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Despite double-digit increases in health plan costs, there are some steps employers can take to try to minimize their impact. However, “rising health care costs did not occur overnight,” notes Ron Fontanetta, a principal and senior health care consultant at Towers Perrin, who says that the “current health care cost squeeze has been several years in the making and it will take at least that long to fully correct.” Fontanetta sees both good news and bad news arising out of the current state of health care. The bad news. Despite significant differences in per capita health care expenditures, many employers have not benchmarked their own plans’ performance against those of other employers. Without this health plan cost benchmark information, employers will have trouble picking an appropriate health care cost strategy and program interventions, Fontanetta suggests. Employers are also feeling cost impact as hospitals and doctors become increasingly savvy in their negotiations with health plans. The recent wave of consolidations has increased hospitals’ leverage within the health care marketplace and these hospitals are negotiating aggressive arrangements with health plans. Similarly, physicians have increased their fees. These cost increases are being borne, at least in part, by employers. There is a lack of employee understanding as to the cost/value of employer-provided health care benefits. “With employers paying 80 percent to 90 percent of the cost of most services, employees are not sufficiently motivated to discriminate in their choice of providers or services having significantly different prices for comparable medical interventions,” says Fontanetta. The good news. Today, there is more and better information than ever before about what is driving individual employers’ health care costs. “Employers now have the information they need to benchmark competitive cost and service quality experience against a comparative group. They also are better able to track employee program usage,” notes Fontanetta. Beyond better information, employers now are able to leverage today’s improved technology to communicate with, educate and empower employees regarding treatment alternatives or provider choices. Employers are also able to retain significant latitude in terms of rethinking program design and how they define their financial commitment toward health care. FOUR KEYS TO EFFECTIVE HEALTH PLAN COST MANAGEMENT Fontanetta identifies four key areas that are vital to effective health care cost management. They are: 1. Financial Management and Design. Employers must decide on the best way to allocate their health care dollars. Decisions that need to be made include how to allocate health care dollars among their different employee populations (e.g., active employees, dependents and retirees) and what plan designs are most appropriate in today’s health care environment? With regard to the plan designs issue, employers need to consider what type of incentives they should offer employees who adopt certain behaviors (such as using lower-cost drugs rather than heavily advertised and expensive name-brand drugs.) 2. Vendor Management. Employers must also decide which vendors they should align with. They should explore the vendor’s competence in areas such as e-health, clinical interventions, provider negotiations, employee communications, claims processing and service support. 3. Consumerism. If employers want their employees to assume part of the responsibility for their health care decisions, they need to educate and enable employees with tools and timely disease-specific data, coupled with appropriate plan design incentives. 4. Focus on Chronic Conditions. Employers can realize a return on investment (ROI) by focusing on those chronic conditions that result in inordinate expense for a relatively small number of cases and developing strategies to effectively manage these conditions. Short-term health care cost management tips. As companies embark on more aggressive health care cost management strategies, Fontanetta offers the following tips: � DO make sure that costs are shared in an equitable, affordable and meaningful way that encourages appropriate medical usage. � DO utilize information technology to its best advantage. � DO keep things simple and consistent. Employees can accept what they can understand. � DON’T scrimp on communication. Insufficient employee communication often leads to lack of understanding of program benefits, which results in general dissatisfaction. � DON’T set unrealistic expectations for employees. Let them know what’s coming and when. No surprises. � DO focus on safety, wellness and clinical quality initiatives. They are a smart investment with attractive returns for most employers. � DO help employees take increasing responsibility for their health care decisions. Be sure to give them the information and tools they need to act. “Managing health care costs requires change. And changing behavior takes time,” notes Fontanetta. “It does not happen overnight or in a single annual cycle. But the sooner you start, the sooner you will begin to see improvement,” he emphasizes. � 2002, CCH INCORPORATED. All Rights Reserved.

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