INSURANCE: Cutting Health Care Costs

Health care insurance constitutes a Titanic-sized expense for employers. In fact, companies can expect an estimated 15.4 percent increase in health insurance rates during the next year — seven times the rate of inflation — according to Hewitt Associates, Lincolnshire, Ill.

One way businesses can contain these insurance costs is to educate employees on health care's true costs, beyond a $15 co-payment. For example, if an employee selects a generic drug over a brand name, employers could save money in the long term by reducing insurers' overall drug costs.

Companies also can reduce expenses by teaching employees to better manage their health and existing medical conditions, such as diabetes, allergies or going to the doctor with minor symptoms. Educating diabetic employees to properly manage their condition will reduce doctor visits and, in turn, business payments.

Of course, increasing health care premiums gives many employers little choice but to increase employee contributions. Raising employees' health care premiums may ease a company's cost burden and encourage workers to become more aware of their medical coverage costs. If employees are paying more out of their own pockets, they may think twice about unnecessarily visiting a doctor. However, businesses also can seek long-term strategies, such as consumer-directed health care, which offers workers choices and places some cost burdens on them as well.

For example, an employer may provide employees a set amount, say $2,000, for health care. Once that money as been spent, the employee then would pay an out-of-pocket deductible, which might be $1,000. These plans pay for preventive and catastrophic care, but they also make the consumer more aware of the actual price tag attached to medical benefits, while reducing a company's insurance expenditures.

A recent study by Deloitte & Touche, New York, has found that 58 percent of employers are considering consumer-driven plans. However, 78 percent of employers are not considering a health plan in which employees could customize their coverages. This mostly is because employers are concerned about the overall administration such a plan requires. Instead, more employees are offering health promotion programs to maintain their employees' well-being.

On its present course, health care costs are expected to double during the next five years. In 2003, companies will pay an average of $6,295 per employee, which is an $839 increase since 2001. Small businesses with fewer than 150 employees will be affected the most. Employees, on average, will pay 19 percent of their own coverage and 24 percent of dependent coverage next year, according to Hewitt Associates.

Higher prescription drug prices; more direct-to-consumer drug marketing, which has created a greater demand for brand name medications; new medical procedures and life-saving treatments that have become available; and the aging population all are contributing to higher health care costs for insurers and companies. And these costs likely will be passed onto employees.

To ensure that companies decrease their overall expenditures, employers should educate employees about the realities of health care costs so that they are equipped to make confident, informed decisions.