Skip to content

Strategy is the Key to Managing Rising Health Care Costs

From ChamberChoice & Smart Business Pittsburgh

Health care costs, and employee health benefits costs, have been increasing at an alarming rate for nearly a decade.

“Avoiding rising health care costs is nearly impossible, but employers need to be educated on why they continue to rise and the unique strategies available to manage costs for their organization and their employees,” says Jessica A. Galardini, senior vice president at JRG Advisors.

Smart Business spoke with Galardini about health care costs and what do about them.

What has led to increased health care costs?

Several market conditions have led to a decade of unrelenting increases. The two main factors have been an aging population and poor general health. Because older workers are more prone to health problems, companies see a rise in chronic conditions, costly medical problems, the use of prescription drugs, and an increase in the number and frequency of catastrophic claims. Poorer health among Americans also has contributed to health care cost increases. Preventable risk factors like obesity and high blood pressure have led to increases in chronic health conditions, such as diabetes and heart disease — illnesses that are long in duration and costly.

For employers, understanding why annual health plan renewal rates are significantly higher than the prior year is the key to forming strategies and solutions to their particular challenges. It is also important to educate employees about the reasons behind plan or contribution changes.

What can employers do?

While some employers struggle to absorb most of the cost, others have already raised deductibles and cost sharing, implemented high-deductible plans and increased employee cost sharing. These tactics, however, are a short-term fix. Employers need to identify and attack the root causes of rising costs with sustained, systemic changes. With poor health growing and the uncertain impact of health care reform, employers need short- and long-term strategies to manage costs.

What are some effective strategies to manage health care costs?

Employers can control rising costs, depending on the unique demographics and objectives of the group, by:

■ Using available health care data to make strategic plan decisions. This can be a top cost-cutting strategy. However, it’s important to go beyond accessing data. Employers should be educated on how to interpret and apply that data when making health plan decisions and implementing strategic changes.

■ Putting a greater emphasis on consumer-driven health plans like health savings accounts or health reimbursement accounts. These plans offer cost-savings for the employer and employee. With proper education, employees and their dependents can become smarter health care consumers, which saves both money.

■ Exploring alternative funding solutions, which enables employers to manage costs, while providing more customized benefits to their employees. These options consist of self-insured and level funding plan designs and can pave the way for employers of almost any size to potentially reduce their benefits cost.

■ Health and wellness initiatives can be an effective cost management strategy, especially when implemented with health care data. Designed to improve employee health and wellness, these programs not only lower costs but also increase productivity and reduce absenteeism. Initiatives can be customized (target specific diseases) and comprehensive (include dependents). Participation incentives are popular, but it is important to use effective incentives. It is better to reward employees for participating in a program or meeting a health goal than incentivizing a health risk assessment.

Which solution is right for your organization?

While short-term strategies such as employee cost sharing, remain prevalent, it is critical to explore multiyear plans and long-term initiatives that improve overall employee health and strategically manage costs in the future. Ultimately, a sustainable strategy that’s right for your business can best be achieved through a thoughtful and detailed analysis of your benefits program with the guidance of a trusted benefits consultant.

Scroll To Top