Employers Making Progress In Managing Health Care Costs

Companies that make sustained and comprehensive efforts to better manage the delivery of health care benefits are seeing impressive results when it comes to controlling costs, as indicated by the results of the 2008 “Health Care Cost Survey” conducted by human resources consultancy Towers Perrin.

The annual survey of 315 large companies found that the average cost of providing health care benefits is expected to reach $9,312 per employee in 2008, an increase of 7% over 2007. While observing that this growth rate is among the lowest reported by survey respondents over the last five years, researchers also noted that the survey uncovered a significant cost differential for companies that are actively and effectively managing program performance. Among these “high performing” companies, researchers said, annual increases in per-employee health care costs will be around $1,500 lower than among “low performing” employers.

The survey showed that employers expect to cover an average of 78% of 2008 health insurance premium costs, while workers will be asked to contribute the remaining share. The average per-employee health plan contribution in 2008 is set to rise 8% compared with the previous year, to $2,040. Increases in premium contributions, combined with other forms of cost-sharing, such as co-payments and deductibles, have led to a doubling of out-of-pocket health care costs for employees over the last five years, the survey found.

To better understand what factors drive variations in health care cost increases across companies, researchers divided the organizations surveyed into three categories: low, average, and high performers. These designations were based on relative costs and cost increases, and on the extent to which a company is meeting its health benefit objectives in areas such as efficient purchasing, employee engagement, and managing health risks in the employee population.

An analysis of the 2008 survey data showed that 45% of high performers are seeing cost increases of 5% or less. While average per-employee health care expenditures will total $10,320 among low performing companies, the average cost of providing health care benefits among high performing organizations will amount to just $8,844 per worker.

Cost-shifting to employees was not an approach used by most high performing organizations, researchers emphasized. In fact, they noted, employees at high performing companies tend to pay significantly less than the average worker for their health care coverage.

Instead, the analysis suggested, high performing companies have realized cost savings through better overall management of their health benefit programs. For example, the study found, high performers show a clear commitment to supporting employees’ health and health care decisions, have well-articulated health care strategies, use rigorous metrics for evaluating the effectiveness of specific programs, and design their programs to promote price transparency. Results further showed that these companies require employees to be more accountable for their health care decisions and help employees make better choices by providing them with tools and resources that support employee awareness and action.

“As we learn more about what high-performing companies are doing differently, it is becoming increasingly apparent that accountability is one of the most critical success factors,” said Dave Guilmette, managing director of the Towers Perrin health and welfare practice.

“But what the high performers show us is that accountability swings both ways,” Guilmette continued. “As companies ask their employees to become more accountable for their health care consumption and participate in cost-control initiatives, the companies themselves must become more accountable to employees by providing the resources, support tools, education and communication initiatives that employees need to be successful consumers of health care. High-performing companies are far more committed to implementing these measures than the low-performing group and, we believe that is the reason they are so much more successful.”