Rising Healthcare Costs Cut Into Profits for Half of Large US Businesses

Source: PricewaterhouseCoopers Health Research Institute
Monday July 18, 9:42 am ET
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National Survey Shows More than Three-Quarters of All Companies Are Looking to Shift More Healthcare Costs to Employees

WASHINGTON, July 18 /PRNewswire/ -- Half of large US companies said that increased healthcare costs have contributed to slower profit growth over the past 12 months and, as a result, more than three-quarters said they may ask their employees to pay a greater share of health insurance costs. The findings were from a survey of 150 top executives at large, US-based multinational companies released today by PricewaterhouseCoopers Management Barometer and the firm's Health Research Institute.

One in four companies said double-digit healthcare cost increases may force them to lower wage increases for employees, and one in five expects to slow hiring of new permanent employees in the year ahead. Survey respondents said that healthcare costs per employee had risen by an average of 12 percent over the past year, and they project another increase of 11.1 percent over the next 12 months without any changes to plans.

While making employees pay a higher share of healthcare costs appears to be the solution for the majority of employers surveyed, one in five employers said that doing so would have very little impact on reducing their company's overall healthcare costs. The most promising option for reducing corporate healthcare cost increases was to provide financial incentives for employees to live healthier lifestyles, according to more than eight in ten executives surveyed.

"Shifting a greater share of spiraling healthcare costs to employees is a trend that is likely to continue, but if employers push too far, workers may opt out of coverage altogether," said Sandy Lutz, director of research for PricewaterhouseCoopers Health Research Institute. "However, consumers need to understand the connection between rising healthcare costs and their own behavioral issues, such as smoking and obesity, that drive up spending."

Seven in 10 respondents to the Management Barometer Survey said that requiring employees to pay higher deductibles would lead to an employee reduction of spending on discretionary healthcare, while one in five said that it probably would not. Six in 10 companies believed requiring employees to pay higher deductibles would cause employees to defer needed care and risk long- term problems.

Of those surveyed, 35 percent are currently offering a High-Deductible Health Plan (HDHP) and 25 percent are offering Health Savings Accounts (HSAs). However, of those employers who currently do not offer a consumer-directed health plan, only 7 percent said they intend to add an HDHP to their basic health plan offerings and almost an equal number (8 percent) said they plan on adding HSAs to their benefit plans.

Building off the findings of the Management Barometer Survey, PricewaterhouseCoopers Health Research Institute has launched a major initiative to investigate the move towards consumerism by employers across multiple industries. Its research, to be released this summer, will look at significant changes in benefit plan design that incorporate greater healthcare consumerism, such as HSAs, as well as efforts to improve transparency of costs, quality and treatment options.

When asked about the correlation between healthcare costs and behavior, the survey results were split. While close to half of employers (48 percent) said requiring employees who exhibit unhealthy behavior (e.g., smoking, poor nutrition) should be responsible for paying a larger share of their health benefit costs, 42 percent of those surveyed disagreed.

"The vast majority of employers agree that empowering their employees with information, education and pricing transparency can make a difference long- term, and this is the foundation of healthcare consumerism. In addition, there is a growing trend for employers to expect employees and their families to take more personal accountability for managing their own health through prevention and lifestyle choices," said Michael Thompson, Global Human Resource Services Principal with PricewaterhouseCoopers and a leader in the firm's efforts focusing on healthcare consumerism.

Three-quarters of companies said employers could help reduce costs by providing employees with better information about healthcare prices, quality and generic drugs, and 67 percent believe that providing this information will lead to both higher quality medical care and lower costs. However, only 38 percent of survey respondents said they currently provide a "great deal" of regularly-updated information about healthcare prices and quality of care, while 42 percent said they provide a "moderate" amount.

When asked about specific information benefits, most employers were confident of their employees' ability to make good decisions if given accurate, easily-accessible information. Close to seven in 10 employers believed that, if they provided better information to evaluate drugs, doctors and hospitals, their employees would have lower healthcare costs and higher-quality care.

Employers said that quality information would benefit their workers. Nearly nine in 10 (87 percent) said that it would be useful for their employees to have information about generic drugs that can be safely and effectively used in place of prescribed brand-name drugs. In addition, more than seven in 10 (71 percent) said it would be useful for their employees to have accurate and easily-accessible lists of hospitals with high volume and best outcomes for specific procedures, surgeries or conditions. An even greater number - 77 percent - agreed that it would be useful for their employees to have accurate and easily-accessible lists of doctors with high volume and best outcomes for specific procedures, surgeries or conditions. And nearly two-thirds (62 percent) said they thought their employees would find it useful to have lists of steps hospitals are taking to reduce preventable medical mistakes.

Although technology in the healthcare sector is making headlines, the value has yet to be fully communicated to consumers. One-third of employers thought that hospitals' use of physician order entry systems, for example, would not be particularly useful information for employees, while 52 percent said it would be "somewhat useful."

PricewaterhouseCoopers' Management Barometer is a quarterly survey of top executives in a cross-section of large, multinational businesses. Nearly 150 chief financial officers or their designees completed this survey during spring 2005, representing 109 companies with more than 1,000 employees and 38 companies with fewer than 1000 employees. The survey is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.

About the PricewaterhouseCoopers Health Research Institute

PricewaterhouseCoopers Health Research Institute provides new intelligence, perspective and analysis on trends affecting all health-related industries, including healthcare providers, pharmaceuticals, health and life sciences and payers. The Institute is part of PricewaterhouseCoopers' larger initiative for the health-related industries that brings together expertise and allows collaboration across all sectors in the health continuum.

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