Demand performance: As the American work force gets older, group health insurers feel prepared to handle the growing demand for health care. (Life/Health).

America's work force is aging. Already one in three workers is over 55, and the Monthly Labor Review projects the number of workers between the ages of 55 and 64 to increase by nearly 50% between 2000 and 2025, creating a greater demand for employer-provided health benefits.

Greater utilization of health plans by a larger population of older working Americans will add to an already increasing problem of keeping health care affordable. "Our challenge in insuring 82 million Americans is how do health insurers keep it affordable," said Maureen Sullivan, senior vice president of strategic services for the Blue Cross! Blue Shield Association. "We think we can [keep health care affordable] in the employer-based health system, but we think it's going to drive changes."

The cost of employer-based health insurance is driven by several factors, including the age and sex of the work force. As age increases, so does utilization, which impacts the employer's claims experience. Older workers are more costly to insure, because the incidence of disease is usually higher with age, said Rick Shaw, an assistant vice president in the life/health division of A.M. Best Co. "Older populations have higher utilization rates and a greater chance of being out due to illness."

For instance, a 20-year-old may experience knee problems requiring surgery and a short period of rehabilitation, but a 65-year-old could experience a hip fracture requiring hipreplacement surgery, a longer hospital stay, longer duration of physical therapy services and possibly even a visiting nurse, Shaw said. "Illnesses and injuries are more serious [for older people]."

From 1994 to 2000, the number of older working people grew significantly due to demographic changes and a strong economy, according to the October 2000 issue of the Monthly Labor Review. In the next 10 years, the number of older workers in the U.S. work force is expected to jump by 47%, compared with the meager 1.2% increase anticipated in the 25- to 54-year-old age range, the Monthly Labor Review reported.

At the root of the aging worker phenomenon is the baby boom generation--76 million strong and the largest single sustained population growth in the history of the United States. Baby boomers are Americans born between 1946 and 1964, and the first of the baby boomers will reach the retirement age of 65 in 2011. Those born at the end of the baby boom will reach retirement age--which is 67 for people born after 1960--in 2031.

The percentage of workers age 70 to 74 rose to 13.5% in 2000 from 11.3% 10 years earlier, according to the Bureau of Labor Statistics. For those 75 and older, it grew from 4.3% to 5.3%.

The Higher Cost of Care

The Centers for Medicare & Medicaid Services estimate that health-care expenditures will equal $2.6 trillion by 2010, or 15.9% of the United States' gross domestic product. And yet, the full baby boomer generation will not have reached age 55.

Health-care costs have been increasing at double-digit rates for several years, and experts see this trend continuing. The Centers for Medicare & Medicaid Services also report that out-of-pocket spending for 25- to 34-year-olds is 57% of that for 55- to 64-year-olds. The centers also report that half of the elderly population take more than five prescription drugs each week. Many of the increases in health-care costs are being attributed to the strong demand for services, increases in prescription drug costs, pressure for increased profits as health insurers become publicly traded companies, technological advances that drive up diagnostic and clinical procedure costs, and higher patient expectations.

Also, as age increases, there is a shift in the male/female cost ratio, said Jessica Waltman, manager of state health policy at the National Association of Health Underwriters. "Under the age of 55, women are in their child-bearing years and are more costly to insure. They visit doctors more often and use prescriptions more." At 55, the balance shifts, and men become more costly to insure, many times because they didn't care for themselves when they were younger, she said.

So, employer-based health plans will need to provide more and different benefits as the population ages. "There will be a lot more people living longer, requiring more medical care and needing services to support them," said Beth Bierbower, vice president of product development for Humana Inc. "Baby boomers, and other segments as well, are expecting more from their health insurance than just catastrophic coverage or routine preventive exams." People will be looking for insurance to help them maintain a quality of life, which means meeting needs that traditional health insurance has never been called on to meet.

"People are going to live longer. Thirty is no longer middle age, and 60 is not what it used to be," said Bierbower. "Baby boomers do not picture themselves sitting in a rocking chair. They are going to expect health insurance to help them support a reasonable level of physical activity."

Insurers are not waiting, however, for the full impact of boomers increased demand for health benefits to hit. "If you took how we function now and moved it six years into the future with no changes, I feel we would have a real problem," Sullivan said. "However, the expectation is on the aging boomers--to be much more educated on health-care choices and have more of a stake. And they will be much more satisfied than people today as they access the health-care system."

Keeping Coverage Affordable

Health insurers are focusing on several areas to ensure that health-care coverage remains affordable: enhancing benefit design, improving consumer education, implementing disease-management practices, increasing the cost sharing between insurers and consumers, using technology to reduce costs, changing legislation and regulation, streamlining processes to increase efficiencies and eliminating fraud and waste from the system.

"The aging population will force health insurers and employers to be more creative with benefit packages, such as fewer benefits or higher copays," Shaw said. "Or backing off on certain coverage as employees get older."

