Benefits Business

Say what? Positive trends in health plan costs?

Two major studies project lower rates of increase in health plan costs

By Len Strazewski

Are health care cost projections finally leveling off for 2009? If you believe the most recent employee benefit consultant surveys, they are—and this time the stabilizing trends may have some staying power.

The last time health care cost increases seemed to be slowing down—falling to 10% or lower increases on an annual basis—was during the Clinton administration when then-First Lady Hillary Clinton proposed a national health insurance plan.

After years of double-digit increases, and concerned about the loss of private marketplace profits worth more than $65 billion at the time, according to the Government Accountability Office (GAO), the health insurance industry pulled together its best managed care and cost control efforts and contained cost increases to about 9%.

The trend didn’t last, and as national health insurance turned into a political failure and embarrassment for Democrats, managed care advantages began to erode and costs began trending higher and faster. With each managed care or administrative innovation, cost trends slowed for a year or two, then returned to its steadily upward slope.

The latest cost trend research isn’t quite as promising as the leveling of more than 10 years ago, but they may reflect more fundamental changes in health care trends than political competition or administrative cost-shifting.

According to the 2009 Segal Health Plan Cost Trend Survey, released in late August 2008, most cost increases for 2009 are projected to be lower than 2008, although they are likely to continue to increase at a faster rate than general inflation. Specifically, the survey of 70 of the largest managed care organizations, health insurers, pharmacy benefit managers and third-party administrators found:

• Point of service (POS) health plan cost increases (excluding prescription drug benefits) have declined from a high of 13.7% in 2003 to a projected 10.4% in 2009.

• Retail prescription drug cost hikes have fallen from a high of 19.7% in 2001 for active employees to 9.8% projected for 2009. For retirees, the increase is projected to fall to 9.1%—below double digits for the first time since the New York consulting company has taken the survey.

• Combined preferred provider organization (PPO) and POS plan trends are projected to vary by region, but all are hovering near a 10% increase. Midwest costs are projected to be 9.4% compared to 10% in the South, 10.5% in the Northeast and 10.56% in the West.

• Rate increases for retirees age 65 and older are projected to fall below 9% for Medicare fee for service and just above 7% for Medicare HMOs.

Best of all, the new trend projections are driven by substantive health and treatment improvements derived from more carefully targeted care, disease management programs and wellness programs as well as acceptance of health promotion and health improvement programs.

“We are seeing plan sponsors turning to innovative designs and health improvement programs as a vehicle for containing health plan costs through cost effective treatments, reducing complications from chronic disease and lowering demand for health services,” says Edward A. Kaplan, national health practice leader at The Segal Company, a benefits, compensation and HR consulting firm.

“The most effective strategies include mining data to identify a plan’s cost drivers, redesigning plan provisions to eliminate barriers to care, and providing incentives to comply with recommended care for specific diseases.”

A similar survey of 70 leading health insurers conducted by Chicago-based Aon Consulting, a division of Aon Corp., also pegs future cost increases at about 10% per year, the lowest rate recorded by the insurance services firm since 2001.

Bill Sharon, Aon senior vice president and director of the study, also attributes some of the positive trends in medical plan costs to more employers and employees taking advantage of wellness, health promotion and consumer-driven programs. “But more must be done to truly stem the tide of rising health care costs. This includes greater senior management support for these programs, better employee communications and more consistent cooperation from the medical community,” Sharon said in the study announcement.

Acceptance of wellness and health management programs is contributing to the new trends, according to Vitality Group, Inc., in Chicago, one of the oldest of the wellness incentive companies. Founded in 1997, Vitality is a division of Discovery Holdings Ltd., a South Africa-based health plan provider and has 1.5 million participants worldwide. Its program was voted the Most Effective Wellness/Integrated Care program for 2008 by CDHC Solutions magazine.

Vitality Chief Executive Officer Arthur C. Carlos says the company has documented consistent positive return on investment and widespread acceptance of wellness incentive programs, producing employer claims that are 10% to 15% lower than comparable employers without wellness programs. The company also claims 10% to 20% lower hospital admissions and length of hospital stays.

Vitality included a series of health management questions in the CARAVAN omnibus surveys of 1,000 individuals, conducted twice weekly by Opinion Research Corporation (ORC) in Princeton, New Jersey.

The survey reveals that the majority of respondents—about 85%—are willing to participate in wellness programs if someone else pays for the programs. The respondents cited a desire to enjoy more activities with their families (77%), become healthier or more fit (76%) and having more stamina and energy (75%).

About 87% of respondents also said they were motivated by financial considerations and, specifically, would participate in wellness programs if they lowered personal health care costs (76%), included incentives for healthy behaviors and rewards for healthier lifestyles (75%) and were paid by their employer (71%).

However, Carlos says successful wellness and health management programs must be objective, measurable and fair to participants. Specifically, the programs must meet six criteria to be successful. They must:

• Be personalized and provide a customized set of activities and goals for each individual based on that individual’s risk profile.

• Provide affordable access to the tools and facilities to get healthier, including educational tools, fitness resources such as equipment and health club membership, lab testing to assess risks and risk cessation programs to mitigate those risks.

• Provide aspiration incentives and rewards to motivate a disparate employee population.

• Be medically, clinically and actuarially derived to target lifestyle behaviors that are directly linked to health care costs and proven to be modifiable by programs.

• Be systematized and provide a turnkey operation to employers and their employees.

Carlos says the company continues to see a range of responses and commitment from employers, from complete philosophical, financial and programmatic support from the highest level of leadership to a more cautious interest but programmatic commitment.

However, Carlos says that consistent reports on the success of wellness and incentive programs and their impact on cost trends are becoming increasingly compelling.