Health-care costs maintain dramatic rise

Employers focus on wellness strategies to combat trends
By Sarah Dobson
|Canadian Compensation & Benefits Reporter|Last Updated: 07/13/2009

The cost of pharmaceuticals surged 15.2 per cent in 2009, driven by factors such as an aging population and greater use of medications to treat ailments, according to the Canadian Health Care Trend Survey.

The increase in 2009 surpassed last year’s increase of 14.1 per cent, reversing a four-year trend of declining cost increases. (See chart on page 14 for a look at the overall health cost increases from 2005 to 2009.) Pharmaceuticals represent the largest portion — typically 60 per cent to 70 per cent — of employer health-care costs.

“With any cost increase at 15 per cent per year, which is so far from a normal cost increase like the consumer price index, you just have to look down the road and know this is going to be a huge concern (for employers),” said Michele Bossi, a Toronto-based practice leader in the health and productivity consulting practice at Buck Consultants, which conducted the ninth annual survey.

Overall, the costs for drugs, medical plans, hospital coverage and dental care increased by 14.8 per cent in 2009, up from 13.8 per cent in 2008, according to the survey of 11 major Canadian insurers.

Employees ‘stocking up’

A big factor contributing to the rise is employee uncertainty, she said.

“We expected it to be a little bit higher this year because of the economic downturn,” said Bossi. “What we’re seeing is employees stocking up, either if they’ve been terminated or are nervous about things, they will stock up on their expenses and get their cleanings done. Anything that you might delay, you’re not going to delay anymore.”

While there have definitely been increases in use and cost, there have not been huge jumps, said Estelle Morrison, director of health management with the employee assistance program and organizational wellness offering at Ceridian in Toronto. Usually employers see increases in paramedical benefits where employees have more freedom of choice, such as physiotherapy or chiropractor visits, she said, as opposed to prescription medication, which has limits.

“What does tend to happen is people feel that their jobs may be lost, perhaps they’ll go for a dental check-up, just in case,” she said. “There’s more of an immediate push, but I’m not sure people have a need that doesn’t exist.”

The increases in costs can also be explained by aging baby boomers and generation X, who are less healthy than traditionalists, with rises in incidences of chronic illness, heart disease and diabetes, said Morrison. Some of it is also a reflection of physician practices and overwhelming caseloads.

“For instance, if you look at depression, there has been an increase in prescription medication for depression,” she said. “It speaks to the idea our physicians, who have (on average) seven minutes with each person, are going to turn to medications more so than continued counseling.”

Medical, dental costs rising rapidly

Medical plan costs (excluding prescription drugs) climbed 14.1 per cent, from 13.1 per cent in 2008, partly due to the growing popularity of paramedical practitioner treatments and an increase in prescribed orthotics.

Dental care usage rose from five per cent in 2008 to 5.6 per cent in 2009, fuelled by greater use of orthodontics. The small increase in hospital coverage, from 12.4 per cent to 12.8 per cent, could also contribute to the rising trend in prescription drugs, as it moves the cost of pharmaceuticals from hospitals to the community, said the survey.

“(Hospital costs) didn’t increase as much because a lot of treatment is done now outside of the hospital and the government is also trying to keep hospital stays down as well,” said Bossi.

But there are gains each year, as there are more types of treatment available and more people are seeking treatment.

“There’s less tolerance in general for illness and even discomfort in our society,” she said. “All these factors contribute to a general increase in medical care, and you’re seeing it worldwide.”

Cost-cutting strategies

While the recession has many employers looking to cut costs, benefit plans are not necessarily on the chopping block, said Bossi.

“Employers today are at a point where you’ve got your struggle in trying to attract and retain talent, and you’ve got your benefits, which is a huge cost, so there’s a real balance they have to strike,” she said.

Wellness programs are one creative way to reduce costs, but it takes considerable time and effort before any payback is seen. It’s difficult for HR to make the business case for wellness, particularly in Canada where the government foots a lot of the bill for health care, said Bossi.

“There’s shared responsibility (in Canada) and the employer and the government are not a team, so it’s a bit more difficult — they do their thing, we do our thing,” she said.

In the last few years, conversations around wellness strategies and a preventive stance have become more common, said Morrison.

“Many organizations now have data reviews and they’re looking at all their benefits usage and saying, ‘How can we tie our wellness strategy into the trends that are happening in our organization, with our demographics, and really try to either put a stop to the speed at which this is happening or to get some cost control or containment or work against the trends?’” she said.

It’s a matter of deciding where to target efforts and some employers have too broad-based a wellness strategy, said Morrison.

“It’s a very young science still,” she said. “There’s not been a targeted approach, it’s been very open. It’s almost like killing a fly with a machete — it’s all over the place.”

And many organizations still need convincing about the return on investment of health and wellness initiatives.

“You’re working against the aging process, you’re working against health trends,” said Morrison. “Sometimes a positive effect is that nothing changed, people didn’t get worse. And try convincing an organization: ‘Isn’t that great?’”

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