Recession to Impact Health Plans and Providers

April 2, 2008

(4/2/08) - "The looming recession could have wide-ranging effects on the health care industry and employer health plans," observes Edward Kaplan, senior vice president and national health practice leader at The Segal Company.

He sees a labor market that even in a downturn remains challenging for employers, who generally don't want to burden their employees with more health plan cost increases. "Employers want to hold on to their best talent, and they are ready to battle the major health plans over threatened rate increases," Kaplan predicts.

Layoffs or increases in cost-shifting could, however, give employees an incentive to flock to medical providers or have existing illnesses defined as disabilities, which could then lead to an increase in long- and short-term disability claims.

"In past recessions, some people would use more medical services, drugs or dental work because they worried about losing their jobs and benefits," Kaplan says. Now, employees have higher copays and more coinsurance costs, and they often don't have the necessary income to pay for extra services or drugs. This can give workers a reason not to seek needed care, which could lead to a rise in admissions for expensive, later-stage diseases, he points out.

During the current economic downturn, Kaplan reports that his firm has not seen much increase in health care utilization, as has been the case historically during recessions.

"Health plans and employers should also be on guard for a possible rise in health care provider abuses. When the economy contracts, providers may be ordering additional tests for patients or providing extra services in an effort to boost their revenue," he says.

Another result of a sustained U.S. recession could be further consolidation in the health care industry as weaker health plans struggle with flat or decreased commercial enrollment, leading larger, stronger firms to consider acquisitions.

Kaplan sees these actions that employers can take in this environment:

  • Tighten health plan membership rolls through eligibility audits.
  • Monitor employee utilization of health care services via data mining.
  • Audit disability and medical provider claims for overlap, waste, inefficiency.
  • Negotiate tough with health care providers and insurance carriers.
  • Review vendor contracts and interview alternative health care providers.

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