Employers struggle to fund current health benefits, never mind making up for public system shortfalls
It seems that every day there’s another headline in the newspaper or a lead story on the dinner-time news about problems with Canada’s health-care system.
And with all the media attention on the already bad and worsening problems in the public system, it seems logical that employers would be expected to pick up the slack by making improvements to the offerings provided through private benefit plans. But not so.
In the past few years, provincial governments have had to pick up an ever-growing share of the tab for public health care.
In response, the provinces have passed more of the financial commitment to the individuals using the services by delisting some procedures. Ultimately these additional costs do show up in the private benefit plans. And depending on the degree of the plan’s cost-sharing, they go straight to the plan sponsor. This is commonly referred to as cost-shifting.
But while there’s no denying there are cracks in the Canadian health-care system, employers are too busy worrying about other emerging cost concerns to spend still more to make up for shortfalls in the public system.
According to a May 2003 Statistics Canada report, Perspectives on Labour and Income, 62 per cent of working Canadians are covered by at least one employer-sponsored benefit — either extended medical, dental or life and disability — and 50 per cent are covered by all three.
Overwhelmingly, the main concern for private benefit plan sponsors continues to be cost. This includes the cost of offering a plan, of providing open formularies that cover new prescription drugs, of maintaining a reasonable cost-sharing arrangement with employees and of educating employees to appreciate the plan and use it effectively.
In consulting firm Deloitte’s Top five benefit priorities for 2004, a survey of Canadian employee benefit specialists, the number one concern among benefits plan sponsors was managing the health and welfare costs of benefits plans. It has been the top concern in the survey for each of the past five years.
Similar results were found in the Trends in employee benefits survey conducted by Morneau Sobeco. The 2001 results ranked benefit costs as the priority for 51 per cent of respondents, and by 2002 this had increased to 55 per cent. The 2003 results will be available shortly, but there is no reason to expect a major shift in priorities.
These results don’t come as a surprise given the financial context for the Canadian plan sponsor. The same Statistics Canada report stated that the cost of mandatory non-wage benefits (EI, C/QPP and workers’ compensation) increased from five per cent of payroll in 1961 to 12 per cent in 1998.
Adding in the cost of discretionary benefits (such as employer-sponsored insurance, pensions, paid leave, profit and stock option plans), the total cost of non-wage benefits increased to a whopping 23 to 36 per cent of payroll in the same period.
While failings of the public system may be a concern, it is certainly not the most important reason for the increasing costs of private benefit plans. A large percentage of Canadian employees are aging and require more drugs and other therapies. The looming labor shortage and skilled-worker recruitment challenges mean that more of these employees will be encouraged to remain in the active workforce for longer periods.
What this means is that health care shortages and accessibility obstacles in the Canadian health care system are relegated to the back burner when it comes to private plans. Employers have enough to cope with in paying the bills they have now.
Employees covered by collective agreements have probably had a little more success in extending plan coverage to address public health care failings. But for most private plans, the focus has typically been on managing costs, and specifically, prescription drug costs.
Breakthrough drugs make headlines too, and plan sponsors are usually pressured to extend prescription drug coverage to the latest drug releases available and even, occasionally, to some more experimental treatments as they move into the mainstream.
Plan members who are fortunate enough not to have needed any of these therapies will have little appreciation for these increasing costs, but the treatment for increasingly common illnesses come with ever-increasing price tags. Treatments for moderate to severe arthritis can run to $10,000 to $25,000 per year, cancer $15,000 to $30,000 per year and multiple sclerosis $30,000 to $40,000 per year.
HIV/AIDS treatments have long ranged in the $20,000 to $80,000 range per year, and there are other treatment protocols that range into six figures on an annual basis. With chronic illnesses in that price range it doesn’t take too long to reach a plan’s lifetime coverage maximum.
These dollar amounts could translate into potential bankruptcy or worse for the people and families affected. Who wants to be given Solomon’s responsibility of making an impossible choice? Who wants to be the plan sponsor making headlines for declining coverage for multi-thousand dollar life-saving treatments?
There’s no easy solution to the cost conundrum. Cost management strategies that have been employed in the past are being re-emphasized, and member education, wellness programs and encouraging plan members to partner in managing rising costs through plan design are all useful tools.
But there is no finish line on the horizon that will tell us when the problem has been overcome. Instead, everyone involved in funding and delivering benefits and health-care services needs to recognize that the current model is broken — they’ll need to work together to fix it effectively.
