Employee health care costs, the fastest increasing cost to business?

By  Andrew Crawford, Employee Benefits Director and Grant Cameron, Chief Executive at Trafalgar International Ltd Insurance Brokers and Consultants

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Spiraling health insurance costs show no sign of slowing down.  From 2012 nearly all of the leading international health insurers including Aetna, AXA PPP, and BUPA, have increased premium rates by between 5% and 10% each year.  In fact, there have been years where some insurers have increased premiums by well excess of 10%. At Berkshire Hathaway’s annual meeting in May last year, legendary investor and group Chairman Warren Buffett said that the rising cost of health care is the number one problem American businesses face: "medical costs are the tapeworm of American economic competitiveness". The sky-rocketing cost of healthcare is a hot topic in America because of its crippling effects, and not just on businesses: the top cause of personal bankruptcy in the US is the inability to pay medical bills. But the soaring cost of health care is not only a US problem; it’s a global problem, as a recent medical survey of 213 leading insurers in 79 countries confirmed:Medical Inflation by Region:

	2015	2016	2017
Australia	7.9%	7.7%	8.6%
Thailand	9.0%	11.4%	9.2%
Asia Pacific	7.1%	7.7%	8.6%
Global	7.5%	7.3%	7.8%
Middle East/Africa	9.0%	9.0%	9.8%
US	8.8%	7.8%	7.5%
North America	8.4%	8.2%	8.6%
Europe	5.0%	4.3%	4.5%
Latin America	9.0%	9.0%	9.8%

And the bad news, for business and anyone else who has to pay for health insurance, is that most of the insurers that took part in the survey expect health costs to increase at a higher, or much higher, rate over the next 3 years.  As one business commentator put it, “health care costs are almost universally the fastest increasing cost in business”.What’s driving up costs?Insurers that took part in the survey cited three key factors driving up health care costs: (a)  medical technology costs, (b)  overtreatment by providers, and (c)  overuse of the system.(a) Medical Technologies – the main cost driverIn every industry except one, technology makes things better and cheaper. The exception is medical technology; the cost is increasing and so is its role in healthcare.  A magnetic resonance imaging (MRI) machine, for example, can cost upwards of four hundred thousand dollars.  A computed tomography (CT) Scanner costs even more, ranging from one million dollars to two and a half million dollars for a top-of-the-range machine.(b) Overtreatment by medical practitioners Perhaps it is no surprise that one diagnostic test that is used too often is the CT scan.  Doctors often ask for a CT scan even for the mildest of head injuries that could be evaluated effectively with a hands-on exam.  No doctor wants to miss a brain hemorrhage, of course, but the majority of scans add no meaningful information to the physical exam. And it is not just the additional costs of overtreatment.  There are significant associated health risks too:

• CT scans expose you to massive radiation.
• One CT scan has the radiation equal of 200 to 500 chest x-rays. It is estimated that excessive exposure to medical radiation causes tens of thousands of cancer deaths each year.
• The radiation from just two or three CT scans trebles a child’s risk for developing brain cancer later in life.

Over prescriptions of drugs: antibiotics are a good example.  Consistent overuse of antibiotics is leading to serious problems: certain bacteria are becoming resistant to even the most powerful antibiotics, and, according to the Centers for Disease Control (CDC), this is one of the world’s most pressing health issues. The situation in Thailand is especially bad, where antibiotic abuse kills thousands annually.  “At least 100 people die per day in Thailand alone from antibiotic resistance,” according to Dr Niyada Kiatying-Angsulee, drug researcher and assistant professor at Chulalongkorn University’s faculty of pharmaceutical sciences.  More people die each year here from antibiotic resistance than they do in the whole of Europe. Medical treatment can be bad for your health: researchers at Johns Hopkins University School of Medicine in the US found that seeking medical assistance can actually be bad for your health.  Their analysis suggests that medical errors accounted for up to 250,000 deaths in the US 2013.  Only heart disease and cancer cause more deaths.(c) Overuse by employeesInappropriate use by employees is also a significant factor in driving the increasing costs of company health care programs.  One of the problems is that often employees see their healthcare as being free and therefore use more of it.  Detailed claims information by ICD (International Classification of Diseases) allows consistent comparisons of claims experience and are available from nearly all health insurers in Thailand.  Study the claims statics from any number of companies in Thailand and you will find evidence of price gouging by hospitals, and needless hospital admissions for trivial conditions like diarrhea, sore throat, or even the common cold. What are employers doing in response to contain cost?  The research indicated that employers are responding to higher health care costs with traditional cost management methods and sharing costs with employees.  However, it is somewhat surprising that the adoption rate for these measures in Asia (and Thailand featured prominently in the research) was low. This is perhaps because local employee benefits programmes dominate.  These generally offer much lower levels of cover than international health insurance plans, and there are very few local insurers that offer any cost control measures, other than financial inducements to use Social Security rather than claim on insurance.  Nevertheless, the cost of international health insurance is already a challenge, and if the current cost trend continues as forecast, protecting employees at the same time keeping health insurance costs at a reasonable level will become increasingly difficult.Cost containment strategiesThere are still measures worth considering to help keep costs down.Self-insuranceConsider self-insuring certain benefits.  Any dental and optical benefits offered are popular candidates for this approach, but the real potential cost saver is out-patient benefit, as its inclusion any health insurance plan adds substantially to the premium. And there are a couple of things worth bearing in mind that are often overlooked in some plans.  Cancer treatment is a big concern for most people, and a good international health plan will cover cancer treatment irrespective of where and how it is administered. Also, follow up treatment after hospitalization can be expensive, and while most good plans will cover post hospitalization follow-up outpatient treatment for a certain period of time, or value, not all do.Cost sharingAnother approach is to opt for a cost sharing model, which is the traditional approach to reducing health care costs; the simplest solution is a premium cost share where the employee contributes to the annual insurance costs.  The idea of cost sharing is that if an employee is required to pay a proportion of their own medical bills, then they will become more discerning about the cost of health care.Policy DeductibleAnother possibility is an annual deductible.  This is where the employee pays a fixed amount toward their annual healthcare costs before the insurance policy kicks in.  The advantage to the company of an annual deductible is that it will qualify for a premium discount; the higher the deductible, the higher the discount.  If the employee doesn’t claim, then the deductible is not incurred.Co-insuranceA variation on the deductible theme is co-insurance.  This is where the employee pays a percentage of all medical bills.   In some cases, there may be a financial limit on the employees’ exposure so that someone requiring expensive treatment is not unduly penalized financially. There are also measures that insurance companies can take too, with some of the most effective being:

• Pre-approval for scheduled in-patient treatment so that costs can be negotiated and agreed up front.
• Limits on certain services, such as a financial limit on out-patient treatment
• Second medical opinion to help minimise needless and often expensive procedures
• Disease management programmes for chronic and other conditions requiring expensive treatment.

Appoint an insurance brokerFinally, work with an insurance broker with the relevant expertise in Employee Benefits.  Unlike an agent, a broker's legal responsibility is to you, the client, not the insurer, and they can help you

• design and implement an employee benefits plan,
• find and negotiate with insurers to deliver a plan which protects employees and is cost effective for the company,
• manage claims on behalf of the company and its employee members,
• ensure insurers pay claims in accordance with policy terms and conditions, and
• provide management claims reports to help guide on future employee benefits strategies.