| BUSINESSWEEK ONLINE : MAY 15, 2000 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
Managed Care Takes to the Sickbed When the board of the California Public Employees' Retirement System meets on May 17 to decide on 2001 health-care benefits for its 1.1 million public employees and retirees, there will be something new on the agenda: higher co-payments for doctor visits and some prescription drugs. CalPERS has not raised co-payments since 1993. But with an aging membership, drug costs up 120% in the past seven years, and health-care professionals demanding more money, CalPERS may not be able to hold off any longer. If the board approves, co-payments for office visits and brand-name drugs will double, to $10, and premiums will rise by 4.9%. The situation at CalPERS--the largest buyer of worker health-care after the federal government--is a sign of the times. On Apr. 27, the Labor Dept.'s sharply higher employment-cost index sent a fear of rising inflation through Wall Street. And the big reason for the jump in the ECI was benefits costs, which rose by 2% in the first quarter of 2000--the steepest hike in a decade. The key culprit: soaring health-care and prescription-drug costs. After raging for decades, health-care inflation seemed to be under control. Costs slowed sharply from 1990 to 1997, as companies jumped on the managed-care bandwagon. When costs first began to fall, experts warned that savings would dwindle once plan participation was widespread and inflation returned. They were right. Now, companies are facing the dilemma of what to do about higher costs. If they absorb them, profits take a hit. If they boost prices, customers could walk. At the same time, firms are reluctant to pass on increases to their employees. So how are companies handling the price hikes? Health-care experts say many may offer a health-care allowance, also known as a defined-contribution benefit. Under this scheme, employees get a lump sum yearly with which to purchase health insurance from a menu of options set by employers. This puts responsibility for finding the right plan at the best price on the employee. As employers learn more about defined-contribution plans, more will adopt such schemes, predicts Ari S. Kellen, a partner in McKinsey & Co.'s health-care practice. At Xerox Corp., for example, Patricia M. Nazemetz, vice-president for human resources, says such systems work well: When insurers jack up rates, employees simply flee to cheaper plans. Other employers, such as CalPERS, are leaning toward more cost-sharing. A Mar. 9 study led by Watson Wyatt Worldwide found that 70% of employers are passing at least some of their higher medical costs on to workers. Still, others are compensating for the hike in health-care costs by reducing other costs. Southwest Airlines Co., for example, is looking to cut expenses elsewhere by selling more tickets online and renegotiating telecom contracts. ''There's just no end in sight'' to rising health-care costs, says Southwest's chief financial officer, Gary C. Kelly. Firms are finding other ways to cope, too. In April, Sears, Roebuck & Co. eliminated medical coverage for part-time employees--some 3% of its workforce. Minneapolis-based Medtronic Inc. encourages employees to lower their medical bills by leading healthier lives through a ''well-being'' program that includes on-site cholesterol testing and a Web site with health tips. Some smaller companies haven't been so lucky. Dennis W. Lakomy, chief financial officer for CFC International Inc., a Chicago Heights (Ill.) manufacturer of chemical coatings, says he expects HMO premiums to rise by more than 20% after June 30. Unable to lower costs by self-insuring, Lakomy will split the increase with workers. It looks as if the managed-care miracle of the '90s is fading fast in the new millennium. By Laura Cohn in Washington, with Pamela L. Moore in Greenwich, Conn., and bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Split Vision: Is This Inflation Different? CHART: Rising Labor Costs...Add to Inflationary Pressures Managed Care Takes to the Sickbed CHART: Health-Care Costs Take Off INTERACT E-Mail to Business Week Online | |||
