Getting a Handle on Rising Health-Care Costs
Executive Roundtable is a weekly column by TEC International, an organization of more than 7,000 business owners, company presidents and chief executives. TEC members meet in small peer groups to share their business experiences and help one another solve problems in a round-table session. The following question and answer are a summary of a discussion at a recent TEC meeting in Southern California.
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Question: My medical benefits insurance carrier raised my premiums a whopping 20% this year and has warned they are likely to go up even more next year. Several of my associates have complained of equal or larger increases. What’s behind this sudden hike in benefits costs and, more important, what can small-business owners like me do about it?
Answer: After several years of relative quiescence, the medical benefits ogre has decided to once again raise its ugly head.
In the next few years, most companies probably will experience double-digit health-care inflation, with some seeing increases as high as 50%. Although many factors contribute to this complex issue, experts point to four primary causes, the first of which is a grossly inefficient health-care system.
In the second half of the ‘90s, managed care helped to rein in costs by shortening hospital stays, providing alternatives to hospitalization and reducing unit costs. However, this rationing of care failed to address the core problem. In order to get a handle on spiraling costs, the health-care system needs to upgrade information systems, reduce processing errors, lower medical costs through more efficient delivery and lower overall administrative costs.
Second, the health-care economic model needs a major overhaul. With the current system, under which employees spend someone else’s (their employers’) dollars, most consumers have little or no economic incentive to make informed, prudent health-care choices.
Third, unhealthful lifestyle choices contribute to a significant portion of health-care costs. For example, health-care experts estimate that 50% of all premature deaths in America occur as the result of poor lifestyle choices, while up to 70% of all deaths from heart disease or cancer are lifestyle-related. Lifestyle also contributes to obesity, diabetes, stroke and other major health issues.
Finally, America is rapidly aging, and older people use a disproportionate share of medical services and consume the majority of pharmaceutical drugs.
As the population continues to grow older, this trend will play an increasing role in rising health-care costs.
Obviously, problems of this size and complexity will take time to solve. In the meantime, what can you do to get a handle on your health-care costs? Experts recommend the following:
Challenge the status quo. Recognize that you don’t automatically have to accept double-digit increases in your health-care costs, that there are viable alternatives.
Finding these alternatives, however, requires the same amount of due diligence and prudent shopping as with major purchases in other areas of your business.
Define the parameters. Set a target figure for next year’s health-care spending. Then work with your insurance carrier to come up with the best array of benefits it can provide at that level.
Empower people to make good lifestyle choices. Provide your people with the knowledge and tools they need to take better care of themselves. Offer employee wellness programs that help people implement the lifestyle changes they need to make. Use incentives and rewards to motivate people to make good lifestyle and health-care choices.
Consider self-insuring. Not all companies can self-insure, but it’s worth exploring this option with your broker. For those that can, self-insuring offers a major tool for limiting cost increases.
Consider aggregating costs. The legal and regulatory issues involved in aggregating costs vary from state to state and region to region. However, for companies that can join together to increase their populations and share costs, aggregation can significantly lower premiums.
Above all, don’t abdicate your responsibility in this area by dumping it entirely on your HR person. Instead, learn all you can about the options and alternatives available in the marketplace and work with your HR specialist to determine which ones make the most sense for your business.
At the same time, educate your employees. Give them the knowledge and information they need to become prudent consumers of health-care services.
You can’t forestall the inevitable increase in health-care and insurance costs, but with a little initiative and due diligence on your part, you can limit its effect on your business.
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If there is a business issue you would like addressed in this column, contact TEC at (800) 274-2367, Ext. 3177. To learn more about TEC, visit www.teconline .com.
