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Old Mutual survey highlights escalating healthcare costs
by SAPA
2001-05-25

A new survey by Old Mutual highlights the increasing costs of healthcare.

Cost control is the most important strategic issue facing employers in the provision of medical cover for their employees, as it has been for the previous four surveys since 1994, according to the findings of the just-released 2001 Old Mutual Healthcare Survey. Old Mutual Healthcare MD Riaan Jordaan said that in terms of dealing with the impact of rising costs, many employers are implementing strategies which effectively shift the growing cost burden to fund members. 

The majority pay a fixed percentage of the medical scheme contribution, but there is evidence of moves towards paying a fixed Rand amount for each member, or a pre-determined percentage of salary bill, or covering the cost of a pre-determined set of benefits. These new approaches suggest employers are starting to move away from paying a fixed percentage of an ever-increasing contribution, Jordaan said. 

The average cost to employers for participating staff in 2000 was estimated at 7.2% of payroll with costs for open scheme participants having increased, on average, by 17.4% in 2000 and by 15.8% in 1999. Given the potential impact of rising healthcare costs on company profit margins, it's surprising that only 23% of survey participants have a documented corporate healthcare strategy with measurable goals and objectives. 

Respondents listed new drugs, provider over-servicing, the regulatory environment, an ageing population and medical advancements as the major drivers behind escalating costs. Interestingly, there is not a strong correlation between perceived cost drivers and the initiatives put in place to control expenses. When asked about actions effective in managing healthcare costs, respondents listed employee health education and managed care initiatives as their top priorities. 

Other initiatives included capping company contributions, cost sharing with employees and reducing or limiting benefits. Jordaan said that while the top two initiatives, employee education and managed care, targeted systemic medical scheme costs, most of the others tended to be short-term, cost-shifting exercises that transferred the risk for healthcare cost increases from the employer to the employee. Participating employers seemed satisfied with the managed care initiatives that had been put in place as cost saving strategies.

Significantly, most also believed that managed care improves the quality of healthcare. Members also responded positively to the introduction of elements of managed care, with the exception of preferred provider networks that they believed restricted their freedom of choice. Confirming trends identified in previous surveys, the impact of HIV/AIDS on healthcare funding also remains a key consideration, as does the funding of healthcare benefits in retirement.

Source: SAPA, 23 May 2001

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