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When Times Get Tough, Even the Tough Go to the Doctor

January 16, 2009
Related Topics: Benefit Design and Communication, Policies and Procedures, Strategic Planning, Featured Article, Compensation
When times get tough, even the tough (if they happen to have health insurance) go to the doctor.

    Employees with more comprehensive medical benefits, especially those who never took advantage of them, are more likely to tap these benefits as the economy deteriorates, employers and health care consultants say. Workers may get that long-delayed hip replacement or have those aches and pains, rashes and coughs checked out before they lose their job and, with it, their health benefits. In some cases, the rush is already on.

    "People are concerned they won’t have insurance," says Jerry Reeves, medical director for the Hotel Employees & Restaurant Employees International Union. "So they’re using the heck out of it."

    Employers and consultants contacted for this story said they did not have figures for medical utilization since the financial crisis hit full force in September. But anecdotally, they are seeing an increase.

    Increased utilization is just one more sign that employers can expect pricier health care in the near term. Historically, spikes in health care costs have coincided with a recession’s economic low point. Driven by fear and anxiety, these increases can have more to do with perception than reality. Still, employers can take pre-emptive actions to soften these spikes, even if they are no longer tinkering with benefit design changes for the coming year. The bright side of fear, experts say, is that it also creates a captive audience for employers willing to provide preventive- and chronic-care medical services to workers who are increasingly worried about the economic consequences of getting sick.

    Though in recent years health care cost inflation has remained flat—around twice the consumer inflation rate or just above 6 percent—that number is expected to rise. If the past is any guide, medical costs will spike during the nadir of a recession, when the economy contracts before rebounding.

    According to Mercer, the recession that began in 1990 saw health care inflation peak at 17.1 percent, compared with 16.7 percent a year earlier. When the economy recovered, health care inflation fell. By 1994, health care costs actually decreased 1.1 percent. At the height of the last recession in 2002, health care inflation jumped to 14.7 percent from 8.1 percent before the dot-com bubble burst in 2000. By 2005, costs increases had steadied at around 6 percent.

    "The bigger the layoff picture is, the higher the risk of the spike is going to be," says Linda Havlin, worldwide partner and global leader for research at Mercer.

    The reasons for cost increases are many. The fear of layoffs or the fear that a person’s health benefits will be reduced can lead to increased use of health care services as a "use it while you’ve got it" mentality prevails. Health insurance companies may also raise rates to make up for investment losses, anticipated increases in use of medical services or loss of revenue from employers dropping coverage because of layoffs, according to a white paper by Mercer.

    Younger, lower-wage workers may also be prone to dropping coverage altogether. According to a November survey by Zogby International and Bearing Point, young adults 18 to 24—typically the healthiest, least costly employees to insure—were more likely than other groups to drop medical coverage altogether, leaving only the more expensive, frequent users of health care for an employer to insure.

    Already, small employers are feeling price spikes. According to a recent survey of insurance brokers by Citigroup, insurance companies are raising rates faster for 2009 than they did for 2008.

    Employers can reduce utilization through benefit design. While it is a blunt instrument, raising co-pays and deductibles is, in essence, a tax on people who use medical services. Outside of increasing the cost of insurance, companies can limit who is eligible or conduct an audit to make sure only those who are eligible are enrolled, according to Mercer. Employers that have conducted dependent eligibility audits have found divorced spouses, college-age children, grandparents and other dependents not normally eligible for health care enrolled in a health plan.

    Most employers, however, finalized their benefit design before the financial crisis this fall, and they now must look at other means to reduce costs.

    The consensus that health care costs and utilization will increase during a recession can seem at odds with recent surveys saying workers have cut back on medical spending or dropped coverage altogether, especially lower-income workers who cannot afford premiums, co-pays and deductibles. The same BearingPoint and Zogby International survey said workers making less than $25,000 a year were 10 times more likely to drop their health insurance plan to save money than a person making $100,000.

    The result is that those who need medical attention may not get it, and those who do not need it may seek it out.

    Hard economic times might be the catalyst employees need to get their health in order, medical directors say. Consultants say these circumstances may make workers receptive to free, preventive health care and help manage chronic illnesses.

    Havlin suggests taking an approach that doesn’t penalize employees. At the top of her list are free flu shots.

    "If you do nothing else, have your employees take flu shots," Havlin says.

    In the past two years, more than 500 unionized workers at the Springfield, Ohio, plant of International Truck and Engine, a subsidiary of Navistar International, have lost their jobs. The volatile economic climate has made the company’s free flu shots a popular benefit for union members, says Jason Barlow, president of Local 402 of the United Auto Workers in Springfield.

    "Workers are deathly concerned they could lose their job," he says. "They get a flu shot because they don’t want to incur a large expense by getting sick."

    This was made clear last year when workers were on strike. Despite being on opposite sides of the picket line, Navistar provided 800 out of about 1,000 striking workers with flu shots, says Robin Baver, medical director for International Truck and Engine.

    Take Care Clinics, a subsidiary of Walgreens, says utilization of its work-site health clinics has increased 4.6 percent in the third quarter compared with a year earlier, a company spokesman says.

    Employers that offer free or low-cost preventive and chronic disease care are, to their delight, seeing heightened interest among workers. At a recent health fair for members of a West Virginia local of the Hotel Employees & Restaurant Employees International Union, health care administrators saw many young and healthy workers concerned about their health.

    "They feel so tentative at the moment, they’re taking advantage of anything that’s free to avoid having to take time off," Reeves says.

    Reeves described "a completely different tone" among these low-wage workers than in the past. Workers at sites in West Virginia, Pittsburgh and in New York state are asking about their weight and how to control chronic illnesses like diabetes. Most bring their families to on-site clinics for checkups.

    The lesson in all of this, medical directors and consultants say, is that investing in on-site health care and actively providing it to workers can be cheaper than having them take time off from work to see a doctor, where the same medical service will inevitably cost more. If a recession prompts workers to see the doctor, an on-site doctor or nurse practitioner could be cheaper.

    As happy as Reeves is to see individuals take in interest in staying healthy and making use of on-site health clinics and other inexpensive preventive health care offered by the union, he still worries about the impact the increased utilization will have on budgets for health benefits. Having union members who are eligible for health care but are not working means they are spending money from the union’s benefits budget but not sending dues to the union through their paychecks. This happened during the recession after the September 11, 2001, terrorist attacks, Reeves says, when "utilization went up and revenue went down."

    "And it burned into our reserves pretty darn quick," he says.

    "I think we’re in for a real bruising," Reeves says of the current recession’s impact on health care spending. "This is as bad as I’ve ever seen, and I’ve been around a long time."

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