Hardly a day goes by without a news report on the rising cost of health care. If you advise business clients, you no doubt have been asked the question that seems to be on everyone’s mind: Is the health care system broken?

Wisconsin employers have good reason to wonder. In 2006, Wisconsin employers paid an estimated 26.5 percent more to provide health benefits than the national average, according to a survey conducted annually by Mercer Health & Benefits L.L.C. Health benefit costs average $9,516 for each Wisconsin employee, compared with $7,523 nationally. Health care costs in the state rose last year at a faster rate, 9.3 percent on average–compared with 6.1 percent nationally–according to the survey.

Employers and employer-owned health care coalitions have attempted to control costs by redesigning benefit plans. The managed care plans of the 1980s and 1990s have given way to new strategies designed to make employees and their families more aware of the cost and quality of health care and to encourage beneficiaries to choose healthier lifestyles. Some observers think only the federal government can mend the health care delivery system. Others such as health care providers, benefits administrators, and payers are looking for innovative ways to stem rising costs and sustain private health care. Comparison shopping for health care

The redesigned benefit plans of the 21st century force employees to dig deeper into their own pockets to pay a share of their health care expenses. Higher deductibles, health savings accounts, limited benefits and other consumerism strategies reduce employers’ cost of providing benefits. More importantly, these approaches give employees economic incentives to become more responsible for their health care decisions and promote a healthy lifestyle.

Consumerism encourages employees to shop for health care in much the same way they would shop for a new car (i.e., conduct research; compare costs, performance and service; and talk with other people about their experience). Consumerism strives to replace apathy (i.e., "I don’t care, insurance will cover it.") with responsibility (i.e., "What is the total cost of this procedure? What alternative treatments are available?").

As a result of consumerism, health care consumers are asking hospitals and other health care providers to make fees for tests and procedures more transparent. Transparency in pricing encourages patients to comparison shop and pressures service providers to lower their rates to remain competitive. Concurrently, the pool of providers is becoming larger and many procedures are moving to outpatient treatment, giving the consumer-patient even more choices.

Specialists and providers of routine or non-urgent services, for which consumers can take the time to compare, are among the first to experience the effects of consumerism and transparency. Refractive eye surgery is an economics textbook example of competitive forces in the health care marketplace.

Bundling of services

Comparing the alternatives is a challenge for consumers and payers alike because health care services are rarely offered as an all-inclusive package. Even for simple procedures, the physician, anesthesiologist, radiologist and hospital all bill separately and total costs vary widely. Two physicians could charge the same fee for a procedure, but the overall cost could be quite different, depending on whether the procedure was performed in an ambulatory surgery center or a hospital.

Health care providers are being pressed to partner with other providers and bundle services, making it easier for consumers to evaluate and compare different providers and treatments. Benefits administrators collect historical data and publish the total cost of procedures to help employees comparison shop among providers.

Employee incentives

The optimal and most economical scenario is achieving and maintaining good health. Many employers encourage preventive care and wellness programs, which offer the twin benefits of a healthier, more productive work force and lower benefits costs. Benefits plans may reimburse preventive care at a higher rate than treatment as an incentive to reduce demand for higher cost procedures,

Financial incentives also are offered to encourage employees to compare alternatives. Choosing a lower cost provider or less costly treatment plan may be rewarded with cash or other incentives. One employer, a printing company in southeastern Wisconsin, awards cash in the form of lower deductibles to employees who choose lower cost alternatives.

Quality benchmarks are coming

Cost is one part of the equation, but consumers also want quality health care. Payers likewise have an interest in the quality of care. Better early results translate into lower long-term treatment costs. The challenge is how to quantify and report the quality of health care. While several providers and health care consumer organizations track results, no single algorithm exists to measure quality of health care.

Medicare, as the single largest payer, is driving the effort to establish benchmarks and initiate pay for performance or P4P. Effective July 1, physicians who report certain quality measures (i.e., patient results to treatment for blood pressure or diabetes) to the federal government will qualify for a 1.5 percent bonus on Part B Medicare reimbursements.

During the next few years, physicians will be expected to collaborate with hospitals, ambulatory care centers, nursing homes and other service providers in defining and implementing quality standards. The medical community can expect to see new economic incentives for delivering accurate diagnoses, shorter treatment times, and better outcomes.

Health care benefits plans are being revamped in an effort to curb the rising cost of health care and encourage employees to become better consumers and patients. As health insurance contracts come up for renewal, employers will be looking to their professional advisers, including their CPAs, for counsel and guidance in managing this complex issue. While the health care system may not be broken, everyone agrees it needs a little fixing.