The high cost of employee healthcare benefits is enough to give business managers a headache. Balancing the needs of your employees against the funds available for benefits can be stressful, says Harry York, CEO of the Reno-Sparks Chamber of Commerce. “When businesses start to shop insurance, there is no question there is real sticker shock.”
Rising Costs
Employers have faced double-digit premium increases for employee health insurance packages for the past three years. According to a 2003 joint study by the Center for Business and Economic Research at UNLV and the Las Vegas Chamber of Commerce, 43.4 percent of Southern Nevada employers reported a 20 percent or larger increase in premiums for the previous plan year.
Nationally, according to the 2003 Annual Survey of Employer Health Benefits by the Kaiser Family Foundation and Health Research and Educational Trust, employers tend to place the blame for increases on prescription drug expenses, hospitals and a shift towards an aging population. Fewer employers blame physician expenses, higher insurance company profits or improved medical technology than in previous years.
In Southern Nevada, growth has also added to costs, as health providers struggle to build facilities quickly enough to keep up with the Valley’s health needs.
What Do They Want From Me?
Employees are looking to their employers to provide them with healthcare choices. They want to be able to maintain a family doctor, and choose to use a hospital near their home. Employers are attempting to meet those needs by offering healthcare options. The percentage of workers provided with the choice of a PPO has quadrupled from 18 percent in 1988 to 77 percent in 2003.
Don Giancursio, vice president sales, Sierra Health Services, pointed out, “When shopping for jobs, people look at the benefits very closely. If an employer is going to look at reducing or cutting back (on benefits), morale and employee-retention numbers must be factored into that decision. On the other hand, employers have to make payroll. They have to earn a profit. Among the tough business decisions is making changes to insurance to provide competitive salaries and jobs.”
Paul Dykstra, CEO of GES Exposition Services, with over 500 full-time employees in Nevada, said his company recognizes the need to offer a competitive benefits package in order to recruit and retain employees. “GES has continued to maintain the same level of benefits for our employees despite a greater than 50 percent increase in healthcare costs over the last three years,” he said. “Because we recognize the people of GES as our most valuable asset, we provide an excellent benefits package that includes medical, dental and vision coverage, both short- and long -term disability, accidental death and dismemberment and life insurance.”
Alternatives
However, not all companies can afford to offer the benefit package they might like. As costs skyrocket, companies begin to search for alternative routes to score benefits for their employees. One option is to self-insure in the hopes that claims against the company are less than its insurance costs. GES is self-insured for its medical coverage, but uses an outside company for its other benefits.
After a three-year trial, Austin, Inc., a hardwood supplier with over 80 employees, has replaced its self-insurance option with a traditional PPO. “It was great the first year,” explained Ken Packard, chief financial officer. “We saved big-time.” Unfortunately, the following two years were expensive, for both the company and its employees.
The company paid a fee to have the plan administered. All claims up to $20,000 per person were covered by the company, a potential liability that according to Packard was too great. Even without a large number of high payouts, the day-to-day expenses cost more than a comparable insurance program. In addition, the high deductible of $1,000 for individuals and $2,000 per family linked with high co-insurance responsibilities did not set well with employees.
The return to a more traditional plan has allowed the company to provide employees with insurance that includes benefits not covered previously, such as a vision plan.
Seek Out a Professional
Giancursio believes the best place for companies to begin their insurance search is with a broker. “Typically, it is in their best interest to have a licensed professional insurance agent or broker working on their behalf,” he said. That professional can present the company with a summary of options with multiple carriers and plan designs. “Let them do the leg work,” said Giancursio. “They know where to go and which companies are most competitive.”
Coverage Changes
When costs rise, the first reaction is often to make changes. Thirty-three percent of Las Vegas businesses indicate they underwent a significant revision of healthcare benefits in the past year, and 14.6 percent of those employers reduced the level of coverage that employees received.
Ty Windfeldt, marketing director for Hometown Health, an HMO based in Northern Nevada, explained that employers are trying to maintain basic health coverage on employees, so they often begin to reduce costs by cutting ancillary plans. “Larger employers will continue to offer life, dental and vision plans, and buy down the benefits a bit to keep them. For the smaller employer, these plans are what go first. They’ll say, ‘Let’s do away with the vision plan this year and the dental plan next year to try to keep the core benefits.’”
Working Together
The latest trends for insurance revolve around an employer-employee partnership. “The theme,” said Giancursio, “has been cost-sharing to keep premiums lower. It is very rare that an employer covers 100 percent of the cost.” Windfeldt agreed. “The biggest driver for both insurance companies and employers is the ability to introduce more cost-sharing with membership employees and dependents.”
In addition to the well-known types of employee contribution such as co-payments and deductibles, Windfeldt believes there may be a new healthcare paradigm forming from the new Medicare law that went into effect January 1. “Subsection 12 of that bill created Healthcare Savings Accounts (HSA),” said Windfeldt. “We are currently looking to partner with a financial institution to manage these accounts so we can partner HSA’s with a high-deductible health plan.”
Essentially, the savings accounts are funded by the savings in a high-deductible plan. Employers place funds into the HSA, and employees may utilize those funds to help pay for deductibles, medical testing and other healthcare needs. Employees are then empowered to decide which healthcare needs will be met by the employer’s benefit plan and which will be met by the HSA or personal funds.
“As people become more empowered, and have control of their healthcare dollars, they have more incentive to ask the right questions about alternatives,” noted Windfelt.
Join Together For Savings
Most health insurance plans are priced according to the number of participants. Smaller employers often suffer when one employee has a medical need with mounting expenses, as there are fewer participants to share the cost. Insurance companies cannot, by law, refuse to cover a company with a large number of health claims, but the rates can rise up to 85 percent depending on the total claims of a business.
Both the Las Vegas Chamber of Commerce and the Reno-Sparks Chamber of Commerce have put together packages for their members to help spread the risk to a larger group. The cost savings may seem small, said Harry York, CEO of the Reno-Sparks Chamber, but even the average 2 percent to 5 percent adds up to a large dollar amount at the end of a year.
These groups offer insurance plans to their members because coverage is important to employee retention. York noted that providing health insurance, “allows you to keep good employees. They won’t go shopping for another business in order to get insurance. That adds stability to your company and lowers the costs of employee turnover.”
The Las Vegas Chamber policy is provided through Orgill/Singer & Associates, Inc. David Dahan, CEO of Orgill/Singer, explained the plan, administrated by Health Plan of Nevada, is offered to companies with between 2 and 50 employees. Up to 2,500 businesses can participate, and the risk is spread across each of the groups participating. In addition, the program is on a two-year renewal cycle, which allows businesses to predict their healthcare premium for a two-year period.
Final Numbers
In 2003, the average U.S. monthly premiums for single and family coverage were $282 and $756 respectively. Nearly all firms in the United States that offer health insurance contribute 50 percent or more to the cost of premiums for their employees, due in part to the fact that some plans require a minimum contribution level before coverage is provided.
The best rates are those spread across the largest number of participants. Therefore, it is often in an employer’s best interest to pay for the employee’s insurance in full, so that younger employees who tend to most often opt out of insurance plans, can be used to spread the risk.
The outlook is much better currently than in the past three years. Though health costs generally increase, the double-digit increases may be easing. Jon Bunker, president, managed care division, Sierra Health Services (and corporate senior VP) has announced, “We are pleased this year to hold down our premium adjustments in the single-digit range and below the national average. We are confident in our ability to continue to provide comprehensive benefit programs at a competitive price to Nevada employers.”
