Press Releases

Four Percent of Participants Incur Half of Health Care Charges

WASHINGTON, April 24, 2006 – A disproportionately large share of companies’ health care costs stem from the treatment of a small group of employees and dependents who have chronic or catastrophic illnesses, according to an analysis by Watson Wyatt Worldwide, a global human capital firm. As a result, companies that focus solely on providing financial incentives to encourage plan participants to be more discerning health care consumers are apt to realize only limited cost savings.

According to the analysis of health benefit plan expenditures, the 4 percent of participants with serious health conditions account for nearly half of health benefit spending in any given year. This group is unlikely to be won over by financial incentives or plan design features, such as high-deductible health plans paired with health savings accounts, which allow employees to save for health care expenses on a tax-advantaged basis. Such plans are likely to be attractive only to healthier employees.

Those who are not as sick — the roughly 25 percent of participants in the early stages of chronic conditions or with acute health episodes — account for 40 percent of spending. In contrast, those who are healthiest — 72 percent of participants — account for just 11 percent of health care spending.

Average health care cost per individual	Percentage of plan participants	Percentage of 2004 health care costs
< $1,500	72 percent	11 percent
$1,500-$9,999	24 percent	40 percent
> $10,000	4 percent	49 percent

“This analysis makes clear that efforts to create better health care consumers must involve more than high-deductible health plans,” said Sylvester J. Schieber, U.S. director of benefits consulting at Watson Wyatt. “It’s up to employers to understand the varying needs of employees and to respond with targeted consumerism — an approach that uses different strategies to engage different segments of the population covered by health benefit plans.”

For example, employers can find health care savings among participants with chronic and catastrophic conditions through case management, by ensuring that those who do not need intensive treatment find other care and by designing health plans to encourage use of centers of excellence, i.e., high-quality, cost-effective treatment facilities.

“Rather than using financial incentives to encourage seriously ill hospital patients to reduce plan spending, directing them to high-quality delivery centers will be far more effective in making them better consumers and controlling plan costs,” said Ted Nussbaum, director of Watson Wyatt’s group and health care consulting services in North America. “In some areas of the country, using high-quality care centers may cut plan expenditures for the most expensive cases in half.”

“Convincing plan participants in all segments to think more critically about their health care spending requires a combination of tactics,” Schieber said. “Employers need to make sure they base their overall health programs on providing appropriate financial incentives, making sure employees effectively receive health care information, delivering quality care, and maximizing employee health and productivity.”

About Watson Wyatt Worldwide

Watson Wyatt (NYSE: WW) is a leading global human capital and financial management consulting firm. The firm specializes in employee benefits, human capital strategies, technology solutions, investment consulting, and insurance and financial services. Watson Wyatt has 6,000 associates in 30 countries and is located on the Web at www.watsonwyatt.com.

Contact

Ed Emerman, 609/452-5967, eemerman@eaglepr.com
Emily Rieger, 703/258-7634, emily.rieger@watsonwyatt.com