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Cost-containment scenarios of the future.

How the coming decade of cost control is likely to unfold -- with employers being part of the solution rather than the bearer of a lion's share of the problem.

Health care costs in America appear to most observers to be out of control. Government, employers, and the public at large are increasingly critical of these spiraling increases. The rates of increase have been so steep that even routine health care has become unaffordable to an alarmingly large number of Americans.

Historically, health care consumers demanded high quality but also expected the health care industry to monitor and contain costs on a self-regulatory basis. When these expectations were not met, federal and state government programs were mounted. Unfortunately, though these at least slowed the rate of increase in some areas, over all governmental efforts have not been much more successful than the health care industry's own efforts.

No discussion of United States health care policy can occur without reviewing the facts about costs. Facts cited in the 1990 Bernstein Research report, The Future of Health Care Delivery in America, seem to support the assessment that health care costs are out of control: * Health care costs have increased about 9% annually in the last five years, whereas the general inflation rate was about 5% annually. * Health care costs are projected to rise by 11% to 12% annually in the next five years, with inflation in the total economy averaging about 5% annually. * Health care spending, as a portion of the GNP, has shown a continuing upward trend -- 9.1% in 1980; 10.4% in 1988; an estimated 13% in 1994; and an estimated 15% to 16% by the year 2000. * National health care spending totalled $540 billion in 1988 and is anticipated to reach $1.5 trillion by the year 2000. * Total health care costs doubled in the '80s but will triple in the '90s.

Now, in the decade of the '90s, new initiatives are being formulated to control health care costs, and these focus on the role of American business. Against the combined backdrop of spiraling costs and a distressed industry, American employers can become part of the solution rather than the bearer of a lion's share of the problem.

The government, employers, providers, and customers agree that the increase of individual responsibility is an important strategy for health care cost containment in this decade. The extent of individual involvement varies from plan to plan, but, increasingly, consumers are making choices and are more involved in payment for health care services.

In the fall of 1990, Health and Human Services Secretary Louis M. Sullivan unveiled a 298-point plan, "Healthy People 2000," to improve Americans' health over the next decade. The plan focuses primarily on encouraging people to adopt healthful habits to prevent disease; it does not propose specific legislation or changes in funding. Sullivan and his staff envision industry, government, and local volunteers working together to achieve the goals of "Healthy People 2000." Some of the federal goals set for the year 2000:

Exercise: Get 30% of Americans to exercise moderately for at least 30 minutes a day, an increase of 8%.

Obesity: Reduce from 26% to 20% the proportion of overweight adults.

Smoking: Nearly halve the proportion of adults who smoke, from 29% to 15%.

Pregnancy: Reduce pregnancies of girls under 18 to 50 per 1,000; in 1985, the rate was 71 per 1,000.

Auto safety: Double the number of vehicle occupants who use automobile safety restraints from 42% to 85%.

Infant mortality: Reduce infant mortality to seven deaths per 1,000 births; last year's provisional rate was 9.7 per 1,000.

Heart disease: Reduce the incidence of coronary heart disease deaths to 100 per 100,000 from 135 per 100,000.

AIDS: Confine the annual incidence of diagnosed AIDS cases to 98,000. Between 44,000 and 50,000 cases were diagnosed last year.

Health care executives favor the concept of tying health care benefit costs to life-styles. A recent survey sponsored by the American College of Health Executives noted that: "Nearly all health care executives (94%) agree that health insurance plans should offer financial incentives to people whose life-styles promote good health -- regular exercisers, non-smokers. Also, 80% of respondents agree that people who smoke or drink alcohol should be taxed to help pay for health care services."

Emphasis on illness prevention is a goal shared by employers, primarily to control future health care costs. Getting employees to be more conscious of health care costs is another important cost-containment strategy of employers. A poll of human resources managers listed the following 10 items as having greatest promise in controlling future health care costs:

1)Getting employees to be more cost conscious;

2)Emphasizing preventative care;

3)Standardizing the costs of medical procedures and treatments;

4)Changing the legal/malpractice system;

5)Raising employee deductibles/copayments;

6)Limiting doctor fees;

7)Involving state and federal government;

8)Limiting procedures/tests/treatments;

9)Lowering insurance company profits;

10)Reducing current benefits.

