Individual accountability needed to curb health costs

Although health care costs have moderated, they still outstrip the Consumer Price Index. Health care premiums increased an average of 7.7 percent in 2006, but have been on a steady percentage decline since 2003.

According to the Centers for Medicare and Medicaid Services, by the year 2011, national health expenditures will rise to 17.5 percent of the gross domestic product.

Health spending continues to be highly concentrated on a small percentage of people. The top 4 percent to 5 percent of people with serious medical conditions consumed 50 percent of health benefit spending in any given year, and according to Watson Wyatt Worldwide Inc., those costs all exceeded $10,000 per person.

Overall, 72 percent of consumers spend less than $1,500 annually.

So what are some remedies that could be considered in controlling costs?

The return of wellness and disease management are options that bear consideration. As employers continue to see rising costs, many are requiring employee accountability for their health.

Personal habits and behaviors are receiving greater focus from employers in their benefit strategies. In the past, employers treated health benefits as an entitlement rather than an engagement. Wellness was treated as a fringe benefit and not as part of human capital management. It was expected that employees would participate in health promotion because it was offered. Health benefits were created as an expense, not an investment. The key is getting individuals engaged in good outcomes. According to Business Group on Health, 95 percent of employers agree there is a link between an employee’s productivity and their health.

According to the Centers for Disease Control, for every 3 cents the United States spends on prevention, we spend 97 cents for curative treatment. The data is clear: Individual behaviors and risk factors drive cost.

Most people have at least one risk factor that needs improving, but many will not improve their health unless an incentive is provided.

In July 2006, the Wall Street Journal indicated that 53 percent of Americans think it is fair to ask people with unhealthy lifestyles to pay higher insurance premiums, deductibles and co-payments. Sixty-six percent of consumers think a smoker should pay higher insurance premiums than a nonsmoker; furthermore, 37 percent of consumers think an obese person should pay higher insurance premiums than a person of average weight.

According to Healthways, obesity is associated with 39 million lost workdays and 239 million restricted activity days. About one-third of Americans are obese, and that accounts for 9 percent of our nation’s medical bills.

As for smoking, businesses lose an average of $3,400 per year for every employee who smokes and two times as much production time compared to a nonsmoking employee.

According to the CDC, factors that influence health are 50 percent personal behavior choices, 20 percent genetics, 20 percent environment and 10 percent access. Physicians as trusted advisers can play a vital role in encouraging patients toward the correct path to behavioral change. Compliance and literacy are huge issues, which also be must faced.

So how do health plan makers respond?

The advent of the rise of consumer-driven health plans has allowed for attractive tax advantages, and new laws are making the plans more desirable. For employees, health savings accounts allow for greater control over health services, tax-deductible contributions plus tax-free withdrawals for eligible expenses, tax-free interest earnings and a yearly rollover of unused funds. They also may provide lower premiums after a repeal of annual deductible limitations on HSA contributions.

For 2007, the law allows a maximum of $2,850 for individuals and $5,650 for families, regardless of the deductible amount of the plan. The law also allows a full year contribution to the HSA for those who join a high-deductible health plan midyear. The law also allows for a one-time tax-free rollover from an individual retirement account into a HSA, but the amount cannot exceed the annual contribution limit.

For 2008, HSA legislation allows a maximum annual contribution of $2,900 for individuals and $5,800 for families. There are current proposals that call for provisions such as the transfer of HSA funds on death to adult children, Medicare Advantage requirements, individual deductions for premiums, and changes to Internal Revenue Service rules.

HSAs are slowly becoming part of a growing trend, and as knowledge regarding the valuable tax and wellness incentives expands, they will become more popular.

Wellness, the advent of high-deductible health plans and health care in general, are dynamic. Staying abreast of changes in terms of benefits is crucial to understanding the future.

Andrea Croley is co-owner of Croley Insurance and Financial in Springfield. She may be reached at acroley@croleyinsurance.com.