|
|
| e-News
Bulletin |
Issue
10 - November 2008 |
In
this issue:
- What’s Driving Employers’ Health Care Costs in Canada?
- Solutions for Controlling Costs
- What’s Impacting Health Care Costs in the United States?
What’s Driving Employers’ Health Care Costs in Canada?
While the usual suspects continue to affect the health care costs of employer plans – prescription drug use, an aging population, government cost-cutting in health care, increased out-of-country travel, and employees maximizing their benefits plans – there is one area in particular that also warrants attention – the rising impact of mental health issues on absenteeism and disability claims.
Mental Health and Absenteeism
Absenteeism continues to rise among Canada’s workforce. Mental health issues, including stress, anxiety and depression, are the leading cause of short- and long-term disabilities.1 Statistics Canada says the average full-time worker lost 9.7 days due to illness, disability and personal or family responsibilities in 2006. And, the cost to employers is great. One study conservatively estimates that Canadian companies incur more than $16 billion per year in illness and disability costs.6
Despite the prominence of this issue, the 2005 Watson Wyatt Staying@Work study shows that most companies deal with absence management programs in a reactive rather than a proactive way. And, companies are still not formally measuring the associated direct and indirect costs of absenteeism, including overtime, replacement workers and lower levels of productivity.
Another area of concern according to Watson Wyatt’s 2007 WorkCandaTM Survey Report is the concept of presenteeism. This describes employees who are present at work but are not as productive because of physical and mental health issues. As the workplace ages and without preventative measures, the impact of presenteeism is likely to grow.
Here are some startling statistics and predictions surrounding mental health:2
- By 2020, depression will be the second-leading cause of disability worldwide. Heart disease is the top-ranked cause of disability.
- In Canada, mental-health claims are the fastest growing category of disability costs.
- Mental illnesses, such as depression and anxiety disorders, affect one in five employees in Canada and cost the economy an estimated $30 billion a year.
- The cost of not addressing stress-related disorders in the workplace is about 7.1 per cent of payroll, according to Watson Wyatt’s 2000/2001 Staying@Work study.
- One in four Canadians will experience a mental-health issue in their lifetime. Two out of three will not seek help.
- Employers save between $5,000 and $10,000 a year for each worker who gets access to treatment for mental-health problems. This represents savings in prescription drugs, sick leave and average wage replacement.
- Employees who are diagnosed with depression and take appropriate medication will save their employer an average 11 days a year in costs related to absenteeism.
- A survey commissioned by Great-West Life's Centre for Mental Health in the Workplace found that 83 per cent of managers believe it is their job to intervene when an employee suffers from depression. But only 55 per cent claim to know how much to intervene and 18 per cent claim to have the training to do so.
Let’s take a closer look at some of the other cost drivers:
Drug Costs
Although rising drug costs continue to be the number one factor impacting the cost of employer-sponsored benefits plans, according to findings by the Patented Medicine Prices Review Board, the price of drugs has actually gone up very little. 3 The prices have remained stable over a number of years, therefore, indicating a jump in consumption.
Better drug therapies continually come onto the marketplace 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. According to the Canadian Institute of Health Information, in 2007, spending on drugs was expected to have reached $27 billion, representing almost 17 per cent of total health care spending. After hospitals, drugs account for the largest share of major health expenditures. On a per capita basis drug spending is estimated to have reached $818 in 2007.4
In its 2007 Drug Trend Report, ESI Canada noted that increased use of generic drugs and the fact that fewer blockbuster drugs have been introduced recently have eased the upward pressure on drug spend to some degree.5
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.
Non-Traditional Therapies
More and more, employees 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.
Solutions for Controlling Costs
There is no one-size fits all solution. Every organization needs to analyze and assess their situation to determine the best strategy to manage costs related to their specific plan. It’s really a balancing act – managing costs versus providing employees a competitive plan that satisfies their needs and prevents future costs.
Here are some of the solutions that can be considered after a company has reviewed its plan’s experience and history.
Absenteeism and Disability Management Programs
Companies need to measure their indirect costs related to short- and long-term disability to help identify health and productivity issues more clearly.
Employers also need to understand that both prevention and disease management are fundamental to an integrated absence management approach and an effective health and productivity strategy.
According to the sanofi-aventis Healthcare Survey 2008 results, employers can play an important role in prevention and improving health. Plan members are very interested in certain disease prevention tactics, such as coverage for vaccines and cutting edge drugs, and programs to encourage physical activity and smoking cessation, disease screening, and weight loss.
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.6
Employee Assistance Programs
Employee Assistance Programs (EAPs) are voluntary, confidential, third-party counselling and referral services offering assistance with everything from stress management to marriage counseling for employees and their family members. 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. Given mental health has a huge impact on the short- and long-term disability, EAPs are becoming an essential resource.
Written Return-to-Work (RTW) Plans
Written RTW plans are tools used to reintegrate employees into the workplace and provide a process and a method of communication. It provides a written document that help managers and employees know what to expect.
In Watson Wyatt’s 2005 Staying @Work survey, written RTW plans were the second most prevalent practice. Accordingly, respondents see them as a key factor to managing costs. The plans are noted for improving employee health and satisfaction and for contributing to higher productivity.
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.
Health Care Spending Accounts
For big dollar exposures, including drug therapies and elective, non-traditional therapies (i.e. massage), employers should consider the benefits of setting up a health care spending account. This gives the employer a way of addressing emerging trends (i.e. greater use of non-traditional therapies) while giving employees the choice on what services they want their plan to cover.
