The Rising Cost of Benefits in America - Case Study Example

The Rising Cost of Benefits in America [INSERT HERE] [INSERT HERE] The Rising Cost of Benefits in America The rising cost of healthcare benefits in the United States may be a “prescription for bankruptcy” (The Economist, 2011). In the last two decades, the cost to employers to offer benefits to employees has continued to increase. In 2001, employers saw an annual increase of approximately 10.2 percent, rising to 12.6 percent in 2004 (Weatherly, 2004). Recently, according to Miller (2010), the cost of benefits increased 7 percent in 2010 and is estimated to increase by 8.9 percent for 2011, in spite of proposed legislation and innovative strategies implemented at the Human Resources (HR) level within large organizations across the country (Weatherly, 2004). Historical View Although the costs of healthcare have consistently risen over the last twenty years, the recent increases pale in comparison to tremendous spikes during the 1980s. According to Weatherly (2004), “[p]er capita health care spending increased by 156% from 1980 to 1990, while spending from 1990 to 2000 increased by less than half that amount” (p. 2). It seems strategies have changed today, from the 1980s, when employers absorbed a vast majority of cost increases. The recession of 1991 set employers back, yet health maintenance organizations (HMOs) had a stronger presence, providing economic relief to a certain extent. During that period, HMOs are reported as being a major factor in the decelerated rising costs. Today, employers are faced with a once more weakened economy and steep costs associated with providing benefits. The present difference is the extreme competition within many industries, which makes it hard for organizations to pass costs onto their customers. Consequently, the employee responsibility is increasing, causing them to absorb more of the cost, reducing their overall income (Weatherly, 2004). Additionally, managed care organizations no longer have the pull they once had as preferred provider organizations (PPOs) and HMOs have recently been mandated to lower restrictions to offer consumers a greater choice and flexibility (Weatherly, 2004). Who is to Blame? There is no doubt that healthcare in America is presently at a turning point. Major consulting groups, the mass media, and healthcare experts have expressed similar research findings; according to Weatherly (2004), “health care costs are a critical or significant concern to the overwhelming majority of CEOs, Chief Human Resource Officers (CHROs) and other business leaders” (p. 2). Weatherly (2004) reports on surveys conducted among HR leaders and healthcare experts throughout the country, which convey a single ideology—employees and employers, when working together, can reduce the cost of healthcare. Specifically, “depending on the specific health care specialty area, between 83% and 96% of employers believe that employer and consumer decisions can have a significant or moderate impact on cost” (Weatherly, 2004, p. 2). Healthcare benefits have been the topic of heated discussion in recent months. Many Americans have voiced concern over the dire situation that the country is currently facing. Weatherly (2004) estimates organizations spend $300 billion each year on providing health insurance for current employees, their dependents, and retired employees. Until 2011, a majority of employers did little to reduce benefit plan coverage and counteract the rising costs. As of 2004, plans offered by employers were relatively stable. Innovative benefit strategies and revamps of overall design were rare to non-existent (Weatherly, 2004). Innovative Strategies Recent reports by HR leaders to assist in offsetting the rapid increase in costs include premium cost shifting from employers to employees, raised deductibles, prescription programs (generic and mail-order), and increased cost-sharing with patients. As mentioned, healthcare costs are expected to climb another 8.9 percent in 2011 and experts expect annual increases into the near future (Weatherly, 2004). Without real reform, the relentless costs will continue to have a negative effect on employee compensation and the overall economy. The following section summarizes some of the popular, innovative HR strategies Weatherly (2004) has researched to manage benefits costs and concurrently retain the value of benefit plans. Insurance Company “Captives” for Benefits An insurance company captive is a child company formed for insuring or reinsuring the risks associated with the parent company. In the conventional insurance market, organizations use captives to save on costs in the realm of the insurance community. While captives have been around since the 1960s, the United States Department of Labor severely restricted their use until recently. The way captives work in controlling benefit costs is the insurance company is created as a child company of the parent organization as an approach to controlling the costs of insurance. Generally, organizations having more than 1000 employees find this option beneficial (Weatherly, 2004). Regional Health Care Quality Initiatives / Affordable Health Care Solutions Coalition As of 2004, more than 50 large organizations joined forces to provide approximately four million uninsured Americans in the workforce access to affordable healthcare. As part of a broad effort to incorporate standards related to healthcare providers’ performance, it serves to assist consumers in selecting providers and facilities. The two coalitions are led by the HR Policy Association, which is made up of more than 200 executives from the largest companies in the United States. The goal of the coalitions is to create alliances between large employers, healthcare providers, and healthcare facilities. The three-way alliances will help work toward closing the gap of working Americans without healthcare protection or those who are ineligible for participation in their employers’ sponsored programs (Weatherly, 2004). Premiums as a Percentage of Pay There has been recent concern, with the rising amount of healthcare costs shared by employees, that it will impossible for Americans to afford participation in employer sponsored programs; particularly for employees at or near minimum wage. An innovative strategy that employers have begun to focus on is cost sharing based on a percentage of the employee’s compensation. Weatherly (2004) reports that only a small number of employers have considered going this route, but it is expected that it will become much more popular over the next several years. Weatherly (2004) states “[t]his trend is supported by the evolution of benefit administration and payroll systems that can more easily manage the complexities of this approach” (p. 5). Higher Deductibles and Variable Copays Many employers agree that physicians, healthcare facilities, and consumers are ultimately responsible for the direction of healthcare decisions. Experts are exploring financial incentives, restructured networks, and co-pays as a means of influencing the decisions of American consumers. Raised deductibles and variable co-pay strategies have begun to replace primary care physicians as the preferred influential strategy in the consumer’s physician choice. Incremental co-pay strategies have become more and more popular for selected services such as urgent care, outpatient surgery, and care by a specialist. Conclusion Possibilities exist in the realm of HR that can lead to stabilization of rising costs to offer benefits to the American labor force. The last two decades have found employers delaying the inevitable, but the time is now, and changes must be made. The United States has come to terms with the runaway costs of benefits, and has realized the necessity of substantial healthcare for the overall future of the country. The current economic crisis may actually benefit the benefits situation, as the current environment will force new legislation (The Economist, 2008). No longer, will Politicians be allowed to hide behind pettiness and will are now required to provide real options for real reform. References Miller, S. (2010). Large employers project 2011 health plan costs to rise 8.9%. Society for Human Reource Managment (SHRM). Retrieved from http://www.shrm.org/hrdisciplines/benefits/Articles/Pages/2011PlanCosts.aspx The Economist. (2008). In need of desperate remedies. Retrieved from http:// The Economist. (2011). A not very happy birthday. Retrieved from http://www.economist.com/node/12432416 The Economist. (2011). A not very happy birthday. Retrieved from http://www.economist.com/node/18389179 Weatherly, L. A. (2004, September). The rising cost of health care: Strategic and societal considerations for employers. HR Magazine, 49(9), 1-10. Read More