insurance brokerage firm that has been witness to the trends in health care since the early nineteen hundreds.

Barney and Barney estimates that the average rate of premium increases is expected to be moderate in 2006 compared with previous years. Nonetheless, they project that companies will have to pay up to 20% more than in 2005. Employers who once were able to provide health insurance in association with employment benefits packages will be forced to decrease coverage or search for more efficient ways for employee treatment and care.

The bottom line is that nearly 45 million Americans are uninsured because they can not afford to purchase coverage for themselves and their families. According to the Kaiser Family Foundation and the Health Research and Educational Trust, premiums for employee-sponsored health insurance in the United States have been rising five times faster on average than workers' earnings since 2000.

According to Barney and Barney, the principal change in medical benefits is the rapidly escalating premium costs to employers and employees. The fundamental items that are causing these changes are:

• Baby boomers - The aging of an estimated 77 million baby boomers will be adding additional stresses to an already constrained medical system.
• Cost shifting - When patients don't have health insurance or their health insurance does not pay for all the care they need, the cost of care is shifted to those patients with health insurance.
• Technological advances - Health care organizations' ability to digitize internal business processes and integrate patient data will improve their productivity and restrain costs in the long run. However, in the short-term it will be expensive.
• Legislative mandates - These mandates are placed on hospitals and doctors and require a large capital investment as they often are unfunded. These mandates include earthquake retrofitting, HIPPA compliance and improved ratios between caregivers and patients.
• Prescription medication - New classes of prescriptions are now available but can be expensive. The amount of drugs prescribed is also increasing alongside the aging population.

Nationwide the most significant change in 2006 will be the introduction of Consumer Directed Health Plans. These plans are based on the notion that health care services are over-utilized and through financial incentives consumers will reduce the use of marginal services. The benefits of these plans are still being debated. Some believe that they work because people will be apt to make better-educated health care decisions when their own money is at stake. Others feel that patients may be ill prepared to make their own health care decisions and because of monetary constraints won't get the care that they need.

What can employers do to manage the rising health care costs while still providing employees with medical benefits? According to Barney and Barney, employers are increasingly implementing web-based employee benefits administration programs that allow employees to manage their employee benefits online. Since most systems interface directly with health plans, and COBRA and FSA administrators, the employer dramatically reduces the time needed in benefit administration. Large brokers and consultants can assist employers in selecting appropriate systems and negotiate lower costs.

Another way that employers can manage their employee benefits is by outsourcing the HR administrative function. By doing so employers can realize increased savings while focusing on the more strategic aspects of HR. Employees also benefit from an outsourced relationship since they are able to get information on benefit plans through online channels or through dedicated service professionals.

Most people will agree that health care costs must be controlled. But they disagree on the best ways to address rapidly escalating health spending. There appears to be no single solution to health care's high price tag and many approaches may be used to control costs. What is certain is that if the rate of escalation in health care spending and health insurance premiums continues to grow at current trends, the cost of inaction will severely impact employer's bottom lines and consumer's pocketbooks.