Watching Health Care Costs

English: President Barack Obama's signature on...

English: President Barack Obama’s signature on the health insurance reform bill at the White House, March 23, 2010. The President signed the bill with 22 different pens. (Photo credit: Wikipedia)

I know in my own company and that at every one of my clients that health care costs are a big concern. We have gone through a decade long period where the inflation in health care costs has been in the double digits each year, much faster than any other of the costs we face.

The rate of inflation of health care costs nationwide has finally slowed. This year the nationwide rate of health care cost increase is expected to be at 5.5%. Next year the prediction is for 4.5%. Both of these rates are still higher than inflation, but a welcome relief after years of really large increases. I know in my own firm, which has been around for fifteen years that health care costs per employee have nearly tripled since we opened for business.

And those current inflation rates do not tell the true story for many firms. The 5.5% increase in health care costs this year reflects the cost of health care to employers, not overall insurance costs. And so the slower rate of health care inflation is due in part to companies are pushing higher deductibles and copays to employees as a way to keep their share of health insurance under control. Last year the amount of copays by employees rose 13% which shows that the overall increase in health insurance was a lot more than the published 5.5%.

There are some trends in the industry that hint at a possible slowing in the cost of health care. For example, there is a large industry now of out-patient health clinics that charge as much as two-thirds less than a normal doctor. There is hope that the large statewide pools that are being created under Obamacare will lower overall insurance premiums by bringing more young people (and healthier people) into the insurance pool.

There is also becoming a bigger emphasis in many health care plans of preventive care, meaning that many ailments will be nipped in the bud before they become big problems. Over time preventive care will significantly lower overall health care costs.

And hidden underneath all of these numbers is the very numbing statistic that 30% of our nationwide health care each year is spent for the process of people dying in hospitals and hospices. In recent years just about two-thirds of people die in an institution rather than their home. But this is down ten percent over a decade ago. Almost nobody wants to die in an institution and perhaps as a country we will be able to find a way to allow more people to die at home.

But for most of my clients, even if health care cost inflation slows to 4% – 5% they are facing an ugly future. Trend those increases out ten years and see if you aren’t very concerned.

There is also something to keep in mind which is that in 2018 there is going to be a tax on ‘cadillac’ health care plans. These are plans today that would cost over $10,200 for an individual or $27,500 for a family. That may sound like high caps, but these amounts count the contributions made by both the company and the employee. The tax is a whopping 40% charged to the employer on anything over the cap.

The average health care insurance cost for last year was $10,522, so there are already many plans that would be considered Cadillac. These amounts will be increased over time by inflation, but if health care costs continue to climb faster than the rate of inflation, then more plans each year will fall under the premium category and incur the premium tax.

I know that all of my clients want to provide good health care to our employees. The decision to increase copays or deductibles is a painful one for all of us. There are a few creative ideas that some companies are trying that are worth considering. One of the most interesting is the idea of handing your employees the money to buy their own health insurance. There are now ways to do this as a defined health care plan. Since having health insurance is mandatory for employees in 2014 you need to demand proof that an employee is really using the money for health care. But companies who try this say that their employees are finding ways to get cheaper plans than they could buy at the company level.

The bottom line is that health care costs are going to continue to increase faster than the rate of inflation. Add to that the worry of crossing the premium tax threshold and it is going to get harder and harder for you to pay for your employee’s health care costs. I wish I had some magic bullet to recommend, but for now the best I can offer is to do the math and see if there is anything you can do to keep this under control at your own company.

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