Taking Health Care Head-On
While worries about the economy might currently trump health care as a concern for most Americans this election season, the two issues remain closely intertwined. And health care continues to be top of mind for employers.
According to Centers for Medicare and Medicaid Services estimates released this February, the U.S. workforce can expect average annual increases of 6.7 percent in health-care spending for the next decade, a pace that will double national health-care spending by 2017 to more than $4 trillion. The center's forecast factors in higher prices, an aging population, and an increased demand for care.
Meanwhile, the February 2008 report by the Center for Retirement Research, "Health Care Costs Drive Up the National Retirement Risk Index," notes that escalating health-care costs are also putting more retirees at risk for not being able to maintain their standard of living in retirement. When rapidly rising health-care costs are factored in to national retirement risk index calculations, the number of households deemed "at risk" swells from 44 percent to 61 percent.
While estimates vary as to how much an individual or couple may need to have saved to cover medical expenses once retired, the figures are sobering. A study by Fidelity Investments released in March 2008 states that a retiring couple would need savings of about $225,000 to cover medical costs once retired. A more conservative, albeit still daunting, figure released in February by the Center for Retirement Research at Boston College put the cost at $206,000 for a couple to ensure health-care coverage. A 2006 study by Employee Benefit Research Institute eclipses both those sums. The EBRI study showed that a couple, both age 65, retiring as of July 2006 and living to average life expectancy might require $295,000 to cover health insurance premiums and out-of-pocket expenses. Live to 95 and those required savings jump as high as $550,000.
Low Consumer Confidence
What's a worker to do in the face of health-care cost increases that continually surpass the rate of inflation and usually outpace pay raises? According to EBRI's 2007 Health Confidence Survey, a significant percentage of workers with health insurance who have had to shell out more for their health care report specific actions they've taken to help cope with higher costs.
- 81 percent said they try to take better care of themselves, up from 57 percent in 2005.
- 66 percent talk to their doctors more carefully about costs and treatment options, up from 57 percent in 2005.
- 64 percent visit the doctor only for more serious symptoms or conditions, up from 54 percent in 2005.
- 50 percent delay visiting the doctor, up from 40 percent in 2005.
- 28 percent either don't fill or skip doses of prescribed medications, up from 21 percent in 2005.
The survey also indicates that this group reported negative impacts on household finances, most often resulting in decreased contributions to savings (52 percent) and retirement (30 percent), but also difficulty paying bills (36 percent) and buying basic necessities (29 percent).
EBRI's just-released 2008 Retirement Confidence Survey draws an even stronger connection between health-care concerns and economic woes. According to the 2008 survey, the 18th annual survey, nearly half of retirees (44 percent) have spent more than they expected on health-care expenses, and more than half (54 percent) say they are more concerned about their financial future today than they were when they first retired. That's up 14 percentage points from only one year ago. As for current workers, the percentage that expects to have access to employer-paid health insurance in retirement dropped from 42 percent in 2007 to 34 percent this year. Concerns about health costs combined with worries about the economy and falling home values have resulted in the lowest level of confidence in seven years, cutting across all income groups and age levels. This year's survey also saw the biggest single-year drop in the survey's history with regard to the percentage of workers who say they are very confident about having enough money for a comfortable retirement, down 9 percentage points from 27 percent in 2007 to 18 percent in 2008.
How are institutions responding? As colleges and universities continue to grapple with the challenge of remaining competitive with an attractive benefits package for employees, more are focusing on specific measures to benefit the institution and its employees. Approaches include gaining a better understanding about employee sub-populations and their specific needs and potential risks, educating employees about their benefits, pushing wellness and prevention to avoid large and unnecessary claims down the road, using norms and data to adjust coverage, and helping employees understand their need to save for future retirement medical costs.
With the boomer generation slowly rolling into retirement and a younger demographic of employees moving into the higher education workforce, there is good reason why communicating health benefits to employees may seem a lot more complex these days. At Aetna, customer segmentation is a first step to understanding the specific health-care needs of various worker segments, including best ways to communicate benefits to different groups of employees.
Segmentation is also necessary to understand how to attend to higher-risk populations. For instance, along with an aging workforce comes greater numbers of employees who may have one or more chronic conditions. Knowing your audience and claims history allows you to focus on specific areas that are most prevalent and costly to your institution, whether that is diabetes, hypertension, or high cholesterol, says Bob O'Brien, Aetna's national practice lead for higher education. "Taking a census of employees can help institutions provide better messaging about wellness measures that employees could take to mitigate the prevalence of common illnesses and disease." (See companion article, "Segmenting Risk," in this issue.)
Understanding the prevalence of certain illnesses and conditions among your employee population also allows an institution to develop programs and tools to help employees manage a particular condition. That may take the form of access to online programs to assist with weight management. Or it could mean setting a plan design so that if there are certain medications critical to an employee's condition, you eliminate any financial barriers for an employee to stay on top of his or her disease or illness, since individuals who don't take care of conditions early on can become seriously ill, notes O'Brien.
Targeting messages to your youngest cohort may be just as important, notes O'Brien. "If you can get them engaged early in good nutrition and exercise, over time that can have a dramatic effect on lowering your overall risk profile, which can translate into lower rates for all employees."
Also important to understand is that different benefits within your package will appeal to different employee segments. The importance of segmentation in this regard is to target messages to specific groups based on what they most need to know to be healthy by making better use of their benefits. "The goal is to engage employees to be active in their own health care," says John Cheng, Aetna's vice president of marketing.
"It's not about changing the benefit being offered to the collective group but customizing your message to appeal and engage different groups," adds O'Brien. "Ultimately, you want all groups to understand the value of their benefits."
