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| e-News
Bulletin |
Issue
3 - July 6, 2004 |
What’s
Driving Healthcare Costs?
New and
improved drugs, an aging population, government cost-cutting
in health care, increased out-of-country travel, and employees
maximizing their benefits plans are the factors that year
after year continue to drive-up the cost of employer-sponsored
benefits plans.
Every
plan sponsor should stay aware of these factors and understand
how they impact the cost of their own plan. Let’s take
a closer look at some of the drivers:
Drug
Costs
Rising drug costs is the number one factor impacting the cost
of employer-sponsored benefits plans. Health care claims can
make up 80% of a plan’s costs and year over year the
costs are increasing. Better drug therapies continually come
onto the market place and with an aging population, more and
more people require prescription drugs for chronic and long-term
illnesses. There’s no question that Canadians are spending
more on drugs than ever before. As found by the Patented Medicine
Prices Review Board (PMPRB), the increase can be traced to
consumer demand.
Created
by the Canadian Government in 1987, PMPRB is a quasi-judicial
body set-up to ensure that the prices charged by manufacturers
of patented medicines in Canada are not excessive (their mandate
does not include prices charged by wholesalers or retailers
and pharmacy fees). According to findings by the PMPRB, the
price of drugs has actually gone up very little. In 2002,
Canadian sales by drug manufacturers reached $13.8 billion
which was a 13.9% increase over 2001. In the same period,
PMPRB reported that prices of existing patented drugs fell
by 1.2%. The prices have remained stable over a number of
years therefore indicating a jump in consumption.
In addition
to drug utilization, new and improved therapies available
on the market are replacing less-costly, traditional therapies
and are being prescribed more frequently because of the substantial
improvement over older drugs.
Non-Compliance
Costs
The other cost associated with drugs is the concept of non-compliance.
In other words, when patients do not take medications as prescribed
by a physician. For example, a patient who doesn’t finish
a prescription; or drops out of a drug regime; or takes the
incorrect dosage; or at the wrong time, has a greater chance
of not fully recovering or maintaining good health. Cost of
non-compliance can result in more drug claims, absenteeism,
disability, and even life claims. According to Health Canada,
28% of hospital admissions for Canadians over the age of 50
were caused by non-compliance and drug reactions.
Non-Traditional
Therapies
As employees maximize their benefits, more and more are seeking
out non-traditional therapies to deal with chronic pain and
stress. Non-traditional medicine like chiropractic treatments,
naturopathic medicine, massage and physiotherapy are now common
place. Private plans are now seeing the maximum claims per
employee being used up.
Government
Health Care Cuts
The continued government changes to the Canadian health care
system have shifted costs over to private health care plans.
Hospital stays are now much shorter as patients are sent home
earlier. This ultimately transfers the cost of drug therapies
traditionally administered in a hospital environment to patients
managing the regime at home and expensing the costs to private
plans. Other services, such as in-home private nursing care,
have increased in demand as a result of shorter stays as well.
Better
monitoring of semi-private hospital care claims also needs
to be looked at. As more employees access this benefit, more
frequent auditing of semi-private hospital room claims to
validate length of stay and use will be required.
Absenteeism
As life and work demands continue to affect the health and
well-being of employees, there is usually an increase in the
absenteeism rate at work. Stress, anxiety, depression and
other related psychological conditions are the leading causes
of short- and long-term disabilities. Statistics Canada says
the average worker lost 8.5 days due to illness, disability
and personal or family responsibilities in 2001. And the cost
to employers is great. Watson Wyatt’s 2002/2003 Staying@Work
study conservatively estimates that Canadian companies incur
over $16 billion per year in illness and disability costs.
Despite
the prominence of this issue, the Staying@Work study
shows that most companies are still not addressing the situation
as effectively as they could.
Solutions
for Controlling Costs
There is no single cost-controlling solution fit for every
employer. Each employer must analyze and assess their plans
to determine the best strategy to manage costs related to
their specific plan. The reality is that employers have to
balance just how much they scale back so they continue to
offer employees a competitive plan that satisfies their needs.
Here are some of the solutions that can be considered after
a company has reviewed its plan’s experience and history.
Pay-Direct
Drug Programs
Pay-direct drug cards offer employees the convenience of having
their drugs claims processed and adjudicated at the pharmacy
at the time of purchase. The drug card alleviates barriers
for employees who choose not to fill a prescription because
they don’t want to incur out-of-pocket expenses. Pay-direct
drug programs also improve a member’s ability to adhere
to prescription regimens, resulting in effective therapy and/or
speedy recovery for plan members.
The advantage
to sponsors is improved understanding of plan performance
and the ability to manage drug programs more directly with
opportunities to make adjustments. Drug cards also enable
Drug Utilization Reviews (DURs). DURs provide a drug tracking
capability that alerts pharmacists to possible non-compliance
such as refilling prescriptions too soon and conflicts in
medication.
Formulary
Drug Programs
Introducing formularies is an aggressive way to contain drug
ingredient costs. Under a formulary, coverage is restricted
to a list of drugs chosen for their cost and therapeutic value.
Formularies can substitute more expensive drugs for their
generic equivalents. By limiting the drugs covered under the
plan, costs can certainly be reduced. This type of plan change
requires a solid communications plan to employees to ensure
the impact of the change is understood.
Absenteeism
and Disability Management Programs
It’s not realistic to suggest that every absence can
be avoided. But certainly many illnesses and all injuries
are preventable. Employers really need to change their approach
to managing employee absenteeism on a proactive basis by assessing
the problems and implementing a program to actively address
it. Companies should rethink their position to reflect a healthy
workplace approach — this means:
- focusing
on prevention and illness/disability management;
- improving
awareness of the effect of stress and anxiety on mental
health and the impact on performance; and
- creating
workplace cultures that encourage employee engagement.¹
Employee
Assistance Programs
Employees may sometimes encounter problems that, while are
not necessarily associated with work, have a serious effect
on their family, friends, health and work performance. Employee
Assistance Programs (EAPs) help employees cope with these
situations. EAPs are voluntary, confidential, third-party
counselling and referral services offering assistance with
everything from stress management to marriage counselling.
Although there is clearly a cost to offering EAPs, the costs
are marginal compared to offering no support which can have
an effect on work performance.
In addition
to the solutions highlighted above, there are many other ways
to manage the growing costs affecting employer-sponsored benefit
plans. If you have questions on any of the information contained
in this bulletin or would like to assess your plan and explore
the available options to better manage your company’s
benefits costs, call Don McGowan at (416) 805-9999.
Sources:
Health Canada, PMPRB 2002 Annual Report, Statistics Canada,
Watson Wyatt’s Canadian 2002/2003 Staying@Work study,
Manulife Financial’s eBenefit News.
1 Watson
Wyatt’s Canadian 2002/2003 Staying@Work study
Disclaimer:
The opinions and advice in this e-News Bulletin are provided
for the general guidance and benefit of McGowan Insurance
Services Ltd. customers based on information we believe to
be accurate. We cannot guarantee its accuracy or completeness
for individual circumstances. While we strive to provide reliable,
informative material herein, we cannot account for all industry
conditions and legislative changes that occur. |
