From the July-August 2008 issue of Treasury & Risk magazine

Unhealthy Situation

Health-care premiums for employers are rising again -- and the culprit seems to be excessive cost-cutting. Those are the findings of a recent study by Hewitt Associates of 350 large employers. According to the Lincolnshire, Ill.-based human resources consulting group, the rate of increase in premiums paid by employers for 2008 is likely to rise by 8.7%. That's compared to a slow but steady drop in the rate of increase from 2005 at 9.2% to 2007 at 5.3%.

The major malefactor: too much shifting of costs onto employees, according to Jim Winkler, national practice leader in health management consulting. Specifically, over the past five years or so, more employers have made a practice of increasing employees' share of deductibles and out-of-pocket expenses.

In fact, they've increased that burden so much that many employees have cut back on getting medical treatment, including their purchase of prescription medications for such chronic conditions as diabetes and cardiac disease. "When employers shift costs, in the short-term you get savings," says Winkler. "But it also translates into employees using less care." The result: Companies are now increasing employee deductibles at a slower rate and premiums have started to rise again, according to Winkler.

What about 2009? Preliminary data indicates what Winkler calls another "slight uptick." What's more, for the first time in five years, employers did not identify cost-sharing as one of their top three health-care cost-related strategies.

At the same time, as part of the move away from cost-shifting, more employers are introducing incentives encouraging employees to stay healthy. The proportion of major companies using incentives to promote employer-sponsored health and wellness programs rose from 62% in 2007 to a projected 71% in 2008, according to a study of 225 companies by the ERISA Industry Committee (ERIC), the National Association of Manufacturers (NAM) and Incentone. In addition, more than 80% of those companies that measured ROI reported seeing returns of better than break-even, up from 66% in 2007. The average value of incentives per employee, which ranged from reductions in premiums to gift cards, was $192.

The trend is likely to continue next year. Hewitt found that a projected 63% of companies in 2008 were "investing in the health and productivity of their workforce," according to Winkler. That figure is expected to rise to 88% for 2009.

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