Rising Health-Insurance Costs Mean Employers Must Get Down to Business
If health insurance costs are giving you a migraine, you are not alone: businesses large and small are getting hit with the steepest premium hikes in a decade. As Larry Boress, vice president of the Midwest Business Group on Health, a consortium of 80 employers, notes, "Health insurance rates are rising as much as 18 to 35 percent for many employers this year. That's quite a change from recent times when we were able to hold the line."
Smaller employers are getting clobbered the worst, because they lack bargaining clout with insurance companies. Many businesses with fewer than 50 employees are reporting price hikes of 50 to 100 percent, according to The Institute for Health Policy Solutions, a Washington, D.C., consulting firm that assists employer groups in designing health insurance strategies.
Only the largest of employers, who bring bigger sticks to the bargaining table, are able to limit this year's increases to the range of 8 to 12 percent. "Nationwide, the annual cost of health care per employee is approaching $5,000," says Vincent Gandolfo, senior managing director of Frank Crystal & Co., a national insurance brokerage firm based in New York City. Employers are absorbing about 75 percent of that amount, passing on the remainder to employees.
Costs should come under still more upward pressure if Congress passes a "patient's bill of rights" that mandates additional services from, and sanctions lawsuits against, managed-care organizations. No wonder affordable health insurance is the number-one small business priority, according to the National Federation of Independent Businesses, the Washington-based trade group.
Feeling a little sick to your stomach? Rest easy, and read on:
PRESCRIPTION #1: JOIN A PURCHASING GROUP. Hang together or be hanged separately. So goes the bromide that, if taken regularly, will cure many a case of swollen premium-itis. "When you join forces with other employers you bring more leverage to the negotiating table," says Boress, who points to his Chicago-based association's success as reflective of employer groups elsewhere. "We held down our rates to 8.3 percent for 2000."
Such groups offer another benefit: the opportunity for employers to offer a greater choice of plans. Because of the larger number of employees involved - and the support of an administrative staff that has the time to negotiate terms - the employer group can negotiate deals to offer both a cheaper Health Maintenance Organization (HMO) and a Preferred Provider Organization (PPO), popular with employees who want to use physicians outside the network.
PRESCRIPTION #2: SHIFT COSTS TO EMPLOYEES. You can get better deals from insurance companies by shifting more health-care costs to employees. Cost sharing occurs when employees make greater co-payments, or pay higher annual deductibles, for services received. Many employers, for example, have replaced the traditional $5 office visit co-pay with $10 or $15 visits.
PRESCRIPTION #3: SHARE THE COST OF DRUGS. Many employers are saving considerable money by increasing the co-pays employees pay for drugs, according to Gandolfo. Recently, companies have initiated three-tier programs, in which employees pay co-pays of $5 for generic drugs, $10 for preferred formularies and $15 for non-formularies. Other employers have started $10-$20-$30 plans. "You can reduce your overall premium by 3 to 7 percent, just by putting in a three-tier program," says Gandolfo.
PRESCRIPTION #4: OFFER ONLY DESIRED BENEFITS. Do your employees really want coverage for dental and vision care? Alternative medicine? Infertility treatment? Chiropractic and mental health? Maybe not. If such coverages are not mandated by your state, eliminating them can, in some cases, save up to 30 percent of an employer's health insurance bill.
Not sure what your employees need? Ask them. "A lot of our clients do employee surveys to discover preferences," says Gandolfo. "This is a change from the old days, when employers dictated what they offered. Now that employees are shouldering more of the health insurance burden, employers need to be more sensitive to what employees really want."
PRESCRIPTION #5: USE INTERNET SERVICES TO REDUCE COSTS. Which carrier has the lowest-cost health insurance plan that meets your needs? And which broker handles that plan? These are always difficult questions to answer. Thanks to the Internet, the answers are becoming a little clearer.
A number of new Internet services have come online in the past year to help employers select low-cost plans and administer them efficiently. "These can result in a cost savings for smaller employers, particularly those with fewer than 20 employees," says Gandolfo.
Here are some active sites:
• www.employease.com (variety of benefits). Services include maintaining a centralized database of employees, managing enrollments, issuing benefits statements and allowing employees 24-hour access to data. Claims it can be used with any carrier. Rates vary from $4 to $8 per employee per month.
• www.benefitmall.com (health insurance, payroll, other benefits). Maintains a network of brokers who sell products from more than 100 health insurance carriers. Allows employers to visit the site and compare prices and features of various health insurance plans.
• www.healthmarket.com (health insurance). Offers self-directed health plans that bypass the usual managed-care organizations. Employers and employees each contribute a set number of dollars annually to the plans, which have signed on doctors and hospitals. Currently operating in a small number of states; claims it will expand.
PRESCRIPTION #6: INSTITUTE A VESTING SCHEDULE. Most employers pay the same portion of the health insurance costs for all employees, no matter how long they've been employed. But this may not be the best approach, says Marcus B. Newman, an employee benefits consultant with GCG Financial, a Bannockburn, Ill.-based financial firm that consults on health insurance matters.
"I often recommend some sort of vesting schedule," he says. "If you can link how much you pay to the number of years of service, that will drive your employees to stay with you longer and you will have some form of cost control." But you have to be careful how you roll this out, to avoid hard feelings. "You can grandfather the program to protect your current workers, and institute a new practice for future hires," Newman notes.
Some of the approaches mentioned here can be just the treatment for your health insurance ills. "The time has passed when you can give away all health care, or be as paternalistic as you like," says Boress. "We can't afford the old-fashioned plans anymore."