Ask an FEI researcher about...Managing Health Care Costs. (Resources).

In September 2002, the Kaiser Family Foundation released the results of its "2002 Employee Health Benefits Survey," and there were few surprises. From the spring of 2001 to the spring of 2002, a 12.7 percent increase in monthly premiums for employer-sponsored health coverage drove the average annual premiums shared by employers and employees to $3,060 for single coverage and $7,954 for family coverage. This was the largest annual increase in premiums since 1990, when premiums increased 14 percent. To put a 12.7 percent increase into better perspective, at this annual rate of increase, premiums would double every six years.

Understandably, employers are concerned about future costs, with 53 percent of all firms naming health insurance as the "greatest cost concern for the company." These concerns appear likely to result in future cutbacks. When large firms were asked to predict the types of changes they would make in the next year, 78 percent said they are likely to increase employee premiums.

To read the complete results go to the Kaiser Family Foundation Web site and click on: www.kff.org/content/2002/20020905a/.

Watson Wyatt Worldwide recently released "New Rules for Managing Health Care Costs." A key finding from this report, which was drafted earlier this year, is that companies are supplementing traditional approaches to health care with leading-edge tactics. For example, 43 percent of the respondents expect to increase the level of "consumerism" in their health plans in the coming year.

Consumerism refers to systems that inform and empower employees to participate more actively in health care buying decisions, by allowing workers to spend their own health care dollars, but also provides them with the tools and information needed to make their own health care choices.

Companies categorized as "aggressive managers," those with six or more health care strategies in place, are adopting newer, less tested tactics, such as risk adjustment contracting, ROI estimation in decision-making, direct contracting and provider partnering. Aggressive managers are also moving to employee self-service, providing employees with direct access to purchase their own health plans and disease management programs.

To read the full report, go to Watson Wyatt's Web site, and click on: www.watsonwyatt.com/research/resrender.asp?id=W-532&page=1

So what is the federal government doing about spiraling health care costs? In September, the Department of Labor decided to support legislation that would establish federally regulated Association Health Plans (AHPs), intended to make health insurance more affordable and available to small business owners.

Rep. Ernest L. Fletcher (R-Ky.) had introduced The Small Business Health Fairness Act of 2001, (H.R 1774, and S. 858 in the Senate), in the House on May 9,2001. On June 27, 2001, it was referred to the Subcommittee on Employer-Employee Relations of the House Committee on Education and the Workforce, where it is still pending.

Citing a Congressional Budget Office (CBO) analysis of the pending legislation, Secretary of Labor Elaine Chao said that small businesses could expect to save between 9 percent and 25 percent on their health insurance premiums. The CBO study also estimated that between 330,000 and 2 million additional workers could be covered by health insurance if the legislation were enacted.

This legislation would amend ERISA by establishing rules to govern AHPs. The AHPs would be group health plans sponsored by trade or business associations. AHPs could purchase coverage from insurance companies, or they could self-insure and pay claims from their own funds.

To read the Department of Labor's report on Association Health Plans, go to the DOL Web site and click on: www.dol.gov/PWBA/PDF/AHPReport.pdf

Association Health Plans would seem to be a small business approach to coalition purchasing, as described in Louis Anastasio's article, "Coalition Purchasing: Pathway to Real Benefit Performance," on page 48. Anastasio, a vice president in the coalition purchasing group at Aon Consulting, examines the benefits of taking a coalition approach to buying benefits; while small companies are perhaps the most obvious beneficiaries, he says the approach is also being taken by larger organizations as health-care costs have risen to the top of corporate concerns for 2003.

William M. Sinnett is Manager of Research at the FEI Research Foundation. He can be reached at [e-mail].