Health care costs, and consequently the
rates you pay for your employees’
health plans, have been rising at a rate
almost double the rate of inflation over the
last several years. Most employers simply
cannot avoid facing vastly increasing rates
for medical plans, year after year.
Companies nationwide are facing these
types of increases, but why are health care
costs rising so high, so fast? According to
Isaac Sapoznik, an agent with Sapoznik
Insurance, there are several factors.
“To begin to understand why employee
medical plan rates are rising so dramatically,
you must first understand that the overall
costs of health care are skyrocketing across
the U.S. — the biggest surge in medical inflation since the early 1990s,” Sapoznik says.
Smart Business spoke to Sapoznik about
the rising cost of health care and what companies can do about it.
How has the aging of America affected health
care costs?
It is an indisputable fact: the U.S. population is aging. While the number of older
Americans is increasing, the number of children and younger people is remaining stable
and even decreasing for some age groups,
according to the U.S. Census Bureau. As the
population ages, there is a subsequent rise in
the occurrence of chronic diseases, like asthma, heart disease and cancer, and a resultant
need for more resources to fight these diseases. This leads to elevated utilization of
prescription drugs and other medical services and an overall rise in health care spending.
Why has the cost of prescription drugs risen
so high?
Pharmaceutical research is continually providing treatment breakthroughs that should
not be impeded, but the costs associated
with this progress is undoubtedly having an
impact on insurance companies and managed care organizations, and consequently
on employers who sponsor employee health
plans. Prescription drug costs have become a
major component of health plan costs, with
managed care plans (HMOs) being hit especially hard because of the generous drug benefits those plans tend to offer. The reasons for
the increase in spending on prescription
drugs are many, and include the following:
- Introduction of new brand-name drugs to
the marketplace. These drugs are often more
effective than the ones they replace, but this
innovation bears a hefty price tag for insurance companies, employers and employees. - A general increase in the number of prescription drugs being used. Basically, more
people are using more prescription drugs,
thereby driving overall spending upward. - Those with insurance are more likely to
use prescription drugs than those without,
and the growing prevalence of managed care
plans that offer generous drug benefits has
fueled increased prescription drug use. - With the general aging of the population,
there is a higher incidence of chronic disease
and an increase in the use of pharmaceuticals
to treat those conditions. Pharmaceuticals
play a primary role in increasingly aggressive
diagnoses and treatment methods. - Direct-to-consumer advertising of prescription drugs — outlawed by the FDA until
1985 — has grown by leaps and bounds over
the last decade. Critics of this practice feel
that promotion of drugs directly to consumers, rather than to doctors, creates inappropriate consumer demand and utilization.
In addition, many feel that drug prices could
be lower if drug manufacturers did not spend
huge sums of money on advertising.
Does the government regulate health care
enough?
Health insurance, and more specifically
managed care, is one of the most regulated
insurance sectors on both the state and federal level and has become one of the most
highly debated topics in the political arena.
State and federal mandated benefits have
increased 25-fold over the last three decades.
Often these mandates duplicate or conflict
with each other, and usually come with
increased costs for the health care system.
For example, the Health Care Portability and
Accountability Act of 1996 (HIPAA) continues to influence the operations of many
health plans seeking compliance. According
to a study by PricewaterhouseCoopers,
HIPAA is responsible for adding billions of
dollars of new compliance costs to the health
care system. Besides HIPAA, there are more
than 1,500 mandated benefits at the state and
federal level. Each of these has a cost associated with it, and together they have had a significant impact on health care costs.
How have new medical technologies affected
health care?
Life expectancy and mortality rates in the
U.S. are steadily improving. Developments in
medical technology, including methods for
early detection of disease and the introduction of new treatments and medications for
acute illnesses have played a major role in
enhancing these statistics. These new procedures come with hefty price tags and are
influential in driving overall costs of health
care — and the cost of benefits — upward.
You, like other employers, are undoubtedly
trying to determine how to keep accelerating
health plan rates from having a serious financial impact on your company. Contact a
strong employee benefits agency or broker to
help your company implement more consumer driven plans. The introduction of
increased coinsurance and higher deductible
health plans can help make employees more
conscious consumers of their health care and
allow employers to continue to offer valuable
workplace benefits.
ISAAC SAPOZNIK is an agent with Sapoznik Insurance. Reach him at (305) 948-8887 or [email protected].
