Small business employers feeling health care benefit pressure Some drop coverage entirely
By Susan Rabe, for SBT
Commentary
Health benefit increases are putting extreme pressure on Wisconsin businesses. While costs have risen dramatically there are a variety of ways small and mid-sized business can cope.
In 2002, costs rose by more than 20% among those companies with 10 to 199 employees, and another double-digit increase is expected in 2003. Marsh, a risk management firm with offices in metro Milwaukee, conducted a survey called Marsh’s Mid-sized Employer Health Plans 2002. It found that 4% fewer companies nationally are offering health care benefits. Specifically, health coverage fell from 66% to 62% in 2002 among employers with 10 to 49 employees.
Companies with 200 to 999 employees also saw health care costs rise 13.5% last year. The increase drove health benefit cost per employee for these employers to $5,840, which is higher than the $5,733 paid by larger employers with 1,000 or more employees. The challenge is mid-sized employers compete with the largest employers for employees, and so they want to offer comparable benefits packages. Yet the mid-size firms do not have the purchasing power or economies of scale that large employers have.
Among mid-sized employers included in the survey with 200-999 employees in the Midwest, employee health care costs per employee rose 10.9% to reach $6,346. The region includes Wisconsin, Michigan, Illinois, Iowa, Kentucky, Ohio, Indiana, Missouri, Minnesota Nebraska and Pennsylvania.
Generous benefit programs are at least partly to blame. As traditional indemnity plans gave way to managed care over the past two decades, employee out-of-pocket costs were generally reduced in the expectation that care management and provider discounts would hold down cost trends. Those savings have long since dried up, and employers must now work to reeducate employees about the real cost of health care.
Options to consider
1. Faced with health care cost increases that are more than triple the rate of general inflation, employers are being forced to shift a greater amount of the cost to employees. In 2002, mid-sized employers across the country responded to the health care dilemma with greater employee cost-sharing and plan redesign — about one-fourth raised the employee contribution percentages, and about one-fifth increased deductibles, co-pays, or out-of-pocket maximums.
2. Employers should also consider a more fundamental change — from co-payments to coinsurance. In most Health Maintenance Organizations (HMOs) — and some Preferred Provider Organizations (PPOs) — a trip to a doctor may cost only $10, regardless of the services provided. A prescription may only cost the patient $5, regardless of how expensive the drug really is. Though this has been convenient for employees it has "hidden" the cost of the health care services. With coinsurance, members pay a percentage of the charges rather than a fixed sum. That keeps people in touch with reality.
In recent years many PPOs switched from coinsurance to co-payments, at least for in-network services. We hope to see this trend swing back toward coinsurance.
3. For employers who don’t want to simply shift cost to employees, there are benefit plan designs that reward "smart shoppers." For example, tiered co-payments in prescription drug plans let employees feel the financial consequences of choosing — or allowing their doctor to choose — brand-name drugs over generics. Among mid-sized employers offering prescription drug card plans, the use of three-tiered co-payments — increasing co-pay amounts for generic, preferred brand, and non-preferred brand-name drugs — grew from 35% to 42% in 2002. With prescription drug benefit cost increases averaging 16.8 percent in 2002, it’s likely that more employers adopted a three-tiered co-payment design for 2003.
4. Consumer-directed health plans give employees responsibility for purchasing the health care services they need out of an employer-funded spending account, backed up by catastrophic coverage for major, unplanned expenses. With careful management, an employee could wind up "banking" money from the account over the years and, in some plans, use it to help pay for post-retirement medical coverage. While the largest employers were the first to adopt these plans, 15% of mid-sized employers say they are likely to move to a consumer-directed health plan in the next two years.
For mid-sized employers in this tough economy, the only viable way to avoid it may be for employees to take back more of the financial responsibility for their families’ health care.
About the survey: Marsh’s Mid-sized Employer Health Plans 2002 is based on responses from 1,333 employers with 10-999 employees. The study is drawn from a national, scientific survey conducted by Mercer Human Resource Consulting. Both Marsh and Mercer are operating companies of Marsh & McLennan Companies Inc. (MMC).
Susan A. Rabe, CLU, RHU, REBC is the employee benefit sales leader for the Milwaukee office of Marsh. Prior to joining Marsh, Rabe’s career included being an employee benefits and business development consultant, a director of managed care at a long-term acute care hospital and the key account executive with a national managed care organization.
