Realities of medical cost reflected in employee premiums

By Daniel Rives, IU Director of Benefit Programs

Many factors indicate that the current double-digit premium increase trend is not likely to resemble the general cost-of-living increase (currently approximately 3 percent) anytime in the near future. Besides the obvious increase in medical services consu med due to getting older, there are at least two other significant factors that directly impact the cost of IU’s employee health-care plans: prescription drug costs are increasing at a disproportional rate, and providers in Indiana are expecting conseque ntial increases in reimbursement rates.

Prescription drugs are by far the single coverage with the highest level of attention, mostly due to a 25.5 percent annual increase trend. Indiana University is experiencing the same issues described in the Sept. 25 edition of Newsweek in the artic le “Why Drugs Cost So Much.” To put the cost of prescription drugs in perspective for IU’s self-funded plans, consider the fact that the total dollars spent on prescription drugs now exceed the cost of in-patient hospital services. (The cost of in-patien t services has continued to increase, but at a slower rate.)

Primary factors contributing to the lower medical plan increases in the above chart for the five-year period from 1994 through 1998 were reductions in area provider (hospitals and physicians) reimbursement rates. These “reductions” were the result of netw ork contracts, and the “reductions” helped to offset other factors that continued to result in increased utilization of services. In other words, health-care plan cost increases would have continued at a relatively high rate during this period if there ha d not been network contracts that reduced provider reimbursements. However, today providers are increasing their fees at the same time there is the “normal” increase in medical utilization. Evidence of how much providers are expecting to increase their fe es is found in their “business decisions” to drop out of networks, either to achieve a better position in negotiating with network management companies or anticipating that patients will seek their services regardless of the fee charges.

“Costs” are also shifted to IU’s health-care plans over which we have no control—known as “cost shifting.” A simple explanation is that hospitals and physicians that provide “free” services for the indigent and other non-paying patients have to recover th e cost of such services from those patients that have health-care insurance. This is especially true of not-for-profit hospitals with a community responsibility to provide services to the indigent. When these hospitals indicate they provide so many milli ons of dollars in community services, it should be understood that a significant portion of these funds come from “additional” fees charged to (shifted to) those patients with heath-care insurance. As such, health-care plans, not any level of government, are actually paying for significant medical services provided to indigent and non-paying patients. (The cost of medical services for the indigent in Indiana is increasing at a meaningful rate, contributing to both an increase in the number of individuals without health insurance in our communities and an increase in cost for those who continue to be uninsured.)

These and other factors that result in higher health-care costs are not likely to diminish in the near future.

The once-a-year opportunity for IU employees to change health-care plans effective Jan. 1, 2001, is now underway. This “open enrollment” period is also the once-a-year opportunity for employees to elect participation in the Tax Saver Benefit Plan, with p re-tax reimbursement of health and dependent care expenses—enrollment in Tax Saver Benefit reimbursement accounts is required each year by the IRS. Health-care plan and Tax Saver Benefit “Open Enrollment” forms are due by Nov. 22.

See the University Benefits Offices’ Web site for additional information:

http://www.indiana.edu/~ubenefit/.