Focus on health habits

Employers are attempting to measure the cost effects of certain health habits of their employees. Tools are being developed -- such as The National Center for Health Promotion's Lifestyle Cost Index -- for employers to measure costs related to life-style risks. Passing costs along to consumers choosing to live "unhealthy" life-styles is certainly a strategy being explored by employers for the '90s.

Reductions of benefits, and employee choices of options, are also fundamental strategies of employers to reduce costs. Employees tend to resist the trend and, in fact, would prefer to pay more out-of-pocket costs rather than receive reduced benefits. Precertification programs are becoming more prevalent, and benefit managers polled list such programs as their leading strategy. Other strategies include requiring a second opinion before care is given, improving employee awareness of health care benefits costs, and coordination of benefits among multiple coverages.

Managed care is a strategy of growing interest to employers, and insurance companies are responding. Value for investment in health care services is key. Moreover, as employers and insurers implement cost-containment strategies, they also are carefully monitoring quality.

Medical Benefits "Health Poll," completed in 1990, found that a majority of benefits managers polled planned to develop "a more formal approach to managing health care quality." They gave the following evaluations for quality in descending rank order to various types of managed care plans:

-- Point-of-service health maintenance organizations (HMOs);

-- Preferred provider organizations (PPOs);

-- Traditional indemnity plans with utilization review;

-- Traditional indemnity without utilization review.

Corporations' initiatives to hold down costs are reflected in the following: * In the last five years, managed care, fee-for-service patients under hospital pre-admission certification programs have increased from only 3% of the private patient population in 1984 to 23% in 1989. * 20% of the private sector is now enrolled in PPOs, and the figure is projected to reach 40% by 1994. * HMO growth in the private sector has grown from 7% of the population in 1984 to 17% in 1989 and is predicted to reach 28% by 1994.

Rise to the networks

The Bernstein Research report predicts that during the next five years, corporations and employees gradually will accept the practice that complete benefits are available only through limited networks of managed and monitored providers. Bernstein reports that as HMOs and PPO networks mature and demonstrate their effectiveness in controlling costs and raising quality, more employers will be willing to move their employee groups to these options. By 1994, an estimated 60% of the privately insured population will be using such networks for over 75% of their care.

This move to managed care is reflected also in the decline of traditional insurance in the U.S. In 1984, traditional insurance accounted for 161 million of the 177 million persons covered by private insurance, but only accounted for 151 million individuals of the 181 million covered in 1987. This decline in enrollees of traditional insurance plans has been due primarily to the increase in managed-care enrollees. Also, employers over the last few years have been dropping insurance company coverage and becoming self-insured, as costs skyrocket.

Numerous strategies

Other examples of the numerous strategies employers use to reduce costs include:

-- TRW has moved from defined benefits to defined contributions through employee flexible spending accounts.

-- Alcoa is attempting to provide incentives to quality providers.

-- U-Haul International is charging extra for employees with unhealthy life-styles.

-- Southern California Edison has set up its own primary care clinics.

-- Tenneco has tried direct hospital contracting.

-- Exxon, AT&T, and the regional Bell operating companies have moved to PPOs.

-- Xerox is moving to management of a multiplicity of HMOs, eventually to replace traditional, fee-for-service insurance.

-- Allied-Signal has moved to HMOs with point-of-service opt-out options.

With the increasing sophistication of employers about health care costs, very few U.S. group health insurance carriers (estimated at 25 of the 500) have the capabilities, finances, patient volume, management, and desire to compete successfully. A massive consolidation of insurance carriers is predicted over the next five to 10 years.

The health care industry has been in constant evolution since the enactment of Medicare 25 years ago. Dramatic cost increases paired with shaky financial performance across the industry have brought about major structural changes in the last five years. During the '90s, American business will join health care executives in the search for equitable solutions to the challenges of providing affordable, quality health care. Merlin I. Olson is a Principal of Deloitte & Touche and Director of The Douglass Group, a unit of the professional services firm that specializes in facility planning and strategy development for the health care industry. He directs The Douglass Group's planning practice and leads to strategic planning element nationally for Deloitte & Touche's Health Care Group, one of the largest health care consulting practices in the United States. Before joining Douglass 12 years ago, Olson served as Executive Director of Hospitals for the University of Colorado Medical Center.
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Chairman's Agenda: Managing Health Care Costs; employers' part in health care costs
Author:Olson, Merlin I.
Publication:Directors & Boards
Date:Jan 1, 1992
Words:1649
Previous Article:Current efforts at cost control.
Next Article:How to launch a managed-care effort.
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