When an institution engages in segmentation and begins thinking about tailoring specific messages to different audiences, it may help to focus first on either your largest segment or your most at-risk group of employees, says Cheng. Since most employees aren't aware of their full range of benefits and probably use only 20 percent of plan offerings on average, you may want to target a particular benefit for improvement and then communicate the incentives for employees to participate, adds Cheng.
Part of any message should include communicating the value of the benefit to help employees understand drivers that increase costs, including lifestyle choices, diet, and exercise, says O'Brien. "There should be full transparency around costs, for employers and employees, so that everyone has a better understanding about costs and can make choices accordingly." (See companion article, "Modeling Costs, Pushing Prevention," in this issue.)
3. Wellness and Prevention
One message getting more attention on college and university campuses these days centers on wellness and prevention, since a healthier workforce is also more productive and less costly to insure. Yet, one obstacle for many employees may be the convenience factor—having time to schedule fitness into their hectic days.
As part of its wellness program, Texas A&M University-Corpus Christi instituted a lottery system to award 25 employees each academic semester with 30 minutes of additional excused time off during their lunch hour, three days a week, to exercise or attend a fitness class. Employees spend one-on-one time with personal trainers and also meet as a group to talk about wellness issues, monitoring progress toward personal goals throughout the semester.
"We try to make wellness opportunities as convenient for employees as possible to encourage more to participate," says Kathryn Funk-Baxter, associate vice president for finance and administration. The university also offers an annual health fair at which all students, faculty, and staff can be tested for glucose levels and blood pressure. On-campus disbursement of annual flu shots is offered at minimal cost at the beginning of each flu season. And, space is provided for various support programs such as Weight Watchers to meet on campus at a convenient location and time for employees.
4. Risk Management
From a strategic-planning standpoint and from a health-and-wellness perspective, it's important to look to industry norms and how your employees compare, says Brian Gutierrez, vice chancellor, finance and administration, Texas Christian University, Fort Worth. TCU has entered a new level of strategic health-care assessment, applying a risk management approach to health care and using metrics and annual loss runs to drive decisions about benefits.
"We've spent the past two years working with our broker and carrier to identify cost drivers to determine where we are in relation to national norms and where our claims tend to cluster within our population so that we can better address the specific health-care needs of our workforce," explains Jill Laster, TCU's associate vice chancellor, human resources and risk management.
By comparing data sets that include claims drivers, average age of employees, and so forth, the university can better assess if what it currently provides in its underlying coverage to help employees with diabetes, high blood pressure, high cholesterol, or other conditions is adequate for them to stay well. In some instances, data mining has led to specific adjustments. "In reviewing needs specific to faculty, many of whom are engaged in international travel, we realized that while our coverage provided care if employees became sick while overseas, it did not cover preventive inoculations before they left. After pleading our case to our carrier, we were able to update our coverage to include this important benefit," says Laster.
"Our approach is not to focus on amount of claims but on national norms and compliance of care," adds Gutierrez. In taking this direction, TCU first looked at the percentage of its employees that receive annual diagnostic exams, such as mammograms, or annual eye exams for diabetics. "We found we were below the national norm," explains Laster. Now, by trying to increase compliance with national norms and doctor directives, TCU focuses on optimizing around the cost driver elements associated with health care. "Currently we are taking a hard look at maintenance drugs to ensure compliance at early stages so that employees won't develop complications that later become disruptive to their health," says Laster.
5. Early Intervention
For many employees, financing general retirement security may seem challenge enough, but the reality is that workers must become more aware of the limitations of Medicare and more proactive in saving for their own future share of health insurance coverage and out-of-pocket medical expenses. While the message may have time to sink in for younger employees, some nearing retirement may have tough decisions to make about whether to retire before or after Medicare eligibility and lifestyle changes that may be required post payroll. This is already being evidenced within higher education, with more faculty members choosing to delay retirement or transition to a phased retirement.
Research from Emeriti Retirement Health Solutions shows that individuals at institutions with a significant post-retirement health insurance benefit retire 18 to 36 months earlier on average compared to peers from institutions that do not have a substantial post-retirement benefit. Emeriti, a three-year-old consortium of 52 member higher education institutions and related tax-exempt organizations, represents approximately 19,000 active employees and 1,900 insured retirees nationwide. The Emeriti program offers a comprehensive defined-contribution retiree health-care arrangement for higher education faculty and staff, combining tax-advantaged investment vehicles with tax-free distributions for group retiree health insurance plans integrating with Medicare and tax-free reimbursement of other out-of-pocket medical expenses.
According to Emeriti President Kenneth Cool, the current system in the United States doesn't do an adequate job of preparing employees to plan for the difficult decisions they will need to make about benefit coverage and other health-care costs once they retire. These include understanding differences between medical insurance options, how to coordinate supplemental coverage with Medicare, how to estimate prescription drug and other out-of-pocket expenses, and how to make informed decisions about long-term care.
"Most retirees face enormous sticker shock because they haven't been trained to understand the totality of health-care costs. People nearing retirement often don't understand that health care is such a large and increasing component of their overall retirement spend and are sometimes stunned to learn that health expenses might consume one quarter to one third of their retirement savings, especially as life expectancies continue to expand," says Cool. What tends to exacerbate the problem is that traditional defined-benefit plans don't prepare employees to think in terms of coming up with their share of overall costs, adds Cool.
In trying to control their exposure to rising insurance premium expenses, institutions tend to focus on that one item and don't often consider the strategic role of education in preparing individuals to plan and set aside assets for their comprehensive health-care needs in life after work, argues Cool. "That will need to change, for the benefit of employees and employers," says Cool. "Health care is always a partnership."
Karla Hignite, principal of KH Communication, is editor of NACUBO's HR Horizons. E-mail: firstname.lastname@example.org.