Jacqueline Taggart is a principal in the communications practice of the Toronto office of Morneau Sobeco. She can be contacted at (416) 385-2119 or [email protected].
And with all the media attention on the already bad and worsening problems in the public system, it seems logical that employers would be expected to pick up the slack by making improvements to the offerings provided through private benefit plans. But not so.
In the past few years, provincial governments have had to pick up an ever-growing share of the tab for public health care.
In response, the provinces have passed more of the financial commitment to the individuals using the services by delisting some procedures. Ultimately these additional costs do show up in the private benefit plans. And depending on the degree of the plan’s cost-sharing, they go straight to the plan sponsor. This is commonly referred to as cost-shifting.
But while there’s no denying there are cracks in the Canadian health-care system, employers are too busy worrying about other emerging cost concerns to spend still more to make up for shortfalls in the public system.
According to a May 2003 Statistics Canada report, Perspectives on Labour and Income, 62 per cent of working Canadians are covered by at least one employer-sponsored benefit — either extended medical, dental or life and disability — and 50 per cent are covered by all three.
Overwhelmingly, the main concern for private benefit plan sponsors continues to be cost. This includes the cost of offering a plan, of providing open formularies that cover new prescription drugs, of maintaining a reasonable cost-sharing arrangement with employees and of educating employees to appreciate the plan and use it effectively.
In consulting firm Deloitte’s Top five benefit priorities for 2004, a survey of Canadian employee benefit specialists, the number one concern among benefits plan sponsors was managing the health and welfare costs of benefits plans. It has been the top concern in the survey for each of the past five years.
Similar results were found in the Trends in employee benefits survey conducted by Morneau Sobeco. The 2001 results ranked benefit costs as the priority for 51 per cent of respondents, and by 2002 this had increased to 55 per cent. The 2003 results will be available shortly, but there is no reason to expect a major shift in priorities.
These results don’t come as a surprise given the financial context for the Canadian plan sponsor. The same Statistics Canada report stated that the cost of mandatory non-wage benefits (EI, C/QPP and workers’ compensation) increased from five per cent of payroll in 1961 to 12 per cent in 1998.
Adding in the cost of discretionary benefits (such as employer-sponsored insurance, pensions, paid leave, profit and stock option plans), the total cost of non-wage benefits increased to a whopping 23 to 36 per cent of payroll in the same period.
While failings of the public system may be a concern, it is certainly not the most important reason for the increasing costs of private benefit plans. A large percentage of Canadian employees are aging and require more drugs and other therapies. The looming labor shortage and skilled-worker recruitment challenges mean that more of these employees will be encouraged to remain in the active workforce for longer periods.
What this means is that health care shortages and accessibility obstacles in the Canadian health care system are relegated to the back burner when it comes to private plans. Employers have enough to cope with in paying the bills they have now.
Employees covered by collective agreements have probably had a little more success in extending plan coverage to address public health care failings. But for most private plans, the focus has typically been on managing costs, and specifically, prescription drug costs.
Breakthrough drugs make headlines too, and plan sponsors are usually pressured to extend prescription drug coverage to the latest drug releases available and even, occasionally, to some more experimental treatments as they move into the mainstream.
Plan members who are fortunate enough not to have needed any of these therapies will have little appreciation for these increasing costs, but the treatment for increasingly common illnesses come with ever-increasing price tags. Treatments for moderate to severe arthritis can run to $10,000 to $25,000 per year, cancer $15,000 to $30,000 per year and multiple sclerosis $30,000 to $40,000 per year.
HIV/AIDS treatments have long ranged in the $20,000 to $80,000 range per year, and there are other treatment protocols that range into six figures on an annual basis. With chronic illnesses in that price range it doesn’t take too long to reach a plan’s lifetime coverage maximum.
These dollar amounts could translate into potential bankruptcy or worse for the people and families affected. Who wants to be given Solomon’s responsibility of making an impossible choice? Who wants to be the plan sponsor making headlines for declining coverage for multi-thousand dollar life-saving treatments?
There’s no easy solution to the cost conundrum. Cost management strategies that have been employed in the past are being re-emphasized, and member education, wellness programs and encouraging plan members to partner in managing rising costs through plan design are all useful tools.
But there is no finish line on the horizon that will tell us when the problem has been overcome. Instead, everyone involved in funding and delivering benefits and health-care services needs to recognize that the current model is broken — they’ll need to work together to fix it effectively.
Jacqueline Taggart is a principal in the communications practice of the Toronto office of Morneau Sobeco. She can be contacted at (416) 385-2119 or [email protected].
