REDUCING HEALTHCARE COST INCREASES
Amidst rising healthcare costs, how can businesses protect profitability and benefit employees?

Initially, employers sought relief from rising healthcare costs by shifting a portion to employees in the form of higher deductibles, co-pays and payroll contributions. PricewaterhouseCoopers' Health Research Institute reports that employee spending for health insurance coverage has increased 126 percent between 2000 and 2005, compared to 76 percent for employers. Such a cost-sharing strategy can go only so far before it takes the benefit out of healthcare benefits for everyone. As costs continue rising in double digits, more companies are embracing a range of activities designed to make healthcare consumers more aware of the cost and quality of the health services they seek.

"What we're seeing now in healthcare trends is the movement into consumerism-the reengagement of the employee in understanding the cost of healthcare," says Barry Barnett, a principal with PricewaterhouseCoopers' Human Resource Solutions group in New York City. "Some companies are providing employees with company-funded health reimbursement or health savings accounts. These programs provide employees with an account for paying healthcare expenses. Should employees spend their entire account, they revert to traditional coverage after complying with a deductible." Among the concerns expressed about health reimbursement or health savings accounts are that they could prove a disincentive to seeking necessary medical care and risk exacerbating health problems, although recent studies are less supportive of this assumption.

"A survey from one of the health plans, on how employees are using health care tools, found that people enrolled in these accounts are using them for more appropriate medical care," observes Richard Sinni, managing director with PricewaterhouseCoopers' Human Resource Solutions group in New York City. "One example is with prescription drugs. A large percentage of discretionary health care spending is prescription drug brand choices rather than generics or, in some cases, equally effective therapeutic equivalents, or even over-the-counter medicine."

Since a high percentage of healthcare dollars is accounted for by a small percentage of high-cost claimants, consumer-directed health plans alone will not provide the solution. Other components of consumerism need to be included, such as preventive services, wellness and disease management programs, and communications designed to provide employees with more information regarding the quality and costs of the providers they visit and the services they use.

A philosophical shift
"We are beginning to see a philosophical shift in strategy to offer employees information, tools, programs and financial incentives to promote and reward healthy lifestyle choices and individual health," says Barnett.

"We tend to look at consumerism in healthcare as evolving across generations," explains Bruce Spooner, director, PricewaterhouseCoopers' Health Industries Advisory practice in Hartford, who focuses on the insurance company's (payer's) perspective of health care. "We're in the early generations of consumerism now, which set up mechanisms such as health savings accounts to help make employees more aware of costs," he explains. "However, the true goal is to change behavior. Once you have the healthcare accounts in place, they start to create interesting opportunities for offering employee incentives for making healthy lifestyle decisions, and managing their existing chronic conditions, such as diabetes and heart disease."

Healthy employees use fewer services
Healthy lifestyle and wellness programs are increasingly being incorporated into benefit structures, even for those employers who are not yet prepared to offer a specific consumer-directed health plan.

According to 84 percent of the 147 senior executives surveyed by PricewaterhouseCoopers' Management Barometer, the most promising option for reducing healthcare cost increases is to provide financial incentives for employees to live healthier lifestyles as part of a flexible healthcare benefit plan. Such incentives in the form of time off and other prizes could include:

• A small bonus for completing a health assessment, or participating in a disease management or healthy lifestyle program.
• Additional incentives for improving personal health, such as improving blood pressure, cholesterol, and weight; increasing exercise; and ceasing smoking.
  

Some larger companies have hosted onsite clinics and wellness events where employees have access to lipid profile, blood sugar, blood pressure, body mass index, body composition and dermatological screenings, and the companies collect aggregate information to better understand their healthcare needs. Weight management, stress management, and mammography exams have been popular offerings. While large-scale events are not within reach of many midsize companies-unless they are fortunate to strike a cooperative cost arrangement with a nearby corporate wellness event program-the concept could be scaled down. Smoking cessation programs or expanding benefit plans to include coverage for smoking cessation aids, and weight management programs can pay off in reducing healthcare costs.

