Group Insurance’s Rising Health Care Costs a Concern
The number one priority for most employers in 2014 is controlling medical costs under their group plans, reports Benefits Canada.
An annual survey on compensation trends and projections from Morneau Shepell — a firm dedicated to helping companies improve their financial security, health and productivity — shows that 68% of responding companies worry about their health care costs in the upcoming year. This is up from 45% when they were asked about 2013.
Among their expenses, it’s the rise in cost of specialty drugs that employers should pay particular attention to. Although specialty drugs are used by fewer than 5% of employees, they make up 15% to 25% of the total drug spend, so says research by Towers Watson – the global HR consulting firm.
Drug costs have apparently grown stagnant thanks to the rise of generic medicine, but drug companies have indicated that they will increasingly market specialty drugs because they get a better return on investment.
However, there is a silver lining for employees: 15% of companies surveyed said they’ve made improvements to their healthcare programs in the last couple of years and 10% say they plan to make improvements next year.
In 2012, healthcare spending reached $207 billion in Canada, which is $5,948 per person, provincial and territorial governments account for 65% of that cost with private insurers covering the rest, according to the Canadian Institute of Health Information.
The major driver of this cost, which has actually gone down from 2011 when it rose to $200 billion, are doctor’s salaries. The salaries of skilled hospital workers have risen even more quickly than the average salaries in Canada. Doctor’s salaries have also have grown much faster than those of the wages of other hospital workers and social workers.
Hospital technology is the second major expense, even though it has remained steady for the past decade at 37%. Drug costs are the third biggest factor in healthcare at 9% and they are kind of a mixed bag. With fewer new drugs on the market and more coming off patent, the growth in drug costs has stopped, but with more Canadians using prescription drugs, it has contributed to a small increase.
Most people get their drug costs covered through their group insurance plan provided by their employer. If you’re on a group insurance plan, here’s what to look for in a quality plan:
According to Toronto-based Group insurance broker Joel Cadesky, the best group insurance plans are the ones that are win-win arrangements for the employer and employee. He recommends that the employer and employee split the cost straight down the middle and says problems will inevitably arise if they don’t.
“If the owner pays 100 per cent, it’s going to become free insurance for the employee and as a result, they’ll use the plan more than normal, and on renewal the rates are going to be higher, so then you’ll have a problem with the plan where you’ll have to change and dilute the coverage offered,” says Cadesky. “If there is a sharing of costs, every time an employee files a claim, they are taking an ownership in that because they realize that claim is going to have some effect on their rates next year.”
A 50/50 split doesn’t invite abuse, just heavy use, but the split isn’t forever. Cadesky usually recommends a sliding scale that includes 50/50 in the first year and then 60/40 in the second year with the employer paying the bulk of the costs. Then in the third year, the employee only pays 30%. They’re costs continue to go down year after year until their plan is paid for 100%.
He also recommends that the plan be customized according to the needs of the employees.
“For example, if you’ve got a very young group, say 24 or 25 is the average age, then dental isn’t going to be the huge factor and prescriptions may be a factor, but what will be really big is paramedicals, so you’ll top up the paramedicals because those are the people who will use the chiropractors, the acupuncturists, and the message therapists,” he says.
As a result, employers should get to know their group and make sure they work with a broker who knows how to properly negotiate down their renewal cost.
If you’re an employer who needs help evaluating your group plan, or negotiating your renewals. give us a call at 1-866-899-4849 and visit our Group Insurance Quote Page.