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UltraLink - FOCUS...on benefits
November 2004
2005 Health Cost Projections
Results of several recent surveys, taken together, support the notion that health costs and health premiums are likely to continue moderating in 2005, but will remain well above the overall inflation rate.
The Kaiser Family Foundation's 2004 Annual Employer Health Benefits Survey finds that premiums increased 11.2% in 2004, compared to 13.9% in 2003. Overall inflation and increases in wages over the same time period were 2.3% and 2.2%, respectively. Average 2004 premiums for family coverage are $9,950, up 59% since 2001. The Kaiser survey results are based on responses from 1,925 public and private employers with at least 3 employees.
Looking to 2005, preliminary results of a Mercer Human Resources Consulting survey indicate that employers expect that, with changes in plan design and offerings, they will experience a 9.6% increase in health premiums in the upcoming year. Without plan changes - which primarily represent more cost shifting to employees - an increase of 12.6% would be expected. A Hewitt study recently projected premium costs for employees to increase 15%, which would be in keeping with the trend towards employees footing a greater percentage of costs.
The Federal Employees Health Benefit Plan (FEHBP) reports that premiums in that program will rise an average of 7.9% in 2005, compared to 9.5% in 2004. This relatively low rate of increase may be somewhat attributable to demographic changes in the FEHBP population. New hires are slightly younger and a substantial number of retirees have transferred to the military's Tricare program, which is less expensive; the result is an increased proportion signing up for individual coverage. The FEHBP will be offering a health savings account/high deductible plan option for the first time this year.
News on What's Driving Health Costs
More evidence on the particulars of health cost increases has been presented in two recent studies. Kenneth Thorpe, a health economist at Emory University, reports that 15 of 370 medical conditions accounted for 56% of the increase in costs between 1987 and 2000, and five conditions - heart disease, pulmonary conditions, mental disorders, cancer and hypertension - accounted for as much as one-third of the cost increases. Thorpe noted that costs have increased for 3 reasons: more people have the conditions, a higher percentage of those are diagnosed and treated, and some conditions have become more expensive to treat. The good news is that, in some cases, higher short-term costs are believed to produce long-term savings, and many of these conditions can be prevented or better managed with inexpensive interventions such as diet and lifestyle change.
A second study demonstrates continuing disparities in medical practice styles across the country, suggesting that there are still efficiencies to be gained. Dr. John Wennberg and colleagues at Dartmouth Medical School studied the 77 hospitals at the top of the U.S. News and World Report's list of best hospitals for heart and pulmonary disease and geriatric care. Using Medicare claims data, they identified cohorts of patients with one of eleven chronic conditions and examined patterns of care in their last 6 months of life across these highly rated hospitals.
For the same condition, days spent in the hospital varied 3-fold, physician visits varied 6-fold and days in the intensive care unit varied as much as 16-fold. In a sub-analysis of 7 highly regarded academic medical centers, 2- to 3-fold variations in these measures were seen. For example, patients at Mt. Sinai hospital in New York City experienced twice as many inpatient days as those at the Mayo Clinic in their last 6 months of life (22.8 days versus 11.6 days, across all conditions). Use rates for one chronic disease were highly correlated with use rates for other chronic diseases at the same hospital, relative resource use by hospitals tended to be consistent from year-to-year, and relative resource utilization for the same patients in earlier time periods correlated with relative resource utilization in their last 6 months. Wennberg suggests that, since there is no evidence that more intensive end-of-life care improves survival, quality of life or patient satisfaction, hospitals with relatively lower use rates should be considered efficiency benchmarks.
Ongoing Battles in the War on Costs
Employers continue to fight rising health costs with cost-shifting, consumerism and wellness initiatives.
The Chicago Tribune reports that some area businesses are instituting a "pay-based" contribution system where employees with higher salaries are asked to pay a larger percentage of premium. Consumer-directed health plans (CDHPs) have enrolled 1.5 million members in the past 2 to 3 years, with a recent Deloitte Consulting survey indicating that 19% of firms surveyed offered CDHPs in 2004, up from 11% in 2003. An additional 14% of firms surveyed plan to offer such plans by 2006. At Avon, where Senior Manager of Health and Welfare Benefits, Michelle Schneider, won a Benny Award this year, a key component of that success appears to be strong communication with employees regarding how to be better health consumers. Communications on why costs are rising and the importance of becoming a smarter consumer, as well as on the specific changes in their pharmacy and medical coverage from year to year seem to have helped the company keep trends at lower-than-average rates.
Wellness initiatives continue to evolve as well. Some Chicago-area businesses are providing on-site nutritionists, nurses and other "health coaches" in hopes of decreasing costs related to hypertension, diabetes and heart disease. A new comprehensive package of coverage for obesity-related treatment has been announced by Blue Cross Blue Shield of North Carolina. The package includes coverage for physician visits related to weight loss, nutritional counseling, prescription weight loss drugs and bariatric surgery. Officials at BCBSNC expect that the added expenses of obesity coverage will be offset by longer-term savings on the complications of obesity such as diabetes and hypertension. A study in the October 13, 2004 issue of the Journal of the American Medical Association suggests their expectations may be on target, as it documents, for the first time, that bariatric surgery results in complete resolution of diabetes, hypertension and sleep problems in 77%, 62% and 86% (respectively) of patients who had them prior to the surgery, and improvements in lipid levels in 70%.
Merger Mania Continues
Coventry Health Care of Maryland has announced it will acquire First Health Group, a national preferred provider organization. Coventry currently has 3.1 million members, primarily in HMOs, in 15 states in the Mid-Atlantic, Southeast and Midwest. Coventry officials said the national presence and larger size will allow more leverage in negotiating costs with providers, better access to capital and the ability to enter new markets such as workman's compensation. As reported by the Washington Post, financial analysts have expressed concern that both companies have been struggling with increasing competitive pressure, which is expected to worsen in 2005.
In the meantime, the acquisitions of Oxford Health Plans by United HealthCare and Wellpoint Health Networks by Anthem, Inc. are facing regulatory challenges. The rapid state approval of the Oxford/United HealthCare deal has been challenged by the Medical Society of New Jersey on antitrust grounds, and the approval has been stayed by New Jersey Superior Court pending a trial. The Insurance Commissioner of the State of California refused to approve the Wellpoint/Anthem proposal because of expected detrimental effects on policyholders in the state; Anthem has filed suit in California to have the ruling overturned.
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