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Posted: August 01, 2008

Health care benefits primer

End of ‘healthy-group' discount Jan. 1 spurs interest in self-funded insurance plans, other options

Debra Melani

It’s hard enough telling a single mom who’s been loyal to your company for years that you hiked her health-insurance contribution. It’s even harder when you know the blow will push her over the financial edge. Factor in your place of work — a medical clinic — and the task becomes downright arduous.

So say the managers of Federal Healthcare, a family-practice clinic in Denver where relentless increases in health-insurance premiums are taking a toll on their staff. Rather than endure another punch that neither the clinic nor the employees could afford, the group changed companies this year, moving from their long-time carrier, Anthem Blue Cross and Blue Shield, to United Healthcare.

"Unfortunately, loyalty to an insurance company at this time in this market is not possible," said Bob Tulper, medical practice management consultant. "Your loyalty has to be with your company and what the company can afford."

But Tulper and his colleagues know: The move is merely a stop-gap.

Double-digit rate increases have plagued Colorado employers for years, continually outpacing inflation and the national average. The outlook for 2009 appears no better.

With average premium increases of 10 percent to 12 percent predicted, many employers will be forced to continue their difficult health-insurance dance, shopping for new products, considering different companies, digging deeper into their budgets and shifting costs to employees already stressed by a poor economy.

And for some Colorado businesses, a legislative change that takes effect on Jan. 1 could deliver a double whammy, stacking as much as a 25 percent increase on top of their annual premium hike, brokers say.

"Unless the carriers adjust their rates, some of our clients could be looking at 40 percent-plus rate increases," said Denise Dougherty of Taggart Insurance in Boulder.

The change comes out of House Bill 1355 and prevents carriers from using employees’ health status and claims experience to cut deals for small businesses with good records. Carriers can still use other factors in setting rates, such as age, tobacco use and geographic location of the company.

That "healthy-group" discount saved money for about 60 percent of small businesses, said Ed Regalado of the Gemini Group in Denver. Regalado predicts that as carriers continue to set their 2009 rates in the next couple of months, "You are going to hear a lot of people crying."

The intent of the bill was to create fairness in the group health-insurance industry and halt high premiums imposed on companies with chronically ill employees.

"Socially, that’s the right thing to do," said Gary Meyers of MeyersDining in Boulder, who said he’s neutral on the bill. "If your rates prior to this were based on an unhealthy status, your rates could potentially go down," Meyers said.

Sponsors also hope the bill will save money, said Marcy Morrison, the state’s insurance commissioner. "Medical underwriting is expensive. When your agent comes to your small business and then examines the health status of each individual however many times, that takes time."

Right now, a company of five employees with one dependent who has asthma, for instance, can be priced out of the market, said Tony Gagliardi, state director of the National Federation of Independent Business. That’s reality and the reason 67 percent of his 7,500 Colorado members support not using health status or claims history anymore, Gagliardi said.

When these ratings factors were first allowed in 2003, insurance companies said their addition would control costs and attract more carriers. "Those claims were unfounded," Gagliardi said, pointing to a persistent rise in premiums since, with "only two" carriers moving into the state.

Now some in the industry warn the transition back might push carriers out and create disaster in the group market. Brokers say an already growing interest in self-funded plans might explode, as healthy groups seek to skirt the law and gain lower rates.

"It doesn’t take a genius to figure out what will happen," Meyers said. "If you move all the low risks into a self-funded market, then you are left with a very high-risk pool. Those premiums are going to go up substantially."

Not everyone agrees, saying no one can forecast the aftermath of the legislation. The Colorado Division of Insurance will monitor the effects of the bill for two years and report back to the Legislature in 2011.

Meanwhile, employers must look for other ways to curtail costs. "It’s time to think outside the box," Gagliardi said.

A new plan
Health Savings Accounts continue grabbing their share of the market, as employers search for innovative ways to curb rising rates. Coupled with high-deductible health plans, HSAs were designed by Congress in 2003 to allow people a tax-free means of saving for future medical costs.

More than 6.1 million Americans are covered by HSA-eligible insurance plans, a 35-percent increase from the previous year, according to a census released this spring by America’s Health Insurance Plans.

With Colorado’s history of enduring the biggest rate hikes in the country, it’s no surprise that it was in the top five for HSA enrollment, said Dennis Triplett, president of UMB Healthcare Services. Minnesota ranked first with 9.2 percent, followed by Louisiana (9 percent), Washington, D.C. (8.7 percent), Vermont, (7.5 percent) and Colorado (7.1 percent).

"It stands to reason that employers are going to be looking for ways to mitigate cost increases," Triplett said.

HSAs are attractive to employers partly because cost gets shifted to the employee. The plans were also designed to encourage employees to take better care of themselves and to be better health-care consumers, Meyers said.

