For the past decade, health care costs have continued to rise, which can be attributed to an aging population, more expensive drugs and higher utilization. In particular, improving medical technologies have been the primary factor of growing costs, says Paul Fronstin, director of the health research program at the Employee Benefits Research Institute.
Among many industries, technological improvements often force down the costs, but with health care, those improvements have created an unprecedented demand.
"What we see happening is more new technologies tend to be more expensive than older technologies, and that tends to create demands that didn't exist," Fronstin says. "For instance, before a certain drug was available, if there was no drug to treat an illness, people went untreated, so now we're creating new health care services, rather than replacing them."
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To battle these rising health care costs, President Barack Obama passed the Patient Protection and Affordable Care Act, and while Fronstin believes it is too early to say if health care reform is a driver to higher benefits prices, Mark Sherman, advisor for FirstPerson Benefit Advisors, points to a few provisions of PPACA that could be responsible for rising costs in certain areas.
However, some of these factors are not necessarily bad, Sherman says.
Under PPACA, for instance, preventative care measures must be available at no cost, Sherman explains. Of course, the cost isn't truly disappearing because the employer is now paying the full amount of that premium, and the higher utilization initially raises health care costs. Over time, though, this could be a way reduce health care spending by better managing health.
"The anticipation is now that it's 'free' from the patient standpoint, there will be a higher number of people that will have their annual physical, so that's going to drive higher costs on the surface," Sherman says. "But on the flip side, that's a really good thing because early detection and higher levels of preventative care could actually lower costs in the long run."
Employers are also finding ways to save on health care benefits outside of certain PPACA provisions without cutting benefits, and conducting plan audits is one avenue for reducing costs while maintaining the current plan, Fronstin says. Often, there are beneficiaries on health plans who shouldn't be covered, such as ex-spouses, nieces, nephews and grandchildren. A plan audit, however, helps ensure only the appropriate beneficiaries are on the health plan.
"A plan audit makes sure you're not covering people who shouldn't be on the plan in the first place," Fronstin says. "That's not changing the benefits; that's just making sure you're not paying claims for people who shouldn't be on the plan."
Network adjustments are also an option, Fronstin adds. A more limited network and higher copays both maintain the benefits package without reducing coverage. Some employers also choose to make their out-of-network benefits less comprehensive than the in-networks to drive a larger difference between the two.
While health care costs may be rising, focusing on employee help and installing a good plan management system are a couple strategies that can help an employer manage its bottom line.
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