| Healthcare
Overview
By K. Robert Wendel Chris
Hernandez's jaw nearly hit the floor when he opened up the company's employee
health insurance renewal notice in November.
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Health insurance costs for his 80 employees had just increased 67 percent
from the previous year. Add that to previous yearly hikes of 25 percent. Now his
workforce was facing $1,300 a month bill, out of pocket, to maintain their families'
health insurance.
"That $1,300 a month is more than most people's
home mortgages," noted Hernandez, president of the family owned firm Hernandez
Companies Inc. in Phoenix.
The big price jump puts Hernandez, along with
many other small companies, between a rock and a hard place. Although a 67 percent
increase is the exception rather than the norm, most small contractors are reporting
a 10 to 25 percent hike in health insurance. Larger companies are seeing 9 to
15 percent increases.
"We have definitely seen our health insurance
expenses increase and there's no end to it. It just keeps going up and up,"
said Drew Giuliani, a principal with Century Mechanical in Albuquerque. "We
have to absorb the cost or give it up and we are not about to do that. Our employees
and their families depend on it."
The high price also precludes many
employees' participating in the health plan, but without at least 75 percent employee
participation, companies won't be able to offer any health insurance at all.
Without
health insurance, firms won't be able to attract and retain quality workers. Without
quality workers it gets tougher to land jobs. Without jobs, the company goes under. Industry
experts provided two scenarios for the jump in Hernandez's premiums. On one hand,
with such a small employee base, just one catastrophic medical emergency can drive
prices up. On the other hand, the health insurance company may have lost its reinsurance.
To exit the market cleanly, the health insurance must rid its rolls of all customers
or be barred from re entering the market for three to five years.
There
are many other factors in the recent increases. Escalating malpractice insurance
for doctors is just one issue driving up prices.
"As a doctor, you
have to practice defensive medicine. When an OB GYN delivers a baby, they can
be held liable for something that happened at birth until age 18," said Eddie
Burkhart, a principal with Benefit Plan Consultants in Las Vegas. "The cost
to practice medicine is higher, so they have to change the contract with the insurance
company to get higher reimbursements. The insurance company passes the higher
rate onto the employer, who passes some onto the employee."
Insurance
companies have also changed their rating system. Many years ago, insurers relied
on a "community rating" experience ratio, where the claims from a particular
community set the guidelines for premium pricing. Healthier communities got cheaper
insurance. But with changes in the insurance industry made since 1998, insurers
now base the rates wholly on an individual firms' loss experience.
"The
lower your experience ratio, the better deal you get on insurance, and that's
the irony," said Arizona State University Professor Bradford Kirkman-Liff.
"You can have a healthy group of employees with affordable insurance, but
the minute one has a serious illness, you can expect to see your premium increase
next year."
Perhaps the largest factor in premiums increasing at five
times the rate of inflation is that the insurance industry is at the top of its
cycle. During the 1990s, insurance companies were competing for customers, but
now with lower reserves and the incursion of more costs, the premiums have risen
dramatically. An aging population, new, expensive technologies and higher prescription
costs are other factors.
So what's a small business owner to do? Industry
experts provided several suggestions. Join an association health plan.
With a larger pool of risk, costs go down with the scales of economy.
That's what attracted Peter Kunka of Phoenix's Kunka Engineering to the American
Council of Engineering Companies health plan. Kunka pays around $1,000 a month
for each one of his 18 employees. He feels the expense is worth it, but understandably
cringes each month when he writes the check.
"It's one of the toughest
things in business and I never imagined the costs would so astronomical,"
Kunka said. "We've been in the plan since 1973 and the ACEC has always provided
great coverage and we feel comfortable with them, but at some point, we may have
to raise deductibles."Shop around with an experienced broker who knows
the market.
This may not be possible in all markets with a shrinking pool
of insurance companies, but it's one of the least painful ways to cut healthcare
insurance.
Find a broker you are comfortable with and review your insurance
portfolio each month. That way, you can somewhat anticipate your costs for next
year.
"The key to everything is aligning yourself with a broker or
consultant who knows what is going on in the market so you get the best bang for
your buck, and shop around on a regular basis,' Burkhart said.Negotiate
When
their insurance company wanted to raise the rates for the 189-employee firm of
Phoenix-base CMX Group by 20 percent, Cheri Hanson put her foot down. Her advice?
"Play
real hardball. With the number of employees and the amount that we pay versus
our claims, the insurance company was making real money off us," said Hanson,
CMX's human resource manager. "Look at the cost paid out versus what your
claims are. That difference is what we fight for."Start a wellness
plan
With healthier employees, the loss experience ratio falls, resulting
in cheaper premiums. By establishing a wellness plan, you can educate your employees
on how their life style choices can affect the firms' insurance rates. Most insurers
can aid or support a company wellness plan.
"If our employees hop
into the boat with us, take the wellness classes and look at their own situations
and take actions to reduce costs, we all share in the savings," said CFO
Steve Lords of Las Vegas' Martin Harris Construction. The firm is in the process
of rolling out their own wellness plan supported by Sierra Health.Raise
the deductible/Tier model
If it's a choice between no insurance or higher
deductibles, look at a higher deductible. Although this hits lower income employees
the hardest, employers can take some of the sting out by offering Health Savings
Accounts. The accounts allow employees to deduct before taxes up to $5,000 annually,
lessening an employee's tax burden. Employees can use the accounts to pay for
the deductible, co-pays and out-of-pocket costs. The catch? The employee has to
"use it or lose it" by Dec. 31 of each year. However, legislation is
working through Congress that would allow people to rollover their accounts into
the next year.
A tiered prescription model can also cut costs. Rather than
a set co pay for prescriptions, employees can chose a generic drug for the cheapest
option. A drug still under patent would cost more, while a drug not on a formulary
list would cost still more.Self-insure
This option is generally
for larger companies with many employees. Employers establish a trust through
which medical expenses are paid. The trust can be funded with a variety of methods.
If the trust is large enough, interest income could be enough to meet claims.
Employees can also pay into the trust, rather than a traditional insurance company.
At Arizona-based Sundt, which is self-insured, each man-hour on a job is assessed
a "burden rate" that is a fixed cost of business and automatically calculated
into any project bid. That burden rate funds the trust. After operating for three
years, the company found the trust wasn't replenishing itself. The company recently
implemented a three-tiered system, with the basic level still free. If employees
want more comprehensive coverage, they pay for it out-of-pocket.
"We
believe that everyone of our employee-owners deserves health insurance,"
said Richard Condit, senior vice president and chief administration officer. "None
of us wanted to go this way, but it comes down to managing costs in an employee-owned
company."
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