The Rising Cost of Health Care - MC Magazine Winter 2003 - Concrete Publications

The Rising Cost of Health Care

Precasters grapple with skyrocketing health insurance costs for employees.

Tammy Carr is fed up with health insurance. A necessary evil for any precaster who needs to recruit and retain a productive workforce, the price of providing such benefits has become a real burden on Arco Concrete, Inc., Fort Lupton, Colo., where Carr is corporate secretary and treasurer.

ARCO's workforce has doubled since the mid-'90s, and its need for good, affordable health insurance has grown right along with it. Carr reminisces about a time when an employee rate was about $80, and family rates hovered around $500. A slight increase came in the late '90s, but didn't come close to what the precaster has been dealing with for the last two years.

"Our increases were manageable until December 2000," says Carr. "We kept a decent policy in force at about $120 per employee. Then our rates skyrocketed to $220 per employee."

At that point, Carr looked around for alternatives and managed to shave some of the cost by shopping around and using a fully self-funded program in which a third party administers a plan. The employer picked up the costs of doctor and hospital visits below a preset deductible rate. But within a year, Arco's rates jumped above the $300 mark per employee. A switch to a new plan decreased the fee slightly, but the higher rates put a "huge drain on cash flow," according to Carr.

"In September 2002, we initiated a high-deductible, fully self-insured plan which put our rates back down to $160 per employee and family rates around $520," says Carr. Nonetheless, Arco's doctor and prescription copayments are high, and even an emergency room visit is subject to the high deductible "as if you were being admitted to the hospital," Carr laments.

And while Arco has wrangled with the health insurance issue for more than a decade, Carr says the current challenges far surpass anything the precaster has dealt with in the past. "It's very stressful," says Carr, who views health insurance as an extremely important benefit for employees. "On a scale of one to 10, it's an eight. Our employees work hard enough to earn their wages and should not have to worry about what will and won't be covered when they need the insurance. Nor should they have to make a possible life-threatening decision based on dollars."

The last thing Carr wants is for Arco's employees to be worried about whether their employer is skimping on their coverage, though these days the dividing line between a "good" and "bad" policy is more blurred than ever. Still, the company presses on, hoping for a time when rates come back to earth - all in the name of keeping employees healthy and happy. "Without our employees, we wouldn't have a company," says Carr. "But on the other hand, small businesses like ours cannot continue to absorb these costs without risking a serious dip in the cash flow essential to keeping the business going."

Hitting the pocketbook
Health care costs are on the rise nationwide, and small companies have been hit hardest, according to a recent report from the Kaiser Family Foundation in Washington. Small companies like Arco saw 12.5 percent increases from 2000 to 2001, while the smallest companies - those with three to nine workers - saw the largest increase of 16.5 percent. Larger corporations with more than 200 workers saw their premiums increase 10.2 percent.

While the Kaiser statistics represent all industries across the United States, they mirror the precast concrete industry's averages. The National Precast Concrete Association conducted a survey of its member producer plants, and the findings are reported in the sidebar "Health Insurance Survey Results."

From spring 2001 to spring 2002, there was an astounding 12.7 percent increase in monthly premiums for employer-sponsored health insurance that drove average annual premiums shared by employers and employees to $3,060 for single coverage and $7,954 for family coverage, according to the Kaiser report. This was the highest annual increase in premiums since 1990, when premiums increased 14 percent.

These skyrocketing costs are forcing small businesses to rethink whether they should offer health insurance at all, according to Kaiser, which found that just 56 percent of small businesses with three to nine workers offers coverage, compared with 72 percent of businesses with 10-24 employees. Among small companies that do not offer coverage, 72 percent say cost is a very important reason.

Until five years ago, Colorado Precast Concrete, Inc., in Loveland, Colo.,-based was one of those firms that didn't offer coverage. Today, with 70 employees and a thriving business depending employee health, such benefits are a must, according to Jon Osman, the company's accounting manager.

Colorado Precast's first foray into health benefits took about a year to catch on with workers. "A lot of our guys just didn't use medical insurance, but we've seen that increase since then," says Osman. "The benefit for us is that now they get health-related issues taken care of, instead of letting them fester."

Osman says Colorado Precast has watched its premiums rise slowly over the last five years, and that it regularly "tweaks" its policy to deal with the escalating costs. That usually means changing insurance providers and dropping less necessary benefits.

The first year, for example, the company offered medical, dental and vision - picking up the full cost of the package. In 1999 it dropped vision coverage, and dental followed in 2000. The changes are "all in the name of controlling costs and at least keeping the main coverage in place for big-dollar items," says Osman.

Colorado Precast, which pays out about 95 percent of the cost of health insurance for its employees, is now on a program that refunds a portion of premiums if usage falls within a specified range. Any excess at the end of the year becomes part of a self-funded plan. The company pays monthly premiums, but it gets a percentage back at the end of the year.

