From the November 2008 issue of Treasury & Risk magazine

Slimming Down Health Care

Savvy corporations are trimming health care costs by putting their plans on a fitness regime--and that goes for their employees, too. It takes discipline on everyone's part, but it's worth it, says Hewitt Associates in a new study that reveals diligent monitoring of health plan expenses keeps costs relatively stable in the 6% to 7% range despite higher insurance rate hikes. Average health care outlays at large companies rose about 6% to $8,331 per person in 2008, up from 5.3% a year earlier, but less than the 7% to 9% Hewitt estimates employers will spend without shifting costs to participants and diligently managing plans. Hewitt projects an average 6.4% increase in 2009 to $8,863.

What are the smart companies doing right? Segal Group Inc. calls it total health management (THM), in which data analysis plays a major role. Plan sponsors are mining data to identify a plan's cost drivers and, based on that information, developing multi-year programs to bring those costs down, Segal says in its 2009 Health Plan Cost Trend Survey. The human resources and consulting company recommends a six-pronged strategy to achieve effective THM: analytics, planning, design, selection, management and outreach.

"Sponsors are shifting costs to employees, expanding wellness programs, getting tough at negotiations, auditing dependent rolls to eliminate ineligible relatives and finding less expensive chronic care policies," says Bob Tate, chief health care actuary at Hewitt. As a result of cost-shifting, the consulting and outsourcing company reports that average overall employee out-of-pocket costs including premium contributions and co-pays will likely rise about 8.9% to $3,826 next year, from $3,513. Hewitt's projections are derived from its Health Value Initiative, a cost and performance analysis database of more than 1,800 health plans across the U.S. at more than 400 large employers and 13 million health care participants.

An accelerating trend, says Hewitt's Tate, is a shift away from the once economical health maintenance organizations (HMOs) to now cheaper preferred provider organizations (PPOs). This year, Hewitt pegs the average per person HMO cost for large companies at $9,117, up from $8,442 in 2007. The hybrid point of service (POS) plans will rise to $9,480 from $8,986. PPOs will be the least expensive, at $8,491, from $8,048. At the other end of the scale are traditional indemnity plans, which Hewitt says will average $9,900, from $9,296.

While 2009 rates are locked in, future costs will clearly depend on who becomes president.
"Obviously, there will be dramatic changes," Tate says.

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