Lately, headlines have been telling us that our nation's health care system is in a state of trauma.
``Brace yourself for big premium increases and higher co-payments,'' one warns while another asks: ``What are you doing to control health plan costs?''
A recent survey by Hewitt Associates, according to another news story, found that ``99 percent of employers are `significantly or critically' concerned about health care.''
Of course you don't need the newspaper to tell you health care costs are rising. Every month you see the increase on your financial statements.
Regardless of your dealership's size, health care is a major expense to your business. So, what are you doing to control health plan costs?
Let's discuss why health care costs are rising, present facts so your costs can be compared to the norm, then give you some alternatives to consider in controlling your health care expenses.
Feeling the pain
Why are health care costs causing companies and workers so much pain now?
First, the continued weak economy has forced many dealerships to seriously scrutinize their business expenses. In a better economy, the consciousness level of these expenses may be reduced because ``profits cover a lot of sins.'' Thus, employers who had become accustomed to single-digit increases in health care costs are now in sticker shock over the double-digit increases in premiums and medical care expenses.
What is causing the increase? Unfortunately, there's no single answer. A combination of the following causes are to blame:
* Remember back in the good old days when you could pick your physician, receive a service and then pay the doctor for a reasonable office visit? This was called a traditional ``fee for service indemnity plan.'' These were very popular for many years.
These plans were switched to ``managed care plans'' because it was difficult to obtain a price break from your local doctor for one individual. However, under managed care plans, insurance companies could go to doctors and hospitals and receive price concessions. These concessions were based on the fact that the medical institutions would receive more patients because the companies would tell their employees which hospitals and doctors were ``covered under their plan.''
Managed care did decrease costs. However, all but 20 percent of the medical plans have switched to managed care types and the one-time savings have been exhausted.
Last year, for example, costs for managed care plans jumped 14.1 percent, according to a report by Segal Co., a benefits consultant.
* Aging baby boomers use more health care services than the previous generations. Let's face it, when today's worker has a medical problem there are many more alternatives from which to choose a potential remedy. The increased expenditures in prescription drugs alone are well into the double-digit stratosphere.
* Health Maintenance Organizations (HMOs) were cost-effective alternatives when they were introduced. Their costs also have escalated but their more restrictive cost-containment measures have been eased due to media backlash. Still, HMO costs have increased approximately 11 percent with no reduction in sight.
* Consolidation through mergers in the health care industry have given employers fewer choices and providers more ability to increase their prices.
* Surplus capacity of hospital beds plus specialty care units that need to be occupied may lead to inappropriate or unnecessary care.
Factoring out costs
How do your health care expenses stack up against others? The most efficient way to determine this is to review your costs while keeping in mind the following statistics:
* According to the Bureau of Labor Statistics, in March 2002, employer costs for employee compensation averaged $21.71 per hour worked. Wages and salaries averaged $15.80-about 72.8 percent of the total employee compensation package-while benefits comprised 27.2 percent of those costs, averaging $5.90.
Employers with 100 or fewer employees averaged 5.2 percent of total compensation for health care costs while those with more than 100 workers were above 6 percent.
The four regions of the country compare as follows on health care costs: South-5.8 percent of total compensation; Northeast-5.9 percent; West-5.6 percent; and Midwest-6.4 percent. Total health care costs per active employee were approaching $4,500 in 2000. Last year that number increased to almost $5,000.
Formulate a plan
What can your dealership do to help curb its health care costs?
Whether you are self insured or are a part of a large group plan, you should consider a strategy that has taken into account some or all of the following cost-cutting alternatives:
* Share costs with employees by increasing their payments on: deductibles, office visit co-pays, out-of-pocket maximums, premiums and co-insurance.
* Have multiple tiers of coverage to reward the desired performance. For example, institute a three-tiered program for prescription drugs that covers formulary, generic and name brands at three different levels.
* Provide a positive incentive for employees who do not elect the benefit coverage provided by the company. Many employees could have coverage under their spouse's plan but elect to continue under their company's plan.
* Add a disease management or long-term care management program. These programs help manage the medical expenses for employees with long-term illnesses and can be very effective. Remember, practically everything is negotiable in the medical arena.
* Restrict spousal coverage to only those spouses without access to employer coverage of their own.
* Institute wellness programs that will presumably help reduce medical expenses by reducing severe life-style illnesses. These programs could include: smoking cessation classes; blood pressure and cholesterol screening; weight reduction classes payable after the weight loss has been maintained for a certain period of time; and discounted health club classes.
* Eliminate or seriously restrict retiree health care coverage.
Another alternative to cost cutting becomes cost sharing when you take creative measures to help curb expenses.
One company, for example, recently changed its medical plan to pay for the first $2,500 per year of an employee's health care costs; then the worker pays for the next $2,500 in expenses before the company resumes its contributions.
Also, there are firms that will help you build a personal Health Maintenance Organization for a set dollar amount.
Change your medical plan to a ``defined contribution'' plan. That means you decide how much you are willing to spend per employee and then make these funds available for them to obtain coverage.
On a routine rather than periodic basis, shop your medical plan to see what is available for the money being expended.
In order for any changes to be palatable to your employees, they must be prepped for the change in their health care expenses. Industry as a whole has trained employees to believe that an excellent medical plan is an entitlement.
We have done this by providing employees with the ability to see almost any doctor they need with a $10 co-payment in their pocket. The re-education process should begin now and continue indefinitely.
Employees need to know what your costs are per employee. They should see their hospital bills because only they know if they received that $5 aspirin. Yet many of us can't remember the last time we looked at a bill because they are sent directly to the insurance company.
What is the best communication method? A direct and honest approach works for me.
Are you going to affect a person's take-home pay by increasing premiums? Or are they going to need more than $10 when they go to see the doctor?
Then you must give them all the information they need in order to understand that these changes are necessary for their overall health-and the overall health of your business.