Group Health Ins Rates and Stratagies Grant Davis GDI

Increasing Health Care Costs
and Your Employee Health Plan

Presented by: GDI Insurance Agency, Inc.
10/12/2010
Where Are We?
A Snapshot of the Health Care Cost Situation
• Health care costs have been increasing at an

alarming rate for nearly a decade
• Upward trend in health care costs are
slowing, yet cost increases are outpacing the
rate of inflation.
• Costs increased in 2008 and are expected to
increase slightly in 2009.
National Trends
Average Annual Health Care Cost Increases
Annual Health Care Cost Increases, National Averages 2001-2009

16.0% 15.2% 14.7%
14.0%
12.3%
12.0%
10.0% 9.2%
7.9%
8.0%
6.0% 6.4%
6.0% 5.3%
4.0%
2.0%
0.0%
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09
(proj.)
Source: Hewitt Health Value Initiative, 2008

National Trends
Health Benefit Costs
2008 Health Care Cost Increases, Major Metropolitan Areas

Atlanta 7.2%
Boston 4.5%
Chicago 3.7%
Dallas/Ft. Worth 8.1%
Denver 5.3%
Detroit 7.5%
Houston 2.6%
Los Angeles 7.5%
Minneapolis 9.1%
New York City 8.7%
Orlando 9.2%
Philadelphia 8.1%
San Francisco 6.7%
Tampa Bay Area 7.1%
Washington, D.C. 6.7%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%

National Trends
Annual Health Care Costs Per Employee, National Averages 2002-2009

$10,000
$8,863
$9,000 $8,331
$7,857
$8,000 $7,464
$6,915
$7,000 $6,334
$6,000 $5,639
$4,914
$5,000
$4,000
$3,000
$2,000
$1,000
$0
2002 2003 2004 2005 2006 2007 2008 2009

(proj.)
National Trends
2008 Health Care Costs Per Employee, Major Metropolitan Areas
Atlanta $7,677
Boston $9,477
Chicago $8,147
Dallas/Ft. Worth $9,277
Denver $8,062
Detroit $8,374
Houston $8,740
Los Angeles $7,296
Minneapolis $8,766
New York City $8,540
Orlando $7,573
Philadelphia $8,634
San Francisco $8,696
Tampa Bay Area $8,331
Washington, D.C. $7,552
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000

National Trends
Shift to Consumerism Yields CDHP Growth
• Percentage of all employers offering a consumer-

directed health plan (CDHP) based on either a health
reimbursement account (HRA) or a health savings
account (HSA) continues to rise (increase in 2008 from
7 to 9 percent, as small employers adopted these new
types of plans).
• Growth in CDHPs was strongest among larger
employers. Offerings rose from 14 to 20 percent
among employers with 500 or more employees, and
from 41 to 45 percent among jumbo employers
(20,000 or more employees).
• Nationally, enrollment in CDHPs rose from 5 to 7
percent of all covered employees.
National Trends
Shift to Consumerism Yields CDHP Growth
• CDHPs delivered substantially lower costs per

employee than PPOs or HMOs in 2008. They cost
an average of $6,207 per employee, compared to
$7,768 for HMOs and $7,815 for PPOs.
• Employer account contributions are a standard
feature of HRAs but not HSAs – over one-third of
all large HSA sponsors do not contribute.
• If an HSA sponsor contributes, it is approximately
$694.
National Trends
Factors Leading to Increased Health Care Costs
• Several market conditions

working in tandem have led to
a decade of unrelated health
care cost increases.
• Understanding annual health
plan renewal rate increases is
essential in formulating
alternatives and solutions to
plan challenges. It is also
pertinent for educating
employees about the rationale
behind any plan or contribution
changes being introduced.
How Did We Get Here?
• Demographics
o There is a subsequent rise in the occurrence of
chronic diseases – asthma, heart disease and
cancer – and a reluctant need for more resources
to fight these diseases.
o Leads to elevated utilization of prescription drugs
and other medical services, and an overall rise in
dollar expenditures on health care.
• Demographics
• Dramatic Rise of Prescription Drug Costs
Dramatic Rise in Prescription Drug Costs
• According to Centers for Medicare & Medicaid

