Posted: August 01, 2011
Conditioned for pain
With health insurance premiums ever on the rise and changes looming, employers need to make tough choicesDebra Melani
Any seasoned Colorado employer won't be surprised: Health-insurance premiums are on the rise, expected to increase between 8 percent and 12 percent for 2012. But the fact that unrelenting double-digit increases have lost their ability to send some blood pressures spiking doesn't mean all employers - rate-hike conditioned or not - shouldn't pull out the calculators, put on the thinking caps and make some tough changes to soften the blow.
Whether it has something to do with the old maxim "desperate times call for desperate measures" or the fact that Obama-directed health-care changes loom nearer, business owners across the country are slashing benefits, boosting employee cost sharing and designing high-deductible and multi-tiered plans aimed at driving employees to make cost-effective choices.
"The frustrations they've had over the last few years are not going to dissipate," said William Lindsay, a Lockton Cos. executive and chairman for the Denver Metro Chamber of Commerce, referring to employers heading to the insurance-renewal table. "All of the factors that are driving health-care costs, and have been over the past few years, are continuing," Lindsay said. "If anything, they are getting more dramatic."
Lindsay's primary advice for employers, which mirrors that of many of the state's health-care experts, is to alter insurance plans, educate their employees on smart health-care shopping, and beware of brokers bearing amazing solutions that could leave employers and their workers in a lurch.
As employers look for new plans to offset costs, Lindsay and others have a warning: A "private-exchange" concept, being marketed as a "defined contribution" plan in Colorado, might violate federal laws and could leave employees uninsured and employers holding the bill. Some organizations are advising employers to 1) drop group insurance for employees; 2) send workers out to find individual health insurance plans; and 3) set up a Health Reimbursement Arrangement to pay for the coverage. "It could be 20- to 30-percent cheaper," said James Scholl of Scholl Associates.
Recently passed Colorado Senate Bill 11-19 allows employers to fund individual health plans for employees through an HRA, but a caveat exists. The move is not allowed if a company held a small group insured health plan anytime during the previous 12 months, said Scholl, past legislative chairman for the National Association of Health Underwriters. And because the setup could be viewed as a group plan, it could violate federal laws.
Moreover, as the individual health market lacks the protections included in group plans, with upwards of 20 percent of applications being denied, employees with pre-existing conditions such as asthma, diabetes or cancer could be rejected. Because of legalities, these employees could then be turned down for the state's high-risk pool, CoverColorado, and the employer is left with a sick employee with no coverage.
"Employers need to be careful," Lindsay said. "There are people walking around with these kinds of ideas that are very dangerous. Yet they are very appealing because they show immediate savings." Scholl agreed that unstable times call for cautionary measures, particularly with so many legislative changes taking place. And these ideas, which have gained some of his clients' attention, are a real concern. "Employers are looking for help anywhere they can. They haven't gotten relief with anything that's happened, health-care reform or otherwise, and they're just trying to cut costs."
Employers should look into different, legitimate insurance plans, such as the increasingly popular HRAs and HSAs (Health Savings Accounts), to rein in ever-rising health-care costs and force employee involvement, industry experts agree. A recent Mountain States Employers Council survey found that these consumer-driven plans are being offered by 39 percent of respondents (out of 629 companies in Colorado and Wyoming), with 25 percent planning to offer them in the future.
"There is clearly a movement in that direction because of reform, especially the plans that are HSA-compatible," said Jane Jensen, senior health and group benefits consultant for Towers Watson, a human-resources consulting firm. "I think it's clearly documented that you save a lot of money and reduce your health-care cost increase."
High-deductible plans were the fastest growing plan designs in 2011, according to a PricewaterhouseCoopers (PwC) Health Research Institute survey.
Although a plan with a $2,000-plus deductible won't work for everyone, rising health-care costs are forcing employers to increase employees' share of premiums, co-pays and deductibles with all plans, making the consumer-driven products more attractive. In 2011, 44 percent of employers, compared to 29 percent in 2010, said that their out-of-network deductible exceeded $1,000, the PwC survey found.
"It's really important that you do the math," Jensen said. Even for chronically ill employees, after adding up all co-pays, drug costs and deductibles, switching to a high-deductible plan, with 100 percent coverage after the deductible is met, can be cost-effective.
HRAs and HSAs are viable options that brokers can adjust to work for many employers, said Scott Crist of Colorado Health Insurance Brokers. "There can be huge tax advantages."
More employers are also moving toward tiered plans to deal with health-care costs and encourage employee activism, said Debbie Welle-Powell, an executive with Exempla Healthcare. "I think we are going to see more and more of that in the future. They help the employer control some pricing and they steer employees toward high-quality providers, which will control utilization."
A typical tier plan would include a high-quality primary provider in tier one, specialists in tier two, and a hospital in tier three that might be out-of-network.
"Employers are playing more with cost-sharing. They design networks that are narrower, and then the incentives are built in," Welle-Powell said. "Maybe you waive those co-pays to encourage utilization at the right level. If employees want to go out of network, they pay more."
