Healthcare In-Depth Series (Part 1): Multiple Options, Little Certainty
By JOEL BERG, a college professor and freelance writer
In good years, employers griped about the rising cost of health insurance, nagged employees to quit smoking and moved on.
Now, with the economy in freefall, companies everywhere are pushing for healthcare savings wherever they can.
They're hiking deductibles, handing off more costs to employees and pushing insurers to do a better job of targeting wellness programs at people most likely to file expensive claims. Employers also are driving harder bargains with insurers and other benefits vendors.
"What really defines this era is that employers are considering all of these all at once," says Dard Hunter, a partner in the San Francisco office of HR consulting firm Mercer. "That, in and of itself, is quite different. They're putting them all on the table."
But everything on the table isn't enough to keep some companies from dropping employee health insurance altogether.
"There's a lot of companies in Michigan that are at that point," says Larry Lounds, chief executive officer of Security First Benefits Corp., an employee-benefits firm in Flint, Mich. "They have to cut a certain amount of dollars or they go out of business."
The chief argument for keeping coverage--it retains and attracts employees--is losing force, given Michigan's unemployment rate, which is above 11 percent, Lounds says. Ten people would line up for any job left by someone upset over lost health insurance.
Instead of ponying up for higher premiums, companies take what they were paying and dish it back into employee wages, Lounds says. Employees can then spend the extra money on individual coverage.
But dropping insurance is a last resort, brokers say. Short of canceling coverage, employers and insurers are doing what they can to mitigate premiums, which continue to rise as the stricken economy sputters.
The simplest options are to continue tweaking benefits, raising deductibles and asking employees to contribute more toward their premiums.
"You see different employers doing that balancing act differently depending on how seriously they are getting hit by the recession," says Jeff Munn, a principal in the health management consulting practice of Illinois-based Hewitt Associates.
Companies in the direst financial straits are considering whether they should raise employee contributions mid-year, Munn says. Others take a different tack, figuring they've hit the limit on cost-shifting to employees.
UNDER A MICROSCOPE
Instead, they put every contract under a microscope. In the past, companies relied on vendors' guarantees that they were living up to contractual performance clauses, Munn says.
"Now, they're being much more aggressive about using an outside auditor to basically prove whether or not the vendor complied," he says.
Sumter County in central Florida is in the early stages of cost-shifting but already has plans to take it further.
As the recession squeezed tax revenue last fall, the county asked employees to kick in $5 per month toward health coverage, says Kitty Fields, Sumter's HR manager. The county had been paying the full premiums for 212 employees and roughly 500 other county workers and officials in its self-funded health plan.
In addition, the county boosted the amount employees must pay for non-generic and premium drugs. Prescriptions now cost $25 and $50, up from $10 and $15, Fields says. Fields is also president of HR Florida, the state affiliate of the national Society for Human Resource Management.
For next year, the county is contemplating a two-tiered insurance plan, Fields says. Employees would pay more to keep their current coverage or pay less for a plan with a higher deductible, a strategy followed by an increasing number of employers.
The hope is that people exercise more control over spending, which is why the plans also are known as consumer-directed healthcare. About 40 percent of companies plan to increase reliance on consumer-directed care in 2010, according to a survey by Hewitt.
"We're introducing a lot more of that, which does help mitigate costs for everybody," says Jackie Davis, vice president of Group Benefits Agency in Columbus, Ohio. She works primarily with large groups.
The premium savings for high-deductible plans run around 30 percent to 35 percent, Davis says. Companies can use some of the extra cash to fund health savings accounts, or HSAs, which are tax-advantaged accounts that workers can use to pay medical expenses.
But with the economy down, more and more companies want to hold onto the savings. If they still want to assist employees with out-of-pocket costs, they can create health reimbursement accounts, or HRAs, says Paul Donas, an independent health-insurance broker in New York City.
Employers contribute to HSAs regardless of whether the money gets used. With HRAs, companies shell out only when employees tap health services, Donas says. The downside is the additional paperwork HSA's generate.
"When you're dealing with larger companies, a lot of times they don't want to deal in something that cumbersome, because the HR people are already overworked and understaffed," Donas says.
In addition, the long-term payoff from high-deductible plans is unclear. Companies might save at first, brokers and employers say. But future premium hikes could wipe that out, particularly if workers don't change their spending habits or a group experiences a few costly claims in its first year.
The University of St. Thomas in St. Paul, Minn., began offering a high-deductible alternative this year to the 1,400 employees covered by its self-insured health plan, says Peter Ronza, the school's compensation and benefits director.
Employees have embraced the concept, Ronza says. But he's unsure about the long-term impact on costs.
"I've been around the business long enough to know it's the second year where you really tell what happens," Ronza says.
LAYOFFS COULD COST
Companies that lay off a large chunk of their work force this year might not have to wait that long for a rate hike.
Contracts typically allow insurers to boost premiums mid-year if the employee census drops below a certain threshold. Few carriers have done so in the past, brokers say, but the downturn could lead them to act.
"It's a real possibility," says Robelynn Abadie, a broker with Abadie Financial Services in Baton Rouge, La.
"They also have bottom line numbers that they have to hit too."
Indeed, up to 14,000 people may be dropping off health plan rolls every day due to rising unemployment, according to estimates by the Center for American Progress Action Fund, a liberal think tank in Washington, D.C.
Some companies choose to axe health insurance before letting go of workers. To ensure some level of continued coverage, those companies turn to limited-benefit medical plans, brokers say. First developed for low-wage hourly workers in sectors like fast food and landscaping, the voluntary plans have found a wider following in hard-pressed corners of the economy.
"It's now good for the manufacturing plant, the distribution company, the car dealership. It's not just the seasonal high-turnover industries any more," says Mitch Stringer, managing partner of Select Benefits Communications Group, a voluntary benefits enrollment and administration firm in Towson, Md.
Employees generally pay the full premiums, which run as low as $10 per week. Also known as mini-med plans, they cover basic medical expenses but typically lack coverage for catastrophic claims arising from cancer, heart attacks or other serious health problems.
The plans drew flak a few years ago from critics who argued the limited coverage was hardly better than none at all. But the challenging economy is prompting insurers and employers to give them another look.
The plans have improved, says Jeff Stelnik, group manager for Phoenix-based Cigna Voluntary, which sells mini-med plans. And growth has strengthened over the last year.
"I think employers are really starting to look at and educate themselves in areas they haven't thought about before," Stelnik says.
Traditional insurers also are educating themselves on the option.
AultCare, a health insurer in Canton, Ohio, has talked about creating a limited-benefit plan for the last three years, says Robin Clark, an AultCare spokesperson. But the carrier has so far declined to do so.
"Our broker community has not been thrilled about that concept," Clark says. "They're fearful that people won't really understand what it means."
Another possibility on the horizon is easier to grasp: limiting provider choice in return for lower premiums, along the lines of the managed-care model that employees and employers rebelled against in the 1990s.
The newer models offer a more palatable twist.
Rather than dictate choices, they offer incentives for going to providers that demonstrate the lowest cost and the highest quality, says Marc Backon, senior vice president of sales and marketing for Capitol Blue Cross, a Harrisburg-based insurer. People would pay more out of pocket, for instance if they chose other providers.
Companies still balk at restricting an employee's choice of doctor or hospital, Backon says. But the poor economic conditions may be wearing down that resistance.
"Employers ... want alternatives that can save them money in the short term," Backon says.
April 15, 2009
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