Human Resources: Executive Summary: Healthcare Benefits

In the U.S., the pressure of rising healthcare costs has become excruciating for employers and employees alike. Double-digit increases in the cost of health care have been the trend for the past five years, and even some recent good news has a downside. Mercer Human Resource Consulting said the rise in the average cost of providing health benefits to employees in 2003 was only 10% rather than the projected 14%, but that was attributed to employers' passing more costs on to their workers.

This doesn't make for optimum employee relations. While most workers acknowledge that rising healthcare costs have an impact on their employers' bottom lines, fewer than half think it's fair to ask workers to take on more of the costs of healthcare benefits, according to a recent Towers Perrin survey.

The issue of healthcare benefits is fast becoming a deal-breaker in contract negotiations. A 2003 BNA survey of labor relations professionals found that 43% of those undergoing contract discussions planned to ask union workers to take on higher premium contributions, co-payments or deductibles. So, it's no surprise that a recent series of labor strikes is directly related to medical benefits.

Another cost-related problem is that more employees are choosing to go uninsured. In 2002, the total number of full-time workers who went without health insurance was nearly 20 million, up by about 900,000 during that year. Aside from the human costs of such a trend, the U.S. economy loses an estimated $65 billion to $130 billion annually because people without health insurance grow ill and die early, according to a report from the Institute of Medicine of the National Academies, a nonprofit research firm.

Some experts use such figures to argue that it would, over the long haul, be more cost-effective for the government to implement some type of system that mandates universal medical insurance and institutes more stringent cost controls. Even some hard-pressed business people are beginning to look more favorably on such ideas. But in an age of growing government deficits, it's hard to imagine such a system emerging anytime in the near future.

What's more, employers can expect few cost breaks from the insurance industry, at least in terms of its traditional offerings. Although the cost of healthcare premiums is climbing steadily, profits are actually down for U.S. health and life insurers. According to Weiss Ratings, Inc., the causes of the decline in profits include capital losses after sales of investments in the first quarter of 2003 and the move by some insurers to increase their reserves by as much as 50%.

So, with little help coming from the insurance industry or the government, U.S. employers continue to search for other approaches and solutions. Disease management programs, for example, represent one promising new strategy. About 10% of U.S. patients account for 70% of healthcare spending, and these patients often have chronic and/or complex medical conditions. Disease management means identifying such patients and helping them get the evidence-based treatments most likely to manage their conditions effectively and control costs.

Another strategy that some experts expect to gain ground is consumer-directed health plans. These feature higher deductibles than traditional health insurance plans but give employees greater freedom to choose providers. Until their deductible is met, participants pay the full cost of healthcare services out of pretax funds set up by their employers. Critics say such plans might actually discourage people from getting the care they need, but if costs continue to rise, more employers will likely experiment with these and other healthcare cost containment strategies in the future.

To have full access to this report, become a member of i4cp today at www.i4cp.com.

The Institute for Corporate Productivity (i4cp, inc.) improves corporate productivity through a combination of research, community, tools and technology focused on the management of human capital. With more than 100 leading organizations as members, including many of the best-known companies in the world, i4cp draws upon one of the industry’s largest and most-experienced research teams and Executives-in-Residence to produce more than 10,000 pages annually of rapid, reliable and respected research and analysis surrounding all facets of the management of people in organizations. Additionally, i4cp identifies and analyzes the upcoming major issues and future trends that are expected to influence workforce productivity and provides member clients with tools and technology to execute leading-edge strategies and "next" practices on these issues and trends. i4cp is a for-profit company with offices in St. Petersburg, Florida.