Benefit design is one of the first areas that will see changes, Sullivan said. Traditionally, health insurance has offered a list of covered procedures and a list of services restricted to a set number of visits, such as physical therapy treatments. "What we are starting to see is more customization of products to the employee, so the employee can have a greater role in making their health-care decisions," Sullivan said. One example is a scheduled-benefit plan that allows benefits up to a certain dollar amount, while another option is to wrap discounted services, such as nutritional counseling, around the plans. The hope is that greater member participation at the benefit-structure level will lead to better utilization and ensure that the member receives the appropriate care, she said.

Health insurers say that informed consumers will be key to keeping health insurance affordable. This education is expected to cover issues such as the true costs of health care, wellness education and the opening of new dialogues with physicians to ensure that patients receive the appropriate care. " [Humana] is taking a consumer-centric approach. We really believe the consumer can be educated and will welcome the education, the information and the dialogue with their physicians," Bierbower said. "We can do what HMOs did in the 1980s and 1990s--focus on designs that encourage preventive care, yet target unnecessary or excessive utilization." Humana is creating plan designs that allow individuals to choose health-care options that are appropriate for their lifestyle and family situation.

Cigna HealthCare is informing its healthy plan participants through products and tools geared to keep them healthy said Dr. Razia Hashmi, vice president and medical director. Cigna also is educating those with illnesses--such as cardiovascular disease, diabetes and asthma--on better disease management, where early diagnosis and prevention can impact the progression of the condition and related conditions.

"These costs are preventable costs," Hashmi said. "Information from the [Centers for Disease Control] indicates that we can't automatically assume that these costs will be higher, because, if proactively managed, these costs can be controlled by prevention. Our focus is to prevent, to diagnose early, to manage in collaboration with the patient." For instance, significant technological advances in diabetes research allow better prevention of mortality and other related diseases, such as kidney disease, she said.

Better consumer education at the time new pharmaceutical therapies are being developed or introduced also would help prevent utilization spikes and keep costs down. "We've seen this huge spike with utilization of pharmaceuticals not designed for the broad population--say with drugs targeted for 5% of the population, yet used by 40% of the population--and something like ibuprofen might be just as effective," Sullivan said.

The Congressional Budget Office reports that use of generic drugs saves consumers $8 billion to $10 billion a year, Sullivan said. The Blue Cross/Blue Shield Association recently entered into a partnership with a company to provide an explanation of benefits on pharmaceutical choices. The explanation of benefits gives patients information on available alternatives that would provide the same treatment in a particular therapeutic class, thus working to control costs through better patient education.

Learning the Truth

Informing consumers of the true cost of health care is also important. "We've done a good job of educating consumers on preventive care. Now we need to educate them on the cost of care," Humana's Bierbower said. "People have the feeling that when they go to the doctor, the office visit costs $10 or $15, because that's what they are used to seeing [with their copay]."

But both insurers and employers need to begin educating employees on the true costs and on the available options, so employees can see the real value they are receiving in their health-care plans. "That will give consumers the ability to determine how much coverage they want, in terms of breadth of coverage, and how much they want to fund their out-of-pocket costs, both on a pretax basis for premium contributions and for actual care," Bierbower said.

For Cigna, changes entail moving to a partnership with employers and consumers to educate and manage disease. "Today's consumer is much more educated and informed, so we have made our approach much more consumer friendly, trying to remove obstacles such as reducing the prior-authorization process and becoming more case-management focused," Hashmi said. Efforts have shown that prevention and maintenance for diseases such as asthma have been successful, resulting in less emergency care.

An example is using case management nurses to help a patient with heart disease and depression. "Managing heart disease is tough enough, but if she is depressed on top of it, she may not be complying with the treatment regimen," Hashmi said. "It may be tough for her to get up and go to the doctor or make some decisions about her care. And depression, if not diagnosed, leads to increased morbidity and mortality in these patients." So case management nurses will work with patients and help them stay on track with appointments, medications and other care factors.

Another area under investigation at the Blue Cross/Blue Shield Association is fraud and other waste that can be removed if more appropriate care is given. "When we see incidences of fraud, that costs all of us. The National Healthcare Anti-Fraud Association estimates fraud costs insurers $30 billion to $50 billion annually," Sullivan said. "A clear [area where we can control costs] is detecting fraud and having detection systems in place as insurers process millions and millions of claims," Sullivan said.

The Blue Cross/Blue Shield Association also is launching a study to look at the legislative and regulative environments to see where regulations cost consumers more than the value received from the regulatory protection consumers receive. "Being able to educate all of us in the industry, and particularly those in Congress, on the unintended consequences--we think it's an important role for the Blues and as a nation to take as we struggle with how to keep [health care] affordable," Sullivan said.

