Dec 30, 2009

With Medical Plan Cost Inflation at 11%, Most Employers Still Won't Do Anything About It


The recent findings of two major surveys of employer health plan sponsors paints a pretty bleak picture of things to come in 2010. And employers will play the part of the proverbial lemmings.

The first survey, "2010 Segal Health Plan Cost Trend Survey," predicts increases in the per-capita medical claims costs will range from 10.2% to 13.3%, depending on the type of plan. That's four times greater than the forecasted annual increase in average hourly earnings and sharply higher than the Consumer Price Index which has remained relatively flat over the past 12 months. Cost inflation for PPO plans, which represent 80% of all employer health plans, will rise by 10.8%, according to the survey.

The results of the second survey, "2010 Employer Buying Intentions Report," published by JHA and Employee Benefits News, stand in ironic contrast to those of the Segal survey. Of the 4,500 benefits and HR managers surveyed, only 14% said they planned to changed their medical plan providers. Clearly, most have given up any hope of mitigating double-digit cost increases by switching carriers. The predominant thinking must be that everyone's costs are going to increase, so changing will do no good.

It's hard to believe that so many employers would give up on being able to reduce costs by changing medical plans and simply give into the profit-bloated insurance industry's excuses for the increases. Perhaps the entire health care reform debate has worn everyone out and created fear of any change to employer medical plans.

More likely, however, it's who they're getting their information and advice from that's causing fear of doing anything. Results from the same JHA/EBN survey indicate 8 out of 10 respondents consult with their brokers or TPAs (or ASO carriers) prior to making changes to their medical plans. That's like asking the fox who should be guarding the hen house. The deeply vested financial interests that carriers, brokers, and TPAs have in the status quo medical plans (irrespective of adverse cost implications) heavily influence what they're advising clients to do. They've nothing to gain and everything to lose by suggesting change to clients, especially if it means that the client walks.

Collectively, the insurance industry, PPOs, brokers, and many consultants, have done a huge and extremely costly disservice to American employers by keeping them convinced that there's no hope for rising costs and no alternative to the way things are done now. Unfortunately, too, a lot of the blame also rests with the same HR/benefit managers who responded in unison to a situation they clearly perceive as hopeless. Like lemmings being lead to the economic cliff by the insurance industry and its proponents, they've unquestioningly accepted the notion that there's nothing they or anyone can do about it. Oh, well, at least they'll have good company as they go over the side.

I've noticed the same trend for the past 15 years among HR/benefit managers every time I've suggested direct provider contracting as a viable alternative to PPO medical plans. The cost savings and inflation abatement my clients have realized present the strongest case possible for this approach. Unfortunately, whatever initial interest HR/benefit managers have is quickly quashed after they consult with their carrier, PPO, broker, or consultant. The timidity of HR/benefit managers in the face of that situation still astounds me, yet it's understandable when one considers the enormous influence and control most major carriers have over their corporate clients.

Perhaps that's why direct provider contracting, and other innovative cost-containment approaches that don't abdicate to the insurance industry, seem to work best whenever a CEO or CFO stands behind the idea. Their direct involvement and support of unconventional approaches have always been key to the success of the direct networks we've established over the past 15 years and the amazing results they've achieved. In my opinion, it takes top-level, visionary perspective to see beyond the carrier-induced sense of hopelessness over rising medical plan costs. It takes uncommon leadership to see the broken, corrupt system for what it is and the courage to say: "Enough is enough."

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