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How Three Companies Shave Health Costs

Whatever the approach, finding the right combination of quality care at a reasonable price is an ongoing challenge for companies of all sizes.

August 1, 2001
Related Topics: Compensation Design and Communication
With health-care premiums increasing at an estimated 10 to 12 percent annually,HR professionals are being forced to walk a tightrope between managing costsand staying competitive. And they have to work this magic in a market whereattractive benefits packages are as enticing to valuable employees as high salaries.

    Fixed HR budgets restrict the burden that companies can take on to providethe quality of care that their employees have come to expect, but pushing thecosts to employees or cutting services can limit a company's ability to drawand retain both business and talented people.

    "It's a terribly fine line to walk, especially when turnover is high,"says Susan Patterson, editor at the Institute of Management and Administration(IOMA), the New York City-based publisher of newsletters and reports for businessprofessionals. IOMA's HR division gathers data annually on how companies managetheir health-care costs.

    HR professionals are forced to constantly evaluate their health-care packages,researching the market for the best deals and looking for ways to trim costs,Patterson says. The most popular approaches include giving employees flexibilityin their coverage options, choosing less expensive prescription drug programs,and using brokers and third-party administrators (TPAs) to help find betterrates, even if it means changing providers frequently.

    No matter how effective the cost-cutting efforts are, however, prices are goingup, and there are only so many dollars that can be eliminated. "Benefitsare the biggest out-of-pocket expense companies pay every year," says TomParry, the president and principal investigator for the Integrated BenefitsInstitute, a private nonprofit research benchmarking educational organizationin San Francisco. "There have been double-digit premium increases for thelast two years, and there is no magic bullet to keep costs flat."

    The rest has to be paid by someone, and it's likely to be, at least in part,the employee, Patterson says. According to IOMA's 2001 survey, 51.7 percentof companies say the most successful method for controlling health-care costsin the last year was increased cost sharing by employees. "Employees haveto pay more of the burden of health care," she says. "Ultimately,it's the only answer."

    Another approach to cutting health-care costs is to focus on keeping employeeshealthy, Parry says. A 2001 IBI research report on emerging health-care andproductivity issues shows that productivity loss accounts for three of everyfour dollars spent on health care.

    "You have to think differently about the true cost of medical care,"Parry says. "Focusing on preventing and managing illnesses has a directimpact on the bottom line and productivity."

    Offering disease-management seminars and creating healthful work environmentsdirectly affect bottom-line costs for many companies because employees spendless time away from the job and are more productive when they are there. Largercompanies have more options for implementing wellness and disease-managementprograms, Parry says, but smaller companies can make simple efforts, such asoffering flu shots and encouraging exercise as a way to reduce sick days andincrease productivity. "The principle of wellness applies across the board,"he says. "It brings together a benefits strategy with a business strategy."

    Whatever the approach, finding the right combination of quality care at a reasonableprice is an ongoing challenge for companies of all sizes. HR professionals areforced to spend more hours every year tweaking or replacing their health-carepackages to keep employees happy and costs down.

Workforce, August 2001,pp. 78-83 -- SubscribeNow!

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