During the early years of the 1990s, it looked to some as if managed care might be a panacea for America’s skyrocketing health bill. And indeed, from 1993 through 1997, health care costs did not exceed the general inflation rate. But then in 1998, the health-care-cost monster reared its ugly head again, with an increase of 6.2 percent. And 1999 was even more ominous—a jump of 7.3 percent, or three times the rate of general inflation, reveals a survey by William M. Mercer Inc., a consulting organization assisting employers in human resources strategy.

The major culprit was prescription drugs, whose cost was up 15.2 percent over 1998. The reasons were as follows: an increase in the price of prescription drugs already on the market, the introduction of expensive new prescription drugs, and an expanded use of prescription drugs. However, some other factors contributed to the 1999 health-care-cost hike as well—an aging population, the arrival of expensive new medical treatments besides prescription drugs, managed care’s becoming more profit oriented, and a consolidation in managed care, which reduced the negotiating leverage of employers.

So what can be done about these looming health care costs? Corraling more people into managed care probably won’t help, the Mercer survey suggests, since some 90 percent of employees are already in a managed care plan. What’s more, HMOs didn’t perform much better in holding costs down than did unmanaged, traditional indemnity plans (per-employee cost rose 5.4 percent and 6.5 percent, respectively.) But focusing on the costs of prescription drugs might help, the survey suggests.

In fact, some employers are already doing that, the survey shows. Among employers with 500 or more workers, for example, 32 percent have changed their drug-benefit design, adding or increasing financial incentives to use generic drugs or drugs listed on the plan’s formulary. In addition, 10 percent of employers with 500 or more employees and 20 percent with 5,000 or more employees have decided to limit or exclude coverage for certain new prescription drugs, such as ones for hair-loss treatment.

Some employers are also trying to slash health care expenses by offering novel programs or coverage that they hope will improve their employees’ health. For example, the use of chronic disease management programs jumped sharply in 1999, with 58 percent of employers’ largest health plans including one or more such programs, up from 49 percent in 1998. Such programs reach out to participants with chronic conditions such as heart disease, diabetes, asthma, back pain, or depression and try to educate them about their condition, actively monitor it, and help them make behavioral changes that may alleviate the disorder.

In addition, a small, but nonetheless growing, number of employers are adding coverage for alternative medicine. For instance, chiropractic care is now covered in 78 percent of employers’ largest plans, up from 61 percent in 1998, and acupuncture is covered in 21 percent, up 17 from percent.

In contrast, when asked about their insurance-related plans for 2000, only about one-fourth of employers said that they will increase employee contributions or cost-sharing. Said Blaine Bos, a consultant in Mercer’s Chicago office and one of the study’s authors, " In this tight labor market, many employers are reluctant to upset workers with bad news about their medical benefits."

The Mercer survey did not measure mental health care costs during 1999. However, a lot is happening in the behavioral health sector related to the factors discussed above, Bob Braddick, a consultant with Mercer’s New York office, told Psychiatric News. For example, the managed care industry’s consolidation and even tighter control of expenses have implications for psychiatrists and mental health professionals.

" What we are likely to see in this environment is an increased appetite by providers and employers alike to collaborate on strategies and perhaps even to join organizations or coalitions to represent common interests in the purchase and management of care. . . . Employers will get together with employers, and behavioral health professionals will get together with their peers," he suggested.