ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Tuesday, March 4, 1997 TAG: 9703040046
SECTION: EDITORIAL PAGE: A-5 EDITION: METRO
SOURCE: DANIEL J. BASES
THE GOOD news about U.S. health-care costs is that they're expected to go up less this year.
The bad news is that the slowdown in the rate of growth isn't expected to last much longer. The major reason for the moderate rate of growth continues, as well as intense competition in the industry.
According to the ``1997 Health Care Cost Survey'' by Towers Perrin, a benefits consulting firm, the average annual cost to employers for health-care coverage of an active employee is expected to rise 3 percent to $2,352 ($196 a month) this year. Last year, the rate of increase was 4 percent.
For retirees under the age of 65, the employers' cost of coverage is $3,048. The cost of covering those over 65 drops to $1,524 as Medicare kicks in. However, this represents a 7 percent increase over last year, largely because of rising prices for prescription drugs.
Costs are going up for individuals, too, rising an average of 6 percent for active employees. The forecast for retirees is a 20 percent increase.
So where are the savings? In the health-maintenance-organization plans.
Employers will pay $157 a month to cover an individual employee through an HMO. That's a savings of $39 a month when compared with a standard indemnity plan. For a Medicare-eligible retiree, the cost is $89 a month, which saves employers roughly $38. If the retirees join Medicare-Risk HMOs, as they are being encouraged to do, the monthly cost for an employer drops to $30 a month.
Because an HMO contracts with the government to provide Medicare benefits to Medicare-eligible retirees at a fixed premium, HMO plans are expected to help the federal government save $38 billion over the next five years. Since this process is new, the cost savings are significant. However, as Barry Bosworth of the Brookings Institute points out, ``The slowdown in cost increases is a one-shot phenomenon.''
``The changes being made now in health-care financing are not repeatable,'' he says. ``Moving to the HMOs reduces costs, and that lasts only as long as the transition from traditional indemnity plans to managed care.''
This is a reality that has not gone unnoticed by the business community. ``A lot of the savings have come from price competition and plans putting more pressure on health-care vendors [hospitals, equipment suppliers, drug companies] to drop their prices,'' says Sean Sullivan, president and chief executive of the National Business Coalition on Health.
Once these costs are rooted out of the system, the plans' charges are expected to increase in order to make up for currently lean profits.
In addition, rising administrative costs are eating into a hefty portion of the savings that companies are racking up today.
When plan costs start to rise, savings will be even smaller. According to Towers Perrin, employers are not making efficient use of the plans they have in place.
A 12 percent rise in the administrative costs of running these proliferating plans is cutting into the bottom line. With one-fifth of survey respondents indicating that they offer more than 20 HMOs nationwide, it's no wonder the cost savings are shrinking.
Corporate America was found to overpay many inefficient plans. ``Only 36 percent of survey participants make adjustments in their HMO contributions to reflect plan design, demographic and geographic variations,'' the survey notes.
The lack of adaptability on the part of business in their approach to HMOs is troubling. ``There is no level playing field when surveying health-care costs,'' says William Falk, a Towers Perrin principal and the lead author of the study. There are tremendous differences in cost in different parts of the country.
And there are differences in quality, too. There are no universal scorecards measuring the clinical quality of individual plans and matching them against each other.
That's still in its infancy, according to Falk. But the survey found that a majority of companies were willing to spend time and money trying to weed out the good from the bad.
For businesses, it's a question of growing importance. ``Quality measurement is one of our major focuses. If we don't make this into a value-based system, then I'm concerned about the system breaking down,'' says Sullivan of the Business Coalition.
The federal government thought the system had already broken down. The controvery over ``drive-by babies'' (mothers being sent home less than 48 hours after giving birth) was something the insurance businesses and HMOs could stomach, but government could not.
It prompted President Clinton to sign the Newborns and Mothers Health Protection Act of 1996 last September. The law guarantees coverage will be paid for 48 hours after natural birth and up to 96 hours after a caesarean section.
While the slowdown in the rate of growth of health-care costs isn't expected to last much longer, it's important that we not lose sight of the fact that health care, at its core, is a humanitarian endeavor.
Daniel J. Bases is a business writer based in New York.
- Knight-Ridder/Tribune
LENGTH: Medium: 94 lines ILLUSTRATION: GRAPHIC: D.B. JOHNSON/L.A. Times Syndicateby CNB