January 11, 2005
Editor's Note: This article is adapted from "Health Care Costs: Where Do We Go From Here?" presented by Neil Trautwein, assistant vice president, human resources policy, with the National Association of Manufacturers, at the association's Future of Manufacturing Forum July 21, 2004.
Health care is one of the biggest concerns of today's manufacturers. Polls and surveys of National Association of Manufacturers (NAM) members have shown health care is as much of a concern as such major issues as litigation, regulation, and outsourcing.
One of the reasons for the concern is that, for more than 60 percent of the small and medium-sized manufacturers surveyed, health care costs are rising from 13 to 25 percent each year. For large manufacturers, that percentage is nearly doubled, with 40 percent annual increases in health care rates.
Employer-based health care is widespread and popular (see Figure 1). It's literally the backbone of the U.S. health care system. Most people get coverage through employer-based plans until they are eligible for Medicare.
Most employees view health insurance as the most valued benefit offered by their employers.
In theory, the system has worked very well for several reasons. It's a voluntary, fairly flexible, and tax-favored system (employees don't have to claim benefits as income, and employers can deduct the cost of coverage as a business expense).
So what are the problems?
Rising costs in health care coverage can be attributed to several factors.
For one, the work force as a whole is getting older and living longer. When they become retirees, coverage lasts longer than it would have 30 or 40 years ago.
The rising prevalence of obesity in society is another problem. In fact, one research firm estimates the overall cost of obesity in society to be $13 billion per year. Obesity's connection to chronic health problems, such as diabetes and hypertension, compounds the problem. These conditions are of long duration and are very expensive to treat, usually requiring multiple medications, which has fueled the growth in pharmaceutical spending, another huge drain on employer-provided health care benefits.
More than half of the companies surveyed expected to see double-digit increases for health insurance costs in 2004.
Hospital spending is the single fastest-growing component of health care cost. Facing a huge labor shortage, hospitals must spend more to hire qualified workers. Also, as medical technology becomes more precise and advanced, costs go up.
Medical liability is a huge problem in the U.S. health care system. Every time a doctor or a hospital gets sued, the cost of that judgment flows down to the health care purchaser.
NAM and other organizations are strong supporters of health savings accounts, health reimbursement arrangements, flexible spending account rollovers, and other methods to encourage consumerism in the current health care system. Employees need to understand that pills don't come in $10, $20, and $30 flavors; they might cost $250. The doctor's visit isn't a $15 co-pay; it's $300 to the company's health plan.
Other recommendations from NAM include:
Interest is increasing for more employee involvement, with more emphasis on health savings accounts, and this trend is expected to grow.
There is great promise in consumerism and moving toward getting consumers more involved in their health care benefits. That way, manufacturers can maintain some level of employer involvement and still fix their costs to help end the veritable nightmare that health care benefits have been to employers in recent years.
National Association of Manufacturers, 1331 Pennsylvania Ave. N.W., Washington, DC 20004-1790, 202-637-3000, fax 202-637-3182, www.nam.org
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