Services (CMS):
o Spending in the U.S. for prescription drugs was
$216.7 billion in 2006 – more than five times the
$40.3 spent in 1990.
o Prescription drug spending has been a fairly small
proportion of national health care spending
compared to hospital and physician services (10
percent in 2006, compared to 31 percent and 21
percent respectively) it is one of the fastest-growing
components, until recently growing at double-digit
rates compared to single-digit rates for hospital and
physician services.
National Trends
Average Annual Percentage Change in Selected National Health

Expenditures, 1996-2006
Figure 1: Average Annual Percentage Change in

Selected National Health Expenditures, 1996-2006
20 18
18
16 15 15
14 14
14 13 13
12 11
10 9 9 9
8 8 8 8 8
8 7 7 7 7 7 7
6 6 6 6
6 5 5 5
4 4
4 3 3
2
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Hospital Care Physician & Clinical Services Prescription Drugs
Source: Kaiser Family Foundation calculations using National Health Expenditure
historical data from Centers for Medicare & Medicaid Services.
National Trends
Percent of Total National Prescription Drug Expenditures by Type of

Payer, 1990-2006
Figure 2: Percent of Total National Prescription Drug

Expenditures by Type of Payer, 1990-2006
60
56
50 50 Consumer
49 48 49 48
44 Out-of-
43 43
40 Pocket
36 35 34
31 28
30 31 26 Private
26 28
22 21 22 23 22 Health
20 18 20 25 25
Insurance
10
Public
0 Funds
1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: Kaiser Family Foundation calculations using National Health Expenditure
National Trends
Distribution of Total Public Prescription Drug Expenditures by

Type of Payer, 2005 and 2006
Figure 3: Distribution of Total Public Prescription

Drug Expenditures by Type of Payer, 2005 & 2006
25%
2005 68%
7%
21%
2006 26%
53%
0% 10% 20% 30% 40% 50% 60% 70% 80%

Other Public Medicaid Medicare
Source: Kaiser Family Foundation calculations using National Health Expenditures
• Primary reasons for increased drug costs

o Increased utilization
• More people are using more prescription drugs, which
drives up spending. From 1997 to 2007, the number
of prescriptions purchased increased 72 percent (2.2
billion to 3.8 billion). U.S. population growth was only
11 percent.
• Average number of retail prescriptions per capita
increased from 8.9 percent in 1997 to 12.6 in 2007.
• Percentage of the population with a prescription drug
expense in 2005 was 59 percent (under 65) and 91
percent (over 65). (Stat has remained fairly
consistent since 1997.)

o Increased Prices
• Retail prescription prices increased an average of
6.9 percent a year from 1997 to 2007 (from an
average price of $35.72 to $69.91). This is more
than 2.5 times the average annual rate of inflation
(2.6 percent) over that decade.
• In 2007, the average brand name prescription was
over three times that of the generic ($119.51
versus $34.34).

o Changes in Types of Drugs Used
• As new drugs enter the market and existing ones lost
patent protection, spending is affected. If new drugs
are used in place of less expensive, older ones,
spending increases overall.
• If new drugs supplement rather than replace old drug
treatments, or if they treat a condition not previously
treated, spending can increase.
• New drugs can reduce spending if they enter the
market at a lower price point than existing drugs, or
when existing brand drugs lose patent protection and
face competition from lower priced generics.
• Primary reasons for increased

drug costs
o Advertising
• Spending for consumer
advertising in 2007 was more
than four times the amount
spent in 1996 ($3.7 billion
versus $0.8 billion), while 2007
physician advertising was almost
two times the 1996 amount
($6.7 billion versus $3.5 billion).
• Congress and the FDA are
currently considering
prescription advertising rules.
Prescription Drugs and Insurance Coverage
• Uninsured adults ages 18 to 64 are more than

twice as likely as those who are insured to avoid
filling a prescription, cutting up pills or skipping
doses of medication because of costs.
o Drug coverage comes from the following
sources:
• Employer coverage
• Medicare
• Medicaid
• Employer Insurance Coverage:

