EXPECTATIONS that health insurance premiums will increase by an average of 12% to 15% for 2004 have captured plenty of media attention recently.
Employers and health insurers are currently negotiating premiums for 2004. There is consensus among healthcare experts that 2004 will be the fourth consecutive year of double-digit increases in healthcare costs.
For the laboratory industry, the big story is not the simple fact that healthcare costs will increase by double-dig- its again. Rather, the main impact of these upward-spiraling healthcare costs will be fundamental changes in the health benefits offered by employers to their employees and dependents.
More Out-Of-Pocket Costs
The common denominator in this trend is that employees will be paying more money out-of-pocket to support and supplement the health benefits package they receive from their employer. After analyzing early examples of such benefit reforms by large employers, one conclusion is that more consumers may be required to bear a larger portion of laboratory test costs in coming years.
If this occurs, it will mean that consumers will have both an economic and a quality incentive to make their own choices about which laboratory they want to do tests for themselves and their family members. One good example of this trend is the requirement that employees pay a deductible or co-payment for hospital care. This feature was uncommon just a few years ago. For 2004, a recent study by Kaiser Family Foundation determined that four out of ten health plans now require a deductible or co-payment for hospital care. The same is true for prescription drugs.
For 2004, the study found that 65% of employers increased the amount that their employees pay for insurance, while 47% raised employees’ required payments for prescription drugs. Deductibles and physician office co-payments were increased by 34% and 34% of employers, respectively.
One of the more profound trends involves how employers are targeting spouse and dependent coverage. Some corporations have determined that the bulk of healthcare expenses often come, not from care provided to their employees, but from their spouses and children.
To better manage expenses, companies are taking three approaches to the spouse/dependent situation. One approach is to charge the employee more to include healthcare coverage of the spouse and dependents on the primary health policy. Boeing Corporation is one company which implemented this policy.
A second approach is to charge additional monthly premiums if an employee’s spouse declines to take the healthcare coverage offered by their own employers. The third approach is to use tiered-pricing to reflect the additional healthcare costs incurred by large families versus smaller ones. GE Corp. instituted tiered pricing recently.
Employees Will Pay More
Collectively, employers are utilizing these and other strategies to shift more of the cost of healthcare onto the employee so as to minimize the year-to-year increase in the cost of healthcare benefits. In tandem with these changes is a trend to increase flexible spending accounts provided to employees.
THE DARK REPORT believes that one consequence of these ongoing changes in healthcare benefits packages will be to increase the incentive of consumers to make their own decisions about which laboratory should perform tests for themselves and their family. There are two reasons for this to happen.
First, consumers are already becoming healthcare-savvy. They are taking a more active role in their healthcare. Consumers educate themselves extensively about their specific health condition, or those of their elderly parents or children. Consumers are seeking out physicians which have a better reputation for quality care, sometimes traveling thousands of miles to consult with nationally-recognized doctors.
Add an economic motive to this scenario. As employers require larger amounts of money to be spent to meet deductible requirements, co-payments, and out-of-pocket costs, consumers will become economic buyers. They will want to spend this money in a cost-effective fashion and they will want to know they are getting a high quality for their healthcare dollar.
Evidence of this phenomenon can already be seen. Certain companies, such as BellSouth Corp. and Perot systems, are giving their employees a debit card that allows them to take money directly out of their flexible benefits medical account. The goal of the debit card is to make it easy for the employee to spend the money on medical services. That’s because one problem with flexible spending accounts is that a low proportion of employees chose to enroll in that option, since they must often pay healthcare expenses with their own money, then wait for reimbursement from the company.
For employers, there are tax advantages in providing employees with debit cards linked to flexible spending ac- counts. Currently only 400,000 people in the United States use such cards. But a favorable ruling by the IRS earlier this year is sparking renewed interests. Estimates are that, by April, 1.5 million people will have these debit cards.
Taken collectively, the impact of four consecutive years of double-digit increases in healthcare costs seems to be a cost-shift from employers to employees. These changes will motivate consumers to select providers and pay for healthcare services with more care and diligence than in either the fee-for-service world of the 1980s or the gatekeeper-model HMO of the 1990s.
Opportunity For Labs
This trend will favor clinical laboratories and pathology group practices which begin to include patients (consumers) in their strategic thinking. By offering laboratory testing services that meet the needs of consumers, as well as physicians, forward-thinking laboratories should gain competitive advantage. As these trends unfold in the marketplace, it will restore power to laboratories that was co-opted by managed care companies during the past decade.