Health care crisis: health care costs are soaring and employees don't want to pay, leaving CEOs with one very expensive problem

Chief Executive, The, June, 2004 by Jennifer Pellet

Mention "heath care" to the CEO of any large company and the prevailing reaction is an outpouring of frustration. And for good reason. Continuing a trend of double-digit increases, health insurance premiums rose an average of 14 percent last year and are expected to jump by 11 to 20 percent annually for the next three years. Small wonder that there are a rising number of Americans--some 43 million at present--without any insurance whatsoever. What's more, as 77 million baby boomers head into retirement, increasing longevity and corporate cutbacks on retirement health care benefits are taxing an already shaky Medicare system.

[ILLUSTRATION OMITTED]

For myriad reasons, the burden of shouldering this spiraling health care cost disproportionately falls on large U.S. corporations. With small businesses increasingly unable or unwilling to offer affordable health insurance, employees of large corporations frequently bring entire families into their firms' insurance fold. Worse yet, thanks to price controls and restrictive national health programs in overseas markets, U.S. health care consumers pay the highest prices for drug therapies and medical diagnostic and treatment technologies, effectively subsidizing both health care R & D and treatment in industrialized nations as well as developing countries.

Efforts to manage these costs are fraught with problems. At best, attempts to cut health care benefits or raise employee contributions provoke outrage among employees or diminished morale; at worst, in the case of a unionized employee base, the cuts spur outright revolt. At the same time, pressure for private-sector solutions to the looming health care crisis continues to build, thanks to the real and growing fear that Congress will step up to the plate with a health reform bill.

The bottom line? From manufacturing industries to the service sector, CEOs are suddenly finding themselves in the health insurance business, desperately seeking solutions and strategies that will enable them to provide quality care at an affordable price.

Cost Control

For many, the invisibility of health care costs to the end consumers--in this case employees--is at the root of the problem. "People's standards change when they're not paying the cost for their choices," Brian Ferguson, chairman and CEO of Eastman Chemical, told a recent roundtable discussion held in partnership with the Blue Cross Blue Shield Association. "If I were buying cars for people, what car would they pick versus if they were paying for it themselves? There's an insulation between the users of health care and the cost that doesn't exist in other situations--transportation, housing, education, food. The dilemma we see is, how do we connect our employees more personally with the costs and the choices of health care?"

But efforts to increase co-payments and health care deductibles so that employees "feel" the cost of their doctor visits and prescription drug medications tend to be met with strong resistance. As Vicky Gregg, CEO of Blue Cross Blue Shield of Tennessee, noted, employee expectations have risen over time to the point where they not only want health care benefits, they want them "free, perfect and now."

And who can blame them? Spurred by ad campaigns for prescription drugs, Americans have become avid consumers of brand-name prescription medications for everything from allergies to heartburn. The resulting spike in what some view as unnecessary doctor visits and medications, experts say, has contributed to health care cost hikes.

At the same time, important medical advancements also spur cost increases. And, in most cases, treatment with these expensive innovations--even pricey ones with uncertain outcomes--is warranted. After all, when facing a serious condition, a costly treatment therapy with a small chance of success is vastly preferable to having no chance of recovery at all.

It's an irony not lost on CEOs and health care professionals that improvements in medical technology, diagnostic tests and health care treatment success rates are, in part, fueling the coming health care crisis. It's hard to fault medical advancements for raising the average life span, and yet those very increases in longevity translate to a burgeoning population of retirees, many of whom will require decades of health care. "At a time when Medicare is going through dramatic changes and we know what the viability of Social Security is, how do we make retiree medical coverage affordable for people?" asked Thomas O'Reilly, director of group benefits at Illinois Tool Works. "Can we make it affordable for them once they switch over from being a wage earner to being a nonwage earner?"

[ILLUSTRATION OMITTED]

As Raymond McCaskey, CEO of Health Care Service, pointed out, the cutting edge medical technology and new treatments don't come cheap--and yet no one wants to slow advancement in medical treatment, let alone be denied, or deny, access to them. "Would you go back to paying 1950s cost levels and be willing to take the best 1950s medical treatment you'd get?" he asked. "Few want to go there. There has been rapid escalation in unit cost, but the unit today is a very different unit from the unit we had in the '50s. So it's a highly complex issue. And yet [the rising costs] and having 15 percent or more of the population not being able to get adequate health care or health care at all are a huge societal problem."