Technology, prescription drugs increase health care costs

With health care costs on the rise, insurers are struggling to find solutions that allow employers to continue to provide coverage to their employees.

"For the small businesses that I deal with, insurance is their second-greatest expense. We have recently seen a 20 percent increase in health care costs. Employers want to take care of their employees, but this is a hard thing to shoulder in the current market," said Chad Munsey, account executive at Ollis and Co. Insurors.

Insurance agents hope to foster new attitudes about health care by encouraging clients to participate in more cost-effective plans and benefit structures.

"(Customers) are coming to us for answers," said Tom Montileone, president/COO of Barker Phillips Jackson Insurance. "It is our job to educate them and their employees on how to get the best value for their premium dollars.

"Employers are altering their plans simply because they have to find a way to control costs, they can only spend so much on health care. What we are seeing is a reduction in benefits on both the prescription drug side of the business as well as the medical side."

Said Munsey: "Many employers are watering down their plans, moving from an HMO to a PPO. If they are already on a PPO, often they are going from a $250 deductible plan to a $1,000 deductible plan. Another trend is cost sharing, where if the employer was paying 100 percent of the employee's medical expenses, (now) they will cover 60 percent. These types of plans make people a little more aware of the cost of health care."

Many employers are faced with significant premium increases as health care costs increase.

"At 5 or 10 percent I don't see too many people changing their benefits. They simply absorb the increase and go on. But at 25 or 30 percent, alarms are sounding, and we have to look at other options," said Employee Benefit Design partner Ken Stephens.

Rising costs

According to local agents, the catalysts for increasing insurance costs can be traced to health care costs and prescription drugs.

"If the things that health insurance pays for go up in cost, then the cost of insurance must go up as well," said Luke Nixon, president of Nixon and Lindstrom Insurance.

Direct advertising of prescription drugs also has increased, according to Employee Benefit News, accounting for at least 33 percent of the price increase in prescription drugs.

"A lot of the jump in drug prices is because of all of the advertising that the drug companies do," said Munsey. "It has been a trend since 1998 for the drug companies to market their products directly to the consumer. Another problem is that this leads consumers to go to name brand drugs instead of much less expensive generic equivalents."

While the cost of prescription drugs has become a serious issue, Stephens cautions against overlooking other factors.

"The reasons for rising health care costs are a lot of things: new technology, new facilities, consumer demand and utilization, overhead for providers, the general economy and medical inflation. You can't point the gun at one thing and say, If we can fix this, we can solve everything'," Stephens said.

Change in perception

Part of the problem for insurers in dealing with increasing costs is altering the manner in which consumers regard insurance. This problem stems from the current structure of many HMO plans.

"HMOs were designed with the idea that catching diseases early and nipping them in the bud would be cheaper in the long run, but what actually happened was that people became too accustomed to going to the doctor for every little thing," Munsey said. "It didn't work out like they had planned, so now we are trying to go back to indemnity style plans for major medical."

Said Stephens: "How much thought do you put into the decision to go to the doctor when it only costs $10? Until there is some consumerism back in health care, people are going to continue to spend the insurance company's money much differently than their own."

In an effort to limit the impact of price increases, agencies are working to raise employers' awareness of under-utilized plans.

"We are seeing a lot of employers take advantage of Section 125 premium conversion plans. These allow employees to pay their portion of the premium cost with pre-tax dollars.

"There are also several other types of cafeteria plans' which allow the employee to set aside pre-tax dollars to be used on non-reimbursable health care costs," Montileone said.

Munsey encourages his clients to consider Medical Savings Accounts, which function similar to an IRA, but the employee's money is saved to a tax-exempt account designated for medical expenses.

"Clients may also enroll in a dual option plan where the principals of the company can utilize the MSA, which has a deductible of about $2,000, while the more blue collar workers can remain on a fully insured regular deductible plan," said Munsey.

A similar option, according to Stephens, is a Health Reimbursement Account.

"The employee buys a high-deductible (plan) and the employer puts a sum of money in the HRA. They are an interesting possibility, but they really haven't caught on just yet because the premium costs are still too high.

"That will have to change for this type of plan to work," said Stephens.