Improving The Health Of Benefit Programs
By: Mike Sampson
The most obvious and discussed trend in private health care plans today is the steady and significant increase in the cost of these programs. The cost of health benefits increases every year, and the rate of those increases has been rising steadily over the past five or six years. Historically, the rate of cost increases has been cyclical, as demonstrated by Chart 1. There is reason to believe that we are at the top of the cycle now, and may be in the early stages of a slightly downward cycle.
Regardless of the potential moderation in the rate of cost increases, the cost of health plans will continue to increase, but perhaps at a slower rate. The most significant single driver of cost increases is the fact that the Canadian population is generally aging, which is reflected in an aging workforce. The impact of aging is significant, as both utilization of services and the cost of those services increase with age. The largest component of an employee benefit plan is the drug program, which generally makes up about 70 per cent of the total cost of an employee benefit program.
Charts 2 and 3 clearly indicate that the number of drug claims increase with age, as does the cost of those drugs.
In addition to the impact of aging, drug plan costs are steadily increasing as more effective, costlier drugs are introduced. While these cost increases can be alarming, the benefit of more effective drugs should not be ignored. New, more effective drugs can help people avoid or reduce hospital stays, reduce or even avoid absences from work, and increase the productivity levels of individuals while they are at work.
Publicly funded health care programs are also experiencing steady cost increases. As they attempt to mitigate the cost of their programs by reducing covered services, they potentially pass those expenses on to private plans. For example, shorter hospital stays mean that prescription drug costs, which were previously paid by hospitals, are now being funded by private health plans.
Over the past few years, a number of cost containment strategies have been implemented to control rising benefit plan costs. Traditional cost containment measures involve capping or reducing benefits and employing deductibles. While these methods essentially shift the costs to plan members, they do have the beneficial effect of involving the claimant in the buying decision. By sharing the cost, employees are more inclined to shop wisely when there is an opportunity to do so. More recently, cost mitigation strategies have been clearly aimed at behaviour change. These are particularly evident in drug plan designs that employ dispensing fee caps, different coinsurance levels for brand name and generic drugs, and prior authorization for certain drugs that have more than one potential use.
Although these cost containment measures can help curtail the rising cost of drug plans, they should be implemented carefully. Ultimately, benefit plans are intended to promote healthy and productive employees. Indiscriminate reductions in benefits can have a long-term detrimental effect on absenteeism, disability, and overall productivity.
To have a significant impact on the rising cost of benefit plans, we must find ways to reduce the demand for services. This approach, which has already proven to be successful in controlling the cost of disability plans, can also be applied to health care. Over the past few years, plan sponsors have achieved significant success in controlling disability costs through prevention programs, early intervention, medical management, rehabilitation, and return-to-work programs. Now we are starting to see employers and plan sponsors devote that same energy and investment to their health benefit programs.
The health of the workplace has a huge role to play in controlling the cost of benefit plans. Logic tells us that the healthier employees are, the less health care services they will consume; and the less services consumed, the less the benefit plan will cost. There isn’t much we can do about the environmental factors (such as aging) that are driving up the costs of private health care plans. However, by being more actively involved in the health of their employees, a plan sponsor can reduce the rate of increase. Astep in this direction can be as basic as implementing an effective absenteeism tracking and reporting process. Are some employees ill more frequently than others? Are they always away on the same days of the week? Just knowing your absenteeism patterns can help identify potential strategies for achieving a healthier workforce. It’s certainly a good starting point for a dialogue about workplace health and wellness.
Organizations can employ a number of approaches to become active proponents of fitness and health. Many employers provide fitness facilities and on-site health counselling. Education can have a profound effect and the value of information on nutrition, exercise, smoking, and prevention cannot be understated. Companysponsored smoking cessation programs, Weight Watcher classes, and exercise programs can all help to improve general health. The Internet can be a valuable source of information that can be geared to the specific needs of each employee.
Programs targeted at specific diseases that are known to be prevalent in the workplace can be very effective. When compiled with sensitivity and employee anonymity, drug information can help an organization target education programs. For instance, Type Two diabetes is one of the many conditions that can be treated, and even reversed, with the implementation of a healthier lifestyle. If a company discovers that a high percentage of its employees have Type Two diabetes, a program on how to manage the condition can be designed and made available to staff members.
mproved physical health can lead to improved emotional well-being. An employee assistance program that provides counselling and other forms of assistance can help employers avoid larger issues.
The biggest concern about healthy employee programs relates to the issue of quantifying measurable results and the return on investment. Being able to track the costs and to measure the outcomes is a critical part of a successful program. This will be one of the major challenges facing plan sponsors.
However, we are clearly heading in the direction of healthier work places. This is the best way of addressing the increasing cost challenges.
Mike Sampson is vice-president, group marketing, at Great-West Life Assurance Company.
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