Term Paper on "Approaches to Reduce Employee Benefits Cost"

Term Paper 10 pages (3014 words) Sources: 6 Style: MLA

[EXCERPT] . . . .

Reducing Health Care Costs full-scale health care benefits crisis appeared to loom as employers were reported to spend $300 billion annually on the health insurance of employees, their dependents and retirees (Weatherly 2004). In particular, health care costs for large employers were estimated to have risen by 12.6% in 2004 as compared to 14.7% in 2003, 15.2% in 2002, 10.2% in 2001 and 9.4% in 2000. The hoped-for slowing down of average health care increases since 1996 was not expected to continue. Radically reducing benefit plan coverage to control rising costs had not occurred, either. Benefit plans tended to remain stable as employers did not quickly adopt the innovative health care benefit strategies and change recommended by benefit plan providers. Instead, human resources or HR professionals opted for other measures to offset rising benefits cost. These included cost shifting of premium increases to employees, higher deductibles, mail-order and generic prescription programs, and increased patient cost-sharing. These costs and premiums were expected to adversely affect the U.S. economy and, therefore, these preferred strategies could not continue indefinitely without a proportionate and adverse impact on total employee compensation (Weatherly).

The mass media, major consulting groups and health care experts agreed that health care costs were a critical or significant concern to the vast majority of chief operating officers, chief human resource officers and other business leaders (Weatherly 2004). As against the estimated 14% increase, employers said they could accommodate only an average annual increase of 9%. This difference meant that employer costs would increase by approximately 54% in the next five years. During that period, employee contributions could increase three times until all the involved parties resorted to some proactive approach to contain the rise. HR leaders agreed that better value and lower health costs at between 83% and 96% if they worked together with employees for this purpose (Weatherly).

Per capita health care costs increased by 156% from 1980 to 1990 and went down to 71% from 1990 to 2000 (Weatherly 2004). Employers managed to contain the costs in the 80s because of the appearance of health maintenance organizations or HMOs, which provided some economic relief and thus contributed to the slowing down of rising health costs during the period. At the start of the new century, employers needed to contend with a weakened economy and significant health care costs once again. The difference was that intense competition and over-capacity among industries made it hard for businesses to pass the increases along to customers and clients. As a result, the costs of insurance premiums shifted to the employees. Moreover, managed care organizations lost power and influence in the market as HMOs and preferred provider organizations or PPOs had to relax many restrictions to allow greater flexibility and choice to the consumer. Current strategies in health care benefits management include association-sponsored plans or ASPs, retiree health insurance and consumer-driven health plans or CDHPs. ASPs were for smaller employers who would be able to purchase insurance through a business, trade or professional association. Retirement health insurance was for those aged 50 to 64 and eligible for retirement. However, there were those who would like to retire but could not afford to because of the lack of affordable health care coverage. CDHPs considered both the cost and appropriateness of care. CDHPs were high-deductible plans consisting of a personal plan and high-deductible plans. The personal account contained employer money for use by the employee to reimburse health care expenses below the level of the medical plan deductible. These plans with health care reimbursement accounts and huge insurance made them popular among employers, whose number was expected to double in response to increasing health care benefit costs (Weatherly).

The 1989 Employee Benefits Survey of medium and large business organizations revealed that 44% of full time employees with medical care benefits participated in plans, which required preadmission certification (Hyland 1992). The survey also showed that 23% of these employees were in plans with utilization review or which monitored the course medical care. The figures increased in 1990 to 53% for those in a medical plan and 64% of their counterparts in state and local governments with pre-admission certification. Employers themselves encouraged employees to take preventive measures, which would bring medical costs down. These measures could be in the form of cutting down on smoking, alcohol and substance abuse and managing stress and poor diets. The Department of Health and Human Services said that more than $65 billion were spent on medical care costs each year. It also attributed higher rates of absenteeism and lower productivity to smoking. On the other hand, extreme stress and poor nutrition ere considered the leading causes of cardiovascular conditions and heart attack. Alcohol and substance abuse accounted for $144 billion expenditures on treatment expenses, lost productivity and other costs. Expenditures on mental illness amounted to $129 billion. Wellness programs and employee assistance programs dealt directly with such health problems among employees. These were offered to full-time employees in medium and large-sized organizations to help employees care for their health and live a healthier life. The programs addressed smoking cessation, accident prevention, weight control, cholesterol screening, stress management and hypertension screening. If successful, the programs improved the employees' overall health, lowered the incidence and severity of medical conditions or problems and reduced the frequency and costs of medical claims. These programs could be effective, but the savings realized from them would take years to concretize and affect an improvement on employee health. From 1875 to 1986, health benefits premiums increased by only 4.5% in these companies as compared with a 10% increase in companies without the programs. The figure went further down to 2.8% for those companies with the wellness programs as against 9/9% for those without. The savings realized in those companies with the programs attributed these savings to reduced absenteeism and increased productivity and morale. A recent survey conducted by Coopers & Lybrand revealed that a wellness program cost $50 per employee per year and that most employees were pleased with these programs, which helped them contain health costs. Employee assistance programs, on the other hand, dealt with mental, alcohol, drug, family and financial problems. The practice was for the company to contract an outside provider, which was usually a hospital or an independent service enterprise. These employee assistance programs, however, could increase claims for mental health and substance abuse treatment. One of their main functions was to refer employees to mental health care providers. Nonetheless, the average cost increase for mental health care costs was lower than employee assistance programs. Moreover, mental health costs could rise due to early intervention but overall medical costs would generally decrease, proponents said (Hyland).

Commuting benefits have helped reduce employees' commuting expenses and, in turn, cut employers' cost (Hirschman 2004). These benefits were aimed at reducing rush-hour congestion and vehicle emissions by giving employees tax-saving incentives to leave their cars at home. Employers would also have lower payroll taxes. Companies need not spend too much on these benefits while raising employee morale. Commuting benefits covered mass transit transportation, vanpools and certain types of parking arrangements. Employees paid transit costs from pretax income while employers paid the programs' management costs. Regardless of how commuting expenses were shared, they conferred tax breaks. These were tax-deductible as business expenses to employers. Employees paid from earnings set aside before taxes, which saved them as much as $40 a month, according to Wage Works, a commuter-benefits provider based in San Mateo in California. Un-used pretax amounts for commuting could also be rolled over from year to year. Employers' payroll taxes were also reduced through pretax arrangement. Commuting benefits worked well in both large cities and small cities. Large cities had good public transportation while small cities had long commutes. These would redound to tax savings, reduced traffic congestion and less pollution but they were not too popular yet. The Society for Human Resource Management's 2004 Benefits survey said that only 12% of employers offered transit subsidy. The U.S. Bureau of Census and Statistics said that 76% of employees drove their cars alone to and from work and spent an average of $93 per month on commuting (Hirschman).

Back injuries are among the most common complaints among employees and which have accounted for a large number of rising medical costs and workers' compensation claims (Bell 1991). In response, many companies began encouraging their employees to use back machines for prevention. Back machines can help diagnose lower back injuries, establish the degree of disability, assess the effectiveness of treatment, screen employees and applicants for the strength required by the job, and provide a program of rehabilitative exercise. One of the largest suppliers is Isotechnologies, Inc. Of North Carolina. It has 500 Iso Station B-200s currently used in medical and rehabilitation centers and offices of physicians, physical therapists and chiropractors throughout the U.S. Instead of buying the machine itself, big companies send their employees to nearby medical facilities to use it. Among the large medical centers with B-200s are Vanderbilt, Duke, the… READ MORE

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