Why are health care costs so high? This question has been asked by individuals and employers for many years, but over the past 6 months, the question of rising health care costs has stolen the spotlight away from almost every other domestic agenda topic.
Why are medical costs so high?
Many reasons are given, but ultimately, the “wellness” of an employee population will have the greatest impact over time on the premiums an employer will pay. Reasons for the rising cost of health insurance include:
- Prescription drug spending increased from $216.7 billion in 2006 to $515.7 billion in 2017, a 138% increase.
- Increased utilization: consumers are more aware of new procedures and technology, and are using them at record rates.
- New medical technology for the early detection of disease, new treatments, and medications for acute illness has increased.
- Demographics: the population continues to age
- Population health status continues to deteriorate
- Impact of the recession on medical costs:
- Aging workforce: 33% of workers age 55-64 postponed retirement
- Unemployment March 2009: age 20-24 increased 14%, 55+ increased 6.2%
- California Unemployment increased 62% in the last year.
- COBRA Subsidy: enrollment increased from 19% to 38% of eligible
- COBRA Utilization: 150% of premium
- Consumer anxiety increases utilization
The Deteriorating Health of the U.S. Population
Over the past half century, there has been a clear and significant decline in the level of health amongst the population. Consider the following shocking obesity and diabetes statistics:
Obesity trends from 1985 to 2008: In 1985, only 8 states showed 15% of the population suffered from obesity. By 2008, over 25% of the population in 50 states was over the obesity level!
Diabetes: only two million workers suffered from diabetes in 1958. By 2006, the number had increased to 17.5 million.
The Cost to Employers
According to the Mercer 2006 Employer Annual Survey, healthcare costs to employers are estimated at $13,500 per year, per employee. That is made up of only $3400 in direct health care costs, while $10,100 is estimated in productivity loss. Specifically in the area of smoking, smokers cost employers over $4000 per year, compared to only $1700 for non smokers. The total of lost productivity is estimated at $80 billion per year.
Ultimately, an unhealthy workforce will lead to higher premiums for the employer. According to the 13th National Business Group on Health/Watson Wyatt report 2008, healthy companies experience an average annual health cost increase of 1%, compared to 10% by “unhealthy” companies.
It is clear that a healthy employee population will not only impact an employers direct insurance costs, but will also lead to increased productivity and reduced absenteeism.
The Role of Wellness
87% of health care costs are due to lifestyle choices. Overall, there is a very positive attitude of employees towards wellness programs at work:
Of employees polled:
Would Work with a Health Coach 49%
Would Enroll in a Weight-Management 53%
Would Get On-site Health Screenings 55%
Would Use Work Site Fitness Centers 59%
It’s time to improve the wellness of your organization.
According to the PBP 2010 Executive Report, The New Healthcare Law – What Every Employer Must Know, a priority of employers in light of the upcoming changes to healthcare delivery should be improving the health of their employees. Indeed, the new law offers incentives for employers who wish to offer gym memberships, smoking cessation classes, or similar health-oriented programs (details will be covered in a future post).
Considering the positive wellness attitude mentioned above, companies should implement the following six areas to improve the lifestyle of their employees and the overall health of their organization:
- Develop a Strategic Plan
- Ensure that you have the right mix of interventions
- Develop a communication plan to maximize engagement
- Use incentives to engage members
- Provide the right tools to make good health care decisions
- Use on-site wellness programs to increase awareness
CPEhr provides on-site benefits consulting and can assist in creating and implementing a Wellness Program for your company. Contact your Employee Benefits representative for more information.
Source: Peter Duncan, Sidles Duncan Insurance, Value Based Employee Benefit Management, March 2010 Webinar