Boo! The Scary Rise of Healthcare Costs

As Halloween approaches, it may be a good time to look at the frightening state of U.S. healthcare costs. Like a returning fever, medical insurance prices are going up again and the forecasts are scary indeed.
Large employers (mostly Fortune 1000 companies) face double-digit increases in the cost of health benefit plans in 2000, the first such increase since 1993, according to “The 2000 Health Care Cost Survey” by Towers Perrin. The consulting firm expects health benefits to cost 12% more on average. And over 90% of these employers expect the double-digit increases to continue for the next few years. A separate survey, this by Hewitt Associates, is nearly as pessimistic. Over half (57%) of nearly 600 surveyed companies predict cumulative five-year health plan costs of 25% to 49%.
These forecasts are particularly alarming in light of today’s low inflation rates, tight labor markets, and, in some industries, slowing profit growth. To keep overall compensation costs down, employers may be tempted to share rising healthcare costs with employees. But then they risk alienating workers at a time when good people are very hard to find and retain. Perhaps that’s why only 25% of employers say they will shift more health plan costs to workers in 2000.
This raises the question of whether, as some have predicted, defined contribution plans are truly the future of health benefits. Slightly more than 60% of respondents characterize the possibility of making such a switch as “likely” or “very likely” in the next decade, according to a recent PricewaterhouseCoopers poll of 50 thought leaders and 380 healthcare executives in the U.S., Canada, Europe and Australia. Tom Beauregard of Hewitt Associates suggests that providing workers with vouchers or cash to purchase their own healthcare coverage could reduce many of the problems businesses are facing. But others note such a strategy might also panic employees. They point to the worker protests and the resulting media coverage that occurred when some companies switched from defined benefit to cash balance retirement plans. Health benefits -- a much more critical and sensitive issue -- could elicit an even sharper response.
And the question remains whether such a program would work to control overall U.S. healthcare costs, which are already the highest in the world. Of 191 member nations surveyed by the World Health Organization (WHO), the U.S. spends the most, both as a percentage of its gross domestic product (GDP) and in per-capita healthcare spending. The U.S. spends 13.7% of its GDP on health care, compared with second-ranked Germany (10.5%). Per person, the U.S. spends $3,724 while Germany spends $2,365.
Some observers say that these high costs would be easier to stomach if the U.S. were getting more for its money. Today, there are about 44 million people in the U.S. who lack health insurance. Nearly half of poor full-time workers don’t have such insurance, according to the U.S. Census Bureau.
This lack of coverage for so many people is the primary reason that the World Health Organization ranks the U.S. system 37th out of 191 systems. (France was ranked 1st.) This low ranking of the world’s most expensive system has caused plenty of controversy. Various critics charge that such a ranking doesn’t take into consideration the powerful technologies, innovation and overall effectiveness of the U.S. system. But whatever measure is used, the comparative quality and costs of healthcare systems are likely to garner increased business attention in the future. The health of a nation’s population has a large impact on its productivity, and healthcare prices affect unit labor costs. In a global economy, this gives high-quality, cost-effective healthcare systems a distinct competitive advantage.
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To read more about the WHO's "World Health 2000 Report," please see
http://www.who.int/whr/