Understanding the rising cost of health care

The cost of health care is on the rise once again, as you will see reflected in the 2002 premium rates. Although only a small comfort, we are not alone. The 20 largest companies in Nashville are all experiencing double-digit increases, some as high as 70 percent. Even with the negotiating strength provided by our large employee base, employees will see increases of between 15 and 40 percent, depending on which plan they choose.

While this is a large pill to swallow for individual employees, Vanderbilt has continued to choke down the lion's share. For example, Vanderbilt will again pay 89 percent of the cost of coverage for individuals. To put this in perspective, a recent survey shows that across the nation employers average contributing only 77 percent of the cost of individual coverage, employers in the South have an average contribution of 74 percent, and colleges and universities average 80 percent. In a year of tight budgets, the University struggled hard to maintain the 89 percent contribution level. However, our employees rate health care coverage as the most important benefit offered, and the University felt it was important to maintain the 89 percent contribution level, even though it will add an estimated $14 million to the cost of fringe benefits.

Many employers have opted to keep costs lower by downgrading their plans. For example, some have significantly increased total out-of-pocket cost limits for employees or discontinued use of pharmacy discount cards or vision coverage. The Benefits Committee was united in their opinion that it was not appropriate to sacrifice quality on such a vital benefit simply to reduce cost.

So, why are health-care costs skyrocketing? Industry trends reveal that medical claims are up 10 percent and pharmacy claims are up 20 percent. This is logical if you think about all the treatments and drugs that are now available and all the advertising and publicity afforded them. Five years ago, very few of us were conversant in prescription drug names. In daily conversation, you can hear consumers asking if you are taking Claritin or Vioxx, and what does that little purple pill cure. Not only are new drugs available, but also, as baby boomers grow older, demand is being created by consumers rather than through physicians.

In addition, the original cost savings that were generated by the creation of managed care, HMOs and PPOs have bottomed out. It was only a matter of time until the demand for additional services caught up with the artificially low per-member per-month rates that hospitals and physicians are receiving.

This doesn't mean we are throwing in the towel from a cost or quality perspective. Vanderbilt will continue to explore options to contain costs and create pathways to provide top-quality coverage for our faculty and staff.

Darlene Lewis is the associate vice chancellor for the Department of Human Resource Services.