Healthcare benefits - a tale of two countries with a pond in between.
As a US-owned company with a large Health & Welfare practice in the US, Mellon is very aware of the issues that affect employers and benefit professionals on the other side of the Atlantic.
And it's a pretty bleak picture for employers...
Double-digit inflation in healthcare costs in each of the last four years has been their experience and, as a result, health benefits costs now make up, on average, 7% of employers' payrolls.
During the last 10 to 15 years, the introduction of managed care systems was seen as the 'white knight' solution which would gain control of spiralling healthcare costs. This would be achieved through better purchasing and medical supplier management. US observers now believe that this strategy has collapsed and is no longer able to contain increases in cost.
So where has the cost-control debate moved to as a result? The answer... very clearly, away from the supply side towards employers and employees on the demand side of the equation.
To date, this has meant more cost-sharing by employees. Here in the UK, we may baulk at the prospect of paying a £100 excess in each year; in the US, employees are increasingly having to pay thousands of dollars annually in co-payments, deductibles and out-of-pocket expenses.
An idea has been developing out of this and the new buzzword is Consumer-Directed Healthcare (CDH). In short, this involves getting employees to exercise greater choice in their consumption of healthcare, to spend healthcare money as if it were their own, and to engage them in this process by actually making them spend more of their own money.
For example, choosing cheaper prescription drugs and cheaper healthcare providers are choices that an individual can make to control costs. However, working against this idea of choice is the doctor/patient culture in the US, which is very similar to here in the UK - in most cases, people do what the doctor tells them, regardless of the cost. It is this culture that insurers have struggled to manage but that employers, and individuals, now need to start challenging if CDH is to succeed.
Increasingly, employers see that giving employees access to information to help make these choices, coupled with helping employees to make healthy lifestyle choices and offering financial incentives to change their behaviour, has to be part of the package. This combination of cost-sharing, providing information and support about healthcare choices, and encouraging and incentivising behaviour change, are the principal elements of CDH.
In the US, 65% of adults are overweight, including 30% who are obese and 5% who are morbidly obese. Given that obesity has clinically proven links to ill-health, the value of promoting lifestyle and behaviour change offers a real and direct challenge to employers to reduce healthcare and sickness costs.
So what of the parallels in the UK? Of course, we always have the good old NHS to fall back on! But apart from that, we can sum-up our own situation as follows:
- Employer-funded medical benefits and the independent healthcare suppliers are here to stay.
- Employers have historically been facing double digit cost inflation for medical benefits.
- It is generally acknowledged that medical insurer managed care initiatives have run their course and have nothing new to offer.
- UK medical plans are increasingly moving towards cost-sharing by incorporating an excess or co-payment.
- Over 20% of the UK population is obese.
Sounds familiar?
Most insurers in the UK offer part of what a CDH package might look like, e.g. high excess options, cash protection for private surgery, and reduced premiums for healthy lifestyles. However, as yet, no one has gone the whole way and put together a full package including the information and support elements. We'll be watching with interest to see if our US cousins have anything to teach us!
For further information, please telephone your usual contact at Mellon - Human Resources & Investor Solutions (Healthcare):
Tel: +44 (0)118 955 7700
Fax: +44 (0)118 955 7701
Email: healthcare@mellon.com
Web: www.mellon-hris.co.uk
Abbot's House, Abbey Street, Reading, Berkshire, RG1 3BD, UK
Mellon Human Resources & Investor Solutions (Healthcare) Limited is authorised and regulated by the Financial Services Authority
