Taking Control of Healthcare Costs

Employer healthcare expenses are on the rise, with employees shouldering more of the costs. Experts say the trend is likely to continue, and HR leaders must play a key role in managing healthcare costs and communicating plan changes to the workforce.

By Mark McGraw

If recent statistics are any indication, employers' healthcare costs continue to increase, and they don't figure to level off in the coming year.

Hewitt Associates' Health Management Consulting practice, which monitors healthcare budgets for large companies, found that -- after plan-design changes -- employer healthcare premiums were 6 percent higher in 2009 than in 2008.

The 2010 healthcare costs are projected to be an additional 6 percent higher than the previous year, according to Hewitt.

And the trend upward is likely to continue in 2011 -- and even escalate, says Dean Hatfield, senior vice president and health practice leader with Sibson Consulting, a New York-based benefits, compensation and human resources consultancy.

Preliminary results from his organization's 2011 Health Plan Cost Trend Survey show that increases next year will be in the same range as 2010, Hatfield says, noting that PPO, HMO and high-deductible health programs should expect spikes of 11 percent, 10 percent and 11 percent, respectively.

These figures are consistent with annual increases over the course of the last few years, says Mark J. Schmit, director of research at the Society for Human Resource Management in Alexandria, Va.

Despite the recently passed healthcare-reform package, many of the law's provisions won't be effective until 2014, Schmit says. As such, any potential cost reductions -- or increases -- associated with the new law are at least a few years off.

"So, we still have cost-shifting effects and all the remnants of the healthcare system that led to reform still largely in place," he says.

"In addition, the workforce is still aging and the baby-boomer generation is entering the years where their healthcare needs are increasing substantially, creating a larger cost base for insurance to cover," Schmit continues.

"Accordingly, annual premium increases are inevitable for the next few years."

Employees will shoulder most of the additional costs, Schmit adds.

"This includes increases to both plan contributions and total out-of-pocket spend by employees and their dependents," he says, noting that recent SHRM research shows that close to two-thirds of SHRM member organizations will pass increases in healthcare costs along to employees in the next year.

From an employer's perspective, companies should anticipate 2011 budgets to grow at a faster clip than in recent years "because of the healthcare-reform law and a slight uptick in underlying medical claims in 2009," says Bob Tate, chief actuary in Hewitt Associates' Health Management Consulting practice.

"We will finalize our forecast in September," he says, "but at this point we expect that 2011 health budgets will be 7 percent to 9 percent higher than 2010."

The healthcare-reform law has prompted companies to begin to rethink their approach to compensation and benefits, Hatfield says.

"As the new law takes shape, companies will need to determine what steps to take now to reach the strategy that works for their population in the future. Since every employee population is different, the approach and time period for adopting a new benefit position will vary," he says.

Still, he notes, the new law is primarily focused on improving access to healthcare, so plan sponsors will need to remain focused on the affordability and quality aspects of healthcare offerings -- and the consequences of ignoring these two areas.

The health-reform legislation includes few measures on cost control, Hatfield says. That should translate to more benefits programs that encourage employee empowerment and consumerism.

Indeed, more employees seem to be taking healthcare expenses into their own hands.

According to a United Benefit Advisors survey of 11,413 employers, workers are continuing to select consumer-driven health plans in 2010, albeit at a slower growth rate than in 2009. Such plans generally feature lower premiums and higher deductibles.

Consumer-driven plans are growing at a rate of 18 percent in 2010, the survey finds. That number is nearly twice as high in 2009, but consumer-driven plans figure to remain a popular option for many employees, says Bill Stafford, UBA vice president of member services.

"The trend toward employee empowerment and participation continues in 2010 when it comes to healthcare," Stafford said in announcing the survey findings.

"Employees are taking more control over healthcare expenditures by increasing participation in CDHPs, and they are also realizing that there are financial benefits -- in addition to health benefits -- of participating in wellness programs," he said.

More employers may look at CDHPs as cost-effective alternatives to traditional plans, says Schmit.

"Employers are finding creative ways to use these plans to share the burden of increasing healthcare costs," he says.

"If strategically conceived, an employer does not have to put all the cost increases on the employee, but can share in plan contributions that can be beneficial for both the employee and employer as they share the risks and rewards of these plans.

"However, companies must make efforts to better educate plan participants to make well-informed healthcare decisions," he continues.

Human resource leaders must play a vital role in creating and managing effective healthcare plans that work for the organization's employees, Schmit says.

"HR should be working with senior leadership to develop a healthcare strategy in conjunction with a total-rewards strategy," he says.

"HR must be proactive in modeling and analyzing the cost implications of multiple alternative paths that account for direct organization costs and potential consequences for recruitment and retention. This will include benchmarking with organizations that are successfully managing healthcare programs."

Just as importantly, HR should also be at the forefront of the organization's efforts to communicate plan changes, new offerings and important healthcare information to its employees, Hatfield adds.

Doing so effectively could ultimately decide the success of the organization's health plan.

"HR is instrumental in the positioning of communication materials or new program offerings -- disease management, wellness programs, etc. -- to maximize participation and motivate desired behavior changes," he says.

"The importance of matching any benefit offering to the culture of the employee population and aligning with the corporate values and goals," Hatfield says, "will remain paramount to the success of any program."