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Taking Care of Health Care
Health-care costs are skyrocketing for everyone these days, including for business owners, many of whom are left scrambling for practical solutions. The cost of prescription drugs, for example, is rising by 17 percent to 20 percent a year. And $2,000 MRI tests have become the standard, supplanting still effective but barely used $100 X-rays.
"Employers have been facing double-digit increases in their premiums and looking for ways to share the costs with their employees. Many health plans are paying less of the bill than they used to, so the shift goes over to the employees," explained Garry Scheib, chief operating officer of University of Pennsylvania Health System in Philadelphia.
To make ends meet for ever-increasing national health-care costs, which increased by 38 percent between 2000 and 2004, and which the federal government predicts will continue to rise in the coming years as much as 20 percent of the Gross Domestic Product by 2015, explained Scheib, many businesses resort to downsizing cuts here and there, convinced that's the only way to survive.
In response to this national crisis in health-care costs, Advanced Benefit Advisors Inc., a corporate employee-benefits consulting firm from Philadelphia, offers proven ways to reduce costs.
Licensed in 25 states, ABA works with a variety of companies -- including accounting, law, automotive, manufacturing, trucking and finance firms -- on innovative options they can use to manage their employees' health-care costs in a less expensive and more efficient manner.
"There are three main reasons health-care costs are so expensive today," said Robert Petcove, president and founder of ABA. "First, people are living longer because there are more prescription drugs than ever before, and people are engaging in more physical activity than ever before, either through a doctor or on their own.
"The advance in very costly medical technology is the second reason. Thirdly, there is the marketing of single-source brand-name drugs directly to the public, such as the so-called Purple Pill, which people see advertised on TV, and then ask their doctors for it.
"That drives up the price, and also drives up future insurance premiums," said Petcove.
This third cost isn't an issue of supply and demand, he continued, but one that is tied to a seven-year manufacturer's patent on brand-name drugs that locks in its exclusive use during that time. A generic drug, which on average costs one-sixth of a brand name, may be substituted but only after a minimum of seven years.
"But even after that length of time, it's very often the same manufacturer making the generic drug, thus preserving that company's market share. Generic equivalents are just as good as name brands, with the same chemical make-up. The only differences are the pill's outside coating and the fillers used," acknowledged Petcove.
Scheib agreed that prescription drugs and advances in technology are driving costs upward, adding that another costly culprit is the growth of a host of medical services on the outpatient side in nonhospital settings.
Petcove offered the following cost-cutting cures.
"Consumerism by business owners is very important. They must offer people a choice about which benefit plans will be involved in that choice," he said.
"That happens through employee contributions or payroll deductions and plan design.
"A single HMO, for example, may cost $250 a month while a PPO ('Preferred Provider Organization') may be $300 a month. If an employee pays the difference between the two plans, the employer is controlling costs by having the employee 'buy-up' to the more expensive plan. This saves the employer money, creates good will and gives employees choices."
A second way that employers can save is to spend their benefit dollars wisely, he said; as such, they should conduct an employee survey to help them determine which benefits are important to their workers.
As Petcove noted: "Allow employees to buy the Point of Service Plan, if they want, allowing them to go out of network. If they choose to go into an HMO, their contributions would be less and they don't waste money on a benefit they don't care about.
"Employers shouldn't waste money on a benefit people don't care about," he continued.
"Also, employees must know their needs and spend their benefit dollars wisely, too. It's only when employees go out of the network they've chosen, to see a specialist, for instance, that they will have to pay more for some service or other."
'It Amounts to Greed'
An example of going out of network is Personal Choice, a PPO that allows out of network benefits paid for by an employee, based on that person's deductible and coinsurance, he added.
Another innovative solution for employers, he said, is something called a prescription carve-out plan, by which an employer can take a prescription plan out of existing medical insurance and place it with a less expensive provider.
"Generally, a medical insurer and insurance company will charge from 22 percent to 39 percent above the base cost, calling it administrative fees, profit and gross profit.
"But what it really amounts to is greed," insisted Petcove.
A company's pharmacy benefits manager can insure the plan at a less expensive rate, thus cutting costs for employees.
A fourth cost-cutter, Petcove went on to explain, is a Flexible Spending Account -- or FSA -- which allows employees to offset their out-of-pocket costs by using pre-taxed dollars to fund those expenses.
"A certain pre-taxed amount can be taken out of an employee's pay check each week -- say $18 until it totals about $1,000 -- and be set aside for medical, dental, hearing and vision expenses."
In this way, he added, "an employee can have these expenses reimbursed without paying taxes. The person can use a debit card or pay for it, and then be reimbursed."
Petcove's fifth innovative solution for businesses is the use of a Health Reimbursement Account or Health Savings Account.
These ideas are similar to an FSA, in that an employee's pre-taxed dollars are put in. They differ from an FSA because money put into an HSA, for example, is never lost.
An employer can go with a high-deductible health plan and attach it to an HSA. Government guidelines dictate that an HSA must be aligned with a high deductible, according to Petcove.
"This option was passed by Congress about a year ago, and is like a 401(k) plan for someone's health care.
"The money, which can be put into a mutual fund, when a certain dollar amount is reached -- $2,000, for example -- grows tax-deferred, and can never be lost as long as it's used for medical expenses."