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Over the past 20 years, various models of managed healthcare (HMOs, PPOs, POSs) promised business owners some control over escalating costs. As employers embraced managed care and a majority of employees enrolled in these plans, costs and premium increases slowed, or at least moderated, these models seemed on the verge of fulfilling their cost-containment promise. Then, healthcare cost increases hit with a vengeance.

Today, the U.S. Department of Health and Human Services studies show:

• Health expenditures now are growing faster than the gross domestic product itself.
• In 2001 health expenditures totaled $1.42 trillion (up from $887 billion in 1993).
• Healthcare costs averaged $5,035 per person in 2001.
• In 2003, various studies showed an HMO and PPO premium rate increase of 10 to 20 percent.

Reasons For Cost Increases

Today's key cost drivers include:

• Surge in hospital, physician and laboratory expenses
• New government healthcare mandates and regulations
• Dramatic increase in consumer demand and utilization of healthcare services
• Increased life expectancy
• Medical malpractice litigation costs
• General medical inflation

What can be done to slow this cycle? There are areas where actions can impact costs:

• Prescriptions
• Hospital Costs
• Out-Patient Care
• Predictive Modeling
• Administrative Technology

Prescriptions

Many health-plan members -- due to their low out-of-pocket expenses -- remain largely unaware of the true costs of prescriptions. Yet this is an area in which patients and their doctors can easily (and painlessly) play a major role in managing costs, simply by prescribing and asking for less costly generic or over-the-counter drugs (when available) instead of brand name pharmaceuticals.

To this end, employers should look closely at cost-sharing elements in their current pharmacy plans. Low co-pays, while certainly a valued benefit, also are a major contributor to the alarming pharmacy trends we see.

A more balanced plan design with higher cost sharing for prescription drugs -- drugs that often cost much more than clinically appropriate alternatives -- is a fair and effective way to rein in costs without compromising clinical quality.

Hospital Costs

Furthermore, hospital costs, at approximately 35 percent of total expenditures, represent an enormous slice of the overall healthcare cost-quality equation. By the same token, this is an area in which considerable savings can be found.

A growing number of insurance companies are utilizing larger network hospitals and physicians to obtain increased discounts for their insureds. Through a disciplined "tiering" approach, these leading companies are able to isolate the highest-volume providers and develop specific contracting strategies to produce the very lowest rates for services.

Outpatient Care

Outpatient care is another area experiencing significant inflationary spikes -- annual increases of more than 20 percent have become the norm in recent years. But here, too, solutions can be found.

Several insurers have implemented national cost-saving programs focused on high-demand resources such as laboratory services, imaging, chemotherapy and home care. They're proving that new benefit plan designs and incentives can raise awareness and help shepherd plan members to effective alternate facilities, thus helping drive down unnecessary utilization costs.

Predictive Modeling

Medicine isn't the only field experiencing a technological revolution. Several top insurers now are using digital programs and eSystems to improve the way in which insured members interact with their health plans and, ultimately, to better manage costs.

An important tool in this is "predictive modeling," which helps insurers identify patients at higher risk of incurring future costs. Predictive models integrate medical and pharmacy claims data, as well as other key information, to build individual profiles and reliably calculate a person's medical risk relative to others in an insured population. This allows for early intervention, when preventive care is most beneficial, and results in more effective use of healthcare resources.

Administrative Technology

Electronic technology also is being used to streamline administrative costs. For example, currently, more than two-thirds of all claims, nationally, are being handled via an automated process that eliminates the use of paper forms. The cost to process this data is far less than for paper claims. Once entered into the system, more than 70 percent of claims are auto-adjudicated (processed and paid) with no further intervention.

Clinical profiles are another cost-control tool -- this time for network physicians. These user-friendly programs enable doctors to go online and share data with their peers in order to measure performance against national averages and "best practices" (as established by accredited medical organizations).

Employees who understand the correlation between their benefits plan usage, personal wellness, and the ultimate cost (to them), are more likely to become enthusiastic participants in healthcare cost reduction.

Every one of us -- payers, physicians and patients, alike -- has a stake in controlling healthcare costs. And despite the grim news we often find in the business dailies, there are solutions to be found - innovative strategies that are proving effective every day in disparate corners of the healthcare landscape.

About the authors: William Moeller is president and CEO of United Healthcare of Illinois (UHC). Thomas Filippini is partner at Thilman&Filippini (T&F), which specializes in risk management services for employee benefit clients throughout the United States.

This information is compiled and provided by George S. May International Company.
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