o Provides 177 million Americans with coverage in
2007 (59 percent).
o 60 percent of employers offered health
insurance to employees in 2007, and 65 percent
of employees are covered under those plans.
Most covered employees have a prescription
drug benefit (98 percent).
• Medicare:
o The Medicare Prescription
Drug, Improvement and
Modernization Act of
2003 put into effect a
voluntary Medicare
outpatient drug benefit
(Part D) under which 44
million Medicare
beneficiaries can enroll in
private drug plans.
• Medicaid:
o Joint federal-state program that pays for
medical assistance to 60 million low-income
individuals and is the main source of outpatient
pharmacy services to the low-income
population.
o There are differences in state policies with
regard to copayments, preferred drugs and the
amount at which prescriptions can be filled.
Curbing High Prescription Drug Costs
A variety of public and private strategies have been

employed to try and contain rising prescription drug
costs, including:
o Utilizing management strategies
o Discounts and rebates
o Medicaid
o Medicare
o Purchasing Pools
o Consumer Action
o Importation
• Utilization Management Strategies:

o Health plans have excluded certain drugs from
coverage, used quantity dispensing limits and
increased enrollee cost-sharing amounts.
• In 2007, 75 percent of workers with employer-
sponsored coverage had a cost-sharing arrangement
with three or four tiers, almost three times the
proportion in 2000 (27 percent).
• Copays for non-preferred drugs climbed from an
average of $29 in 2000 to $43 in 2007. Copays for
preferred drugs increased from $15 to $25 in 2007
(see next slide).
National Trends
Among Covered Workers with Three- or Four-Tier Prescription Drug

Cost Sharing, Average Copays, 2000-2007
Figure 4: Among Covered Workers with Three- or Four-Tier
Prescription Drug Cost Sharing, Average Copayments, 2000-2007
80
71
70
59 59
60
50 43 43
38
Dollars
40
29 32
30 22 25 25
20 15 18
10 8 9 10 11 11
0
Generic Preferred Nonpreferred Fourth-Tier*
2000 2002 2004 2006 2007
Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2000-2007,
Exhibit 9.4
• Discounts and Rebates:

o Drug programs (public and private) negotiate
with pharmaceutical manufacturers to receive
discounts and rebates applied based on volume,
prompt payment and market share.
o Manufacturers who want drugs covered by
Medicaid must provide rebates to state Medicaid
programs for drugs purchased.
o Some states have negotiated additional rebates
or supplemental rebates.
• Medicaid:
o The Deficit Reduction Act of 2005 gave states
more authority to control Medicaid drug
spending through the following:
• Increased cost sharing for non-preferred drugs
• Changes in the way that Medicaid pays pharmacists
• Allowing pharmacists to refuse prescriptions for
beneficiaries who do not pay their cost sharing
• Inclusion of authorized generic drugs in the calculation
of “best price” for drugs
• Medicare
o The Medicare Part D drug benefit moved
spending from the private sector and Medicaid
to Medicare, making Medicare the nation’s
largest public payer of prescription drugs in
2006 of total U.S. prescription spending.
• Medicare is prohibited from directly negotiating drug
prices or rebates with manufacturers under the
Medicare Part D legislation (relies on the private Part
D drug plans to negotiate these discounts and
rebates).
• Purchasing Pools
o Some public and private organizations have
banded together to form prescription drug
purchasing pools to increase their purchasing
power through higher volume and shared
expertise. Some of these purchasing pools
include:
• Department of Defense and the VA
• Multi-state bulk buying pools through which states
purchase drugs for their Medicaid
• State employees
• Senior, low-income and uninsured pharmacy assistance
programs or other public programs
• Individual state purchasing pools
• Consumer Action
o Consumers are doing the
following to reduce their
prescription drug costs:
• Requesting cheaper drugs or generics
from their physicians and pharmacies
• Using the Internet and other sources
to make price comparisons
• Using the Internet to purchase drugs
• Buying at discount stores
• Buying over-the-counter (OTC)
instead of prescription drugs
• Buying drugs in bulk and pill-splitting
• Using mail-order pharmacies
• Using pharmaceutical company or
state drug-assistance programs
• Importation
o High drug costs have led some individuals to
purchase prescription products from distributors
in Canada and other countries (known as
“importation” or “reimportation” when the drug
is manufactured in the U.S.).
o It is illegal for pharmacies or wholesalers to
purchase drugs from other countries, yet the
government does not always stop consumers
from purchasing drug products across the
border.
• Legislation enacted in 2006 allows U.S. residents to
transport up to a 90-day supply of qualified drugs from
Canada to the U.S.
• Demographics
• Expansion of Providers
Expansion of Providers
• Providers offer many

