Seminars

Addressing Escalating Health Insurance Premiums

In the continued effort to provide insight into the complex issues surrounding the rapidly evolving Health & Welfare industry, New England Benefits Group, Inc. has prepared a comprehensive overview for insight into the challenges of confronting and controlling hyperinflation.

The following informational material was provided to the attendees of Human Resource Council meeting held October 2, 2002 at the North Central Chamber of Commerce. John Flanagan, President of New England Benefits Group, Inc. was the guest speaker.

Why Are Medical Premiums Soaring?
What is being done?
What are Health Insurance Providers doing about it?
What can you, the Employer, do about it?

Why Are Medical Premiums Soaring?

Factors Driving Health Insurance Inflation

Recent years have brought significant increases in medical insurance premiums. Many leading industry experts believe that this trend of double-digit increases will continue for the foreseeable future. The drivers behind escalating medical costs are numerous and complex.

  1. Population Dynamics
    • Aging "baby boomers" have increased the number of chronic diseases and conditions
    • People are living longer as a result of ground breaking treatment and medicines
    • More underinsured and uninsured are getting the wrong care in the wrong places
    • The private sector is left paying for the significant Medicare and Medicaid shortfalls

  2. Trend
    • Medical technology and new research advances have radically improved costly diagnosis and treatments, increasing longevity and quality of life
    • Hospital mergers have increased the power of providers, both hospitals and doctors, to demand higher payments

  3. Utilization
    • Consumers of medical care are more informed and more demanding of high-profile treatments, inpatient admissions, outpatient surgeries and advanced medical equipment
    • Inefficient utilization resulting from fragmentation and inaccessibility of data and information that patients and health care providers need to better manage conditions
    • Although alcohol and drug abuse have remained a significant contributor towards health insurance trends, the endemic of obesity and associated conditions has become a more recent phenomenon and one that has added a significant burden on rising health care costs.

  4. Prescriptions
    • Research and development by Bio-medical and pharmaceutical companies have spawned a revolution in branded drugs introduced to treat many medical ailments
    • Aggressive direct to consumer advertising and promotional campaigns create increased demand for the more expensive brand name drugs

  5. Government Mandates and Regulations
    • Consumer groups and advocates have pursued several federal and state healthcare mandates such as the Patient Bill of Rights and the Massachusetts Mental Health Parity Act, which drive up inflation. "Runaway lawsuits, a cascade of duplicative and conflicting regulations, and the unintended consequences of 1,500 state and federal mandates make up 27% of the increase in health care costs" - Daren Ignagni, CEO of the American Association of Health Plans
    • Mandated operational requirements under the new HIPAA regulations to insure the protection of confidential health information. Health plans are required to adopt a national standard for electronic transmission of health care information and support privacy and security protection for individual protected health information (PHI)

What is being done?

Employers, Members, Health Care Providers, Lawmakers and the Medical Community have different agendas yet all share in the responsibility to help gain control of spiraling medical insurance premiums. The best solution to confront this regrettable trend may be as complex as the reasons for the hyperinflation itself, requiring a comprehensive coordination of each entity.

What are Health Insurance Providers doing about it?

  1. Medical Management
    • The old HMO model of Managed Care has been regulated out of existence and has evolved into Medical Management. The new model is decidedly more proactive by identifying at risk patients with predictive modeling methods and deploying effective intervention. These innovative new models put the member at center and serve the dual purpose of increasing the quality of care while measurably reducing serious illness and cost. These effective techniques also provide the added value of increased productivity from healthy employees.

      • Healthy members account for approximately 70% of the total population and less than ¼ the medical costs. Wellness initiatives are increasing the number of patients receiving timely preventive care screenings for early detection. Coordinated with effective E-Health Services, incentives and informative literature, Wellness programs are designed to keep these patients healthy.

      • Proactive Case Management is for those patients who are at high-risk and account for 1/3rd of all medical cost. Prevent acute and costly medical treatment by first identifying high-risk members then reaching out to them and their health providers with specialty care managers. These medical professional care managers develop customized plans that optimize coordination of a patient's required care, thereby decreasing dependence on the heal care system while improving their health. "Coaching" patients to drive behavior and providing their clinicians with patient specific clinical messages for actionable results decreases hospital admission significantly.