Forcing employees to share more of the health-care cost and decisions isn't a new trend. Private-sector employee contributions rose 121 percent from 2001 to 2009, from $1,070 to $2,363, according to recent Agency for Healthcare Research and Quality data. But it's a necessary trend, especially during this era of reformed health care, experts say.
For instance, many of his small-business clients - where the person charged with attaining benefits is also responsible for the accounting and turning off the lights at night - still shun his advice on high-deductible plans, Crist said. "They say: Wait a minute. I make widgets here. I don't want to deal with that complication."
But forcing a paradigm shift, particularly when it comes to employees used to having their plans handed to them - their only worry covering a $20 co-pay - borders on crucial now, Scholl said. "When we go to insurance exchanges (in 2014), they could have 30 or 50 options." Employers and employees need to be educated and their attitudes changed, he said. "And the only way to do it is through their pocketbooks."
Educating employees can have a significant influence on health-care costs, Welle-Powell agreed. For instance, the tiered plans encourage use of the appropriate providers, such as using urgent care rather than the emergency room, and buying generic drugs as opposed to brand name medications - expected to be a major cost deflator next year. A large number of popular brand-name drugs go off patent in 2012, the sales of which represent $28.1 billion, the largest in history, she said.
"I think it is about cost-sharing," Welle-Powell said of meeting today's health-care challenges. But switching to co-insurance and consumer-driven plans requires stepped-up education, she said. "Make sure the carrier you choose has some tools to help your employees manage their added costs."
And, of course, employee education must relay the importance of disease management, preventive measures and wellness, Welle-Powell said. "A wellness program is really the underbelly to controlling disease and reining in health-care costs."
Motivating employees to become good health-care consumers and take ownership of their health was a primary factor behind Vail Resorts recent decision to switch from a PPO plan to an HRA-based option. "We can't just keep doing the same thing over and over again," said Rebecca Shipley, who spearheaded the change for Vail Resorts, along with its United Healthcare provider. "We are looking at developing a plan or model that is not just sustainable for the company, but also, what's truly important to us, is sustainable for the employees." Employees now have an employer-funded HRA, an amount the company determined fit its workers' health needs.
"We believe the vast majority of employees (upwards of 7,500 including covered dependents) will not blow through that in a given year," Shipley said.
All medical costs come out of that "bucket" of money, Shipley said, with the spending decisions solely up to the employee. If they spend it all, they have a deductible to cover ($500 for an individual basic plan) before the plan shifts to a co-insurance model. Then, a $2,500 out-of-pocket maximum prevents a catastrophic situation or chronic illness from sending a worker into financial ruin.
If employees do not use the full amount during the year, the remainder rolls over to the next year and goes toward the deductible. The goal: encouraging smart spending and healthy lifestyles. And the company provides the tools and incentives. For instance, an online tutorial was offered during the launch, and employees who completed it received an extra $50 in their HRAs. Another example: Vail Resorts hosts a health fair for employees every year, and those who attend and have their preventive screenings done receive another $50 in their accounts.
Atlhough the plans can save companies money, that's not Vail Resorts' main goal, Shipley said. "We aren't planning on pocketing these savings. We want to have a sustainable trend so that we can be investing in our employees. When you have a medical plan that isn't going up by double digits every year, that gives you the freedom to spend more on what your employees really want."
What employers said about benefit-plan changes
84% Are likely to alter plan design to offset health-reform-related costs.
86% Are likely to re-evaluate their overall benefits strategy.
50% Are considering significantly changing or eliminating company subsidies for dependent medical coverage.
89% Are likely to increase their health and wellness efforts.
Source: The survey by PricewaterhouseCoopers was completed during the first quarter of 2011 and included 1,700 U.S.-based companies of various sizes from 30 different industries.
Average monthly premium paid by employee for single plan
$91.47 in 2011
$73.46 in 2006
24.5 percent increase
Average monthly premium paid by employee for family plan
$462.55 in 2011
$363.82 in 2006
27.1 percent increase
Source: Mountain States Employers Council Survey in Colorado and Wyoming
Predicted medical cost inflators for 2012
Deemed a way to increase efficiency and reduce costs in the long term, health-care reform offers incentives for doctors and hospitals to form "Accountable Care Organizations." The trend is expected to increase, and some industry experts predict reduced competition will inflate rates.
Increased Medicare/Medicaid Cost-shifting
Medicare and Medicaid payment rates are expected to decline, with the increase in Medicare inpatient hospital rates predicted to be 3.3 percentage points below the expected growth in their costs. Many experts agree the difference will shift to private payers.
Post-recession Stress Build-up
Money, work and the economy - found by the American Psychological Association to be the top three causes of stress among the American work force between 2007 and 2010 - are taking a toll. Health plans and employers report increased claims for stress-induced illnesses.
Source: PricewaterhouseCoopers (PwC) Health Research Institute