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Health Care: The New Frontier

As health care and its increasing costs were focal points of the last election, many have now come to realize this national issue must be addressed. From employer sponsored health plans to individual coverage, costs are skyrocketing while benefits are being cut. Many are now asking what has happened to our health care system and what can be done to improve it.

It is estimated that in 2008, 63 percent of employers offered health benefits to their employees. This statistic is further broken down as follows: preferred provider organization (PPO) plans, 58 percent; health maintenance organization (HMO) plans, 20 percent; point of service (POS) plans, 12 percent; high deductible health plans (HDHPs), eight percent; and miscellaneous plans, two percent. Although HDHPs and health saving accounts (HSAs) seem to be getting plenty of press, statistics indicate very few employers are choosing them. According to The Henry J. Kaiser Family Foundation, of all these plans, more than 23 percent have an individual out-of-pocket maximum of $3,000 or more, while only 20 percent have an individual out-of-pocket maximum of less than $1,500.

Among those employers offering group benefits, a large percentage of firms (40 percent) say they will increase employee health care premiums in 2009. An almost equal number of firms (41 percent) say they will increase deductibles, while nearly 45 percent are planning to raise doctor’s office visit and prescription copays. The good news is only six percent of firms questioned by The Henry J. Kaiser Family Foundation are likely, or somewhat likely, to cancel health care.

Due to these recent trends, many employers are now finding it increasingly difficult to offer affordable health care. Therefore, what plan parameters can small business owners change that will effectively cut health care costs?”

Changing plan types
PPOs (network self-referral) listed as 100/80, 90/70, 80/60 or any variations thereof, simply refer to the amount of benefit coverage in and out of network. These are typically referred to as “coinsurance percentages.” For example, a 90/70 plan would imply that there is 90 percent coverage in network and 70 percent coverage out of network. By reducing these coinsurance levels, or “going down the ladder,” premiums are then reduced. However, do not be fooled by the out-of-network percentage level, as it may only represent a fraction of in-network or negotiated rates. Thus, out-of-network doctors can bill patients significantly more than what their plans will reimburse, causing them to be responsible for the remaining amounts. Various types of coverage are available throughout the country, but due to increasing costs, 80/60 plans seem to be growing in popularity.

HMOs, though not as popular as PPOs, still have a foothold in the United States. Instead of choosing any doctor in the network (as with a PPO), individuals must choose a primary care physician and utilize that particular physician first as a referral source. Though HMOs are typically less expensive than PPOs, the networks are usually smaller, and specialists can be few and far between. Also, it is important to remember that once a specialist is found, a referral from a primary care physician is required before services are covered.

Changing deductibles
Individual deductibles approaching $1,000 are becoming increasingly popular as employers look to cut costs. Though deductibles as high as $2,000 have been recorded, they are not common in the workplace. Deductibles are a direct reflection of individual and family out-of-pocket maximums. Premiums are reduced as deductibles increase, but not always proportionally. Sometimes, the amount of savings realized by increasing the deductible does not justify the end result.

Changing doctor networks
Employers can save money by utilizing the smaller networks offered by health insurance companies. Many times, a GeoAccess report can be run for any network in order for employers to observe its direct impact on covered employees. If moving to a smaller network causes very little employee network disruption (meaning, the majority of current employees’ doctors and hospitals would remain in the smaller network), this cost savings opportunity should be seriously considered. Some employers have realized savings of more than 10 percent when switching to a different network. In addition, some carriers will also allow multiple networks to be offered so that certain covered employees’ premiums can be reduced if their doctors are included in smaller networks.

Changing copays (doctor’s office and prescription)
Though the $10 doctor’s office visit copay still exists, $20 has become the average, while $30+ copays are beginning to appear more frequently. Split copays are now a popular tendency, with one payment designated for a primary care physician and another, higher payment designated for a specialist. The average seems to be $25 for primary care physicians and $40 for specialists, though the amounts have risen as high as $30 for primary care physicians and $60 for specialists.

Prescription copays are typically arranged in three or four tiers with level one being generic, level two being formulary/preferred and levels three and four being non-formulary and non-preferred, respectively. Level one generics have maintained their price with the typical generic copay being $10. However, levels two and up have seen increases, as $20 (level two) and $30 (level three) copays are now rising to $30 (level two) and $50 (level three). Depending on the group, prescription costs can greatly affect rates, and raising the prescription copays may unexpectedly cut your overall health care costs.

Doctor’s office visit copays, as well as drug copays, are typically not offered with HDHPs and HSAs. Though there is significant savings with these plans in some areas of the country, the trend to fully move to these plans has not yet been established. Using a carrier for negotiated rates and having an HSA for pre-tax medical benefits have not been proven as cost beneficial alternatives or as employee accepted benefits.

These plan alternatives should be carefully considered, as many insurance companies are predicting that the average cost of health care will increase eight to 10 percent in 2009. Though those of us who demand immediate health care and the option of choosing our own doctors would never accept socialized medicine (i.e., Canada), health care in the United States will truly become unaffordable if this trend continues throughout the next decade. Traditional plans of the 1970s and deductibles reaching $2,000 with no office visit/prescription copays and out-ofpocket maximums of $5,000 per individual may become the norm. We can continue to decrease benefits and increase employee costs, but until we stop taking advantage of the health system (using emergency room services for a simple cold, for example), costs will continue to spiral out of control.