Despite unprecedented economic challenges and a dramatic shift in political power, a new survey by Hewitt Associates, a global human resources consulting and outsourcing company, reveals that while cost containment remains a priority, most large U.S. employers are continuing to make significant long-term investments in solutions and programs aimed at improving the health and productivity of their workforce. However, the changing political landscape--coupled with ongoing cost pressures--has prompted many companies to seriously consider their future role as a health care benefits provider.
In January 2009, Hewitt conducted a survey of more than 340 employers, representing more than five million employees, to understand their current and future approaches to health care benefits. While the number of companies focused solely on mitigating annual health care costs has more than doubled this year--from 15 percent in 2008 to 31 percent in 2009--almost two-thirds (65 percent) said they are continuing to make significant investments in improving the health and productivity of their workforce despite the troubled economy. Nevertheless, 4 percent of companies indicated they are taking steps today that will enable them to discontinue providing health care benefits altogether. This picture changes somewhat when employers described their future approach to health care. While most companies (75 percent) plan to focus on improving employee health and productivity in the next three to five years, one-fifth (19 percent) said their strategy is to move away from directly providing health care benefits, up from 4 percent in 2008. Given that alternative health care offerings are being discussed in earnest by the Obama administration, these employers may see exiting health care as a more viable option than it was in the past.
"In today's environment, employers are under pressure to cut health care expenses, but they realize that short term cost management tactics do not address the underlying drivers of health care cost," said Jim Winkler, head of Hewitt's North America Health Management Consulting practice. "This leaves them with two options: making a long-term commitment to improving the health of employees and their families, or exiting health care altogether. Most companies believe that investing in the long-term health of their population is the most effective way to mitigate costs and create a more productive and engaged workforce."
Economic Impact on Employer Health Care Programs in 2010
According to Hewitt's survey, the state of the economy has had little influence on health care programs in 2009. However, more than half (52 percent) of companies said the economic downturn will have an impact on their 2010 health care programs.
Overall, most employers are not planning to make drastic changes to their full-time and part-time health care benefits in 2010. Instead, they are focusing on both conventional and progressive approaches to address the costs related to their health care plans in light of the economic climate. Nearly two-thirds (65 percent) of companies plan to shift more costs to employees, and almost half (49 percent) plan to reduce the number of benefit plans. Conversely, a third (33 percent) plan to increase their focus on wellness programs, and almost 40 percent plan to increase the prevalence of consumer-driven health care plans.
"Continued cost pressures and concerns about the broader economy are prompting many organizations to take a closer look at next year's health care benefits. The end result may mean higher employee health care premiums or fewer benefit choices," said Jeff Munn, a principal in Hewitt's Health Management Consulting practice and the leader of the survey project. "However, companies also understand that the same economic pressures driving the need to reduce costs can also create barriers for employees who need to receive care. While companies are cutting costs in some areas, they are increasing their investments in wellness and preventive care and stepping up initiatives designed to encourage healthy behaviors and promote employee accountability."
Lowering Costs While Enhancing Employee Health
According to Hewitt, there are steps employers can take to cut short-term costs without risking the health and productivity of their workforce. These steps include:
-- Aggressively negotiating with health and welfare vendors. Employers can negotiate lower costs for many of their delivered services, including network discounts, pharmacy deals and premiums for insured products. Employers should also be diligent about holding health plans accountable for delivering on specific program measures, including participation levels, clinical outcomes, reductions in claim costs and member satisfaction levels.
-- Reducing administrative fees. Fees for self-insured benefits programs, add-ons for various health services and broker commissions comprise between 5 and 10 percent of the cost of benefits. Companies can reduce these costs by reviewing other options in the market and renegotiating fees. "We've seen clients aggressively renegotiating with vendors, even in the middle of a multi-year deal," said Winkler.
-- Measuring the impact and value of their health programs. Employers invest a significant amount of money in programs that address various aspects of health and wellness, yet many of these programs do not produce a measurable return. "Employers have the ability to measure return more precisely than ever, so there is no reason for them to continue to offer programs with questionable results," added Munn.
"Companies should be investing their limited funds in programs that can demonstrate positive financial and clinical outcomes, and they should cut those that are not providing a good return."
-- Tackling specific conditions. Targeting chronic conditions that have both identifiable risks and proven clinical protocols can save companies thousands of dollars each year in health care costs. For example, a typical employer with 9,500 employees and 500 pre-65 retirees spends $18 million to $22 million on direct medical care for diabetes. Hewitt estimates that optimal diabetes care alone can save $2.3 million to $2.8 million in annual direct medical costs. "There are well-documented clinical best practices that can have a significant impact on improving the health of diabetes patients. Most employers can make significant reductions in the health care costs of their diabetic employee population just by holding vendors to these agreed-upon best practices," said Munn.
About Hewitt Associates
Hewitt Associates provides leading organizations around the world with expert human resources consulting and outsourcing solutions to help them anticipate and solve their most complex benefits, talent, and related financial challenges. Hewitt consults with companies to design and implement a wide range of human resources, retirement, investment management, health management, compensation, and talent management strategies. As a leading outsourcing provider, Hewitt administers health care, retirement, payroll, and other HR programs to millions of employees, their families, and retirees. With a history of exceptional client service since 1940, Hewitt has offices in 33 countries and employs approximately 23,000 associates who are helping make the world a better place to work. For more information, please visit www.hewitt.com.
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