HUMAN RESOURCES

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Health Care and Penn

Health care has been the recent focus of much discussion in the media and in the political arena. With the annual health benefits Open Enrollment period approaching next month (April 14-25), it is also a timely topic here at Penn. Throughout the months of March and April, Human Resources will be sending out information about health care. Some materials will be sent to your home address, some to your intramural address. In addition to those materials, Almanac will be running a multi-week series of articles focusing on health care and Penn. This one gives a background on the nationwide issue of rising health care costs and how Penn's costs compare to other employers. Future articles will discuss topics such as changes that Penn will be making to help deal with this issue and what you can do to contain your own costs, as well as specific information about Penn's Open Enrollment period.

Health Care Costs Continue to Skyrocket

Rising health care costs have been a nationwide topic of concern over the past several years. Within the past 5 years alone, the overall cost of health care for large employers (10,000 employees or more) has increased nearly 47%, according to a study by Hewitt Associates, a global human resources and benefits consulting firm. In 2002, employers absorbed the biggest annual cost increase in over 10 years. And experts can see no end to these skyrocketing cost trends in the near future.

Penn has not remained untouched by this phenomenon. We experienced a 13% increase in health care costs in fiscal year 2002, over 9 times the inflation rate of 1.4% for that same year. Our spending for health care totaled $65 million! Without cost controls, that $65 million expense is expected to double in a mere 5 1/2 years.

Why are Health Care Costs Rising?

Many of the reasons for these rising costs go beyond the control of employers. For example, prescription drug costs have been the fastest growing expense, projected to grow at 20% to 30% annually. New, more expensive drugs are constantly being introduced. Plus, pharmaceutical companies have stepped up their direct-to-consumer marketing, increasing the demand for and utilization of these drugs. The combination of these factors has caused drug costs to rise at an alarming pace.

Another cost driver for health care is an issue that has gained a lot of press lately: the number of uninsured in America. As noted in a recent article on Penn's Knowledge@Wharton website, http://knowledge.wharton.upenn.edu/, many experts agree that insuring the uninsured is the nation's top health care issue. More than 41 million people across the country do not have health insurance, a situation that contributes to rising health care costs in many ways. For example, those without insurance may choose not to pay for the relatively inexpensive preventive care that can help prevent serious illnesses. Then when the uninsured become seriously ill, this costly care must be paid for somehow·and those costs are typically passed on to those who do have insurance, in the form of higher premiums.

Added to these factors are the realities that Penn's employee population is aging, and people are simply using more health care services these days. These are some of the major influences on Penn's cost increases, as our participants tend to utilize our plans on a higher-than-average basis. At the same time, the costs of these health care services are on the rise, due to factors such as high-priced advances in medical technology and treatment, and exorbitant malpractice insurance premiums. This high usage of increasingly more expensive benefits leads to even higher costs for the University.

How does Penn compare?

Hewitt Associates gathered benchmarking data from large employers nationwide (representing over 17 million health plan participants) to compare Penn's health care information with local and national averages. The local market data was gathered from Philadelphia-area employers (Pennsylvania, New Jersey, and Delaware).

In comparison to the local and national markets represented by Hewitt's study, Penn's total health care costs per employee are above average, at over $5,800 per employee per year. This means that we're paying about 8% more per employee than most other employers in the nation.

Why are our costs higher than most employers? Total health care costs are affected by factors such as demographics, plan design, and the financial efficiency of health plans. All of these contribute to Penn's high costs.

Financial Efficiency of Health Plans

As part of Hewitt's study, analysts calculate what's called the financial efficiency of health care plans. This measure compares the total costs of all health plans against each other to see how efficiently they operate. A financial efficiency score of 100% is the average across all plans. Scores above 100% represent a higher-than-average efficiency, and scores below 100% represent a lower-than-average efficiency. Penn's overall score has decreased from 107% in fiscal year 2002 to 95% in the current fiscal year, indicating that the financial efficiency of our health plans has fallen to a below-average level compared to the other companies included in the study. The main reason for this decrease has been the high rate of utilization of our plans by our employees (see Why are Health Care Costs Rising?, above).

Despite these financial challenges, Penn still provides a competitive benefits package to our employees. In particular, the HMO plans offered by Penn present the most cost-effective option to employees, with total employee costs well below the local and national averages.

Look for More Information

Look for more information in next week's Almanac as the "Health Care and Penn" series continues. For questions about the health benefits offered by Penn, visit the HR website at www.hr.upenn.edu/benefits or call the Penn Benefits Center at 1-888-PENNBEN (1-888-736-6236).

--Division of Human Resources