New Hewitt Survey Shows That Employers Concerned About the Impact of Rising Health Care Costs and Are Evaluating Alternatives.

Business Editors

LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--Jan. 15, 2003

Employers are concerned about the potential business impact of rising health care costs, are interested in offering new consumer-driven health plans, and would like the federal government to take helpful steps to ease double-digit cost increases, according to a new survey by global HR outsourcing and consulting firm Hewitt Associates (NYSE: HEW).

Hewitt's survey of more than 500 major U.S. organizations revealed that the maximum added annual cost that employers can absorb over the next five years is 8 percent. But, companies are expecting a 15 percent increase in 2003, leaving a 7 percent gap between what employers' report they can afford to absorb and what they actually expect.

The majority (94 percent) of participating companies also report that their CEO, CFO and CHRO are significantly or critically concerned about the rising costs of health benefits and the impact on corporate costs, while exactly 90 percent are significantly or critically concerned about their impact on employees.

"Senior management hasn't been this concerned about health care since the early 1990s. Health care is back on the radar screen because it's impacting the bottom line of organizations," said Jack Bruner, national practice leader for Hewitt's health management practice. "Unfortunately there is no silver bullet like managed care was, but major hikes are forcing companies to take a closer look at the health care system and identify areas where change is needed."

Employer Interest in Offering Consumer-Driven Models

In an effort to reduce health care costs and get employees more involved in making their own health care decisions, companies' interest in implementing consumer-driven health plans continues to grow. In June 2002, the IRS issued guidance regarding health reimbursement arrangements (HRAs), and now almost half (46 percent) of survey participants are interested in offering a consumer-driven plan with an HRA to employees as either a replacement plan or an option to supplement traditional plans.

Organizations also are interested in implementing custom design plans, which allow employees to customize their benefit options and levels for physician, hospital and pharmacy benefits in the same way they select their automobile coverage. Seventy-two percent of companies are interested in offering custom design plans if it costs decrease by 10 percent, while 37 percent are interested if annual costs remain the same.

"We're seeing a greater level of interest in consumer-driven plans than we saw when flexible benefits or managed care was first introduced," said Bruner. "Some companies are willing to be pioneers in adopting consumer-driven models to promote health care consumerism, but many want to see tangible cost savings before committing."

Another concept of interest to organizations is multi-tier hospital coverage networks, which are emerging in the marketplace. This model is similar to how multi-tiered drug coverage works with small copays for generic drugs, moderate copays for formulary brands and steeper copays for brand names. In multi-tier networks, employees would be able to select from a variety of hospitals at the point of service. Two-thirds of participating companies are interested in offering this type of plan if it meant costs decrease by 10 percent, while 31 percent are interested if annual costs would remain the same.

All of these models require that employees become more involved in making health care decisions. Eight out of 10 participating companies report being either somewhat or extremely comfortable with employees taking more responsibility for evaluating and selecting their own health plans (81 percent), coverage levels (81 percent), providers (81 percent) and health care services (83 percent).

"Employer confidence is growing in consumers' ability to make important health care decisions," said Bruner. "Certainly there will be a learning curve, but if companies provide employees with the appropriate communication, information and access to tools to help them make their decisions, people will adapt and become educated consumers of health care."

Organizations Interested in Specific Roles for the Government

While the majority (83 percent) of participating employers are against a universal health care system, companies are interested in specific roles that the government could play in health care, including:

-- Mandating quality reporting by hospitals and physicians (83 percent).

-- Restricting patent extensions for brand name drugs (75 percent).

-- Requiring providers to disclose prices publicly (62 percent).

-- Mandating uniform provider data and payment reporting procedures if long-term savings outweigh upfront costs (61 percent).

-- Making Medicare available to retirees age 55 to 64 at their own cost (58 percent).

-- Curbing managed care regulation and coverage mandates (47 percent).

-- Giving U.S. consumers the ability to purchase prescription drugs from foreign countries (43 percent).

Employers Concerned About Pharmacy Benefits Delivery Model

As companies are becoming more involved in health care benefits, they are evaluating all major drivers of costs. In the prescription drug arena, employers are concerned about the current rebate and incentive model. Survey results found that there are more organizations that believe the current pharmacy benefits delivery model increases costs (42 percent) rather than decreases costs (28 percent).

And only one-third believe that the current pharmacy benefits delivery model serves employer and employee interests, while the majority believe it only serves the interests of the pharmaceutical companies (89 percent) and prescription benefit managers (91 percent). Eighty-two percent of employers surveyed are interested in requiring disclosure by prescription benefit managers of all rebates and income sources.

"Organizations are very concerned about the impact of rebates and will seek to restructure the incentive strategies to encourage employee migration to more cost effective and efficient therapies," Bruner added.

Other key findings from the survey include:

-- More than one-quarter (26 percent) of employers believe those

individuals not making a reasonable effort to manage their health

should pay more. -- Thirty-seven percent of organizations offer a disease/condition

management program. -- Companies are considering the following tactics to influence

employee coverage elections: higher cost sharing for dependents

(37 percent), requiring that working spouses elect available

coverage from their employers (31 percent), assessing an

additional charge if working spouses do not accept available

coverage from their employers (28 percent), and providing flexible

credits for opting out of coverage (24 percent).

Copies of the survey findings, Health Care Expectations: Future Strategy and Direction, are available by contacting the Information Desk at Hewitt Associates, 100 Half Day Road, Lincolnshire, IL 60069, [phone] or [e-mail].

About Hewitt

Hewitt Associates (www.hewitt.com) is a global outsourcing and consulting firm delivering a complete range of human capital management services to companies including: HR and Benefits Outsourcing, HR Strategy and Technology, Health Care, Organizational Change, Retirement and Financial Management, and Talent and Reward Strategies. The firm provides services from 86 offices in 37 countries.