Stop-Loss Insurance
Employers can also consider limiting their financial exposure by self-insuring and using stop-loss insurance. For example, your company will pay a certain predetermined amount for drug coverage and a stop-loss insurance policy pays your employees' drug expenses above that amount. Some policies are designed to protect your company against high claims by any one employee or family member. Once you have paid the specified amount (e.g., $10,000), the insurance pays for the rest of the individual's medical expenses, up to the policy's coverage limits. Other policies protect you against an unexpectedly large amount in total claims. In this case, the coverage kicks in once your company has paid a certain amount toward all of your employees' medical bills up to the policy’s limits. 7
What’s Impacting Health Care Costs in the United States?
While the health care system and employer-sponsored plans are very different in the United States compared to Canada, there are many similar drivers affecting health care costs.
Longer life spans and the greater prevalence of chronic illnesses are one of the facts affecting costs.8 Take the issue of mental health. Estimated annual spending on depression and anxiety in the United States was $83.1 billion in 2002.
9 This staggering number is sure to be much higher today and it highlights the need to provide employees with access to treatment, both for the employee’s health and well-being and impact on a company’s productivity.
An aging population and prescription drugs are also impacting costs in the U.S. For example, although prescription drugs accounted for only 10% of total national health expenditures in 2006, it has been the biggest contributor to the growth in spending.8
In the last 20 years, there has been a dramatic increase in obesity in the United States. According to a study of national costs attributed to both overweight and obesity, medical expenses accounted for 9.1% of total U.S. medical expenditures in 1998 and may have reached as high as $92.6 billion in 2002.10
Administrative costs are another cost burdening the U.S. health care system. Seven percent of health care expenditures are for administrative costs (e.g. marketing, billing). Some argue that the combination of the public Medicare and private systems creates overhead costs that fuel health care spending. 8
How do these factors impact ‘managed care’ and traditional indemnity plans? For 2009, Hewitt Associates predicts that companies will receive cost increases of 6.5% for indemnity plans, 8% for Health Maintenance Organizations (HMOs), 5.5% for Point of Service (POS) plans, and 5.5% for Preferred Provider Organizations (PPOs). This means that the average health cost per person for major companies will increase from $8,331 in 2008 to $8,863 in 2009.11
Solutions for Controlling Costs in the United States
Companies are pressured more than ever to balance their needs with those of their employees. Focusing on getting employees healthy will be a critical step to reducing future costs.
More aggressive programs that drive behaviour change and encourage employees to take more responsibility over their state of health is one solution. For example, with the rising mental health care costs, employers may be inclined to decrease or eliminate services for an employer plan to reduce premiums. The reality is that untreated mental health issues cost more in the long run impacting the overall bottom line of a company. Offering benefits that facilitate early intervention is key.
Introducing other programs aimed at improving the health and productivity of employees could include offering weight management programs, physical fitness facilities or memberships, flu shots and smoking cessation programs. Financial incentives such as credits or lower premiums are one way to encourage employees to participate in programs that improve their health.
There is also increasing interest by employers to consider value-based design programs. These programs reduce or remove financial barriers to health care services proven to be effective to treat certain conditions, and potentially increases cost-sharing for those services that have not been proven to be as effective. 11
Tax-favoured, Health Reimbursement Accounts (HRAs) are another trend that employers are adopting. Employers contribute funds that are managed by employees to spend on primary health care as they direct. The idea is to make employees more price sensitive and more prudent purchasers. Once the account is exhausted, a catastrophic insurance plan begins covering at least a portion of expenses beyond a high annual deductible – a portion of which an employee may have to pay out-of-pocket. 8
Contact Us
In addition to the solutions highlighted above, there are 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, contact Don McGowan: telephone (416) 805-9999 / 1(800) 749-7549; e-mail mcgowan@bellnet.ca
Canadian Sources: Health Canada, PMPRB 2006 Annual Report, Statistics Canada, Watson Wyatt’s Canadian 2002/2003, 2005/2006 Staying@Work study, Manulife Financial’s eBenefit News.
U.S. Sources: Kaiser Family Foundation, America Psychiatric Association, Department of Health and Human Services - Centers for Disease Control and Prevention, Hewitt Associates
1 Watson Wyatt’s Canadian 2007 Staying@Work study
2 The bulleted list of statistics is reported and compiled by www.mentalhealthworks.ca, an initiative of the Canadian Mental Health Association
3 Pharmaceutical Trends Overview Report by the Patented Medicine Prices Review Board, June 2006
4 Canadian Institute for Health Information, May 15, 2008
5 Manulife Financial’s eBenefit News Volume 15 Issue 3, 2008
6 Watson Wyatt’s Canadian 2002/2003 Staying@Work study
7 Definitiion adpated from www.360financialliteracy.org
8 U.S. Health Care Costs : Background Brief, Kaiser Family Foundation, updated January 2008. http://www.kaiseredu.org/topics_im.asp?imID=1&parentID=61&id=358
9 America Psychiatric Association News Release No. 05-68, November 2005
10 Finkelstein, Fiebelkorn, and Wang, 2003, http://www.cdc.gov/nccdphp/dnpa/obesity/economic_consequences.htm
11 Hewitt Associates, Newsroom, Hewitt Data Reveals Little Change in U.S., September 9, 2008 http://www.hewittassociates.com/Intl/NA/en-US/AboutHewitt/Newsroom/PressReleaseDetail.aspx?cid=5604&print=1
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 do not guarantee the accuracy of other information sources. And, we cannot guarantee the information’s 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. |
