How to control costs
What are strategies for controlling costs?
Since 2000, employers have experienced double-digit growth in spending on employee health insurance premiums, reflecting both increases in prices for medical services (inflation) and the growing use of new and existing health care services. In addition to traditional strategies for controlling costs – enrolling in managed care plans, raising employee contributions, cutting benefits, and eliminating coverage – some business are attempting to better understand what’s driving health care costs and develop strategies to address the root causes.
How can they affect the business community?
Historically, health plans have tried to limit premium increases by negotiating discounts from hospitals, capping payments to specialists, and requiring referrals. Employers also have had to cut benefits and pass costs on to employees.
However, these strategies do not fully address the root causes of rising costs, such as:
- Medical advancements and broader use of existing technologies
- Less healthy lifestyles and inattention to chronic disease
- Aging of the population
- Inefficiences that lead to unnecessary care and administration, and sometimes medical errors
- Medical inflation
- Cost-shifting whereby the privately-insured subsidize the uninsured and public program participants
Recent Developments
There is a growing understanding among different stakeholders — including lawmakers, advocacy groups, and others -- that in addition to covering the uninsured, we must tackle growing health care costs.
In January 2008, the Blue Ribbon Commission for Health Care Reform in Colorado recommended the following strategies to address what’s driving costs:
- Reducing administrative costs
- Using health information technology to reduce inefficiencies
- Reducing cost-shifting
- Promoting value-based purchasing
In June 2008, Governor Ritter is expected to sign Senate Bill 135, which requires health plans to standardize ID cards to reduce the administrative burden on providers. Other legislation passed during the 2008 legislative session provided funding to statewide efforts to link physician and hospital computer systems so that they can develop and share electronic medical records. In addition, legislation passed that seeks to cover more uninsured children and increase payments to Medicaid providers, which should reduce cost-shifting.
Finally, Governor Ritter issued an executive order creating a new Center for Improving Value in Health Care within the Department of Health Care Policy and Financing. The center will develop strategies, as well as coordinate existing efforts, to improve health care quality and manage the growth of health care costs. The center is intended to prod public and private sector collaboration on cost and quality issues, and the participation of “business groups” is explicitly required.
In the meantime, Colorado employers, health plans, and providers are not waiting for the government to act. For more information on state and local efforts to reduce costs and improve access and quality, click here.
Resources
Health Care Costs: Key Information on Health Care Costs and their Impact , Kaiser Family Foundation
Provides a narrative overview of health care cost drivers, their effects, and some possible solutions.
Blue Ribbon Commission for Health Care Reform, Final Report to the General Assembly
Provides detailed recommendations on how to reform the Colorado health care system.
Trends in employer-sponsored health coverage, Kaiser Family Foundation
Presents results of an annual survey on employer health benefit trends
Health Care Costs 101, Center for Studying Health System Change
Presents slides that describe the major health care cost drivers and why they are hard to correct.
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