benefits to the
communities that they
serve, but require a
great deal of capital to
fuel their growth.
• Capital expenditures
by hospital systems
and other providers
place upward pressure
on the costs of many
medical services.
• Demographics
• Consolidation of Managed Care Companies
Consolidation of Managed Care Companies
• Under-pricing, weak underwriting and the costly

process of assimilating acquisitions has lead to
serious dips in profitability and stock prices for a
large number of carriers.
• Many carriers have sold off their managed care
operations to “bigger fish” or have completely
gone out of business. Companies still in the
market are now faced with much less competition
and a renewed commitment to achieving healthy
returns, which has resulted in increased rates.
• Demographics
• Consolidation of Managed Care
Companies/Insurers
• Political Environment and Government Regulation
Political Environment and Government Regulation
• State/federal mandates have

increased twenty-five-fold over
last three decades. Mandates
tend to conflict with or
duplicate one another, and
usually come with an increased
cost for the health care system.
• Issues such as prescription

drugs for seniors, Medicare
reform and coverage for the
uninsured will also continue to
play a big role on political and
legislative agendas and will put
pressure on costs.
• Demographics
Companies/Insurers
• Increased Utilization and Consumer Demand
Increased Utilization and Consumer Demand
• Utilization of health care services has increased

due to the following:
o Improvements in medical procedures and
technology
o Influence of managed care
o Elevated consumer awareness and demand
o Boost in the number of practicing physicians
(caused the number of surgical procedures and
prescription drug use to rise significantly).
Preventive services (breast cancer screenings,
immunizations for children and diagnostic
procedures) have also increased in utilization.
• Demographics
Companies/Insurers
• New Medical Technology
New Medical Technology
• Life expectancy and disease-

specific mortality are improving
as old technologies are being
replaced with new ones. They
are often more expensive, use
new medical devices, diagnostic
products, drugs and surgical
procedures.
• New procedures come with
large price tags, which drives
up the overall cost of health
care – and subsequently, health
benefit costs.
• Demographics
Companies/Insurers
• Weakening/Dissolution of Managed Care System
Weakening/Dissolution of Managed Care System
• The economy in the late 1990s, consumer demand

and the regulatory environment described in this
presentation have led to a general weakening of the
managed care system.
• Provider contracting has strained the managed care
system.
• Hospitals have lost money due to the Balanced
Budget Act of 1997 (cut billions from Medicare
managed care payments) and due to other financial
issues. They are now willing to walk away from
health plans that offer insufficient reimbursement
rates and prohibitive payment practices.
• Demographics
Companies/Insurers
• Weakening/Dissolution of Managed Care System
• Health Care Spending and Medical Cost Inflation
Health Care Spending and Medical Cost Inflation
• Health care
spending and
medical cost
inflation are
ascending due to
the previous
factors discussed
in this
presentation.
Employers React: What Can You Do?
Stopping the Runaway Train
After years of trying to absorb most of the costs of

attraction and retention issues, many companies are
trying to attack the root of the causes of rising costs with
sustained, systematic changes.
Employers aim to make significant investments in longer
term solutions aimed to improve the health and
productivity of their workers, including:
• Introducing more consumer-driven health plans (CDHPs)
• Value-based design
• Improving employee education
• Influencing positive employee behavior changes through
condition management and wellness programs
• Improving the amount and quality of data available on
health care costs and quality.
Introduce or Expand Consumerism
• Consumer-oriented solutions balance costs and

employee relations within health plans.
Value-Based Plan Design
• Incentivizes employees to use appropriate care

and services to manage their health.
Improve Employee Education and Communication
• Consumer-driven strategies will not work without

the right resources for employees to drive smarter
behavior.
• Employers must invest heavily in communication,
education and decision support tools to help
employees make better health care decisions.
• Consider requiring active enrollment.
• Offer decision support tools that can help
employees evaluate their options.
Increase Disease Management and Wellness Programs
• According to the 2008 Kaiser/HRET Employer

