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One of the most encouraging developments in the employee benefits arena is the easing of group health care plan cost increases. In an interview with Business Insurance Editor-at-Large Jerry Geisel, Jim Winkler, Norwalk, Connecticut-based chief innovation officer for benefit consultant Aon Hewitt, discusses the reasons for that slowdown and the likelihood of whether it will continue. Edited excerpts follow.
Q: Numerous surveys, including one by Aon Hewitt, have reported that group health care plan cost increases in 2014 have been relatively modest, roughly half of the 6% to 7% annual increases that were the norm just a few years ago. To what do you attribute the easing of health care cost increases?
A: The overall economic situation has helped to dampen consumer spending in all categories, including health care. To the extent consumers could put off having certain medical procedures done because of the cost, they have done that.
Somewhat related, we have seen an increase in higher-deductible and other consumer-driven health care plans. Those plans have helped to empower people to make better decisions on how to use the health care system. Individuals using generic drugs instead of brand-name drugs, or urgent care centers instead of hospital emergency rooms, is often attributed to people having more cost exposure.
And as more people are covered in public exchanges — and before that, mandating coverage of employees' children up to age 26 — we are slowly taking the cost of uncompensated care out of the health care system.
Q: On the employer side, what actions have employers taken that are particularly effective in holding down health care cost increases?
A: First, employers have been very smart about who they cover. So employers have put in place dependent eligibility audits to make sure they are not covering people that they shouldn't, like a child who has aged out of the plan.
Second, we have seen changes in how employers subsidize dependent coverage. We have seen that increases in things like surcharges for working spouses, or lower employer subsidies for dependents, has led to a drop in the number of covered dependents as those individuals have gotten coverage from their own employers.
Third, there has been better health engagement. So, for example, an employer might link a better benefit option than the base plan with completion of a health risk assessment.
Q: Are you optimistic that health care cost increases will remain at relatively modest levels?
A: I would put myself in the cautiously optimistic camp, ... though, we are facing a couple of headwinds. First, there has been a rise in the prevalence of expensive specialty medications, such as those for treatment of hepatitis C.
In addition, as the economy improves, there will be a return of more discretionary spending on health care.
In addition, there is aggregation going on in the health care system — hospital systems, for example, coming together, and hospitals buying up physician groups, all of which creates the potential for short-term increases.
Q: One of the biggest developments in the market has been the establishment of private health insurance exchanges. What is the appeal of exchanges to employers?
A: There is a belief that the creation of a true competitive marketplace, where insurers are competing for consumers, has seen very different behavior on the part of insurers in how they set their rates, and how they scrutinize their own programs in terms of what favorably impacts costs.
In addition, there is an awareness on the part of employers that in an environment in which they are cost-challenged and having an increasingly dynamic and diverse workforce, being able to offer employees a wider array of choice than any one employer would want to manage on its own is compelling.
Scott D. Buchholz, a partner at law firm Dummit, Buchholz & Trapp in San Diego, specializes in health care-related litigation and liability risks that health care professionals and organizations face. He spoke with Business Insurance Senior Editor Judy Greenwald about some risks associated with accountable care organizations set up as a result of the federal health care reform law. Edited excerpts follow.