Tweaking' Programs: Not Enough Take Bold Steps to Control Health Costs

03/05/07

With the price of health-care benefits expected to rise another 12 to 15 percent this year—20 percent for prescription benefits—what’s a cost-conscious HR person to do?

The advice from HR consulting firm Towers Perrin: Be bold.

Says TP’s Jim Foreman, “To manage [health benefit] costs, employers need to make bold decisions. They cannot afford to be as cautious as they’ve been in the recent past.”

What does it mean to be bold? In short, managing the cost of health benefits rather than simply accepting increases passively. To do that,

Reassess your vendors, especially after you’ve benchmarked your costs with other companies your size. Most employers now have better information about how their program stacks up with others, as well as how their employees use their health benefits. That puts you in a better position to assess plans from other providers.

Explore and assess vendor competence when it comes to employee education and communications (in print and over the Web), claims processing, and customer service.

Assess the vendor’s power in bargaining with hospitals and physician groups, and its strength should it become necessary to intervene with doctors over an issue of care or quality.

Consider having employees share more costs through contributions and co-pays. Other employers are asking employees to pay more, especially as the labor crunch eases. But don’t go overboard—you don’t want to scare off your best employees or become noncompetitive in the market for labor.

Reassess plan type. Don’t assume HMOs are the cheapest option. HMOs have wrung out most of the excess costs in the health-care delivery system, for one thing. For another, says Foreman, “There is no one-size-fits-all solution.” For instance, TP believes a preferred provider plan may be best for organizations with a largely healthy workforce. If you have employees at higher risk, an HMO with greater medical management might be better. Consider, too, offering more options when it comes to prescriptions, like offering incentives for employees willing to use generic drugs.

Manage costs in chronic situations. According to Charles D. Baker, CEO of Harvard Pilgrim Health Care in Massachusetts, 5 percent of the people using the health-care system generate up to 60 percent of the spending. Most employers have one or a few employees with chronic conditions that result in a large expense on an ongoing basis. Develop strategies to manage these situations, perhaps in consultation with your provider, with an eye toward containing costs without sacrificing quality.

Educate employees. As TP’s Rich Ostuw reminds us, “Some employees think it’s cheaper to visit a doctor than to get a haircut. Companies must do a better job educating employees about the costs of health care.” Remember—accessing the health system unnecessarily ends up costing both employers and employees directly. As health care costs rise, profits go down—and an employee’s compensation stays flat or rises slowly at best. More education equals better choices, which results in better control of health-care costs. Besides educating employees about the economics of health care, make sure they have access to information about specific diseases and treatment options. And don’t skimp on safety and wellness initiatives. “They are,” says TP’s Ron Fontanetta, “a smart investment with attractive returns for most employers.”

Communicate frequently with employees. Explain how people can make use of medical services appropriately and understand the range of services available and to what extent. Employees who don’t understand program benefits— or rack up expenses they must pay for themselves—end up unhappy.

Give employees the straight dope. If bad news is coming in the form of higher prices or fewer services, let people know well before the storm hits. “No surprises,” Fontanetta says simply.