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.
In March, 2010, Peter Duncan from Sidles Duncan Insurance answered the question in our free monthly training webinar, and offered employer-based solutions to mitigate the increasing costs of medical insurance.
Why are medical costs so high?
Mr. Duncan presented many reasons:
- 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 healthcare 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 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
Mr. Duncan reported that 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 Onsite Health Screenings 55%
- Would Use Work Site Fitness Centers 59%
Considering this positive wellness attitude 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 onsite 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.