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WASHINGTON, DC, March 7, 2002 - Leading companies see double-digit health care cost increases as a total business issue that reaches far beyond their human resources departments, according to a soon-to-be released survey of large employers conducted jointly by Watson Wyatt Worldwide and the Washington Business Group on Health.

"The most progressive companies understand that their very survival is at stake if they don't get a handle on their health care costs," says Maureen Cotter, global practice director of group and health care consulting for Watson Wyatt Worldwide. "By applying the same business discipline they've used in other core functions, they are more likely to succeed in managing health care costs."

"Winning companies will be those that run their health care program as a business, engage employees to take more responsibility and use information and technology to make better decisions," says Helen Darling, president of the Washington Business Group on Health.

The survey, to be published in April, was conducted during November-December of 2001. The 292 large employer respondents collectively provide benefits to more than 10 million employees and dependents. (Click here for highlights of the upcoming report).

Soaring Costs
According to the survey, health care costs will grow at a median rate of 14.3 percent this year across all plan types, up from 10 percent in 2001. At the current rate of increase, employers face the bleak prospect of doubled health benefit costs by the year 2007.

But some companies are already showing results in terms of cost-control efforts. Respondents at the 75th percentile reported that their health care tab will rise by 18 percent in 2002, or 70 percent more than those at the 25th percentile. These differences can quickly add up. For example, for two companies each with 20,000 employees, the company at the 25th percentile would "earn" over $7 million in cost savings compared with its less efficient peer.

Respondents reported that cost differences between plan models narrowed considerably over the past year, reflecting the reality that no single solution will stem the tide of rising health costs. HMO cost increases, at 15 percent, were actually higher than other approaches, including traditional indemnity plans (14 percent) and PPOs (13 percent).

Keys to Reducing Health Care Costs
"Companies have realized that there are no silver bullets," says Ms. Darling. "No one strategy is going to solve the problem."

To help employers rein in health care costs, the study suggests the following:

• Adopt a portfolio of leading-edge strategies, including consumerism, purchasing disease management programs separate from a health plan, and use of clinical risk adjustment in plan selection and pricing.

• Base the composition of the portfolio on:
  • The business/financial conditions of the company
  • The goals of the health care program
  • Readiness for change
  • Company culture
  
  
  
• Encourage employees to take further responsibility for their health care needs and costs. By far, the strategy respondents are adopting at the fastest rate is consumerism, with aggressive firms 16 times more likely to pursue this strategy than cautious firms. Consumerism generally refers to programs that empower employees to more actively participate in the health care buying decision - by giving workers more freedom of choice and putting them in charge of spending their own health-care dollars.

• Apply the same business discipline to managing health care costs that the company applies to its core business functions. In the late 1980s and 1990s, businesses applied more rigorous business discipline to their production, marketing, research and other areas by using new management and information technology tools to empower employees, increase efficiency, lower costs and achieve other key business objectives. Businesses must apply this same discipline to taming health care costs.

"There is a real sense of urgency among employers to solve the problem of rising health care costs," says Ms. Cotter. "But there's no quick-and-easy fix. Winning companies will approach this challenge like a marathon, not a sprint - applying the same long-term focus and strategic planning that they apply to other business challenges."

The Washington Business Group on Health (WBGH), representing 165 large employers, is the nation's only non-profit organization devoted exclusively to finding innovative and forward-thinking solutions to the nation's most important health care and related benefits issues. The Business Group also supports its members in the areas of disability, health/productivity, related paid time off and work/life balance issues. For more information on WBGH, call (202) 628-9320 or visit www.wbgh.org.

Watson Wyatt is a global consulting firm specializing in human capital and financial management. The firm offers services in three areas: employee benefits, eHR and human capital strategies. Watson Wyatt has more than 6,200 associates in 87 offices in 29 countries. For more information visit www.watsonwyatt.com.

For more information contact Ed Emerman at (609) 452-5967.