If current trends continue, one of the most pressing concerns facing Nevada business owners is about to get worse. When it comes to the rising cost of health insurance, there doesn’t appear to be a light at the end of the tunnel.
According to the Mercer/Foster Higgins 2002 national survey of employer-sponsored health plans, the average cost of healthcare benefits for active employees increased 7.3 percent in 1999, 8.1 percent in 2000 and 11.2 percent in 2001, resulting in a cost of $4,924 per employee (health and dental for employees and covered dependents). In 2002, costs were expected to rise an additional 12.7 percent or more, and 2003 doesn’t look any better.
“There is not a business out there that is not affected,” said Kara Kelley, president and CEO of the Las Vegas Chamber of Commerce. “It is the single most impacting issue for businesses. Escalating costs are burdensome at best, and disastrous at worst, for owners of small businesses. They simply can’t absorb the costs.”
According to David Dahan, CEO of Orgill/Singer & Associates, “Insurance costs in general are extremely high right now, and in Nevada everything is magnified and healthcare is much more expensive. No one knows when healthcare costs will level out, but as long as health benefits costs continue to increase, employers will look for ways to reduce these costs.”
One of the ways employers are dealing with the issue is to shift more of the cost to their employees. According to the Mercer study, many small employers (10-499 employees) raised deductibles and co-payments in 2001. Although many large employers didn’t make significant changes to their plans, some expect to increase employee contributions this year and next.
“The outlook for the future will see more employees bearing more of the costs of their health insurance,” said Peter O’Neill, vice president, public and investor relations, Sierra Health Services, Inc. “As employers struggle to hold down costs, they will require employees to take a more active role in determining how much choice they want in their healthcare program. For a little less choice, costs will be less. For more choice, costs will be higher.”
O’Neill said co-pays and deductibles will likely increase. Alternatively, an employer might offer a defined level of financial contribution toward healthcare at the beginning of each year. For example, a defined level might be set at $5,000 per employee. “Costs over and above, not including higher hospital costs, for example, would be out-of-pocket,” said O’Neill. “The latter hasn’t yet been implemented in Nevada, but it is an approach employers are looking at for the future.”
As employers are forced to place more of the burden of health insurance costs on their employees, reduce existing coverage or even drop it all together, one thing is certain – the number of uninsured workers will rise dramatically, placing the burden on already burdened taxpayers.
According to a survey by the Kaiser Family Foundation, an organization that develops research and communications programs focused on major healthcare issues, 20 percent of the 44 million uninsured Americans are eligible for an employer health insurance plan. But two-thirds of the uninsured workers cite high costs as the reason for declining coverage.
There is no single factor to blame. Instead, dozens of issues add up to the high cost of medical care: managed care, malpractice, rising hospital costs, rising physician costs, newer and more expensive technology, lifestyles, consumer expectations, longer life expectancy and prescription drug costs.
“Costs must be reined in on a number of fronts, in particular, hospitals and prescription drugs. As more expensive drugs move to ‘over-the-counter’ status, such as Claritin, it will be easier to control these expenditures,” said O’Neill. “But we need cooperation from the pharmaceutical companies who spend millions and millions of dollars on direct-to-consumer advertising to promote the latest miracle drugs. Consumers demand them and insurers must pay for them. But these costs are ultimately borne by the consumer.”
Another area of serious concern for insurers and businesses alike is the growing number of mandated benefits. To many, the number and scope of these mandates is spiraling out of control. By some estimates, coverage of mandates and government regulations represent $10 billion nationally of the overall increase in health care premiums.
“Legislators must reduce the amount of mandated benefits they vote to require insurance companies to cover,” said O’Neill. “Congress and state legislatures consistently add more and more benefits as requiring coverage. However, they do not address the source of the financing to cover these benefits. Again, costs are borne by the consumer.”
Randy Robison, state director of the National Federation of Independent Businesses (NFIB), the nation’s largest small business advocacy group, is equally concerned. His organization represents more than 600,000 members, 2,000 of them “mom and pop” shops throughout Nevada.
“The continual increase in health insurance costs directly and negatively impacts Nevada small businesses. When you add a growing list of mandated benefits, it forces businesses to make incredibly difficult decisions about employment, benefits and salaries that directly affect Nevada families,” said Robison. “Small business is the backbone of our national and state economy, and as the cost of doing business rises disproportionately, small businesses are hit hardest. With only a few employees, they are at a real disadvantage in terms of cost.”
While the outlook is not good, Robison is still optimistic that there are workable solutions to at least some of the myriad of problems. On the federal level, he would like lawmakers to help small businesses by allowing for Association Health Plans (AHPs), which would enable small businesses to form associations across state lines to maximize their collective purchasing power for employer-provided insurance benefits.
“Currently, unlike large corporations, small, independent businesses are not able to do this, which further erodes their ability to compete in the marketplace,” said Robison. On the state level, he said the trend of adding more mandated benefits must stop. “A balance must be found between choice, responsibility and accountability. Otherwise, small businesses are forced to make decisions that dramatically and negatively impact their employees and their businesses.”
Health insurance companies are looking for solutions, too. William E. Bannen, M. D., vice present of Nevada healthcare management for Anthem Blue Cross and Blue Shield, said the goal is to make certain the private healthcare system remains affordable.
“To achieve this goal, every stakeholder in the United States healthcare system –including hospitals, physicians, patients, employees and policymakers – must have a better understanding of the real forces driving healthcare costs and collaboratively work out a solution,” said Bannen. “Many consumers who have health insurance are insulated from the actual costs of their medical care and tend to believe that ‘someone else’ pays for it. Many policy experts say the increased demand for healthcare is also due in part to consumers not knowing the true cost of healthcare.”
Bannen said Anthem Blue Cross and Blue Shield is working to hold down premium costs for its members through innovative products, a tiered benefit design, and collaborative efforts with network physicians and hospitals that help ensure the delivery of quality care and identify fraudulent activities.
But Bannen cautiously said the future depends on whether or not all the stakeholders in the nation’s healthcare system work together. If they do, he believes the United States can maintain the highest quality healthcare system in the world with only single-digit increases per year.
If they don’t, Robison foresees more difficulties ahead, especially for smaller businesses. While he doesn’t expect many to close their doors, he does predict that business owners will be faced with some difficult decisions. “It forces them to decide between business expansion or reduction, either in terms of employees, employee benefits/salaries, improved technology, capital investment and more,” he said. “I am aware of several businesses that have already made significant cuts in payroll, benefit plans, no or fewer hires, reductions in workforce and/or hours. It’s a serious and discouraging issue for all businesses, but especially for small businesses.”
