Dealing with Rising Health Care Costs

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Dealing with RisingHealth Care Costs

• Carol Wilmes
• Program Coordinator
• AWC Employee Benefit Trust
• June 17, 2004

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Todays Agenda

• Trends Industry AWC
• Claims Cost
• Strategies to Change
• Preparing for the Future
• The Good News Health Productivity Management

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Association of Washington Cities Employee Benefit
Trust

• AWC member service Benefit Pool
• 280 participating employers
• 15,000 employees
• 32,000 family members
• 7 areas of employee benefits
• 120 million annual premium

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Key Benefit Issuesof Local Government

• Diminishing budgets due to initiatives
  shrinking revenues
• Community demands to provide/maintain quality
  services
• Union negotiation demands constraints
• Increasing health care costs
• Keeping/attracting quality staff with strong
  benefit package

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Why are Medical CostsGoing Up?

• Changing demographics
• Rising drug costs utilization
• Rising physician hospital fees
• State federal mandates
• Government cost-shifting (Medicare)
• New, more expensive technologies treatments

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AWC Demographics

• AWC Demographic Study July 2001 July 2004
• 9 enrollment growth 1999 v 2000
• Average age decreased
• 42 for female
• 43.5 for male
• Female enrollment increased over 25
• AWC enrollment differs considerably from national
  norms.
• AWC employer contributions as a of premium more
  generous than national norms.

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Enrollment Comparison with National Regional
Statistics
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AWC Medical Claims Trend

• Industry trend 16
• AWC trend 11.5
• Claims cost
• Prescriptions 22
• Physicians 34
• Hospitals 31
• Year-End 2001 12.6 deficit (5.7m)
• Year-End 2002 7.4 deficit (4.6m)
• Year-End 2003 3.3 deficit (2.6m)

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Prescription Drug Costs

• Highest inflation factor
• Is Canadian threat working?
• Unknown impact of Medicare Act 2004
• Most talked about area for change

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Physicians Hospital Networks

• Network discounts can save as much as 40-45 of
  submitted bills
• Escalating pressure to raise allowed fees
• Reasons?
• Litigation Malpractice insurance rising
• Overhead
• Business decisions
• Increasing personal income

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State Federal Mandates

• HIPAA compliance
• Privacy regulations 4/03
• Electronic data standardization 10/03
• Medicare Act of 2004
• Voluntary Medicare Rx Program
• High Deductible Medical with Health Savings
  Account
• Retiree health care
• Local government provide access to group health
  retiree plan
• Unless documented failure to obtain insured
  retiree plan

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Guaranteed Formulato Effect Benefit Change

• Shrinking Revenue
• Flat Economy
• Multi-Year, Double-Digit Medical Rates
• Benefit Change

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Strategies for Change How To Determine Your
Best Approach

• Every jurisdiction is unique, but
• There are common denominators
• Finances
• Labor Contracts
• Elected Official Accountability
• Benefit Philosophy or Worksite Culture

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Your Best Approach (cont.)

• Meeting of the minds to determine your best
  starting point
• Benefits Committee
• HR Driven
• Management Team
• Consultant Driven
• Establish goals benefit philosophy

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Your Best Approach (cont.)

• Why are WE talking about benefit change?
• Strong financial picture forecasting
• Do you have a deadline? Develop action plan
  timeline

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Your Best Approach (cont.)

• Invite neutral outside consultants/ staff to
  address work group
• Must be a multi-year strategy
• Communication is Key!

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Benefit Change The Union The Quintessential
Balancing Act

• The art of negotiating agreeable benefit change
  that addresses budget issues while avoiding
  grievance or ULP

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What Kinds of Benefit Change?

• Change insurance carriers
• Change funding arrangement (from self-insured to
  fully insured)
• Develop dual coverage policies
• Increase copays or deductible (i.e., move from
  Plan A to Plan B)
• Increase employee contribution to premium
• Cap employer contribution

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Enrollment Shift
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AWC Cost Containment Efforts

• Contracted providers
• Regence
• Group Health
• Lowest administrative fees
• Lowered ISL premium with higher cap (250K to
  500K)
• Built EAP into Regence
• Strong commitment to health promotion
• Identified high risk voluntarily reduced claims
  by 6.3
• Lessened absenteeism