Business trying to cut high cost of health care
The US health-care bill is rising at such a rapid rate that business, which picks up 25 percent of the nation's $287 billion tab for health care, is finally moving aggressively to control the surging costs.
''Companies hit by a 25 to 40 percent health insurance premium increase in a recessionary economy are realizing that they have not effectively handled the health care component of their business,'' says John D. Crosier, executive director of the Massachusetts Business Roundtable, a group of top executives active in trying to contain the costs of health care.
Corporate cost-cutting efforts coincide with, and will be complicated by, Reagan administration plans to lower the rate of growth in health care costs.
In a bid to make health care consumers more price conscious, the President has reportedly decided to tax employees on company-paid health insurance premiums over a certain limit. Currently health insurance is a tax-free benefit enjoyed by virtually all workers at large and medium-size companies.
In addition, the administration is reportedly considering new limits on medicare coverage which would increase the share of health care bills an individual pays out of his own pocket.
''The health care system is in the process of fundamental change,'' says Robert C. Cole Jr., president of Blue Cross & Blue Shield of Delaware. ''The relationship of the players is being redefined.''
Corporate cost cutters are employing a wide variety of tactics in their battle with mushrooming health insurance premiums, including:
* Offering incentives for workers who do not visit a health care provider during a one-year period.
* Joining other corporations in business coalitions that aim to influence local hospital rates and construction plans.
* Appointing health care managers who focus on cost containment.
* Starting ''wellness'' plans aimed at fostering employee health.
Despite growing innovation, the most popular cost-cutting approach is having employees pick up more of the tab for health insurance. ''The area getting most attention is cost shifting to employees,'' says James Brennan, vice-president of Towers, Perrin, Forster & Crosby, a benefit consulting firm.
Some 13 percent of the 800 major companies surveyed by the Hay Group, another benefit consulting firm, increased the deductible on their health insurance plans last year. (The deductible is the amount an employee must pay before insurance coverage begins.) Another 21 percent of the companies surveyed are considering such a move.
And the employee's share of the bill for health insurance was lifted during 1982 at 11 percent of the companies the Hay Group surveyed. An additional 18 percent of companies surveyed are considering such a step.
The cost-cutting moves are an effort to contain a major business expense. Business and industry paid $74 billion for group health insurance in 1981, according to Sharon Canner, a program analyst with the National Association of Manufacturers. So for a typical company, health-related benefits were almost 11 percent of payroll and averaged close to $2,000 per employee, NAM data indicate.
The costs show no sign of slowing. ''Twenty percent annual increases in premiums are common in the corporate world,'' says Karen Davis, a professor of economics at the Johns Hopkins University Health Services Administration. She spoke at a recent Conference Board meeting on corporate health care.
Insurance premiums are rising because the costs they cover are climbing. In the government fiscal year that ended Sept. 30 health care costs rose 11.4 percent, more than double the overall rate of inflation. And hospital costs rose 15.2 percent, according to Health and Human Services Department figures. Costs are increasing ''at a faster rate than any year since 1929,'' Professor Davis says.
Experts cite a variety of reasons for the health care cost spiral. One is that health care practitioners ''have high income aspirations and the power to influence demand (for their services),'' notes Uwe Reinhardt, a professor of economics at Princeton University's Woodrow Wilson School.
At the same time, insurers have typically reimbursed doctors and hospitals for the costs they incur, so there is little incentive to boost efficiency. And it is rare for hospitals in an area to compete with one another on the basis of cost. Meanwhile, insurance plans have tended to offer fuller reimbursement for procedures conducted in expensive full-care facilities, as opposed to those performed on a less costly outpatient basis.
The health care delivery system ''turns traditional concepts of free enterprise on its head,'' Joseph A. Califano Jr., former secretary of health, education, and welfare, said at a Wharton School conference on health care late last year.
And of course corporate America itself bears a share of the blame for rapidly rising costs, since it has expanded health care insurance coverage, which reduces an employee's awareness of costs. One reason for the expanded coverage is the appeal of being able to give workers a benefit the government does not tax.
President Reagan reportedly plans to ask Congress to tax employer-paid health insurance premiums above $2,100. Opponents of the plan say a flat cap is inequitable, since health care costs vary significantly by region of the country and by the age of the individual covered.
Critics also question tentative administration plans to ask Congress to increase the patient's share of expenses under $2,500 which is covered under medicare. This would be coupled with fuller coverage for major expenses. They are concerned that hospitals would try to shift costs from medicare patients to those covered by private plans. This has happened in previous medicare cutbacks.
''For every $10 in federal cutbacks, hospitals try to shift $7 and succeed with $5,'' says Mary Nell Lehnhard, Washington representative for the Blue Cross-Blue Shield Association. While worrying about cost shifting, business is moving to exert more control over costs. One new approach used by the Mendicino County, Calif., school system and others is to offer incentives for employees who do not file health expense claims.
In such a ''stay well'' plan, there is a relatively high deductible of $500 or so, a portion of which is put into an account for each employee. He or she can use it for health care services or, if it is not used, withdraw the sum as cash at some later date.
Mobil Oil has offered a different type of incentive since 1977. Company employees receive a year-end bonus if claims for their group are below projected levels.
In addition to devising incentives, the health care managers being appointed by numerous companies look for ways to trim costs. According to Towers, Perrin, 9 percent of the companies it surveyed have appointed such a manager, and 8 percent are considering such an appointment.
If these new managers monitor health care costs more closely, they can save significant sums, experts say. For example, by requiring second opinions on surgical procedures, $17 can be saved for every $1 invested, says G. Robert O'Brien, senior vice-president of CIGNA Corporation, a major insurance firm.
Monitoring the cost and level of services after they are performed in so-called ''utilization reviews,'' can also pay big dividends. ''Every $100 invested here produces savings of $350,'' Mr. O'Brien claims. Using such a review process, Motorola Inc. was able to cut the average hospital stay for its Phoenix, Ariz.-based employees from 7.5 to 5.6 days.
Increasingly, companies and other interested parties are banding together in coalitions to find ways of trimming costs. Some 100 coalitions now are in operation. And on the national level the Washington Business Group on Health lobbies for business on health-expense issues.
By pinpointing expenses and promoting employee ''wellness,'' an individual company can lower its health care costs. But lowering the health care tab for a community or the nation as a whole is much tougher. Mr. Cole, the Blue Cross executive, notes that most health care facilities have debt payments they must meet. Hospital administrators ''have no choice but to do whatever they have to to fill those beds.''
''Unless we get a handle on the bed supply,'' he concludes, ''I am not sure (companies) will have a dramatic long-term effect on costs.''