Booming Economy Helps Employees Dodge Increased Health Care Cost Bullet; Deloitte &Touche National Managed Care Survey Shows How Employers Are Finding Other Ways To Deal with Rising Health Care Costs.

Business Editors

LOS ANGELES--(BUSINESS WIRE)--Jan. 24, 2000

With a booming economy and an increasingly tight labor market, many employers are looking for ways other than increasing employee contributions to battle rising health care costs. The annual 1999 Employer Survey on Managed Care conducted by the Human Capital Advisory Services practice of Deloitte &Touche LLP and Business &Health Magazine looks beyond the numbers to understand what employers are doing in this challenging marketplace.

The survey revealed several facts, including:

--Employers continue to seek alternatives to increasing plan premiums, including the exploration of purchasing options, redesigning plans, joining purchasing groups, instituting pharmaceutical cost controls, and contracting with lower cost carriers.

--With nearly a third of employers identifying prescription drug costs as a primary cost driver, nearly 90 percent have instituted some form of pharmaceutical cost controls and nearly 15 percent are considering joining or forming drug purchasing coalitions.

--More than half (56 percent) of employers are targeting chronic illnesses or diseases for management. The most commonly targeted conditions are: diabetes, high-risk pregnancy, heart disease, asthma, and cancer.

--Nearly 80 percent entirely or partially outsource the administration of their health and welfare programs and many indicated that they would add or expand outsourcing services in the future.

--Less than half of respondents are offering health care plans to retirees under the age of 65 and only 39 percent offer coverage to post-65 retirees.

--Surprisingly, only 31 percent of employers have performance standard in place with their health plans and only 16 percent are monitoring quality of care indicators.

According to the survey, costs are up an average of nine percent with similar increases predicated across all plan types for 2000 and 2001. During 1998, total annual medical costs averaged $3,871 per employee and included: $415 for pharmacy benefits; $101 for mental health coverage; $80 for vision; and $394 for dental. Respondents forecast the biggest premium increases from HMOs during the next two years.

Why are employers against a wall on price? &uot;There are a number of convergent reasons for these significant price hikes after years of moderate increase,&uot; explains Eileen Raney a principal with the firm's Human Capital Advisory Services practice and national director of its Integrated Health Group. &uot;Consolidation in the industry has stifled the competitive market to a degree, prescription drug costs have risen dramatically, and pent-up cost increases in the managed care market are finally being felt -- increases primarily driven by consumer demands for greater access to care.&uot;

The tight labor market has put pressure on employers to divert the expense to anywhere but the employees. Instead of passing on costs to employees, the majority of employers are relying on plan design changes to control cost. They're also exploring their purchase options with an increasing number considering joining purchasing coalitions. While fewer than ten percent (7 percent) of respondents currently participate in group purchasing programs, 16 percent indicated they are considering joining a coalition.

Although many employers monitor patient satisfaction, surprisingly, only a small percentage are focusing on qualitative factors like plan performance and quality of care. &uot;Right now only a third of employers have plan performance standards in place and only a fraction monitor quality of care indicators,&uot; said Raney. &uot;In this market, when you've reached a wall in terms of negotiating price, it is incumbent upon employers to push plans on quality and performance issues.&uot;

Pharmaceutical costs are clearly at the forefront of the current cost crisis. A third of respondents identified prescription drug costs as having the greatest impact on their plan costs. Respondents spent an average of $415 per employee on pharmacy benefits last year. This accounted for nearly 12 percent of their health care spending per employee and was more than what they spent on vision, mental health, or dental coverage.

&uot;People are living longer, new and better drugs are being developed, and consumers are responding to direct-to-consumer advertising and access to on-line information, all of which translates into increased utilization,&uot; noted Barbara Adachi, survey director and a principal with Deloitte &Touche. &uot;What employers and the health care community have to force themselves to do is to look beyond the initial shock of these costs and focus on outcomes -- will these drugs ultimately lead to healthier populations and less costly care overall?&uot;

Preventive care and disease management are also key issues in the cost debate. More than half (56 percent) of employers are currently targeting chronic illnesses or diseases for management. The most commonly targeted conditions are: diabetes, high-risk pregnancy, heart disease, asthma, and cancer. Alternative medicines and treatments are also beginning to gain broader acceptance. Employers and health care plans are more open to non-traditional forms of care. Nearly all (95 percent) of employers currently offer chiropractic treatment and 29 percent offer acupuncture. Over 60 percent of employers believe that employees will be more heavily involved in their own health care in the future. &uot;Xerox recently indicated that they are considering moving to a voucher system where employees would be individually responsible for purchasing their own health insurance,&uot; commented Adachi. &uot;This may not be far away and will have a significant impact on the industry.&uot;

There are other ways employers are looking to trim costs. They are turning to partial or full outsourcing to offset some of the administrative costs associated with their health and welfare plans. Nearly 80 percent entirely or partially outsource the administration of their health and welfare programs and many indicated that they would add or expand outsourcing services in the future. It should also be noted that six out of ten respondents said they do not cover their retirees.

Deloitte &Touche's Human Capital Advisory Services practice assists clients in virtually all aspects of retaining, motivating, developing, compensating, and benefiting people. The practice consults to those businesses and industries that provide and insure employee benefits. Human resource, actuarial, insurance, and managed care consultants work with clients to identify, manage, and measure the human capital issues that can impact financial performance.

Deloitte &Touche LLP, one of the nation's leading professional services firms, provides assurance and advisory, tax, and management consulting services through 30,000 people in more than 100 U.S. cities. Deloitte &Touche is part of Deloitte Touche Tohmatsu, a global leader in professional services with more than 90,000 people in over 130 countries. Deloitte &Touche refers to Deloitte &Touche LLP, Deloitte Consulting LLC, and related entities. For additional information, please visit Deloitte &Touche's website at www.us.deloitte.com.

Editors Note: Complete copies of the Deloitte &Touche 1999 Employer Survey on Managed Care will be available free of charge to the media in February, 2000. Call 888/361-9960 to receive a copy. Copies are available to the public at a cost of $50.00 per copy.

Survey Methodology

The survey, conducted in July and August 1999, was mailed to human resources and benefits executives nationwide representing a broad cross-section of U.S. industries with the largest audience coming from the service and manufacturing sector. The remainder of the respondents represented a diverse mix of areas including agriculture, construction, and transportation. A reminder care augmented the original mailing. In all, 250 surveys were returned and tabulated.