Mild bump expected in benefits: Despite modest rise in premiums, employers look to pass on costs

Several industry surveys predict health insurance expenses will rise at a slower pace in 2009 than in previous years. Many employers, however, are passing the added burden on to workers.

Raising deductibles, copayments or out-of-pocket spending limits are the most common ways companies plan to reduce their increases. The trend of passing more of the responsibility to employees has escalated the past five years, giving rise to cheaper alternatives such as consumer-directed health plans.

“The tie that binds is that everybody agrees the rate of increase is slowing,” said Mark Sherman, a senior consultant at locally based Benefit Consultants Inc. “We’re out of the doubledigit era.”

Health insurance premiums spiked 78 percent between 2001 and 2007, according to the California-based Kaiser Family Foundation.

More recently, they have been growing at about 6 percent a year, as employers have shifted more cost and risk to their workers.

Two surveys released in late September indicate as much. The results of a Kaiser study show average premiums rising a modest 5 percent this year, to $12,680 for family health care coverage, with employees paying an average of $3,354 out of their paychecks.

New York-based Mercer, a national benefits consulting firm, predicts premiums will rise 5.7 percent next year-what it says is the lowest increase in 10 years.

But the percentages account only for companies making changes to their plans. For those standing pat, an 8-percent increase is more accurate. And firms with fewer than 500 employees could see 10-percent hikes, according to Mercer.

The figures fall in line with the findings of Chicago insurance brokerage Aon Corp., which expects premium costs to increase 10.6 percent for companies preferring to make no changes.

Either way, the increases are declining, but perhaps not fast enough to please business owners, said John Boss, senior vice president and head of Aon’s local office.

“This is a good news/bad news story,” he said. “Nobody wants to hear 10 percent, but five years ago, we were talking 16 percent. It’s still a big number, and clients aren’t happy about it.”

Alternatives to rising rates

To be sure, many are becoming proactive. More than half-59 percent-told Mercer they will raise deductibles, copayments and out-of-pocket spending limits. Between 2003 and 2007, the median family deductible for a preferred provider organization plan rose from $1,000 to $1,500, according to Mercer.

A smaller but growing number of employers-19 percent-say they will lower costs next year by adding a consumer-directed health plan. They typically combine high-deductible insurance with a health savings account or health reimbursement arrangement. Consumers pay medical expenses out of the accounts up to a certain limit until the high-deductible insurance kicks in.

“What we’ve seen from employers that have embarked on that strategy is that they’ve really ramped up the efforts to try to move people into consumer-directed options,” said Bob Boyer, a consultant at Mercer in Indianapolis.

In other words, escalating premium costs and shrinking paychecks are driving workers to consumer-driven plans. Still, overall enrollment is small, according to Kaiser. It found that the plans claim just 8 percent of all workers enrolled in employer health benefits.

PPOs still rule (58 percent), followed by HMOs (20 percent) and point-of-service plans (12 percent). Only 2 percent are enrolled in conventional plans.

The Midwest boasts the highest percentage of workers (67 percent) enrolled in a PPO. That could be due largely to the high number of manufacturing plants, where unions have bargaining power.

Even so, manufacturers are beginning to recognize they need to take some action to rein in spiraling health care costs. Boss at Aon said he had three clients this year open on-site health clinics that also help reduce absenteeism.

Health clinics and wellness programs are gaining in popularity, as companies realize that changes to their plans alone aren’t going to solve their problems.

“We’ve gotten to a point where you just can’t tweak these plan designs anymore,” Boss said. “It’s the diseases within your group; that’s what’s driving your costs.”

More clinics, wellness programs

On-site clinics are not new. In the 1930s and 1940s, large industrial manufacturers established them for their construction, shipyard and steel mill workers. But they began to disappear in the 1970s because companies viewed the clinics as too costly.

Employers’ attempts to contain large annual spikes in benefits costs are fueling the rebound. The clinics hope to avoid the U.S. health care system’s typical inefficiencies by cutting out the middlemen, bureaucracy and reimbursement paperwork.

In most cases, the clinics supplement rather than replace existing coverage. Simple procedures such as blood drawings are covered in the management and physician fees paid by the employer, so insurance copays aren’t necessary.

Seventy percent of workers who came into the clinic of one of Aon’s clients in southern Indiana had no family doctor, Boss said. The only alternative for most, he noted, would have been a potentially costly and unnecessary trip to the emergency room.

A large number of employees typically is necessary to support an onsite health clinic. For many companies, a more practical option might be a wellness program. But even those are getting more intense than what was unveiled a decade ago.

“The days of just saying that, ‘We’ve got a smoking cessation product or we’ve got Weight Watchers coming in every month,’ are over,” Boyer at Mercer said.

Companies instead want more value from the programs and might contract with an outside data organization, such as Medstat, a division of New York-based Thomson Reuters, Boyer said.

At any rate, companies will need to be progressive to keep rising health care costs at bay. In 2007, national health care spending totaled $2.3 trillion, an increase of 6.9 percent from the previous year and twice the rate of inflation, according to the National Coalition on Health Care.

Perhaps the most telling statistic, despite the leveling of cost increases, is that 37.7 million workers in 2006 were uninsured, according to the latest statistics from the coalition. That’s an increase of 9 million since 2000.