Containing Healthcare Costs

Containing Healthcare Costs | Human Resource Executive Online According to a new survey, "high-performing" companies are doing a better job controlling healthcare costs than others. How are they doing it, and how can HR get involved in trimming healthcare costs in this difficult economy?

Wednesday, October 22, 2008
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At a time when the economy becomes more uncertain by the day, large companies find themselves searching for ways to keep costs down, while keeping pace in an increasingly competitive marketplace.

The management of employee healthcare costs figure prominently in that struggle, and it would seem "high-performing" companies are more successful than others at controlling such costs, according to a recent study.

The survey of 321 of large U.S. employers, conducted by Stamford, Conn.-based professional services firm Towers Perrin, found that high-performing companies will pay, on average, 14 percent less in annual healthcare premiums in 2009, compared to low-performing companies.

That cost differential effectively means an annual savings of an estimated $15 million for a high-performing company with 10,000 employees, compared to a similarly sized low-performer, according to Towers Perrin.

To classify a company as "high-performing," organizations were ranked, based on the cost of next year's medical premium for active employees, how well they say they are meeting the strategy and governance objectives of their health plan -- managing employee costs, enhancing efficient purchasing of healthcare services, enhancing employee understanding and engagement, etc., says Daniel Pribe, senior healthcare consultant at Towers Perrin.

The scores were then "stratified in order to get the splits between low- and high-performing companies," Pribe says. "There is a qualitative component as well as a quantitative component in determining if a company is a high-performer."

So how are high-performers controlling healthcare costs? And what is the role of HR in the process?

In 2008, high-performers have done better at beating inflation, a tall order for employers with large healthcare programs. The survey found that 42 percent of high performers managed to hold healthcare cost increases to 3 percent or less. Those savings have been passed on to the employee, so to speak, as employees at those companies are paying, on average, $350 less than employees at low-performing organizations.

Regardless of performance, most companies are at least making an effort -- changing benefits or implementing disease-management programs, for example -- to contain healthcare costs, Pribe says.

"Containing costs, as measured by year-over-year increases, is often a function of the starting point," says Jim Winkler, head of the health management consulting practice at Lincolnshire, Ill.-based Hewitt Associates. "The companies that have sustained success containing healthcare costs are often the companies that have been ahead of the curve to begin with."

Overall, high-performing companies express a greater commitment to helping employees manage their health and make sound healthcare decisions, Pribe says. Many high-performers, for example, have implemented care-management programs, health-risk assessments and health-improvement plans to support employees and control costs.

"High-performing companies are doing these things to a much greater degree than low-performing companies," Pribe says.

For instance, 69 percent of high-performers have implemented wellness initiatives, such as smoking cessation and obesity programs, while only 24 percent of low-performers have such initiatives in place.

Account-based health plans (ABHPs) are also becoming increasingly popular as a way to maintain costs for employees and retirees, the survey indicates.

While enrollment is still relatively low -- about 20 percent of a company's eligible population, on average -- more than half of the companies in the survey indicated they will offer ABHPs in 2009, compared to 46 percent last year.

Nearly six in 10 (58 percent) high performers said their ABHPs are currently meeting objectives for controlling employee costs, versus 14 percent of low performers.

Most ABHPs set for implementation in 2009 will have a health-savings account, rather than a health-reimbursement account, the survey found, indicating employers' interest in providing wealth-accumulation vehicles for retiree-medical benefits.

Human resource departments are instrumental, of course, in creating such programs and initiatives, and, now more than ever, HR is charged with making them work.

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"In these times of economic uncertainty, there is greater pressure on HR departments to control healthcare costs and show a return on the programs, i.e. investments, they put into place," Pribe says.

Implementing such programs is a good start, Pribe says. But, above all, senior management buy-in is critical to seeing them actually succeed. HR needs to make sure senior managers are on board with these initiatives, he says.

In fact, 86 percent of the high-performers analyzed in the Towers Perrin survey reported that senior management is actively involved in containing healthcare costs. Only 57 percent of low-performers responded likewise.

"In order for these [programs] to be effective and get the dividends they want," he says, "they need to have strong senior management involvement and the ability to measure and act on the results."

Getting the desired results doesn't figure to get any easier in the days to come.

A 6.4 percent average increase in healthcare costs is projected for major companies in 2009, according to a study conducted by Hewitt Associates, a Lincolnshire, Ill.-based HR consulting company.

The average healthcare cost per person for large organizations is expected to increase from $8,331 this year to $8,863 in 2009, the study says. The average amount employees will be asked to contribute toward this cost will be $1,946, or about 22 percent of the overall healthcare premium, and up from $1,806 in 2008.

Going forward, HR can play a pivotal role in keeping healthcare costs in line, Winkler says.

"HR will need to wrestle with short-term cost management strategies, many of which result in cost-shifting to plan participants," he says.

"At the same time, HR professionals will need to take a more rigorous and aggressive approach to getting and keeping employees healthy -- which means implementing a combination of programs that drive behavioral change, eliminate barriers to health and encourage people to take more responsibility for their personal health," Winkler says.

On an organizational level, companies that are currently succeeding at controlling healthcare costs, or have any hopes of doing so in the future, are adopting a more assertive style of healthcare-plan management, Winkler says.

This "ramped-up approach" involves four main actions, he says: cost-shifting dependent subsidy dollars, eliminating cost-efficient plans, tougher negotiations with health plans and focusing on the health and productivity of the workforce through expanded health and wellness programs.

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