How to increase the value of an employee benefit plan
Consider the following three basic steps when looking to manage your company's healthcare benefits plan:

• Assess your company's plan design. Make sure it creates incentives to access the healthcare system efficiently. For example, you can avoid hidden cost-traps in pharmaceuticals that are more than a simple choice of brand name vs. generic. Here's how: most companies charge lower co-pay for employees who purchase drugs that are on the preferred drug list, or formulary. Since the newer drugs coming to market are typically more expensive than the existing therapies, there is a trend in which older, more cost-effective therapies are sometimes replaced by newer more expensive therapies. This can inadvertently drive up the cost of formulary or "preferred" medication. What happens when a new drug comes to market and replaces an older drug on the formulary? If the older drug is on the verge of losing its patent and becoming available in a generic form, employees might still have the incentive to simply pay the co-pay for the new, more costly drug. Both company and employee lose out on lowering costs of healthcare benefits.
  
• Assess the vendor that is delivering your company's benefits. Are the providers in the network the physicians and hospitals your employees want to use? How good a job does the plan do to help make sick employees well, keep them well, and help maintain a handle on chronic conditions? In addition, it is important to balance the price you pay against the service level to members and the employer, and the product being delivered. The product is the administration of the plan and the managed care network your people are going to use. Businesses need to understand their network, which providers are in the network as well as the level of discounts they provide. This takes actuarial experience, but can be worth engaging someone to make the effort. One private company with 700 employees sought out assistance comparing the relative network hospital and physician discounts for two competing networks. PricewaterhouseCoopers performed the analysis using actual claims data from the company's current provider and discount data obtained from each network. Though there was a high level of provider overlap in the two networks, the company learned that using the lower cost of the two networks could save them approximately $1 million in claims costs annually.
• Change participant behaviors. Consumerism is all about getting employees to make more-informed decisions that result in lower costs and/or improved outcomes. Good communication with employees plays a critical role in its success. It's not enough to tell employees you've got a 24-hour healthcare coach to reach out to for advice in treating various conditions; they need to be reminded of the benefits of doing so. Engaging and educating employees early in the process about the cost and consequences of healthcare choices is the first step toward cultural change.

Fine-tuning
Insurance companies continue to work with employers to fine-tune their consumer-directed health plans, to help control the total cost of healthcare. Toward that end, the number of tools offered to help employees decide what is best for them is growing.

"Many companies don't want to go immediately to a 100 percent consumer-directed plan," says Spooner. "They prefer to offer these plans alongside traditional PPO or HMO plans, and we've seen several payers offer Internet-based plan-comparison tools to help employees choose what's best for their specific circumstance. Employees are prompted to enter information about themselves-such as age, general health, if they have children or are expecting to have any-and can estimate their cost of a particular plan in a given year, which they can compare against a couple of different designs, such as a plan with a co-pay, versus one that has employees pay out-of-pocket toward a deductible."

There are also tools emerging that can provide information on hospitals, so employees can decide where to get care. "You can go to Consumer Reports today and get more information on buying a car or a digital camera than on purchasing health care services," Spooner says. "Now there are some tools that compare care on the quality side by incorporating data hospitals submit to various agencies. There is a debate about whether these tools are comparing apples to apples as far as care goes, but even if you can't measure pure quality, where do you want to go if you are a heart patient in need of a procedure: to the hospital that has done 1,000 bypass procedures this year or to the one that has done 60?"

Healthcare benefits present a primary threat to profitability, and the ability to attract and retain key talent for many midsize companies. There has been a noticeable shift to ensure that designing a benefits strategy that's right for an individual organization has the full attention of company executives.

"Five years ago when we talked about healthcare benefits it was strictly an HR discussion," says Benjamin Isgur, assistant director of PricewaterhouseCoopers' Health Research Institute in Dallas. "Now we're finding CEOs and CFOs are very concerned about the cost of healthcare benefits, and about programs that align with the overall firm strategy to attract and retain talent. But consumerism is not a one-size-fits-all solution. It is about bridging the gap between business strategy and benefits strategy through customization."

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