The Future of Employee Benefits
In May I had the opportunity to attend the spring meeting for members of United Benefit Advisors (UBA), which is an association of more than 130 benefits brokers/consultants from across the United States. Our firm is a member of this association. We sat through many different sessions that covered a variety of topics, but one theme stood out as something that I'd like to share with you: understanding the future of health care and employee benefits. This is part one of a series of discussions on this topic, focusing on current facts and the forces that are moving health care in the direction that it's going.
Fact #1: Demand is Outstripping SupplyDemand is growing mostly because the population is aging. Throughout the past 10 years, the population of individuals between the ages of 55 and 64 grew by 54 percent (and that number is only going to increase as the rest of the so-called "Baby Boom" generation enters retirement). In contrast, the population of individuals between the ages of 25 and 34 actually shrank by 9 percent. Most of the demand for health care comes from people aged 55 and older, and that demand continues to increase as a person ages.
Fact #2: Limitations on the Supply SideA shortage of capital is inevitable. As the population of Baby-Boomers enters retirement, they are being replaced in the work force by a far smaller population. And, because the population of workers is decreasing, there will be fewer investors and fewer taxpayers to fund retirement accounts and Social Security.
The other limitation is the current shortage of caregivers. Not only does the U.S have a tremendous need for doctors who are general practitioners, but there is also a huge need for more nurses, physician assistants, physical therapists, etc.
Fact # 3: Costs Continue to IncreaseThis fact is actually partially a result of the previous two. Basic economic theory says when demand goes up, prices go up, too. Prices also go up when the supply goes down. With both of these factors working independently, we can continue to expect medical and prescription drug costs to go up a lot. As a point of reference, these costs grew by nearly 80 percent over the past five years. The other factor contributing to these increased costs are new technology investments in the development of new and better treatments, procedures, and prescriptions.
To work in concert with these three facts about the current economics of health care are three forces that will drive change. Change is inevitable as we can't handle continued cost increases with no end in sight. The three forces to pay attention to are: empowered consumers, e-business adaptability, and genomics and biotechnology.
Force #1: Empowered ConsumersIn the business of health care, the concept of "who is the customer" has changed drastically. Up until recently, doctors and insurers were easily perceived as the customer, but now that focus has shifted to the patient. Several factors contribute to this "paradigm shift" in marketing. Patients are seeing higher out-of-pocket costs for most services, and this has increased patient sensitivity to value and a hunger for more information about what services they are receiving. Also, with the advent of the Internet, patients have easy access to all kinds of medical knowledge. Coinciding with this, we are seeing more "direct-to-consumer" advertising of prescription drugs, hospitals, and medical procedures. Overall, the patient has been empowered as the most important consumer in the health care industry, the market is paying attention to that fact, and patients are far more informed about the healthcare they are receiving than ever before.
The resulting effects of this include more customization: "my health care, my way." There will also be a growth of health care intermediaries in the industry to help consumers interpret medical information. Similar to the need to have lawyers decipher complex legal jargon, there will be more services to help with medical jargon. This could take the form of nurse advisors, software to sort and interpret information, reports on providers, and/or insurance brokers who specialize in providing this information.
Force # 2: E-business adaptabilityThe Internet is fast becoming the common platform for all information management systems. We will continue to see a decline in all the disparate proprietary systems that have pervaded information systems management in the past. With the Internet as the common platform there will be no problem of information transfer from one entity to another, with proper authorization, the transfer will be seamless and incredibly efficient.
The possibilities of e-Business channels in the health care industry are virtually endless. Obviously, financial and information transactions could be one channel, usable by suppliers, providers, payors, patients, etc. Another channel could be "consumer information," as long as the portal is trustworthy and the information is up-to-date (something like WebMD). Care Interaction could be another channel, providing a portal for providers, patients, and intermediaries to interact with medical care and help with treatment management. Health care organizations and providers will adopt a progression of Internet applications for information sharing, operational interaction, financial interaction, and medical management.
Force #3: Genomics and BiotechnologyIt is inevitable. With the decoding of the human genome, individual genetic profiles will someday be available. An immediate result of such specific information about an individual's genetics will result in incredibly personalized health care plans throughout the individual's life. With such a vast amount of individually specific information, there will be an explosion in the volume of data, which will fuel knowledge management systems. The potential to improve health care will grow exponentially with so much information. Without a doubt, though, all these developments bring to the forefront privacy issues and adverse selection issues, which will need to be adequately dealt with before any of these developments could come about.
According to Price Waterhouse Coopers, who provided most of the information for this column, the health care industry is set for a big shift. These facts and forces are acting on the industry in a big way, some of the results may be difficult to get used to, but for the most part, change will be welcome in this increasingly costly necessity of our lives. Next month we will look at the trends that are coming out of these facts and forces and explore ways to cope with their effects.