Rather than paying high premiums for insurance that possibly goes unneeded, employees have lower premiums with high deductibles. Most plans include some preventive-care coverage, but other claims are not paid until a deductible is reached. That deductible can be as high as $2,900 for singles and $5,800 for families.

Meanwhile, employees and employers can make tax-free contributions to the HSA to use toward the deductible. If it’s not used, the money and its tax-free earnings stay with the employees, even if they leave the company.

The plans are more popular with younger people, who tend to have fewer medical costs and have years ahead to build their accounts.

"This has the ability of changing the health-care cost dynamics," Triplett said.

Most people don’t realize the true cost of health care because of HMOs and co-pays, he said. An HMO patient can go to a Harvard-trained medical doctor, who employs nurses and owns expensive medical equipment, and pay $20, he said. "That’s less than the cost of a haircut."

With HSAs, patients are more likely to question the need for a procedure or demand a generic drug option, reining in runaway health-care spending, he said.

Some health-account critics fear the plans can discourage people, who might focus more on saving their money, from getting much-needed health care. Triplett calls the fears unfounded and cites a recent study by Cigna HealthCare.

The two-year study focused on 110,000 people with HSAs or HRAs (Health Reimbursement Arrangements) and found that they were receiving 14 percent more preventive-care visits by the second year than those in traditional coverage. This study also found that pharmacy costs were 6 percent lower for the HSA/HRA group.

A clearer problem with the high-deductible plans is that they can be cost-prohibitive for many, Meyers said.

"I think it’s really steep," he said. "If you have people living on a relatively tight budget, especially with everything else going on in the economy right now, these really high deductibles can be difficult."

The cost savings from the supposed lower premiums is also not as great as when the products were first introduced, Dougherty said. "We’re not putting in as many as we have in the past."

But carriers are still reporting HSA enrollment increases. In the first five months of this year, HSAs have accounted for 40 percent of sales for Anthem, said John Martie, president and general manager. At Rocky Mountain Health Plans, the increase has been steady — about 160 percent since 2005, said John Hopkins, president and CEO.

Hopkins said employers should consider offering HSAs with other options. "I think it’s a very good product, especially for younger people starting out in their careers," Hopkins said. "But I don’t think it’s the ultimate solution. It’s not a panacea."

Pump it up
Focusing on health in the workplace is an increasing trend, those in the industry say. They point to a rise in wellness programs, particularly with large employers, such as StorageTek and IBM.

"That is getting to be the key," Martie said. "Employers are recognizing that the success of their plan, of their bottom line, is a function of keeping their people healthy."

Wellness programs are not just about keeping healthy people healthy, but include smoking-cessation programs, weight-loss plans, exercise classes and education for those with chronic diseases, such as diabetes. The goal: keep people out of the hospitals and doctors’ offices, Martie said.

Hopkins and RMHP have gone full out on their wellness program, offering fresh fruits to employees, nutrition and exercise advice from a personal trainer, yoga and boot-camp classes, and a health-monitoring program that can earn employees insurance discounts.

"It’s absolutely changed the culture here," Hopkins said, adding that there are many transformation success stories. He has not studied whether his investment has paid off for the company financially, but he believes it will. And one of the biggest payoffs is the boost in employee morale, he said

While wellness programs are creating a buzz in the insurance world, they are not going to solve the health-care crisis tomorrow, Dougherty said. "It’s interesting, because everybody’s talking about it. But, just like everything else, in a lot of cases it requires additional costs, and everybody’s kind of pinched right now."

Shop around
Employers frustrated with ever-rising rates should shop around and do their homework, Morrison said. Because of the size of the task, a broker can help. "But don’t just listen to one broker or one agent or read material from one company," she said.

Brokers can provide businesses with a comprehensive report, focusing on their current coverage and comparing price and benefits with other options in the market, Regalado said.

Many carriers, including United, Anthem and RMHP, have launched new products focused on the small-group market. Self-funded plans are an option for some, particularly small businesses with young, healthy employees, Dougherty said.

Some business owners, such as Eric Swick of Swick and Associates, a Denver accounting and tax practice, have dealt with the uncertain health-care issue by giving employees a static amount for health insurance, and letting them purchase their plans.

"That way, I know that I have a fixed cost that I’m going to incur no matter which plan they pick or no matter how old they are," Swick said.

And, as Tulper of the Federal Healthcare clinic said, shop around and do whatever it takes for the good of the company — and for the good of the business’ chief commodity: the employees, added fellow manager Kate Springs.

"Many of our employees work paycheck to paycheck," Springs said. "Many are single parents." In a small company like hers (20 employees), workers are loyal to each other and the business. "We’re like a family," she said. "We want to do whatever we can for them."

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