Employee Benefit Views

News You Can Use: Practitioners, consultants make final pitches for health care reform

Posted August 4, 2009 by By Kelley M. Butler at 01:46PM. Comments (2)

In my August EBN editorial, I voiced my growing pessimism about the chances for full health care reform this year. Although at presstime, there still was a small chance for passage of legislation before the August recess, we now know that Congress' self-imposed deadline has come and gone.

However, hope springs eternal among benefits professionals. As I also mentioned, guest bloggers Karen McLeese, vice president of regulatory affairs at consulting firm CBIZ, and Scott Keyes and Katherine Sullivan, health care benefits consultants in Watson Wyatt's Stamford, Conn., office, have put their views on display here at the Daily Diversion. Read their full posts below.

Health care reform: What employers may want from it
By Scott C. Keyes, CEBS & Katherine Sullivan

We are beginning to debate what shape health care reform should take in the United States. While most employers broadly support the goals of greater access to health care, many are concerned that a focus on access alone may lead to significantly greater health care costs and possibly higher health care cost inflation.

With that in mind, we want to examine exactly what drives health care costs for large employers and discuss where employers may want to direct their health care reform efforts.

Health care is becoming unaffordable for both employers and employees. Health care costs for large U.S. employers approached $7,173 per year per employee in 2008 . Employer costs have more than doubled since 2000 and employee out-of-pocket costs have increased at an even greater rate in the same time.

We should also compare U.S. health care costs to those in other countries in which global companies compete for business and talent. Although the United States has the highest health care costs by a large margin, it also has the lowest life expectancy rate of the developed countries. Clearly, as we discuss health reform, addressing health care quality and cost will be key.

What drives health care costs for large employers?

What accounts for high U.S. health care costs, and can the proposed health care reform provisions address these issues? To answer that question, we examined health care claims of large employers from internal Watson Wyatt databases. These databases include over a million individuals and information from large multi-state employers, which are good proxies for the experience of other employers. 

Overall health care costs increased by 40 percent from 2003 to 2007.  However, the underlying cost drivers of each component varied significantly. Although the overall increase by component ranged from 33 percent to 48 percent, most had larger increases in the cost of service than in the number of services. For instance:
* The numbers of facility inpatient and outpatient services increased 5% to 7%, while the cost of these services increased by more than 27%.
* Professional services increased 13%, while the cost of service increased more than 30%.
* Pharmacy was the only component with a larger increase in units of services than price per service.
* Catastrophic care accounted for 18% of total cost but a third (33%) of the total cost increase.

What does this tell us about what employers need from health care reform?

This information gives us some insights into what employers may want from health care reform. These conclusions may not be new revelations, but we believe they provide an objective framework for the demands that employers may want to make on Congress.

Issue No. 1: Controlling the increase in the cost of medical services is more important than controlling the amount of services used. Except for the pharmacy component, health care costs are being driven by the increase in the cost of service (and the intensity of services), not greater use of services. Other authors have also supported this claim, pointing out that the U.S. health care cost problem is related to the cost of service, not because there are too many services.

So, what health care cost provision might help employers with this? 


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