Health care economic factors and the effects of benefits plan design changes

Medical benefits costs now exceed 13% of payroll, up from 5% in the early 1980s. Full reimbursement for more expensive hospital-based care, a technology and specialist supply explosion funded by Medicare and Medicaid, and cost shifting from these programs to private insurance have fueled this rapid growth. Benefits plans, which had provided essentially free care, have been changed slowly and incrementally to increase cost sharing and, thus, cost sensitivity on the part of employees. Many insurance plans also limit coverage by requiring that treatment be "nonexperimental" and "medically necessary." Long-term inquiry demonstrates that total expenditures, hospitalization rates, ambulatory visit rates, dental visits, and prescription drug use were significantly higher for free care than for plans with substantial copayments. A study sponsored by a business coalition in Houston showed that increased deductibles shifted care to the inpatient setting, raising total costs. Higher contribution rates reduced both inpatient and outpatient costs. Caps on payment for certain services, such as mental health care, reduced costs significantly with apparently minimal adverse effects on health.