Health-care cost containment strategies.

• Author: Purcell, Melanie
• Position: Best Practices

High-quality health-care coverage has been a staple in the compensation of public sector employees for generations, and for many years, it was the justification for paying public employees less than their private-sector counterparts earned. Many state and local governments recognized early on that it was desirable to have a healthy and stable workforce for whom health care would not be a driving employment concern, as it can be for workers who do not have coverage.

Over rime, however, the cost of healthcare coverage for employees and retirees has grown at an exponential rate. Health care has become an essential part of any budget conversation. The cost increases incurred over recent years, and the increases expected in coming years, require close management of every facet of employee and retiree health care, not just the purchase of insurance coverage.

Methods for containing health-care costs tend to focus on three primary areas: the plan itself (structure, purpose, and goals), how the plan is paid for (self-funded versus fully funded, as well as participant contributions), and the factors influencing demand (largely determined by the employee population). In each area, tools exist to manage cost increases and potentially control the scope and nature of benefits. One of the most commonly used tools is cost shifting--transferring some percentage of plan costs to the employees who use the services--which can reduce direct costs to the employer. Cost shifting does not directly reduce total costs of insurance, although it can influence participants' behavior in ways that will reduce costs.

The most immediate way for employers to achieve direct cost reductions is through careful health-care plan design. This includes a number of options that run the gamut from minor changes to major renovations. Including some guiding principles will make any health-care plan more efficient and effective.

SPECIFIC STRATEGIES

A good place to start is with an eligibility audit of dependents, spouses, and retirees. Many employers find they are providing health-care to a number of ex-spouses, adult children, and other individuals who are not eligible for coverage. Full-time students should be required to document their eligibility annually. Another possibility is requiring spouses to use their employers' coverage as primary, where applicable, and requiring participants who are eligible to use Medicare as their primary provider.

It is also important to verify that payments are being made according to existing plan provisions. Double-check that benefits are coordinated, in the case of employees who have another primary provider; co-payments are being charged consistently across all participants and providers; recent changes are being observed, such as...