      • Disease Management for critically or chronically ill patients who account for less than 10% of the member population and over 50% of the medical cost. Highly trained specialty case managers coordinate innovative prevention and management for the chronically ill. Education Focus: Many PCP's are not aware of the latest guidelines for treating chronic diseases and many members do not know what they can do to care for themselves. Once a member is identified through predictive modeling, care managers provide the necessary information to both the medical provider and the patient with proactive ambulatory support to help the patient to avoid hospital admission. Follow-up telephonic and electronic communications insures patient compliance.


  2. Technology
    • The technology revolution has become instrumental in helping to control cost on many levels. E-technology and data software are the mechanisms that drive the entire Medical Management capabilities, described above. Additionally, EHD (electronic health data) and on-line referrals, billing, and enrollment have automated the time consuming tedium of administration operations for medical providers, health plan providers and even employers.

  3. New Product Options
    • Most of the traditional health insurance carriers have introduced several new plans designed to increase equitable cost sharing between employer and employee and to heighten consumer awareness. The general consensus is that the conventional "first dollar" plan designs have shielded the consumer from the actual cost. The new consumer driven (or consumer choice) plans increase consumer awareness and empower employees to manage their own health care costs through education and increasing accountability to cost.

What can you, the Employer, do about it?

  1. Consider implementing equitable Cost Sharing, Consumer Driven Plans

    "Employers generally are of one mind: Although they want to provide their employees with quality health care coverage, rising costs are pushing them into benefit cuts, greater cost-sharing and exploration of consumer-driven plans. Fresh options are important to employers, who have been hammered by expense projections. Many employers will figure out very soon, if they have not already, that consumer-driven health care is the right answer to the financial and regulatory morass of the current employment-based health system. Giving consumers control over their spending not only may save significant dollars but could appease employees who are looking for more choice in their plans."
    -- Employee Benefit News, December 2001: Seeking answers, employers get only mixed messages - by Karen Lee

    With the many new cost-sharing plans that have been recently introduced by all the medical carriers, employers can adopt various techniques to drive "consumer choice" and lower premiums.

    • High/Low option is the simplest program for an employer to implement. Employer contributes equal dollars towards a more costly High coverage plan and a less expensive Low coverage plan with a deductible. The employee chooses a plan based in consideration of their share of the contribution relative to the coverage. For example, the employer offers to pay $500 towards the family premium of a $1,000 deductible plan that costs $600 and the same $500 contribution towards the family premium with no deductible that costs $800.

    • Defined Contribution is the new buzzword for a consumer-driven strategy that may very well redefine employer-employee healthcare financing. Under this arrangement, employers offer a less costly plan with deductibles and allocate a portion of the savings into the Personal Savings Account (P.S.A.). The employer may choose to contribute into the PSA of a Health Reimbursement Account (H.R.A) or Health Savings Account (H.S.A). Unlike an FSA (Flexible Savings Account), where an employee must use the funds or lose them, under Section 105, the IRS has decided that unused employer contributed funds may carry over into the next plan year.

    • The Wrap program provides the employee with the same level of benefit but integrates a high deductible with a traditional carrier while the employer self-funds the deductible portion. The secondary plan, funded by the employer and administered by a third party (TPA), helps reduce fixed expenses.

  2. Employ the services of a Health & Welfare benefit specialist

    In addition to the complexities resulting from the many new medical insurance products integrated with various Third Party Administrators and innovative consumer choice techniques, a thorough understanding of each carrier's requirement provisions such as dual and alongside options, participation requirements, and more, must be carefully considered. As the group insurance market continues to become increasingly more complex, the value of a benefit expert with the sophistication to provide a comprehensive risk analysis has compounded. The insurance generalist is no longer likely to provide such due-diligence while other Health Insurance Brokers are simply not responsive to the demands of these sweeping changes.