Health Benefit Survey:
o 54 percent of firms offering health benefits offer
at least some type of wellness program.
o Among firms offering health benefits and
wellness programs, 33 percent of employers
report their primary reason for offering wellness
programs is to improve the health of employees
and reduce absenteeism.
Other Strategies for Reducing Costs
• Contribution strategies
o Employers evaluate how they differentiate
contributions for employees and their dependents.
Pay-based contribution models are also used.
• Dependent coverage strategies
o Change the rules for dependent coverage including:
• Implementing higher cost sharing for dependents
• Providing flexible credits for opting out of coverage
• Requiring additional contribution if an employee’s
working spouse does not accept coverage from his/her
own employer
• Requiring an employee’s working spouse to accept
coverage from his/her own employer
Other Strategies for Reducing Costs
• Change prescription drug coverage

o Make changes to prescription drug benefits
including:
• Using a three-tiered design
• Increasing coinsurance
• Requiring step therapy
• Requiring the use of generics
• Requiring mail order of certain drugs
• Using a therapeutic MAC/reverse copay design
Determining the Right Strategy for Your Company
• Is our program structure, plan design and pricing

appropriate?
• Do we have all the right vendors, services, contracting and
funding in place?
• Are our employee communication efforts appropriate and
effective?
• Do we have all the right disease and case management
programs for our employees?
• Do our pricing and plan design features encourage cost
conscious behavior on the part of our employees?
• Do our employee communication efforts and resources
motivate our employees to become educated and effective
health care consumers?
QUESTIONS?
THANKS FOR YOUR TIME!
Content © 2007-2009 Zywave, Inc. All rights reserved.

Group Health Ins Rates and Stratagies Grant Davis GDI

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Group Health Ins Rates and Stratagies Grant Davis GDI

Hochgeladen von

Copyright:

Verfügbare Formate

Increasing Health Care Costs

and Your Employee Health Plan

• Health care costs have been increasing at an

Annual Health Care Cost Increases, National Averages 2001-2009

Source: Hewitt Health Value Initiative, 2008

2008 Health Care Cost Increases, Major Metropolitan Areas

Source: Hewitt Health Value Initiative, 2008

Annual Health Care Costs Per Employee, National Averages 2002-2009

2002 2003 2004 2005 2006 2007 2008 2009

2008 Health Care Costs Per Employee, Major Metropolitan Areas

Source: Hewitt Health Value Initiative, 2008

• Percentage of all employers offering a consumer-

• CDHPs delivered substantially lower costs per

• Several market conditions

• According to Centers for Medicare & Medicaid

Average Annual Percentage Change in Selected National Health

Figure 1: Average Annual Percentage Change in

Percent of Total National Prescription Drug Expenditures by Type of

Figure 2: Percent of Total National Prescription Drug

Distribution of Total Public Prescription Drug Expenditures by

Figure 3: Distribution of Total Public Prescription

0% 10% 20% 30% 40% 50% 60% 70% 80%

• Primary reasons for increased drug costs

• Primary reasons for increased drug costs

• Primary reasons for increased drug costs

• Primary reasons for increased

• Uninsured adults ages 18 to 64 are more than

• Employer Insurance Coverage:

A variety of public and private strategies have been

• Utilization Management Strategies:

Among Covered Workers with Three- or Four-Tier Prescription Drug

• Discounts and Rebates:

• Providers offer many

• Under-pricing, weak underwriting and the costly

• State/federal mandates have

• Issues such as prescription

• Utilization of health care services has increased

• Life expectancy and disease-

• The economy in the late 1990s, consumer demand

After years of trying to absorb most of the costs of

• Consumer-oriented solutions balance costs and

• Incentivizes employees to use appropriate care

• Consumer-driven strategies will not work without

• According to the 2008 Kaiser/HRET Employer

• Change prescription drug coverage

• Is our program structure, plan design and pricing

Content © 2007-2009 Zywave, Inc. All rights reserved.

Das könnte Ihnen auch gefallen