The Blue Cross/Blue Shield Association is investing heavily in an e-business infrastructure to increase efficiency, which is seeing some significant decreases in call-center activity, Sullivan said. "The next wave you'll see is real-time claims adjudication. This will make the provider and member experiences more pleasant, but we're likely to see some long-term savings."

Humana also is working with technology to increase the company's efficiency in providing plan participants services such as online claims tracking, information on diseases and communications with customer-service representatives. Humana also uses voice-activation technology to place reminder calls to women when it's time for a mammogram, thus saving labor, paper and postage, while directly reaching a much broader audience.

In addition, Humana is looking at ways to streamline its processes, rather than just enabling old practices with new technology. "Medical management showed only three things needed precertification, such as transplants," said Bierbower. "The bottom line is that 90% of the procedures were approved anyway, so why have someone rubber stamp them?" The idea is to enhance efficiency with both technology and better processes.

Who Picks Up the Tab?

Group health insurers do not plan to take on the health-care cost burden alone; they expect employers and members to share in a greater proportion of the cost of coverage. And Rich Ostuw, a senior consultant with Towers Perrin, believes that employers cannot keep absorbing the double-digit increases, so they will be forced to pass them on to employees if total costs cannot be reduced to an acceptable level.

"We have to begin to think of health insurance in a different light: How much does the consumer want to spend, and in what manner will they want to fund it?" said Bierbower. This may include looking during the underwriting process at how much cost sharing is in the plan or adding incentives to plans so employees use services wisely. It also entails tweaking benefits, possibly by increasing copay amounts, using a tiered drug copay or removing options, such as vision coverage.

"The member will play an increasing role in paying for health care," Sullivan said. At the same time, consumers will play an increasing role in determining the benefits that are right for them. "We think it will still be affordable to the employer and the employee, but we all need to work to make that happen," she said. With 80% to 90% of the health-care dollar going to medical expenses, "we have to be relentless in our effort to look at every part of the health-care system to generate savings and educate stakeholders to make sure there is a collective will to change."

Increasing rates are dependent on many things, such as the health of the group, the age of the group, inflation and utilization. "With the increasing aging population, certainly, rates will go up," said Judy Anderson, a staff fellow with the Society of Actuaries. But the aging of the work force population is being spread gradually over time, "so it will be eased into."

Office Visits to Medical Specialists

Office visits to medical specialists have increased to 42% of all visits
in 1999, up from 33.8% in 1980. Figures for 1999 show that age plays a
role in the incidence of visits.

Percentage of Visits by Age Range

         Visits to medical  All other visits
            specialists

Over 65        58.0%
45-64          48.6%
18-44          39.3%

Source: National Center for Health Statistics

Note: Table made from pie chart

RELATED ARTICLE: Living Longer, Working Longer

A study commissioned by AARP and Roper Starch World wide Inc. shows that eight out of 10 respondents plan to work at least part time during their retirement years. Options included starting a business or a new career. Similarly, a General Accounting Office report indicates that 25% of fully retired people age 55 to 74 want to work full time.

Of the respondents, 23% expect not to be able to stop working because of financial considerations and express great concern about their health-care coverage during their retirement. "These could be lower-income people who may not have pensions or have inadequate pension income, who need to work to supplement their retirement income, Social Security and other sources," said Gerry Smolka, senior policy adviser in AARP's Public Policy Institute.

For some workers contemplating early retirement, the need to provide their own health-care coverage is a significant factor. "Clearly, whether you'll have health benefits may affect the decision of when you're going to retire. Employer surveys show that the percentage of employers offering early retiree health benefits is declining," Smolka said.

According to Smolka, research indicates that if health coverage is the main issue, many will stay in the labor force, either because they can't get coverage--possibly due to health problems--or they can't afford the coverage that is available. "So it may delay retirement, and some employer survey data show that the average age of retirement in companies with early retirement health benefits is several years lower than those companies that don't offer early retiree health benefits."

One-third of the respondents plan to work at least part time after retiring, motivated by the interest and enjoyment that work provides them or the desire to try something they couldn't before. "I think that may be a phenomenon that they work in jobs they actually like and want to keep a hand in, or they may want to phase into retirement by working part time," Smolka said. "Also, keeping actively involved [in life] is very important to keeping your health and outlook strong as you grow older."

Rich Ostuw, a senior consultant with Towers Perrin, credits the desire of Americans to work longer with the fact that many people define themselves by their occupation. "Many people believe they lose credibility and self-esteem if they can't tell people what they do for a living," Ostuw said.

Another issue possibly affecting the retirement decision of older Americans may be the "baby bust" of recent years, said Judy Anderson, a staff fellow with the Society of Actuaries. The slowdown in birth rates in the 1980s and 1990s is expected to cause a shortage of younger workers willing to take entry- or low-level jobs. These available jobs, with lesser pressures and responsibilities, might make good bridges to full retirement, enticing older people to remain in the work force.