Controlling Your Health Insurance Premiums

Health insurance costs are rising much faster than inflation. But what can manufacturers do about it? One idea that seems to be working is giving employees "ownership" in their health plans. A big problem is that employees are disconnected from the cost of healthcare. For instance, when asked in surveys, a surprising number of people think the doctor only receives their health plan's co-pay amount, $10 or $20!

This misperception leads employees to think, "I've already paid for my health care via these premiums, so I want to get the most I can out of the plan." The result of this thinking leads to wasteful use of healthcare services and rapidly escalating costs.
But durable medical equipment, such as crutches, wheelchairs and the like, has averaged less than 5% inflation over the last 20 years. In October, the Department of Labor announced that the inflation rate for prescription drugs had dropped to 1%.
Not coincidentally, in both categories consumers pay a larger share of costs than in other healthcare expenses. Durable medical equipment benefit is usually limited to some relatively small amount ($750-$1,500 maximum benefit) with the insured paying the rest. And often the insured shares in the initial cost, too.

Prescription cost-sharing has changed in the last ten years. Not long ago most drug plans required only a $5 or $10 co-pay for all drugs. And drug inflation reflected that disconnect, reaching a high of 22% per year. But in the last half dozen years most health plans have changed to a three-tier drug co-pay plan: $10 for generic drugs, $25 for "approved" brand-name drugs and $45 for non-approved drugs.
To break the disconnect, smart employers are using supplemental plans: Flexible Spending Accounts (FSAs), Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs). Each offers tax breaks to employer and employee alike, and each gives employees ownership of the results of their spending decisions. Frugality reduces costs; profligacy increases them!