Precasters' plight
It's no secret that precasters rely heavily on their labor forces to keep the wheels turning. Because of this, health insurance has become a major cost of keeping those employees on the job. Chuck Worcester, owner of Hometown Insurance Agency in Milford, N.H., works often with small manufacturers and says health insurance has rapidly moved to the forefront for most businesses over the last decade, right along with workers' compensation insurance.

"Manufacturers rely on a steady workforce for the stability of their companies," says Worcester. "As a result, there's a higher demand on the small manufacturer to provide health benefits to employees. In return, they get a stable workforce that has little clue about the actual costs of their health insurance.

"Employees aren't cognizant of the rising health care costs since their copayments are the same, and they don't see the other 90 percent of the bill," says Worcester. "Employers have to figure out how to help shift some of that cost to the employee so that the employee is making judicious use of the medical system and not being wasteful."

According to David Cowles, executive vice president at Benemax, a benefits management firm in Medfield, Mass., precasters have to grapple with how to provide their plant personnel with an easy-to-use health care plan with good benefits. Balancing that desire with rising costs can be difficult for small precasters unaccustomed to double-digit insurance increases.

"Precasters have a tougher time finding ways to deal with the rising costs," says Cowles, who compares the manufacturing and retail industries - the latter of which is not largely known for its benefits packages. "For retailers to cut back and eliminate benefits would not be critical to their business prospects. The small manufacturer, however, has the hardest row to hoe because employment is competitive in that area, and the employee base is used to a fairly rich turnkey health benefits product."

What to do?
Experts agree that reigning in skyrocketing health insurance costs isn't easy for any business right now or into the near future, when premiums are expected to rise even more. Still, most small-business owners know that - like it or not - offering health insurance is just good business.

"In today's environment an attractive health benefits package is really a key tool for employers seeking to recruit and retain employees," says Patrick Kerl, regional sales manager for UNICARE Life and Health Insurance, based in Thousand Oaks, Calif.

Kerl suggests medical savings plans as a viable option for smaller companies that can't afford traditional plans. The option allows employers to set a dollar amount on spending. Any premium amount above that is the responsibility of the employee. "This allows employers to budget ahead for health care," says Kerl, "and predict exactly what their expenses will be."

Management consultant and health care economist Nan Andrews Amish of Big Picture Health Care in La Granda, Calif., cautions employers to seek out high-quality care and not just the cheapest solution. "Most patients who have had a health care concern equate choice with quality," says Amish. "They want to stay with their current doctors, and they want to have the choice in whom they see."

One way to ensure that happens, says Amish, is to opt for large deductible plans with high choice. That helps keep the premiums reasonable, ensures major medical bills are paid for and allows employees to stay with their current health providers.

Amish also suggests allocating $500 per employee per year to a flexible medical account, which employees can use for the deductible or anything that might not be covered, such as a complete physical, chiropractic, acupuncture or psychotherapy. Give employees the option to add to the flexible account, she says, which transfers additional medical costs to pre-tax dollars from after-tax dollars.

"The only glitch is that if you have funds in the account that are not used at the end of the year, they are lost," says Amish, adding that the $500 adds up to less than $50 per month per employee. "It's not enough to decrease the deductible substantially, but it is enough to soften the blow should an employee have multiple health issues come up at one time."

Employee education can also ease the crunch, says Cowles, adding that the current system of buying as much health care as you want and letting someone else foot the bill is becoming obsolete, especially at the small to mid-sized business level.

"Employees must share in the risk of claims and cost, especially those 20 percent of employees who file 80 percent of the claims," says Cowles, who advises precasters to take out low-cost, high-deductible policies ($1,000 to $5,000) and supplement them with employer-funded benefits (similar to what Colorado Precast uses) through programs like Benemax's Virtual Indemnity Plan (VIP).

Self-funded health insurance plans can make good sense for companies, which then rely on third-party administrators to process claims and manage enrollment and benefits for them. Each self-funded group provides the funds from which its employees' claims are paid. The precaster, for example, who takes out a $1,000 deductible policy can still tell employees that claims lower than the deductible will be paid in full.

A company like Benemax then manages the employer's responsibilities, sending checks to the hospital or doctor from the employer's funds. "From the employee's point of view it's no different than having fully insured benefits," says Cowles, "but from the employer's point of view, it can be dramatically cheaper."

Higher rates, more involvement
Going forward, Worcester predicts continued price escalation combined with a more "shared" environment between the employee and the employers, due mainly to astronomical costs that smaller businesses simply cannot absorb. An added benefit of getting employees involved, says Worcester, is the curbing of overutilization that results when employees have to pick up some of the cost.

Whether you're considering an innovative program or sticking to a traditional HMO (Health Maintenance Organization) or PPO (Preferred Provider Organization) package, Worcester says all precast concrete companies should not only evaluate how much they as employers can pay, but also how much their employees can afford to cover. Then, it's a matter of tailoring a benefits program - comprised of deductibles and copays - that creates a happy medium between affordability and ability to pay.

"Health insurance isn't something that precasters can just keep renewing year after year without regard to cost and level of benefits anymore," says Worcester. "They must give their policies an annual review with their brokers or providers, then determine which balance is right for them."

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