New HR Tools for Managing Future Healthcare 
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Ray M. Roshek, Hylant Group
Patti Dunham, Strategic Human Resources, Inc.

Health care costs are definitely still on the rise.  Everywhere we turn it is in the news, so another article pointing out this fact would be futile.  We should understand the events and how this all happened, but the reality is these increases have damaged our corporate fiscal objectives, and they are coming after us to get these costs in check.  As professionals in human resources and benefit management we know that change is demanded, but what are we to change?  As responsible human resources professionals, we have reviewed our employee plan contributions, we have changed plan designs, we have been diligent in promoting “good health” to our employees, what else can we do? 

First we all have to look at our past and expected future trends of healthcare.  We did have a surprise in 2003.  The increase did not reach the expected 15% trend predicted, but many could argue that our diligence in making plan design changes moderated this trend.

Mercer Human Resource Consulting – Surprise slow-down in US health benefit cost increase:  December 4, 2003

Predictions for 2004 vary from 12% to 17% and we know that smaller employers are receiving bigger increases than the larger companies.  Nationally, the cost for 2003 per employee for Health and Dental benefits was $6,215.  Therefore if costs increase 12%, each of our employees will receive $746 of new income.  Are you communicating that information to your employees in the form of benefit statements so they can see their increase in total compensation? 

Who pays for the increased costs?

Employers.  One choice employers have is to continue to pay these increasing costs.  Employees are valuable and employees value their health insurance.  We can all agree that medical science and advances in medicine have increased our expected lifespan and improved the quality of life.  This improvement comes at a cost and we are willing to pay.  All of this means, by offering an acceptable health and dental plan with substantial employer contributions you are creating a great retention tool especially given the labor market predictions.

Employees.  If your company does not have the financial resources or feel that employees should share in the cost of the medical advances, we need to know effective tools to reduce the premiums cost to the employer.  In short, there are two primary methods to reducing costs: 1. Reduce the Cost per Unit, or 2. Reduce the Number of Units (fewer doctor visits and medications). 

1)      Reducing the Cost per Unit. 

If you have been an astute Benefits Manager, then you have already reviewed the PPO and HMO networks that offer discounts in services.  If you are already with the ‘best’ network for discounts and have employees using the doctors and hospitals in these networks, your ability of “Reducing the Cost per Unit” is now limited only to shifting the premium cost.  Therefore, your options are either increase employee payroll deductions and reducing employer cost or changing the plan design to reduce the premium.

2)      Reducing the Number of Units

Greater focus today seems to be on Defined Contribution Plans.  Thinking pensions?  No, Defined Contribution Plans (sometimes called self-direct or consumer driven health care plans) are a new plan design that offers an element of consumerism.  Employers choose to give their employees a fixed amount of dollars each year to spend on health or dental care services along with (typically) a high deductible insurance product that protects catastrophic health care concerns.  Unused dollars can carry forward to the next year building a savings account that can potentially bridge the gap of the high deductible plan.  This incentive to not spend unnecessary dollars ideally should reduce the number of units used (fewer doctor visits and medications). 

A byproduct of this design is to focus on health.  If an employee can get healthy and begin lifestyle changes that promote future improvements in health, the number of units used reduces more.  However, there is some potential backlash of this type of product.  One potential could be care avoidance.  Some individuals may focus too much on not spending their limited dollars and not get the care or medications they desperately need.  Therefore, effective plans should include preventive care riders and/or prescription drug riders.  Other backlash may be employer “blame” for a lack of paternalism.  Since this type of plan gives employees the power to make decisions, a poor decision may be blamed on the employer.  Also, the potential of out of pocket expenses for employees with a catastrophic health event are significant.  Although employees like seeing the large dollars up front, if a catastrophic event does occur, those are the employees who end up paying the large out of pocket dollars.  As a result, the employer will lose the perception of offering adequate coverage for employees.  

As Human Resources professionals and Benefit Managers, our jobs have never been so difficult.  Working closely with our financial counterparts to keep health and dental costs under control is essential in today’s competitive markets.  The good news is we have more health and dental care options than before, but quality research is necessary to avoid buying into the hype on the next fly-by-night, flavor of the month.  Be sure to look at all of the available options, talk with your peers, and ensure proper communication and understanding of plans before making financial decisions that may effect the health of your employees and organization. 

Ray Roshek is the VP of Group Benefits for Hylant Group.  Patti Dunham is a Sr. Human Resources Consultant with Strategic Human Resources, Inc.  If you have any questions feel free to contact Ray at Raymond.Roshek@Hylant.com or Patti at  Patti@StrategicHRInc.com.